Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
 	 	 	
þ	 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended June 30, 2005.
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 1-8957
ALASKA AIR GROUP, INC.
(Exact name of registrant as specified in its charter)
 	 	 	
Delaware	 	91-1292054	
(State or other jurisdiction of	 	(I.R.S. Employer	
incorporation or organization)	 	Identification No.)	
19300 Pacific Highway South, Seattle, Washington 98188
(Address of principal executive offices)
Registrant’s telephone number, including area code: (206) 392-5040
          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ  No  o
          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ  No  o
APPLICABLE ONLY TO CORPORATE ISSUERS:
          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
          The registrant has 27,231,825 common shares, par value $1.00, outstanding at June 30, 2005.

 

TABLE OF CONTENTS
 	 	
PART I. FINANCIAL INFORMATION	 	
 	 	
Item 1. Condensed Consolidated Financial Statements	 	
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	
Item 3. Quantitative and Qualitative Disclosures About Market Risk	 	
Item 4. Controls and Procedures	 	
PART II. OTHER INFORMATION	 	
Item 1. Legal Proceedings	 	
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	 	
Item 3. Default on Senior Securities	 	
Item 4. Submission of Matters to a Vote of Security Holders	 	
Item 5. Other Information	 	
Item 6. Exhibits	 	
Signatures	 	
 EXHIBIT 10.1	
 EXHIBIT 10.2	
 EXHIBIT 31.1	
 EXHIBIT 31.2	
 EXHIBIT 32.1	
 EXHIBIT 32.2	
Cautionary Note regarding Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions, although not all forward-looking statements contain these identifying words. Some of the things that could cause our actual results to differ from our expectations are: changes in our operating costs including fuel, which can be volatile; the competitive environment and other trends in our industry; our ability to meet our cost reduction goals; labor disputes; economic conditions; our reliance on automated systems; increases in government fees and taxes; actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities; insurance costs; changes in laws and regulations; liability and other claims asserted against us; operational disruptions; compliance with financial covenants; our ability to attract and retain qualified personnel; third-party vendors and partners; continuing operating losses; our significant indebtedness; and downgrades of our credit ratings and availability of financing. For a discussion of these and other risk factors, see Item 7 of the Company’s Annual Report for the year ended December 31, 2004 on Form 10-K under the caption “Risk Factors.” All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.
2

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.
ASSETS
 	 	 	 	 	 	 	 	 	
 	 	June 30,	 	 	December 31,	 	
(In Millions)	 	2005	 	 	2004	 	
Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	31.2	 	 	$	28.0	 	
Marketable securities	 	 	694.9	 	 	 	845.9	 	
Receivables — net	 	 	125.8	 	 	 	99.4	 	
Inventories and supplies — net	 	 	46.1	 	 	 	42.0	 	
Deferred income taxes	 	 	75.5	 	 	 	74.7	 	
Fuel hedge contracts	 	 	123.6	 	 	 	65.7	 	
Prepaid expenses and other current assets	 	 	102.0	 	 	 	86.6	 	
 	 	 	 	 	 	 	
Total Current Assets	 	 	1,199.1	 	 	 	1,242.3	 	

Property and Equipment	 	 	 	 	 	 	 	 	
Aircraft and other flight equipment	 	 	2,236.7	 	 	 	2,294.3	 	
Other property and equipment	 	 	471.6	 	 	 	471.8	 	
Deposits for future flight equipment	 	 	203.6	 	 	 	67.1	 	
 	 	 	 	 	 	 	
 	 	 	2,911.9	 	 	 	2,833.2	 	
Less accumulated depreciation and amortization	 	 	979.9	 	 	 	924.9	 	
 	 	 	 	 	 	 	
Total Property and Equipment — Net	 	 	1,932.0	 	 	 	1,908.3	 	

Intangible Assets	 	 	38.6	 	 	 	38.6	 	

Fuel Hedge Contracts	 	 	70.9	 	 	 	30.3	 	

Other Assets	 	 	129.9	 	 	 	115.5	 	

Total Assets	 	$	3,370.5	 	 	$	3,335.0	 	
 	 	 	 	 	 	 	
See accompanying notes to condensed consolidated financial statements.
3

Table of Contents
CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.
LIABILITIES AND SHAREHOLDERS’ EQUITY
 	 	 	 	 	 	 	 	 	
 	 	June 30,	 	 	December 31,	 	
(In Millions)	 	2005	 	 	2004	 	
Current Liabilities	 	 	 	 	 	 	 	 	
Accounts payable	 	$	132.6	 	 	$	143.8	 	
Accrued aircraft rent	 	 	58.5	 	 	 	75.3	 	
Accrued wages, vacation and payroll taxes	 	 	111.3	 	 	 	133.0	 	
Other accrued liabilities	 	 	350.9	 	 	 	301.6	 	
Air traffic liability	 	 	375.6	 	 	 	250.2	 	
Current portion of long-term debt and capital lease obligations	 	 	57.0	 	 	 	53.4	 	
 	 	 	 	 	 	 	
Total Current Liabilities	 	 	1,085.9	 	 	 	957.3	 	

Long-Term Debt and Capital Lease Obligations	 	 	979.5	 	 	 	989.6	 	
 	 	 	 	 	 	 	
Other Liabilities and Credits	 	 	 	 	 	 	 	 	
Deferred income taxes	 	 	137.0	 	 	 	173.6	 	
Deferred revenue	 	 	313.8	 	 	 	304.7	 	
Other liabilities	 	 	253.2	 	 	 	245.0	 	
 	 	 	 	 	 	 	
 	 	 	704.0	 	 	 	723.3	 	
 	 	 	 	 	 	 	
Commitments and Contingencies	 	 	 	 	 	 	 	 	
Shareholders’ Equity	 	 	 	 	 	 	 	 	
Preferred stock, $1 par value	 	 	 	 	 	 	 	 	
Authorized: 5,000,000 shares, none issued or outstanding	 	 	—	 	 	 	—	 	
Common stock, $1 par value	 	 	 	 	 	 	 	 	
Authorized: 100,000,000 shares	 	 	 	 	 	 	 	 	
Issued: 2005 -29,880,002 shares
2004 - 29,777,388 shares	 	 	29.9	 	 	 	29.8	 	
Capital in excess of par value	 	 	498.5	 	 	 	496.5	 	
Treasury stock, at cost: 2005 - 2,648,177 shares
2004 - 2,651,368 shares	 	 	(60.4	)	 	 	(60.5	)	
Deferred stock-based compensation	 	 	(2.8	)	 	 	(3.4	)	
Accumulated other comprehensive loss	 	 	(85.0	)	 	 	(81.6	)	
Retained earnings	 	 	220.9	 	 	 	284.0	 	
 	 	 	 	 	 	 	
 	 	 	601.1	 	 	 	664.8	 	
 	 	 	 	 	 	 	
Total Liabilities and Shareholders’ Equity	 	$	3,370.5	 	 	$	3,335.0	 	
 	 	 	 	 	 	 	
See accompanying notes to condensed consolidated financial statements.
4

Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Alaska Air Group, Inc.
 	 	 	 	 	 	 	 	 	
Three Months Ended June 30	 	 	 	 	 	 	
(In Millions Except Per Share Amounts)	 	2005	 	 	2004	 	
Operating Revenues	 	 	 	 	 	 	 	 	
Passenger	 	$	697.5	 	 	$	637.9	 	
Freight and mail	 	 	24.9	 	 	 	24.2	 	
Other — net	 	 	34.1	 	 	 	39.2	 	
 	 	 	 	 	 	 	
Total Operating Revenues	 	 	756.5	 	 	 	701.3	 	
 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	
Wages and benefits	 	 	227.3	 	 	 	246.4	 	
Contracted services	 	 	34.8	 	 	 	31.9	 	
Aircraft fuel	 	 	175.2	 	 	 	128.6	 	
Aircraft maintenance	 	 	58.2	 	 	 	50.1	 	
Aircraft rent	 	 	47.0	 	 	 	47.0	 	
Food and beverage service	 	 	12.1	 	 	 	13.6	 	
Other selling expenses and commissions	 	 	37.8	 	 	 	35.6	 	
Depreciation and amortization	 	 	35.3	 	 	 	34.0	 	
Landing fees and other rentals	 	 	51.9	 	 	 	46.6	 	
Other	 	 	53.1	 	 	 	50.9	 	
Restructuring charges	 	 	14.7	 	 	 	—	 	
Impairment of aircraft and related spare parts	 	 	—	 	 	 	37.2	 	
 	 	 	 	 	 	 	
Total Operating Expenses	 	 	747.4	 	 	 	721.9	 	
 	 	 	 	 	 	 	
Operating Income (Loss)	 	 	9.1	 	 	 	(20.6	)	
 	 	 	 	 	 	 	
Nonoperating Income (Expense)	 	 	 	 	 	 	 	 	
Interest income	 	 	7.1	 	 	 	6.1	 	
Interest expense	 	 	(15.3	)	 	 	(12.6	)	
Interest capitalized	 	 	1.3	 	 	 	0.3	 	
Fuel hedging gains	 	 	27.5	 	 	 	25.9	 	
Other — net	 	 	—	 	 	 	0.2	 	
 	 	 	 	 	 	 	
 	 	 	20.6	 	 	 	19.9	 	
 	 	 	 	 	 	 	
Income (loss) before income tax	 	 	29.7	 	 	 	(0.7	)	
Income tax expense	 	 	12.3	 	 	 	1.0	 	
 	 	 	 	 	 	 	
Net Income (Loss)	 	$	17.4	 	 	$	(1.7	)	

Basic Earnings (Loss) Per Share	 	$	0.64	 	 	$	(0.06	)	
Diluted Earnings (Loss) Per Share	 	$	0.56	 	 	$	(0.06	)	
 	 	 	 	 	 	 	 	 	
Pro Forma Results (assuming change in method of accounting was applied retrospectively):	 	 	 	 	 	 	 	 	
Pro forma net income	 	NA	 	$	2.2	 	
 	 	 	 	 	 	 	
Pro Forma Basic and Diluted Income Per Share	 	NA	 	$	0.08	 	
 	 	 	 	 	 	 	
Shares used for computation:	 	 	 	 	 	 	 	 	
Basic	 	 	27.200	 	 	 	26.818	 	
Diluted	 	 	33.273	 	 	 	26.818	 	
See accompanying notes to condensed consolidated financial statements.
5

Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Alaska Air Group, Inc.
 	 	 	 	 	 	 	 	 	
Six Months Ended June 30	 	 	 	 	 	 	
(In Millions Except Per Share Amounts)	 	2005	 	 	2004	 	
Operating Revenues	 	 	 	 	 	 	 	 	
Passenger	 	$	1,284.5	 	 	$	1,191.7	 	
Freight and mail	 	 	45.2	 	 	 	42.8	 	
Other — net	 	 	69.3	 	 	 	64.8	 	
 	 	 	 	 	 	 	
Total Operating Revenues	 	 	1,399.0	 	 	 	1,299.3	 	
 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	
Wages and benefits	 	 	472.0	 	 	 	488.2	 	
Contracted services	 	 	65.4	 	 	 	59.4	 	
Aircraft fuel	 	 	321.9	 	 	 	236.4	 	
Aircraft maintenance	 	 	119.4	 	 	 	100.9	 	
Aircraft rent	 	 	93.1	 	 	 	94.8	 	
Food and beverage service	 	 	23.6	 	 	 	25.2	 	
Other selling expenses and commissions	 	 	75.2	 	 	 	74.0	 	
Depreciation and amortization	 	 	69.5	 	 	 	70.1	 	
Landing fees and other rentals	 	 	104.1	 	 	 	89.2	 	
Other	 	 	104.5	 	 	 	100.6	 	
Restructuring charges	 	 	22.1	 	 	 	—	 	
Impairment of aircraft and related spare parts	 	 	—	 	 	 	39.6	 	
 	 	 	 	 	 	 	
Total Operating Expenses	 	 	1,470.8	 	 	 	1,378.4	 	
 	 	 	 	 	 	 	
Operating Loss	 	 	(71.8	)	 	 	(79.1	)	
 	 	 	 	 	 	 	
Nonoperating Income (Expense)	 	 	 	 	 	 	 	 	
Interest income	 	 	13.0	 	 	 	10.7	 	
Interest expense	 	 	(29.4	)	 	 	(25.3	)	
Interest capitalized	 	 	2.1	 	 	 	0.6	 	
Fuel hedging gains	 	 	135.7	 	 	 	26.4	 	
Other — net	 	 	(2.9	)	 	 	(0.2	)	
 	 	 	 	 	 	 	
 	 	 	118.5	 	 	 	12.2	 	
 	 	 	 	 	 	 	
Income (loss) before income tax and accounting change	 	 	46.7	 	 	 	(66.9	)	
Income tax expense (benefit)	 	 	19.4	 	 	 	(22.5	)	
 	 	 	 	 	 	 	
Income (loss) before accounting change	 	 	27.3	 	 	 	(44.4	)	
Cumulative effect of accounting change, net of tax	 	 	(90.4	)	 	 	—	 	
 	 	 	 	 	 	 	
Net Loss	 	$	(63.1	)	 	$	(44.4	)	
 	 	 	 	 	 	 	
Basic Earnings (Loss) Per Share:	 	 	 	 	 	 	 	 	
Income (loss) before accounting change	 	$	1.01	 	 	$	(1.66	)	
Cumulative effect of accounting change	 	 	(3.33	)	 	 	—	 	
 	 	 	 	 	 	 	
Net Loss Per Share	 	$	(2.32	)	 	$	(1.66	)	
 	 	 	 	 	 	 	
Diluted Earnings (Loss) Per Share:	 	 	 	 	 	 	 	 	
Income (loss) before accounting change	 	$	0.90	 	 	$	(1.66	)	
Cumulative effect of accounting change	 	 	(2.72	)	 	 	—	 	
 	 	 	 	 	 	 	
Net Loss Per Share	 	$	(1.82	)	 	$	(1.66	)	
 	 	 	 	 	 	 	
Pro Forma Results (assuming change in method of accounting was applied retrospectively):	 	 	 	 	 	 	 	 	
Pro forma net loss	 	NA	 	$	(38.3	)	
 	 	 	 	 	 	 	
Pro Forma Basic and Diluted Loss Per Share	 	NA	 	$	(1.43	)	
 	 	 	 	 	 	 	
Shares used for computation:	 	 	 	 	 	 	 	 	
Basic	 	 	27.173	 	 	 	26.798	 	
Diluted	 	 	33.256	 	 	 	26.798	 	
See accompanying notes to condensed consolidated financial statements.
6

Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
Alaska Air Group, Inc.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	 	 	 	
 	 	Common	 	 	 	 	 	 	Capital in	 	 	Treasury	 	 	Deferred	 	 	Other	 	 	 	 	 	 	 	
 	 	Shares	 	 	Common	 	 	Excess of	 	 	Stock,	 	 	Stock-Based	 	 	Comprehensive	 	 	Retained	 	 	 	 	
(In Millions)	 	Outstanding	 	 	Stock	 	 	Par Value	 	 	at Cost	 	 	Compensation	 	 	Income (Loss)	 	 	Earnings	 	 	Total	 	
Balances at December 31, 2004:	 	 	27.126	 	 	$	29.8	 	 	$	496.5	 	 	$	(60.5	)	 	$	(3.4	)	 	$	(81.6	)	 	$	284.0	 	 	$	664.8	 	
 	 	 	 	
Net loss for the six months ended June 30, 2005	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(63.1	)	 	 	(63.1	)	
Other comprehensive income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Related to marketable securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in fair value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(0.5	)	 	 	 	 	 	 	 	 	
Reclassification to earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.5	 	 	 	 	 	 	 	 	 	
Income tax effect	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(0.7	)	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.3	 	 	 	 	 	 	 	1.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Related to fuel hedges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reclassification to earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(7.4	)	 	 	 	 	 	 	 	 	
Income tax effect	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.7	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(4.7	)	 	 	 	 	 	 	(4.7	)	

Total comprehensive loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(66.5	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization of deferred stock-based compensation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.6	 	 	 	 	 	 	 	 	 	 	 	0.6	 	
Treasury stock sales	 	 	0.003	 	 	 	—	 	 	 	—	 	 	 	0.1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.1	 	
Stock issued for employee stock purchase plan	 	 	0.066	 	 	 	0.1	 	 	 	1.2	 	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.3	 	
Stock issued under stock plans	 	 	0.037	 	 	 	—	 	 	 	0.8	 	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.8	 	
 	 	
Balances at June 30, 2005	 	 	27.232	 	 	$	29.9	 	 	$	498.5	 	 	$	(60.4	)	 	$	(2.8	)	 	$	(85.0	)	 	$	220.9	 	 	$	601.1	 	
 	 	
See accompanying notes to condensed consolidated financial statements.
7

Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Alaska Air Group, Inc.
 	 	 	 	 	 	 	 	 	
Six Months Ended June 30 (In Millions)	 	2005	 	 	2004	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	
Net loss	 	$	(63.1	)	 	$	(44.4	)	
Adjustments to reconcile net loss to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Cumulative effect of accounting change, net of tax effect	 	 	90.4	 	 	 	—	 	
Restructuring charges	 	 	22.1	 	 	 	—	 	
Impairment of aircraft and related spare parts	 	 	—	 	 	 	39.6	 	
Depreciation and amortization	 	 	69.5	 	 	 	70.1	 	
Amortization of airframe and engine overhauls	 	 	—	 	 	 	35.1	 	
Stock-based compensation	 	 	0.6	 	 	 	—	 	
Changes in fair values of open fuel hedge contracts	 	 	(105.9	)	 	 	(24.1	)	
Loss on sale of assets	 	 	1.4	 	 	 	1.4	 	
Changes in deferred income taxes	 	 	16.9	 	 	 	(13.2	)	
Increase in receivables — net	 	 	(26.4	)	 	 	(0.4	)	
Increase in prepaid expenses and other current assets	 	 	(20.0	)	 	 	(24.1	)	
Increase in air traffic liability	 	 	125.4	 	 	 	103.9	 	
Increase (decrease) in other current liabilities	 	 	(13.6	)	 	 	27.4	 	
Increase in deferred revenue and other-net	 	 	(7.0	)	 	 	17.5	 	
 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 	90.3	 	 	 	188.8	 	
 	 	 	 	 	 	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	
Proceeds from disposition of assets	 	 	3.4	 	 	 	4.4	 	
Purchases of marketable securities	 	 	(598.3	)	 	 	(440.3	)	
Sales and maturities of marketable securities	 	 	751.3	 	 	 	396.6	 	
Property and equipment additions:	 	 	 	 	 	 	 	 	
Aircraft purchase deposits	 	 	(152.8	)	 	 	(5.5	)	
Capitalized overhauls	 	 	—	 	 	 	(24.5	)	
Aircraft and other flight equipment	 	 	(73.3	)	 	 	(50.3	)	
Other property and equipment	 	 	(21.6	)	 	 	(22.4	)	
Aircraft deposits returned	 	 	7.5	 	 	 	14.0	 	
Restricted deposits and other	 	 	1.0	 	 	 	—	 	
 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(82.8	)	 	 	(128.0	)	
 	 	 	 	 	 	 	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	
Proceeds from issuance of long-term debt, net	 	 	20.0	 	 	 	94.6	 	
Long-term debt and capital lease payments	 	 	(26.5	)	 	 	(144.8	)	
Proceeds from issuance of common stock	 	 	2.2	 	 	 	1.6	 	
 	 	 	 	 	 	 	
Net cash used in financing activities	 	 	(4.3	)	 	 	(48.6	)	
 	 	 	 	 	 	 	
Net change in cash and cash equivalents	 	 	3.2	 	 	 	12.2	 	
Cash and cash equivalents at beginning of period	 	 	28.0	 	 	 	158.8	 	
 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	31.2	 	 	$	171.0	 	
 	 	 	 	 	 	 	
Supplemental disclosure of cash paid (refunded) during the period for:	 	 	 	 	 	 	 	 	
Interest (net of amount capitalized)	 	$	26.0	 	 	$	24.7	 	
Income taxes	 	 	1.1	 	 	 	(42.9	)	
Noncash investing and financing activities:	 	 	 	 	 	 	 	 	
Assets acquired under long-term debt and capital leases	 	 	—	 	 	 	30.6	 	
Credit received for flight deposits deferred in other liabilities	 	 	9.7	 	 	 	—	 	
See accompanying notes to condensed consolidated financial statements.
8

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Alaska Air Group, Inc.
Note 1. Basis of Presentation and Significant Accounting Policies
Organization and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Alaska Air Group, Inc. (Air Group or the Company) include the accounts of the parent company, Alaska Air Group, Inc., and its principal subsidiaries, Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon), through which the Company conducts substantially all of its operations. These interim condensed consolidated financial statements are unaudited and should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. In the opinion of management, all adjustments have been made which are necessary to present fairly the Company’s financial position as of June 30, 2005, as well as the results of operations for the three and six months ended June 30, 2004 and 2005. The adjustments made were of a normal recurring nature.
The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In preparing these condensed consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses. Significant estimates made include assumptions used to record liabilities, expenses and revenues associated with the Company’s Mileage Plan, amounts paid to lessors upon aircraft lease terminations, the fair market value of surplus or impaired aircraft, engines and parts, assumptions used in the calculations of pension expense in the Company’s defined benefit plans, and the amounts of certain accrued liabilities. Actual results may differ from the Company’s estimates.
Reclassifications
Certain reclassifications have been made to conform the prior year’s data to the current format.
Stock Options
The Company applies the intrinsic value method in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations in accounting for stock options.
The following table represents the pro forma net income (loss) before accounting change and pro forma net income (loss) per share (EPS) had compensation cost for the Company’s stock options been determined in accordance with Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation.” In accordance with SFAS No. 123, the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model and then amortized ratably over the vesting period (in millions, except per share amounts):
9

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	 	Six Months Ended	 	
 	 	June 30,	 	 	June 30,	 	
 	 	2005	 	 	2004	 	 	2005	 	 	2004	 	
 	
Income (loss) before accounting change As reported	 	$	17.4	 	 	$	(1.7	)	 	$	27.3	 	 	$	(44.4	)	
Add: Total stock-based compensation expense recognized under the intrinsic value-based method, net of related tax	 	 	0.2	 	 	 	—	 	 	 	0.4	 	 	 	—	 	
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects	 	 	(1.3	)	 	 	(1.2	)	 	 	(2.3	)	 	 	(2.3	)	
 	
Pro forma income (loss) before accounting change	 	$	16.3	 	 	$	(2.9	)	 	$	25.4	 	 	$	(46.7	)	

Net income (loss) as reported	 	$	17.4	 	 	$	(1.7	)	 	$	(63.1	)	 	$	(44.4	)	
Add: Total stock-based compensation expense recognized under the intrinsic value-based method, net of related tax	 	 	0.2	 	 	 	—	 	 	 	0.4	 	 	 	—	 	
Deduct: Total stock-based compensation expense determined under fair value- based methods for all awards, net of related tax	 	 	(1.3	)	 	 	(1.2	)	 	 	(2.3	)	 	 	(2.3	)	
 	
Pro forma net income (loss)	 	$	16.3	 	 	$	(2.9	)	 	$	(65.0	)	 	$	(46.7	)	

Basic EPS before accounting change:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	 	$	0.64	 	 	$	(0.06	)	 	$	1.01	 	 	$	(1.66	)	
Pro forma	 	$	0.60	 	 	 	(0.11	)	 	$	0.93	 	 	 	(1.74	)	
Basic EPS:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	 	$	0.64	 	 	$	(0.06	)	 	$	(2.32	)	 	$	(1.66	)	
Pro forma	 	$	0.60	 	 	 	(0.11	)	 	$	(2.39	)	 	 	(1.74	)	
Diluted EPS before accounting change:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	 	$	0.56	 	 	$	(0.06	)	 	$	0.90	 	 	$	(1.66	)	
Pro forma	 	$	0.53	 	 	 	(0.11	)	 	$	0.84	 	 	$	(1.74	)	
Diluted EPS:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	 	$	0.56	 	 	$	(0.06	)	 	$	(1.82	)	 	$	(1.66	)	
Pro forma	 	$	0.53	 	 	 	(0.11	)	 	$	(1.87	)	 	 	(1.74	)	
10

Table of Contents
During the fourth quarter of 2004, the Financial Accounting Standards Board issued SFAS 123R, “Share Based Payment: An Amendment of SFAS Nos. 123 and 95”. The new standard requires companies to recognize as expense the fair value of stock options and other equity-based compensation issued to employees as of the grant date. This new standard will apply to both stock options that we grant to employees and our Employee Stock Purchase Plan, which features a look-back provision and allows employees to purchase stock at a 15% discount. Implementation of SFAS 123R will be effective January 1, 2006. Our options are typically granted with ratable vesting provisions, and we intend to amortize compensation cost over the service period using the straight line method. We intend to use the “modified prospective method” upon adoption whereby previously awarded but unvested equity awards are accounted for in accordance with SFAS 123R and prospective amounts are recognized in the income statement instead of simply being disclosed. Once adopted, we expect our stock based compensation expense, as measured under SFAS 123R, will be approximately $6 million to $10 million per year on a pre-tax basis.
Note 2. Change in Accounting Principle
Effective January 1, 2005, the Company changed its method of accounting for major airframe and engine overhauls from the capitalize and amortize  method to the  direct expense  method. Under the former method, these costs were capitalized and amortized to maintenance expense over the shorter of the life of the overhaul or the remaining lease term. Under the  direct expense  method, overhaul costs are expensed as incurred. The Company believes that the  direct expense  method is preferable because it eliminates the judgment and estimation needed to determine overhaul versus repair allocations in maintenance activities. Additionally, the Company’s approved maintenance program for the majority of its airframes now focuses more on shorter, but more frequent, maintenance visits. Management also believes that the  direct expense  method is the predominant method used in the airline industry. Accordingly, effective January 1, 2005, the Company wrote off the net book value of its previously capitalized airframe and engine overhauls for all aircraft in a charge totaling $144.7 million pre-tax ($90.4 million after tax). The Company does not believe disclosing the effect of adopting the  direct expense  method on net income for the period ended June 30, 2005 provides meaningful information because of changes in the Company’s maintenance program, including the execution of a “power by the hour” engine maintenance agreement with a third party in late 2004.
Note 3. Restructuring Charges
During the second quarter of 2005, Alaska announced that it was contracting out ramp services at the Seattle-Tacoma International Airport. This event resulted in a reduction of approximately 475 employees in Seattle. Severance and related costs associated with this restructuring are estimated at $16.1 million, which was recorded in the second quarter.
During the third quarter of 2004, Alaska announced a management reorganization and the closure of its Oakland heavy maintenance base, contracting out of the Company’s fleet service and ground support equipment and facility maintenance functions, as well as other initiatives.
11

Table of Contents
Restructuring charges totaling $53.4 million were recorded in 2004, with $38.7 million remaining accrued at December 31, 2004.
The following table displays the activity and balance of the severance and related costs components of the Company’s restructuring accrual as of and for the six months ended June 30, 2005. The restructuring charge adjustment relates to our change in estimated costs of medical coverage extended to impacted employees and a change in the number of employees affected. We expect to record similar adjustments in future quarters as actual medical costs become known. There were no restructuring charges during the first six months of 2004 ($ in millions):
 	 	 	 	 	 	
Accruals for Severance and Related Costs	 	 	 	 	 	
 	 	
Balance at December 31, 2004	 	$	38.7	 	 	
Restructuring charges	 	 	16.1	 	 	
Restructuring charge adjustments	 	 	(2.0	)	 	
Cash payments	 	 	(29.5	)	 	
 	 	
Balance at June 30, 2005	 	$	23.3	 	 	
 	 	
The Company will make the majority of the remaining cash payments during the third and fourth quarters of 2005. The balance at June 30, 2005 is included in accrued wages, vacation and payroll taxes in the consolidated balance sheets.
During March 2005, the Company notified the Port of Oakland of its decision to terminate the lease for the Oakland hangar as part of its ongoing restructuring efforts. Accordingly, the Company recorded an impairment charge of $7.7 million in the first quarter of 2005 for the leasehold improvements that will be abandoned as a result of the lease termination. Additionally, the Company recorded a charge of $0.3 million for certain costs associated with the lease termination, all of which has been paid as of June 30, 2005.
Note 4. Derivative Financial Instruments
The Company records all derivative instruments, all of which are currently fuel hedge contracts, on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in earnings.
The Company’s operations are inherently dependent upon the price and availability of aircraft fuel, which accounted for 20.0% of all of 2004 and 22.2% of year-to-date 2005 operating expenses (excluding impairment and restructuring charges). To manage economic risks associated with fluctuations in aircraft fuel prices, the Company enters into swap agreements and call options for crude oil.
12

Table of Contents
Because of variations in the spread between the prices of West Texas Intermediate crude oil and jet fuel since the second quarter of 2004, the Company’s hedge contracts are not “highly correlated” to changes in prices of aircraft fuel, as defined in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The impacts on the Company’s reported results are as follows:
 	•	 	All changes in the fair value of fuel hedge contracts that existed as of March 31, 2004 or hedge positions entered into subsequent to March 31, 2004 are reported in other non-operating income (expense).	
 	 	 	 	
 	•	 	Reported fuel expense includes only the effective portion of gains associated with hedge positions that settled during the current period on contracts that existed at March 31, 2004 to the extent that mark-to-market gains were already included in Accumulated Other Comprehensive Loss at March 31, 2004.	
The following table summarizes realized fuel hedging gains and changes in fair value of hedging contracts outstanding as of June 30, 2005 and 2004 (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Alaska Airlines	 	Horizon Air	
 	 	Three Months Ended June 30	 	
 	 	2005	 	 	2004	 	 	2005	 	 	2004	 	
 	
Fuel expense before hedge activities (“raw” or “into-plane” fuel cost)	 	$	154.7	 	 	$	117.0	 	 	$	24.2	 	 	$	16.6	 	
Less: gains on settled hedges included in fuel expense	 	 	(3.2	)	 	 	(4.4	)	 	 	(0.5	)	 	 	(0.6	)	
 	
GAAP fuel expense	 	$	151.5	 	 	$	112.6	 	 	$	23.7	 	 	$	16.0	 	
 	
Less: gains on settled hedges included in nonoperating income (expense)	 	 	(21.3	)	 	 	(3.2	)	 	 	(3.2	)	 	 	(0.4	)	
 	
Economic fuel expense	 	$	130.2	 	 	$	109.4	 	 	$	20.5	 	 	$	15.6	 	

Mark-to-market hedging gains included in nonoperating income (expense)	 	$	2.6	 	 	$	19.6	 	 	$	0.4	 	 	$	2.7	 	
 	
13

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Alaska Airlines	 	Horizon Air	
 	 	Six Months Ended June 30	 	
 	 	2005	 	 	2004	 	 	2005	 	 	2004	 	
 	
Fuel expense before hedge activities (“raw” or “into-plane” fuel cost)	 	$	285.7	 	 	$	213.7	 	 	$	43.6	 	 	$	31.2	 	
Less: gains on settled hedges included in fuel expense	 	 	(6.6	)	 	 	(7.5	)	 	 	(0.8	)	 	 	(1.0	)	
 	
GAAP fuel expense	 	$	279.1	 	 	$	206.2	 	 	$	42.8	 	 	$	30.2	 	
 	
Less: gains on settled hedges included in nonoperating income (expense)	 	 	(37.0	)	 	 	(3.2	)	 	 	(5.7	)	 	 	(0.4	)	
 	
Economic fuel expense	 	$	242.1	 	 	$	203.0	 	 	$	37.1	 	 	$	29.8	 	

Mark-to-market hedging gains included in nonoperating income (expense)	 	$	80.3	 	 	$	20.1	 	 	$	12.7	 	 	$	2.7	 	
 	
Fuel hedge positions entered into by Alaska and Horizon are currently as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Approximate % of	 	 	 	 	 	 	Approximate Crude	 	
 	 	Expected Fuel	 	 	Gallons Hedged	 	 	Oil Price per	 	
 	 	Requirements	 	 	(in millions)	 	 	Barrel	 	
Third Quarter 2005	 	 	50	%	 	 	55.7	 	 	$	28.81	 	
Fourth Quarter 2005	 	 	50	%	 	 	50.4	 	 	$	31.85	 	
First Quarter 2006	 	 	50	%	 	 	50.8	 	 	$	35.70	 	
Second Quarter 2006	 	 	50	%	 	 	53.5	 	 	$	39.76	 	
Third Quarter 2006	 	 	40	%	 	 	45.9	 	 	$	41.58	 	
Fourth Quarter 2006	 	 	30	%	 	 	31.2	 	 	$	42.70	 	
First Quarter 2007	 	 	20	%	 	 	20.9	 	 	$	43.09	 	
Second Quarter 2007	 	 	19	%	 	 	21.3	 	 	$	45.11	 	
Third Quarter 2007	 	 	22	%	 	 	26.0	 	 	$	45.27	 	
Fourth Quarter 2007	 	 	17	%	 	 	17.8	 	 	$	47.89	 	
First Quarter 2008	 	 	11	%	 	 	12.3	 	 	$	50.44	 	
Second Quarter 2008	 	 	6	%	 	 	7.1	 	 	$	49.26	 	
Third Quarter 2008	 	 	6	%	 	 	6.8	 	 	$	48.97	 	
Fourth Quarter 2008	 	 	5	%	 	 	5.5	 	 	$	48.68	 	
The fair values of the Company’s fuel hedge positions for the period ended June 30, 2005 and December 31, 2004 were $194.5 million and $96.0 million, respectively, and are presented as fuel hedge contracts as both current and non-current assets in the consolidated balance sheets.
14

Table of Contents
Note 5. Other Assets
At June 30, 2005 and December 31, 2004 , other assets consisted of the following (in millions):
 	 	 	 	 	 	 	 	 	
 	 	 	June 30, 2005	 	 	 	December 31, 2004	 	
 	
Restricted deposits (primarily restricted investments)	 	$	87.3	 	 	$	84.2	 	
Deferred costs and other	 	 	42.6	 	 	 	27.7	 	
Restricted cash for senior convertible notes	 	 	—	 	 	 	3.6	 	
 	
 	 	$	129.9	 	 	$	115.5	 	
 	
Note 6. Mileage Plan
Alaska’s Mileage Plan liabilities are included under the following balance sheet captions (in millions):
 	 	 	 	 	 	 	 	 	
 	 	 	June 30, 2005	 	 	 	December 31, 2004	 	
 	
Current Liabilities:	 	 	 	 	 	 	 	 	
Other accrued liabilities	 	$	154.6	 	 	$	136.6	 	
Other Liabilities and Credits (non-current):	 	 	 	 	 	 	 	 	
Deferred revenue	 	 	256.6	 	 	 	252.9	 	
Other liabilities	 	 	20.0	 	 	 	19.8	 	
 	
Total	 	$	431.2	 	 	$	409.3	 	
 	
Note 7. Employee Benefit Plans
Pension Plans-Qualified Defined Benefit
Net pension expense for the three and six months ended June 30 included the following components (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	Six Months Ended	
 	 	June 30,	 	June 30,	
 	 	 	2005	 	 	 	2004	 	 	 	2005	 	 	 	2004	 	
 	
Service cost	 	$	11.8	 	 	$	13.7	 	 	$	25.5	 	 	$	27.4	 	
Interest cost	 	 	12.9	 	 	 	12.0	 	 	 	25.8	 	 	 	24.0	 	
Expected return on assets	 	 	(12.5	)	 	 	(10.7	)	 	 	(25.0	)	 	 	(21.4	)	
Amortization of prior service cost	 	 	1.2	 	 	 	1.3	 	 	 	2.4	 	 	 	2.6	 	
Actuarial gain	 	 	3.6	 	 	 	3.7	 	 	 	7.2	 	 	 	7.4	 	
 	
Net pension expense	 	$	17.0	 	 	$	20.0	 	 	$	35.9	 	 	$	40.0	 	
 	
The Company made $19.3 million and $38.6 million in contributions during the three and six months ended June 30, 2005, respectively, and expects to contribute an additional $19.3 million to these plans during the remainder of 2005. The Company made $16.5 million and $32.9 million in contributions to its defined benefit pension plans during the three and six months ended June 30, 2004, respectively.
15

Table of Contents
Pension Plans-Nonqualified Defined Benefit
Net pension expense for the unfunded, noncontributory defined benefit plans for certain elected officers of the Company for the three and six months ended June 30 included the following components (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	Six Months Ended	
 	 	June 30,	 	June 30,	
 	 	 	2005	 	 	 	2004	 	 	 	2005	 	 	 	2004	 	
 	
Service cost	 	$	0.3	 	 	$	0.3	 	 	$	0.6	 	 	$	0.6	 	
Interest cost	 	 	0.4	 	 	 	0.5	 	 	 	0.8	 	 	 	1.0	 	
Actuarial gain	 	 	0.1	 	 	 	0.2	 	 	 	0.2	 	 	 	0.4	 	
 	
Net pension expense	 	$	0.8	 	 	$	1.0	 	 	$	1.6	 	 	$	2.0	 	
 	
Postretirement Medical Benefits
Net periodic benefit cost for the postretirement medical plans for the three and six months ended June 30 included the following components (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	Six Months Ended	
 	 	June 30,	 	June 30,	
 	 	 	2005	 	 	 	2004	 	 	 	2005	 	 	 	2004	 	
 	
Service cost	 	$	1.0	 	 	$	1.2	 	 	$	2.0	 	 	$	2.4	 	
Interest cost	 	 	1.1	 	 	 	1.3	 	 	 	2.2	 	 	 	2.6	 	
Amortization of prior service cost	 	 	(0.1	)	 	 	(0.1	)	 	 	(0.2	)	 	 	(0.2	)	
Actuarial gain	 	 	0.5	 	 	 	0.7	 	 	 	1.0	 	 	 	1.4	 	
 	
Net periodic benefit cost	 	$	2.5	 	 	$	3.1	 	 	$	5.0	 	 	$	6.2	 	
 	
Note 8. Earnings Per Share
SFAS No. 128, “Earnings per Share” requires that companies use income from continuing operations before extraordinary items and the cumulative effect of an accounting change as the “control number” in determining whether potential common shares are dilutive or antidilutive. As the Company reported income before the accounting change for both the quarter and the six months ended June 30, 2005, the potential common shares from the Company’s common stock options and senior convertible notes are included in the calculation for diluted earnings (loss) per share. Therefore, for the three and six months ended June 30, 2005, the dilutive impact of common stock options and 5.8 million common shares that would have been outstanding upon conversion of the senior convertible notes were included in the calculations. Outstanding options to purchase 1.9 million common shares were excluded from the calculation in 2005 as the impact of those options would have been antidilutive. For the three and six months ended June 30, 2004, options to purchase 3.9 million shares and the effect of the senior convertible notes were excluded from the computation of diluted loss per share in 2004 because the impact would have been antidilutive. Income (loss) per share was calculated as follows (in millions except per share amounts).
16

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	Six Months Ended	
 	 	June 30,	 	June 30,	
 	 	 	2005	 	 	 	2004	 	 	 	2005	 	 	 	2004	 	
 	
Basic Earnings (Loss) Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before accounting change	 	$	17.4	 	 	$	(1.7	)	 	$	27.3	 	 	$	(44.4	)	
Weighted average shares outstanding	 	 	27.200	 	 	 	26.818	 	 	 	27.173	 	 	 	26.798	 	
 	
Income (loss) per share before accounting change	 	$	0.64	 	 	$	(0.06	)	 	$	1.01	 	 	$	(1.66	)	

Cumulative effect of accounting change, net of tax	 	NA	 	NA	 	$	(90.4	)	 	NA	
Weighted average shares outstanding	 	NA	 	NA	 	 	27.173	 	 	NA	
 	
Per share cumulative effect of accounting change	 	NA	 	NA	 	$	(3.33	)	 	NA	

Net income (loss)	 	$	17.4	 	 	$	(1.7	)	 	$	(63.1	)	 	$	(44.4	)	
Weighted average shares outstanding	 	 	27.200	 	 	 	26.818	 	 	 	27.173	 	 	 	26.798	 	
 	
Net income (loss) per share	 	$	0.64	 	 	$	(0.06	)	 	$	(2.32	)	 	$	(1.66	)	

Diluted Earnings (Loss) Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before accounting change	 	$	17.4	 	 	$	(1.7	)	 	$	27.3	 	 	$	(44.4	)	
Interest on convertible notes, net of tax	 	 	1.3	 	 	 	—	 	 	 	2.5	 	 	 	—	 	
 	
Diluted income (loss) before accounting change	 	$	18.7	 	 	$	(1.7	)	 	$	29.8	 	 	$	(44.4	)	
Weighted average diluted shares outstanding	 	 	33.273	 	 	 	26.818	 	 	 	33.256	 	 	 	26.798	 	
 	
Income (loss) per share before accounting change	 	$	0.56	 	 	$	(0.06	)	 	$	0.90	 	 	$	(1.66	)	

Cumulative effect of accounting change, net of tax	 	NA	 	NA	 	$	(90.4	)	 	NA	
Weighted average shares outstanding	 	NA	 	NA	 	 	33.256	 	 	NA	
 	
Per share cumulative effect of accounting change	 	NA	 	NA	 	$	(2.72	)	 	NA	

Net income (loss)	 	$	17.4	 	 	$	(1.7	)	 	$	(63.1	)	 	$	(44.4	)	
Interest on convertible notes, net of tax	 	 	1.3	 	 	 	—	 	 	 	2.5	 	 	 	—	 	
 	
Diluted net income (loss)	 	$	18.7	 	 	$	(1.7	)	 	$	(60.6	)	 	$	(44.4	)	
Weighted average shares outstanding	 	 	33.273	 	 	 	26.818	 	 	 	33.256	 	 	 	26.798	 	
 	
Net income (loss) per share	 	$	0.56	 	 	$	(0.06	)	 	$	(1.82	)	 	$	(1.66	)	
 	
17

Table of Contents
Note 9. Operating Segment Information
Operating segment information for Alaska and Horizon for the three and six month periods ended June 30 was as follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	Six Months Ended	
 	 	June 30,	 	June 30,	
 	 	2005	 	 	2004	 	 	2005	 	 	2004	 	
 	
Operating revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Alaska	 	$	616.3	 	 	$	577.6	 	 	$	1,139.6	 	 	$	1,068.9	 	
Horizon	 	 	140.6	 	 	 	124.7	 	 	 	261.8	 	 	 	235.0	 	
Other*	 	 	0.2	 	 	 	0.2	 	 	 	0.5	 	 	 	0.5	 	
Elimination of intercompany revenues	 	 	(0.6	)	 	 	(1.2	)	 	 	(2.9	)	 	 	(5.1	)	
 	
Consolidated	 	$	756.5	 	 	$	701.3	 	 	$	1,399.0	 	 	$	1,299.3	 	
 	
Income (loss) before income tax and accounting change:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Alaska	 	$	22.1	 	 	$	(2.8	)	 	$	37.5	 	 	$	(56.0	)	
Horizon	 	 	11.1	 	 	 	4.7	 	 	 	15.7	 	 	 	(5.7	)	
Other*	 	 	(3.5	)	 	 	(2.6	)	 	 	(6.5	)	 	 	(5.2	)	
 	
Consolidated	 	$	29.7	 	 	$	(0.7	)	 	$	46.7	 	 	$	(66.9	)	
 	
Total assets at end of period:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Alaska	 	 	 	 	 	 	 	 	 	$	3,105.8	 	 	$	3,144.8	 	
Horizon	 	 	 	 	 	 	 	 	 	 	325.9	 	 	 	290.7	 	
Other*	 	 	 	 	 	 	 	 	 	 	774.6	 	 	 	809.2	 	
Elimination of intercompany accounts	 	 	 	 	 	 	 	 	 	 	(835.8	)	 	 	(882.7	)	
 	
Consolidated	 	 	 	 	 	 	 	 	 	$	3,370.5	 	 	$	3,362.0	 	

 	 	 	
*	 	Includes the parent company, Alaska Air Group, Inc, including its investments in Alaska and Horizon, which are eliminated in consolidation.	
Note 10. Long-Term Debt and Capital Lease Obligations
At June 30, 2005 and December 31, 2004, long-term debt and capital lease obligations were as follows (in millions):
 	 	 	 	 	 	 	 	 	
 	 	June 30, 2005	 	 	December 31, 2004	 	
 	
Fixed rate notes payable due through 2020	 	$	536.4	 	 	$	361.3	 	
Variable rate notes payable due through 2020	 	 	349.8	 	 	 	531.2	 	
Senior convertible notes due through 2023	 	 	150.0	 	 	 	150.0	 	
 	
Long-term debt	 	 	1,036.2	 	 	 	1,042.5	 	
Capital lease obligations	 	 	0.3	 	 	 	0.5	 	
Less current portion	 	 	(57.0	)	 	 	(53.4	)	
 	
 	 	$	979.5	 	 	$	989.6	 	
 	
18

Table of Contents
During the first six months of 2005, Horizon issued $20.0 million of debt secured by flight equipment, having a fixed interest rate of 6.07% and a fifteen-year term.
During 2004, Alaska repaid its $150 million credit facility and, on December 23, 2004, that facility expired. On March 25, 2005, Alaska Airlines, Inc. finalized a $160 million variable rate credit facility with a syndicate of financial institutions that will expire in March 2008. The interest rate on the credit facility varies depending on certain financial ratios specified in the agreement with a minimum interest rate of LIBOR plus 200 basis points. Any borrowings will be secured by either aircraft or cash collateral. This credit facility contains contractual restrictions and requires maintenance of specific levels of net worth, maintenance of certain debt and leases to net worth, leverage and fixed charge coverage ratios, and limits on liens, asset dispositions, dividends, and certain other expenditures. Such provisions restrict Alaska Airlines from distributing any funds to Alaska Air Group in the form of dividends and limit the amount of funds Alaska Airlines can loan to Alaska Air Group. As of June 30, 2005, $300.0 million was available to loan to Alaska Air Group without violating the covenants in the credit facility. As of June 30, 2005, there are no outstanding borrowings on this credit facility.
In the second quarter of 2005, the Company exercised its option under several of its existing variable rate long-term debt arrangements to fix the interest rates through maturity. The fixed rates on these affected debt arrangements range from 5.2% to 6.3%. These changes did not result in any gain or loss in the consolidated statements of operations.
Note 11. Aircraft Commitments
Alaska entered into an aircraft purchase agreement during the second quarter of 2005 to acquire 35 B737-800 aircraft with deliveries beginning in January 2006 and continuing through April 2011. The purchase agreement also includes options to purchase an additional 15 aircraft. Concurrent with the execution of this purchase agreement, Alaska paid $110.9 million in aircraft purchase and option deposits using cash and a credit of $9.7 million received from the manufacturer. The $9.7 million credit has been deferred as other liabilities in the Company’s balance sheet and will be applied to the purchase price of future aircraft upon delivery.
As of June 30, 2005, the Company has firm purchase commitments for 44 aircraft requiring aggregate future payments of approximately $1.4 billion. In addition to the 15 options noted above, Horizon has options to purchase 11 Q400’s and 19 CRJ 700’s. Alaska and Horizon expect to finance the firm orders and, to the extent exercised, the option aircraft with leases, long-term debt or internally generated cash.
Note 12. Contingencies
The Company is a party to routine litigation incidental to its business and with respect to which no material liability is expected. Management believes the ultimate disposition of these matters is not likely to materially affect the Company’s financial position or results of operations. However, this belief is based on management’s current understanding of the relevant law and facts; it is
19

Table of Contents
subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries.
In May 2005, the Air Line Pilots Association filed a lawsuit in federal district court in Seattle to overturn the current labor contract covering Alaska’s pilots as established by an arbitrator, which was effective May 1, 2005. In the unlikely event that the arbitrator’s decision is overturned, Alaska may be required to pay wages retroactively to May 1, 2005 as if the contract that existed prior to the arbitrator’s decision were still in effect. On July 21, 2005, the Company filed a motion to dismiss the lawsuit. The motion will be decided on evidence submitted or following oral argument. A decision is expected in the third quarter of 2005. At this time, the Company has no reason to believe that an unfavorable outcome is likely.
In March 2005, the Company filed a claim against the International Association of Machinists (IAM) seeking to compel arbitration of the dispute regarding the subcontracting of the Company’s ramp service operation in Seattle. In May 2005, the IAM filed a counter claim against the Company alleging that the Company violated the status quo and engaged in bad faith bargaining. On May 13, 2005, the Company announced that it had subcontracted the ramp service operation in Seattle, resulting in the immediate reduction of approximately 475 employees represented by the IAM. Shortly after this event, the IAM filed a motion for a preliminary injunction seeking to reverse the subcontracting by the Company. That motion was heard and denied by a federal court judge on June 2, 2005. The Company’s lawsuit and the IAM’s counterclaim are still pending in federal court. A discovery schedule and trial date have not yet been set. At this time, the Company has no reason to believe that an unfavorable outcome is likely.
20

