UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended May 31, 2005
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 1-6263

AAR CORP.
(Exact name of Registrant as specified in its charter)

Delaware	36-2334820
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One AAR Place, 1100 N. Wood Dale Road, Wood Dale, Illinois 60191
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (630) 227-2000
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $1.00 par value	New York Stock Exchange
	Chicago Stock Exchange
Common Stock Purchase Rights	New York Stock Exchange
	Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

At November 30, 2004, the aggregate market value of the Registrant’s voting stock held by nonaffiliates was approximately $430,884,264 (based upon the closing price of the Common Stock at November 30, 2004 as reported on the New York Stock Exchange). The calculation of such market value has been made for the purposes of this report only and should not be considered as an admission or conclusion by the Registrant that any person is in fact an affiliate of the Registrant.

On July 18, 2005, there were 32,591,478 shares of Common Stock outstanding.

Documents Incorporated by Reference

Portions of the definitive proxy statement relating to the Registrant’s 2005 Annual Meeting of Stockholders, to be held October 19, 2005 are incorporated by reference in Part III to the extent described therein.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	2
Item 2.	Properties	6
Item 3.	Legal Proceedings	6
Item 4.	Submission of Matters to a Vote of Security Holders	7
	Supplemental Item—Executive Officers of the Registrant	8
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	9
Item 6.	Selected Financial Data	10
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 8.	Financial Statements and Supplementary Data	20
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56
Item 9A.	Controls and Procedures	56
Item 9B.	Other Information	58
PART III
Item 10.	Directors and Executive Officers of the Registrant	58
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	59
Item 13.	Certain Relationships and Related Transactions	59
Item 14.	Principal Accountant Fees and Services	59
PART IV
Item 15.	Exhibits and Financial Statement Schedules	60
SIGNATURES		61
EXHIBIT INDEX

PART I

ITEM 1. BUSINESS
(Dollars in thousands)

General

AAR CORP. and its subsidiaries are referred to herein collectively as “AAR,” “Company,” “we,” “us,” and “our” unless the context indicates otherwise. AAR was founded in 1951, organized in 1955 and reincorporated in Delaware in 1966. We are a diversified provider of products and services to the worldwide aviation/aerospace and defense industries. We conduct our business activities primarily through six principal operating subsidiaries: AAR Parts Trading, Inc., AAR Aircraft & Engine Sales & Leasing, Inc., AAR Services, Inc., AAR Aircraft Services, Inc., AAR Manufacturing, Inc., and AAR International, Inc. Our international business activities are conducted primarily through AAR International, Inc.

In connection with filing this Form 10-K, we have re-named our reportable segments and have changed the composition of some of the businesses within these segments. The Inventory and Logistic Services segment is now part of the Aviation Supply Chain segment; the Maintenance, Repair and Overhaul segment name has not changed, however, we have changed the composition of the businesses within the segment; the Manufacturing segment is now called the Structures and Systems segment; and the Aircraft and Engine Sales and Leasing segment is now called the Aircraft Sales and Leasing segment.

Results for our aircraft component repair business, which were previously reported in the Maintenance, Repair and Overhaul segment, are now reported in the Aviation Supply Chain segment. Results for our industrial gas turbine business, which also were previously reported in the Maintenance, Repair and Overhaul segment, are now reported in the Structures and Systems segment. Results for our engine sales and leasing business, which were previously reported in the Aircraft and Engine Sales and Leasing segment, are now reported in the Aviation Supply Chain segment.

The changes to our reportable segments were necessary to align our reportable segments consistent with the way our Chief Executive Officer now evaluates performance and the way we are internally organized. We believe these changes will provide enhanced transparency to our airframe maintenance activities, which are becoming a more material part of AAR as a result of our occupancy of an airframe maintenance facility in Indianapolis, Indiana. Further, it combines the performance of our aircraft component repair business with our parts distribution, program and logistics businesses, which is consistent with how we present these products and services to the marketplace. We changed the name of our Manufacturing segment to Structures and Systems, which better defines the products and services offered by this segment of our Company.

Our four business segments are: (i) Aviation Supply Chain, comprised primarily of business activities conducted through AAR Parts Trading, Inc., AAR Services, Inc., AAR Allen Services, Inc., a wholly-owned subsidiary of AAR Parts Trading, Inc. and AAR Services, Inc., respectively, and AAR International, Inc. (ii) Maintenance, Repair and Overhaul, comprised primarily of business activities conducted through AAR Services, Inc., AAR Allen Services, Inc. and AAR Aircraft Services, Inc. (iii) Structures and Systems, comprised primarily of business activities conducted through AAR Manufacturing, Inc., and (iv) Aircraft Sales and Leasing, comprised of business activities primarily conducted through AAR Aircraft & Engine Sales & Leasing, Inc.

Aviation Supply Chain

Activities in our Aviation Supply Chain segment include the purchase and sale of a wide variety of new, overhauled and repaired engine and airframe parts and components for our aviation and defense customers. We also repair and overhaul a wide variety of avionics, instruments, electrical, electronic, fuel,

hydraulic and pneumatic components and a broad range of internal airframe components for the same customer categories. We provide customized inventory supply and management programs for engine and airframe parts and components in support of customer maintenance activities. We are an authorized distributor for more than 125 leading aviation and aerospace product manufacturers. In addition, we sell and lease commercial jet engines. We acquire aviation products for the Aviation Supply Chain segment from domestic and foreign airlines, independent aviation service companies, aircraft leasing companies and original equipment manufacturers. In the Aviation Supply Chain segment, the majority of our sales are made pursuant to standard commercial purchase orders. In certain inventory supply and management programs, we supply products and services under agreements reflecting negotiated terms and conditions.

Maintenance, Repair and Overhaul

Activities in our Maintenance, Repair and Overhaul segment include airframe maintenance services and the repair and overhaul of most types of landing gear for commercial and defense customers. In June 2004, we entered into a long-term agreement to occupy a portion of an airframe maintenance facility in Indianapolis, Indiana (the Indianapolis Maintenance Center or IMC), which is owned by the Indianapolis Aircraft Authority (IAA). The IMC is comprised of 12 airframe maintenance bays, backshop space to support airframe maintenance activities, warehouse and office space. We currently occupy and are performing maintenance activities in three bays and occupy certain office space within the IMC. We have options for seven additional bays and additional office space under a lease which expires in December 2014, with a ten-year renewal option. The lease agreement contains early termination rights for AAR and the IAA, which may be exercised in specified circumstances. We believe the IMC is one of the most efficient and state-of-the-art airframe maintenance facilities in the world and our occupancy of the IMC significantly expands our maintenance and repair capacity and capabilities. In addition to the IMC, we operate an aircraft maintenance facility located in Oklahoma City, Oklahoma providing airframe maintenance, modification, special equipment installation, painting services and aircraft terminal services for various models of commercial, defense, regional, business and general aviation aircraft. We also operate an aircraft storage facility in Roswell, New Mexico. In this segment, we purchase replacement parts from original equipment manufacturers and suppliers that are used in maintenance, repair and overhaul operations. We have ongoing arrangements with original equipment manufacturers (OEMs) that provide us access to parts, repair manuals and service bulletins in support of parts manufactured by the OEM. Although the terms of each arrangement vary, they typically are made on standard OEM terms as to duration, price and delivery. When possible, we will obtain replacement parts used in repair and overhaul activities from operating units in our Aviation Supply Chain segment.

Structures and Systems

Activities in our Structures and Systems segment include the manufacture and repair of a wide array of containers, pallets and shelters in support of military and humanitarian tactical deployment activities. We design, manufacture and install in-plane cargo loading and handling systems for commercial and military aircraft and helicopters. We also design and manufacture advanced composite materials for commercial, business and military aircraft as well as advanced composite structures for the transportation industry. We provide turbine engine overhaul and parts supply services to industrial gas and steam turbine operators and for certain military engines. In this segment, sales are made to customers pursuant to standard commercial purchase orders and contracts. In this segment, we purchase aluminum sheets, extrusions and castings and other necessary supplies from a number of vendors.

Aircraft Sales and Leasing

Activities in our Aircraft Sales and Leasing segment include the sale or lease of used commercial jet aircraft. In this segment, each sale or lease is negotiated as a separate agreement which includes term,

price, representations, warranties and lease return provisions. Leases are fixed in regard to term; early termination by the lessee is not permitted except in the event of a breach by us. In this segment, we purchase aircraft from domestic and foreign airlines and aircraft leasing companies. Activities in the Aircraft Sales and Leasing segment also include the formation and operation of joint ventures with strategic and financial partners. The primary business of these joint ventures is the ownership and lease of aircraft to commercial airlines. Within this segment, we also provide advisory services which consist of assistance in remarketing aircraft, records management and storage maintenance.

Raw Materials

We historically have been able to obtain raw materials and other items for our inventories for each of our segments at competitive prices, terms and conditions from numerous sources, and we expect to be able to continue to do so.

Terms of Sale

In the Aviation Supply Chain, Maintenance, Repair and Overhaul and Structures and Systems segments, we generally sell our products under standard 30-day terms. On occasion, certain customers (principally foreign customers) will negotiate extended payment terms (60-90 days). Except for customary warranty provisions, customers do not have the right to return products nor do they have the right to extended financing. In the Aircraft Sales and Leasing segment, we sell our products on a cash due at delivery basis, standard 30-day terms or on an extended term basis and aircraft purchasers do not have the right to return the aircraft.

Customers

For each of our reportable segments, we market and sell aviation products and services primarily through our own employees. In certain regions of the world, we rely on foreign sales representatives to market and sell our products and services. The principal customers for our products and services in the Aviation Supply Chain and Maintenance, Repair and Overhaul segments are domestic and foreign commercial airlines, regional and commuter airlines, business and general aviation operators, aviation original equipment manufacturers, aircraft leasing companies, domestic and foreign military organizations and independent aviation support companies. In the Structures and Systems segment, our principal customers include domestic and foreign military organizations, domestic and foreign commercial airlines, aviation original equipment manufacturers and other industrial entities. The principal customers in the Aircraft Sales and Leasing segment include domestic and foreign commercial airlines and aircraft finance and leasing companies. Sales of aviation products and services to commercial airlines are generally affected by such factors as the number, type and average age of aircraft in service, the levels of aircraft utilization (e.g., frequency of schedules), the number of airline operators and the level of sales of new and used aircraft.

Licenses

We have 14 Federal Aviation Administration (FAA) licensed repair stations in the United States and Europe. Of the 14 FAA repair stations, eight are also European Aviation Safety Agency (EASA) licensed repair stations. Such licenses, which are ongoing in duration, are required in order for us to perform authorized maintenance, repair and overhaul services for our customers and are subject to revocation by the government for non-compliance with applicable regulations. Of the 14 FAA licensed repair stations, five are in the Aviation Supply Chain segment, four are in the Maintenance, Repair and Overhaul segment, and five are in the Structures and Systems segment. Of the eight EASA licensed repair stations, three are in the Aviation Supply Chain segment, three are in the Maintenance, Repair and Overhaul

segment and two are in the Structures and Systems segment. We believe that we possess all licenses and certifications that are material to the conduct of our business.

Competition

Competition in the worldwide aviation/aerospace industry is based on quality, ability to provide a broad range of products and services, speed of delivery and price. Competitors in both the Aviation Supply Chain and the Maintenance, Repair and Overhaul segments include original equipment manufacturers, the service divisions of large commercial airlines and other independent suppliers of parts and services. In our Aircraft Sales and Leasing segment, we face competition from financial institutions, syndicators, commercial and specialized leasing companies and other entities that provide financing. Our pallet, container and shelter manufacturing activities in our Structures and Systems segment compete with several large and small companies, and our cargo systems and composite structures competitors include a number of divisions of large corporations and small companies. Although certain of our competitors have substantially greater financial and other resources than we do, in each of our four reportable segments we believe that we have maintained a satisfactory competitive position through our responsiveness to customer needs, our attention to quality and our unique combination of market expertise and technical and financial capabilities.

Backlog

At May 31, 2005, backlog believed to be firm was approximately $160,400 compared to $162,400 at May 31, 2004. Approximately $151,800 of this backlog is expected to be filled within the next 12 months.

On June 16, 2005, we announced that our Cargo Systems operating unit was selected to provide cargo handling systems for the new A400M Military Transport Aircraft. We are teaming with Pfalz Flugzeugwerke GmbH of Speyer, Germany on the program. Initial sales of the cargo systems together with estimated revenue from spare parts sales and service are scheduled to begin in fiscal 2007. Our portion of revenue to be generated from the program is expected to exceed $300,000 through fiscal 2015, based on sales projections for the A400M. Airbus Military currently has orders for 188 A400M’s from eight governments, including France and Germany, with deliveries scheduled to begin in 2008. This contract is not included in our May 31, 2005 backlog.

Employees

At May 31, 2005, we employed approximately 2,600 persons worldwide.

Sales to U.S. Government

Sales to the U.S. Government, its agencies and its contractors were $252,168 (33.7% of total sales), $222,558 (34.5% of total sales), and $170,191 (28.4% of total sales) in fiscal years 2005, 2004 and 2003, respectively. Because such sales are subject to competitive bidding and government funding, no assurance can be given that such sales will continue at levels previously experienced. The majority of our government contracts are for products and services used for ongoing routine military logistic support activities; unlike weapons systems and other high-technology military requirements, these products and services are less likely to be affected by significant changes in defense spending. Our government contracts are subject to termination at the election of the government; in the event of such a termination we would be entitled to recover from the government all allowable costs incurred by us through the date of termination.

Additional Information

For additional information concerning our business segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business Segment Information” in

Note 13 of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data” below.

Our internet address is www.aarcorp.com . We make available free of charge through our web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish such material to the SEC. Information contained on our web site is not a part of this report.

ITEM 2. PROPERTIES

Our principal activities in the Aircraft Sales and Leasing segment and parts distribution activities in the Aviation Supply Chain segment are conducted from a building in Wood Dale, Illinois, which is owned by us subject to a mortgage. In addition to warehouse space, this facility includes executive, sales and administrative offices. We also lease facilities in Atlanta and Macon, Georgia, Jacksonville, Florida, Garden City, New York and London, England and we own a building near Schiphol International Airport in the Netherlands to support activities in the Aviation Supply Chain segment.

Maintenance, Repair and Overhaul activities are conducted at facilities leased by us located in Indianapolis, Indiana, Oklahoma City, Oklahoma, Miami, Florida and Roswell, New Mexico.

Our activities in the Structures and Systems segment are conducted at facilities owned by us in Clearwater, Florida (subject to an industrial revenue bond), Cadillac and Livonia, Michigan and Frankfort, New York.

We believe that our owned and leased facilities are suitable and adequate for our operational requirements.

ITEM 3. LEGAL PROCEEDINGS
(Dollars in thousands)

Except as described below, we are not a party to any material, pending legal proceeding (including any governmental or environmental proceedings) other than routine litigation incidental to our existing business.

AAR Manufacturing, Inc., a subsidiary of the Company (“subsidiary”) received an Administrative Order for Response Activity (“Order”) dated August 7, 2003, from the Michigan Department of Environmental Quality (“MDEQ”) relating to environmental conditions at and in the vicinity of the subsidiary’s Cadillac, Michigan plant. The Order requires the subsidiary to perform environmental investigatory work, prepare a feasibility study and a remedial action plan, and perform interim response actions. The interim response actions include continuation of the response activities the subsidiary is performing under a 1985 Consent Decree, operation of a soil vapor extraction system the subsidiary had previously installed and operated, determination of the need to provide alternate water supplies to off-site properties (and if it is so determined then to actually provide it), removal of any free phase liquids encountered in the ground, provision of notices of groundwater contamination migration to off-site property owners, and other actions determined by the MDEQ or the subsidiary to be appropriate. A letter dated June 14, 2002 from the MDEQ further demands payment of environmental response costs already incurred by the MDEQ in the amount of $525 plus interest plus unspecified costs to be incurred in the future by the MDEQ. The Order and the letter which accompanied the Order threaten the imposition of civil fines up to $25 for each day of violation of the Order plus exemplary damages up to three times the costs incurred by the MDEQ if the subsidiary does not comply with the Order. The Order may require the implementation of the remedial action plan although it is not clear on that point. The Order requires the

implementation of emergency response action if a release of hazardous substances, threat of a release, or exacerbation of existing contamination occurs during the pendency of the Order.

The subsidiary advised the MDEQ that it will perform the requirements of the Order to the extent those requirements apply to the allegation by the MDEQ that a release of hazardous substances occurred after the execution of the 1985 Consent Decree. The subsidiary declined to perform work which the Order requires which the subsidiary believes is based on claims previously resolved in the 1985 Consent Decree. The MDEQ responded to the subsidiary by saying that the MDEQ “will be taking appropriate action to protect public health, safety and welfare and the environment, and gain AAR’s compliance with Part 201 (the Michigan “cleanup law”)”.

The subsidiary has charged to operations approximately $200 in expenses incurred related to the performance of environmental investigations under the Order. The subsidiary conducted work under the Order in addition to the work required to be performed as noted above. The subsidiary has received some funds from an insurance carrier to reimburse it for work done by the subsidiary under the 1985 Consent Decree. The subsidiary sought further coverage for the matters in the June 14, 2002 MDEQ letter and the Order. The insurance carrier denied coverage and refused to provide a defense on the basis that the work being performed is with respect to an alleged release that occurred after the execution of the 1985 Consent Decree. The subsidiary is evaluating the option of bringing suit against the insurance carrier for provision of a defense and for coverage. The subsidiary, prior to the issuance of the Order, sought a Court order to enforce the 1985 Consent Decree, but that relief was denied by the Court, primarily on the basis that the action was premature since the State was not pursuing an enforcement action at the time. The subsidiary sought leave to appeal that decision to the Michigan Court of Appeals but leave was denied.

On March 31, 2005 a complaint was filed by the MDEQ in Cadillac, Michigan with the Wexford County Circuit Court. The case is Michigan Department of Environmental Quality v AAR Cadillac Manufacturing, a division of AAR Manufacturing Group, Inc., an Illinois corporation, and AAR Corp., a Delaware corporation, File No. 05-18853-CE . In its complaint the MDEQ seeks to enforce the Order against the subsidiary and seeks to have the Court impose civil fines and exemplary damages upon the subsidiary for the alleged failure to comply with the Order. The MDEQ seeks to recover its costs incurred in performing response activities (approximately $1,800) from both the subsidiary and the Company and seeks a declaratory judgment that they are both liable for all future costs incurred by the State at the facility. The MDEQ also seeks civil fines from the subsidiary for alleged violations of a particular section of a Michigan environmental law.

The Company and the subsidiary filed their Answer, including Affirmative Defenses, and intend on vigorously defending the complaint filed by the MDEQ. On June 17, 2005, the subsidiary also filed a Petition for Reimbursement of its costs in the amount of $200 incurred in complying with the Order from the State of Michigan cleanup and redevelopment fund established under Michigan law, plus costs and attorney’s fees.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

Supplemental Item:

EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning each of our executive officers is set forth below:

Name	Age	Present Position with the Company
David P. Storch	52	President and Chief Executive Officer, Director
Howard A. Pulsifer	62	Vice President, General Counsel, Secretary
Timothy J. Romenesko	48	Vice President and Chief Financial Officer
James J. Clark	45	Group Vice President, Aviation Supply Chain
J. Mark McDonald	45	Group Vice President, Structures and Systems; Maintenance, Repair and Overhaul

Mr. Storch has served as President of the Company since 1989 and Chief Executive Officer since 1996. Previously, he served as Chief Operating Officer from 1989 to 1996 and as a Vice President of the Company from 1988 to 1989. Mr. Storch joined the Company in 1979 and served as president of a major subsidiary from 1984 to 1988. Mr. Storch has been a director of the Company since 1989. Mr. Storch is Ira A. Eichner’s son-in-law. Mr. Eichner is Chairman of the Board and a Director of the Company.

On January 12, 2005, we announced that Chairman Ira A. Eichner will retire from our Board of Directors effective October 19, 2005. The Board of Directors has expressed its intent to elect Mr. Storch as Chairman of the Board upon Mr. Eichner’s retirement.

Mr. Pulsifer has served as Vice President, General Counsel and Secretary of the Company since 1990. Previously, he served as Vice President (since 1990) and General Counsel (since 1987). He was previously with United Airlines, Inc. for 14 years, most recently as Senior Counsel.

Mr. Romenesko has served as Vice President and Chief Financial Officer since 1994. Previously, he served as Controller of the Company from 1991 to 1995 and in various other positions since joining the Company in 1981.

Mr. Clark has served as Group Vice President, Aviation Supply Chain since 2005. Previously, he served in various Group Vice President roles from 2000 to 2005, and previous to that he served as General Manager of AAR Aircraft Component Services—Amsterdam from 1995 to 2000 and in various other positions since joining the Company in 1982.

Mr. McDonald has served as Group Vice President, Structures and Systems; Maintenance, Repair and Overhaul since 2005. Previously, he served as Group Vice President, Manufacturing from 2003 to 2005, and previous to that he served as General Manager of AAR Mobility Systems from 2000 to 2003 and as Vice President of Operations from 1996 to 2003. Prior to AAR, he was with General Electric in various positions from 1984 to 1996.

Each executive officer is elected annually by the Board of Directors at the first meeting of the Board held after the annual meeting of stockholders. Executive officers continue to hold office until their successors are duly elected or until their death, resignation, termination or reassignment.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(Dollars in thousands, except per share amounts)

Our Common Stock is traded on the New York Stock Exchange and the Chicago Stock Exchange. On July 1, 2005 there were approximately 7,000 holders of Common Stock, including participants in security position listings.

Certain of our financing arrangements contain provisions restricting the payment of dividends or repurchase of our shares. See Note 2 of Notes to Consolidated Financial Statements included herein. Under the most restrictive of these provisions, we may not pay dividends (other than stock dividends) or acquire our capital stock if, after giving effect to the aggregate amounts paid on or after June 1, 1995, such amounts exceed the sum of $20,000 plus 50% of Consolidated Net Income (Loss) after June 1, 1994. We are currently prohibited from paying dividends or purchasing our shares pursuant to this provision, and during fiscal 2005 and 2004 we did not purchase any of our equity securities.

The table below sets forth for each quarter of the past two fiscal years the reported high and low market prices of our Common Stock on the New York Stock Exchange.

	Fiscal 2005				Fiscal 2004
Per Common Share	Market Prices				Market Prices
Quarter	High		Low		High		Low
First	$	11.35	$	8.96	$	8.34	$	4.72
Second	13.67		10.85		11.38		7.30
Third	14.53		10.81		16.37		10.25
Fourth	16.04		11.59		13.09		8.72

ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)

	For the Year Ended May 31,
	2005			2004			2003			2002			2001
RESULTS OF OPERATIONS
Sales from continuing operations	$	747,848		$	644,469		$	599,842		$	629,783		$	837,563
Pass through sales ¹	—			—			—			—			20,596
Total sales	747,848			644,469			599,842			629,783			858,159
Gross profit	120,826			100,618			77,700		2	14,664		2	135,870
Operating income (loss)	33,492			20,281			908		2	(78,607		) ²	41,705
Gain on extinguishment of debt	3,562			—			—			—			—
Interest expense	16,917			18,691			19,416			19,679			21,767
Income (loss) from continuing operations ⁵	18,572			4,565			(10,578		)	(57,119		)	19,464
Loss from discontinued operations ⁵	(3,119		)	(1,061		)	(1,832		)	(1,820		)	(933		)
Net income (loss)	15,453			3,504			(12,410		)	(58,939		)	18,531
Share data:
Earnings (loss) per share—basic:
Earnings (loss) from continuing operations	$	0.58		$	0.14		$	(0.33	)	$	(2.02	)	$	0.72
Loss from discontinued operations	(0.10		)	(0.03		)	(0.06		)	(0.06		)	(0.03		)
Earnings (loss) per share—basic	$	0.48		$	0.11		$	(0.39	)	$	(2.08	)	$	0.69
Earnings (loss) per share—diluted:
Earnings (loss) from continuing operations	$	0.55		$	0.14		$	(0.33	)	$	(2.02	)	$	0.72
Loss from discontinued operations	(0.09		)	(0.03		)	(0.06		)	(0.06		)	(0.03		)
Earnings (loss) per share—diluted	$	0.46		$	0.11		$	(0.39	)	$	(2.08	)	$	0.69
Cash dividends per share	$	0.00		$	0.00		$	0.03		$	0.16		$	0.34
Weighted average common shares outstanding—basic	32,297			32,111			31,852			28,282		3	26,913
Weighted average common
shares outstanding—diluted	36,205			32,392			31,852			28,282		3	26,985
FINANCIAL POSITION
Total cash and cash equivalents	$	50,338		$	41,010		$	29,154		$	34,522		$	13,809
Working capital	314,517			300,943			192,837			286,192			352,731
Total assets	732,230			709,292			686,621			710,199			701,854
Short-term recourse debt	2,123			2,656			59,729			42,525			13,652
Short-term non-recourse debt	1,622			736			32,527			—			—
Long-term recourse debt	199,919			217,434		4	164,658			217,699			179,987
Long-term non-recourse debt	27,240			31,232			—			—			—
Total recourse debt	202,042			220,090			224,387			260,224			193,639
Stockholders’ equity	314,744			301,684			294,988			310,235			340,212
Number of shares outstanding at end of year	32,586			32,245			31,850			31,870		3	26,937
Book value per share of common stock	$	9.66		$	9.36		$	9.26		$	9.73		$	12.63

Notes:

¹ In connection with certain long-term inventory management programs, we purchased factory-new products on behalf of our customers from original equipment manufacturers. These products were purchased from the manufacturer and “passed through” to our customers at our cost. In December 2000, these inventory management programs were discontinued.

² During fiscal 2003 and 2002, we recorded $5,360 and $75,900, respectively, of impairment charges related to engines and engine and airframe parts. During fiscal 2002, we recorded special charges of $10,100.

³ In February 2002, we sold 5,010 shares of common stock for $34,334, net of expenses.

⁴ In February 2004, we sold $75,000 of 2.875% convertible notes due February 1, 2024.

⁵ In February 2005, we sold our engine component repair business located in Windsor, Connecticut. The operating results and the loss on disposal are classified as discontinued operations. See Note 10 of Notes to Consolidated Financial Statements.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)

General Overview

We report our activities in four business segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; Structures and Systems; and Aircraft Sales and Leasing.

Sales in the Aviation Supply Chain segment are derived from the sale of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and defense markets, as well as the repair and overhaul of a wide range of commercial and military aircraft airframe parts. Sales also include the sales and lease of commercial jet engines. Cost of sales consists principally of the cost of product (primarily aircraft and engine parts), direct labor and overhead (primarily indirect labor, facility cost and insurance).

Sales in the Maintenance, Repair and Overhaul segment are derived from the repair and overhaul of most commercial landing gear types and aircraft maintenance and storage. Cost of sales consists principally of cost of product (primarily replacement aircraft parts), direct labor and overhead.

Sales in the Structures and Systems segment are derived from the manufacture and sale of a wide array of containers, pallets and shelters used to support the U.S. military’s tactical deployment requirements, in-plane cargo loading and handling systems for commercial and military applications and advanced composite materials and components for aerospace and industrial use. Sales in this segment are also derived from the repair, overhaul and sale of parts for industrial gas and steam turbine operators and certain military engines. Cost of sales consists principally of the cost of product, direct labor and overhead.

Sales in the Aircraft Sales and Leasing segment are derived from the sale and lease of commercial aircraft and technical and advisory services. Cost of sales consists principally of cost of product (aircraft), labor and the cost of lease revenue (primarily depreciation, lease expense and insurance).

The table below sets forth consolidated sales for our four business segments for each of the last three fiscal years ended May 31.

	For the Year Ended May 31,
	2005		2004		2003
Sales:
Aviation Supply Chain	$	390,060	$	349,527	$	358,412
Maintenance, Repair and Overhaul	111,932		106,416		93,415
Structures and Systems	200,717		163,557		130,628
Aircraft Sales and Leasing	45,139		24,969		17,387
	$	747,848	$	644,469	$	599,842

Business Environment and Trends

During fiscal 2004 and 2005, the worldwide airline industry experienced an increase in air traffic as available seat miles, revenue passenger miles and load factors all improved. This improvement in air traffic has been driven primarily by worldwide economic growth and is measured against the depressed levels in fiscal 2002 and 2003, which were negatively affected by terrorism, war and disease outbreaks in Asia.

Although air traffic has improved and most air carriers have been successful in reducing their cost structures, many large U.S. airlines continue to report substantial losses due to historically high fuel prices and a highly competitive pricing environment. These losses, coupled with weak balance sheets, may cause further U.S. airline restructurings, which may have a negative impact on future operating results.

Lower cost carriers have been successful in gaining market share from the major U.S. carriers and several of them are reporting profits. Low cost carriers generally have little to no infrastructure to support their maintenance requirements, which we believe will create additional opportunities for third-party maintenance providers.

Over the last three years, sales of our manufactured products and performance-based logistics and supply chain management services to the U.S. defense department and its contractors increased to $252,168 in fiscal 2005, from $222,558 and $170,191 in fiscal 2004 and 2003, respectively. The increase in sales was driven by the U.S. military’s buildup and increased demand for supply chain management services. Although it remains difficult for us to predict the extent and duration of the military buildup and the impact on our operating results, we believe that we are well positioned with our current products and services and growth plans to benefit from longer-term U.S. military deployment and program management strategies.

Factors Which May Affect Future Results

Our operating results and financial position may be adversely affected or fluctuate on a quarterly basis as a result of general economic conditions, geo-political events, the commercial airline environment and other factors, including: (1) declining demand for our products and services and the ability of our customers to meet their financial obligations; (2) relatively high fuel prices and its impact on our commercial customers’ financial position; (3) declining market values for aviation products and equipment; (4) difficulties in re-leasing or selling aircraft and engines that are currently being leased; (5) inability of our Indianapolis airframe maintenance business to capture market share in the highly competitive airframe maintenance market; (6) lack of assurance that sales to the U.S. defense department, its agencies and its contractors (which were 33.7% of total sales in fiscal 2005), will continue at levels previously experienced, including the mix of products sold; (7) access to the debt and equity capital markets and the ability to draw down funds under financing agreements; (8) non-compliance with restrictive and financial covenants contained in certain of our loan agreements; (9) changes in or non-compliance with laws and regulations that may affect certain of our aviation related activities that are subject to licensing, certification and other regulatory requirements imposed by the FAA and other regulatory agencies, both domestic and foreign; (10) competition from other companies, including original equipment manufacturers, some of which have greater financial resources than us; (11) exposure to product liability and property claims that may be in excess of our substantial liability insurance coverage; and (12) the outcome of any pending or future material litigation or environmental proceedings.

Results of Operations

Fiscal 2005 Compared with Fiscal 2004

Consolidated sales for fiscal 2005 were $747,848, which represents an increase of $103,379 or 16.0% compared to fiscal 2004.

In the Aviation Supply Chain segment, fiscal 2005 sales increased $40,533 or 11.6% compared to fiscal 2004. The sales increase reflects increased demand for engine and airframe parts support as a result of improved conditions in the worldwide commercial aviation industry as well as increased market penetration in Europe and Asia.

In the Maintenance, Repair and Overhaul segment, sales increased $5,516 or 5.2% compared to fiscal 2004. The sales increase is attributable to operations at our Indianapolis airframe maintenance facility which commenced operations in January 2005.

In the Structures and Systems segment, sales increased $37,160 or 22.7% compared to fiscal 2004. We continue to experience strong sales to the U.S. defense department for products supporting deployment

activities and expect this strong performance to continue into future quarters, although not likely at the level experienced during fiscal 2005. We also experienced increased demand for cargo systems and composite structures primarily due to successful sales and marketing efforts.

In the Aircraft Sales and Leasing segment, sales increased $20,170 or 80.8% compared to fiscal 2004. The increase in sales was principally driven by the sale of our interest in certain aircraft for approximately $15,000 at essentially book value.

Consolidated gross profit increased $20,208 or 20.1% compared with the prior fiscal year. The increase in gross profit is primarily attributable to the increase in sales and an increase in the gross profit margin to 16.2% from 15.6% in the prior year. The gross profit margin percentage increased primarily due to a change in the mix of inventories sold within the Aviation Supply Chain segment, partially offset by a $900 pre-tax charge recorded during the fourth quarter of fiscal 2005 related to the write-down of an aircraft as a result of a renegotiated lease with an airline customer operating under bankruptcy protection.

Operating income increased $13,211 or 65.1% compared with the prior fiscal year due to the increase in gross profit, partially offset by an increase in selling, general and administrative expenses. During fiscal 2005, selling, general and administrative expenses increased $7,350 or 9.1% primarily due to increased resources to support our growth and a $667 pension curtailment expense recorded during the fourth quarter of fiscal 2005 as a result of a change to our cash balance pension plan. As a percentage of sales, selling, general and administrative expenses declined from 12.5% to 11.8%.

During the first quarter of fiscal 2005, we retired $6,890 of 6.875% notes payable due in December 2007 and $8,000 of 2.875% convertible notes due in February 2024. The notes were repurchased for $13,638, and we charged $257 of related capitalized financing costs, resulting in a net gain of $995. During the fourth quarter of fiscal 2005, the term of a non-recourse note payable was extended to November 1, 2009 and the outstanding principal balance was reduced by the lender in the amount of $2,567. The reduction in the outstanding principal balance of $2,567 and the $995 net gain on the early extinguishment of the 6.875% and 2.875% notes are reflected in “Gain on extinguishment of debt”.

Interest expense declined $1,774 or 9.5% due to lower overall outstanding borrowings, partially offset by $500 of additional interest expense recorded during the first quarter of fiscal 2005 associated with a litigation settlement.

During the second quarter of fiscal 2005, we recorded a favorable federal income tax adjustment of $1,575. In October 2004, the American Jobs Creation Act of 2004 (the “Act”) was signed into law and included a number of federal income tax reforms, including an extension of the foreign tax credit carryforward period from five years to ten years. In previous fiscal years, we had established a deferred tax valuation allowance of $1,575 against foreign tax credits expiring in fiscal year 2006. As a result of the new ten-year carryforward period established by the Act, we now expect to utilize the foreign tax credits and recorded a $1,575 credit to the provision for income taxes during the second quarter of fiscal 2005.

During the third quarter of fiscal 2005, upon completion of our fiscal 2004 Federal income tax return, we determined the Company qualified for additional tax benefits of $496 related to higher than estimated margin on fiscal 2004 export activities. Similarly, we recorded a $604 benefit during the third quarter of last year which primarily related to additional tax benefits from fiscal 2003 export activities.

Income from continuing operations was $18,572 for fiscal 2005 or an increase of $14,007 over the prior year due to the factors discussed above.

During the third quarter of fiscal 2005, we sold our engine component repair business located in Windsor, Connecticut, and have classified its results as discontinued operations. During the fiscal year ended May 31, 2005, the loss from discontinued operations was $3,119 or $0.09 per diluted share and is comprised of the operating loss, net of tax, of $798 and the loss on disposal, net of tax, of $2,321.

Net income was $15,453 for fiscal 2005 compared to $3,504 in the prior year.

Fiscal 2004 Compared with Fiscal 2003

Consolidated sales for fiscal 2004 were $644,469, which represents an increase of $44,627 or 7.4% compared to fiscal 2003.

In the Aviation Supply Chain segment, fiscal 2004 sales decreased $8,885 or 2.5% compared to fiscal 2003. At certain of our component repair facilities, demand for component repairs from our commercial airline customers had not recovered, and as a result we experienced lower sales compared to the prior year. We also experienced lower sales of parts to general aviation customers as a result of our strategic decision to de-emphasize certain lower margin products. Within this segment, sales increased to the U.S. military and its contractors for spares and logistics support as well as to commercial customers for engine parts.

In the Maintenance, Repair and Overhaul segment, fiscal 2004 sales increased $13,001 or 13.9% compared with fiscal 2003. The increase in sales compared to the prior year was primarily attributable to higher sales at our aircraft maintenance facility due to an increase in the number of long-term maintenance contracts with certain customers.

In the Structures and Systems segment, fiscal 2004 sales increased $32,929 or 25.2% compared to fiscal 2003. The increase in sales compared to the prior year was due to record shipments of our manufactured products which support the U.S. military deployment activities. In the Structures and Systems segment, we experienced lower sales of our non-aviation composite structure products as a result of the completion of a major contract in May 2003.

In the Aircraft Sales and Leasing segment, fiscal 2004 sales increased $7,582 or 43.6% primarily as a result of increased demand for advisory services.

Consolidated gross profit increased $22,918 or 29.5% compared with the prior year. The increase in our consolidated gross profit was primarily due to the increase in sales and an increase in our consolidated gross profit margin to 15.6% from 13.0% in the prior year. During the fourth quarter of fiscal 2004, we wrote off an investment in a joint venture and the associated $1,269 pre-tax charge was recorded in cost of sales. The gross margin percentage increased in the engine parts business within the Aviation Supply Chain segment primarily due to the mix of inventories sold and in the Structures and Systems segment primarily due to increased volume at our facilities that manufacture products supporting the U.S. Military’s tactical deployment activities. Fiscal 2003 gross profit included the $5,360 impairment charge recorded in May 2003.

Operating income increased $19,373 compared with the prior year primarily due to the increase in gross profit. During fiscal 2004, our selling, general, administrative and other expenses increased by $3,259 compared with fiscal 2003 primarily as a result of a provision for an unfavorable judgement in the amount of $1,600, a provision for a customer allowance of $1,335 and slightly higher personnel costs, partially offset by a $836 gain recorded from the sale of a facility located in Holtsville, New York. Interest expense decreased $725 compared to the prior year primarily due to decreased average borrowings.

During the third quarter of fiscal 2004, upon completion of our fiscal 2003 Federal income tax return, we determined that we qualified for additional tax benefits of $604 related primarily to higher than estimated margin on export activities. This benefit was recorded in the third quarter. In addition, our effective tax rate for fiscal 2004 reflects increased expected tax benefits related to current year export activities. As a result of these items, we recorded a tax benefit of $1,797 for the fiscal year ended May 31, 2004.

As a result of the factors discussed above, we reported net income of $3,504 for fiscal 2004.

Liquidity and Capital Resources

Historically, we have funded our operating activities and met our commitments through the generation of cash from operations, augmented by the periodic issuance of common stock and debt in the public and private markets. In addition to these cash sources, our capital resources include secured credit arrangements, which include an accounts receivable securitization program and a secured revolving credit facility. Our continuing ability to borrow from our lenders and issue debt and equity securities to the public and private markets in the future may be negatively affected by a number of factors, including general economic conditions, airline and aviation industry conditions, geo-political events, including the war on terrorism, and our operating performance. Our ability to use our accounts receivable securitization program and revolving credit facility also may be negatively affected by these factors. Our ability to generate cash from operations is influenced primarily by our operating performance and working capital management. We also have a universal shelf registration on file with the Securities and Exchange Commission under which, subject to market conditions, up to $163,675 of common stock, preferred stock or medium- or long-term debt securities may be issued or sold.

At May 31, 2005, our liquidity and capital resources included cash of $50,338 and working capital of $314,517. As of May 31, 2005, $9,830 of cash was restricted to support letters of credit. At May 31, 2005, we had $50,000 available under our accounts receivable securitization program; no accounts receivable were securitized as of that date. The amount available under this agreement is based on a formula of qualifying accounts receivable. At May 31, 2005, we had $26,207 available under our secured revolving credit facility; no amounts were outstanding as of that date. The amount available under the revolving credit facility is also based on a formula of qualifying assets as well as outstanding letters of credit. As of May 31, 2005, unrestricted cash and amounts available to us under our secured credit arrangement and accounts receivable securitization program totaled $118,280.

We continually evaluate various financing arrangements on commercially reasonable terms that would allow us to improve our liquidity position and finance future growth. Our ability to obtain additional financing is dependent upon a number of factors, including the geo-political environment, general economic conditions, airline industry conditions, our operating performance and market conditions in the public and private debt and equity markets.

During the year ended May 31, 2005, we generated $50,938 of cash from operations primarily due to net income and depreciation and amortization of $43,403; a reduction in equipment on lease of $19,956 principally reflecting $15,000 received from the sale of our interest in certain aircraft; and an increase in accounts payable of $19,244 reflecting increased inventory levels and timing of cash disbursements, partially offset by an increase in accounts receivable of $17,596 reflecting increased sales during the fourth quarter as well as an increase to inventories of $12,013 reflecting investments made in support of new programs.

During the year ended May 31, 2005, our investing activities used $17,584 principally reflecting capital expenditures of $13,033 and investments made in aircraft joint ventures of $12,380, partially offset by proceeds from the sale of the engine component repair business of $7,700. We expect fiscal 2006 capital expenditures to be $15,000 to $20,000, principally reflecting increased investments in manufacturing capabilities to support recently awarded contracts and other growth initiatives. We expect to make additional investments in joint ventures during fiscal 2006.

During the year ended May 31, 2005, our financing activities used $24,037 of cash primarily due to a reduction in borrowings of $24,055 reflecting the early retirement of notes for $19,660 and other scheduled principal payments.

Contractual Obligations and Off-Balance Sheet Arrangements

A summary of contractual obligations and off-balance sheet arrangements as of May 31, 2005 is as follows:

	Payments Due by Period
			Due in		Due in		Due in		Due in		Due in		After
			Fiscal		Fiscal		Fiscal		Fiscal		Fiscal		Fiscal
	Total		2006		2007		2008		2009		2010		2010
On Balance Sheet:
Debt	$	200,632	$	713	$	743	$	68,157	$	8,716	$	200	$	122,103
Non-recourse Debt	28,862		1,622		1,928		2,047		2,173		21,092		—
Bank Borrowings	1,410		1,410		—		—		—		—		—
Off Balance Sheet:
Aviation Equipment
Operating Leases	38,149		10,887		18,302		3,840		3,840		1,280		—
Facilities and Equipment
Operating Leases	25,408		6,521		6,293		5,223		3,995		3,205		171
Garden City Operating Lease	31,783		1,388		1,423		1,458		1,495		1,532		24,487
Purchase Obligations	75,555		71,085		3,657		718		42		37		16

We routinely issue letters of credit and performance bonds in the ordinary course of business. These instruments are typically issued in conjunction with insurance contracts or other business requirements. The total of these instruments outstanding at May 31, 2005 was approximately $13,175.

Critical Accounting Policies and Significant Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. Management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities to prepare the consolidated financial statements. The most significant estimates made by management include adjustments to reduce the value of inventories and equipment on or available for lease, allowance for doubtful accounts and loss accruals for aviation equipment operating leases. Accordingly, actual results could differ materially from those estimates. The following is a summary of the accounting policies considered critical by management.

Allowance for Doubtful Accounts Our allowance for doubtful accounts is intended to reduce the value of customer accounts receivable to amounts expected to be collected. In determining the required allowance, we consider factors such as general and industry-specific economic conditions, customer credit history, and the customer’s current and expected future financial performance.

Inventories Inventories are valued at the lower of cost or market. Cost is determined by the specific identification, average cost or first-in, first-out methods. Provisions are made for excess and obsolete inventories and inventories that have been impaired as a result of industry conditions. We have utilized certain assumptions when determining the market value of inventories, such as historical sales of inventory, current and expected future aviation usage trends, replacement values and expected future demand. Principally as a result of the terrorist attacks of September 11, 2001 and its anticipated impact on the global airline industry’s financial condition, fleet size and aircraft utilization, we recorded a significant charge for impaired inventories during the second quarter of fiscal 2002 utilizing those assumptions. During the fourth quarter of fiscal 2003, we recorded an additional charge as a result of a further decline in market

value for these inventories. Reductions in demand for certain of our inventories or declining market values, as well as differences between actual results and the assumptions utilized by us when determining the market value of our inventories, could result in additional impairment charges in future periods.

Equipment on or Available for Lease Lease revenue is recognized as earned. The cost of the asset under lease is original purchase price plus overhaul costs. Depreciation is computed using the straight-line method over the estimated service life of the equipment, and maintenance costs are expensed as incurred. The balance sheet classification is based on the lease term, with fixed-term leases less than twelve months classified as short-term and all others classified as long-term.

In accordance with Statement of Financial Accounting Standards No. 144 (SFAS No. 144), “Accounting for the Impairment or Disposal of Long-lived Assets”, we are required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows. When applying the provisions of SFAS No. 144 to equipment on or available for lease, we have utilized certain assumptions when estimating future undiscounted cash flows, including current and future lease rates, lease terms, residual values and market conditions and trends impacting future demand. Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result in future impairments of equipment on or available for lease.

Aviation Equipment Operating Leases From time to time we lease aviation equipment (engines and aircraft) from lessors under arrangements that are classified by us as operating leases. We may also sublease the aviation equipment to a customer on a short- or long-term basis. The terms of the operating leases in which we are the lessee are one year with options to renew annually at our election. If we elect not to renew a lease or the lease term expires, we may purchase the equipment from the lessor at its scheduled purchase option price. The terms of the lease agreements also allow us to purchase the equipment at any time during a lease at its scheduled purchase option price. In those instances in which we anticipate that we will purchase aviation equipment and that the scheduled purchase option price will exceed estimated undiscounted cash flows related to the equipment, we record an accrual for loss. We have utilized certain assumptions when estimating future undiscounted cash flows, such as current and future lease rates, residual values and market conditions and trends impacting future demand. Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result in future provisions for losses on aviation equipment under operating leases.

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the beliefs of management, as well as assumptions and estimates based on information available to us as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including those factors discussed under this Item 7 entitled “Factors Which May Affect Future Results”. Should one or more of those risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. Those events and uncertainties are difficult or impossible to predict accurately and many are beyond our control. We assume no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Dollars in thousands)

Our exposure to market risk includes fluctuating interest rates under our credit agreements, foreign exchange rates and accounts receivable. See Part II, Item 8 for a discussion on accounts receivable exposure. During fiscal 2005 and 2004, we did not utilize derivative financial instruments to offset these risks.

At May 31, 2005, $26,207 was available under our secured revolving credit facility with Merrill Lynch Capital. Interest on amounts borrowed under this credit facility is LIBOR based. As of May 31, 2005, the outstanding balance under this agreement was $0. A hypothetical 10 percent increase to the average interest rate under the credit facilities applied to the average outstanding balance during fiscal 2005 would have reduced our pre-tax income by approximately $32 during fiscal 2005.

Revenues and expenses of our foreign operations are translated at average exchange rates during the period, and balance sheet accounts are translated at period-end exchange rates. Balance sheet translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive income (loss). A hypothetical 10 percent devaluation of foreign currencies against the U.S. dollar would not have a material impact on our financial position or results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF AAR CORP.:

We have audited the accompanying consolidated balance sheets of AAR CORP. and subsidiaries (the Company) as of May 31, 2005 and 2004 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended May 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AAR CORP. and subsidiaries as of May 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended May 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of May 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 20, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

	KPMG LLP
Chicago, Illinois July 20, 2005

AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended May 31,
	2005			2004			2003
	(In thousands except per share data)
Sales:
Sales from products	$	632,132		$	524,061		$	494,984
Sales from services	94,364			93,236			82,617
Sales from leasing	21,352			27,172			22,241
	747,848			644,469			599,842
Costs and operating expenses:
Cost of products	535,164			444,846			434,910
Cost of services	72,709			76,301			69,592
Cost of leasing	19,149			22,704			17,640
Selling, general and administrative and other	87,902			80,552			77,293
	714,924			624,403			599,435
Equity in earnings of aircraft joint ventures	568			215			501
Operating income	33,492			20,281			908
Gain on extinguishment of debt	3,562			—			—
Interest expense	(16,917		)	(18,691		)	(19,416		)
Interest income	1,502			1,748			1,836
Income (loss) before provision for income taxes	21,639			3,338			(16,672		)
Provision (benefit) for income taxes	3,067			(1,227		)	(6,094		)
Income (loss) from continuing operations	18,572			4,565			(10,578		)
Discontinued operations, net of tax:
Operating loss	(798		)	(1,061		)	(1,832		)
Loss on disposal	(2,321		)	—			—
Loss from discontinued operations	(3,119		)	(1,061		)	(1,832		)
Net income (loss)	$	15,453		$	3,504		$	(12,410	)
Earnings (loss) per share—basic:
Earnings (loss) from continuing operations	$	0.58		$	0.14		$	(0.33	)
Loss from discontinued operations	(0.10		)	(0.03		)	(0.06		)
Earnings (loss) per share—basic	$	0.48		$	0.11		$	(0.39	)
Earnings (loss) per share—diluted:
Earnings (loss) from continuing operations	$	0.55		$	0.14		$	(0.33	)
Loss from discontinued operations	(0.09		)	(0.03		)	(0.06		)
Earnings (loss) per share—diluted	$	0.46		$	0.11		$	(0.39	)

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

AAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

	May 31,
	2005			2004
	(In thousands)
Current assets:
Cash and cash equivalents	$	40,508		$	33,697
Restricted cash	9,830			7,313
Accounts receivable	127,121			104,661
Inventories.	204,990			206,899
Equipment on or available for short-term lease	50,487			40,346
Deposits, prepaids and other	13,934			11,714
Deferred tax assets	27,672			27,574
Total current assets	474,542			432,204
Property, plant and equipment, at cost:
Land	4,828			5,542
Buildings and improvements	53,921			58,868
Equipment, furniture and fixtures	128,792			129,793
	187,541			194,203
Accumulated depreciation	(116,067		)	(112,337		)
	71,474			81,866
Other assets:
Goodwill, net	44,416			44,421
Equipment on long-term lease	67,663			84,271
Investment in aircraft joint venture	11,234			—
Other	62,901			66,530
	186,214			195,222
	$	732,230		$	709,292

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

AAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

	May 31,
	2005			2004
	(In thousands)
Current liabilities:
Short-term debt	$	1,410		$	1,896
Current maturities of long-term debt	713			760
Current maturities of non-recourse long-term debt	1,622			736
Accounts payable	77,015			57,582
Accrued liabilities	79,265			70,287
Total current liabilities	160,025			131,261
Long-term debt, less current maturities	199,919			217,434
Non-recourse debt.	27,240			31,232
Deferred tax liabilities	18,089			17,628
Retirement benefit obligation	653			683
Deferred income and other	11,560			9,370
	257,461			276,347
Stockholders’ equity:
Preferred stock, $1.00 par value, authorized 250 shares; none issued	—			—
Common stock, $1.00 par value, authorized 100,000 shares; issued 35,853 and 34,525 shares, respectively	35,853			34,525
Capital surplus	189,617			172,681
Retained earnings	162,229			146,776
Treasury stock, 3,267 and 2,280 shares at cost, respectively	(50,497		)	(36,030		)
Unearned restricted stock awards	(2,679		)	(1,376		)
Accumulated other comprehensive loss—
Cumulative translation adjustments	(1,797		)	(1,647		)
Minimum pension liability	(17,982		)	(13,245		)
	314,744			301,684
	$	732,230		$	709,292

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

AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE YEARS ENDED MAY 31, 2005

														Unearned			Accumulated
														Restricted			Other
	Common Stock				Treasury Stock					Capital		Retained		Stock			Comprehensive			Comprehensive
	Shares		Amount		Shares			Amount		Surplus		Earnings		Awards			Income (Loss)			Income (Loss)
	(In thousands)
Balance, May 31, 2002	33,568		$ 33,568			1,698		$ (26,986	)	$ 165,188		$ 156,479			$ (1,138	)		$ (16,876	)
Net loss	—		—			—		—		—		(12,410	)		—			—			$ (12,410	)
Cash dividends	—		—			—		—		—		(797	)		—			—			—
Treasury stock	—		—			(6	)	188		—		—			—			—			—
Exercise of stock options and stock awards	(25	)	(25	)		—		—		(537	)	—			—			—			—
Restricted stock activity	—		—			—		—		—		—			624			—			—
Adjustment for net translation gain	—		—			—		—		—		—			—			6,980			6,980
Minimum pension liability, net of tax	—		—			—		—		—		—			—			(9,270	)		(9,270	)
Comprehensive loss																					$ (14,700	)
Balance, May 31, 2003	33,543		$ 33,543			1,692		$ (26,798	)	$ 164,651		$ 143,272			$ (514	)		$ (19,166	)
Net income	—		—			—		—		—		3,504			—			—			$ 3,504
Treasury stock	—		—			588		(9,232	)	—		—			—			—			—
Exercise of stock options and stock awards	982		982			—		—		8,030		—			—			—			—
Restricted stock activity	—		—			—		—		—		—			(862	)		—			—
Adjustment for net translation gain	—		—			—		—		—		—			—			1,597			1,597
Minimum pension liability, net of tax	—		—			—		—		—		—			—			2,677			2,677
Comprehensive income																					$ 7,778
Balance, May 31, 2004	34,525		$ 34,525			2,280		$ (36,030	)	$ 172,681		$ 146,776			$ (1,376	)		$ (14,892	)
Net income	—		—			—		—		—		15,453			—			—			$ 15,453
Treasury stock	—		—			987		(14,467	)	—		—			—			—			—
Exercise of stock options and stock awards	1,328		1,328			—		—		16,936		—			—			—			—
Restricted stock activity	—		—			—		—		—		—			(1,303	)		—			—
Adjustment for net translation loss	—		—			—		—		—		—			—			(150	)		(150	)
Minimum pension liability, net of tax	—		—			—		—		—		—			—			(4,737	)		(4,737	)
Comprehensive income																					$ 10,566
Balance, May 31, 2005	35,853		$ 35,853			3,267		$ (50,497	)	$ 189,617		$ 162,229			$ (2,679	)		$ (19,779	)

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

AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended May 31,
	2005			2004			2003
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	15,453		$	3,504		$	(12,410	)
Adjustments to reconcile net income (loss) to net cash provided from operating activities:
Depreciation and amortization	27,950			26,680			27,172
Deferred tax provision (benefit)—continuing operations	1,613			(2,826		)	(6,657		)
Loss on disposal of business, net of tax	2,321			—			—
Impairment charges	—			—			5,360
Changes in certain assets and liabilities:
Accounts receivable	(17,596		)	(41,374		)	16,517
Inventories	(12,013		)	15,602			17,755
Equipment on or available for short-term lease	(3,154		)	(3,233		)	5,232
Equipment on long-term lease	19,956			(218		)	(1,796		)
Accounts payable	19,244			6,642			(2,841		)
Accrued liabilities and taxes on income	5,907			13,143			(14,423		)
Other, primarily pension contributions and prepaids	(8,743		)	(3,348		)	824
Net cash provided from operating activities	50,938			14,572			34,733
Cash flows provided from (used in) investing activities:
Property, plant and equipment expenditures	(13,033		)	(10,286		)	(9,930		)
Proceeds from disposal of assets	7			92			113
Proceeds from disposal of business	7,700			—			—
Proceeds from sale of facilities, net	—			16,922			2,969
Investment in leveraged leases	122			245			1,694
Other, primarily investment in aircraft joint ventures	(12,380		)	(1,347		)	(815		)
Net cash provided from (used in) investing activities	(17,584		)	5,626			(5,969		)
Cash flows used in financing activities:
Proceeds from borrowings	—			89,701			24,000
Reduction in borrowings	(24,005		)	(94,615		)	(56,643		)
Financing costs	(34		)	(3,459		)	(715		)
Other	2			—			(707		)
Net cash used in financing activities	(24,037		)	(8,373		)	(34,065		)
Effect of exchange rate changes on cash	11			31			(67		)
Increase (decrease) in cash and cash equivalents.	9,328			11,856			(5,368		)
Cash and cash equivalents, beginning of year	41,010			29,154			34,522
Cash and cash equivalents, end of year	$	50,338		$	41,010		$	29,154

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

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

1. Summary of Significant Accounting Policies

Description of Business

AAR CORP. is a diversified provider of products and services to the worldwide aviation/aerospace and defense industries. Products and services include: aviation supply chain and parts support programs; maintenance, repair and overhaul of aircraft and landing gear; design and manufacture of composite structures and specialized mobility and cargo systems; and aircraft sales and leasing. We serve commercial and governmental aircraft fleet operators, original equipment manufacturers and independent service providers around the world.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany accounts and transactions. The equity method of accounting is used for investments in other companies in which we have significant influence; generally this represents common stock ownership of at least 20% and not more than 50% (see Note 7).

