Susquehanna Area Regional Airport Authority

REQUEST FOR PROPOSALS

to Purchase Direct Purchase Bonds of the

SUSQUEHANNA AREA REGIONAL AIRPORT AUTHORITY

Due Date: May 10, 2017 Due Time: 2:00 P.M. EST

SUSQUEHANNA AREA REGIONAL AIRPORT AUTHORITY

REQUEST FOR PROPOSALS TO PURCHASE DIRECT PURCHASE BONDS

I. INTRODUCTION

A. Objectives

Susquehanna Area Regional Airport Authority (the “Authority”) is issuing this request for proposals (the “RFP”) to identify the institution or institutions that can purchase directly from the Authority one or more series of the Authority’s fixed rate bonds (the “Direct Purchase Bonds”) on the most favorable overall terms in an aggregate principal amount sufficient to refund its Airport System Revenue Bonds, Series 2008A (AMT) (“2008A Bonds”). The financing will be a tax-exempt direct placement with the bank or banks selected and the Authority will not prepare a Preliminary Official Statement or other type of disclosure document.

The Direct Purchase Bonds will be issued to (i) refinance approximately $43.5 million of the Authority’s 2008A Bonds and (ii) pay issuance costs related to the transaction. As noted above, the 2008A Bonds are subject to the alternative minimum tax (“AMT”). The Direct Purchase Bonds that refund the 2008A Bonds will also be subject to the AMT. The Authority may also, at its discretion, opt to use other available funds to decrease the size of its borrowing.

B. The Susquehanna Area Regional Airport Authority

The Authority is a joint municipality created in 1997 under the Pennsylvania Municipality Authorities Act. The Authority owns and operates the following four airports (“the Airport System”):

1. Harrisburg International Airport (“HIA”) - primarily located in Lower Swatara Township, Dauphin County, Pennsylvania

2. Capital City Airport – located in Fairview Township, York County, Pennsylvania

3. Franklin County Regional Airport - located near Chambersburg, Pennsylvania

4. Gettysburg Regional Airport – located near Gettysburg, Pennsylvania

HIA is the primary commercial service airport serving South Central Pennsylvania and the City of Harrisburg, Pennsylvania, the State Capital of Pennsylvania. HIA is located on 800 acres approximately 12 miles southeast of downtown Harrisburg. HIA’s primary air trade area includes the eight counties of Adams, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Perry, and York and has a total population of 1.9 million. The primary air trade area includes the cities of Lancaster and York, as well as the tourist destinations of Hershey and Gettysburg.

A total of 607,324 passengers were enplaned at HIA in 2016. Scheduled commercial airline service is currently provided by American, Delta, United, Allegiant, and Air Canada. In 2016, American accounted for approximately 40 percent of total enplanements at HIA, followed by Delta and United with 2016 market shares of approximately 27 percent and 21 percent, respectively. Additional passenger service is provided by a number of charter operators. Cargo activity at HIA includes daily operations by FedEx and UPS.

Capital City Airport, Franklin County Regional Airport, and Gettysburg Regional Airport primarily serve general aviation activity.

Additional information on HIA and the Authority is available on the Authority’s website www.flyhia.com. The Authority’s continuing disclosure filings are available at www.emma.msrb.org.

Provided with this RFP is the Authority’s Management Discussion and Analysis (Unaudited) section which will be included in SARAA’s financial statements for the period ending December 31, 2016 and 2015. The entire Independent Auditor’s Report and Financial Statements are expected to be posted to the Authority’s website on April 26, 2017. Potential proposers will thus have an opportunity to review the updated financial statements prior to submitting proposals.

The Authority is currently rated by Moody’s Investors Service (Moody’s), Fitch Ratings (Fitch), and Kroll Bond Rating Agency (Kroll). The Authority’s most recent rating report, issued by Kroll on April 6, 2017, is provided with this RFP. The most recently released Moody’s rating report for the Authority was issued on December 13, 2016 and S&P’s most recent report was issued on August 3, 2016.

C. Overview of the Authority’s Outstanding Debt

The Authority currently has $147,710,000 of senior lien general airport revenue bonds (“GARBs”) outstanding. The Authority’s previously outstanding 2012C subordinate bonds were paid off upon final maturity on January 1, 2017; therefore, there are no subordinate bonds of the Authority outstanding. The key terms of the Authority’s outstanding bonds are summarized in the table below:

Summary of the Authority’s Outstanding Debt

Amount Tax Final Outstanding as Source of Series Status Maturity of 4/1/2017 Repayment

Airport System 2008A AMT 1/1/2038 $43,535,000 Net Revenues and PFCs

Airport System 2008B Taxable 1/1/2034 $1,280,000 Net Revenues and PFCs

Airport System 2012A AMT 1/1/2027 $53,375,000 Net Revenues and PFCs

Airport System 2012B Non-AMT 1/1/2033 $49,520,000 Net Revenues and PFCs

D. Refunding of 2008A Bonds

The Authority’s 2008A Bonds are outstanding in the par amount of $43,535,000, with annual maturities from January 1, 2034 to January 1, 2038. The 2008A Bonds are callable on or after January 1, 2018. Under tax law provisions, because the 2008A Bonds are private activity bonds (and thus subject to the AMT), they cannot be “advance” refunded. Rather, they may only be refunded on a tax-exempt basis not more than 90 days prior to their initial call date. To that end, the Authority is seeking a direct placement that will close on or after October 3, 2017.

E. Amortization Schedule of the 2008A Bonds

The proceeds of the Direct Purchase Bonds will refund the 2008A Bonds maturing on or after January 1, 2034 (i.e., all outstanding 2008A Bonds). The principal and interest payments on the 2008A Bonds to be refunded are shown in the table below.

Debt Service Schedule –2008A Bonds

Year Total (ending 1/1) Principal Interest Debt Service 2018 $2,829,775 $2,829,775 2019 $2,829,775 $2,829,775 2020 $2,829,775 $2,829,775 2021 $2,829,775 $2,829,775 2022 $2,829,775 $2,829,775 2023 $2,829,775 $2,829,775 2024 $2,829,775 $2,829,775 2025 $2,829,775 $2,829,775 2026 $2,829,775 $2,829,775 2027 $2,829,775 $2,829,775 2028 $2,829,775 $2,829,775 2029 $2,829,775 $2,829,775 2030 $2,829,775 $2,829,775 2031 $2,829,775 $2,829,775 2032 $2,829,775 $2,829,775 2033 $2,829,775 $2,829,775 2034 $6,560,000 $2,829,775 $9,389,775 2035 $8,390,000 $2,403,375 $10,793,375 2036 $8,935,000 $1,858,025 $10,793,025 2037 $9,515,000 $1,277,250 $10,792,250 2038 $10,135,000 $658,775 $10,793,775 Total $43,535,000 $54,303,600 $97,838,600

The Authority anticipates that the principal repayment schedule for the Direct Purchase Bonds will be structured so that it produces approximately level annual savings compared to the total annual debt service on the 2008A Bonds shown in the table above. The Authority’s financial advisor calculates that, as of October 3, 2017, the average life of the 2008A Bonds will be 18.4 years. The Authority anticipates that the average life of the Direct Purchase Bonds will be approximately the same, or shorter.

The table on the following page presents an estimated principal repayment schedule for the Direct Purchase Bonds assuming a $45 million total par amount and 4% interest rate.

Estimated Principal Repayment Schedule – Direct Purchase Bonds

Year (ending 1/1) Principal 2018 2019 $120,000 2020 $125,000 2021 $125,000 2022 $130,000 2023 $140,000 2024 $145,000 2025 $150,000 2026 $155,000 2027 $160,000 2028 $170,000 2029 $175,000 2030 $180,000 2031 $190,000 2032 $195,000 2033 $205,000 2034 $6,770,000 2035 $8,445,000 2036 $8,785,000 2037 $9,135,000 2038 $9,500,000 Total $45,000,000

The actual principal repayment structure for the Direct Purchase Bonds will be dependent on the final interest rate. Banks should provide an amortization structure for the Direct Purchase Bonds based on their proposed rate. If the principal amount of the direct placement is reduced because the Authority elects to apply some of its funds to this transaction (as described in Part I(A) above), the annual principal payments will be reduced proportionally.

F. Security and Source of Repayment for the Direct Purchase Bonds

The Direct Purchase Bonds will be payable from and secured by a pledge of and lien on Net Revenues of the Airport System and certain funds and accounts held or set aside under the Master Trust Indenture.

The Direct Purchase Bonds will be issued on a parity basis with the Authority’s outstanding senior lien bonds which are summarized in Part C above (collectively, the “Bonds”) that will remain outstanding after the issuance of the Direct Purchase Bonds, in accordance with the terms of the Master Trust Indenture pursuant to which the outstanding Bonds were issued. The Direct Purchase Bonds will constitute “Additional Bonds” under the Master Trust Indenture. The Master Trust Indenture is included with this RFP. The Authority has covenanted in the Master Trust Indenture not to issue any Additional Bonds or other obligations with a pledge of or lien on Net Revenues prior or superior to the Bonds.

SARAA has received approval from the Federal Aviation Administration (FAA) to impose and use a Passenger Facility Charge (PFC) of $4.50 per eligible enplaned passenger up to approximately $129 million in total collections. Although PFC revenues are not included in the definition of Revenues and are not pledged to the payment of debt service, debt service on the Authority’s 2008A Bonds, 2008B Bonds, 2012A Bonds, and 2012B Bonds is “PFC-eligible.”

In its Fourth Supplemental Trust Indenture related to the 2012A Bonds and 2012B Bonds, the Authority irrevocably committed to transfer all PFC revenues associated with the first $4.50 per eligible enplaned passenger to pay debt service on the 2008A Bonds, 2008B Bonds, 2012A Bonds, and 2012B Bonds, on a pro-rata basis, during the period extending through December 31, 2018. The Authority expects, but will not pledge, covenant, or irrevocably commit, to continue to apply PFCs to pay a pro-rata share of debt service on the Direct Purchase Bonds used to refund the 2008A Bonds.

II. INSTRUCTIONS FOR SUBMITTING PROPOSALS

A. Electronic Submissions

An electronic response to this RFP should be submitted on or before 2:00 P.M. Eastern time on May 10, 2017 to the attention of:

Thomas C. Peiffer Deputy Director, Finance and Administration Susquehanna Area Regional Airport Authority [email protected]

With copies to the following persons at the Authority’s Financial Advisor, Public Financial Management, Inc. (“PFM”):

Kevin McPeek, [email protected] Ken Fullerton, [email protected]

THE AUTHORITY RESERVES THE RIGHT TO REJECT ANY AND ALL PROPOSALS, TO WAIVE ANY INFORMALITIES OR IRREGULARITIES IN ANY PROPOSALS RECEIVED, OR TAKE ANY OTHER SUCH ACTIONS THAT MAY BE DEEMED TO BE IN THE BEST INTEREST OF THE AUTHORITY.

PUBLIC FINANCIAL MANAGEMENT, INC. WILL SERVE IN THE SOLE CAPACITY OF FINANCIAL ADVISOR TO THE AUTHORITY AND NOT IN THE ROLE OF PLACEMENT AGENT.

B. Proposal Content

Each proposal should address all pertinent areas and be specific. Any conditions should be clearly stated. The failure to disclose substantive terms, conditions and covenants may be considered cause for the proposer’s proposal to be rejected by the Authority.

C. Questions, Additional Information

Contact with Authority personnel or consultants other than the Deputy Director, Finance and Administration, his designated representative, or representatives of PFM, the Authority’s financial advisor, may be grounds for elimination from the selection process.

The Proposer shall examine all proposal documents and shall judge all matters relating to the adequacy of such documents. Any inquiries, suggestions or requests concerning clarification or solicitation for additional information shall be submitted in writing via e‐ mail to Thomas Peiffer at [email protected], with copies to Kevin McPeek and Ken Fullerton of PFM at [email protected] and [email protected], respectively. The Authority shall not be responsible for oral interpretations given by any employee or its representative.

D. Tentative Schedule

The Authority will attempt to adhere to the following schedule:

April 12, 2017: RFP Issued

April 27, 2017: Deadline for submission of questions to Authority

May 2, 2017: Authority to provide responses to questions

May 10, 2017: Proposals due via email by no later than 2:00 P.M. Eastern time

Weeks of May 15 Authority review of proposals, telephone and May 22, 2017: interviews with selected banks, clarification of any questions related to proposals, and identification of “preferred provider”

June and July 2017: Development of financing documents

August 2017: Board approval of Direct Purchase Bonds. Direct Purchase Agreement to be executed after Board Approval

October 3, 2017: Approximate date of closing on Direct Purchase Bonds

The Authority reserves the right to alter dates in the above schedule if necessary.

III. INFORMATION REQUESTED FROM BANKS

Banks submitting responses to this RFP are to provide a letter to the Authority which provides the types of information shown in the table below. The Authority reserves the right to request any supplemental information it deems necessary to evaluate a bank’s experience or qualifications and/or clarify or substantiate any area contained in the bank’s proposal.

Category Information Requested

1. Amount of Direct Specify the maximum amount of Direct Purchase Bonds that the bank is willing Purchase Bonds to offer to purchase. The Authority would prefer to enter into a single purchase agreement for the Direct Purchase Bonds with a single bank for the anticipated principal amount of up to $45.0 million. However, the Authority will consider proposals for lesser amounts, and will consider closing separate transactions by accepting proposals from more than one bank. If more than one bank is selected, the annual principal payments on the resulting Direct Purchase Bonds will be divided between the banks on a pro-rata basis by maturity.

2. Source of Repayment Confirm that the bank understands that the Direct Purchase Bonds (1) will be secured by a pledge of and lien on Net Revenues of the Airport System and certain funds and accounts held or set aside under the Master Trust Indenture, and (2) will be issued on a parity basis with the Authority’s outstanding general airport revenue bonds, as described in this RFP, and in accordance with the terms of the Master Trust Indenture.

Category Information Requested

3. Final Maturity The final maturity of the proposed Direct Purchase Bonds will be January 1, 2038.

4. Principal Repayment The Authority anticipates that the principal repayment schedule for the Direct Purchase Bonds will be structured so that it produces approximately level annual savings compared to the annual debt service on the 2008A Bonds as shown in the table included in Section E of this RFP. All principal payments will be made on January 1st. Provide an amortization schedule for the Direct Purchase Bonds based on your proposed rate.

5. Proposed Structure of Confirm that the bank is willing to provide the Authority with a proposal to the Direct Purchase purchase fixed rate Direct Purchase Bonds. The Authority is interested in Bonds proposals which offer a true fixed rate with agreed‐upon prepayment provisions; it does not want proposals for a transaction in which the rate is fixed via a swap that would be subject to a swap termination fee.

Category Information Requested

6. Fixed Interest Rate

Interest Rate Option A:

Fixed Interest Rate Until Specify the rate your bank would charge. State the fixed rate through final Final Maturity maturity being proposed for as many of the Prepayment Options described in Part 8 below that your bank is willing to offer. Each proposed fixed rate must be presented in a manner that clearly identifies the following:

- Proposed interest rate as of the date of submission, assuming the transaction closes on October 3, 2017 - Formula for setting the interest rate, which should be based on a readily-identifiable rate or index

Specify for how many days prior to the closing of the transaction the rates stated in your proposal will be “locked in” without requiring the Authority to either sign a rate lock agreement, or be subject to breakage fees if the direct placement does not close. Indicate whether the rate will be locked in from the date of your proposal, or whether some type of action by the Authority will be required before the rate can be locked in – such as a confirmation from the Authority’s staff that your proposal will be recommended to the Board for approval, or that the Authority’s Board has actually approved the acceptance of your proposal.

If your bank is not willing to lock in the rate for a significant period of time without requiring the Authority to agree to pay damages if the transaction does not close, please indicate the maximum number of days prior to closing that your banks would be willing to lock-in a rate and sign the Direct Purchase Agreement without requiring the Authority to pay breakage fees if, for any reason, the transaction does not close.

Category Information Requested

6. Fixed Interest Rate (continued)

Interest Rate Option B: The Authority strongly prefers that the Direct Purchase Bonds have fixed Fixed Interest Rate for interest rates through the expected January 1, 2038 final maturity of the Specific Period refunding bonds. However, it may be willing to consider alternate options in which interest rates on the Direct Purchase Bonds are fixed for a period shorter than through final maturity, after which the Direct Purchase Bonds will reset to a variable rate that would be adjusted approximately every 30 days. The Direct Purchase Bonds must be callable, without penalty, within one year prior to the initial interest rate reset date.

If your bank is willing to provide such an alternate option, please provide the following:

- Proposed initial fixed interest rate for fixed rate periods of: - Approximately 7 years (until 1/1/2025) - Approximately 10 years (until 1/1/2028)

- Formula for establishing the variable interest rate after the fixed interest rate period

- The maximum interest rate that would apply to the Direct Purchase Bonds during the variable rate period.

IF PROPOSING FOR THIS INTEREST RATE OPTION, BANKS MUST IDENTIFY AN INTEREST RATE CAP ON THE DIRECT PURCHASE BONDS AND AT NO TIME, INCLUDING DURING THE VARIABLE RATE PERIOD, WOULD THE INTEREST RATE EXCEED THE MAXIMUM INTEREST RATE PROPOSED BY THE BANK.

7. Closing Date The Authority anticipates an October 3, 2017 closing date for the Direct Purchase Bonds.

Category Information Requested

8. Prepayment Options Please indicate how the pricing of the fixed rate Direct Purchase Bonds would be affected if you were to offer one or more of the following prepayment options to the Authority:

- Prepayable without penalty at any time - Prepayable without penalty on or after January 1, 2025 - Prepayable with some type of breakage fee - Not prepayable prior to maturity

In the event that the interest rate converts to a variable rate as described in Interest Rate Option B in Item #6 above, the Authority would require the right to refund the Direct Purchase Bonds on any interest rate reset date without penalty.

9. Debt Service Reserve The Direct Purchase Bonds will be secured by a debt service reserve Account account to be initially funded based on the lesser of the three-part test in the tax code.

10. Bank Origination or Specify any upfront fees that the bank would charge in connection with this Upfront Fees transaction.

11. Bank Expenses Specify any expenses related to this transaction for which the bank would expect to be reimbursed.

12. Outside Bank Legal Specify whether or not the bank would propose to use an outside counsel on Counsel and Not-to- this transaction. If so, please identify the firm the bank would propose to use Exceed Fee and the proposed maximum fee to the Authority for such services. Please (if any) note that Authority recently issued a bond counsel RFP and selected Ballard Spahr as the Authority’s bond counsel on this transaction. The Authority would view it as a conflict of interest if Ballard Spahr were also to serve as bank counsel; hence, Ballard Spahr may not serve as bank counsel.

Category Information Requested

13. Standard Terms and All of the terms and covenants of Master Trust Indenture shall apply to the Conditions Direct Purchase Bonds. The Master Trust Indenture provides that Additional Bonds may be issued on a parity basis to the Direct Purchase Bonds upon meeting certain tests in the “additional bonds test” contained in the Master Trust Indenture.

Please confirm that you have reviewed the attached Master Trust Indenture included with this RFP.

Please note that the Authority will not agree to any material additions, changes or modifications to the legal documents that may be requested by banks in connection with this transaction. The Direct Purchase Bonds will be issued pursuant to a supplemental trust indenture. The Authority does not intend to enter into any agreements with the selected financial institution(s), other than a Direct Purchase Agreement.

Respondents should also not simply state that their Direct Purchase Bonds will include “usual and customary provisions”. Any terms or conditions requested by a Respondent must be clearly described in the Respondent’s proposal.

14. Credit Ratings The Authority does not plan to request a separate rating on the Direct Purchase Bonds. Please confirm that this approach is acceptable to your bank.

15. Other Fees or Expenses Describe in detail all other fees and expenses that may be incurred by the bank for which you will request to be reimbursed by the Authority. The amounts stated in the proposal shall represent the maximum amounts payable to the proposer by the Authority. All fees and expenses in excess of those stated in the proposal shall be the sole responsibility of the proposer and will not be paid or reimbursed by the Authority.

16. Bond Opinion The Authority’s bond counsel will be expected to deliver an opinion that interest on the Direct Purchase Bonds is excluded from gross income for federal income tax purposes, except for the interest during any period while the Direct Purchase Bonds are held by a “substantial user” of the facilities financed with the proceeds of the Direct Purchase Bonds or a “related person,” as such terms are used in Section 147 of the Internal Revenue Code of 1986, as amended, and that the Direct Purchase Bonds are “private activity bonds,” the interest on which is an item of tax preference for all taxpayers for federal income tax purposes.

Category Information Requested

17. Credit Approval Please indicate the status of your bank’s credit approval for this transaction. If you currently do not have final credit approval, please indicate how long it will take for you to obtain such approval.

Additional Provisions

The Authority reserves the right to reject proposals that include terms and conditions materially different than those included in the Master Trust Indenture.

1. At the closing of the Direct Purchase Bonds, the Bank will be required to make certain certifications, including but not limited to certifications that it:

(a) is not acting as a broker or other intermediary, and is purchasing the Direct Purchase Bonds as an investment for its own account and not with a present view to a resale or other distribution to the public; provided, however, that the Purchaser reserves the right to sell, transfer or redistribute the Direct Purchase Bonds, but agrees that any such sale, transfer or distribution by the Bank shall be to a Person (any of the below):

1) that is an affiliate of the Bank;

2) that is a trust or other custodial arrangement established by the Bank or one of its affiliates, the owners of any beneficial interest in which are limited to qualified institutional buyers or accredited investors;

3) that is a secured party, custodian or other entity in connection with a pledge by the Bank to secure public deposits or other obligations of the Bank or one of its affiliates to state or local governmental entities; or

4) that the Bank reasonably believes to be a “qualified institutional buyer” as defined in Rule 144A promulgated under the Securities Act of 1933 as amended (“the 1933 Act”), or an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the 1933 Act and is able to bear the economic risks of such investment, and who delivers certifications substantially in the form of the certifications described here and delivered by the Bank at closing.

(b) is a bank, trust company, savings institution, insurance company, dealer, investment company, pension or profit‐sharing trust, or qualified institutional buyer;

(c) is not purchasing the Direct Purchase Bonds for the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any laws or statutes; and

(d) is a “qualified institutional buyer” as defined in Rule 144A promulgated under the 1933 Act or an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the 1933 Act.

IV. RESERVATION OF RIGHTS

SARAA reserves the right, in its sole discretion, to reject at any time any or all proposals and to withdraw this RFP without notice. SARAA reserves the right to waive compliance with and/or change any of the items of this request. SARAA reserves and may exercise the following rights and options with respect to this selection process: to request some or all of the respondent firms to provide additional material, clarification, confirmation, or modification of any information in the submission; to supplement, amend, substitute, or otherwise modify this RFP any time prior to the selection of one or more firms for negotiation, and to cancel this RFP with or without issuing another RFP; to request that some or all of the respondent firms modify proposals based on the review of all proposals; to terminate any negotiations at any time; to accept or reject at any time prior to the execution of a professional services contractual agreement all submissions and/or to withdraw the RFP without notice; to expressly waive any defect or technicality in any proposal; and to solicit new proposals.

SARAA is not responsible for any internal or external delivery delays which may cause any proposal to arrive beyond the stated deadline. To be considered, proposals must arrive at the place specified herein and be time stamped prior to the deadline.

Each firm or other respondent agrees to bear all costs of its response and participation in the process described in this RFP; there shall be no reimbursement for any costs relating to the preparation of responses or proposals in connection with this process.

V. EVALUATION CRITERIA

In making its final decisions regarding the selection of one or more banks and the structure of this financing program, the Authority will consider factors such as projected overall cost of the Direct Purchase Bonds, the terms, conditions and covenants

proposed by the banks, and other fees and costs (such as origination fees) and any applicable local preference. Any other evaluation criteria will be determined by the Authority.

VI. INFORMATION PROVIDED BY PROPOSER

The relevant provisions of the Pennsylvania Right to Know Act shall govern public access to material submitted by firms in response to this RFP. If any firm submits information that it believes to be a trade secret or otherwise exempt from disclosure under the Pennsylvania Right to Know Act, it must specifically identify such information and state in writing the reasons why the information should be exempt from disclosure. It is not the policy of SARAA to disclose any information from material submitted by firms in response to the RFP until the selection process has been completed.

In the event that SARAA becomes aware of any material misrepresentation in the information supplied by a firm, SARAA shall have the right to reject at any time the proposal of the firm, to refuse to negotiate or continue negotiations with the firm, and to take any other action, including retaining any deposit made by the firm, as shall be deemed appropriate by SARAA, in its sole discretion.

SARAA reserves the right to request, at any time in the selection process, such additional information or materials as it may deem useful or appropriate to evaluate each firm’s qualifications and past experience. Submission of a proposal shall constitute the firm’s permission to SARAA to make such inquiries concerning the firm and members of the team as SARAA, in its sole discretion, deems useful or appropriate.

Susquehanna Area Regional Airport Authority Management’s Discussion and Analysis December 31, 2016 and 2015 (Unaudited)

Management’s Discussion & Analysis (MD&A) of the financial performance and activity of the Susquehanna Area Regional Airport Authority (SARAA) is to provide the reader with an introduction to SARAA’s basic financial statements as of and for the years ended December 31, 2016 and 2015. The information contained in the basic financial statements, including the notes, is essential to a full understanding of the financial statement data.

SARAA is a joint municipal authority created in 1997 under the Pennsylvania Municipality Authorities Act. SARAA is governed by representatives from the counties of Dauphin, Cumberland and York, the cities of Harrisburg and York and the townships of Lower Swatara (Dauphin County) and Fairview (York County). SARAA is an independent entity governed by a board of directors who are not compensated. Each of the municipalities appoints representatives to serve for 5-year terms on the board that consists of 15 directors. Each county appoints three board members; each city appoints two board members; each of the two townships appoints one board member. The board members cannot be recalled during their term. After their term expires, they continue to serve until their sponsoring county, city or township replaces them or until they resign.