Table of Contents
Alaska Airlines Financial and Statistical Data (Unaudited)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30	 	Six Months Ended June 30	
 	 	 	 	 	 	 	 	 	 	%	 	 	 	 	 	 	 	 	 	%	
Financial Data (in millions):	 	2005	 	2004	 	Change	 	2005	 	2004	 	Change	
Operating Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Passenger	 	$	561.2	 	 	$	519.9	 	 	 	7.9	%	 	$	1,032.5	 	 	$	969.2	 	 	 	6.5	%	
Freight and mail	 	 	23.9	 	 	 	23.1	 	 	 	3.5	%	 	 	43.2	 	 	 	40.8	 	 	 	5.9	%	
Other — net	 	 	31.2	 	 	 	34.6	 	 	 	-9.8	%	 	 	63.9	 	 	 	58.9	 	 	 	8.5	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Operating Revenues	 	 	616.3	 	 	 	577.6	 	 	 	6.7	%	 	 	1,139.6	 	 	 	1,068.9	 	 	 	6.6	%	

Operating Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Wages and benefits	 	 	182.0	 	 	 	203.7	 	 	 	-10.7	%	 	 	381.7	 	 	 	404.5	 	 	 	-5.6	%	
Contracted services	 	 	31.6	 	 	 	29.4	 	 	 	7.5	%	 	 	59.4	 	 	 	52.5	 	 	 	13.1	%	
Aircraft fuel	 	 	151.5	 	 	 	112.6	 	 	 	34.5	%	 	 	279.1	 	 	 	206.2	 	 	 	35.4	%	
Aircraft maintenance	 	 	50.2	 	 	 	40.7	 	 	 	23.3	%	 	 	100.3	 	 	 	84.2	 	 	 	19.1	%	
Aircraft rent	 	 	29.3	 	 	 	27.9	 	 	 	5.0	%	 	 	57.7	 	 	 	57.4	 	 	 	0.5	%	
Food and beverage service	 	 	11.5	 	 	 	13.0	 	 	 	-11.5	%	 	 	22.4	 	 	 	24.2	 	 	 	-7.4	%	
Other selling expenses and commissions	 	 	31.2	 	 	 	31.3	 	 	 	-0.3	%	 	 	63.9	 	 	 	65.2	 	 	 	-2.0	%	
Depreciation and amortization	 	 	30.7	 	 	 	30.4	 	 	 	1.0	%	 	 	61.0	 	 	 	63.2	 	 	 	-3.5	%	
Landing fees and other rentals	 	 	40.5	 	 	 	35.3	 	 	 	14.7	%	 	 	81.1	 	 	 	68.5	 	 	 	18.4	%	
Other	 	 	41.5	 	 	 	38.1	 	 	 	8.9	%	 	 	79.9	 	 	 	75.8	 	 	 	5.4	%	
Restructuring charges	 	 	14.7	 	 	 	—	 	 	NM	 	 	22.1	 	 	 	—	 	 	NM	
Impairment of aircraft and related spare parts	 	 	—	 	 	 	36.8	 	 	NM	 	 	—	 	 	 	36.8	 	 	NM	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Operating Expenses	 	 	614.7	 	 	 	599.2	 	 	 	2.6	%	 	 	1,208.6	 	 	 	1,138.5	 	 	 	6.2	%	

Operating Income (Loss)	 	 	1.6	 	 	 	(21.6	)	 	NM	 	 	(69.0	)	 	 	(69.6	)	 	NM	

Interest income	 	 	7.6	 	 	 	6.3	 	 	 	 	 	 	 	13.9	 	 	 	11.6	 	 	 	 	 	
Interest expense	 	 	(12.4	)	 	 	(10.7	)	 	 	 	 	 	 	(23.9	)	 	 	(21.5	)	 	 	 	 	
Interest capitalized	 	 	1.2	 	 	 	0.2	 	 	 	 	 	 	 	1.9	 	 	 	0.3	 	 	 	 	 	
Fuel hedging gains	 	 	23.9	 	 	 	22.8	 	 	 	 	 	 	 	117.3	 	 	 	23.3	 	 	 	 	 	
Other — net	 	 	0.2	 	 	 	0.2	 	 	 	 	 	 	 	(2.7	)	 	 	(0.1	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	20.5	 	 	 	18.8	 	 	 	 	 	 	 	106.5	 	 	 	13.6	 	 	 	 	 	

Income (Loss) Before Income Tax and Accounting Change	 	$	22.1	 	 	$	(2.8	)	 	NM	 	$	37.5	 	 	$	(56.0	)	 	NM	

Operating Statistics:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue passengers (000)	 	 	4,232	 	 	 	4,116	 	 	 	2.8	%	 	 	8,083	 	 	 	7,707	 	 	 	4.9	%	
RPMs (000,000)	 	 	4,317	 	 	 	4,104	 	 	 	5.2	%	 	 	8,214	 	 	 	7,684	 	 	 	6.9	%	
ASMs (000,000)	 	 	5,543	 	 	 	5,635	 	 	 	-1.6	%	 	 	10,913	 	 	 	10,813	 	 	 	0.9	%	
Passenger load factor	 	 	77.9	%	 	 	72.8	%	 	5.1 pts	 	 	75.3	%	 	 	71.1	%	 	4.2 pts	
Yield per passenger mile	 	 	13.00¢	 	 	 	12.67¢	 	 	 	2.5	%	 	 	12.57¢	 	 	 	12.61¢	 	 	 	-0.3	%	
Operating revenue per ASM	 	 	11.12¢	 	 	 	10.25¢	 	 	 	8.4	%	 	 	10.44¢	 	 	 	9.89¢	 	 	 	5.6	%	
Operating expenses per ASM (a)	 	 	11.09¢	 	 	 	10.63¢	 	 	 	4.2	%	 	 	11.07¢	 	 	 	10.53¢	 	 	 	5.2	%	
Operating expense per ASM excluding fuel, impairment and restructuring charges(a)	 	 	8.09¢	 	 	 	7.98¢	 	 	 	1.4	%	 	 	8.31¢	 	 	 	8.28¢	 	 	 	0.4	%	
Raw fuel cost per gallon (a)	 	 	179.5¢	 	 	 	131.6¢	 	 	 	36.4	%	 	 	167.7¢	 	 	 	124.4¢	 	 	 	34.8	%	
GAAP fuel cost per gallon (a)	 	 	175.8¢	 	 	 	126.7¢	 	 	 	38.8	%	 	 	163.8¢	 	 	 	120.0¢	 	 	 	36.5	%	
Economic fuel cost per gallon (a)	 	 	151.1¢	 	 	 	123.1¢	 	 	 	22.7	%	 	 	142.1¢	 	 	 	118.2¢	 	 	 	20.2	%	
Fuel gallons (000,000)	 	 	86.2	 	 	 	88.9	 	 	 	-3.1	%	 	 	170.4	 	 	 	171.8	 	 	 	-0.8	%	
Average number of employees	 	 	9,144	 	 	 	10,255	 	 	 	-10.8	%	 	 	9,180	 	 	 	10,120	 	 	 	-9.3	%	
Aircraft utilization (blk hrs/day)	 	 	10.7	 	 	 	11.1	 	 	 	-3.6	%	 	 	10.3	 	 	 	10.7	 	 	 	-3.7	%	
Operating fleet at period-end	 	 	109	 	 	 	108	 	 	 	0.9	%	 	 	109	 	 	 	108	 	 	 	0.9	%	

NM	 	= Not Meaningful	
 	 	 	
(a)	 	See Note A on Page 23.	
21

Table of Contents
Horizon Air Financial and Statistical Data (Unaudited)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30	 	Six Months Ended June 30	
 	 	 	 	 	 	 	 	 	 	%	 	 	 	 	 	 	 	 	 	%	
Financial Data (in millions):	 	2005	 	2004	 	Change	 	2005	 	2004	 	Change	
Operating Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Passenger	 	$	136.9	 	 	$	120.4	 	 	 	13.7	%	 	$	254.6	 	 	$	226.9	 	 	 	12.2	%	
Freight and mail	 	 	0.9	 	 	 	1.1	 	 	 	-18.2	%	 	 	1.9	 	 	 	2.0	 	 	 	-5.0	%	
Other — net	 	 	2.8	 	 	 	3.2	 	 	 	-12.5	%	 	 	5.3	 	 	 	6.1	 	 	 	-13.1	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Operating Revenues	 	 	140.6	 	 	 	124.7	 	 	 	12.8	%	 	 	261.8	 	 	 	235.0	 	 	 	11.4	%	

Operating Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Wages and benefits	 	 	43.1	 	 	 	40.9	 	 	 	5.4	%	 	 	86.3	 	 	 	82.4	 	 	 	4.7	%	
Contracted services	 	 	6.1	 	 	 	5.2	 	 	 	17.3	%	 	 	11.6	 	 	 	10.4	 	 	 	11.5	%	
Aircraft fuel	 	 	23.7	 	 	 	16.0	 	 	 	48.1	%	 	 	42.8	 	 	 	30.2	 	 	 	41.7	%	
Aircraft maintenance	 	 	8.1	 	 	 	9.4	 	 	 	-13.8	%	 	 	19.2	 	 	 	16.7	 	 	 	15.0	%	
Aircraft rent	 	 	17.6	 	 	 	19.1	 	 	 	-7.9	%	 	 	35.3	 	 	 	37.4	 	 	 	-5.6	%	
Food and beverage service	 	 	0.6	 	 	 	0.6	 	 	 	0.0	%	 	 	1.2	 	 	 	1.0	 	 	 	20.0	%	
Other selling expenses and commissions	 	 	7.3	 	 	 	6.7	 	 	 	9.0	%	 	 	14.0	 	 	 	13.2	 	 	 	6.1	%	
Depreciation and amortization	 	 	4.3	 	 	 	3.3	 	 	 	30.3	%	 	 	7.9	 	 	 	6.3	 	 	 	25.4	%	
Landing fees and other rentals	 	 	11.7	 	 	 	10.3	 	 	 	13.6	%	 	 	23.5	 	 	 	20.2	 	 	 	16.3	%	
Other	 	 	9.6	 	 	 	10.7	 	 	 	-10.3	%	 	 	20.9	 	 	 	21.8	 	 	 	-4.1	%	
Impairment of aircraft and spare engines	 	 	—	 	 	 	0.4	 	 	NM	 	 	—	 	 	 	2.8	 	 	NM	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Operating Expenses	 	 	132.1	 	 	 	122.6	 	 	 	7.7	%	 	 	262.7	 	 	 	242.4	 	 	 	8.4	%	

Operating Income (Loss)	 	 	8.5	 	 	 	2.1	 	 	NM	 	 	(0.9	)	 	 	(7.4	)	 	NM	

Interest income	 	 	0.4	 	 	 	0.4	 	 	 	 	 	 	 	0.7	 	 	 	0.6	 	 	 	 	 	
Interest expense	 	 	(1.5	)	 	 	(1.0	)	 	 	 	 	 	 	(2.7	)	 	 	(2.3	)	 	 	 	 	
Interest capitalized	 	 	0.1	 	 	 	0.1	 	 	 	 	 	 	 	0.2	 	 	 	0.3	 	 	 	 	 	
Fuel hedging gains	 	 	3.6	 	 	 	3.1	 	 	 	 	 	 	 	18.4	 	 	 	3.1	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	2.6	 	 	 	2.6	 	 	 	 	 	 	 	16.6	 	 	 	1.7	 	 	 	 	 	

Income (Loss) Before Income Tax	 	$	11.1	 	 	$	4.7	 	 	NM	 	$	15.7	 	 	$	(5.7	)	 	NM	

Operating Statistics:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue passengers (000)	 	 	1,638	 	 	 	1,454	 	 	 	12.7	%	 	 	3,113	 	 	 	2,721	 	 	 	14.4	%	
RPMs (000,000)	 	 	620	 	 	 	535	 	 	 	15.9	%	 	 	1,160	 	 	 	985	 	 	 	17.8	%	
ASMs (000,000)	 	 	849	 	 	 	792	 	 	 	7.2	%	 	 	1,631	 	 	 	1,484	 	 	 	9.9	%	
Passenger load factor	 	 	73.0	%	 	 	67.5	%	 	5.5 pts	 	 	71.1	%	 	 	66.4	%	 	4.7 pts	
Yield per passenger mile	 	 	22.08¢	 	 	 	22.50¢	 	 	 	-1.9	%	 	 	21.95¢	 	 	 	23.04¢	 	 	 	-4.7	%	
Operating revenue per ASM	 	 	16.57¢	 	 	 	15.75¢	 	 	 	5.2	%	 	 	16.05¢	 	 	 	15.84¢	 	 	 	1.3	%	
Operating expenses per ASM (a)	 	 	15.57¢	 	 	 	15.49¢	 	 	 	0.5	%	 	 	16.11¢	 	 	 	16.34¢	 	 	 	-1.4	%	
Operating expense per ASM excluding fuel and impairment charges(a)	 	 	12.78¢	 	 	 	13.43¢	 	 	 	-4.9	%	 	 	13.48¢	 	 	 	14.12¢	 	 	 	-4.5	%	
Raw fuel cost per gallon (a)	 	 	187.6¢	 	 	 	136.1¢	 	 	 	37.7	%	 	 	175.1¢	 	 	 	128.4¢	 	 	 	36.4	%	
GAAP fuel cost per gallon (a)	 	 	183.7¢	 	 	 	131.1¢	 	 	 	40.2	%	 	 	171.9¢	 	 	 	124.3¢	 	 	 	38.3	%	
Economic fuel cost per gallon (a)	 	 	158.9¢	 	 	 	127.1¢	 	 	 	25.0	%	 	 	149.0¢	 	 	 	122.8¢	 	 	 	21.3	%	
Fuel gallons (000,000)	 	 	12.9	 	 	 	12.2	 	 	 	5.7	%	 	 	24.9	 	 	 	24.3	 	 	 	2.5	%	
Average number of employees	 	 	3,414	 	 	 	3,414	 	 	 	0.0	%	 	 	3,389	 	 	 	3,379	 	 	 	0.3	%	
Aircraft utilization (blk hrs/day)	 	 	8.5	 	 	 	8.4	 	 	 	1.4	%	 	 	8.9	 	 	 	8.0	 	 	 	11.3	%	
Operating fleet at period-end	 	 	65	 	 	 	64	 	 	 	1.6	%	 	 	65	 	 	 	64	 	 	 	1.6	%	

NM	 	= Not Meaningful	
 	 	 	
(a)	 	See Note A on Page 23.	
22

Table of Contents
Note A:
Pursuant to Item 10 of Regulation S-K, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. The non-GAAP financial measures provide management the ability to measure and monitor performance both with and without the cost of aircraft fuel (including the gains and losses associated with our fuel hedging program where appropriate), restructuring charges, and aircraft impairment charges. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond our control and we record changes in the fair value of our hedge portfolio in our income statement, it is our view that the measurement and monitoring of performance without fuel is important. In addition, we believe the disclosure of financial performance without impairment and restructuring charges is useful to investors. Finally, these non-GAAP financial measures are also more comparable to financial measures reported to the Department of Transportation by other major network airlines.
The following tables reconcile our non-GAAP financial measures to the most directly comparable GAAP financial measures for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	Six Months Ended June 30,	
Alaska Airlines, Inc.:	 	 	 	 	 	 	 	 	
($ in millions)	 	2005	 	2004	 	2005	 	2004	
Unit cost reconciliations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	$	614.7	 	 	$	599.2	 	 	$	1,208.6	 	 	$	1,138.5	 	
ASMs (000,000)	 	 	5,543	 	 	 	5,635	 	 	 	10,913	 	 	 	10,813	 	
 	 	 	 	 	
Operating expenses per ASM	 	 	11.09¢	 	 	 	10.63¢	 	 	 	11.07¢	 	 	 	10.53¢	 	

Operating expenses	 	$	614.7	 	 	$	599.2	 	 	$	1,208.6	 	 	$	1,138.5	 	
Less: aircraft fuel	 	 	(151.5	)	 	 	(112.6	)	 	 	(279.1	)	 	 	(206.2	)	
Less: restructuring charges	 	 	(14.7	)	 	 	—	 	 	 	(22.1	)	 	 	—	 	
Less: impairment of aircraft	 	 	—	 	 	 	(36.8	)	 	 	—	 	 	 	(36.8	)	
 	 	 	 	 	
Operating expense excluding fuel, restructuring charges, and impairment charge	 	$	448.5	 	 	$	449.8	 	 	$	907.4	 	 	$	895.5	 	
ASMs (000,000)	 	 	5,543	 	 	 	5,635	 	 	 	10,913	 	 	 	10,813	 	
 	 	 	 	 	
Operating expense per ASM excluding fuel, restructuring charges, and impairment charge	 	 	8.09¢	 	 	 	7.98¢	 	 	 	8.31¢	 	 	 	8.28¢	 	

Reconciliation from GAAP pretax income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income (loss) reported GAAP amounts	 	$	22.1	 	 	$	(2.8	)	 	$	37.5	 	 	$	(56.0	)	
Less: mark-to-market hedging gains included in nonoperating income (expense)	 	 	(2.6	)	 	 	(19.6	)	 	 	(80.3	)	 	 	(20.1	)	
Add: restructuring charges	 	 	14.7	 	 	 	—	 	 	 	22.1	 	 	 	—	 	
Add: impairment of aircraft and related spare parts	 	 	—	 	 	 	36.8	 	 	 	—	 	 	 	36.8	 	
 	 	 	 	 	
Pretax income (loss) excluding restructuring charges, impairment charge, government comp and mark-to-market hedging gains	 	$	34.2	 	 	$	14.4	 	 	$	(20.7	)	 	$	(39.3	)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	
 	 	2005	 	2004	
 	 	(in millions)	 	Cost/Gal	 	(in millions)	 	Cost/Gal	
 	 	 	 	 	
Fuel expense before hedge activities (“raw” or “into-plane” fuel cost)	 	$	154.7	 	 	$	1.80	 	 	$	117.0	 	 	$	1.32	 	
Less: gains on settled hedges included in fuel expense	 	 	(3.2	)	 	 	(0.04	)	 	 	(4.4	)	 	 	(0.05	)	
 	 	 	 	 	
GAAP fuel expense	 	$	151.5	 	 	$	1.76	 	 	$	112.6	 	 	$	1.27	 	
Less: gains on settled hedges included in nonoperating income (expense)	 	 	(21.3	)	 	 	(0.25	)	 	 	(3.2	)	 	 	(0.04	)	
 	 	 	 	 	
Economic fuel expense	 	$	130.2	 	 	$	1.51	 	 	$	109.4	 	 	$	1.23	 	
 	 	 	 	 	
Fuel gallons (000,000)	 	 	86.2	 	 	 	 	 	 	 	88.9	 	 	 	 	 	

Mark-to-market gains (losses) included in non-operating income related to hedges that settle in future periods	 	$	2.6	 	 	 	 	 	 	$	19.6	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six Months Ended June 30,	
 	 	2005	 	2004	
 	 	(in millions)	 	Cost/Gal	 	(in millions)	 	Cost/Gal	
 	 	 	 	 	
Fuel expense before hedge activities (“raw” or “into-plane” fuel cost)	 	$	285.7	 	 	$	1.68	 	 	$	213.7	 	 	$	1.24	 	
Less: gains on settled hedges included in fuel expense	 	 	(6.6	)	 	 	(0.04	)	 	 	(7.5	)	 	 	(0.04	)	
 	 	 	 	 	
GAAP fuel expense	 	$	279.1	 	 	$	1.64	 	 	$	206.2	 	 	$	1.20	 	
Less: gains on settled hedges included in nonoperating income (expense)	 	 	(37.0	)	 	 	(0.22	)	 	 	(3.2	)	 	 	(0.02	)	
 	 	 	 	 	
Economic fuel expense	 	$	242.1	 	 	$	1.42	 	 	$	203.0	 	 	$	1.18	 	
 	 	 	 	 	
Fuel gallons (000,000)	 	 	170.4	 	 	 	 	 	 	 	171.8	 	 	 	 	 	

Mark-to-market gains (losses) included in non-operating income related to hedges that settle in future periods	 	$	80.3	 	 	 	 	 	 	$	20.1	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
23

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	Six Months Ended June 30,	
Horizon Air Industries, Inc.	 	 	 	 	 	 	 	 	
($ in millions)	 	2005	 	2004	 	2005	 	2004	
Unit cost reconciliations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	$	132.1	 	 	$	122.6	 	 	$	262.7	 	 	$	242.4	 	
ASMs (000,000)	 	 	849	 	 	 	792	 	 	 	1,631	 	 	 	1,484	 	

Operating expenses per ASM	 	 	15.57¢	 	 	 	15.49¢	 	 	 	16.11¢	 	 	 	16.34¢	 	
 	 	 	 	 	
Operating expenses	 	$	132.1	 	 	 	$122.6	 	 	$	262.7	 	 	$	242.4	 	
Less: aircraft fuel	 	 	(23.7	)	 	 	(16.0	)	 	 	(42.8	)	 	 	(30.2	)	
Less: impairment of aircraft	 	 	—	 	 	 	(0.4	)	 	 	—	 	 	 	(2.8	)	
 	 	 	 	 	
Operating expense excluding fuel and impairment charge	 	$	108.4	 	 	$	106.2	 	 	$	219.9	 	 	$	209.4	 	
ASMs (000,000)	 	 	849	 	 	 	792	 	 	 	1,631	 	 	 	1,484	 	
 	 	 	 	 	
Operating expense per ASM excluding fuel and impairment charge	 	 	12.78¢	 	 	 	13.43¢	 	 	 	13.48¢	 	 	 	14.12¢	 	

Reconciliation from GAAP pretax income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income (loss) reported GAAP amounts	 	$	11.1	 	 	$	4.7	 	 	$	15.7	 	 	$	(5.7	)	
Less: mark-to-market hedging gains included in nonoperating income (expense)	 	 	(0.4	)	 	 	(2.7	)	 	 	(12.7	)	 	 	(2.7	)	
Add: impairment of aircraft and related spare parts	 	 	—	 	 	 	0.4	 	 	 	—	 	 	 	2.8	 	
 	 	 	 	 	
Pretax income (loss) excluding impairment charge and mark-to-market hedging gains	 	$	10.7	 	 	$	2.4	 	 	$	3.0	 	 	$	(5.6	)	

 	
Aircraft fuel reconciliations:	

 	 	Three Months Ended June 30,	
 	 	2005	 	2004	
 	 	(in millions)	 	Cost/Gal	 	(in millions)	 	Cost/Gal	
 	 	 	 	 	
Fuel expense before hedge activities (“raw” or “into-plane” fuel cost)	 	$	24.2	 	 	$	1.88	 	 	$	16.6	 	 	$	1.36	 	
Less: gains on settled hedges included in fuel expense	 	 	(0.5	)	 	 	(0.04	)	 	 	(0.6	)	 	 	(0.05	)	
 	 	 	 	 	
GAAP fuel expense	 	$	23.7	 	 	$	1.84	 	 	$	16.0	 	 	$	1.31	 	
Less: gains on settled hedges included in nonoperating income (expense)	 	 	(3.2	)	 	 	(0.25	)	 	 	(0.4	)	 	 	(0.03	)	
 	 	 	 	 	
Economic fuel expense	 	$	20.5	 	 	$	1.59	 	 	$	15.6	 	 	$	1.28	 	
 	 	 	 	 	
Fuel gallons (000,000)	 	 	12.9	 	 	 	 	 	 	 	12.2	 	 	 	 	 	

Mark-to-market gains (losses) included in non-operating income related to hedges that settle in future periods	 	$	0.4	 	 	 	 	 	 	$	2.7	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six Months Ended June 30,	
 	 	2005	 	2004	
 	 	(in millions)	 	Cost/Gal	 	(in millions)	 	Cost/Gal	
Fuel expense before hedge activities (“raw” or “into-plane” fuel cost)	 	$	43.6	 	 	$	1.75	 	 	$	31.2	 	 	$	1.28	 	
Less: gains on settled hedges included in fuel expense	 	 	(0.8	)	 	 	(0.03	)	 	 	(1.0	)	 	 	(0.04	)	
 	 	 	 	 	
GAAP fuel expense	 	$	42.8	 	 	$	1.72	 	 	$	30.2	 	 	$	1.24	 	
Less: gains on settled hedges included in nonoperating income (expense)	 	 	(5.7	)	 	 	(0.23	)	 	 	(0.4	)	 	 	(0.01	)	
 	 	 	 	 	
Economic fuel expense	 	$	37.1	 	 	$	1.49	 	 	$	29.8	 	 	$	1.23	 	
 	 	 	 	 	
Fuel gallons (000,000)	 	 	24.9	 	 	 	 	 	 	 	24.3	 	 	 	 	 	

Mark-to-market gains (losses) included in non-operating income related to hedges that settle in future periods	 	$	12.7	 	 	 	 	 	 	$	2.7	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
24

Table of Contents
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes contained elsewhere in this quarterly report on Form 10-Q. All statements in the following discussion that are not reports of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report’s introductory cautionary note.
Air Group’s filings with the Securities and Exchange Commission, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are accessible free of charge at www.alaskaair.com . The information contained on our website is not a part of this quarterly report on Form 10-Q. As used in this Form 10-Q, the terms “Air Group,” “our,” “we” and the “Company” refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise.
Second Quarter in Review and Current Events
In the second quarter of 2005, despite nearly flat capacity, revenues continued to improve due to increases in passenger traffic at both Alaska and Horizon, coupled with a modest improvement in ticket yields at Alaska over prior year. Operating expenses per available seat mile increased 4.2% at Alaska to 11.09 cents and 0.5% at Horizon to 15.57 cents compared to the second quarter of 2004. Fuel is a major component of our operating costs and fuel prices reached record highs once again in the second quarter. At Alaska, our unit costs excluding fuel, impairment, and restructuring charges during the second quarter of 2005 increased slightly compared to the second quarter of 2004. This is due to the reduction in capacity at Alaska from the prior year quarter due to the reduction of our 2005 summer flight schedule. Horizon, however, continued to see improvement in unit costs excluding fuel, impairment, and restructuring charges over the prior period. Our cost per available seat mile excluding fuel, impairment, and restructuring charges increased 1.4% at Alaska to 8.09 cents and declined 4.9% at Horizon to 12.78 cents compared to the second quarter of 2004.
Although revenues and pretax income at Alaska have improved over the prior year, we are facing several operational difficulties due to the combined effects of the recent labor and operational changes across our company. The result has been operational performance that is well below our goal. Our operational performance, measured by on-time arrivals and departures, declined significantly from the second quarter of 2004. In order to improve our operational performance, we reduced our capacity throughout the remainder of 2005 from our original expectations through schedule reductions and the elimination of certain flights. This capacity reduction will impact our revenue in the third and fourth quarters, although the impact is not known at this time.
Labor Costs and Negotiations
Despite ongoing negotiations in late 2003 and much of 2004, we were unable to reach a new agreement with the Air Line Pilots Association (ALPA) and, therefore, pursuant to the terms of the collective bargaining agreement, submitted to binding arbitration during the first quarter of 2005, the
25

Table of Contents
decision of which became effective on May 1, 2005. The arbitration resulted in an average pilot wage reduction of approximately 26%, various work rule changes that should result in productivity improvements, and higher employee health care contributions. No changes were made to the pilots’ pension plan. Subsequent to the arbitrator’s decision, the Company and ALPA reached a tentative agreement that, among other things, provided an across-the-board 20% reduction of pilot’s wages rather than the average 26% reduction from the arbitrator’s decision and a number of work rule changes. The pilot group rejected this agreement on July 11, 2005 and, therefore, the contract resulting from the arbitrator’s decision will stand and will become amendable on May 1, 2007. We have reached a tentative agreement with ALPA to resolve certain aspects of the current contract such as vacation and training pay, health care and profit sharing. ALPA filed a lawsuit in federal district court to vacate the arbitrator’s decision. At this time, the Company has no reason to believe that an unfavorable outcome is likely (See Part II: Other Information – Item 1: Legal Proceedings).
During the second quarter of 2005, we presented a contract offer to the International Association of Machinists (IAM, representing our ramp workers) that was rejected by this work group. We subcontracted our Seattle ramp operations to a third party effective May 13, 2005. This resulted in an immediate reduction of approximately 475 employees. We offered a severance package, substantially the same as the severance packages offered to other employees in late 2004, to those affected by the subcontracting that included cash payments based on years of service, one year of medical coverage after the severance date and continued travel benefits for a period of time. The IAM accepted the severance package in June 2005 and, as a result, we recorded a charge of $16.1 million in the second quarter of 2005 related to the restructuring, which was offset by a $1.4 million adjustment related to the remaining restructuring liability from our prior restructuring efforts, resulting in a net restructuring charge of $14.7 million. The IAM has filed a lawsuit in federal court alleging a violation of the status quo and that we engaged in bad faith bargaining. At this time, the Company has no reason to believe that an unfavorable outcome is likely (See Part II: Other Information – Item 1: Legal Proceedings).
A tentative agreement with the Association of Flight Attendants (AFA) was rejected by the majority of Alaska’s flight attendants on July 19, 2005. A tentative agreement with the Aircraft Mechanics Fraternal Association (AMFA) was rejected by the majority of Alaska’s aircraft technicians on July 27, 2005. The Company will resume talks with the AFA and AMFA soon to determine next steps in these processes.
Although we are disappointed that we have not been able to secure contracts with IAM, AFA, or AMFA thus far, we believe the negotiations to date have been productive. None of the contract negotiations is at an impasse or has reached the 30 day cooling off period required under the Railway Labor Act that would trigger self help. Therefore, we currently believe the risk of a work stoppage or other material service disruption in the near future is very low.
26

Table of Contents
Mark-to-Market Fuel Hedging Gains
Beginning in the second quarter of 2004, we lost the ability to defer, as a component of comprehensive income, recognition of any unrealized gain or loss on our fuel hedge contracts until the hedged fuel is consumed. We lost this ability because the price correlation between crude oil, the commodity we use to hedge, and West Coast jet fuel fell below required thresholds. For more discussion, see Note 4 to our condensed consolidated financial statements.
The implications of this change are twofold: First, our earnings can be more volatile as we mark our entire hedge portfolio to market each quarter-end and report the gain or loss in other non-operating income or expense, even though the actual consumption will take place in a future period. In times of rising fuel prices such as the second quarter of 2005, this will have the effect of increasing our reported net income or decreasing our reported net loss. Our mark-to-market gains recorded in the second quarter of 2005 for contracts that settle in future periods were $3.0 million compared to $22.3 million in the second quarter of 2004. Second, to a large extent, the impact of our fuel hedge program will not be reflected in fuel expense. In the second quarter of 2005, we recorded gains from settled fuel hedges totaling $28.2 million, but only $3.7 million of that gain is reflected as an offset to fuel expense with the balance reported in other non-operating income. In the second quarter of 2004, gains of $5.0 million on settled hedges were recorded as an offset to fuel expense and gains of $3.6 million were recorded in non-operating income related to settled hedges.
We have provided information on mark-to-market gains or losses, as well as calculations of our economic fuel cost per gallon on pages 23 and 24.
We continue to believe that our fuel hedge program is an important part of our strategy to reduce our exposure to volatile fuel prices.
Impairment of 737-200C Aircraft in 2004
In the second quarter of 2004, our Board approved a plan to accelerate the retirement of our Boeing 737-200C fleet and remove those aircraft from service earlier than initially planned. As a result of this decision, we recorded an impairment charge totaling $36.8 million (pretax) to write down the fleet to its estimated fair market value.
Aircraft Commitment
On June 15, 2005, Alaska Airlines, Inc. entered into an aircraft purchase agreement with The Boeing Company to purchase 35 B737-800 aircraft with deliveries beginning in January 2006 and continuing through April 2011. The purchase agreement includes options to purchase an additional 15 aircraft with deliveries between July 2007 and April 2009. The order also includes rights to purchase an additional 50 737-800s under the same terms as the agreement.
Capacity Outlook
For 2005, Alaska and Horizon expect capacity to be flat and up approximately 10%, respectively, compared to 2004 capacity. We recently reduced the estimated capacity forecast for the remainder of
27

Table of Contents
the year for Alaska due to schedule reductions that are being made to improve operational reliability. Horizon’s expected capacity increase is due largely to the annualization of aircraft additions in the last half of 2004, the addition of one new CRJ-700 in the first quarter of 2005, and higher utilization resulting from the annualization of the contract flying for Frontier. In addition, Horizon has completed the addition of a row of seats to the Q400 fleet increasing capacity from 70 to 74 seats.
We expect to begin service to Dallas/Fort Worth in September 2005. During the second quarter, we announced service from Los Angeles to Mexico City beginning in August 2005.
Results of Operations
Comparison of Three Months Ended June 30, 2005 to Three Months Ended June 30, 2004
Our consolidated net income for the second quarter of 2005 was $17.4 million, or $0.56 per diluted share, versus a net loss of $1.7 million, or $0.06 per diluted share, in the second quarter of 2004.
Our consolidated operating income for the second quarter of 2005 was $9.1 million compared to an operating loss of $20.6 million during the same period of 2004. Our consolidated pre-tax net income for the quarter was $29.7 million compared to a pre-tax loss of $0.7 million for the second quarter of 2004. Both the 2005 and 2004 results include certain significant items that impact the comparability of the quarters. These items are discussed in the “Second Quarter in Review and Current Events” section beginning on page 25. Excluding those items, the quarter over quarter improvement can be characterized by higher revenues, offset by significantly higher fuel costs and relatively flat operating expenses. Wages and benefits declined significantly due to some of the recent initiatives and new pilot contract at Alaska. However, these declines were largely offset by higher operating expenses in other areas.
Financial and statistical data comparisons for Alaska and Horizon are shown on pages 21 and 22, respectively. On pages 23 and 24, we have included a reconciliation of reported non-GAAP financial measures to the most directly comparable GAAP financial measures.
Alaska Airlines Revenues
Operating revenues increased $38.7 million, or 6.7%, during the second quarter of 2005 as compared to the same period in 2004. For the quarter, revenue passenger miles (RPMs or traffic) increased 5.2% over prior year and ticket yields per passenger mile increased approximately 2.5%. The increase in yield per passenger mile was a result of a modest increase in ticket prices industry-wide designed to offset higher fuel prices.
Our operating revenues per available seat mile (ASM) increased by 8.4% compared to the prior year driven primarily by the increase in ticket yields as discussed above and a 1.6% decline in ASMs. The capacity decreases are primarily due to the reduction in our flight schedule that was announced in June 2005 and the retirement of two B737-200s in 2004, offset by the additional seats added to the B737-400 fleet during the fourth quarter of 2004 and the addition of two B737-800s in the first quarter of 2005. The increase in traffic offset by the capacity decrease, resulted in an increase in load factor
28

Table of Contents
from 72.8% to 77.9%. We expect that load factors will continue to be strong and that yields and passenger unit revenues will continue to trend slightly higher through the remainder of 2005.
Freight and mail revenues increased $0.8 million, or 3.5%, compared to the same period in 2004 because of a relatively new mail contract we have in the State of Alaska offset by lower freight revenues.
Other-net revenues decreased $3.4 million, or 9.8%, due to the termination of contract maintenance work that we were performing for third parties in the second quarter of 2004 and are no longer performing. This was offset by increases in Mileage Plan revenues, resulting from higher award redemption on our partner airlines and an increase in cash receipts from miles sold.
Alaska Airlines Expenses
For the quarter, total operating expenses increased $15.5 million, or 2.6%, as compared to the same period in 2004 despite a 1.6% decrease in capacity. Operating expenses per ASM increased 4.2% from 10.63 cents in the second quarter of 2004 to 11.09 cents in the second quarter of 2005. The increase in operating expenses is due largely to the significant increases in fuel costs, the restructuring charge related to the subcontracting of the ramp services operation in Seattle, contracted services costs, aircraft maintenance, and landing fees and other rentals, offset by a decline in wages and benefits and food and beverage service. Operating expense per ASM excluding fuel, restructuring and impairment charges increased 1.4% as compared to the same period in 2004. Our estimates of costs per ASM, excluding fuel and restructuring or impairment charges, for the third quarter, fourth quarter and full year of 2005 are 7.4 cents, 7.4 cents, and between 7.8 and 7.9 cents, respectively.
Explanations of significant period-over-period changes in the components of operating expenses are as follows:
 	•	 	Wages and benefits decreased $21.7 million, or 10.7%, during the second quarter. Wages have been favorably impacted by the restructuring initiatives announced in August and September of 2004 and the reduction in pilot wages resulting from the arbitrator’s decision in May 2005. Additionally, during the second quarter of 2005, we subcontracted our ramp services operation in Seattle. We expect a greater year-over-year decline in wages in the third quarter of 2005 as we see the full effect of some of these changes, with the increase tapering down as we get into the fourth quarter. We estimate that wages and benefits will decline approximately $34 million, or 16%, in the third quarter and $19 million, or 10% in the fourth quarter as compared to the same periods in 2004 as we complete a full year under some of the restructuring changes that were made in the fourth quarter of the prior year. The period over period declines in wages and benefits are partially offset by increases in contracted services and maintenance expense due to the subcontracting of certain operations.	
 	 	 	 	
 	•	 	Contracted services increased $2.2 million, or 7.5%, due largely to the contracting out of the Company’s fleet service and ground service equipment and facility maintenance in the	
29

Table of Contents
 	 	 	fourth quarter of 2004, and the Seattle ramp operations in the second quarter of 2005. We expect a larger increase from prior year in the third and fourth quarters due to the ramp service operations being subcontracted for the full quarters.	
 	 	 	 	
 	•	 	Aircraft fuel increased $38.9 million, or 34.5%, due to a 38.8% increase in the GAAP fuel cost per gallon, offset by a 3.1% decrease in fuel gallons consumed. The increase in aircraft fuel expense is inclusive of $3.2 million of gains from settled hedges. During the second quarter of 2005, Alaska also realized $21.3 million of gains from settled hedges, which are recorded in other non-operating income. After including all gains on settled hedges recorded during the quarter, our “economic,” or net, fuel expense increased $20.8 million, or 19.0%, over the same period in 2004. Our economic fuel cost per gallon increased 22.7% over the second quarter of 2004 from $1.23 to $1.51. At current market prices, we expect that the cost per gallon in the third and fourth quarters will meet or exceed second quarter levels.	
 	 	 	 	
 	 	 	See page 23 for a table summarizing fuel cost per gallon realized by Alaska (the economic cost per gallon), the cost per gallon on a GAAP basis (including hedging gains recorded in aircraft fuel and non-operating income (expense)) and fuel cost per gallon excluding all hedging activities.	
 	 	 	 	
 	•	 	Aircraft maintenance increased $9.5 million, or 23.3%, due largely to our power-by-the-hour maintenance agreement, whereby we expense B737-400 engine maintenance on a flight-hour basis, regardless of whether the work was actually performed during the period. Other factors causing the increase were the contracting out of related heavy maintenance to third parties, which resulted in a shift of costs from wages and benefits into aircraft maintenance, more airframe work and engine overhauls in 2005 compared to 2004, and the change in our accounting policy regarding engine and airframe overhauls (see Note 2 to our condensed consolidated financial statements). We expect that maintenance expense will be higher by $15 million and $6 million in the third and fourth quarters of 2005, respectively, compared to the same periods in 2004 as a result of the factors above and our decision to move the timing of some maintenance activities up from 2006.	
 	 	 	 	
 	•	 	Aircraft rent increased $1.4 million, or 5.0%, due to the additional operating lease on a B737-800 that was delivered in March 2005, offset by lower rates on extended leases.	
 	 	 	 	
 	•	 	Food and beverage service expense decreased $1.5 million, or 11.5%, due primarily to increased focus on cost reduction resulting in a decrease in average food and beverage cost per passenger.	
 	 	 	 	
 	•	 	Landing fees and other rentals increased $5.2 million, or 14.7% despite a decrease in the number of departures. The higher rates reflect increased rental costs, primarily in Seattle, Portland and Los Angeles. We expect landing fees and other rentals to continue to increase	
30

Table of Contents
 	 	 	by 10% to 15% in the third and fourth quarters compared to 2004 as a result of airport facility expansions and higher costs related to airport security.	
 	 	 	 	
 	•	 	Other expense increased $3.4 million, or 8.9%, primarily reflecting increases in passenger remuneration costs, professional services costs, legal settlement costs and personnel and crew costs.	
Horizon Air Revenues
For the second quarter, operating revenues increased $15.9 million, or 12.8% as compared to 2004. This increase is due largely to increased traffic in the native network, partially offset by a 1.9% decline in ticket yields.
For the three months ending June 30, 2005, capacity increased 7.2% and traffic was up 15.9%, compared to the same period in 2004 due primarily to the addition of one CRJ 700, four additional seats on each of our Q400’s and an increase in the average trip length. Passenger yield decreased 1.9% to 22.08 cents per passenger mile due primarily to an increase in average trip lengths across the native network, partially as a result of increased harmonization flying with Alaska. Passenger revenues increased by $16.5 million, or 13.7%, due primarily to the increase in traffic resulting from increased harmonization flying with Alaska and in our native network.
Horizon Air Expenses
Operating expenses increased $9.5 million, or 7.7%, as compared to the same period in 2004. Operating expenses per ASM increased 0.5% as compared to 2004. Operating expenses per ASM excluding fuel and impairment charges decreased 4.9% as compared to the same period in 2004. Operating expenses in 2004 include $0.4 million related to an impairment charge on our held-for-sale F-28 aircraft and spare engines to lower the carrying value of these assets to their estimated fair value. Our estimates of costs per ASM, excluding fuel and special charges, for the third quarter, fourth quarter and full year of 2005 are 12.2 cents, 13.6 cents, and 13.2 cents, respectively.
Explanations of other significant period-over-period changes in the components of operating expenses are as follows:
 	•	 	Wages and benefits increased $2.2 million, or 5.4%, reflecting a slight increase in the average wage per employee and a new performance-based incentive program for all employees, partially offset by lower workers compensation expense based on favorable claims activity.	
 	 	 	 	
 	•	 	Aircraft fuel increased $7.7 million, or 48.1%, due to a 40.2% increase in the GAAP fuel cost per gallon from $1.31 in 2004 to $1.84 in 2005 and a 5.7% increase in fuel gallons consumed. The increase in aircraft fuel expense is inclusive of $0.5 million of gains from settled hedges. During the quarter, Horizon also realized $3.2 million of gains from settled hedges, which are recorded in other non-operating income (expense). After including all gains on settled hedges recorded during the quarter, our “economic,” or net, fuel expense increased $4.9	
31

Table of Contents
 	 	 	million, or 31.4%, over 2004. Our economic fuel cost per gallon increased 25.0% from $1.28 in 2004 to $1.59 in 2005. At current market prices, we expect that the cost per gallon in the third and fourth quarters will meet or exceed second quarter levels.	
 	 	 	 	
 	 	 	See page 24 for a table summarizing fuel cost per gallon realized by Horizon (the economic cost per gallon), the cost per gallon on a GAAP basis (including hedging gains recorded in aircraft fuel and non-operating income (expense)) and fuel cost per gallon excluding all hedging activities.	
 	 	 	 	
 	•	 	Aircraft maintenance expense decreased $1.3 million, or 13.8%, primarily due to the timing of our airframe and engine events and the elimination of amortization expense on capitalized airframe and engine overhauls as a result of the accounting change in the first quarter (see Note 2 to our condensed consolidated financial statements).	
 	 	 	 	
 	•	 	Depreciation and amortization increased $1.0 million, or 9.0%, primarily due to the addition of one CRJ-700 at the end of the first quarter of 2005 and a Q400 delivered in the third quarter of 2004.	
 	 	 	 	
 	•	 	Landing fees and other rentals increased $1.4 million, or 13.6%. Higher landing fees are a result of significant rate increases in several of our key airports. We expect landing fees and other rentals to continue to increase as a result of airport facility expansions and increased costs for security.	
 	 	 	 	
 	•	 	Other expenses declined $1.1 million, or 10.3%, due primarily to reductions in aircraft liability insurance and property taxes and a gain on the sale of one of our F-28’s during the second quarter of 2005.	
Consolidated Nonoperating Income (Expense)
Net nonoperating income was $20.6 million in the second quarter of 2005 compared to $19.9 million during the same period of 2004. Interest income increased $1.0 million due to a larger average marketable securities portfolio in the second quarter of 2005. Interest expense (net of capitalized interest) increased $1.7 million primarily due to interest rate increases on our variable rate debt and the changes to some of our variable rate debt agreements to slightly higher fixed rate agreements.
Fuel hedging gains include $24.5 million in gains from fuel hedging contracts settled in the second quarter of 2005 compared to $3.6 million in 2004. In addition, fuel hedging gains include net mark-to-market gains on unsettled hedge contracts of $3.0 million in 2005 and $22.3 million in 2004.
Comparison of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2004
Our consolidated net loss for the six months ended June 30, 2005 was $63.1 million, or $1.82 per diluted share, versus a net loss of $44.4 million, or $1.66 per diluted share, during the same period of 2004.
32

Table of Contents
Our consolidated operating loss for the six months ended June 30, 2005 was $71.8 million compared to an operating loss of $79.1 million during the same period of 2004. Our consolidated income before income tax and the accounting change for the six months of 2005 was $46.7 million compared to a pre-tax loss of $66.9 million for the first six months of 2004. Both the 2005 and 2004 results include certain significant items that impact the comparability of the six-month periods. Our 2005 consolidated net income includes a $144.7 million pre-tax ($90.4 million after tax) charge resulting from the change in the method of accounting for major airframe and engine overhauls as discussed in Note 2 to the consolidated financial statements. Additionally, we recorded restructuring charges of $22.1 million ($13.8 million, net of tax) in the first six months of 2005 related primarily to the termination of the lease at our Oakland heavy maintenance base and severance and related costs resulting from the subcontracting of the ramp services operation in Seattle. The results also include mark-to-market fuel hedging gains on contracts that settle in future periods of $93.0 million during the first six months of 2005 compared to $22.8 million in the same prior year period. Financial and statistical data comparisons for Alaska and Horizon are shown on pages 21 and 22, respectively. On pages 23 and 24, we have included a reconciliation of reported non-GAAP financial measures to the most directly comparable GAAP financial measures. A discussion of the six-month data follows.
Alaska Airlines Revenues
Operating revenues increased $70.7 million, or 6.6%, during 2005 as compared to 2004.
Yield per passenger mile decreased 0.3%, although the yield trended higher in the second quarter, and passenger load factor increased 4.2 points during the first six months of 2005 as compared to the same period in 2004. The increases in traffic with relatively flat yields drove the 6.5% increase in passenger revenues in 2005.
Freight and mail revenues increased slightly by $2.4 million, or 5.9%, compared to the same period in 2004 because of a relatively new mail contract we have in the State of Alaska, offset by lower freight revenues.
Other-net revenues increased $5.0 million, or 8.5%, due largely to an increase in Mileage Plan revenues, resulting from higher award redemption on our partner airlines and an increase in cash receipts from miles sold, offset by the termination of contract maintenance work that we were performing for third parties in the second quarter of 2004 and are no longer performing.
Alaska Airlines Expenses
For the six months ended June 30, 2005, total operating expenses increased $70.1 million, or 6.2%, as compared to the same period in 2004. Operating expenses per ASM increased 5.2% in 2005 as compared to 2004. The increase in operating expenses is due largely to the significant increases in fuel costs, restructuring charges related to the subcontracting of the ramp services operation in Seattle and the closure of the Oakland hangar, contracted services costs, aircraft maintenance, and landing fees and other rentals, offset by a decline in wages and benefits, food and beverage service, other
33

Table of Contents
selling expenses and commissions and depreciation and amortization. Operating expense per ASM excluding fuel, restructuring and impairment charges increased 0.4% as compared to the same period in 2004. As noted above, operating expense per ASM was also negatively impacted by the summer capacity reductions.
Explanations of significant period-over-period changes in the components of operating expenses are as follows:
 	•	 	Wages and benefits decreased $22.8 million, or 5.6%, during the first six months of 2005 compared to the same period in 2004. Wages have been favorably impacted by the restructuring initiatives announced in August and September of 2004 and the reduction in pilot wages resulting from the arbitrator’s decision in May 2005. Additionally, during the second quarter of 2005, we subcontracted our ramp services operation in Seattle. During the first six months of 2005, there were 9,180 full-time equivalents (FTEs), which is down by 940 FTEs from 2004.	
 	 	 	 	