Revenue Recognition

Sales and related cost of sales for product sales are recognized upon shipment of the product to the customer. Our standard terms and conditions provide that title passes to the customer when the product is shipped to the customer. Service revenues and the related cost of services are generally recognized when customer-owned material is shipped back to the customer. We have adopted this accounting policy because at the time the customer-owned material is shipped back to the customer, all services related to that material are complete as our service agreements generally do not require us to provide services at customer sites. Furthermore, the serviced units are typically shipped to the customer immediately upon completion of the related services. Sales and related cost of sales for certain long-term manufacturing contracts and for certain large airframe maintenance contracts are recognized by the percentage of completion method, based on the relationship of costs incurred to date to estimated total costs under the respective contracts. Lease revenues are recognized as earned. Income from monthly or quarterly rental payments is recorded in the pertinent period according to the lease agreement. However, for leases that provide variable rents, we recognize lease income on a straight-line basis. In addition to a monthly lease rate, some engine leases require an additional rental amount based on the number of hours the engine is used in a particular month. Lease income associated with these contingent rentals is recorded in the period in which actual usage is reported to us by the lessee, which is normally the month following the actual usage.

Goodwill

Under Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests.

The amount reported under the caption “Goodwill, net” is comprised entirely of goodwill associated with acquisitions we made, principally since the beginning of fiscal 1998. Each of the acquisitions involved a single business that now comprises or is included in a single operating segment. We were not required to allocate goodwill related to specific acquisitions across two or more segments. For the annual impairment

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

test, we compare an estimate of the fair value of each of our reportable segments to its carrying amount. The estimated fair value of each reportable segment was determined utilizing a valuation technique based on a multiple of earnings.

Goodwill by reportable segment is as follows:

	May 31,
	2005		2004
Aviation Supply Chain	$	20,094	$	20,099
Maintenance, Repair and Overhaul	5,838		5,838
Structures and Systems	18,484		18,484
	$	44,416	$	44,421

Stock Options

We have an employee stock option plan which is more fully described in Note 4. We account for this plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations.

The following table illustrates the effect on net income (loss) and earnings (loss) per share if we had applied the fair value recognition provisions of SFAS No. 123 to our stock option plan.

		For the Year Ended May 31,
		2005			2004			2003
Net income (loss) as reported		$	15,453		$	3,504		$	(12,410	)
Add: Stock-based compensation expense included in net income (loss) as reported, net of tax		2,370			323			142
Deduct: Total compensation expense determined under fair value method for all awards, net of tax		(5,315		)	(2,188		)	(2,758		)
Pro forma net income (loss)		$	12,508		$	1,639		$	(15,026	)
Earnings (loss) per share—basic:
	As reported	$	0.48		$	0.11		$	(0.39	)
	Pro forma	$	0.39		$	0.05		$	(0.47	)
Earnings (loss) per share—diluted:
	As reported	$	0.46		$	0.11		$	(0.39	)
	Pro forma	$	0.38		$	0.05		$	(0.47	)

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

The fair value weighted average per share of stock options granted during fiscal 2005, 2004 and 2003 was $7.73, $4.93 and $3.82, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Stock Options Granted In Fiscal Year
	2005		2004		2003
Risk-free interest rate	4.1	%	3.1	%	2.5	%
Expected volatility of common stock	65.0	%	67.2	%	64.0	%
Dividend yield	0.0	%	0.0	%	1.6	%
Expected option term in years	4.0		4.0		4.0

Cash and Cash Equivalents

We consider all highly liquid investments with maturities of three months or less to be cash equivalents. At May 31, 2005 and 2004 cash equivalents of approximately $9,830 and $11,317, respectively, represents investments in funds holding high-quality commercial paper. The carrying amount of cash equivalents approximates fair value at May 31, 2005 and 2004, respectively. As of May 31, 2005 and 2004, $9,830 and $7,313, respectively, of cash was restricted to support letters of credit.

Transfer of Financial Assets

SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, requires us to recognize the financial and servicing assets we control and the liabilities we have incurred, and to derecognize financial assets when control has been surrendered.

On March 21, 2003, we completed a $35,000 accounts receivable securitization program with LaSalle Business Credit L.L.C. (LaSalle). On November 30, 2004, the agreement with LaSalle was amended and the facility was increased to $50,000. The current facility expires in March 2006 and bears interest at LIBOR plus 300 basis points. Under the program, on each business day certain of our subsidiaries sell all new eligible receivables to an entity that is a wholly owned and consolidated subsidiary of the Company. This entity in turn sells an undivided percentage ownership interest in such eligible receivables to LaSalle. Certain classes of receivables are not intended for sale to the entity, including, but not limited to, accounts receivable that are not eligible receivables under the program at the time of sale, receivables related to sales to certain foreign entities and receivables generated by sales to governmental entities other than the U.S. government. Costs related to this arrangement are included in interest expense. At May 31, 2005 and 2004, accounts receivable sold under the program were $0.

Foreign Currency

All balance sheet accounts of foreign subsidiaries transacting business in currencies other than the U.S. dollar are translated at year-end exchange rates. Revenues and expenses are translated at average exchange rates during the year. Translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive income (loss).

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Financial Instruments and Concentrations of Market or Credit Risk

Financial instruments that potentially subject us to concentrations of market or credit risk consist principally of trade receivables. While our trade receivables are diverse based on the number of entities and geographic regions, the majority are with the U.S. Government, its agencies and contractors and entities in the aviation/aerospace industry. We perform evaluations of payment experience, current financial condition and risk analysis. We typically require collateral in the form of security interests in assets, letters of credit, and/or obligation guarantees from financial institutions for transactions other than on normal trade terms.

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, requires disclosure of the fair value of certain financial instruments. Cash and cash equivalents, accounts receivable, short-term borrowings and accounts payable are reflected in the consolidated financial statements at fair value because of the short-term maturity of these instruments. The carrying value of long-term debt bearing a variable interest rate approximates fair market value.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by the specific identification, average cost or first-in, first-out methods.

The following is a summary of inventories:

	May 31,
	2005		2004
Raw materials and parts	$	43,576	$	45,823
Work-in-process	30,528		20,419
Purchased aircraft, parts, engines and components held for sale	130,886		140,657
	$	204,990	$	206,899

Government Grants

In connection with our occupancy of the Indianapolis Maintenance Center (IMC), the State of Indiana and the City of Indianapolis committed $7,000 of government grants to assist with the initial mobilization and start-up of the facility, as well as to assist us with the purchase of certain capital equipment. During fiscal 2005, we received $3,700 of grants for mobilization and other start-up related costs and have offset the receipt of these grants against applicable mobilization and other start-up related costs incurred by us.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Equipment under Operating Leases

Lease revenue is recognized as earned. The cost of the asset under lease is original purchase price plus overhaul costs. Depreciation for aircraft is computed on a straight-line method over the estimated service life of the equipment. The balance sheet classification is based on the lease term, with fixed-term leases less than twelve months classified as short-term and all others classified as long-term.

Equipment on short-term lease consists of aircraft engines and parts on or available for lease to satisfy customers’ immediate short-term requirements. The leases are renewable with fixed terms, which generally vary from one to twelve months. Equipment on long-term lease consists of aircraft and engines on lease with commercial airlines for more than twelve months.

Our aircraft and engine portfolio includes five narrow-body and three wide-body aircraft and several types of engines, certain of which were acquired prior to September 11, 2001. Demand and lease rates for many of these assets have not returned to pre-September 11, 2001 levels. In accordance with SFAS No. 144, we are required to test for impairment of these assets and previously adjusted the carrying value for certain of these assets (see Note 11). During the fourth quarter of fiscal 2005, we recorded a $900 charge related to the write-down of an aircraft as a result of a renegotiated lease with an airline customer operating under bankruptcy protection. When applying the provisions of SFAS No. 144 to our aircraft and engine portfolio, we utilized certain assumptions when estimating future undiscounted cash flows, including current and future lease rates, lease terms, residual values and market conditions and trends impacting future demand. Unfavorable differences between actual results and expected results could result in future impairments in our aircraft and engine lease portfolio.

All but one aircraft in our aircraft portfolio is currently on lease and we expect to lease that aircraft upon completion of maintenance activities. Future rent due to us under non-cancelable leases for aircraft and engines during each of the next five fiscal years is $19,417 in 2006, $12,780 in 2007, $9,437 in 2008, $7,567 in 2009 and $2,833 in 2010.

Property, Plant and Equipment

Depreciation is computed on the straight-line method over useful lives of 10-40 years for buildings and improvements and 3-10 years for equipment, furniture and fixtures and capitalized software. Leasehold improvements are amortized over the shorter of the estimated useful life or the term of the applicable lease.

Repair and maintenance expenditures are expensed as incurred. Upon sale or disposal, cost and accumulated depreciation are removed from the accounts, and related gains and losses are included in results of operations.

Leveraged Lease

We are an equity participant in a leveraged lease transaction. The equipment cost in excess of equity contribution is financed by a third party in the form of secured debt. Under the lease agreement, the third party has no recourse against us for nonpayment of the obligation. The third-party debt is collateralized by the lessees’ rental obligation and the leased equipment.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

We have ownership rights to the leased asset and are entitled to the tax deduction for depreciation on the leased asset and for interest on the secured debt financing.

Income taxes

Income taxes are determined in accordance with SFAS No. 109, “Accounting for Income Taxes”.

Supplemental Information on Cash Flows

Supplemental information on cash flows follows:

	For the Year Ended May 31,
	2005		2004		2003
Interest paid	$	13,764	$	15,246	$	17,604
Income taxes paid	591		740		3,460
Income tax refunds and interest received	1,138		1,026		865

In fiscal 2003, we purchased for nominal consideration our partner’s 50% equity interest in a joint venture that owned a wide-body aircraft subject to non-recourse debt. As a result of the consolidation of the joint venture, the aircraft owned by the joint venture was recorded in our accounts for $36,025, which represented an amount equal to the historical cost of our investment in the joint venture, plus the nominal consideration paid to the other party, plus the amount of the non-recourse debt that was associated with the aircraft.

During fiscal 2005 and 2004, treasury stock increased $14,467 and $9,232, respectively, principally reflecting the cashless exercise of stock options.

Use of Estimates

We have made estimates and utilized certain assumptions relating to the reporting of assets and liabilities and the disclosures of contingent liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates.

New Accounting Standards

SFAS No. 123 (revised 2004) “Share-Based Payment” (“SFAS No. 123(R)”) was issued in December 2004. SFAS No. 123(R) addresses the accounting for transactions in which an enterprise exchanges its equity instruments for employee services. It also addresses transactions in which an enterprise incurs liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of those equity instruments in exchange for employee services. For public entities, the cost of employee services received in exchange for equity instruments, including employee stock options, is to be measured based on the grant-date fair value of those instruments. That cost will be recognized as compensation expense over the service period, which would normally be the vesting period. On April 15, 2005, the Securities and Exchange Commission (SEC) adopted a rule that delays required stock option and other share plan expensing under SFAS No. 123(R). Under the SEC’s rule, public companies will be required to implement SFAS No. 123(R) at the beginning of their first fiscal year that begins after June 15, 2005. We will adopt the provisions of SFAS No. 123(R) in the first quarter of fiscal 2007, and anticipate that adoption of the standard will result in approximately $1,100 of pre-tax compensation expense in fiscal 2007 for current unvested stock options.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Reclassification

Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the current year’s presentation.

2. Financing Arrangements

Revolving Credit Facility

We maintain a secured revolving credit facility with Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services, Inc. (Merrill Lynch). The maximum amount available to us under this agreement is $30,000 and as of May 31, 2005 and 2004, the amount available was $26,207 and $22,449, respectively. Availability is based on a formula of qualifying assets as well as outstanding letters of credit, and borrowings are secured by substantially all of our inventories and certain other assets. The facility expires on June 1, 2007, however, Merrill Lynch may terminate the facility in the event of an adverse change to our business. The facility bears interest at LIBOR plus 250 basis points and carries a one-percent facility fee on the unused portion of the agreement. The amount outstanding under this agreement was $0 at May 31, 2005 and 2004, respectively.

Short-term borrowing activity under our revolving credit facilities was as follows:

	For the Year Ended May 31,
	2005			2004			2003
Maximum amount borrowed	$	21,000		$	24,008		$	41,700
Average daily borrowings	5,248			7,878			32,661
Average interest rate during the year	5.47		%	3.98		%	3.4		%

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

2. Financing Arrangements (Continued)

A summary of our recourse and non-recourse long-term debt was as follows:

	May 31,
	2005			2004
Recourse debt
Notes payable due December 15, 2007 with interest at 6.875% payable semi-annually on June 15 and December 15	$	47,380		$	54,370
Notes payable due May 15, 2008 with interest at 7.98% payable semi-annually on June 1 and December 1	20,000			20,000
Mortgage loan due July 1, 2008 with interest at 6.25%	10,144			10,627
Notes payable due May 15, 2011 with interest at 8.39% payable semi-annually on June 1 and December 1	55,000			55,000
Convertible notes payable due February 1, 2024 with interest at 2.875% payable semi-annually on February 1 and August 1	67,000			75,000
Other, primarily industrial revenue bonds, (secured by trust indentures on property, plant and equipment) with a weighted average interest of approximately 3.12% at May 31, 2005	1,108			3,197
Total recourse debt	200,632			218,194
Current maturities of recourse debt	(713		)	(760		)
Long-term recourse debt	$	199,919		$	217,434
Non-recourse debt
Non-recourse note payable due November 2009 with interest at 6.00%	$	28,862		$	31,968
Current maturities of non-recourse debt	(1,622		)	(736		)
Long-term non-recourse debt	$	27,240		$	31,232

On July 15, 2005, we refinanced the mortgage loan with Principal Commercial Funding, LLC. Proceeds from the new loan were $11,000 and the term of the financing is 10 years with a fixed rate of 5.01%. Under the terms of the new loan, interest payments are due monthly with a balloon payment of $11,000 due August 1, 2015. The new loan payable is secured by our Wood Dale, Illinois facility. At May 31, 2005, the net book value of our Wood Dale, Illinois facility is $15,104.

On February 3, 2004 we completed the sale of $75,000 principal amount of convertible senior notes. The notes are due February 1, 2024 unless earlier redeemed, repurchased or converted, and bear interest at 2.875% payable semi-annually on February 1 and August 1.

The notes are convertible into shares of AAR common stock at an initial conversion price of approximately $18.59 per share, under the following circumstances: (i) on any business day up to the maturity date, if the closing sale price of our common stock for at least 20 trading days in the 30 consecutive trading day period ending on the eleventh trading day of any fiscal quarter is greater than 120% of the applicable conversion price on the eleventh trading day of that quarter; (ii) at any time after February 1, 2019, if the closing price of AAR common stock on any trading day after February 1, 2019, is

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

2. Financing Arrangements (Continued)

greater than 120% of the then applicable conversion price; (iii) at any time until February 1, 2019, during the five consecutive business day period in which the trading price for a note for each day of that trading period was less than 98% of the closing sale price of our common stock on such corresponding trading day multiplied by the application conversion rate; (iv) we call the notes for redemption; (v) during any period in which the credit rating assigned to our long-term senior debt by Moody’s Investor Services is below Caa1 and by Standard & Poor’s Rating Services is below B, the credit rating assigned to our long-term senior debt is suspended or withdrawn by both such rating agencies, or neither rating agency is rating our long-term senior debt; or (vi) specified corporate transactions occur.

We may redeem for cash all or a portion of the notes at any time on or after February 1, 2008 at specified redemption prices. Holders of the notes have the right to require us to repurchase in cash all or any portion of the notes on February 1, 2010, 2014 and 2019. In each case, the repurchase price payable will be equal to 100% of the principal amount of the notes to be repurchased, plus accrued interest and unpaid interest and liquidated damages, if any, to, but not including, the date of repurchase. The notes are senior, unsecured obligations and rank equal in right of payment with all other unsecured and unsubordinated indebtedness. Costs associated with this transaction were $2,585 and are being amortized over a six-year period. Net proceeds from this transaction were $72,415 and were used in part to repurchase $35,000 of accounts receivable which had been sold under our accounts receivable securitization facility, to repay $16,900 of 8.0% notes prior to their maturity, to repay $4,000 outstanding under our revolving credit facility, to retire $13,426 of notes payable due in June 2005 and to retire $3,500 of notes payable due in December 2007.

During the fourth quarter of fiscal 2005, the term of the non-recourse note payable was extended to November 1, 2009 and the outstanding principal balance was reduced by the lender in the amount of $2,567. The reduction in the outstanding principal balance of $2,567 and the $995 net gain on the early extinguishment of the 6.875% and 2.875% notes are presented as gain on extinguishment of debt.

We are subject to a number of covenants under our financing arrangements, including restrictions which relate to the payment of cash dividends, maintenance of minimum net working capital and tangible net worth levels, fixed charge coverage ratio, sales of assets, additional financing, purchase of our shares and other matters. We are currently prohibited from paying dividends or purchasing our shares pursuant to the most restrictive financial covenant concerning consolidated retained earnings. We are in compliance with all financial covenants under our financing arrangements. The aggregate amount of long-term recourse debt maturing during each of the next five fiscal years is $713 in 2006, $743 in 2007, $68,157 in 2008, $8,716 in 2009 and $200 in 2010. Our long-term recourse debt was estimated to have a fair value of approximately $205,800 at May 31, 2005. The fair value was determined using available market information.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

2. Financing Arrangements (Continued)

Guarantees

On February 28, 2005, we sold an interest in certain aircraft to a customer (“purchaser”) for $15,000 cash proceeds. The cash proceeds approximated the net book value of the aircraft. The purchaser borrowed $12,000 from a third party lender to finance the purchase. We agreed to unconditionally guarantee to the lender the purchaser’s payment of principal and interest when due under the loan up to an amount not to exceed $11,250 (the “Aggregate Guaranteed Amount”). However, the Aggregate Guaranteed Amount shall be reduced by the unpaid principal portion of the loan related to an aircraft on the later of (A) the date the lender obtains a first priority perfected security interest in such aircraft, and (B) the date on which a new lease has been entered into for such aircraft. In addition, we shall be unconditionally released from our obligations under the guaranty at the earlier of (A) March 2, 2006, and (B) the later of (x) the date the lender obtains a first priority perfected security interest in the aircraft and (y) the date on which new leases have been entered into for the aircraft. The maximum potential amount of future payments that we may be required to make under the guaranty is $11,250. However, we have the right (in lieu of making a payment under the guarantee) to purchase from the third party lender all of the lender’s right, title and interest in, to and under the loan documents, including, without limitation, all of the lender’s rights and interest in and to the aircraft and the other assets securing the loan, for a purchase price equal to the unpaid principal and interest due under the loan.

3. Income Taxes

The provision (benefit) for income taxes on continuing operations includes the following components:

	For the Year Ended May 31,
	2005		2004			2003
Current:
Federal	$	1,034	$	1,329		$	293
State	420		270			270
	1,454		1,599			563
Deferred	1,613		(2,826		)	(6,657		)
	$3,067		$	(1,227	)	$	(6,094	)

The deferred tax benefit results primarily from differences between financial reporting and taxable income arising from alternative minimum tax carryforwards, net operating loss (NOL) carryforwards, foreign tax credit carryforwards, depreciation and leveraged leases.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

3. Income Taxes (Continued)

The provision (benefit) for income taxes on continuing operations differs from the amount computed by applying the U.S. federal statutory income tax rate of 35% for fiscal 2005, 2004 and 2003, for the following reasons:

	For the Year Ended May 31,
	2005			2004			2003
Provision (benefit) for income taxes at the federal statutory rate	$	7,574		$	1,168		$	(5,835	)
Tax benefits on exempt earnings from export sales	(3,430		)	(2,625		)	(1,220		)
State income taxes, net of federal benefit and refunds	270			175			176
Changes in valuation allowance	(1,575		)	637			938
Reduction in income tax accrued liabilities	—			(350		)	—
Other, net	228			(232		)	(153		)
Provision (benefit) for income taxes on continuing operations	3,067			(1,227		)	(6,094		)

During the third quarter of fiscal 2005, we recorded a favorable federal income tax adjustment of $496. Upon completion of the fiscal 2004 federal tax return in February 2005, we determined that we qualified for additional tax benefits related to export activities. Similarly, we recorded a $604 federal income tax benefit during the third quarter of fiscal 2004 which primarily related to additional tax benefits from export activities in fiscal 2003.

In previous fiscal years, we had established a deferred tax valuation allowance of $1,575 against foreign tax credits expiring in fiscal year 2006. As a result of the new ten-year carryforward period (formerly five years) established by the American Jobs Creation Act of 2004, we now expect to utilize the foreign tax credits and recorded a $1,575 credit to the provision for income taxes during the second quarter of fiscal 2005.

During fiscal 2004, we recorded a reduction in income tax expense of $350. This adjustment represents the reversal of federal and state income tax accruals which were no longer considered required.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

3. Income Taxes (Continued)

Deferred tax liabilities and assets result primarily from the differences in the timing of the recognition for transactions between financial reporting and income tax purposes and consist of the following components:

	May 31,
	2005			2004
Deferred tax assets-current attributable to:
Inventory costs	$	29,977		$	31,129
Employee benefits (accruals)	(4,061		)	(5,109		)
Other	1,756			1,554
Total deferred tax assets-current	$	27,672		$	27,574
Deferred tax assets-noncurrent attributable to:
Postretirement benefits (liabilities)	$	10,122		$	7,572
Alternative minimum tax carryforwards, NOL carryforwards and foreign tax credit carryforwards	24,682			34,858
Valuation allowance	—			(1,575		)
Total deferred tax assets-noncurrent	$	34,804		$	40,855
Total deferred tax assets	$	62,476		$	68,429
Deferred tax liabilities attributable to:
Depreciation	$	(45,424	)	$	(50,612	)
Leveraged leases	(7,469		)	(7,871		)
Total deferred tax liabilities	$	(52,893	)	$	(58,483	)
Net deferred tax assets	$	9,583		$	9,946

As of May 31, 2005, we have determined that the realization of our deferred tax assets is more likely than not, and that a valuation allowance is not required based upon our prior history of operating earnings, the nature of certain of our deferred tax assets, our expectations for continued future earnings and the scheduled reversal of deferred tax liabilities, primarily related to depreciation. At May 31, 2005, we had federal net operating loss carryforwards of approximately $60,703 of which $34,990 will expire after fiscal 2022, $12,561 will expire after fiscal 2023 and $13,152 will expire after fiscal 2024.

4. Common Stock and Stock Options

We have established stock option plans for our officers and key employees. Stock option awards under the AAR Stock Benefit Plan typically expire ten years from the date of grant or earlier upon termination of employment, become exercisable in five equal increments on successive grant anniversary dates at the New York Stock Exchange closing common stock price on the date of grant and are accompanied by reload features and, for certain individuals, stock rights exercisable in the event of a change in control of the Company.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

4. Common Stock and Stock Options (Continued)

A summary of changes in stock options (in thousands) granted to officers, key employees and nonemployee directors under stock option plans for the three years ended May 31, 2005 follows:

	Number of Shares			Weighted Average Exercise Price
Outstanding, May 31, 2002 (2,495 exercisable)		4,248			$	16.51
Granted		943			8.45
Exercised		—			—
Surrendered/expired/cancelled		(589	)		13.28
Outstanding, May 31, 2003 (2,754 exercisable)		4,602			15.27
Granted		1,524			9.32
Exercised		(785	)		9.75
Surrendered/expired/cancelled		(187	)		15.31
Outstanding, May 31, 2004 (3,390 exercisable)		5,154			14.35
Granted		845			14.66
Exercised		(1,186	)		11.03
Surrendered/expired/cancelled		(206	)		16.37
Outstanding, May 31, 2005 (3,414 exercisable)		4,607			$	15.17

The following table provides additional information regarding stock options (in thousands) outstanding as of May 31, 2005:

Option Exercise Price Range	Options Outstanding		Weighted Average Remaining Contractual Life of Options (Years)		Number of Options Exercisable		Weighted Average Exercise Price of Options Exercisable
$ 3.06 – 12.25		1,224		7.6		215		$	8.38
$12.26 – 18.38		2,328		4.4		2,144		$	15.53
$18.39 – 24.50		1,034		3.0		1,034		$	23.18
$24.51 – 30.63		21		1.9		21		$	27.40
		4,607		4.9		3,414		$	17.48

The AAR CORP. Stock Benefit Plan also provides for the grant of restricted stock awards. Restrictions are released at the end of applicable restriction periods. The number of shares and the restricted period, which varies from three to ten years, are determined by the Compensation Committee of the Board of Directors. At the date of grant, the market value of the award (based on the New York Stock Exchange common stock closing price) is recorded in common stock and capital surplus; an offsetting amount is recorded as a component of stockholders’ equity in unearned restricted stock awards. The

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

4. Common Stock and Stock Options (Continued) (Continued)

number (in thousands) of restricted shares awarded to officers and key employees and the weighted average per share fair value of those shares are as follows:

	For the Year Ended May 31,
	2005		2004		2003
Shares of restricted stock granted	150		202		—
Weighted average per share fair value	$	16.04	$	6.96	—

Compensation cost is included in results of operations over the vesting period. Expense (income) relating to outstanding restricted stock awards for the three-year period ended May 31, 2005 follows:

	For the Year Ended May 31,
	2005			2004			2003
Expense	$	1,295		$	516		$	330
Forfeitures (income)	(32		)	(17		)	(111		)
Net	$	1,263		$	499		$	219

The AAR CORP. Employee Stock Purchase Plan is open to our employees (other than officers, directors or participants in our other stock option plans) and permits employees to purchase common stock in periodic offerings through payroll deductions.

All equity compensation plans have been approved by shareholders. The number of options and awards outstanding and available for grant or issuance for each of our stock plans are as follows (in thousands):

	May 31, 2005
	Outstanding		Available		Total
Stock Benefit Plan (officers, directors and key employees)		5,301		3,205	8,506
Employee Stock Purchase Plan		—		144	144

Pursuant to a shareholder rights plan adopted in 1997, each outstanding share of our common stock carries with it a Right to purchase one and one half additional shares at a price of $83.33 per share. The Rights become exercisable (and separate from the shares) when certain specified events occur, including the acquisition of 15% or more of the common stock by a person or group (an “Acquiring Person”) or the commencement of a tender or exchange offer for 15% or more of the common stock.

In the event that an Acquiring Person acquires 15% or more of the common stock, or if we are the surviving corporation in a merger involving an Acquiring Person or if the Acquiring Person engages in certain types of self-dealing transactions, each Right entitles the holder to purchase for $83.33 per share (or the then-current exercise price), shares of our common stock having a market value of $166.66 (or two times the exercise price), subject to certain exceptions. Similarly, if we are acquired in a merger or other business combination or 50% or more of our assets or earning power is sold, each Right entitles the holder to purchase at the then-current exercise price that number of shares of common stock of the surviving corporation having a market value of two times the exercise price. The Rights do not entitle the holder thereof to vote or to receive dividends. The Rights will expire on August 6, 2007, and may be redeemed by us for $.01 per Right under certain circumstances.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

4. Common Stock and Stock Options (Continued)

On September 21, 1990, the Board of Directors authorized us to purchase up to 1,500,000 shares (adjusted for a three-for-two stock split) of our common stock on the open market or through privately negotiated transactions. On October 13, 1999, the Board of Directors authorized us to purchase up to 1,500,000 additional shares of our common stock. As of May 31, 2005, we had purchased 1,745,000 shares of our common stock on the open market under these programs at an average price of $14.00 per share and have remaining authorization to purchase 1,255,000 shares (see Note 2).

5. Earnings Per Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options and shares issued upon conversion of convertible debt.

In the third quarter of fiscal 2005 we adopted the provisions of Emerging Issues Task Force Issue No. 04-08 “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share” (“EITF No. 04-08”) which requires companies to account for contingently convertible debt using the “if converted” method set forth in SFAS No. 128 “Earnings Per Share” for calculating diluted earnings per share. Under the “if converted” method, the after-tax effect of interest expense related to the convertible securities is added back to net income, and the convertible debt is assumed to have been converted to equity at the beginning of the period and is added to outstanding common shares. For comparative purposes, diluted earnings per share information for all quarters in fiscal 2005 give effect to the adoption of EITF No. 04-08. Diluted earnings per share information for fiscal 2004 quarters ended subsequent to the February 2004 issuance of our convertible debt securities do not give effect to the provisions of EITF No. 04-08 because the effect is anti-dilutive.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

5. Earnings Per Share (Continued)

The following table provides a reconciliation of the computations of basic and diluted earnings per share information for each of the years in the three-year period ended May 31, 2005 (shares in thousands).

	For the Year Ended May 31,
	2005			2004			2003
Income (loss) from continuing operations	$	18,572		$	4,565		$	(10,578	)
Loss from discontinued operations, net of tax	(3,119		)	(1,061		)	(1,832		)
Net income (loss)	$	15,453		$	3,504		$	(12,410	)
Basic shares:
Weighted average common shares outstanding	32,297			32,111			31,852
Earnings (loss) per share—basic:
Earnings (loss) from continuing operations	$	0.58		$	0.14		$	(0.33	)
Loss from discontinued operations, net of tax	(0.10		)	(0.03		)	(0.06		)
Earnings (loss) per share—basic	$	0.48		$	0.11		$	(0.39	)
Net income (loss)	$	15,453		$	3,504		$	(12,410	)
Add: After-tax interest on convertible debt	1,230			—			—
Net income (loss) for diluted EPS calculation	$	16,683		$	3,504		$	(12,410	)
Diluted shares:
Weighted average common shares outstanding	32,297			32,111			31,852
Additional shares from the assumed exercise of stock options	304			281			—
Additional shares from the assumed conversion of
convertible debt	3,604			—			—
Weighted average common shares outstanding—diluted	36,205			32,392			31,852
Earnings (loss) per share—diluted:
Earnings (loss) from continuing operations	$	0.55		$	0.14		$	(0.33	)
Loss from discontinued operations, net of tax	(0.09		)	(0.03		)	(0.06		)
Earnings (loss) per share—diluted	$	0.46		$	0.11		$	(0.39	)

At May 31, 2005 and 2004, respectively, options to purchase 3.4 milion and 3.2 million shares of common stock were outstanding, but were not included in the computation of diluted earnings per share, because the exercise price of these options was greater than the average market price of the common shares.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

6. Employee Benefit Plans

We have defined contribution and defined benefit plans covering substantially all full-time domestic employees and certain employees in The Netherlands. In addition, we provide postretirement health and life insurance benefits to eligible domestic retirees.

Defined Benefit Plans

Prior to January 1, 2000, the pension plan for domestic salaried and non-union hourly employees had a benefit formula based primarily on years of service and compensation. Effective January 1, 2000, we converted our existing defined benefit plan for substantially all domestic salaried and certain hourly employees to a cash balance pension plan. Under the cash balance pension plan, the retirement benefit is expressed as a dollar amount in an account that grows with annual pay-based credits and interest on the account balance. Effective June 1, 2005, the existing cash balance plan was frozen and the annual pay-based credits were discontinued. During the fourth quarter of fiscal 2005, we recorded a $667 curtailment loss associated with this change to the cash balance plan. Also effective June 1, 2005, the defined contribution plan was modified to include increased employer contributions and an enhanced profit sharing formula. Defined pension benefits for certain union hourly employees are based primarily on a fixed amount per years of service.

Certain foreign operations of domestic subsidiaries also have a pension plan which is a defined benefit plan. Benefit formulas are based generally on years of service and compensation. It is the policy of these subsidiaries to fund at least the minimum amounts required by local laws and regulations.

We provide eligible outside directors with benefits upon retirement on or after age 65 provided they have completed at least five years of service as a director. Benefits are paid quarterly in cash equal to 25% of the annual retainer fee payable to active outside directors. Payment of benefits commence upon retirement and continues for a period equal to the total number of years of the retired director’s service up to a maximum of ten years, or death, whichever occurs first. In the fourth quarter of fiscal 2001, we terminated the plan for any new members of the Board of Directors elected after May 31, 2001.

We also provide supplemental retirement and profit sharing benefits for current and former executives and key employees to supplement benefits provided by our other benefit plans. The plans are not funded and may require funding in the event of a change in control of the Company as determined by our Board of Directors.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

6. Employee Benefit Plans (Continued)

The following table sets forth the change in projected benefit obligations for all of our pension plans:

	May 31,
	2005			2004
Change in benefit obligation:
Benefit obligation at beginning of year	$	77,044		$	77,425
Service cost	2,841			2,834
Interest cost	4,899			4,483
Plan participants’ contributions	228			223
Amendments	(3,754		)	—
Net actuarial loss (gain)	14,313			(3,795		)
Benefits paid	(4,742		)	(4,126		)
Benefit obligation at end of year	$	90,829		$	77,044

The projected benefit obligation is measured at May 31 of each year using the following weighted average assumptions:

	May 31,
	2005		2004
Domestic plans:
Discount rate	5.40	%	6.50	%
Compensation increase rate	3.00		3.00
Non-domestic plans:
Discount rate	4.25	%	5.50	%
Compensation increase rate	3.00		3.25

The following table sets forth the change in fair value of plan assets:

	May 31,
	2005			2004
Change in plan assets:
Fair value of plan assets at beginning of year	$	60,834		$	51,431
Actual return on plan assets	6,925			6,407
Employer contributions	6,614			6,899
Plan participants’ contributions	228			223
Benefits paid	(4,742		)	(4,126		)
Fair value of plan assets at end of year	$	69,859		$	60,834

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

6. Employee Benefit Plans (Continued)

The following table sets forth the actual asset allocation and target allocations for our U.S. pension plans:

	May 31,				Target Asset
	2005		2004		Allocation
Equity securities	61	%	65	%		45 - 65	%
Fixed income securities	32		29			25 - 55	%
Other (fund-of funds hedge fund)	7		6			0 - 20	%
	100	%	100	%

The assets of U.S pension plans are invested in compliance with the Employee Retirement Income Security Act of 1974 (ERISA). The investment goals are to provide a total return that, over the long term, optimizes the long-term return on plan assets at an acceptable risk and maintain a broad diversification across asset classes and among investment managers. Direct investments in our securities and the use of derivatives for the purpose of speculation are not permitted. The assets of the U.S. pension plans are invested primarily in equity and fixed income mutual funds and individual common stocks and in fiscal 2005 and 2004 included an investment in a fund-of funds hedge fund.

The assets of the non-domestic plan are invested in compliance with local laws and regulations and are comprised of insurance contracts and equity and fixed income mutual funds.

To develop our expected long-term rate of return assumption on domestic plans, we use long-term historical return information for our targeted asset mix and current market conditions. Our contribution policy for the domestic plans is to contribute annually, at a minimum, an amount which is deductible for federal income tax purposes and that is sufficient to meet actuarially computed pension benefits. We anticipate contributing $5,000 to $7,000 during fiscal 2006.

The following table sets forth all of the defined benefit plan’s funded status and the amount recognized in our Consolidated Balance Sheets:

	May 31,
	2005			2004
Funded status	$	(20,970	)	$	(16,210	)
Unrecognized actuarial losses	34,050			25,886
Unrecognized prior service cost	1,005			1,773
Unrecognized transitional obligation	—			67
Prepaid pension costs	$	14,085		$	11,516

A minimum pension liability adjustment is required when the actuarial present value of accumulated plan benefits exceeds plan assets and accrued pension liabilities. During fiscal 2004, we reduced the minimum pension liability by $3,909, and $2,677, net of tax, was reported as a component of comprehensive income (loss). During fiscal 2005, we increased the minimum pension liability by $6,475, and $4,737, net of tax, was reported as a component of comprehensive income (loss). The accumulated benefit obligation for all pension plans was $88,600 and $72,905 as of May 31, 2005 and 2004, respectively.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

6. Employee Benefit Plans (Continued)

Information for pension plans with an accumulated benefit obligation in excess of plan assets was as follows:

	May 31,
	2005		2004
Projected benefit obligation	$	90,829	$	77,044
Accumulated benefit obligation	88,600		72,905
Fair value of plan assets	69,859		60,834

Pension expense charged to results of operations includes the following components:

	For the Year Ended May 31,
	2005			2004			2003
Service cost	$	2,841		$	2,834		$	2,726
Interest cost	4,899			4,483			4,458
Expected return on plan assets	(5,701		)	(4,886		)	(4,804		)
Amortization of prior service cost	295			298			290
Recognized net actuarial loss	1,155			1,392			504
Transitional obligation	68			89			92
Curtailment	667			—			—
	$	4,224		$	4,210		$	3,266

The following table summarizes our estimated future pension benefits by fiscal year:

	2006		2007		2008		2009		2010		2011 to 2015
Estimated pension benefits	$	8,090	$	5,162	$	7,399	$	6,283	$	5,891	$	31,134

A summary of the weighted average assumptions used to determine net periodic pension expense is as follows:

	For the Year Ended May 31,
	2005		2004		2003
Domestic plans:
Discount rate	6.50	%	6.00	%	7.25	%
Rate of compensation increase	3.00		3.00		4.00
Expected long-term return on plan assets	8.50		8.50		9.00
Non-domestic plans:
Discount rate	5.50	%	5.25	%	6.00	%
Rate of compensation increase	3.25		3.25		4.00
Expected long-term return on plan assets	6.50		6.50		6.50

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

6. Employee Benefit Plans (Continued)

Defined Contribution Plan

The defined contribution plan is a profit sharing plan which is intended to qualify as a 401(k) plan under the Internal Revenue Code. Under the plan, employees may contribute up to 50% of their pretax compensation, subject to applicable regulatory limits. We may make matching contributions up to 5% of compensation. Company contributions vest on a pro-rata basis during the first three years of employment. During fiscal 2003, Company matching contributions to our defined contribution plan were suspended due to the operating performance of the Company. Expense charged to results of operations for Company matching contributions was $0 in fiscal 2005 and 2004 and $457 in fiscal 2003.

Postretirement Benefits Other Than Pensions

We provide health and life insurance benefits for certain eligible retirees. The postretirement plans are unfunded, and we have the right to modify or terminate any of these plans in the future, in certain cases, subject to union bargaining agreements. In fiscal 1995, we completed termination of postretirement health and life insurance benefits attributable to future services of collective bargaining and other domestic employees.

Postretirement benefit expense for the years ended May 31, 2005, 2004 and 2003 included the following components:

	For the Year Ended May 31,
	2005		2004		2003
Interest cost	$	76	$	47	$	58
Amortization of prior service cost	8		8		7
Amortization of unrecognized loss	47		—		—
	$	131	$	55	$	65

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

6. Employee Benefit Plans (Continued)

The funded status of the plans at May 31, 2005 and 2004 was as follows:

	May 31,
	2005			2004
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,250		$	847
Interest cost	76			47
Benefits paid	(161		)	(120		)
Unrecognized actuarial loss	189			476
Benefit obligation at end of year	$	1,354		$	1,250
Change in plan assets:
Fair value of plan assets at beginning of year	$	—		$	—
Company contributions	161			120
Benefits paid	(161		)	(120		)
Fair value of plan assets at end of year	$	—		$	—
Funded status	$	(1,354	)	$	(1,250	)
Unrecognized actuarial loss	646			504
Unrecognized prior service cost	55			63
Accrued postretirement costs	$	(653	)	$	(683	)

We estimate that our annual postretirement benefit payments will be approximately $200 in each of the next five fiscal years and will be funded with Company contributions. The assumed discount rate used to measure the accumulated postretirement benefit obligation was 5.4% at May 31, 2005 and 6.5% at May 31, 2004. The assumed rate of future increases in healthcare costs was 9.0% in fiscal 2005 and 10.0% in fiscal 2004, declining to 5.0% by the year 2011 and remaining at that rate thereafter. A one percent increase in the assumed healthcare cost trend rate would increase the accumulated postretirement benefit obligation by approximately $50 as of May 31, 2005, and would not result in a significant change to the annual postretirement benefit expense.

7. Aircraft Joint Venture

During the first quarter of fiscal 2005, we invested in a limited liability company, which is accounted for under the equity method of accounting. Our investment in the limited liability company was made under an agreement with a global financial institution. Our membership interest in this limited liability company is 50% and the primary business of this company is the acquisition, ownership, lease and disposition of certain narrow-body commercial aircraft. Aircraft that are acquired by the company are purchased with cash contributions by the members of the company, and debt financing which is non-recourse to the members of the company. The associated income tax benefit or expense is recorded by the member companies.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

7. Aircraft Joint Venture (Continued)

Summarized financial information for this limited liability company is as follows:

	For the Year Ended May 31, 2005
Statement of operations information:
Sales		$	11,249
Income before provision for income taxes		1,136
	May 31, 2005
Balance sheet information:
Assets		$	47,309
Debt		23,431
Members’ capital		21,885

During the first quarter of fiscal 2005, we also invested in a joint venture company with a different party. The joint venture company owns an aircraft on lease to a foreign carrier. This aircraft was subject to a note payable to a major financial institution that was guaranteed by AAR; during the third quarter of fiscal 2005, we paid the debt of $6,022 in full. We consolidate the financial position and results of operations of this joint venture. The equity interest of the other partner in the joint venture is recorded as a minority interest, which was included in other non-current liabilities at May 31, 2005.

8. Aviation Equipment Operating Leases

From time to time we lease aviation equipment (engines and aircraft) from lessors under arrangements that are classified as operating leases. We may also sublease the aviation equipment to a customer on a short- or long-term basis. The terms of the operating leases in which we are the lessee are one year with options to renew annually at our election. If we elect not to renew a lease or the lease term expires, we may purchase the equipment from the lessor at its scheduled purchase option price. The terms of the lease agreements also allow us to purchase the equipment at any time during a lease at its scheduled purchase option price. The scheduled purchase option values were $20,492 and $30,097 at May 31, 2005 and 2004.

In those instances in which we anticipate that we will purchase aviation equipment and the scheduled purchase option price will exceed the fair value of such equipment, we record an accrual for loss. The accrual for loss was $2,107 and $5,800 at May 31, 2005 and 2004. The reduction in loss accrual is attributable to the buyout of leases and the subsequent sale of the underlying aircraft engines during fiscal 2005.

9. Commitments and Contingencies

On October 3, 2003, we entered into a sale-leaseback transaction whereby the Company sold and leased back a facility located in Garden City, New York. The lease is classified as an operating lease in accordance with SFAS No. 13 “Accounting for Leases”. Net proceeds from the sale of the facility were $13,991 and the cost and related accumulated depreciation of the facility of $9,472 and $4,595, respectively, were removed from the balance sheet. The gain realized of $9,114 on the sale has been deferred and is

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

9. Commitments and Contingencies (Continued)

being amortized over the 20-year lease term in accordance with SFAS No. 13. The unamortized balance of the deferred gain as of May 31, 2005 is $8,455 and is included in the caption “Deferred income and other” on the Consolidated Balance Sheet.

In June 2004, we signed an agreement to occupy a portion of the Indianapolis Maintenance Center (IMC). In December 2004, we commenced airframe maintenance operations at the IMC and currently occupy three bays and certain office space, with options to occupy up to seven additional bays. In connection with the lease, we are entitled to receive rent credits as we increase the number of bays we occupy. During fiscal 2005, we received $350 of such rent credits and in accordance with SFAS No. 13 are treating the rent credits as lease incentives and are amortizing the rent credits over the term of the lease.

In addition to the aviation equipment operating leases and the Garden City and IMC leases, we lease other facilities and equipment under agreements that are classified as operating leases that expire at various dates through 2023. Future minimum payments under all operating leases at May 31, 2005 are as follows:

	Future Minimum Payments
Year	Facilities and Equipment			Aviation Equipment
2006		$	7,909		$	10,887
2007		7,716			18,302
2008		6,681			3,840
2009		5,490			3,840
2010 and thereafter		29,395			1,280

Rental expense during the past three fiscal years was as follows:

	For the Year Ended May 31,
	2005		2004		2003
Facilities and Equipment	$	9,445	$	8,193	$	6,597
Aviation Equipment	2,629		3,051		3,117

We routinely issue letters of credit and performance bonds in the ordinary course of our business. These instruments are typically issued in conjunction with insurance contracts or other business requirements. The total of these instruments outstanding at May 31, 2005 was approximately $13,175.

We are involved in various claims and legal actions, including environmental matters, arising in the ordinary course of business (see Item 3 Legal Proceedings). In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial condition or results of operations.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

10. Discontinued Operations

On February 17, 2005, we sold substantially all of the assets, subject to certain liabilities of our engine component repair business, located in Windsor, Connecticut. The engine component repair business was a unit within the Aviation Supply Chain segment. We received as consideration cash of $7,700 and acquired inventory having a value of approximately $1,200, subject to certain adjustments. As a result of the transaction, we recorded a pre-tax charge of $3,651 ($2,321 after-tax), representing the loss on disposal. Of the $3,651 pre-tax charge, severance charges were $287 and closing costs related to the transactions were $619. The remaining portion of the charge of $2,745 represents the difference between the consideration received and the net book value of the assets sold.

Revenues and the pre-tax operating loss for the three-year period ended May 31, 2005 for the discontinued operations are summarized as follows:

	For the Year Ended May 31,
	2005			2004			2003
Revenues	$	5,898		$	7,488		$	6,496
Pre-tax operating loss	(1,229		)	(1,631		)	(2,819		)

11. Impairment Charges

Prior to September 11, 2001 we were executing our plan to reduce our investment in support of older generation aircraft in line with the commercial airlines’ scheduled retirement plans for these aircraft. The events of September 11 caused a severe and sudden disruption in the commercial airline industry, which brought about a rapid acceleration of those retirement plans. System-wide capacity was reduced by approximately 20%, and many airlines cancelled or deferred new aircraft deliveries. Based on management’s assessment of these and other conditions, in the second quarter ended November 30, 2001, we reduced the value and provided loss accruals for certain of our inventories and engine leases which support older generation aircraft by $75,900.

The writedown for engine and airframe parts was determined by comparing the carrying value for inventory parts that support older generation aircraft to their net realizable value. In determining net realizable value, we assigned estimated sales prices taking into consideration historical selling prices and demand, as well as anticipated demand. The writedown for whole engines related to assets that are reported in the caption “Equipment on or available for short-term lease” and was determined by comparing the carrying value for each engine to an estimate of its undiscounted future cash flows. In those instances where there was a shortfall, the impairment was measured by comparing the carrying value to an estimate of the asset’s fair market value. The loss accruals for engine operating leases were determined by comparing the scheduled purchase option prices to the estimated fair value of such equipment. In those instances where the scheduled purchase option price exceeded the estimated fair value, an accrual for the estimated loss was recorded.

During the fourth quarter of fiscal 2003, we recorded additional impairment charges related to certain engine and airframe parts and whole engines in the amount of $5,360. The fiscal 2003 impairment charge was based upon an updated assessment of the net realizable values for certain engine and airframe parts and future undiscounted cash flows for whole engines.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

11. Impairment Charges (Continued)

A summary of the carrying value of impaired inventory and engines, after giving effect to the impairment charges recorded by us during fiscal 2003 and fiscal 2002 are as follows:

	May 31, 2005		May 31, 2004		May 31, 2003		November 30, 2001
Net impaired inventory and engines	$	43,200	$	51,500	$	56,200		$	89,600

Proceeds from sales of impaired inventory and engines for the twelve-month periods ended May 31, 2005, 2004, and 2003 were $7,900, $7,300, and $12,100, respectively, and $15,600 for the six-month period ended May 31, 2002.

12. Other Noncurrent Assets

At May 31, 2005 and 2004, other noncurrent assets consisted of the following:

	May 31,
	2005		2004
Notes receivable	$	10,679	$	13,259
Investment in leveraged lease	9,419		9,541
Investment in aviation equipment	8,498		9,123
Cash surrender value of life insurance	7,091		6,146
Debt issuance costs	2,878		4,022
Licenses and rights	2,837		3,349
Other	21,499		21,090
	$	62,901	$	66,530

13. Business Segment Information

Segment Reporting

We are a diversified provider of products and services to the global aviation/aerospace industry. We report our activities in four business segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; Structures and Systems; and Aircraft Sales and Leasing.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

13. Business Segment Information (Continued)

The accounting policies for the segments are the same as those described in Note 1. Our chief decision making officer (Chief Executive Officer) evaluates performance based on the reportable segments. The expenses and assets related to corporate activities are not allocated to the segments. Our reportable segments are aligned principally around differences in products and services.

Gross profit is calculated by subtracting cost of sales from sales. Selected financial information for each reportable segment has been re-stated to conform with current year presentation and is as follows:

	For the Year Ended May 31,
	2005		2004		2003
Net sales:
Aviation Supply Chain	$	390,060	$	349,527	$	358,412
Maintenance, Repair and Overhaul	111,932		106,416		93,415
Structures and Systems	200,717		163,557		130,628
Aircraft Sales and Leasing	45,139		24,969		17,387
	$	747,848	$	644,469	$	599,842

	For the Year Ended May 31,
	2005		2004		2003
Gross profit:
Aviation Supply Chain	$	67,672	$	51,972	$	42,686
Maintenance, Repair and Overhaul	14,414		14,351		11,600
Structures and Systems	35,435		29,621		18,895
Aircraft Sales and Leasing	3,305		4,674		4,519
	$	120,826	$	100,618	$	77,700

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

13. Business Segment Information (Continued)

	May 31,
	2005		2004		2003
Total assets:
Aviation Supply Chain	$	298,477	$	287,434	$	329,050
Maintenance, Repair and Overhaul	86,271		69,145		75,066
Structures and Systems	97,780		93,956		70,060
Aircraft Sales and Leasing	119,581		135,598		128,761
Corporate	130,121		123,159		83,684
	$	732,230	$	709,292	$	686,621

	For the Year Ended May 31,
	2005		2004		2003
Capital expenditures:
Aviation Supply Chain	$	3,777	$	3,944	$	5,004
Maintenance, Repair and Overhaul	2,817		1,650		2,176
Structures and Systems	5,222		4,237		2,009
Aircraft Sales and Leasing	48		7		—
Corporate	1,169		448		741
	$	13,033	$	10,286	$	9,930

	For the Year Ended May 31,
	2005		2004		2003
Depreciation and amortization:
Aviation Supply Chain	$	10,768	$	9,764	$	9,609
Maintenance, Repair and Overhaul	2,534		2,474		1,978
Structures and Systems	4,481		4,001		4,017
Aircraft Sales and Leasing	6,087		5,925		7,458
Corporate	4,080		4,516		4,110
	$	27,950	$	26,680	$	27,172

The following table reconciles segment gross profit to consolidated income (loss) before provision for income taxes.

	For the Year Ended May 31,
	2005			2004			2003
Segment gross profit	$	120,826		$	100,618		$	77,700
Selling, general and administrative and other	(87,902		)	(80,552		)	(77,293		)
Equity in earnings of aircraft joint ventures	568			215			501
Gain on extinguishment of debt	3,562			—			—
Interest expense	(16,917		)	(18,691		)	(19,416		)
Interest income	1,502			1,748			1,836
Income (loss) before provision for income taxes	$	21,639		$	3,338		$	(16,672	)

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

13. Business Segment Information (Continued)

No single non-government customer represents 10% or more of total sales in any of the last three fiscal years. Sales to the U.S. Government, its agencies and its contractors by segment are as follows:

	For the Year Ended May 31,
	2005			2004			2003
Aviation Supply Chain	$	69,027		$	66,137		$	51,535
Maintenance, Repair and Overhaul	25,976			27,370			30,953
Structures and Systems	157,165			129,051			87,703
	$	252,168		$	222,558		$	170,191
Percentage of total sales	33.7		%	34.5		%	28.4		%

Geographic Data

	May 31,
	2005		2004
Long-lived assets:
United States	$	246,120	$	264,987
Europe	11,378		11,932
Other	190		169
	$	257,688	$	277,088

Export sales from our U.S. operations to unaffiliated customers, the majority of which are located in Europe, the Middle East, Canada, Mexico, South America and Asia (including sales through foreign sales offices of domestic subsidiaries), were approximately $178,211 (23.8% of total sales), $111,902 (17.2% of total sales) and $142,403 (23.5% of total sales) in fiscal 2005, 2004 and 2003, respectively.

AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)

14. Selected Quarterly Data (Unaudited)

The unaudited selected quarterly data for fiscal years ended May 31, 2005 and 2004 follows.

	Fiscal 2005								Diluted Earnings
Quarter	Sales		Gross Profit			Net Income			Per Share
First	$	163,773		$	26,525		$	2,286		$	0.07
Second	176,448			28,471			4,839			0.14
Third	197,701			30,735			2,595			0.08
Fourth	209,926			35,095			5,733			0.17
	$	747,848		$	120,826		$	15,453		$	0.46

See Note 2 for information regarding gains on extinguishment of debt and Note 10 for information regarding discontinued operations.

	Fiscal 2004					Net Income				Diluted Earnings
Quarter	Sales		Gross Profit			(Loss)				(Loss) Per Share
First	$	150,570		$	21,389		$	(1,996	)		$	(0.06	)
Second	157,831			25,239			916				0.03
Third	159,233			26,476			2,012				0.06
Fourth	176,835			27,514			2,572				0.08
	$	644,469		$	100,618		$	3,504			$	0.11

15. Allowance for Doubtful Accounts

	May 31,
	2005			2004			2003
Balance, beginning of year	$	6,310		$	8,663		$	10,624
Provision charged to operations	2,391			2,771			3,140
Deductions for accounts written off, net of recoveries	(2,838		)	(5,124		)	(5,101		)
Balance, end of year	$	5,863		$	6,310		$	8,663

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

As required by Rules 13a-15(e) and 15d-15(e) of the Act, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of May 31, 2005. This evaluation was carried out under the supervision and with participation of our Chief Executive Officer and Chief Financial Officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Therefore, effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of May 31, 2005, ensuring that information required to be disclosed in the reports that are filed under the Act is recorded, processed, summarized and reported in a timely manner.

There were no changes in our internal control over financial reporting during the fourth quarter ended May 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of AAR CORP. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems which are determined to be effective provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of its internal control over financial reporting based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our assessment, management concluded that the Company maintained effective internal control over financial reporting as of May 31, 2005. Our assessment of the effectiveness of our internal control over financial reporting as of May 31, 2005, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein.

Report of Independent Registered Public Accounting Firm

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF AAR CORP.:

We have audited management’s assessment, included in the accompanying Management Report on Internal Control Over Financial Reporting, that AAR CORP. and subsidiaries (the Company) maintained effective internal control over financial reporting as of May 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of May 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of May 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended May 31, 2005 and our report dated July 20, 2005 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

Chicago, Illinois
July 20, 2005

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item regarding the Directors of the Company is incorporated by reference to the information contained under the caption, “Board of Directors” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders.

The information required by this item regarding the Executive Officers of the Company appears under the caption, “Executive Officers of the Registrant” in Part I, Item 4 above.

The information required by this item regarding the compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the information contained under the caption, “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders.

The information required by this item regarding the identification of the Audit Committee as a separately-designated standing committee of the Board is incorporated by reference to the information contained under the caption, “Board Committees” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders, and information required by this item regarding the status of one or more members of the Audit Committee being an “audit committee financial expert” is incorporated by reference to the information contained under the caption, “Board Committees” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders.