SARAA owns and operates four airports: 1) Harrisburg International Airport (HIA), primarily located in Lower Swatara Township, Dauphin County, Pennsylvania (Harrisburg International Airport is known as the MDT airport code. The airport is adjacent to the Borough of Middletown, PA) 2) Capital City Airport (CXY), located in Fairview Township, York County, Pennsylvania 3) the Franklin County Regional Airport (FCRA), located near Chambersburg, Pennsylvania, and 4) the Gettysburg Regional Airport (GRA), located near Gettysburg, Pennsylvania.

SARAA and the Harrisburg International Airport have no financial ties with the City of Harrisburg or any of the other appointing counties, cities or townships.

This MD&A is a section of the annual report required by Governmental Accounting Standards Board Statement (GASB) No. 34, Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments (GASB 34).

Industry Headlines and SARAA’s Activities and Highlights The U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reported that December 2015 to November 2016 U.S. total domestic revenue passenger miles flown increased by 3.4 percent when compared to December 2014 to November 2015. Domestic scheduled capacity, measured by available seat-miles, increased 3.8 percent. The load factor was 83.4 percent, down slightly from the 2015’s record of 83.8 percent.

In January 2017, BTS reported the 3rd quarter 2016 domestic average roundtrip fare (the most recent quarter for which data is available) was $344, down from a $377 average fare during the third quarter of 2015.

1 At HIA, 2016 passenger traffic increased 2.4 percent when compared to 2015, as 1,205,442 total passengers used the facility. The airlines enplaned a total of 607,324 passengers in 2016, up 2.9 percent from 2015. Allegiant generated the largest increase in passengers at 36.8 percent as new nonstop service to Punta Gorda/Ft. Myers and summer seasonal service to Myrtle Beach was offered for the first time from HIA. American (+6.6 percent) and Air Canada (+12.5 percent) both served more passengers during 2016 while United (-4.1 percent) and Delta (-2.3 percent) served a few less. Due to delays associated with pilot training, Southern Airway Express new nonstop service to Pittsburgh did not have any impact on 2016 passenger traffic. SARAA is hopeful these issues will be resolved so Pittsburgh service can become viable in 2017.

Total 2016 departing seat capacity at HIA increased 1.6 percent compared to 2015. Allegiant (+38.9 percent), American (+7.2 percent) and Air Canada (+3.0 percent) added capacity in the market while United (-9.0 percent) and Delta (-2.0 percent) offered less. The airports average 2016 annual departing load factor increased almost one point to 82.4 percent.

There was 52,807 tons of cargo flown into and out of Harrisburg International Airport in 2016 representing a 2.7 percent increase compared to 2015. FedEx (+9.9 percent) and commercial airline belly cargo (+22.4 percent) were up while UPS tonnage was down (-4.4 percent). The Federal Aviation Administration (FAA) reported there were 50,430 total 2016 airport operations at HIA, an increase of 6.6 percent compared to 2015.

The following table shows the 2016 percentage fluctuation from 2015 for change in seats, change in enplanement passengers and passenger market share: (List ranked by 2016 passenger market share):

Change in Change in Enplaned Market Seats Passengers Share

American Airlines 7.2% 6.6% 39.9% Delta Air Lines -2.0% -2.3% 26.6% United Airlines -9.0% -4.1% 20.8% Allegiant 38.9% 36.8% 11.5% Air Canada 3.0% 12.5% 1.2% Frontier -100.0% -100.0% 0.0%

Total Passenger Airlines 1.6% 2.5% 100.0%

The following table shows a summary of various activities at HIA:

2016 2015 % Change

Enplanements 607,324 590,262 2.9% Air carrier operations 29,741 29,305 1.5% Landed weight (passenger airlines only) 694,996,652 689,203,491 0.8% Cargo tons 52,807 51,401 2.7% Parking revenue $ 7,560,682 $ 7,647,058 -1.1%

2 Financial Highlights

SARAA planned for a modest 585,000 enplanements despite higher achieved enplanement levels in immediate prior years. As such, we budgeted with a balanced budget covering our expense, capital and debt service needs. 2016 is the second year of the amended Airline Operating and Rental Car Agreements. This allowed for some revenue enhancement as the agreement has an escalating schedule of terminal rents and fees for each year. New tenants of our landside areas at HIA also provided increased expectations of revenue.

Improved performance in airline revenues produced a much better than expected year, as Net Operating Revenue (excluding depreciation) was 3.7 percent ahead of the budgeted expectations.

• Operating revenues were 4.3 percent ahead of 2015 and ended 3.7 percent above the budget. Operating expenses (excluding depreciation) were 7.0 percent more than 2015 and was 3.8 percent more than the budget. • For a second consecutive year SARAA owed the airlines for revenue sharing under the Airline Operating Agreement. For 2016, the liability was for $666,350. These payments are deducted 50% each from Facilities Revenue and Landing Fee revenue. • The required bond coverage ratios were met and maintained for 2016. More information is available in the Long-Term Debt section of the Management’s Discussion and Analysis • All monthly debt service payments required by the bond trustee were made.

Overview of Financial Statements

SARAA only engages in business-type activities. These are activities that are intended to recover all or a significant portion of their costs through user fee charges to external parties for goods or services. SARAA reports its business-type activities in a single enterprise fund, meaning that its activities are operated and reported like a private-sector business.

SARAA’s financial report includes Statements of Net Position, Statements of Revenues, Expenses and Changes in Net Position and Statements of Cash Flows. Comparative financial statements with fiscal year 2015 are presented.

The net position of SARAA is comprised of these categories:

• Net investment in capital assets - reflects SARAA’s investment in capital assets (e.g. land, buildings, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. SARAA uses these capital assets to provide services to the public; consequently, these assets are not available for future spending. • Restricted - represents resources that are subject to external restrictions on how they may be used. • Unrestricted - represents resources that may be used to meet SARAA’s ongoing obligations to the public and creditors.

3 2016 to 2015 Comparative Statements of Revenues, Expenses and Changes in Net Position

The Statement of Revenues, Expenses and Changes in Net Position reflect the operating activity of SARAA for the years using the accrual basis of accounting, similar to private sector companies. The change in net position is an indicator of whether the overall fiscal condition of SARAA has improved or worsened during the year.

The change in net position for the years ended December 31, 2016 and 2015 was $(1.6) million and $(2.3) million, respectively. The comparative analysis is a summary of the Statement of Revenues, Expenses and Changes in Net Position for 2016 and 2015.

Dollar Percent 2016 2015 Change Change

Operating Revenues Facilities revenue $ 8,819,504 $ 8,180,879 $ 638,625 7.8% Parking fees 7,560,682 7,647,058 (86,376) -1.1% Vehicle rental fees and customer facility charges 4,105,690 3,910,428 195,262 5.0% Landing fees 3,843,564 3,711,534 132,030 3.6% Apron and gate use fees 1,243,532 1,155,277 88,255 7.6% Concession fees 498,262 440,133 58,129 13.2% Fuel flowage and other commissions 452,150 442,322 9,828 2.2% Other income 776,934 662,472 114,462 17.3% Total operating revenues 27,300,318 26,150,103 1,150,215 4.4%

Operating Expenses Salaries, wages, payroll taxes and benefits 6,954,043 6,700,934 253,109 3.8% Professional and consulting fees 520,254 606,182 (85,928) -14.2% Marketing 548,535 431,113 117,422 27.2% Insurance 582,184 561,586 20,598 3.7% Utilities 1,503,883 1,519,326 (15,443) -1.0% Parking facility 2,416,851 2,387,317 29,534 1.2% Repairs and maintenance 1,761,318 1,553,828 207,490 13.4% Supplies, parts and other 2,464,308 1,955,487 508,821 26.0% Depreciation 15,141,581 14,799,338 342,243 2.3% Total operating expenses 31,892,957 30,515,111 1,377,846 4.5%

Loss From Operations (4,592,639) (4,365,008) (227,631) 5.2%

Nonoperating Expenses Net of Revenues (3,899,670) (4,754,584) 854,914 -18.0%

Capital Contributions, Grants and Contributions from Lessees 6,885,294 6,819,503 65,791 1.0%

Decrease in Net Position (1,607,015) (2,300,089) 693,074 -30.1%

Net Position, Beginning of Year 81,734,436 84,034,525 (2,300,089) -2.7%

Net Position, End of Year $ 80,127,421 $ 81,734,436 $ (1,607,015) -2.0%

Loss from Operations: Depreciation is a noncash expense so the loss does not reflect the cash position. The Statements of Cash Flows present an accurate portrayal of cash activity. Also, the Schedule of Capital and Noncapital Revenues and Expenses, which is presented as supplementary information, is more reflective of SARAA’s annual fiscal operations.

4 Significant Variances for 2016 to 2015

• Operating Revenues: In 2016, Facilities revenue increased as (1) new tenants rented previously vacant areas; (2) buildings reverted to Authority ownership for which we could charge additional rent; and (3) the airline rentals increased in accordance with the airline operating agreement. Vehicle rental activity increased from the previous year by 7%, reaping more revenue from the seven car rental firms. Cargo airlines increased landed weight from the previous year netting us more landing fees. • Operating Expenses (other than depreciation): Operating expenses increased 7%, some planned and some unplanned.

o We had budgeted for two new positions to facilitate succession and reduce overtime. We started a parking garage preventative maintenance program of sealing joints. Two new pieces of snow removal equipment were leased greatly aiding airfield snow removal at HIA & CXY. They replaced obsolete equipment. We started an environmental treatment program of our ground water to filter out PFOS contaminants.

o A record snow fall in January caused extra overtime and the purchase of additional winter treatment chemicals. SARAA recovered $140,000 in a FEMA grant which is in Other Revenue above.

o As the extra revenues of the year were realized, we accelerated spending on safety supplies, small equipment & furniture. Deferred maintenance was addressed increasing various expenses. An extra round of joint sealing in the garage was undertaken. • Nonoperating Expenses Net of Revenue: SARAA sold 50 year easements and renewed 30 year easements with four agreements with Sunoco Pipeline netting $653,500. The properties involved were the old Bethlehem Steel property and the west end of the airfield at HIA. Interest expense decreases about $100,000 each year as we continue to pay off our bonds. Approximately $4 million dollars of principal is paid each year. • Capital Contributions & Grants:

o The amounts recorded vary year-to-year with the level of construction activity at SARAA’s four airports. When there is more construction or other capital activity, there are more grant dollars reimbursing those costs. In 2016, construction activity was less than 2015 ($3.1 million vs. $6.8 million) but not in amount of activity. The northern half of the runway at GRA was rebuilt. A fence was installed at CXY adjacent to a cemetery. At FCRA, a parallel taxiway with run-up pad and turn-around was constructed.

o Buildings constructed by tenants on long term land leases reverted to SARAA. In 2016, ten buildings at CXY and one at HIA were recorded in SARAA’s fixed assets for almost $3.8 million. The buildings are customarily leased again to same tenant according to current market conditions with the tenant bearing most of the maintenance responsibility.

5 2015 to 2014 Comparative Statements of Revenues, Expenses and Changes in Net Position

The change in net position for the years ended December 31, 2015 and 2014 was $(2.3) million and $(4.0) million, respectively. The comparative analysis below is a summary of the Statement of Revenues, Expenses and Changes in Net Position for 2015 and 2014.

Dollar Percent 2015 2014 Change Change

Operating Revenues Facilities revenue $ 8,180,879 $ 7,627,954 $ 552,925 7.2% Parking fees 7,647,058 7,618,817 28,241 0.4% Vehicle rental fees and customer facility charges 3,910,428 4,013,911 (103,483) -2.6% Landing fees 3,711,534 3,585,158 126,376 3.5% Apron and gate use fees 1,155,277 1,064,397 90,880 8.5% Concession fees 440,133 438,976 1,157 0.3% Fuel flowage and other commissions 442,322 479,632 (37,310) -7.8% Other income 662,472 798,197 (135,725) -17.0% Total operating revenues 26,150,103 25,627,042 523,061 2.0%

Operating Expenses Salaries, wages, payroll taxes and benefits 6,700,934 6,321,078 379,856 6.0% Professional and consulting fees 606,182 451,670 154,512 34.2% Marketing 431,113 635,584 (204,471) -32.2% Insurance 561,586 535,644 25,942 4.8% Utilities 1,519,326 1,518,135 1,191 0.1% Parking facility 2,387,317 2,386,147 1,170 0.0% Repairs and maintenance 1,553,828 1,397,905 155,923 11.2% Supplies, parts and other 1,955,487 1,895,578 59,909 3.2% Depreciation 14,799,338 15,397,752 (598,414) -3.9% Total operating expenses 30,515,111 30,539,493 (24,382) -0.1%

Loss From Operations (4,365,008) (4,912,451) 547,443 11.1%

Nonoperating Expenses Net of Revenues (4,754,584) (4,625,345) (129,239) 2.8%

Capital Contributions and Grants 6,819,503 5,554,277 1,265,226 22.8%

Decrease in Net Position (2,300,089) (3,983,519) 1,683,430 42.3%

Net Position, Beginning of Year 84,034,525 88,018,044 (3,983,519) -4.5%

Net Position, End of Year $ 81,734,436 $ 84,034,525 $ (2,300,089) -2.7%

6 Significant Variances for 2015 to 2014

• Operating Revenues: In 2015, Facilities revenue increased as new amended agreements went into effect for the airlines and the rental car companies. Increased rentals were realized from non- aviation properties adjacent to HIA. With the decrease in enplanements activity, related revenues decreased. These decreases were offset by increased parking rates and new concession agreements. • Operating Expenses (other than depreciation): Professional and consulting fees were more than 2014 because of the negotiations with new /prospective tenants and the write off of project costs capitalized in a prior year. Loading bridge repairs drove up repairs and maintenance expenses. The Marketing Department spent less as there were no new flight routes added in 2015. Health care costs increased 20 percent. • Capital Contributions & Grants: The amounts recorded vary year-to-year with the level of construction activity at SARAA’s four airports. When there is more construction or other capital activity, there are more grant dollars reimbursing those costs. In 2015, a snow removal equipment storage building was constructed and baggage screening equipment was replaced at HIA. Renovations on a hangar and an office building (which was the former terminal building) at CXY were completed. Statements of net position Summary

A condensed summary of SARAA’s statements of net position at year-end is shown below: 2016 2015 2014

Assets Assets Current assets $ 17,532,241 $ 17,088,387 $ 16,052,786 Noncurrent restricted cash and investments 15,289,755 15,120,668 15,115,337 Capital assets, net 210,797,540 217,825,388 224,939,808

Total assets $ 243,619,536 $ 250,034,443 $ 256,107,931

Liabilities Current liabilities $ 11,929,107 $ 11,937,780 $ 10,884,715 Long-term liabilities 151,563,008 156,362,227 161,188,691 Total liabilities 163,492,115 168,300,007 172,073,406

Net Position Net investment in capital assets 66,827,468 68,175,702 70,738,889 Restricted 7,735,617 7,422,279 7,304,997 Unrestricted 5,564,336 6,136,455 5,990,639 Total net position 80,127,421 81,734,436 84,034,525

Total liabilities and net position $ 243,619,536 $ 250,034,443 $ 256,107,931

7 Statements of net position Discussion - 2016 vs. 2015

Current assets: Overall, current assets increased, as in evaluating the individual elements, the increases outweighed the declines. The cash balance increased from 2015 year end. Grants receivable decreased from 2015 as we collected a reimbursement from the Transportation Security Administration for an upgrade to the screening equipment of the baggage handling system as well as monies from the FAA and the Commonwealth of Pennsylvania for the snow removal equipment storage building at HIA and a CXY renovations project. Both the HIA building and CXY renovations were completed in 2015. The grant funds were received in the first quarter of 2016. With the collection of the grant funds, investment funds were replenished. Also, funds in surplus of operating needs were added to investments. Funds from the sale of easements were placed in the Coverage Account investments.

Noncurrent cash and investments: Little changed in the Debt Service Reserve, Renewal and Replacement Reserve and Maintenance and Operation Reserve funds, as these funds are required to be maintained at certain prescribed levels to be in compliance with the bond indenture.

Capital assets, net of accumulated depreciation, decreased as annual depreciation expense exceeded new capital projects and contributions from lessees added during the year.

Current liabilities stayed the same at $11.9 million. Capital construction debt was lower at the end of 2016 but the monies owed for revenue sharing with the airlines increased.

Long-term liabilities decreased as the regular annual debt service principal was paid. Two notes were paid off early but another was opened to finance a shuttle bus for HIA.

Net position serves as a useful indicator of SARAA’s financial position. SARAA’s total assets exceeded total liabilities by $80 million at December 31, 2016. This is a decrease from the prior year as depreciation decreases capital assets at a greater rate than we can invest in new capital assets.

The largest component of SARAA’s net position (83 percent as of December 31, 2016) is invested in capital assets (e.g., land, infrastructure, buildings, improvements and equipment), net of the related debt outstanding used to acquire those capital assets. Although SARAA’s investment in its capital assets is reported net of related debt, it should be noted that the resources required to repay this debt must be provided annually from operations since it is unlikely that the capital assets themselves will be liquidated to pay liabilities.

The components of restricted net position are limited to their use by external sources as described below:

• Bond resolution requires funds be put aside to ensure the continued operation of the airports. • The FAA requires the use of passenger facility charges (PFC’s) collected from passengers by the airlines only for approved capital projects including debt service thereon.

Unrestricted net position may be used for any lawful airport system purpose.

Statements of net position Discussion - 2015 vs. 2014

Current assets: Overall, current assets increased, as in evaluating the individual elements, the increases outweighed the declines. The cash balance decreased from 2014 year end. Grants receivable increased from 2014 as we are expecting a reimbursement from the Transportation Security Administration for an upgrade to the screening equipment of the baggage handling system as well as monies from the Commonwealth of PA for the CXY renovations project. As we had to temporarily fund capital projects, waiting for grant reimbursement resulted in a decrease in investments. The grant funds were received in the first quarter of 2016.

8 Noncurrent cash and investments: Little changed in the Debt Service Reserve, Renewal and Replacement Reserve and Maintenance and Operation Reserve funds, as these funds are required to be maintained at certain prescribed levels to be in compliance with the bond indenture.

Capital assets, net of accumulated depreciation, decreased as annual depreciation expense exceeded new capital projects added during the year.

Current liabilities increased because of bills outstanding for the capital construction and monies owed for revenue sharing with the airlines.

Long-term liabilities decreased as the regular annual debt service principal was paid. Two notes were paid off early and another had a significant unscheduled principal payment.

Net position serves as a useful indicator of SARAA’s financial position. SARAA’s total assets exceeded total liabilities by $82 million at December 31, 2015. This is a decrease from the prior year as depreciation decreases capital assets at a greater rate than we can invest in new capital assets.

The largest component of SARAA’s net position (83 percent as of December 31, 2015) is invested in capital assets (e.g., land, infrastructure, buildings, improvements and equipment), net of the related debt outstanding used to acquire those capital assets. Although SARAA’s investment in its capital assets is reported net of related debt, it should be noted that the resources required to repay this debt must be provided annually from operations since it is unlikely that the capital assets themselves will be liquidated to pay liabilities.

The components of restricted net position are limited to their use by external sources as described below:

Unrestricted net position may be used for any lawful airport system purpose.

Cash and Investment Management

2016 2015 2014

Cash and cash equivalents $ 1,087,229 $ 171,713 $ 239,862 Maintenance and operations reserve 2,667,645 2,568,884 2,520,561 Renewal and replacement reserve 501,232 441,017 456,865 Coverage account 2,419,624 1,838,373 1,828,653 Capital improvement account 2,087,277 1,647,929 2,002,549 Passenger facility charge 178,839 65,150 127,119 Accrued interest 101,608 95,977 90,576

$ 9,043,454 $ 6,829,043 $ 7,266,185

The above funds are invested according to the Commonwealth of Pennsylvania Municipal Authorities Act Section 5611 as described in Note 4, Deposits and Investments, of the financial statements. All funds are secure as they are insured by the FDIC or collateralized by the respective financial institution as permitted by Act 72 of the 1971 session of the Pennsylvania General Assembly for the protection of public depositors.

The Maintenance and Operations Reserve is set by the Master Trust Indenture for the 2008 and 2012 Bonds at one sixth of the current year’s operating budget.

9 The Renewal and Replacement Reserve is set by the Master Trust Indenture at a minimum of $500,000. A two-year payback is allowed for any use of the Renewal and Replacement Reserve. In 2015, two scissor lifts, a police vehicle, public address system, chiller and a crew cab pickup were purchased for which the reserve was used.

The Coverage Account has a beneficial effect in calculating the bond covenant. Capital Improvement Account represents remaining revenues to be used by SARAA for any lawful aviation purpose.

Further details may be found in Note 5, Restricted and Unrestricted Cash and Investments, of the financial statements.

SARAA’s restricted debt service funds at December 31 were as follows:

2016 2015 2014

Debt service funds $ 8,092,840 $ 8,033,176 $ 8,064,855 Debt service reserve funds 12,019,270 12,014,790 12,047,242

$ 20,112,110 $ 20,047,966 $ 20,112,097

The trustee, Manufacturers Traders and Trust Co., holds the above funds. They are invested under direction of SARAA according to Section 4.07(h) in the applicable Supplemental Trust Indenture with respect to SARAA’s Senior Bonds and Section 4.04(g) in the Third Supplemental Subordinate Trust Indenture with respect to SARAA’s Subordinate Bonds. Permitted investments are defined in the Senior Master Indenture and in the Fourth Supplemental Trust Indenture.

Capital Asset Activity

The following are projects underway or were completed in 2016:

• The northern half of the runway at GRA was rebuilt • A fence was installed at CXY adjacent to the Mt. Olivet Cemetery • A cooling tower for the terminal HVAC system at HIA was replaced • Master Plan development completed at HIA • Master Plan development underway at CXY • Replacement of Baggage Handing Explosive Detection System machines completed at HIA • Construction of parallel taxiway completed at FCRA • Three new vehicles, five new pieces of equipment were acquired and two systems were replaced or upgraded at HIA • A new vehicle and a new piece of equipment were acquired for CXY • Our main IT server system is in process of being replaced at HIA • Design of Runway 13-31 rehabilitation underway at HIA

Cash paid for capital projects was $5.3 million. SARAA received $4.8 million in capital grants toward the capital additions. See Note 6, Capital Assets, to the financial statements for a summary of capital asset activity.

10 As part of the Noise Relocation Project at HIA, properties were purchased in the borough of Middletown and the houses were demolished. The tenants of rental properties were relocated. The Noise Relocation Project includes expenditures for survey, evaluation, appraisal, property acquisition, demolition and relocation expenditures under a program approved by the Federal Aviation Administration (FAA). Should this land be sold, proceeds will revert to the FAA. Therefore, expenditures are recorded on the Statements of Revenues, Expenses and Changes in Net Position as nonoperating expenses. Related FAA grants are recorded as nonoperating revenues.

Long-Term Debt

Capital acquisitions are funded using a variety of financing mechanisms, including federal and state grants, passenger facility charges (PFC), public debt issues, the renewal and replacement account, capital improvement account and airport operating revenue.

The use of PFC’s is fully explained in Note 2, Passenger Facility Charges, of the financial statements. Currently , all PFC’s are irrevocably committed as an offset to the debt service requirements of the 2008A, 2008B, 2012A and 2012B bonds through 2018. SARAA management fully intends to continue to use the PFC’s to offset bond debt service requirements into the foreseeable future.

SARAA’s annual debt service for their five bond issues is scheduled at approximately $12 million annually through 2037. Principal payments beginning in January 2018 will be focused on the 2012A bonds. The 2012C bonds, the final outstanding subordinate bonds, were paid off in January 2017. No new bond issues except possible refundings are anticipated in the immediate future.

SARAA, through its Master Trust Indentures, has covenants to maintain a debt service coverage ratio of not less than 1.25 for senior lien debt and 1.10 for senior and subordinate debt. Debt service coverage is calculated based on a formula included in the bond indentures and the airline agreements. Historically, the Authority has maintained a coverage ratio higher than its requirement.

2016 2015

Senior Bond debt service coverage 2.44 2.27 Senior + Subordinate Bond debt service coverage 1.33 1.24

The covenants are more fully described in Note 8, Bonds Payable, in the financial statements.

Requests for Information

This financial report is designed to provide a general overview of SARAA’s finances for all those interested. Questions concerning any of the information provided in this report or requests for additional information should be addressed in writing to the Deputy Director, Finance & Administration, Harrisburg International Airport, One Terminal Drive, Suite 300, Middletown, PA 17057 or via SARAA’s website www.flyhia.com.

11 U.S. Public Finance

Airport Rating Report

Susquehanna Area Regional Airport Authority

Airport System Revenue Bonds

Analytical Contacts: Andrew Clarke, Senior Director [email protected], (646) 731-2380

Gopal Narsimhamurthy, Associate Director [email protected], (646) 731-2446

April 6, 2017

Table of Contents Table of Contents

Executive Summary ...... 4 Security ...... 4 Rating Summary ...... 4 Outlook: Stable ...... 6 Key Rating Determinants ...... 6 Rating Determinant 1: Governance and Management ...... 6 Ownership Structure & Management ...... 7 Managerial Experience ...... 7 SARAA Mission & Vision...... 8 Key Management Practices ...... 8 Risk Management ...... 8 Budgetary Process ...... 8 Rating Determinant 2: Economics/Demographics of the Service Area ...... 9 Diverse Business Environment Supports Air Travel ...... 11 Geographically Competing Facilities ...... 12 Rating Determinant 3: Airport Utilization ...... 13 Recent Air Service Developments ...... 14 Enplanement Trends ...... 15 International Enplanements ...... 15 Airline Concentration ...... 15 Rating Determinant 4: Airport Debt/ Capital Needs ...... 17 2002 Capital Program ...... 17 Current Debt Profile & Master Plan ...... 17 Capital Improvement Program: 2017-2022 ...... 18 Majority-In-Interest Provisions ...... 19 Rating Determinant 5: Airport Finances ...... 19 Airline-Airport Use Agreement...... 19 Extraordinary Adjustments and Coverage Protection ...... 20 Revenue Sharing ...... 20 Historic Financial Performance ...... 20 Airline Cost Per Enplanement (CPE) ...... 21 Stress Case ...... 22

Susquehanna Area Regional Airport Page | 2 April 6, 2017 Authority Airport System Revenue Bonds

System Liquidity ...... 22 Retirement Benefits ...... 23 Rating Determinant 6: Legal Mechanics and Security Provisions ...... 23 Revenue Pledge ...... 23 Rate Covenant ...... 23 Additional Bonds Test ...... 24 PFCs ...... 24 Other Reserves ...... 24 Debt Service Reserve Funds ...... 25 Flow of Funds ...... 26 Bankruptcy Assessment ...... 27 Conclusion...... 28

Susquehanna Area Regional Airport Page | 3 April 6, 2017 Authority Airport System Revenue Bonds

Executive Summary Kroll Bond Rating Agency (KBRA) has assigned a long-term rating of BBB+ with a Stable outlook to the Susquehanna Area Regional Airport Authority’s (SARAA) Airport System Revenue Bonds. As of February 2017, SARAA had approximately $147.7 million of Airport System Revenue Bonds outstanding.