 	•	 	Contracted services increased $6.9 million, or 13.1%, due largely to the contracting out of the Company’s fleet service and ground service equipment and facility maintenance in the fourth quarter of 2004, and the Seattle ramp operations in May 2005.	
 	 	 	 	
 	•	 	Aircraft fuel increased $72.9 million, or 35.4%, due to a 36.5% increase in the GAAP fuel cost per gallon, offset by a 0.8% decrease in fuel gallons consumed. The increase in aircraft fuel expense is inclusive of $6.6 million of gains from settled hedges. During the first six months of 2005, Alaska also realized $37.0 million of gains from settled hedges, which are recorded in other non-operating income. After including all gains from settled hedges recorded during the period, our “economic,” or net, fuel expense increased $39.1 million, or 19.3%, over the same period in 2004. Our economic fuel cost per gallon increased 20.2% over the first six months of 2004 from $1.42 to $1.18.	
 	 	 	 	
 	 	 	See page 23 for a table summarizing fuel cost per gallon realized by Alaska (the economic cost per gallon), the cost per gallon on a GAAP basis (including hedging gains recorded in aircraft fuel and non-operating income (expense)) and fuel cost per gallon excluding all hedging activities.	
 	 	 	 	
 	•	 	Aircraft maintenance increased $16.1 million, or 19.1%, due largely to our power-by-the-hour maintenance agreement, whereby we expense B737-400 engine maintenance on a flight-hour basis, regardless of whether the work was actually performed during the period. Other factors causing the increase were the contracting out of related heavy maintenance to third parties, which resulted in a shift of costs from wages and benefits into aircraft maintenance, more airframe work and engine overhauls in 2005 compared to 2004, and the change in our accounting policy regarding engine and airframe overhauls (see Note 2 to our condensed consolidated financial statements).	
34

Table of Contents
 	•	 	Food and beverage service expense decreased $1.8 million, or 7.4%, due primarily to increased focus on cost reduction resulting in a decrease in average food and beverage cost per passenger.	
 	 	 	 	
 	•	 	Other selling expenses and commissions decreased $1.3 million, or 2.0% due to a decline in advertising expense, offset by increases in commissions and codeshare fees.	
 	 	 	 	
 	•	 	Depreciation and amortization decreased $2.2 million, or 3.5%. In the second quarter of 2004, we recorded an impairment charge of $36.8 million to reduce the carrying value of the Boeing 737-200C fleet, which results in lower depreciation expense in future periods. This is offset by the increased depreciation on two new owned aircraft delivered during the first six months of 2005.	
 	 	 	 	
 	•	 	Landing fees and other rentals increased $12.6 million, or 18.4%. The higher rates reflect increased rental costs, primarily in Seattle, Portland and Los Angeles.	
 	 	 	 	
 	•	 	Other expenses increased $4.1 million, or 5.4%, primarily reflecting increases in passenger remuneration costs, professional services costs, legal settlement costs and personnel and crew costs.	
Horizon Air Revenues
For the first six months of 2005, operating revenues increased $26.8 million, or 11.4% compared to 2004. This increase is due largely to the increased traffic in the native network and the contract flying for Frontier Airlines, which began in January 2004, partially offset by a 4.7% decline in ticket yields.
For the six months ended June 30, 2005, capacity increased 9.9% and traffic was up 17.8%, compared to the same period in 2004, due to an increase in contract flying with Frontier, the addition of one CRJ 700 in March 2005 and four additional seats on each of our Q400’s. Contract flying with Frontier represented approximately 9.5% of passenger revenues and 22.4% of capacity, during the first half of 2005 compared to 8.6% and 19.5%, respectively, in the first six months of 2004. Passenger load factor increased 4.7 percentage points to 71.1%. Passenger yield decreased 4.7% to 21.95 cents, reflecting the inclusion of the Frontier contract flying, the yield for which is significantly lower than native network flying and an increase in average trip lengths across the native network, partially due to an increase in harmonization flying with Alaska. Passenger revenues increased by $27.7 million, or 12.2%, due primarily to the increase in traffic resulting from increased harmonization flying with Alaska and the increase in Frontier contract flying.
Horizon Air Expenses
Operating expenses for the first six months of 2005 increased $20.3 million, or 8.4%, compared to the same period in 2004. Operating expenses per ASM decreased 1.4% as compared to 2004. Operating expenses per ASM excluding fuel and impairment charges decreased 4.5% as compared to the same
35

Table of Contents
period in 2004. Operating expenses in 2004 include $2.8 million related to an impairment charge on our held-for-sale F-28 aircraft and spare engines to lower the carrying value of these assets to their estimated fair value.
Explanations of other significant period-over-period changes in the components of operating expenses are as follows:
 	•	 	Wages and benefits increased $3.9 million, or 4.7%, reflecting a slight increase in the average number of employees, wages per employee, and a new performance-based incentive program for all employees, partially offset by favorable reductions of medical and workers compensation accruals.	
 	 	 	 	
 	•	 	Aircraft fuel increased $12.6 million, or 41.7%, due to a 38.3% increase in the GAAP fuel cost per gallon from $1.24 in 2004 to $1.72 in 2005. The increase in aircraft fuel expense is inclusive of $0.8 million of gains from settled hedges. During the first six months of 2005, Horizon also realized $5.7 million of gains from settled hedges, which are recorded in other non-operating income (expense). After including all gains from settled hedges recorded during the period, our “economic,” or net, fuel expense increased $7.3 million, or 24.5%, over 2004. Our economic fuel cost per gallon increased 21.3% from $1.23 in 2004 to $1.49 in 2005.	
 	 	 	 	
 	 	 	See page 24 for a table summarizing fuel cost per gallon realized by Horizon (the economic cost per gallon), the cost per gallon on a GAAP basis (including hedging gains recorded in aircraft fuel and non-operating income (expense)) and fuel cost per gallon excluding all hedging activities.	
 	 	 	 	
 	•	 	Aircraft maintenance expense increased $2.5 million, or 15.0%, primarily due to a higher number of routine maintenance activities and engine overhauls for the Q200 and Q400 fleets and fewer aircraft covered by warranty. These increases are partially offset by the elimination of amortization expense on capitalized airframe and engine overhauls as a result of the accounting change in the first quarter of 2005 (see Note 2 to our condensed consolidated financial statements).	
 	 	 	 	
 	•	 	Depreciation and amortization increased $1.6 million, or 25.4%, primarily due to the addition of one CRJ-700 at the end of the first quarter of 2005 and a Q400 in the third quarter of 2004.	
 	 	 	 	
 	•	 	Landing fees and other rentals increased $3.3 million, or 16.3%. Higher landing fees are a result of significant rate increases in several of our key airports, modest volume growth and an increase in airport fees and increased costs for security.	
Consolidated Nonoperating Income (Expense)
Net nonoperating income was $118.5 million for the first six months of 2005 compared to $12.2 million in the same period of 2004. Interest income increased $2.3 million due to a larger average marketable securities portfolio in 2005. Interest
36

Table of Contents
expense (net of capitalized interest) increased $2.6 million due to interest rate increases on our variable rate debt and the changes to some of our variable rate debt agreements to slightly higher fixed rate agreements.
Fuel hedging gains include $42.7 million in gains from fuel hedging contracts settled in the first six months of 2005 compared to $3.6 million in 2004. In addition, fuel hedging gains include net mark-to-market gains on unsettled hedge contracts of $93.0 million in 2005 and $22.8 million in 2004.
Consolidated Income Tax Expense (Benefit)
Accounting standards require us to provide for income taxes each quarter based on either our estimate of the effective tax rate for the full year or the actual year-to-date effective tax rate if it is our best estimate of our annual expectation. As the volatility of airfares and fuel prices and the seasonality of our business make it difficult to accurately forecast full-year pretax results, we use the actual year-to-date effective tax rate to provide for income taxes. In addition, a relatively small change in pretax results can cause a significant change in the effective tax rate due to the magnitude of nondeductible expenses, such as employee per diem costs, relative to pretax profit or loss. Our effective income tax rate on pre-tax income before the accounting change for the second quarter and first six months of 2005 is 41.4% and 41.5%, respectively. We applied our estimated 2005 year-to-date composite rate of 37.5% for the cumulative effect of the accounting change. In arriving at these rates, we considered a variety of factors, including year-to-date pretax results, the U.S. federal rate of 35%, estimated year-to-date nondeductible expenses and estimated state income taxes. We evaluate our tax rate each quarter and make adjustments when necessary.
Change in Accounting Policy
Effective January 1, 2005, the Company changed its method of accounting for major airframe and engine overhauls from the capitalize and amortize  method to the  direct expense  method. Under the former method, these costs were capitalized and amortized to maintenance expense over the shorter of the life of the overhaul or the remaining lease term. Under the  direct expense  method, overhaul costs are expensed as incurred. The Company believes that the  direct expense  method is preferable because it eliminates the judgment and estimation needed to determine overhaul versus repair allocations in maintenance activities. Additionally, the Company’s approved maintenance program for the majority of its airframes now focuses more on shorter, but more frequent, maintenance visits. Management also believes that the  direct expense  method is the predominant method used in the airline industry. Accordingly, effective January 1, 2005, the Company wrote off the net book value of its previously capitalized airframe and engine overhauls for all aircraft in a charge totaling $144.7 million pre-tax ($90.4 million after tax). The Company does not believe disclosing the effect of adopting the  direct expense  method on net income for the period ended June 30, 2005 provides meaningful information because of changes in the Company’s maintenance program, including the execution of a “power by the hour” engine maintenance agreement with a third party in late 2004.
37

Table of Contents
Critical Accounting Estimates
For information on our critical accounting estimates, see Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2004.
Liquidity and Capital Resources
The table below presents the major indicators of financial condition and liquidity.
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	June 30, 2005	 	 	December 31, 2004	 	 	Change	 	
 	
 	 	(In millions, except per share and debt-to-capital amounts)	 	
Cash and marketable securities	 	$	726.1	 	 	$	873.9	 	 	$	(147.8	)	
Working capital	 	 	113.2	 	 	 	285.0	 	 	 	(171.8	)	
Long-term debt and Long-term capital lease obligations	 	 	979.5	 	 	 	989.6	 	 	 	(10.1	)	
Shareholders’ equity	 	 	601.1	 	 	 	664.8	 	 	 	(63.7	)	
Book value per common share	 	$	22.12	 	 	$	24.51	 	 	$	(2.39	)	
Long-term debt-to-capital	 	 	62%:38	%	 	 	60%:40	%	 	NA	
Long-term debt-to-capital assuming aircraft operating leases are capitalized at seven times annualized rent	 	 	79%:21	%	 	 	78%:22	%	 	NA	
During the six months ended June 30, 2005, our cash and marketable securities decreased $147.8 million to $726.1 million at June 30, 2005. This decrease reflects cash used for property and equipment additions, net of aircraft deposit returns and proceeds from asset dispositions of $236.8 million and cash used in financing activities of $4.3 million, partially offset by cash provided by operating activities of $90.3 million.
Cash Provided by Operating Activities
During the first six months of 2005, net cash provided by operating activities was $90.3 million, compared to $188.8 million during the first six months of 2004. The decrease is due largely to the significant increases in the cost of fuel in the current year, cash payments made for severance, and a $42.7 million tax refund in 2004.
Cash Used in Investing Activities
Cash used in investing activities was $82.8 million during the first six months of 2005, compared to $128.0 million during the same period of 2004. We had net sales of marketable securities of $153.0 million and net purchases of $236.8 million for property and equipment additions, net of aircraft deposit returns and proceeds from asset dispositions. During the first six months of 2005, our aircraft related capital expenditures, net of aircraft deposit returns and proceeds from asset dispositions, increased $152.5 million as compared to 2004, primarily reflecting the purchase of two aircraft in the first six months of 2005 and the net payment of $101.2 million related to the aircraft purchase commitment entered into during the second quarter of 2005 to acquire 35 B737-800 aircraft. As of
38

Table of Contents
January 1, 2005, we no longer have capital expenditures related to overhauls as those maintenance activities are expensed as incurred under our maintenance accounting policy adopted on that date. We expect capital expenditures to be approximately $350.0 million for the full year of 2005 and approximately $430 million in 2006 as we begin to take delivery of several aircraft.
Cash Used in Financing Activities
Net cash used in financing activities was $4.3 million during the first six months of 2005 compared to $48.6 million during the same period in 2004. There was one debt issuance during the first half of 2005 of $20.0 million, which is secured by flight equipment. This note has a fixed interest rate of 6.07% and the payment term is 15 years. Debt issuances during the period were offset by normal long-term debt payments of $26.5 million.
We plan to meet our capital and operating commitments through cash flow from operations and from cash and marketable securities on hand at June 30, 2005 of $726.1 million. We also have restricted cash of $8.7 million, which is intended to collateralize interest payments due over the next nine months on our $150.0 million floating rate senior convertible notes due 2023 issued in 2003.
Bank Line of Credit Facility
During 2004, Alaska repaid its $150 million credit facility and, on December 23, 2004, that facility expired. On March 25, 2005, Alaska Airlines, Inc. finalized a $160 million variable rate credit facility with a syndicate of financial institutions that will expire in March 2008. The interest rate on the credit facility varies depending on certain financial ratios specified in the agreement with a minimum interest rate of LIBOR plus 200 basis points. Any borrowings will be secured by either aircraft or cash collateral. This credit facility contains contractual restrictions and requires maintenance of specific levels of net worth, maintenance of certain debt and leases to net worth, leverage and fixed charge coverage ratios, and limits on liens, asset dispositions, dividends, and certain other expenditures. Such provisions restrict Alaska Airlines from distributing any funds to Alaska Air Group in the form of dividends and limit the amount of funds Alaska Airlines can loan to Alaska Air Group. As of June 30, 2005, $300.0 million was available to loan to Alaska Air Group without violating the covenants in the credit facility. As of June 30, 2005, there are no outstanding borrowings on this credit facility and the Company has no immediate plans to borrow using this credit facility.
Supplemental Disclosure of Noncash Investing and Financing Activities
We received a $9.7 million credit toward our purchase deposits related to the recent aircraft purchase agreement entered into during the second quarter of 2005. This credit was recorded as additional purchase deposits and is included in other liabilities in our consolidated balance sheet and will be applied to future aircraft upon delivery.
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Aircraft Purchase Commitments
At June 30, 2005, we had firm orders for 44 aircraft requiring aggregate payments of approximately $1.4 billion, as set forth below. In addition, Alaska has options to acquire 15 additional B737’s, and
39

Table of Contents
Horizon has options to acquire 11 Q400’s and 19 CRJ 700’s. Alaska and Horizon expect to finance the firm orders and, to the extent exercised, the option aircraft with leases, long-term debt or internally generated cash. The B737-800 delivered on July 1, 2005 was acquired with cash on hand.
The following table summarizes aircraft commitments and payments by year:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delivery Period - Firm Orders	 	
 	 	July 1-December 31,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Beyond	 	 	 	 	
Aircraft	 	2005	 	 	2006	 	 	2007	 	 	2008	 	 	2009	 	 	2009	 	 	Total	 	
 	
Boeing 737-800	 	 	1	 	 	 	10	 	 	 	8	 	 	 	5	 	 	 	3	 	 	 	9	 	 	 	36	 	
Bombardier CRJ700	 	 	—	 	 	 	2	 	 	 	2	 	 	 	2	 	 	 	2	 	 	 	—	 	 	 	8	 	
 	
Total	 	 	1	 	 	 	12	 	 	 	10	 	 	 	7	 	 	 	5	 	 	 	9	 	 	 	44	 	
 	
Payments (Millions)	 	$	68.3	 	 	$	358.7	 	 	$	282.1	 	 	$	221.4	 	 	$	159.7	 	 	$	262.2	 	 	$	1,352.4	 	
 	
Contractual Obligations
The following table provides a summary of our principal payments under current and long-term debt and capital lease obligations, operating lease commitments, aircraft purchase commitments and other obligations as of June 30, 2005. This table excludes contributions to our various pension plans, which we expect to be approximately $55 million to $65 million per year through 2008.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	July 1 – December 31,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Beyond	 	 	 	 	
(in millions)	 	2005	 	 	2006	 	 	2007	 	 	2008	 	 	2009	 	 	2009	 	 	Total	 	
 	
Current and long-term debt and capital lease obligations*	 	$	29.3	 	 	$	58.5	 	 	$	61.6	 	 	$	64.9	 	 	$	68.2	 	 	$	754.0	 	 	$	1,036.5	 	
Operating lease commitments	 	 	126.2	 	 	 	238.3	 	 	 	211.3	 	 	 	205.8	 	 	 	189.2	 	 	 	947.4	 	 	$	1,918.2	 	
Aircraft purchase commitments	 	 	68.3	 	 	 	358.7	 	 	 	282.1	 	 	 	221.4	 	 	 	159.7	 	 	 	262.2	 	 	$	1,352.4	 	
Interest obligations (1)	 	 	20.3	 	 	 	52.5	 	 	 	51.5	 	 	 	49.6	 	 	 	47.2	 	 	 	159.8	 	 	$	380.9	 	
Other purchase obligations (2)	 	 	13.6	 	 	 	29.1	 	 	 	29.4	 	 	 	29.7	 	 	 	30.0	 	 	 	154.5	 	 	$	286.3	 	
 	
Total	 	$	257.7	 	 	$	737.1	 	 	$	635.9	 	 	$	571.4	 	 	$	494.3	 	 	$	2,277.9	 	 	$	4,974.3	 	
 	
*    Includes $150 million related to the Company’s senior convertible notes due in 2023. Holders of these Notes may require the Company to purchase all or a portion of their Notes, for a purchase price equal to principal plus accrued interest, on the 5 th , 10 th , and 15 th  anniversaries of the issuance of the Notes, or upon the occurrence of a change in control or tax event, as defined in the agreement. See Note 11 in the consolidated financial statements.
(1) For variable rate debt, future obligations are shown above using interest rates in effect as of June 30, 2005.
(2) Includes obligations under our long-term power-by-the-hour engine maintenance agreement.
40

Table of Contents
New Accounting Standards
During the fourth quarter of 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R, “Share Based Payment: An Amendment of SFAS Nos. 123 and 95”. The new standard requires companies to recognize as expense the fair value of stock options and other equity based compensation issued to employees as of the grant date. This new standard will apply to both stock options that we grant to employees and our Employee Stock Purchase Plan, which features a look-back provision and allows employees to purchase stock at a 15% discount. Our options are typically granted with ratable vesting provisions, and we intend to amortize compensation cost over the service period using the straight line method. Due to a recent decision by the Securities and Exchange Commission, implementation of SFAS 123R will be effective January 1, 2006. We intend to use the “modified prospective method” upon adoption whereby previously awarded but unvested equity awards are accounted for in accordance with SFAS 123R and prospective amounts are recognized in the income statement instead of simply being disclosed. Once adopted, we expect our stock based compensation expense, as measured under SFAS 123R, will be approximately $6 million to $10 million per year on a pre-tax basis.
In March 2005, the FASB issued Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143.” FIN 47 clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. The FIN also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of our fiscal year ending December 31, 2005. FIN 47 is not expected to have a significant impact on our financial position, results of operations or cash flows.
Effect of Inflation and Price Changes
Inflation and price changes other than for aircraft fuel do not have a significant effect on our operating revenues, operating expenses and operating income.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in market risk from the information provided in Item 7A “Quantitative and Qualitative Disclosure About Market Risk” in our 2004 10K except as follows:
Fuel Hedging
We purchase jet fuel at prevailing market prices, and seek to manage the risk of price fluctuations through execution of a documented hedging strategy. We utilize derivative financial instruments as hedges to decrease our exposure to the volatility of jet fuel prices. At June 30, 2005, we had fuel hedge contracts in place to hedge 106.1 million gallons of our expected jet fuel usage during the remainder of 2005, 181.4 million gallons in 2006, 86.0 million gallons in 2007 and 31.7 million gallons in 2008. This represents 50%, 42%, 20% and 7% of our anticipated fuel consumption in 2005, 2006, 2007 and 2008, respectively. Prices of these agreements range from $29 to $50 per crude oil barrel.
41

Table of Contents
We estimate that a 10% increase or decrease in crude oil prices as of June 30, 2005 would impact hedging positions by approximately $39.0 million and $37.7 million, respectively.
As of June 30, 2005 and December 31, 2004, the fair values of our fuel hedge positions were $194.5 million and $96.0 million, respectively. Of these amounts, $123.6 million of the 2005 fair value amounts and $65.7 million of the 2004 fair value amounts were included in current assets in the consolidated balance sheets based on the settlement dates for the underlying contracts. The remaining $70.9 million 2005 fair value and $30.3 million 2004 fair value is reflected as a non-current asset in the consolidated balance sheets.
Please refer to pages 23 and 24, as well as to Note 4 in the condensed consolidated financial statements, for company specific data on the results of our fuel hedging program.
Financial Market Risk
During the first half of 2005, we issued $20.0 million of debt secured by flight equipment, having an interest rate of 6.07% and a payment term of 15 years.
In the second quarter of 2005, the Company exercised its option under several of its existing variable rate long-term debt arrangements to fix the interest rates through maturity. The fixed rates on these recently affected debt arrangements range from 5.2% to 6.3%. These changes did not result in any gain or loss in the consolidated statements of operations.
ITEM 4. Controls and Procedures
As of June 30, 2005, an evaluation was performed under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (collectively, our “certifying officers”), of the effectiveness of the design and operation of our disclosure controls and procedures. These disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in our periodic reports filed with the Securities and Exchange Commission (the SEC) is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that the information is communicated to our certifying officers on a timely basis.
Our certifying officers concluded, based on their evaluation, that disclosure controls and procedures were effective.
We made no changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2005, that our certifying officers concluded materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We intend to regularly review and evaluate the design and effectiveness of our disclosure controls and procedures and internal controls over financial reporting on an ongoing basis and to improve
42

Table of Contents
these controls and procedures over time and to correct any deficiencies that we may discover in the future. While we believe the present design of our disclosure controls and procedures and internal controls over financial reporting are effective, future events affecting our business may cause us to modify our these controls and procedures in the future.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In May 2005, the Air Line Pilots Association filed a lawsuit in federal district court in Seattle to overturn the current labor contract covering Alaska’s pilots as established by an arbitrator, which was effective May 1, 2005. If the arbitrator’s decision is overturned, Alaska may be required to pay wages retroactively to May 1, 2005 as if the contract that existed prior to the arbitrator’s decision were still in effect. On July 21, 2005, the Company filed a motion to dismiss the lawsuit. The motion will be decided on evidence submitted or following oral argument. A decision is expected in the third quarter of 2005. At this time, the Company has no reason to believe that an unfavorable outcome is likely.
In March 2005, the Company filed a claim against the International Association of Machinists (IAM) seeking to compel arbitration of the dispute regarding the subcontracting of the Company’s ramp service operation in Seattle. In May 2005, the IAM filed a counter claim against the Company alleging that the Company violated the status quo and engaged in bad faith bargaining. On May 13, 2005, the Company announced that it had subcontracted the ramp service operation in Seattle, resulting in the immediate reduction of approximately 475 employees represented by the IAM. Shortly after this event, the IAM filed a motion for a preliminary injunction seeking to reverse the subcontracting by the Company. That motion was heard and denied by a federal court judge on June 2, 2005. The Company’s lawsuit and the IAM’s counterclaim are still pending in federal court. A discovery schedule and trial date have not yet been set. At this time, the Company has no reason to believe that an unfavorable outcome is likely.
We are a party to ordinary routine litigation incidental to our business and with respect to which no material liability is expected. Management believes the ultimate disposition of these matters is not likely to materially affect our financial position or results of operations. This forward-looking statement is based on management’s current understanding of the relevant law and facts; it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Default on Senior Securities
None
43

Table of Contents
ITEM 4. Submission of Matters to a Vote of Security Holders
 	(a)	 	The Company’s Annual Meeting of Stockholders was held on May 17, 2005.	
 	 	 	 	
 	(b)	 	At the Annual Meeting, Phyllis J. Campbell, Mark R. Hamilton, Byron I. Mallott and Richard A. Wien were elected directors for three-year terms expiring on the date of the Annual Meeting in 2008. The votes were as follows:	

 	 	For	 	 	Withheld	 	 	Broker Non-Votes	 	
Phyllis J. Campbell	 	 	16,016,779	 	 	 	8,224,693	 	 	 	0	 	
Mark R. Hamilton	 	 	16,016,635	 	 	 	8,224,837	 	 	 	0	 	
Byron I. Mallott	 	 	14,168,494	 	 	 	10,072,978	 	 	 	0	 	
Richard A. Wien	 	 	16,014,975	 	 	 	8,226,497	 	 	 	0	 	
Richard D. Foley	 	 	5,064	 	 	 	0	 	 	 	0	 	
Steve Nieman	 	 	5,253	 	 	 	0	 	 	 	0	 	
Robert C. Osborne	 	 	2,097	 	 	 	0	 	 	 	0	 	
Terry K. Dayton	 	 	4,910	 	 	 	0	 	 	 	0	 	
John Chevedden	 	 	190	 	 	 	0	 	 	 	0	 	
Carl Olson	 	 	2,760	 	 	 	0	 	 	 	0	 	
The terms of the following directors continued after the Annual Meeting:
 	 	 	
William S. Ayer	 	R. Marc Langland	
Patricia M. Bedient	 	Dennis F. Madsen	
Bruce R. Kennedy	 	John V. Rindlaub	
Jessie J. Knight, Jr.	 	J. Kenneth Thompson	

 	(c)	 	The results of voting on Proposal 2 through 9 were as follows:	

 	2.	 	A stockholder-sponsored bylaw amendment regarding stockholder rights plans failed to reach the 75% supermajority of votes present required to amend the Bylaws.	

 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
For	 	 	15,815,603	 	 	 	58.18	 	 	 	65.24	 	 	 	76.96	 	
Against	 	 	4,736,015	 	 	 	17.42	 	 	 	19.54	 	 	 	23.04	 	
44

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
Abstain	 	 	569,561	 	 	 	2.10	 	 	 	2.35	 	 	 	 	 	
Broker Non-votes	 	 	3,120,293	 	 	 	11.48	 	 	 	12.87	 	 	 	 	 	

 	3.	 	A stockholder-sponsored bylaw amendment regarding confidential voting failed to reach the 75% supermajority of votes present required to amend the Bylaws.	

 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
For	 	 	4,908,590	 	 	 	18.06	 	 	 	20.25	 	 	 	23.30	 	
Against	 	 	16,153,924	 	 	 	59.43	 	 	 	66.64	 	 	 	76.70	 	
Abstain	 	 	58,665	 	 	 	0.22	 	 	 	0.24	 	 	 	 	 	
Broker Non-votes	 	 	3,120,293	 	 	 	11.48	 	 	 	12.87	 	 	 	 	 	

 	4.	 	A stockholder-sponsored bylaw amendment regarding cumulative voting failed to reach the 75% supermajority of votes present required to amend the Bylaws.	

 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
For	 	 	11,836,250	 	 	 	43.54	 	 	 	48.83	 	 	 	56.32	 	
Against	 	 	9,180,168	 	 	 	33.77	 	 	 	37.87	 	 	 	43.68	 	
Abstain	 	 	104,761	 	 	 	0.39	 	 	 	0.43	 	 	 	 	 	
Broker Non-votes	 	 	3,120,293	 	 	 	11.48	 	 	 	12.87	 	 	 	 	 	

 	5.	 	A stockholder-sponsored bylaw amendment regarding annual election of directors reached the 75% supermajority of votes present required to amend the Bylaws. The board has determined, for the reasons set forth in the proxy statement, that the amendment cannot be effected.	

 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
For	 	 	18,427,132	 	 	 	67.79	 	 	 	76.01	 	 	 	87.46	 	
Against	 	 	2,641,480	 	 	 	9.72	 	 	 	10.90	 	 	 	12.54	 	
Abstain	 	 	52,567	 	 	 	0.19	 	 	 	0.22	 	 	 	 	 	
Broker Non-votes	 	 	3,120,293	 	 	 	11.48	 	 	 	12.87	 	 	 	 	 	

 	6.	 	A stockholder-sponsored bylaw amendment regarding simple majority voting to amend the Bylaws reached the 75% supermajority of votes present required to	
45

Table of Contents
 	 	 	amend the Bylaws. The board has determined, for the reasons set forth in the proxy statement, that the amendment cannot be effected.	

 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
For	 	 	18,352,995	 	 	 	67.52	 	 	 	75.71	 	 	 	89.27	 	
Against	 	 	2,205,787	 	 	 	8.11	 	 	 	9.10	 	 	 	10.73	 	
Abstain	 	 	562,397	 	 	 	2.07	 	 	 	2.32	 	 	 	 	 	
Broker Non-votes	 	 	3,120,293	 	 	 	11.48	 	 	 	12.87	 	 	 	 	 	

 	7.	 	A stockholder proposal recommending that the Board implement a simple majority voting policy passed, receiving a majority of the shares voted.	

 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
For	 	 	14,810,048	 	 	 	54.48	 	 	 	61.09	 	 	 	72.06	 	
Against	 	 	5,741,666	 	 	 	21.12	 	 	 	23.69	 	 	 	27.94	 	
Abstain	 	 	569,465	 	 	 	2.09	 	 	 	2.35	 	 	 	 	 	
Broker Non-votes	 	 	3,120,293	 	 	 	11.48	 	 	 	n/a	 	 	 	 	 	

 	8.	 	A stockholder-sponsored bylaw amendment regarding ballot access for stockholder-nominated candidates failed to reach the 75% supermajority of votes present required to amend the Bylaws.	

 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
For	 	 	5,253	 	 	 	0.02	 	 	 	0.04	 	 	 	0.04	 	
Against	 	 	11,847,143	 	 	 	43.58	 	 	 	99.96	 	 	 	99.96	 	
Abstain	 	 	0	 	 	 	0.00	 	 	 	0.00	 	 	 	 	 	
Broker Non-votes	 	 	0	 	 	 	0.00	 	 	 	0.00	 	 	 	 	 	
46

Table of Contents
 	9.	 	A stockholder-sponsored bylaw amendment requiring the disclosure of each board member’s voting record and providing board seats to the proponents of majority stockholder proposals that are not implemented within three months of passage failed to reach the 75% supermajority of votes present required to amend the Bylaws.	

 	 	 	 	 	 	 	 	 	 	% of Shares	 	 	% of Votes	 	
 	 	Number of	 	 	% of Shares	 	 	Present on	 	 	Cast for or	 	
 	 	Votes	 	 	Outstanding	 	 	this Proposal	 	 	Against	 	
For	 	 	5,253	 	 	 	0.02	 	 	 	0.04	 	 	 	0.04	 	
Against	 	 	11,847,143	 	 	 	43.58	 	 	 	99.96	 	 	 	99.96	 	
Abstain	 	 	0	 	 	 	0.00	 	 	 	0.00	 	 	 	 	 	
Broker Non-votes	 	 	0	 	 	 	0.00	 	 	 	0.00	 	 	 	 	 	
ITEM 5. Other Information
No changes have been made to the procedures by which security holders may recommend nominees to our Board of Directors since the filing of our definitive proxy statement for our 2005 annual meeting of shareholders.
ITEM 6. Exhibits
See Exhibit Index on page 49.
47

Table of Contents
Signatures
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 	 	 	
ALASKA AIR GROUP, INC.	 	 	
 	 	 	
Registrant	 	 	
 	 	 	
Date: August 5, 2005	 	 	
 	 	 	
By: /s/ Brandon S. Pedersen	 	 	
 	 	 	
Brandon S. Pedersen	 	 	
Staff Vice President/Finance and Controller	 	 	
 	 	 	
By: /s/ Bradley D. Tilden	 	 	
 	 	 	
Bradley D. Tilden
Executive Vice President/Finance and Chief Financial Officer	 	 	
48

Table of Contents
EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.
The following exhibits are numbered in accordance with Item 601 of Regulation S-K.
 	 	 	
Exhibit No.	 	Description	
10.1(1)	 	Aircraft General Terms Agreement dated June 15, 2005, between the Boeing Company and Alaska Airlines, Inc.*

10.2(1)	 	Purchase Agreement No. 2497 dated June 15, 2005, between the Boeing Company and Alaska Airlines, Inc.*

31.1(1)	 	Section 302 Certification of Chief Executive Officer Pursuant to 15 U.S.C. Section 7241

31.2(1)	 	Section 302 Certification of Chief Financial Officer Pursuant to 15 U.S.C. Section 7241

32.1(1)	 	Section 906 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.2(1)	 	Section 906 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

 
 	 	 	
(1)	 	Filed herewith.	
 	 	 	
*	 	Pursuant to 17 CFR 240.24b-2, confidential information has been omitted and has been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Application filed with the Commission.	
49

Exhibit 10.1

FOIA CONFIDENTIAL
TREATMENT REQUESTED

AIRCRAFT GENERAL TERMS AGREEMENT

AGTA-ASA

BETWEEN

THE BOEING COMPANY

AND

ALASKA AIRLINES, INC.

AGTA-ASA
BOEING PROPRIETARY

TABLE OF CONTENTS

PAGE
NUMBER
------

ARTICLES

1.       Subject Matter of Sale                                                        1

2.       Price, Taxes and Payment                                                      1

3.       Regulatory Requirements and Certificates                                      3

4.       Detail Specification; Changes                                                 4

5.       Representatives, Inspection, Demonstration Flights,
Test Data and Performance Guarantee Compliance                                4

6.       Delivery                                                                      5

7.       Excusable Delay                                                               5

8.       Risk Allocation/Insurance                                                     7

9.       Assignment, Resale or Lease                                                   8

10.      Termination for Certain Events                                                9

11.      Notices                                                                      10

12.      Miscellaneous                                                                11

EXHIBITS

A       Buyer Furnished Equipment Provisions Document

B       Customer Support Document

C       Product Assurance Document

APPENDICES

I       Insurance Certificate

II       Purchase Agreement Assignment

III      Post-Delivery Sale Notice

IV       Post-Delivery Lease Notice

V       Purchaser's/Lessee's Agreement

VI       Owner Appointment of Agent - Warranties

VII      Contractor Confidentiality Agreement

VIII      Post-Delivery Sale with Lease to Seller

IX       Sale with Lease

X        Post-Delivery Security

AGTA-ASA                               i

RESTRICTED LETTER AGREEMENT

6-1162-MSA-591  AGTA Terms Revisions

AGTA-ASA                               ii

AIRCRAFT GENERAL TERMS AGREEMENT NUMBER AGTA-ASA

between

The Boeing Company

and

Alaska Airlines, Inc.

Relating to

BOEING AIRCRAFT

This Aircraft General Terms Agreement Number AGTA-ASA (AGTA) between
The Boeing Company, including its wholly-owned subsidiary McDonnell Douglas
Corporation, (BOEING) and Alaska Airlines, Inc. (CUSTOMER) will apply to all
Boeing aircraft contracted for purchase from Boeing by Customer after the
effective date of this AGTA.

Article 1.  Subject Matter of Sale.

1.1 Aircraft. Boeing will manufacture and sell to Customer and
Customer will purchase from Boeing aircraft under purchase agreements that
incorporate the terms and conditions of this AGTA.

1.2 Buyer Furnished Equipment. Exhibit A, Buyer Furnished Equipment
Provisions Document to the AGTA, contains the obligations of Customer and Boeing
with respect to equipment purchased and provided by Customer, which Boeing will
receive, inspect, store, and install in an aircraft before delivery to Customer.
This equipment is defined as BUYER FURNISHED EQUIPMENT (BFE).

1.3 Customer Support. Exhibit B, Customer Support Document to the
AGTA, contains the obligations of Boeing relating to Materials (as defined in
Part 3 thereof), training, services, and other things in support of aircraft.

1.4 Product Assurance. Exhibit C, Product Assurance Document to the
AGTA, contains the obligations of Boeing and the suppliers of equipment
installed in each aircraft at delivery relating to warranties, patent
indemnities, software copyright indemnities, and service life policies.

Article 2.  Price, Taxes, and Payment.

2.1 Price.

2.1.1 AIRFRAME PRICE is defined as the price of the airframe
for a specific model of aircraft described in a purchase agreement. (For Models
717-200, 737-600, 737-700, 737-800, 737-900, 777-200LR and 777-300ER the
Airframe Price includes the engine price at its basic thrust level.)

AGTA-ASA                        - 1 -

2.1.2 OPTIONAL FEATURES PRICES are defined as the prices for
optional features selected by Customer for a specific model of aircraft
described in a purchase agreement.

2.1.3 ENGINE PRICE is defined as the price set by the engine
manufacturer for a specific engine to be installed on the model of aircraft
described in a purchase agreement (not applicable to Models 717-200, 737-600,
737-700, 737-800, 737-900, 777-200LR and 777-300ER).

2.1.4 AIRCRAFT BASIC PRICE is defined as the sum of the
Airframe Price, Optional Features Prices, and the Engine Price, if applicable.

2.1.5 ESCALATION ADJUSTMENT is defined as the price adjustment
to the Airframe Price (which includes the basic engine price for Models 717-200,
737-600, 737-700 737-800, 737-900, 777-200LR and 777-300ER) and the Optional
Features Prices resulting from the calculation using the economic price formula
contained in the Airframe and Optional Features Escalation Adjustment
supplemental exhibit to the applicable purchase agreement. The price adjustment
to the Engine Price for all other models of aircraft will be calculated using
the economic price formula in the Engine Escalation Adjustment supplemental
exhibit to the applicable purchase agreement.

2.1.6 ADVANCE PAYMENT BASE PRICE is defined as the estimated
price of an aircraft rounded to the nearest thousand U. S. dollars, as of the
date of signing a purchase agreement, for the scheduled month of delivery of
such aircraft using commercial forecasts of the Escalation Adjustment.

2.1.7 AIRCRAFT PRICE is defined as the total amount Customer
is to pay for an aircraft at the time of delivery, which is the sum of the
Aircraft Basic Price, the Escalation Adjustment, and other price adjustments
made pursuant to the purchase agreement.

2.2 Taxes.

2.2.1 Taxes. TAXES are defined as all taxes, fees, charges, or
duties and any interest, penalties, fines, or other additions to tax, including,
but not limited to sales, use, value added, gross receipts, stamp, excise,
transfer, and similar taxes imposed by any domestic or foreign taxing authority
arising out of or in connection with the performance of the applicable purchase
agreement or the sale, delivery, transfer, or storage of any aircraft, BFE, or
other things furnished under the applicable purchase agreement. Except for U.S.
federal or California State income taxes imposed on Boeing or Boeing's assignee,
and Washington State business and occupation taxes imposed on Boeing or Boeing's
assignee, Customer will be responsible for and pay all Taxes. Customer is
responsible for filing all tax returns, reports, declarations and payment of any
taxes related to or imposed on BFE.

2.2.2 Reimbursement of Boeing. Customer will promptly
reimburse Boeing on demand, net of additional taxes thereon, for any Taxes that
are imposed on and paid by Boeing or that Boeing is responsible for collecting.

AGTA-ASA                           - 2 -

2.3 Payment.

2.3.1 Advance Payment Schedule. Customer will make advance
payments to Boeing for each aircraft in the amounts and on the dates indicated
in the schedule set forth in the applicable purchase agreement.

2.3.2 Payment at Delivery. Customer will pay any unpaid
balance of the Aircraft Price at the time of delivery of each aircraft.

2.3.3 Form of Payment. Customer will make all payments to
Boeing by unconditional wire transfer of immediately available funds in United
States Dollars in a bank account in the United States designated by Boeing.

2.3.4 Monetary and Government Regulations. Customer is
responsible for complying with all monetary control regulations and for
obtaining necessary governmental authorizations related to payments.

Article 3.  Regulatory Requirements and Certificates.

3.1 Certificates. Boeing will manufacture each aircraft to conform
to the appropriate Type Certificate issued by the United States Federal Aviation
Administration (FAA) for the specific model of aircraft and will obtain from the
FAA and furnish to Customer at delivery of each aircraft either a Standard
Airworthiness Certificate or an Export Certificate of Airworthiness issued
pursuant to Part 21 of the Federal Aviation Regulations.

3.2 FAA or Applicable Regulatory Authority Manufacturer Changes.

3.2.1 A MANUFACTURER CHANGE is defined as any change to an
aircraft, data relating to an aircraft, or testing of an aircraft required by
the FAA to obtain a Standard Airworthiness Certificate, or by the country of
import and/or registration to obtain an Export Certificate of Airworthiness.

3.2.2 Boeing will bear the cost of incorporating all
Manufacturer Changes into the aircraft:

(i) resulting from requirements issued by the
FAA prior to the date of the Type Certificate for the applicable aircraft;

(ii) resulting from requirements issued by the FAA prior
to the date of the applicable purchase agreement; and

(iii) for any aircraft delivered during the 18 month
period immediately following the date of the applicable purchase agreement
(regardless of when the requirement for such change was issued by the FAA).

AGTA-ASA                            - 3 -

3.2.3 Customer will pay Boeing's charge for incorporating all
other Manufacturer Changes into the aircraft, including all changes for
validation of an aircraft required by any governmental agency of the country of
import and/or registration.

3.3 FAA Operator Changes.

3.3.1 An OPERATOR CHANGE is defined as a change in equipment
that is required by Federal Aviation Regulations which (i) is generally
applicable to transport category aircraft to be used in United States certified
air carriage and (ii) the required compliance date is on or before the scheduled
delivery month of the aircraft.

3.3.2 Boeing will deliver each aircraft with Operator Changes
incorporated or, at Boeing's option, with suitable provisions for the
incorporation of such Operator Changes, and Customer will pay Boeing's
applicable charges.

3.4 Export License. If an export license is required by United
States law or regulation for any aircraft or any other things delivered under
the purchase agreement, it is Customer's obligation to obtain such license. If
requested, Boeing will assist Customer in applying for any such export license.
Customer will furnish any required supporting documents.

Article 4.  Detail Specification; Changes.

4.1 Configuration Changes. The DETAIL SPECIFICATION is defined as
the Boeing document that describes the configuration of each aircraft purchased
by Customer. The Detail Specification for each aircraft may be amended (i) by
Boeing to reflect the incorporation of Manufacturer Changes and Operator Changes
or (ii) by the agreement of the parties. In either case the amendment will
describe the particular changes to be made and any effect on design,
performance, weight, balance, scheduled delivery month, Aircraft Basic Price,
Aircraft Price, and/or Advance Payment Base Price.

4.2 Development Changes. DEVELOPMENT CHANGES are defined as changes
to aircraft that do not affect the Aircraft Price or scheduled delivery month,
and do not adversely affect guaranteed weight, guaranteed performance, or
compliance with the interchangeability or replaceability requirements set forth
in the applicable Detail Specification. Boeing may, at its option, incorporate
Development Changes into both the Detail Specification and the aircraft prior to
delivery to Customer.

4.3 Notices. Boeing will promptly notify Customer of any amendments
to a Detail Specification, including providing the associated Detail
Specification updates.

Article 5.  Representatives, Inspection, Demonstration Flights, Test Data and
Performance Guarantee Compliance.

5.1 Office Space. Twelve months before delivery of the first
aircraft purchased, and continuing until the delivery of the last aircraft on
firm order, Boeing will furnish, free of charge, suitable office space and
equipment for the accommodation of up to three representatives of Customer in or
conveniently located near the assembly plant.

AGTA-ASA                            - 4 -

5.2 Inspection. Customer's representatives may inspect each aircraft
at any reasonable time, provided such inspection does not interfere with
Boeing's performance.

5.3 Demonstration Flights. Prior to delivery, Boeing will fly each
aircraft up to 4 hours to demonstrate to Customer the function of the aircraft
and its equipment using Boeing's production flight test procedures. Customer may
designate up to five representatives to participate as observers.

5.4 Test Data; Performance Guarantee Compliance. PERFORMANCE
GUARANTEES are defined as the written guarantees in a purchase agreement
regarding the operational performance of an aircraft. Boeing will furnish to
Customer flight test data obtained on an aircraft of the same model to evidence
compliance with the Performance Guarantees. Performance Guarantees will be met
if reasonable engineering interpretations and calculations based on the flight
test data establish that the particular aircraft being delivered under the
applicable purchase agreement would, if actually flown, comply with the
guarantees.

5.5 Special Aircraft Test Requirements. Boeing may use an aircraft
for flight and ground tests prior to delivery, without reduction in the Aircraft
Price, if the tests are considered necessary by Boeing (i) to obtain or maintain
the Type Certificate or Certificate of Airworthiness for the aircraft or (ii) to
evaluate potential improvements that may be offered for production or retrofit
incorporation.

Article 6.  Delivery.

6.1 Notices of Delivery Dates. Boeing will notify Customer of the
approximate delivery date of each aircraft at least 30 days before the scheduled
month of delivery and again at least 14 days before the scheduled delivery date.

6.2 Place of Delivery. Each aircraft will be delivered at a facility
selected by Boeing in the same state as the primary assembly plant for the
aircraft.

6.3 Bill of Sale. At delivery of an aircraft, Boeing will provide
Customer a bill of sale conveying good title, free of encumbrances.

6.4 Delay. If Customer delays acceptance of an aircraft beyond the
scheduled delivery date, Customer will reimburse Boeing for all costs incurred
by Boeing as a result of the delay.

Article 7.  Excusable Delay.

7.1 General. Boeing will not be liable for any delay in the
scheduled delivery month of an aircraft or other performance under a purchase
agreement caused by (i) acts of God; (ii) war or armed hostilities; (iii)
government acts or priorities; (iv) fires, floods, or earthquakes; (v) strikes
or labor troubles causing cessation, slowdown, or interruption of work; (vi)
inability, after due and timely diligence, to procure materials, systems,
accessories, equipment or parts; (vii) inability, after due and timely
diligence, to obtain type certification; or (viii) any other cause

AGTA-ASA                         - 5 -

to the extent such cause is beyond Boeing's control and not occasioned by
Boeing's fault or negligence. A delay resulting from any such cause is defined
as an EXCUSABLE DELAY.

7.2 Notice. Boeing will give written notice to Customer (i) of a
delay as soon as Boeing concludes that an aircraft will be delayed beyond the
scheduled delivery month due to an Excusable Delay and, when known, (ii) of a
revised delivery month based on Boeing's appraisal of the facts.

7.3 Delay in Delivery of Twelve Months or Less. If the revised
delivery month is 12 months or less after the scheduled delivery month, Customer
will accept such aircraft when tendered for delivery, subject to the following:

7.3.1 The calculation of the Escalation Adjustment will be
based on the previously scheduled delivery month.

7.3.2 The advance payment schedule will be adjusted to reflect
the revised delivery month.

7.3.3 All other provisions of the applicable purchase '
agreement, including the BFE on-dock dates for the delayed aircraft, are
unaffected by an Excusable Delay.

7.4 Delay in Delivery of More Than Twelve Months. If the revised
delivery month is more than 12 months after the scheduled delivery month, either
party may terminate the applicable purchase agreement with respect to such
aircraft within 30 days of the notice. If either party does not terminate the
applicable purchase agreement with respect to such aircraft, all terms and
conditions of the applicable purchase agreement will remain in effect.

7.5 Aircraft Damaged Beyond Repair. If an aircraft is destroyed or
damaged beyond repair for any reason before delivery, Boeing will give written
notice to Customer specifying the earliest month possible, consistent with
Boeing's other contractual commitments and production capabilities, in which
Boeing can deliver a replacement. Customer will have 30 days from receipt of
such notice to elect to have Boeing manufacture a replacement aircraft under the
same terms and conditions of purchase, except that the calculation of the
Escalation Adjustment will be based upon the scheduled delivery month in effect
immediately prior to the date of such notice, or, failing such election, the
applicable purchase agreement will terminate with respect to such aircraft.
Boeing will not be obligated to manufacture a replacement aircraft if
reactivation of the production line for the specific model of aircraft would be
required.