The information required by this item regarding our Code of Business Ethics and Conduct applicable to our directors, officers and employees is incorporated by reference to the information contained under the caption, “Corporate Governance Information” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the information contained under the captions “Executive Compensation and Other Information” (but excluding the following sections thereof: “Compensation Committee’s Report on Executive Compensation” and “Stockholder Return Performance Graph”); “Employment and Other Agreements” and “Directors’ Compensation” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information as of May 31, 2005 with respect to the Company’s compensation plans under which equity securities of the Company are authorized for issuance:

	Equity Compensation Plan Information
	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		4,607		$	15.17		3,205
Equity compensation plans not approved by security holders		—		—			—
Total		4,607		$	15.17		3,205

The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information contained under the caption “Security Ownership of Management and Others” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the information contained under the caption “Certain Relationships and Related Transactions” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the information contained under the caption “Principal Accountant Fees and Services” in our definitive proxy statement for the 2005 Annual Meeting of Stockholders.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) and (2) Financial Statements and Financial Statement Disclosures

The following financial statements are filed as a part of this report under “Item 8—Financial Statements And Supplementary Data”

		Page
Report of Independent Registered Public Accounting Firm		20
Financial Statements—AAR CORP. and Subsidiaries:
Consolidated Statements of Operations for the three years ended May 31, 2005		21
Consolidated Balance Sheets as of May 31, 2005 and 2004		22-23
Consolidated Statements of Stockholders’ Equity for the three years ended May 31, 2005		24
Consolidated Statements of Cash Flows for the three years ended May 31, 2005		25
Notes to Consolidated Financial Statements		26-55
Selected quarterly data (unaudited) for the years ended May 31, 2005 and 2004
(Note 14 of Notes to Consolidated Financial Statements)		55

(a)(3) Exhibits

The Exhibits filed as part of this report are set forth in the Exhibit Index contained elsewhere herein. Management contracts and compensatory arrangements have been marked with an asterisk (*) on the Exhibit Index.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	AAR CORP.
	(Registrant)
Date: July 22, 2005
	BY:	/s/ DAVID P. STORCH
		David P. Storch
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ IRA A. EICHNER	Chairman of the Board	July 22, 2005
Ira A. Eichner	Director
/s/ DAVID P. STORCH	President and Chief Executive Officer;
David P. Storch	Director (Principal Executive Officer)
/s/ TIMOTHY J. ROMENESKO	Vice President and Chief Financial
Timothy J. Romenesko	Officer (Principal Financial Officer)
/s/ MICHAEL J. SHARP	Vice President and Controller
Michael J. Sharp	(Principal Accounting Officer)
/s/ JAMES G. BROCKSMITH, JR.	Director
James G. Brocksmith, Jr.
/s/ Ronald R. Fogleman	Director
Ronald R. Fogleman
/s/ JAMES E. GOODWIN	Director
James E. Goodwin
/s/ MARC J. WALFISH	Director
Marc J. Walfish
/s/ RONALD B. WOODARD	Director
Ronald B. Woodard

EXHIBIT INDEX

	Index		Exhibits
3.	Articles of Incorporation and By-Laws	3.1	Restated Certificate of Incorporation; Amendments thereto dated November 3, 1987, October 19, 1988, October 16, 1989 and November 3, 1999. ²⁴
		3.2	By-Laws as amended. Amendment thereto dated April 12, 1994, January 13, 1997, July 16,1992, April 11, 2000, May 13, 2002 and October 13, 2004 (filed herewith).
4.	Instruments defining the rights of security holders	4.1	Restated Certificate of Incorporation and Amendments (see Exhibit 3.1).
		4.2	By-Laws as amended (See Exhibit 3.2).
		4.3	Rights Agreement between the Registrant and the First National Bank of Chicago dated July 8, 1997 ¹⁰ and amended October 16, 2001. ¹⁵
		4.4	Indenture dated October 15, 1989 between the Registrant and U.S. Bank Trust National Association (formerly known as First Trust, National Association, as successor in interest to Continental Bank, National Association) as Trustee, relating to debt securities; ³ First Supplemental Indenture thereto dated August 26, 1991; ⁴ Second Supplemental Indenture thereto dated December 10, 1997. ¹¹
		4.5	Officers’ certificates relating to debt securities dated October 24, 1989, ⁷ October 12, 1993, ⁷ December 15, 1997 ¹⁹ and May 31, 2002. ¹⁹
		4.6	Revolving Loan Agreement dated April 11, 2001 between Registrant and LaSalle Bank National Association ¹⁶ amended November 30, 2001, ¹⁷ April 22, 2002, ¹⁷ June 6, 2002, ¹⁷ March 10, 2003, ¹⁸ March 21, 2003, ¹⁸ May 9, 2003, ¹⁹ June 26, 2003, ¹⁹ March 2, 2004, ²⁴ and March 29, 2005. ²⁹
		4.7	Note Purchase Agreement dated May 1, 2001 between Registrant and various purchasers, relating to the issuance of debt securities to institutional investors. ¹⁶
		4.8	Credit Agreement dated May 29, 2003 between Registrant and various subsidiaries and Merrill Lynch Capital and various additional lenders from time to time who are parties thereto, ¹⁹ as amended January 23, 2004, ²⁴ August 24, 2004, ²⁵ and March 29, 2005. ²⁹
		4.9	Loan and Security Agreement dated July 1, 2003 between Registrant’s subsidiary, AAR Wood Dale LLC and Fremont Investment Loan. ¹⁹
		4.10	Form of 2.875% Senior Convertible Note. ²²
		4.11	Indenture between AAR CORP. as Issuer and U.S. Bank National Association, as Trustee dated February 3, 2004. ²²

		4.12	Registration Rights Agreement between AAR CORP. and Goldman, Sachs & Co., as representative of the several Purchasers, dated February 3, 2004. ²²
		4.13	Loan Agreement dated July 15, 2005 between Registrant’s Subsidiary, AAR Wood Dale LLC and Principal Commercial Funding, LLC. ³⁰
			Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant is not filing certain documents. The Registrant agrees to furnish a copy of each such document upon the request of the Commission.
10.	Material Contracts	10.1*	Amended and Restated AAR CORP. Stock Benefit Plan effective October 1, 2001, ¹⁵ as amended June 27, 2003, ¹⁹ as amended May 5, 2005 (filed herewith).
		10.2*	Death Benefit Agreement dated August 24, 1984 between the Registrant and Ira A. Eichner. ⁵ Amendments thereto dated August 12, 1988, ² May 25, 1990 ¹² and October 9, 1996, ¹² and his agreement to terminate such Death Benefit Agreement dated May 30, 1999. ¹²
		10.3*	Further Restated and Amended Employment Agreement dated August 1, 1985 between the Registrant and Ira A. Eichner. ¹ Amendments thereto dated August 12, 1988, ² May 25, 1990, ⁹ July 13, 1994 ⁹ and October 9, 1996. ¹²
		10.4*	Trust Agreement dated August 12, 1988 between the Registrant and Ira A. Eichner ² and amendments thereto dated May 25, 1990, ⁹ February 4, 1994, ⁸ October 9, 1996 ¹² and May 30, 1999. ¹²
		10.5*	AAR CORP. Directors’ Retirement Plan, dated April 14, 1992, ⁶ amended May 26, 2000 ¹³ and April 10, 2001. ¹⁶
		10.6*	AAR CORP. Amended and Restated Supplemental Key Employee Retirement Plan, dated May 4, 2000, ¹³ amended April 10, 2001, ¹⁶ October 10, 2001, ¹⁷ October 10, 2002, ¹⁸ December 18, 2002 ¹⁸ and July 1, 2003. ²⁰
		10.7*	Amended and Restated Employment Agreement dated July 14, 1998 between the Registrant and David P. Storch ¹³ and amended July 10, 2001. ¹⁴
		10.8*	Amended and Restated Severance and Change in Control Agreement dated April 11, 2000 between the Registrant and Howard A. Pulsifer. ¹³
		10.9*	Amended and Restated Severance and Change in Control Agreement dated August 1, 2000 between the Registrant and Michael J. Sharp. ¹⁶
		10.10*	Amended and Restated Severance and Change in Control Agreement dated April 11, 2000 between the Registrant and Timothy J. Romenesko. ¹³

		10.11*	Amended and Restated AAR CORP. Nonemployee Directors’ Deferred Compensation Plan, dated April 8, 1997, amended May 26, 2000, ¹³ December 18, 2002 ¹⁸ and July 1, 2003. ²⁰
		10.12*	Severance and Change in Control Agreement dated January 14, 2000 between the Registrant and James J. Clark. ¹⁸
		10.13	Purchase and Sale Agreement dated March 21, 2003 between AAR Distribution, Inc., AAR Parts Trading, Inc., AAR Manufacturing, Inc., AAR Engine Services, Inc., AAR Allen Services, Inc., the Registrant as Initial Servicer and AAR Receivables Corporation II. ¹⁸
		10.14	Receivables Purchase Agreement dated March 21, 2003 between AAR Receivables Corporation II, the Registrant individually and as Initial Servicer, the Financial Institutions from time to time Parties hereto and LaSalle Business Credit, LLC, ¹⁸ amended November 30, 2003, ²⁴ February 27, 2004, ²⁴ October 21, 2004, ²⁶ November 30, 2004 ²⁷ and December 20, 2004. ²⁸
		10.15	Indenture dated October 3, 2003 between AAR Distribution, Inc. and iStar Garden City LLC. ²¹
		10.16	Lease Agreement dated October 3, 2003 between AAR Allen Services, Inc., as tenant and iStar Garden City LLC, as Landlord, and related Guaranty dated October 3, 2003 from Registrant to iStar Garden City LLC. ²¹
		10.17*	Consulting Agreement dated June 1, 1999 between the Registrant and Ira A. Eichner amended June 1, 2003. ²³
		10.18*	Severance and Change in Control Agreement dated April 1, 2003 between AAR Manufacturing, Inc. and Mark McDonald. ²³
		10.19	Lease Agreement by and between Indianapolis Airport Authority and AAR Aircraft Services, Inc. dated as of June 14, 2004, as amended January 21, 2005 (filed herewith).
		10.20*	Form of Non-Qualified Stock Option Agreement (filed herewith).
		10.21*	Form of Restricted Stock Agreement (filed herewith).
		10.22*	Form of Performance Restricted Stock Agreement (filed herewith).
21.	Subsidiaries of the Registrant	21.1	Subsidiaries of AAR CORP. (filed herewith).
23.	Consents of experts and counsel	23.1	Consent of Independent Registered Public Accounting Firm (filed herewith).
31.	Rule 13a-14(a)/15(d)-14(a) Certifications	31.1	Section 302 Certification dated July 22, 2005 of David P. Storch, President and Chief Executive Officer of Registrant (filed herewith).

		31.2	Section 302 Certification dated July 22, 2005 of Timothy J. Romenesko, Vice President and Chief Financial Officer of Registrant (filed herewith).
32.	Rule 13a-14(b)/15d-14(b) Certifications	32.1	Section 906 Certification dated July 22, 2005 of David P. Storch, President and Chief Executive Officer of Registrant (filed herewith).
		32.2	Section 906 Certification dated July 22, 2005 of Timothy J. Romenesko, Vice President and Chief Financial Officer of Registrant (filed herewith).

Notes:

¹ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 1986.

² Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 1988.

³ Incorporated by reference to Exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 1989.

⁴ Incorporated by reference to Exhibits to the Registrant’s Registration Statement on Form S-3 filed August 27, 1991.

⁵ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 1985.

⁶ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 1992.

⁷ Incorporated by reference to Exhibits to the Registrant’s Current Reports on Form 8-K dated October 24, 1989 and October 12, 1993, respectively.

⁸ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 1994.

⁹ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 1996.

¹⁰ Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated August 4, 1997.

¹¹ Incorporated by reference to Exhibits to the Registrant’s Registration Statement on Form S-3 filed December 10, 1997.

¹² Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 1999.

¹³ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2000.

¹⁴ Incorporated by reference to Exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2001.

¹⁵ Incorporated by reference to Exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2001.

¹⁶ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2001.

¹⁷ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2002.

¹⁸ Incorporated by reference to Exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003.

¹⁹ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2003.

²⁰ Incorporated by reference to Exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2003.

²¹ Incorporated by reference to Exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2003.

²² Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated February 3, 2004.

²³ Incorporated by reference to Exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004.

²⁴ Incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004.

²⁵ Incorporated by reference to Exhibits to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2004.

²⁶ Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated October 21, 2004.

²⁷ Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated November 30, 2004.

²⁸ Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated December 20, 2004.

²⁹ Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated March 29, 2005.

³⁰ Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated July 15, 2005.

Exhibit 3.2

AMENDED BY-LAWS*

AAR CORP.

A Delaware Corporation

ARTICLE I

OFFICES

SECTION 1. PRINCIPAL OFFICE . The principal office shall be at 229 South State Street, in the City of Dover, County of Kent, State of Delaware, and the name of the resident agent in charge thereof is THE PRENTICE-HALL CORPORATION SYSTEM, INC.

SECTION 2. OTHER OFFICES . The corporation may also have an office or offices at such other place or places, within or without the State of Delaware, as the Board of Directors may from time to time designate or the business of the corporation require.

ARTICLE II

STOCKHOLDERS’ MEETINGS

SECTION 1. TIME . The annual meeting of the stockholders of the corporation for the election of directors and the transaction of such other business as may properly come before such meeting shall be held each year on the second Wednesday in October at 10:00 a.m. (Chicago time), or if said day be a legal holiday, then on the next succeeding day not a legal holiday, or shall be held on such other time and date as shall be determined by the Board of Directors. A special meeting of the stockholders shall be held on the date and at the time fixed by those persons

*as of October 13, 2004

authorized by the Certificate of Incorporation to call such meeting.

SECTION 2. PLACE . Annual meetings and special meetings shall be held at such place, within or without the State of Delaware, as the directors may, from time to time, fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware.

SECTION 3. CALL . Annual meetings may be called by the directors or by any officer instructed by the directors to call the meeting.

SECTION 4. NOTICE OR WAIVER OF NOTICE . Written notice of all meetings shall be given, stating the place, date and hour of the meeting. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall (if any other action which could be taken at a special meeting is to be taken at such annual meeting), state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. If any action is proposed to be taken which would, if taken, entitle stockholders to receive payment for their shares of stock, the notice shall include a statement of that purpose and to that effect. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than

sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice by him before or after the time stated therein. Attendance of a person at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice.

SECTION 5. STOCKHOLDER LIST . The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting,

arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders.

SECTION 6. CONDUCT OF MEETING . Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting — the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, Executive Vice President, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The person presiding over the meeting shall have authority to prescribe the agenda for the meeting and to control the length and order of discussion.

The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as Secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting.

SECTION 7. PROXY REPRESENTATION . Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. A stockholder, or a stockholder’s attorney-in-fact, may validly grant such authority by (a) executing a writing authorizing another person to act for such stockholder as proxy, or (b) by transmitting or authorizing the transmission of such authority by a telegram, cablegram, or other means of electronic or telephonic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram, or other means of electronic or telephonic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic or telephonic transmission was authorized by the stockholder or stockholders’ attorney-in-fact, or (c) any other means permitted under the Delaware General Corporation Law. No proxy shall be voted or acted upon after three years from its date unless such proxy

provides for a longer period. A duly granted proxy authorization shall be irrevocable if it states that it is irrevocable and, if, and as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A power may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.

SECTION 8. INSPECTORS AND JUDGES . The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election or judges of the vote, as the case may be, to act at the meeting or any adjournment thereof. If an inspector or inspectors or judge or judges are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors or judges. In case any person who may be appointed as an inspector or judge fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector or judge, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector or judges at such meeting with strict impartiality and according to the best of his ability. The inspectors or judges, if any, shall determine the shares of stock represented at the meeting, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents,

determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors or judge or judges, if any, shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them.

SECTION 9. QUORUM . The holders of a majority of the outstanding shares of stock present or represented by proxy at any such meeting of stockholders shall constitute a quorum at such meeting for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum.

SECTION 10. VOTING . Each share of stock shall entitle the holder thereof to one vote. In the election of directors, a plurality of the votes cast shall elect. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power. In determining whether a proposal has been approved, shares abstaining or not voting but otherwise present at the meeting will not be counted as having been voted on the proposal. All elections of directors shall be written ballots. Voting by ballot shall not be required for any other corporate action except as otherwise provided by the General Corporation Law.

ARTICLE III

DIRECTORS

SECTION 1. NUMBER AND QUORUM . a. The Board of Directors shall consist of between three and fifteen directors, with the exact number of directors to be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the Board of Directors then in office.

b. A majority of the members of the Board of Directors acting at a meeting duly assembled, shall constitute a quorum for the transaction of business; provided, however, that, whenever the corporation is permitted by law to have only one director, then, and, in that event only, one director shall constitute a quorum. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting, without further notice from time to time until a quorum shall have been obtained. Except as otherwise provided by law, by the Certificate of Incorporation, or these by-laws, the act of the directors at a meeting at which a quorum is present shall be the act of the Board. Member or members of the Board of Directors shall be deemed present at a meeting if such person or persons are participating in the meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

SECTION 2. MEETINGS . Meetings of the Board of Directors shall be held at such place within or outside the State of Delaware as may from time to time be fixed by resolution of the Board of Directors, or as may be specified in the notice of the meeting. Regular meetings of the Board of Directors shall be held

at such times as may from time to time be fixed by resolution of the Board of Directors, and special meetings may be held at any time upon the call of the Chairman of the Board or, in the absence of the Chairman of the Board, the President or any Vice President or the Secretary or any two directors by oral, telegraphic or written notice duly served on or sent or mailed to each director not less than two days before such meeting. A meeting of the Board of Directors may be held without notice immediately after the annual meeting of stockholders. Notice need not be given of regular meetings of the Board of Directors. The notice of any meeting need not specify the purpose of the meeting. Any requirement of furnishing a notice shall be waived by any director who signs a written waiver of such notice before or after the time stated therein. Further, the attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 3. COMMITTEES . a. The Board of Directors shall appoint from among its members the following committees: audit, compensation, nominating and executive. These committees shall consist of such number, shall have such powers and duties, and the members thereof shall otherwise serve as shall from time to time be prescribed by the Board of Directors.

b. The Board of Directors may, in its discretion, by the affirmative vote of a majority of the whole Board of Directors, appoint other committees which shall have and may exercise such powers and duties as shall be conferred or authorized by the resolutions appointing them.

c. A majority of any committee appointed pursuant to the provisions of a. and b. above, if such committee be composed of more than two members, may determine its action and fix the time and place of its meetings unless the Board of Directors shall otherwise provide. The Board of Directors shall have power at any time to fill vacancies in, to change the membership of, or to discharge any such committee.

d. Any and all actions by any committee shall be reported to the Board of Directors at the board meeting succeeding such action.

SECTION 4. DIVIDENDS . Subject always to the provisions of the law and the Certificate of Incorporation, the Board of Directors shall have full power to determine whether any, and if any, what part of any, funds legally available for the payment of dividends shall be declared in dividends and paid to stockholders; the division of the whole or any part of such funds of the corporation shall rest wholly within the lawful discretion of the Board of Directors, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds among or to the stockholders as dividends or otherwise; and the Board of Directors may fix a sum which may be set aside or

reserved over and above the capital paid in of the corporation as working capital for the corporation or as a reserve for any proper purpose, and from time to time may increase, diminish, and vary the same in its absolute judgment and discretion.

SECTION 5. INTENTIONALLY OMITTED.

SECTION 6. INFORMAL ACTION . Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes or proceedings of the board or committee.

ARTICLE IV

OFFICERS

SECTION 1. NUMBER . The Board of Directors, as soon as may be after the election thereof held in each year, shall elect a Chairman of the Board, President, Secretary, Chief Financial Officer, and Treasurer, and from time to time may appoint a Vice Chairman of the Board, one or more Vice Presidents and such Assistant Secretaries, Assistant Treasurers and such other officers, agents and employees as it may deem proper. Any two offices may be held by the same person. More than two offices other than the offices of Chairman of the Board or President and Secretary may be held by the same person. The Chairman, the Vice Chairman and the President may, but need not, be chosen from among the directors. The Treasurer shall report to the Chief Financial

Officer if not also elected to the position of Chief Financial Officer.

SECTION 2. TERM AND REMOVAL . The term of office of all officers shall be one year and until their respective successors are elected and qualify, but any officer may be removed from office, either with or without cause, at any time by the affirmative vote of a majority of the members of the Board of Directors then in office. A vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors.

SECTION 3. POWERS AND DUTIES . The Chairman of the Board shall preside at all meetings of the Board of Directors, shall have such powers and perform such duties as are assigned to him by these by-laws, and shall have such other powers and perform such other duties as generally pertains to his office. In the absence or disability of the Chairman of the Board, the Vice Chairman of the Board, if one has been appointed, shall assume the duties, powers and position of the said Chairman. The President shall be the Chief Executive Officer of the corporation and, in the absence or disability of the Chairman of the Board and the Vice Chairman of the Board, if the latter has been appointed, the President shall assume the duties, powers and position of the said Chairman. The remaining officers of the corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors. The Vice

President or Vice Presidents, the Assistant Secretary or Assistant Secretaries and the Assistant Treasurer or Assistant Treasurers shall, in the order of their respective seniorities, in the absence or disability of the President, Secretary or Treasurer, respectively, perform the duties of such officer and shall generally assist the President, Secretary or Treasurer, respectively; provided, however, and notwithstanding anything hereinabove to the contrary, that if the Board of Directors designates a Vice President as an Executive Vice President, he shall perform the duties of the President in his absence or disability, regardless of the order of seniority of said Executive Vice President to the other Vice Presidents.

SECTION 4. VOTING CORPORATION’S SECURITIES . Unless otherwise ordered by the Board of Directors, the Chairman of the Board, or in the event of his inability to act, the President, or in the event of his inability to act, the Vice President designated by the Board of Directors to act in the absence of the President, shall have full power and authority on behalf of the corporation to attend and to act and to vote at any meetings of security holders of corporations in which the corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such securities, and which as the owner thereof the corporation might have possessed and exercised, if present. The Board of Directors, by resolution from time to time, may confer like powers upon any other person or persons.

ARTICLE V

CERTIFICATES OF STOCK

SECTION 1. FORM AND TRANSFERS . The interest of each stockholder of the corporation shall be evidenced by certificates for shares of stock, certifying the number of shares represented thereby and in such form not inconsistent with the Certificate of Incorporation as the Board of Directors may from time to time prescribe.

Upon compliance with any provisions restricting the transferability of shares that may be set forth in the Certificate of Incorporation, these by-laws, or any written agreement in respect thereof, transfers of shares of the capital stock of the corporation shall be made only on the books of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, or with a transfer clerk or a transfer agent appointed as in Section 4 of this Article provided, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation; provided that whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact, if known to the Secretary of the corporation, shall be so expressed in the entry of transfer. The Board may, from time

to time, make such additional rules and regulations as it may deem expedient, not inconsistent with these by-laws, concerning the issue, transfer, and registration of certificates for shares of the capital stock of the corporation.

The certificates of stock shall be signed by or in the name of the company by the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by such named holder, and sealed with the seal of the corporation. Such seal may be a facsimile, engraved or printed. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the company with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

SECTION 2. RECORD DATE FOR STOCKHOLDERS . For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to or dissent from any corporate action in writing without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or

exchange of stock, or for the purpose of any other lawful action, the directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall not be more than sixty days nor less than ten days before the date of such meting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and (3) the record date for determining stockholders for any other purpose shall be the close of business on the day on which the Board of Directors adopts the resolution relating thereto. When a determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders has been made as provided in this paragraph, such determination shall apply to any adjournment thereof; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 3. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES . No certificates for shares of stock in the corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the

corporation , if the Board of Directors shall so require, of a bond of indemnity in such amount (not exceeding twice the value of the shares represented by such certificate), upon such terms and secured by such surety as the Board of Directors may in its discretion require.

SECTION 4. TRANSFER AGENT AND REGISTRAR . The Board of Directors may appoint one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates of stock to bear the signature or signatures of any of them.

SECTION 5. EXAMINATION OF BOOKS BY STOCKHOLDERS . The Board shall have power to determine, from time to time, whether and to what extent and at what times and places and under what conditions and regulations the accounts and books and documents of the corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the corporation.

ARTICLE VI

FISCAL YEAR

The fiscal year of the corporation shall begin on the first day of June in each year and shall end on the last day of May next following, unless otherwise determined by the Board of Directors.

ARTICLE VII

CORPORATE SEAL

The corporate seal of the corporation shall be in such form as the Board of Directors shall prescribe.

ARTICLE VIII

AMENDMENTS

The by-laws of this corporation may be amended, altered or repealed and new by-laws not inconsistent with any provision of the Certificate of Incorporation, as amended, may be made (i) by the affirmative vote of a majority of the members of the Board of Directors then in office, or (ii) by the affirmative vote of the holders of at least 80% of the total voting power of all shares of stock of this corporation entitled to vote in the election of directors, considered for purposes of this Article VIII as one class.

ARTICLE IX

Notice of Shareholder Nominations for Director and Other Shareholder Proposals

Written notice of shareholder nominations for Director or any other shareholder proposal for vote of the shareholders at any annual or special meeting of the shareholders called for the election of directors or for any other action by vote of shareholders, shall be given personally or by mail to the Secretary of the Corporation not less than 180 days before the date of the meeting. With respect to a proposed nominee for

election as a director, to be effective such notice must state the full name and address of each proposed nominee and a brief biographical history setting forth past and present directorships, employment, and occupations and any other qualifications, together with a statement that the proposed nominee(s) has consented to being nominated and to serve if elected; with respect to any other proposed action for vote of shareholders, to be effective such notice must clearly state the proposal, the reasons for the proposal and a brief description of how the proposed action, if adopted, would benefit the Company and/or it shareholders. Notice by mail shall be deemed given upon receipt thereof by the Secretary of the Corporation. If a meeting is adjourned to another time or place, it shall not be necessary for a shareholder to give further notice. Unless such notice is given, the shareholder nomination or other shareholder proposal for shareholder vote, shall not be included in the Corporation’s proxy statement nor put for a vote of the shareholders until such notice requirements are met.

Exhibit 10.1

SECOND AMENDMENT TO AAR CORP.
STOCK BENEFIT PLAN

WHEREAS, the Company maintains the AAR CORP. Stock Benefit Plan, amended and restated effective October 1, 2001 and further amended effective June 26, 2003 (the “Plan”); and

WHEREAS, the Company now desires to further amend the Plan to set forth a specific maximum number of shares of common stock of the Company available for issuance under the Plan;

NOW THEREFORE, the Company hereby amends Section 4.1 of the Plan as follows, effective as of April 11, 2005:

“4.1 The total number of Shares that may be available for Awards under the Plan, including without limitation the total number of Shares that may be subject to ISOs under the Plan, from and after April 11, 2005, shall be 3,532,226 Shares, adjusted in accordance with the provisions of Section 4.2 hereof. A Share subject to an Option and its related tandem Restricted Stock Award shall only be counted once. The Shares so issued may be Shares held in the treasury or Shares that are authorized but unissued as elected by the Board. Any Shares subject to issuance upon exercise of Options but which are not issued because of a surrender, lapse, expiration, cancellation or termination of any such Option, or which have been issued in connection with Restricted Stock Awards that are subsequently cancelled or forfeited, to the extent consistent with applicable law, rules and regulations, shall once again be available, to the extent set forth by the Committee in a written resolution, for issuance in satisfaction of Awards.”

IN WITNESS WHEREOF, this Second Amendment has been executed on this 5 ^th day of May, 2005.

	AAR CORP.


	By:	/s/ Howard A. Pulsifer
		Howard A. Pulsifer, Vice President

Exhibit 10.19

LEASE AGREEMENT

by and between

INDIANAPOLIS AIRPORT AUTHORITY

and

AAR AIRCRAFT SERVICES, INC.

Dated as of June 14, 2004

Index to IMC Lease Agreement

ARTICLE I.	DEFINITIONS

Section 101.		Definitions below:

ARTICLE II.	LEASE OF LEASED PREMISES; OWNERSHIP OF IMPROVEMENTS AND EQUIPMENT; USE OF LEASED PREMISES

Section 201.		Lease of Leased Premises
Section 202.		Ownership of Improvements and Equipment
Section 203.		Master Lists of Equipment and Excluded Property.
Section 204.		Condition of Leased Premises
Section 205.		Possession of Leased Premises; Activation.
Section 206.		Use of Leased Premises; Prohibited Uses.

ARTICLE III.	REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 301.		Representations, Warranties and Covenants by Authority
Section 302.		Representations, Warranties and Covenants by Tenant

ARTICLE IV.	OPTION TO EXPAND LEASED PREMISES

Section 401.		Tenant’s Option to Expand Leased Premises

ARTICLE V.	TERM; EXTENSION PERIODS

Section 501.		Term; Extension Option.
Section 502.		Right to Terminate Upon Certain Events.
Section 503.		Rights at Expiration/Termination.
Section 504.		Early Termination Rights.

ARTICLE VI.	RENTALS, FEES AND RECORDS

Section 601.		Rental.
Section 602.		Field Use Charge
Section 603.		Time and Place of Payments
Section 604.		Delinquent Rentals
Section 605.		Authority Incentives.

ARTICLE VII.	OBLIGATIONS OF TENANT

Section 701.		Payment of Rental and Other Amounts
Section 702.		Operation and Use of Leased Premises.
Section 703.		Trash, Garbage and Other Refuse; Outside Storage.

Section 704.		Licenses and Permits
Section 705.		Hazardous Materials.
Section 706.		Industrial Discharge Permit; Air Permits.
Section 707.		Signs
Section 708.		Rules and Regulations for Safety, Care and Cleanliness
Section 709.		Taxes
Section 710.		Nondiscrimination.
Section 711.		Civil Rights
Section 712.		Affirmative Action.
Section 713.		INTENTIONALLY OMITTED.
Section 714.		Observance of Statutes
Section 715.		Hazard Lights
Section 716.		Liens.
Section 717.		Tenant to Maintain Organizational Existence
Section 718.		Advances by Authority

ARTICLE VIII.	OBLIGATIONS OF AUTHORITY

Section 801.		Ingress and Egress
Section 802.		Quiet Enjoyment of the Leased Premises.

ARTICLE IX.	COMPLIANCE WITH SECURITY REQUIREMENTS

Section 901.		Security Agreement
Section 902.		Security Rules and Regulations of Authority, FAA and TSA

ARTICLE X.	MAINTENANCE, REPAIRS AND REPLACEMENTS

Section 1001.		Maintenance, Repairs and Replacements to Facilities and Leased Premises (other than Equipment)
Section 1002.		Maintenance Repairs and Replacements of and to Equipment.
Section 1003.		Prompt Notification of Damage, Defects or Malfunction
Section 1004.		Access to Leased Premises
Section 1005.		Inventory of Equipment at Leased Premises.

ARTICLE XI.	FACILITIES OPERATIONS AND SERVICES

Section 1101.		Services
Section 1102.		Authority Not Liable for Malfunctions
Section 1103.		Utilities to Be Obtained and Maintained by Tenant
Section 1104.		Energy and Utility Conservation
Section 1105.		Reimbursement by Tenant

ARTICLE XII.	FINANCIAL SECURITY

Section 1201.		Letter of Credit
Section 1202.		Guaranty

ARTICLE XIII.	AUTHORITY’S RESERVATIONS

Section 1301.		Improvement, Relocation or Removal
Section 1302.		Inspection of Leased Premises; Exhibition of Leased Premises
Section 1303.		Subordination to U.S. Government
Section 1304.		Suspension of Lease Agreement

ARTICLE XIV.	COMMON AREAS

Section 1401.		Definition
Section 1402.		Tenant’s Use of Common Areas
Section 1403.		Maintenance
Section 1404.		Reservation of Rights

ARTICLE XV.	INSURANCE

Section 1501.		Authority’s Insurance
Section 1502.		Tenant’s Insurance.
Section 1503.		Application of Insurance Proceeds
Section 1504.		Release and Waiver of Subrogation

ARTICLE XVI.	CASUALTY DAMAGE AND CONDEMNATION

Section 1601.		Damage by Casualty
Section 1602.		Condemnation.

ARTICLE XVII.	GENERAL INDEMNITY

Section 1701.		Tenant Indemnity
Section 1702.		Authority Indemnity.

ARTICLE XVIII.	EVENTS OF DEFAULT BY AUTHORITY

Section 1801.		Events of Default by Authority
Section 1802.		Remedies of Tenant on Default
Section 1803.		No Additional Waiver Implied By One Waiver; Consents to Waiver
Section 1804.		Delay Not a Waiver
Section 1805.		No Remedy Exclusive
Section 1806.		Notice of Termination

ARTICLE XIX.	EVENTS OF DEFAULT BY TENANT

Section 1901.		Events of Default By Tenant
Section 1902.		Certain Remedies of the Authority on Rental Default.
Section 1903.		Additional Remedies of Authority on Default.
Section 1904.		Tenant to Remain Liable for Payments; Reletting.
Section 1905.		Disposition of Excluded Property
Section 1906.		No Remedy Exclusive
Section 1907.		No Additional Waiver Implied By One Waiver; Consents to Waiver
Section 1908.		Notice of Termination

iii

Section 1909.		Possession by Authority
Section 1910.		Delay Not A Waiver

ARTICLE XX.	RIGHTS UPON TERMINATION

Section 2001.		Improvements
Section 2002.		Excluded Property

ARTICLE XXI.	ASSIGNMENT AND SUBLETTING; RIGHT OF FIRST REFUSAL AND LEASE OF AVAILABLE SPACE

Section 2101.		Subleases and Assignments.
Section 2102.		Subletting
Section 2103.		Payments from Assignees, Subtenants or Occupants
Section 2104.		Mortgages Prohibited
Section 2105.		Lease of Available Space; Tenant’s Right of First Refusal.
Section 2106.		Sole Remedy

ARTICLE XXII.	GENERAL PROVISIONS

Section 2201.		Non-Interference with Operation of Airport
Section 2202.		Binding Upon Successors and Assigns; No Intent to Benefit Third Parties
Section 2203.		Entire Agreement; Amendments
Section 2204.		Waiver
Section 2205.		Section Headings
Section 2206.		Governing Law; Interpretation
Section 2207.		Relationship
Section 2208.		Notices
Section 2209.		Counterparts
Section 2210.		Exculpation of Directors and Officers; Limited Liability
Section 2211.		Covenants Concerning the Other Lease Agreements and Bond Issues

LEASE AGREEMENT

THIS LEASE AGREEMENT (hereinafter called this “Lease Agreement” or this “Lease”) is made and entered into as of the 14 day of June, 2004 (the “Effective Date”), by and between the INDIANAPOLIS AIRPORT AUTHORITY, a municipal corporation existing under and by virtue of the laws of the State of Indiana (the “Authority”), and AAR AIRCRAFT SERVICES, INC., a corporation incorporated in the State of Illinois and authorized to do business in the State of Indiana, with its principal office at 1100 North Wood Dale Road, Wood Dale, Illinois 60191 (“Tenant”).

WITNESSETH THAT:

WHEREAS, the Authority owns and operates the Airport; and

WHEREAS, the Authority owns and holds a leasehold interest in the Land and the Facilities that have been developed on the Land; and

WHEREAS, the Authority shall lease to Tenant pursuant to this Lease Agreement the leasehold interests of the Authority in the Leased Premises, which constitute a portion of the Land and Facilities; and

WHEREAS, Tenant is engaged in the aviation and aerospace business, including the business of providing aircraft maintenance, repair and overhaul services to commercial airlines and other operators of aircraft, and related services; and

WHEREAS, Tenant desires to lease the Leased Premises upon the terms and conditions hereinafter stated:

NOW, THEREFORE, in consideration of the mutual covenants and payments herein contained, the Authority and Tenant hereby agree as follows:

ARTICLE I.

DEFINITIONS

Section 101. Definitions below:

“145 Certificate” has the meaning set forth in Section 302(G) of this Lease.

“Act” means Indiana Code 8-22-3.

“Activate” or “Activation” has the meaning set forth in Section 205(A) of this Lease.

“Activation Notice” has the meaning set forth in Section 205(A) of this Lease.

“Actual Facilities Costs and Expenses” has the meaning set forth in Section 601(B)(2) of this Lease.

“Additional Rent” has the meaning set forth in Section 601(B)(1) of this Lease.

“Additional Rental Per Square Foot Per Annum” has the meaning set forth in Section 601(B)(2) of this Lease.

“Affiliate” means any entity, directly or indirectly, controlled by, controlling, or under common control with Tenant.

“Air Operations Area” means any portion of the Airport designed and used for landing, taking off, or surface maneuvering of airplanes.

“Airport” means the Indianapolis International Airport.

“Airport Director” means the Airport Director of the Airport.

“Apron” means that area shown on Exhibit I to this Lease, as the same may be amended by the Authority from time to time.

“Authority” means the Indianapolis Airport Authority, a municipal corporation duly organized and operating under the laws of the State, including the Act, or any successor thereto or assignee thereof.

“Authority Permits” has the meaning set forth in Section 704 of this Lease.

“Authority’s Non-Compliance Notice” has the meaning set forth in Section 705(D) of this Lease.

“Authority’s Notice of Proposed Agreement” has the meaning set forth in Section 2105(A)(3) of this Lease.

“Authority Termination Event” has the meaning set forth in Section 504(A) of this Lease.

“Available Equipment” means those items of Equipment on the Master List of Equipment that have not already been provided to Tenant for its then currently Occupied space at the Leased Premises.

“Available Space” has the meaning set forth in Section 2105(A) of this Lease.

“BAA” means BAA Indianapolis LLC, an Indiana limited liability company.

“BAA USA” means BAA USA (Holdings), Inc., a Delaware corporation.

“Baseline Environmental Audit” has the meaning set forth in Section 705(C) of this Lease.

“Base Rent” has the meaning set forth in Section 601(A)(1) of this Lease.

“Bay” means that separate area, within a Hangar, which comprises approximately one-half (1/2) of the Hangar. A “Bay” includes all of the office, storage, and employee support space associated with that particular Bay.

“Bond Issues” means the City Bonds, the State Bonds, and the Special Facility Bonds.

“Casualty” has the meaning set forth in Section 1601(A)(1) of this Lease.

“City Bonds” means one or more series of tax-exempt revenue bonds, including refunding bonds, issued by the Redevelopment Authority payable solely from lease rentals from legally available funds of the Commission.

“Commission” means the Metropolitan Development Commission of Marion County, Indiana, acting as the Redevelopment Commission of the City of Indianapolis, Indiana.

“Commission Lease Agreement” means the Commission Lease Agreement dated as of December 1, 1991 between the Commission and the Authority, as the same has been or may hereafter be amended or supplemented from time to time.

“Common Area” has the meaning set forth in Section 1401 of this Lease.

“Condemnation” has the meaning set forth in Section 1602(A) of this Lease.

“Condition” has the meaning set forth in Section 2105(A)(2) of this Lease.

“Corporate Overhead” has the meaning set forth in Section 601(C)(3)(c) of this Lease.

“Corporate Overhead Allocation Guidelines” has the meaning set forth in Section 601(C)(3)(c) of this Lease.

“Credits” has the meaning set forth in Section 605(B)(1) below.

“Credit Thresholds” has the meaning set forth in Section 605(B)(1) below.

“Deficit” has the meaning set forth in Section 501(B)(3) of this Lease.

“Effective Date” has the meaning set forth in the Preamble to this Lease.

“Employees” means, as to Tenant or its subtenants, respectively, Persons who are either employed directly or indirectly by Tenant or a subtenant, respectively, or are contracted by Tenant or a subtenant, respectively, to perform day-to-day work that would otherwise be performed by employees of Tenant or a subtenant, respectively.

“Entity” means any corporation, partnership, limited partnership, limited liability partnership, joint venture, association, limited liability company, joint-stock company, trust, or other entity or unincorporated association, or any Governmental Entity.

“Environmental Audits” has the meaning set forth in Section 705(D) of this Lease.

“Environmental Laws” means all Federal, State and local laws, including without limitation all statutes, regulations, ordinances, codes, rules, policies, orders, decrees, guidance, guidelines, conditions, permits issued to the Authority, and other governmental restrictions and requirements, relating to the environment or Hazardous Materials, and shall include, without limitation, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended by the Superfund Amendments and Reauthorization Act of 1986, the Federal Solid Waste Disposal Act, the Occupational Safety and Health Act, the Federal Water Pollution Control Act, the Federal Clean Air Act, the Federal Clean Water Act, the Resource Conservation and Recovery Act of 1976, the Safe Drinking Water Act, the Toxic Substances Control Act, the Refuse Act, the Hazardous Materials Transportation Act, the Emergency Planning and Community Right-to-Know Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Endangered Species Act, the National Environmental Policy Act, regulations of the Environmental Protection Agency, regulations of the Nuclear Regulatory Agency, the Indiana Air and Water Pollution Control Law, the Indiana Groundwater Protection Act, the Indiana Hazardous Waste Law, the Indiana Underground Storage Tanks Act, the Indiana Wastewater Management Law, the Indiana Fish and Wildlife Act, the Indiana Flood Control Act, the Indiana Environmental Policy Act, the Indiana Environmental Management Act, regulations of any State Department of Natural Resources or State Environmental Protection Agency, Environment, Health and Safety Requirements, and any amendments or supplements thereto and any rules or regulations promulgated pursuant thereto or in connection therewith, as now or anytime hereafter in effect. The term “Environmental Laws” shall include regulations, ordinances, codes, rules, policies, guidance, guidelines, conditions, restrictions and requirements relating to the environment or Hazardous Materials that are issued, passed or imposed by the Authority, whether now or hereafter in effect, to the extent those regulations, ordinances, codes, rules, policies, guidance, guidelines, restrictions or requirements are or would be generally applicable to any tenant or other Person who is operating or conducting business at the Airport or to the extent generally applicable to the public.

“Environment, Health and Safety Requirements” means all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, any and all Laws relating to public health and safety, worker health and safety, or pollution or protection of the environment, including without limitation Environmental Laws relating to emissions, discharges, releases, or threatened releases of Hazardous Materials into ambient air, surface water, ground water, or lands, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials.

“Equipment” means the equipment, fixtures, permanent inventory, tangible personal property, tooling (including general tooling and aircraft maintenance tooling), or other items of property made available by the Authority to Tenant whether now owned or hereafter acquired, as the same shall be substituted or replaced from time to time in accordance with Article X, all as identified on the Authority’s Master List of Equipment from time to time, and all products and proceeds thereof.

“Estimated Completion Date” has the meaning set forth in Section 1601(C) of this Lease.

“Estimated Facilities Costs and Expenses” has the meaning set forth in Section 601(B)(2) of this Lease.

“Event of Default” means, with respect to Tenant, any of the Events of Default set forth in Section 1901 hereof and, with respect to the Authority, any of the Events of Default set forth in Section 1801 hereof.

“Excluded Property” means the equipment, permanent inventory or tangible personal property of Tenant located at the Leased Premises, as identified on Tenant’s Master List of Excluded Property from time to time; provided, however, that aircraft parts inventory, shop supplies, and office supplies shall always be Excluded Property and need not be identified on the Master List of Excluded Property.

“Excluded Systems” means those utilities and/or building systems at the Facilities that the Authority and Tenant mutually determine that the Authority will not be obligated to make operational or to furnish to Tenant under this Lease. Among other utilities and/or building systems that may be Excluded Systems, the fueling system at the Facilities shall be deemed to be an “Excluded System”. Once the Authority and Tenant have mutually determined that a particular utility or building system is an “Excluded System”, that utility or building system shall thereafter remain an “Excluded System” unless the Authority and Tenant mutually agree otherwise.

“Expansion Area” has the meaning set forth in Section 401 of this Lease.

“Expansion Option” has the meaning set forth in Section 401 of this Lease.

“Expansion Space” has the meaning set forth in Section 401 of this Lease.

“Extension Notice” has the meaning set forth in Section 501(B) of this Lease.

“Extension Option” has the meaning set forth in Section 501(B) of this Lease.

“Extension Term” has the meaning set forth in Section 501(B) of this Lease.

“FAA” means the Federal Aviation Administration.

“Facility” or “Facilities” means (a) the buildings, structures, improvements and facilities located on the Land, whether now or hereafter existing and wherever located; and (b) any extensions, improvements, replacements, and additions to and personal property (including, without limitation, equipment, fixtures and permanent inventory) for such buildings, structures, improvements and facilities, whether now or hereafter existing, that are located on the Land.

“Facilities Manager” means the Person designated by the Authority, from time to time, to be located “on-site” and to serve as the “facilities manager” for the Facilities.

“Facilities Security Rules and Regulations” has the meaning set forth in Section 902 of this Lease.

“Facilities Systems” means those Utilities and building systems, other than Excluded Systems, that are applicable to a particular area within the Leased Premises, which exist and shall be operable as of the Activation Date for that particular area of the Leased Premises.

“Final Audit” had the meaning set forth in Section 1005(B)(2) of this Lease.

“Full-Time Equivalent” means, with respect to an Indiana Resident Employee, that the Indiana Resident Employee is hired to perform, and with rare exception has performed, no fewer than eight (8) hours of a work day, five (5) days per week, in ninety percent (90%) of the weeks during the period in question. In determining the number of “Full-Time Equivalent” Indiana Resident Employees for a particular period, the total number of hours per week worked during that period by Indiana Resident Employees who do not, individually, qualify as “full time” pursuant to the preceding sentence will be added and divided by forty (40). The quotient shall be rounded to the nearest whole number and shall be included toward the number of “Full-Time Equivalent” Indiana Resident Employees that Tenant is to be credited with having employed during the period in question.

“GAAP” has the meaning set forth in Section 601(C)(3) of this Lease.

“Governmental Entity” means any court, government agency, department, commission, board, bureau, office, officer or instrumentality of the United States, any local, county, state, federal or political subdivision thereof, or any foreign governmental entity of any kind, including but not limited to the Authority.

“Grant Proceeds” has the meaning set forth in Section 605(A)(1) of this Lease.

“Grant-Related Expenditures” has the meaning set forth in Section 605(A)(1) of this Lease.

“Grants” has the meaning set forth in Section 605(A)(1) of this Lease.

“Grant Thresholds” has the meaning set forth in Section 605(A)(1) of this Lease.

“Gross Sales” has the meaning set forth in Section 601(C)(3) of this Lease.

“Group” has the meaning set forth in Section 601(C)(3) of this Lease.

“Group Expenses” has the meaning set forth in Section 601(C)(3) of this Lease.

“Group Overhead” has the meaning set forth in Section 601(C)(3)(b) of this Lease.

“Hangar” means those areas at the Facilities that are described as “hangars” in Exhibit B . Each Hangar (with the exception of Hangar 4) consists of two (2) Bays.

“Hazardous Materials” means any hazardous or toxic substance and any pollutant or contaminant, material or waste which is or becomes regulated by any local Governmental Entity, the State of Indiana or the United States Government, including, without limitation, any material

or substance which is (a) petroleum, batteries, or liquid solvents or similar chemicals, (b) asbestos, (c) radioactive material or waste, (d) polychlorinated biphenyls (“PCBs”), (e) designated as a “hazardous substance” pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. § 1317), (f) defined as a “hazardous waste” pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. (42 U.S.C. § 6903), or pursuant to Section 13-11-2-99 of the Indiana Code, or determined to be a “hazardous waste” under Section 13-22-2-3(b) of the Indiana Code, (g) defined as a “hazardous substance” pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. § 9601 et seq. (42 U.S.C. § 9601), or pursuant to Section 13-11-2-98 of the Indiana Code, (h) regulated under the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.) or defined as a PCB pursuant to Section 13-11-2-155 of the Indiana Code, (i) defined as a “contaminant” pursuant to Section 13-11-2-42 of the Indiana Code, or (j) any other substance or material similarly classified by any other federal, state or local Law or by any rule or regulation promulgated or adopted pursuant thereto, whether now existing or hereinafter enacted.

“IDP” has the meaning set forth in Section 706(A) of this Lease.

“Improvement-Related Permits” has the meaning set forth in Section 605(A)(2)(c)(iii) of this Lease.

“Improvement Rent Credits” has the meaning set forth in Section 605(C)(1) of this Lease.

“Indiana Resident Employees” means individuals (i) who are Indiana residents, and (ii) who are either (a) employed by Tenant or its subtenants, respectively, at the Leased Premises, or (b) contracted by Tenant or its subtenants, respectively, to perform day-to-day work at the Leased Premises that would otherwise be performed by Persons employed directly or indirectly by Tenant or its subtenants, respectively.

“Initial Term” has the meaning set forth in Section 501(A) of this Lease.

“Invitees” shall mean, as to Tenant or any of its subtenants, (i) any individual who enters the Leased Premises by means of the main lobby entrance to the Facilities, has been cleared by and issued a visitor identification badge by Facilities security personnel at the security checkpoint located at the main lobby entrance to the Facilities, and an individual who bears an Authority-issued Tenant (or subtenant of Tenant) employee badge acknowledges, in person at the security checkpoint, that such individual is their guest and thereafter accompanies such individual from the security checkpoint (even if that individual who bears the Authority-issued Tenant (or subtenant of Tenant) employee badge fails to continue to accompany the individual in violation of FAA/TSA security requirements), or (ii) any individual who is otherwise accompanied into or onto the Leased Premises by an individual who bears an Authority-issued Tenant (or subtenant of Tenant) employee badge (even if that individual who bears the Authority-issued Tenant (or subtenant of Tenant) employee badge thereafter fails to continue to accompany the individual in violation of FAA/TSA security requirements). For purposes of subsection (i) above, Facilities security personnel at the security checkpoint will not issue a visitor identification badge to an individual unless an individual who bears an Authority-issued

Tenant (or subtenant of Tenant) employee badge acknowledges, in person at the security checkpoint, that such individual is their guest and thereafter accompanies such individual from the security checkpoint (even if that individual who bears the Authority-issued Tenant (or subtenant of Tenant) employee badge, fails to continue to accompany the individual in violation of FAA/TSA security requirements).

“ITFA” means the Indiana Transportation Finance Authority created under IC 8-9.5-8 and acting pursuant to IC 8-21-12.

“ITFA Lease Agreement” means the Lease Agreement between ITFA and the Authority dated as of December 1, 1991, as the same has been or may hereafter be amended or supplemented from time to time.

“Land” means the real estate located at the Airport, as shown on the attached Exhibit A , consisting of approximately two hundred seventeen (217) acres. The Leased Premises is located on, and consists of, a portion of the Land.

“Landlord Indemnified Parties” has the meaning set forth in Section 705(E) of this Lease.

“Laws” means any and all applicable local, county, state, federal, foreign or other laws, statutes, codes, regulations, ordinances, conditions, requirements, rules, orders, decrees, consent decrees, judgments, writs, settlement agreements, stipulations, injunctions, guidelines, demand letters, or other governmental requirements enacted, promulgated, entered into, agreed or imposed by any Governmental Entity from time to time, including without limitation Environmental Laws. The term “Laws” shall include all regulations, ordinances, codes, rules, conditions, guidelines, guidance, policies, restrictions and requirements that are issued, passed or imposed by the Authority, whether now or hereafter in effect, to the extent those regulations, ordinances, codes, rules, conditions, guidelines, guidance, policies, restrictions or requirements are or would be generally applicable to any tenant or other Person who is operating or conducting business at the Airport or to the extent generally applicable to the public. “Lease Agreement” or “Lease” means this Lease Agreement, as the same may be amended and supplemented.

“Leased Premises” means (a) that portion of the Facilities described in Exhibit B and shown on Exhibit B-1 attached hereto together with the Land on which that portion of the Facilities is located; (b) that Equipment on the Master List of Equipment (as hereafter defined) which is provided from time to time by the Authority to Tenant pursuant to this Lease; and (c) any applicable Expansion Area as to which Tenant properly exercises its Expansion Option pursuant to this Lease.

“Leased Premises Improvements” has the meaning set forth in Section 605(A)(2)(c) of this Lease.

“Letter of Credit” means the irrevocable Letter of Credit to be obtained and maintained by Tenant pursuant to Section 1201 of this Lease.

“Liabilities” means any and all claims, demands, suits, proceedings, judgments, costs, expenses, penalties, fees, fines, damages, losses, and liabilities and includes, without limitation, reasonable attorneys’ fees.

“Lien” has the meaning set forth in Section 716(A) of this Lease.

“Master List of Equipment” has the meaning set forth in Section 203(A) of this Lease.

“Master List of Excluded Property” has the meaning set forth in Section 203(B) of this Lease.

“Minimum Additional Rent” has the meaning set forth in Section 601(B)(8) of this Lease.

“Minimum Base Rent” has the meaning set forth in Section 601(A)(3) of this Lease.

“Minimum Monthly Rent” has the meaning set forth in Section 601(B)(8) of this Lease.

“Mobilization Expenses” has the meaning set forth in Section 605(A)(1) of this Lease.

“Net Proceeds” means the gross proceeds derived from insurance or any eminent domain or condemnation award, or from any agreement in lieu of an eminent domain or condemnation award, less payment of attorneys’ fees and expenses properly incurred in the collection of those gross proceeds.

“Notice of Exercise of Right of First Refusal” has the meaning set forth in Section 2105(A)(3) of this Lease.

“Occupied” means, with respect to any portion of the Leased Premises that Tenant has requested be Activated and for which the Authority has completed its Activation obligations with respect thereto; provided, however, that if the Authority completes the Activation prior to the Requested Activation Date (as hereinafter defined) for that portion of the Leased Premises, “Occupancy” of that portion of the Leased Premises shall be deemed to commence when Tenant takes possession of or begins to conduct Tenant’s Business from that portion of the Leased Premises pursuant to Section 205 of this Lease which shall in no case be later than the Requested Activation Date. After a portion of the Leased Premises is deemed to be Occupied, it shall remain Occupied unless and until Tenant has subsequently de-Occupied that Activated portion of the Leased Premises in accordance with Section 205(D) below regardless of whether Tenant is actually using such space in connection with Tenant’s Business.

“Operating Profit” has the meaning set forth in Section 601(C)(3) of this Lease.

“Operating Rules” has the meaning set forth in Section 705(A)(1) of this Lease.

“Paint Booths” has the meaning set forth in Section 1001 of this Lease.

“Parent” has the meaning set forth in Section 1202 of this Lease.

“Part 70 Permit” has the meaning set forth in Section 706(B) of this Lease.

“Part 70 Permit Agreement” has the meaning set forth in Section 706(B) of this Lease.

“Part 70 Permit Amendment” has the meaning set forth in Section 706(B) of this Lease.

“Percentage Rent” has the meaning set forth in Section 601(C)(1) of this Lease.

“Percentage Rent Certificate” has the meaning set forth in Section 601(C)(2) of this Lease.

“Period” has the meaning set forth in Section 601(C)(2) of this Lease.

“Permitted Encumbrances” means those matters listed in the attached Exhibit C .

“Person” means any individual or Entity.

“Plans” has the meaning set forth in Section 605(A)(2)(c)(i) below.

“POTW” has the meaning set forth in Section 706(A) of this Lease.

“Proposed Agreement” has the meaning set forth in Section 2105(A)(3) of this Lease.

“Redevelopment Authority” means the Marion County Convention and Recreational Facilities Authority created under IC 36-10-9.1 and acting pursuant to IC 36-7-15.3.

“Redevelopment Lease Agreement” means the Lease Agreement between the Redevelopment Authority and the Commission, dated as of December 1, 1991, as the same has been or may hereafter be amended or supplemented from time to time.

“Rental” means the Base Rent, Additional Rent, and Percentage Rent assessed against Tenant pursuant to Article VI.

“Requested Activation Date” has the meaning set forth in Section 205(B) of this Lease.

“Right of First Refusal” has the meaning set forth in Section 2105(A)(3) of this Lease.

“Site and Facilities Lease Agreement” means the Site and Facilities Lease Agreement dated as of December 1, 1991 by and among the Authority and the Redevelopment Authority, ITFA and the Authority, or any successors, as tenants in common under the Tenancy in Common Agreement, as the same has been or may hereafter be amended or supplemented from time to time.

“Special Facility Bonds” means one or more series of bonds, including refunding bonds, issued by the Authority payable in part from Rental payments under this Lease Agreement.

“State” means the State of Indiana.

“State Bonds” means one or more series of tax-exempt revenue bonds, including refunding bonds, issued by ITFA, payable solely from lease rentals payable by the Authority

under the ITFA Lease Agreement from any State appropriations which may be made by the Indiana General Assembly for such purpose.

“Success Payment” has the meaning set forth in Section 605(D) of this Lease.

“Tax Restrictions” means (1) covenants made by the Authority in the Settlement Agreement entered into, effective as of February 13, 2004, between the Authority and The Bank of New York Trust Company, N.A., and (2) all rules and restrictions of the Internal Revenue Code of 1986, as amended, as such rules and restrictions apply to the use of the Facilities due to its financing with tax-exempt bonds.