The rating is based on KBRA’s U.S. General Airport Revenue Bond Rating Methodology. In the process of assigning the rating, KBRA reviewed multiple sources of information and met with Airport SARAA management.

Security The airport system revenue bonds are limited obligations of SARAA, payable from and secured by a pledge of and lien on net revenues of the airport system. The master trust indenture defines revenues as income, receipts, earnings and revenues received by SARAA from the operations and ownership of the Airport System. Revenues generally include all rates, tolls, fees, rentals, charges and other payments made to or owed to SARAA. Passenger facility charge (PFC) and letter of intent (LOI) revenues can be used to offset airport revenue bond debt service but are not included within the definition of airport system revenues.

Key Rating Strengths ● Experienced management team with demonstrated ability to maintain balanced financial operations ● Stable and diversified local economic base anchored by the state government ● Diverse carrier mix with strong carrier yields and load factors, and sustained O&D base ● Strong and improving liquidity levels, and diverse revenue sources that are not reliant solely on airline payments ● Legal provisions including a 1.25x rate covenant (including coverage account), closed loop flow of funds with monthly debt service deposits to the bond trustee, and fully funded debt service reserve fund Key Rating Concerns ● Very high debt levels and cost per enplanement ● Proximity to four major commercial service airports, which offer a far greater level of service in terms of frequency and destinations, and therefore provide a very high level of competition ● Inconsistent enplanement growth trends.

Rating Summary SARAA is a Pennsylvania joint municipality created under Pennsylvania law by the counties of Dauphin, Cumberland, and York, the cities of Harrisburg and York, and the townships of Fairview and Lower Swatara. SARAA owns and operates Harrisburg International Airport (MDT), Capital City Airport, Franklin County Regional Airport, and Gettysburg Regional Airport. MDT is the only airport under SARAA control that provides scheduled commercial airline service. More than 95% of SARAA revenues are generated from MDT operations. As a result, KBRA’s rating and outlook on SARAA’s outstanding Airport System Revenue Bonds is largely derivative of the credit factors associated with MDT.

MDT is classified as a small-hub airport and is situated 12 miles southeast of downtown Harrisburg, PA. The terminal has 12 gates, which provide sufficient capacity for the airport’s current scale of operations. MDT is served by a number of major carriers including American

Susquehanna Area Regional Airport Page | 4 April 6, 2017 Authority Airport System Revenue Bonds

Airlines, Delta Air Lines, United Airlines, Air Canada, and Allegiant Air. Airlines offer service from MDT to most major hubs on the east coast and Midwest including Boston, Chicago, Washington D.C., Philadelphia, Charlotte, and Orlando. Carrier yields for MDT’s signatory airlines are stronger than their system averages. Airlines at MDT have rebalanced available seats in recent years to meet enplanement levels, which is driving higher load factors at the airport.

The market for air travel is almost exclusively origin and destination (O&D) from within the airport’s primary air trade area (ATA). The ATA consists of eight counties in Pennsylvania with a combined population of 1.9 million: Adams, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Perry, and York. MDT also draws passengers from its secondary air trade area, which comprises of 16 additional counties in Pennsylvania with a collective population of 1.4 million.

As evidenced by improving demographic and economic trends, MDT’s ATA generates stable demand for O&D air travel to and from the region. KBRA views the ATA’s wealth levels and employment base as strong. Unemployment trends and real estate values continue to improve and recover from the Great Recession. The ATA is supported by a diverse business environment and tourism industry, both of which lend support to O&D air travel to and from the region. Driven by the sizeable presence of small businesses, no one employer or employment sector represents a disproportionate component of the ATA’s employment base.

SARAA’s management team is highly experienced. In KBRA’s opinion, the management team is forward-thinking and has successfully been able to manage large capital plans. The team has demonstrated its ability to maintain sound financial operations, even in challenging operating environments. These challenges include significant enplanement losses due to increased competition from nearby airports, economic downturns, and the loss of Frontier Airlines in 2015. Despite these challenges, management has consistently maintained adequate financial operations and debt service coverage levels in excess of financial covenants. However, MDT’s inconsistent enplanement trends and significant geographic competition are noted concerns for KBRA going forward.

Capital needs at MDT and SARAA’s three regional airports are very limited in the near to medium term. In 2002, SARAA undertook its first major capital program, which included the construction of a brand new terminal facility. In additional to the terminal building, the major projects of the 2002 capital improvement program included the construction of an aircraft apron multi-modal transportation center that included additional parking and rental car facilities, taxiway improvements, and various runway lighting improvements. The current 2017 through 2021 capital plan totals $75.5 million for all airports and there are no plans to issue additional debt. The entire plan is largely funded by federal and state grants with only a small portion coming from SARAA. KBRA views the limited additional debt issuance as a credit positive, but balances this view against the significant debt load that SARAA undertook during its initial capital plan.

SARAA’s high debt levels resulted from a capital improvement program that was undertaken at a time at which the airline industry faced significant challenges related to airline consolidations, bankruptcies, and strategic changes. In 2016, the amount of debt outstanding per enplaned passenger was $243.20 and the amount of annual debt service per O&D enplanement was $19.80. These levels are much higher than most airports of comparable size and scope and could act as a disincentive for new airline service.

SARAA’s financial operations have historically been relatively stable. Due to limited growth in enplanement activity, revenue growth has been outpaced by expense growth resulting in thinner operating margins. SARAA’s liquidity levels have improved, equating to an estimated 178 days

Susquehanna Area Regional Airport Page | 5 April 6, 2017 Authority Airport System Revenue Bonds

cash on hand in fiscal year 2016, which KBRA views as strong. These strengths are offset by SARAA’s extremely weak leverage and expense ratios.

SARAA’s current airline-airport use agreement provides extremely strong protections, including the ability to raise airline fees and assess surcharges to signatory airlines in order to maintain financial operations and remain in compliance with covenants. However, this strength is somewhat limited by the higher airline costs at MDT compared to airports of a similar scale.

Based on a review of the six KBRA rating determinants included in the KBRA Methodology for rating U.S. General Airport Revenue Bonds, KBRA has assigned the following rating determinant ratings:

 Management: Satisfactory  Airport / Debt Capital Needs: BBB-  Economics/Demographics of the  Airport Finances: BBB+ Service Area: A-  Legal Mechanics and Security Provisions: A+  Airport Utilization: A-

Outlook: Stable The Stable outlook reflects KBRA’s expectation that SARAA will maintain balanced financial operations, at current enplanement levels, while continuing to control operating expenditure growth. It also reflects KBRA’s expectation that SARAA will work through its capital improvement program from identified funding sources without the need to issue additional debt.

In KBRA’s view, the following factors may contribute to a rating upgrade:

 Identification of significant additional non-airline funding sources for operations and capital improvements  Significant commercial and industrial development within the primary service area leading to a sustained trend of O&D traffic growth

In KBRA’s view, the following factors may contribute to rating downgrade:

 Significant enplanement losses  Sustained increases in airline operating costs resulting from an inability to adjust expenses in a declining enplanement environment  Unanticipated large capital requirements not funded from federal or state grants Key Rating Determinants Rating Determinant 1: Governance and Management The SARAA management team has a demonstrated ability to maintain balanced financial operations. They have also demonstrated an ability to respond to challenges while managing a large capital improvement program. Each member of the executive management team is experienced and has a long tenure in key areas at SARAA. The team employs a forward-looking approach and has good relationships with its signatory airlines. KBRA does note the absence of an enterprise risk management process and the lack of certain formalized financial policies.

Susquehanna Area Regional Airport Page | 6 April 6, 2017 Authority Airport System Revenue Bonds

Ownership Structure & Management The Susquehanna Area Regional Airport Authority is a Pennsylvania joint municipality created under Pennsylvania law by the counties of Dauphin, Cumberland, and York, the cities of Harrisburg and York, and the townships of Fairview and Lower Swatara. While the City of Harrisburg appoints two representatives to SARAA’s board of directors, neither SARAA nor Harrisburg International Airport has any financial relationship to the City of Harrisburg.

SARAA is governed by a fifteen-member board of directors who serve five-year terms. The counties of Dauphin, Cumberland, and York appoint three board members and the cities of Harrisburg and York each appoint two. The townships of Fairview and Lower Swatara each appoint one board member. The board appoints an executive director who serves at the pleasure of the board and is responsible for operations and maintenance of the overall airport system.

On January 2, 1998, the Commonwealth of Pennsylvania, acting through the Pennsylvania Department of Transportation, transferred operation and ownership of MDT and Capital City Airport, which is the general-aviation reliever airport of the airport system, to SARAA. SARAA also owns, operates, and maintains the Franklin County Regional Airport, which is a general aviation airport, and Gettysburg Regional Airport. Together, these airports constitute the airport system.

Managerial Experience Timothy J. Edwards is the executive director at SARAA. He has been employed in the airport management profession for over 25 years. Edwards was named executive director in October of 2006 after serving as deputy executive director at SARAA since 2003. Prior to SARAA, Edwards was the executive director at Lebanon Municipal Airport in West Lebanon, NH. As executive director, Edwards is responsible for all airport administration, maintenance, and operations. Edwards is accredited as an airport execuitve by the American Association of Airport Executives and a past president of the northeast chapter of the group. Edwards is supported by a staff of seven senior team members who have long tenure in key positions at SARAA. The following table identifies the senior staff at SARAA.

Staff Member Joined Department Background Timothy J. Edwards, A.A.E. 28 years of airport management experience 2003 Executive Director Formerly director of Lebanon Municipal Airport

Marshall B. Stevens, A.A.E. 2008 23 years of airport management and capital development experience Deputy Executive Director

Thomas C. Peiffer, CPA Initial Accounting Manager for SARAA Deputy Director, Finance and 1998 Joined PennDOT Bureau of Aviation in 1985 Administration David Spaulding Deputy Director, Engineering and 2000 Completed a career with U.S. Army service in the Corps of Engineers Planning Scott Miller Previously was Marketing Director/Manage for local six-radio station Deputy Director, Marketing and Public 2001 cluster Relations Belinda Svirbely, A.A.E. 30 years of airport management experience

Deputy Director, Operations, Security 1998 Previously served at Bradley international and Lehigh Valley and Public Safety International;

Kevin Bryner 2004 Various positions within the IT Department Deputy Director, Information Technology

Susquehanna Area Regional Airport Page | 7 April 6, 2017 Authority Airport System Revenue Bonds

SARAA Mission and Vision SARAA’s mission statement is to provide outstanding customer service and convenient access to worldwide destinations and the global economy. SARAA’s stated vision is to increasingly bolster Central Pennsylvania’s economic growth and prosperity.

Key Management Practices SARAA uses a strategic planning tool to manage key goals and priorities. Current strategic goals include improving and expanding air service, providing outstanding customer service, developing staff and SARAA organization, and improving SARAA’s financial position while managing debt. The management team uses an action tracker measurement tool that identifies strategic goals and assigns specific performance indicators for each. The action tracker is reviewed on a quarterly basis to help ensure goals are achieved.

Risk Management Risk management is addressed by maintaining adequate levels of commercial and property insurance. While this approach is adequate, KBRA notes the absence of an enterprise risk assessment process that proactively identifies risks and seeks to mitigate potential operating disruptions. KBRA also notes the absence of formalized financial management policies establishing mandatory minimum liquidity levels and expenditure tracking processes. KBRA positively notes SARAA’s ability to add extraordinary debt service coverage and other revenue recovery provisions within the airline-airport use agreement, which mitigates the risk of near- term revenue shortfalls.

Budgetary Process SARAA adopts an annual budget for the airport system, which establishes the terminal rental rates, apron fees, and landing fees for the upcoming fiscal year. In establishing the budget, SARAA considers the suggestions, comments and requests of the signatory airlines but retains sole discretion with respect to the rates and fees.

Based on KBRA’s review of SARAA’s governing structure, policies and procedures, and management background and experience, balanced by the absence of an enterprise risk management system and formalized policies and procedures, KBRA has assigned a satisfactory assessment to the management rating determinant rating.

Susquehanna Area Regional Airport Page | 8 April 6, 2017 Authority Airport System Revenue Bonds

Rating Determinant 2: Economics/Demographics of the Service Area

MDT is situated on an 800-acre site in Lower Swatara Township, PA, approximately 12 miles southeast of downtown Harrisburg, PA. The geographic region, or primary air-trade area, that serves as the airport’s primary air service catchment is a combination of eight counties in Pennsylvania with a combined population of 1.9 million; Adams, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Perry, and York. As of 2015, the ATA represents approximately 15.0% of the state population. MDT’s secondary air trade area comprises of a population of 1.4 million across 16 additional counties, all within a two-hour drive of the airport. For purposes of evaluating the economics and demographics of MDT’s geographic region, KBRA focuses primarily on the ATA.

As evidenced by improving demographic and economic trends, MDT’s ATA generates stable demand for O&D air travel to and from the region. The estimated population of the ATA in 2015 was 1.9 million. Between 2000 and 2015, the ATA’s population increased by approximately 13.6%. This level of growth equates to an annualized rate of approximately 1.0%, which is significantly higher than the nationwide rate of 0.87% over the same period.

KBRA views the service area’s wealth levels and employment base as strong. Wealth levels in the ATA are slightly below national levels, which is reflective of the region’s lower cost of living. In 2015, the ATA’s personal income per capita was $45,401, which was approximately 6.0% below the national average of $48,112.

Susquehanna Area Regional Airport Page | 9 April 6, 2017 Authority Airport System Revenue Bonds

The ATA’s unemployment levels continue to improve, and are stronger than regional and national levels. As of January 2017, the ATA’s unemployment rate was 4.3%, which is notably lower than Pennsylvania’s at 5.3% and United States’, at 4.8%. Despite improved but ongoing economic challenges within the City of Harrisburg, the ATA’s overall labor force was not adversely affected to the same degree by the recent recessionary period. At its peak in 2010, the ATA’s annual unemployment rate was 7.8%, compared to Pennsylvania’s rate of 8.5% and the peak United States rate of 9.6%.

Housing values in the ATA declined during the Great Recession, albeit to a lesser degree than those in the United States as a a whole. Recovery has been gradual, with property values growing at a slower pace than the national trend. Since 2012, the median housing value in the Harrisburg, PA metro area has increased by 4.8%, compared to 20.8% nationwide. This weaker level of growth is somewhat offset by the ATA’s far more stable real-estate environment over the course of the Great Recession.

Susquehanna Area Regional Airport Page | 10 April 6, 2017 Authority Airport System Revenue Bonds

According to Zillow, the median housing value in the Harrisburg, PA metro area declined from a high of $163,350 in 2008 to $153,300 in 2012. As of 2016, the city’s median housing value has recovered to $160,611, which represents a recovery rate of 98.3%. Over the same period, the statewide and nationwide recovery rates were 100.5% and 95.3%, respectively.

Diverse Business Environment Supports Air Travel The ATA is supported by a diverse business environment and tourism industry, both of which lend support to O&D air travel to and from the region. The ATA is also home to more than 25 postsecondary education institutions including Penn State Harrisburg, Franklin and Marshall College, Gettysburg College, and Shippensburg University. Penn State Harrisburg, which is located adjacent to MDT airport grounds, has increased total enrollment and the geographic diversity of its student base. Between Fall 2000 and Fall 2014, Penn State Harrisburg’s total enrollment increased 44.0%, to 4,678. Additionally, the geographic origin of Penn State Harrisburg’s first-time students has notably diversified. In fall 2010, approximately 8.0% of the university’s students originated from foreign countries. By fall 2014, the percentage of first-time students from foreign countries increased to 18.5%. Collectively, the percentage of first-time students from either out of state or from foreign-born countries represented nearly 40.0% of Penn State Harrisburg’s first-time enrollment in Fall 2014. KBRA believes this notable increase in student geographic diversity lends support to demand for O&D travel from MDT.

KBRA views the ATA’s employment diversity as strong. Driven by the sizeable presence of small businesses, no one employer or employment sector represents a disproportionate component of the ATA’s employment base. The largest employment sector within the ATA, as of 2016, was trade, transportation, and utilities at 22.0% followed by education and health services at 17.0%, and government at 13.0%. The City of Harrisburg is the capital of Pennsylvania, and the Commonwealth is the largest employer within the ATA. As evidenced by the ATA’s diverse employment base, however, the surrounding communities of the City of Harrisburg are not disproportionately dependent on state government employment. Major employers in the ATA also include the U.S. government, Hershey Medical Center, various retail chains, the Hershey Company, Pinnacle Health Systems, and TE Connectivity.

Susquehanna Area Regional Airport Page | 11 April 6, 2017 Authority Airport System Revenue Bonds

Home to a number of historic and celebrated locations, the ATA is a well-frequented tourism destination. Popular destinations include Hershey Park, Gettysburg National Military Park, the Giant Center (a sports and entertainment arena), and the historic city of Lancaster, PA. According to a 2014 report quantifying the economic impact of tourism in Pennsylvania, tourism contributed nearly $2.4 billion to the Hershey-Harrisburg economy in 2014. The Hershey-Harrisburg region, defined as Dauphin County and Perry County, is just a component of the overall ATA. Data published by the Pennsylvania Tourism Department indicate that total visitor spending across the ATA exceeded $7 billion in 2014.

Geographically Competing Facilities MDT is the only airport within the ATA with regularly scheduled commercial service. The closest airports to MDT with a comparable or greater scale of service are Baltimore-Washington International airport (BWI), Philadelphia International Airport (PHL), Washington Dulles International Airport (IAD), and Ronald Reagan Washington National Airport (DCA).

Susquehanna Area Regional Airport Page | 12 April 6, 2017 Authority Airport System Revenue Bonds

BWI, PHL, IAD, and DCA are all large hub commercial service airports located within 130 miles of MDT. All four airports operate on a far greater scale in terms of total enplanements, number of destinations, and frequency of flights. This provides consumers with the option of selecting between multiple airports based on preferences related to proximity, scheduling, price, frequency, and reliability. Despite the vast differences in scale and scope, MDT has continued to draw consistent demand for scheduled passenger service.

Based on the foregoing, KBRA views the economics and demographics of MDT’s primary air trade area as being consistent with an A- rating determinant rating. This assessment is driven by the ATA’s stable population, improving income and employment trends, and diverse local economy, all of which contribute to an O&D market that is appropriately sized for air travel to and from MDT. The ATA’s strengths are, to a significant degree, offset by the geographic proximity of four major commercial service airports, which offer a far greater level of service in terms of frequency and destinations, and therefore provide a very high level of competition. Rating Determinant 3: Airport Utilization

MDT is a small hub airport situated on 800 acres, 12 miles southeast of downtown Harrisburg, PA. The landside portion of the airport consists of a 384,500 square foot passenger terminal with three concourses connecting to 12 gates along with parking facilities for 2,504 vehicles. Five gates are preferentially leased to MDT carriers while the remaining seven are used on a per-turn basis. The airfield contains a 10,000-foot runway supported by a full-length taxiway and precision instrument approach. A number of ancillary facilities are also located on airport grounds, including the Pennsylvania Air National Guard. The airport is also in the process of planning a large cargo distribution center.

The market for air travel is almost exclusively origin and destination from within MDT’s primary and secondary air trade areas. The combined primary and secondary air trade areas have a population of 3.3 million and represent 26.0% of Pennsylvania’s population.

Susquehanna Area Regional Airport Page | 13 April 6, 2017 Authority Airport System Revenue Bonds

Major airlines providing service at MDT include American Airlines, Delta Air Lines, United Airlines, Air Canada and Allegiant Air. In total, as of March 2017, five U.S. airlines and one foreign flag carrier offer scheduled passenger service from the airport. American Airlines, United Airlines, and Delta Air Lines also partner with regional carriers such as Republic Airlines, Mesa Airlines, and GoJet Airlines among others to offer service on selected routes from MDT. Three major carriers have enplanement shares in excess of 20.0%. These carriers are American (39.7%), followed by Delta (26.5%), United (20.7%), and Allegiant (11.5%). Airline market share trends for American, Delta, and United have been stable for the past five years. Air Tran Airways (now integrated with Southwest Airlines) and Frontier Airlines cancelled service from MDT in 2013 and 2015, respectively. As a result, Allegiant Air has taken on a greater market share, growing from 0.7% of enplanements in 2012 to 11.5% in 2016.

As of March 2017, MDT offers nonstop service to 14 destinations including Chicago, Boston, Charlotte, Philadelphia, Atlanta, Orlando, Detroit, Washington DC, and Pittsburgh. MDT also offers year-round service to St. Petersburg, Florida; Punta Gorda; and seasonal service to Myrtle Beach. Air Canada provides daily nonstop service from MDT to Toronto.

Cargo service at MDT is operated by United Parcel Service and FedEx. MDT is currently the 68th largest cargo airport in the United States, based on landed weight. Total landed weight has fluctuated over the past ten years, reaching a max of 169,212 metric tons in 2013. Despite this fluctuation, total cargo landed weight at MDT far exceeds the median for small hub airports. In 2015, MDT had total cargo landed weight of 146,761 metric tons, compared to the small hub median of 100,883.

Recent Air Service Developments Beginning in 2016, Allegiant Air began offering nonstop service to Punta Gorda and Myrtle Beach. In addition, Allegiant Air flies nonstop from MDT to Orlando and St. Petersburg, FL. Additionally, beginning in August 2016, Southern Airways Express began offering daily nonstop service from MDT to Pittsburgh, PA. MDT management indicates that demand for these new routes is strong and have offset some of the enplanement losses following the exit of Frontier Airlines.

Susquehanna Area Regional Airport Page | 14 April 6, 2017 Authority Airport System Revenue Bonds

Enplanement Trends Enplanement trends at MDT have generally been stable with some fluctuations due to economic and industry events. Since 1990, enplanements have ranged from approximately 580,000 to nearly 745,000 with fluctuation over time. These fluctuations were largely driven by notable airline bankruptcies and significant macroeconomic events such as the 2001 recession and the Great Recession in 2009.

After consistent enplanement figures from 2010-2014, MDT experienced an 8.9% decline in enplanement activity in 2015. This notable decline was due to the exit of Frontier Airlines, which accounted for 7.0% of enplanements at the time. Based on discussions with MDT management, Frontier’s exit was due to broad strategic changes to the airline’s business model. Since Frontier’s exit, Allegiant Air has added additional service to Orlando to compensate for the loss of Frontier.

Current enplanement data for 2017 shows a year over year increase of 2.9%. The additional routes offered by Allegiant Air, the increased frequency of flights by Delta Air Lines, and the introduction of Southern Airways’ daily nonstop service to Pittsburgh drove this increase. Based on discussions with management, initial enplanement figures in 2017 are significantly better than 2016. Total enplanements in January 2017 are approximately 16.3% higher than January 2016. KBRA notes that the harsh winter weather in January 2016 is a major contributor to this dramatic year over year growth. MDT management expects enplanement trends to continue to improve and stabilize at 2016 levels.

International Enplanements Air Canada offers daily service from MDT to Toronto. In 2016, Air Canada accounted for 1.2% of enplanement activity at MDT. Management does not expect significant growth in international traffic in the near to medium term.

Airline Concentration American Airlines, Delta Air Lines, and United Airlines collectively accounted for 87.0% of enplanement activity at MDT in 2016. All three carriers offer nonstop service to their major regional hubs including Atlanta and Detroit (Delta), Chicago (United and American), Charlotte (American), Philadelphia (American), and Washington-Dulles (United). These routes provide travelers from the MDT region with one-stop access to major national and international destinations.

KBRA is comfortable with MDT’s level of airline concentration, given the airport’s stable and consistent O&D base. In the event that one of the aforementioned carriers scaled back service, KBRA believes that another carrier would likely step-up operations to offset some magnitude of the losses.

Susquehanna Area Regional Airport Page | 15 April 6, 2017 Authority Airport System Revenue Bonds

Additionally, the combined load factors1 and available seat trends for American, Delta, and United have been generally stable historically. For example, between 2000 and 2015, Delta Air Lines had estimated load factors ranging from 40.0% to 96.0%. United and American also experienced weak estimated load factors within the same period. When combining total passengers and seats across all three airlines, however, total load factors consistently increased from an estimated low of 57.0% in 2000 to 82.0% in 2015. Similar trends occurred in total available seats. Notwithstanding flights served by regional partners, total available seats offered by American, Delta, and United were extremely volatile between 2006 and 2015. When combined, however, the level of volatility significantly diminished. These outcomes further support the notion that one of the major carriers could fill the void caused by the exit of another.

KBRA also notes that carrier yields2 achieved by American, Delta, and United at MDT are all considerably higher the respective airlines’ system-wide averages. Additionally, between 2000 and 2015, all three carriers’ had load factors that were either on par or stronger than their system-wide levels. In recent years, airlines have switched from a market share strategy to an emphasis on profitability. In this environment, load factors and yield have taken on a greater importance. Given the strong performance of airline yields and load factors at MDT, KBRA believes that risks associated with airline concentration are limited in the near to medium term.

Based on the foregoing, KBRA views MDT’s Airport Utilization as being consistent with an A- rating determinant rating. This assessment is driven by MDT’s diverse carrier mix, strong carrier yields and load factors, and stable O&D base. These strengths are offset, to some degree, by the airport’s scale of operations, declining available seat trends, very high debt levels and high cost per enplanement.