7.6 Termination. Termination under this Article will discharge all
obligations and liabilities of Boeing and Customer with respect to any aircraft
and all related undelivered Materials (as defined in Exhibit B, Customer Support
Document), training, services, and other things terminated under the applicable
purchase agreement, except that Boeing will return to Customer, without
interest, an amount equal to all advance payments paid by Customer for the
aircraft. If Customer terminates the applicable purchase agreement as to any
aircraft, Boeing may elect, by written notice to Customer within 30 days, to
purchase from Customer any BFE related to the aircraft at the invoice prices
paid, or contracted to be paid, by Customer.

AGTA-ASA                        - 6 -

7.7 Exclusive Rights. The termination rights in this Article are in
substitution for all other rights of termination or any claim arising by
operation of law due to delays in performance covered by this Article.

Article 8.  Risk Allocation/Insurance.

8.1 Title and Risk with Boeing.

8.1.1 Boeing's Indemnification of Customer. Until transfer of
title to an aircraft to Customer, Boeing will indemnify and hold harmless
Customer and Customer's observers from and against all claims and liabilities,
including all expenses and attorneys' fees incident thereto or incident to
establishing the right to indemnification, for injury to or death of any
person(s), including employees of Boeing but not employees of Customer, or for
loss of or damage to any property, including an aircraft, arising out of or in
any way related to the operation of an aircraft during all demonstration and
test flights conducted under the provisions of the applicable purchase
agreement, whether or not arising in tort or occasioned by the negligence of
Customer or any of Customer's observers.

8.1.2 Definition of Customer. For the purposes of this
Article, "Customer" is defined as Alaska Airlines, Inc., its divisions,
subsidiaries, affiliates, the assignees of each, and their respective directors,
officers, employees, and agents.

8.2 Insurance.

8.2.1 Insurance Requirements. Customer will purchase and
maintain insurance acceptable to Boeing and will provide a certificate of such
insurance that names Boeing as an additional insured for any and all claims and
liabilities for injury to or death of any person or persons, including employees
of Customer but not employees of Boeing, or for loss of or damage to any
property, including any aircraft, arising out of or in any way relating to
Materials, training, services, or other things provided under Exhibit B of the
AGTA, which will be incorporated by reference into the applicable purchase
agreement, whether or not arising in tort or occasioned by the negligence of
Boeing, except with respect to legal liability to persons or parties other than
Customer or Customer's assignees arising out of an accident caused solely by a
product defect in an aircraft. Customer will provide such certificate of
insurance at least thirty (30) days prior to the scheduled delivery of the first
aircraft under a purchase agreement. The insurance certificate will reference
each aircraft delivered to Customer pursuant to each applicable purchase
agreement. Annual renewal certificates will be submitted to Boeing before the
expiration of the policy periods. The form of the insurance certificate,
attached as Appendix I, states the terms, limits, provisions, and coverages
required by this Article 8.2.1. The failure of Boeing to demand compliance with
this 8.2.1 in any year will not in any way relieve Customer of its obligations
hereunder nor constitute a waiver by Boeing of these obligations.

8.2.2 Noncompliance with Insurance Requirements. If Customer
fails to comply with any of the insurance requirements of Article 8.2.1 or if
any of the insurers fails to pay a claim covered by the insurance or otherwise
fails to meet any of insurer's obligations

AGTA-ASA                        - 7 -

required by Appendix I, Customer will provide the same protection to Boeing as
that required by Article 8.2.1 above.

8.2.3 Definition of Boeing. For purposes of this article,
"Boeing" is defined as The Boeing Company, its divisions, subsidiaries,
affiliates, assignees of each, and their respective directors, officers,
employees, and agents.

Article 9.  Assignment, Resale, or Lease.

9.1 Assignment. This AGTA and each applicable purchase agreement are
for the benefit of the parties and their respective successors and assigns. No
rights or duties of either party may be assigned or delegated, or contracted to
be assigned or delegated, without the prior written consent of the other party,
except:

9.1.1 Either party may assign its interest to a corporation
that (i) results from any merger, reorganization, or acquisition of such party
and (ii) acquires substantially all the assets of such party;

9.1.2 Boeing may assign its rights to receive money; and

9.1.3 Boeing may assign any of its rights and duties to any
wholly-owned subsidiary of Boeing.

9.1.4 Boeing may assign any of its rights and duties with
respect to Part 1, Articles 1, 2, 4 and 5 of Exhibit B, Customer Support
Document to the AGTA, to Alteon Training L.L.C.

9.2 Transfer by Customer at Delivery. Boeing will take any requested
action reasonably required for the purpose of causing an aircraft, at time of
delivery, to be subject to an equipment trust, conditional sale, lien, or other
arrangement for Customer to finance the aircraft. However, no such action will
require Boeing to divest itself of title to or possession of the aircraft until
delivery of and payment for the aircraft. A sample form of assignment acceptable
to Boeing is attached as Appendix II.

9.3 Sale or Lease by Customer After Delivery. If, following delivery
of an aircraft, Customer sells or leases the aircraft (including any sale and
lease-back to seller for financing purposes), Customer may assign some or all of
its rights with respect to the aircraft under the applicable purchase agreement
to the purchaser or lessee of such aircraft, and all such rights will inure to
the benefit of such purchaser or lessee effective upon Boeing's receipt of the
written agreement of the purchaser or lessee, in a form satisfactory to Boeing,
to comply with all applicable terms and conditions of the applicable purchase
agreement. Sample forms of notice to Boeing of such assignments giving examples
of language acceptable to Boeing are attached as Appendices III, IV, VIII, IX
and X.

AGTA-ASA                       - 8 -

9.4 Notice of Sale or Lease After Delivery. Customer will give
notice to Boeing as soon as practicable of the sale or lease of an aircraft,
including in the notice the name of the entity or entities with title and/or
possession of such aircraft.

9.5 Exculpatory Clause in Post-Delivery Sale or Lease. If, following
the delivery of an aircraft, Customer sells or leases such aircraft and obtains
from the transferee any form of exculpatory clause protecting Customer from
liability for loss of or damage to the aircraft, and/or related incidental or
consequential damages, including without limitation loss of use, revenue, or
profit, Customer shall obtain for Boeing the purchaser's or lessee's written
agreement to be bound by terms and conditions substantially as set forth in
Appendix V. This Article 9.5 applies only if purchaser or lessee has not
provided to Boeing the written agreement described in Article 9.3 above.

9.6 Appointment of Agent - Warranty Claims. If, following delivery
of an aircraft, Customer appoints an agent to act directly with Boeing for the
administration of claims relating to the warranties under the applicable
purchase agreement, Boeing will deal with the agent for that purpose, effective
upon Boeing's receipt of the agent's written agreement, in a form satisfactory
to Boeing, to comply with all applicable terms and conditions of the applicable
purchase agreement. A sample form of agreement acceptable to Boeing is attached
as Appendix VI.

9.7 No Increase in Boeing Liability. No action taken by Customer or
Boeing relating to the resale or lease of an aircraft or the assignment of
Customer's rights under the applicable purchase agreement will subject Boeing to
any liability beyond that in the applicable purchase agreement or modify in any
way Boeing's obligations under the applicable purchase agreement.

Article 10. Termination of Purchase Agreements for Certain Events.

10.1 Termination. If either party

(i)   ceases doing business as a going concern, or suspends
all or substantially all its business operations, or
makes an assignment for the benefit of creditors, or
generally does not pay its debts as they become due, or
admits in writing its inability to pay its debts; or

(ii)  petitions for or acquiesces in the appointment of any
receiver, trustee or similar officer to liquidate or
conserve its business or any substantial part of its
assets; commences any legal proceeding such as
bankruptcy, reorganization, readjustment of debt,
dissolution, or liquidation available for the relief of
financially distressed debtors; or becomes the object of
any such proceeding, unless the proceeding is dismissed
or stayed within a reasonable period, not to exceed 60
days,

the other party may terminate any purchase agreement with respect to any
undelivered aircraft, Materials, training, services, and other things by giving
written notice of termination.

AGTA-ASA                         - 9 -

10.2 Repayment of Advance Payments. If Customer terminates the
applicable purchase agreement under this Article, Boeing will repay to Customer,
without interest, an amount equal to any advance payments received by Boeing
from Customer with respect to undelivered aircraft.

Article 11. Notices.

All notices required by this AGTA or by any applicable purchase
agreement will be written in English, will be effective on the date of receipt,
and will be delivered or transmitted by any customary means to the appropriate
address or number listed below:

Customer   Delivery or   Alaska Airlines, Inc.
Courier:      19300 International Blvd. South
Seattle, Washington
98188
Attention: Vice President - Finance

Mail:         Alaska Airlines, Inc.
P.O. Box 68900
Seattle, Washington
98168
Attention: Vice President - Finance

Facsimile:    206-392-5007
Telephone:    206-392-5015

Boeing     Delivery or   Boeing Commercial Airplanes
Courier:      1901 Oakesdale Avenue S.W.
Renton, Washington  98055
U.S.A.
Attention: Vice President - Contracts
Mail Code 21-34

Mail:         Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington  98124-2207
U.S.A.
Attention: Vice President - Contracts
Mail Code 21-34

Facsimile:    425 237-1706
Telephone:    206 766-2400

AGTA-ASA                       - 10 -

Article 12. Miscellaneous.

12.1 Government Approval. Boeing and Customer will assist each other
in obtaining any governmental consents or approvals required to effect
certification and sale of aircraft under the applicable purchase agreement.

12.2 Headings. Article and paragraph headings used in this AGTA and
in any purchase agreement are for convenient reference only and are not intended
to affect the interpretation of this AGTA or any purchase agreement.

12.3 GOVERNING LAW. THIS AGTA AND ANY PURCHASE AGREEMENT WILL BE
INTERPRETED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF WASHINGTON, U.S.A.,
EXCEPT THAT WASHINGTON'S CHOICE OF LAW RULES SHALL NOT BE INVOKED FOR THE
PURPOSE OF APPLYING THE LAW OF ANOTHER JURISDICTION.

12.4 Waiver/Severability. Failure by either party to enforce any
provision of this AGTA or any purchase agreement will not be construed as a
waiver. If any provision of this AGTA or any provision of any purchase agreement
are held unlawful or otherwise ineffective by a court of competent jurisdiction,
the remainder of the AGTA or the applicable purchase agreement will remain in
effect.

12.5 Survival of Obligations. The Articles and Exhibits of this AGTA
including but not limited to those relating to insurance, DISCLAIMER AND RELEASE
and the EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES will survive termination or
cancellation of any purchase agreement or part thereof.

12.6 AGTA Changes. The intent of the AGTA is to simplify the
standard contracting process for terms and conditions which are related to the
sale and purchase of all Boeing aircraft. This AGTA has been mutually agreed to
by the parties as of the date indicated below. From time to time the parties may
elect, by mutual agreement to update, or modify the existing articles as written
and revise this AGTA. If such changes are made, any existing executed Purchase
Agreement(s) will be governed by the terms and conditions in effect on the date
of the executed Purchase Agreement.

DATED AS OF June 15, 2005

Alaska Airlines, Inc.                             THE BOEING COMPANY

By _______________________________                By __________________________

Its ______________________________                Its _________________________

AGTA-ASA                         - 11 -

EXHIBIT A

TO

AIRCRAFT GENERAL TERMS AGREEMENT

AGTA-ASA

BETWEEN

THE BOEING COMPANY

AND

ALASKA AIRLINES, INC.

BUYER FURNISHED EQUIPMENT PROVISIONS DOCUMENT

BOEING PROPRIETARY
AGTA-ASA                                A

BUYER FURNISHED EQUIPMENT PROVISIONS DOCUMENT

1. General.

Certain equipment to be installed in the Aircraft is furnished to Boeing
by Customer at Customer's expense. This equipment is designated "Buyer Furnished
Equipment" (BFE) and is listed in the Detail Specification. Boeing will provide
to Customer a BFE Requirements On-Dock/Inventory Document (BFE Document) or an
electronically transmitted BFE Report which may be periodically revised, setting
forth the items, quantities, on-dock dates and shipping instructions relating to
the in sequence installation of BFE as described in the applicable Supplemental
Exhibit to this Exhibit A in a purchase agreement at the time of aircraft
purchase.

2. Supplier Selection.

Customer will:

2.1 Select and notify Boeing of the suppliers of BFE items by those dates
appearing in Supplemental Exhibit BFE1 to the applicable purchase agreement at
the time of aircraft purchase.

2.2 Meet with Boeing and such selected BFE suppliers promptly after such
selection to:

2.2.1 complete BFE configuration design requirements for such BFE;
and

2.2.2 confirm technical data submittal requirements for BFE
certification.

3. Customer's Obligations.

Customer will:

3.1 comply with and cause the supplier to comply with the provisions of
the BFE Document or BFE Report; including, without limitation,

3.1.1 deliver technical data (in English) to Boeing as required to
support installation and FAA certification in accordance with the schedule
provided by Boeing or as mutually agreed upon during the BFE meeting referred to
above;

BOEING PROPRIETARY
AGTA-ASA                             A-1

3.1.2 deliver BFE including production and/or flight training spares
and BFE Aircraft Software to Boeing in accordance with the quantities, schedule,
and other instructions provided therein; and

3.1.3 assure that all BFE Aircraft Software is delivered in
compliance with Boeing's then-current Standards for Loadable Systems;

3.1.4 assure that all BFE parts are delivered to Boeing with
appropriate quality assurance documentation;

3.2 authorize Boeing to discuss all details of the BFE directly with the
BFE suppliers;

3.3 authorize Boeing to conduct or delegate to the supplier quality source
inspection and supplier hardware acceptance of BFE at the supplier location;

3.3.1 require supplier's contractual compliance to Boeing defined
quality assurance requirements, source inspection programs and supplier
delegation programs, including availability of adequate facilities for Boeing
resident personnel; and

3.3.2 assure that all BFE supplier's quality systems are approved to
Boeing's then current standards for such systems;

3.4 obtain from supplier a non-exclusive, perpetual, royalty-free,
irrevocable license for Boeing to copy BFE Aircraft Software. The license is
needed to enable Boeing to load the software copies in (i) the aircraft's mass
storage device (MSD), (ii) media (e.g., diskettes, CD-ROMs, etc.), (iii) the BFE
hardware and/or (iv) an intermediate device or other media to facilitate copying
of the BFE Aircraft Software into the aircraft's MSD, BFE hardware and/or media,
including media as Boeing may deliver to Customer with the aircraft;

3.5 grant Boeing a license, extending the same rights set forth in
paragraph 3.4 above, to copy: a) BFE Aircraft Software and data Customer has
modified and/or b) other software and data Customer has added to the BFE
Aircraft Software;

3.6 provide necessary field service representation at Boeing's facilities
to support Boeing on all issues related to the installation and certification of
BFE;

3.7 deal directly with all BFE suppliers to obtain overhaul data,
provisioning data, related product support documentation and any warranty
provisions applicable to the BFE;

3.8 work closely with Boeing and the BFE suppliers to resolve any
difficulties, including defective equipment, that arise;

BOEING PROPRIETARY
AGTA-ASA                             A-2

3.9 be responsible for modifying, adjusting and/or calibrating BFE as
required for FAA approval and for all related expenses;

3.10 assure that a proprietary information agreement is in place between
Boeing and BFE suppliers prior to Boeing providing any documentation to such
suppliers;

3.11 warrant that the BFE will comply with all applicable FARs and the
U.S. Food and Drug Administration (FDA) sanitation requirements for installation
and use in the Aircraft at the time of delivery. Customer will be responsible
for supplying any data and adjusting, calibrating, re-testing or updating such
BFE and data to the extent necessary to obtain applicable FAA and FDA approval
and shall bear the resulting expenses;

3.12 warrant that the BFE will meet the requirements of the Detail
Specification; and

3.13 be responsible for providing equipment which is FAA certifiable at
time of Aircraft delivery, or for obtaining waivers from the applicable
regulatory agency for non-FAA certifiable equipment.

4. Boeing's Obligations.

Other than as set forth below, Boeing will provide for the installation of
and install the BFE and obtain certification of the Aircraft with the BFE
installed.

5. Nonperformance by Customer.

If Customer's nonperformance of obligations in this Exhibit or in the BFE
Document causes a delay in the delivery of the Aircraft or causes Boeing to
perform out-of-sequence or additional work, Customer will reimburse Boeing for
all resulting expenses and be deemed to have agreed to any such delay in
Aircraft delivery. In addition Boeing will have the right to:

5.1 provide and install specified equipment or suitable alternate
equipment and increase the price of the Aircraft accordingly; and/or

5.2 deliver the Aircraft to Customer without the BFE installed.

6. Return of Equipment.

BFE not installed in the Aircraft will be returned to Customer in
accordance with Customer's instructions and at Customer's expense.

BOEING PROPRIETARY
AGTA-ASA                             A-3

7. Title and Risk of Loss.

7.1 With respect to Aircraft manufactured in the State of Washington,
title to and risk of loss of BFE provided for such Aircraft will at all times
remain with Customer or other owner. Boeing will have only such liability for
BFE as a bailee for mutual benefit would have, but will not be liable for loss
of use.

7.2 With respect to Aircraft manufactured in the State of California,
Customer agrees to sell and Boeing agrees to purchase each item of BFE
concurrently with its delivery to Boeing. A reasonable shipset price for the BFE
shall be established with Customer. Customer and Boeing agree that the Aircraft
Price will be increased by the amount of said shipset price and such amount will
be included on Boeing's invoice at time of Aircraft delivery. Boeing's payment
for the purchase of each shipset of BFE from Customer will be made at the time
of delivery of the Aircraft in which the BFE is installed.

8. Interchange of BFE

To properly maintain Boeing's production flow and to preserve Boeing's
delivery commitments, Boeing reserves the right, if necessary, due to equipment
shortages or failures, to interchange new items of BFE acquired from or for
Customer with new items of the same part numbers and modification status
acquired from or for other customers of Boeing. Used BFE acquired from Customer
or from other customers of Boeing will not be interchanged.

9. Indemnification of Boeing.

Customer hereby indemnifies and holds harmless Boeing from and against all
claims and liabilities, including costs and expenses (including attorneys' fees)
incident thereto or incident to successfully establishing the right to
indemnification, for injury to or death of any person or persons, including
employees of Customer but not employees of Boeing, or for loss of or damage to
any property, including any Aircraft, arising out of or in any way connected
with any nonconformance or defect in any BFE and whether or not arising in tort
or occasioned by the negligence of Boeing. This indemnity will not apply with
respect to any nonconformance or defect caused solely by Boeing's installation
of the BFE.

10. Patent Indemnity.

Customer hereby indemnifies and holds harmless Boeing from and against all
claims, suits, actions, liabilities, damages and costs arising out of any actual
or alleged infringement of any patent or other intellectual property rights by
BFE or arising out of the installation, sale or use of BFE by Boeing.

BOEING PROPRIETARY
AGTA-ASA                             A-4

11. Definitions.

For the purposes of the above indemnities, the term "Boeing" includes The
Boeing Company, its divisions, subsidiaries and affiliates, the assignees of
each, and their directors, officers, employees and agents.

BOEING PROPRIETARY
AGTA-ASA                             A-5

EXHIBIT B

TO

AIRCRAFT GENERAL TERMS AGREEMENT

AGTA-ASA

BETWEEN

THE BOEING COMPANY

AND

ALASKA AIRLINES, INC.

CUSTOMER SUPPORT DOCUMENT

This document contains:

Part 1:      Maintenance and Flight Training Programs; Operations
Engineering Support

Part 2:      Field Services and Engineering Support
Services

Part 3:      Technical Information and Materials

Part 4:      Alleviation or Cessation of Performance

Part 5:      Protection of Proprietary Information and
Proprietary Materials

BOEING PROPRIETARY
AGTA-ASA                               B
i

CUSTOMER SUPPORT DOCUMENT

PART 1: BOEING MAINTENANCE AND FLIGHT TRAINING
PROGRAMS; OPERATIONS ENGINEERING SUPPORT

1. Boeing Training Programs.

1.1 Boeing will provide maintenance training and flight training programs
to support the introduction of a specific model of aircraft into service. The
training programs will consist of general and specialized courses and will be
described in a Supplemental Exhibit to the applicable purchase agreement.

1.2 Boeing will conduct all training at Boeing's primary training facility
for the model of aircraft purchased unless otherwise agreed.

1.3 All training will be presented in the English language. If translation
is required, Customer will provide interpreters.

1.4 Customer will be responsible for all expenses of Customer's personnel.
Boeing will transport Customer's personnel between their local lodging and
Boeing's training facility.

2. Training Planning Conferences.

Customer and Boeing will conduct planning conferences approximately 12
months before the scheduled delivery month of the first aircraft of a model to
define and schedule the maintenance and flight training programs.

3. Operations Engineering Support.

3.1 As long as an aircraft purchased by Customer from Boeing is operated
by Customer in scheduled revenue service, Boeing will provide operations
engineering support. Such support will include:

3.1.1 assistance with the analysis and preparation of performance
data to be used in establishing operating practices and policies for Customer's
operation of aircraft;

3.1.2 assistance with interpretation of the minimum equipment list,
the definition of the configuration deviation list and the analysis of
individual aircraft performance;

BOEING PROPRIETARY
AGTA-ASA                               B
1-1

3.1.3 assistance with solving operational problems associated with
delivery and route-proving flights;

3.1.4 information regarding significant service items relating to
aircraft performance or flight operations; and

3.1.5 if requested by Customer, Boeing will provide operations
engineering support during an aircraft ferry flight.

4. Training at a Facility Other Than Boeing's.

If requested by Customer, Boeing will conduct the classroom portions of
the maintenance and flight training (except for the Performance Engineer
training courses) at a mutually acceptable alternate training site, subject to
the following conditions:

4.1 Customer will provide acceptable classroom space, simulators (as
necessary for flight training) and training equipment required to present the
courses;

4.2 Customer will pay Boeing's then-current per diem charge for each
Boeing instructor for each day, or fraction thereof, that the instructor is
outside King County, Washington, including travel time;

4.3 Customer will reimburse Boeing for the actual costs of round-trip
transportation for Boeing's instructors and the shipping costs of training
Materials between the primary training facility and the alternate training site
outside King County, Washington;

4.4 Customer will be responsible for all taxes, fees, duties, licenses,
permits and similar expenses incurred by Boeing and its employees as a result of
Boeing's providing training at the alternate site outside King County,
Washington or incurred as a result of Boeing providing revenue service training;
and

4.5 Those portions of training that require the use of training devices
not available at the alternate site will be conducted at Boeing's facility or at
some other alternate site.

5. General Terms and Conditions.

5.1 Boeing flight instructor personnel will not be required to work more
than 5 days per week, or more than 8 hours in any one 24-hour period, of which
not more than 5 hours per 8-hour workday will be spent in actual flying. These
foregoing restrictions will not apply to ferry assistance or revenue service
training services, which will be governed by FAA rules and regulations.

BOEING PROPRIETARY
AGTA-ASA                               B
1-2

5.2 NORMAL LINE MAINTENANCE is defined as line maintenance that Boeing
might reasonably be expected to furnish for flight crew training at Boeing's
facility, and will include ground support and aircraft storage in the open, but
will not include provision of spare parts. Boeing will provide Normal Line
Maintenance services for any aircraft while the aircraft is used for flight crew
training at Boeing's facility in accordance with the Boeing Maintenance Plan
(Boeing document D6-82076) and the Repair Station Operation and Inspection
Manual (Boeing document D6-25470). Customer will provide such services if flight
crew training is conducted elsewhere. Regardless of the location of such
training, Customer will be responsible for providing all maintenance items
(other than those included in Normal Line Maintenance) required during the
training, including, but not limited to, fuel, oil, landing fees and spare
parts.

5.3 If the training is based at Boeing's facility, and the aircraft is
damaged during such training, Boeing will make all necessary repairs to the
aircraft as promptly as possible. Customer will pay Boeing's reasonable charge,
including the price of parts and materials, for making the repairs. If Boeing's
estimated labor charge for the repair exceeds $25,000, Boeing and Customer will
enter into an agreement for additional services before beginning the repair
work.

5.4 If the flight training is based at Boeing's facility, several airports
in surrounding states may be used, at Boeing's option. Unless otherwise agreed
in the flight training planning conference, it will be Customer's responsibility
to make arrangements for the use of such airports.

5.5 If Boeing agrees to make arrangements on behalf of Customer for the
use of airports for flight training, Boeing will pay on Customer's behalf any
landing fees charged by any airport used in conjunction with the flight
training. At least 30 days before flight training, Customer will provide Boeing
an open purchase order against which Boeing will invoice Customer for any
landing fees Boeing paid on Customer's behalf. The invoice will be submitted to
Customer approximately 60 days after flight training is completed, when all
landing fee charges have been received and verified. Customer will pay to Boeing
within 30 days of the date of the invoice.

5.6 If requested by Boeing, in order to provide the flight training or
ferry flight assistance, Customer will make available to Boeing an aircraft
after delivery to familiarize Boeing instructor or ferry flight crew personnel
with such aircraft. If flight of the aircraft is required for any Boeing
instructor or ferry flight crew member to maintain an FAA license for flight
proficiency or landing currency, Boeing will be responsible for the costs of
fuel, oil, landing fees and spare parts attributable to that portion of the
flight.

5.7 If any part of the training described in Article 1.1 of this Exhibit
is not used by Customer within 12 months after the delivery of the last aircraft
under the relevant purchase agreement, Boeing will not be obligated to provide
such training.

BOEING PROPRIETARY
AGTA-ASA                               B
1-3

CUSTOMER SUPPORT DOCUMENT

PART 2: FIELD AND ENGINEERING SUPPORT SERVICES

1. Field Service Representation.

Boeing will furnish field service representation to advise Customer with
respect to the maintenance and operation of an aircraft (FIELD SERVICE
REPRESENTATIVES).

1.1 Field Service representation will be available at or near Customer's
main maintenance or engineering facility beginning before the scheduled delivery
month of the first aircraft and ending 12 months after delivery of the last
aircraft covered by a specific purchase agreement.

1.2 Customer will provide, at no charge to Boeing, suitable furnished
office space and office equipment at the location where Boeing is providing
Field Service Representatives. As required, Customer will assist each Field
Service Representative with visas, work permits, customs, mail handling,
identification passes and formal introduction to local airport authorities.

1.3 Boeing Field Service Representatives are assigned to various airports
around the world. Whenever Customer's aircraft are operating through any such
airport, the services of Boeing's Field Service Representatives are available to
Customer.

2. Engineering Support Services.

Boeing will, if requested by Customer, provide technical advisory
assistance for any aircraft and Boeing Product (as defined in Part I of Exhibit
C). Technical advisory assistance, provided from the Seattle area or at a base
designated by Customer as appropriate, will include:

2.1 Operational Problem Support. If Customer experiences operational
problems with an aircraft, Boeing will analyze the information provided by
Customer to determine the probable nature and cause of the problem and to
suggest possible solutions.

2.2 Schedule Reliability Support. If Customer is not satisfied with the
schedule reliability of a specific model of aircraft, Boeing will analyze
information provided by Customer to determine the nature and cause of the
problem and to suggest possible solutions.

2.3 Maintenance Cost Reduction Support. If Customer is concerned that
actual maintenance costs of a specific model of aircraft are excessive, Boeing
will analyze

BOEING PROPRIETARY
AGTA-ASA                               B
2-1

information provided by Customer to determine the nature and cause of the
problem and to suggest possible solutions.

2.4 Aircraft Structural Repair Support. If Customer is designing
structural repairs and desires Boeing's support, Boeing will analyze and comment
on Customer's engineering releases relating to structural repairs not covered by
Boeing's Structural Repair Manual.

2.5 Aircraft Modification Support. If Customer is designing aircraft
modifications and requests Boeing's support, Boeing will analyze and comment on
Customer's engineering proposals for changes in, or replacement of, systems,
parts, accessories or equipment manufactured to Boeing's detailed design. Boeing
will not analyze or comment on any major structural change unless Customer's
request for such analysis and comment includes complete detailed drawings,
substantiating information (including any information required by applicable
government agencies), all stress or other appropriate analyses, and a specific
statement from Customer of the substance of the review and the response
requested.

2.6 Facilities, Ground Equipment and Maintenance Planning Support. Boeing
will, at Customer's request, evaluate Customer's technical facilities, tools and
equipment for servicing and maintaining aircraft, to recommend changes where
necessary and to assist in the formulation of an initial maintenance plan for
the introduction of the aircraft into service.

2.7 Post-Delivery Service Support. Boeing will, at Customer's request,
perform work on an aircraft after delivery but prior to the initial departure
flight or upon the return of the aircraft to Boeing's facility prior to
completion of that flight. In that event the following provisions will apply.

2.7.1 Boeing may rely upon the commitment authority of the
Customer's personnel requesting the work.

2.7.2 As title and risk of loss has passed to Customer, the
insurance provisions of Article 8.2 of the AGTA apply.

2.7.3 The provisions of the Boeing Warranty in Part 2 of Exhibit C
of this AGTA apply.

2.7.4 Customer will pay Boeing for requested work not covered by the
Boeing Warranty, if any.

2.7.5 The DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL AND
OTHER DAMAGES provisions in Article 11 of Part 2 of Exhibit C of this AGTA
apply.

BOEING PROPRIETARY
AGTA-ASA                               B
2-2

2.8 Additional Services. Boeing may, at Customer's request, provide
additional services for an aircraft after delivery, which may include, but not
be limited to, retrofit kit changes (kits and/or information), training, flight
services, maintenance and repair of aircraft. Such additional services will be
subject to a mutually acceptable price, schedule, scope of work and other
applicable terms and conditions. The DISCLAIMER AND RELEASE and the EXCLUSION OF
CONSEQUENTIAL AND OTHER DAMAGES provisions in Article 11 of Part 2 of Exhibit C
of this AGTA and the insurance provisions in Article 8.2 of this AGTA will apply
to any such work. Title to and risk of loss of any such aircraft will always
remain with Customer.

BOEING PROPRIETARY
AGTA-ASA                               B
2-3

CUSTOMER SUPPORT DOCUMENT

PART 3: TECHNICAL INFORMATION AND MATERIALS

1. General.

MATERIALS are defined as any and all items that are created by Boeing or a
third party, which are provided directly or indirectly from Boeing and serve
primarily to contain, convey or embody information. Materials may include either
tangible embodiments (for example, documents or drawings), or intangible
embodiments (for example, software and other electronic forms) of information
but excludes Aircraft Software. AIRCRAFT SOFTWARE is defined as software that is
installed on and used in the operation of the aircraft.

Boeing will furnish to Customer certain Materials to support the
maintenance and operation of the aircraft at no additional charge to Customer,
except as otherwise provided herein. Such Materials will, if applicable, be
prepared generally in accordance with Air Transport Association of America (ATA)
Specification No. 100, entitled "Specification for Manufacturers' Technical
Data". Materials will be in English and in the units of measure used by Boeing
to manufacture an aircraft.

Digitally-produced Materials will, if applicable, be prepared generally in
accordance with ATA Specification No. 2100, dated January 1994, "Digital Data
Standards for Aircraft Support."

2. Materials Planning Conferences.

Customer and Boeing will conduct planning conferences approximately 12
months before the scheduled delivery month of the first aircraft of a model in
order to mutually determine the proper format and quantity of Materials to be
furnished to Customer in support of the aircraft.

When available, Customer may select one Boeing digital format as the
delivery medium. Should a Boeing digital format not be chosen, Customer may
select a reasonable quantity of printed and 16mm microfilm formats, with the
exception of the Illustrated Parts Catalog, which will be provided in one
selected format only.

3. Information and Materials - Incremental Increase.

Until one year after the month of delivery of the last aircraft covered by
a specific purchase agreement, Customer may annually request in writing a
reasonable increase in the quantity of Materials with the exception of microfilm
master copies, digital formats,

BOEING PROPRIETARY
AGTA-ASA                               B
3-1

and others for which a specified number of copies are provided. Boeing will
provide the additional quantity at no additional charge beginning with the next
normal revision cycle. Customer may request a decrease in revision quantities at
any time.

4. Advance Representative Copies.

All advance representative copies of Materials will be selected by Boeing
from available sources. Such advance copies will be for advance planning
purposes only.

5. Customized Materials.

All customized Materials will reflect the configuration of each aircraft
as delivered.

6. Revisions.

6.1 Revision Service. Boeing will provide revisions free of charge to
certain Materials to be identified in the planning conference conducted for a
specific model of aircraft, reflecting changes developed by Boeing, as long as
Customer operates an aircraft of that model.

6.2 Revisions Based on Boeing Service Bulletin Incorporation. If Boeing
receives written notice that Customer intends to incorporate, or has
incorporated, any Boeing service bulletin in an aircraft, Boeing will at no
charge issue revisions to Materials with revision service reflecting the effects
of such incorporation into such aircraft.

7. Supplier Technical Data.

7.1 For supplier-manufactured programmed airborne avionics components and
equipment classified as Seller Furnished Equipment (SFE) or Seller Purchased
Equipment (SPE) or Buyer Designated Equipment (BDE) which contain computer
software designed and developed in accordance with Radio Technical Commission
for Aeronautics Document No. RTCA/DO-178 dated January 1982, No. RTCA/DO-178A
dated March 1985, or later as available, Boeing will request that each supplier
of the components and equipment make software documentation available to
Customer.

7.2 The provisions of this Article will not be applicable to items of BFE.

7.3 Boeing will furnish to Customer a document identifying the terms and
conditions of the product support agreements between Boeing and its suppliers
requiring the suppliers to fulfill Customer's requirements for information and
services in support of the specific model of aircraft.

BOEING PROPRIETARY
AGTA-ASA                               B
3-2

8. Buyer Furnished Equipment Data.

Boeing will incorporate BFE information into the customized Materials
providing Customer makes the information available to Boeing at least nine
months prior to the scheduled delivery month of Customer's first aircraft of a
specific model. Customer agrees to furnish the information in Boeing standard
digital format if Materials are to be delivered in Boeing standard digital
format.

9. Materials Shipping Charges.

Boeing will pay the reasonable transportation costs of the Materials.
Customer is responsible for any customs clearance charges, duties, and taxes.

10. Customer's Shipping Address.

The Materials furnished to Customer hereunder are to be sent to a single
address to be specified. Customer will promptly notify Boeing of any change to
the address.

BOEING PROPRIETARY
AGTA-ASA                               B
3-3

CUSTOMER SUPPORT DOCUMENT

PART 4: ALLEVIATION OR CESSATION OF PERFORMANCE

Boeing will not be required to provide any Materials, services, training or
other things at a facility designated by Customer if any of the following
conditions exist:

1. a labor stoppage or dispute in progress involving Customer;

2. wars or warlike operations, riots or insurrections in the country where
the facility is located;

3. any condition at the facility which, in the opinion of Boeing, is
detrimental to the general health, welfare or safety of its personnel or their
families;

4. the United States Government refuses permission to Boeing personnel or
their families to enter into the country where the facility is located, or
recommends that Boeing personnel or their families leave the country; or

5. the United States Government refuses permission to Boeing to deliver
Materials, services, training or other things to the country where the facility
is located.

After the location of Boeing personnel at the facility, Boeing further reserves
the right, upon the occurrence of any of such events, to immediately and without
prior notice to Customer relocate its personnel and their families.

BOEING PROPRIETARY
AGTA-ASA                               B
4-1

CUSTOMER SUPPORT DOCUMENT

PART 5: PROTECTION OF PROPRIETARY INFORMATION
AND PROPRIETARY MATERIALS

1.    General.

All Materials provided by Boeing to Customer and not covered by a Boeing
CSGTA or other agreement between Boeing and Customer defining Customer's right
to use and disclose the Materials and included information will be covered by,
and subject to the terms of this AGTA. Title to all Materials containing,
conveying or embodying confidential, proprietary or trade secret information
(Proprietary Information) belonging to Boeing or a third party (Proprietary
Materials), will at all times remain with Boeing or such third party. Customer
will treat all Proprietary Materials and all Proprietary Information in
confidence and use and disclose the same only as specifically authorized in this
AGTA.

2.    License Grant.

Boeing grants to Customer a worldwide, non-exclusive, non-transferable
license to use and disclose Proprietary Materials in accordance with the terms
and conditions of this AGTA. Customer is authorized to make copies of Materials
(except for Materials bearing the copyright legend of a third party), and all
copies of Proprietary Materials will belong to Boeing and be treated as
Proprietary Materials under this AGTA. Customer will preserve all proprietary
legends, and all copyright notices on all Materials and insure the inclusion of
those legends and notices on all copies.

3.    Use of Proprietary Materials and Proprietary Information.

Customer is authorized to use Proprietary Materials and Proprietary
Information for the purpose of: (a) operation, maintenance, repair, or
modification of Customer's aircraft for which the Proprietary Materials and
Proprietary Information have been specified by Boeing and (b) development and
manufacture of training devices and maintenance tools for use by Customer.

4.    Providing of Proprietary Materials to Contractors.

Customer is authorized to provide Proprietary Materials to Customer's
contractors for the sole purpose of maintenance, repair, or modification of
Customer's aircraft for which the Proprietary Materials have been specified by
Boeing. In addition, Customer may provide Proprietary Materials to Customer's
contractors for the sole purpose of developing and manufacturing training
devices and maintenance tools for Customer's use.

BOEING PROPRIETARY
AGTA-ASA                               B
AGTA_Exhibit_B
5-1

Before providing Proprietary Materials to its contractor, Customer will first
obtain a written agreement from the contractor by which the contractor agrees
(a) to use the Proprietary Materials only on behalf of Customer, (b) to be bound
by all of the restrictions and limitations of this Part 5, and (c) that Boeing
is a third party beneficiary under the written agreement. Customer agrees to
provide copies of all such written agreements to Boeing upon request and be
liable to Boeing for any breach of those agreements by a contractor. A sample
agreement acceptable to Boeing is attached as Appendix VII.

5.    Providing of Proprietary Materials and Proprietary Information to
Regulatory Agencies.

When and to the extent required by a government regulatory agency having
jurisdiction over Customer or an aircraft, Customer is authorized to provide
Proprietary Materials and to disclose Proprietary Information to the agency for
use in connection with Customer's operation, maintenance, repair, or
modification of such aircraft. Customer agrees to take all reasonable steps to
prevent the agency from making any distribution, disclosure, or additional use
of the Proprietary Materials and Proprietary Information provided or disclosed.
Customer further agrees to notify Boeing immediately upon learning of any (a)
distribution, disclosure, or additional use by the agency, (b) request to the
agency for distribution, disclosure, or additional use, or (c) intention on the
part of the agency to distribute, disclose, or make additional use of
Proprietary Materials or Proprietary Information.

BOEING PROPRIETARY
AGTA-ASA                               B
AGTA_Exhibit_B
5-2

EXHIBIT C

TO

AIRCRAFT GENERAL TERMS AGREEMENT

AGTA-ASA

BETWEEN

THE BOEING COMPANY

AND

ALASKA AIRLINES, INC.

PRODUCT ASSURANCE DOCUMENT

This document contains:

Part 1:      Exhibit C Definitions

Part 2:      Boeing Warranty

Part 3       Boeing Service Life Policy

Part 4:      Supplier Warranty Commitment

Part 5:      Boeing Interface Commitment

Part 6:      Boeing Indemnities against Patent and Copyright Infringement

BOEING PROPRIETARY
AGTA-ASA                               C
i

PRODUCT ASSURANCE DOCUMENT

PART 1: EXHIBIT C DEFINITIONS

APPROVED MAINTENANCE SCHEDULE OR AMS shall mean that aircraft maintenance
program document approved by Customer's aviation authority as a condition of
granting Customer operating approval in the jurisdiction where the aircraft is
registered.

AUTHORIZED AGENT - Agent appointed by Customer to perform corrections and
to administer warranties (see Appendix VI to the AGTA for a form acceptable to
Boeing).

AVERAGE DIRECT HOURLY LABOR RATE - the average hourly rate (excluding all
fringe benefits, premium-time allowances, social charges, business taxes and the
like) paid by Customer to its Direct Labor employees.

BOEING PRODUCT - any system, accessory, equipment, part or Aircraft
Software that is manufactured by Boeing or manufactured to Boeing's detailed
design with Boeing's authorization.

CORRECT(S) - to repair, modify, provide modification kits or replace with
a new product.

CORRECTION - a repair, a modification, a modification kit or replacement
with a new product.

CORRECTED BOEING PRODUCT - a Boeing Product which is free of defect as a
result of a Correction.

DIRECT LABOR - Labor spent by Customer's direct labor employees to access,
remove, disassemble, modify, repair, inspect and bench test a defective Boeing
Product, and to reassemble, reinstall a Corrected Boeing Product and perform
final inspection and testing.

DIRECT MATERIALS - Items such as parts, gaskets, grease, sealant and
adhesives, installed or consumed in performing a Correction, excluding
allowances for administration, overhead, taxes, customs duties and the like.

ROGUE UNIT - A Boeing Product, on which an unscheduled removal due to
breach of warranty occurs three (3) or more times both (i) within the warranty
period and (ii) within either twelve (12) consecutive months or one thousand
(1,000) consecutive operating hours.

SPECIFICATION CONTROL DRAWING (SCD) - a Boeing document defining
specifications for certain Supplier Products.

SUPPLIER - the manufacturer of a Supplier Product.

BOEING PROPRIETARY
AGTA-ASA                               C
1-1

SUPPLIER PRODUCT - any system, accessory, equipment, part or Aircraft
Software that is not manufactured to Boeing's detailed design. This includes but
is not limited to parts manufactured to a SCD, all standards, and other parts
obtained from non-Boeing sources.

BOEING PROPRIETARY
AGTA-ASA                               C
1-2

PRODUCT ASSURANCE DOCUMENT

PART 2: BOEING WARRANTY

1. Applicability.

This warranty applies to all Boeing Products. Warranties applicable to
Supplier Products are in Part 4. Warranties applicable to engines will be
provided by Supplemental Exhibits to individual purchase agreements.

2. Warranty.

2.1 Coverage. Boeing warrants that at the time of delivery:

(i)   the aircraft will conform to the Detail Specification except
for portions stated to be estimates, approximations or design
objectives;

(ii)  all Boeing Products will be free from defects in material,
process of manufacture and workmanship, including the
workmanship utilized to install Supplier Products, engines and
BFE, and;

(iii) all Boeing Products will be free from defects in design,
including selection of materials and the process of
manufacture, in view of the state of the art at the time of
design.

2.2 Exceptions. The following conditions do not constitute a defect under
this warranty:

(i)   conditions resulting from normal wear and tear;

(ii)  conditions resulting from acts or omissions of Customer; and

(iii) conditions resulting from failure to properly service and
maintain a Boeing Product.

3. Warranty Periods.

3.1 Warranty. The warranty period begins on the date of aircraft or Boeing
Product delivery (Delivery) and ends at the applicable time specified in
subsections 3.1(i) through 3.1(iii) below:

(i)   for Boeing aircraft models 777-200, -300, 737-600, -700, -800,
-900, 787 or new aircraft models designed and manufactured
with similar, new technology the warranty period ends 48
months after Delivery;

BOEING PROPRIETARY
AGTA-ASA                               C
2-1

(ii)  in addition, for a Boeing Product installed at the time of
delivery in a 787 model aircraft but not inspected during the
initial 48 month warranty period, the warranty period
continues until the date upon which Customer first inspects
such Boeing Product pursuant to its Approved Maintenance
Schedule but not later than 10 years after Delivery of such
787 aircraft;

(iii) for any other Boeing aircraft model the warranty period ends
36 months after Delivery.

3.2 Warranty on Corrected Boeing Products. The warranty period applicable
to a Corrected Boeing Product shall begin on the date of delivery of the
Corrected Boeing Product or date of delivery of the kit or kits furnished to
Correct the Boeing Product and shall be for the period specified immediately
below:

(i) For Corrected Boeing Products which have been Corrected because
of a defect in material, the applicable warranty period is the remainder
of the initial warranty for the defective Boeing Product.

(ii) For Corrected Boeing Products which have been Corrected because
of defect in workmanship, the applicable warranty period is the remainder
of the initial warranty or 12 months following the date of delivery of the
Corrected Boeing Product, whichever is longer.

(iii) For Corrected Boeing Products which have been Corrected
because of a defect in design, the applicable warranty period is 18 months
or the remainder of the initial warranty period, whichever is longer.

3.3 Survival of Warranties. All warranty periods are stated above. The
Performance Guarantees will not survive delivery of the aircraft.

4. Remedies.

4.1 Correction Options. Customer may, at its option, either perform a
Correction of a defective Boeing Product or return the Boeing Product to Boeing
for Correction. During the warranty period, Boeing will not charge Customer for
tests on Boeing Products returned to Boeing for Correction on which Boeing is
unable to confirm the failure claimed, provided:

(i)   Boeing's written instructions were followed by the Customer
for testing the Boeing Product prior to its return to Boeing,
and

BOEING PROPRIETARY
AGTA-ASA                               C
2-2

(ii)  Customer's claim includes all applicable documentation of such
tests with the returned Boeing Product, including but not
limited to: Central Maintenance Computer (CMC), Flight
Maintenance Computer System, (FMCS), Flight Isolation Manual
(FIM), Engine Indicating and Crew Alerting System (EICAS) or
Built In Test Equipment (BITE) messages.

4.2 Warranty Inspections. In addition to the remedies to Correct defects
in Boeing Products described in Article 7.3, below, Boeing will reimburse
Customer for the cost of Direct Labor to perform certain inspections of the
aircraft to determine the occurrence of a condition Boeing has identified as a
covered defect, provided the inspections are recommended by a service bulletin
or service letter issued by Boeing during the warranty period.

Such reimbursement will not apply to any inspections performed after a
Correction is available to Customer and Customer has had a reasonable time to
incorporate the Correction, given the Customer's fleet size and maintenance
schedule.

4.3 Rogue Units.

4.3.1 Upon written request, Boeing will lend Customer at no charge
an interchangeable Boeing Product in exchange for a Rogue Unit. Within ten
(10) calendar days of its receipt of the loaned Boeing Product, Customer
will ship the Rogue Unit to Boeing. Customer will provide with the Rogue
Unit verification of the following requirements:

(i)   The removed Boeing Product failed three (3) times within
twelve (12) consecutive months or one thousand (1000)
consecutive operating hours during the warranty period
following initial delivery,

(ii)  Removals were performed in compliance with flight or
maintenance manuals approved by the FAA or the comparable
regulatory agency for the country in which the aircraft is
registered, and

(iii) Any Corrections or tests to the Boeing Product were performed
by Customer according to the latest revision of the Boeing
Component Maintenance Manual (CMM), according to written
instructions from Boeing, or by Boeing.

4.3.2 Upon receipt of a Rogue Unit and the required verifications,
Boeing will, at no-charge to Customer, either replace the Rogue Unit with
a new Boeing Product or, if otherwise agreed, allow Customer to retain the
loaned, Boeing Product.

BOEING PROPRIETARY
AGTA-ASA                               C
2-3

5. Discovery and Notice.

5.1 For a claim to be valid:

(i)   the defect must be discovered during the warranty period; and

(ii)  Boeing Warranty must receive written notice of the discovery
no later than 90 days after expiration of the warranty period.
The notice must include sufficient information to substantiate
the claim.

(iii) For claims pursuant to Article 3.1(ii) of Part 2 of this
Exhibit C pertaining to Boeing Products which are first
inspected more than 48 months after delivery of the 787 model
aircraft in which they are installed, Customer must have
provided to Boeing no later than 45 months after delivery of
such aircraft Customer's AMS for 787 model aircraft clearly
identifying the nomenclature, location on the aircraft and
schedule for inspection of all Boeing Products installed on
such aircraft and thereafter have provided promptly to Boeing
any revisions to such AMS.

5.2 Receipt of Customer's or its Authorized Agent's notice of the
discovery of a defect secures Customer's rights to remedies under this Exhibit
C, even though a Correction is performed after the expiration of the warranty
period.

5.3 Once Customer has given valid notice of the discovery of a defect, a
claim will be submitted as soon as practicable after performance of the
Correction.

5.4 Boeing may release service bulletins or service letters advising
Customer of the availability of certain warranty remedies. When such advice is
provided, Customer will be deemed to have fulfilled the requirements for
discovery of the defect and submittal of notice under this Exhibit C as of the
in-warranty date specified in industry support information in a service bulletin
or service letter.

6. Filing a Claim.

6.1 Authority to File. Claims may be filed by Customer or its Authorized
Agent. Appointment of an Authorized Agent will only be effective upon Boeing's
receipt of the Authorized Agent's express written agreement, in a form
satisfactory to Boeing, to be bound by and to comply with all applicable terms
and conditions of this Aircraft General Terms Agreement.