“Tenancy in Common Agreement” means the Agreement Among Tenants of Leasehold Estate in Airport Development Project by and among the Redevelopment Authority, ITFA, and the Authority, as tenants in common, dated as of December 1, 1991, as the same has been or may hereafter be supplemented or amended from time to time.

“Tenant” means AAR Aircraft Services, Inc., an Illinois corporation doing business as AAR Aircraft Services - Indianapolis.

“Tenant Fiscal Year” means the period from June 1 of any year through May 31 of the following year.

“Tenant Reimbursement Parties” has the meaning set forth in Section 1702(A) of this Lease.

“Tenant’s Business” has the meaning set forth in Section 206(A) of this Lease.

“Tenant’s Controller” means the Person designated by Tenant as the controller for Tenant’s Business at the Leased Premises (and Tenant shall provide written notice from time to time to the Authority as to the name of the person who is serving from time to time as Tenant’s Controller).

“Tenant Termination Event” has the meaning set forth in Section 504(B) of this Lease.

“Term” and “Term of this Lease Agreement” means, collectively, the Initial Term and, if Tenant has properly exercised its Extension Option, the Extension Term, unless sooner terminated as provided in this Lease.

“TSA” means Transportation Security Administration.

“Wastewater Treatment Facility” has the meaning set forth in Section 706(A) of this Lease.

ARTICLE II.

LEASE OF LEASED PREMISES; OWNERSHIP OF IMPROVEMENTS
AND EQUIPMENT; USE OF LEASED PREMISES

Section 201. Lease of Leased Premises . Subject to and upon the terms, covenants, conditions and provisions hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, the Authority hereby leases, demises and lets to Tenant, and Tenant hereby leases from the Authority, the Leased Premises. The square footage of the Leased Premises shall be as calculated by the Authority and confirmed by Tenant.

Section 202. Ownership of Improvements and Equipment . The Leased Premises, including without limitation any buildings, fixtures, facilities, structures, additions, Equipment or improvements in, on or to the Leased Premises, are and shall remain the property of the Authority, subject to Tenant’s rights hereunder to use the same during the Term of, and in accordance with, this Lease Agreement. Tenant shall not remove, or permit the removal, of any of the Equipment from the Leased Premises without the prior written consent of the Authority. The Excluded Property is and shall remain the property of Tenant.

Section 203. Master Lists of Equipment and Excluded Property .

(A) The Authority shall generate and maintain a comprehensive list of Equipment that it agrees to furnish to Tenant for Tenant’s use in connection with this Lease (the “Master List of Equipment”), as follows:

(1) The Authority shall provide Tenant, on or before the Effective Date of this Lease, with a written list of all items of Equipment that are or will be, as of the Effective Date, available for Tenant’s use at the Leased Premises;

(2) Tenant shall be provided access to such Equipment after the Effective Date of this Lease and prior to Activation of a portion of the Leased Premises only for testing and certification purposes, and Tenant shall not be permitted to use such Equipment to operate Tenant’s Business prior to Tenant Occupying such space;

(3) At the time Tenant provides an Activation Notice pursuant to Section 205 below, the Tenant shall indicate which items of Available Equipment that Tenant requires in connection with the Activation of that portion of the Leased Premises that is identified in Tenant’s Activation Notice. As space in the Leased Premises is Activated pursuant to Section 205 of this Lease, the Authority shall indicate on the Master List of Equipment which items of Equipment have been provided to the Tenant for its use and which items of Equipment are Available Equipment for the future Activation of areas of the Leased Premises; and

(4) To the extent that, pursuant to the Authority’s obligations under Section 1002, the Authority removes and/or replaces an item of Equipment from the Leased Premises, the Authority shall provide Tenant with written notice thereof in order to

update the Master List of Equipment, and the list of Equipment furnished to Tenant from the Master List of Equipment, in order to reflect that removal and/or replacement.

(B) Tenant shall generate and maintain a comprehensive list of Excluded Property (the “Master List of Excluded Property”) as follows:

(1) To the extent that, from and after the Effective Date, Tenant brings items of Excluded Property onto the Leased Premises, or subsequently removes or replaces an item of Excluded Property on such list, Tenant shall at the time the Authority conducts its annual audit of Equipment provide the Authority with an updated, comprehensive list of Excluded Property.

Section 204. Condition of Leased Premises . Subject to performance by the Authority of its obligations with respect to the Activation of Bays and other portions of the Leased Premises as provided in this Lease, including in Section 205 below, and subject to Sections 705 and 1702, Tenant accepts the Leased Premises in its “AS-IS” condition, and acknowledges and agrees that except as otherwise expressly provided in this Lease Agreement, the Authority shall have no obligation to perform or complete any alterations, improvements or modifications to the Leased Premises.

Section 205. Possession of Leased Premises; Activation .

(A) For purposes of this Lease, an “Activation Notice” means written notice from Tenant as to which Bay or Bays, or other areas of the Leased Premises, that Tenant wishes for the Authority to Activate, together with a specific, detailed list of which pieces of Available Equipment and which Facilities Systems (other than Excluded Systems) Tenant will need for the Authority to furnish to Tenant in connection with Tenant’s use of that Bay or other area of the Leased Premises, and the Tenant’s Requested Activation Date. “Activation” by the Authority of a Bay or other area of the Leased Premises, or the Authority’s “Activating” of a Bay or other area of the Leased Premises, means that the Authority furnishes to Tenant not earlier than the Requested Activation Date (except as otherwise provided in subsection (C) below), in good working order and condition, all Facilities Systems (other than Excluded Systems) and Available Equipment that are reasonably requested by Tenant in its Activation Notice. Tenant hereby acknowledges and agrees that Facilities Systems means only those Facilities Systems which are installed in and/or otherwise located at the Leased Premises as of the Effective Date of this Lease (and in their current locations as of the Effective Date of this Lease), and does not include Excluded Systems. Tenant hereby further acknowledges and agrees that unless the Authority otherwise expressly agrees in writing, the Authority shall not have any obligation, in connection with Activating any portion of the Leased Premises or otherwise, to install new or additional Facilities Systems within any portion of the Leased Premises, to extend to any portion of the Leased Premises any Facilities Systems which have not, as of the Effective Date, already been extended to that portion of the Leased Premises, or to make operational any Excluded Systems. Tenant hereby further agrees that in connection with Activating a portion of the Leased Premises, the Authority will only be obligated to furnish the Available Equipment requested by Tenant in its Activation Notice (i.e., the Authority will not be obligated to purchase new

equipment, tooling, or other personal property in order to Activate any portion of the Leased Premises).

(B) Not later ninety (90) days after the Effective Date of this Lease, Tenant shall send the Authority an Activation Notice indicating which of the Bays and/or other areas of the Leased Premises that Tenant desires for the Authority to first Activate. Thereafter, during the Term of this Lease, as Tenant desires for additional Bays and/or other areas of the Leased Premises to be Activated by the Authority, Tenant shall provide an Activation Notice to the Authority, with respect to those Bays and/or other areas of the Leased Premises, with each such Activation Notice to specify the date by which Tenant needs that portion of the Leased Premises to be Activated (the “Requested Activation Date”); provided, however, that the Requested Activation Date may not be fewer than thirty (30) days from the date that Tenant delivers its Activation Notice to the Authority. However, the Authority acknowledges that, at the time Tenant provides its Activation Notice to the Authority with respect to a particular portion of the Leased Premises, Tenant may not know what Available Equipment it will need for the Authority to furnish with respect to that portion of the Leased Premises. Consequently, the Authority hereby agrees that Tenant may defer providing the Authority with Tenant’s written list of requested Available Equipment for the Activation of that portion of the Leased Premises until after the date on which Tenant delivers its Activation Notice for that portion of the Leased Premises; provided, however, that the Authority shall not be obligated to provide that Available Equipment by the Requested Activation Date unless Tenant provides the Authority with the list of Tenant’s requested Available Equipment for that portion of the Leased Premises at least ten (10) business days prior to the Requested Activation Date for that portion of the Leased Premises.

(C) Subject to Section 705(G)(3) below, the Authority shall use commercially reasonable efforts to Activate, by the Requested Activation Date, those Bays and/or other areas of the Leased Premises that are identified in Tenant’s Activation Notice. At such time as the Authority has Activated a Bay or other portion of the Leased Premises pursuant to an Activation Notice from Tenant, the Authority shall deliver to Tenant a written notice that the Activated Bay or other such portion of the Leased Premises is Activated as per Tenant’s Activation Notice. Tenant shall have the right to inspect, within seven (7) days after receipt of the Authority’s written notice, the Activated Bay(s) or other such portion of the Leased Premises that has been Activated to confirm that such areas have been Activated as per Tenant’s Activation Notice. To the extent that Authority has the areas of the Leased Premises identified in the Activation Notice ready for activation prior to the Requested Activation Date, Tenant shall have the option to take possession of such areas prior to the Requested Activation Date and if Tenant does so, Tenant shall be deemed to Occupy such space on such earlier date. If Tenant discovers any material deficiencies upon said inspection, Tenant shall give the Authority a written list of those material deficiencies. For purposes of this subsection (C), a “material deficiency” means that the Activated space fails to comply, in a material manner, with the Tenant’s requests for Facilities Systems and Equipment as set forth in Tenant’s Activation Notice for that space. If Tenant does not notify the Authority within the seven (7) day period that there are any material deficiencies, Tenant shall be deemed to have accepted the condition of the Activated space. The Authority shall correct any material deficiencies noted by Tenant in accordance with the prior sentences prior to Tenant’s being obligated to take possession of that Activated Bay and/or other portion of the Leased Premises. However, Tenant may elect to take possession of said space prior to the

correction of the material deficiencies, and Authority shall correct said material deficiencies within fifteen (15) days of Tenant taking possession of said space. If Tenant chooses not to take possession due to such noted material deficiencies, Tenant must take possession of that space once the Authority corrects the material deficiencies, provided that the Requested Activation Date has passed. Upon Tenant taking possession of said space, Tenant shall be deemed to Occupy such space until de-Occupying such space pursuant to paragraph (D) below. Once the Bay or other portion of the Leased Premises has been Activated, the Authority shall have no further obligations with respect to that Activated Bay or other portion of the Leased Premises except as otherwise expressly provided in this Lease.

(D) Tenant shall have the right at any time, upon not fewer than sixty (60) days’ prior written notice to the Authority, to de-Occupy a particular portion of the Leased Premises. Tenant shall specifically identify in its written notice which portions of the Leased Premises that Tenant is de-Occupying, and what the date of de-Occupation will be. However, the date specified in Tenant’s written notice as the date of de-Occupation may not be fewer than sixty (60) days after the date Tenant delivers the written notice of de-Occupation to the Authority, and Tenant may not deliver a notice of de-Occupation to the Authority with respect to a particular portion of the Leased Premises until Tenant has Occupied that portion of the Leased Premises (and paid Base Rent and Additional Rent to the Authority therefor) for at least one full calendar month. Tenant shall always Occupy at least the minimum amount of Leased Premises to enable Tenant to satisfy the Minimum Monthly Rent requirements set forth in Sections 601(A) and (B) of this Lease. With respect to Tenant’s de-Occupation of Activated space, Tenant may not de-Occupy less than all of a Bay and its related space. With respect to any Expansion Area as to which Tenant has exercised its Expansion Option pursuant to Section 401 below, Tenant may not de-Occupy that Expansion Area. If Tenant exercises its Right of First Refusal as to any Available Space pursuant to Section 2105 below, Tenant must Occupy that Available Space for at least twelve (12) consecutive calendar months and may not de-Occupy that Available Space until it has Occupied it for at least twelve (12) consecutive calendar months. Upon the effective date of the de-Occupation, Tenant shall return possession of the de-Occupied space to the Authority, together with all Equipment that the Authority provided to Tenant in connection with the Authority’s Activation of that space (or that was otherwise furnished by the Authority to Tenant for Tenant’s use in connection with that de-Occupied space). Upon the date of de-Occupation, the Authority shall have the right, at the Authority’s option, to restrict Tenant from accessing and entering into that portion of the Leased Premises that has been de-Occupied and to cease providing the Facilities Systems to that portion of the Leased Premises (provided, however, that the Authority will continue providing some or all of the Facilities Systems to that portion of the Leased Premises if the Authority wishes or as is necessary to provide the Facilities Systems to those areas of the Leased Premises that Tenant is Occupying). Tenant and the Authority will mutually agree on what personal property of Tenant or its agents, representatives, or customers will be removed from the de-Occupied space; provided, however, that Tenant hereby acknowledges and agrees that the Authority shall have no liability or obligation for any loss, damage, or liability with respect to (and no obligation to insure) any such personal property that remains in the de-Occupied space. Base Rent and Additional Rent shall continue to accrue for space on which a de-Occupation notice has been sent until the effective date of the de-Occupation; Base Rent and Additional Rent shall not accrue for a particular portion of the Leased Premises if such portion of the Leased Premises is de-Occupied. If Tenant thereafter

wishes for the Authority to re-Activate that portion of the Leased Premises, Tenant shall provide an Activation Notice to the Authority pursuant to the procedure described in subsections (A), (B) and (C) above.

(E) Tenant hereby acknowledges and agrees that, notwithstanding anything in this Section 205 to the contrary, commencing on the earlier of (i) December 1, 2004, or (ii) the first date that any aircraft of Tenant’s customer(s) is located at the Leased Premises, and continuing thereafter through the Term hereof, Tenant shall be obligated to pay at least the Minimum Monthly Rent pursuant to Section 601 below, regardless of which (if any) portions of the Leased Premises that Tenant elects to Activate and regardless of which (if any) portions of the Leased Premises that Tenant is Occupying from time to time.

(F) The Authority hereby acknowledges that Tenant desires to be able to enter upon the Leased Premises, prior to the Activation of the first portion of the Leased Premises, solely for purposes of preliminary operational planning and for purposes of obtaining FAA certifications to enable Tenant to conduct Tenant’s Business at the Leased Premises, and the Authority hereby agrees that Tenant may enter onto the Leased Premises for those purposes, provided that the activities of Tenant and its Employees, agents, contractors and Invitees do not interfere in any material manner with the activities of the Authority in connection with the Leased Premises. Tenant hereby agrees that it will not be conducting Tenant’s Business from the Leased Premises during this period of preparation and hereby acknowledges and agrees that the provisions of this Lease (including, without limitation those set forth in Sections 705, 1502 and 1701), other than those provisions pertaining to payment of Rental, will be applicable during this period.

(G) In addition to the other obligations of the Authority under this Lease, the Authority shall be liable for all costs, expenses, fees and disbursements related to remedying, curing or remediating any condition existing at or on the Leased Premises on or prior to date Tenant first Occupies that portion of the Leased Premises, necessary to comply with Environmental, Health and Safety Requirements.

Section 206. Use of Leased Premises; Prohibited Uses .

(A) Tenant may only use the Leased Premises for operation of an aircraft, airframe, engine and component maintenance, repair and overhaul (“MRO”) facility for the commercial airlines and other owners, operators or service/maintenance providers of aircraft (including without limitation military and governmental operators of aircraft), including the operation and use of aircraft bays, aircraft engine and component overhaul and repair shops, test cells, aircraft wash and enclosed paint areas, component, part and tooling production, reproduction, or construction (i.e., make from raw materials or piece parts) for MRO, component maintenance, and modification activities. In addition, Tenant may use the Leased Premises for activities functionally related and subordinate to the uses permitted above, including warehouse and storage areas, common areas, facilities maintenance shops, administrative and support areas, truck docks and aprons, special materials storage areas, aircraft taxiways and parking areas, fire protection facilities and employee and visitor parking so long as such activities are of a size commensurate with such operation.

(B) Tenant shall not use the Leased Premises for any purposes other than, or in addition to, those identified in subsection (A) above without the Authority’s prior written consent, which consent will not be unreasonably withheld, and shall not use the Leased Premises in a manner that would result in a violation of any Tax Restrictions or applicable Law, as now or hereafter in effect, with respect to the Authority, the Land, the Facilities and/or other portions of the Airport. Without limiting the generality of this restriction, the following conditions shall apply to the use and operation of the Leased Premises:

(1) Tenant shall not store aviation fuel, except in connection with the defueling and refueling of maintained aircraft and only in those areas that have been expressly designated for such purposes by the Authority and in accordance with Airport ordinances; shall not block any common use taxiway; and shall not park any aircraft upon that portion of the Leased Premises described in Exhibit D hereto in a manner that would constitute a violation of any Laws or regulations concerning Airport operations. Passenger loading and unloading of general aviation aircraft is permitted, but only to the extent such any such loading or unloading of passengers is not subject to any rules or regulations of the TSA (including without limitation rules and regulations regarding passenger screening) as now or hereafter in effect; otherwise, any passenger loading and unloading is prohibited except in an emergency or with the prior written approval of the Authority. Subject to Section 703(B) of this Lease, aircraft ramp and service equipment may be stored only within the Leased Premises. All refueling trucks moving to and from the Leased Premises, including their routing and parking, must be approved by the Authority. Except in designated areas with prior written approval of the Authority, Tenant shall not store any Class-A explosives (as defined by the United States Department of Transportation) at, on or in the Leased Premises. All vehicles used in Air Operations Areas shall be equipped and operated in accordance with applicable Laws and the regulations of the Authority, the FAA, the TSA, and all other applicable Governmental Entities.

(C) Except as otherwise expressly provided in this Lease, the rights granted in this Lease Agreement shall not be construed as permitting any Person to conduct any business at the Airport (including without limitation at, on or in the Leased Premises) except after first securing from the Authority a license and/or other form of permission to conduct that business and paying applicable fees and charges therefor.

ARTICLE III.

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 301. Representations, Warranties and Covenants by Authority . The Authority makes the following representations, warranties and covenants to Tenant as the basis for the Authority’s undertakings herein:

(A) The Authority is duly organized as a municipal corporation pursuant to the laws of the State and has the power to execute, deliver and enter into this Lease Agreement and to carry out its obligations hereunder. By proper action of its board, the Authority has been duly authorized to execute, deliver and perform its obligations under this Lease Agreement.

(B) This Lease Agreement constitutes the valid and binding obligation of the Authority, enforceable against the Authority in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally heretofore or hereafter enacted; and (ii) the exercise of judicial discretion in accordance with the general principles of equity.

(C) No approvals or consents, other than those that have been obtained, are necessary in order for the Authority to adopt, execute and deliver this Lease Agreement.

(D) The Authority has a leasehold interest in the Facilities, subject to Permitted Encumbrances.

(E) The Authority has full right and authority to lease the Leased Premises to Tenant as set forth herein.

(F) This Lease Agreement has been duly executed and delivered by duly authorized officers of the Authority.

(G) Neither the execution and delivery of this Lease Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Lease Agreement, will conflict with or result in a material breach of any of the terms, conditions or provisions of any restriction, ordinance, agreement or instrument to which the Authority is now a party or by which it is bound, or constitute a material default under any of the foregoing, or result in the creation or imposition of any material lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Authority under the terms of any instrument or agreement.

(H) There is no litigation now pending or, to the knowledge of the Authority, threatened that challenges or would challenge the execution of this Lease Agreement or that could reasonably be expected to have a material adverse effect on the Authority’s ability to perform hereunder.

(I) The Authority shall use its best efforts to protect all of Tenant’s financial information (including but not limited to information regarding Tenant’s costs, prices, pricing methods, revenues, sales and Operating Profit) provided to the Authority as “Confidential financial information obtained upon request from a person” pursuant to the provisions of IC 5-14-3-4 or to protect it from public disclosure under any other allowable exception. The Authority shall promptly notify the Tenant in writing of any inadvertent disclosure of Tenant’s financial information, if and when the Authority becomes aware of any such disclosure.

(J) The Authority shall execute such collateral access agreements in favor of Tenant’s secured lenders as Tenant’s secured lenders may reasonably request, provided that the terms of those collateral access agreements are reasonably acceptable to the Authority.

(K) The Authority acknowledges that its presence on the Leased Premises will place it in a position that it may have access to confidential and/or proprietary information concerning the business of the Tenant and/or its Affiliates, including but not limited to trade secrets, secret processes, know-how, products, maintenance procedures, recent and proposed developments, sources of supply and customer names and relationships (“Proprietary Information”) and that such Proprietary Information is among the most valuable of the Tenant’s and/or its Affiliates assets and the value of such information may be destroyed by unauthorized disclosure. Information imparted to or learned by the Authority with respect to the Tenant and/or its Affiliates (whether acquired before or after the date hereof) will be deemed to be confidential Proprietary Information. The Authority hereby covenants that the Authority will use commercially reasonable efforts not to disclose the Proprietary Information and will use commercially reasonable efforts to treat all Proprietary Information with the same degree of care that the Authority accords to its own confidential or proprietary information (and the Authority hereby represents to Tenant that the Authority exercises reasonable care to protect its own confidential or proprietary information), unless (1) such Proprietary Information is or has been made generally available to the public, (2) express prior written authorization to use or disclose such Proprietary Information has been received from Tenant, or (3) the Authority is obligated to disclose such Proprietary Information pursuant to the Indiana Access to Public Records Law (IC 5-14-3-1 et seq.) as the same may amended or supplemented from time to time (the “Access to Public Records Law”). By way of example only, Tenant hereby acknowledges that the Authority may be obligated, under the Access to Public Records Law, to disclose the following, among other things: this Lease, official action by the Authority or its manager pursuant to the terms of this Lease, and the amount of the Rental payments and invoices pertaining thereto.

(1) As part of its commercially reasonable efforts described in the preceding sentences, the Authority shall, with respect to those Persons who, from time to time, serve as the Authority’s “on-site” staff at the Facilities and with respect to contractors hired by the Authority to provide services at the Leased Premises, either (a) require those Persons or contractors to sign confidentiality agreements with the Authority which impose obligations of confidentiality upon those Persons or contractors that are consistent with the covenants of the Authority under this Subsection (K), or (b) impose in the service or employment contracts (if applicable), between those Persons or contractors and the Authority, obligations of confidentiality upon those Persons or contractors which are consistent with the covenants of the Authority under this Subsection (K).

(2) Tenant hereby acknowledges and agrees that, notwithstanding the foregoing, the Authority may be required (by depositions, interrogatories, requests for information or documents in legal proceedings, subpoenas, civil investigative demand or similar process, including, without limitation, requests to disclose pursuant to the Access to Public Records Law) to disclose Proprietary Information. However, the Authority will, to the extent reasonably possible, give Tenant prompt written notice of such request or requirement so that Tenant may seek an appropriate protective order or other remedy

and/or waive compliance with the provisions of this Subsection (K), and the Authority will cooperate as reasonably necessary with Tenant to obtain such protective order.

(3) Except as required by the Access to Public Records Law and/or any other applicable Law, upon termination of this Lease Agreement for any reason, the Authority will, within a reasonable period of time, destroy any documents or other tangible property containing or reflecting Proprietary Information.

(4) The Authority shall promptly notify the Tenant in writing of any inadvertent disclosure of Proprietary Information, if and when the Authority becomes aware of any such disclosure. The covenant of the Authority set forth in this Subsection (K) will survive any termination of this Agreement.

(L) The Authority shall deliver to Tenant, for Tenant’s benefit and reliance, on the Effective Date, an opinion, concerning such matters in this Section 301 as are reasonably satisfactory to Tenant, from Ice Miller, in form reasonably acceptable to Tenant.

Section 302. Representations, Warranties and Covenants by Tenant . Tenant makes the following representations, warranties and covenants to the Authority as the basis for Tenant’s undertakings herein:

(A) Tenant is a corporation duly organized under the laws of the State of Illinois and duly qualified to do business in the State, is in good standing in the State of Illinois and the State, and has power to execute, deliver and enter into this Lease Agreement and to carry out its obligations hereunder. By proper organizational action, Tenant has been duly authorized to execute, deliver and perform its obligations under this Lease Agreement.

(B) This Lease Agreement constitutes the valid and binding obligation of Tenant, enforceable against Tenant in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally heretofore or hereafter enacted, and (ii) the exercise of judicial discretion in accordance with the general principles of equity.

(C) No approvals or consents, other than those that have been obtained, are necessary for Tenant to execute and deliver this Lease Agreement.

(D) This Lease Agreement has been duly executed and delivered by the duly authorized officers of Tenant.

(E) There is no litigation now pending or, to Tenant’s knowledge, threatened that challenges or would challenge the execution of this Lease Agreement, or that could reasonably be expected to have a material adverse effect on the Tenant’s ability to perform hereunder.

(F) Neither the execution and delivery of this Lease Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Lease Agreement, will conflict with the Tenant’s articles of incorporation or by-laws or conflict with or result in a material breach of any of the terms, conditions or

provisions of any agreement or other instrument to which Tenant is now a party or by which it is bound, or constitute a material default under any of the foregoing, or result in the creation or imposition of any material lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Tenant under the terms of any instrument or agreement.

(G) Except for those Authority Permits to be obtained and maintained by the Authority, Tenant has duly and validly obtained (or shall hereafter duly and validly obtain as and when necessary), and shall maintain in full force and effect during the Term, all such certificates, licenses and permits from all Governmental Entities, required or appropriate to enable Tenant to carry on Tenant’s Business as it is now conducted and subsequently conducted and/or to enable Tenant to enter into this Lease Agreement, including without limitation a “repair station certificate” as required under 14 CFR Part 145 (the “145 Certificate”).

(H) Tenant shall deliver to the Authority, for the Authority’s benefit and reliance, on the Effective Date, an opinion, concerning such matters in this Section 302 as are reasonably satisfactory to the Authority, signed by an authorized person at Tenant’s inside counsel, in form reasonably acceptable to the Authority.

ARTICLE IV.

OPTION TO EXPAND LEASED PREMISES

Section 401. Tenant’s Option to Expand Leased Premises . The term “Expansion Space” means that portion of the Land and Facilities that is shown on Exhibit E attached hereto, which consists of the following areas (each, an “Expansion Area”): (a) the machine shop area, consisting of approximately Forty-Two Thousand Three Hundred Forty-Six (42,346) square feet; (b) the interior shop area, consisting of approximately Fifty-Six Thousand Nine Hundred Eighty-Eight (56,988) square feet; (c) the composite shop area #1, consisting of approximately Seventy-Eight Thousand Five Hundred Forty-Nine (78,549) square feet; and (d) the composite shop area #2, consisting of approximately Seventy-Eight Thousand Five Hundred Forty-Nine (78,549) square feet. Tenant, at its option, may expand the Leased Premises to include one or more of the Expansion Areas, subject to the following terms and conditions (the “Expansion Option”):

(A) Tenant must provide the Authority with at least ninety (90) days’ prior written notice of Tenant’s desire to exercise its Expansion Option as to any Expansion Area. Tenant’s written notice must specify which of the Expansion Area(s) that Tenant desires to lease pursuant to its Expansion Option. Tenant may not exercise its Expansion Option as to less than all of a particular Expansion Area.

(B) At the time Tenant provides the Authority with Tenant’s written notice of Tenant’s desire to exercise its Expansion Option as to any Expansion Area and on the date Tenant’s lease of that Expansion Area is to commence, there shall not be an Event of Default by Tenant under this Lease (or, if a default by Tenant under any term or condition of this Lease then exists which would, with the giving of notice, the passage of time or both, constitute an Event of Default under this Lease, Tenant shall cure that default within the applicable grace or cure period provided under this Lease prior to exercising its Expansion Option).

(C) This Lease Agreement shall be in effect at the time Tenant provides the Authority with Tenant’s written notice of Tenant’s desire to exercise its Expansion Option as to any Expansion Area and on the date Tenant’s lease of that Expansion Area is to commence.

(D) Subject to Sections 705 and 1702, Tenant shall accept any Expansion Area as to which it has exercised its Expansion Option on an “AS-IS” basis, and the Authority shall not be required to make any alterations, improvements, modifications, repairs or replacements thereto unless the Authority specifically agrees with Tenant, in writing, to do so. To the extent Tenant wishes to make any improvements or alterations to that portion of the Expansion Area as to which it has exercised its Expansion Option (including without limitation any subdivision of the Expansion Space which must be made in order to separate that portion of the Expansion Area as to which Tenant has exercised its Expansion Option from the other Expansion Areas), Tenant shall be responsible, at its cost and expense, for performing those improvements and alterations in accordance with the terms of this Lease (including without limitation Section 702(H) below), subject to Sections 605(A) and 605(C) below. Tenant’s notice to Authority of its decision to exercise its Expansion Option shall serve as an Activation Notice for such space pursuant to Section 205 above. In no event whatsoever shall the Tenant’s Occupation date begin prior to the Requested Activation Date.

(E) The duration of Tenant’s lease of the Expansion Area(s) as to which Tenant exercises its Expansion Option shall be co-terminous with the Term of this Lease Agreement.

(F) Except as otherwise provided in this Lease Agreement, the terms, covenants, and conditions of this Lease Agreement shall apply in all respects to the Tenant’s lease of any Expansion Space.

(G) Tenant hereby acknowledges and agrees that at the time Tenant first exercises its Expansion Option as to any portion of the Expansion Space, Tenant’s Minimum Monthly Rent shall increase such that, for the remainder of the Lease Term, Tenant (1) shall be obligated to pay Minimum Base Rent on at least four (4) Bays, plus the Hangar 4 Office Space, plus that portion of the Expansion Space as to which Tenant first exercises its Expansion Option and (2) shall be obligated to pay Minimum Additional Rent on at least four (4) Bays plus that portion of the Expansion Space as to which Tenant first exercises its Expansion Option; and thereafter, Tenant’s obligation to pay Minimum Monthly Rent shall further increase to include any additional Expansion Areas as to which Tenant thereafter exercises its Expansion Option.

ARTICLE V.

TERM; EXTENSION PERIODS

Section 501. Term; Extension Option .

(A) Initial Term . The term of this Lease Agreement shall begin on the Effective Date and shall end on the earlier of (1) December 1, 2014 or (2) the tenth (10th) anniversary of the first date that any aircraft of Tenant’s customer(s) is located at the Leased Premises, unless sooner terminated as provided for under this Lease (the “Initial Term”).

(B) Extended Terms .

(1) Tenant shall have the option (an “Extension Option”) to extend the Initial Term for one (1) period of ten (10) consecutive years (the “Extension Term”) upon fulfillment of all the following terms and conditions:

(a) Tenant shall provide written notice to the Authority, not earlier than twenty-four (24) months, and not later than twelve (12) months, prior to the expiration of the Initial Term, that Tenant elects to exercise such Extension Option (the “Extension Notice”);

(b) On the date Tenant delivers Tenant’s Extension Notice to the Authority or on the date the Extension Term is to commence, there shall not be an Event of Default by Tenant under this Lease (or, if a default by Tenant under any term or condition of this Lease then exists which would, with the giving of notice, the passage of time or both, constitute an Event of Default under this Lease, Tenant shall cure that default within the applicable grace or cure period provided under this Lease); and

(c) This Lease Agreement shall not have been terminated during the Initial Term.

(2) All terms, covenants, conditions and provisions hereof applicable to the Initial Term (including, without limitation, Tenant’s obligations to pay Base Rent, Additional Rent, Minimum Monthly Rent, and Percentage Rent), shall apply with like force and effect to the Extension Term, except where specifically inapplicable or where the context otherwise indicates, and except that the amount of the Additional Rent to be assessed by the Authority with respect to the Leased Premises during the Extension Term shall be increased to a rate based on the Actual Facilities Costs and Expenses incurred during the twelve (12) consecutive month period immediately preceding the date that Tenant delivers its Extension Notice to the Authority. Not later than ninety (90) days after the Authority receives Tenant’s Extension Notice, the Authority shall provide Tenant with a written statement that sets forth the annual and monthly amounts that the Authority proposes for the Additional Rent to be for the Extension Term, including evidence of the Actual Facilities Costs and Expenses for the twelve (12) consecutive month period immediately preceding the date that Tenant delivers its Extension Notice to the Authority. If Tenant is dissatisfied with that increased Additional Rent amount for any reason, Tenant may elect not to proceed further with exercising the Extension Option, by providing written notice to the Authority of Tenant’s intention not to proceed with the Extension Option (which written notice must be delivered to the Authority not later than thirty (30) days after Tenant receives the Authority’s written statement of the amount of the increase in the Additional Rent for the Extension Term).

(3) If the Authority demonstrates that Rentals and other revenues derived from the Land and Facilities during the twelve (12) consecutive month period immediately preceding the Authority’s receipt of Tenant’s Extension Notice to exercise

the Extension Option were not sufficient to cover the Actual Facilities Costs and Expenses of the Land and Facilities incurred with respect to that twelve (12) month period (the “Deficit”), then the Authority shall have the right to prohibit Tenant from exercising the Extension Option; provided, however, that if the Deficit is caused by the negative impact on the Actual Facilities Costs and Expenses from the costs and expenses of ownership and operation of other Authority-funded facilities which are constructed on the Land after the Effective Date of this Lease, the Authority may not exercise this right. If the Authority desires to exercise this right, then the Authority shall notify Tenant in writing, not later than ninety (90) days after the Authority receives Tenant’s Extension Notice, that the Authority is exercising this right.

(4) Subject to Tenant’s right to elect not to proceed with the Extension Option as described in subsection (2) above, and subject to the Authority’s right to elect not to permit Tenant to proceed with the Extension Option as described in subsection (3) above, Tenant must (if Tenant provides an Extension Notice to the Authority) enter into a written amendment to this Lease not later than ninety (90) days after the Authority notifies Tenant of the amount of the increase in the Additional Rent for the Extension Term, which amendment shall confirm the increased Additional Rent and other terms consistent with the foregoing provisions of this subsection (B), and shall otherwise be in a form reasonably acceptable to the Authority.

Section 502. Right to Terminate Upon Certain Events .

(A) In addition to any other provisions of this Lease that expressly grant Tenant the right to terminate this Lease prior to the expiration of the Term, Tenant shall have the right, upon written notice to the Authority, to terminate this Lease upon the occurrence of either of the following events or circumstances:

(1) The assumption by the United States Government or any authorized agency thereof of the operation, control, or use of the Airport and facilities, or any substantial part or parts thereof, in a manner that substantially and adversely affects Tenant’s use of that portion of the Leased Premises which Tenant is then Occupying or Tenant’s ability to Occupy additional space at the Leased Premises or expand into Expansion Space for a period of at least ninety (90) consecutive days.

(2) The issuance by any court of competent jurisdiction of an injunction in any way preventing or restraining the use of the Airport, so as to substantially and adversely affect Tenant’s use of that portion of the Leased Premises which Tenant is then Occupying or Tenant’s ability to Occupy additional space at the Leased Premises or expand into Expansion Space, for a period of at least ninety (90) consecutive days; provided, that the injunction is not due to Tenant’s operations at the Airport.

(B) In addition to any other provisions of this Lease that expressly grant the Authority the right to terminate this Lease prior to the expiration of the Term, the Authority shall have the right, upon written notice to Tenant, to terminate this Lease, if Tenant takes any action, or operates all or any portion of Tenant’s business at the Leased Premises in a manner that would

result in a violation of the Tax Restrictions and jeopardize the tax-exempt status of the Bond Issues. The Authority may inspect Tenant’s actions or operations at the Leased Premises to determine if such actions or operations violate the Tax Restrictions and jeopardizes the tax-exempt status of the Bond Issues. Prior to the Authority exercising its right to terminate under this subsection (B), the Authority shall give Tenant written notice of such violation and describe the basis for such violation. If the violation is curable under the Tax Restrictions by curative action within thirty (30) days, Tenant shall have thirty (30) days from the date of receipt of said written notice from the Authority to alter Tenant’s operations or actions so as to cure any such violation; and, if Tenant cures such violation within the thirty (30) day period, then the Authority shall not have the right to terminate this Lease. In the event that this Lease is terminated under this Section 502(B), Tenant shall remain liable for all Rental that has accrued for periods prior to the effective date of termination of this Lease, and for other liabilities and obligations of Tenant under this Lease Agreement (including without limitation Section 705 and Section 1701 of this Lease) that have accrued for periods prior to the effective date of termination of this Lease, but shall not be liable for any Rentals that would otherwise have accrued for periods after the effective date of the termination of this Lease and shall not be obligated to repay the Grants, the Credits, or the Improvement Rent Credits. The sole remedy available under this Lease Agreement to the Authority for Tenant’s failure to adhere to the Tax Restrictions applicable to it shall be to so terminate this Lease Agreement.

Section 503. Rights at Expiration/Termination .

(A) In no event shall Tenant or any of its subtenants continue to possess, occupy or use the Leased Premises beyond the expiration or sooner termination of the Term without the Authority’s written consent, which consent may be withheld in the Authority’s sole and absolute discretion.

(B) Tenant further agrees that upon the expiration or earlier termination of the Term, the Leased Premises shall be delivered to the Authority in at least as good condition as originally delivered to Tenant, reasonable wear and tear and matters covered by insurance excepted, and subject to performance by the Authority of the Authority’s maintenance, repair and replacement obligations under this Lease, including but not limited to its maintenance, repair and replacement obligations pursuant to Sections 1001 and 1002 below, and the Authority’s obligations under Article VII and Section 1702 of this Lease.

Section 504. Early Termination Rights .

(A) Authority Early Termination Rights . Notwithstanding the Term of this Lease Agreement, the Authority shall have the right to terminate this Lease Agreement prior to the expiration of the Term if any of the following events occur (each, an “Authority Termination Event”):

(1) If, on or before October 1, 2008, Tenant has not Occupied (and been assessed Base Rent and Additional Rent on), simultaneously, for at least one full thirty (30) consecutive day period, at least five (5) Bays; or if, on or before October 1, 2008, the Authority has not otherwise leased and collected rent, for at least one full thirty (30)

consecutive day period, for at least five (5) Bays, simultaneously (including any Bays Occupied by Tenant (and for which Tenant was assessed Base Rent and Additional Rent) during that thirty (30) consecutive day period);

(2) If, on or before October 1, 2009, Tenant has not Occupied (and been assessed Base Rent and Additional Rent on), simultaneously, for at least one full thirty (30) consecutive day period, at least seven (7) Bays; or if, on or before October 1, 2009, the Authority has not otherwise leased and collected rent, for at least one full thirty (30) consecutive day period, for at least seven (7) Bays, simultaneously (including any Bays Occupied by Tenant (and for which Tenant was assessed Base Rent and Additional Rent) during that thirty (30) consecutive day period);

(3) If on or prior to December 31, 2005, Tenant and its subtenants have not employed, on each day, during at least one full thirty (30) consecutive day period, a total of at least 250 Full-Time Equivalent Indiana Resident Employees at the Leased Premises;

(4) If on or prior to December 31, 2007, Tenant and its subtenants have not employed, on each day, during at least one full thirty (30) consecutive day period, a total of at least 500 Full-Time Equivalent Indiana Resident Employees at the Leased Premises;

(5) If on or prior to December 31, 2009, Tenant and its subtenants have not employed, on each day during at least one full thirty (30) consecutive day period, a total of at least 800 Full-Time Equivalent Indiana Resident Employees at the Leased Premises; or

(6) (a) If the Authority has not received, during any rolling two (2) consecutive Tenant Fiscal Years starting with the Tenant Fiscal Year beginning on June 1, 2007, at least fifty percent (50%) of the projected annual Percentage Rent as set forth on Exhibit F attached hereto for each of those two (2) Tenant Fiscal Years, and (b) if, within ninety (90) days after the last day of the second such Tenant Fiscal Year, Tenant does not make a payment to the Authority in an amount that equals the difference between the actual Percentage Rent received by the Authority for that second such Tenant Fiscal Year and fifty percent (50%) of the projected annual Percentage Rent which the Authority was projected to receive for that second such Tenant Fiscal Year as set forth on Exhibit F , provided, however, Tenant shall not be obligated to make such payment.

Within thirty (30) days after the date Tenant has satisfied the Full-Time Equivalent employment thresholds as described in subsections (3), (4) and (5) above, respectively, Tenant shall provide written notice to the Authority that Tenant has satisfied the applicable “Full-Time Equivalent” employment threshold. Tenant’s written notice shall be accompanied by a list, with respect to each day of the thirty (30) consecutive day period during which the “Full-Time Equivalent” employment thresholds were satisfied, of the names of the Full-Time Equivalent Indiana Resident Employees who were employed by Tenant (and/or its subtenants at the Leased Premises) on each such day during that thirty (30) day period, the hours such Full-Time Equivalent Indiana Resident Employees worked during such time period and such other

information as the Authority shall reasonably request. The Authority shall thereafter have a period of ninety (90) days from the Authority’s receipt of Tenant’s written notice to verify that the applicable Full-Time Equivalent employment thresholds have in fact been achieved by Tenant. If the Authority does not, within that ninety (90) day period, deliver written notice to Tenant that the Authority disputes that Tenant has achieved the applicable Full-Time Equivalent employment threshold, the Authority shall be deemed to have agreed that Tenant achieved the applicable Full-Time Equivalent employment threshold.

If the Authority is entitled to and desires to terminate this Lease pursuant to subsections (A)(1), (2), (3), (4), (5) or (6) above, the Authority shall provide written notice to Tenant, not later than six (6) months after the Authority becomes eligible under subsections (1), (2), (3), (4), (5) or (6) above to elect to terminate this Lease, that the Authority intends to terminate this Lease pursuant to subsection (A)(1), (2), (3), (4), (5) or (6), as applicable; provided, however, that with respect to subsection (A)(6) above, the six (6) month period may be extended, day for day, if the Authority exercises its right to conduct an audit, pursuant to Section 601(C)(3) below, regarding Tenant’s Operating Profit and Gross Sales with respect to one or both of the applicable two (2) Tenant Fiscal Years (and/or with respect to any Period therein). If the Authority terminates this Lease pursuant to this Section 504(A), the termination shall be effective upon the earlier of (a) the first anniversary of the date of delivery to Tenant of the Authority’s termination notice, and (b) the expiration date of the term (not including unexercised renewal or extension options or periods) of Tenant’s then-longest third party maintenance agreement with its customers. For purposes of this subsection (A), Tenant’s “third party maintenance agreements with its customers” shall mean only those of Tenant’s third party maintenance agreements with its customers that are in effect on the date when the Authority provides Tenant with the Authority’s written notice of termination pursuant to a particular Authority Termination Event. Within thirty (30) days after the Authority provides Tenant with the Authority’s written notice of intent to terminate pursuant to this Section 504(A), Tenant shall provide a written, sworn certification to the Authority from Tenant’s Controller which states the expiration dates of Tenant’s third party maintenance agreements with its customers, and the Authority shall have the right to verify the information set forth in Tenant’s sworn certification (including, without limitation, the right to review copies of Tenant’s third party maintenance agreements). If the Authority elects to terminate this Lease pursuant to this Section 504(A), Tenant shall remain liable for all Rental that has accrued for periods prior to the effective date of the termination of this Lease, and for other liabilities and obligations of Tenant (including without limitation Tenant’s obligations and liabilities under Section 705 and Section 1701 of this Lease) that have accrued for periods prior to the effective date of the termination of this Lease, but shall not be liable for any Rentals that would otherwise have accrued for periods after the effective date of the termination of this Lease and shall not be obligated to repay the Grants, the Credits, or the Improvement Rent Credits. If the Authority does not provide Tenant with a written notice of termination pursuant to a particular Authority Termination Event within six (6) months after the date the Authority becomes eligible to terminate for that particular Authority Termination Event, then the Authority will be deemed to have waived its right to terminate this Lease for that particular event based on those particular circumstances which triggered that Authority Termination Event; provided, however, that this shall not be deemed to restrict, prohibit or limit the Authority from thereafter exercising its right to terminate based on that particular Authority Termination Event if a different set of circumstances or events thereafter triggers that Authority Termination Event.

(B) Tenant Early Termination Rights . Notwithstanding the Term of this Lease Agreement, Tenant shall have the right to terminate this Lease Agreement at any time prior to expiration of the Term if any of the following events occur (each, a “Tenant Termination Event”):

(1) If, at any time, (a) Tenant is able to demonstrate to the Authority that, despite using good faith, reasonable efforts to attract, solicit, employ and retain a sufficient number of qualified personnel, Tenant is unable to employ or retain a sufficient number of qualified personnel at the Leased Premises which, in Tenant’s determination (in Tenant’s sole discretion) (i) meet Tenant’s hiring qualifications, or (ii) can be employed or retained at a cost that would allow Tenant to operate Tenant’s Business at the Leased Premises within Tenant’s projected profit margins for the Leased Premises; provided, however, that before Tenant exercises its termination right as a result of this Tenant Termination Event, Tenant shall first provide the Authority (if the Authority so desires) with a period of at least ninety (90) days after Tenant satisfies subsection (a) above, in which to assist Tenant with attracting, employing and retaining a sufficient number of qualified personnel which (in Tenant’s sole discretion) satisfy the requirements of subsections (a)(i) and (ii) above, and if, during that ninety (90) day period, Tenant is able to employ and retain a sufficient number of qualified personnel at the Leased Premises who satisfy the requirements under (a)(i) and (ii) above, Tenant may not proceed with exercising its termination right under this subsection (1) in that instance.

(2) Unless Tenant has consented thereto pursuant to Section 2105 of this Lease, if at any time the Authority leases any space at the Facilities to another Person who is a direct competitor of Tenant in the business of providing maintenance, repair, or overhaul for aircraft (provided, however, that Tenant hereby acknowledges that a commercial airline or a Governmental Entity will not be deemed to be a “direct competitor” of Tenant even if the airline or the Governmental Entity engages in maintenance, repair, and/or overhaul activities).

(3) If at any time, starting in the Tenant Fiscal Year beginning June 1, 2005, Tenant’s annual Operating Profit with respect to the Leased Premises is negative for any two (2) consecutive Tenant Fiscal Years.

(4) If, at any time, Tenant’s average Employee costs for Tenant’s Business at the Leased Premises increase in any quarter of a Tenant Fiscal Year in excess of three percent (3%) of the average Employee costs for the same Employees for the immediately prior quarter, or Tenant experiences workplace disruptions which result in suspension of or a material reduction in Employee productivity as demonstrated to the Authority by Tenant.

If any of the foregoing Tenant Termination Events occurs, the Tenant may notify the Authority in writing that Tenant elects to terminate this Lease Agreement. With respect to the Tenant Termination Events described in subsections (B)(2) and (B)(3) above, if Tenant desires to exercise its right to terminate this Lease pursuant to the circumstances described in either

subsection (B)(2) or subsection (B)(3), respectively, Tenant must provide the Authority with Tenant’s written notice of intent to terminate within the following timeframes: (a) if termination is pursuant to subsection (B)(2) above, Tenant must provide the Authority with Tenant’s written notice of intent to terminate this Lease not later than six (6) months after the Authority enters into the lease with the other Person; and (b) if termination is pursuant to subsection (B)(3) above, Tenant must provide the Authority with Tenant’s written notice of intent to terminate this Lease not later than six (6) months after the second of the two (2) such consecutive Tenant Fiscal Years for which Tenant’s annual Operating Profit was negative. With respect to the Tenant Termination Event described in subsection (B)(3) above, Tenant hereby acknowledges and agrees that the Authority shall be entitled to verify, by process of audit pursuant to Section 601(C)(3) below, Tenant’s Operating Profit and Gross Sales in order to verify that this Tenant Termination Event has in fact been satisfied. The termination shall be effective on the earlier of (y) the first anniversary of the date of delivery to the Authority of Tenant’s termination notice, and (z) the expiration date of the term (not including unexercised renewal or extension options or periods) of Tenant’s then-longest third party maintenance agreement with its customers. For purposes of this subsection (B), Tenant’s “third party maintenance agreements with its customers” mean only those of Tenant’s third party maintenance agreements with its customers that are in effect on the date when the Tenant provides the Authority with Tenant’s written notice of termination pursuant to this Section 504(B). At the time Tenant provides the Authority with Tenant’s written notice of Tenant’s intent to terminate pursuant to this Section 504(B), Tenant will provide a written, sworn certification to the Authority from Tenant’s Controller which states the expiration dates of Tenant’s third party maintenance agreements with its customers and the Authority shall have the right to verify the information set forth in Tenant’s sworn certification (including, without limitation, the right to review copies of the Tenant’s third party maintenance agreements). If Tenant elects to terminate this Lease pursuant to this Section 504(B), Tenant shall remain liable for all Rental that has accrued for periods prior to the effective date of the termination of this Lease, and for other liabilities and obligations of Tenant (including without limitation Tenant’s obligations and liabilities under Section 705 and Section 1701 of this Lease) that have accrued for periods prior to the effective date of the termination of this Lease, but shall not be liable for any Rentals that would otherwise have accrued for periods after the effective date of the termination of this Lease and shall not be obligated to repay the Grants, the Credits, or the Improvement Rent Credits.

ARTICLE VI.

RENTALS, FEES AND RECORDS

Section 601. Rental .

(A) Base Rent .

(1) Subject to Sections 605(B) and 605(C) below, Tenant will pay the Authority, in arrears, on or before the fifteenth (15th) day of each calendar month, base rent (“Base Rent”) with respect to the Leased Premises for the preceding calendar month. Subject to Section 601(A)(3) below, the Base Rent that is assessed by the Authority for a particular calendar month will be calculated solely on basis of the square footage of the

Leased Premises that Tenant Occupied during that calendar month. The annual Base Rent rate for the Leased Premises during the Term will be Two Dollars and NO/100 ($2.00) per square foot.

By way of example only, if Tenant Occupies 100,000 square feet of the Leased Premises during a particular calendar month, Tenant will (subject to Sections 605(B) and (C) below) pay the Authority Base Rent for that calendar month in the amount of $16,666.67 (i.e., 100,000 square feet x $2.00 per square foot per annum /12 months).

(2) As it relates to Occupancy and subsequent de-Occupancy of Leased Premises, if Tenant Occupies a particular portion of the Leased Premises during less than all of a calendar month, Tenant shall pay a prorated portion of the Base Rent for that calendar month based on the number of days Tenant Occupies that portion of the Leased Premises.

(3) Notwithstanding anything in this Lease to the contrary, however, and regardless of which (if any) portions of the Leased Premises that Tenant elects to Activate and regardless of which (if any) portions of the Leased Premises that Tenant is Occupying or using from time to time, Tenant hereby agrees that commencing on the earlier of (a) December 1, 2004 or (b) the first date that any aircraft of Tenant’s customer(s) is located at the Leased Premises, and continuing thereafter during the Term of this Lease, Tenant shall be obligated to pay monthly Base Rent on at least two (2) Bays plus the Hangar 4 Office Space (the “Minimum Base Rent”). Minimum Base Rent is subject to increase as provided in Section 401(G) and Section 2105(A)(3) of this Lease.

(B) Additional Rent .

(1) Subject to the other provisions of this Section 601(B) and Sections 605(B) and (C) of this Lease, in consideration for the Authority’s operations and maintenance obligations under this Lease with respect to the Facilities, including providing Utilities and performance of those obligations set forth in Articles X and XI of this Lease, Tenant will pay the Authority monthly additional rent (“Additional Rent”), in arrears, on or before the fifteenth (15th) day of each calendar month for the prior calendar month. Subject to Section 601(B)(8) below, the Additional Rent that is assessed by the Authority for a particular calendar month will be calculated solely on basis of the square footage of the Leased Premises that was Occupied by Tenant during that calendar month.

(2) During the Initial Term, Tenant’s monthly payments of Additional Rent shall be paid based upon an annual Additional Rent, per calendar year, of Six Dollars and 20/100 ($6.20) per square foot (the “Additional Rental Per Square Foot Per Annum”). Within one hundred twenty (120) days after the end of each calendar year during the Term, the Authority shall provide Tenant with a statement showing the actual costs and expenses incurred by the Authority in owning, operating, insuring, maintaining, repairing, and replacing the Land, the Facilities, the Facilities Systems, the Equipment, and all other aspects and components of the Land and the Facilities (the “Actual Facilities Costs and Expenses”), and, to the extent reasonably requested by Tenant, will provide

Tenant with supporting data therefor. In the event that the Actual Facilities Costs and Expenses per square foot of the total Facilities, for that calendar year, are less than $6.20 per square foot of the Facilities (the “Estimated Facilities Costs and Expenses”), Tenant shall be entitled to a credit from the Authority against future Additional Rent that would otherwise be payable by Tenant under this Lease, which credit shall be in an amount that is equal to the amount of Additional Rent that was actually assessed against Tenant for that calendar year (based on the Estimated Facilities Costs and Expenses) less the amount of Additional Rent that should have been assessed against Tenant for that calendar year (based on the Actual Facilities Costs and Expenses). If there are any overpayment credits against Additional Rent remaining under this Section as of the expiration or sooner termination of the Term of this Lease, those overpayment credits will be applied toward any unpaid Additional Rent assessed for periods prior to the expiration or sooner termination of the Term; and any remaining overpayment credits that are not applied toward any unpaid Additional Rent assessed for periods prior to the expiration or sooner termination of the Term will be paid to the Tenant in cash.

(3) The Additional Rent shall be increased during the Extension Term as provided in Section 501(B) above.

(4) Notwithstanding subsection (B)(1) above, Tenant will not be charged any Additional Rent with respect to the Hangar 4 Office Space (as defined in Exhibit B ) at any time during the Term.

(5) As it relates to Occupancy and subsequent de-Occupancy of Leased Premises, if Tenant Occupies a particular portion of the Leased Premises during less than all of a calendar month, Tenant shall be assessed a prorata portion of the Additional Rent based on the number of days Tenant Occupies that portion of the Leased Premises during that calendar month. Notwithstanding the preceding sentence, however, prior to the third (3rd) anniversary of the Effective Date, Additional Rent will not be assessed with respect to any particular Bay at the Leased Premises for any seven (7) consecutive day period during the months of July and August, during which Tenant does not conduct Tenant’s Business in that Bay. For purposes of the preceding sentence, Tenant shall be deemed to have conducted Tenant’s Business in a particular Bay during a particular seven (7) day period if Tenant Occupied and had at least one (1) aircraft in that Bay on at least one (1) day during that seven (7) day period.

(6) If, at any time, Tenant adequately demonstrates to Authority that Tenant’s operations are specifically and directly responsible for a material reduction in operating costs at the Facilities, the entire demonstrated cost savings shall be applied as a reduction to Tenant’s Additional Rent over the remaining Term of the Lease; however, going forward Tenant must continue to demonstrate its direct responsibility for the reduction in operating costs.

(7) By way of example, if on July 1, 2005, Tenant is Occupying 300,000 square feet of Leased Premises, of which 25,000 square feet is Hangar 4 Office Space and another 100,000 square feet constitutes empty Bay space for one seven (7)

consecutive day period during the month, the Additional Rent that would be assessed by the Authority for that calendar month would be an amount equal to $130,416.66 (i.e., ((300,000 square feet – 25,000 square feet) x $6.20 per square foot per annum) /12 months) – ((7 days/31 days) x (100,000 square feet x $6.20 per square foot per annum/12 months)).

(8) Notwithstanding anything in this Lease to the contrary, however, and regardless of which (if any) portions of the Leased Premises that Tenant elects to Activate and regardless of which (if any) portions of the Leased Premises that Tenant is Occupying or using from time to time, Tenant hereby agrees that commencing on the earlier of (a) December 1, 2004 or (b) the first date that any aircraft of Tenant’s customer(s) is located at the Leased Premises, and continuing thereafter during the Term of this Lease, Tenant shall be obligated to pay monthly Additional Rent on at least two (2) Bays (the “Minimum Additional Rent” and, together with the Minimum Base Rent, the “Minimum Monthly Rent”). Minimum Additional Rent is subject to increase, in the same manner and at the same time as the Minimum Base Rent, as provided in Section 401(G) above and Section 2105(A)(3) below.

(C) Percentage Rent .