[1] Load factors are defined as total passengers divided by total available seats

[2] Carrier yields are defined as total fare revenues per passenger divided by total miles flown from the origin airport

Susquehanna Area Regional Airport Page | 16 April 6, 2017 Authority Airport System Revenue Bonds

Rating Determinant 4: Airport Debt/ Capital Needs SARAA’s leverage ratios are unusually high for an airport of its size. In 2016, the amount of debt outstanding per enplaned passenger was $243.20 and the amount of annual debt service per O&D enplanement was $19.80. These levels are much higher than most airports of comparable size and scope. KBRA views SARAA’s very high debt levels as a credit concern and limiting rating factor. Our concern is that current debt levels add significant pressure to airline operating margins at MDT and may act as a disincentive for new airline service. It is KBRA’s view that SARAA’s high debt levels resulted from a capital improvement program that was undertaken at a time in which the airline industry faced significant challenges related to airline consolidations, bankruptcies, and strategy changes. Ultimately, these challenges resulted in fewer than expected enplanement levels at MDT and much higher than expected airline costs.

2002 Capital Program SARAA undertook its first major capital improvement program in 2002. The program included some minor improvements at CXY but otherwise focused almost entirely on MDT. The program was sizable but it was not overly complex. A key program intent was to expand the existing terminal building so that it could accommodate projected enplanement growth at MDT. Originally, SARAA thought this could be achieved by upgrading and refurbishing the existing MDT terminal. However, after the terrorist attacks of September 11, 2001, and the additional security requirements of the Aviation and Transportation Security Act, SARAA concluded that it would need to construct an entirely new terminal building. The revised plans were substantially more expensive but allowed for the construction of full baggage screening facilities and other required features that the existing terminal could not accommodate.

In addition to the terminal building, the major projects of the 2002 capital improvement program included the construction of an aircraft apron, multi-modal transportation center that included additional parking and rental car operations, taxiway improvements, and runway lighting improvements. The total estimated capital cost was $289.1 million. Funding sources included SARAA airport revenue bonds, federal and state grants, PFCs and internally generated funds. SARAA authorized the issuance of $200.0 million in airport revenue bonds to finance its portion of the program. The majority these bonds were issued in 2003. In 2004, a small number of additional bonds were issued to further expand the terminal from eight to twelve gates. Overall, the program did not experience significant cost overruns and was completed within the planned timeline.

Current Debt Profile and Master Plan SARAA has not issued additional debt, outside of refunding bonds, since 2004 and currently has $147.7 million in outstanding airport revenues. The trust indentures allow for the issuance of variable rate debt and the use of interest rate management products, but all outstanding debt is fixed rate with a level repayment structure.

Susquehanna Area Regional Airport Page | 17 April 6, 2017 Authority Airport System Revenue Bonds

SARAA Airport Revenue Bond Debt Service Before PFC Offset $14,000,000

$12,000,000

$10,000,000

$8,000,000

$6,000,000

$4,000,000

$2,000,000

$0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038

Series 2008 Series 2012

SARAA’s current master plan extends through 2035. It is comprehensive and provides clear identification of key issues and facility requirements based on demand and capacity studies through 2035. It also provides an identification and evaluation of conceptual alternatives for future developments. The process involves the general public and a wide range of stakeholders through a Master Planning Advisory Committee. Three key concepts include realistic financial strategy, commitment to the environment, and ongoing public involvement.

Capital Improvement Program: 2017-2022 The current 2017-2021 capital plan totals $75.5 million for all airports and there are no plans to issue additional debt. The plan is largely funded by federal and state grants with only a small portion coming from SARAA. KBRA views the limited additional debt issuance as a credit positive, but balances this view against the significant debt load that SARAA undertook during its initial capital plan.

Susquehanna Area Regional Airport Page | 18 April 6, 2017 Authority Airport System Revenue Bonds

Federal SARAA Project & Receipt of Funding Total Cost % State Grants % % Grants Funds Rehab. Runway 13-31 Phase III (Late 2016) $12,029 $10,826 90.0% $601 5.0% $602 5.0% Rehab. Runway 13-31 Phase IV (2017) 11,944 10,750 90.0% 597 5.0% 597 5.0% Rehab. Runway 13-31 Phase V (2018) 4,444 4,000 90.0% 222 5.0% 222 5.0% Construct Cargo Apron Phase II (2019) 333 300 90.1% 17 5.1% 17 5.1% Replace ARFF Vehicle (2019) 1,000 900 90.0% 50 5.0% 50 5.0% SRE 2 Trucks with Tow-Behind Brooms (2019) 889 800 90.0% 44 4.9% 45 5.1% Construct Cargo Apron Phase III (2020) 9,111 8,200 90.0% 456 5.0% 455 5.0% Construct Cargo Apron Phase IV (2021) 12,222 11,000 90.0% 611 5.0% 611 5.0% Construct Cargo Apron Phase V (2022) 9,778 8,800 90.0% 489 5.0% 489 5.0% Subtotal -HIA $61,750 $55,576 $3,087 $3,088 Federal SARAA Airport Total Cost % State Grants % % Grants Funds Capital City $4,787 $4,308 90.0% $239 5.0% $239 5.0% Franklin County Regional 3,611 3,250 90.0% 181 5.0% 180 5.0% Gettysburg Regional 5,414 4,873 90.0% 271 5.0% 270 5.0% Subtotal -Other Airports $13,812 $12,431 $691 $689

Total All Airports $75,562 $68,007 $3,778 $3,777 Source: SARAA Capital Plan

Majority-In-Interest Provisions SARAA granted a majority-in-interest provision within the current airline-airport use agreement. A majority is defined as signatory airlines accounting for greater 50% of the total landed weight or terminal rent, depending on the project being considered. Under the provision, an airline majority can disallow any new single project that has a total project cost of over $500,000, net of grants in aid and PFCs. Capital projects that were already approved at the time the airline-airport use agreement was executed are not subject to review.

Based on the foregoing, KBRA views SARAA’s debt and capital needs as being consistent with a BBB- rating determinant rating. This assessment is based on SARAA’s significant debt burden and incorporates the positive aspects of SARAA’s debt profile and limited plans to issue additional debt. It also reflects SARAA’s efforts to develop a comprehensive capital improvement program and master plan that addresses system needs, largely through federal and state grands and internal funding.

Rating Determinant 5: Airport Finances MDT’s financial operations are governed in large part by SARAA’s Airline Operating and Terminal Building Lease (“the use agreement”). The use agreement and the master trust indenture, which establishes SARAA’s Airport System Revenue Bonds, collectively delineate the flow of funds and the rate covenant, among their provisions. The use agreement has been extended and renewed on multiple occasions and is currently set to expire on December 31, 2019. The use agreement lays out the financial obligations of both the airport and airlines, and determines the airport’s rate setting and cost recovery mechanism.

Airline-Airport Use Agreement The current use agreement can be classified as hybrid and establishes three cost centers (Terminal, Airfield, Landside) to account for revenues and expenses. The use agreement sets forth a compensatory rate-setting methodology for commercial terminal rentals and apron fees, with elements of residual rate-setting for airline terminal rentals and landing fees. The Landside

Susquehanna Area Regional Airport Page | 19 April 6, 2017 Authority Airport System Revenue Bonds

Cost Center accounts largely for public and employee parking areas, circulation roadways, rental car facilities, and non-aeronautical buildings. A portion of excess revenues generated from the Landside Cost Center are used to credit the signatory airlines’ terminal rental rates. SARAA operates an independent water and sewer treatment facility located on airport grounds. All costs associated with providing this service are proportionately billed to the appropriate cost centers. The use agreement also provides for preferential leasing of airline space and in KBRA’s opinion, offers SARAA limited control of capital projects. The airport director retains full discretion in determining the optimal utilization of all gates.

In the unlikely scenario that current rates and charges generate insufficient revenues to meet the cost center requirements or provisions set forth in the indenture, the Airport has the ability to appropriately adjust fees. The indenture establishes a set of accounts and flow of funds that governs how airport revenues are held and dispersed after they are collected by SARAA. The Indenture also requires the preparation of financial statements that are in conformity with generally accepted accounting principles.

Extraordinary Adjustments and Coverage Protection In the event of significant revenue shortfalls, the use agreement contains provisions allowing SARAA to increase terminal rental rates landing fees, and assess surcharges to signatory airlines. Specifically, SARAA can increase landing fee rates on signatory airlines if quarterly landing fee revenues are at least 10.0% below budgeted projections. If a signatory airline files for bankruptcy and SARAA cannot collect revenues in an amount that causes a revenue shortfall of at least 10.0%, the use agreement grants SARAA the right to assess signatory airlines with surcharges to landing fees or terminal rental rates. Lastly, SARAA can adjust signatory airline fixed rental fees and per-turn fees for terminal rental space if PFC revenue collections fall at least 10.0% below budgeted projections. All rate increases or surcharges are capped at the projected revenue shortfall.

Additionally, the use agreement contains extraordinary coverage protections in order to ensure compliance with SARAA’s rate covenant. SARAA can assess a surcharge to the landing fee rate on signatory airlines, in an amount sufficient to remain compliant with the rate covenant. This surcharge is prorated among airlines based on annual estimated landed weight.

Revenue Sharing In order to assist airlines in controlling costs, the use agreement also contains a revenue sharing component. Revenue sharing payments are made in two lump sum allocations following the close of the given fiscal year. Net revenues of the Airport, after meeting all deposit requirements as laid out in the Indenture, are split 50.0% to SARAA and 50.0% to the signatory airlines. The 50.0% credited to SARAA is deposited into the capital improvement account and can be used at the discretion of SARAA. The 50.0% credited to the signatory airlines is distributed using a formula that evenly weights the airlines’ share of enplaned passengers and landed weight over the course of the given fiscal year.

Historic Financial Performance Despite recent operational and economic challenges, SARAA’s financial performance remains stable and debt service coverage has remained above the 1.25x rate covenant. Between FY 2011 and FY 2015, revenues grew at a compound annual growth rate of 0.1% while expenses grew at a rate of 2.6%. As a result, SARAA’s operating margin, net of depreciation, declined from approximately 45.6% in FY 2011 to 39.9% in FY 2015. Preliminary figures for FY 2016 suggest that SARAA’s financial performance improved, with estimated revenue growth of 3.7%. Due to the unplanned implementation of certain IT infrastructure, FY 2016 operating expenses were 3.8% higher than budgeted expectations. Due to increased passenger volume and corresponding

Susquehanna Area Regional Airport Page | 20 April 6, 2017 Authority Airport System Revenue Bonds

growth in PFC revenues, senior lien debt service coverage improved from 2.35x in FY 2015 to an estimated 2.44x in FY 2016. Combined senior and subordinate debt service coverage improved over the same period from 1.28x to 1.33x, which KBRA views positively. SARAA management remains focused on controlling expense growth while further growing and diversifying revenues.

In FY 2015, airline revenues represented approximately 40.0% of total operating revenues. Non- airline revenue growth has been minimal, given MDT’s limited concession activities. However, vehicle rental revenues and parking fees have grown at compound annual growth rates of 2.9% and 1.3% respectively, which KBRA views positively. FY 2015 non-airline revenues per enplaned passenger were approximately $26.58, which KBRA views as strong. Further growth in non-airline revenues such as parking fees, rental car fees, and concessions should reduce airline costs and could incentivize growth in airline activity at MDT. In FY 2015, operating expenses per enplaned passenger were approximately $26.62, which KBRA views as high. Offsetting this expense level, to some extent, are MDT’s limited capital needs in the near to medium term and projected stabilization of signatory airlines.

Airline Cost Per Enplanement (CPE) Airline costs at MDT have generally remained stable with a slight increase in FY 2015 due to the exit of Frontier Airlines. Airline costs per enplaned passenger remain high, especially for a small hub airport, averaging $14.21 between FY 2011 and FY 2015. FY 2015 cost per enplaned passenger was $15.15. Due to enplanement growth, SARAA management estimates that airline costs per enplaned passenger decreased slightly to $15.06 in FY 2016.

Susquehanna Area Regional Airport Page | 21 April 6, 2017 Authority Airport System Revenue Bonds

Stress Case KBRA undertook a stress case to the determine the impact on CPE based on an additional scale- back of operations by one of MDT’s signatory airlines. It was assumed that enplanements declined by 11.5% in 2017, which is equal to Allegiant Air’s share of enplaned passengers in FY 2016. This is followed by an immediate recovery of one-third of enplanements by another airline. KBRA bases this conservative stress assumption on the Authority’s demonstrated ability to quickly recover the majority of enplanement declines caused by the loss of a carrier. Following the partial enplanement recovery in FY 2018, KBRA assumes enplanement growth of 1.0% every four years. Under the stress case, non-airline revenues correspondingly decline by 10.0% in FY 2017 followed by an annual recovery of 0.5%. Assuming 1.0% annual growth in operating expenses, minimal investment income and revenue sharing, and $1,000,000 in coverage account proceeds, cost per enplanement rises to a maximum of $22.32 in 2033 and subsequently declines until all outstanding bonds mature in 2038. While this is certainly a substantial increase, KBRA believes this scenario is unlikely. KBRA believes that management would significantly scale back operating expenses to ensure airline costs remain within reasonable range of current levels.

System Liquidity SARAA has substantially improved its liquidity position since FY 2010. As of December 31, 2010, SARAA had approximately $4.5 million of available funds, which equated to approximately 124 days cash on hand. By FY 2014, SARAA’s liquid reserves increased to $7.0 million or 170 days

Susquehanna Area Regional Airport Page | 22 April 6, 2017 Authority Airport System Revenue Bonds

cash on hand. After a slight decline in liquid reserves in FY 2015, management estimates the FY 2016 liquidity substantially increased to $8.1 million or 178 days cash on hand relative to estimated FY 2016 expenses. KBRA views SARAA’s liquidity level as strong, especially for an airport operating under a hybrid rate-setting methodology with residual elements. Reflecting SARAA’s relatively high, albeit declining debt burden, the Airport’s FY 2016 estimated ratio of debt to available cash of approximately 16.9x is extremely weak for a small hub airport.

Retirement Benefits SARAA provides retirement benefits to all full-time employees through a 401(a) defined contribution retirement plan. SARAA matches employee contributions to the plan, up to 4.0% of salary and wages. In FY 2015, SARAA contributed $179,746 to the retirement plan.

Based on the foregoing, KBRA views SARAA’s finances as being consistent with an BBB+ rating determinant rating. This assessment is based on the Airport’s stable historical debt service coverage at or slightly above financial covenants, strong and improving liquidity levels, and diverse revenue sources that are not reliant solely on airline payments. Offsetting these strengths, are SARAA’s elevated level of expenses relative to enplanements and extremely high debt burden relative to its available financial resources. KBRA recognizes the extraordinary financial protections offered to SARAA in the current use agreement. However, this strength is somewhat limited by the higher airline costs at MDT compared to airports of a similar scale. The Airport’s current use agreement offers SARAA extremely strong protections, including the ability to raise airline fees and assess surcharges to signatory airlines in order to maintain financial operations and remain in compliance with covenants. Rating Determinant 6: Legal Mechanics and Security Provisions

KBRA views the security provisions supporting SARAA’s airport revenue bonds as beneficial. The master and supplemental bond indentures establish a lien on and security interest in all net airport system revenues. They also set forth a relatively restrictive additional bonds test. The supplemental indentures include a debt service reserve fund requirement set at maximum annual debt service and a closed loop flow of funds with monthly debt service deposits to the bond trustee. Bondholders also benefit from two extraordinary rate adjustment provisions included within the airline-airport use agreements. These provisions enable SARAA to compensate for revenue shortfalls by adjusting rates and fees paid by signatory airlines during the fiscal year.

Revenue Pledge The bonds are limited obligations of SARAA, payable from and secured by a pledge of and lien on net revenues of the airport system. The master trust indenture defines revenues as income, receipts, earnings and revenues received by SARAA from the operations and ownership of the Airport System. Revenues generally include all rates, tolls, fees, rentals, charges and other payments made to or owed to SARAA. PFC and LOI revenues can be used to offset airport revenue bond debt service but are not included within the definition of airport system revenues.

Rate Covenant SARAA will set rates and charges so that net airport system revenue, in each fiscal year, will fully cover operating and maintenance expenses and annual airport revenue bond debt service (net of pledged PFCs and LOI grant receipts). Rates will also provide for required debt service reserve fund deposits (if any). The rate covenant also requires that net revenues, together with amounts on deposit in the rolling coverage account, will at least equal 125% of aggregate annual debt service. Amounts on deposit in the coverage account cannot account for greater than 25% of

Susquehanna Area Regional Airport Page | 23 April 6, 2017 Authority Airport System Revenue Bonds

debt service coverage. For purposes of the rate covenant calculation, annual debt service can be offset by PFCs and/or LOI grants if they have been irrevocably committed to pay principal and/or interest on outstanding bonds. KBRA views the rate covenant as adequate, but notes that the rolling coverage allowance is somewhat permissive given the size of airport operations and the ability to offset debt service with pledged PFC and LOI grants.

Additional Bonds Test SARAA may issue additional bonds by producing an authorized certificate to the bond trustee demonstrating compliance with one of the following additional bonds tests. The tests are restrictive and, in KBRA’s view, provide bondholders with an adequate level of protection against the over leveraging system revenues. The tests are as follows:

(i) Net revenues for any 12 consecutive months out of the past 18 consecutive months immediately preceding the date of issuances were at least equal to 110% of maximum aggregate annual debt service with respect to all outstanding bonds and bonds to be issues. Net revenues may be adjusted to reflect any increase in rates, charges and fees which became effective prior to the issuance of the proposed bonds, OR

(ii) Net revenues will satisfy the rate covenant after issuance of the proposed debt in each of the first three fiscal years following the date on which the project financed with additional debt is expected to be completed, or during each of the first five fiscal years following the date of issuance of such bonds, whichever is later.

SARAA is not required to demonstrate ABT compliance for the issuance of refunding bonds or for completions bonds that do not exceed 15% of the principal amount of the original issuance.

PFCs SARAA has irrevocably committed to transfer all PFC revenues associated with the first $4.50 per enplaned passenger, on a pro rata basis, to the series 2008 and 2012 airport revenue bond debt service funds. This commitment extends through fiscal year 2018 and KBRA expects that SARAA will renew this commitment after 2018.

The $4.50 PFC rate is the maximum per enplanement charge amount allowable under current legislation. The transfers offset or reduce the amount of annual debt service that is payable from airport system revenues. PFCs are not included in the definition of revenue. SARAA projects that it will collected $2.32 million in PFC revenues in 2017, which is 12.4% less than the amount collected in 2012. The reduced collection amounts largely reflect Frontier’s decision to focus on other markets.

Other Reserves The bond indentures create additional reserve funds and accounts that SARAA must maintain and replenish from net revenues. SARAA is required to value account balances on an annual bases. Deficiencies within the maintenance and operation reserve fund are replenished in twelve equal monthly installments and deficiencies within the renewal and replacement fund are replaced within twenty-four monthly installments.

The airport general fund is at the bottom of the flow of funds. Surplus funds deposited into the general fund are first applied to the coverage account in amounts necessary to meet the rate covenant. After that, the surplus funds are deposited into the capital improvement account until

Susquehanna Area Regional Airport Page | 24 April 6, 2017 Authority Airport System Revenue Bonds

the account balance equals $500,000. The next $500,000 in surplus revenues are deposited into the revenue credit account and distributed to the signatory airlines in two lump-sum payments within the following fiscal year. Surplus revenue amounts that are over $1.0 million are divided equally between the capital improvement account and the revenue credit account.

Airport General Fund Operation & Renewal and Capital Account/Fund Revenue Credit Maintenance Replacement Coverage Account Improvement Name Account Reserve Fund Fund Account Amounts equal to Stated Account Amount equal to First $500,000 + Second $500,000 25% of annual Deposit next two months $500,000 50% of amounts + 50% of amounts required debt Requirement operating budget over $1.0 million over $1.0 million service

Balance as of December 31, $2,667,645* $501,232* $2,419,624* $2,087,277* 421,002** 2017

Note* Amounts are projected and unaudited. Note** Amount has been adjusted to reflect $666,300 in revenues shared with signatory airlines in 2016. Debt Service Reserve Funds The supplemental bond indentures set forth the requirement for series specific debt service reserve funds that hold amounts equal to the maximum aggregate annual debt service for all series of bonds. The reserve funds for all series of bonds are fully funded with cash in the aggregate amount of $12.0 million. SARAA is required to replenish any deficiencies in twelve equal installments beginning in January of the fiscal year after the draw occurred. Prior to drawing on the debt service reserve fund, SARAA would likely increase revenues using the extraordinary debt service coverage provision within the airline-airport use agreement. KBRA views the fully funded debt service reserve requirement as adequate, given the size of airport operations and the ability to offset debt service with pledged PFC and LOI grants.

Susquehanna Area Regional Airport Page | 25 April 6, 2017 Authority Airport System Revenue Bonds

Flow of Funds The master trust indenture sets forth a closed loop flow of funds in which surplus revenues are restricted to lawful purposes of SAARA. SARAA covenants to deposit pledged revenues into the airport system revenue fund, promptly after receipt, and to apply revenues in the order of priority set forth in the following table. The supplemental bond indentures require SARAA to make equal incremental principal and interest payments to the bond trustee by the tenth day of each month, which KBRA views as positive.

Flow of Funds Pursuant to Master Trust Indenture

Airport System Revenues PFC Fund Depository for all PFC collections

Maintenance and Operation Expenses

Senior Debt Service Fund*

Senior Debt Service Reserve Fund*

Subordinated Obligation Debt Service Fund*

Subordinated Obligation Debt Service Reserve Fund*

Junior Obligation Debt Service

Maintenance and Operation Reserve Fund

Renewal and Replacement Fund

General Fund

Coverage Account Amount equal to 25% of annual senior bond debt service PFC Capital Account To pay PFC approved Capital Improvement Account First $500,000 +50% of amounts over $1.0 million projects, debt service, any other FAA approved purpose Revenue Credit Account Second $500,000 +50% of amounts over $1.0 million

* Held and maintained by the Bond Trustee

Based on KBRA’s assessment of the Legal Mechanics and Security Provisions, an A+ rating has been assigned to this rating determinant.

Susquehanna Area Regional Airport Page | 26 April 6, 2017 Authority Airport System Revenue Bonds

Bankruptcy Assessment SARAA is a Pennsylvania joint municipality SARAA created by the Counties of Dauphin, Cumberland, and York, the Cities of Harrisburg and York, and the Townships of Fairview and Lower Swatara under the Pennsylvania law. KBRA has consulted outside counsel and it is KBRA’s understanding that SARAA is a political subdivision under Pennsylvania state law, and a municipality as defined under the U.S. Bankruptcy Code. To be a debtor under the municipal bankruptcy provisions of the U.S. Bankruptcy Code (Chapter 9), a local governmental entity must, among other things, qualify under the definition of “municipality” in the Bankruptcy Code, and must also be specifically authorized to file a bankruptcy petition by the State in which it is located. KBRA understands that the Pennsylvania statute authorizing Chapter 9 filings, called Act 47, applies only to municipalities, and not to school districts or authorities. Accordingly, Pennsylvania law does not currently permit SARAA to file for protection under the U.S. Bankruptcy Code. Of course, state law can be amended generally, or a specific bill can be passed to permit a particular municipal issuer to seek Chapter 9 relief, so Pennsylvania law could change in the future.

Because the pledged net revenues for payment of the bonds are generated by revenue from the airport system’s various airline fees, parking fees, and other revenues of the airport system, KBRA understands that net revenues will qualify as “special revenues” as that term is defined in the bankruptcy code. Thus, to KBRA's understanding, even if SARAA were authorized to file for protection under Chapter 9, assuming there is no shortfall of funds to make debt service such filing should have little to no effect on the payment of the bonds during a bankruptcy case of SARAA, since the bonds are secured by a pledge of special revenues. That stated, there are several additional issues that arise. In determining necessary operating expenses for the airport system, in a Chapter 9 case the bankruptcy court may not be limited by the provisions defining “net revenues,” or capital or operational expenses, or otherwise governing the flow of funds, in the master indenture or other bond issuance documents. In addition, while there is no case law from which to make a definitive judgment, it is possible that, in the context of confirming a plan of adjustment in a Chapter 9 case where the plan has not received the requisite consent of the holders of the bonds, a bankruptcy court may confirm a plan that adjusts the timing of payments on the bonds or the interest rate or other terms of the bonds, provided that (i) the bondholders retain their lien on the special revenues and (ii) the payment stream has a present value equal to the value of the special revenues subject to the lien.

Given that a substantial portion of the net revenues to be deposited in accordance with the master indenture is derived from rentals, fees and charges imposed upon the signatory airlines pursuant to the airline-airport use agreements, the bankruptcy of a signatory airline could have an effect on the ability of SARAA to fully pay debt service. In the event a bankruptcy case is filed with respect to an airline operating at MDT, the airline-airport use agreements, lease or permit governing such airline’s use of airport system space would constitute an executory contract or unexpired lease pursuant to the United States Bankruptcy Code. In Chapter 11 cases, the debtor in possession or a trustee, if one is appointed, has 120 days from the date of filing of the bankruptcy petition to decide whether to keep (“assume”) or jettison (“reject”) a nonresidential lease, such as the airline-airport use agreement. The 120-day period may be extended by court order for an additional 90 days for cause. Any additional extensions are prohibited unless the debtor airline or trustee obtains SARAA’s consent and a court order.

KBRA understands that, under the bankruptcy code, were a bankruptcy trustee or the airline as debtor in possession to elect to reject an executory contract or unexpired lease of non-residential real property, the rejection is deemed to be a default immediately before the date of the filing of the bankruptcy petition. KBRA further understands that under the bankruptcy code, upon

Susquehanna Area Regional Airport Page | 27 April 6, 2017 Authority Airport System Revenue Bonds

rejection of an unexpired lease the airline debtor must surrender the relevant non-residential real property to the lessor. As a result, rejection of an unexpired lease by an airline debtor may result in SARAA unexpectedly regaining control of the applicable facilities (including gates and boarding areas). SARAA could then lease or permit such facilities to other airlines. SARAA’s ability to lease such facilities to other airlines may of course depend on the state of the airline industry in general, on the nature and extent of the increased capacity at the Airport resulting from the departure of the debtor airline, and on the need for such facilities.