6.2 Claim Information.

BOEING PROPRIETARY
AGTA-ASA                               C
2-4

6.2.1 Claimant is responsible for providing sufficient information
to substantiate Customer's rights to remedies under this Exhibit C. Boeing
may reject a claim for lack of sufficient information. At a minimum, such
information must include:

(i)   identity of claimant;

(ii)  serial or block number of the aircraft on which the defective
Boeing Product was delivered;

(iii) part number and nomenclature of the defective Boeing Product;

(iv)  purchase order number and date of delivery of the defective
spare part;

(v)   description and substantiation of the defect;

(vi)  date the defect was discovered;

(vii) date the Correction was completed;

(viii) the total flight hours or cycles accrued, if applicable;

(ix)  an itemized account of direct labor hours expended in
performing the Correction; and

(x)   an itemized account of any direct materials incorporated in
the Correction.

(xi)  for 787 model aircraft the name and revision level of the AMS
that documents the required inspection and the specific
reference to the inspection requirement contained therein.

6.2.2 Additional information may be required based on the nature of
the defect and the remedies requested.

BOEING PROPRIETARY
AGTA-ASA                               C
2-5

6.3 Boeing Claim Processing.

6.3.1 Any claim for a Boeing Product returned by Customer or its
Authorized Agent to Boeing for Correction must accompany the Boeing
Product. Any claim not associated with the return of a Boeing Product must
be submitted signed and in writing directly by Customer or its Authorized
Agent to Boeing Warranty by any of the methods identified in Article 11,
"Notice," of the AGTA or through an internet portal and process specified
by Boeing.

6.3.2 Boeing will promptly review the claim and will give
notification of claim approval or rejection. If the claim is rejected,
Boeing will provide a written explanation.

7. Corrections Performed by Customer or Its Authorized Agent.

7.1 Facilities Requirements. Provided Customer, its Authorized Agent or
its third party contractor, as appropriate, are certified by the appropriate
Civil Aviation Authority or Federal Aviation Authority, Customer or its
Authorized Agent may, at its option, Correct defective Boeing Products at its
facilities or may subcontract Corrections to a third party contractor.

7.2 Technical Requirements. All Corrections done by Customer, its
Authorized Agent or a third party contractor must be performed in accordance
with Boeing's applicable service manuals, bulletins or other written
instructions, using parts and materials furnished or approved by Boeing.

7.3 Reimbursement.

7.3.1 Boeing will reimburse Customer's reasonable costs of Direct
Materials and Direct Labor by credit memorandum (excluding labor hours
expended for overhaul) at Customer's Warranty Labor Rate to Correct a
defective Boeing Product. Claims for reimbursement must contain sufficient
information to substantiate Direct Labor hours expended and Direct
Materials consumed. Customer or its Authorized Agent may be required to
produce invoices for materials.

7.3.2 Customer's established Warranty Labor Rate will be the greater
of the standard labor rate or 150% of Customer's Average Direct Hourly
Labor Rate. The standard labor rate paid by Boeing to its customers is
established and published annually. Prior to or concurrently with
submittal of Customer's first claim for Direct Labor reimbursement,
Customer may notify Boeing of Customer's then-current Average Direct
Hourly Labor Rate and thereafter notify Boeing of any material change in
such rate. Boeing will require information from Customer to substantiate
such rates.

BOEING PROPRIETARY
AGTA-ASA                               C
2-6

7.3.3 Reimbursement for Direct Labor hours to perform Corrections
stated in a service bulletin will be based on the labor estimates in the
service bulletin.

7.3.4 Boeing will provide to Customer a single, lump sum credit
memorandum for Customer's Direct Labor hours expended to incorporate the
Corrections (other than of random anomalies) identified in service
bulletins and service letters in all in-warranty aircraft covered by such
service bulletins or service letters after Customer's submission of a
warranty claim and verification of the incorporation of such Corrections
with respect to the first affected in-warranty aircraft. Such credit
memoranda will not be provided in response to any other requests for
reimbursement including, without limitation, those arising out of program
letters or other special offers provided by Boeing.

7.3.5 Boeing will reimburse Customer's freight charges associated
with a Correction of a defect on a Boeing Product performed by its
Authorized Agent or a third party contractor.

7.3.6 Maximum Reimbursement. Unless previously agreed in writing,
the maximum reimbursement for Direct Labor and Direct materials for repair
of a defective Boeing Product will not exceed 65% of Boeing's then-current
sales price for a new replacement Boeing Product. Inspection, removal,
reinstallation labor, final testing, inspection and transportation costs
are separate and are not to be included in the cost elements used to
determine the 65% limit. By mutual agreement between Customer and Boeing,
Boeing may provide a replacement Product to Customer in lieu of credit
reimbursement.

7.4 Disposition of Defective Boeing Products Beyond Economical Repair.

7.4.1 A defective Boeing Product found to be beyond economical
repair (see Para. 7.3.6) will be retained for a period of 30 days from the
date Boeing receives Customer's claim. During the 30 day period, Boeing
may request return of such Boeing Products for inspection and confirmation
of a defect.

7.4.2 After the 30 day period, a defective Boeing Product with a
value of U.S. $4,000 or less may be scrapped without notification to
Boeing. Boeing will reimburse Customer or its Authorized Agent for the
charge for any item determined to be defective under this Aircraft General
Terms Agreement. If such Boeing Product has a value greater than U.S,
$4,000, Customer must obtain confirmation of unrepairability by Boeing's
on-site Customer Services Representative prior to scrapping. Confirmation
may be in the form of the Representative's signature on Customer's claim
or through direct communication between the Representative and Boeing
Warranty.

8. Corrections Performed by Boeing.

BOEING PROPRIETARY
AGTA-ASA                               C
2-7

8.1 Freight Charges. Customer or its Authorized Agent will pre-pay freight
charges to return a Boeing Product to Boeing. If during the period of the
applicable warranty Boeing determines the Boeing Product to be defective, Boeing
will pre-pay shipping charges to return the Corrected Boeing Product. Boeing
will reimburse Customer or its Authorized Agent for freight charges for Boeing
Products returned to Boeing for Correction and determined to be defective.

8.2 Customer Instructions. The documentation shipped with the returned
defective Boeing Product may include specific technical instructions for
additional work to be performed on the Boeing Product. The absence of such
instructions will evidence Customer's authorization for Boeing to perform all
necessary Corrections and work required to return the Boeing Product to a
serviceable condition.

8.3 Correction Time Objectives.

8.3.1 Boeing's objective for making Corrections is 10 working days
for avionics and electronic Boeing Products, 30 working days for
Corrections of other Boeing Products performed at Boeing's facilities and
40 working days for Corrections of other Boeing Products performed at a
Boeing subcontractor's facilities. The objectives are measured from the
date Boeing receives the defective Boeing Product and a valid claim to the
date Boeing ships the Corrected Boeing Product.

8.3.2 If Customer has a critical parts shortage because Boeing has
exceeded a Correction time objective and Customer has procured spare
Boeing Products for the defective Boeing Product in quantities shown in
Boeing's Recommended Spare Parts List or, for 717 model aircraft only, in
quantities shown in Boeing's Spares Planning and Requirements Evaluation
Model, then Boeing will either expedite the Correction or provide an
interchangeable Boeing Product, on a no charge loan basis, until the
Corrected Boeing Product is returned.

8.4 Title Transfer and Risk of Loss.

8.4.1 Title to and risk of loss of any Boeing Product returned to
Boeing will at all times remain with Customer or any other title holder of
such Boeing Product. While Boeing has possession of the returned Boeing
Product, Boeing will have only such liabilities as a bailee for mutual
benefit would have but will not be liable for loss of use.

8.4.2 If a Correction requires shipment of a new Boeing Product,
then at the time Boeing ships the new Boeing Product, title to and risk of
loss for the returned Boeing Product will pass to Boeing, and title to and
risk of loss for the new Boeing Product will pass to Customer.

9. Returning an Aircraft.

BOEING PROPRIETARY
AGTA-ASA                               C
2-8

9.1 Conditions. An aircraft may be returned to Boeing's facilities for
Correction only if:

(i)   Boeing and Customer agree a covered defect exists;

(ii)  Customer lacks access to adequate facilities, equipment or
qualified personnel to perform the Correction; and

(iii) it is not practical, in Boeing's estimation, to dispatch
Boeing personnel to perform the Correction at a remote site.

9.2 Correction Costs. Boeing will perform the Correction at no charge to
Customer. Subject to the conditions of Article 9.1, Boeing will reimburse
Customer for the costs of fuel, oil, other required fluids and landing fees
incurred in ferrying the aircraft to Boeing and back to Customer's facilities.
Customer will minimize the length of both flights.

9.3 Separate Agreement. Prior to the return of an aircraft to Boeing,
Boeing and Customer will enter into a separate agreement covering return of the
aircraft and performance of the Correction. Authorization by Customer for Boeing
to perform additional work that is not part of the Correction must be received
within 24 hours of Boeing's request. If such authorization is not received
within 24 hours, Customer will be invoiced for work performed by Boeing that is
not part of the Correction.

10. Insurance.

The provisions of Article 8.2 "Insurance", of this AGTA, will apply to any
work performed by Boeing in accordance with Customer's specific technical
instructions to the extent any legal liability of Boeing is based upon the
content of such instructions.

11. Disclaimer and Release; Exclusion of Liabilities.

11.1 DISCLAIMER AND RELEASE. THE WARRANTIES, OBLIGATIONS AND LIABILITIES
OF BOEING AND THE REMEDIES OF CUSTOMER IN THIS EXHIBIT C ARE EXCLUSIVE AND IN
SUBSTITUTION FOR, AND CUSTOMER HEREBY WAIVES, RELEASES AND RENOUNCES, ALL OTHER
WARRANTIES, OBLIGATIONS AND LIABILITIES OF BOEING AND ALL OTHER RIGHTS, CLAIMS
AND REMEDIES OF CUSTOMER AGAINST BOEING, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE, WITH RESPECT TO ANY NONCONFORMANCE OR DEFECT IN ANY AIRCRAFT,
MATERIALS, TRAINING, SERVICES OR OTHER THING PROVIDED UNDER THIS AGTA AND THE
APPLICABLE PURCHASE AGREEMENT, INCLUDING, BUT NOT LIMITED TO:

(A)   ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS;

BOEING PROPRIETARY
AGTA-ASA                               C
2-9

(B)   ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE;

(C)   ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT,
WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF BOEING; AND

(D)   ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF
OR DAMAGE TO ANY AIRCRAFT.

11.2 EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES. BOEING WILL HAVE NO
OBLIGATION OR LIABILITY, WHETHER ARISING IN CONTRACT (INCLUDING WARRANTY), TORT,
WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF BOEING, OR OTHERWISE, FOR LOSS OF
USE, REVENUE OR PROFIT, OR FOR ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES
WITH RESPECT TO ANY NONCONFORMANCE OR DEFECT IN ANY AIRCRAFT, MATERIALS,
TRAINING, SERVICES OR OTHER THING PROVIDED UNDER THIS AGTA AND THE APPLICABLE
PURCHASE AGREEMENT.

11.3 Definitions. For the purpose of this Article, "BOEING" or "Boeing" is
defined as The Boeing Company, its divisions, subsidiaries, affiliates, the
assignees of each, and their respective directors, officers, employees and
agents.

BOEING PROPRIETARY
AGTA-ASA                               C
2-10

PRODUCT ASSURANCE DOCUMENT

PART 3: BOEING SERVICE LIFE POLICY

1. Definitions.

SERVICE LIFE POLICY (SLP) COMPONENT - any of the primary structural
elements (excluding industry standard parts), such as landing gear, wing,
fuselage, vertical or horizontal stabilizer, listed in the applicable purchase
agreement for a specific model of aircraft, either installed in the aircraft at
time of delivery or purchased from Boeing by Customer as a spare part. The
detailed SLP Component listing will be in Supplemental Exhibit SLP1 to each
Purchase Agreement.

2. Service Life Policy.

2.1 SLP Commitment. If a failure is discovered in a SLP Component within
the time periods specified in Article 2.2 below, Boeing will provide Customer a
replacement SLP Component at the price calculated pursuant to Article 3.1,
below. If requested by Customer as an alternative remedy, Boeing will reimburse
Customer in accordance with the provisions of Exhibit C, Part 2, Article 7.3,
for Direct Labor and Direct Material for repair of a failed SLP Component an
amount not to exceed the difference between Boeing's then current spare parts
price for such SLP Component and the price determined pursuant to Article 3,
below.

2.2 SLP Policy Periods.

2.2.1 The policy period for SLP Components initially installed on an
aircraft is 12 years after the date of delivery of the aircraft except
that for SLP Components initially installed on a 787 aircraft the policy
period is 15 years after the date of delivery of the aircraft.

2.2.2 The policy period for SLP Components purchased from Boeing by
Customer as spare parts is 12 years from delivery of such SLP Component or
12 years from the date of delivery of the last aircraft produced by Boeing
of a specific model, whichever first expires, except that for the 787
aircraft such policy period is 15 years from delivery of such SLP
Component or 15 years from the date of delivery of the last 787 aircraft
produced by Boeing, whichever first expires.

BOEING PROPRIETARY
AGTA-ASA                               C
3-1

3. Price.

The price Customer will pay for replacement of a failed SLP Component will
be calculated pursuant to the following formulas:

(i)  For 787 aircraft only:

P = C(T-48)
-------
132

where:

P = price to Customer for the replacement part

C = SLP Component sales price at time of replacement

T = total age in months of the failed SLP Component from the date
of delivery to Customer to the date of discovery of such
condition and is greater than 48 months.

(ii)  For all other aircraft models:

P = CT
---
144

where:

P = price to Customer for the replacement part

C = SLP Component sales price at time of replacement

T = total age in months of the failed SLP Component from the date
of delivery to Customer to the date of discovery of such
condition.

4. Conditions.

Boeing's obligations under this Part 3 of Exhibit C, "Boeing Service Life
Policy," (Policy) are conditioned upon the following:

4.1 Customer must notify Boeing in writing of the failure within three
months after it is discovered.

4.2 Customer must provide reasonable evidence that the claimed failure is
covered by this Policy and if requested by Boeing, that such failure was not the
result of:

(i)   a defect or failure in a component not covered by this Policy,

(ii)  an extrinsic force,

(iii) an act or omission of Customer, or

(iv)  operation or maintenance contrary to applicable governmental
regulations or Boeing's instructions.

BOEING PROPRIETARY
AGTA-ASA                               C
3-2

4.3 If return of a failed SLP Component is practicable and requested by
Boeing, Customer will return such SLP Component to Boeing at Boeing's expense.

4.4 Customer's rights and remedies under this Policy are limited to the
receipt of a Correction pursuant to Article 2 above.

5. Disclaimer and Release; Exclusion of Liabilities.

This Part 3 and the rights and remedies of Customer and the obligations of
Boeing are subject to the DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL
AND OTHER DAMAGES provisions of Article 11 of Part 2 of this Exhibit C.

BOEING PROPRIETARY
AGTA-ASA                               C
3-3

PRODUCT ASSURANCE DOCUMENT

PART 4: SUPPLIER WARRANTY COMMITMENT

1. Supplier Warranties and Supplier Patent and Copyright Indemnities.

Boeing will use diligent efforts to obtain warranties and indemnities
against patent and copyright infringement enforceable by Customer from Suppliers
of Supplier Products (except for BFE and engines) installed on the aircraft at
the time of delivery that were selected and purchased by Boeing, but not
manufactured to Boeing's detailed design. Boeing will furnish copies of the
warranties and patent and copyright indemnities to Customer contained in
Supplier Product Support and Assurance Agreements, prior to the scheduled
delivery month of the first aircraft under the initial purchase agreement to the
AGTA.

2. Boeing Assistance in Administration of Supplier Warranties.

Customer will be responsible for submitting warranty claims directly to
Suppliers; however, if Customer experiences problems enforcing any Supplier
warranty obtained by Boeing for Customer, Boeing will conduct an investigation
of the problem and assist Customer in the resolution of those claims.

3. Boeing Support in Event of Supplier Default.

3.1 If the Supplier defaults in the performance of a material obligation
under its warranty, and Customer provides evidence to Boeing that a default has
occurred, then Boeing will furnish the equivalent warranty terms as provided by
the defaulting Supplier.

3.2 At Boeing's request, Customer will assign to Boeing, and Boeing will
be subrogated to, its rights against the Supplier provided by the Supplier
warranty.

BOEING PROPRIETARY
AGTA-ASA                               C
4-1

PRODUCT ASSURANCE DOCUMENT

PART 5: BOEING INTERFACE COMMITMENT

1. Interface Problems.

An Interface Problem is defined as a technical problem in the operation of
an aircraft or its systems experienced by Customer, the cause of which is not
readily identifiable by Customer but which Customer believes to be attributable
to either the design characteristics of the aircraft or its systems or the
workmanship used in the installation of Supplier Products. In the event Customer
experiences an Interface Problem, Boeing will, without additional charge to
Customer, promptly conduct an investigation and analysis to determine the cause
or causes of the Interface Problem. Boeing will promptly advise Customer at the
conclusion of its investigation of Boeing's opinion as to the causes of the
Interface Problem and Boeing's recommendation as to corrective action.

2. Boeing Responsibility.

If Boeing determines that the Interface Problem is primarily attributable
to the design or installation of any Boeing Product, Boeing will Correct the
design or workmanship to the extent of any then-existing obligations of Boeing
under the provisions of the applicable Boeing Warranty.

3. Supplier Responsibility.

If Boeing determines that the Interface Problem is primarily attributable
to the design or installation of a Supplier Product, Boeing will assist Customer
in processing a warranty claim against the Supplier.

4. Joint Responsibility.

If Boeing determines that the Interface Problem is partially attributable
to the design or installation of a Boeing Product and partially to the design or
installation of a Supplier Product, Boeing will seek a solution to the Interface
Problem through the cooperative efforts of Boeing and the Supplier and will
promptly advise Customer of the resulting corrective actions and
recommendations.

5. General.

Customer will, if requested by Boeing, assign to Boeing any of its rights
against any supplier as Boeing may require to fulfill its obligations hereunder.

BOEING PROPRIETARY
AGTA-ASA                               C
5-1

6. Disclaimer and Release; Exclusion of Liabilities.

This Part 5 and the rights and remedies of Customer and the obligations of
Boeing herein are subject to the DISCLAIMER AND RELEASE and EXCLUSION OF
CONSEQUENTIAL AND OTHER DAMAGES provisions of Article 11 of Part 2 of this
Exhibit C.

BOEING PROPRIETARY
AGTA-ASA                               C
5-2

PRODUCT ASSURANCE DOCUMENT

PART 6: BOEING INDEMNITIES AGAINST PATENT
AND COPYRIGHT INFRINGEMENT

1. Indemnity Against Patent Infringement.

Boeing will defend and indemnify Customer with respect to all claims,
suits and liabilities arising out of any actual or alleged patent infringement
through Customer's use, lease or resale of any aircraft or any Boeing Product
installed on an aircraft at delivery.

2. Indemnity Against Copyright Infringement.

Boeing will defend and indemnify Customer with respect to all claims,
suits and liabilities arising out of any actual or alleged copyright
infringement through Customer's use, lease or resale of any Boeing created
Materials and Aircraft Software installed on an aircraft at delivery.

3. Exceptions, Limitations and Conditions.

3.1 Boeing's obligation to indemnify Customer for patent infringement will
extend only to infringements in countries which, at the time of the
infringement, were party to and fully bound by either (a) Article 27 of the
Chicago Convention on International Civil Aviation of December 7, 1944, or (b)
the International Convention for the Protection of Industrial Property (Paris
Convention).

3.2 Boeing's obligation to indemnify Customer for copyright infringement
is limited to infringements in countries which, at the time of the infringement,
are members of The Berne Union and recognize computer software as a "work" under
The Berne Convention.

3.3 The indemnities provided under this Part 6 will not apply to any BFE
engines, Supplier Product, Boeing Product used other than for its intended
purpose, or Aircraft Software not created by Boeing.

3.4 Customer must deliver written notice to Boeing (i) within 10 days
after Customer first receives notice of any suit or other formal action against
Customer and (ii) within 20 days after Customer first receives any other
allegation or written claim of infringement covered by this Part 6.

BOEING PROPRIETARY
AGTA-ASA                               C
6-1

3.5 At any time, Boeing will have the right at its option and expense to:
(i) negotiate with any party claiming infringement, (ii) assume or control the
defense of any infringement allegation, claim, suit or formal action, (iii)
intervene in any infringement suit or formal action, and/or (iv) attempt to
resolve any claim of infringement by replacing an allegedly infringing Boeing
Product or Aircraft Software with a noninfringing equivalent.

3.6 Customer will promptly furnish to Boeing all information, records and
assistance within Customer's possession or control which Boeing considers
relevant or material to any alleged infringement covered by this Part 6.

3.7 Except as required by a final judgment entered against Customer by a
court of competent jurisdiction from which no appeals can be or have been filed,
Customer will obtain Boeing's written approval prior to paying, committing to
pay, assuming any obligation or making any material concession relative to any
infringement covered by these indemnities.

3.8 BOEING WILL HAVE NO OBLIGATION OR LIABILITY UNDER THIS PART 6 FOR LOSS
OF USE, REVENUE OR PROFIT, OR FOR ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES.
THE OBLIGATIONS OF BOEING AND REMEDIES OF CUSTOMER IN THIS PART 6 ARE EXCLUSIVE
AND IN SUBSTITUTION FOR, AND CUSTOMER HEREBY WAIVES, RELEASES AND RENOUNCES ALL
OTHER INDEMNITIES, OBLIGATIONS AND LIABILITIES OF BOEING AND ALL OTHER RIGHTS,
CLAIMS AND REMEDIES OF CUSTOMER AGAINST BOEING, EXPRESS OR IMPLIED, ARISING BY
LAW OR OTHERWISE, WITH RESPECT TO ANY ACTUAL OR ALLEGED PATENT, COPYRIGHT OR
OTHER INTELLECTUAL PROPERTY INFRINGEMENT OR THE LIKE BY ANY AIRCRAFT, AIRCRAFT
SOFTWARE, MATERIALS, TRAINING, SERVICES OR OTHER THING PROVIDED UNDER THIS AGTA
AND THE APPLICABLE PURCHASE AGREEMENT.

3.9 For the purposes of this Part 6, "BOEING or Boeing" is defined as The
Boeing Company, its divisions, subsidiaries, affiliates, the assignees of each
and their respective directors, officers, employees and agents.

BOEING PROPRIETARY
AGTA-ASA                               C
6-2

SAMPLE
INSURANCE CERTIFICATE

BROKER'S LETTERHEAD

[date]

Certificate of Insurance

ISSUED TO:     The Boeing Company
Post Office Box 3707
Mail Stop 13-57
Seattle, Washington 98124
Attn: Manager - Aviation Insurance for
Vice President - Employee Benefits,
Insurance and Taxes

CC:            Boeing Commercial Airplanes
P.O. Box 3707
Mail Stop 21-34
Seattle, Washington 98124-2207
U.S.A.
Attn: Vice President - Contracts

NAMED INSURED: ALASKA AIRLINES, INC.

We hereby certify that in our capacity as Brokers to the Named Insured, the
following described insurance is in force on this date:

INSURER        POLICY NO.       PARTICIPATION
-------        ----------       -------------

POLICY PERIOD:      From [date and time of inception of the Policy(ies)] to
[date and time of expiration].

GEOGRAPHICAL LIMITS:      Worldwide (however, as respects "Aircraft Hull War and
Allied Perils" Insurance, as agreed by Boeing).

BOEING PROPRIETARY
AGTA-ASA                            App. I
1

SAMPLE
INSURANCE CERTIFICATE

AIRCRAFT INSURED:      All Boeing manufactured aircraft owned or operated by the
Named Insured which are the subject of the following
purchase agreement(s), entered into between The Boeing
Company and _________________ (hereinafter "Aircraft"):

Purchase Agreement No. ____ dated ______
Purchase Agreement No. ____ dated ______

COVERAGES:

1.    AIRCRAFT "ALL RISKS" HULL (GROUND AND FLIGHT)

2.    AIRCRAFT HULL WAR AND ALLIED PERILS (AS PER LSW 555, OR ITS SUCCESSOR
WORDING)

3.    AIRLINE LIABILITY

Including, but not limited to, Bodily Injury, Property Damage, Aircraft
Liability, Liability War Risks, Passenger Legal Liability, Premises/Operations
Liability, Completed Operations/Products Liability, Baggage Legal Liability
(checked and unchecked), Cargo Legal Liability, Contractual Liability and
Personal Injury.

The above-referenced Airline Liability insurance coverage is subject to War and
Other Perils Exclusion Clause (AV48B) but all sections, other than section (b)
are reinstated as per AV52C, or their successor endorsements.

LIMITS OF LIABILITY:

To the fullest extent of the Policy limits that the Named Insured carries from
the time of delivery of the first Aircraft under the first Purchase Agreement
listed under "Aircraft Insured" and thereafter at the inception of each policy
period, but in any event no less than the following:

Combined Single Limit Bodily Injury and Property Damage: U.S.$ any one
occurrence each Aircraft (with aggregates as applicable).

(717-200)                          US$300,000,000
(737-500/600)                      US$350,000,000
(737-300/700)                      US$400,000,000
(737-400)                          US$450,000,000
(737-800)                          US$500,000,000
(737-900)                          US$500,000,000
(757-200)                          US$525,000,000
(757-300)                          US$550,000,000
(767-200)                          US$550,000,000
(767-300)                          US$700,000,000
(767-400ERX)                       US$750,000,000

BOEING PROPRIETARY
AGTA-ASA                            App. I
2

SAMPLE
INSURANCE CERTIFICATE

(7E7)                              US$700,000,000
(777-200LR)                        US$800,000,000
(MD-11)                            US$800,000,000
(777-200/300)                      US$800,000,000
(777-300ER)                        US$800,000,000
(747-400)                          US$900,000,000

(In regard to all other models and/or derivatives, to be specified by Boeing).

(In regard to Personal Injury coverage, limits are US$25,000,000 any one
offense/aggregate.)

DEDUCTIBLES / SELF-INSURANCE

Any deductible and/or self-insurance amount (other than standard market
deductibles) are to be disclosed and agreed by Boeing.

SPECIAL PROVISIONS APPLICABLE TO BOEING:

It is certified that Insurers are aware of the terms and conditions of AGTA-ASA
and the following purchase agreements:

PA ______ dated _______
PA ______ dated _______
PA ______ dated _______

Each Aircraft manufactured by Boeing which is delivered to the Insured pursuant
to the applicable purchase agreement during the period of effectivity of the
policies represented by this Certificate will be covered to the extent specified
herein.

Insurers have agreed to the following:

A. In regard to Aircraft "all risks" Hull Insurance and Aircraft Hull War
and Allied Perils Insurance, Insurers agree to waive all rights of subrogation
or recourse against Boeing in accordance with AGTA-ASA which was incorporated by
reference into the applicable purchase agreement.

B. In regard to Airline Liability Insurance, Insurers agree:

(1) To include Boeing as an additional insured in accordance with
Customer's undertaking in Article 8.2.1 of AGTA-ASA which was incorporated by
reference into the applicable purchase agreement.

BOEING PROPRIETARY
AGTA-ASA                            App. I
3

SAMPLE
INSURANCE CERTIFICATE

(2) To provide that such insurance will be primary and not
contributory nor excess with respect to any other insurance available for the
protection of Boeing;

(3) To provide that with respect to the interests of Boeing, such
insurance shall not be invalidated or minimized by any action or inaction,
omission or misrepresentation by the Insured or any other person or party (other
than Boeing) regardless of any breach or violation of any warranty, declaration
or condition contained in such policies;

(4) To provide that all provisions of the insurance coverages
referenced above, except the limits of liability, will operate to give each
Insured or additional insured the same protection as if there were a separate
Policy issued to each.

C. In regard to all of the above referenced policies:

(1) Boeing will not be responsible for payment, set-off, or
assessment of any kind or any premiums in connection with the policies,
endorsements or coverages described herein;

(2) If a policy is canceled for any reason whatsoever, or any
substantial change is made in the coverage which affects the interests of Boeing
or if a policy is allowed to lapse for nonpayment of premium, such cancellation,
change or lapse shall not be effective as to Boeing for thirty (30) days (in the
case of war risk and allied perils coverage seven (7) days after sending, or
such other period as may from time to time be customarily obtainable in the
industry) after receipt by Boeing of written notice from the Insurers or the
authorized representatives or Broker of such cancellation, change or lapse; and

(3) For the purposes of the Certificate, "Boeing" is defined as The
Boeing Company, its divisions, subsidiaries, affiliates, the assignees of each
and their respective directors, officers, employees and agents.

SUBJECT TO THE TERMS, CONDITIONS, LIMITATIONS AND EXCLUSIONS OF THE RELATIVE
POLICIES.

(signature)

(typed name)

(title)

BOEING PROPRIETARY
AGTA-ASA                            App. I
4

SAMPLE
PURCHASE AGREEMENT ASSIGNMENT
(WHERE CUSTOMER REMAINS OPERATOR OF THE AIRCRAFT)

THIS PURCHASE AGREEMENT ASSIGNMENT (Assignment) dated as of ________ 20__
between Alaska Airlines, Inc., a company organized under the laws of
________________ (Assignor) and ________________________, a company organized
under the laws of ________________ (Assignee). Capitalized terms used herein
without definition will have the same meaning as in the Boeing Purchase
Agreement.

Assignor and The Boeing Company, a Delaware corporation (Boeing), are
parties to the Boeing Purchase Agreement, providing, among other things, for the
sale by Boeing to Assignor of certain aircraft, engines and related equipment,
including the Aircraft.

Assignee wishes to acquire the Aircraft and certain rights and interests
under the Boeing Purchase Agreement and Assignor, on the following terms and
conditions, is willing to assign to Assignee certain of Assignor's rights and
interests under the Boeing Purchase Agreement. Assignee is willing to accept
such assignment.

It is agreed as follows:

1. For all purposes of this Assignment, the following terms will have the
following meanings:

Aircraft -- one Boeing Model ______ aircraft, bearing manufacturer's
serial number _______, together with all engines and parts installed on such
aircraft on the Delivery Date.

Boeing -- Boeing shall include any wholly-owned subsidiary of Boeing, and
its successors and assigns.

Boeing Purchase Agreement -- Purchase Agreement No. ________ dated as of
____________ between Boeing and Assignor, as amended, but excluding
______________, providing, among other things, for the sale by Boeing to
Assignor of the Aircraft, as said agreement may be further amended to the extent
permitted by its terms. The Purchase Agreement incorporated by reference
Aircraft General Terms Agreement AGTA/____ (AGTA).

Delivery Date -- the date on which the Aircraft is delivered by Boeing to
Assignee pursuant to and subject to the terms and conditions of the Boeing
Purchase Agreement and this Assignment.

2. Assignor does hereby assign to Assignee all of its rights and interests
in and to the Boeing Purchase Agreement, as and to the extent that the same
relate to the Aircraft and the purchase and operation thereof, except as and to
the extent expressly reserved below, including, without limitation, in such
assignment: [TO BE COMPLETED BY THE PARTIES.]

AGTA-ASA                             App. II

1

SAMPLE
PURCHASE AGREEMENT ASSIGNMENT
(WHERE CUSTOMER REMAINS OPERATOR OF THE AIRCRAFT)

{EXAMPLES

(a)   the right upon valid tender to purchase the Aircraft pursuant to the
Boeing Purchase Agreement subject to the terms and conditions
thereof and the right to take title to the Aircraft and to be named
the "Buyer" in the bill of sale for the Aircraft;

(b)   the right to accept delivery of the Aircraft;

(c)   all claims for damages arising as a result of any default under the
Boeing Purchase Agreement in respect of the Aircraft;

(d)   all warranty and indemnity provisions contained in the Boeing
Purchase Agreement, and all claims arising thereunder, in respect of
the Aircraft; and

(e)   any and all rights of Assignor to compel performance of the terms of
the Boeing Purchase Agreement in respect of the Aircraft.}

Reserving exclusively to Assignor, however:

{EXAMPLES

(i)   all Assignor's rights and interests in and to the Boeing Purchase
Agreement as and to the extent the same relates to aircraft other
than the Aircraft, or to any other matters not directly pertaining
to the Aircraft;

(ii)  all Assignor's rights and interests in or arising out of any advance
or other payments or deposits made by Assignor in respect of the
Aircraft under the Boeing Purchase Agreement and any amounts
credited or to be credited or paid or to be paid by Boeing in
respect of the Aircraft;

(iii) the right to obtain services, training, information and
demonstration and test flights pursuant to the Boeing Purchase
Agreement; and

(iv)  the right to maintain plant representatives at Boeing's plant
pursuant to the Boeing Purchase Agreement.}

Assignee hereby accepts such assignment.

3. Notwithstanding the foregoing, so long as no event of default or
termination under [specify document] has occurred and is continuing, Assignee
hereby authorizes Assignor, to the

AGTA-ASA                             App. II

2

SAMPLE
PURCHASE AGREEMENT ASSIGNMENT
(WHERE CUSTOMER REMAINS OPERATOR OF THE AIRCRAFT)

exclusion of Assignee, to exercise in Assignor's name all rights and powers of
Customer under the Boeing Purchase Agreement in respect of the Aircraft.

4. For all purposes of this Assignment, Boeing will not be deemed to have
knowledge of or need recognize the occurrence, continuance or the discontinuance
of any event of default or termination under [specify document] unless and until
Boeing receives from Assignee written notice thereof, addressed to its Vice
President - Contracts, Boeing Commercial Airplanes at P.O. Box 3707, Seattle,
Washington 98124, if by mail, or to 32-9430 Answerback BOEINGREN RNTN, if by
telex. Until such notice has been given, Boeing will be entitled to deal solely
and exclusively with Assignor. Thereafter, until Assignee has provided Boeing
written notice that any such events no longer continue, Boeing will be entitled
to deal solely and exclusively with Assignee. Boeing may act with acquittance
and conclusively rely on any such notice.

5. It is expressly agreed that, anything herein contained to the contrary
notwithstanding: (a) prior to the Delivery Date Assignor will perform its
obligations with respect to the Aircraft to be performed by it on or before such
delivery, (b) Assignor will at all times remain liable to Boeing under the
Boeing Purchase Agreement to perform all obligations of Customer thereunder to
the same extent as if this Assignment had not been executed, and (c) the
exercise by Assignee of any of the assigned rights will not release Assignor
from any of its obligations to Boeing under the Boeing Purchase Agreement,
except to the extent that such exercise constitutes performance of such
obligations.

6. Notwithstanding anything contained in this Assignment to the contrary
(but without in any way releasing Assignor from any of its obligations under the
Boeing Purchase Agreement), Assignee confirms for the benefit of Boeing that,
insofar as the provisions of the Boeing Purchase Agreement relate to the
Aircraft, in exercising any rights under the Boeing Purchase Agreement, or in
making any claim with respect to the Aircraft or other things (including,
without limitation, Material, training and services) delivered or to be
delivered, the terms and conditions of the Boeing Purchase Agreement, including,
without limitation, the DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL
AND OTHER DAMAGES in Article 11 of Part 2 of Exhibit C to the Aircraft General
Terms Agreement which was incorporated by reference into the Boeing Purchase
Agreement and the insurance provisions in Article 8.2 of the Aircraft General
Terms Agreement which was incorporated by reference into the Boeing Purchase
Agreement therein, will apply to and be binding on Assignee to the same extent
as if Assignee had been the original "Customer" thereunder. Assignee further
agrees, expressly for the benefit of Boeing, upon the written request of Boeing,
Assignee will promptly execute and deliver such further assurances and documents
and take such further action as Boeing may reasonably request in order to obtain
the full benefits of Assignee's agreements in this paragraph.

AGTA-ASA                             App. II

3

SAMPLE
PURCHASE AGREEMENT ASSIGNMENT
(WHERE CUSTOMER REMAINS OPERATOR OF THE AIRCRAFT)

7. Nothing contained herein will subject Boeing to any liability to which
it would not otherwise be subject under the Boeing Purchase Agreement or modify
in any respect the contract rights of Boeing thereunder, or require Boeing to
divest itself of title to or possession of the Aircraft or other things until
delivery thereof and payment therefor as provided therein.

8. Notwithstanding anything in this Assignment to the contrary, after
receipt of notice of any event of default or termination under [specify
document], Boeing will continue to owe to Assignor moneys in payment of claims
made or obligations arising before such notice, which moneys may be subject to
rights of set-off available to Boeing under applicable law. Similarly, after
receipt of notice that such event of default or termination no longer continues,
Boeing will continue to owe to Assignee moneys in payment of claims made or
obligations arising before such notice, which moneys may be subject to rights of
set-off available to Boeing under applicable law.

9. Effective at any time after an event of default has occurred, and for
so long as such event of default is continuing, Assignor does hereby constitute
Assignee, Assignor's true and lawful attorney, irrevocably, with full power (in
the name of Assignor or otherwise) to ask, require, demand, receive, and give
acquittance for any and all moneys and claims for moneys due and to become due
under or arising out of the Boeing Purchase Agreement in respect of the
Aircraft, to the extent assigned by this Assignment.

10. Assignee agrees, expressly for the benefit of Boeing and Assignor that
it will not disclose, directly or indirectly, any terms of the Boeing Purchase
Agreement; provided, that Assignee may disclose any such information (a) to its
special counsel and public accountants, (b) as required by applicable law to be
disclosed or to the extent that Assignee may have received a subpoena or other
written demand under color of legal right for such information, but it will
first, as soon as practicable upon receipt of such requirement or demand,
furnish an explanation of the basis thereof to Boeing, and will afford Boeing
reasonable opportunity, to obtain a protective order or other reasonably
satisfactory assurance of confidential treatment for the information required to
be disclosed, and (c) to any bona fide potential purchaser or lessee of the
Aircraft. Any disclosure pursuant to (a) and (c) above will be subject to
execution of a confidentiality agreement substantially similar to this paragraph
10.

11. This Assignment may be executed by the parties in separate
counterparts, each of which when so executed and delivered will be an original,
but all such counterparts will together constitute but one and the same
instrument.

AGTA-ASA                             App. II

4

SAMPLE
PURCHASE AGREEMENT ASSIGNMENT
(WHERE CUSTOMER REMAINS OPERATOR OF THE AIRCRAFT)

12. This Assignment will be governed by, and construed in accordance with,
the laws of [______________________].

___________________________                   ___________________________
as Assignor                                   as Assignee

By _______________________                    By _______________________

Name:                                         Name:

Title:                                        Title:

[If the Assignment is further assigned by Assignee in connection with a
financing, the following language needs to be included.]

Attest:

The undersigned, as [Indenture Trustee/Agent for the benefit of the Loan
Participants/Mortgagee] and as assignee of, and holder of a security interest
in, the estate, right, and interest of the Assignee in and to the foregoing
Purchase Agreement Assignment and the Purchase Agreement pursuant to the terms
of a certain [Trust Indenture/Mortgage] dated as of _____________, agrees to the
terms of the foregoing Purchase Agreement Assignment and agrees that its rights
and remedies under such [Trust Indenture/Mortgage] shall be subject to the terms
and conditions of the foregoing Purchase Agreement Assignment, including,
without limitation, paragraph 6.

[Name of Entity],
as Indenture Trustee/Agent

By: ____________________________

Name:

Title:

AGTA-ASA                             App. II

5

SAMPLE
PURCHASE AGREEMENT ASSIGNMENT
(WHERE CUSTOMER REMAINS OPERATOR OF THE AIRCRAFT)

CONSENT AND AGREEMENT OF
THE BOEING COMPANY

THE BOEING COMPANY, a Delaware corporation (Boeing), hereby acknowledges
notice of and consents to the foregoing Purchase Agreement Assignment
(Assignment) as it relates to Boeing in respect of the Aircraft. Boeing confirms
to Assignee that: all representations, warranties, indemnities and agreements of
Boeing under the Boeing Purchase Agreement with respect to the Aircraft will,
subject to the terms and conditions thereof and of the Assignment, inure to the
benefit of Assignee to the same extent as if Assignee were originally named
"Customer" therein.

This Consent and Agreement will be governed by, and construed in
accordance with, the law of the State of Washington, excluding the conflict of
laws principles thereof.

Dated as of ____________________, 20___.

THE BOEING COMPANY

By ________________________
Name:
Title: Attorney-in-Fact

Aircraft Manufacturer's Serial Number(s) ____________

AGTA-ASA                             App. II

6

SAMPLE
POST-DELIVERY SALE NOTICE

Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington 98124-2207
U.S.A.

By Courier
1901 Oakesdale Ave. SW
Renton, WA  98055
U.S.A.

Attention: Vice President - Contracts
Mail Code 21-34

Ladies and Gentlemen:

In connection with the sale by Alaska Airlines, Inc. (Seller) to
________________ (Purchaser) of the aircraft identified below, reference is made
to Purchase Agreement No. _____ dated as of ___________, 20__, between The
Boeing Company (Boeing) and Seller (the Purchase Agreement) under which Seller
purchased certain Boeing Model ________ aircraft, including the aircraft bearing
Manufacturer's Serial No.(s) ______________________ (the Aircraft). The Purchase
Agreement incorporated by reference Aircraft General Terms Agreement AGTA-ASA
(AGTA).

Capitalized terms used herein without definition will have the same meaning as
in the Purchase Agreement.

Seller has sold the Aircraft, including in that sale the assignment to Purchaser
of all remaining rights related to the Aircraft under the Purchase Agreement. To
accomplish this transfer of rights, as authorized by the provisions of the
Purchase Agreement:

(1) Purchaser acknowledges it has reviewed those provisions of the Purchase
Agreement related to those rights assigned and agrees to be bound by and comply
with all applicable terms and conditions of the Purchase Agreement, including,
without limitation, the DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL
AND OTHER DAMAGES in Article 11 of Part 2 of Exhibit C to the AGTA and the
insurance provisions in Article 8.2 of the AGTA. Purchaser further agrees upon
the written request of Boeing, to promptly execute and deliver such further
assurances and documents and take such further action as Boeing may reasonably
request in order to obtain the full benefits of Purchaser's agreements in this
paragraph; and

(2) Seller will remain responsible for any payments due Boeing as a result of
obligations relating to the Aircraft incurred by Seller to Boeing prior to the
effective date of this letter.

AGTA-ASA                            App. III

1

SAMPLE
POST-DELIVERY SALE NOTICE

We request that Boeing acknowledge receipt of this letter and confirm the
transfer of rights set forth above by signing the acknowledgment and forwarding
one copy of this letter to each of the undersigned.

Very truly yours,

Alaska Airlines, Inc.                       Purchaser

By _________________________                By _________________________

Its ________________________                Its ________________________

Dated ______________________                Dated ______________________

Receipt of the above letter is acknowledged and the assignment of rights under
the Purchase Agreement with respect to the Aircraft described above is
confirmed, effective as of this date.

THE BOEING COMPANY

By __________________________

Its Attorney-in-Fact

Dated _______________________

Aircraft Manufacturer's Serial Number ____________

AGTA-ASA                           App. III

2

SAMPLE
POST-DELIVERY LEASE NOTICE

Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington 98124-2207
U.S.A.

By Courier
1901 Oakesdale Ave. SW
Renton, WA 98055
U.S.A.

Attention: Vice President - Contracts
Mail Code 21-34

Ladies and Gentlemen:

In connection with the lease by Alaska Airlines, Inc. (Lessor) to ___________
(Lessee) of the aircraft identified below, reference is made to Purchase
Agreement No. ____ dated as of ________, 20__, between The Boeing Company
(Boeing) and Lessor (the Purchase Agreement) under which Lessor purchased
certain Boeing Model _______ aircraft, including the aircraft bearing
Manufacturer's Serial No.(s) ___________________ (the Aircraft). The Purchase
Agreement incorporated by reference Aircraft General Terms Agreement AGTA-ASA
(AGTA).

Capitalized terms used herein without definition will have the same meaning as
in the Purchase Agreement.

Lessor has leased the Aircraft, including in that lease the transfer to Lessee
of all remaining rights related to the Aircraft under the Purchase Agreement. To
accomplish this transfer of rights, as authorized by the provisions of the
Purchase Agreement:

(1) Lessor authorizes Lessee to exercise, to the exclusion of Lessor, all rights
and powers of Lessor with respect to the remaining rights related to the
Aircraft under the Purchase Agreement. This authorization will continue until
Boeing receives written notice from Lessor to the contrary, addressed to Vice
President - Contracts, Mail Code 21-34, Boeing Commercial Airplanes, P.O. Box
3707, Seattle, Washington 98124-2207. Until Boeing receives such notice, Boeing
is entitled to deal exclusively with Lessee with respect to the Aircraft under
the Purchase Agreement. With respect to the rights and obligations of Lessor
under the Purchase Agreement, all actions taken or agreements entered into by
Lessee during the period prior to Boeing's receipt of this notice are final and
binding on Lessor. Further, any payments made by Boeing as a result of claims
made by Lessee prior to receipt of such notice will be made to the credit of
Lessee and after such notice will be made to Lessor.

AGTA-ASA                             App. IV

1

SAMPLE
POST-DELIVERY LEASE NOTICE

(2) Lessee accepts the authorization above, acknowledges it has reviewed those
provisions of the Purchase Agreement related to the authority granted and agrees
to be bound by and comply with all applicable terms and conditions of the
Purchase Agreement including, without limitation, the DISCLAIMER AND RELEASE and
EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES in Article 11 of Part 2 of Exhibit
C AGTA and the insurance provisions in Article 8.2 of the AGTA. Lessee further
agrees, upon the written request of Boeing, to promptly execute and deliver such
further assurances and documents and take such further action as Boeing may
reasonably request in order to obtain the full benefits of Lessee's agreements
in this paragraph.

(3) Lessor will remain responsible for any payments due Boeing as a result of
obligations relating to the Aircraft incurred by Lessor to Boeing prior to the
effective date of this letter.

We request that Boeing acknowledges receipt of this letter and confirm the
transfer of rights set forth above by signing the acknowledgment and forwarding
one copy of this letter to each of the undersigned.

Very truly yours,

Alaska Airlines, Inc.                    Lessee

By _______________________               By _______________________

Its ______________________               Its ______________________

Dated ____________________               Dated ____________________

Receipt of the above letter is acknowledged and transfer of rights under the
Purchase Agreement with respect to the Aircraft described above is confirmed,
effective as of this date.

THE BOEING COMPANY

By _______________________

Its ______________________

Dated ____________________

AGTA-ASA                             App. IV

2

SAMPLE
POST-DELIVERY LEASE NOTICE

Aircraft Manufacturer's Serial Number ____________

AGTA-ASA                             App. IV

3

SAMPLE
PURCHASER'S/LESSEE'S AGREEMENT

Boeing Commercial Airplanes
P. O. Box 3707
Seattle, Washington 98124-2207
U.S.A.

By Courier
1901 Oakesdale Ave. SW
Renton, WA 98055
U.S.A.

Attention Vice President - Contracts
Mail Code 21-34

Ladies and Gentlemen:

In connection with the sale/lease by Alaska Airlines, Inc. (Seller/Lessor) to
_______________________ (Purchaser/Lessee) of the aircraft identified below,
reference is made to the following documents:

(i) Purchase Agreement No. _____ dated as of ___________, 20__, between The
Boeing Company (Boeing) and Seller/Lessor (the Purchase Agreement) under which
Seller/Lessor purchased certain Boeing Model ________ aircraft, including the
aircraft bearing Manufacturer's Serial No.(s) ______________________ (the
Aircraft); and

(ii) Aircraft Sale/Lease Agreement dated as of ___________, 20__, between
Seller/Lessor and Purchaser/Lessee (the Aircraft Agreement) under which
Seller/Lessor is selling/leasing the Aircraft.

Capitalized terms used herein without definition will have the same meaning as
in the Purchase Agreement.

1. Seller/Lessor has sold/leased the Aircraft under the Aircraft Agreement,
including therein a form of exculpatory clause protecting Seller/Lessor from
liability for loss of or damage to the aircraft, and/or related incidental or
consequential damages, including without limitation loss of use, revenue or
profit.