(1) If during the Term, Tenant’s annual Operating Profit (expressed as a percentage of Gross Sales) is greater than nine and 25/100 percent (9.25%) of Gross Sales at the end of a Tenant Fiscal Year, then Tenant will pay the Authority a percentage rent (“Percentage Rent”) for that Tenant Fiscal Year in an amount that is equal to thirty-three percent (33%) of the amount by which Tenant’s annual Operating Profit for that Tenant Fiscal Year exceeds nine and 25/100 percent (9.25%) of Tenant’s Gross Sales for that Tenant Fiscal Year. By way of example, if at the end of a Tenant Fiscal Year, Tenant had Gross Sales of $99,000,000 and an annual Operating Profit of $11,880,000, then Tenant’s annual Operating Profit would equal twelve percent (12%) of its Gross Sales (i.e., $11,880,000 / $99,000,000). 9.25% of $99,000,000 equals $9,157,500. Therefore, for this Tenant Fiscal Year, Tenant would pay the Authority $898,425 (i.e., .33 x ($11,880,000 — $9,157,500)). If Tenant had Gross Sales of $100,000,000 for a Tenant Fiscal Year and an annual Operating Profit of $9,000,000 for that Tenant Fiscal Year, then Tenant’s annual Operating Profit for that Tenant Fiscal Year would equal nine percent (9%) of its Gross Sales (i.e., $9,000,000 / $100,000,000) and as a result, no Percentage Rent would be due the Authority for that Tenant Fiscal Year.

(2) Tenant will calculate its Operating Profit on a cumulative basis at the end of each fiscal quarter (August 31, November 30, February 28/29, and May 31) (each, a “Period”) for the applicable Tenant Fiscal Year, and will make interim Percentage Rent payments, if any are due, within sixty (60) days after the end of the applicable fiscal Period. Not later than ninety (90) days after the end of each of the Tenant Fiscal Years (i.e., not later than August 31 of each year), Tenant will calculate the cumulative Operating Profit of Tenant for each such Tenant Fiscal Year, and likewise calculate the Percentage Rent that should have been paid to the Authority for each such Tenant Fiscal Year, and reconcile it to the interim Percentage Rent payments actually made to the

Authority during that Tenant Fiscal Year with respect to each of the Periods during that Tenant Fiscal Year. If the Percentage Rent that should have been assessed against Tenant for the Tenant Fiscal Year exceeds what Tenant has actually paid to the Authority for that Tenant Fiscal Year, then Tenant shall pay the Authority the difference within ninety (90) days after the end of that Tenant Fiscal Year. If the Percentage Rent that should have been assessed against Tenant for that Tenant Fiscal Year is less than what Tenant has actually paid to the Authority for that Tenant Fiscal Year, then the Authority shall credit the difference against Tenant’s obligations to pay Rental under this Lease with respect to the Tenant Fiscal Year(s) following the Tenant Fiscal Year for which Tenant overpaid Percentage Rent. The Authority shall refund in cash to Tenant any unused credits that have accrued, but have not been applied to Rental, under this subsection (C)(2) at the expiration or earlier termination of this Lease. Each such payment that is due and payable by Tenant shall be accompanied by a certificate signed and sworn by the Tenant’s Controller, setting forth the Operating Profit and Gross Sales during such Period (the “Percentage Rent Certificate”). In the event of a partial Period at the beginning or end of the Term, the Percentage Rent payable for that partial Period shall be based upon the Gross Sales and Operating Profit during that partial Period.

(3) Tenant shall keep in the Leased Premises full, accurate, true and complete records of all Gross Sales and Operating Profit with respect to the Leased Premises. Such records shall be retained by the Tenant for not fewer than five (5) years after the expiration of the Tenant Fiscal Year to which they relate, and such records shall be kept in accordance with generally accepted accounting principles (“GAAP”) that are applied consistently with respect to the Leased Premises from Period to Period. For purposes of permitting verification by the Authority of the Gross Sales and Operating Profit reported by the Tenant with respect to the Leased Premises, the Authority or its agent shall have the right for a period of up to five (5) years after the end of each Tenant Fiscal Year, upon not fewer than thirty (30) days’ prior written notice to Tenant, to inspect, audit or cause to be audited Tenant’s books and records relating to Gross Sales and Operating Profit for the Tenant Fiscal Year in question. If such inspection or audit discloses that Tenant has underpaid any Percentage Rent due under this Lease, and if Tenant does not in good faith dispute the findings of the audit or inspection, Tenant shall within thirty (30) days of the findings remit the amount of the underpayment to the Authority, together with interest thereon from the date such amount was originally due and owing to the Authority hereunder, at the rate specified in Section 604 below. If such inspection or audit discloses that Tenant has overpaid any Percentage Rent due hereunder, and if the Authority does not in good faith dispute the findings of the audit or inspection, the Authority shall within thirty (30) days of the findings remit the amount of the overpayment to Tenant. If the inspection or audit discloses that Tenant underpaid any Percentage Rent, Tenant shall also reimburse the Authority, a reasonable hourly rate, for the time incurred by the Authority’s personnel in conducting the audit or inspection, plus their actual expenses in conducting the audit or inspection; provided, however, that the total amount for which Tenant would be obligated to reimburse the Authority under this sentence shall not, itself, exceed an amount that is equal to the amount of the underpayment.

“Gross Sales” shall mean, for a particular Period, the aggregate amount, expressed in U.S. Dollars, of all goods and services sold or otherwise provided by Tenant at, from or with respect to the Leased Premises during that Period and recorded on the books of Tenant in accordance with GAAP. “Gross Sales” shall also include all goods and services sold from or provided at other locations of Tenant and/or its Affiliates with respect to customer orders and/or contracts generated or invoiced at, from or with respect to the Leased Premises; and “Gross Sales” shall also include goods and services intentionally diverted away from the Leased Premises to other locations of Tenant and/or its Affiliates to avoid including those sales in Gross Sales. However, Gross Sales shall not include goods and services diverted to other locations of Tenant and/or its Affiliates if such diversion was done for a legitimate, good faith business reason and which diversion would have occurred even in the absence of a Percentage Rent obligation and not to avoid including those sales in Gross Sales, including, but not limited to the sale of goods and services performed at another location due to a customer request, workplace disruptions, aircraft scheduling conflicts, aircraft emergencies, or weather. Discounts, price reductions, rebates and other similar arrangements by Tenants or its Affiliates shall not be granted in a manner that would serve to intentionally deflect revenues to another facility of Tenant or any of its Affiliates so as to artificially reduce Gross Sales. In the event any goods or services are provided by Tenant to any Affiliate of Tenant on any basis that is less than the fair market value thereof, the fair market value thereof shall be deemed to have been received by Tenant for those goods or services for purposes of calculating Gross Sales. To the extent any charges imposed by Tenant or any Affiliate for goods and services that are to be included in “Gross Sales” shall be in amounts less than what is required by the preceding sentences, Gross Sales shall be increased so as to equal the amount that Tenant or its Affiliate would have received had it imposed charges in accordance with the preceding sentences. “Gross Sales” shall not include goods and services sold from or provided at other locations including those of Tenant and/or its Affiliates with respect to customer orders and/or contracts generated at, from, or with respect to the Leased Premises when such goods and services are provided at such locations as a result of a Casualty at the Leased Premises (other than a Casualty that results from the fault or negligence of Tenant, its subtenants, or any of their respective Employees, agents, contractors or Invitees) that prevents them from being provided at the Leased Premises, the occurrence of any of the events described in Section 502(A), or an interruption under Section 1102 which is caused by the Authority and which prevents those goods and services from being provided at the Leased Premises.

“Operating Profit” for a particular Period shall be expressed as a percentage of Gross Sales and shall mean, for a particular Period, Gross Sales for that Period less expenses directly related to Tenant’s operations at the Leased Premises for that Period, as calculated in accordance with GAAP. Group/Corporate Expenses allocated to Tenant shall also be deducted from Gross Sales for purposes of Operating Profit. No intercompany fees relative to any members of the Group, to Tenant’s Parent (as hereinafter defined), or to any Affiliate of Tenant or its Parent, shall be included as expenses of Tenant’s operations at the Leased Premises except as contemplated by the definition of “Group/Corporate Expenses” set forth below. The expenses for the Leased Premises shall be reduced by the amount of any grants, if applicable, Success Payments

or credits provided to Tenant by any Governmental Entity with respect to the Leased Premises during that particular Period, and shall also be reduced by the amount of any and all Rental credits that are provided to Tenant under this Lease during that particular Period. For purposes of this provision, “Group” means the subset of organizational companies, within the Parent company organization, in which Tenant belongs. “Group/Corporate Expenses” means the following, all of which must be verifiable by the Authority (a particular item of Group/Corporate Expense may only be deducted pursuant to one of the following categories (i.e., a particular item of Group/Corporate Expense may not be deducted more than once for purposes of calculating Operating Profit)):

(a) Production Materials and Labor from Sister Companies: The actual cost and expenses incurred by Tenant in procuring production materials and labor from a “sister company” (i.e., an Entity that is directly or indirectly owned, in whole or in part, by Tenant’s Parent) for purposes of Tenant’s providing goods and services to Tenant’s customers at, from or with respect to the Leased Premises. The price charged by Tenant’s sister companies to Tenant shall be at not more than normal and customary market rates consistent with an arm’s length transaction.

(b) Group Overhead Allocation: Allocation of general Group overhead costs and expenses, which shall consist of Tenant’s proportionate share of all costs and expenses (including, without limitation, salaries, benefits, travel and living expenses, supplies, and educational costs) reasonably incurred that are associated with the operation of the Group, in general, and are not specifically allocable to any particular division or Entity within the Group (the “Group Overhead”). Such costs and expenses may include, by way of example, costs and expenses generally incurred by the Group, as a whole, for the following: business development, operations, finance, and sales. Tenant’s proportionate share of Group Overhead, for a particular period, shall be a percentage equal to Tenant’s Gross Sales for that period divided by the gross sales of the entire Group. Tenant’s proportionate share of Group Overhead shall not exceed for any Tenant Fiscal Year, the amount of Four Hundred Thousand Dollars ($400,000) per Tenant Fiscal Year, for purposes of calculating Operating Profit for that Tenant Fiscal Year.

(c) Corporate Overhead Allocation: Allocation to Tenant, as described in this subsection (c), of Tenant’s proportionate share of the corporate overhead costs and expenses of Tenant’s Parent, reasonably incurred in connection with the operation of the Parent and those subsidiaries which Parent (directly or indirectly) wholly owns, including those for insurance premiums, banking services, routine financial statement audits, tax preparation services, benefits administration, pension administration, payroll administration, accounts payable administration, routine compliance procedures under the Sarbanes-Oxley Act of 2002, 15 U.S.C. ¶7201 et seq ., and routine treasury-related administrative activities with respect to the receipt, custody and disbursement of funds (the “Corporate Overhead”). Tenant’s proportionate share of Corporate Overhead, for a particular Period, shall be as allocated pursuant to the Parent’s “General Guidelines for Corporate

Expense Allocation” (as Parent may amend from time to time), provided that the Parent’s “General Guidelines for Corporate Expense Allocation” are applicable on a consistent basis to all of Parent’s operating units and subsidiaries (the “Corporate Overhead Allocation Guidelines”). The amount of Tenant’s share of Corporate Overhead which may be deducted for purposes of calculating Operating Profit for a particular Period shall be no greater than an amount that is proportionate to the ratio that Tenant’s Gross Sales for that Period bear to Parent’s entire gross sales from all of Parent’s operations (whether at the Leased Premises of at other Parent locations) for that Period. Tenant’s Percentage Rent Certificate for each Period shall include a certificate, signed and sworn to by the Parent’s Chief Financial Officer, certifying to the Authority that the Corporate Overhead Allocation Guidelines are applied on a consistent basis with respect to all of Parent’s operating units and subsidiaries and that the allocation to Tenant of its share of the Corporate Overhead for that Period has been made in accordance with the then-applicable Corporate Overhead Allocation Guidelines. The Authority shall have the right, as part of any audit performed by the Authority as described above in this subsection (C)(3), to audit the Parent’s books and records relevant to the Corporate Overhead Allocation in order to verify (i) that the Corporate Overhead Allocation Guidelines that were used to calculate Tenant’s share of Corporate Overhead were in fact applied on a consistent basis to all of the Parent’s operating units and subsidiaries and (ii) that the calculation of Tenant’s share of Corporate Overhead pursuant to the Corporate Overhead Allocation Guidelines was correctly calculated. The Parent shall retain its books and records pertaining to Corporate Overhead and allocations thereof for not fewer than five (5) years after the expiration of each Tenant Fiscal Year for which Tenant is allocated any portion of Corporate Overhead.

(d) Corporate Direct Charges: Charges reasonably assessed to Tenant, for time and actual materials costs incurred by employees at the Parent’s headquarters in providing support services (including, without limitation, legal support, systems programming or direct support hardware, environmental support, and human resources support) directly to and for the benefit of Tenant with respect to Tenant’s operations at the Leased Premises. Such charges shall not include any “profit” component, and shall be in amounts and at rates that are commercially reasonable and not in excess of what would reasonably be charged to Tenant if Tenant were to obtain such services from a service provider unaffiliated with Tenant.

(e) Systems Allocation: Actual, reasonable costs and expenses for the Parent’s maintaining systems that are shared generally by members of the Group, such as a corporate email system, security systems, and similar types of systems. These costs and expenses are to be allocated equally, by division, across the Parent company organization (the Group constituting one of those divisions), with each division being charged an amount equal to the amount charged to each other division in the Parent company organization. Tenant’s share of those costs and

36 expenses shall be equal to the share of those costs and expenses that are borne by other member companies in the Group.

Capital charges and income taxes are not to be deducted from Gross Sales in determining Operating Profit. The cost of goods and services received by Tenant from its Affiliates and from other Persons must not exceed what Tenant would reasonably be required to pay in an arm’s-length transaction. Allocation to Tenant by its vendors, suppliers, and contractors of costs, expenses, fees, charges, rebates, credits, allowances, price reductions and other such items must be done in a manner that will not (a) allocate to Tenant more than Tenant’s rightful share of the costs, expenses, fees, charges and other such items, and (b) allocate to parties other than Tenant more than their rightful share of any rebates, credits, allowances, price reductions and other such items.

Attached hereto as Exhibit J is an illustrative model indicating how Tenant may calculate Gross Sales and Operating Profit, which model may be subject to modification in accordance with GAAP.

Section 602. Field Use Charge . This Lease Agreement does not and shall not be deemed to grant Tenant the right to use any aircraft parking apron (except as may be designated from time to time by the Facilities Manager to Tenant or except as contemplated by Section 703(B) below) or taxiway not on the Leased Premises. Any use of aircraft operational areas outside of the Leased Premises, or other Airport property not included in the Leased Premises, by Tenant, its Employees or its agents shall be by separate agreement and only upon payments of appropriate fees. Nothing in this Section, however, shall prohibit Tenant, its Employees or its agents from the joint use with others at the Airport of interior and exterior roadways serving the Leased Premises as granted herein and in accordance with Airport rules, regulations and/or restrictions. Notwithstanding the foregoing, the Authority covenants and agrees that Tenant and its customers will not be charged any landing fees by any Governmental Entity with respect to aircraft landing at the Land for maintenance, repair, or overhaul at the Leased Premises, and that Tenant’s customers (when and to the extent they are taking off from and landing at the Airport in connection with the maintenance, repair and overhaul services they are receiving at the Leased Premises) will be entitled to use and access to the Airport on terms no less favorable than the Authority gives to other users of the Airport.

Section 603. Time and Place of Payments . The Rental due under Section 601 hereof shall be payable to the Authority, at the office of the Airport Director at the address set forth in Section 2208 hereof.

Section 604. Delinquent Rentals . If Tenant does not pay the Rental described in Section 601 hereof on the due date thereof, Tenant shall pay to the Authority, as additional rental, an interest charge of eighteen percent (18%) per annum, applied against the delinquent amount due for each full calendar month of delinquency, computed as simple interest. Such interest shall be computed from the due date until the delinquent payment, together with accrued interest, is paid in full.

Section 605. Authority Incentives .

(A) Grants .

(1) Tenant shall be entitled to receive grants from the Authority, in accordance with the schedule set forth on Exhibit G hereto (the “Grants”, and the funds to be paid by the Authority to Tenant pursuant to the Grants being referred to herein as the “Grant Proceeds”). The purpose of the Grants is to pay or reimburse Tenant, as the case may be, solely for (a) Tenant’s actual costs and expenses in purchasing materials and equipment for Authority-approved additions to and/or improvements to the Leased Premises, (b) Tenant’s actual costs and expenses in purchasing computer related hardware for use by Tenant at the Leased Premises; and (c) Tenant’s mobilization and start-up costs (the costs and expenses described in subsection (c) being referred to in this Section 605(A) as “Mobilization Expenses”; and the costs and expenses described in subsections (a) and (b) being referred to, collectively, as “Grant-Related Expenditures”); however, Tenant shall only be entitled to use for Mobilization Expenses those Grant Proceeds that are payable by the Authority to Tenant on the thirtieth (30th) day after the Effective Date and on the one hundred fifth (105th) day after the Effective Date. As described on Exhibit G , Tenant shall be deemed to have earned certain portions of the Grant Proceeds (i.e., those portions payable for “Mobilization Expenses”) on the thirtieth (30th) day after the Effective Date (the first two (2) installments of Grant Proceeds for Mobilization Expenses being payable on the thirtieth (30th) day after the Effective Date) and on the one hundred fifth (105th) day after the Effective Date. Thereafter, as indicated on Exhibit G , Tenant shall be deemed to have earned certain additional portions of the Grant Proceeds at such times as Tenant has sent the Authority an Activation Notice with respect to a certain number of Bays in the Leased Premises as set forth on Exhibit G hereto (except for those portions of the Grant Proceeds which are, as shown on Exhibit G , payable at the commencement of the 1st year of the Extension Term and at the commencement of the 2nd year of the Extension Term). Those Bay or date thresholds that Tenant must satisfy, as set forth on Exhibit G , in order to be deemed to have earned a particular portion of the Grant Proceeds, are referred to herein as the “Grant Thresholds”. After such time as the applicable dates on Exhibit G occur with respect to which Tenant would be entitled to receive the Grant Proceeds for Mobilization Expenses, the Authority shall pay Tenant the applicable Grant Proceeds corresponding to those dates, provided that Tenant first delivers to the Authority a list of Tenant’s anticipated Mobilization Expenses. However, Tenant hereby acknowledges that the Authority shall only be required to actually disburse the remainder of the Grant Proceeds (i.e., the portion of the Grant Proceeds that may be used for Grant-Related Expenditures) to Tenant when Tenant has satisfied the procedure for disbursement that is set forth in subsection (A)(2) below. Tenant may not use the Grant Proceeds for Mobilization Expenses for any Leased Premises Improvements (as defined below), unless Tenant complies with the procedures described in subsection (A)(2) below. Tenant hereby acknowledges and agrees that it may not receive both reimbursement from Grant Proceeds and Improvement Rent Credits for a particular Leased Premises Improvement. Tenant hereby further acknowledges and agrees that it may not be reimbursed using Grant Proceeds for any Grant-Related Expenditure for which Tenant has received Grant Proceeds for Mobilization Expenses.

(2) In order for Tenant to obtain the Grant Proceeds for Grant-Related Expenditures corresponding to those Grant Thresholds that are satisfied by Tenant from time to time, the following must occur:

(a) Prior to commencing any purchasing or other activities for which Tenant will seek reimbursement from Grant Proceeds, Tenant must obtain the Authority’s prior written approval of the proposed Grant-Related Expenditures.

(b) If the Grant-Related Expenditures have been approved by the Authority as described in subsection (a) above, and are not Leased Premises Improvements (as defined below), Tenant shall submit to the Authority a written request for reimbursement, which request shall contain a certification by Tenant that the amounts for which Tenant seeks reimbursement have actually been spent and paid for by Tenant, and which request shall contain a detailed breakdown (together with such supporting data as the Authority shall request) regarding the amounts for which Tenant seeks reimbursement. Provided that Tenant has satisfied the foregoing provisions of subsection (a) above and this subsection (b), the Authority shall, not later than thirty (30) days after it receives Tenant’s written request and all supporting data that the Authority has requested with respect thereto, reimburse Tenant for the amounts so requested by Tenant. However, the Authority shall only be obligated to reimburse Tenant to the extent of Grant Proceeds which Tenant has then earned as described in subsection (1) above and which have not theretofore been applied toward Grant-Related Expenditures.

(c) If the Grant-Related Expenditures have been approved by the Authority as described in subsection (a) above, and consist of improvements, alterations or other modifications to that portion of the Leased Premises that is not Equipment (“Leased Premises Improvements”), the following terms and conditions must be satisfied in order for the Authority to disburse Grant Proceeds to reimburse Tenant for the cost and expense of those Leased Premises Improvements:

(i) Tenant must submit to the Authority, prior to commencing the Leased Premises Improvements, a complete and detailed set of plans and specifications, prepared by an architect or engineer reasonably acceptable to the Authority, detailing those proposed Leased Premises Improvements, which plans and specifications must be reasonably acceptable to the Authority (the plans and specifications approved by the Authority being referred to herein as the “Plans”). Tenant shall perform and complete the Leased Premises Improvements in strict accordance with Plans. Tenant shall be responsible for ensuring that the Plans satisfy and comply with all applicable federal, state, county or other governmental Laws and the Authority shall have no responsibility or liability therefor.

(ii) Tenant shall be responsible, at its cost and expense, for constructing the Leased Premises Improvements and performing all work

relating thereto including, without limitation, paying fees, space planning, construction drawing services, obtaining all Improvement-Related Permits (as defined below), and furnishing all labor and materials necessary or appropriate to complete the Leased Premises Improvements, and the Authority shall have no responsibility or liability therefor. The contractors and subcontractors used by Tenant shall be reasonably acceptable to the Authority, and Tenant shall furnish a list of their names and copies of the applicable contracts and subcontracts upon request by the Authority.

(iii) Prior to performing the Leased Premises Improvements, Tenant shall, at its sole cost and expense, obtain all permits, authorizations, consents, licenses, and approvals, if any, necessary or appropriate to perform the Leased Premises Improvements, including, without limitation, the permit(s) required by the City of Indianapolis, if any, with respect to the Leased Premises Improvements (the “Improvement-Related Permits”). Prior to performing the Leased Premises Improvements, Tenant shall deliver to the Authority: (A) copies of the Improvement-Related Permits; and (B) evidence reasonably satisfactory to the Authority that Tenant has procured or has caused others to procure workers’ compensation, general liability, builder’s risk, and personal and property damage insurance in amounts reasonably satisfactory to the Authority, and naming the Authority as additional insured and loss payee.

(iv) Tenant shall, and shall cause its contractors and subcontractors to, perform the Leased Premises Improvements: (A) in accordance with the Plans and Permits; and (B) in a good and workmanlike manner and in compliance with all applicable federal, state, county or other governmental Laws, including, without limitation, zoning ordinances and The American With Disabilities Act, as amended, and the rules, regulations, guidelines, and orders promulgated or entered thereunder. Tenant also shall, and shall cause its contractors and subcontractors to, observe, perform and comply with all Laws promulgated from time to time by any applicable Governmental Entity, and complete Leased Premises Improvements free of all mechanics’ and materialmens’ liens. Tenant shall keep the Authority advised of the status of construction and completion of the Leased Premises Improvements and of the anticipated completion dates for the Leased Premises Improvements.

(v) Upon completion of the Leased Premises Improvements, Tenant shall deliver to the Authority final, unconditional lien waivers from all contractors, subcontractors, and materialmen performing labor or supplying materials or services in connection with the Leased Premises Improvements; a Certificate of Substantial Completion issued by Tenant’s project architect on the appropriate AIA form (or in any other form as

reasonably required by the Authority), certifying to the Authority that the Leased Premises Improvements have been completed in accordance with the Plans and Permits and all applicable Laws; and an “as-built” set of drawings of the Leased Premises Improvements. The Authority must be reasonably satisfied that the Leased Premises Improvements have been fully completed, and have been completed in a good and workmanlike manner in accordance with the Plans, Permits and applicable Law.

(vi) Tenant shall submit to the Authority a written request for reimbursement, which request shall contain a certification by Tenant that the amounts for which Tenant seeks reimbursement have actually been spent and paid for by Tenant, and which request shall contain a detailed breakdown (together with such supporting data as the Authority shall request) regarding the amounts for which Tenant seeks reimbursement. Provided that the foregoing provisions of subsection (a) above and this subsection (c) have been satisfied, the Authority shall, not later than thirty (30) days after it receives Tenant’s written request and all supporting data that the Authority has requested with respect thereto, reimburse Tenant for the amounts so requested by Tenant. However, the Authority shall only be obligated to reimburse Tenant to the extent of Grant Proceeds which Tenant has then earned as described in subsection (1) above and which have not theretofore been applied toward Grant-Related Expenditures.

(3) All equipment, tooling, and other personal property for which Tenant has received payment or reimbursement from the Authority from the Grant Proceeds (including, without limitation, Grant Proceeds for Mobilization Expenses) shall become the property of the Authority; provided, however, such personal property will be part of the Leased Premises for Tenant’s use under the terms of this Lease. If Tenant receives reimbursement in whole or in part from the Grant Proceeds for the costs and expenses of any Leased Premises Improvement project, Tenant acknowledges and agrees that all of the Leased Premises Improvement project, in its entirety, will become the property of the Authority; provided, however, such Leased Premises Improvement project will be part of the Leased Premises for Tenant’s use under the terms of this Lease.

(4) Tenant shall have no right to any Grant Proceeds that remain unapplied as of the expiration or sooner termination of the Term of this Lease. Tenant shall not be obligated to repay any Grant Proceeds to the Authority upon the expiration or sooner termination of the Term of this Lease.

(B) Credits .

(1) Tenant shall be eligible to receive credits to apply against Base Rent, Additional Rent or Percentage Rent assessed against the Tenant (the “Credits”) in accordance with the Schedule set forth in Exhibit G hereto. The Credits will be earned by Tenant once Tenant has provided the Authority with an Activation Notice with respect to the applicable number of Bays in the Leased Premises as set forth on Exhibit G hereto

(those thresholds that Tenant must satisfy, as set forth on Exhibit G , in order to be deemed to have earned a particular amount of the Credits, are referred to herein as the “Credit Thresholds”). Once Tenant has earned Credits, such Credits may be applied against Tenant’s Rental obligations which accrue from and after the time such Credits are earned in the manner described in paragraph (2) below, but only so long as Tenant remains “Eligible” to apply the Credits by continuing to satisfy the Credit Threshold that is applicable to that particular level of Credits.

(2) Any Credits earned by Tenant shall be applied one twelfth (1/12) per month over the next twelve (12) months (whether consecutive or not) during which Tenant (a) remains Eligible to apply such Credits and (b) owes Rental to the Authority. Tenant may “bank” any earned but unapplied Credits toward future Rental obligations, subject to the preceding sentences.

(3) Tenant shall have no right to any Credits that remain unapplied as of the expiration or sooner termination of the Term of this Lease. Tenant shall not be obligated to repay any Credits to the Authority upon the expiration or sooner termination of the Term of this Lease.

(C) Leasehold Improvement Credits .

(1) In addition to the Credits described in Subsection (B) above, the Authority will provide Tenant with credits to be applied against Tenant’s Rental in an amount equal to fifty percent (50%) of the cost and expense paid by Tenant for any Leased Premises Improvements that Tenant makes to the Leased Premises (to the extent Tenant has not received Grant Proceeds therefor) (the “Improvement Rent Credits”), provided that Tenant satisfies the procedure for disbursement set forth in subsection (2) below. Improvement Rent Credits earned hereunder will be applied dollar for dollar as and when the Rentals become due and payable by Tenant under the Lease, subject to subsection (4) below.

(2) In order for Tenant to obtain from the Authority the Improvement Rent Credits, the following must occur:

(a) Prior to commencing any purchasing or other activities related to the Leased Premises Improvements, Tenant must obtain the Authority’s prior written approval of the proposed Leased Premises Improvements.

(b) Tenant must submit to the Authority, prior to commencing the Leased Premises Improvements, a complete and detailed set of plans and specifications, prepared by an architect or engineer reasonably acceptable to the Authority, detailing those proposed Leased Premises Improvements, which plans and specifications must be reasonably acceptable to the Authority (the plans and specifications approved by the Authority being referred to herein as the “Plans”). Tenant shall perform and complete the Leased Premises Improvements in strict accordance with Plans. Tenant shall be responsible for ensuring that the Plans

satisfy and comply with all applicable federal, state, county or other governmental Laws, and the Authority shall have no responsibility or liability therefor.

(c) Tenant shall be responsible, at its cost and expense, for constructing the Leased Premises Improvements and performing all work relating thereto including, without limitation, paying fees, space planning, construction drawing services, obtaining all Improvement-Related Permits, and furnishing all labor and materials necessary or appropriate to complete the Leased Premises Improvements, and the Authority shall have no responsibility or liability therefor. The contractors and subcontractors used by Tenant shall be reasonably acceptable to the Authority, and Tenant shall furnish a list of their names and copies of the applicable contracts and subcontracts upon request by the Authority.

(d) Prior to performing the Leased Premises Improvements, Tenant shall, at its sole cost and expense, obtain all “Improvement-Related Permits”. Prior to performing the Leased Premises Improvements, Tenant shall deliver to the Authority: (i) copies of the Improvement-Related Permits; and (ii) evidence reasonably satisfactory to the Authority that Tenant has procured or has caused others to procure workers’ compensation, general liability, builder’s risk, and personal and property damage insurance in amounts reasonably satisfactory to the Authority, and naming the Authority as additional insured and loss payee.

(e) Tenant shall, and shall cause its contractors and subcontractors to, perform the Leased Premises Improvements: (i) in accordance with the Plans and Permits; and (ii) in a good and workmanlike manner and in compliance with all applicable federal, state, county or other governmental Laws, including, without limitation, zoning ordinances and The American With Disabilities Act, as amended, and the rules, regulations, guidelines, and orders promulgated or entered thereunder. Tenant also shall, and shall cause its contractors and subcontractors to, observe, perform and comply with all Laws promulgated from time to time by any applicable Governmental Entity, and complete Leased Premises Improvements free of all mechanics’ and materialmens’ liens. Tenant shall keep the Authority advised of the status of construction and completion of the Leased Premises Improvements and of the anticipated completion dates for the Leased Premises Improvements.

(f) Upon completion of the Leased Premises Improvements, Tenant shall deliver to the Authority final, unconditional lien waivers from all contractors, subcontractors, and materialmen performing labor or supplying materials or services in connection with the Leased Premises Improvements; a Certificate of Substantial Completion issued by Tenant’s project architect on the appropriate AIA form (or in any other form as reasonably required by the Authority), certifying to the Authority that the Leased Premises Improvements have been completed in accordance with the Plans and Permits and all applicable Laws; and an “as-built” set of drawings of the Leased Premises Improvements. The Authority must be reasonably satisfied that the Leased Premises

Improvements have been fully completed, and have been completed in a good and workmanlike manner in accordance with the Plans, Permits and applicable Law.

(g) Tenant shall submit to the Authority a written statement, which statement shall contain a certification by Tenant as to the cost and expenses paid by Tenant for those Leased Premises Improvements, and which statement shall contain a detailed breakdown (together with such supporting data as the Authority shall request) with respect thereto. Provided that the foregoing provisions of subsection (2) have been satisfied, Tenant shall be entitled to the Improvement Rent Credits as described in subsection (4) below.

(3) If Tenant receives Improvement Rent Credits with respect to any Leased Premises Improvement project, Tenant acknowledges and agrees that the entire Leased Premises Improvement project, in its entirety, will become the property of the Authority; provided, however, such Leased Premises Improvement project will be part of the Leased Premises for Tenant’s use under the terms of this Lease.

(4) An amount equal to one forty-eighth (1/48) of the total amount of any Improvement Rent Credit to which Tenant becomes entitled, as described above, with respect to a particular Leased Premises Improvement project may thereafter be applied toward each month’s Rental that thereafter is assessed against and owing from Tenant with respect to the Leased Premises in any given month. However, not more than one forty-eighth (1/48) of that particular Improvement Rent Credit may be applied toward Rental during any calendar month. Tenant may “bank” any earned but unapplied Improvement Rent Credits toward future Rental obligations, subject to the preceding sentence.

(5) Tenant shall have no right to any Improvement Rent Credits that remain unapplied as of the expiration or sooner termination of the Term of this Lease. Tenant shall not be obligated to repay any Improvement Rent Credits to the Authority upon the expiration or sooner termination of the Term of this Lease.

(D) Success Payments . For each of the first three (3) narrow-body (or larger) aircraft that are brought by Tenant’s customers to the Leased Premises, during the Term, for purposes of Tenant’s performing on those aircraft, at the Leased Premises, a “C check” or “D check”, Tenant shall be entitled to receive from the Authority a “success payment” in an amount equal to Four Hundred Thousand Dollars ($400,000) (each such $400,000 payment being referred to herein as a “Success Payment”). For purposes of this subsection (D), a “C check” or a “D check” means that level of single aircraft maintenance required by Tenant’s customer. Tenant shall be entitled to receive the first Success Payment within thirty (30) days after Tenant provides written evidence reasonably satisfactory to the Authority that Tenant has completed its “C Check” or “D Check” as to the first such aircraft at the Leased Premises, shall be entitled to receive the second Success Payment within thirty (30) days after Tenant provides written evidence reasonably satisfactory to

the Authority that Tenant has completed its “C Check” or “D Check” as to the second such aircraft at the Leased Premises, and shall be entitled to receive the third Success Payment within thirty (30) days after Tenant provides written evidence reasonably satisfactory to the Authority that Tenant has completed its “C Check” or “D Check” as to the third such aircraft at the Leased Premises. Tenant shall not be entitled to any Success Payments that remain unpaid as of the expiration or sooner termination of the Term of this Lease. Tenant shall not be obligated to repay the Success Payments to the Authority upon the expiration or sooner termination of the Term of this Lease.

ARTICLE VII.

OBLIGATIONS OF TENANT

Section 701. Payment of Rental and Other Amounts . Tenant hereby agrees and covenants to pay or provide for the payment of all Rental described in Article VI as and when due hereunder. Except for the credits to which Tenant may be entitled from time to time under Sections 601(B)(2), 601(C)(2), 605(B) and 605(C), all Rental payments shall be absolutely free from all claims, demands or offsets against the Authority of any kind or nature whatsoever and without relief from valuation or appraisement laws.

Section 702. Operation and Use of Leased Premises .

(A) Except as provided in Sections 705 and 1702, Tenant shall at its own expense (i) keep the Leased Premises in a safe, neat and attractive condition (except to the extent of any maintenance or repairs that are the express obligation of the Authority under Articles X and XI below), and (ii) not permit the accumulation of any trash, paper or debris on the Leased Premises or trash, paper or debris belonging to Tenant on any other property of the Authority.

(B) Tenant, upon written notice by the Authority to Tenant, shall be required to perform whatever maintenance is necessary to comply with the provisions of Subsection (A) hereof. If Tenant does not undertake that maintenance within thirty (30) days after receipt of written notice, the Authority shall have the right to enter upon the Leased Premises or in the Facilities and perform the necessary maintenance, the cost of which shall be paid by Tenant within thirty (30) days after notice of the cost thereof is provided by the Authority.

(C) Tenant shall not abuse, misuse, or commit or allow any waste or damage to the Leased Premises and/or the other property of the Authority, including without limitation the Equipment, except for normal wear and tear. Without limiting the foregoing, Tenant shall operate and use all Equipment only in a manner that complies with applicable manufacturer’s instructions, guidelines, and warranties.

(D) Tenant shall not occupy or use, or permit the use or occupation of, any portion of the Leased Premises for any business or purpose which is unlawful. Tenant shall not occupy or use, or permit the occupation or use of, any portion of the Leased Premises for any business or purpose which is disreputable or deemed to be extra-hazardous on account of fire, or do or permit anything to be done that would in any way increase the cost of the Authority’s casualty insurance coverage on the Facilities, the Leased Premises, the Equipment, or their contents; provided, however, that the Authority hereby acknowledges and agrees that nothing in this sentence shall be deemed to prohibit Tenant from using the Leased Premises for Tenant’s Business.

(E) Tenant shall not place any objects in any part of the Leased Premises that would place a load on the floors of the Leased Premises in excess of the design load capacities for the floors, without the prior written approval of the Authority. Tenant hereby acknowledges that, prior to the Effective Date of this Lease, the Authority furnished Tenant with a copy of the plans and specifications for the Leased Premises which indicate the design load capacities for the floors in the Leased Premises. The Authority shall have the right to have a floor load analysis of any part of the Leased Premises made at any time. If such analysis should indicate that Tenant has exceeded the foregoing limitations, Tenant shall promptly take such actions as may be required to eliminate the overloading condition and shall reimburse the Authority for the expense incurred in completing the analysis and for the cost and expense of any damage arising from such overloading condition.

(F) Tenant shall comply with all applicable Laws relating to the use, condition and/or occupancy of the Leased Premises.

(G) Tenant shall conduct Tenant’s Business and control its subtenants (if any) and its and their respective agents, Employees, contractors and Invitees in such a manner as to not create any nuisance to the Authority or its other tenants. Tenant shall not interfere with, annoy or disturb any other tenant, or the Authority in its operation of the Facilities.

(H) Tenant hereby acknowledges and agrees that Tenant shall not permit its Employees, contractors, agents, or Invitees, and shall not permit Tenant’s subtenants or their Employees, contractors, agents or Invitees, to enter upon or into any areas at the Leased Premises, the Land, the Facilities, or the Airport other than those areas of the Leased Premises that are being Occupied from time to time by Tenant (or, as applicable, Tenant’s subtenants), those portions of the Apron or other non-public areas of the Facilities, the Land or the Airport that are designated from time to time by the Authority as being available for use by Tenant or its subtenants, those areas at the Land and Facilities that are designated by the Authority from time to time as “Common Areas” open equally to all tenants at the Land and Facilities, and those areas of the Airport that are designated by the Authority from time to time as open to the general public. This subsection (H) shall not be deemed to be an expansion of Tenant’s rights as stated under any other provisions of this Lease.

(I) Subject to the terms and conditions of Section 605, Tenant shall not make any alterations, modifications, improvements or additions of or to the Leased Premises without the prior written consent of the Authority which consent shall not be unreasonably withheld. Subject to the foregoing, any alterations, modifications, improvements and/or additions by Tenant of or to the Leased Premises shall be deemed a part of the Leased Premises and shall belong to the Authority unless the Authority otherwise agrees in writing that they belong to Tenant.

Section 703. Trash, Garbage and Other Refuse; Outside Storage .

(A) Tenant shall pick up, and provide for, a complete and proper arrangement for the adequate sanitary handling and disposal, away from the Airport, of all trash, garbage, and other refuse caused as a result of its operation and/or occupancy of and on the Leased Premises. Tenant shall provide and use suitable covered outdoor receptacles for all such garbage, trash, and

other refuse on the Leased Premises. Tenant shall dispose of medical or biohazardous waste, regulated waste or any Hazardous Materials recovered or generated as a result of its operations off of the property of the Airport and in accordance with all applicable Laws and subject to Section 705.

(B) Tenant shall be permitted to store, on a short-term basis, the Equipment, the equipment and other personal property of Tenant’s customers, and Tenant’s Excluded Property, on such portions of the Apron as the Authority shall hereafter designate to Tenant in writing, provided that Tenant’s outside storage is reasonable, is short-term, and does not materially impair the Air Operations Area. However, Tenant acknowledges and agrees that the Authority also desires to maintain the appearance of the Apron in a reasonably neat and attractive manner and condition; therefore, Tenant agrees that if the Authority determines that Tenant’s storage activities on the Apron detract, in an unreasonable manner, from the appearance or use of the Apron, the Authority may notify Tenant in writing as to those items to which the Authority objects being stored by Tenant on the Apron, and Tenant shall cause those items to be removed from the Apron (and to be stored within its then-Occupied portions of the Leased Premises) within forty-eight (48) hours after Tenant receives the Authority’s written notice. Under no circumstances may Tenant perform outside maintenance, repair, or overhaul operations, or other activities (other than storage as described above) on the Apron on a constant or continuing basis other than what is recognized common practice in the industry; and provided that such activities may only occur on such portion of the Apron as the Authority shall hereafter designate from time to time.

Section 704. Licenses and Permits . Except for the Authority Permits, Tenant shall obtain and maintain in full force and effect, and comply with, at its cost and expense, any and all certificates, approvals, consents, authorizations, licenses, and permits under any applicable Law that are necessary to comply with this Lease Agreement and the privileges extended hereunder and/or that are necessary or appropriate for Tenant to obtain and maintain in connection with the conduct and operation of Tenant’s Business at the Leased Premises, including, without limitation, the 145 Certificate. The “Authority Permits” shall mean those certificates, approvals, consents, authorizations, licenses, and permits that are listed on Exhibit H attached hereto and incorporated herein by this reference, and shall also mean any other certificates, approvals, consents, authorizations, licenses and permits that are hereafter required by applicable Law to be obtained and maintained by the Authority in order to own and/or operate the Facilities. However, and without limiting Tenant’s obligations under the first sentence of this Section, the Authority shall have no obligation to obtain or maintain any certificates, approvals, consents, authorizations, licenses or permits that are for the conduct and operation of Tenant’s Business at the Leased Premises (as opposed to the ownership and operation of the Facilities, in general), except that the Authority shall maintain and comply with the IDP (as defined below) and the Part 70 Permit (as defined below). Tenant has obligations regarding wastewater discharges and the Part 70 Permit as described in Section 706 below.

Section 705. Hazardous Materials .

(A) (1) Tenant shall use, store, handle, load, unload and dispose of Hazardous Materials which are brought by Tenant, its subtenants, and/or their respective Employees, agents,

contractors and/or Invitees onto the Leased Premises, onto the Apron, and/or onto other portions of the Airport that are used or accessed by Tenant, its subtenants, and/or their respective Employees, agents, contractors and/or Invitees, only in compliance with applicable Laws, except that Tenant, its subtenants and/or their respective Employees, agents, contractors and Invitees shall not be deemed to be in breach of this Section 705(A)(1) if there is a release of Hazardous Materials from, or Hazardous Materials are present in, any sewer, lift station, force main, or waste treatment system, or any related drains or pipes, on or off the Leased Premises (unless such release or presence of Hazardous Materials is caused by the failure of Tenant, its subtenants, or their respective Employees, agents, contractors or Invitees to comply with the Exhibit K). For any Hazardous Material which Tenant or any of its subtenants brings onto the Leased Premises in quantities (individually or cumulatively) greater than fifty-five (55) gallons, or for any Hazardous Materials that Tenant brings onto the Leased Premises which are considered “extremely hazardous” under Title III of the Superfund Amendments and Reauthorization Act of 1986 (as supplemented or amended from time to time), Tenant shall promptly furnish to the Authority a list of such Hazardous Materials. “Operating Rules,” as used in this Lease, means those operating rules that are attached hereto comprised of the general Operating Rules and the Operating Rules Applicable To AAR Aircraft Services, Inc., both of which make up Exhibit K. In the case of any conflict between the general Operating Rules and the Operating Rules Applicable To AAR Aircraft Services, Inc., the latter shall control. Tenant hereby acknowledges and agrees that Exhibit K may be amended by the Authority from time to time, without the consent of Tenant, to the extent necessary to comply with modifications or amendments from time to time of the IDP and/or to comply with changes to applicable Law from time to time; provided, however, that the Authority shall provide Tenant with at least thirty (30) days’ prior written notice of any such amendments or modifications of Exhibit K. Exhibit K may also be amended or modified upon the mutual written agreement of the Authority and Tenant; and any such amendments or modifications pursuant to this sentence shall be effective immediately upon their written approval by both the Authority and Tenant.

(2) Without limiting Tenant’s obligations under Section 503(B), and subject to the second following sentence, Tenant shall, at its expense, comply with Environmental Laws regarding Hazardous Materials, but only (a) to the extent that Hazardous Materials are first released by Tenant or its subtenants or their respective Employees, agents, contractors or Invitees after the Effective Date from the Leased Premises, or from portions of the Apron or other non-public areas of the Facilities, the Land or the Airport, that are used or accessed by Tenant or its subtenants or their respective Employees, agents, contractors, or Invitees, so as to avoid Liability being suffered or incurred by any Landlord Indemnified Parties (as hereinafter defined) as a result of and only to the extent of such release and (b) to the extent that Hazardous Materials are first released from other portions of the Facilities, the Land and/or other portions of the Airport (other than the Leased Premises or portions of the Apron or other non-public areas of the Land, the Facilities, or the Airport that are used or accessed by Tenant or its subtenants or their respective Employees, agents, contractors or invitees) by Tenant or its Employees after the Effective Date so as to avoid Liability being suffered or incurred by any Landlord Indemnified Parties as a result of and only to the extent of such release. Tenant shall first provide the Authority with written notice of such compliance actions. To the extent the presence or the release of Hazardous Materials from the Leased Premises, the Land, the Facilities, and/or other portions of the Airport was caused by (x) a third Person (other than Tenant or its subtenants, or

their respective Employees, agents, contractors, or Invitees), (y) the Authority, or (z) the condition (including leaks) of any sewer, lift station, force main, or wastewater treatment system, or any related drains or pipes (unless, with respect to subsection (z), such release or presence of Hazardous Materials is caused by the failure of Tenant, its subtenants, or their respective Employees, agents, contractors or Invitees to comply with Exhibit K), or to the extent any Hazardous Materials were placed on or released from the Leased Premises, the Land, the Facilities, and/or other portions of the Airport at any time by any third Person (other than by Tenant or its subtenants, or their respective Employees, agents, contractors, or Invitees), Tenant shall not be responsible for and need not take any action regarding those Hazardous Materials. If the Authority elects to pursue the third Person for the collection of the Authority’s remediation costs and other damages resulting therefrom, Tenant will cooperate at the Authority’s expense with the Authority in pursuing such actions. For purposes of Sections 705 and 1702, neither the Authority nor its employees, agents or contractors, nor any of the Landlord Indemnified Parties, shall be deemed to be an agent, Employee or contractor of Tenant, and any Person or Entity other than Tenant, its subtenants and their Employees, agents, contractors and Invitees shall be deemed to be a “third Person”.

(B) Tenant hereby covenants and agrees to comply in the conduct of its business on the Leased Premises and on areas of the Apron and other non-public areas of the Facilities, the Land and the Airport that are used or accessed by Tenant or its subtenants, and to cause compliance by its subtenants (and Tenant’s and its subtenants’ respective Employees, agents, contractors and Invitees) in the conduct of their business on the Leased Premises and on areas of the Apron and other non-public areas of the Facilities, the Land and the Airport that are used or accessed by Tenant or its subtenants, with their obligations under all applicable Environmental Laws. In connection with other areas of the Land, the Facilities and the Airport (other than the Leased Premises and portions of the Apron and other non-public areas of the Facilities, the Land and the Airport that are used or accessed by Tenant or its subtenants) that Tenant or its Employees may use or enter upon from time to time, Tenant also hereby covenants and agrees to comply in the conduct of its business, and to cause its Employees to comply in the conduct of Tenant’s business or while those Employees are engaged in the scope of their duties for Tenant, with all applicable Environmental Laws. Tenant shall not be deemed to be in breach of the obligations in either of the two preceding sentences if there is a release of Hazardous Materials from or the presence of Hazardous Materials in any sewer, lift station, force main, or wastewater treatment system, or any related drains or pipes, unless such release or presence of Hazardous Materials is caused by the failure of Tenant, its subtenants, or their respective Employees, agents, contractors or Invitees to comply with Exhibit K. Tenant shall provide to the Authority, promptly upon receipt, copies of any correspondence, notice, pleading, citation, indictment, complaint, order, decree or other document from any source asserting or alleging a circumstance or condition that requires, or may require, a clean-up, removal, remedial action, or other response by or on the part of Tenant or any of its subtenants or the Authority (or any other Landlord Indemnified Party) at the Leased Premises, the Facilities, the Land and/or any other portions of the Airport under Environmental Laws or which seeks criminal or punitive penalties from Tenant or any of its subtenants or the Authority (or any other Landlord Indemnified Party) for an alleged violation of Environmental Laws. Tenant shall advise the Authority in writing as soon as Tenant becomes aware of any violation of any Environmental Laws by Tenant, its subtenants or their respective Employees, agents, contractors or Invitees or a violation of Tenant’s obligations under

this Section 705. The first two sentences of this Section 705(B) do not apply to any Hazardous Materials which were not first placed on the Leased Premises or released by Tenant, its subtenants, or their respective Employees, agents, contractors or Invitees or to any environmental condition which was not created by Tenant, its subtenant, or their respective Employees, agents, contractors or Invitees.

(C) The Authority has obtained a baseline environmental audit (the “Baseline Environmental Audit”) of the Leased Premises dated May 2004 and has provided a copy thereof to Tenant.

(D) The Authority shall have the right, (i) from time to time during the Term, if the Authority reasonably suspects that there has been a material breach or violation of the covenants and obligations of Tenant set forth in Section 705(A) and/or (B) above, and/or of the covenants and obligations of Tenant under Section 503(B) above (as and to the extent, for purposes of this subsection (D), those covenants and obligations under Section 503(B) pertain to environmental matters); (ii) from time to time during the Term, at such other times as the Authority so desires (including without limitation pursuant to the Authority’s periodic compliance review procedure); and (iii) in addition, following the expiration or sooner termination of the Term, to cause environmental inspections, audits or site assessments of the Leased Premises and/or other portions of the Airport that are used or accessed by Tenant or its subtenants to be performed solely for the benefit of Authority by the Authority or an environmental consultant selected by the Authority (“Environmental Audits”), in order to ascertain whether there have been any breaches or violations of Tenant’s covenants and obligations under Section 705(A) and/or (B) above, and/or any breaches of Tenant’s covenants and obligations under Section 503(B) above (as and to the extent, for purposes of this subsection (D), those covenants and obligations under Section 503(B) pertain to environmental matters), and/or whether there exist amounts of Hazardous Materials in excess of those amounts found in the Baseline Environmental Audit. If the Authority elects to conduct an Environmental Audit pursuant to subsection (ii) above, the Authority shall provide Tenant with reasonable prior written notice of the Authority’s intent to conduct the Environmental Audit and shall cause the Environmental Audit to be conducted in a manner designed, to the extent reasonably possible, to minimize disruption to Tenant’s Business at the Leased Premises. If the Authority desires to conduct an Environmental Audit pursuant to subsection (iii) above, the Authority shall (except in the event of a termination of this Lease due to an Event of Default by Tenant) commence that Environmental Audit within five (5) days after the expiration or sooner termination of this Lease. The Authority may notify Tenant, in writing (the “Authority’s Non-Compliance Notice”), that the Authority believes Tenant is in breach of Tenant’s obligations under Section 705(A) or (B), and/or under Section 503(B) (with respect to, for purposes of this subsection (D), environmental matters). Action taken by Tenant to cure a breach of Section 705(A) or (B), and/or of Section 503(B) (with respect to, for purposes of this subsection (D), environmental matters), shall be subject to the prior written approval of the Authority, such approval not to be unreasonably withheld or delayed. The Authority or Tenant may also provide a copy of such Environmental Audits and/or the Baseline Environmental Audit to any federal, state or local governmental agency having jurisdiction over the Leased Premises or Hazardous Materials, if required by Law or court order or if Tenant and the Authority mutually agree to do so (in which case neither Tenant nor the Authority shall unreasonably refuse to agree to do so if the other party wishes to do so).

(E) Tenant shall indemnify, defend and hold harmless the Authority, BAA, BAA USA, the Redevelopment Authority, the ITFA and the Commission, and each and all of their respective members, directors, officers, employees, agents, successors and assigns (collectively, the “Landlord Indemnified Parties”) from and against any and all Liabilities for personal or bodily injury, death, or property damage incurred by the Landlord Indemnified Parties or any of them to the extent caused by a breach by Tenant or its subtenants, or their respective Employees, agents, contractors, or Invitees, of Tenant’s covenants and obligations set forth in this Section 705 and/or of Tenant’s covenants and obligations set forth in Section 503(B) (as and to the extent, for purposes of this subsection (E), those covenants and obligations under Section 503(B) relate to environmental matters). This indemnification of the Landlord Indemnified Parties by Tenant includes, without limitation, costs incurred by any of the Landlord Indemnified Parties as a result of such Liabilities for any fines or penalties, any investigation of conditions originating from Tenant’s or its subtenant’s use or accessing of the Leased Premises, the Apron or any other area of the Facilities, the Land or the Airport , and any cleanup, remedial, removal, restoration or monitoring work performed by any Landlord Indemnified Party as a result of the breach of Tenant’s covenants and obligations set forth in this Section 705 and/or of Tenant’s covenants and obligations set forth in Section 503(B) (as and to the extent, for purposes of this subsection (E), those covenants and obligations under Section 503(B) relate to environmental matters), and this indemnification shall survive the cancellation, termination or expiration of the Term. The Landlord Indemnified Party or Parties shall give to Tenant prompt and reasonable notice of any such Liability and Tenant shall have the right to investigate, compromise, and defend the same. Tenant shall control the defense of the Liabilities, and Landlord Indemnified Parties shall take no action to settle, satisfy or compromise the Liabilities without the prior written consent of Tenant. The foregoing indemnity shall not be applicable to any circumstances or Liabilities which arose as a result of the act or omission of any Landlord Indemnified Party or any third Person.

(F) If the Authority believes there exists an uncorrected violation of Tenant’s covenants and obligations under Sections 705(A) or (B) above, and/or of Tenant’s covenants and obligations set forth in Section 503(B) (as and to the extent, for purposes of this subsection (F), those covenants and obligations under Section 503(B) relate to environmental matters), the Authority shall provide written notice to Tenant thereof. Tenant shall, within thirty (30) days after receipt of the Authority’s written notice, provide written notice to the Authority as to whether Tenant agrees that such an uncorrected violation exists; if Tenant does not, within the thirty (30) day period, provide written notice of disagreement with the Authority’s position, Tenant shall be deemed to have agreed that the uncorrected violation exists. If Tenant agrees (or is deemed to have agreed, as described in the preceding sentence) that an uncorrected violation exists, Tenant, at its cost and expense, within thirty (30) days after Tenant agrees or is deemed to have agreed that an uncorrected violation exists, shall commence action to cure the violation and shall thereafter diligently pursue the cure to completion. If Tenant provides the Authority with written notice, during the thirty (30) day period, that Tenant disagrees as to whether an uncorrected violation exists, the Authority may thereafter seek (if the Authority so chooses) to have a determination made by the Indiana Department of Environmental Management (or other applicable Governmental Entity (other than the Authority) or by a court of competent jurisdiction, as to whether an uncorrected violation exists. If Governmental Entity (other than the Authority) or the court makes a final, unappealable determination that an uncorrected violation exists, Tenant, at its cost and expense, within thirty (30) days after the court determines

(pursuant to a final, unappealable determination) that an uncorrected violation exists, shall commence action to cure the violation and shall thereafter diligently pursue the cure to completion. If Tenant is in breach of Sections 705(A) or (B) or Section 503(B), and if Tenant fails promptly to commence action to cure such breach, and/or fails to diligently pursue to completion such action to cure such breach, as provided above, the same shall, at the option of the Authority, constitute an Event of Default hereunder. Furthermore, in the event Tenant fails to timely initiate, or to diligently pursue, appropriate action to cure such breach of Sections 705(A) or (B) or Section 503(B), as aforesaid, the Authority shall have the right to do so; and Tenant shall promptly reimburse the Authority for the costs and expenses thereof plus interest thereon at twelve and no/100 per cent (12%) per annum from the date such costs are incurred to the date such costs are repaid to the Authority, if a Governmental Entity (other than the Authority) or a court of competent jurisdiction determines by final, unappealable decision that Tenant failed promptly to commence action to cure such breach or failed diligently to pursue action to cure such breach.

(G) The Authority shall, at its cost, perform the following:

(1) By September 10, 2004, the Authority shall complete the removal of dust (including any accumulation of dust in the trench drains) which contains Hazardous Materials from the Facilities and Equipment on the Leased Premises and Expansion Space, regardless of whether the dust is located or situated where it would be regulated under an Environmental Law, which removal shall be completed pursuant to the work plan published in the Request for Proposal, dated April 7, 2004, as amended by certain amendments dated April 12, 2004 and April 14, 2004.