KBRA understands that, under the bankruptcy code, any rejection of a lease or other agreement could also result in a claim by SARAA for rejection damages against the debtor airline. Such claim would be in addition to all pre-bankruptcy amounts owed by the debtor airline. KBRA understands that, with respect to leases, a rejection damages claim for the rent due under a lease is capped under the bankruptcy code at the greater of one year, or 15% (but not to exceed three years), of the remaining term of the lease. KBRA understands that rejection damages claims are generally treated as a general unsecured claim of the airline debtor, and the ultimate recovery by SARAA could be considerably less than this cap. However, SARAA may have rights against any faithful performance bond or letter of credit required of an airline to secure its obligations under the airline-airport use agreements and/or the right to set off against credits owed to the airline under relevant agreements.

Alternatively, under the bankruptcy code, KBRA understands that an airline debtor can “assume” its executory contracts and unexpired leases. KBRA understands that the bankruptcy code further provides for an airline debtor to assume and assign its executory contracts and leases to a third party, subject to certain conditions. KBRA understands that if the bankruptcy trustee or the airline in bankruptcy assumes its executory contracts or unexpired leases as part of reorganization, the airline debtor must “cure” or provide adequate assurance that the airline debtor will promptly cure its prepetition defaults, including arrearages in amounts owed. Even if all such amounts owed are eventually paid, SARAA could experience delays of many months or more in collecting them.

Conclusion KBRA has assigned a long-term rating of BBB+ with a Stable Outlook to the Susquehanna Area Regional Airport Authority’s outstanding Airport System Revenue Bonds.

Susquehanna Area Regional Airport Page | 28 April 6, 2017 Authority Airport System Revenue Bonds

© Copyright 2017, Kroll Bond Rating Agency, Inc., and/or its licensors and affiliates (together, "KBRA”). All rights reserved. All information contained herein is proprietary to KBRA and is protected by copyright and other intellectual property law, and none of such information may be copied or otherwise reproduced, further transmitted, redistributed, repackaged or resold, in whole or in part, by any person, without KBRA’s prior express written consent. Ratings are licensed by KBRA under these conditions. Misappropriation or misuse of KBRA ratings shall cause serious damage to KBRA for which money damages may not constitute a sufficient remedy; KBRA shall have the right to obtain an injunction or other equitable relief in addition to any other remedies. The statements contained in this report are based solely upon the opinions of KBRA and the data and information available to the authors at the time of publication of this report. All information contained herein is obtained by KBRA from sources believed by it to be accurate and reliable; however, KBRA ratings are provided “AS IS”. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any rating or other opinion or information is given or made by KBRA. Under no circumstances shall KBRA have any liability resulting from the use of any such information, including without limitation, for any indirect, special, consequential, incidental or compensatory damages whatsoever (including without limitation, loss of profits, revenue or goodwill), even if KBRA is advised of the possibility of such damages. The credit ratings, if any and analysis constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities.

Susquehanna Area Regional Airport Page | 29 April 6, 2017 Authority Airport System Revenue Bonds

MASTER TRUST INDENTURE

by and between

SUSQUEHANNA AREA REGIONAL AIRPORT AUTHORITY

and

MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee

Dated as of April 15, 2003 TABLE OF CONTENTS

Page

ARTICLE I - DEFINITIONS; INTERPRETATION 2

Section 1.01. Definitions 2 Section 1.02. Rules of Interpretation 22

ARTICLE II - FORM, EXECUTION, DELIVERY AND REGISTRATION OF BONDS 23

Section 2.01. Issuance of Bonds; Form; Dating 23 Section 2.02. Terms, Medium and Place of Payment 23 Section 2.03. Execution and Authentication 23 Section 2.04. Bond Register 24 Section 2.05. Mutilated, Lost, Stolen or Destroyed Bonds 24 Section 2.06. Registration and Transfer or Exchange of Bonds; Persons Treated as Owners 25 Section 2.07. Destruction of Bonds 25 Section 2.08. Temporary Bonds 26 Section 2.09. Issuance of Series of Bonds; Supplemental Indenture; Application of Bond Proceeds 26 Section 2.10. Refunding Bonds 27 Section 2.11. Tests for Issuance of Bonds 27 Section 2.12. Issuance of Initial Bonds 28 Section 2.13. Repayment Obligations Afforded Status of Bonds 29 Section 2.14. Obligations Under Qualified Swap; Nonqualified Swap 29

ARTICLE III - REDEMPTION OF BONDS 30

ARTICLE IV - REVENUES AND FUNDS 30

Section 4.01. Bonds Secured by a Pledge and Lien on Net Revenues 30 Section 4.02. Receipt, Deposit and Use of Revenues - Revenue Fund 31 Section 4.03. Funding of Debt Service Fund 32 Section 4.04. Authorization for Creation of Construction Fund 33 Section 4.05. Creation of Debt Service Fund 33 Section 4.06. Creation of Debt Service Reserve Fund 33 Section 4.07. Creation of Maintenance and Operation Reserve Fund 34 Section 4.08. Creation of Renewal and Replacement Fund 34 Section 4.09. Creation of General Fund 34 Section 4.10. Creation of PFC Fund 35 Section 4.11. Creation of LOI Fund 35 Section 4.12. Moneys Held in Trust for Matured Bonds; Unclaimed Moneys 35 Section 4.13. Additional Security 36 ARTICLE V - COVENANTS OF THE AUTHORITY 36

Section 5.01.Payment of Principal and Interest 36 Section 5.02.Performance of Covenants by Authority 36 Section 5.03.Senior Lien Obligations Prohibited 36 Section 5.04.Rate Covenant 36 Section 5.05.No Inconsistent Contract Provisions 38 Section 5.06.Subordinated Obligations 38 Section 5.07.Special Facilities and Special Facility Obligations 38 Section 5.08.Maintenance of Powers 39 Section 5.09.Maintenance and Operation of Airport System 40 Section 5.10.Insurance; Application of Insurance Proceeds 40 Section 5.11.Financial Records 41 Section 5.12.Transfer of Airport Facility or Airport Facilities 42 Section 5.13.Eminent Domain 43 Section 5.14.Covenant Against Competing Facilities 43 Section 5.15.Completion of Specified Project; Substitution of Specified Project 43 Section 5.16.Covenants of Authority Binding on Authority and Successors 44 Section 5.17.Instruments of Further Assurance 44 Section 5.18.Indenture To Constitute a Contract 44 Section 5.19.Obligations Secured by Other Revenues 44 Section 5.20.Operating Budget 45

ARTICLE VI -INVESTMENTS 45

ARTICLE VII -DEFEASANCE 46

ARTICLE VIII- DEFAULTS AND REMEDIES 47

Section 8.01.Events of Default 47 Section 8.02.Remedies 48 Section 8.03.Restoration to Former Position 49 Section 8.04.Bondholders' Right To Direct Proceedings 49 Section 8.05.Limitation on Right To Institute Proceedings 49 Section 8.06.No Impairment of Right To Enforce Payment 49 Section 8.07.Proceedings by Trustee Without Possession of Bonds 49 Section 8.08.No Remedy Exclusive 50 Section 8.09.No Waiver of Remedies 50 Section 8.10.Application of Moneys 50 Section 8.11.Severability of Remedies 51 Section 8.12.Additional Events of Default and Remedies 51

ARTICLE IX - TRUSTEE, PAYING AGENT AND CO -PAYING 51

Section 9.01. Acceptance of Trusts 51

ii Section 9.02. Duties of Trustee 51 Section 9.03. Rights of Trustee 52 Section 9.04. Individual Rights of Trustee 53 Section 9.05. Trustee's Disclaimer 53 Section 9.06. Notice of Defaults 53 Section 9.07. Compensation of Trustee 54 Section 9.08. Eligibility of Trustee 54 Section 9.09. Replacement of Trustee 54 Section 9.10. Successor Trustee or Agent by Merger 55 Section 9.11. Paying Agent 55 Section 9.12. Registrar 55 Section 9.13. Other Agents 55 Section 9.14. Several Capacities 55 Section 9.15. Accounting Records and Reports of the Trustee 56

ARTICLE X - MODIFICATION OF THIS INDENTURE 56

Section 10.01. Limitations 56 Section 10.02. Supplemental Indentures Not Requiring Consent of Bondholders 56 Section 10.03. Supplemental Indenture Requiring Consent of Bondholders 58 Section 10.04. Effect of Supplemental Indenture 59 Section 10.05. Supplemental Indentures To Be Part of This Indenture 59

ARTICLE XI - CREDIT PROVIDERS 60

ARTICLE XII - MISCELLANEOUS PROVISIONS 60

Section 12.01. Parties in Interest 60 Section 12.02. Severability 60 Section 12.03. No Personal Liability 60 Section 12.04. Execution of Instruments; Proof of Ownership 61 Section 12.05. Governing Law 61 Section 12.06. Notices 61 Section 12.07. Holidays 62 Section 12.08. Counterparts 62

iii MASTER TRUST INDENTURE

THIS MASTER TRUST INDENTURE (this "Indenture "), dated as of April 15, 2003, is by and between SUSQUEHANNA AREA REGIONAL AIRPORT AUTHORITY (the "Authority"), a body corporate and politic existing under the Municipality Authorities Act of the Commonwealth of Pennsylvania (the "Commonwealth "), and MANUFACTURERS AND TRADERS TRUST COMPANY, having a trust office in Harrisburg, Pennsylvania, a New York state chartered bank with trust powers, as trustee (the "Trustee ").

RECITALS

WHEREAS, the Authority is a municipality authority organized and existing under the Act, pursuant to ordinances enacted by the respective governing bodies of the Municipalities; and

WHEREAS, the Act specifies that the purposes of the Authority, inter alla, shall be for "acquiring, holding, constructing, improving, maintaining and operating, owning, leasing either in the capacity of lessor or lessee...airports, and all facilities necessary or incident thereto "; and

WHEREAS, the Act provides that the Authority shall have the power "to pledge, hypothecate or otherwise encumber all or any of the revenues and receipts of the Authority as security for all or any of the obligations of the Authority" and "to borrow money, make and issue negotiable notes, bonds, refunding bonds, and other evidences of indebtedness"; and

WHEREAS, the Authority has determined that it is necessary and advisable to issue bonds and other indebtedness from time to time for the purposes set forth in the Act and this Indenture and that such bonds and other indebtedness be payable from and secured by the Net Revenues; and

WHEREAS, the Authority wishes to provide in this Indenture for the issuance and payment of its bonds and other indebtedness and the pledge, charge and lien of the Net Revenues with respect thereto, and the Trustee is willing to accept the trusts provided in this Indenture;

NOW, THEREFORE, the Authority and the Trustee agree as follows, each for the benefit of the other and/or the benefit of holders of the bonds secured by this Indenture (the "Bonds "): GRANTING CLAUSE

To secure the payment of the interest, principal and premium, if any, on the Bonds and the performance and observance by the Authority of all the covenants, agreements and conditions expressed or implied herein or contained in the Bonds, the Authority hereby pledges and assigns to the Trustee and grants to the Trustee, to the extent provided herein, a lien on and security interest in all right, title and interest of the Authority in and to all of the following and provides that such lien and security interest shall be prior in right to any other pledge, lien or security interest created by the Authority in the following: (a) the Net Revenues, (b) all moneys and securities held from time to time by the Trustee under this Indenture (excluding moneys and securities on deposit in any Rebate Fund) and, to the extent provided in any Supplemental Indenture, moneys and securities held in any Construction Fund whether or not held by the Trustee, (c) earnings on amounts included in provisions (a) and (b) of this Granting Clause (except to the extent excluded from the definition of "Revenues" by this Indenture), and (d) any and all other funds, assets, rights, property or interests therein, of every kind or description which may from time to time hereafter, by delivery or by writing of any kind, be sold, transferred, conveyed, assigned, pledged, mortgaged, granted or delivered to or deposited with the Trustee as additional security hereunder, for the equal and proportionate benefit and security of all Bonds, all of which, regardless of the time or times of their authentication and delivery or maturity, shall, with respect to the security provided by this Granting Clause, be of equal rank without preference, priority or distinction as to any Bond over any other Bond or Bonds, except as to the timing of payment of the Bonds. Moneys in the Debt Service Reserve Fund and any Debt Service Reserve Fund Surety Policy, as defined hereinafter, provided at any time in satisfaction of all or a portion of the Debt Service Reserve Requirement and any other security, Liquidity Facility or Credit Facility provided for specific Bonds, a specific Series of Bonds or one or more Series of Bonds may, as provided by a Supplemental Indenture, secure only such specific Bonds, Series of Bonds or one or more Series of Bonds and, therefore, shall not be included as security for all Bonds under this Indenture unless otherwise provided by a Supplemental Indenture, and moneys and securities held in trust as provided in Section 4.12 exclusively for Bonds which have become due and payable and moneys and securities which are held exclusively to pay Bonds which are deemed to have been paid under Article VII hereof shall be held solely for the payment of such specific Bonds.

ARTICLE I

DEFINITIONS; INTERPRETATION Section 1.01. Definitions.The capitalized terms used in this Indenture and in any Supplemental Indenture shall, for all purposes of this Indenture, have the meanings specified in this Article I, unless a different definition is given such term in said Supplemental Indenture or unless the context clearly requires otherwise.

"Account" or `Accounts" means an account or accounts, as applicable, created pursuant to Article IV hereof or any Supplemental Indenture.

"Accreted Value" means, as of any date of calculation, the sum of the initial principal amount of any Capital Appreciation Bond plus the interest accumulated and unpaid thereon as of a date certain specified for such calculation, determined in accordance with the provisions of the Supplemental Indenture authorizing the issuance of such Capital Appreciation Bond.

"Act" means the Municipality Authorities Act, Act No. 22 approved on June 19, 2001; 53 Pa.C.S.A. § 5601 et seq., as amended and supplemented.

"Administrative Expenses" means compensation and expenses of officers and members of the Authority; legal, printing, advertising, engineering, architectural and auditing fees and expenses; fees and expenses of the Trustee, Subordinate Obligation Trustee and any other authorized depository and other items of general administrative expense incurred by the

2 Authority, all of the foregoing being subject to proper allocation to various projects of the Authority, if applicable.

"Aggregate Annual Debt Service" means for any Fiscal Year the aggregate amount of Annual Debt Service on all Outstanding Bonds and Unissued Program Bonds. For purposes of calculating Aggregate Annual Debt Service, the following components of debt service shall be computed as follows: (a) in determining the amount of principal to be funded in each year, payment shall (unless a different subsection of this definition applies for purposes of determining principal maturities or amortization) be assumed to be made on Outstanding Bonds and Unissued Program Bonds in accordance with any amortization schedule established by the governing documents setting forth the terms of such Bonds, including, as a principal payment, the Accreted Value of any Capital Appreciation Bonds maturing or scheduled for redemption in such year; in determining the amount of interest to be funded in each year, interest payable at a fixed rate shall (except to the extent subsection (b), (c) or (d) of this definition applies) be assumed to be made at such fixed rate and on the required funding dates; provided, however, that interest payable on the Bonds shall be excluded to the extent such payments are to be paid from Capitalized Interest for such Fiscal Year;

(b) if all or any portion or portions of an Outstanding Series of Bonds or Unissued Program Bonds constitute Balloon Indebtedness (excluding Program Bonds or Unissued Program Bonds to which subsection (f) applies), then, for purposes of determining Aggregate Annual Debt Service, each maturity which constitutes Balloon Indebtedness shall, unless otherwise provided in the Supplemental Indenture pursuant to which such Balloon Indebtedness is issued or unless provision (c) of this definition then applies to such maturity, be treated as if it were to be amortized over a term of not more than 30 years and with substantially level annual debt service funding payments commencing not later than the year following the year in which such Balloon Indebtedness was issued, and extending not later than 30 years from the date such Balloon Indebtedness was originally issued; the interest rate used for such computation shall be that rate quoted in The Bond Buyer 25 Revenue Bond Index, or such successor or replacement index, for the last week of the month preceding the date of calculation as published by The Bond Buyer, or if that index is no longer published, another similar index selected by the Authority, or if the Authority fails to select a replacement index, that rate determined by a Consultant to be a reasonable market rate for fixed -rate Bonds of a corresponding term issued under this Indenture on the date of such calculation, with no credit enhancement and taking into consideration whether such Bonds bear interest which is or is not excluded from gross income for federal income tax purposes; with respect to any Series of Bonds, Unissued Program Bonds or Program Bonds only a portion of which constitutes Balloon Indebtedness, the remaining portion shall be treated as described in (a) above or such other provision of this definition as shall be applicable and, with respect to any Series of Bonds, Unissued Program Bonds or Program Bonds or that portion of a Series of Bonds thereof which constitutes Balloon Indebtedness, all funding requirements of principal and interest becoming due prior to the year of the stated maturity of the Balloon Indebtedness shall be treated as described in (a) above or such other provision of this definition as shall be applicable;

3 (c) any maturity of Bonds which constitutes Balloon Indebtedness as described in provision (b) of this definition and for which the stated maturity date occurs within 12 months from the date such calculation of Aggregate Annual Debt Service is made, shall be assumed to become due and payable on the stated maturity date and provision (b) above shall not apply thereto unless there is delivered to the entity making the calculation of Aggregate Annual DebtServiceacertificateof an Authorized Authority Representative stating that the Authority intends to refinance such maturity and stating the probable terms of such refinancing and that the debt capacity of the Authority is sufficient to successfully complete such refinancing; upon the receipt of such certificate, such Balloon Indebtedness shall be assumed to be refinanced in accordance with the probable terms set out in such certificate and such terms shall be used for purposes of calculating Aggregate Annual Debt Service, provided that such assumption shall not result in an interest rate lower than that which would be assumed under provision (b) above and shall be amortized over a term of not more than 30 years from the date of refinancing;

(d) if any Outstanding Bonds (including Program Bonds) or any Bonds which are then proposed to be issued constitute Tender Indebtedness (but excluding Program Bonds or Bonds as to which a Qualified Swap is in effect and to which subsection (g) or (h) applies), then, for purposes of determining Aggregate Annual Debt Service, Tender Indebtedness shall be treated as if the principal amount of such Bonds were to be amortized over a term of not more than 30 years commencing in the year in which such Series isfirst subject to tender and with substantially level Annual Debt Service payments and extending not later than 30 years from the date such Tender Indebtedness was originally issued; the interest rate used for such computation shall be that rate quoted in The Bond Buyer 25 Revenue Bond Index, or such successor or replacement index, for the last week of the month preceding the date of calculation as published by The Bond Buyer, or if that index is no longer published, another similar index selected by the Authority, or if the Authority fails to select a replacement index, that rate determined by a Consultant to be a reasonable market rate for fixed -rate Bonds of a corresponding term issued under this Indenture on the date of such calculation, with no credit enhancement and taking into consideration whether such Bonds bear interest which is or is not excluded from gross income for federal income tax purposes; and with respect to all funding requirements of principal and interest payments becoming due prior to the year in which such Tender Indebtedness is first subject to tender, such payments shall be treated as described in (a) above unless the interest during that period is subject to fluctuation, in which case the interest becoming due prior to such first tender date shall be determined as provided in (e) or (f) below, as appropriate;

(e) if any Outstanding Bonds constitute Variable Rate Indebtedness, including obligations described in subsection (h)(ii) to the extent it applies (except to the extent subsection (b) or (c) relating to Balloon Indebtedness or (d) relating to Tender Indebtedness or subsection (h)(i) relating to Synthetic Fixed Rate Debt applies), the interest rate on such Bonds shall be that rate quoted in The Bond Buyer 25 Revenue Bond Index, or such successor or replacement index, for the last week of the month preceding the date of calculation as published by The Bond Buyer, or if that index is no longer published, another similar index selected by the Authority, or if the Authority fails to

4 select a replacement index, that rate determined by a Consultant to be a reasonable market rate for variable rate Bonds of a corresponding term issued under this Indenture on the date of such calculation, with no credit enhancement and taking into consideration whether such Bonds bear interest which is or is not excluded from gross income for federal income tax purposes; (f) with respect to any Program Bonds or Unissued Program Bonds (i) debt service on Program Bonds then Outstanding shall be determined in accordance with such of the foregoing provisions of this definition as shall be applicable, and (ii) with respect to Unissued Program Bonds, it shall be assumed that the full principal amount of such Unissued Program Bonds will be amortized over a term certified by an Authorized Authority Representative at the time the initial Program Bonds of such Program are issued to be the expected duration of such Program or, if such expectations have changed, over a term certified by an Authorized Authority Representative to be the expected duration of such Program at the time of such calculation, but not to exceed 30 years from the date the initial Program Bonds of such Program are issued and it shall be assumed that debt service shall be paid in substantially level Annual Debt Service payments over such assumed term; the interest rate used for such computation shall be that rate quoted in The Bond Buyer 25 Revenue Bond Index, or such successor or replacement index, for the last week of the month preceding the date of calculation as published by The Bond Buyer, or if that index is no longer published, another similar index selected by the Authority, or if the Authority fails to select a replacement index, that rate determined by a Consultant to be a reasonable market rate for fixed -rate Bonds of a corresponding term issued under this Indenture on the date of such calculation, with no credit enhancement and taking into consideration whether such Bonds bear interest which is or is not excluded from gross income for federal income tax purposes; (g) debt service on Repayment Obligations, to the extent such obligations constitute Bonds under Section 2.13, shall be calculated as provided in Section 2.13; and

(h) for purposes of computing the Aggregate Annual Debt Service:

(i) with respect to Synthetic Fixed Rate Debt, the interest payable thereon shall, if the Authority elects, be that rate as provided for by the terms of the Qualified Swap or the net interest rate payable pursuant to offsetting indices, as applicable; or, if the Authority fails to elect such rate, then it shall be deemed to be the fixed interest rate quoted in The Bond Buyer 25 Revenue Bond Index, or such successor or replacement index, for the last week of the month preceding the date of calculation as published by The Bond Buyer, or if that index is no longer published, another similar index selected by the Authority; and

(ii) with respect to which a Qualified Swap has been entered into whereby the Authority has agreed to pay the floating variable rate thereunder, no fixed interest rate amounts payable on the Bonds to which such Swap pertains shall be included in the calculation of Aggregate Annual Debt Service, and the interest rate with respect to such Bonds shall, if the Authority elects, be the sum of that rate as determined in accordance with subsection (e) relating to Variable

5 Rate Indebtedness plus the difference between the interest rate on the Designated Debt and the rate received from the Swap Provider.

"Airport Director" means the person at a given time who is the Director of Aviation of the Authority or such other title as the Authority may from time to time assign for such position and the officer or officers succeeding to such position as certified to the Trustee by the Authority. "Airport Facilities" or "Airport Facility" means a facility or group of facilities or category of facilities which constitute or are part of the Airport System.

"Airport System" means all airports, airport sites, and all equipment, accommodations and facilities for aerial navigation, flight, instruction and commerce under the jurisdiction and control of the Authority, including the Harrisburg International Airport and the Capital City Airport and any area of land or water, which is designated for the landing and taking off of aircraft, whether or not facilities are provided for the shelter, servicing or repairing of aircraft, or for receiving or discharging passengers or cargo, and all appurtenant areas used or suitable for airport buildings or other airport facilities and all appurtenant rights -of -way, including all facilities and property related thereto, real or personal, under the jurisdiction or control of the Authority or in which the Authority has other rights or from which the Authority derives revenues at such location; and including or excluding, as the case may be, such property as the Authority may either acquire or which shall be placed under its control, or divest or have removed from its control. "Annual Debt Service" means, with respect to any Bond, the aggregate amount of Revenues required to be set aside in the Debt Service Fund during the Fiscal Year under consideration to satisfy the funding requirements for payments of principal and interest, and if a Qualified Swap is in effect for any Bond, plus the amount payable by the Authority (or the Trustee) under the Qualified Swap in accordance with the terms thereof, less any amount to be received by the Authority from the Qualified Swap Provider pursuant to the Qualified Swap, calculated using the principles and assumptions set forth in the definition of Aggregate Annual Debt Service; provided, however, that:

(a) if moneys or Permitted Investments have been irrevocably deposited with and are held by the Trustee or another fiduciary or Capitalized Interest has been set aside exclusively to be used to pay such principal and/or interest, then such principal and/or interest to be paid from such moneys, Permitted Investments, or Capitalized Interest or from the earnings thereon shall be disregarded and not included in calculating Annual Debt Service; and

(b) if Passenger Facility Charges or LOI Receipts have not been included in the definition of Revenues and have been irrevocably committed or are held by the Trustee or another fiduciary and are to be set aside exclusively to be used to pay such principal and/or interest, then such principal and/or interest to be paid from such Passenger Facility Charges or LOI Receipts or from earnings thereon shall be disregarded and not included in calculating Annual Debt Service.

6 "Authority" means Susquehanna Area Regional Airport Authority, a body corporate and politic organized and existing under the Act pursuant to ordinances enacted by the respective governing bodies of the Municipalities. Any action required or authorized to be taken by the Authority in this Indenture may be taken by the Authorized Authority Representative with such formal approvals by the Authority as are required by the policies and practices of the Authority and applicable laws; provided, however, that any action taken by the Authorized Authority Representative in accordance with the provisions of this Indenture shall conclusively be deemed by the Trustee and the Owners to be the act of the Authority without further evidence of the authorization thereof by the Authority.

"Authorized Amount" means, when used with respect to Bonds, including Bonds issued pursuant to a Program, the maximum Principal Amount of Bonds which is then authorized by a Supplemental Indenture pursuant to Section 2.09 hereof to be Outstanding at any one time under the terms of such Program or Supplemental Indenture. "Authorized Authority Representative" means the Chairman or Vice Chairman of the Authority, or such other officer or employee of the Authority or other person, which other officer, employee or person has been designated by the Board of the Authority as an Authorized Authority Representative by written notice delivered to the Trustee.

"Average Annual Debt Service" means, with respect to any Series of Bonds, the sum of the Annual Debt Service for years contained in the period under consideration divided by the number of years contained in such period.