2. Disclaimer and Release; Exclusion of Consequential and Other Damages

2.1 In accordance with Seller/Lessor's obligation under Article 9.5 of
AGTA-ASA which was incorporated by reference into the Purchase Agreement,
Purchaser/Lessee hereby agrees that:

AGTA-ASA                             App. V

1

SAMPLE
PURCHASER'S/LESSEE'S AGREEMENT

2.2 DISCLAIMER AND RELEASE. IN CONSIDERATION OF THE SALE/LEASE OF THE
AIRCRAFT, PURCHASER/LESSEE HEREBY WAIVES, RELEASES AND RENOUNCES ALL WARRANTIES,
OBLIGATIONS AND LIABILITIES OF BOEING AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES
OF PURCHASER/LESSEE AGAINST BOEING, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE, WITH RESPECT TO ANY NONCONFORMANCE OR DEFECT IN ANY AIRCRAFT, BOEING
PRODUCT, MATERIALS, TRAINING, SERVICES OR OTHER THING PROVIDED UNDER THE
AIRCRAFT AGREEMENT, INCLUDING, BUT NOT LIMITED TO:

(A)   ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS;

(B)   ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE;

(C)   ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT,
WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF BOEING; AND

(D)   ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF
OR DAMAGE TO ANY AIRCRAFT.

2.3 EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES. BOEING WILL HAVE NO
OBLIGATION OR LIABILITY, WHETHER ARISING IN CONTRACT (INCLUDING WARRANTY), TORT,
WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF BOEING, OR OTHERWISE, FOR LOSS OF
USE, REVENUE OR PROFIT, OR FOR ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES
WITH RESPECT TO ANY NONCONFORMANCE OR DEFECT IN ANY AIRCRAFT, MATERIALS,
TRAINING, SERVICES OR OTHER THING PROVIDED UNDER THE AIRCRAFT AGREEMENT.

2.4 Definitions. For the purpose of this paragraph 2, "BOEING" or "Boeing"
is defined as The Boeing Company, its divisions, subsidiaries, affiliates, the
assignees of each, and their respective directors, officers, employees and
agents.

Alaska Airlines, Inc. (Seller/Lessor)                   Purchaser/Lessee

AGTA-ASA                             App. V

2

SAMPLE
PURCHASER'S/LESSEE'S AGREEMENT

By _________________________            By _________________________

Its ________________________            Its ________________________

Dated ______________________            Dated ______________________

AGTA-ASA                             App. V

3

SAMPLE
POST-DELIVERY OWNER APPOINTMENT OF AGENT - WARRANTIES

Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington 98124-2207
U.S.A.

By Courier
1901 Oakesdale Ave. SW
Renton, WA 98055
U.S.A.

Attention: Vice President - Contracts
Mail Code 21-34

Ladies and Gentlemen:

1. Reference is made to Purchase Agreement No. ____ dated as of __________,
20__, between The Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)
(the Purchase Agreement), under which Customer purchased certain Boeing Model
________ aircraft including the aircraft bearing Manufacturer's Serial No.(s)
_____________ (the Aircraft). The Purchase Agreement incorporated by reference
Aircraft General Terms Agreement AGTA-ASA (AGTA).

Capitalized terms used herein without definition will have the same meaning as
in the Purchase Agreement.

To accomplish the appointment of an agent, Customer confirms:

A. Customer has appointed ____________________ as agent (Agent) to act directly
with Boeing with respect to the remaining warranties under the Purchase
Agreement and requests Boeing to treat Agent as Customer for the administration
of claims with respect to such warranties; provided however, Customer remains
liable to Boeing to perform the obligations of Customer under the Purchase
Agreement.

B. Boeing may continue to deal exclusively with Agent concerning the matters
described herein unless and until Boeing receives written notice from Customer
to the contrary, addressed to Vice President - Contracts, Mail Code 21-34,
Boeing Commercial Airplanes, P.O. Box 3707, Seattle, Washington 98124-2207,
U.S.A. With respect to the rights and obligations of Customer under the Purchase
Agreement, all actions taken by Agent or agreements entered into by Agent during
the period prior to Boeing's receipt of such notice are final and binding on
Customer. Further, any payments made by Boeing as a result of claims made by
Agent will be made to the credit of Agent unless otherwise specified when each
claim is submitted.

AGTA-ASA                             App. VI

1

SAMPLE
POST-DELIVERY OWNER APPOINTMENT OF AGENT - WARRANTIES

C. Customer will remain responsible for any payments due Boeing as a result of
obligations relating to the Aircraft incurred by Customer to Boeing prior to the
effective date of this letter.

We request that Boeing acknowledge receipt of this letter and confirm the
appointment of Agent as stated above by signing the acknowledgment and
forwarding one copy of this letter to each of the undersigned.

Very truly yours,

Alaska Airlines, Inc.

By ____________________________

AGTA-ASA                             App. VI

2

SAMPLE
POST-DELIVERY OWNER APPOINTMENT OF AGENT - WARRANTIES

AGENT'S AGREEMENT

Agent accepts the appointment as stated above, acknowledges it has reviewed the
those portions of the Purchase Agreement related to the authority granted it
under the Purchase Agreement and agrees that, in exercising any rights or making
any claims thereunder, Agent will be bound by and comply with all applicable
terms and conditions of the Purchase Agreement including, without limitation,
the DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES in
Article 11 of Part 2 of Exhibit C to the AGTA. Agent further agrees, upon the
written request of Boeing, to promptly execute and deliver such further
assurances and documents and take such further action as Boeing may reasonably
request in order to obtain the full benefits of the warranties under the
Purchase Agreement.

Very truly yours,

Agent

By ____________________________

Its ___________________________

Dated _________________________

Receipt of the above letter is acknowledged and the appointment of Agent with
respect to the above-described rights under the Purchase Agreement is confirmed,
effective as of this date.

THE BOEING COMPANY

By ____________________________

Its ___________________________

Dated _________________________

Aircraft Manufacturer's Serial Number __________

AGTA-ASA                             App. VI

3

SAMPLE
CONTRACTOR CONFIDENTIALITY AGREEMENT

Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington 98124-2207

Attention: Vice President - Contracts
Mail Stop 21-34

Ladies and Gentlemen:

This Agreement is entered into between ____________________ (Contractor) and
Alaska Airlines, Inc. (Customer) and will be effective as of the date stated
below.

In connection with Customer's provision to Contractor of certain Materials,
Proprietary Materials and Proprietary Information, reference is made to Purchase
Agreement No. _____ dated as of _______, 20___ between The Boeing Company
(Boeing) and Customer.

Capitalized terms used herein without definition will have the same meaning as
in the Purchase Agreement.

Boeing has agreed to permit Customer to make certain Materials, Proprietary
Materials and Proprietary Information relating to Customer's Boeing Model
________ aircraft, Manufacturer's Serial Number ______, Registration No.
________ (the Aircraft) available to Contractor in connection with Customer's
contract with Contractor (the Contract) to maintain/repair/modify the Aircraft.
As a condition of receiving the Proprietary Materials and Proprietary
Information, Contractor agrees as follows:

1. For purposes of this Agreement:

"AIRCRAFT SOFTWARE" means software that is installed and used in the
operation of an Aircraft.

"MATERIALS" are defined as any and all items that are created by Boeing or
a third party, which are provided directly or indirectly from Boeing and serve
primarily to contain, convey or embody information. Materials may include either
tangible embodiments (for example, documents or drawings), or intangible
embodiments (for example, software and other electronic forms) of information
but excludes Aircraft Software.

"PROPRIETARY INFORMATION" means any and all proprietary, confidential
and/or trade secret information owned by Boeing or a Third Party which is
contained, conveyed or embodied in Proprietary Materials.

AGTA-ASA                            App. VII

1

BOEING PROPRIETRY

SAMPLE
CONTRACTOR CONFIDENTIALITY AGREEMENT

"PROPRIETARY MATERIALS" means Materials that contain, convey, or embody
Proprietary Information.

"THIRD PARTY" means anyone other than Boeing, Customer and Contractor.

2. Boeing has authorized Customer to grant to Contractor a worldwide,
non-exclusive, personal and nontransferable license to use Proprietary Materials
and Proprietary Information, owned by Boeing, internally in connection with
performance of the Contract or as may otherwise be authorized by Boeing in
writing. Contractor will keep confidential and protect from disclosure to any
person, entity or government agency, including any person or entity affiliated
with Contractor, all Proprietary Materials and Proprietary Information.
Individual copies of all Materials are provided to Contractor subject to
copyrights therein, and all such copyrights are retained by Boeing or, in some
cases, by Third Parties. Contractor is authorized to make copies of Materials
(except for Materials bearing the copyright legend of a Third Party) provided,
however, Contractor preserves the restrictive legends and proprietary notices on
all copies. All copies of Proprietary Materials will belong to Boeing and be
treated as Proprietary Materials under this Agreement.

3. Contractor specifically agrees not to use Proprietary Materials or
Proprietary Information in connection with the manufacture or sale of any part
or design. Unless otherwise agreed with Boeing in writing, Proprietary Materials
and Proprietary Information may be used by Contractor only for work on the
Aircraft for which such Proprietary Materials have been specified by Boeing.
Customer and Contractor recognize and agree that they are responsible for
ascertaining and ensuring that all Materials are appropriate for the use to
which they are put.

4. Contractor will not attempt to gain access to information by reverse
engineering, decompiling, or disassembling any portion of any software provided
to Contractor pursuant to this Agreement.

5. Upon Boeing's request at any time, Contractor will promptly return to Boeing
(or, at Boeing's option, destroy) all Proprietary Materials, together with all
copies thereof and will certify to Boeing that all such Proprietary Materials
and copies have been so returned or destroyed.

6. To the extent required by a government regulatory agency having jurisdiction
over Contractor, Customer or the Aircraft, Contractor is authorized to provide
Proprietary Materials and disclose Proprietary Information to the agency for the
agency's use in connection with Contractor's, authorized use of such Proprietary
Materials and/or Proprietary Information in connection with Contractor's
maintenance, repair, or modification of the Aircraft. Contractor agrees to take
reasonable steps to prevent such agency from making any distribution or
disclosure, or additional use of the Proprietary Materials and Proprietary
Information so provided or disclosed. Contractor further agrees to promptly
notify Boeing upon learning of any (i) distribution, disclosure, or additional
use by such agency, (ii) request to such agency for

AGTA-ASA                            App. VII

2

BOEING PROPRIETRY

SAMPLE
CONTRACTOR CONFIDENTIALITY AGREEMENT

distribution, disclosure, or additional use, or (iii) intention on the part of
such agency to distribute, disclose, or make additional use of the Proprietary
Materials or Proprietary Information.

7. Boeing is a third-party beneficiary under this Agreement, and Boeing may
enforce any and all of the provisions of the Agreement directly against
Contractor. Contractor hereby submits to the jurisdiction of the Washington
state courts and the United States District Court for the Western District of
Washington with regard to any claims Boeing may make under this Agreement. It is
agreed that Washington law (excluding Washington's conflict-of-law principles)
governs this Agreement.

8. No disclosure or physical transfer by Boeing or Customer to Contractor, of
any Proprietary Materials or Proprietary Information covered by this Agreement
will be construed as granting a license, other than as expressly set forth in
this Agreement or any ownership right in any patent, patent application,
copyright or proprietary information.

9. The provisions of this Agreement will apply notwithstanding any markings or
legends, or the absence thereof, on any Proprietary Materials.

10. This Agreement is the entire agreement of the parties regarding the
ownership and treatment of Proprietary Materials and Proprietary Information,
and no modification of this Agreement will be effective as against Boeing unless
in writing signed by authorized representatives of Contractor, Customer and
Boeing.

11. Failure by either party to enforce any of the provisions of this Agreement
will not be construed as a waiver of such provisions. If any of the provision of
this Agreement is held unlawful or otherwise ineffective by a court of competent
jurisdiction, the remainder of the Agreement will remain in full force.

ACCEPTED AND AGREED TO this

Date: _____________________, 20___

Alaska Airlines, Inc.                         Contractor

By ___________________________                By __________________________

Its __________________________                Its _________________________

AGTA-ASA                            App. VII

3

BOEING PROPRIETRY

SAMPLE

POST-DELIVERY SALE WITH LEASE TO SELLER

[Notice from Owner/Seller and subsequent Buyer regarding post-delivery sale and
lease back of an aircraft and transfer of all remaining Purchase Agreement
rights.]

, 200_

Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington 98124-2207

By Courier
1901 Oakesdale Ave. SW
Renton, WA  _____

Attention: Vice President - Contracts
Mail Code 21-34

Ladies and Gentlemen:

In connection with ________________'s (Seller's) sale to and lease back from
________________ (Buyer) of the aircraft identified below, reference is made to
the following documents:

1. Purchase Agreement No. _______ dated as of _________________, between The
Boeing Company (Boeing) and Seller (the Agreement) under which Seller purchased
certain Boeing Model _____________ aircraft, including the aircraft bearing
Manufacturer's Serial No.(s) _________(the Aircraft). The Agreement incorporates
by reference the terms of AGTA-___ dated __________ ___, _____, between Seller
and Boeing.

2. Aircraft Sale Agreement dated as of ___________________, between Seller and
___________________________________ (Buyer).

3. Aircraft Lease Agreement dated as of ___________________, between Buyer and
Seller.

Capitalized terms used herein without definition will have the same meaning as
in the Agreement.

Seller confirms for the benefit of Boeing it owns and controls the rights it
purports to assign herein.

Seller has sold the Aircraft, including in that sale the transfer to Buyer of
all remaining rights related to the Aircraft under the Agreement. To accomplish
this transfer of rights, as authorized by the provisions of the Agreement:

(1) Buyer acknowledges it has reviewed the Agreement and agrees that in
exercising any rights under the Agreement or asserting any claims with respect
to the Aircraft or other things (including without limitation, Materials,
training and services) delivered or to be delivered, it is bound by and will
comply with all applicable terms, conditions, and limitations of the Agreement

AGTA-ASA                            App. VIII

1

including but not limited to those related to any exclusion or limitation of
liabilities or warranties, indemnity and insurance; and

(2) Buyer authorizes Seller to exercise, to the exclusion of Buyer all rights
and powers of "Customer" with respect to the remaining rights related to the
Aircraft under the Agreement. This authorization will continue until Boeing
receives written notice from Buyer to the contrary, addressed to Vice President
- Contracts, Mail Code 21-34, Boeing Commercial Airplanes, P.O. Box 3707,
Seattle, Washington 98124-2207 (if by mail) or (425)237-1706 (if by facsimile).
Until Boeing receives this notice, Boeing is entitled to deal exclusively with
Seller as "Customer" with respect to the Aircraft under the Agreement. With
respect to the rights, powers, duties and obligations of "Customer" under the
Agreement, all actions taken by Seller or agreements entered into by Seller
during the period prior to Boeing's receipt of that notice are final and binding
on Buyer. Further, any payments made by Boeing as a result of claims made by
Seller prior to receipt of such notice are to be made to the credit of Seller.

(3) Seller accepts the authorization set forth in paragraph (2) above,
acknowledges it has reviewed the Agreement and agrees that in exercising any
rights under the Agreement or asserting any claims with respect to the Aircraft
or other things (including without limitation, Materials, training and services)
delivered or to be delivered, it is bound by and will comply with all applicable
terms, conditions, and limitations of the Agreement including but not limited to
those relating to any exclusion or limitation of liabilities or warranties,
indemnity and insurance.

(4) Seller agrees to remain responsible for any payments due Boeing as a result
of obligations relating to the Aircraft incurred by Seller to Boeing prior to
the effective date of this letter.

We request that Boeing acknowledge receipt of this letter and confirm the
transfer of rights set forth above by signing the acknowledgment and forwarding
one copy of this letter to each of the undersigned.

Very truly yours,

Seller                                   Buyer

By ___________________                      By ___________________

Its __________________                      Its ________________

Dated ________________                      Dated _________________

AGTA-ASA                             App. VIII

2

Receipt of the above letter is acknowledged and the transfers of rights under
the Agreement with respect to the Aircraft described above are confirmed,
effective as of the date indicated below.

The Boeing Company

By ____________________

Its ____________________

Dated _________________

AGTA-ASA                             App. VIII

3

SALE WITH LEASE

[NOTICE FROM 1ST TIER OWNER/SELLER AND SUBSEQUENT BUYER REGARDING POST-DELIVERY
SALE AND LEASE OF AN AIRCRAFT. REMAINING PA RIGHTS HAVE BEEN ASSIGNED TO THE NEW
OWNER; THE NEW OWNER AUTHORIZES A LESSEE TO EXERCISE SUCH RIGHTS DURING THE TERM
OF A LEASE. ]

[Date]

Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington 98124-2207

Attention: Vice President - Contracts
Mail Code 21-34

Ladies and Gentlemen:

In connection with the sale by ____________________ (Seller) to
___________________ (Purchaser) and subsequent lease of the aircraft identified
below, reference is made to the following documents:

1. Purchase Agreement No. ______ dated as of __________, _____, between The
Boeing Company (Boeing) and __________________ (Seller)(the Agreement) under
which Seller purchased certain Boeing Model _________ aircraft, including the
aircraft bearing Manufacturer's Serial No(s). ____________ (the Aircraft).

2. Aircraft sale agreement dated as of __________, ________, between Seller and
_____________(Purchaser).

3. Aircraft lease agreement dated as of __________, _____, between __Purchaser
and _________ (Lessee)(Lease).

Capitalized terms used herein without definition will have the same meaning as
in the Agreement.

Seller has sold the Aircraft, including in that sale the assignment to Purchaser
of all remaining rights related to the Aircraft under the Agreement. To
accomplish this transfer of rights, as authorized by the provisions of the
Agreement:

(1) Seller confirms for the benefit of the Manufacturer it owns and controls the
rights it purports to have assigned.

(2) Purchaser agrees that in exercising any rights under the Agreement or
asserting any claims with respect to the Aircraft or other things (including
without limitation, [data and documents/Materials], training and services)
delivered or to be delivered, it is bound by and will comply with all applicable
terms, conditions, and limitations of the Agreement including but not limited to
those related to any exclusion or limitation of liabilities or warranties,
indemnity and insurance; and

(2) Seller will remain responsible for any payment due Boeing as a result of
obligations relating to the Aircraft incurred by Seller to Boeing prior to the
effective date of this letter.

AGTA-ASA                              App. IX

1

(3) Purchaser authorizes Lessee during the term of the Lease to exercise, to the
exclusion of Purchaser all rights and powers of ["Buyer"/ "Customer"] with
respect to the remaining rights related to the Aircraft under the Agreement .
This authorization will continue until Boeing receives written notice from
Purchaser to the contrary, addressed to Vice President - Contracts, Mail Code
21-34, Boeing Commercial Airplanes, P.O. Box 3707, Seattle, Washington
98124-2207 (if by mail) or (425)237-1706 (if by facsimile). Until Boeing
receives this notice, Boeing is entitled to deal exclusively with Lessee as
["Buyer"/ "Customer"] with respect to the Aircraft under the Agreement. With
respect to the rights, powers, duties and obligations of ["Buyer"/"Customer"]
under the Agreement, all actions taken by Lessee or agreements entered into by
Lessee during the period prior to Boeing's receipt of that notice are final and
binding on Purchaser. Further, any payments made by Boeing as a result of claims
made by Lessee prior to receipt of this notice are to be made to the credit of
Lessee.

(4) Lessee accepts the authorization set forth in paragraph (3) above,
acknowledges it has reviewed the Agreement and agrees that in exercising any
rights under the Agreement or asserting any claims with respect to the Aircraft
or other things (including without limitation, [data and documents/Materials],
training and services) delivered or to be delivered, it is bound by and will
comply with all applicable terms, conditions, and limitations of the Agreement
including but not limited to those related to any exclusion or limitation of
liabilities or warranties, indemnity and insurance.

We request that Boeing acknowledge receipt of this letter and confirm the
transfer of rights set forth above by signing the acknowledgment and forwarding
one copy of this letter to each of the undersigned.

Very truly yours,

_______________ (Seller)         _______________________ (Purchaser)
By ___________________                  By ___________________

Its ___________________                 Its ________________

Dated ________________                  Dated _________________

_____________________ (Lessee)
By ___________________

Its ___________________

Dated ________________

AGTA-ASA                              App. IX

2

Receipt of the above letter is acknowledged and the transfers of rights under
the Agreement with respect to the Aircraft described above are confirmed,
effective as of the date indicated below.

The Boeing Company

By ____________________

Its Attorney-in-Fact

Date ___________________

MSN ______________

AGTA-ASA                              App. IX

3

SAMPLE

Post-Delivery Security

, 200_

Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington 98124-2207
U.S.A.

By Courier
1901 Oakesdale Ave. SW
Renton, WA  98055
U.S.A.

Attention:    Vice President-Contracts
Mail Code 21-34

Ladies and Gentlemen:

Reference is made to Purchase Agreement No. ________ dated as of
_______________, (the "Agreement") between The Boeing Company ("Boeing") and
__________________________ ("Borrower") pursuant to which Borrower purchased
from Boeing one (1) Boeing model _______ aircraft bearing Manufacturer's Serial
Number _______(the "Aircraft"). The Agreement incorporates by reference the
terms of Aircraft General Terms Agreement AGTA - ___ , dated ________ __, ____,
between Borrower and Boeing.

Capitalized terms used herein without definition will have the same
meanings as in the Agreement.

Borrower confirms for the benefit of Boeing it owns and controls the rights it
purports to assign herein.

In connection with Borrower's financing of the Aircraft, Borrower is
entering into a [trust indenture/ mortgage], dated as of ___________, 2003,
between Borrower and [Indenture Trustee/Mortgagee] [(the Trust
Indenture/Mortgage)], which grants a security interest in [the warranty rights/
all of its rights] contained in the Agreement related to the Aircraft (Assigned
Rights). Borrower is authorized to exercise the Assigned Rights until such time
as the [Indenture Trustee/ Mortgagee] notifies Boeing as provided below that an
Event of Default under the [Trust Indenture/ Mortgage] has occurred and is
continuing. In connection with this assignment for security purposes, as
authorized by the provisions of the Agreement:

AGTA-ASA                             App. X
1

1. [Indenture Trustee/Mortgagee], as assignee of, and holder of a security
interest in, the estate, right, and interest of the Borrower in and to the
Agreement pursuant to the terms of a certain [Trust Indenture/Mortgage],
acknowledges that it has received copies of the applicable provisions of the
Agreement and agrees that in exercising any rights under the Agreement or
asserting any claims with respect to the Aircraft or other things (including
without limitation, Materials, training and services) delivered or to be
delivered, its rights and remedies under the [Trust Indenture/Mortgage] shall be
subject to the terms and conditions of the Agreement including but not limited
to those related to any exclusion or limitation of liabilities or warranties,
indemnity and insurance.

2.    Borrower is authorized to exercise, to the exclusion of [Indenture
Trustee/Mortgagee] all rights and powers of "Customer" under the Agreement,
unless and until Boeing receives a written notice from [Indenture
Trustee/Mortgagee], addressed to its Vice President - Contracts, Boeing
Commercial Airplanes at P.O. Box 3707, Seattle, Washington 98124, Mail Code
21-34 (if by mail), or (425)237-1706 (if by facsimile) that an event of default
under the [Trust Indenture/Mortgage] has occurred and is continuing. Until such
notice has been given, Boeing will be entitled to deal solely and exclusively
with Borrower. Thereafter, until [Indenture Trustee/Mortgagee] has provided
Boeing written notice that any such event no longer continues, Boeing will be
entitled to deal solely and exclusively with [Indenture Trustee/Mortgagee].
Boeing may act with acquittance and conclusively rely on any such notice.

Borrower will remain responsible to Boeing for any amounts due Boeing with
respect to the Aircraft under the Agreement prior to Boeing's receipt of such
notice. We request that Boeing acknowledge receipt of this letter and confirm
the transfer of rights set forth above by signing its acknowledgment and
forwarding one copy of this letter to each of the undersigned.

Very truly yours,

____________________________                    ______________________________
Indenture Trustee / Mortgagee

By:_________________________________            By:_____________________________
Its:                                            Its:

Receipt of the above letter is acknowledged and the transfer of rights under the
Agreement with respect to the Aircraft described above is confirmed, effective
as of the date indicated below.

THE BOEING COMPANY

By:_________________________________
Its: _________________________________

AGTA-ASA                             App. X
2

Date: _______________________________
MSN  _______________

AGTA-ASA                             App. X
3

6-1162-MSA-591

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington  98188

Subject:      Aircraft General Terms Agreement Terms Revisions

Reference:    Aircraft General Terms Agreement No. AGTA-ASA (the AGTA) between
The Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)

This letter agreement (Letter Agreement) amends and supplements the AGTA. All
terms used but not defined in this Letter Agreement have the same meaning as in
the AGTA.

This Letter Agreement modifies certain terms and conditions of the AGTA.

1.0   Basic Articles to the AGTA.

[***]

1.2 Article 3 Regulatory Requirements and Certificates is deleted in its
entirety and replaced by the following:

Article 3. Regulatory Requirements and Certificates.

3.1 Certificates. Boeing will manufacture each aircraft to
conform to the appropriate Type Certificate issued by the United States
Federal Aviation Administration (FAA) for the specific model of aircraft
and will obtain from the FAA and furnish to Customer at delivery of each
aircraft either a Standard Airworthiness Certificate or an Export
Certificate of Airworthiness issued pursuant to Part 21 of the Federal
Aviation Regulations, as designated by Customer. Boeing will provide a
Certificate of Sanitary Construction at the time of delivery of each
Aircraft.

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted protions.

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 2

3.2 FAA or Applicable Regulatory Authority Manufacturer
Changes.

3.2.1 A MANUFACTURER CHANGE is defined as any change to
an aircraft, data relating to an aircraft, or testing of an aircraft
required by the FAA to obtain a Standard Airworthiness Certificate, or by
the country of import and/or registration to obtain an Export Certificate
of Airworthiness.

3.2.2 Boeing will bear the cost of incorporating all
Manufacturer Changes into the aircraft:

(i) resulting from requirements issued by the FAA
prior to the date of the Type Certificate for the applicable aircraft;

(ii) resulting from requirements issued by the FAA
prior to the date of the applicable purchase agreement; and

(iii) for any aircraft delivered during the 18
month period immediately following the date of the applicable purchase
agreement (regardless of when the requirement for such change was issued
by the FAA). For the avoidance of doubt, "the date of the applicable
purchase agreement means the date of execution of a purchase agreement for
the initial firm aircraft, and the date of execution of a supplement to
such purchase agreement that adds additional aircraft for the aircraft
orders added by such supplement.

3.2.3 Customer will pay Boeing's charge for
incorporating all other Manufacturer Changes into the aircraft, including
all changes for validation of an aircraft required by any governmental
agency of the country of import and/or registration. [***]

3.3 FAA Operator Changes.

3.3.1 An OPERATOR CHANGE is defined as a change in
equipment that is required by Federal Aviation Regulations which (i) is
generally applicable to transport category aircraft to be used in United
States certified air carriage and (ii) the required compliance date is on
or before the scheduled delivery month of the aircraft.

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted protions.

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 3

3.3.2 Boeing will deliver each aircraft with Operator
Changes incorporated or, at Boeing's option, with suitable provisions for
the incorporation of such Operator Changes, and Customer will pay Boeing's
applicable charges[***].

3.4 Export License. If an export license is required by United
States law or regulation for any aircraft or any other things delivered
under the purchase agreement, it is Customer's obligation to obtain such
license. If requested, Boeing will assist Customer in applying for any
such export license. Customer will furnish any required supporting
documents.

1.3 Article 5.3 Demonstration Flights is deleted in its entirety and
replaced by the following:

5.3 Demonstration Flights. Prior to delivery, Boeing will fly
each aircraft up to 4 hours to demonstrate to Customer the function of the
aircraft and its equipment using Boeing's production flight test
procedures. Customer may designate up to five representatives to
participate as observers. Boeing will continue its practice of permitting
Customer's licensed and qualified pilot observer to participate in flying
the Aircraft provided that the flights shall always be under the command
of Boeing's pilot.

1.4 Article 5.4 Test Data; Performance Guarantee Compliance is deleted in
its entirety and replaced by the following:

5.4 Test Data; Performance Guarantee Compliance. PERFORMANCE
GUARANTEES are defined as the written guarantees in a purchase agreement
regarding the operational performance of an aircraft. Boeing will furnish
to Customer certified correct, by Boeing as applicable, flight test data
obtained on an aircraft of the same model to evidence compliance with the
Performance Guarantees. Performance Guarantees will be met if reasonable
engineering interpretations and calculations based on the flight test data
establish that the particular aircraft being delivered under the
applicable purchase agreement would, if actually flown, comply with the
guarantees.

1.5 Article 5.5 Special Aircraft Test Requirements is deleted in its
entirety and replaced by the following:

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted protions.

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 4

5.5 Special Aircraft Test Requirements. Boeing may use an
aircraft for flight and ground tests prior to delivery, without reduction
in the Aircraft Price, if the tests are considered necessary by Boeing (i)
to obtain or maintain the Type Certificate or Certificate of Airworthiness
for the aircraft or (ii) to evaluate potential improvements that may be
offered for production or retrofit incorporation (provided Customer has
given written consent for (ii) items).

1.6 Article 6.3 Bill of Sale is deleted in its entirety and replaced by
the following:

6.3 Bill of Sale. At delivery of an aircraft, Boeing will
provide Customer a bill of sale conveying good title, free of any and all
encumbrances, and such other documents of title as Customer may reasonably
request.

1.7 Article 7.3.1 is deleted in its entirety and replaced by the
following:

7.3.1 The calculation of the Escalation Adjustment will
be based on the originally scheduled delivery month (or the last scheduled
delivery month prior to the commencement of the delay, if the original
schedule had been modified by mutual agreement).

1.8 Article 7.6 Termination is deleted in its entirety and replaced by the
following:

7.6 Termination. Termination under this Article will discharge
all obligations and liabilities of Boeing and Customer with respect to any
aircraft and all related undelivered Materials (as defined in Exhibit B,
Customer Support Document), training, services, and other things
terminated under the applicable purchase agreement, except that Boeing
will return to Customer, without interest, an amount equal to all advance
payments paid by Customer for the aircraft. If Customer terminates the
applicable purchase agreement as to any aircraft, Boeing may elect, by
written notice to Customer within 30 days, to purchase from Customer any
BFE related to the aircraft at the invoice prices paid, [***], or
contracted to be paid, by Customer.

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted protions.

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 5

[***]

1.11 Article 10.1 Termination is deleted in its entirety and replaced by
the following:

10.1  Termination. If either party

(i) ceases doing business as a going concern, or
suspends all or substantially all its business
operations, or makes an assignment for the benefit of
creditors, or generally does not pay its debts as they
become due, or admits in writing its inability to pay
its debts; or

(ii) petitions for or acquiesces in the appointment of
any receiver, trustee or similar officer to liquidate or
conserve its business or any substantial part of its
assets; commences any legal proceeding such as
bankruptcy, reorganization, readjustment of debt,
dissolution, or liquidation available for the relief of
financially distressed debtors; or becomes the object of
any such proceeding, unless the proceeding is dismissed
or stayed within a reasonable period, not to exceed 60
days,

the other party may terminate any purchase agreement with respect to
any undelivered aircraft, Materials, training, services, and other
things by giving written notice of termination. Notwithstanding
Article 10.1. (i) and (ii) above, if a party has performed all of
its obligations under the applicable purchase agreement and provides
adequate assurance that it will perform its future obligations under
such purchase agreement, the other party shall not have the right to
terminate such purchase agreement under Article 10.1 (i) or (ii).

1.12 Article 12.7 Government Agency Reference is added:

12.7 Government Agency Reference. The reference to the FAA or
other government agencies includes the successor to such agency of the U.
S. Government.

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted protions.

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 6

2.0 Exhibit A BUYER FURNISHED EQUIPMENT PROVISIONS DOCUMENT to the AGTA.

2.1. Articles 3.4 and 3.5 are deleted in its entirety and replaced by the
following.

3.4 obtain from supplier a non-exclusive, perpetual, royalty-free,
irrevocable license for Boeing to copy BFE Aircraft Software solely for
the benefit of Customer. The license is needed to enable Boeing to load
the software copies in (i) the aircraft's mass storage device (MSD), (ii)
media (e.g., diskettes, CD-ROMs, etc.), (iii) the BFE hardware and/or (iv)
an intermediate device or other media to facilitate copying of the BFE
Aircraft Software into the aircraft's MSD, BFE hardware and/or media,
including media as Boeing may deliver to Customer with the aircraft (it is
understood that Boeing's rights are limited to supporting Customer and
Boeing acquires no right under this Agreement to use the software for
itself or for any other customer);

3.5 grant Boeing a license, extending the same rights set forth in
paragraph 3.4 above (and subject to the same limitations), to copy: a) BFE
Aircraft Software and data Customer has modified and/or b) other software
and data Customer has added to the BFE Aircraft Software;

2.2. Article 5 Nonperformance by Customer is deleted in its entirety and
replaced by the following.

5. Nonperformance by Customer.

If Customer's nonperformance of obligations in this Exhibit or in
the BFE Document causes a delay in the delivery of the Aircraft or causes
Boeing to perform out-of-sequence or additional work, Customer will
reimburse Boeing for all resulting expenses and be deemed to have agreed
to any such delay in Aircraft delivery. In addition Boeing will have the
right to:

5.1 provide and install specified equipment or suitable alternate
equipment and increase the price of the Aircraft accordingly; and/or

5.2 deliver the Aircraft to Customer without the BFE installed.

BOEING PROPRIETARY

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 7

Notwithstanding Article 5.1, in the event of Customer's nonperformance of
its obligations under this Exhibit A, Boeing will not substitute
alternative equipment for late BFE equipment without Buyer's approval. In
addition to those expenses previously outlined in this Article 5, Buyer
agrees to reimburse Boeing for any expenses which result from any delay
caused by Buyer's failure to promptly approve the substitution.

3.0   Exhibit B CUSTOMER SUPPORT DOCUMENT to the AGTA.

3.1. Part 5 Article 4 Providing of Proprietary Materials to Contractors is
deleted in its entirety and replaced by the following.

4.    Providing of Proprietary Materials to Contractors.

Customer is authorized to provide Proprietary Materials to
Customer's contractors for the sole purpose of maintenance, repair, or
modification of Customer's aircraft for which the Proprietary Materials
have been specified by Boeing. In addition, Customer may provide
Proprietary Materials to Customer's contractors for the sole purpose of
developing and manufacturing training devices and maintenance tools for
Customer's use. Before providing Proprietary Materials to its contractor,
either (i) Customer's contractor is, at the time of transfer of the
Proprietary Materials, bound by a Boeing Customer Services GTA or other
appropriate applicable agreement satisfactory to Boeing protecting
Boeing's Proprietary Materials, or (ii) Customer will first obtain a
written agreement from the contractor by which the contractor agrees (a)
to use the Proprietary Materials only on behalf of Customer, (b) to be
bound by all of the restrictions and limitations of this Part 5, and (c)
that Boeing is a third party beneficiary under the written agreement.
Customer agrees to provide copies of all such written agreements to Boeing
upon request and be liable to Boeing for any breach of those agreements by
a contractor. A sample agreement acceptable to Boeing is attached as
Appendix VII.

[***]

4.0   Exhibit C PRODUCT ASSURANCE DOCUMENT to the AGTA.

4.1. Part 1 term Correct(s) is deleted in its entirety and replaced by the
following.

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted protions.

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 8

CORRECT(S) - to repair, modify, provide modification kits or replace
with a new product having the same part number or being an improved part
that is compatible and has the same functionality.

4.2. Part 1 term CORRECTION is deleted in its entirety and replaced by the
following.

CORRECTION - a repair, a modification, a modification kit or
replacement with a new product that has the same or improved
functionality, compatibility and interchangeability.

4.3. Part 2 Article 2.1 Coverage item (ii) is deleted in its entirety and
replaced by the following.

(ii)  all Boeing Products will be free from defects in material,
process of manufacture and workmanship, including the
workmanship utilized to install Supplier Products, engines and
BFE (including conforming to the installation instructions of
the manufacturer so as to not invalidate any applicable
warranty from such manufacturer), and;

[***]

4.5. Part 2 Article 7.3.4 is deleted in its entirety and replaced by the
following.

7.3.4 Boeing will provide to Customer a single, lump sum
credit memorandum for Customer's Direct Labor hours expended to
incorporate the Corrections (other than of random anomalies)
identified in service bulletins and service letters in all
in-warranty aircraft covered by such service bulletins or service
letters after Customer's submission of a warranty claim and
verification of the incorporation of such Corrections with respect
to the first affected in-warranty aircraft. Other than a request for
reimbursement for incorporating the Corrections into aircraft
delivered to Customer by Boeing after the reimbursement request was
made, such credit memoranda will not be provided in response to any
other requests for reimbursement including, without limitation,
those arising out of program letters or other special offers
provided by Boeing.

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted protions.

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 9

4.5. Part 2 Article 8.3.2 is deleted in its entirety and replaced by the
following.

8.3.2 If Customer has a critical parts shortage because Boeing
has exceeded a Correction time objective and Customer has procured
spare Boeing Products for the defective Boeing Product in quantities
shown in Boeing's Recommended Spare Parts List or, for 717 model
aircraft only, in quantities shown in Boeing's Spares Planning and
Requirements Evaluation Model, then Boeing will either expedite the
Correction or provide an interchangeable Boeing Product, on a no
charge loan basis, until the Corrected Boeing Product is returned.
"Recommended Spare Parts List" is defined as that spare parts list
produced by the Boeing Spares Organization using operating
parameters and ground rules supplied by Customer that is acceptable
to Customer.

[***]

6.0   Confidential Treatment.

Customer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Customer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity.

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted protions.

AGTA-ASA
AGTA_Terms_Revisions

Alaska Airlines, Inc.
6-1162-MSA-591 Page 10

Sincerely,

THE BOEING COMPANY

By___________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

ALASKA AIRLINES, INC.

By____________________________

Its  Vice President Finance & Treasurer

Attachment

BOEING PROPRIETARY

AGTA-ASA
AGTA_Terms_Revisions

Attachment A to
6-1162-MSA-591 Page 1

SAMPLE
INSURANCE CERTIFICATE

BROKER'S LETTERHEAD

[ date ]

Certificate of Insurance

ISSUED TO:          The Boeing Company
Post Office Box 3707
Mail Stop 13-57
Seattle, Washington 98124
Attn: Manager - Aviation Insurance for
Vice President - Employee Benefits,
Insurance and Taxes

CC:                 Boeing Commercial Airplanes
P.O. Box 3707
Mail Stop 21-34
Seattle, Washington 98124-2207
U.S.A.
Attn: Vice President - Contracts

NAMED INSURED:      ALASKA AIRLINES, INC.

We hereby certify that in our capacity as Brokers to the Named Insured, the
following described insurance is in force on this date:

INSURER                 POLICY NO.         PARTICIPATION

POLICY PERIOD:      From [date and time of inception of the Policy(ies)] to
[date and time of expiration].

GEOGRAPHICAL LIMITS:     Worldwide (however, as respects "Aircraft Hull War and
Allied Perils" Insurance, as carried by the Named
Insured).

BOEING PROPRIETARY

AGTA-ASA                            App. I
1
AGTA_Terms_Revisions

Attachment A to
6-1162-MSA-591 Page 2

SAMPLE
INSURANCE CERTIFICATE

AIRCRAFT INSURED:   All Boeing manufactured aircraft owned or operated by the
Named Insured which are the subject of the following
purchase agreement(s), entered into between The Boeing
Company and _________________ (hereinafter "Aircraft"):

Purchase Agreement No. ____ dated ______
Purchase Agreement No. ____ dated ______

COVERAGES:

1.    AIRCRAFT "ALL RISKS" HULL (GROUND AND FLIGHT)

2.    AIRCRAFT HULL WAR AND ALLIED PERILS (AS PER LSW 555, OR ITS SUCCESSOR
WORDING AND WHICH MAY BE PROVIDED BY THE FAA AND NOT THE INSURANCE MARKET)

3.    AIRLINE LIABILITY

Including, but not limited to, Bodily Injury, Property Damage, Aircraft
Liability, Liability War Risks, Passenger Legal Liability, Premises/Operations
Liability, Completed Operations/Products Liability, Baggage Legal Liability
(checked and unchecked), Cargo Legal Liability, Contractual Liability and
Personal Injury.

The above-referenced Airline Liability insurance coverage is subject to War and
Other Perils Exclusion Clause (AVN48B) but all sections, other than section (b)
are reinstated as per AVN52D, or their successor endorsements.

LIMITS OF LIABILITY:

To the fullest extent of the Policy limits that the Named Insured carries from
the time of delivery of the first Aircraft under the first Purchase Agreement
listed under "Aircraft Insured" and thereafter at the inception of each policy
period, but in any event no less than the following:

Combined Single Limit Bodily Injury and Property Damage: U.S.$ any one
occurrence each Aircraft (with aggregates as applicable).

(717-200)         US$300,000,000
(737-500/600)     US$350,000,000
(737-300/700)     US$400,000,000
(737-400)         US$450,000,000

BOEING PROPRIETARY

AGTA-ASA                            App. I
2
AGTA_Terms_Revisions

Attachment A to
6-1162-MSA-591 Page 3

SAMPLE
INSURANCE CERTIFICATE

(737-800)         US$500,000,000
(737-900)         US$500,000,000
(757-200)         US$525,000,000
(757-300)         US$550,000,000
(767-200)         US$550,000,000
(767-300)         US$700,000,000
(767-400ERX)      US$750,000,000
(7E7)             US$700,000,000
(777-200LR)       US$800,000,000
(MD-11)           US$800,000,000
(777-200/300)     US$800,000,000
(777-300ER)       US$800,000,000
(747-400)         US$900,000,000

(In regard to all other models and/or derivatives, to be specified by Boeing).

(In regard to Personal Injury coverage, limits are US$25,000,000 any one
offense/aggregate.)

DEDUCTIBLES / SELF-INSURANCE

Any deductible and/or self-insurance amount (other than standard market
deductibles) are to be disclosed to Boeing.

SPECIAL PROVISIONS APPLICABLE TO BOEING:

It is certified that Insurers are aware of the terms and conditions of AGTA-ASA
and the following purchase agreements:

PA ______ dated _______
PA ______ dated _______
PA ______ dated _______

Each Aircraft manufactured by Boeing which is delivered to the Insured pursuant
to the applicable purchase agreement during the period of effectivity of the
policies represented by this Certificate will be covered to the extent specified
herein.

BOEING PROPRIETARY

AGTA-ASA                            App. I
3
AGTA_Terms_Revisions

Attachment A to
6-1162-MSA-591 Page 4

SAMPLE
INSURANCE CERTIFICATE

Insurers have agreed to the following:

A. In regard to Aircraft "all risks" Hull Insurance and Aircraft Hull War
and Allied Perils Insurance, Insurers agree to waive all rights of subrogation
or recourse against Boeing in accordance with AGTA-ASA which was incorporated by
reference into the applicable purchase agreement.

B. In regard to Airline Liability Insurance, Insurers agree:

(1) To include Boeing as an additional insured to the extent of
Customer's undertaking in Article 8.2.1 of AGTA-ASA which was incorporated by
reference into the applicable purchase agreement.

(2) To provide that such insurance will be primary and not
contributory nor excess with respect to any other insurance available for the
protection of Boeing to the extent of Customer's undertaking in Article 8.2.1 of
AGTA-ASA;

(3) To provide that with respect to the interests of Boeing, such
insurance shall not be invalidated or minimized by any action or inaction,
omission or misrepresentation by the Insured or any other person or party (other
than Boeing) regardless of any breach or violation of any warranty, declaration
or condition contained in such policies;

(4) To provide that all provisions of the insurance coverages
referenced above, except the limits of liability, will operate to give each
Insured or additional insured the same protection as if there were a separate
Policy issued to each.

C. In regard to all of the above referenced policies:

(1) Boeing will not be responsible for payment, set-off, or
assessment of any kind or any premiums in connection with the policies,
endorsements or coverages described herein;

(2) If a policy is canceled for any reason whatsoever, or any
substantial change is made in the coverage which affects the interests of Boeing
or if a policy is allowed to lapse for nonpayment of premium, such cancellation,
change or lapse shall not be effective as to Boeing for thirty (30) days (in the
case of war risk and allied perils coverage seven (7) days after sending, or
such other period as may from time to time be customarily obtainable in the
industry) after

BOEING PROPRIETARY

AGTA-ASA                            App. I
4
AGTA_Terms_Revisions

Attachment A to
6-1162-MSA-591 Page 5

SAMPLE
INSURANCE CERTIFICATE

receipt by Boeing of written notice from the Insurers or the authorized
representatives or Broker of such cancellation, change or lapse; and

(3) For the purposes of the Certificate, "Boeing" is defined as The
Boeing Company, its divisions, subsidiaries, affiliates, the assignees of each
and their respective directors, officers, employees and agents.

(4) If war risk and allied perils coverage has been obtained by
Customer from the FAA and not the commercial market, Broker will so advise
Boeing.

SUBJECT TO THE TERMS, CONDITIONS, LIMITATIONS AND EXCLUSIONS OF THE RELATIVE
POLICIES.

(signature)

(typed name)

(title)

BOEING PROPRIETARY

AGTA-ASA                            App. I
5
AGTA_Terms_Revisions

Exhibit 10.2

FOIA CONFIDENTIAL
TREATMENT REQUESTED

PURCHASE AGREEMENT NUMBER 2497

between

THE BOEING COMPANY

and

ALASKA AIRLINES, INC.

Relating to Boeing Model 737-890 Aircraft

BOEING PROPRIETARY

P.A. No. 2497

TABLE OF CONTENTS

SA
ARTICLES                                                          NUMBER
--------                                                          ------

1.   Quantity, Model and Description

2.   Delivery Schedule

3.   Price

4.   Payment

5.   Miscellaneous

TABLE

1.   Aircraft Information Table

EXHIBIT

A.   Aircraft Configuration

B.   Aircraft Delivery Requirements and Responsibilities

SUPPLEMENTAL EXHIBITS

AE1. Escalation Adjustment/Airframe and Optional Features

BFE1. BFE Variables

CS1. Customer Support Variables

EE1. Engine Escalation/Engine Warranty and Patent Indemnity

SLP1. Service Life Policy Components

BOEING PROPRIETARY

P.A. No. 2497                          i

SA
LETTER AGREEMENT                                    NUMBER
----------------                                    ------

2497-1   Option Aircraft........................

2497-2   Aircraft Model Substitution............

2497-3   Seller Purchased Equipment.............

2497-4   Demonstration Flight Waiver............

2497-5   Customer Software......................

2497-6   Promotion Support......................

BOEING PROPRIETARY

P.A. No. 2497                         ii

SA
RESTRICTED LETTER AGREEMENT                                       NUMBER
---------------------------                                       ------

6-1162-MSA-588   Aircraft Performance Guarantees -............
Model 737-800 Aircraft.....................

6-1162-MSA-589   [***] .......................................

6-1162-MSA-590   Purchase Right

Aircraft......................

6-1162-MSA-592   Special Purchase Agreement Provisions........

6-1162-MSA-597   Special Matters..............................

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

BOEING PROPRIETARY

P.A. No. 2497                         iii

Purchase Agreement No. 2497

between

The Boeing Company

and

Alaska Airlines, Inc.

This Purchase Agreement No. 2497 dated as of June 15, 2005 between
The Boeing Company (BOEING) and Alaska Airlines, Inc. (CUSTOMER) relating to the
purchase and sale of Model 737-890 aircraft together with all tables, exhibits,
supplemental exhibits, letter agreements and other attachments thereto, if any,
(PURCHASE AGREEMENT) incorporates the terms and conditions of the Aircraft
General Terms Agreement dated as of June 15, 2005 between the parties,
identified as AGTA-ASA (AGTA).

Article 1.  Quantity, Model and Description.

The aircraft to be delivered to Customer will be designated as Model
737-890 aircraft (the AIRCRAFT). Boeing will manufacture and sell to Customer
Aircraft conforming to the configuration described in Exhibit A in the
quantities listed in Table 1 to the Purchase Agreement.

Article 2.  Delivery Schedule.

The scheduled months of delivery of the Aircraft are listed in the
attached Table 1. Exhibit B describes certain responsibilities for both Customer
and Boeing in order to accomplish the delivery of the Aircraft.

Article 3.  Price.