(2) Prior to the Requested Activation Date for a particular portion of the Leased Premises, the Authority shall (a) inspect, (b) clean, repair and replace as appropriate, and (c) install suitable containment (if needed) at the hydraulic elevator locations on that portion of the Leased Premises.

(3) Within ninety (90) days after the Effective Date of this Lease, the Authority shall clean all storm sewers, wastewater sewers, lift stations, and sumps and all related drains (other than sanitary sewer drains) and pipes, on and off the Leased Premises, which could accumulate or convey any wastewater, storm water, or Hazardous Materials at or from the Leased Premises or the Expansion Space. Within sixty (60) days after the Authority receives an Activation Notice from Tenant for a particular portion of the Leased Premises, the Authority will inspect the storm sewers, wastewater sewers, lift stations, and sumps and all related drains (other than sanitary sewer drains) and pipes, on and off the Leased Premises which will serve that portion of the Leased Premises, in order to determine if they are in need of repair, maintenance or replacement and to determine if they leak and, if the inspection indicates a need for repair, maintenance or replacement, the Authority will, during that sixty (60) day period, complete any necessary repair, maintenance or replacement with respect to those storm sewers, wastewater sewers, lift stations, and sumps and all related drains (other than sanitary sewer drains) and pipes which serve that portion of the Leased Premises. The Authority shall maintain such sewers, lift stations, and sumps and all related drains and pipes in

good working order in compliance with Environmental Laws during the Term of this Lease, and periodically inspect them in accordance with a reasonable schedule.

(H) The obligations and covenants of Tenant under this Section 705 shall survive the expiration or sooner termination of this Lease.

Section 706. Industrial Discharge Permit; Air Permits .

(A) The Authority and BAA own and/or operate the Indianapolis Maintenance Center Industrial Wastewater Treatment Facility (the “Wastewater Treatment Facility”), which discharges wastewater to the City of Indianapolis publicly-owned treatment works (the “POTW”), and for which the City of Indianapolis has issued an Industrial Discharge Permit (the Industrial Discharge Permit, as modified, amended, supplemented or reissued from time to time being referred to herein as the “IDP”). The Authority shall comply with the IDP and shall properly operate the Wastewater Treatment Facility in order to comply with the IDP and Environmental Laws and to accept and properly treat discharges from Tenant or its subtenants which meet the requirements of Exhibit K. Tenant’s or its subtenant’s discharge to the Wastewater Treatment Facility of wastewater from Tenant’s or its subtenant’s operations at the Leased Premises shall comply with Exhibit K. Tenant shall make available to the Authority, BAA and their contractors all information necessary for the Authority to comply with its reporting, recordkeeping, and other obligations under the IDP and related Environmental Laws with respect to Tenant’s and its subtenants’ operations at the Leased Premises and shall cooperate, and cause its subtenants to cooperate, with any government inspection related to the IDP with respect to Tenant’s or its subtenants’ operations at the Leased Premises. Tenant shall indemnify, defend and hold harmless the Landlord Indemnified Parties from and against any and all Liabilities (including, without limitation, alleged violations of the IDP, contamination, loss of or harm to fish or wildlife, harm to humans or the environment, upset or bypass at the Wastewater Treatment Facility or at the POTW and increased operational or treatment costs) to the extent caused by wastewater discharged to the Wastewater Treatment Facility by Tenant or its subtenants in violation of Exhibit K. Unless prohibited by applicable Law, the Authority shall promptly pay the Tenant Reimbursement Parties (as defined in Section 1702) for any actual costs and expenses incurred by any Tenant Reimbursement Parties arising out of or in connection with any and all Liabilities (including, without limitation, alleged violations of the IDP, contamination, loss of or harm to fish or wildlife, harm to humans or the environment, upset, bypass at the Wastewater Treatment Facility or at the POTW and increased operational or treatment costs at the Leased Premises or at the Wastewater Treatment Facility) to the extent those Liabilities are caused by the Authority’s failure to meet its obligations under the second sentence of this subsection (A). The preceding sentence is a contractual obligation of the Authority under this Lease made in exchange for good and valuable consideration.

(B) The Authority currently holds a Part 70 Operating Permit issued by the Indiana Department of Environmental Management and the City of Indianapolis on June 26, 2003 (the Part 70 Operating Permit, as the same may hereafter be modified, amended, supplemented or reissued from time to time, being referred to herein as the “Part 70 Permit”), which permits all operations at the Facilities for purposes of the Federal, State and local air-related Environmental Laws, including those Paint Booth operations Tenant may be performing and operating. Within

sixty (60) days after executing this Lease, Tenant and the Authority shall jointly file with the appropriate governmental agencies the appropriate documents to account for Tenant’s operations at the Leased Premises under the Part 70 Permit. The filing shall include, among other things, a written agreement (the “Part 70 Permit Agreement”) between the Authority and Tenant, in form and substance mutually and reasonably acceptable to the Authority and to Tenant, which splits the responsibilities under the Part 70 Permit (including, without limitation, responsibilities for record-keeping, reporting, and compliance) so that all such responsibilities shall, from and after the effective date of the Part 70 Permit Amendment (as defined in the following sentence), be allocated between the Authority and Tenant in a manner such that Tenant shall have responsibility for portions of the Part 70 Permit that cover the Leased Premises (including, without limitation, all record-keeping, reporting and compliance obligations thereunder which pertain to the Leased Premises). The filing will request an administrative amendment of the Part 70 Permit in a manner that is consistent with the Part 70 Permit Agreement (the “Part 70 Permit Amendment”). Notwithstanding the Part 70 Permit Amendment, the Authority will continue to be shown as the owner of the entire source. Both before and after the Part 70 Permit Amendment becomes effective, Tenant shall operate (and shall cause its subtenants to operate) under the Part 70 Permit and shall comply with (and shall cause its subtenants, and Tenant’s and its subtenants’ respective Employees, agents, contractors and Invitees to comply with) the Part 70 Permit, as the same may be modified, supplemented or amended from time to time, to the extent applicable to Tenant’s or its subtenants’ operations at the Leased Premises. Tenant shall make available to the Authority, BAA and their contractors all information necessary for the Authority to comply with its reporting, recordkeeping, and other obligations under the Part 70 Permit with respect to Tenant’s and its subtenants’ operations at the Leased Premises and shall cooperate, and shall cause its subtenants to cooperate, with any government inspection related to the Part 70 Permit with respect to Tenant’s or its subtenants’ operations at the Leased Premises. Tenant shall indemnify, defend and hold harmless the Landlord Indemnified Parties from and against any and all Liabilities (including, without limitation, alleged violations of the Part 70 Permit, contamination, air pollution and harm to humans or the environment) to the extent caused by Tenant’s or its subtenants’ air emissions or other acts or omissions in violation of the Part 70 Permit. Unless prohibited by applicable Law, the Authority shall promptly pay the Tenant Reimbursement Parties (as defined in Section 1702) for any actual costs and expenses incurred by any Tenant Reimbursement Parties arising out of or in connection with any and all Liabilities (including, without limitation, alleged violations of the Part 70 Permit, contamination, air pollution, and harm to humans or the environment) to the extent caused by the Authority’s or a third Person’s (excluding only Tenant and its subtenants and their respective Employees, agents, contractors and Invitees) air emissions or other acts or omissions in violation of the Part 70 Permit. The preceding sentence is a contractual obligation of the Authority under this Lease made in exchange for good and valuable consideration.

(C) Tenant’s obligations to indemnify, defend and hold harmless the Landlord Indemnified Parties, and the Authority’s contractual obligations to pay the Tenant Reimbursement Parties, pursuant to this Section 706 shall survive the expiration or sooner termination of the Term of this Lease.

Section 707. Signs . Tenant shall not erect, maintain, or display upon the outside of any buildings, structures or other improvements on the Leased Premises or the Facilities any

billboards or advertising signs. However, that Tenant may install, on the exterior walls of the Leased Premises or the Facilities, signage for Tenant’s Business at the Leased Premises or the Facilities, provided that the quantity, size, location, content, design and appearance of such signage shall be in compliance with Laws and subject to the prior written approval of the Authority. However, the Authority hereby acknowledges that Tenant desires to install lighted signage, bearing the “AAR” name, on the exterior of the Facilities, and also desires for the existing monument sign at the entrance to the Facilities to include signage bearing the “AAR” name; and the Authority hereby agrees that it will not withhold its consent to that signage provided that the size and placement of that signage is reasonably acceptable to the Authority and is in compliance with all applicable Laws. Tenant shall be responsible, at its sole cost and expense, for ensuring that all of Tenant’s signage complies with any and all applicable Laws, and Tenant shall be responsible, at its cost and expense, before erecting any signage, for obtaining any and all necessary or appropriate approvals, permits, consents, and/or licenses from any applicable Governmental Entities with respect to such signage. The Authority’s approval of such signage shall not, and shall not be deemed to, constitute a representation or acknowledgement by the Authority that Tenant’s proposed signage complies with any Laws, nor shall such approval by the Authority relieve Tenant of any of Tenant’s obligations under the preceding sentences. Except as provided above, the cost and expense of obtaining and maintaining Tenant’s signage will be included in the operating expenses for the Facilities.

Section 708. Rules and Regulations for Safety, Care and Cleanliness . Tenant shall comply with, and shall cause its subtenants (and its and their respective Employees, agents, contractors and Invitees) to comply with, such rules and regulations of the Facilities as are adopted by the Authority from time to time for safety, care and cleanliness of the Leased Premises and the Facilities and preservation of good order therein, all of which shall be sent by the Authority to Tenant in writing and shall thereafter be carried out and observed by Tenant and its subtenants and its and their respective Employees, agents, contractors and Invitees.

Section 709. Taxes . Tenant shall be responsible for and shall pay before delinquent all municipal, county, federal or state taxes coming due during or after the Term of this Lease Agreement against Tenant’s interest under this Lease Agreement or against personal property (including without limitation the Excluded Property) of any kind owned or placed in, upon or about the Leased Premises by Tenant, except to the extent that personal property is the property of the Authority and part of the Equipment pursuant to the terms of this Lease Agreement. Tenant’s obligations under this Section shall survive expiration or sooner termination of the Term of this Lease.

Section 710. Nondiscrimination .

(A) Tenant, for itself, its personal representatives, successors in interest, and assigns, as part of the consideration hereof, does hereby covenant and agree that (i) no Person shall be excluded from participation in, denied the benefits of, or otherwise subjected to discrimination in the use of the Leased Premises on the grounds of race, creed, color, national origin, gender, age or handicap; (ii) in the construction of any improvements on, over, or under the Leased Premises and the furnishing of services thereon, no Person shall be excluded from participation in, denied the benefits of, or otherwise subjected to discrimination on the grounds of race, creed, color,

national origin, gender, age or handicap; and (iii) Tenant shall use the Leased Premises in compliance with all other requirements imposed by or pursuant to Title 49, Code of Federal Regulations, Department of Transportation, Subtitle A, Office of the Secretary, Part 21, Nondiscrimination in Federally-assisted programs of the Department of Transportation, Effectuation of Title VI of the Civil Rights Act of 1964, as said Regulations may be amended, to the extent that said requirements are applicable, as a matter of Law, to Tenant.

(B) With respect to the Leased Premises, Tenant agrees to furnish services on a fair, equal and not unjustly discriminatory basis to all users thereof, and to charge fair, reasonable and not unjustly discriminatory prices for each unit or service; provided, that Tenant may be allowed to make reasonable and nondiscriminatory discounts, rebates or other similar types of price reductions to volume purchasers consistent with the limitations set forth in Section 601(C).

Section 711. Civil Rights . Tenant assures the Authority that Tenant shall comply with pertinent statutes, executive orders, and such rules as are promulgated to assure that no Person shall, on the grounds of race, creed, color, national origin, gender, age, or handicap be excluded from participating in any activity conducted with or benefiting from federal assistance. This Section obligates Tenant, for the period during which federal assistance is provided to the Airport program, except where federal assistance is to provide, or is in the form of, personal property or real property or interests therein or structures or improvements thereon. In these excepted cases, this Section shall obligate Tenant for the longer of the following periods: (A) the period during which the property is used by the sponsor or any transferee for a purpose for which federal assistance is extended, or for another purpose involving the provision of similar services and benefits; or (B) the period during which the Airport sponsor or any transferee retains ownership or possession of the property. In the case of contractors, this Section shall bind the contractors from the bid solicitation period through the completion of the contract.

Section 712. Affirmative Action .

(A) With respect to the Leased Premises, Tenant agrees to undertake an affirmative action program as required by 14 CFR Part 152, Subpart E, to ensure that no Person shall, on the grounds of race, creed, color, national origin or gender, be excluded from participating in any employment activities covered in 14 CFR Part 152, Subpart E; that no Person shall be excluded on these grounds from participating in or receiving the services or benefits of any program or activity covered by that Subpart; and that it will require its covered suborganizations to undertake affirmative action programs, and to require assurances from their suborganizations, as required by 14 CFR Part 152, Subpart E, to the same effect, to the extent that said requirements are applicable, as a matter of Law, to Tenant.

(B) With respect to procurement of construction work and construction-related goods and supplies and professional services in connection with Grant Proceeds and/or Leasehold Improvement Credits, Tenant shall use commercially reasonable efforts to strive to attain a dollar amount at least equal to fourteen percent (14%) utilization of minority business enterprises and four percent (4%) women business enterprises. With respect to the operation of Tenant’s business at the Facilities (including, without limitation, contracts with vendors of Tenant), and with respect to employment of Tenant’s own workforce, Tenant shall use commercially

reasonable, affirmative efforts to engage and utilize the services of minorities and women. Tenant shall maintain records of all relevant data with regard to compliance with these goals, and shall provide such information to the Authority upon the Authority’s reasonable request from time to time.

Section 713. INTENTIONALLY OMITTED.

Section 714. Observance of Statutes . Subject to Section 602 hereof, Tenant shall have the right to use the Airport or its facilities located on the Airport property in common with others authorized to do so; provided, however, that Tenant shall observe and comply with any and all requirements of the constituted public authorities and with all federal, state or local statutes, ordinances, regulations and standards applicable to Tenant for its use of the Airport, including but not limited to, rules and regulations promulgated from time to time by the Airport Director for the general administration of the Airport.

Section 715. Hazard Lights . Tenant shall, at its expense, provide and maintain hazard lights on any structure it erects on the Leased Premises, if required by Authority or FAA regulations. Any hazard lights so required shall comply with the specifications and standards established for installation by the FAA.

Section 716. Liens .

(A) Tenant shall not permit any employee lien or mechanic’s, materialmen’s or similar lien or charge for labor or materials furnished to or for the benefit of Tenant or its subtenants (a “Lien”) to attach to any portion of the Leased Premises, the Facilities, or any other part of the Land or the Airport, and Tenant herein agrees that if any such Lien is filed, Tenant shall: (i) notify the Authority of the pendency of such Lien, and (ii) indemnify, protect, defend and save harmless the Landlord Indemnified Parties from and against any loss, Liability or expense whatsoever by reason thereof, and shall proceed with and defend, at Tenant’s expense, such action or proceedings as may be necessary to remove any such Lien from the records.

(B) Tenant may, however, in good faith and with due diligence, contest any such Lien. Tenant may permit any such Lien to remain undischarged and unsatisfied during the period of such contest and appeal therefrom, if and only if (i) Tenant effectively prevents or stays the execution, foreclosure or enforcement of the Lien, or (ii) the contest or appeal prevents or stays the execution or enforcement or foreclosure of the Lien. If any such Lien is so stayed and that stay thereafter expires or the Authority gives Tenant written notice that by nonpayment of any items the Leased Premises, the Facilities, the Land, the Airport, or any portion thereof will be subject to loss or forfeiture, then Tenant shall forthwith pay and cause to be satisfied and discharged any such Lien or secure payment by posting a bond, in form satisfactory to the Authority. At the expense of Tenant, the Authority shall cooperate fully with Tenant in any contest.

(C) If Tenant shall fail to contest, discharge or pay any such Lien as required by subsections (A) and (B) hereof, the Authority may contest, discharge or pay any such Lien which the Authority may determine to be necessary in order to protect its interest in the Leased Premises, the Facilities, the Land and/or the Airport. In such event, Tenant agrees to reimburse

the Authority for any and all expenses and costs incurred by the Authority in respect thereto. Tenant’s obligations under this Section 716 shall survive the expiration or sooner termination of this Lease.

Section 717. Tenant to Maintain Organizational Existence . Tenant shall maintain an organizational existence and shall at all times either be duly organized and validly existing under the Laws of the State, or shall be duly qualified to do business as a foreign entity and in good standing under the Laws of the State.

Section 718. Advances by Authority . If Tenant fails to maintain full insurance coverage as required by this Lease Agreement, or otherwise fails to comply with any covenant or agreement set forth in this Lease Agreement, the Authority may (but shall be under no obligation to) take out the required policies of insurance or otherwise comply with those covenants and agreements. Tenant agrees to pay all amounts advanced by the Authority in payment of the required premiums for insurance or to comply otherwise with such agreements and covenants, which amounts, together with interest thereon at the rate of one and one-half percent (1.5%) per month, shall become an additional rental obligation of Tenant to the Authority.

ARTICLE VIII.

OBLIGATIONS OF AUTHORITY

Section 801. Ingress and Egress . Tenant shall have the right of ingress to and egress from the Leased Premises for Tenant and its officers, Employees, agents, servants, customers, vendors, suppliers, and patrons over the roadway provided by the Authority serving the Leased Premises, which roadway provides access to the Leased Premises from a public right-of-way. The Authority’s roadway outside the Leased Premises shall be used jointly with other tenants at the Airport, and Tenant shall not unreasonably interfere with the rights and privileges of other Persons using these facilities. Tenant’s use of these facilities shall be subject to those weight and type use restrictions as the Authority shall adopt from time to time, provided that the Authority provides written notice of those restrictions to Tenant (including, without limitation, written notice of any amendments or modifications thereto that are adopted by the Authority from time to time).

Section 802. Quiet Enjoyment of the Leased Premises .

(A) By keeping and performing its covenants and agreements herein contained, Tenant shall have the right, during the Term of this Lease Agreement, to peaceably and quietly possess and enjoy the Leased Premises. The Authority shall at its expense, defend Tenant’s right to such peaceable and quiet possession as against any person acting by or through the Authority.

(B) The simultaneously held interests of the Authority in the Leased Premises shall not be merged, but shall be separate and distinct. In addition, notwithstanding that the Term may exceed the term of the lease agreements or sublease agreements by which, directly or indirectly, the Authority subleases the Leased Premises from other Persons, this Lease Agreement constitutes a sublease and not an assignment, and Tenant’s rights in the Leased Premises are limited to the subleasehold estate granted hereby and there shall be no merger with any interest

of the Authority created by any instrument described herein. However, if any leasehold interest held by the Authority terminates and as a result thereof or thereafter any other interest of the Authority in and to the Leased Premises becomes a present interest, and the Authority thereby succeeds to such interest by reason of other interests it holds in the Leased Premises, then the Authority shall be deemed to have leased such other interest to Tenant on the terms set out herein.

Section 803. Operation as a Public Airport . The Authority covenants and agrees that all times it will operate and maintain the Airport, as a public Airport consistent with and pursuant to the sponsor’s assurances given by the Authority to the United States Government under the Federal Aviation Act.

Section 804. Operation of Facilities . Except as required by applicable federal law, the Authority shall not propose, enact or adopt, and shall use its best efforts not to permit any other person or entity to enact or adopt, any law, rule, regulation or ordinance that would prohibit Tenant from fully utilizing the Leased Premises in the manner currently contemplated on a 24-hour a day, seven day a week basis, including the flight operation of aircraft to and from the Facilities coincident with the Tenant’s Business. All of Tenant’s engine maintenance run-ups shall be conducted in the hush house.

Section 805. Authority Permits . The Authority shall obtain, maintain in full force and effect, and comply with, at its cost and expense, the Authority Permits and the IDP.

Section 806. Authority Agreements . The Authority shall comply with the terms (including covenants) of the Settlement Agreement entered into, effective as of February 13, 2004 between the Authority and The Bank of New York Trust Company, N.A., the Bond Issues, and the Other Lease Agreements (as hereinafter defined).

ARTICLE IX.

COMPLIANCE WITH SECURITY REQUIREMENTS

Section 901. Security Agreement . Tenant shall have entrances and gates to the Air Operations Area and shall execute, in connection with this Lease Agreement, an Airport Security Agreement as required by the Authority in accordance with TSA regulations, Title 49 CFR Part 1542, which Airport Security Agreement requires Tenant to control and regulate any doors, openings or entrances to the Air Operations Area.

Section 902. Security Rules and Regulations of Authority, FAA and TSA . Tenant shall comply with, and shall cause its subtenants (and its and their respective Employees, agents, contractors and Invitees) to comply with, such rules and regulations of the Facilities and other portions of the Airport as are adopted by the Authority from time to time, in the Authority’s reasonable discretion, for safety and security of the Leased Premises and the Facilities and other portions of the Airport and preservation of good order therein, all of which shall be sent by the Authority to Tenant in writing and shall thereafter be carried out and observed by Tenant and its subtenants and its and their respective Employees, agents, contractors and Invitees (the

“Facilities Security Rules and Regulations”). Tenant acknowledges that the Facilities Security Rules and Regulations may, among other things, include requirements regarding use of cards, keys or other access devices to access certain portions of the Leased Premises or other portions of the Facilities, requirements regarding Tenant’s obligations for securing the Equipment, provisions restricting Tenant and its subtenants and any of its or their respective Employees, agents, contractors or Invitees from accessing or entering into certain portions of the Facilities, requirements that any visitors to the Facilities register at the entrance to the Facilities, wear identification and be accompanied by a representative of the tenant whom they are visiting, and other similar requirements. The Authority hereby agrees that it will in good faith, as part of the process of the Authority’s development of the Facilities Security Rules and Regulations with respect to the Facilities, consult with Tenant regarding the proposed Facilities Security Rules and Regulations and will give reasonable consideration to Tenant’s comments and concerns regarding those Facilities Security Rules and Regulations prior to their implementation by the Authority. In addition to the Facilities Security Rules and Regulations, Tenant shall also comply with, and cause its subtenants, and its and their respective Employees, agents, contractors, and Invitees to comply with, all applicable FAA and TSA security regulations, orders or security direction as in effect or mandated from time to time.

ARTICLE X.

MAINTENANCE, REPAIRS AND REPLACEMENTS

Section 1001. Maintenance, Repairs and Replacements to Facilities and Leased Premises (other than Equipment) . Except to the extent Tenant is responsible therefor under this Section 1001, and subject to Article XVI of this Lease and subject to the Authority’s obligations under Articles VII and XVII of this Lease, the Authority shall, at its cost and expense, be responsible during the Term for (a) performing all maintenance, repairs and replacements with respect to the Facilities and the Leased Premises (other than Equipment, which is covered under Section 1002 below), including without limitation foundations, exterior Facility walls (including door frames, window frames, doors and windows), exteriors of the Facilities, interior demising walls (including door frames and window frames), roof, drains, gutters, and all structural parts of the Facilities, (b) periodically painting the interior walls, and sealing the concrete floors, within the Leased Premises in order to maintain them in a reasonably neat, safe condition, and (c) performing all maintenance, repairs and replacements with respect to the air conditioning, electrical, heating, mechanical and plumbing systems in the Facilities, all in at least as good condition as exists on the Effective Date of this Lease Agreement or in such condition as may be required by applicable Law. However, the Authority shall not be required to pay for, and Tenant shall indemnify, defend, save and hold harmless the Authority from and against (without reimbursement from Grant Proceeds or Leasehold Improvement Credits), the cost and expense (including without limitation reasonable attorneys’ fees) of, any such maintenance, repairs or replacements that become necessary as a result of or by reason of Tenant’s, its subtenants’ or its or their respective agent’s, contractor’s, Employee’s, or Invitee’s negligence or willful misconduct. Furthermore, provided that the Authority delivered the Paint Booths to Tenant in good working order and condition and in compliance with all Laws, Tenant shall, at its cost and expense, be responsible for all maintenance and repairs (but not replacements, except to the extent described in the proviso to this sentence) of any paint booths now or hereafter located at

the Leased Premises (the “Paint Booths”), and shall perform such maintenance and repairs (but not replacements, except as described in the proviso to this sentence) as are necessary or appropriate in order to cause the Paint Booths to remain in the same condition and repair as when the Paint Booths were first delivered by the Authority to Tenant (ordinary wear and tear excepted); provided, however, that if the replacement of the Paint Booths becomes necessary as a result of or by reason of Tenant’s, its subtenants’, or its or their respective agent’s, contractor’s, Employee’s, or Invitee’s negligence or willful misconduct. Tenant shall be responsible, at its cost and expense, for those replacements (without reimbursement from Grant Proceeds or Leasehold Improvement Credits). Provided that the Authority delivered the Paint Booths to Tenant in good working order and condition and in compliance with all Laws, Tenant hereby acknowledges and agrees that the Authority will have no liability, obligation, or responsibility for maintaining, repairing or replacing the Paint Booths or any components thereof. Tenant hereby further acknowledges and agrees that if Tenant replaces the Paint Booths and is reimbursed for the cost thereof through Grant Proceeds or Leasehold Improvement Credits, the replacement Paint Booths shall also be deemed to belong to the Authority.

To the extent that, during the Term of this Lease, it becomes necessary to install and/or operate any air pollution control equipment at, within or upon the Facilities as a result of Tenant’s or its subtenants’ operations at the Facilities, and if such air pollution control equipment is not a part of the Facilities on the Effective Date of this Lease, Tenant shall be responsible, at Tenant’s cost and expense, for purchasing, installing and operating such equipment and the Authority shall have no responsibility or liability therefor. Tenant shall obtain the Authority’s prior written consent to Tenant’s installation of any such equipment at the Facilities, which consent shall not be unreasonably withheld. Any such equipment that is installed at, within or upon the Facilities and which is a fixture shall be deemed a part of the Facilities and shall belong to the Authority unless the Authority otherwise agrees in writing that it belongs to Tenant. Tenant may seek reimbursement for the cost and expense it incurs in purchasing and installing such equipment at the Facilities through Grant Proceeds (if any Grant Proceeds are then available) or Leasehold Improvement Credits, subject to the terms and conditions of Section 605(A) and (C) above.

Tenant’s obligations under this Section shall survive the expiration or sooner termination of the Term of this Lease.

Section 1002. Maintenance Repairs and Replacements of and to Equipment .

(A) Repairs, Replacements and Maintenance by the Authority . Except to the extent Tenant is responsible therefor as provided under this Section 1002, the Authority shall, at its cost and expense, be responsible during the Term of this Lease Agreement for performing all maintenance, repairs, and replacements with respect to the Equipment furnished by the Authority to Tenant (whether that Equipment is furnished pursuant to an Activation or as replacement Equipment) including without limitation preventive maintenance upon a periodic schedule in accordance with manufacturers’ recommendations. The Authority’s maintenance, repair and replacements obligations shall also extend to any Equipment for which Tenant receives reimbursement from the Authority through Grants or Leasehold Improvement Credits. To the extent that it becomes necessary to replace any item of Equipment, the Authority shall only be

obligated to replace it from then Available Equipment on the Master List of Equipment; the Authority shall in no circumstance be obligated to purchase a new item of replacement equipment, tooling or other personal property. As part of the Authority’s obligations hereunder, the Authority will provide Tenant with a working facility with re-certified tooling. For purposes of the preceding sentence, a “working facility” means that all Facilities Systems (other than Excluded Systems) and Equipment, which are located in the Leased Premises as of the Effective Date of this Lease, shall be in good working order and condition if and when that portion of the Leased Premises to which they pertain is delivered to Tenant; provided, however, that during the Activation of any Bay or other portion of the Leased Premises, Tenant will provide the Authority, in accordance with Section 205 above, with a list of those particular Facilities Systems (other than Excluded Systems) and Available Equipment that Tenant will need for that particular Bay or other area of the Leased Premises, and Tenant acknowledges that the Authority’s obligation shall only be to deliver those particular Facilities Systems (other than Excluded Systems) and Available Equipment to Tenant in good working order and condition in connection with that Activation. Notwithstanding any of the foregoing to the contrary, the Authority shall have no obligation to provide, maintain, repair or replace any computer hardware or software or related tools, systems or equipment; and Tenant hereby acknowledges and agrees that Tenant shall not be entitled to any Grant Proceeds or Leasehold Improvement Credits with respect to Tenant’s purchase, maintenance, repair or replacement of any computer software. In addition, notwithstanding the foregoing, Tenant shall, at its cost and expense, be responsible for maintaining, replacing, removing, and disposing of, in compliance with all applicable Laws, any and all filters and blast media relating to any draw down cabinets, draw down tables, and/or blast cabinets, and the Authority shall have no liability or responsibility for or with respect to the filters or blast media relating to any draw down cabinets, draw down tables, and/or blast cabinets. The Authority shall not be required to pay for, and Tenant shall indemnify, defend, save and hold harmless the Authority from and against (and without reimbursement from Grant Proceeds or Leasehold Improvement Credits) the cost and expense, including without limitation reasonable attorneys’ fees, of any such maintenance, repairs or replacements that become necessary by reason of Tenant’s, or its subtenant’s, or its or their respective agent’s, contractor’s, Employee’s or Invitee’s negligence or willful misconduct. Tenant’s obligations under this Section shall survive the expiration or sooner termination of the Term of Lease.

Section 1003. Prompt Notification of Damage, Defects or Malfunction . Tenant shall promptly notify the Facilities Manager, in writing, as soon as Tenant becomes aware of any damage, defect or malfunction in or to any portion of the Facilities and/or the Leased Premises, including without limitation any of the Equipment. Tenant acknowledges and agrees that the Authority’s obligations to perform repairs, replacements and/or maintenance pursuant to Sections 1001 and 1002 above is conditioned upon the Authority’s receipt of prompt written notice from Tenant as described in the preceding sentence. Tenant further acknowledges and agrees that if Tenant fails to provide prompt written notice of damage, defect or malfunction as described above, Tenant shall be responsible for all costs and expenses of such maintenance, repairs or replacements to the extent caused by, resulting from or exacerbated by Tenant’s failure to provide prompt written notice of damage, defects or malfunctions of which Tenant either was aware or, through the exercise of reasonable diligence and in light of Tenant’s access to the Leased Premises and the Equipment, should have been aware.

Section 1004. Access to Leased Premises . The Authority reserves the right for the Authority (or its employees, agents or contractors) to enter the Leased Premises as may be necessary or appropriate from time to time for the purpose of general inspections and for making the repairs, replacements, or maintenance required for safety, protection and preservation of the Leased Premises (including without limitation the Equipment) and the Facilities. Reservation of such right of entry shall not enlarge in any way the Authority’s obligations for maintenance, repairs, or replacements as otherwise provided in this Lease Agreement. The Authority shall use commercially reasonable efforts (except in the event of an emergency) to provide Tenant with reasonable advance notice regarding the repairs, replacements or maintenance and to perform the repairs, replacements or maintenance at reasonable times and in a manner that will not unnecessarily interfere with the operation by Tenant of Tenant’s Business; provided, however, that the Authority will use commercially reasonable efforts to minimize disruption of Tenant’s Business to the extent reasonably possible.

Section 1005. Inventory of Equipment at Leased Premises .

(A) Identification of Equipment . The Authority shall have the right, at the Authority’s option, to identify some or all of the Equipment by tags or other means of identification as deemed appropriate by the Authority in its sole discretion. The Authority may also similarly identify any Equipment that is obtained or otherwise furnished by the Authority pursuant to Section 1002 to replace any Equipment, or any Equipment for which the Authority reimburses Tenant through Grant Proceeds or Improvement Rent Credits. Tenant shall not remove any tags or other identification from the Equipment unless instructed to do so by the Authority.

(B) Audit of Equipment at Leased Premises .

(1) The Authority shall, once per calendar year during the Term of this Lease, and at the Authority’s cost and expense, conduct (or cause the Authority’s third party contractor to conduct) an annual audit with respect to any and all items of Equipment with an individual value in excess of Two Thousand Five Hundred Dollars ($2,500). In addition, the Authority shall have the right (but not the obligation), up to one additional time per each calendar year, and upon reasonable prior written notice to Tenant, to conduct (or cause the Authority’s third party contractor to conduct) an additional audit, at the Authority’s cost and expense, with respect to any or all items of Equipment with an individual value in excess of Two Thousand Five Hundred Dollars ($2,500). The Authority shall not conduct more than two (2) such audits during any calendar year. Tenant agrees to cooperate with the Authority and its third party contractor during any such audit. The Authority shall furnish Tenant with a copy of the written report and list of Equipment generated as a result of the audit. If, as a result of any such audit (comparing the list of Equipment generated as a result of that audit with the Authority’s then-most recent list of Equipment that has then been furnished by the Authority to Tenant from the Master List of Equipment), the Authority determines that there is missing from the Leased Premises any items of Equipment with an individual value in excess of Two Thousand Five Hundred Dollars ($2,500), the Authority shall notify Tenant thereof in writing. Within one hundred eighty (180) days after receiving the Authority’s written notice as described in the preceding sentence, Tenant shall, at

Tenant’s cost and expense, either (a) produce the item(s) of missing Equipment, (b) replace the missing item(s) of Equipment with substantially similar equipment that is of substantially the same or better size, quality, functionality, and capacity as the missing Equipment, or (c) shall reimburse the Authority for the reasonable replacement cost of the missing item(s) of Equipment. Tenant shall not be entitled to seek Leasehold Improvement Credits or Grant Proceeds for Tenant’s costs and expenses under the preceding sentence. However, notwithstanding the preceding sentence, if Tenant replaces Equipment that has been retired due to its having reached the end of its normal life, Tenant may seek reimbursement of Tenant’s costs and expenses of purchasing that replacement Equipment through Leasehold Improvement Credits or Grant Proceeds.

(2) Within ninety (90) days after the expiration or sooner termination of the Term of this Lease, the Authority shall, at the Authority’s cost and expense, conduct an audit of all Equipment at the Leased Premises (the “Final Audit”). Tenant agrees to cooperate with the Authority and its third party contractor during such audit. The Authority shall furnish Tenant with a copy of the written report and list of Equipment generated as a result of the audit. If, as a result of any such audit (comparing the list of Equipment generated as a result of that audit with the Authority’s then-most recent list of Equipment that has been furnished to Tenant from the Master List of Equipment), the Authority determines that there is missing from the Leased Premises any items of Equipment, the Authority shall notify Tenant thereof in writing. With respect to the Audit, for purposes of reconciling the list of Equipment that has then been furnished by the Authority to Tenant with Tenant’s Master List of Excluded Property, individual items of Equipment located at the Leased Premises, which have an individual value of Two Thousand Five Hundred Dollars ($2,500) or less and which have not been tagged or otherwise identified by the Authority pursuant to Section 1005(A) above (such as, by way of example only, small tools such as hammers, screwdrivers and the like) shall be assumed to be Equipment rather than Excluded Property until the total number of items of that particular type of Equipment as reflected by the Final Audit matches the total number items of that particular type of Equipment which should be located at the Leased Premises based on the Authority’s then-most recent list of Equipment that has then been furnished by the Authority to Tenant; to the extent that the total number of items of that particular type of Equipment as reflected by the Final Audit exceeds the total number of items of that particular type of Equipment which should be located at the Leased Premises based on the Authority’s then-most recent list of Equipment that has then been furnished by the Authority to Tenant, those excess items of that particular type of Equipment shall be deemed to be Excluded Property. The Authority shall provide Tenant with a written list of any items of Equipment that are missing from the Leased Premises. Within one hundred eighty (180) days after receiving the Authority’s list as described in the preceding sentence, Tenant shall, at Tenant’s cost and expense, either (a) produce the item(s) of missing Equipment, (b) replace the missing item(s) of Equipment with substantially similar equipment that is of substantially the same or better size, quality, functionality, and capacity as the missing items(s) Equipment, or (c) shall reimburse the Authority for the reasonable replacement cost of the missing item(s) of Equipment. Tenant shall not be entitled to seek Leasehold Improvement Credits or Grant Proceeds for Tenant’s costs and expenses under the preceding sentence. However, notwithstanding the

preceding sentence, if Tenant replaces Equipment that has been retired due to its having reached the end of its normal life, Tenant may seek reimbursement of Tenant’s costs and expenses of purchasing that replacement Equipment through Leasehold Improvement Credits or Grant Proceeds.

ARTICLE XI.

FACILITIES OPERATIONS AND SERVICES

Section 1101. Services . Except as otherwise provided in this Article XI , and without limiting the Authority’s obligations under other provisions of this Lease, the Authority shall, at its cost and expense, furnish the following services to Tenant during the Term of this Lease Agreement:

(A) Supply and replacement of light bulbs and tubes in and on all buildings, obstruction lights and replacement of all glass in the Facilities, including plate glass.

(B) Provide janitorial services in the Common Areas of the Facilities.

(C) Maintain, and clean stoppages in, plumbing fixtures, drain lines and septic and sewage disposal system to the Leased Premises.

(D) Maintain all building and overhead doors and door operating systems, including weather stripping and glass replacement.

(E) Conduct interior and exterior maintenance for all components of the Facilities, including painting, repairing and replacement, as necessary or appropriate.

(F) Remove snow from Air Operation Area, Common Areas, sidewalks, parking areas and roadways, and other areas of the Leased Premises and Facilities at such time and in such a manner as determined by the Authority in its reasonable discretion.

(G) Landscape the Land and the Facilities, at such times and in such manner as determined by the Authority in its sole discretion.

(H) Provide and maintain hand fire extinguishers for the interior of the Facilities, including all shops, parking and storage areas in accordance with applicable safety codes, and other applicable Laws.

(I) Subject to such stoppages as are necessary in order to maintain, repair or replace the Utility pipes, wires, lines, mains, ducts, and other related fixtures and equipment relating thereto, and subject to Section 1102 below, furnish all utility services (the “Utilities”) for the Leased Premises and the Facilities, including electricity, gas, water, septic, sewer, storm water system, other than those utilities required to be maintained by Tenant under Section 1103 twenty-four (24) hours a day, seven (7) days a week.

(J) Subject to such stoppages as are necessary in order to maintain, repair or replace the pipes, wires, lines, ducts and other related fixtures and equipment relating thereto, and subject to Section 1102 below, furnish central heat, air conditioning, and ventilation to the Leased Premises twenty-four (24) hours a day, seven (7) days a week; provided, however, that the temperatures to be maintained at particular times during the day, and/or in particular portions of the Leased Premises, and/or on particular days of the week, shall be as mutually determined by the Authority and Tenant.

(K) Provide security with respect to access by third parties to the Facilities through the front lobby entrance to the Facilities, as reasonably determined by the Authority (which may include, without limitation, at the Authority’s option, posting of security personnel, requirements that any visitors to the Facilities register at the Facilities’ front lobby entrance desk, wear identification and be accompanied by a representative of the tenant whom they are visiting, and other similar requirements); provided, that the Authority shall not be liable to Tenant, its subtenants, or their respective agents, contractors, Employees, or Invitees for loss due to theft or burglary or personal property damage.

Section 1102. Authority Not Liable for Malfunctions . Should any of the Utilities, or any of the machinery or equipment utilized in supplying the services listed above be interrupted or cease to function properly, the Authority shall use diligence to repair the same or otherwise cause restoration of the services within a reasonable time under the circumstances, but Tenant shall have no claim for damages against the Authority on account of any interruptions of service occasioned thereby or resulting therefrom. However, if the interruption prevents Tenant from conducting Tenant’s Business from any particular portion of the Leased Premises that Tenant is then Occupying at the time the interruption occurred, and if that interruption was not caused by the negligence or willful misconduct of Tenant, its subtenants, or their respective Employees, agents, contractors, or Invitees, then the Base Rent and Additional Rent that otherwise would have been payable by Tenant for that particular portion of the Leased Premises shall abate from the date that Tenant ceases to be able to conduct Tenant’s Business from that particular portion of the Leased Premises until the date on which such service is resumed. If the interruption prevents Tenant from conducting Tenant’s Business from more than fifty percent (50%) of the entire Leased Premises which Tenant is then Occupying at the time the interruption occurred, and that interruption continues for more than ten (10) consecutive days, and if that interruption was not caused by the negligence or willful misconduct of Tenant, its subtenants, or their respective Employees, agents, contractors, or Invitees, Tenant may, by written notice to the Authority given within five (5) days after the ten (10) consecutive day period expires, terminate this Lease effective as of the date such notice is delivered to the Authority. Notwithstanding any other provisions hereof, in the event that any Law now or hereafter in effect shall impose a limit on or allocation to the Facilities of any utility or other service, whether or not the same is to be supplied to the Facilities or the Leased Premises by the Authority pursuant to this Section, Tenant shall not use or cause to be consumed on the Leased Premises, nor shall the Authority be required to provide to the Leased Premises hereunder, such utility or other service in an amount or in a manner that would result in violation by the Authority or Tenant of such Law.

Section 1103. Utilities to Be Obtained and Maintained by Tenant . Tenant shall be responsible, at its cost and expense, for obtaining telephone, television, internet (or other cable)

and for any and all connection costs, usage charges, and any other costs and expenses associated therewith, and Tenant shall promptly pay all such charges, costs and expenses as and when they become due and payable.

Section 1104. Energy and Utility Conservation . Notwithstanding anything to the contrary in this Lease Agreement, the Authority may, from time to time, institute such policies, programs, measures, rules and regulations (a) as are, in Authority’s reasonable judgment necessary or appropriate, and/or as are required by applicable Law, for the conservation and/or preservation of heat, air-conditioning, energy, energy services, and/or other Utilities, and/or (b) as are, in the Authority’s reasonable judgment, necessary or appropriate, and/or as are required by applicable Law, for the proper function and protection of the heating, air-conditioning and Utility systems and/or in order to maximize the effect thereof. To the extent such policies, programs, measures, rules and regulations are instituted by the Authority pursuant to requirements of applicable Law, Tenant shall abide by them in all respects. To the extent such policies, programs, measures, rules and regulations are not instituted by the Authority pursuant to applicable Law, but are in the Authority’s reasonable judgment necessary or appropriate, Tenant shall cooperate with the Authority with respect to, and abide by, all such policies, programs, measures, rules and regulations, provided they do not materially adversely effect Tenant’s Business.

Section 1105. Reimbursement by Tenant . Tenant shall reimburse the Authority for any cost or expense incurred by the Authority for services that are provided by the Authority under this Article XI caused by the active negligence or willful misconduct of Tenant or its subtenants or their respective Employees, agents, contractors, and/or Invitees.

ARTICLE XII.

FINANCIAL SECURITY

Section 1201. Letter of Credit . Subject to Section 1202 below, to secure the performance by Tenant of its obligations under this Lease Agreement, Tenant will, on or before the date Base Rent is first due, deliver to the Authority an irrevocable letter of credit from LaSalle Bank National Association (or from another issuer acceptable to the Authority in its sole discretion) in the amount of One Million Eight Hundred Thousand Dollars ($1,800,000) (the “Letter of Credit”). The Letter of Credit terms must provide that the proceeds of the Letter of Credit shall be available to the Authority by the Authority’s draft at sight when accompanied by a certificate from the Authority stating that there has been an Event of Default by Tenant under this Lease, and must provide that partial drawings and multiple drawings shall be permitted. Except as described in Section 1202 below, Tenant shall, at Tenant’s cost and expense, cause the Letter of Credit to be renewed on an annual basis and to remain in full force and effect during the Term of this Lease and shall not cause or permit the terms and conditions of the Letter of Credit to be altered, amended, or rescinded without the prior written consent of the Authority, which consent may be withheld or granted in the Authority’s sole and absolute discretion.

Section 1202. Guaranty . If AAR Corp., the Tenant’s parent company (the “Parent”), executes a guaranty agreement in form reasonably acceptable to the Authority (the “Guaranty”)

whereby Parent has guaranteed Tenant’s payment obligations under the Lease in an amount not to exceed $1.8 million, and if the financial rating of Parent, by Standard & Poor’s Corporation or Moody’s Investor Service, Inc. remains at or above an investment grade rating of Baa3 or BBB-, the Authority hereby agrees that the Tenant may terminate its Letter of Credit required by Section 1201. Should, however, subsequent to the termination of the Letter of Credit, the financial rating of Parent, by Standard & Poor’s Corporation and Moody’s Investor Service, Inc., decrease below the investment grade rating of Baa3 and BBB-, Tenant shall reinstate a Letter of Credit from an issuer acceptable to the Authority in accordance with the provisions of Section 1201 above within sixty (60) days of the date of the latest rating downgrade, at which time the Guaranty will terminate. In no event whatsoever shall the Parent be obligated to execute the Guaranty; provided, however, that if the Parent does not execute a Guaranty, the Letter of Credit must be and remain in effect.

ARTICLE XIII.

AUTHORITY’S RESERVATIONS

Section 1301. Improvement, Relocation or Removal . The Authority, at its sole discretion, reserves the right to further develop or improve the Air Operations Areas and other portions of the Airport, including without limitation the right to remove or relocate any unapproved structure on the Airport, as it sees fit, and to take any action it considers necessary to protect the aerial approaches of the Airport against obstructions, together with the right to prevent Tenant from erecting or permitting to be erected any unapproved building or other structure on the Airport which, in the opinion of the Authority, would limit the usefulness of the Airport or constitute a hazard to aircraft.

Section 1302. Inspection of Leased Premises; Exhibition of Leased Premises . The Authority, through its duly authorized agent or agents, shall have at any reasonable time the full and unrestricted right to enter the Leased Premises for the purpose of periodic inspection for fire protection, Environmental Law compliance, for the purpose of repairs, replacements, and maintenance, for the purpose of performing the Authority’s obligations under this Lease Agreement, and for the purpose of investigating compliance by Tenant with the terms of this Lease Agreement; provided, however, that except in the case of emergency or except as provided in the following sentence, this right shall be exercised only upon reasonable prior notice to Tenant. The Authority also shall have the right to enter the Leased Premises during Tenant’s normal business hours and with reasonable advance written notice to Tenant for the purpose of exhibiting the Leased Premises to prospective mortgagees, prospective purchasers and prospective tenants; provided, however, that with respect to exhibiting the Leased Premises to prospective tenants, the Authority shall only have the right to enter the Leased Premises to do so (a) during the last twelve (12) months of the Term, (b) from and after the time that the Authority’s rights are triggered under Section 2105 below, (c) from and after the time that either Tenant or the Authority has delivered a notice of termination pursuant to Section 504 above, or from and after the time that Tenant or the Authority has notified the other of its intent to terminate this Lease pursuant to any other applicable termination provision in this Lease, or (d) from and after the time that an Event of Default by Tenant has occurred under this Lease. The

Tenant shall have the right to have a representative present during any such inspection or exhibition.

Section 1303. Subordination to U.S. Government . This Lease Agreement shall be subordinate to the provisions of any existing or future agreements between Authority and the United States Government relative to the operation and maintenance of the Airport, the terms and execution of which have been or may be required as a condition precedent to the expenditure or reimbursement to the Authority for Federal funds for the development, maintenance or operation of the Airport; provided, however, that the Authority agrees to notify Tenant as soon as practicable after the Authority has received written notice of any condition imposed or anticipated to be imposed on the Authority pursuant to any agreement between the Authority and the U.S. Government with respect to the operation and maintenance of the Airport which materially limits the use of the Leased Premises by Tenant in the manner contemplated by this Lease Agreement; and the Authority further agrees to cooperate with Tenant in diminishing, to the greatest practicable extent consistent with this Section 1303, the detrimental effect of any condition imposed on the Authority pursuant to any agreement between the Authority and the U.S. Government relative to the operation and maintenance of the Airport which materially limits the use of the Leased Premises by Tenant in the manner contemplated by this Lease Agreement.

Section 1304. Suspension of Lease Agreement . During time of war or national emergency, the Authority shall have the right, upon demand of the United States government (or any authorized agency thereof) or if the Authority is required to do so by Law, to lease or grant the right of use over the landing area and/or any other part of the Airport to the United States government (and/or any authorized agency thereof) for military use. If any such lease is executed or grant given, any provisions of this Lease which are inconsistent with the provisions of the agreement or arrangement with the United States government (or its authorized agency) shall be suspended. However, the Term of this Lease Agreement shall be extended, day for day, by the number of days in the period of suspension. In addition, if the suspension would have an adverse effect on Tenant’s ability to satisfy the Grant Thresholds and the Credit Thresholds, or would have an impact on the circumstances that determine whether the Authority may exercise any of its Authority Termination Events as described in Section 504(A)(1) through (5), or would have an impact on the circumstances that determine whether Tenant may exercise its Tenant Termination Event as described in Section 504(B)(3), respectively, then the time periods for Tenant’s satisfying the Grant Thresholds and Credit Thresholds, the time periods set forth in Section 504(A)(1) through (5), for determining whether an Authority Termination Event has occurred, and the time periods set forth in Section 504(B)(3) for determining whether the Tenant Termination Event described in Section 504(B)(3) has occurred, respectively, shall be extended, day for day, by the number of days in the period of suspension. Such suspension shall not affect Tenant’s obligations to pay Rentals pursuant to Article VI except that Base Rent and Additional Rent shall be abated to the extent Tenant cannot Occupy certain portions of the Leased Premises, and except that Minimum Base Rent and Minimum Additional Rent shall be abated if Tenant cannot Occupy a portion of the Leased Premises such that the portion of the Leased Premises which Tenant is Occupying is, as a result of the suspension, less than the amount of space on which the Minimum Base Rent and Minimum Additional Rent is calculated. However, if the suspension involves the assumption by the United States government or any authorized agency

thereof of the operation, control, or use of the Airport and facilities, or any substantial part or parts thereof, in a manner that substantially restricts Tenant from full use of the Leased Premises then-Occupied by Tenant for a period of at least ninety (90) consecutive days, Tenant may terminate this Lease pursuant to Section 502(A) above after that ninetieth (90th) day.

ARTICLE XIV.

COMMON AREAS

Section 1401. Definition . As used in this Lease Agreement, the term “Common Area” shall mean those portions of the Facilities designated by the Authority, from time to time, for the common use of all tenants and subtenants, their agents, contractors, employees and invitees, including, among other facilities, the main entrance lobby to the Facilities, hallways, stairways, access driveways, parking lots, sidewalks, landscaping, curbs, Authority-designated loading areas and freight elevators, private streets and alleys, other areas and improvements provided and designated by the Authority as being for the common use of all tenants, their agents, contractors employees and invitees, all of which shall be subject to the Authority’s management and control. Notwithstanding anything to the contrary in the foregoing, Tenant acknowledges that, as used herein, the “Common Areas” shall not include any area not designated by the Authority from time to time as being a Common Area.

Section 1402. Tenant’s Use of Common Areas . The Authority hereby grants to Tenant, and its agents, contractors, Employees and Invitees the nonexclusive right to use the Common Areas, as from time to time constituted, in common with the Authority and all other tenants, and its and their respective agents, contractors, Employees and Invitees. No portion of the Common Areas shall be used by Tenant for any purpose whatsoever other than those uses permitted by the Authority from time to time.

Section 1403. Maintenance . The Authority shall, at its sole cost and expense, operate, maintain and repair, or cause to be operated, maintained or repaired, the Common Areas in such condition and repair which the Authority deems prudent or advisable in the exercise of its sole discretion. Notwithstanding the foregoing, subject to the Authority’s obligations under Articles VII and XVII of this Lease, Tenant shall fully indemnify, defend, save, and hold harmless the Landlord Indemnified Parties from and against any and all Liability for damage to any portion of the Common Areas or any furniture, fixtures, equipment or other personal property of the Landlord Indemnified Parties or any other Person located therein, to the extent caused by the negligence or willful misconduct of Tenant, its subtenants, and/or its or their respective Employees, contractors, agents and/or Invitees. The obligations of Tenant under this Section shall survive the expiration or sooner termination of the Term of this Lease.

Section 1404. Reservation of Rights . The Common Areas shall at all times be subject to the exclusive control and management of the Authority. The Authority reserves the right to perform the following, as and to the extent the Authority deems necessary or appropriate from time to time in its sole discretion: to enter into, modify and terminate licenses, easements and other agreements pertaining to the operation, maintenance and use of the Common Areas; to change the area, level, location, size and arrangement of parking areas and other facilities located

in the Common Areas; to designate tenants, their agents, employees, contractors and invitees, to use particular parking areas; to close portions of the Common Areas in order to make changes, additions, deletions, alterations, improvements or repairs thereto; and to do and perform such other acts in, to and/or with respect to the Common Areas as the Authority shall determine, in its sole discretion, to be necessary or appropriate; provided, however, that in connection therewith, the Authority shall use commercially reasonable efforts to prevent material obstruction of Tenant’s (or its Employees’, agents’, contractors’, and Invitees’) right of ingress to and egress from the Leased Premises. The Authority shall have the right from time to time to establish, modify and enforce reasonable rules and regulations regarding the use of Common Areas and to cause its tenants, concessionaires and suppliers, including without limitation Tenant, its subtenants, and their respective agents, Employees, contractors, and Invitees, to so abide and conform; provided, that such rules and regulations do not conflict with any term or provision specifically provided in this Lease Agreement. The Authority reserves the right to change the Land and/or the Facilities, including without limitation the Common Areas, by adding land and/or buildings thereto and/or by changing therein the number and location of buildings, building dimensions, the exterior facade of buildings, the number of floors in any of the buildings, dimensions, changing the location and arrangement of facilities located in the Common Areas, changing the identity and type of other tenancies, and to do and perform such other acts in and to the Land and/or the Facilities (including, without limitation, the Common Areas) as the Authority shall determine to be advisable; provided only that (i) the gross leaseable area of the Leased Premises shall not be substantially changed, (ii) access to the Leased Premises shall not be materially impaired, (iii) Tenant’s signage shall not be materially adversely affected, and (iv) Tenant’s use of the Leased Premises for Tenant’s Business shall not be materially impaired. The rights herein conferred upon and reserved to the Authority do not impose any obligations upon the Authority to observe or perform those rights, which rights may be observed or performed as the Authority, in its sole discretion, may determine to be necessary or appropriate under the circumstances.

ARTICLE XV.

INSURANCE

Section 1501. Authority’s Insurance . The Authority shall, at its expense, procure, maintain and keep in force during the Term of this Lease Agreement from a financially secure and reputable company, (A) casualty insurance insuring the Facilities, including without limitation the Leased Premises, for such amount as the Authority determines to be necessary or appropriate but in no event less than the greater of (i) replacement cost and (ii) the sum of the outstanding balances of the Bond Issues; and (B) commercial general liability insurance with respect to the Land and the Facilities and the operation thereof by the Authority, insuring the Authority as the named insured and the Tenant and the other Tenant Reimbursement Parties as additional insureds, against liability for injuries to, or death of, Persons and damage to, or loss of, property, occurring in, on, or about the Land and Facilities (including the Leased Premises), including contractual liability, which insurance shall have a minimum limit of combined coverage of bodily injury, death and property damage of not less than $100,000,000.00 and in any event not less than the amount Tenant is required to carry under Section 1502(B). The Authority shall, upon execution of the Lease Agreement and within thirty (30) days prior to the

expiration of the policy, furnish the Tenant and the other additional insureds with a Certificate of Insurance as evidence of coverage for a period of at least one (1) year; if such policy is effective for a period of more than one (1) year, Tenant and the other additional insureds shall have also the right to receive a Certificate of Insurance during each such year, upon request.

The insurance described above shall not be cancelled, terminated or materially modified or amended except upon thirty (30) days’ prior written notice to Tenant and the other additional insureds.

Section 1502. Tenant’s Insurance .

(A) Casualty Insurance . Tenant shall, at its expense, procure, maintain and keep in force, at all times during the Term of this Lease Agreement, casualty insurance covering Tenant’s Excluded Property and other Tenant personal property, located on, in, or about the Leased Premises, in such amounts as Tenant determines to be necessary or appropriate. Tenant acknowledges and agrees that all of the Excluded Property and other Tenant personal property, and all property that Tenant stores for third parties, shall be kept on, in, or about the Leased Premises at Tenant’s sole risk and expense, except to the extent covered by the Authority’s indemnity obligations hereunder.