"Balloon Indebtedness" means, with respect to any Series of Bonds 50% or more of the principal of which matures on the same date or within a Fiscal Year, that portion of such Series which matures on such date or within such Fiscal Year; provided, however, that to constitute Balloon Indebtedness the amount of Bonds of a Series maturing on a single date or within a Fiscal Year must equal or exceed 150% of the amount of such Series which matures during any Fiscal Year. For purposes of this definition, the principal amount maturing on any date shall be reduced by the amount of such Bonds, scheduled to be amortized by prepayment or redemption prior to their stated maturity date. A Commercial Paper Program and the Commercial Paper constituting part of such Program shall not be Balloon Indebtedness.

"Bond" or "Bonds" means any debt obligation of the Authority issued as a taxable or tax - exempt obligation under and in accordance with the provisions of Article II of this Indenture, including, but not limited to, bonds, notes, bond anticipation notes, commercial paper and other instruments creating an indebtedness of the Authority, Repayment Obligations to the extent provided in Section 2.13 of this Indenture, Program Bonds and obligations incurred through lease or installment purchase agreements or other agreements or certificates of participation therein. The term "Bond" or "Bonds" does not include any Subordinated Obligation.

"Bond CounseP' means a firm or firms of attorneys which are nationally recognized as experts in the area of municipal finance and which are familiar with the transactions contemplated under this Indenture and which are acceptable to the Authority.

7 "Bondholder," "holder," "Owner," "owner" or "registered owner" means the person in whose name any Bond or Bonds are registered on the books maintained by the Registrar and shall include any Credit Provider or Liquidity Provider to which a Repayment Obligation is then owed, to the extent that such Repayment Obligation is deemed to be a Bond under the provisions of Section 2.13 of this Indenture.

"Business Day" means any day other than a Saturday, Sunday or holiday or a day on which banks in the city or cities in which are located the principal corporate trust office of the Trustee, the principal office of the Paying Agent, the Registrar, the Liquidity Provider or any remarketing agent are required or authorized to close for general banking business or on which the New York Stock Exchange is closed; provided, however, that such term may have a different meaning for any specified Series of Bonds if so provided by a Supplemental Indenture. "Capital Appreciation Bonds" means Bonds all or a portion of the interest on which is compounded and accumulated at the rates and on the dates set forth in a Supplemental Indenture and is payable only upon redemption or on the maturity date of such Bonds. Bonds which are issued as Capital Appreciation Bonds, but later convert to Bonds on which interest is paid periodically shall be Capital Appreciation Bonds until the conversion date and from and after such conversion date shall no longer be Capital Appreciation Bonds, but shall be treated as having a principal amount equal to their Accreted Value on the conversion date.

"Capital Improvement Account" means the Capital Improvement Account created within the General Fund under Section 4.09 hereof.

"Capitalized Interest" means the amount of interest on Bonds, if any, funded from the proceeds of the Bonds or other monies deposited with the Trustee in the Debt Service Fund as shall be described in a Supplemental Indenture upon issuance of Bonds.

"Chairman" means the chairman of the Authority or such other title as the Authority may from time to time assign for such position.

"Code" means the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations applicable with respect thereto.

"Commercial Paper" means notes of the Authority with a maturity of not more than 270 days from the date of issuance and which are issued and reissued from time to time pursuant to a Program adopted by the Authority.

"Commercial Paper Program" means a Program authorized by the Authority pursuant to which Commercial Paper shall be issued and reissued from time to time, up to the Authorized Amount of such Program.

"Commonwealth" means the Commonwealth of Pennsylvania.

"Construction Fund" means any of the funds authorized to be created as provided by Section 4.04 hereof.

8 "Consultant" means any Independent consultant, consulting firm, engineer, architect, engineering firm, architectural firm, accountant or accounting firm, or other expert recognized to be well -qualified for work of the character required and retained by the Authority to perform acts and carry out the duties provided for such consultant in this Indenture. "Costs" or "Costs of a Project" means all costs of planning, developing, designing, financing, constructing, installing, equipping, furnishing, improving, acquiring, enlarging and/or renovating a Project and placing the same in service and shall include, but not be limited to the following: (a) costs of real or personal property, rights, franchises, easements and other interests in property, real or personal, and the cost of demolishing or removing structures and site preparation, infrastructure development, and landscaping and acquisition of land to which structures may be removed; (b) the costs of materials and supplies, machinery, equipment, vehicles, rolling stock, furnishings, improvements and enhancements; (c) costs of insurance requirements and performance and payment suretys; (d) labor and related costs and the costs of services provided, including costs of consultants, advisors, architects, engineers, accountants, planners, attorneys, financial and feasibility consultants, in each case, whether an employee of the Authority or Independent Consultant; (e) costs of the Authority properly allocated to a Project and with respect to costs of its employees or other labor costs, including the cost of medical, pension, retirement and other benefits as well as salary and wages and the allocable costs of administrative, supervisory and managerial personnel and the properly allocable cost of benefits provided for such personnel; (f) financing expenses, including costs related to issuance of and securing of Bonds, costs of Credit Facilities, Investment Agreements and Liquidity Facilities,CapitalizedInterest,Trustee'sfees and expenses, and funding the Reserve Requirement, if any; (g) any Swap Termination Payments due in connection with a Series of Bonds or the failure to issue such Series of Bonds; and (h) such other costs and expenses that can be capitalized under generally accepted accounting principles in effect at the time the cost is incurred by the Authority.

"Coverage Account" means the "Coverage Account" created by the Authority within the General Fund pursuant to Section 4.09 hereof.

"Credit Facility" means a policy of municipal bond insurance, a letter of credit, surety bond, line of credit, guarantee, standby bond purchase agreement, Debt Service Reserve Fund Surety Policy or other financial instrument which obligates a third party to make payment of or provide funds to the Trustee for the payment of the principal of and/or interest on Bonds whether such obligation is to pay in the first instance and seek reimbursement or to pay only if the Authority fails to do so.

"Credit Provider" means the party obligated to make payment under the terms of a Credit Facility.

"Debt Service Fund" means the fund created under Section 4.05 hereof.

"Debt Service Reserve Fund" means the fund created under Section 4.06.

"Debt Service Reserve Fund Surety Policy" means an insurance policy or surety bond, or a letter of credit, deposited with the Trustee for the credit of the Debt Service Reserve Fund

9 created for one or more series of Outstanding Bonds in lieu of or in partial substitution for cash or securities on deposit therein. The entity providing such Debt Service Reserve Fund Surety Policy shall be rated in one of the two highest long -term Rating Categories by one or more of the Rating Agencies.

"Debt Service Reserve Requirement" means, as of the date in question, such amount as shall be specified in any Supplemental Indenture as required to be maintained on deposit in an identified Account within the Debt Service Reserve Fund with respect to all Outstanding Bonds participating in such identified Account. For purposes of determining the Debt Service Reserve Requirement, if any, with respect to a Series of Bonds that constitute Variable Rate Indebtedness, the Annual Debt Service shall, upon the issuance of such Series, be calculated on the basis of the assumptions set forth in subsection (e) of the definition of Aggregate Annual Debt Service, and the amount so determined shall not require adjustment thereafter except as appropriate to reflect reductions in the outstanding principal amount of such Series.For purposes of the Debt Service Reserve Requirement, the Annual Debt Service requirements assumed at the time of issuance of any Series of Bonds containing Balloon Indebtedness or Tender Indebtedness shall not, with respect to such Series, require subsequent increases.

"Defeasance Obligations" means and includes any of the following investments, to the extent permitted by applicable law with respect to the moneys proposed to be invested therein:

(i) Cash (insured atall times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in clause (ii) below);

(ii) Direct obligations of (including obligations issued or held in book entry form on the books of) the Department of the Treasury of the United States of America; or

(iii) Senior debt obligations of other United States government - sponsored agencies approved by the Bond Insurer. "Designated Debt" means a specific indebtedness designated by the Authority which shall be offset with a Swap; such specific indebtedness may include all or any part of a Series of Bonds.

"Estimated Completion Date" means the estimated date upon which a specified Project will have been substantially completed in accordance with the plans and specifications applicable thereto or the estimated date upon which a specified Project is expected to have been acquired and payment therefor made, in each case, as that date shall be set forth in a certificate of an Authorized Authority Representative delivered to the Trustee at or prior to the time of issuance of the Bonds which are issued to finance such specified Project.

"Event of Default" means any occurrence or event specified in Section 8.01 hereof.

"Fiscal Year" means the period of time beginning on January 1 of each given year and ending on December 31 of such given year, or such other similar period as the Authority designates as its fiscal year.

10 "Fitch" means Fitch, Inc., a corporation organized and existing under the laws of the State of New York, its successors and its assigns, and, if such corporation shall for any reason no longer perform the functions of a securities rating agency, "Fitch" shall be deemed to refer to any nationally recognized rating agency designated by the Authority. "General Fund" means the "General Fund" required to be created by the Authority pursuant to Section 4.09 hereof.

"Government Obligations" means (a) United States Obligations (including obligations issued or held in book -entry form), (b) prerefunded municipal obligations meeting the following conditions: (i) the municipal obligations are not subject to redemption prior to maturity, or the trustee has been given irrevocable instructions concerning their calling and redemption and the issuer has covenanted not to redeem such obligations other than as set forth in such instructions; (ii) the municipal obligations are secured by cash and/or United States Obligations, which United States Obligations may be applied only to interest, principal and premium payments of such municipal obligations; (iii) the principal of and interest on the United States Obligations (plus any cash in the escrow fund) are sufficient to meet the liabilities of the municipal obligations; (iv) the United States Obligations serving as security for the municipal obligations are held by an escrow agent or trustee; (v) the United States Obligations are not available to satisfy any other claims, including those against the trustee or escrow agent; and (vi) the municipal obligations are rated in their highest rating category by one or more of the Rating Agencies, but only if such Rating Agencies have been requested by the Authority to maintain a rating on the Bonds and such Rating Agencies are then maintaining a rating on any of the Bonds; and (c) any other type of security or obligation which the Rating Agencies then maintaining ratings on the Bonds to be defeased have determined to be permitted defeasance securities.

"Indenture" means this Master Trust Indenture dated as of April 15, 2003 by and between the Authority and the Trustee, together with all Supplemental Indentures.

"Independent" means, when used with respect to any specified firm or individual, such a firm or individual who (a) does not have any direct financial interest or any material indirect financial interest in the operations of the Authority, other than the payment to be received under a contract for services to be performed, and (b) is not connected with the Authority as an official, officer or employee.

"Initial Bonds" means those Bonds authorized to be issued pursuant to Section 2.12 of this Indenture.

"Investment Agreement" means (a) an investment agreement or guaranteed investment contract with or guaranteed by a national or state chartered bank or savings and loan, an insurance company or other financial institution whose unsecured debt is rated in the highest short-term rating category (if the term of the Investment Agreement is less than three years) or in either of the two highest long -term Rating Categories (if the term of the Investment Agreement is three years or longer) by one or more of the Rating Agencies, or (b) an investment agreement or guaranteed investment contract which is fully secured by obligations described in items (b)(i) or (ii) of the definition of Permitted Investments that are (i) valued not less frequently than monthly and have a fair market value, exclusive of accrued interest, at all times at least equal to 103% of

11 the principal amount of the investment, together with the interest accrued and unpaid thereon, (ii) held by the Trustee (who shall not be the provider of the collateral) or by any Federal Reserve Bank or a depository acceptable to the Trustee, (iii) subject to a perfected first lien on behalf of the Trustee, and (iv) free and clear from all third -party liens.

"Liquidity Facility" means a letter of credit, line of credit, standby purchase agreement or other financial instrument, including a Credit Facility, which is available to provide funds with which to purchase Bonds.

"Liquidity Provider" means the entity, including the Credit Provider, which is obligated to provide funds under the terms of a Liquidity Facility.

"LOI Capital Account" means the "LOI Capital Account" created by the Authority within the LOI Fund pursuant to Section 4.11 hereof.

"LOI Fund" means the "LOI Fund" required to be created as provided by Section 4.11 hereof.

"LOI Receipts " means moneys payable to the Authority or its assigns derived from the grant program created by the Airport and Airways Improvement Act of 1982, as amended and supplemented, pursuant to a multi -year letter of intent issued by the Federal Aviation Administration.

"Mail" means by first -class United States mail, postage prepaid. "Maintenance and Operation Expenses of the Airport System" means, for any given period, the total operation and maintenance expenses, including Administrative Expenses,of the Airport System as determined in accordance with generally accepted accounting principles as in effect from time to time, excluding depreciation expense, interest on Bonds and Subordinated Obligations, amortization of issuance expenses with respect to Bonds and Subordinated Obligations, and any operation and maintenance expenses of the Airport System payable from moneys other than Revenues. "Maintenance and Operation Reserve Fund" means the "Maintenance and Operation Reserve Fund" created by the Authority pursuant to Section 4.07 hereof.

"Master Subordinate Trust Indenture" means the Master Subordinate Trust Indenture, dated as of April 15, 2003, entered into by the Authority with Manufactures and Traders Trust Company, as the same may be amended from time to time, and upon cancellation, discharge and release thereof, any subsequent master subordinate trust indenture entered into by the Authority with the Subordinate Obligation Trustee.

"Maximum Aggregate Annual Debt Service" means, with respect to any Series of Bonds, as of the date in question, the highest Aggregate Annual Debt Service required to be paid in the then current or any succeeding Fiscal Year.

"Maximum Annual Debt Service" means, as of the date in question, the highest sum of amounts required to be set aside for payment of interest on and principal of the Series of Bonds

12 under consideration and for deposit to the credit of any sinking, purchase, redemption or analogous fund established for such Series of Bonds in the then current or any succeeding Fiscal Year for the Bonds then Outstanding or to be Outstanding, calculated over the remaining life of the Series of Bonds; provided, however, that Maximum Annual Debt Service with respect to any Fiscal Year for a Series of Bonds for which there shall have been established a sinking, purchase, redemption or analogous fund shall be determined after projecting operation of such fund to retirement of the Bonds of such Series to the extent the same shall be required to be retired and giving effect to reduction in interest payments to be made with respect to such Bonds by reason of such retirement.

"Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and its assigns, and, if such corporation shall for any reason no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized rating agency designated by the Authority.

"Municipalities" means the Counties of Dauphin, Cumberland and York, the City of Harrisburg (Dauphin County), the City of York (York County), and the Townships of Fairview and Lower Swatara (both of Dauphin County).

"Net Revenues" means, for any given period, Revenues less amounts which are required to pay the Maintenance and Operation Expenses of the Airport System. "Net Proceeds" means insurance proceeds received as a result of damage to or destruction of Airport Facilities or any condemnation award or amounts received by the Authority from the sale of Airport Facilities under the threat of condemnation less expenses (including attorneys' fees and expenses and any fees and expenses of the Trustee) incurred in the collection of such proceeds or award.

"Non -Qualified Swap" means any Swap which is not a Qualified Swap.

"Notes" means Bonds issued under the provisions of Article II of this Indenture which have a maturity of 397 days or less from their date of original issuance and which are not part of a Commercial Paper Program. "Operating Budget" means the annual budget for the Maintenance and Operation Expenses of the Airport System prepared by the Authority and distributed in accordance with Section 5.20 and with any Supplemental Indenture. "Outstanding" when used with respect to Bonds means all Bonds which have been authenticated and delivered under this Indenture, except:

(a) Bonds cancelled or purchased by the Trustee for cancellation or delivered to or acquired by the Trustee for cancellation and, in all cases, with the intent to extinguish the debt represented thereby;

(b) Bonds deemed to be paid in accordance with Article VII;

13 (c) Bonds inlieu of which other Bonds have been authenticated under Section 2.05, 2.06 or 2.08; (d) Bonds that have become due (at maturity or on redemption, acceleration or otherwise) and for the payment of which sufficient moneys, including interest accrued to the due date, are held by the Trustee or a Paying Agent; (e) Bonds which, under the terms of the Supplemental Indenture pursuant to which they were issued, are deemed to be no longer Outstanding;

(f) Repayment Obligations deemed to be Bonds under Section 2.13 hereof to the extent such Repayment Obligation arose under the terms of a Liquidity Facility and are secured by a pledge of Outstanding Bonds acquired by the Liquidity Provider; and (g) for purposes of any consent or other action to be taken by the holders of a specified percentage of Bonds under this Indenture, Bonds held by or for the account of the Authority or by any person controlling, controlled by or under common control with the Authority, unless such Bonds are pledged to secure a debt to an unrelated party.

"Passenger Facility Charges" means charges payable to the Authority or its assigns and imposed pursuant to the authority granted by the Aviation Safety and Capacity Expansion Act of 1990 and 14 CFR Part 158, as amended from time to time, in respect of any component of the Airport System and interest earnings thereon, net of amounts that collecting air carriers are entitled to retain for collecting, handling and remitting such passenger facility charge revenues.

"Paying Agent" or "Paying Agents" means, with respect to the Bonds or any Series of Bonds, the banks, trust companies or other financial institutions or other entities designated in a Supplemental Indenture or a resolution of the Authority as the place where such Bonds shall be payable.

"Payment Date" means, with respect to any Bonds, each date on which interest is due and payable thereon and each date on which principal is due and payable thereon whether by maturity or redemption thereof. "Permitted Investments" means and includes any of the following and such other investments, from time to time, set forth in a Supplemental Indenture entered into in connection with the issuance of a Series of Bonds, to the extent permitted by applicable laws of the Commonwealth:

(i) Defeasance Obligations;

(ii) Obligations of any of the following federal agencies, which obligations represent the full faith and credit of the United States of America, including:

(A) Export-Import Bank

(B) Rural Economic Community Development Administration

14 (C) U.S. Maritime Administration

(D) Small Business Administration

(E) U.S. Department of Housing & Urban Development (PHA's)

(F) Federal Housing Administration

(G) Federal Financing Bank;

(iii) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America:

(A) Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)

(B) Obligationsof theResolution FundingCorporation (REFCORP)

(D) Senior debt obligations of other United States government - sponsored agencies approved by the Bond Insurer;

(iv) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "P -1" by Moody's and "A -1" or "A -1 +" by S &P and maturing no more than 360 calendar days after the date of purchase (ratings on holding companies shall not be considered as the rating of the bank.);

(v) Commercial paper which is rated at the time of purchase in the single highest classification, "P -1" by Moody's and "A -1 +" by S &P and which matures not more than 270 calendar days after the date of purchase;

(vi) Investments in a money market fund rated "AAAm" or "AAAm- G" or better by S &P;

(vii)Any obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and

15 (A) which are rated, based on an irrevocable escrow account or fund (the "escrow "), in the highest rating category of S &P and Moody's or any successors thereto; or

(B) (1) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in clause (ii) of the definition of "Defeasance Obligations" above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (2) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate;

(viii)Municipal obligations rated "Aaa/AAA" or general obligations of States with a rating of at least "A2 /A" or higher by both Moody's and S &P;

(ix) Investment agreements approved in writing by the Bond Insurer; and

(x) Other forms of investments (including repurchase agreements) approved in writing by the Bond Insurer. "PFC Capital Account" means the "PFC Capital Account" created by the Authority within the PFC Fund pursuant to Section 4.10 hereof.

"PFC Fund" means the "PFC Fund" required to be created as provided by Section 4.10 hereof.

"Principal Amount" or "principal amount" means, as of any date of calculation, (a) with respect to any Capital Appreciation Bond, the Accreted Value thereof (the difference between the stated amount to be paid at maturity and the Accreted Value being deemed unearned interest) and (b) with respect to any other Bonds, the principal amount of such Bond payable at maturity.

"Program" means a financing program identified in a Supplemental Indenture, including but not limited to a Commercial Paper Program, (a) which is authorized and the terms thereof approved by a resolution adopted by the Authority and the items described in Section 2.09(a) through (h) have been filed with the Trustee, (b) wherein the Authority has authorized the issuance, from time to time, of notes, commercial paper or other indebtedness in an Authorized Amount, and (c) the Authorized Amount of which has met the additional bonds test set forth in Section 2.11 of this Indenture and the Outstanding amount of which may vary from time to time, but not exceed the Authorized Amount.

"Program Bonds" means Bonds issued and Outstanding pursuant to a Program, other than Unissued Program Bonds.

16 "Project" means any and all facilities, improvements and other expenditures related to the Airport System fmanced in whole or in part with proceeds of a Series of Bonds.

"Qualified Self- Insurance" is defined in Section 5.10 hereof. "Qualified Swap" means any Swap (a) whose Designated Debt is all or part of a particular Series of Bonds; (b) whose Swap Provider is a Qualified Swap Provider or has been a Qualified Swap Provider within the 60 day period preceding the date on which any calculation based upon Annual Debt Service or Aggregate Annual Debt Service is being made; (c) which has a term not greater than the term of the Designated Debt or to a specified mandatory tender or redemption of such Designated Debt; and (d) which has been designated in writing to the Trustee by the Authority as a Qualified Swap with respect to such Bonds.

"Qualified Swap Provider" means a financial institution whose senior long -term debt obligations, or whose obligations under any Qualified Swap are (a) guaranteed by a financial institution, or subsidiary of a financial institution, whose senior long -term debt obligations, are rated at least "AI," in the case of Moody's and "A +," in the case of S &P, or the equivalent thereof in the case of any successor thereto, or (b) fully secured by obligations described in items (b)(i) or (ii) of the definition of Permitted Investments which are (i) valued not less frequently than monthly and have a fair market value, exclusive of accrued interest, at all times at least equal to 105% of the principal amount of the investment, together with the interest accrued and unpaid thereon, (ii) held by the Trustee (who shall not be the provider of the collateral) or by any Federal Reserve Bank or a depository acceptable to the Trustee, (iii) subject to a perfected first lien on behalf of the Trustee, and (iv) free and clear from all third -party liens.

"Rating Agency" and "Rating Agencies" means Fitch, Moody's or S &P, or any other nationally recognized rating agency of municipal obligations, but only if such Rating Agencies have been requested by the Authority to maintain a rating on the Bonds and such Rating Agencies are then maintaining a rating on any of the Bonds. "Rating Category" and "Rating Categories" means (a) with respect to any long -term rating category, all ratings designated by a particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other modifier, and (b) with respect to any short-term or commercial paper rating category, all ratings designated by a particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus sign or other modifier.

"Rebate Fund" means any fund created by the Authority pursuant to a Supplemental Indenture in connection with the issuance of the Bonds or any Series of Bonds for the purpose of complying with the Code and providing for the collection and holding for and payment of amounts to the United States of America.

"Record Date" means, with respect to any Series of Bonds, the record date as specified in the Supplemental Indenture which provides for the issuance of such Series.

"Refunding Bonds" means any Bonds issued pursuant to Section 2.10 hereof to refund or defease all or a portion of any series of Outstanding Bonds or any Subordinated Obligation.

17 "Registrar" means, with respect to the Bonds or any Series of Bonds, the bank, trust company or other entity designated in a Supplemental Indenture or a resolution of the Authority to perform the function of Registrar under this Indenture, and which bank, trust company or other entity has accepted the position in accordance with Section 9.12.

"Regularly Scheduled Swap Payments" means the regularly scheduled payments under the terms of a Swap which are due absent any termination, default or dispute in connection with such Swap. "Renewal and Replacement Fund" means the "Renewal and Replacement Fund" required to be created as provided by Section 4.08 hereof.

"Repayment Obligation" means an obligation arising under a written agreement of the Authority and a Credit Provider pursuant to which the Authority agrees to reimburse the Credit Provider for amounts paid through a Credit Facility to be used to pay debt service on any Bonds or an obligation arising under a written agreement of the Authority and a Liquidity Provider pursuant to which the Authority agrees to reimburse the Liquidity Provider for amounts paid through a Liquidity Facility to be used to purchase Bonds. "Responsible Officer" means any corporate trust officer of the Trustee assigned by the Trustee to administer this Indenture.

"Revenue Credit Account" means the "Revenue Credit Account" required to be created by the Authority within the General Fund pursuant to Section 4.09 hereof.

"Revenue Fund" means the "Revenue Fund" required to be established by the Authority pursuant to the provisions of Section 4.02 hereof "Revenues" means, except to the extent specifically excluded herefrom, all income, receipts, earnings and revenues received by the Authority from the operation and ownership of the Airport System, as determined in accordance with generally accepted accounting principles, as modified from time to time, including, but not limited to, (a) rates, tolls, fees, rentals, charges and other payments made to or owed to the Authority for the use or availability of the Airport System, and (b) amounts received or owed from the sale or provision of supplies, materials, goods and services provided by or made available by the Authority, including rental or business interruption insurance proceeds, received by, held by, accrued to or entitled to be received by the Authority or any successor thereto from the possession, management, charge, superintendence and control of the Airport System and its related facilities or activities and undertakings related thereto or from any other facilities wherever located with respect to which the Authority receives payments which are attributable to the Airport System or activities or undertakings related thereto.Additionally, "Revenues" shall include amounts released from the Revenue Credit Account to the Revenue Fund and all income, receipts and earnings (except any earnings to be applied by the terms of a Supplemental Indenture to fund Capitalized Interest and the Construction Fund) from the investment of amounts held in the Revenue Fund, any Construction Fund, the Debt Service Fund (except Capitalized Interest on deposit therein), the Debt Service Reserve Fund, the Maintenance and Operation Reserve Fund, the Renewal and Replacement Fund, and any such additional moneys payable to the Authority as are designated as "Revenues"

18 under the terms of any Supplemental Indenture.The following, including any investment earnings thereon, are specifically excluded from Revenues: (i) any arbitrage earnings which are required to be paid to the U.S. Government pursuant to Section 148 of the Code, (ii) Net Proceeds and other insurance proceeds, to the extent the use of such Net Proceeds or other proceeds is restricted by the terms of the policy under which they are paid to a use inconsistent with the payment of debt service on the Bonds (except to the extent Net Proceeds are utilized to pay Maintenance and Operation Expenses of the Airport System) and (iii) Special Facilities Revenue (to the extent there is no excess Special Facilities Revenue as described in Section 5.07 hereof). In addition, the following, including any investment earnings thereon, are specifically excluded from "Revenues," unless designated as "Revenues" under the terms of a Supplemental Indenture or pursuant to a certificate of an Authorized Authority Representative delivered to the Trustee: (A) grants -in -aid and gifts, (B) any Swap Termination Payments paid to the Authority pursuant to a Qualified Swap, (C) Passenger Facility Charges, (D) LOI Receipts, (E) investment income derived from any moneys or securities which may be placed in escrow or trust and committed to defease Bonds or Subordinated Obligations and (F) Capitalized Interest. Further, interest earnings or other investment earnings on any Construction Fund established by any Supplemental Indenture are specifically excluded from "Revenues," unless otherwise provided for in such Supplemental Indenture.