3.1 Aircraft Basic Price. The Aircraft Basic Price is listed in
Table 1 in subject to escalation dollars.

3.2 Advance Payment Base Prices. The Advance Payment Base Prices
listed in Table 1 were calculated utilizing the latest escalation factors
available to Boeing on the date of this Purchase Agreement projected to the
month of scheduled delivery.

BOEING PROPRIETARY

P.A. No. 2497                          1

Article 4.  Payment.

4.1 Boeing acknowledges receipt of a deposit in the amount shown in
Table 1 for each Aircraft (DEPOSIT).

4.2 The standard advance payment schedule for the Model 737-890
aircraft requires Customer to make certain advance payments, expressed in a
percentage of the Advance Payment Base Price of each Aircraft beginning with a
payment of 1%, less the Deposit, on the effective date of the Purchase Agreement
for the Aircraft. Additional advance payments for each Aircraft are due as
specified in and on the first business day of the months listed in the attached
Table 1.

4.3 For any Aircraft whose scheduled month of delivery is less than
24 months from the date of this Purchase Agreement, the total amount of advance
payments due for payment upon signing of this Purchase Agreement will include
all advance payments which are past due in accordance with the standard advance
payment schedule set forth in paragraph 4.2 above.

4.4 Customer will pay the balance of the Aircraft Price of each
Aircraft at delivery.

Article 5.  Additional Terms.

5.1 Aircraft Information Table. Table 1 consolidates information
contained in Articles 1, 2, 3 and 4 with respect to (i) quantity of Aircraft,
(ii) applicable Detail Specification, (iii) month and year of scheduled
deliveries, (iv) Aircraft Basic Price, (v) applicable escalation factors and
(vi) Advance Payment Base Prices and advance payments and their schedules.

5.2 Escalation Adjustment/Airframe and Optional Features.
Supplemental Exhibit AE1 contains the applicable airframe and optional features
escalation formula.

5.3 Buyer Furnished Equipment Variables. Supplemental Exhibit BFE1
contains vendor selection dates and other variables applicable to the Aircraft.

5.4 Customer Support Variables. Information, training, services and
other things furnished by Boeing in support of introduction of the Aircraft into
Customer's fleet are described in Supplemental Exhibit CS1. As Customer has
taken delivery of 737-800 type aircraft, the level of support to be provided
under Supplemental Exhibit CS1 (the Entitlements) is as applicable for an
operator already operating such aircraft.

BOEING PROPRIETARY

P.A. No. 2497                          2

5.5 Engine Variables. Supplemental Exhibit EE1 contains the engine
warranty and the engine patent indemnity for the Aircraft.

5.6 Service Life Policy Component Variables. Supplemental Exhibit
SLP1 lists the airframe and landing gear components covered by the Service Life
Policy for the Aircraft (COVERED COMPONENTS).

5.7 Public Announcement. Boeing reserves the right to make a public
announcement regarding Customer's purchase of the Aircraft upon approval of
Boeing's press release by Customer's public relations department or other
authorized representative.

5.8 Negotiated Agreement; Entire Agreement. This Purchase Agreement,
including the provisions of Article 8.2 of the AGTA relating to insurance, and
Article 11 of Part 2 of Exhibit C of the AGTA relating to DISCLAIMER AND RELEASE
and EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES, has been the subject of
discussion and negotiation and is understood by the parties; the Aircraft Price
and other agreements of the parties stated in this Purchase Agreement were
arrived at in consideration of such provisions. This Purchase Agreement,
including the AGTA, contains the entire agreement between the parties and
supersedes all previous proposals, understandings, commitments or
representations whatsoever, oral or written, and may be changed only in writing
signed by authorized representatives of the parties.

BOEING PROPRIETARY

P.A. No. 2497                          3

DATED June 15, 2005

Alaska Airlines, Inc.                         THE BOEING COMPANY

By____________________________________        By___________________________

Its Vice President Finance & Treasurer        Its Attorney-In-Fact

BOEING PROPRIETARY

P.A. No. 2497                          4

Table 1 to Purchase Agreement 2497
737-800 Aircraft Delivery, Description, Price and Advance Payments
ECI-MFG/CPI Formula

[***]

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

AIRCRAFT CONFIGURATION

between

THE BOEING COMPANY

and

ALASKA AIRLINES, INC.

Exhibit A to Purchase Agreement Number 2497

BOEING PROPRIETARY

P.A. No. 2497                          A

Exhibit A to
Purchase Agreement No. 2497
Page 1

AIRCRAFT CONFIGURATION

Dated: January 31, 2005

relating to

BOEING MODEL 737-890 AIRCRAFT

The Detail Specification is Detail Specification D019A001ASA38P-1
dated as of January 31, 2005. The Aircraft Basic Price reflects and includes all
effects of such Options, except such Aircraft Basic Price does not include the
price effects of Buyer Furnished Equipment or Seller Purchased Equipment.

BOEING PROPRIETARY

P.A. No. 2497                          A

Exhibit A to
Purchase Agreement No. 2497
Page A-2

[***]

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES

between

THE BOEING COMPANY

and

ALASKA AIRLINES, INC.

Exhibit B to Purchase Agreement Number 2497

BOEING PROPRIETARY

P.A. No. 2497                          B

Exhibit B to
Purchase Agreement No. 2497
Page 1

AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES

relating to

BOEING MODEL 737-890 AIRCRAFT

Both Boeing and Customer have certain documentation and approval
responsibilities at various times during the construction cycle of Customer's
Aircraft that are critical to making the delivery of each Aircraft a positive
experience for both parties. This Exhibit B documents those responsibilities and
indicates recommended completion deadlines for the actions to be accomplished.

1.    GOVERNMENT DOCUMENTATION REQUIREMENTS.

Certain actions are required to be taken by Customer in advance of the scheduled
delivery month of each Aircraft with respect to obtaining certain government
issued documentation.

1.1     Airworthiness and Registration Documents.

Not later than 6 MONTHS PRIOR TO DELIVERY of each
Aircraft, Customer will notify Boeing of the registration number to be painted
on the side of the Aircraft. In addition, and not later than 3 MONTHS PRIOR TO
DELIVERY of each Aircraft, Customer will, by letter to the regulatory authority
having jurisdiction, authorize the temporary use of such registration numbers by
Boeing during the pre-delivery testing of the Aircraft.

Customer is responsible for furnishing any Temporary or Permanent Registration
Certificates required by any governmental authority having jurisdiction to be
displayed aboard the Aircraft after delivery.

1.2     Certificate of Sanitary Construction.

1.2.1 U.S. Registered Aircraft. Boeing will obtain from
the United States Public Health Service, a United States Certificate of Sanitary
Construction to be displayed aboard each Aircraft after delivery to Customer.

1.2.2 Non-U.S. Registered Aircraft. If Customer requires
a United States Certificate of Sanitary Construction at the time of delivery of
the Aircraft, Customer will give written notice thereof to Boeing at least 3
MONTHS PRIOR TO DELIVERY. Boeing will then use its reasonable best efforts to
obtain the Certificate from

BOEING PROPRIETARY

P.A. No. 2497                         B-1

Exhibit B to
Purchase Agreement No. 2497
Page 2

the United States Public Health Service and present it to Customer at the time
of Aircraft delivery.

1.3     Customs Documentation.

1.3.1 Import Documentation. If the Aircraft is intended
to be exported from the United States, Customer must notify Boeing not later
than 3 MONTHS PRIOR TO DELIVERY of each Aircraft of any documentation required
by the customs authorities or by any other agency of the country of import.

1.3.2 General Declaration - U.S. If the Aircraft is
intended to be exported from the United States, Boeing will prepare Customs Form
7507, General Declaration, for execution by U.S. Customs immediately prior to
the ferry flight of the Aircraft. For this purpose, Customer will furnish to
Boeing not later than 20 DAYS PRIOR TO DELIVERY all information required by U.S.
Customs or U.S. Immigration and Naturalization Service, including without
limitation (i) a complete crew and passenger list identifying the names, birth
dates, passport numbers and passport expiration dates of all crew and passengers
and (ii) a complete ferry flight itinerary, including point of exit from the
United States for the Aircraft.

If Customer intends, during the ferry flight of an Aircraft, to land at a U.S.
airport after clearing Customs at delivery, Customer must notify Boeing not
later than 20 DAYS PRIOR TO DELIVERY of such intention. If Boeing receives such
notification, Boeing will provide to Customer the documents constituting a
Customs permit to proceed, allowing such Aircraft to depart after any such
landing. Sufficient copies of completed Form 7507, along with passenger
manifest, will be furnished to Customer to cover U.S. stops scheduled for the
ferry flight.

1.3.3 Export Declaration - U.S. If the Aircraft is
intended to be exported from the United States, Boeing will prepare Form 7525V
and, IMMEDIATELY PRIOR TO THE FERRY FLIGHT, will submit such Form to U.S.
Customs in Seattle in order to obtain clearance for the departure of the
Aircraft, including any cargo, from the United States. U.S. Customs will deliver
the Export Declaration to the U.S. Department of Commerce after export.

2.      INSURANCE CERTIFICATES.

Unless provided earlier, Customer will provide to Boeing
not later than 30 DAYS PRIOR TO DELIVERY of the first Aircraft, a copy of the
requisite annual insurance certificate in accordance with the requirements of
Article 8 of the AGTA.

BOEING PROPRIETARY

P.A. No. 2497                         B-2

Exhibit B to
Purchase Agreement No. 2497
Page 3

3.      NOTICE OF FLYAWAY CONFIGURATION.

Not later than 20 DAYS PRIOR TO DELIVERY of the
Aircraft, Customer will provide to Boeing a configuration letter stating the
requested "flyaway configuration" of the Aircraft for its ferry flight. This
configuration letter should include:

(i) the name of the company which is to furnish fuel
for the ferry flight and any scheduled post-delivery flight
training, the method of payment for such fuel, and fuel load for
the ferry flight;

(ii) the cargo to be loaded and where it is to be
stowed on board the Aircraft, the address where cargo is to be
shipped after flyaway and notification of any hazardous
materials requiring special handling;

(iii) any BFE equipment to be removed prior to flyaway
and returned to Boeing BFE stores for installation on Customer's
subsequent Aircraft;

(iv) a complete list of names and citizenship of each
crew member and non-revenue passenger who will be aboard the
ferry flight; and

(v) a complete ferry flight itinerary.

4.       DELIVERY ACTIONS BY BOEING.

4.1 Schedule of Inspections. All FAA, Boeing, Customer
and, if required, U.S. Customs Bureau inspections will be scheduled by Boeing
for completion prior to delivery or departure of the Aircraft. Customer will be
informed of such schedules.

4.2 Schedule of Demonstration Flights. All FAA and
Customer demonstration flights will be scheduled by Boeing for completion prior
to delivery of the Aircraft.

4.3 Schedule for Customer's Flight Crew. Boeing will
inform Customer of the date that a flight crew is required for acceptance
routines associated with delivery of the Aircraft.

BOEING PROPRIETARY

P.A. No. 2497                         B-3

Exhibit B to
Purchase Agreement No. 2497
Page 4

4.4 Fuel Provided by Boeing. Boeing will provide to
Customer, without charge, the amount of fuel shown in U.S. gallons in the table
below for the model of Aircraft being delivered and full capacity of engine oil
at the time of delivery or prior to the ferry flight of the Aircraft.

Aircraft Model      Fuel Provided
--------------      -------------

737                 1,000

4.5 Flight Crew and Passenger Consumables. Boeing will
provide reasonable quantities of food, beverages, coat hangers, towels, toilet
tissue, drinking cups and soap for the first segment of the ferry flight for the
Aircraft.

4.6 Delivery Papers, Documents and Data. Boeing will
have available at the time of delivery of the Aircraft certain delivery papers,
documents and data for execution and delivery. If title for the Aircraft will be
transferred to Customer through a Boeing sales subsidiary and if the Aircraft
will be registered with the FAA, Boeing will pre-position in Oklahoma City,
Oklahoma, for filing with the FAA at the time of delivery of the Aircraft an
executed original Form 8050-2, Aircraft Bill of Sale, indicating transfer of
title to the Aircraft from Boeing's sales subsidiary to Customer.

4.7 Delegation of Authority. Boeing will present a
certified copy of a Resolution of Boeing's Board of Directors, designating and
authorizing certain persons to act on its behalf in connection with delivery of
the Aircraft.

5.       DELIVERY ACTIONS BY CUSTOMER.

5.1 Aircraft Radio Station License. At delivery
Customer will provide its Aircraft Radio Station License to be placed on board
the Aircraft following delivery.

5.2. Aircraft Flight Log. At delivery Customer will
provide the Aircraft Flight Log for the Aircraft.

5.3 Delegation of Authority. Customer will present to
Boeing at delivery of the Aircraft an original or certified copy of Customer's
Delegation of Authority designating and authorizing certain persons to act on
its behalf in connection with delivery of the specified Aircraft.

BOEING PROPRIETARY

P.A. No. 2497                         B-4

ESCALATION ADJUSTMENT

AIRFRAME AND OPTIONAL FEATURES

between

THE BOEING COMPANY

and

ALASKA AIRLINES, INC.

Supplemental Exhibit AE1 to Purchase Agreement Number 2497

BOEING PROPRIETARY

1.        Alternate Escalation Formula

Airframe and Optional Features price adjustments (Airframe Price
Adjustment) are used to allow prices to be stated in current year dollars at the
signing of this Purchase Agreement and to adjust the amount to be paid by
Customer at delivery for the effects of economic fluctuation. The Airframe Price
Adjustment will be determined at the time of Aircraft delivery in accordance
with the following formula:

P(a) =(P)(L + M) - P

Where:

P(a) = Airframe Price Adjustment.
(for the 737-800 Aircraft the Airframe Price includes
the Engine Price at its basic thrust level)

L =    .65 x ( ECI
-------
ECI(b))  where ECI(b) is the base year index
(as set forth in Table 1 of this
Purchase Agreement)

M =    .35 x ( CPI
-------
CPI(b))  where CPI(b) is the base year index (as
set forth in Table 1 of this Purchase
Agreement)

P =    Airframe Price plus Optional Features Price (as set
forth in Table 1 of this Purchase Agreement).

ECI is a value determined using the U.S. Department of Labor,
Bureau of Labor Statistics Employment Cost Index Manufacturing
- Total Compensation (BLS Series ID ECU12402I), calculated by
establishing a three-month arithmetic average value (expressed
as a decimal and rounded to the nearest tenth) using the
values for the 11th, 12th and 13th months prior to the month
of scheduled delivery of the applicable Aircraft. As the
Employment Cost Index values are only released on a quarterly
basis, the value released for the month of March will be used
for the months of January and February; the value for June
used for April and May; the value for September used for July
and August; and the value for December used for October and
November.

CPI is a value determined using the U.S. Department of Labor,
Bureau of Labor Statistics Consumer Price Index (BLS Series ID

BOEING PROPRIETARY

CUUR0000SA0), calculated as a 3-month arithmetic average of
the released monthly values (expressed as a decimal and
rounded to the nearest tenth) using the values for the 11th,
12th and 13th months prior to the month of scheduled delivery
of the applicable Aircraft.

As an example, for an Aircraft scheduled to be delivered in
the month of July, the months June, July and August of the
preceding year will be utilized in determining the value of
ECI and CPI.

Note:     i.   In determining the values of L and M, all calculations and
resulting values will be expressed as a decimal rounded to the nearest
ten-thousandth.

ii.  .65 is the numeric ratio attributed to labor in the Airframe
Price Adjustment formula.

iii. .35 is the numeric ratio attributed to materials in the
Airframe Price Adjustment formula.

iv.  The denominators (base year indices) are the actual average
values reported by the U.S. Department of Labor, Bureau of Labor
Statistics. The actual average values are calculated as a 3-month
arithmetic average of the released monthly values (expressed as a
decimal and rounded to the nearest tenth) using the values for the
11th, 12th and 13th months prior to the airframe base year. The
applicable base year and corresponding denominator is provided by
Boeing in Table 1 of this Purchase Agreement.

v.   The final value of P(a) will be rounded to the nearest dollar.

vi.  The Airframe Price Adjustment will not be made if it will result
in a decrease in the Aircraft Basic Price.

2.    Values to be Utilized in the Event of Unavailability.

2.1 If the Bureau of Labor Statistics substantially revises the
methodology used for the determination of the values to be used to determine the
ECI and CPI values (in contrast to benchmark adjustments or other corrections of
previously released values), or for any reason has not released values needed to
determine the applicable Airframe Price Adjustment, the parties will, prior to
the delivery of any such Aircraft, select a substitute from other Bureau of
Labor Statistics data or similar data reported by non-governmental
organizations. Such substitute will result in the same adjustment, insofar as
possible, as would have been calculated utilizing the original values adjusted
for fluctuation during the applicable time period. However, if within 24 months
after delivery of the Aircraft, the Bureau of Labor Statistics should resume
releasing values for the months needed to determine the Airframe Price
Adjustment; such values will be used to determine any increase or decrease in
the Airframe Price Adjustment for the Aircraft from that determined at the time
of delivery of the Aircraft.

BOEING PROPRIETARY

2.2 Notwithstanding Article 2.1 above, if prior to the scheduled delivery
month of an Aircraft the Bureau of Labor Statistics changes the base year for
determination of the ECI and CPI values as defined above, such re-based values
will be incorporated in the Airframe Price Adjustment calculation.

2.3 In the event escalation provisions are made non-enforceable or
otherwise rendered void by any agency of the United States Government, the
parties agree, to the extent they may lawfully do so, to equitably adjust the
Aircraft Price of any affected Aircraft to reflect an allowance for increases or
decreases consistent with the applicable provisions of paragraph 1 of this
Supplemental Exhibit AE1 in labor compensation and material costs occurring
since August of the year prior to the price base year shown in the Purchase
Agreement.

2.4 If within 12 months of Aircraft delivery, the published index values
are revised due to an acknowledged error by the Bureau of Labor Statistics, the
Airframe Price Adjustment will be re-calculated using the revised index values
(this does not include those values noted as preliminary by the Bureau of Labor
Statistics). A credit memorandum or supplemental invoice will be issued for the
Airframe Price Adjustment difference that results from the revised index values
for the delivered Aircraft. Customer may elect that the credit or supplemental
invoice be applied against the applicable delivered Aircraft, the next Aircraft
to deliver, or to goods and services. The adjustment though added to the invoice
of the next Aircraft to deliver will continue to relate to the delivered
Aircraft. Interest charges will not apply for the period of original invoice to
issuance of credit memorandum or supplemental invoice.

Note:     i.    The values released by the Bureau of Labor Statistics and
available to Boeing 30 days prior to the first day of the scheduled
delivery month of an Aircraft will be used to determine the ECI and
CPI values for the applicable months (including those noted as
preliminary by the Bureau of Labor Statistics) to calculate the
Airframe Price Adjustment for the Aircraft invoice at the time of
delivery. The values will be considered final and no Airframe Price
Adjustments will be made after Aircraft delivery for any subsequent
changes in published Index values, subject always to paragraph 2.4
above.

ii.   The maximum number of digits to the right of the decimal after
rounding utilized in any part of the Airframe Price Adjustment
equation will be 4, where rounding of the fourth digit will be
increased to the next highest digit when the 5th digit is equal to 5
or greater.

BOEING PROPRIETARY

BUYER FURNISHED EQUIPMENT VARIABLES

between

THE BOEING COMPANY

and

ALASKA AIRLINES, INC.

Supplemental Exhibit BFE1 to Purchase Agreement Number 2497

Boeing Proprietary
P.A. No. 2497                         BFE1

BUYER FURNISHED EQUIPMENT VARIABLES

relating to

BOEING MODEL AIRCRAFT

This Supplemental Exhibit BFE1 contains vendor selection dates, on-dock dates
and other variables applicable to the Aircraft.

1.    Supplier Selection.

Customer will:

1.1 Select and notify Boeing of the suppliers and part numbers of the
following BFE items by the following dates:

Galley System             Same as July 2005 737-800 aircraft under
Purchase Agreement 1954.

Galley Inserts            Same as July 2005 737-800 aircraft under
Purchase Agreement 1954.

Seats (passenger)         Same as July 2005 737-800
aircraft under Purchase Agreement 1954.

Overhead & Audio System   Same as July 2005 737-800
aircraft under Purchase Agreement 1954.

In-Seat Video System      Not applicable

Miscellaneous Emergency   Same as July 2005 737-800
Equipment              aircraft under Purchase Agreement 1954.

Cargo Handling            Same as July 2005 737-800
Systemsasa             aircraft under Purchase Agreement 1954.

Boeing Proprietary
P.A. No. 2497                        BFE1-1

2.    On-dock Dates

On or before July 1, 2005, Boeing will provide to Customer a BFE Requirements
On-Dock/Inventory Document (BFE Document) or an electronically transmitted BFE
Report which may be periodically revised, setting forth the items, quantities,
on-dock dates and shipping instructions relating to the in-sequence installation
of BFE.

3.    Additional Delivery Requirements

Customer will insure that Customer's BFE suppliers provide sufficient
information to enable Boeing, when acting as Importer of Record for Customer's
BFE, to comply with all applicable provisions of the U.S. Customs Service.

Boeing Proprietary
P.A. No. 2497                        BFE1-2

CUSTOMER SUPPORT VARIABLES

between

THE BOEING COMPANY

and

ALASKA AIRLINES, INC.

Supplemental Exhibit CS1 to Purchase Agreement Number 2497

Boeing Proprietary
P.A. No. 2497                         CS1

CUSTOMER SUPPORT VARIABLES

relating to

BOEING MODEL 737-890 AIRCRAFT

Customer currently operates an aircraft of the same model as the Aircraft. Upon
Customer's request, Boeing will develop and schedule a customized Customer
Support Program to be furnished in support of the Aircraft. The customized
program will be based upon and equivalent to the entitlements summarized below.

1.    Maintenance Training.

1.1   Maintenance Training Minor Model Differences Course, if required,
covering operational, structural or systems differences between
Customer's newly-purchased Aircraft and an aircraft of the same
model currently operated by Customer; 1 class of 15 students;

1.2   Training materials, if applicable, will be provided to each student.
In addition, one set of training materials as used in Boeing's
training program, including visual aids, text and graphics will be
provided for use in Customer's own training program.

2.    Flight Training.

Boeing will provide, if required, one classroom course to acquaint up to
15 students with operational, systems and performance differences between
Customer's newly-purchased Aircraft and an aircraft of the same model
currently operated by Customer.

Any training materials used in Flight Training, if required, will be
provided for use in Customer's own training program.

3.    Planning Assistance.

3.1   Maintenance and Ground Operations.

Upon request, Boeing will provide planning assistance regarding
Minor Model Differences requirements for facilities, tools and
equipment.

3.2   Spares.

Boeing will revise, as applicable, the customized Recommended Spares
Parts List (RSPL) and Illustrated Parts Catalog (IPC).

Boeing Proprietary
P.A. No. 2497                        CS1-1

4.    Technical Data and Documents.

Boeing will revise, as applicable, technical data and documents provided
with previously delivered aircraft.

Boeing Proprietary
P.A. No. 2497                        CS1-2

ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY

between

THE BOEING COMPANY

and

ALASKA AIRLINES, INC.

Supplemental Exhibit EE1 to Purchase Agreement Number 2497

Boeing Proprietary
P.A. No. 2497                         EE1

ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY

relating to

BOEING MODEL 737-890 AIRCRAFT

1.    ENGINE ESCALATION. No separate engine escalation methodology is defined
for the 737-600, -700, -800 or -900 Aircraft. Pursuant to the AGTA, the engine
prices for these Aircraft are included in and will be escalated in the same
manner as the Airframe.

2.    ENGINE WARRANTY AND PRODUCT SUPPORT PLAN. Boeing has obtained from CFM
International, Inc. (or CFM International, S.A., as the case may be) (CFM) the
right to extend to Customer the provisions of CFM's warranty as set forth below
(herein referred to as the "Warranty"); subject, however, to Customer's
acceptance of the conditions set forth herein. Accordingly, Boeing hereby
extends to Customer and Customer hereby accepts the provisions of CFM's Warranty
as hereinafter set forth, and such Warranty shall apply to all CFM56-7 type
Engines (including all Modules and Parts thereof) installed in the Aircraft at
the time of delivery or purchased from Boeing by Customer for support of the
Aircraft except that, if Customer and CFM have executed, or hereafter execute, a
General Terms Agreement, then the terms of that Agreement shall be substituted
for and supersede the provisions of Paragraphs 2.1 through 2.10 below and
Paragraphs 2.1 through 2.10 below shall be of no force or effect and neither
Boeing nor CFM shall have any obligation arising therefrom. In consideration for
Boeing's extension of the CFM Warranty to Customer, Customer hereby releases and
discharges Boeing from any and all claims, obligations and liabilities
whatsoever arising out of the purchase or use of such CFM56-7 type Engines and
Customer hereby waives, releases and renounces all its rights in all such
claims, obligations and liabilities. In addition, Customer hereby releases and
discharges CFM from any and all claims, obligations and liabilities whatsoever
arising out of the purchase or use of such CFM56-7 type Engines except as
otherwise expressly assumed by CFM in such CFM Warranty or General Terms
Agreement between Customer and CFM and Customer hereby waives, releases and
renounces all its rights in all such claims, obligations and liabilities.

2.1.  Title. CFM warrants that at the date of delivery, CFM has legal
title to and good and lawful right to sell its CFM56-7 type Engine and
Products and furthermore warrants that such title is free and clear of all
claims, liens and encumbrances of any nature whatsoever.

Boeing Proprietary
P.A. No. 2497                        EE1-1

2.2.  Patents.

2.2.1 CFM shall handle all claims and defend any suit or proceeding
brought against Customer insofar as based on a claim that any
product or part furnished under this Agreement constitutes an
infringement of any patent of the United States, and shall pay all
damages and costs awarded therein against Customer. This paragraph
shall not apply to any product or any part manufactured to
Customer's design or to the aircraft manufacturer's design. As to
such product or part, CFM assumes no liability for patent
infringement.

2.2.2 CFM's liability hereunder is conditioned upon Customer
promptly notifying CFM in writing and giving CFM authority,
information and assistance (at CFM's expense) for the defense of any
suit. In case said equipment or part is held in such suit to
constitute infringement and the use of said equipment or part is
enjoined, CFM shall expeditiously, at its own expense and at its
option, either (i) procure for Customer the rights to continue using
said product or part; (ii) replace the same with a satisfactory and
noninfringing product or part; or (iii) modify the same so it
becomes satisfactory and noninfringing. The foregoing shall
constitute the sole remedy of Customer and the sole liability of CFM
for patent infringement.

2.2.3 The above provisions also apply to products which are the same
as those covered by this Agreement and are delivered to Customer as
part of the installed equipment on CFM56-7 powered Aircraft.

2.3. Initial Warranty. CFM warrants that CFM56-7 Engine products will
conform to CFM's applicable specifications and will be free from defects
in material and workmanship prior to Customer's initial use of such
products.

2.4.  Warranty Pass-On.

2.4.1 If requested by Customer and agreed to by CFM in writing, CFM
will extend warranty support for Engines sold by Customer to
commercial airline operators, or to other aircraft operators. Such
warranty support will be limited to the New Engine Warranty, New
Parts Warranty, Ultimate Life Warranty and Campaign Change Warranty
and will require such operator(s) to agree in writing to be bound by
and comply with all the terms and conditions, including the
limitations, applicable to such warranties.

Boeing Proprietary
P.A. No. 2497                        EE1-2

2.4.2 Any warranties set forth herein shall not be transferable to a
third party, merging company or an acquiring entity of Customer.

2.4.3 In the event Customer is merged with, or acquired by, another
aircraft operator which has a general terms agreement with CFM, the
Warranties as set forth herein shall apply to the Engines, Modules,
and Parts.

2.5.  New Engine Warranty.

2.5.1. CFM warrants each new Engine and Module against Failure for
the initial 3000 Flight Hours as follows:

(i) Parts Credit Allowance will be granted for any Failed
Parts.

(ii) Labor Allowance for disassembly, reassembly, test and
Parts repair of any new Engine Part will be granted for replacement
of Failed Parts.

(iii) Such Parts Credit Allowance, test and Labor Allowance
will be: 100% from new to 2500 Flight Hours and decreasing pro rata
from 100% at 2500 Flight Hours to zero percent at 3000 Flight Hours.

2.5.2 As an alternative to the above allowances, CFM shall, upon
request of Customer:

(i) Arrange to have the failed Engines and Modules repaired,
as appropriate, at a facility designated by CFM at no charge to
Customer for the first 2500 Flight Hours and at a charge to Customer
increasing pro rata from zero percent of CFM's repair cost at 2500
Flight Hours to 100% of such CFM repair costs at 3000 Flight Hours.

(ii) Transportation to and from the designated facility shall
be at Customer's expense.

2.6. New Parts Warranty. In addition to the warranty granted for new
Engines and new Modules, CFM warrants Engine and Module Parts as follows:

2.6.1. During the first 1000 Flight Hours for such Parts and
Expendable Parts, CFM will grant 100% Parts Credit Allowance or
Labor Allowance for repair labor for failed Parts.

Boeing Proprietary
P.A. No. 2497                        EE1-3

2.6.2. CFM will grant a pro rata Parts Credit Allowance for Scrapped
Parts decreasing from 100% at 1000 Flight Hours Part Time to zero
percent at the applicable hours designated in Table 1.

2.7. Ultimate Life Warranty.

2.7.1. CFM warrants Ultimate Life limits on the following Parts:

(i)    Fan and Compressor Disks/Drums

(ii)   Fan and Compressor Shafts

(iii)  Compressor Discharge Pressure Seal (CDP)

(iv)   Turbine Disks

(v)    HPT Forward and Stub Shaft (vi) LPT Driving Cone

(vii)  LPT Shaft and Stub Shaft

2.7.2. CFM will grant a pro rata Parts Credit Allowance decreasing
from 100% when new to zero percent at 25,000 Flight Hours or 15,000
Flight Cycles, whichever comes earlier. Credit will be granted only
when such Parts are permanently removed from service by a CFM or a
U.S. and/or French Government imposed Ultimate Life limitation of
less than 25,000 Flight Hours or 15,000 Flight Cycles.

2.8.  Campaign Change Warranty.

2.8.1. A campaign change will be declared by CFM when a new Part
design introduction, Part modification, Part Inspection, or
premature replacement of an Engine or Module is required by a
mandatory time compliance CFM Service Bulletin or FAA Airworthiness
Directive. Campaign change may also be declared for CFM Service
Bulletins requesting new Part introduction no later than the next
Engine or Module shop visit. CFM will grant following Parts Credit
Allowances:

Engines and Modules

(i) 100% for Parts in inventory or removed from service when
new or with 2500 Flight Hours or less total Part Time.

(ii) 50% for Parts in inventory or removed from service with
over 2500 Flight Hours since new, regardless of warranty
status.

Boeing Proprietary
P.A. No. 2497                        EE1-4

2.8.2. Labor Allowance - CFM will grant 100% Labor Allowance for
disassembly, reassembly, modification, testing, or Inspection of CFM
supplied Engines, Modules, or Parts therefor when such action is
required to comply with a mandatory time compliance CFM Service
Bulletin or FAA Airworthiness Directive. A Labor Allowance will be
granted by CFM for other CFM issued Service Bulletins if so
specified in such Service Bulletins.

2.8.3. Life Controlled Rotating Parts retired by Ultimate Life
limits including FAA and/or DGAC Airworthiness Directive, are
excluded from Campaign Change Warranty.

2.9. LIMITATIONS. THE PROVISIONS SET FORTH HEREIN ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER WARRANTIES WHETHER WRITTEN, ORAL OR IMPLIED. THERE ARE
NO IMPLIED WARRANTIES OF FITNESS OR MERCHANTABILITY. SAID PROVISIONS SET
FORTH THE MAXIMUM LIABILITY OF CFM WITH RESPECT TO CLAIMS OF ANY KIND,
INCLUDING NEGLIGENCE, ARISING OUT OF MANUFACTURE, SALE, POSSESSION, USE OR
HANDLING OF THE PRODUCTS OR PARTS THEREOF OR THEREFOR, AND IN NO EVENT
SHALL CFM'S LIABILITY TO CUSTOMER EXCEED THE PURCHASE PRICE OF THE PRODUCT
GIVING RISE TO CUSTOMER'S CLAIM OR INCLUDE INCIDENTAL OR CONSEQUENTIAL
DAMAGES.

2.10.Indemnity and Contribution.

2.10.1. IN THE EVENT CUSTOMER ASSERTS A CLAIM AGAINST A THIRD PARTY
FOR DAMAGES OF THE TYPE LIMITED OR EXCLUDED IN LIMITATIONS,
PARAGRAPH 2.9. ABOVE, CUSTOMER SHALL INDEMNIFY AND HOLD CFM HARMLESS
FROM AND AGAINST ANY CLAIM BY OR LIABILITY TO SUCH THIRD PARTY FOR
CONTRIBUTION OR INDEMNITY, INCLUDING COSTS AND EXPENSES (INCLUDING
ATTORNEYS' FEES) INCIDENT THERETO OR INCIDENT TO ESTABLISHING
SUCCESSFULLY THE RIGHT TO INDEMNIFICATION UNDER THIS PROVISION. THIS
INDEMNITY SHALL APPLY WHETHER OR NOT SUCH DAMAGES WERE OCCASIONED IN
WHOLE OR IN PART BY THE FAULT OR NEGLIGENCE OF CFM, WHETHER ACTIVE,
PASSIVE OR IMPUTED.

2.10.2. CUSTOMER SHALL INDEMNIFY AND HOLD CFM HARMLESS FROM ANY
DAMAGE, LOSS, CLAIM, AND

Boeing Proprietary
P.A. No. 2497                        EE1-5

LIABILITY OF ANY KIND (INCLUDING EXPENSES OF LITIGATION AND
ATTORNEYS' FEES) FOR PHYSICAL INJURY TO OR DEATH OF ANY PERSON, OR
FOR PROPERTY DAMAGE OF ANY TYPE, ARISING OUT OF THE ALLEGED
DEFECTIVE NATURE OF ANY PRODUCT OR SERVICE FURNISHED UNDER THIS
AGREEMENT, TO THE EXTENT THAT THE PAYMENTS MADE OR REQUIRED TO BE
MADE BY CFM EXCEED ITS ALLOCATED SHARE OF THE TOTAL FAULT OR LEGAL
RESPONSIBILITY OF ALL PERSONS ALLEGED TO HAVE CAUSED SUCH DAMAGE,
LOSS, CLAIM, OR LIABILITY BECAUSE OF A LIMITATION OF LIABILITY
ASSERTED BY CUSTOMER OR BECAUSE CUSTOMER DID NOT APPEAR IN AN ACTION
BROUGHT AGAINST CFM. CUSTOMER'S OBLIGATION TO INDEMNIFY CFM
HEREUNDER SHALL BE APPLICABLE AT SUCH TIME AS CFM IS REQUIRED TO
MAKE PAYMENT PURSUANT TO A FINAL JUDGEMENT IN AN ACTION OR
PROCEEDING IN WHICH CFM WAS A PARTY, PERSONALLY APPEARED, AND HAD
THE OPPORTUNITY TO DEFEND ITSELF. THIS INDEMNITY SHALL APPLY WHETHER
OR NOT CUSTOMER'S LIABILITY IS OTHERWISE LIMITED.

Boeing Proprietary
P.A. No. 2497                        EE1-6

TABLE 1
737X
CFM56 WARRANTY PARTS LIST
FLIGHT HOURS

Flight Hours
--------------------------------------
2000   3000  4000  6000   8000   12000
----   ----  ----  ----   ----   -----

Fan Rotor/Booster
Blades                                     X
Disk, Drum                                                           X
Spinner                                    X

Fan Frame
Casing                                                        X
Hub & Struts                                     X
Fairings                                         X
Splitter (Mid Ring)                              X
Vanes                                      X
Engine Mount                                     X

No. 1 & No. 2 Bearing Support
Bearings                                         X
Shaft                                                                X
Support (Case)                                   X

Inlet Gearbox & No. 3 Bearing
Bearings                                         X
Gear                                             X
Case                                             X

Compressor Rotor
Blades                                     X
Disk & Drums                                                         X
Shaft                                                                X

Compressor Stator
Casing                                                        X
Shrouds                                    X
Vanes                                      X
Variable Stator Actuating Rings            X

Combustor Diffuser Nozzle (CDN)
Casings                                    X
Combustor Liners                           X
Fuel Atomizer                              X
HPT Nozzle                                 X
HPT Nozzle Support                               X
HPT Shroud                                 X

Boeing Proprietary
P.A. No. 2497                        EE1-7

TABLE 1
737X
CFM56 WARRANTY PARTS LIST
(continued)

Flight Hours
--------------------------------------------------------------
2000        3000        4000       6000       8000       12000
----        ----        ----       ----       ----       -----

HPT Rotor
Blades                                                    X
Disks                                                                                       X
Shafts                                                                                      X
Retaining Ring                                 X

LP Turbine
Casing                                                                X
Vane Assemblies                                X
Interstage Seals                               X
Shrouds                                        X
Disks                                                                            X
Shaft                                                                                       X
Bearings                                                  X
Blades                                         X

Turbine Frame
Casing & Struts                                                       X
Hub                                                       X
Sump                                                      X

Accessory & Transfer Gearboxes
Case                                                      X
Shafts                                                    X
Gears                                                     X
Bearings                                                  X

Air-Oil Seals                                      X

Controls & Accessories
Engine                             X

Condition Monitoring Equipment         X

BOEING PROPRIETARY

P.A. No. 2497                       EE1-8

SERVICE LIFE POLICY COMPONENTS

between

THE BOEING COMPANY

and

Alaska Airlines, Inc.

Supplemental Exhibit SLP1 to Purchase Agreement Number 2497

P.A. No. 2497                          SLP1
Boeing Proprietary

SERVICE LIFE POLICY COMPONENTS

relating to

BOEING MODEL 737 AIRCRAFT

This is the listing of SLP Components for the Aircraft which relate to Part 3,
Boeing Service Life Policy of Exhibit C, Product Assurance Document to the AGTA
and is a part of Purchase Agreement No. 2497.

1.    Wing.

(a)   Upper and lower skins and stiffeners between the forward and rear
wing spars.

(b)   Wing spar webs, chords and stiffeners.

(c)   Inspar wing ribs.

(d)   Inspar splice plates and fittings.

(e)   Main landing gear support structure.

(f)   Wing center section floor beams, lower beams and spanwise beams, but
not the seat tracks attached to floor beams.

(g)   Engine strut support fittings attached directly to wing primary
structure.

(h)   Wing-to-body structural attachments.

(i)   Support structure in the wing for spoilers and spoiler actuators;
for aileron hinges and reaction links; and for leading edge devices
and trailing edge flaps.

(j)   Trailing edge flap tracks and carriages.

(k)   Aileron leading edge device and trailing edge flap internal, fixed
attachment and actuator support structure.

P.A. No. 2497                     SLP1-1

Boeing Proprietary

2.    Body.

(a)   External surface skins and doublers, longitudinal stiffeners,
longerons and circumferential rings and frames between the forward
pressure bulkhead and the vertical stabilizer rear spar bulkhead and
structural support and enclosure for the APU but excluding all
system components and related installation and connecting devices,
insulation, lining, and decorative panels and related installation
and connecting devices.

(b)   Window and windshield structure but excluding the windows and
windshields.

(c)   Fixed attachment structure of the passenger doors, cargo doors and
emergency exits, excluding door mechanisms and movable hinge
components. Sills and frames around the body openings for the
passenger doors, cargo doors and emergency exits, excluding scuff
plates and pressure seals.

(d)   Nose wheel well structure, including the wheel well walls, pressure
deck, bulkheads, and gear support structure.

(e)   Main gear wheel well structure including pressure deck and landing
gear beam support structure.

(f)   Floor beams and support posts in the control cab and passenger cabin
area, but excluding seat tracks.

(g)   Forward and aft pressure bulkheads.

(h)   Keel structure between the wing front spar bulkhead and the main
gear wheel well aft bulkhead including splices.

(i)   Wing front and rear spar support bulkheads, and vertical and
horizontal stabilizer front and rear spar support bulkheads
including terminal fittings but excluding all system components and
related installation and connecting devices, insulation, lining,
decorative panels and related installation and connecting devices.

(j)   Support structure in the body for the stabilizer pivot and
stabilizer screw.

P.A. No. 2497                  SLP1-2

Boeing Proprietary

3.    Vertical Stabilizer.

(a)   External skins between front and rear spars.

(b)   Front, rear and auxiliary spar chords, webs and stiffeners and
attachment fittings.

(c)   Inspar ribs.

(d)   Rudder hinges and supporting ribs, excluding bearings.

(e)   Support structure in the vertical stabilizer for rudder hinges,
reaction links and actuators.

(f)   Rudder internal, fixed attachment and actuator support structure.

4.    Horizontal Stabilizer.

(a)   External skins between front and rear spars.

(b)   Front and rear spar chords, webs and stiffeners.

(c)   Inspar ribs.

(d)   Stabilizer center section including hinge and screw support
structure.

(e)   Support structure in the horizontal stabilizer for the elevator
hinges, reaction links and actuators.

(f)   Elevator internal, fixed attachment and actuator support structure.

5.    Engine Strut.

(a)   Strut external surface skin and doublers and stiffeners.

(b)   Internal strut chords, frames and bulkheads.

(c)   Strut to wing fittings and diagonal brace.

(d)   Engine mount support fittings attached directly to strut structure
and including the engine-mounted support fittings.

P.A. No. 2497                   SLP1-3

Boeing Proprietary

6.    Main Landing Gear.

(a)   Outer cylinder.

(b)   Inner cylinder, including axles.

(c)   Upper and lower side struts, including spindles, universals and
reaction links.

(d)   Drag strut.

(e)   Bell crank.

(f)   Orifice support tube.

(g)   Trunnion link.

(h)   Downlock links including spindles and universals.

(i)   Torsion links.

(j)   Actuator beam, support link and beam arm.

7.    Nose Landing Gear.

(a)   Outer cylinder.

(b)   Inner cylinder, including axles.

(c)   Orifice support tube.

(d)   Upper and lower drag strut, including lock links.

(e)   Steering plates and steering collars.

(f)   Torsion links.

NOTE: The Service Life Policy does not cover any bearings, bolts, bushings,
clamps, brackets, actuating mechanisms or latching mechanisms used in or
on the Covered Components.

P.A. No. 2497                  SLP1-4

Boeing Proprietary

2497-1

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

Subject: Option Aircraft

Reference:  Purchase Agreement 2497 (the Purchase Agreement) between The Boeing
Company (Boeing) and Alaska Airlines, Inc. (Customer) relating to
Model 737-890 aircraft (the Aircraft)

This Letter Agreement amends the Purchase Agreement. All terms used but not
defined in this Letter Agreement have the same meaning as in the Purchase
Agreement.

Boeing agrees to manufacture and sell to Customer additional Model 737-890
aircraft as THE OPTION AIRCRAFT. The delivery months, number of aircraft,
Advance Payment Base Price per aircraft and advance payment schedule are listed
in the Attachments to this Letter Agreement. The Airframe Price shown includes
the Engine Price.

1.    Aircraft Description and Changes

1.1 Aircraft Description: The Option Aircraft are described by the
Detail Specification listed in the Attachments.

1.2 Changes: The Detail Specification will be revised to include:

(i)   Changes applicable to the basic Model 737 aircraft which
are developed by Boeing between the date of the Detail
Specification and the signing of the definitive
agreement to purchase the Option Aircraft;

(ii)  Changes required to obtain required regulatory
certificates; and

(iii) Changes mutually agreed upon.

2.    Price

2.1 The pricing elements of the Option Aircraft are listed in the
Attachments.

P.A. No. 2497
Option_Aircraft

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-1 Page 2

2.2 Price Adjustments.

2.2.1 Optional Features. The price for Optional Features
selected for the Option Aircraft will be adjusted to Boeing's current prices as
of the date of execution of the definitive agreement for the Option Aircraft.

2.2.2 Escalation Adjustments. The Airframe Price and the price
of Optional Features for Option Aircraft will be escalated using 1) Boeing's
standard escalation provisions (ECI-W formula) or alternate escalation
provisions (ECI-MFG/CPI formula) to be selected by Customer at the date of
execution of the definitive agreement for the Option Aircraft, or 2) a different
Boeing then current escalation provisions should such exist at the date of
execution of the definitive agreement for the Option Aircraft.

2.2.3 Base Price Adjustments. The Airframe Price of the Option
Aircraft will be adjusted to Boeing's current price as of the date of execution
of the definitive agreement for the Option Aircraft.

3.    Payment.

3.1 Customer will pay a deposit to Boeing in the amount shown in the
Attachment for each Option Aircraft (Deposit), on the date of this Letter
Agreement. If Customer exercises an option, the Deposit will be credited against
the first advance payment due. If Customer does not exercise an option, Boeing
will retain the Deposit for that Option Aircraft.

3.2 Following option exercise, advance payments in the amounts and at the
times listed in the Attachment will be payable for the Option Aircraft. The
remainder of the Aircraft Price for the Option Aircraft will be paid at the time
of delivery.

4.    Option Exercise.

4.1 Customer may exercise an option by giving written notice to Boeing on
or before the date 18 months prior to the delivery dates listed in the
Attachments (Option Exercise Date).

4.2 If Boeing must make production decisions which are dependent on
Customer's exercising an option earlier than the Option Exercise Date, Boeing
may accelerate the Option Exercise Date subject to Customer's agreement. If
Boeing and Customer fail to agree to a revised Option Exercise Date, either
party may terminate the option and Boeing will refund to Customer, without
interest, any Deposit and advance payments received by Boeing with respect to
the terminated Option Aircraft.

P.A. No. 2497
Option_Aircraft

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-1 Page 3

5.    Contract Terms.

Boeing and Customer will use their best efforts to reach a definitive
agreement for the purchase of an Option Aircraft, including the terms and
conditions contained in this Letter Agreement, in the Purchase Agreement, and
other terms and conditions as may be agreed upon. In the event the parties have
not entered into a definitive agreement within 30 days following option
exercise, other than as a result of Boeing's failure to timely provide an
agreement to Customer for review and execution, either party may terminate the
purchase of such Option Aircraft by giving written notice to the other within 5
days. If Customer and Boeing fail to enter into a definitive agreement
containing terms consistent with Purchase Agreement No. 2497 that was delivered
to Customer within 20 days following Option exercise, Boeing will retain the
Deposit for that Option Aircraft.

Sincerely,

THE BOEING COMPANY

By__________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

Alaska Airlines, Inc.

By__________________________

Its Vice President Finance & Treasurer

Attachment

P.A. No. 2497
Option_Aircraft

BOEING PROPRIETARY

Attachment
Option Aircraft Letter Agreement 2497-1
737-800 Aircraft Delivery, Description, Price and Advance Payments
ECI-W Formula

[***]

*     Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

2497-2

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

Subject: Aircraft Model Substitution

Reference:  Purchase Agreement No. 2497 (the Purchase Agreement) between The
Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)
relating to Model 737-890 aircraft (the Aircraft)

This letter agreement (Letter Agreement) amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement have the same
meaning as in the Purchase Agreement.

Customer may substitute the purchase of Boeing Model 737-900X aircraft (737-900X
SUBSTITUTE AIRCRAFT) in place of any of the Aircraft, subject to the following
terms and conditions:

1.    737-900X Offering.

Boeing's offer of the 737-900X Substitution Aircraft proposed herein is
subject to Boeing's decision to launch the 737-900X Aircraft. Based on Boeing's
launching the 737-900X Aircraft, Boeing may use up to two (2) of the 737-900X
Substitution Aircraft prior to delivery for flight and ground testing relating
to the development and certification. The parties shall mutually agree upon any
special terms related to use of any Substitution Aircraft for flight and ground
testing.

2.    Customer's Written Notice.

Customer will provide written notice of its intention to substitute the purchase
of an Aircraft with the purchase of a Substitute Aircraft,

(a) no later than the first day of the month that is fifteen (15) months
prior to the scheduled month of delivery of the Aircraft for which it will be
substituted, provided that a 737-900X Substitute Aircraft has been previously
certified and delivered to Customer, or;

P.A. No. 2497
Aircraft_Model_Substitution

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-2 Page 2

(b) no later than the first day of the month that is twenty-four (24)
months prior to the scheduled month of delivery of the Aircraft for which it
will be substituted, if a 737-900X Substitute Aircraft has been made offerable
but has not been previously certified and delivered to Customer.