(B) Liability Insurance . Tenant shall, at its expense, procure, maintain and keep in force, at all times during the Term of this Lease Agreement, from Lloyds underwriters, or a licensed insurance company or companies with an A minus or better Bests Rating, commercial general liability insurance, with respect to the Leased Premises, the other portions of the Land and the Facilities and the use and occupancy thereof by Tenant, insuring Tenant as the named insured and the Authority and the other Landlord Indemnified Parties as additional insureds, against liability for bodily injury, personal injury, automobile liability, aircraft liability, hangar keepers liability, product liability for completed operations, death and property damage, including contractual liability. Without limiting its liability, Tenant agrees to carry and keep in force insurance with single limit liability for bodily injury, personal injury, automobile liability, aircraft liability, hangar keepers liability, product liability for completed operations, death and property damage in a sum not less than $100,000,000 per occurrence for each of the types of liabilities listed above. The Authority shall have the right, every fifth (5th) year during the Term, to require Tenant, at Tenant’s cost and expense, to increase these insurance coverage amounts by up to ten percent (10%) over the coverage amounts that Tenant was required to maintain under this Lease during the preceding five (5) year period. Tenant shall, upon execution of this Lease Agreement and at least thirty (30) days prior to the expiration of the policy, furnish the additional insureds with a certificate of insurance as evidence of coverage for a period of at least one (1) year; if such policy is effective for a period of more than one (1) year, the additional insureds shall also have the right to receive a certificate of insurance during each such year, upon request. This insurance shall not be cancelled, terminated or materially modified or amended except upon thirty (30) days’ advance written notice to the additional insureds.

(C) Workers’ Compensation Insurance . Tenant shall, at its expense, procure and keep in force, at all times during the Term of this Lease Agreement, with a financially sound and reputable company reasonably acceptable to the Authority, a policy of workers’ compensation

insurance on the Employees of Tenant in the required statutory amounts. Tenant shall, upon execution of this Lease Agreement and at least thirty (30) days before the expiration of the policy, furnish the Authority with a certificate of insurance as evidence of such coverage; if such policy is effective for a period of more than one (1) year, the Authority shall also have the right to receive a certificate of insurance during each such year, upon request. This policy shall not be cancelled, terminated, or materially modified or amended except upon thirty (30) days’ advance written notice to the Authority.

Section 1503. Application of Insurance Proceeds . In the event of a Casualty or Condemnation described in Article XVI, the proceeds of the insurance required to be maintained in accordance with the provisions of Section 1501 hereof shall be paid and disbursed in accordance with the provisions of Article XVI.

Section 1504. Release and Waiver of Subrogation . The Authority and Tenant each hereby mutually release and discharge one another, and their respective owners, officers, directors, managers, employees and agents, from any and all liability for loss or damage to their respective property arising from or caused by any casualty or hazard covered, or required under this Lease Agreement to be covered, in whole or in part by insurance on the Leased Premises, the Facilities and/or the Land, or the contents thereof, that is required to be maintained by the releasing party (other than liability for any deductibles that the releasing party may be required to pay with respect to such insurance) and hereby waive any right of subrogation which might otherwise exist in or accrue to any Person (including without limitation their respective insurers) on account hereof, REGARDLESS OF ANY NEGLIGENCE ON THE PART OF THE RELEASED PERSONS WHICH MAY HAVE CONTRIBUTED TO OR CAUSED SUCH LOSS OR DAMAGE, but only to the extent that proceeds for such loss or damage are actually collectable under said policies. If the policies of insurance provided for under this Article XV require an endorsement to provide for continued coverage where there is a waiver of subrogation, the Authority and Tenant will, respectively, cause their respective policies to be so endorsed.

ARTICLE XVI.

CASUALTY DAMAGE AND CONDEMNATION

Section 1601. Damage by Casualty . In the event of fire or other casualty in or to any portion of the Leased Premises, Tenant shall give prompt notice thereof to the Authority.

(A) Repair and Restoration .

(1) If all or a substantial part of the Leased Premises is rendered untenantable or inaccessible by damage to all or any part of the Facilities from fire, the elements, accident, terrorist activity, or other casualty (collectively, “Casualty”) then, unless either party is entitled, and elects, to terminate this Lease Agreement pursuant to subsections (B) or (C) below, the Authority shall, at its expense, use reasonable efforts to repair and restore the Leased Premises and/or the Facilities, as the case may be, to substantially their

former condition to the extent permitted by then applicable Laws; provided, however, that in no event shall the Authority have any obligation:

(a) to make repairs or restoration beyond the extent of Net Proceeds actually received by the Authority for such Casualty (and not applied by any lender to then outstanding indebtedness); and/or

(b) to repair, restore, or replace any personal property (including without limitation the Excluded Property) at the Leased Premises other than the Equipment.

(2) If the Authority is required to repair damage to the Leased Premises and/or the Facilities resulting from a Casualty, the following shall apply:

(a) This Lease Agreement shall continue in full force and effect, but Tenant’s obligations to pay Base Rent, Minimum Base Rent, Additional Rent and Minimum Additional Rent that would otherwise have accrued from and after the date of the Casualty through the date of substantial completion of the repairs or restoration shall be abated with regard to any portion of the Leased Premises that Tenant is prevented from using by reason of such damage or its repair or restoration; provided, however, that, to the extent the negligence or willful misconduct of Tenant, its subtenants, and/or their respective agents, contractors, Employees or Invitees caused such Casualty, Base Rent, Additional Rent, Minimum Base Rent and Minimum Additional Rent shall not be abated during the period of restoration of the Leased Premises except to the extent the Authority collects for such Base Rent, Additional Rent, Minimum Base Rent and Minimum Additional Rent from rental insurance maintained by the Authority.

(b) Subject to the Authority’s obligations under Section 1702(B) below, in no event shall the Authority be liable to Tenant by reason of any injury to or interference with Tenant’s Business or property arising from a Casualty or by reason of any repairs or restoration to any part of the Facilities (including without limitation the Leased Premises) necessitated by the Casualty.

(B) Authority’s Right to Terminate .

(1) The Authority may elect to terminate this Lease Agreement following damage from Casualty, under the following circumstances:

(a) If, in the Authority’s sole judgment, the Leased Premises and/or the Facilities cannot be substantially repaired and restored under applicable Laws within six (6) months from the date of the Casualty;

(b) If, in the Authority’s sole judgment, adequate insurance proceeds are not, for any reason, made available to the Authority from its insurance policies to make the required repairs or restoration;

(c) If twenty percent (20%) or more of the Leased Premises is damaged or destroyed (including without limitation by smoke or water damage);

(d) If twenty percent (20%) or more of the Facilities are damaged or destroyed (including without limitation by smoke or water damage), regardless of whether the Leased Premises are damaged or destroyed;

(e) If the Facilities are damaged or destroyed (including without limitation by smoke or water damage) to the extent that, in the Authority’s sole judgment, the cost to repair or restore the Facilities would exceed twenty percent (20%) of the full replacement cost of the Facilities, whether or not the Leased Premises are damaged or destroyed;

(f) If the Casualty occurs during the last thirty-six (36) months of the Term; or

(g) There exists, at the time of the Casualty, an Event of Default by Tenant under this Lease Agreement (or, if at the time of the Casualty, there exists a default by Tenant under any term or condition of this Lease which would, with the giving of notice, the passage of time or both, constitute an Event of Default under this Lease, and Tenant fails to cure that default within the applicable grace or cure period provided under this Lease).

(2) If any of the circumstances described in subsection (B)(1) above exists, the Authority may notify Tenant, in writing, that the Authority elects to terminate this Lease Agreement, provided that the Authority must provide Tenant with the notice of termination within sixty (60) days after the date of the Casualty.

(C) Tenant’s Right to Terminate . Within sixty (60) days after the Casualty, the Authority shall deliver to Tenant a written estimate from an engineering or consulting firm selected by the Authority stating the estimated date for substantial completion of the repairs or restoration to the Facilities (the “Estimated Completion Date”). If all or a substantial part of the Leased Premises is rendered untenantable or inaccessible as a result of the Casualty, and if the Estimated Completion Date for the repairs and restoration is more than six (6) months after the date of the Casualty, Tenant may cancel and terminate this Lease Agreement with all Rental paid or refunded so as to adjust to the date of such Casualty. Tenant will notify the Authority, in writing, that Tenant elects to terminate this Lease Agreement within thirty (30) days from the date Tenant receives the Authority’s written estimate of the Estimated Completion Date. If Tenant does not terminate this Lease Agreement in accordance with the preceding sentence, and if the Authority does not terminate this Lease Agreement in accordance with subsection (B) above, the Authority shall proceed with reasonable diligence with respect to the repairs and restoration pursuant to this Section, but subject in all respects to subsections (A)(1) and (A)(2) above. Notwithstanding anything in this subsection (C) to the contrary, Tenant shall not have the right to cancel and terminate this Lease Agreement if any fault or negligence of Tenant, its subtenants, or their respective agents, contractors, Employees, or Invitees substantially contributed to the cause of such Casualty.

Section 1602. Condemnation .

(A) Condemnation; Termination; Restoration . In the event of a taking or appropriation of property in the exercise of the power of eminent domain for a public or quasi-public use or a transfer in lieu of the exercise of the power of eminent domain (a “Condemnation”) of the entire Leased Premises or the entire Facilities, this Lease Agreement shall terminate on the date of the vesting of title to the condemned property or on the date of the taking of possession of such property by the condemning authority, whichever shall first occur. In the event (i) of a Condemnation with respect to the Leased Premises that exceeds twenty percent (20%) of the Leased Premises, or (ii) the proceeds available to the Authority from the Condemnation (and not applied by any lender to then-outstanding indebtedness) are not, in the Authority’s sole judgment, adequate for the restoration, the Authority shall have the right to terminate this Lease Agreement by written notice to Tenant within thirty (30) days after the vesting of title to the condemned property or the taking of possession of the property by the condemning authority, whichever is earlier. In the event of a Condemnation affecting a portion of the Leased Premises, Tenant shall have the right to terminate this Lease Agreement if more than twenty percent (20%) of the Leased Premises then Occupied by Tenant is taken as part of the Condemnation, by providing written notice of termination to the Authority within thirty (30) days after the vesting of title to the condemned property or the taking of possession of the property by the condemning authority, whichever is earlier. Such termination as to the portion of the Leased Premises that is taken by the condemning authority shall be effective as of, and retroactive to, the earlier of the date when the condemning authority takes possession or the date when title to the condemned property vests in the condemning authority. If less than all of the Leased Premises is taken, such termination as to that portion of the Leased Premises not taken shall be effective as of the later of (1) the date when exclusive possession of that portion of the Leased Premises not subject to the Condemnation is surrendered by Tenant to the Authority, or (2) the date of vesting of title to the condemned property or the date of taking of possession of the property by the condemning authority (whichever is earlier). Until such time as this Lease Agreement is fully terminated pursuant to the preceding sentences, Tenant shall be obligated to continue to pay Rental and all other payments specified in Article VI hereof. If the Authority elects to continue this Lease Agreement in effect, the Authority shall be responsible, to the extent of Net Proceeds available (and not applied by any lender to then-outstanding indebtedness), for performance of all work necessary to make the Leased Premises (or such portion thereof as was not taken in Condemnation) usable by Tenant in addition to all work necessary in other portions of the Facilities as a result of such taking.

(B) Application of Proceeds . The Net Proceeds from the Condemnation may be applied in one or more of the following ways as determined by the Authority:

(i) To the extent neither party terminates this Lease Agreement as provided above, toward the restoration of the Leased Premises (or such portion thereof that were not taken in Condemnation) and Facilities (or such portion thereof that were not taken in Condemnation) to substantially the same condition as existed prior to the exercise of the power of eminent domain, to the extent of Net Proceeds available from the Condemnation (and not applied by any lender to then- outstanding indebtedness);

(ii) To the extent neither party terminates this Lease Agreement as provided above, toward the construction or acquisition of other improvements suitable for Tenant’s operations on the remaining portion of the Leased Premises (which improvements shall be deemed a part of the Facilities and available for use and occupancy by Tenant without the payment of any rent other than as herein provided to the same extent as if such other improvements were specifically described herein and demised hereby), to the extent of Net Proceeds available from the Condemnation (and not applied by any lender to then-outstanding indebtedness); or

(iii) To the extent either party terminates this Lease Agreement as provided above, payment of such proceeds to the Authority.

(C) Condemnation of Tenant’s Personal Property . All compensation awarded for any such taking or conveyance of the Authority’s interest shall be the property of the Authority without deduction therefrom for any present or future estate of Tenant, and Tenant hereby assigns to the Authority all right, title and interest in and to such award. However, Tenant shall have the right to recover from the condemning authority, but not from the Authority, such compensation as may be awarded to Tenant, if applicable, on account of moving and relocation expenses and depreciation to and removal of Tenant’s property.

(D) Taking or Condemnation by the Authority . If the Authority exercises its right of condemnation or eminent domain with respect to all or substantially all of the Leased Premises for the purposes set forth in Section 1301 hereof, the Authority reserves the right, on eighteen (18) months notice, to relocate or replace the Facilities in substantially similar form at another comparable location on the Airport or to replace such portion of the Leased Premises; provided, however, Tenant shall have the right to terminate this Lease Agreement as and to the extent permitted pursuant to Section 1602; and provided further, that if Tenant does not exercise such termination right pursuant to Section 1602, that following such relocation or replacement, the Leased Premises are substantially similar to and can be operated in a manner substantially similar to the Leased Premises prior to such relocation or replacement and Tenant’s Business can be operated in a manner substantially similar to Tenant’s Business prior to such relocation or replacement. The new location shall constitute thereafter the Leased Premises and the facilities or improvements located thereon, and equipment thereof, shall thereafter constitute the Facilities for purposes of this Lease Agreement. The relocation of the Leased Premises shall be at no cost to Tenant and the new Facilities must be ready for occupancy by Tenant prior to the date of required relocation subject to moving Tenant’s Excluded Property and the Equipment to the new relocated Facilities. If the Authority complies with the provisions of this Section, such remedies shall be in lieu of any remedies Tenant may have pursuant to law or equity with respect to the actions taken by the Authority in condemning the Leased Premises or relocating the Leased Premises.

ARTICLE XVII.

GENERAL INDEMNITY

Section 1701. Tenant Indemnity . Except to the extent indemnified by the Authority pursuant to the terms of the Lease, or except as governed by Section 705 hereof, Tenant covenants and agrees fully to indemnify, defend, save, and hold harmless the Landlord Indemnified Parties from and against any and all Liabilities for personal injury, bodily injury, death, and/or property damage (including without limitation all reasonable expenses incidental to the investigation and defense thereof, including without limitation reasonable attorneys’ fees) (a) caused by the acts or omissions of Tenant, its subtenants, and/or any of their respective Employees, agents, contractors and/or Invitees, and/or any of the other Tenant Reimbursement Parties, at or on the Leased Premises, and/or at or on the Apron and/or other non-public areas of the Airport to which Tenant, its subtenants and/or their respective Employees, agents, contractors and/or Invitees may have access, (b) caused by the acts or omissions of Tenant and/or any of its Employees, at or on the other areas of the Land, the Facilities and/or the Airport (other than the Leased Premises, and/or the Apron and/ or other non-public areas of the Airport to which Tenant, its subtenants, and/or their respective Employees, agents, contractors or Invitees may have access), provided, however, that as to Tenant’s Employees, this subsection (b) shall only apply to acts or omissions of those Employees in the conduct of Tenant’s business or during the scope of their employment by Tenant, or (c) caused by the acts or omissions of Tenant or its Employees, agents, contractors and/or Invitees at or on the Leased Premises pursuant to Section 205(F) above. The Authority hereby acknowledges and agrees that for purposes of this Section 1701, the Authority, its other tenants, the other Landlord Indemnified Parties, and/or any of their respective employees, contractors and agents shall not be deemed to be “subtenants,” “contractors” or “agents” of Tenant. However, Tenant shall not be liable for any such Liabilities for personal injury, bodily injury, death or property damage relative to the Leased Premises (y) to the extent caused by the acts or omissions of the Authority, the other Landlord Indemnified Parties, or any of their respective employees, agents or contractors or (z) if the Authority is otherwise obligated for those Liabilities pursuant to other provisions of this Lease; and the Authority’s insurance coverages relative to those particular Liabilities shall be deemed “primary” vis-à-vis the Tenant’s insurance coverages relative to those particular Liabilities. Except as described in the preceding sentence, the Authority and Tenant agree that, with respect to the Land, Facilities and other portions of the Airport (including the Leased Premises) and Tenant’s Liabilities arising under this Section 1701 relating thereto, Tenant’s insurance shall be deemed “primary” vis-à-vis the Authority’s insurance. The Authority shall give Tenant prompt and reasonable notice of any such Liabilities arising under this Section 1701. If any action or proceeding is brought against any of the Landlord Indemnified Parties by reason of any such Liability, Tenant, upon notice from any of the Landlord Indemnified Parties, agrees to resist and defend the Liability on demand of any of the Landlord Indemnified Parties. Tenant shall not consent to the entry of any judgment, decree, or order, interim or otherwise, or propose, approve, consent to, or enter into any settlement or compromise, against or otherwise affecting any Landlord Indemnified Party, except with the prior written consent of that Landlord Indemnified Party, which consent shall not be unreasonably withheld. Each Landlord Indemnified Party shall have the right to retain separate counsel in any such action and to participate in the defense thereof but shall bear the fees and expenses of such counsel unless (A) Tenant shall have

specifically authorized the retaining of such counsel or (B) the parties to such suit include such Landlord Indemnified Party, and Tenant and such Landlord Indemnified Party have each been advised by their counsel that one or more legal defenses may be available to it which may not be available to the other party and that a conflict of interest is created thereby, in which case Tenant shall not be entitled to assume the defense of such suit notwithstanding its obligation to bear the fees and expenses of such counsel. The obligations of Tenant under this Section 1701 shall survive the expiration or sooner termination of this Lease.

Section 1702. Authority Obligations .

(A) Environmental.

(1) Except with respect to contamination shown to have resulted from releases of Hazardous Materials after the Effective Date by Tenant, its subtenant, or their respective Employees, agents, contractors, or Invitees, and, unless prohibited by applicable Law, the Authority covenants and agrees to promptly pay Tenant and its subtenants and their respective members, directors, officers, Employees, agents, successors, and assigns (collectively the “Tenant Reimbursement Parties”) for all actual costs and expenses incurred by the Tenant Reimbursement Parties or any of them arising out of or in connection with any and all Liabilities or obligations under Environmental Laws and Environmental Health and Safety Requirements to the extent those Liabilities are caused by or related to the presence or release of Hazardous Materials or other substances at or from the Leased Premises, the Facilities, the Land, the Expansion Space, the Apron, or any other location at the Airport. This contractual obligation to the Tenant Reimbursement Parties by the Authority, includes, without limitation, costs incurred by any of the Tenant Reimbursement Parties as a result of Liabilities and obligations described in the preceding sentence for any fines or penalties, any investigations of environmental conditions, and any cleanup, remedial, removal, restoration or monitoring work performed by any Tenant Reimbursement Party because of the Liabilities and obligations described in the preceding sentence. The Tenant Reimbursement Party or Parties shall give to the Authority prompt and reasonable notice of any such Liability or obligation, and the Authority shall have the right to investigate, compromise, perform, and defend the same. The Authority shall control the defense of the Liabilities and obligations, and the Tenant Reimbursement Parties shall take no action to settle, satisfy or compromise the Liabilities or obligations without the prior written consent of the Authority. The Authority’s obligations under Section 1702(A)(1) include, but are not limited to, paying for Liabilities and obligations which arise from the release of Hazardous Materials prior to, on or after the Effective Date from sewers, lift stations, force mains, the wastewater Treatment Facility or any related drains or pipes (unless caused by the failure of a Tenant Reimbursement Party or their agents, contractors, or Invitees to comply with Exhibit K). The Authority’s contractual obligations under this subsection (A)(1) shall survive the expiration or sooner termination of the Term of this Lease. The obligations of the Authority under this Section 1702(A)(1) are contractual obligations of the Authority under this Lease made in exchange for good and valuable consideration.

(2) On or before July 15, 2004, the Authority will, at its cost, file an application with IDEM to participate in IDEM’s Voluntary Remediation Program pursuant to Indiana Code §§ 13-25-5 et seq ., with respect to contamination or other environmental matters, which exist on the Effective Date, at the Leased Premises, the Expansion Space, the Land and the Facilities. The Authority, at the Authority’s cost and expense, shall (a) diligently pursue such application (which shall include Tenant and those specific Tenant Reimbursement Parties whom Tenant specifies to the Authority at the time the Authority files the application (“Tenant VRP Parties”)) and enter into the agreement along with Tenant VRP Parties under the Voluntary Remediation Program, (b) diligently complete the work under a Voluntary Remediation Work Plan, (c) diligently and in good faith seek to obtain a Certificate of Completion, and (d) diligently and in good faith seek to obtain a covenant not to sue on behalf of the Authority and Tenant VRP Parties. The Authority and Tenant each hereby reserves their rights under Indiana Code §§ 13-25-5 et seq .

(3) With respect to the presence or release of Hazardous Materials after the Effective Date not caused by any Tenant Reimbursement Party or by any Employee, agent contractor or Invitee of Tenant or of any of its subtenants, the Authority, upon receipt of written notice from Tenant that Tenant has received notice of a potential Environmental Law Liability which Tenant has a reasonable basis for believing was caused by the Authority or any other Person that is not a Tenant Reimbursement Party and not an Employee, agent, contractor or Invitee of Tenant or of any of its subtenants and that is not under the direction or control of any Tenant Reimbursement Party, the Authority agrees, at its cost, to pursue the responsible Person and to use its best efforts to cause the responsible Person to resolve such potential Environmental Law Liability, including, but not limited to, negotiations with appropriate regulatory agencies or defense of legal action brought by any Person (other than a Tenant Reimbursement Party or any Employee, agent, contractor or Invitee of Tenant or any of its subtenants); however, the Authority reserves its rights, subject to Section 1702(A)(1), to pursue Tenant for such Environmental Law Liability if Authority believes that any Tenant Reimbursement Parties or any Employees, agents, contractors or Invitees of Tenant or of its subtenants caused or contributed to such Environmental Law Liability. Tenant shall provide written notice to the Authority of any release of Hazardous Materials by any of the Tenant Reimbursement Parties or by any Employee, agent, contractor or Invitee of Tenant or of its subtenants, to the soil or groundwater at the Leased Premises, the Land, the Facilities, or other portions of the Airport, which release is known to Tenant and which release is required to be reported to IDEM by Tenant. If Tenant fails to so provide written notice of such a release of Hazardous Materials at the Leased Premises or other area of the Land or the Facilities that Tenant or its subtenant is using from time to time, and if the Authority subsequently learns of that release of Hazardous Materials, Tenant shall be deemed to be responsible for that release unless Tenant is able to demonstrate to the Authority that the release was caused by another Person other than a Tenant Reimbursement Party or other than the Employees, agents, contractors or Invitees of Tenant or of its subtenants. The Authority’s obligations under this subsection (A)(3) shall survive the expiration or sooner termination of the Term of this Lease.

(B) General . Except to the extent indemnified by the Tenant pursuant to the terms of the Lease, or except as governed by Section 1702(A), the Authority covenants and agrees, unless prohibited by applicable Law, to fully to pay the Tenant Reimbursement Parties the actual costs, damages and expenses incurred by them as a result of any Liabilities for personal injury, bodily injury, death, and/or property damage (including without limitation all reasonable expenses incidental to the investigation and defense thereof, including without limitation reasonable attorneys’ fees), caused by the acts or omissions of the Authority, the other Landlord Indemnified Parties, and/or any of their respective employees, agents or contractors, at or on any of the Land and Facilities and/or other portions of the Airport (including the Leased Premises). However, the Authority shall not be liable for any such Liabilities for personal injury, bodily injury, death or property damage relative to the Land, the Facilities and/or other portions of the Airport, (y) to the extent caused by the acts or omissions of the Tenant, the other Tenant Reimbursement Parties, any subtenants of Tenant, or any of Tenant’s or its subtenants’ Employees, agents, contractors or Invitees, or (z) if Tenant is otherwise obligated for those Liabilities pursuant to other provisions of this Lease; and the Tenant’s insurance coverages relative to those particular Liabilities shall be deemed “primary” vis-à-vis the Authority’s insurance coverages relative to those particular Liabilities. Except as described in the preceding sentence, the Authority and Tenant agree that, with respect to the Land, Facilities and other portions of the Airport (including the Leased Premises) and the Authority’s Liabilities arising under this Section 1702(B) relating thereto, the Authority’s insurance shall be deemed to be “primary” vis-à-vis Tenant’s insurance. Tenant shall give the Authority prompt and reasonable notice of any such Liabilities arising under this Section 1702(B). If any action or proceeding is brought against any of the Tenant Reimbursement Parties by reason of any such Liability, the Authority, upon notice from any of the Tenant Reimbursement Parties, agrees to resist and defend the Liability or demand of any of the Tenant Reimbursement Parties. The Authority shall not consent to the entry of any judgment, decree, or order, interim or otherwise, or propose, approve, consent to, or enter into any settlement or compromise, against or otherwise affecting any Tenant Reimbursement Party, except with the prior written consent of that Tenant Reimbursement Party, which consent shall not be unreasonably withheld. The Authority’s contractual obligations under this Section 1702(B) shall survive the expiration or sooner termination of the Term of this Lease. The obligations of the Authority under this Section 1702(B) are contractual obligations of the Authority under this Lease made in exchange for good and valuable consideration and such contractual obligation shall survive the expiration or sooner termination of the Term of this Lease.

ARTICLE XVIII.

EVENTS OF DEFAULT BY AUTHORITY

Section 1801. Events of Default by Authority . The following shall constitute an Event of Default by the Authority: (a) the issuance by any court of competent jurisdiction of an injunction in any way preventing or restraining the use of the Airport, so as to substantially affect Tenant’s use of the Leased Premises at the Airport for a period of at least ninety (90) consecutive days, to the extent the injunction is issued as a result of the negligence or willful misconduct of the Authority; or (b) if the Authority fails to observe and perform any material covenant, condition or agreement on its part to be observed or performed in this Lease Agreement for a period of thirty (30) days after Tenant gives written notice to the Authority, specifying the failure

and requesting that it be remedied, unless Tenant agrees in writing to an extension of that period prior to its expiration. If a failure under this subsection is such that it cannot be corrected within the thirty (30) day period, it shall not constitute an Event of Default under this Article XVIII if corrective action is instituted by the Authority within the thirty (30) day period and is diligently pursued until the failure is corrected, but such additional applicable period shall not exceed sixty (60) days without the written consent of Tenant.

Section 1802. Remedies of Tenant on Default . If any Event of Default referred to in Section 1801 occurs, Tenant may institute any action at law or in equity against the Authority as may appear necessary or desirable to enforce the performance and observance of any covenant, condition or obligation of the Authority hereunder or to recover provable compensatory damages (but not consequential damages) for the Authority’s non-performance or non-observance of the same or to terminate the Lease Agreement without any further obligation to the Authority other than those obligations that have accrued or arisen prior to termination.

Section 1803. No Additional Waiver Implied By One Waiver; Consents to Waiver . The waiver by Tenant of any breach by the Authority of any of its covenants, conditions or obligations under this Lease Agreement shall not operate as a waiver of any subsequent breach of the same or a waiver of any breach of any other covenant, condition, or obligation under this Agreement. Tenant’s forbearance to seek a remedy for any breach by the Authority shall not be a waiver by Tenant of any of its rights and remedies with respect to the breach or any subsequent breach of the same covenant, condition or obligation or with respect to any other breach.

Section 1804. Delay Not a Waiver . No delay or omission by Tenant to exercise any right or power accruing upon any Event of Default by the Authority shall impair any such right or power of Tenant or be construed to be a waiver of any Event of Default by the Authority or any acquiescence therein, and every power or remedy given by this Lease Agreement to Tenant may be exercised from time to time and as often as may be deemed expedient. Tenant may waive any Event of Default by the Authority that in its opinion has been remedied before the entry of final judgment or decree in any suit, action or proceeding instituted by it under the provisions of this Lease Agreement or before the completion of the enforcement of any other remedies under this Lease Agreement, but no such waiver shall extend to or affect any other existing or subsequent Event of Default by the Authority or impair any rights or remedies consequent thereon.

Section 1805. No Remedy Exclusive . No remedy herein conferred upon the Tenant is intended to be exclusive of any other available remedy or remedies, and each remedy shall be cumulative and shall be in addition to every other remedy given under this Lease Agreement or now or hereafter existing at law or in equity or by statute. However, if Tenant seeks damages, it may only seek provable, compensatory damages and not consequential damages. No delay or omission to exercise any right or power accruing upon any default granted under this Lease Agreement shall impair any right or power or shall be construed to be a waiver thereof, and any such right or power may be exercised from time to time and as often as may be deemed expedient, and the exercise of any one right or remedy shall not impair the right of the Tenant, to exercise any or all other remedies under this Lease Agreement.

Section 1806. Notice of Termination . If the Tenant exercises its right to terminate this Lease Agreement upon the happening of any Event of Default or other provision to which such right of termination applies, a notice of termination shall be (except as otherwise expressly provided in this Lease) sufficient to terminate this Lease Agreement; and, upon receipt of the same, Tenant hereby agrees that it will surrender possession of the Leased Premises to the Authority on the date set forth in its termination notice.

ARTICLE XIX.

EVENTS OF DEFAULT BY TENANT

Section 1901. Events of Default By Tenant . The following shall each constitute an Event of Default by Tenant:

(A) The failure to pay any installments of Rental when due (with interest, if applicable) under Article VI hereof on the date required for such payment; provided, however, that Tenant shall be entitled to up to two (2) written notices from the Authority, in any single calendar year, that Tenant has failed to pay an installment of Rental on its due date and shall have ten (10) days after receipt of such written notice in which to cure the default (but provided, further, that after two (2) notices have been sent to Tenant in any single calendar year, Tenant shall not be entitled to any notice whatsoever from the Authority for any subsequent payment failures occurring during such calendar year; and Tenant acknowledges and agrees that the Authority shall under no circumstances be deemed to have waived this limitation on the number of notices to which Tenant is entitled if the Authority happens to provide Tenant with additional notices of failure to pay, in excess of the two (2) notices, during any particular calendar year, provided, however, that the Authority shall be required to notify Tenant of the Event of Default within sixty (60) days of the date of default if Tenant cured said payment default. Otherwise, the Authority shall be deemed to have waived such Event of Default).

(B) The failure by Tenant to provide any Percentage Rent Certificate when required under Section 601(C); provided, however, that Tenant shall be entitled to up to one (1) written notice from the Authority, in any single calendar year, that Tenant has failed to deliver a Percentage Rent Certificate on its due date and shall have ten (10) days after receipt of such written notice in which to cure the default (but provided, further, that after one (1) notice has been sent to Tenant in any single calendar year, Tenant shall not be entitled to any notice whatsoever from the Authority for any subsequent failures to deliver Percentage Rent Certificates occurring during such calendar year; and Tenant acknowledges and agrees that the Authority shall under no circumstances be deemed to have waived this limitation on the number of notices to which Tenant is entitled if the Authority happens to provide Tenant with additional notices of failure to deliver Percentage Rent Certificates, in excess of the one (1) notice, during any particular calendar year, provided, however, that the Authority shall be required to notify Tenant of the Event of Default within sixty (60) days of the date of default if Tenant cured said default in providing the Percentage Rent Certificate; otherwise, the Authority shall be deemed to have waived such Event of Default).

(C) The filing by Tenant of a voluntary petition in bankruptcy or the making of any assignment for the benefit of creditors of all or substantially all of Tenant’s assets used or to be used by Tenant with respect to Tenant’s Business at the Leased Premises (provided, however, that an “assignment” for purposes of this subsection (C) shall not be deemed to include a collateral assignment by Tenant of, or grant of a security interest by Tenant in Tenant’s Excluded Property to a third party lender, if the collateral assignment or grant of security interest is being granted by Tenant in the ordinary course of obtaining financing for the day-to-day operation of Tenant’s Business at the Leased Premises).

(D) The filing of a petition against Tenant as a debtor pursuant to any involuntary bankruptcy proceedings, and such petition is not dismissed within sixty (60) days of filing.

(E) The taking of control of Tenant or its assets by a court of competent jurisdiction pursuant to proceedings brought under the provisions of any Federal reorganization act.

(F) The appointment of a receiver or a trustee, by a court of competent jurisdiction, or Tenant’s voluntary assignment to its creditors in lieu thereof, for all or substantially all of Tenant’s assets used or to be used with respect to Tenant’s Business at the Leased Premises.

(G) The failure by Tenant to obtain, maintain, and keep in force at all times during the Term of this Lease Agreement the insurance coverages that Tenant is required to obtain, maintain and keep in force pursuant to Article XV above.

(H) Except for de-Occupations as contemplated in Section 205(D) above, abandonment or vacation of all or any substantial part of the Leased Premises by Tenant for a period of more than ninety (90) consecutive days without the prior written consent of the Authority; provided, however, that, subject to Article XVI above, if cessation of or failure to use the Leased Premises is caused by reason of war, strikes, embargoes, riots, civil commotion, acts of public enemies, earthquakes or other natural disasters, or action of the elements, this Lease shall nonetheless terminate on the ninetieth (90th) day after Tenant vacates the Leased Premises, but such vacation shall not be deemed to be an Event of Default under this subsection (H).

(I) The rescission, termination, expiration, alteration or amendment of the Letter of Credit (except as permitted under Section 1201 or 1202 above).

(J) If Tenant is hereafter permitted under Section 1202 to terminate the Letter of Credit, but Tenant thereafter becomes obligated to reinstate the Letter of Credit under Section 1202, and Tenant fails to so reinstate the Letter of Credit as required under Section 1202 within the sixty (60) day period described in Section 1202.

(K) If the Guaranty is in place pursuant to Section 1202, the breach by the Parent of its obligations under the Guaranty.

(L) The failure by Tenant to observe and perform any covenant, condition or agreement on its part to be observed or performed pursuant to this Lease Agreement (other than those sections referred to in subsections (A) through (K) above) for a period of thirty (30) days after written notice to Tenant specifying such failure and requesting that it be remedied, given to

Tenant by the Authority unless the Authority shall agree in writing to an extension of such time prior to its expiration. If a failure under this subsection is such that it cannot be corrected within the thirty (30) day period, it shall not constitute an Event of Default under this Article XIX, if corrective action is instituted by Tenant within the thirty (30) day period and diligently pursued until the failure is corrected, but such additional applicable period shall not exceed sixty (60) additional days without the written consent of the Authority. Notwithstanding the foregoing, if any failure by Tenant to observe and perform any covenant, condition or agreement on its part to be performed pursuant to this Lease Agreement would materially impair the use or operation of the balance of the Facilities or Airport operations, it shall be an Event of Default if Tenant does not cure such failure within three (3) days after written notice from the Authority. If a failure under the preceding sentence is such that it cannot be corrected within the three (3) day period, it shall not constitute an Event of Default under this Article XIX, if corrective action is instituted by Tenant within the three (3) day period and diligently pursued until the failure is corrected, but such additional applicable period shall not exceed thirty (30) additional days without the written consent of the Authority.

Section 1902. Certain Remedies of the Authority on Rental Default.

(A) Upon the occurrence of an Event of Default by Tenant under Section 1901(A), the Authority may, without giving Tenant notice: (i) declare all amounts payable under Article VI to be due and payable immediately; and (ii) may take whatever action at law or in equity as may appear necessary or desirable to collect the Rentals, including but not limited to redeeming the Letter of Credit described Section 1201 and/or enforcing the Guaranty under Section 1202 and any other amounts then due and thereafter to become due pursuant to Article VI hereof, to recover provable compensatory damages and not consequential damages for Tenant’s non-payment or to terminate this Lease Agreement without terminating Tenant’s obligations to pay damages.

(B) If, at any time after the Rental due under Article VI hereof have been declared due and payable by the Authority in any suit, action or proceeding instituted on account of the default and before the final adjudication of the termination of this Lease Agreement, every default in the observance or performance of any covenant, condition or agreement contained in this Lease Agreement has been remedied to the satisfaction of the Authority, then and in every such case the Authority may, by written notice to Tenant, rescind and annul the declaration and its consequences, but no rescission or annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereon.

Section 1903. Additional Remedies of Authority on Default .

(A) If any Event of Default referred to in Section 1901 occurs, the Authority may, in its own name and for its own account, in addition to any exercise by the Authority of any other remedy provided for in this Lease Agreement or by Law, institute any action at law or in equity against Tenant as may appear necessary or desirable to collect such Rentals and any other amounts then due or thereafter to become due under this Lease Agreement, or to enforce the performance and observance of any covenant, condition or obligation of Tenant hereunder, or to recover provable compensatory damages and not consequential damages for Tenant’s

nonpayment, non-performance or non-observance of the same or to terminate Tenant’s right to possession or terminate this Lease Agreement without terminating Tenant’s obligations to pay damages.

(B) If, at the time the Authority elects to proceed to enforce its remedies pursuant to subsection (A) hereof, the Authority may by appropriate judicial proceedings also proceed to evict Tenant from possession of the Leased Premises and the Authority may thereafter retake possession of the Leased Premises while the Event of Default continues. Notwithstanding these actions, Tenant shall continue to be obligated to make the Rental payments due pursuant to Article VI hereof.

Section 1904. Tenant to Remain Liable for Payments; Reletting .

(A) Notwithstanding the exercise by the Authority of its remedies under Sections 1902 and/or 1903 hereof, Tenant shall continue to be liable for the payment of all Rentals payable under Article VI hereof and other amounts payable under this Lease Agreement, and Tenant shall make such payments at the same times and in the same manner as provided in this Lease Agreement, except as provided in Section 1904(B) hereof.

(B) The Authority shall use reasonable efforts to relet the Leased Premises for rentals equal to the full Rentals due from Tenant pursuant to Article VI hereof.

Section 1905. Disposition of Excluded Property . If any of Tenant’s personal property, including without limitation any of the Excluded Property, remains upon the Tenant vacating and the Authority’s reentry of the Leased Premises pursuant to this Article XIX, the Authority may, but without any obligation to do so, remove that property and Tenant shall reimburse the Authority for any expense incurred by the Authority in connection with the removal and storage of that property. In such event, the Authority shall have the right to sell or rent Tenant’s personal property, provided that it gives to Tenant not less than thirty (30) days’ prior written notice that it intends to conduct such a sale or rental. The proceeds of the sale or letting shall be applied first, to the cost of the sale or letting, second, to the payment of the charges for storage or removal, and third, shall be applied to the Authority.

Section 1906. No Remedy Exclusive . No remedy herein conferred upon the Authority is intended to be exclusive of any other available remedy or remedies, and each remedy shall be cumulative and shall be in addition to every other remedy given under this Lease Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default granted under this Lease Agreement shall impair any right or power or shall be construed to be a waiver thereof, and any such right or power may be exercised from time to time and as often as may be deemed expedient, and the exercise of any one right or remedy shall not impair the right of the Authority, to exercise any or all other remedies under this Lease Agreement.

Section 1907. No Additional Waiver Implied By One Waiver; Consents to Waiver . The waiver by the Authority of any breach by Tenant of any of its covenants, conditions or obligations under this Lease Agreement shall not operate as a waiver of any subsequent breach of the same or a waiver of any breach of any other covenant, condition, or obligation under this

Lease Agreement. Nor shall the Authority’s forbearance to seek a remedy for any breach by Tenant be a waiver by the Authority of any of its rights and remedies with respect to the breach or any subsequent breach of the same covenant, condition or obligation or with respect to any other breach.

Section 1908. Notice of Termination . If the Authority exercises its right to terminate this Lease Agreement upon the happening of any Event of Default or other provision to which such right of termination applies, a notice of termination shall be (except as otherwise expressly provided in this Lease) sufficient to terminate this Lease Agreement; and, upon receipt of the same, Tenant hereby agrees that it will forthwith surrender possession of the Leased Premises to the Authority.

Section 1909. Possession by Authority . In any of the events described in Section 1908 hereof, or termination of Tenant’s right of possession thereunder, the Authority may take immediate possession of the Leased Premises and remove Tenant’s Personal Property forcibly if necessary, without being deemed guilty of trespassing or constituting an acceptance of surrender of the Leased Premises. In addition, all rights of Tenant to the Leased Premises shall be forfeited; provided, however, that the Authority shall have and reserve all of its available remedies at law as a result of said breach of this Lease Agreement. Failure of the Authority to declare this Lease Agreement terminated upon any event described in Section 1908 hereof shall not operate to bar, destroy or waive the right of the Authority to cancel this Lease Agreement by reason of any subsequent or other event described in Section 1908 hereof.

Section 1910. Delay Not A Waiver . No delay or omission by the Authority to exercise any right or power accruing upon any Event of Default by Tenant shall impair any such right or power of the Authority or be construed to be a waiver of any Event of Default by Tenant or any acquiescence therein, and every power or remedy given by this Lease Agreement to the Authority may be exercised from time to time and as often as may be deemed expedient. The Authority may waive any Event of Default by Tenant that in its opinion has been remedied before the entry of final judgment or decree in any suit, action or proceeding instituted by it under the provisions of this Lease Agreement or before the completion of the enforcement of any other remedies under this Lease Agreement, but no such waiver shall extend to or affect any other existing or subsequent Event of Default by Tenant or impair any rights or remedies consequent thereon.

ARTICLE XX.

RIGHTS UPON TERMINATION

Section 2001. Improvements . It is the intent of this Lease Agreement that the Leased Premises, including without limitation all improvements and Equipment, shall be and remain the property of Authority both during the entire Term of this Lease Agreement, subject to Tenant’s leasehold estate, and after the expiration of the Term.

Section 2002. Excluded Property . Upon expiration or earlier termination of this Lease Agreement, Tenant shall remove all of Tenant’s Excluded Property from the Leased Premises

within sixty (60) days after the effective date of the expiration or sooner termination and make all necessary or appropriate repairs to the Leased Premises resulting from such removal so as to restore the Leased Premises to the condition of said Leased Premises at the time such property was installed, ordinary wear and tear excepted. If Tenant fails to remove all or any portion of the Excluded Property within the aforesaid sixty (60) day period, the Authority may thereafter elect to remove the Excluded Property (or any part thereof) at Tenant’s expense or elect to deem such Excluded Property or any part thereof as abandoned by Tenant to the Authority.

ARTICLE XXI.

ASSIGNMENT AND SUBLETTING; RIGHT OF FIRST REFUSAL AND LEASE OF AVAILABLE SPACE

Section 2101. Subleases and Assignments .

(A) Tenant shall not assign this Lease Agreement or any part thereof in any manner whatsoever or assign any of the privileges recited herein without the prior written consent of the Authority; provided, however that the Authority will not unreasonably withhold its consent to an assignment of this Lease Agreement if: (i) Tenant and the proposed assignee can demonstrate to the reasonable satisfaction of the Authority that the assignee can and shall perform each and every obligation and condition of Tenant under the terms of this Lease Agreement; (ii) the proposed assignee’s use of and the business that the proposed assignee proposes to conduct at the Leased Premises shall be only as provided in Section 206(A) above; (iii) the proposed assignee demonstrates to the reasonable satisfaction of the Authority that the proposed assignee will be able to obtain, in a timely manner, all certificates, licenses and permits from all Governmental Entities, required or appropriate to enable the proposed assignee to carry on the proposed assignee’s proposed business at the Leased Premises and to enable the proposed assignee to assume Tenant’s obligations this Lease Agreement, including without limitation a “repair station certificate” as required under 14 CFR Part 145 (the “145 Certificate”) and an air quality permit from the applicable Governmental Entities; (iv) the proposed assignee assumes Tenant’s then-existing contracts and agreements with Tenant’s customers with respect to the Leased Premises if such assumption does not violate any of those contracts or agreements; (v) the proposed assignee shall have submitted to the Authority a current financial statement for the proposed assignee, audited by a certified public accountant, showing that the then-current net worth for the proposed assignee is not less than $100 million; (vi) no Event of Default by Tenant under this Lease has then occurred and is then continuing; and (vii) the proposed assignee shall assume the obligations of Tenant under this Lease by executing, acknowledging and delivering to the Authority, before the effective date of such assignment, a written assumption agreement in form and substance reasonably satisfactory to the Authority. In the event of an assignment consented to by the Authority, if that assignment and the assignee meet the criteria under subsections (i) through (vii) above, Tenant shall not remain liable to the Authority to perform all of the obligations of Tenant hereunder upon failure of the assignee to perform the same.

Section 2102. Subletting . Tenant may, without the Authority’s consent, enter into short-term subleases of portions of its Occupied Space within the Leased Premises from time to time, as long as (a) the portions of the Occupied Leased Premises that are being subleased by Tenant,

at any particular time, do not exceed in the aggregate more than fifty percent (50%) of Tenant’s Occupied space as of that time, (b) any such sublease shall not be for a term of more than twelve (12) consecutive months, and (c) Tenant shall promptly provide the Authority with written notice of such subletting (and such other information as the Authority shall reasonably request in connection therewith) upon Tenant’s entering into any such sublease. Except as provided in the preceding sentence, Tenant shall not sublease or permit any part of the Leased Premises to be occupied by others without the prior written consent of Authority, which consent may be withheld or granted in the Authority’s sole and absolute discretion. In the event of a sublease, Tenant shall remain liable to the Authority to perform all of the obligations of Tenant hereunder upon failure of the subtenant to perform the same. To the extent the Authority’s consent to a subletting is required as described above, the Authority will not unreasonably withhold its consent to a sublease if: (i) Tenant and the proposed subtenant can demonstrate to the reasonable satisfaction of the Authority that the subtenant can and shall perform each and every obligation and condition of Tenant under the terms of this Lease Agreement; (ii) the proposed subtenant’s use of and the business that the proposed subtenant proposes to conduct at that portion of the Leased Premises that the subtenant shall be subleasing from Tenant shall be only as provided in Section 206(A) above; (iii) the proposed subtenant demonstrates to the reasonable satisfaction of the Authority that the proposed subtenant will be able to obtain, in a timely manner, all certificates, licenses and permits from all Governmental Entities, required or appropriate to enable the proposed subtenant to carry on the proposed subtenant’s proposed business at the Leased Premises and to enable the proposed subtenant to sublease that portion of the Leased Premises from Tenant, including without limitation a “repair station certificate” as required under 14 CFR Part 145 (the “145 Certificate”) and an air quality permit from the applicable Governmental Entities; (iv) no Event of Default by Tenant under this Lease has then occurred and is then continuing; and (v) the form and substance of the proposed subtenant’s sublease shall be reasonably satisfactory to the Authority. The subtenant shall not assign or sublease its sublease except with the prior written approval of the Authority, which may be withheld or granted in the Authority’s sole and absolute discretion; and any sublease shall contain a clause to this effect. If a subletting of all or a portion of the Leased Premises is permitted as described in the first sentence of this Section or is otherwise permitted by the Authority, Tenant shall be obligated for any breach by the subtenant or the subtenant’s Employees, agents, contractors or Invitees, of the Tenant’s obligations and covenants under this Lease.

Section 2103. Payments from Assignees, Subtenants or Occupants . If the Leased Premises are sublet or occupied by someone other than Tenant pursuant to Section 2102, all rental and other amounts payable to Tenant by such subtenant or other occupant shall either be included in Tenant’s “Gross Sales”, or shall be deducted from Tenant’s costs and expenses, for purposes of calculating the Percentage Rent to which the Authority is entitled.

Section 2104. Mortgages Prohibited . Tenant hereby agrees that there shall be no leasehold lien, mortgage, security interest, claim, charge or other encumbrance granted or permitted by Tenant in or on the Land, the Facilities, the Leased Premises or Tenant’s leasehold estate. However, the preceding sentence shall not be deemed to restrict Tenant from collaterally assigning or granting a security interest in Tenant’s Excluded Property to a third party lender, if the collateral assignment or grant of security interest is being granted by Tenant in the ordinary

course of obtaining financing for the day-to-day operation of Tenant’s Business at the Leased Premises.

Section 2105. Lease of Available Space; Tenant’s Right of First Refusal .

(A) If Tenant has not on or before October 1, 2007, Occupied (and been assessed Base Rent and Additional Rent on), simultaneously, for at least one full thirty (30) consecutive day period, at least five (5) Bays, the Authority may, from and after October 1, 2007, lease that number of Bays applicable to that “target date” which Tenant is not Occupying as of October 1, 2007 (i.e., the “Available Space”) to another Person. If Tenant has not on or before October 1, 2008, Occupied (and been assessed Base Rent and Additional Rent on), simultaneously, for at least one full thirty (30) consecutive day period, at least seven (7) Bays, the Authority may, from and after October 1, 2008, lease that number of Bays applicable to that “target date” which Tenant is not Occupying as of October 1, 2008 (i.e., the “Available Space”) to another Person. For purposes of this Section 2105, October 1, 2007 and October 1, 2008 are referred to as the “target dates”. For purposes of this Section 2105, the “target number of Bays” for the October 1, 2007 “target date” is five (5) Bays, and the “target number of Bays” for the October 1, 2008 “target date” is seven (7) Bays. “Available Space”, for purposes of the October 1, 2007 target date, means the difference between five (5) Bays and the number of Bays that Tenant is actually Occupying on that October 1, 2007 target date. “Available Space”, for purposes of the October 1, 2008 target date, means the difference between seven (7) Bays and the number of Bays that Tenant is actually Occupying on that October 1, 2008 target date. The terms and conditions upon which the Authority may lease the Available Space to another Person other than Tenant shall be as follows:

(1) The total aggregate Available Space that the Authority may lease pursuant to this Section shall be capped at a number of Bays equal to the “target number of Bays” for the applicable “target date” minus the number of Bays Tenant is Occupying on that “target date.”

(2) The Person to whom the Authority proposes to lease the Available Space must meet at least one of the following criteria (each, a “Condition”):

(a) the Person is not a direct competitor of Tenant in the business of providing aircraft, maintenance and overhaul to commercial airlines and other operators of aircraft;

(b) the Person subcontracts labor from Tenant for some or all of the Person’s operations at the Facilities;

(c) Tenant consents to such Person’s leasing of Available Space;

(d) the Person is a commercial airline, or a governmental or pari-governmental entity, operating or maintaining aircraft, and Tenant gives its prior consent, which consent shall not be unreasonably withheld; or

(e) The Authority certifies to Tenant that the total rental payable by that Person to the Authority is at least fifteen percent (15%) higher than the Base Rent and Additional Rent payable by Tenant under this Lease Agreement.

(3) If the Authority negotiates a lease with another Person for some or all of the Available Space, or receives an offer from another Person to lease some or all of the Available Space, the terms of which are acceptable to the Authority (the “Proposed Agreement”), Tenant shall have a right of first refusal (the “Right of First Refusal”) to lease the Available Space that is the subject of the Proposed Agreement, upon the terms and conditions of this Lease (provided, however, that if the Tenant’s exercise of its Right of First Refusal occurs during the Extension Term, the rental that will be payable by Tenant for that Available Space shall be as provided in the Proposed Agreement rather than as provided in this Lease). However, if Tenant exercises its Right of First Refusal as to that Available Space, the Minimum Monthly Rent shall be increased for the next twelve (12) calendar months to include that Available Space as to which Tenant exercises its Right of First Refusal. The Authority shall provide Tenant with written notice of the Proposed Agreement and the terms and conditions thereof (the “Authority’s Notice of Proposed Agreement”). Tenant shall have thirty (30) days after receipt of the Authority’s Notice of Proposed Agreement in which to exercise its Right of First Refusal as to that portion of the Available Space (Tenant’s notice of exercise of its Right of First Refusal being referred to herein as the “Notice of Exercise of Right of First Refusal”). If Tenant notifies the Authority that Tenant does not wish to exercise its Right of First Refusal as to that Proposed Agreement, or if Tenant fails within the thirty (30) day period to notify the Authority that Tenant wishes to exercise its Right of First Refusal as to that Proposed Agreement, the Authority will be free to lease the Available Space or portion thereof to such Person in accordance with the terms and conditions of the Proposed Agreement.

(4) If Tenant does not exercise its Right of First Refusal within the thirty (30) day period and the Authority leases that Available Space to such Person within the aforesaid time period, that Available Space shall no longer be part of the Leased Premises, and Tenant shall have no further obligations or rights with respect to such Available Space except for any obligations which may have accrued or arisen with respect to such Available Space prior to the date that the Authority entered into its lease agreement for that Available Space with the other Person; provided, however, the Available Space shall be reinstated as part of the Leased Premises if the lease with the other tenant for that portion of the Available Space terminates or expires during the Term of this Lease, including Tenant’s Right of First Refusal. Notwithstanding any provision in the Lease to the contrary, if Tenant thereafter elects to re-Occupy that space pursuant to this Lease, the Authority shall be obligated to put the Available Space in the condition it was in prior to the lease of such Available Space to such Person. Tenant hereby acknowledges and agrees that if the Condition which was the basis for the Authority’s ability to lease the Available Space to the other Person terminates after the date the lease with that Person is signed (for example, if Condition (A)(2)(b) above was the basis for the Authority’s lease with the other Person, and if the subcontract between Tenant and the other Person expires or is sooner terminated), the Authority shall have no obligation to terminate the other Person’s lease or its possession of the Available Space or to take any

other action with respect to the other Person, and the other Person may continue to lease the Available Space pursuant to its lease agreement with the Authority, as the same may thereafter be amended or modified from time to time. Notwithstanding the foregoing, any lease of Available Space to the other Person shall be counted towards Tenant’s targets for Occupying Bays set forth in this Lease Agreement, including in Section 504 and this Section 2105.

(5) Notwithstanding anything in this Section 2105 to the contrary, however, Tenant may not exercise its Right of First Refusal as to any Available Space, (i) if an Event of Default by Tenant exists as of the date when the Authority’s Notice of Proposed Agreement is or should have been sent by the Authority, or the date that the Notice of Exercise of Right of First Refusal is received by the Authority; or (ii) if there exists, as of the date when the Authority’s Notice of Proposed Agreement is or should have been sent by the Authority or the date the Notice of Exercise of Right of First Refusal is received by the Authority, a default by Tenant that with notice, passage of time or both would constitute an Event of Default by Tenant under this Lease and Tenant thereafter fails to cure that default within the applicable grace or cure period provided under this Lease.

Section 2106. Sole Remedy . Except as may otherwise be provided in Section 504(A) above, the Authority’s rights under this Section shall be its sole and exclusive remedy in the event Tenant does not satisfy the target number of Bays applicable to each target date.

ARTICLE XXII.

GENERAL PROVISIONS

Section 2201. Non-Interference with Operation of Airport . Tenant, by accepting this Lease Agreement, expressly agrees for itself and its successors and assigns that it will not make use of the Leased Premises in any manner that might interfere with the landing and taking off of aircraft at the Airport or otherwise might constitute a hazard to the landing and taking off of aircraft at the Airport. If this covenant is breached, the Authority reserves the right to enter upon the Leased Premises, and cause the abatement of any interference at the expense of Tenant. The Authority shall maintain and keep in repair the Airport landing areas, including taxiways and aircraft parking Aprons.

Section 2202. Binding Upon Successors and Assigns; No Intent to Benefit Third Parties . All of the terms and conditions of this Lease Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Except as otherwise expressly provided in this Lease Agreement, the provisions of this Lease Agreement are not intended to, and shall not, benefit any Person other than the parties to this Lease Agreement, and the provisions hereof are not intended to, and shall not create any third party beneficiary right in any Person.

Section 2203. Entire Agreement; Amendments . This Lease Agreement, the Exhibits and Addenda referred to herein which form a part of this Lease Agreement, contain the entire understanding of the parties hereto with respect to the subject matter hereof. There are no

representations, promises, warranties, covenants or undertakings of the parties other than those expressly set forth or provided for herein or therein. This Lease Agreement supersedes all prior agreements and understandings between the parties with respect to the transactions contemplated by this Lease Agreement. No provision of this Lease Agreement may be amended except in a writing signed by both parties, and no such amendment shall extend to anything other than the specific subject matter thereof.