"Series" means Bonds designated as a separate Series by a Supplemental Indenture and, with respect to Program Bonds or a Commercial Paper Program, means the full Authorized Amount of such program, regardless of when or whether issued, unless portions thereof are, by Supplemental Indenture, designated as separate Series. "Significant Portion" means, for purposes of Section 5.12 and Section 5.13 of this Indenture, any Airport Facilities or portions thereof which, if such facilities had been sold or disposed of by the Authority would have resulted in a reduction of more than 5% of Net Revenues generated for the immediately preceding twelve -month period. The Authority shall notify each of the Rating Agencies prior to the selling or disposing of a Significant Portion of any Airport Facilities. "S &P" means Standard & Poor's Ratings Group, a division of the McGraw -Hill Companies, Inc., its successors and their assigns, and if such entity shall for any reason no longer perform the functions of a securities rating agency, "S &P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority. "Special Facilities" or "Special Facility" means a facility or group of facilities or category of facilities which are designated as a Special Facility pursuant to the provisions of Section 5.07 of this Indenture.

"Special Facilities Revenue" means the contractual payments and all other revenues derived by or available to the Authority from a Special Facility which are pledged to secure Special Facility Obligations.

"Special Facility Obligations" means bonds or other debt instruments issued pursuant to an indenture other than this Indenture to fmance Special Facilities and which are not secured by

19 or payable from a lien on and pledge of the Net Revenues, but which are secured by Special Facilities Revenues.

"Specified Project" means a Project or a group of alternative Projects which are described in a certificate of a Consultant described in Section 5.15 hereof, the revenues and expenses of which Project or group of alternative Projects are to be taken into account by such Consultant in preparing such certificate. "Subordinate Obligation Trustee" means the entity named and serving as the trustee under the Master Subordinate Trust Indenture, until a successor replaces it and, thereafter, means such successor.

"Subordinated Obligation" means any bond, note or other debt instrument issued or otherwise entered into by the Authority which ranks junior and subordinate to the Bonds and which may be paid from moneys constituting Net Revenues only if all amounts of principal and interest which have become due and payable on the Bonds whether by maturity, redemption or acceleration have been paid in full and the Authority is current on all payments, if any, required to be made to replenish the Debt Service Reserve Fund. "Subordinated Obligations" shall be issued and secured by the Master Subordinate Trust Indenture; provided, however, that in the event the that a Master Subordinate Trust Indenture is not in place and effective, the Authority may elect by Supplemental Indenture to have the provisions of this Indenture applicable to the Bonds apply to the Subordinated Obligations issued thereunder, except that such Subordinated Obligations shall be secured on a junior and subordinate basis to the Bonds from the Net Revenues.No bond, note or other instrument of indebtedness shall be deemed to be a "Subordinated Obligation" for purposes of this Indenture and payable on a subordinated basis from Net Revenues unless specifically designated by. the Authority as a "Subordinated Obligation" in a Supplemental Indenture or other written instrument.In connection with any Subordinated Obligation with respect to which a Swap is in effect or proposes to be in effect, the term "Subordinated Obligation" includes, collectively, both such Subordinated Obligation and either such Swap or the obligations of the Authority under each such Swap, as the context requires. The term "Subordinated Obligations" also includes a Swap or the obligations of the Authority under such Swap which has been entered into in connection with a Subordinated Obligation, as the context requires, although none of the Subordinated Obligations with respect to which such Swap was entered into remain outstanding. In connection with any Bonds with respect to which a Qualified Swap is in effect or proposed to be in effect, the term "Subordinated Obligation" includes any Swap Termination Payment if designated as a Subordinated Obligation in a Supplemental Indenture. "Supplemental Indenture" means any document supplementing or amending this Indenture or providing for the issuance of Bonds and entered into as provided in Article X of this Indenture.

"Swap" means any financial arrangement between the Authority and a Swap Provider which provides that (a) each of the parties shall pay to the other an amount or amounts calculated as if such amount were interest accruing during the term of the arrangement at a specified rate (whether fixed or a variable rate or measured against some other rate) on a Designated Debt, and payable from time to time or at a designated time or times (whether before, during or after the

20 1

term of the arrangement); (b) if such amount is to be paid before it is deemed to have accrued, the amount paid shall reflect the present value of such future amount (i.e., an upfront premium), while an amount to be paid after it is deemed to have accrued shall reflect the time value of such funds; (c) payment dates and calculated accrual rates need not be the same for each payor, but to the extent payment dates coincide, the arrangement may (but need not) provide that one shall pay to the other any net amount due under such arrangement.

"Swap Provider" means a party to a Swap with the Authority.

"Swap Termination Payment" means an amount payable by the Authority or a Qualified Swap Provider, in accordance with a Qualified Swap, to compensate the other party to the Qualified Swap for any losses and costs that such other party may incur as a result of an event of default or the early termination of the obligations, in whole or in part, of the parties under such Qualified Swap.

"Synthetic Fixed Rate Debt" means indebtedness issued by the Authority which: (a) is combined, as Designated Debt, with a Qualified Swap and creates, in the opinion of a Consultant, a substantially fixed interest rate or rates for a term not exceeding the maturity or maturities of such Designated Debt, or (b) consisting of an arrangement in which two inversely related variable -rate securities are issued in equal principal amounts with interest based on offsetting indices resulting in a combined payment which is economically equivalent to a fixed rate. "Tax Compliance Certificate" means the certificate prepared by Bond Counsel and delivered by the Authority at the time of issuance and delivery of any Series of Bonds, the interest on which is excluded from gross income for federal income tax purposes pursuant to a favorable opinion of such Bond Counsel, making certifications and representations of the Authority as to the status of such Bonds under the Code.

"Tender Indebtedness" means any Bonds or portions of Bonds a feature of which is an obligation or option on the part of the Bondholders, under the terms of such Bonds, to tender all or a portion of such Bonds to the Authority, the Trustee, the Paying Agent or other fiduciary or agent or Credit Provider for payment or purchase and requiring that such Bonds or portions of Bonds be purchased if properly presented.

"Term Bonds" means Bonds of a Series which are payable on or before their specified maturity dates from sinking installment payments established pursuant to the Supplemental Indenture for such series for that purpose and calculated to retire the Bonds on or before their specified maturity dates. "Trustee" means the entity named as such in the heading of this Indenture until a successor replaces it and, thereafter, means such successor.

"Unissued Program Bonds" means the bonds, notes or other indebtedness authorized to be issued pursuant to a Program and payable from Net Revenues, issuable in an amount up to the Authorized Amount relating to such Program, which have been approved for issuance by the Authority pursuant to a resolution adopted by the Authority and with respect to which Program the items described in Section 2.09(a) through (h) have been filed with the Trustee but which have not yet been authenticated and delivered pursuant to the Program documents.

21 "United States Bankruptcy Code" means Title 11 U.S.C. Section 101 et seq., as amended or supplemented from time to time, or any successor federal act.

"United States Obligations" means direct and general obligations of the United States of America, or obligations that are unconditionally guaranteed as to principal and interest by the United States of America, including, with respect only to direct and general obligations and not to guaranteed obligations, evidences of ownership of proportionate interests in future interest and/or principal payments of such obligations, provided that investments in such proportionate interests must be limited to circumstances wherein: (a) a bank or trust company acts as custodian and holds the underlying United States Obligations; (b) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying United States Obligations; and (c) the underlying United States Obligations are held in a special account separate from the custodian's general assets and are not available to satisfy any claim of the custodian, any person claiming through the custodian or any person to whom the custodian may be obligated. "United States Obligations" shall include any stripped interest or principal portion of United States Treasury securities and any stripped interest portion of Resolution Funding Corporation securities.

"Variable Rate Indebtedness" means any Bond or Bonds the interest rate on which is not, at the time in question, fixed to maturity, excluding any Commercial Paper Program. Section 1.02. Rules of Interpretation. For purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(a) The words "herein," "hereof' and "hereunder" and other similar words refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

(b) The definitions in this Article are applicable whether the terms defined are used in the singular or the plural. (c) All accounting terms which are not defined in this Indenture have the meanings assigned to them in accordance with then applicable generally accepted accounting principles.

(d) Any pronouns used in this Indenture include both the singular and the plural and cover both genders.

(e) Any terms defined elsewhere in this Indenture have the meanings attributed to them where defined.

(f) Words referring to the redemption or calling for redemption of Bonds shall not be deemed to refer to the payment of Bonds at their stated maturity. (g) The captions or headings herein are for convenience only and in no way define, limit or describe the scope or intent, or control or affect the meaning or construction, of any provisions or sections hereof.

22 (h) The Section numbers are those of this Indenture unless stated otherwise. ARTICLE II

FORM, EXECUTION, DELIVERY AND REGISTRATION OF BONDS Section 2.01. Issuance of Bonds; Form; Dating. Either taxable or tax - exempt Bonds may be issued by the Authority under the terms of this Indenture for any purpose for which the Authority, at the time of such issuance, may incur debt which may include issuing Bonds and loaning the proceeds to other entities (if it is determined to be legally permissible for the Authority to do so at such time), provided that if the proceeds of the Bonds are loaned to other entities, the loan repayments and interest thereon shall be included as Revenues. Bonds may be issued under this Indenture only if the provisions of Section 2.09 are satisfied.The total principal amount of Bonds of each Series Outstanding may not exceed the amount specified in the Supplemental Indenture providing for the issuance of such Bonds, except as provided in Section 2.05 with respect to replacement of mutilated, lost or stolen or destroyed Bonds. The Bonds may be in certificated or book -entry only form, and Bonds which are issued in certificated form may be freely transferable or may be immobilized and held by a custodian for the beneficial owners, all as shall be set forth or permitted in the Supplemental Indenture providing for the issuance of such Bonds. The Bonds may have notations, legends or endorsements required by law or usage.

Bonds will be numbered and dated as provided in the applicable Supplemental Indenture. Section 2.02. Terms, Medium and Place of Payment. The Bonds shall be issued in the principal amount, shall bear interest at a rate or rates, including a rate of 0% and including variable or adjustable rates or rates set by auction, or by such other methods as the Authority may from time to time determine, and such interest may be payable periodically, in whole or in part, or may be accumulated and paid at maturity or at such other time or times as the Authority shall determine. Bonds shall mature and shall be subject to redemption prior to their respective maturities, all as shall be set forth in a Supplemental Indenture. The Bonds of each Series shall state that they are issued under and are secured by this Indenture and the pledge of Net Revenues and state that regardless of the form thereof, they are "Bonds" issued hereunder and within the meaning of this Indenture.

Payments with respect to the Bonds shall be made as provided in the Supplemental Indenture providing for the issuance of such Bonds or as provided in the Bonds, which provisions shall include the designation of the currency in which such payments shall be made. Section 2.03. Execution and Authentication. The Bonds, if in certificated form, will be signed for the Authority as provided in the Supplemental Indenture or in the resolution authorizing such Bonds. In case any officer whose signature or whose facsimile signature shall appear on any Bonds shall cease to be such officer before the authentication of such Bonds, such signature or the facsimile signature thereof shall nevertheless be valid and sufficient for all purposes the same as if he or she had remained in office until authentication. Also, if a person signing a Bond is the proper officer on the actual date of execution, the Bond will be valid even

23 if that person is not the proper officer on the nominal date of action and even though, at the date of this Indenture, such person was not such officer. A Bond in certificated form will not be valid until the Trustee or its agent or an authenticating agent designated by the Authority manually signs the certificate of authentication on the Bond. Such signature will be conclusive evidence that the Bond has been authenticated under this Indenture. The Authority may appoint an authenticating agent or the Trustee may appoint an authenticating agent acceptable to the Authority to authenticate Bonds or different authenticating agents may be appointed for different Series of Bonds. An authenticating agent may authenticate Bonds whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent.

Bonds issued under this Indenture may be issued as book -entry only, in which case the procedures for issuance and delivery and evidence of validity, ownership, transfer and exchange shall be as provided in a Supplemental Indenture, and neither the provisions of this Section 2.03 nor any other provision of this Indenture shall be deemed to prohibit or restrict the issuance of book -entry only Bonds. Section 2.04. Bond Register. Bonds of each Series may be presented at the principal corporate trust office of the Trustee or such other Registrar, unless a different office has been designated for such purpose, for registration, transfer and exchange. The Trustee or a Registrar will keep a register of each Series of Bonds and of their transfer and exchange.

Section 2.05. Mutilated, Lost, Stolen or Destroyed Bonds.

(a) In the event any Bond is mutilated or defaced but identifiable by number and description, the Authority shall execute and the Trustee shall authenticate and deliver a new Bond of like Series, date, maturity and denomination as such Bond, upon surrender thereof to the Trustee; provided that there shall first be furnished to the Trustee clear and unequivocal proof satisfactory to the Trustee that the Bond is mutilated or defaced. The Bondholder shall accompany the above with a deposit of money required by the Trustee for the cost of preparing the substitute Bond and all other expenses connected with the issuance of such substitute. The Trustee shall then cause proper record to be made of the cancellation of the original, and thereafter the substitute shall have the validity of the original.

(b) In the event any Bond is lost, stolen or destroyed, the Authority may execute and the Trustee may authenticate and deliver a new Bond of like Series, date, maturity and denomination as that Bond lost, stolen or destroyed, provided that there shall first be furnished to the Trustee evidence of such loss, theft or destruction satisfactory to the Trustee, together with indemnity satisfactory to it.

(c) Except as limited by any Supplemental Indenture, the Trustee may charge the holder of any such Bond all governmental charges and transfer taxes, if any, and its reasonable fees and expenses in this connection.All substitute Bonds issued and authenticated pursuant to this Section 2.05 shall be issued as a substitute and numbered, if

24 numbering is provided for by the Supplemental Indenture or the Trustee, as determined by the Trustee. In the event any such Bond has matured or been called for redemption, instead of issuing a substitute Bond, the Trustee may pay the same at its maturity or redemption without surrender thereof upon receipt of indemnity satisfactory to the Trustee. Section 2.06. Registration and Transfer or Exchange of Bonds; Persons Treated as Owners. Unless otherwise provided by a Supplemental Indenture, all Bonds shall be issued in fully registered form.

Upon surrender for transfer of any Bond at the principal corporate trust office of the Trustee or Registrar, the Trustee or Registrar shall deliver in the name of the transferee or transferees a new fully authenticated and registered Bond or Bonds of authorized denominations of the same Series and same maturity for the same aggregate principal amount.

Bondholders may present Bonds at the principal corporate trust office of the Registrar for exchange for Bonds of different authorized denominations and, upon such presentation, the Trustee or Registrar shall deliver to the Bondholder a new fully authenticated and registered Bond or Bonds of the same Series and same maturity for the same aggregate principal amount. All Bonds presented for transfer or exchange shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form and with guaranty of signature satisfactory to the Trustee or Registrar, duly executed by the Bondholder or by his duly authorized attorney. Except as limited by any Supplemental Indenture, the Trustee or Registrar also may require payment from the Bondholder of a sum sufficient to cover any tax, or other governmental fee or charge that may be imposed in relation thereto. Such taxes, fees and charges shall be paid before any such new Bond shall be delivered.

Supplemental Indentures may designate certain limited periods during which Bonds will not be exchanged or transferred.

Bonds delivered upon any exchange or transfer as provided herein, or as provided in Section 2.05, shall be valid limited obligations of the Authority, evidencing the same debt as the Bond or Bonds surrendered, shall be secured by this Indenture and shall be entitled to all of the security and benefits hereof to the same extent as the Bond or Bonds surrendered.

The Authority, the Trustee, the Registrar and the Paying Agent shall treat the Bondholder of a Bond, as shown on the registration books kept by the Registrar, as the person exclusively entitled to payment of principal, premium, if any, and interest on such Bond and as the party entitled to the exercise of all other rights and powers of the Bondholder, except that all interest payments will be made to the party who, as of the Record Date, is the Bondholder. Section 2.07. Destruction of Bonds. Whenever any Bonds shall be delivered to the Trustee for cancellation pursuant to this Indenture, upon payment of the principal amount and interest represented thereby or for replacement pursuant to Section 2.05 or exchange or transfer pursuant to Section 2.06, such Bond shall be cancelled and destroyed by the Trustee or the

25 Registrar and upon request of the Authority counterparts of a certificate of destruction evidencing such destruction shall be furnished by the Trustee to the Authority. Section 2.08. Temporary Bonds.Pending preparation of definitive Bonds of any Series, the Authority may execute and the Trustee shall authenticate and deliver, in lieu of definitive Bonds and subject to the same limitations and conditions, temporary bonds or certificates which shall be exchanged for the Bonds.

If temporary Bonds shall be issued, the Authority shall cause the definitive Bonds to be prepared and to be executed, authenticated and delivered to the Trustee, and the Trustee, upon presentation to it of any temporary bond, shall cancel the same and deliver in exchange therefor at the place designated by the Bondholder, without charge to the Bondholder thereof, definitive Bonds of an equal aggregate principal amount of authorized denominations, of the same Series, date, maturity and bearing interest the same as the temporary Bonds surrendered.Until so exchanged, the temporary Bonds shall in all respects be entitled to the same benefit and security of this Indenture as the definitive Bonds to be issued and authenticated hereunder. Section 2.09. Issuance of Series of Bonds; Supplemental Indenture; Application of Bond Proceeds. Bonds may be issued, from time to time, subject to the conditions of this Section 2.09.

Bonds shall be dated, shall mature, shall bear interest, shall be subject to redemption and shall be amortized and, within a Program, shall be issued from time to time, all as provided in the Supplemental Indenture relating to such Series of Bonds. In addition, each such Supplemental Indenture may provide for the appointment of a Registrar or Registrars and a Paying Agent or Paying Agents and such other agents as the Authority shall determine to be necessary that may be other than the Trustee.

Each Series of the Bonds, upon execution by the Authority, shall be deposited with the Trustee or an agent for authentication and delivery, but prior to or simultaneously with the original delivery of such Series of Bonds or delivery of the first Bonds of a Program, there shall be filed with the Trustee the following:

(a) an original executed counterpart or a copy, certified by the Secretary to the Authority, of this Indenture;

(b) an original executed counterpart or a copy, certified by the Secretary of the Authority, of the Supplemental Indenture or Supplemental Indentures providing for the issuance of such Series of Bonds or creating a Program and setting forth the terms of such Series of Bonds or Program;

(c) except with respect to the issuance of any Refunding Bonds, a certificate of an Authorized Authority Representative listing those Projects or undertakings which the Authority expects to finance with proceeds of the sale of such Series of Bonds or Program or from which the Authority expects to select those Projects which will be financed with proceeds of the sale of such Series of Bonds or Program and such certificate shall, with respect to each item on the list include an estimated cost of such facility or undertaking;

26 (d) the certificate of an Authorized Authority Representative or the Consultant or Consultants, as the case may be, required by Section 2.11; (e) except with respect to issuance of the Initial Bonds, a certificate of an Authorized Authority Representative stating that none of the Events of Default set forth in Sections 8.01(a), (b), (c), (e) and (t) of this Indenture have occurred and remain uncured and that the Authority is in full compliance with the terms of Sections 5.03, 5.04, 5.05 and 5.12 herein;

(f) an opinion of Bond Counsel to the effect that the issuance of such Bonds has been duly authorized, that all legal conditions precedent to the delivery of such Bonds have been fulfilled, that the Bonds are valid and binding obligations of the Authority in accordance with their terms; and

(g) written instructions from the Authority to authenticate the Bonds and, upon receipt of the purchase price, to deliver the Bonds to or upon the order of the purchasers named in such instructions. When the documents mentioned in clauses (a) to (g), inclusive, of the immediately preceding paragraph shall have been filed with the Trustee and when such Bonds shall have been executed and authenticated, the Trustee or authenticating agent shall deliver such Bonds to or upon the order of the purchasers thereof, but only upon payment by the purchasers of the purchase price of such Bonds.

Section 2.10. Refunding Bonds. Refunding Bonds may be issued under and secured by this Indenture.Such Refunding Bonds shall be issued in accordance with the provisions of Sections 2.09 and 2.11 of this Indenture. Section 2.11. Tests for Issuance of Bonds. Subject tothe provisions under subparagraphs (c), (d) or (e) of the last paragraph of this Section 2.11 and excepting the Initial Bonds, as a condition to the issuance of any Series of Bonds, there first shall be delivered to the Trustee either:

(a) a certificate of an Authorized Authority Representative stating that the Net Revenues for any 12 consecutive months out of the most recent 18 consecutive months immediately preceding the date of issuance of the proposed Series of Bonds or preceding the first issuance of the proposed Program Bonds were at least equal to 110% of Maximum Aggregate Annual Debt Service with respect to all Outstanding Bonds, Unissued Program Bonds and the proposed Series of Bonds, calculated as if the proposed Series of Bonds and the full Authorized Amount of such proposed Program Bonds (as applicable) were then Outstanding; or

(b) a certificate of a Consultant to the effect that the Annual Debt Service of the proposed Series of Bonds or the full Authorized Amount of proposed Program Bonds (as applicable) is payable out of Net Revenues and stating that the Authority will be in compliance with the Section 5.04 (a) and (b) during either (i) each of the first three Fiscal Years succeeding the date on which the Specified Project is expected to be completed, or

27 1

(ii) during each of the first five Fiscal Years succeeding the date of issuance of such Bonds, whichever is later.

For purposes of subparagraph (a) above, the Authorized Authority Representative shall be allowed to adjust Net Revenues for any increase in the rates, charges and fees for the use of the Airport System which has become effective prior to the issuance of such proposed Series of Bonds but which rates, charges and fees were not in effect for the 12 -month period under consideration, in an amount equal to the sum by which the Net Revenues would have been increased if such increase in rates, charges and fees had been in effect during the whole of the such 12 -month period provided, however, such increase is intended to continue to be effective following the issuance of such proposed Series of Bonds.

Neither of the certificates described in subparagraphs (a) and (b) above shall be required: (c) if Bonds being issued are for the purpose of refunding then Outstanding Bonds and there is delivered to the Trustee, instead, a certificate of an Authorized Authority Representative showing that Maximum Aggregate Annual Debt Service after the issuance of such Refunding Bonds will not exceed Maximum Aggregate Annual Debt Service prior to the issuance of such Refunding Bonds; (d) if the Bonds being issued constitute Notes and there is delivered to the Trustee, instead, a certificate prepared by an Authorized Authority Representative showing that the principal amount of the proposed Notes being issued, together with the principal amount of any Notes then Outstanding, does not exceed 10% of the Net Revenues for any 12 consecutive months out of the 24 months immediately preceding the issuance of the proposed Notes and there is delivered to the Trustee a certificate of an Authorized Authority Representative setting forth calculations showing that for each of the Fiscal Years during which the Notes will be Outstanding, and taking into account the debt service becoming due on such Notes, the Authority will be in compliance with Section 5.04(a) and (b) of this Indenture; or

(e) if the. Bonds being issued are to pay costs of completing a Project for which Bonds previously have been issued and the principal amount of such Bonds being issued does not exceed an amount equal to 15% of the principal amount of Bonds originally issued and reasonably allocated for such Project as shown in a written certificate of an Authorized Authority Representative and thereisdelivered to the Trustee(i) a Consultant's certificate stating that the nature and purpose of such Project has not materially changed and (ii) a certificate of an Authorized Authority Representative to the effect that (A) all of the proceeds of the Bonds previously issued to finance such Project, together with investment earnings on amounts in the Funds allocable to such Project, have been or shall be applied to pay Costs of the Project and (B) the then estimated Costs of the Project exceed the sum of the Costs of the Project already paid plus moneys on deposit in Funds and available for such purpose.

Section 2.12. Issuance of Initial Bonds. The Initial Bonds shall be issued pursuant to a Supplemental Indenture and shall be denominated "Susquehanna Area Regional Airport Authority, Airport System Revenue Bonds." Each series of the Initial Bonds shall be designated

28 as "Series 2003" and given a separate consecutive letter designation, beginning with the letter

Section 2.13. Repayment Obligations Afforded Status of Bonds. If a Credit Provider or Liquidity Provider makes payment of principal of or interest on a Bond or advances funds to purchase or provide for the purchase of Bonds and is entitled to reimbursement thereof, pursuant to a separate written agreement with the Authority, but is not reimbursed, the Authority's Repayment Obligation under such written agreement may, if so provided in the written agreement, be afforded the status of a Bond issued under this Article II, and, if afforded such status, the Credit Provider or Liquidity Provider shall be the Bondholder and such Bond shall be deemed to have been issued at the time of the original Bond for which the Credit Facility or Liquidity Facility was provided and will not be subject to the provisions of Sections 2.09 through 2.11 of this Article II.The payment terms of such Bond shall be the stated terms of the Repayment Obligation (unless otherwise provided in the Supplemental Indenture pursuant to which such Bonds are issued). Any amount which comes due on the Repayment Obligation by its terms and which is in excess of the amount treated as principal of and interest on a Bond shall be a Subordinated Obligation of the Authority. This provision shall not defeat or alter the rights of subrogation which any Credit Provider may have under law or under the terms of any Supplemental Indenture.The Trustee may conclusively rely on a written certification by the Credit Provider or Liquidity Provider of the amount of such non -reimbursement and that such Repayment Obligation is to be afforded the status of a Bond under this Indenture. Section 2.14. Obligations Under Qualified Swap; Nonqualified Swap.

(a) The obligation of the Authority to make Regularly Scheduled Swap Payments under a Qualified Swap with respect to a Series of Bonds may be on a parity with the obligation of the Authority to make payments with respect to such Series of Bonds and other Bonds under this Indenture, except as otherwise provided by a Supplemental Indenture and elsewhere herein with respect to any Swap Termination Payments. The Authority may provide in any Supplemental Indenture that Regularly Scheduled Swap Payments under a Qualified Swap shall be secured by a pledge of or lien on the Net Revenues on a parity with the Bonds of such Series and all other Bonds, regardless of the principal amount, if any, of the Bonds of such Series remaining Outstanding.The Trustee shall take all action consistent with the other provisions hereof as shall be requested in writing by the Qualified Swap Provider necessary to preserve and protect such pledge, lien and assignment and to enforce the obligations of the Authority with respect thereto. In the event the action requested to be taken pursuant to the preceding sentence shall require the Trustee either to exercise the remedies granted in the Indenture or to institute any action, suit or proceeding in its own name, the Qualified Swap Provider shall provide to the Trustee reasonable security and indemnity against the costs, expenses and liabilities to be incurred in connection therewith.