2.    Boeing's Production Capability.

Customer's substitution right is conditioned upon Boeing's having production
capability for the 737-900X Substitute Aircraft in the scheduled delivery month
of the Aircraft for which it will be substituted.

If offerable, Boeing will tentatively quote delivery positions for 737-900X
Substitute Aircraft to allow Customer to secure quotes from Buyer Furnished
Equipment vendors, and Boeing to secure quotes from Seller Furnished Equipment
vendors which supports the required on-dock dates. If Boeing is unable to
manufacture the 737-900X Substitute Aircraft in the scheduled delivery month of
the Aircraft for which it will be substituted, then Boeing shall promptly make a
written offer of an alternate delivery month for Customer's consideration and
written acceptance within thirty (30) days of such offer.

3.    Definitive Agreement.

Customer's substitution right and Boeing's obligation in this Letter Agreement
are further conditioned upon Customer's and Boeing's executing a definitive
agreement for the purchase of the 737-900X Substitute Aircraft within thirty
(30) days of Customer's substitution notice to Boeing or of Customer's
acceptance of an alternate delivery month in accordance with paragraph 2. above.

4.    Price, Escalation Adjustments and Advance Payments.

The Airframe Price and the price of Optional Features will be adjusted to
Boeing's then-current prices for such elements as of the date of execution of
the definitive purchase agreement for the 737-900X Substitute Aircraft. The
Airframe Price and the price of Optional Features for 737-900X Substitute
Aircraft will be escalated using 1) Boeing's standard escalation provisions
(ECI-W formula) or alternate escalation provisions (ECI-MFG/CPI formula) to be
selected by Customer at the date of execution of the definitive agreement for
the 737-900X Substitution Aircraft, or 2) a different Boeing then current
escalation provisions should such exist at the date of execution of the
definitive agreement for the 737-900X Substitution Aircraft. The representative
escalation indices and methodology will be used to estimate the Advance Payment
Base Prices for 737-900X Substitution Aircraft.

If the Advance Payment Base Price for any 737-900X Substitute Aircraft is higher
than that of the Aircraft, Customer will pay to Boeing the amount of the
difference

P.A. No. 2497
Aircraft_Model_Substitution

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-2 Page 3

as of the date of execution of the definitive agreement for the 737-900X
Substitute Aircraft. If the Advance Payment Base Price of the 737-900X
Substitute Aircraft is lower than that of the Aircraft, Boeing will retain any
excess amounts previously paid by Customer until the next payment is due from
Customer, at which point Customer may reduce the amount of such payment by the
amount of the excess. In no case will Boeing refund or pay interest on any
excess amounts created by virtue of Customer's exercise of the rights of
substitution described in this agreement.

5.    Confidential Treatment.

Customer understands that certain commercial and financial information contained
in this Letter Agreement are considered by Boeing as confidential. Customer
agrees that it will treat this Letter Agreement and the information contained
herein as confidential and will not, without the prior written consent of
Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity.

Sincerely,

THE BOEING COMPANY

By______________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

ALASKA AIRLINES, INC.

By______________________________

Its Vice President Finance & Treasurer

P.A. No. 2497
Aircraft_Model_Substitution

BOEING PROPRIETARY

2497-3

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

Subject: Seller Purchased Equipment

Reference:  Purchase Agreement No. 2497 (the Purchase Agreement) between The
Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)
relating to Model 737-890 aircraft (the Aircraft)

This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.

Definition of Terms:

SELLER PURCHASED EQUIPMENT (SPE): Buyer Furnished Equipment (BFE) that Boeing
purchases for Customer.

DEVELOPMENTAL BUYER FURNISHED EQUIPMENT (DBFE): BFE not previously certified for
installation on the same model aircraft.

DEVELOPMENTAL SELLER PURCHASED EQUIPMENT (DSPE): DBFE which is converted to SPE.
This Letter Agreement does not include developmental avionics. Developmental
avionics are avionics that have not been previously certified for installation
on the same model aircraft.

P.A. No. 2497
Aircraft_Purchased_Substitution

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-3 Page 2

1.    Price.

Advance Payments. An estimated SPE price is included in the Advance
Payment Base Prices shown in Table 1 for the purpose of establishing the advance
payments for the Aircraft.

Aircraft Price. The Aircraft Price will be adjusted to reflect the actual
costs charged to Boeing by the SPE suppliers and transportation charges.

2.    Responsibilities.

2.1   Customer is responsible for:

(i)   selecting and notifying Boeing of the supplier for all items
identified in paragraph 1.1 of Supplemental Exhibit BFE1 of
the Purchase Agreement,

(ii)  selecting a FAA certifiable part; and

(iii) providing to Boeing the SPE part specification/Customer
requirements.

2.2.  Boeing is responsible for:

(i)   placing and managing the purchase order with the supplier;

(ii)  coordinating with the suppliers on technical issues;

(iii) ensuring that the delivered SPE complies with the part
specification;

(iv)  obtaining certification of the Aircraft with the SPE
installed; and

(v)   obtaining for Customer the supplier's standard warranty for
the SPE. SPE is deemed to be BFE for purposes of Part 2 and
Part 4 of Exhibit C, the Product Assurance Document.

P.A. No. 2497
Aircraft_Purchased_Substitution

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-3 Page 3

3.    Changes.

After this Letter Agreement is signed, changes to SPE may only be made by
and between Boeing and the suppliers. Customer's contacts with SPE suppliers
relating to design (including selection of materials and colors), weights,
prices or schedules are for informational purposes only. If Customer wants any
changes made, requests must be made directly to Boeing for coordination with the
supplier.

4.    Proprietary Rights.

Boeing's obligation to purchase SPE will not impose upon Boeing any
obligation to compensate Customer or any supplier for any proprietary rights
Customer may have in the design of the SPE.

5.    Remedies.

If Customer does not comply with the obligations above, Boeing may:

(i) delay delivery of the Aircraft;

(ii) deliver the Aircraft without installing the SPE;

(iii) with Customer's prior written consent, substitute a comparable part
and invoice Customer for the cost;

(iv) increase the Aircraft Price by the amount of Boeing's additional
costs attributable to such noncompliance.

6.    Customer's Indemnification of Boeing.

Customer will indemnify and hold harmless Boeing from and against all
claims and liabilities, including costs and expenses (including attorneys' fees)
incident thereto or incident to successfully establishing the right to
indemnification, for injury to or death of any person or persons, including
employees of Customer but not employees of Boeing, or for loss of or damage to
any property, including Aircraft, arising out of any nonconformance or defect in
any SPE and whether or not arising in tort or occasioned in whole or in part by
the negligence of Boeing. This indemnity will not apply with respect

P.A. No. 2497
Aircraft_Purchased_Substitution

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-3 Page 4

to any nonconformance or defect caused solely by Boeing's installation of the
SPE.

Sincerely,

THE BOEING COMPANY

By_____________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

Alaska Airlines, Inc.

By_____________________________

Its Vice President Finance & Treasurer

P.A. No. 2497
Aircraft_Purchased_Substitution

BOEING PROPRIETARY

2497-4

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

Subject: Demonstration Flight Waiver

Reference:  Purchase Agreement No. 2497 (the Purchase Agreement) between The
Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)
relating to Model 737-890 aircraft (the Aircraft)

This letter agreement (Letter Agreement) amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement shall have
the same meaning as in the Purchase Agreement.

Definition of Terms:

CORRECTION COSTS: Customer's direct labor costs and the cost of any material
required to correct a Flight Discrepancy where direct labor costs are equal to
the warranty labor rate in effect between the parties at the time such labor is
expended.

FLIGHT DISCREPANCY: A failure or malfunction of an Aircraft, or the accessories,
equipment or parts installed on the Aircraft which results from a defect in the
Aircraft, Boeing Product, engine or Supplier Product or a nonconformance to the
Detail Specification for the Aircraft.

The AGTA provides that each aircraft will be test flown prior to delivery for
the purpose of demonstrating the functioning of such Aircraft and its equipment
to Customer; however, Customer may elect to waive this test flight. For each
test flight waived, Boeing agrees to provide Customer an amount of jet fuel at
delivery that, including the standard fuel entitlement, totals the following
amount of fuel:

AIRCRAFT                   TOTAL FUEL ENTITLEMENT
MODEL                          (U.S. GALLONS)
--------           -----------------------------------

737              Full tanks (approx. 5,300 to 6,800,
depending on model)

Further, Boeing agrees to reimburse Customer for any Correction Costs incurred
as a result of the discovery of a Flight Discrepancy during the first flight of
the aircraft by Customer following delivery to the extent such Correction Costs
are

P.A. No. 2497
Demonstration_Flight_Waiver

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-4 Page 2

not covered under a warranty provided by Boeing, the engine manufacturer or any
of Boeing's suppliers.

Should a Flight Discrepancy be detected by Customer which requires the return of
the Aircraft to Boeing's facilities at Seattle, Washington, so that Boeing may
correct such Flight Discrepancy, Boeing and Customer agree that title to and
risk of loss of such Aircraft will remain with Customer. In addition, it is
agreed that Boeing will have responsibility for the Aircraft while it is on the
ground at Boeing's facilities in Seattle, Washington, as is chargeable by law to
a bailee for mutual benefit, but Boeing shall not be chargeable for loss of use.

To be reimbursed for Correction Costs, Customer shall submit a written itemized
statement describing any flight discrepancies and indicating the Correction Cost
incurred by Customer for each discrepancy. This request must be submitted to
Boeing's Contracts Regional Director at Renton, Washington, within ninety (90)
days after the first flight by Customer.

Sincerely,

THE BOEING COMPANY

By_____________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

ALASKA AIRLINES, INC.

By________________________________

Its Vice President Finance & Treasurer

P.A. No. 2497
Demonstration_Flight_Waiver

BOEING PROPRIETARY

2497-5

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

Subject: Loading of Software Owned by or Licensed to Customer

Reference:  Purchase Agreement No. 2497 (the Purchase Agreement) between The
Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)
relating to Model 737-890 aircraft (the Aircraft)

This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.

Prior to delivery of an Aircraft to Customer, Customer may request Boeing to
install software owned by or licensed to Customer (Software) in the following
systems in the Aircraft: i) aircraft communications addressing and reporting
system (ACARS), ii) digital flight data acquisition unit (DFDAU), iii) flight
management system (FMS), iv) cabin management system (CMS), v) satellite
communications system (SATCOM), vi) engine indication and crew alerting system
(EICAS) and vii) airplane information management system (AIMS). The Software is
not part of the configuration of the Aircraft certified by the FAA. If requested
by Customer, Boeing will install the Software after the FAA has issued the
standard airworthiness certificate or the export certificate of airworthiness,
whichever is applicable, but before delivery of the Aircraft on the following
conditions:

1.    Customer and Boeing agree that the Software is deemed to be BFE for the
purposes of Articles 3.1.3, 3.2, 3.4, 3.5, 3.10, 9, 10 and 11 of Exhibit
A, Buyer Furnished Equipment Provisions Document, to the AGTA and such
articles apply to the installation of the Software.

P.A. No. 2497
Customer_Software

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-5 Page 2

Customer and Boeing further agree that the installation of the Software is
deemed to be a service under Exhibit B, Customer Support Document, to the
AGTA. Boeing makes no warranty as to the performance of such installation
and Article 11 of Part 2 of Exhibit C of the AGTA, Disclaimer and Release;
Exclusion of Liabilities and Article 8.2, Insurance, of the AGTA apply to
the installation of the Software.

Sincerely,

THE BOEING COMPANY

By_______________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

ALASKA AIRLINES, INC.

By_______________________________

Its Vice President Finance & Treasurer

P.A. No. 2497
Customer_Software

BOEING PROPRIETARY

2497-6

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

Subject: Promotion Support

Reference:  Purchase Agreement No. 2497 (the Purchase Agreement) between The
Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)
relating to Model 737-890 aircraft (the Aircraft)

This letter agreement (Letter Agreement) amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement shall have
the same meaning as in the Purchase Agreement.

Boeing agrees to make available to Customer [***] for Customer's marketing and
promotion programs associated with the introduction of the first Aircraft into
service, and [***] for each subsequent Aircraft which delivers through December
31, 2007. These programs may include marketing research; tourism development;
corporate identity; direct marketing; video tape, or still photography;
planning, design and production of collateral materials; management of promotion
programs and advertising campaigns.

Boeing's obligation to provide the support will commence at the time the
purchase of the Aircraft becomes firm (not subject to cancellation by either
party) and will terminate January 1, 2008. There will be no cash payments or
other support in lieu thereof.

----------
*     Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

P.A. No. 2497
Promotion_Support

BOEING PROPRIETARY

Alaska Airlines, Inc.
2497-6 Page 3

Following the execution of this Letter Agreement, a Boeing Airline Promotion
representative will meet with Customer's designated representative to discuss
the extent, selection, scheduling, and funds disbursement process for the
program.

Sincerely,

THE BOEING COMPANY

By______________________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

Alaska Airlines, Inc.

By______________________________________

Its Vice President Finance & Treasurer

P.A. No. 2497
Promotion_Support

BOEING PROPRIETARY

6-1162-MSA-588

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

Subject:    Aircraft Performance Guarantees

Reference:  Purchase Agreement No. 2497 (the Purchase Agreement) between The
Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)
relating to Model 737-890 aircraft (the Aircraft)

This letter agreement (Letter Agreement) amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement have the same
meaning as in the Purchase Agreement.

1.    Aircraft Performance Guarantees.

Boeing agrees to provide Customer with the performance guarantees in the
Attachment. These guarantees are exclusive and expire upon delivery of the
Aircraft to Customer.

2.    Confidential Treatment.

Customer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Customer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Alaska Airlines
6-1162-MSA-588 Page 2

Sincerely,

THE BOEING COMPANY

By___________________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

ALASKA AIRLINES, INC.

By___________________________________

Its Vice President Finance & Treasurer

Attachment

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-5516-MSA-588
Page 1

MODEL 737-890 WITH WINGLETS PERFORMANCE GUARANTEES

FOR ALASKA AIRLINES, INC.

SECTION                  CONTENTS

1           AIRCRAFT MODEL APPLICABILITY

2           FLIGHT PERFORMANCE

3           MANUFACTURER'S EMPTY WEIGHT

4           SOUND LEVELS

5           AIRCRAFT CONFIGURATION

6           GUARANTEE CONDITIONS

7           GUARANTEE COMPLIANCE

8           EXCLUSIVE GUARANTEES

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-1162-MSA-588
Page 2

1     AIRCRAFT MODEL APPLICABILITY

The guarantees contained in this Attachment (the "Performance Guarantees")
are applicable to the 737-890 Aircraft with a maximum takeoff weight of
[***] pounds, a maximum landing weight of [***] pounds, and a maximum zero
fuel weight of [***] pounds, and equipped with winglets and with Boeing
furnished CFM56-7B26 engines.

2     FLIGHT PERFORMANCE

2.1   TAKEOFF

The FAA approved takeoff field length at a gross weight at the start of
the ground roll of [***] pounds, at a temperature of [***](degrees)C, at a
sea level altitude, and using maximum takeoff thrust, shall not be more
than the following guarantee value:

GUARANTEE:        [***] Feet

2.2   LANDING

The FAA approved landing field length at a gross weight of [***] pounds
and at a sea level altitude, shall not be more than the following
guarantee value:

GUARANTEE:        [***] Feet

2.3   MISSION

2.3.1 MISSION BLOCK FUEL

The block fuel for a stage length of [***] statute miles in still air with
a [***] pound payload using the conditions and operating rules defined
below, shall not be more than the following guarantee value:

NOMINAL:          [***] Pounds
TOLERANCE:        [***] Pounds
GUARANTEE:        [***] Pounds

Conditions and operating rules:

Stage Length:      The stage length is defined as the sum of the distances
for the climbout maneuver, climb, cruise, and descent.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

Attachment
6-1162-MSA-588
Page 3

Block Fuel:        The block fuel is defined as the sum of the fuel used
for taxi-out, takeoff and climbout maneuver, climb,
cruise, descent, approach and landing maneuver, and
taxi-in.

Takeoff:           The takeoff gross weight is not limited by the airport
conditions.

Maximum takeoff thrust is used for the takeoff.

The takeoff gross weight shall conform to FAA
Regulations.

Climbout           Following the takeoff to [***] feet, the Aircraft
Maneuver:          accelerates to [***] KCAS while climbing to [***] feet
above the departure airport altitude and retracting
flaps and landing gear.

Climb:             The Aircraft climbs from [***] feet above the departure
airport altitude to [***] feet altitude at [***] KCAS.

The Aircraft then accelerates at a rate of climb of
[***] feet per minute to a climb speed of [***] KCAS.

The climb continues at [***] KCAS until 0.78 Mach
number is reached.

The climb continues at 0.78 Mach number to the initial
cruise altitude.

The temperature is standard day during climb.

Maximum climb thrust is used during climb.

Cruise:            The Aircraft cruises at 0.79 Mach number.

The initial cruise altitude is 39,000 feet.

A step climb or multiple step climbs of 4,000 feet
altitude may be used when beneficial to minimize fuel
burn.

The temperature is standard day during cruise.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

Attachment
6-1162-MSA-588
Page 4

The cruise thrust is not to exceed maximum cruise
thrust except during a step climb when maximum climb
thrust may be used.

Descent:           The Aircraft descends from the final cruise altitude at
0.78 Mach number until 250 KCAS is reached.

The descent continues at 250 KCAS to an altitude of
1,500 feet above the destination airport altitude.

Throughout the descent, the cabin pressure is
controlled to a maximum rate of descent equivalent to
300 feet per minute at sea level.

The temperature is standard day during descent.

Approach           The Aircraft decelerates to the final approach speed
and Landing        while extending landing gear and flaps, then descends
Maneuver:          and lands.

The destination airport altitude is a sea level
airport.

Fixed              For the purpose of this guarantee and for the purpose
Allowances:        of establishing compliance with this guarantee, the
following shall be used as fixed quantities and
allowances:

Operational Empty Weight, OEW (Paragraph 2.3.3): 93,582
Pounds

Taxi-Out:

Fuel             200 Pounds

Takeoff and Climbout Maneuver:

Fuel             500 Pounds
Distance         3.5 Nautical Miles

Approach and Landing Maneuver:

Fuel             229 Pounds

Taxi-In (shall be consumed from the reserve fuel):

Fuel             200 Pounds

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-1162-MSA-588
Page 5

Usable reserve fuel remaining upon completion of the
approach and landing maneuver: 7,396 Pounds

For information purposes, the reserve fuel is based on
a standard day temperature and a) a 200 pound general
purpose fuel, b) a missed approach and flight to a 200
nautical mile alternate, c) an approach and landing
maneuver at the alternate airport, and d) a 45 minute
hold at 1,500 feet above a sea level alternate airport.

2.3.2              OPERATIONAL EMPTY WEIGHT BASIS

The Operational Empty Weight (OEW) derived in Paragraph
2.3.3 is the basis for the mission guarantee of
Paragraph 2.3.1.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-1162-MSA-588
Page 6

2.3.3 737-890 WEIGHT SUMMARY ALASKA AIRLINES

Pounds
------

STANDARD MODEL SPECIFICATION MEW                                                       [***]
Configuration Specification D019A001, Rev. F
dated  August 29, 2003
175 Tourist Class Passengers
CFM56-7  Engines
156,000 Pounds (70,760 kg.) Maximum Taxi Weight
6,875 U.S. Gallons (26,024 l.) Fuel Capacity

Changes for Alaska Airlines
Interior Change to 160 (16FC/144YC) Passengers*                                    [***]
(Ref: LOPS-378-1455)
174,700 lb (79,242 kg) Maximum Taxi Weight                                         [***]    
60 Minute Standby Power Capability                                                 [***]
Cargo Compartment Changes                                                          [***]  
HUD Options                                                                        [***]
Winglets                                                                           [***]
Additional Customer Options (Based on 737-800 CSOS ASA38W0002)                     [***]

ALASKA AIRLINES MANUFACTURER'S EMPTY WEIGHT (MEW)                                       [***]

Standard and Operational Items Allowance                                             [***]
(Paragraph 2.3.4)

ALASKA AIRLINES OPERATIONAL EMPTY WEIGHT (OEW)                                          [***]

Quantity    Pounds    Pounds

* Seat Weight Included:                                                 4,854

First Class Doubles                                8        1,056

Economy Class Triple                              46        3,611
Economy Class Triple w/3 In-Arm Food Trays         2          187

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

Attachment
6-1162-MSA-588
Page 7

2.3.4 STANDARD AND OPERATIONAL ITEMS ALLOWANCE

Qty     Pounds     Pounds     Pounds

STANDARD ITEMS ALLOWANCE                                                              [***]

Unusable Fuel                                                            [***]
Oil                                                                      [***]
Oxygen Equipment                                                         [***]
Passenger Portable                                  7    [***]
Portable Oxygen Masks                              17    [***]
Crew Masks and Goggles                              4    [***]
Miscellaneous Equipment                                                  [***]
Crash Axe                                           1    [***]
Megaphones                                          2    [***]
Flashlights                                         6    [***]
Smoke Hoods                                         5    [***]
Galley Structure & Fixed Inserts                                         [***] 

OPERATIONAL ITEMS ALLOWANCE                                                           [***]

Crew and Crew Baggage                                                    [***]
Flight Crew                                         2    [***]
Cabin Crew                                          6    [***]
Baggage                                             8    [***]
Briefcases                                          1    [***]
Catering Allowance                                                       [***]
Passenger Service Equipment                          160                 [***]
Potable Water - 60 USG                                                   [***]
Waste Tank Disinfectant                                                  [***]
Emergency Equipment                                                      [***]
Escape Slides - Forward                             2    [***]
Escape Slides - Aft                                 2    [***]
Life Vests - Crew                                  10    [***]

TOTAL STANDARD AND OPERATIONAL ITEMS ALLOWANCE                                        [***]

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

Attachment
6-1162-MSA-588
Page 8

3     MANUFACTURER'S EMPTY WEIGHT

The Manufacturer's Empty Weight (MEW) is guaranteed not to exceed the
value in Section 03-60-00 of Detail Specification D019A001ASA38P-1 plus
three-quarters of one percent.

4     SOUND LEVELS

4.1   COMMUNITY SOUND LEVELS

The Aircraft shall be certified in accordance with Stage 3 requirements of
FAR Part 36, essentially equivalent to ICAO Annex 16, Volume 1, Chapter 3.

4.2   JOHN WAYNE AIRPORT (SNA) SINGLE EVENT NOISE EXPOSURE LEVELS

4.2.1 The brake release gross weight for a Single Event Noise Exposure Level
(SENEL) at the Class E limits of 93.5 dB SENEL at microphone location M1
and 93.0 dB SENEL at microphone location M2, whichever is limiting for the
microphone locations defined below, shall not be less than the following
guarantee value:

NOMINAL:           134,900 Pounds
TOLERANCE:          -3,100 Pounds
GUARANTEE:         131,800 Pounds

4.2.2 The guarantee of Paragraph 4.2.1 is based on the following conditions,
procedures and microphone locations:

Takeoff            The airport pressure altitude is 54 feet.
Conditions:

The airport temperature is 77(degrees) F.

Airport relative humidity is 70 percent.

4.0 knot head-wind factored in accordance with FAR
25.105(d)(1).

Flap position is 5.

An Aircraft center of gravity located at the forward
limit.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-1162-MSA-588
Page 9

Takeoff            With brakes set, stabilize power at 70 percent N1, then
Procedure:         simultaneously release brakes and advance power to
maximum rated takeoff thrust. Rotate at a speed such
that acceleration results in a climb-out speed of V2+20
KCAS. Upon reaching 800 feet geopotential altitude
above the runway, briskly reduce thrust on both engines
to the thrust required to provide a 1.2 percent
one-engine-inoperative climb gradient. Maintain Flaps 5
speed and power setting until reaching at least six
nautical miles from brake release.

Microphone         Microphones M1 and M2 are located according to John
Locations:         Wayne Airport Noise Abatement Program Quarterly Report
for the period January 1, 2004 through March 31, 2004.

Microphone         Microphones M1 and M2 are defined to be the noise
Equipment:         detection and analysis hardware or software operating
at John Wayne Airport for the period January 1, 2004
through March 31, 2004.

5     AIRCRAFT CONFIGURATION

5.1   The guarantees contained in this Attachment are based on the Aircraft
configuration as defined in the original release of Detail Specification
D019A001ASA38P-1 (hereinafter referred to as the Detail Specification).
Appropriate adjustment shall be made for changes in such Detail
Specification approved by the Customer and Boeing or otherwise allowed by
the Purchase Agreement which cause changes to the flight performance,
sound levels, and/or weight and balance of the Aircraft. Such adjustment
shall be accounted for by Boeing in its evidence of compliance with the
guarantees.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-1162-MSA-588
Page 10

5.2   The Manufacturer's Empty Weight guarantee of Section 3 will be adjusted by
Boeing for the following in its evidence of compliance with the
guarantees:

(1) Changes to the Detail Specification or any other changes mutually
agreed upon between the Customer and Boeing or otherwise allowed by the
Purchase Agreement.

(2) The difference between the component weight allowances given in
Appendix IV of the Detail Specification and the actual weights.

6     GUARANTEE CONDITIONS

6.1   All guaranteed performance data are based on the International Standard
Atmosphere (ISA) and specified variations therefrom; altitudes are
pressure altitudes.

6.2   The FAA Regulations (FAR) referred to in this Attachment are, unless
otherwise specified, the 737-800 Certification Basis regulations specified
in the Type Certificate Data Sheet A16WE, Revision 33, dated March 8,
2002.

6.3   In the event a change is made to any law, governmental regulation or
requirement, or in the interpretation of any such law, governmental
regulation or requirement that affects the certification basis for the
Aircraft as described in Paragraphs 4.1 or 6.2, and as a result thereof, a
change is made to the configuration and/or the performance of the Aircraft
in order to obtain certification, the guarantees set forth in this
Attachment shall be appropriately modified to reflect any such change.

6.4   The takeoff and landing guarantees, and the takeoff portion of the mission
guarantee are based on hard surface, level and dry runways with no wind or
obstacles, no clearway or stopway, 225 mph tires, with Category C brakes
and anti-skid operative, and with the Aircraft center of gravity at the
most forward limit unless otherwise specified. The takeoff performance is
based on no engine bleed for air conditioning or thermal anti-icing and
the Auxiliary Power Unit (APU) turned off unless otherwise specified.
Unbalanced field length calculations and the improved climb performance
procedure will be used for takeoff as required. The landing performance is
based on the use of automatic spoilers.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-1162-MSA-588
Page 11

6.5   The climb, cruise, and descent portions of the mission guarantee include
allowances for normal power extraction and engine bleed for normal
operation of the air conditioning system. Normal electrical power
extraction shall be defined as not less than a 50 kilowatts total
electrical load. Normal operation of the air conditioning system shall be
defined as pack switches in the "Auto" position, the temperature control
switches in the "Auto" position that results in a nominal cabin
temperature of 75(degrees)F, and all air conditioning systems operating
normally. This operation allows a maximum cabin pressure differential of
8.35 pounds per square inch at higher altitudes, with a nominal Aircraft
cabin ventilation rate of 3,300 cubic feet per minute including passenger
cabin recirculation (nominal recirculation is 47 percent). The APU is
turned off unless otherwise specified.

6.6   The climb, cruise and descent portions of the mission guarantee are based
on an Aircraft center of gravity location of 26.2 percent of the mean
aerodynamic chord.

6.7   Performance, where applicable, is based on a fuel Lower Heating Value
(LHV) of 18,580 BTU per pound and a fuel density of 6.7 pounds per U.S.
gallon.

7     GUARANTEE COMPLIANCE

7.1   Compliance with the guarantees of Sections 2, 3 and 4 shall be based on
the conditions specified in those sections, the Aircraft configuration of
Section 5 and the guarantee conditions of Section 6.

7.2   Compliance with the takeoff and landing guarantees, the takeoff portion of
the mission guarantee, and the community sound level guarantees shall be
based on the FAA approved Airplane Flight Manual for the Model 737-800.

7.3   Compliance with the climb, cruise, and descent portions of the mission
guarantee shall be established by calculations based on flight test data
obtained from an aircraft in a configuration similar to that defined by
the Detail Specification.

7.4   The OEW used for compliance with the mission guarantee shall be the actual
MEW plus the Standard and Operational Items Allowance in Paragraph
03-60-00 of the Detail Specification.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-1162-MSA-588
Page 12

7.5   Compliance with the Manufacturer's Empty Weight guarantee shall be based
on information in the "Weight and Balance Control and Loading Manual -
Aircraft Report."

7.6   The data derived from tests shall be adjusted as required by conventional
methods of correction, interpolation or extrapolation in accordance with
established engineering practices to show compliance with these
guarantees.

7.7   Compliance with the single event noise exposure level guarantee of
Paragraphs 4.2.1 will be by calculations made by Boeing using standard
engineering practices with noise information measured by Boeing using the
Model 737-700 with CFM56-7B (SAC) engines. The noise calculation process
will be as follows:

7.7.1 Noise (dBA) time histories for a range of brake release gross weights
(BRGW) for the model 737-800W with CFM56-7B26 (SAC) engines will be
calculated by combining full power takeoff and cutback dBA time histories
from noise data measured at the noise certification test of May 1997.
Adjustments will be appropriate to simulate the takeoff procedure
described in Paragraph 4.2.2. These dBA time histories will then be
integrated as described in CALIFORNIA NOISE STANDARDS (California
Administrative Code, Title 21, Chapter 2.5, Sub-Chapter 6, effective
January 1, 1986, Division of Aeronautics (Department of Transportation)),
except that the threshold noise level will be 65 dBA as used at SNA for
noise monitors M1 and M2 to calculate SENEL at each BRGW.

7.7.2 Curve fits of SENEL vs. BRGW will then be developed for noise monitors M1
and M2, using the data derived in Paragraph 7.7.1.

7.7.3 The SENEL versus BRGW curve fit of Paragraph 7.7.2 will then be entered at
the noise limits of 93.5 dB SENEL for microphone location M1 and 93.0 dB
SENEL for microphone location M2, respectively, to determine weights that
correspond to the expected quarterly average weight capability of the
Aircraft. These weights will be compared to the guarantee weight of
Paragraph 4.2.1 to determine compliance with that guarantee.

7.7.4 A document will be prepared by Boeing to show compliance with the single
event noise exposure level guarantees of Paragraph 4.2.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

Attachment
6-1162-MSA-588
Page 13

7.7.5 The following compliance conditions apply to Paragraphs 4.2.1:

If the guarantee weight is not met, Boeing and the Customer will work
together to improve the weight capability (no financial penalty will be
levied).

7.8   Compliance shall be based on the performance of the airframe and engines
in combination, and shall not be contingent on the engine meeting its
manufacturer's performance specification.

8     EXCLUSIVE GUARANTEES

The only performance guarantees applicable to the Aircraft are those set
forth in this Attachment.

P.A. No. 2497
Performance_Guarantees
BOEING PROPRIETARY

6-1162-MSA-589

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

[***]

BOEING PROPRIETARY

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

Alaska Airlines, Inc.
6-1162-MSA-589 Page 2

[***]

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

Alaska Airlines, Inc.
6-1162-MSA-589 Page 3

[***]

Sincerely,

THE BOEING COMPANY

By_____________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

Alaska Airlines, Inc.

By_____________________________

Its Vice President Finance & Treasurer

Attachment

BOEING PROPRIETARY

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

Attachment to
6-1162-MSA-589
Page 1

[***]

BOEING PROPRIETARY

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

Attachment to
6-1162-MSA-589
Page 2

[***]

BOEING PROPRIETARY

* Indicates that certain information contained herein has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.

6-1162-MSA-590

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington 98188

Subject:    Purchase Right Aircraft

Reference:  Purchase Agreement 2497 (the Purchase Agreement) between The Boeing
Company (Boeing) and Alaska Airlines, Inc. (Customer) relating to
Model 737-890 aircraft (the Aircraft)

This Letter Agreement amends the Purchase Agreement. All terms used but not
defined in this Letter Agreement have the same meaning as in the Purchase
Agreement.

Boeing and Customer wish to define (1) the conditions under which Customer may
add to the Purchase Agreement additional 737-890 aircraft for which Customer has
been granted purchase rights pursuant to this Letter Agreement, and (2) the
contract terms which will be applicable to such additional aircraft in the event
Customer exercises such rights.

1.0   Purchase Rights.

Boeing grants to Customer the right to purchase (Purchase Right) up to
fifty (50) additional 737-890 aircraft on the terms and conditions described in
this Letter Agreement (the Purchase Right Aircraft).

1.1 The Purchase Right Aircraft may be exercised to either 737-890 firm
aircraft (Firm Aircraft) or 737-890 Option Aircraft. Delivery positions are
subject to availability, and must be scheduled for delivery no later than
December 31, 2015. No deposits are required for these Purchase Right Aircraft at
execution of this Letter Agreement.

1.2 If Customer desires to exercise a Purchase Right, Customer shall
notify Boeing in writing requesting a delivery position for such Purchase Right
Aircraft and identify whether the exercise will be for a Firm Aircraft or an
Option Aircraft.

1.3 Within five (5) days of its receipt of Customer's request, Boeing
shall offer a 737-890 aircraft (either Aircraft or Option Aircraft per
Customer's request) in the closest delivery position to the requested delivery
position, which is not then the subject of a commitment with another customer of
Boeing, and either (1) for an Aircraft that permits the manufacture of the
Aircraft within the standard

P.A. No. 2497
Purchase_Right_Aircraft
BOEING PROPRIETARY

Alaska Airlines, Inc.
6-1162-MSA-590 Page 2

manufacturing lead time, or (2) in the case of an Option Aircraft is at least
eighteen (18) months prior to delivery.

1.4 In addition, within 5 days of its receipt of Customer's request Boeing
will provide Customer pricing information for the Purchase Right Aircraft. The
Airframe Price and the price of Optional Features will be adjusted to Boeing's
then-current prices for such elements as of the date of execution of the
definitive purchase agreement for the Purchase Right Aircraft. The Airframe
Price and the price of Optional Features for the Purchase Right Aircraft will be
escalated using 1) Boeing's standard escalation provisions (ECI-W formula) or
alternate escalation provisions (ECI-MFG/CPI formula) to be selected by Customer
at the date of execution of the definitive agreement for the Purchase Right
Aircraft exercised, or 2) a different Boeing then current escalation provisions
should such exist at the date of execution of the definitive agreement for the
Purchase Right Aircraft exercised. The representative escalation indices and
methodology will be used to estimate the Advance Payment Base Prices for
exercised the Purchase Right Aircraft.

1.5 The configuration of the Purchase Right Aircraft will be the
configuration described in Customer's Detail Specification DO19A00ASA38P-1 as of
the date of exercise of the Purchase Right as revised to include:.

(i)   Changes applicable to the basic Model 737 aircraft which are
developed by Boeing between the date of the Detail
Specification and the signing of the definitive agreement to
purchase the Option Aircraft;

(ii)  Changes required to obtain required regulatory certificates;
and

(iii) Changes mutually agreed upon.

1.6 Should Customer exercise a Purchase Right Aircraft for an Aircraft,
Advance Payments will be payable for the Purchase Right Aircraft in accordance
with that for the Aircraft as defined in the Purchase Agreement.

1.7 Should Customer exercise a Purchase Right Aircraft for an Option
Aircraft, a Deposit will be payable for the Purchase Right Aircraft in
accordance with that for the Option Aircraft as defined in Option Aircraft
Letter Agreement 2497-1.

1.8 Boeing and Customer will use their best efforts to reach a definitive
agreement for the purchase of a Purchase Right Aircraft, including the terms and
conditions contained in this Letter Agreement, in the Purchase Agreement, and
any other terms and conditions as may be agreed upon with in thirty (30) days
after Boeing has identified the applicable delivery position and provided the
requisite price information pursuant to Article 1.3 herein.

P.A. No. 2497
Purchase_Right_Aircraft
BOEING PROPRIETARY

Alaska Airlines, Inc.
6-1162-MSA-590 Page 3

2.       Confidential Treatment.

Customer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Customer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity.

Sincerely,

THE BOEING COMPANY

By________________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

Alaska Airlines, Inc.

By________________________________

Its Vice President Finance & Treasurer

P.A. No. 2497
Purchase_Right_Aircraft
BOEING PROPRIETARY

6-1162-MSA-592

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington  98188

Subject:    Special Purchase Agreement Provisions

Reference:  Purchase Agreement No. 2497 (the Purchase Agreement) between
The Boeing Company (Boeing) and Alaska Airlines, Inc.
(Customer) relating to Model 737-890 aircraft (Aircraft)

This letter agreement (Letter Agreement) amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement have the same
meaning as in the Purchase Agreement.

This Letter Agreement modifies certain terms and conditions of the Purchase
Agreement with respect to the Aircraft.

[***]

2.    Confidential Treatment.

Customer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Customer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity.

BOEING PROPRIETARY

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

P.A No. 2497
Special_Purchase_Agreement_Provisions

Alaska Airlines, Inc.
6-1162-MSA-592 Page 2

Sincerely,

THE BOEING COMPANY

By ___________________________________

Its Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

ALASKA AIRLINES, INC.

By ___________________________________

Its  Vice President Finance & Treasurer

BOEING PROPRIETARY

P.A No. 2497
Special_Purchase_Agreement_Provisions

6-1162-MSA-597

Alaska Airlines, Inc.
19300 International Blvd.
Seattle, Washington  98188

Subject:    Special Matters

Reference:  Purchase Agreement No. 2497 (the Purchase Agreement) between The
Boeing Company (Boeing) and Alaska Airlines, Inc. (Customer)
relating to Model 737-890 aircraft (the Aircraft)

This letter agreement (Letter Agreement) amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement have the same
meaning as in the Purchase Agreement.

1.    Basic Credit Memorandum.

Concurrent with the delivery of each Aircraft, Boeing will provide a
credit memorandum equal to [***] of the escalated Airframe Price. Customer may
apply such credit memorandum to the balance of the Purchase Price due at the
time of delivery for such Aircraft, or in payment for Boeing goods and services,
but not for advance payment on the Aircraft.

2.    Special Credit Memorandum.

Concurrent with the delivery of each Aircraft, Boeing will provide a
credit memorandum equal to [***] of the escalated Airframe Price. Customer may
apply such credit memorandum to the balance of the Purchase Price due at the
time of delivery for such Aircraft, or in payment for Boeing goods and services,
but not for advance payment on the Aircraft.

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

BOEING PROPRIETARY

P.A No. 2497
Special_Matters

Alaska Airlines, Inc.
6-1162-MSA-597 Page 2

3.    [***] Credit Memorandum.

Concurrent with the delivery of each of the first [***] Aircraft, Boeing
will provide a credit memorandum equal to [***] of the escalated Airframe Price.
Customer may apply such credit memorandum to the balance of the Purchase Price
due at the time of delivery for such Aircraft, or in payment for Boeing goods
and services, but not for advance payment on the Aircraft. For subsequent
Aircraft [***], this [***] Credit Memorandum shall [***], to be applied as
described above.

Boeing provides this [***] Credit Memorandum, in addition to the other
Credit Memoranda of this Letter Agreement, as a financial accommodation to
Customer in consideration of Customer becoming the operator of the Aircraft.

[***]

4.     [***] Escalation Factors.

4.1 Table 1 to the Purchase Agreement identifies the delivery positions
and the estimated escalation for the Aircraft. The parties agree that escalation
factors are [***] for the Aircraft deliveries prior to July 1, 2008 and will be
the factors ([***] Factors) used to determine the escalation adjustment
component of the Aircraft Price for each such Aircraft notwithstanding any other
provisions of the Purchase Agreement to the contrary, including without
limitation the provisions of Supplemental Exhibit AE1 to the Purchase Agreement.
The Fixed Factors for the applicable twenty (20) Aircraft delivering prior to
July 1, 2008 are as listed in Attachment 1.

4.2 The Aircraft Price, Basic Credit Memorandum, Special Credit Memorandum
and [***] Credit Memorandum for the applicable twenty (20) Aircraft delivering
prior to July 1, 2008 are as listed in Attachment 1, and are subject to
adjustment per Article 4.3 below. To confirm, the [***] Factors are not
applicable to Buyer Furnished Equipment and Seller Purchased Equipment.

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

BOEING PROPRIETARY

P.A No. 2497
Special_Matters

Alaska Airlines, Inc.
6-1162-MSA-597 Page 3

4.3 In addition, the escalation adjustment for any other sum which is
identified in the Purchase Agreement as subject to escalation and which pertains
to an Aircraft, including but not limited to changes as described in AGTA-ASA
Article 3 and Article 4 shall be calculated using the applicable [***] Factor
notwithstanding any other provisions of the Purchase Agreement to the contrary,
including without limitation the provisions of Supplemental Exhibit AE1 to the
Purchase Agreement.

5.    [***]

6.    [***]

7.    Increased Quantity Purchase.

In addition to the Basic, Special and [***] Credit Memorandums described
above in Articles 1, 2 and 3 above, should Customer purchase additional firm
aircraft beyond the [***] firm 737-890 Aircraft and exercised Option Aircraft, a
further credit memorandum shall be applicable only to the additional groups of
aircraft purchased as follows:

[***]

8.    [***] Advance Payment Schedule.

8.1 [***] Customer [***] pay advance payments according to the following
schedule, for Aircraft on order as of the date of signing the Purchase
Agreement.

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

BOEING PROPRIETARY

P.A. No. 2497
Special_Matters

Alaska Airlines, Inc.
6-1162-MSA-597 Page 4

Amount Due per Aircraft
Due Date of Payment             (Percentage times Advance Payment Base Price)
-----------------------------   ---------------------------------------------

Definitive Purchase Agreement                    [***]

24 months prior to the first                     [***]
day of the scheduled delivery
month of the Aircraft

21 months prior to the first                     [***]
day of the scheduled delivery
month of the Aircraft

18 months prior to the first                     [***]
day of the scheduled delivery
month of the Aircraft

12 months prior to the first                     [***]
day of the scheduled delivery
month of the Aircraft

9 months prior to the first                      [***]
day of the scheduled delivery
month of the Aircraft

6 months prior to the first                      [***]
day of the scheduled delivery
month of the Aircraft
Total                                 [***]

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

BOEING PROPRIETARY

P.A. No. 2497
Special_Matters

Alaska Airlines, Inc.
6-1162-MSA-597 Page 5

[***]

9.    [***]

10.   [***]

11.   [***]

12.   Option Aircraft.

Further to Option Aircraft Letter Agreement 2497-1 of the Purchase
Agreement, Boeing provides the following additional terms for 737-890 option
aircraft (Option Aircraft):

[***]

12.3 Applicable Credit Memorandums.

The Basic, Special and [***] Credit Memorandums described in Articles 1, 2
and 3, above, shall be applicable to the Option Aircraft. To confirm, should an
Option Aircraft be exercised, which becomes an Aircraft delivery within the
first [***] Aircraft, the [***] Credit Memorandum will be [***]. For Option
Aircraft exercised as Aircraft with delivery after the [***] sequenced Aircraft
delivery, the [***] Credit Memorandum will be [***].

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

BOEING PROPRIETARY

P.A. No. 2497
Special_Matters

Alaska Airlines, Inc.
6-1162-MSA-597 Page 6

[***]

[***]

13.   Purchase Right Aircraft.

In additional to the Aircraft and the Option Aircraft, per Purchase Right
Aircraft Letter Agreement 6-1162-MSA-597 Boeing will sell to Customer up to
fifty (50) 737-890 purchase right aircraft (the Purchase Right Aircraft).
Further to Purchase Right Aircraft Letter Agreement 6-1162-MSA-597, the
following additional terms are applicable:

13.1 Price.

13.1.1 Pricing of the Purchase Right Aircraft shall be [***].

[***]

14.   [***]

15.   [***]

*  Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

BOEING PROPRIETARY

P.A. No. 2497
Special_Matters

Alaska Airlines, Inc.
6-1162-MSA-597 Page 7

16.   Assignment.

Unless otherwise described herein, the Credit Memoranda described in this
Letter Agreement are provided as a financial accommodation to Customer in
consideration of Customer's becoming the operator of the Aircraft, and cannot be
assigned, in whole or in part, without the prior written consent of Boeing.

17.   Confidential Treatment.

Customer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Customer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity.

Sincerely,

THE BOEING COMPANY

BY ____________________________________

ITS Attorney-In-Fact

ACCEPTED AND AGREED TO this

Date: June 15, 2005

ALASKA AIRLINES, INC.

By ____________________________________

Its  Vice President Finance & Treasurer

Attachment

BOEING PROPRIETARY

P.A. No. 2497
Special_Matters

ATTACHMENT I
SPECIAL MATTERS LETTER AGREEMENT 6-1162-MSA-597
[***] ESCALATION FACTOR AND DELIVERY PRICING INFORMATION

AIRFRAME MODEL/MTOW: 737-800 / 174,200      DETAIL SPECIFICATION: D019A00ASA38P
-1 (8/20/2004)

ENGINE MODEL: CFM56-7B26 (1)                 BASE YEAR 2004 $S
-----------------

AIRFRAME PRICE:                                 $58,854,000

OPTIONAL FEATURES:                              $ 2,410,000
-----------
SUB-TOTAL OF AIRFRAME AND FEATURES:             $61,264,000

ENGINE PRICE (PER AIRCRAFT):                    $         0

AIRCRAFT BASIC PRICE (EXCLUDING BFE/SPE):       $61,264,000

DELIVERY PRICING - DOES NOT INCLUDE BFE, SPE OR UNINCORPORATED CHANGES
DELIVERY          NUMBER OF   [***]   AIRCRAFT BASIC PRICE   BASIC CREDIT   SPECIAL CREDIT    [***] CREDIT
DATE            AIRCRAFT   FACTOR      PRICE PER A/P        MEMORANDUM      MEMORANDUM       MEMORANDUM
----------------  ---------  -------  --------------------   ------------   --------------   ---------------

Jan-2006             1        [***]      $64,394,590            [***]            [***]           [***]

Feb-2006             1        [***]      $64,584,509            [***]            [***]           [***]

Mar-2006             1        [***]      $64,725,416            [***]            [***]           [***]

Jun-2006             1        [***]      $65,166,517            [***]            [***]           [***]

Jul-2006             1        [***]      $65,325,803            [***]            [***]           [***]

Aug-2006             1        [***]      $65,466,710            [***]            [***]           [***]

Sep-2006             2        [***]      $65,607,618            [***]            [***]           [***]

Oct-2006             1        [***]      $65,711,766            [***]            [***]           [***]

Dec-2006             1        [***]      $66,005,834            [***]            [***]           [***]

Jan-2007             2        [***]      $66,152,867            [***]            [***]           [***]

Feb-2007             1        [***]      $66,318,280            [***]            [***]           [***]

Mar-2007             3        [***]      $66,471,440            [***]            [***]           [***]

May-2007             1        [***]      $66,777,760            [***]            [***]           [***]

Oct-2007             1        [***]      $67,555,813            [***]            [***]           [***]

Feb-2008             1        [***]      $68,278,728            [***]            [***]           [***]

Mar-2008             1        [***]      $68,450,267            [***]            [***]           [***]

Total Applicable
Aircraft:           20     *  Indicates that certain information contained
herein has been omitted and filed separately with
the Securities and Exchange Commission.
Confidential treatment has been requested with
respect to the omitted portions.

BOEING PROPRIETARY

(1)-[***]

EXHIBIT 31.1

CERTIFICATIONS

I, William S. Ayer, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Alaska Air
Group, Inc. for the period ended June 30, 2005;

2.    Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this report;

4.    The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;

b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such
evaluation; and

d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5.    The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.

August 5, 2005               By /S/ William S. Ayer
------------------------------
William S. Ayer
Chairman, President & CEO

EXHIBIT 31.2

CERTIFICATIONS

I, Bradley D. Tilden, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Alaska Air
Group, Inc. for the period ended June 30, 2005;

2.    Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this report;

4.    The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;

b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such
evaluation; and

d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5.    The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.

August 5, 2005            By  /S/Bradley D. Tilden
---------------------------
Bradley D. Tilden
Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Alaska Air Group, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, William
S. Ayer, Chairman, President & Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

By   /S/ William S. Ayer
-------------------------------
William S. Ayer
Chairman, President & Chief Executive Officer
August 5, 2005

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Alaska Air Group, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Bradley
D. Tilden, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

By   /S/ Bradley D. Tilden
---------------------------
Bradley D. Tilden
Chief Financial Officer
August 5, 2005