Section 2204. Waiver . The party for whose benefit a warranty, representation, covenant or condition is intended may in writing waive any inaccuracies in the warranties and representations contained in this Lease Agreement or waive compliance with any of the covenants or conditions contained herein and so waive performance of any of the obligations of the other party hereto and any defaults hereunder; provided, however, that such waiver must be in writing, and shall not affect or impair the waiving party’s rights with respect to any other warranty, representation, condition or covenant or any default hereunder, nor shall any waiver constitute a continuing waiver.

Section 2205. Section Headings . The Section headings contained herein are for convenience of reference and are not intended to define or limit the scope of any provision of this Lease Agreement.

Section 2206. Governing Law; Interpretation . This Lease Agreement and all transactions contemplated hereby shall be governed, construed and enforced in accordance with the Laws of the State of Indiana, and shall be treated in all respects as a State of Indiana contract, without regard to any state’s Laws related to choice or conflict of laws. The terms and conditions of this Lease Agreement represent the results of bargaining and negotiations between the parties, each of which has been represented by counsel of its own selection, and neither of which has acted under duress or compulsion, whether legal, economic, or otherwise, and represent the results of a combined draftsmanship effort. The terms and conditions hereof shall be interpreted and construed in accordance with their usual and customary meanings and the parties hereby expressly waive and disclaim any rule of law or procedure requiring otherwise, specifically including but not limited to any rule of law to the effect that ambiguous or conflicting terms or conditions shall be interpreted or construed against the party who (or whose counsel) prepared this Lease Agreement or any earlier draft hereof. As used in this Lease, a reference to a “business day” means any day other than a Saturday, Sunday or a national holiday. Except as otherwise expressly provided in this Lease, any reference to “days” shall mean calendar days rather than “business days”.

Section 2207. Relationship . Nothing contained in this Lease shall be deemed to constitute a partnership, joint venture, agency, or any other relationship between the Authority and Tenant, other than the relationship of landlord and tenant.

Section 2208. Notices . Whenever any notice, consent, approval, or payment is required by this Lease Agreement to be made, given or transmitted to the parties hereto, that notice or payment shall be enclosed in an envelope with sufficient postage attached to insure delivery and deposited in the United States Mail, certified or registered mail, or shall be sent via nationally-recognized

overnight courier service (e.g., Federal Express), or shall be hand delivered, in any event addressed to:

(a)	If to the Authority:	Indianapolis Airport Authority
		Indianapolis International Airport
		2500 S. High School Road
		Suite 100
		Indianapolis, Indiana 46241-4941
		Attention: Airport Director

(b)	If to Tenant:	AAR Aircraft Services, Inc.
		2825 West Perimeter Road
		Indianapolis, Indiana 46241
		Attention: General Manager

or to such other or different address as either party shall by written directive designate in the manner herein provided. Any notice, consent, approval or payment, if mailed or otherwise delivered as provided above, shall be deemed to have duly and properly given on the date service if delivered personally, or, if mailed, on the second business day after such notice is deposited in the United States Mail, or on the first business day following deposit with a nationally-recognized overnight courier service.

Section 2209. Counterparts . This Lease Agreement may be simultaneously executed in two or more counterparts, and by each of the parties on separate counterparts, each of which shall be deemed an original and all of which shall constitute but one and the same instrument.

Section 2210. Exculpation of Directors and Officers; Limited Liability . No recourse under or upon any obligation, covenant or agreement contained in this Agreement shall be had against any trustee, officer, director or employee, present or future, of either party or of any successor thereto, either directly or through that party by the enforcement of any assessment or by any legal or equitable proceeding or by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement and the obligations hereby secured are solely corporate or organizational obligations, and that no personal liability whatever shall attach to or be incurred by such officers, directors or employees of either party, or of any successor thereto, or any of them, under or by reason of any of the obligations, covenants or agreements contained in this Agreement, or implied therefrom; and that any and all personal liability of every name and nature, and any and all right and claims against every such officer, director or employee, whether arising at common law or in equity, or created by statute or constitution, are hereby expressly released and waived as a condition of, and as a part of the consideration for, the execution of the Agreement. However, nothing in this Section shall be deemed to waive or release, or limit the personal liability of any trustee, officer, director or employee, past or future, of either party or of any successor thereto, to the extent such Person has any personal liability under applicable Law (such as, by way of example only, personal liability for fraudulent statements or criminal conduct).

Section 2211. Covenants Concerning the Other Lease Agreements and Bond Issues . During the Term, except as provided in this Lease Agreement, the Authority shall not take any action to terminate the Site and Facilities Lease Agreement, the Commission Lease Agreement or the ITFA Lease Agreement (collectively, the “Other Lease Agreements”) and shall not take any action or omit to take any action which would constitute a default by it as tenant under the Other Lease Agreements if, as a result thereof, the landlord under the Other Lease Agreements would be entitled to terminate Tenant’s right to possession of the Leased Premises. Except as provided in this Lease Agreement, the Authority shall not amend, modify or supplement the Other Lease Agreements, the Tenancy in Common Agreement or any of the Bond Issues, in any way which will adversely affect Tenant’s leasehold rights and interests under this Lease Agreement without the prior written consent of Tenant, which consent will not be unreasonably withheld, conditioned or delayed. Tenant understands that the Authority may apply all or a portion of the Rentals to pay debt service on the Special Facility Bonds or the other Bond Issues. Nothing in this Lease is intended to make Tenant responsible for the debt service on the Special Facility Bonds or other Bond Issues. The Authority acknowledges that the Tenant shall have no responsibility whatsoever for payment of debt service on the Special Facility Bonds or other Bond Issues, or for any other payments related to the Special Facility Bonds or the other Bond Issues that are not expressly provided for in this Lease Agreement. The Authority shall (a) give prompt written notice to Tenant of the receipt by the Authority of any written notice claiming any default by the Authority in the performance or observance of any of the terms, covenants or conditions on the part of the Authority to be performed or observed under any of the Other Lease Agreements, the Tenancy in Common Agreement or any of the Bond Issues, (b) give prompt written notice of the receipt by the Authority of any written notice of termination of the Other Lease Agreements, the Tenancy in Common Agreement or any of the Bond Issues, and (c) promptly cause a copy of each such written notice received by the Authority to be delivered to Tenant; and to the extent such notices received by the Authority or any information contained therein is confidential or non-public information, Tenant shall maintain the confidentiality of such notices and information.

Exhibit A -		Land
Exhibit B -		Description of Portion of Facilities to Be Leased to Tenant
Exhibit B-1 -		Drawing Showing Location and Square Footage of Leased Premises Within Facilities
Exhibit C -		Permitted Encumbrances
Exhibit D -		Restricted Aircraft Parking Area
Exhibit E -		Drawing Showing Location and Square Footage of Expansion Space
Exhibit F -		Authority’s Projected Annual Percentage Rent
Exhibit G -		Incentives
Exhibit H -		Authority Permits
Exhibit I -		Apron
Exhibit J -		Gross Sales/Operating Profit Illustrative Model
Exhibit K -		Operating Rules

SIGNATURE PAGE

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the Effective Date at Indianapolis, Indiana.

ATTEST	“TENANT”

/s/ Donald J. Vilim	AAR AIRCRAFT SERVICES, INC.,
Assistant Secretary	an Illinois corporation


	By:	/s/ David P. Storch
	Printed:		David P. Storch
	Title:		President

STATE OF ILLINOIS	)
	) SS:
COUNTY OF DuPAGE	)

Before me, a Notary Public in and for said County and State, personally appeared David P. Storch and Donald J. Vilim, the President and Assistant Secretary, respectively, of AAR Aircraft Services, Inc., an Illinois corporation, and acknowledged the execution of the foregoing instrument as such officer acting for and on behalf of said entity.

WITNESS my hand and Notarial Seal this 14 ^th day of June, 2004.

		/s/ Mary Schnaith
		Mary Schnaith, Notary Public


My Commission Expires: 12/03/2007		My County of Residence: Lake County, IL

		“AUTHORITY”

		INDIANAPOLIS AIRPORT AUTHORITY


		By	/s/ Lacy M. Johnson
			Lacy M. Johnson, President


		By	/s/ H. Patrick Callahan
			H. Patrick Callahan, Vice-President

		By	/s/ David E. Mansfield
			David E. Mansfield, Secretary


		By	/s/ N. Stuart Grauel
			N. Stuart Grauel, Member


		By	/s/ Robert H. Voorhies
			Robert H. Voorhies, Member


		By	absent
			Michael W. Wells, Member


			AUTHORITY

STATE OF INDIANA	)
	) SS:
COUNTY OF MARION	)

Before me, a Notary Public in and for said County and State, personally appeared Lacy M. Johnson, President; H. Patrick Callahan, Vice-President; David E. Mansfield, Secretary; N. Stuart Grauel, Member; Robert H. Voorhies, Member; and Michael W. Wells, Member, respectively, of the Indianapolis Airport Authority, and acknowledged the execution of the foregoing instrument as such officers acting for and on behalf of the Indianapolis Airport Authority.

WITNESS my hand and Notarial Seal this 17 day of June, 2004.

		/s/ Robert A. Duncan
		Signature

			Robert A. Duncan
		Printed			Notary Public


My Commission Expires:		My County of Residence:

	10-22-08			Hendricks

EXHIBIT A

LAND

EXHIBIT B

DESCRIPTION OF PORTION OF FACILITIES TO BE LEASED TO TENANT

1. Hangar 1 (consisting of “ground level” and “mezzanine level” of Bays 1a and 1b, and associated office, storage and employee support space), Hangar 2 (consisting of “ground level” and “mezzanine level” of Bays 2a and 2b, and associated office, storage and employee support space), Hangar 3 (consisting of “ground level” and “mezzanine level” of Bays 3a and 3b, and associated office, storage and employee support space), Hangar 5 (consisting of “ground level” of Bays 5a and 5b, and associated office, storage and employee support space), and Hangar 6 (consisting of “ground level” of Bay 6a and associated office, storage and employee support space, and “ground level” and “mezzanine level” of Bay 6b and associated office, storage and employee support space), all as shown in more detail in the drawing attached hereto as Exhibit B-1 . The approximate square footage of the “ground level” and “mezzanine level” for each Bay (if applicable) is shown on Exhibit B-1 attached hereto.

2. Approximately 24,597 square feet of office space above Hangar 4, as shown in more detail on the drawing attached hereto as Exhibit B-1 (the “Hangar 4 Office Space”).

Total: approximately 731,355 square feet.

EXHIBIT B-1

DRAWING SHOWING LOCATION AND SQUARE FOOTAGE
OF LEASED PREMISES WITHIN FACILITIES

EXHIBIT C

PERMITTED ENCUMBRANCES

Easements, rights-of-way, covenants, conditions, restrictions and other matters of record.

EXHIBIT D

RESTRICTED AIRCRAFT PARKING AREA

EXHIBIT E

DRAWING SHOWING LOCATION AND SQUARE FOOTAGE
OF EXPANSION SPACE

EXHIBIT F

AUTHORITY’S PROJECTED ANNUAL PERCENTAGE RENT

Tenant Fiscal Year End	Projected Percentage Rent		Fifty Percent (50%) of Projected Percentage Rent
5/31/08	$	898,425	$	449,213
5/31/09	$	594,825	$	297,413
5/31/10	$	1,061,776	$	530,888
5/31/11	$	1,079,925	$	539,963
5/31/12	$	1,633,500	$	816,750
5/31/13	$	1,670,625	$	835,313
5/31/14 and thereafter	$	2,304,225	$	1,152,113

EXHIBIT G

INCENTIVES

Threshold	Grant Amount		Credit Amount
30 days after Effective Date (number of Bays Occupied N/A)	$	1,000,000	$	0
30 days after Effective Date (number of Bays Occupied N/A)	$	1,000,000	0
105 days after Effective Date (number of Bays Occupied N/A)	$	1,000,000	0
3 Bays Occupied	0		750,000
4 Bays Occupied	750,000		750,000
5 Bays Occupied	750,000		750,000
6 Bays Occupied	750,000		500,000
7 Bays Occupied	750,000		500,000
8 Bays Occupied	500,000		500,000
9 Bays Occupied	250,000		250,000
10 Bays Occupied	250,000		0
Commencement Date of 1st year of Extension Term (number of Bays Occupied N/A)	250,000		0
Commencement Date of 2nd year of Extension Term (number of Bays Occupied N/A)	250,000		0
Totals	7,500,000		4,000,000

EXHIBIT H

AUTHORITY PERMITS

EXHIBIT I

APRON

EXHIBIT J

GROSS SALES/OPERATING PROFIT ILLUSTRATIVE MODEL

EXHIBIT K

INDIANAPOLIS MAINTENANCE CENTER

OPERATING RULES

APPLICABLE TO AAR AIRCRAFT SERVICES INC.

Procedure to Minimize the Potential for Improper

Discharges Associated with the Indianapolis Maintenance

Center (IMC) Industrial Wastewater Facility

1.0 STATEMENT OF WORK

RESPONSIBILITY AND ACTION REQUIRED

1.1	Tenants

	1.1.1	Maintain a Toxic Organic Management Plan in accordance with applicable requirements. Some aspects to be covered, but not limited to the following:

	1.1.1.a		All containers of liquid toxic organics will be kept closed except at times of use.

	1.1.1.b		Used Oil and Hazardous Waste Liquids are collected in separate collection containers and are shipped out for proper disposal.

	1.1.1.c		Store Toxic Organics in the Controlled Materials Rooms, which are specially-designated chemical accumulation rooms that have coated floor areas with berms, sumps, and/or secondary containment.

	1.1.1.d		Bulk Toxic Organics will be stored as to minimize the possibility of breakage or leakage of the containers.

	1.1.1.e		Areas where Toxic Organic liquids are stored must have a spill absorbent material present, with sufficient supplies to handle a small spill of such material stored in the area.

	1.1.1.f		For the majority of materials stored in areas other than the Controlled Materials Rooms, containers of Toxic Organic liquids will be stored either in cabinets or lockers having integral secondary containment. All drums containing Toxic Organic liquids are stored in secondary devices.

	1.1.1.g		Employees who handle and use chemical materials must be trained how to respond in the event of a spill and on how to

					prevent spills. The training should focus on quick action to minimize the impact of the spill.

		1.1.1.A		Sign a Total Toxic Organic (TTO) Certification Statement and submit semi-annually, every June and December. This certification will be submitted to the Authority as backup to the Authority’s Certification, which is the only Certification that will be submitted to the City.

		1.1.1.B		Any anticipated facility expansions, production increases or process modifications which result in new, different, or increased discharges of pollutants to the IMC Industrial Wastewater Facility must be reported to the Authority.

		1.1.2	Operate leased spaces in a manner that does not cause an upset in the IMC Industrial Wastewater Facility. An upset means interference with the operation of the IMC Industrial Wastewater Facility which results in a discharge to the POTW which is a violation of the IDP discharge limits.

		1.1.3	Chemical baths and certain rinses associated with the plating are the responsibility of the tenant. These baths will be treated as required prior to conveying to the IMC Industrial Wastewater Facility.

2.0	SPECIAL CIRCUMSTANCES

	2.1	Spills

		2.1.1	All spills to be cleaned up immediately as necessary so they will not be discharged and cause an upset.

		2.1.2	All Spills which do discharge or may be discharged to the IMC Industrial Wastewater Facility shall be reported to the Environmental Manager at 317-487-55070.

	2.2	ARFFF Releases

		2.2.1	ARFF release will be directed to the ARFFF vault and treated appropriately. The cost to discharge from the ARFF vault is the responsibility of the tenant or operator that caused the release.

	2.3	Tenant shall provide an initial list to the Environmental Manager of the IMC Industrial Wastewater Facility of the liquid Hazardous Materials which Tenant plans to bring onto the Leased Premises in quantities (individually or cumulatively) greater than fifty-five (55) gallons or any “extremely hazardous” liquid Hazardous Materials listed under Title III of the Superfund Amendments and Reauthorization Act of 1986, as amended.

3.0	FORMS

	3.1	None

4.0	EXHIBITS

	4.1	None

FIRST AMENDMENT

LEASE AGREEMENT

AAR AIRCRAFT SERVICES, INC.

INDIANAPOLIS AIRPORT AUTHORITY

THIS FIRST AMENDMENT made and entered into the 21st day of January, 2005 by and between the Indianapolis Airport Authority, (hereinafter referred to as Authority) and AAR Aircraft Services, Inc. (hereinafter referred to as Tenant),

W I T N E S S E T H:

WHEREAS, Authority and Tenant entered into a Lease Agreement dated June 17, 2004, providing for Tenant’s occupancy of a portion of the Indianapolis Maintenance Center as the Leased Premises; and

WHEREAS, Authority and Tenant desire to amend the Leased Premises described in Exhibit B, revise the terms of Article XII, Financial Security and revise Exhibit K, Operating Rules;

NOW THEREFORE, in consideration of the mutual covenants and considerations contained herein, the parties agree that Exhibit B, Leased Premises, Article XII, Financial Security and Exhibit K, Operating Rules are hereby deleted and the following are substituted:

ARTICLE XII

FINANCIAL SECURITY

Section 1201. (A) Letter of Credit/Tenant . Subject to Section 1201 and 1202 below, to secure the performance by Tenant of its obligation under this Lease Agreement, Tenant will, on or before the date Base Rent is first due, deliver to the Authority an irrevocable letter of credit from LaSalle Bank National Association (or from another issuer acceptable to the Authority in its sole discretion) in the amount of One Million Eight Hundred Thousand Dollars ($1,800,000) (the “Letter of Credit”). The Letter of Credit terms must provide that the proceeds of the Letter of Credit shall be available to the Authority by the Authority’s draft at sight when accompanied by a certificate from the Authority stating that there has been an Event of Default by Tenant under this Lease, and must provide that partial drawings and multiple drawings shall be permitted. Except as described in Section 1201.(B) and Section 1202 below, Tenant shall, at Tenant’s cost and expense, cause the Letter of Credit to be renewed on an annual basis and to remain in full force and effect during the Term of this Lease and shall not cause or permit the terms and conditions of the Letter of Credit to be altered, amended, or rescinded without the

prior written consent of the Authority, which consent may be withheld or granted in the Authority’s sole and absolute discretion.

Section 1201. (B) Letter of Credit/IDM . In addition, it is agreed by the parties that $250,000 of the irrevocable Letter of Credit submitted by Tenant shall be designated on a one time basis as security for the base rent payment obligation of Indianapolis Diversified Machining, Inc. (IDM) pursuant to IDM’s lease agreement dated November 5, 2004 with the Authority (the “IDM Lease”). The Letter of Credit terms must provide that up to an aggregate of $250,000 of the proceeds of the Letter of Credit shall be available to the Authority on a one time basis by the Authority’s draft at sight when accompanied by a certificate from the Authority stating that there has been an Event of Default by IDM in the payment of base rent under the IDM Lease, and must provide that partial drawings and multiple drawings shall be permitted up to an amount not to exceed in the aggregate (including partial drawings) $250,000. Once the Authority has drawn $250,000 in the aggregate pursuant to this Section 1201.(B) , the Authority acknowledges and agrees that it shall not have the right to make any further draws on the Letter of Credit with respect to any IDM obligations under the IDM Lease. Except as described in this Section 1201.(B) and Section 1202 below, Tenant shall, at Tenant’s cost and expense, cause the Letter of Credit to be renewed on an annual basis and to remain in full force and effect during the Term of this Lease and shall not cause or permit the terms and conditions of the Letter of Credit to be altered, amended, or rescinded without the prior written consent of the Authority, which consent may be withheld or granted in the Authority’s sole and absolute discretion.

Section 1202. Guaranty . If AAR CORP., the Tenant’s parent company (the “Parent”), executes a guaranty agreement in form reasonably acceptable to the Authority (the “Guaranty”) whereby Parent has guaranteed Tenant’s obligations under this Lease and IDM’s base rent payment obligations under the IDM Lease (on the same terms, conditions and restrictions described in Section 1201.(B)) in an amount not to exceed $1.8 million, and if the financial rating of Parent, by Standard & Poor’s Corporation or Moody’s Investor Service, Inc. remains at or above an investment grade rating of Baa3 or BBB-, the Authority hereby agrees that the Tenant may terminate its Letter of Credit required by Section 1201. Should, however, subsequent to the termination of the Letter of Credit, the financial rating of Parent, by Standard & Poor’s Corporation and Moody’s Investor Service, Inc., decrease below the investment grade rating of Baa3 and BBB-, Tenant shall reinstate a Letter of Credit from an issuer acceptable to the Authority in accordance with the provisions of Section 1201 above within sixty (60) days of the date of the latest rating downgrade, at which time the Guaranty will terminate. In no event whatsoever shall the Parent be obligated to execute the Guaranty; provided, however, that if the Parent does not execute a Guaranty, the Letter of Credit must be and remain in effect.

This First Amendment shall become effective January 21, 2005 (the “Effective Date”) and all other terms and conditions of the Lease Agreement dated June 17, 2004 as amended shall remain the same.

In witness whereof, the parties have caused this instrument to be executed as of the date first above mentioned.

Attachments:

Exhibit B: Description of Portion of Facilities to be Leased to Tenant

Exhibit K: Operating Rules

SIGNATURE PAGE

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the Effective Date at Indianapolis, Indiana.

ATTEST	“TENANT”

/s/ Donald J. Vilim	AAR AIRCRAFT SERVICES, INC.,
Assistant Secretary	an Illinois corporation


	By:	/s/ David P. Storch
	Printed:		David P. Storch
	Title:		President

STATE OF ILLINOIS	)
	) SS:
COUNTY OF DuPAGE	)

WITNESS my hand and Notarial Seal this 25 day of January, 2005.

	/s/ Mary Schnaith
	Signature

	Mary Schnaith
	Printed	Notary Public


My Commission Expires:	My County of Residence:

12/3/07	Lake

		“AUTHORITY”

		INDIANAPOLIS AIRPORT AUTHORITY

		By	/s/ Lacy M. Johnson
		Lacy M. Johnson, President


		By	absent
		H. Patrick Callahan, Vice-President

		By	/s/ David E. Mansfield
		David E. Mansfield, Secretary

		By	/s/ Kelly J. Flynn
		Kelly J. Flynn, Member


		By	/s/ N. Stuart Grauel
		N. Stuart Grauel, Member


		By	/s/ Shirley M. Haflich
		Shirley M. Haflich, Member


		By	/s/ Robert H. Voorhies
			Robert H. Voorhies, Member


		By	/s/ Michael W. Wells
			Michael W. Wells, Member


			AUTHORITY

STATE OF INDIANA	)
	) SS:
COUNTY OF MARION	)

Before me, a Notary Public in and for said County and State, personally appeared Lacy M. Johnson, President; H. Patrick Callahan, Vice-President; David E. Mansfield, Secretary; Kelly J. Flynn, Member; Shirley M. Haflich, Member; N. Stuart Grauel, Member; Robert H. Voorhies, Member; and Michael W. Wells, Member, respectively, of the Indianapolis Airport Authority, and acknowledged the execution of the foregoing instrument as such officers acting for and on behalf of the Indianapolis Airport Authority.

WITNESS my hand and Notarial Seal this 21 ^st day of January, 2005.

	/s/ Brenda S. Ford
	Signature

	Brenda S. Ford
	Printed	Notary Public


My Commission Expires:	My County of Residence:

July 5, 2007	Marion

EXHIBIT B

DESCRIPTION OF PORTION OF FACILITIES TO BE LEASED TO TENANT

1. Hangar 1 (consisting of “ground level” and “mezzanine level” of Bays 1a and 1b, and associated office, storage and employee support space), Hangar 2 (consisting of “ground level” and “mezzanine level” of Bays 2a and 2b, and associated office, storage and employee support space), Hangar 3 (consisting of “ground level” and “mezzanine level” of Bays 3a and 3b, and associated office, storage and employee support space), Hangar 5 (consisting of “ground level” of Bays 5a and 5b, and associated office, storage and employee support space), and Hangar 6 (consisting of “ground level” of Bay 6a and associated office, storage and employee support space, and “ground level” and “mezzanine level” of Bay 6b and associated office, storage and employee support space), all as shown in more detail in the drawing attached hereto as Exhibit B-1 thru Exhibit B-34. The approximate square footage of the “ground level” and “mezzanine level” for each Bay (if applicable) is shown on Exhibit B-1 attached hereto.

2. Approximately 24,597 square feet of office space designated as Hangar 4 service level as shown in more detail on the drawing attached hereto as Exhibit B (the “Hangar 4 Office Space”).

3. Approximately 25,531 square feet of storage space designated as Hangar 4 ground level as shown in more detail on Exhibit B (the “Hangar 4 Ground Level Storage”).

4. Total square footage for all hangar space and support areas shown on Exhibit B-1 thru Exhibit B-34 is (exempting Hangar 4) office space and ground level.

5. The parties agree that designated smoking areas shall be established outside of the facilities for Tenant’s employees and Tenant shall be responsible for the maintenance and cleanup of the smoking areas.

Exhibit 10.20

AAR CORP.

NON-QUALIFIED STOCK OPTION AGREEMENT

(“Agreement”)

1. Subject to the provisions set forth herein and the terms and conditions of the AAR CORP. Stock Benefit Plan (“Plan”), the terms of which are hereby incorporated by reference, and in consideration of the agreements of __________ (“Grantee”) herein provided, AAR CORP., a Delaware corporation (“Company”), hereby grants to the Grantee an option entitling the Grantee to purchase from the Company common stock of the Company, par value $1.00 per share (“Common Stock”), in the number of shares at the purchase price per share, and on the schedule, set forth in (a) and (b) below (“Option”).

(a) Option

Number of Shares
Subject to Option:
(Subject to adjustment
pursuant to the terms of
this Agreement.)

Option Price Per Share:
(Subject to adjustment
pursuant to the terms of
this Agreement.)

Date of Grant:

Option Vesting Schedule :

Number of Shares Becoming Subject to Exercise		Date First Exercisable

First _________ shares of Grant
Second	shares of Grant
Third _________ shares of Grant
Fourth _________ shares of Grant
Fifth _________ shares of Grant

Each of the above option increments shall expire on ____________ (“Expiration Date” of the Option) or upon the earlier expiration of the Option as provided in this Agreement.

(b) Reload Option

Number of Shares Subject
to Reload Option:		The same number of shares (except as adjusted pursuant to the terms of this Agreement) of Common Stock as is used by the Grantee pursuant to paragraph 4 to pay for shares purchased by exercise of the Option from time to time

Reload Option Price
Per Share:		Fair Market Value on the respective dates of exercise of the Option giving rise to the reload option(s)

Date of Grant:		Same as date of exercise of the Option

In the event a Change in Control occurs, whether or not such Change in Control has the prior written approval of a majority of the Continuing Directors, and notwithstanding any conditions or restrictions contained in this Agreement, the Option shall become immediately exercisable on the date of such Change in Control with respect to all shares of Common Stock covered thereby, whether vested or not and not previously purchased upon exercise of the Option and shall remain so exercisable until the Option expires as provided in paragraph 1 or 3 herein.

2. The exercise of the Option is conditioned upon the acceptance by the Grantee of the terms hereof as evidenced by the Grantee’s execution of this Agreement and return of an executed copy to the Secretary of the Company within thirty

(30) days from the date of the cover letter from the Secretary transmitting original copies to the Grantee for execution.

3. (a) If the Grantee’s employment with the Company and/or a subsidiary of the Company is terminated for any reason, other than for Retirement, death, Disability, or termination of employment for Cause, the Option of Grantee shall terminate on the earlier to occur of (i) three months after termination of employment or (ii) the date that the Option expires in accordance with its terms.

(b) If the Grantee’s employment with the Company and/or a subsidiary of the Company is terminated by reason of Retirement, the Option shall remain exercisable by the retired Grantee until the Option expires by its terms and may be exercised by the retired Grantee in the same manner and to the same extent as if the Retired Grantee had continued employment during that period; provided, however, that if the Grantee dies before the Option expires, the Option shall be exercisable only by the Successor of the deceased Grantee to the extent that the deceased Grantee was entitled at the date of the Grantee’s death.

(c) If (i) the Grantee’s employment with the Company and/or a subsidiary of the Company is terminated by reason of death or (ii) the Grantee dies within three months after the termination of employment with the Company or a subsidiary, except if the termination of employment was for Cause, the Option shall expire on the earlier to occur of one year after Grantee’s death or the Expiration Date of the Option; provided, however, that during such period, the Option shall be exercisable only by the Successor of the deceased Grantee to the extent that the deceased Grantee was entitled at the date of the Grantee’s death.

(d) If the Grantee’s employment is terminated by reason of Disability, the Option shall expire on the earlier to occur of one year after termination of employment or the date the Option expires in accordance with its terms, and during said period the Option may be exercised by the disabled Grantee with respect to the same number of shares, in the same manner and to the same extent as if the Grantee had continued employment during such period.

(e) The Option shall expire immediately upon termination of employment of the Grantee through discharge for Cause.

4. Written notice of an election to exercise any portion of the Option, specifying the portion thereof being exercised and the exercise date, shall be given by the Grantee, or the Grantee’s personal representative in the event of the Grantee’s death or disability necessitating a Court approved personal representative, by delivering such notice to the Secretary of the Company, accompanying such notice with (i) payment in full of the purchase price of any shares to be purchased (in cash, or in the form of a certified check or a cashier’s check issued by a federally insured bank or federally insured savings and loan association, in all cases made payable to AAR CORP., and as set forth in the Plan) or by surrendering a number of shares of Common Stock of the Company with a Fair Market Value on the date of exercise equal to the purchase price, or by directing the Company to withhold such number of shares otherwise issuable upon exercise of such Option having an aggregate Fair Market Value on the date of exercise equal to the purchase price, or by any combination of the above, and (ii) payment of an amount sufficient to satisfy any applicable withholding requirements as provided for in Section 13 below. Any exercise of the Option shall be effective as of the later of the dates specified

in such notice and the date the notice and accompanying payment are actually received by the Secretary of the Company.

5. Any exercise of an Option shall be subject to action by the Board taken at any time in its sole discretion (i) to effect, amend or maintain any necessary registration of the Plan or the shares of Common Stock issuable upon exercise of the Option under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction, (ii) to permit any action to be taken in order to (A) list such shares on a stock exchange if the shares are then listed on such exchange or (B) comply with restrictions or regulations incident to the maintenance of a public market for its shares of Common Stock, including any rules or regulations of any stock exchange on which such shares are listed, or (iii) to determine that such shares and the Plan are exempt from such registration or that no action of the kind referred to in (ii)(B) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of the Option, or any provision of this Agreement or the Plan, to recognize an exercise of the Option or to sell or issue shares of Common Stock in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof. Any such postponement shall not extend the Expiration Date of the Option, and neither the Company nor its directors or officers shall have any obligation or liability to the Grantee or to any other person with respect to any shares as to which the Option shall lapse because of such postponement. If deemed necessary by the Committee, the Grantee may be required to represent at the time of each exercise of the Option that the shares purchased are being acquired for investment and not with a view toward distribution; and the Company may place a legend on the related stock certificate to indicate that the stock may not be sold or otherwise disposed of

except in accordance with the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, including but not limited to Rule 144.

6. Notwithstanding any provision of this Agreement to the contrary, the Company shall not be obliged to issue or transfer any of its Common Stock to Grantee upon exercise of the Option, if the Committee or the Board of Directors of the Company determines that the issuance or transfer of such Common Stock would be in violation of any covenant in any of the Company’s loan agreements or other contracts.

7. Any increase or decrease in the number of outstanding shares of Common Stock of the Company occurring through stock splits, stock dividends, stock consolidations, spin offs, other distributions of assets to shareholders or assumption or conversion of outstanding Options due to an acquisition after the Date of Grant of the Option shall be reflected proportionately in the number of shares of Common Stock subject to the Option; and a proportionate reduction or increase, as applicable, shall be made in the Option Price Per Share hereunder. Any fractional shares resulting from such adjustment shall be eliminated. If changes in capitalization other than those considered above shall occur, the Board of Directors of the Company shall make such adjustment in the number or class of shares purchasable upon exercise of the Option and in the Option Price Per Share as the Board in its discretion may consider appropriate, and all such adjustments shall be conclusive upon all persons.

8. The Option may be exercised only by the Grantee during the Grantee’s lifetime and may not be transferred other than by will, the applicable laws of descent or distribution, or an assignment subject to and meeting the requirements of Section 11 of the Plan and made in accordance with Company procedures in effect from

time to time for approval by the Company and consummation of the assignment (copies of procedures and forms are available from the Corporate Secretary upon request). The Option shall not otherwise be transferred, assigned, pledged or hypothecated for any purpose whatsoever and is not subject, in whole or in part, to execution, attachment, or similar process. Any attempted assignment, transfer, pledge or hypothecation or other disposition of the Option, other than in accordance with the terms set forth herein, shall be void and of no effect.

9. Neither the Grantee nor any other person entitled to exercise the Option under the terms hereof shall be, or have any of the rights or privileges of, a stockholder of the Company in respect of any of the shares of Common Stock issuable on exercise of the Option, unless and until such shares shall have been actually issued.

10. In the event the Option shall be exercised in part, the Company may require that this Agreement be delivered by the Grantee to the Company for the purpose of making appropriate notation thereon, or of otherwise reflecting, in such manner as the Company shall determine, such partial exercise. In the event the Option shall be exercised in whole, this Agreement shall be surrendered to the Company for cancellation. In the event that a change in the number or designation of the Common Stock shall be made, the Company may require the Grantee to surrender this Agreement to the Company for the purpose of making appropriate notation thereon, or of otherwise reflecting, such change in the number or designation of the Common Stock.

11. When the Option expires as herein provided, such expiration shall occur at the Company’s close of business on the date of expiration.

12. Nothing in the Option shall confer on the Grantee any right to be or to continue in the employ of the Company or any of its subsidiaries or shall interfere in any way with the right of the Company or any of its subsidiaries to terminate the employment of the Grantee at any time for any reason or no reason.

13. Upon any exercise of the Option, the Grantee shall remit to the Company an amount necessary to satisfy applicable withholding requirements including those arising under state and federal income tax laws prior to the delivery by the Company of any certificate or certificates for shares.

The Grantee may satisfy such withholding requirements in connection with such Option in whole or in part by (i) directing the Company to withhold a portion of the shares otherwise distributable to the Grantee or (ii) transferring to the Company shares of Common Stock of the Company previously acquired by the Grantee having a Fair Market Value on the date such shares are transferred to the Company equal to the amount of such withholding or lesser portion thereof as may be desired by the Grantee. A Grantee’s election pursuant to the preceding sentence must be made on or prior to the date as of which income is realized by the Grantee in connection with such Option and must be irrevocable. In lieu of a separate election on each Taxable Date, the Grantee may file a blanket election with the Committee which shall govern all future Taxable Dates until revoked by the Grantee.

14. The Option shall be exercised in accordance with such Company administrative procedures as may be in effect from time to time.

15. The Option, and this Agreement, shall be construed, administered and governed in all respects under and by the laws of the State of Illinois.

16. This Agreement has been examined by the parties hereto, and accordingly the rule of construction that ambiguities be construed against a party which causes a document to be drafted shall have no application in the construction or interpretation hereof. If any part of this Agreement is held invalid for any reason, the remainder hereof shall nevertheless remain in full force and effect.

17. This Agreement constitutes the entire Agreement between the parties concerning the subject matter hereof and any prior understanding or representation of any kind antedating this Agreement concerning such subject matter shall not be binding upon either party except to the extent incorporated herein. No consent, waiver, modification or amendment hereof, or additional obligation assumed by either party in connection herewith, shall be binding unless evidenced by a writing signed by both parties and referring specifically hereto. No consent, waiver, modification or amendment with respect hereto shall be construed as applicable to any past or future events other than the one in respect of which it was specifically made.

18. This Agreement shall be construed consistent with the provisions of the Plan and in the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control and any terms of this Agreement which conflict with Plan terms shall be void.

19. Capitalized terms used herein and not defined herein will have the meaning set forth in the Plan.

IN WITNESS WHEREOF, this Agreement has been executed for the Company by its duly authorized officer on _____ day of ___________, _____.

	AAR CORP.


	By:

The undersigned hereby accepts the foregoing Option and agrees to the terms and conditions thereof on this _____ day of _______, _____.


	Employee

	Name:

Exhibit 10.21

AAR CORP.

Restricted Stock Agreement

(“Agreement”)

Subject to the provisions of the AAR CORP. Stock Benefit Plan (“Plan”), the terms of which are hereby incorporated by reference herein, and in consideration of the agreements of the Grantee herein provided, AAR CORP. a Delaware corporation (“Company”), hereby grants to «Name» (“Grantee”), a restricted stock award (“Award”), effective «EffDate» (“Date of Award”), of «Shares» shares of common stock (“Common Stock”) of the Company, $1.00 par value (“Award Shares”), subject to the forfeiture and nontransferability provisions hereof and the other terms and conditions set forth herein:

1. Restrictions . The Grantee represents that he is accepting the Award Shares without a view toward distribution of said Shares and that he will not sell, assign, transfer, pledge or otherwise encumber the Award Shares during the period commencing on the Date of Award and ending with respect to any specific shares of stock on the date restrictions applicable to such shares are released pursuant to this Agreement (“Restrictive Period”).

2. Release of Restrictions . Subject to the provisions of paragraph 3 below, the restrictions described in 1 above shall be released with respect to ____% on the ___________ anniversary of the Date of Award, ____% on the ___________ anniversary of the Date of Award, and with respect to the remaining ____% on the ___________ anniversary of the Date of Award, except as follows:

(a) If the Grantee’s employment with the Company terminates by reason of death or Disability occurring on or after the Date of Award and on or before

the third anniversary date thereof, the Restrictive Period shall terminate as to the difference between half the total number of Award Shares and those Shares previously released. The remaining shares shall be forfeited and returned to the Company.

(b) If the Grantee’s employment with the Company terminates by reason of death or Disability after the third anniversary of the Date of Award, the Restrictive Period shall terminate as to all of the Award Shares not previously released.

(c) If the Grantee’s employment is terminated by reason of Retirement prior to the last day of the restrictive period, the Restrictive Period shall terminate as to all of the Award Shares not previously released.

(d) In the event the Grantee’s employment with the Company terminates prior to the last day of the Restrictive Period for any reason other than death, Disability or Retirement, the Grantee shall forfeit and return to the Company all Award Shares not previously released from the restrictions of Section 1 hereof.

(e) If at any time prior to release from restrictions hereunder, Grantee, without the Company’s express written consent, directly or indirectly, alone or as a member of a partnership, group, or joint venture or as an employee, officer, director, or stockholder of any corporation, or in any capacity engages in any activity which is competitive with any of the businesses conducted by the Company or its Affiliated Companies from time to time or at any time during the Grantee’s term of employment, the Grantee shall forfeit and return all Award Shares not previously released from the restrictions of Section 1 hereof.

3. Change in Control . In the event of a Change in Control of the Company, whether or not such change has the prior written approval of the Continuing Directors, the Restrictive Period shall terminate as to all Award Shares not previously released.

4. Change in Outstanding Shares . In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Award Shares shall be treated in the same manner in any such transaction as other shares of Common Stock. Any additional shares of stock received by Grantee with respect to the Award Shares in any such transaction shall be subject to the same restrictions as are then applicable to those Award Shares for which the additional shares have been issued.

5. Rights of Grantee . As the holder of the Award Shares, Grantee is entitled to all of the rights of a stockholder of AAR CORP. with respect to any of the Award Shares, when issued, including, but not limited to, the right to receive dividends declared and payable since the Date of Award.

shall be entitled to possession of certificates representing the Award Shares as to which such restrictions have terminated, and the Company agrees to issue such separate certificates as are necessary to facilitate such possession.

7. Legend . The Company may, in its discretion, place a legend or legends on any certificate representing Award Shares issued to the Grantee that the Company believes is required to comply with any law or regulation.

8. Committee Powers . The Committee may subject the Award Shares to such conditions, limitations or restrictions as the Committee determines to be necessary or desirable to comply with any law or regulation or with the requirements of any securities exchange. At any time during the Restrictive Period, the Committee may reduce or terminate the Restrictive Period otherwise applicable to all or any portion of the Award Shares.

9. Withholding Taxes . Upon the Taxable Date of the Award, the Grantee shall remit to the Company an amount necessary to satisfy applicable withholding requirements including those arising under state and federal income tax laws prior to the delivery by the Company of any certificate or certificates for shares. If the Grantee does not remit such amount, the Company may withhold all or a portion of any compensation then or in the future owed to the Grantee as necessary to satisfy such requirements.

The Grantee may satisfy such withholding requirements in connection with such Award in whole or in part by (i) directing the Company to withhold a portion of the shares otherwise distributable to the Grantee or (ii) transferring to the Company shares of Common Stock of the Company previously acquired by the Grantee having a Fair Market Value on the date such shares are transferred to the Company equal to the amount of such withholding or lesser portion thereof as may be desired by the Grantee. A Grantee’s election pursuant to the preceding sentence must be made on or prior to the date as of which income is realized by the Grantee in connection with such Award and must be irrevocable. In lieu of a separate election on each Taxable Date, the Grantee may file a blanket election with the Committee which shall govern all future Taxable Dates until revoked by the Grantee.

that no action of the kind referred to in (ii)(b) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of this Award or any provision of this Agreement or the Plan to issue or release the Award Shares in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof. Any such postponement shall not shorten the term of any restriction attached to the Award Shares and neither the Company nor its directors or officers shall have any obligation or liability to the Grantee or to any other person as to which issuance under the Award Shares was delayed.

11. Miscellaneous .

(a) This Agreement shall be continued, administered and governed in all respects under and by the laws of the State of Illinois.

(b) Capitalized terms used herein and not defined herein will have the meaning set forth in the Plan.

(c) This Agreement has been examined by the parties hereto, and accordingly the rule of construction that ambiguities be construed against a party which causes a document to be drafted shall have no application in the construction or interpretation hereof. If any part of this Agreement is held invalid for any reason, the remainder hereof shall nevertheless remain in full force and effect.

modification or amendment hereof, or additional obligation assumed by either party in connection herewith, shall be binding unless evidenced by a writing signed by both parties and referring specifically hereto. No consent, waiver, modification or amendment with respect hereto shall be construed as applicable to any past or future events other than the one in respect of which it was specifically made.

(e) This Agreement shall be construed consistent with the provisions of the Plan and in the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control and any terms of this Agreement which conflict with Plan terms shall be void.

IN WITNESS WHEREOF, the Company has caused this Award to be granted as of the Date of Award.

	AAR CORP.


	By

The Grantee hereby accepts the foregoing Restricted Stock Award and agrees to the terms and conditions thereof on this _____ day of _________ , _____.


	Grantee

Exhibit 10.22

AAR CORP.

Performance Restricted Stock Agreement

(“Agreement”)

Subject to the provisions of the AAR CORP. Stock Benefit Plan (“Plan”), the terms of which are hereby incorporated by reference herein, and in consideration of the agreements of the Grantee herein provided, AAR CORP. a Delaware corporation (“Company”), hereby grants to ___________ (“Grantee”), a performance restricted stock award (“Award”), effective ________ (“Date of Award”), of _________ shares of common stock (“Common Stock”) of the Company, $1.00 par value (“Award Shares”), subject to the forfeiture and nontransferability provisions hereof and the other terms and conditions set forth herein:

2. Release of Restrictions . Subject to the provisions of paragraph 3 below, the restrictions described in 1 above shall be released with respect to ____% of the award on ______________, _____% of the award on _____________ and ____% of the award on ___________, except as follows:

(a) If the Grantee’s employment is terminated by reason of death, Disability or Retirement prior to the last day of the Restrictive Period, the Restrictive Period shall terminate as to all of the Award Shares not previously released.

(b) If the Grantee’s employment with the Company terminates prior to the last day of the Restrictive Period for any reason other than death, Disability or Retirement, the Grantee shall forfeit and return to the Company all Award Shares not previously released from the restrictions of Section 1 hereof.

(c) If at any time prior to release from restrictions hereunder, Grantee, without the Company’s express written consent, directly or indirectly, alone or as a member of a partnership, group, or joint venture or as an employee, officer, director, or stockholder of any corporation, or in any capacity engages in any activity which is competitive with any of the businesses conducted by the Company or its Affiliated Companies from time to time or at any time during the Grantee’s term of employment, the Grantee shall forfeit and return all Award Shares not previously released from the restrictions of Section 1 hereof.

similar corporate change, the Award Shares shall be treated in the same manner in any such transaction as other shares of Common Stock. Any additional shares of stock received by Grantee with respect to the Award Shares in any such transaction shall be subject to the same restrictions as are then applicable to those Award Shares for which the additional shares have been issued.

6. Certificates . In aid of the restrictions set forth in paragraph 1, certificates for the Award Shares, together with a suitably executed stock power signed by the Grantee, shall be held by a nominee of the Company for the account of Grantee until such restrictions lapse pursuant to the terms hereof, or such Shares are forfeited to the nominee of the Company as provided by the Plan or this Agreement. The Grantee shall be entitled to possession of certificates representing the Award Shares as to which such restrictions have terminated, and the Company agrees to issue such separate certificates as are necessary to facilitate such possession.

and must be irrevocable. In lieu of a separate election on each Taxable Date, the Grantee may file a blanket election with the Committee which shall govern all future Taxable Dates until revoked by the Grantee.

10. Postponement of Exercise or Distribution . Notwithstanding anything herein to the contrary, the distribution of any portion of the Award Shares shall be subject to action by the Board taken at any time in its sole discretion (i) to effect, amend or maintain any necessary registration of the Plan or the Award Shares distributable in satisfaction of this Award under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction, (ii) to permit any action to be taken in order to (a) list such Award Shares on a stock exchange if the Common Stock is then listed on such exchange or (b) comply with restrictions or regulations incident to the maintenance of a public market for its Shares of Common Stock, including any rules or regulations of any stock exchange on which the Award Shares are listed, or (iii) to determine that such Award Shares and the Plan are exempt from such registration or that no action of the kind referred to in (ii)(b) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of this Award or any provision of this Agreement or the Plan to issue or release the Award Shares in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof. Any such postponement shall not shorten the term of any restriction attached to the Award Shares and neither the Company nor its directors or officers shall have any obligation or liability to the Grantee or to any other person as to which issuance under the Award Shares was delayed.

11. Miscellaneous .

(a) This Agreement shall be continued, administered and governed in all respects under and by the laws of the State of Illinois.

(b) Capitalized terms used herein and not defined herein will have the meaning set forth in the Plan.

(d) This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and any prior understanding or representation of any kind antedating this Agreement concerning such subject matter shall not be binding upon either party except to the extent incorporated herein. No consent, waiver, modification or amendment hereof, or additional obligation assumed by either party in connection herewith, shall be binding unless evidenced by a writing signed by both parties and referring specifically hereto. No consent, waiver, modification or amendment with respect hereto shall be construed as applicable to any past or future events other than the one in respect of which it was specifically made.

(e) This Agreement shall be construed consistent with the provisions of the Plan and in the event of any conflict between the terms of this Agreement and the

terms of the Plan, the terms of the Plan shall control and any terms of this Agreement which conflict with Plan terms shall be void.

IN WITNESS WHEREOF, the Company has caused this Award to be granted as of the Date of Award.

	AAR CORP.


	By

The Grantee hereby accepts the foregoing Restricted Stock Award and agrees to the terms and conditions thereof on this _____ day of ______________, _____.


	Grantee

Exhibit 21.1

SUBSIDIARIES OF AAR CORP. (1)

Name of Corporation		State of Incorporation
AAR Services, Inc. (2)		Illinois
AAR Allen Services, Inc. (3)		Illinois
AAR Parts Trading, Inc. (4)		Illinois
AAR Engine Services, Inc. (5)		Illinois
AAR Aircraft Services, Inc. (6)		Illinois
AAR Aircraft & Engine Sales & Leasing (7)		Illinois
AAR International, Inc. (8)		Illinois
AAR Manufacturing Group, Inc. (9)		Illinois

(1)	Subsidiaries required to be listed pursuant to Regulation S-K Item 601(b)(21).

(2)	Also does business under the names AAR Distribution, AAR Aircraft Services-Oklahoma, AAR Aircraft Advisory and AAR Airframe Services-Roswell.

(3)	Also does business under the names AAR Landing Gear Services, AAR Aircraft Component Services, Mars Aircraft Radio and AAR Hermetic.

(4)	Also does business under the names AAR Aircraft & Turbine Center, AAR Allen Aircraft, AAR Defense Systems & Logistics, AAR Engine Sales & Leasing and AAR PMA Products.

(5)	Also does business under the name AAR Power Services.

(6)	Also does business under the name AAR Aircraft Services-Indianapolis.

(7)	Also does business under the names AAR Aircraft Sales & Leasing and AAR Financial Services Corp.

(8)	Also does business under the names AAR Distribution International, AAR Aircraft Component Services, AAR Engine Group International, AAR Aircraft Group International, AAR Manufacturing Group International and AAR Allen Group International.

(9)	Also does business under the names AAR Cargo Systems, AAR Mobility Systems, AAR Composites and AAR ATICS.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

AAR CORP.:

We consent to the incorporation by reference in Registration Statements Nos. 333-122111, 333-112654, 33-19767, 333-102416, 333-81790, 333-54178, 333-95433, 333-71067, 333-44693, 333-38671, 33-26783, 33-38042, 33-43839, 33-58456, 33-56023, 33-57753, 333-15327, 333-22175, 333-26093, 333-00205, 002-89735 and 002-95635 on Form S-8 and in Registration Statement Nos. 333-114855 and 333-52853 on Form S-3 of AAR CORP. of our reports dated July 20, 2005 relating to the consolidated balance sheets of AAR CORP. and subsidiaries as of May 31, 2005 and 2004 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended May 31, 2005, management’s assessment of the effectiveness of internal control over financial reporting as of May 31, 2005 and the effectiveness of internal control over financial reporting as of May 31, 2005, which reports appear in the May 31, 2005 annual report on Form 10-K of AAR CORP.

KPMG LLP

Chicago, Illinois

July 20, 2005

Exhibit 31.1

CERTIFICATION

I, David P. Storch, President and Chief Executive Officer of AAR CORP. (the “Registrant”), certify that:

1. I have reviewed this Annual Report on Form 10-K of AAR CORP.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

DATE: July 22, 2005		/s/ DAVID P STORCH
		David P. Storch
		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Timothy J. Romenesko, Vice President and Chief Financial Officer of AAR CORP.(the “Registrant”), certify that:

1. I have reviewed this Annual Report on Form 10-K of AAR CORP.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

DATE: July 22, 2005		/s/ TIMOTHY J. ROMENESKO
		Timothy J. Romenesko
		Vice President and 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 AAR CORP. (the “Company”) Annual Report on Form 10-K for the period ending May 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David P. Storch, 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, to the best of my knowledge:

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.

Date: July 22, 2005		/s/ DAVID P. STORCH
		David P. Storch
		President and Chief Executive Officer

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 AAR CORP. (the “Company”) Annual Report on Form 10-K for the period ending May 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy J. Romenesko, 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, to the best of my knowledge:

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.

Date: July 22, 2005		/s/ TIMOTHY J. ROMENESKO
		Timothy J. Romenesko
		Vice President, Treasurer and
		Chief Financial Officer

ARTICLE I.

DEFINITIONS

ARTICLE II.

LEASE OF LEASED PREMISES; OWNERSHIP OF IMPROVEMENTS AND EQUIPMENT; USE OF LEASED PREMISES

(A) The Authority shall generate and maintain a comprehensive list of Equipment that it agrees to furnish to Tenant for Tenant’s use in connection with this Lease (the “Master List of Equipment”), as follows:

(1) The Authority shall provide Tenant, on or before the Effective Date of this Lease, with a written list of all items of Equipment that are or will be, as of the Effective Date, available for Tenant’s use at the Leased Premises;

(4) To the extent that, pursuant to the Authority’s obligations under Section 1002, the Authority removes and/or replaces an item of Equipment from the Leased Premises, the Authority shall provide Tenant with written notice thereof in order to

update the Master List of Equipment, and the list of Equipment furnished to Tenant from the Master List of Equipment, in order to reflect that removal and/or replacement.

(B) Tenant shall generate and maintain a comprehensive list of Excluded Property (the “Master List of Excluded Property”) as follows:

equipment, tooling, or other personal property in order to Activate any portion of the Leased Premises).

wishes for the Authority to re-Activate that portion of the Leased Premises, Tenant shall provide an Activation Notice to the Authority pursuant to the procedure described in subsections (A), (B) and (C) above.

ARTICLE III.

REPRESENTATIONS, WARRANTIES AND COVENANTS

(C) No approvals or consents, other than those that have been obtained, are necessary in order for the Authority to adopt, execute and deliver this Lease Agreement.

(D) The Authority has a leasehold interest in the Facilities, subject to Permitted Encumbrances.

(E) The Authority has full right and authority to lease the Leased Premises to Tenant as set forth herein.

(F) This Lease Agreement has been duly executed and delivered by duly authorized officers of the Authority.

(H) There is no litigation now pending or, to the knowledge of the Authority, threatened that challenges or would challenge the execution of this Lease Agreement or that could reasonably be expected to have a material adverse effect on the Authority’s ability to perform hereunder.

(J) The Authority shall execute such collateral access agreements in favor of Tenant’s secured lenders as Tenant’s secured lenders may reasonably request, provided that the terms of those collateral access agreements are reasonably acceptable to the Authority.

and/or waive compliance with the provisions of this Subsection (K), and the Authority will cooperate as reasonably necessary with Tenant to obtain such protective order.

(4) The Authority shall promptly notify the Tenant in writing of any inadvertent disclosure of Proprietary Information, if and when the Authority becomes aware of any such disclosure. The covenant of the Authority set forth in this Subsection (K) will survive any termination of this Agreement.

(L) The Authority shall deliver to Tenant, for Tenant’s benefit and reliance, on the Effective Date, an opinion, concerning such matters in this Section 301 as are reasonably satisfactory to Tenant, from Ice Miller, in form reasonably acceptable to Tenant.

(C) No approvals or consents, other than those that have been obtained, are necessary for Tenant to execute and deliver this Lease Agreement.

(D) This Lease Agreement has been duly executed and delivered by the duly authorized officers of Tenant.

(E) There is no litigation now pending or, to Tenant’s knowledge, threatened that challenges or would challenge the execution of this Lease Agreement, or that could reasonably be expected to have a material adverse effect on the Tenant’s ability to perform hereunder.

ARTICLE IV.

OPTION TO EXPAND LEASED PREMISES

(C) This Lease Agreement shall be in effect at the time Tenant provides the Authority with Tenant’s written notice of Tenant’s desire to exercise its Expansion Option as to any Expansion Area and on the date Tenant’s lease of that Expansion Area is to commence.

(E) The duration of Tenant’s lease of the Expansion Area(s) as to which Tenant exercises its Expansion Option shall be co-terminous with the Term of this Lease Agreement.

(F) Except as otherwise provided in this Lease Agreement, the terms, covenants, and conditions of this Lease Agreement shall apply in all respects to the Tenant’s lease of any Expansion Space.

ARTICLE V.

TERM; EXTENSION PERIODS

Section 501. Term; Extension Option .

(B) Extended Terms .

(1) Tenant shall have the option (an “Extension Option”) to extend the Initial Term for one (1) period of ten (10) consecutive years (the “Extension Term”) upon fulfillment of all the following terms and conditions:

(a) Tenant shall provide written notice to the Authority, not earlier than twenty-four (24) months, and not later than twelve (12) months, prior to the expiration of the Initial Term, that Tenant elects to exercise such Extension Option (the “Extension Notice”);

(c) This Lease Agreement shall not have been terminated during the Initial Term.

(3) If the Authority demonstrates that Rentals and other revenues derived from the Land and Facilities during the twelve (12) consecutive month period immediately preceding the Authority’s receipt of Tenant’s Extension Notice to exercise

Section 502. Right to Terminate Upon Certain Events .

LEASE OF LEASED PREMISES; OWNERSHIP OF IMPROVEMENTS
AND EQUIPMENT; USE OF LEASED PREMISES