(b) In the event that a Swap Termination Payment or any other amounts other than as described in clause (a) above are due and payable by the Authority under a Qualified Swap, such Swap Termination Payment and any such other amounts shall constitute a Subordinated Obligation hereunder.

29 (c) Obligations of the Authority to make payments, including termination payments, under a Nonqualified Swap shallconstituteSubordinated Obligations hereunder. ARTICLE III

REDEMPTION OF BONDS

Bonds may be made subject to redemption either in whole or in part and at such times, prices and in such order and under such terms as may be provided by the Supplemental Indenture providing for the issuance of such Bonds. The Authority may provide for the redemption of Bonds from any funds available to the Authority and not obligated for other purposes. In connection with the partial early redemption of any Term Bonds of a Series, the Authority may, in any Supplemental Indenture, provide that the principal amount of Bonds of such Series being redeemed shall be allocated against its scheduled sinking fund redemption and modify its scheduled sinking fund installments payable thereafter as to the Outstanding Term Bonds of such Series in any manner the Authority may determine. The Authority may provide in any Supplemental Indenture that, prior to notice of redemption for any Bonds of a Series, moneys in the Debt Service Fund and the Debt Service Reserve Fund relating to such Series of Bonds may be applied at the direction of the Authority to the purchase of Bonds of such Series and, if any such purchased Bonds are Term Bonds, the Authority may allocate the principal amount of Bonds of such Series being redeemed against its scheduled sinking fund redemption for such Bonds and may modify its scheduled sinking fund installments thereafter payable with respect to Bonds of such Series in any manner the Authority may determine.

ARTICLE IV

REVENUES AND FUNDS Section 4.01. Bonds Secured by a Pledge and Lien on Net Revenues. The Bonds authorized and issued under the provisions of this Indenture shall be secured as provided in the Granting Clauses of this Indenture. The Authority hereby represents and states that it has not created any charge or lien on or any security interest in the Revenues or the Net Revenues other than as herein provided. The Authority covenants that, until all the Bonds authorized and issued under the provisions of this Indenture and the interest thereon shall have been paid or are deemed to have been paid, it will not, except as otherwise provided under this Indenture, grant any prior or parity pledge of or any security interest in the Net Revenues or any of the other security which is pledged pursuant to the Granting Clauses of this Indenture, or create or permit to be created any charge or lien thereon or any security interest therein ranking prior to or on a parity with the charge or lien of the Bonds from time to time Outstanding under this Indenture. The Authority may, as provided in and as limited by Section 5.06, grant a lien on or security interest in the Net Revenues to secure Subordinated Obligations.

30 Section 4.02. Receipt, Deposit and Use of Revenues - Revenue Fund.

(a) The Authority covenants and agrees to deposit in the "Revenue Fund ", which Fund hereby is created, all Revenues when and as received.The Authority further covenants to deposit into the Revenue Fund all other moneys required by this Indenture to be so deposited. So long as no Event of Default exists and is continuing, the Revenue Fund shall remain in the possession of the Authority; otherwise to be held by the Trustee.

(b) As long as there are any Outstanding Bonds, all Revenues shall be deposited in the Revenue Fund and shall be applied by the Authority in the manner, at the times and in the order of priority as follows:

(i) Maintenance and Operation Expense of the Airport System. Payment Maintenance and Operation Expenses of the Airport System then due and payable.

(ii) Debt Service Fund. Revenues shall be paid over by the Authority to the Trustee for deposit in the Debt Service Fund, in the amounts, at the times and in the manner provided in Section 4.03 or in such other amounts and times provided in a Supplemental Indenture to provide for the payment of principal and interest to become due on Outstanding Bonds.

(iii) Debt Service Reserve Fund. Revenues shall be paid over by the Authority to the Trustee for deposit in the Debt Service Reserve Fund in the amounts and at the times as shall be specified in a Supplemental Indenture to be used in the manner provided in Sections 4.03 and 4.06 hereof.

(iv) Subordinated Obligation Debt Service. Revenues shall be applied in such amounts and at such times as shall be sufficient to pay the debt service with respect to Subordinated Obligations, including any indebtedness issued and outstanding pursuant to the terms of the Master Subordinate Trust Indenture, but only to the extent of a specific pledge of Net Revenues, in writing, for the purpose.

(v) Subordinated Obligation Debt Service Reserve Fund. Revenues shall be applied in such amounts and at such times as shall be sufficient to fund any reserverequirementfordebtservicewith respecttoSubordinated Obligations, including any indebtedness issued and outstanding pursuant to the terms of the Master Subordinate Trust Indenture, but only to the extent of a specific pledge of Net Revenues, in writing, for the purpose.

(vi) Maintenance and Operation Reserve Fund. Revenues shall be transferred to the Maintenance and Operation Reserve Fund in the amounts required in accordance with Section 4.07 hereof.

(vii)Renewal and Replacement Fund. Revenues shall be transferred to the Renewal and Replacement Fund in the amounts required in accordance with Section 4.08 hereof.

31 (viii)General Fund. Revenues shall be transferred to the General Fund at the time and in such amounts, if any, as the Authority, from time to time, may determine as provided in Section 4.09 hereof. Section 4.03. Funding of Debt Service Fund. The Trustee, after taking into account Capitalized Interest and other money, if any, on deposit in the Debt Service Fund, shall, at least 15 Business Days prior to each Payment Date on any Bond, give the Authority notice by telephone, promptly confirmed in writing, of the amount required, if any, to be deposited with the Trustee to make each required payment of principal and interest due on such Payment Date. Upon receipt of such notice, the Authority, at least five Business Days prior to such Payment Date, shall withdraw from the Revenue Fund and pay to the Trustee said amount, if any, required to make the interest and/or principal payments due on such Payment Date.

The Supplemental Indenture under which any Series of Bonds are issued may provide for different times and methods of notifying the Authority of payment dates and amounts to accommodate the specific provisions of such Series and, in such event, the terms of such Supplemental Indenture shall control.

On any day on which the Trustee receives moneys from the Authority to be used to pay principal of or interest on Bonds, the Trustee shall deposit such amounts into the respective Accounts of the Debt Service Fund for the Series of Bonds for which such payments were made and any excess shall be applied to pay all amounts of principal and interest becoming due on any subsequent Payment Dates.If, on any Payment Date, the Trustee does not have sufficient amounts in the Debt Service Fund (without regard to any amounts which may be available from the Debt Service Reserve Fund) to pay in full all amounts of principal and/or interest due on such date, the Trustee shall allocate the total amount which is available to make payment on such day (without regard to any amounts in the Debt Service Reserve Fund) as follows: first to the payment of interest then due on the Bonds and, if the amount available shall not be sufficient to pay in full all interest on the Bonds then due, then pro rata among the Series according to the amount of interest then due and second to the payment of principal then due on the Bonds and, if the amount available shall not be sufficient to pay in full all principal on the Bonds then due, then pro rata among the Series according to the Principal Amount then due on the Bonds.

If an Account or Accounts in the Debt Service Reserve Fund (or a Credit Facility provided in lieu thereof) have been used to make payments on Bonds secured thereby, then the Authority may be required by Supplemental Indenture to replenish such Account or Accounts or reimburse the Credit Provider from Net Revenues provided that (a) no amount from Net Revenues may be used for such purpose until all payments of principal of and interest on all Bonds which have become due and payable shall have been paid in full, (b) the required payments to replenish the Debt Service Reserve Fund or reimburse the Credit Provider shall be due in no more than 12 substantially equal monthly installments commencing in January of the year immediately succeeding any such withdrawal and (c) if the aggregate amount of payments due on any date to replenish such Accounts in the Debt Service Reserve Fund and reimburse the Credit Provider exceeds the amount available for such purpose, the payments to be made for such purpose to the Trustee and to the Credit Provider shall be allocated among such Accounts in the Debt Service Reserve Fund pro rata on the basis of the Outstanding Principal Amount of Bonds secured thereby.

32 Notwithstanding the foregoing, the Authority may, in the Supplemental Indenture authorizing such Series of Bonds, provide for different provisions and timing of deposits with the Trustee and different methods of paying principal of or interest on such Bonds depending upon the terms of such Bonds and may provide for payment through a Credit Facility with reimbursement to the Credit Provider from the respective Account in the Debt Service Fund created for the Series of Bonds for which such Credit Facility is provided.

If the Net Revenues are at any time insufficient to make the deposits required to make payments on the Bonds, the Authority may, at its election, pay to the Trustee funds from any available sources with the direction that such funds be deposited into a specified Account or Accounts or subaccount or subaccounts in the Debt Service Fund. Section 4.04. Authorization for Creation of Construction Fund. Proceeds of each Series of Bonds which are to be used to pay Costs of a Project shall be deposited into a fund created for such Series of Bonds which shall be designated "Susquehanna Area Regional Airport Authority Airport Revenue Bonds Series Construction Fund" (each, respectively, a "Construction Fund ") which may be held either by the Authority or the Trustee or part by the Authority and part by the Trustee, all as provided by this Indenture, a Supplemental Indenture or Supplemental Indentures. All moneys in each Construction Fund shall be held and disbursed as provided in the Supplemental Indenture or Supplemental Indentures under which such fund or funds were created. Notwithstanding this provision, no Construction Fund shall be required for a given Series of Bonds if all of the proceeds thereof (except those deposited into the Debt Service Reserve Fund or the Debt Service Fund) are spent at the time of issuance of such Series or are used to refund Bonds or otherwise and the Authority determines that there is no need to create a Construction Fund for such Series. Section 4.05. Creation of Debt Service Fund. There is created a fund, known as the "Debt Service Fund ", which shall be held, in trust, by the Trustee or any agent of the Trustee. Amounts to be used to pay principal and interest on such Series, as received by the Trustee or its agent, shall be deposited therein and used for such purpose. Accounts shall be created in the Debt Service Fund with respect to each Series of Bonds at the time of issuance, which shall be held by the Trustee or such agents as shall be provided by Supplemental Indenture.

The moneys in each Account of the Debt Service Fund shall be held in trust and applied as provided in the Supplemental Indenture with regard to each such Account, and pending such application on the arrival of the Payment Date such amounts shall be subject to a lien on and security interest in favor of the holders of the Bonds issued and Outstanding under this Indenture.

Section 4.06. Creation of Debt Service Reserve Fund. There is created a fund known as the "Debt Service Reserve Fund ", which shall be held, in trust, by the Trustee or any agent of the Trustee until applied as herein provided. The Authority may, at the time of issuance of any Series of Bonds by Supplemental Indenture provide for the creation of an Account within the Debt Service Reserve Fund as additional security for such Series, and in its discretion reserve the right to allow a future Series of Bonds to participate in such Account, or provide that such Series of Bonds participate in an Account previously created for an Outstanding Series of Bonds. The Authority shall, by such Supplemental Indenture, specify the amount of the Debt Service Reserve Requirement with respect to such Account, provide for the manner of funding and

33 replenishing such Account and shall establish such other terms with respect to the Debt Service Reserve Fund as the Authority may deem to be appropriate, including delivery of a Credit Facility in lieu thereof.In addition, the Authority may, by Supplemental Indenture, create additional funds and accounts for such purposes as the Authority deems appropriate, including separate funds available only for specified Bonds or Series of Bonds. Section 4.07. Creation of Maintenance and Operation Reserve Fund. The Authority shall create a Fund to be designated as the "Maintenance and Operation Reserve Fund." The Authority shall transfer to the Maintenance and Operation Reserve Fund in each Fiscal Year such amounts as shall established by the Authority from time to time. Moneys in the Maintenance and Operation Reserve Fund shall be used by the Authority to pay Maintenance and Operation Expenses of the Airport System in the event there are insufficient moneys in the Revenue Fund to make such payments. Section 4.08. Creation of Renewal and Replacement Fund.The Authority shall create a Fund to be designated as the "Renewal and Replacement Fund." The Authority shall transfer to the Renewal and Replacement Fund in each Fiscal Year such amounts as shall be required to maintain a balance in such Fund, in the amount as, from time to time, shall be established by the Authority. Moneys in the Renewal and Replacement Fund shall be used by the Authority to pay for emergency or unforeseen capital projects of the Authority for which moneys are not otherwise available. Section 4.09. Creation of General Fund. The Authority shall create a Fund to be designated as the "General Fund ". The Authority initially shall create, within the General Fund the "Coverage Account," the "Revenue Credit Account," and the "Capital Improvement Account."

At theend of each FiscalYear commencing with theFiscalYear ending December 31, 2003 or as soon thereafter as is practicable, after all transfers, payments and deposits required to be made from the Revenue Fund pursuant to clauses (i) through (vii) of Section 4.02(b), the Authority shall transfer to the General Fund moneys remaining in the Revenue Fund after provision for a reasonable reserve for said clauses (i) through (vii). Moneys so transferred to the General Fund shall be applied, first, to the Coverage Account in an amount determined by the Authority but not to exceed an amount equal to 25% of Aggregate Annual Debt Service, and second, to the Capital Improvement Account, to the Revenue Credit Account and to such other Accounts that may be established, from time to time, within the General Fund, in such amounts and such priority as shall be determined by the Authority.

Moneys in the Capital Improvement Account may be used for any lawful Airport System purpose including, at the Authority's discretion, payment of the costs of capital improvements of the Airport System. Moneys in the Revenue Credit Account shall be transferred at the beginning of each Fiscal Year to the Revenue Fund and applied for such Fiscal Year as a credit in the calculation of such fees and charges as shall be determined by the Authority that are related to Airport System.

34 Section 4.10. Creation of PFC Fund.The Authority shall create a Fund to be designated as the "PFC Fund ", and within the PFC Fund, initially, an account known as the "PFC Capital Account ". The Authority covenants and agrees that all Passenger Facility Charges, when and as received by the Authority, shall be deposited into the PFC Fund. In addition to Passenger Facility Charges, all earnings derived from investment of the PFC Fund shall be retained in the PFC Fund, unless otherwise provided in a Supplemental Indenture. The Authority shall make transfers, payments or deposits from the PFC Fund at the times and in the amounts determined by the Authority to fund principal and interest on Outstanding Bonds or Subordinated Obligations, if any, issued to fund Costs of a Project authorized to be funded with Passenger Facility Charges.

Any Passenger Facility Charges not used for such transfers, payments or deposits may be transferred, at the election of the Authority, to the PFC Capital Account or to such other Accounts as may be created within the PFC Fund as the Authority may determine in conformity with federal statutes and regulations governing the use of the Passenger Facility Charges. Funds on deposit in the PFC Capital Account and any other Accounts established within the PFC Fund may be transferred or applied as the Authority shall determine in conformity with applicable law.

Section 4.11. Creation of LOI Fund.The Authority shall create a Fund to be designated the "LOI Fund ", and within the LOI Fund, initially, an Account known as the "LOI Capital Account ".The Authority covenants and agrees that all LOI Receipts, when and as received by the Authority, shall be deposited into the LOI Fund. In addition to LOI Receipts, all earnings derived from investment of the LOI Fund shall be retained in the LOI Fund, unless otherwise provided in a Supplemental Indenture. The Authority shall make transfers, payments or deposits from the LOI Fund at the times and in the amounts determined by the Authority to fund principal and interest on Outstanding Bonds or Subordinated Obligations issued to fund Costs of a Project authorized to be funded with LOI Receipts.

Any LOI Receipts not used for such transfers, payments or deposits may be transferred, at the election of the Authority, to the LOI Capital Account or to such other Accounts as may be created within the LOI Fund as the Authority may determine in conformity with federal statutes and regulations governing the use of the LOI Receipts. Funds on deposit in the LOI Capital Account and any additional Accounts established within the LOI Fund may be transferred or applied as the Authority shall determine in conformity with applicable law.

Section 4.12. Moneys Held in Trust for Matured Bonds; Unclaimed Moneys. All moneys which shall have been withdrawn from a Debt Service Fund and set aside or deposited with a Paying Agent for the purpose of paying any of the Bonds, either at the maturity thereof or upon call for redemption, or which are set aside by the Trustee for such purposes and for which Bonds the maturity date or redemption date shall have occurred, shall be held in trust for the respective holders of such Bonds. But any moneys which shall be so set aside or deposited and which shall remain unclaimed by the holders of such Bonds for a period of five years after the date on which such Bonds shall have become due and payable (or such longer period as shall be required by state law) shall be paid to the Authority, and thereafter the holders of such Bonds shall look only to the Authority for payment and the Authority shall be obligated to make such payment, but only to the extent of the amounts so received without any interest thereon, and neither the Trustee nor any Paying Agent shall have any responsibility with respect to any of

35 such moneys. The Authority hereby recognizes that while any Bonds are Outstanding in book - entry only form there should be no unclaimed moneys.

Section 4.13. Additional Security. The pledge of Net Revenues and the other security provided in the Granting Clauses hereof secure all Bonds issued under the terms of this Indenture on an equal and ratable basis, except as to the timing of such payments. The Authority may, however, in its discretion, provide additional security or credit enhancement for specified Bonds or Series of Bonds with no obligation to provide such additional security or credit enhancement to other Bonds.

ARTICLE V

COVENANTS OF THE AUTHORITY Section 5.01. Payment of Principal and Interest. The Authority covenants and agrees that it will duly and punctually pay or cause to be paid from the Net Revenues and to the extent thereof the principal of, premium, if any, and interest on every Bond at the place and on the dates and in the manner herein, in the Supplemental Indentures and in the Bonds specified, according to the true intent and meaning thereof, and that it will faithfully do and perform all covenants and agreements herein and in the Bonds contained, provided that the Authority's obligation to make payment of the principal of, premium, if any, and interest on the Bonds shall be limited to payment from the Net Revenues, the funds and accounts pledged therefor in the Granting Clauses of this Indenture and any other source which the Authority may specifically provide for such purpose and no Bondholder shall have any right to enforce payment from any other funds of the Authority. Section 5.02. Performance of Covenants by Authority. The Authority covenants that it will faithfully perform at all times any and all covenants and agreements contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder and in all of its proceedings pertaining hereto. The Authority covenants that it is duly authorized under the Constitution and laws of the Commonwealth to issue the Bonds and pledge and grant a security interest in the Net Revenues and other security pledged thereto or in which a security interest is granted and that the Authority has not previously pledged such Net Revenues or other assets to secure other obligations.

Section 5.03. Senior Lien Obligations Prohibited. The Authority hereby agrees that so long as any Bonds are Outstanding under this Indenture, it will not issue, or authorize issuance of, any bonds or other obligations with a lien on or security interest granted in Net Revenues which is senior to the Bonds. Section 5.04. Rate Covenant.The Authority covenants tofulfill the following requirements:

(a) The Authority, so long as any Bonds remain Outstanding, shall establish, fix, prescribe and collect rates, tolls, fees, rentals and charges in connection with the Airport System and for services rendered in connection therewith, so that Net Revenues in each Fiscal Year will be at least equal to the following amounts:

36 (i) the Aggregate Annual Debt Service on any Outstanding Bonds required to be funded by the Authority in such Fiscal Year as required by this Indenture;

(ii) the required deposits to the Debt Service Reserve Fund which may be established by a Supplemental Indenture;

(iii) the interest on and principal of any indebtedness required to be funded during such Fiscal Year other than Outstanding Bonds, including Subordinated Obligations;

(iv) payments of any reserve requirement for debt service for any indebtedness other than Outstanding Bonds, including Subordinated Obligations;

(v) the reimbursement owed to any Credit Provider as required by a Supplemental Indenture or the Master Subordinate Trust Indenture;

(vi) transfers to the Maintenance and Operation Reserve Fund pursuant to Section 4.07; and

(vii) transfers to the Renewal and Replacement Fund pursuant to Section 4.08. (b) The Authority further agrees that it will establish, fix, prescribe and collect rates, tolls, fees, rentals and charges in connection with the Airport System and for services rendered in connection therewith, so that during each Fiscal Year the Net Revenues, together with the amount on deposit in the Coverage Account, will be equal to at least 125% of Aggregate Annual Debt Service on the Outstanding Bonds.For purposes of this subsection (b), the amount on deposit in the Coverage Account taken into account shall not exceed 25% of Aggregate Annual Debt Service on the Outstanding Bonds in such Fiscal Year.

(c) The Authority covenants that if Net Revenues, together with any amount on deposit in the Coverage Account (only as applied in (b) above), in any Fiscal Year are less than the amount specified in paragraph (a) or (b) of this Section 5.04, the Authority will retain and direct a Consultant to make recommendations as to the revision of the Authority's business operations and its schedule of rentals, rates, fees and charges for the use of the Airport System and for services rendered by the Authority in connection with the Airport System, and after receiving such recommendations or giving reasonable opportunity for such recommendations to be made the Authority shall take all lawful measures to revise the schedule of rentals, rates, fees and charges as may be necessary to produce Net Revenues, together with any amount on deposit in the Coverage Account (only as applied in (b) above), in the amount specified in paragraph (a) or (b) of this Section 5.04 in the next succeeding Fiscal Year.

(d) In the event that Net Revenues for any Fiscal Year are less than the amount specified in paragraph (a) or (b) of this Section 5.04, but the Authority promptly has taken prior to or during the next succeeding Fiscal Year all lawful measures to revise the

37 schedule of rentals, rates, fees and charges as required by paragraph (c) of this Section 5.04, such deficiency in Net Revenues shall not constitute an Event of Default under the provisions of Section 8.01(d). Nevertheless, if after taking the measures required by paragraph (c) of this Section 5.04 to revise the schedule of rentals, rates, fees and charges, Net Revenues in the next succeeding Fiscal Year (as evidenced by the audited financial statements of the Authority for such Fiscal Year) are less than the amount specified in paragraph (a) or (b) of this Section 5.04, such deficiency in Net Revenues shall constitute an Event of Default under the provisions of Section 8.01(d).

Section 5.05. No Inconsistent Contract Provisions. The Authority covenants that no contract or contracts will be entered into or any action taken by the Authority which shall be inconsistent with the provisions of this Indenture. The Authority covenants that it will not take any action which, in the Authority's judgment at the time of such action, will substantially impair or materially adversely affect the pledge of Net Revenues, or will substantially impair or materially adversely affect in any manner the pledge of, lien on or security interest granted in the Net Revenues herein or the rights of the holders of the Bonds.The Authority shall be unconditionally and irrevocably obligated, so long as any of the Bonds are Outstanding and unpaid, to take all lawful action necessary or required to pay from the Net Revenues the principal of and interest on the Bonds and to make the other payments provided for herein. Section 5.06. Subordinated Obligations. The Authority may, from time to time, incur indebtedness which is subordinate to the Bonds and which indebtedness is, in this Indenture, referred to as Subordinated Obligations. Such indebtedness shall be incurred at such times and upon such terms as the Authority shall determine, provided that: (a) any Supplemental Indenture authorizing the issuance of any Subordinated Obligations shall specifically state that such lien on or security interest granted in the Net Revenues is junior and subordinate to the lien on and security interest in such Net Revenues and other assets granted to secure the Bonds; and

(b) payment of principal of and interest on such Subordinated Obligations shall be permitted, provided that all deposits required to be made pursuant to Sections 4.02(b)(í) through (iii), if any, are then current in accordance with Section 4.02 of this Indenture. Section 5.07. Special Facilities and Special Facility Obligations. The Authority shall be permitted to designate new or existing Airport Facilities as Special Facilities as permitted in this Section 5.07. The Authority may, from time to time, and subject to the terms and conditions of this Section 5.07, (a) designate a separately identifiable existing facility or planned facility as an "Special Facility," (b) pursuant to an indenture other than this Indenture and without a pledge of any Net Revenues, incur debt primarily for the purpose of acquiring, constructing, renovating or improving or providing financing or refinancing to a third party to acquire, construct, renovate or improve, such facility, (c) provide that certain of the contractual payments derived from such Special Facility, together with other income and revenues available to the Authority from such Special Facility to the extent necessary to make the payments required by clause (a) of the second succeeding paragraph, be "Special Facilities Revenue" and not included as Revenues or Net Revenues unless on terms provided in any supplemental indenture, and (d) provide that the debt so incurred shall be a "Special Facility Obligation" and the principal of and interest thereon

38 shall be payable solely from the Special Facilities Revenue. The Authority may from time to time refinance any such Special Facility Obligations with other Special Facility Obligations.

Special Facility Obligations shall be payable as to principal, redemption premium, if any, and interest solely from Special Facilities Revenue, which shall include contractual payments derived by the Authority under and pursuant to a contract (which may be in the form of a lease) relating to a Special Facility by and between the Authority and another person, firm or corporation, either public or private, as shall undertake the operation of a Special Facility.

No Special Facility Obligations shall be issued by the Authority unless there shall have been filed with the Trustee: (a) a certificate of an Authorized Authority Representative stating that the estimated Special Facilities Revenue pledged to the payment of obligations relating to the Special Facility will be at least sufficient to pay the principal of and interest on such Special Facility Obligations as and when the same become due and payable, all costs of operating and maintaining such Special Facility not paid for by the operator thereof or by a party other than the Authority and all sinking fund, reserve or other payments required with respect to the Special Facility Obligations as the same become due; and

(b) a certificate of a Consultant with respect to the designation of any separately identifiable existing Airport Facilities or Airport Facility as a "Special Facility" or "Special Facilities," to the effect that the estimated Net Revenues, calculated without including the new Special Facilities Revenue and without including any operation and maintenance expenses of the Special Facility as Maintenance and Operation Expenses of the Airport System, will be sufficient so that the Authority will be in compliance with Section 5.04(a) and (b) of this Indenture; and

(c) no Event of Default then exists under Section 8.01 of this Indenture. To the extent Special Facilities Revenue received by the Authority during any Fiscal Year shall exceed the amounts required to be paid pursuant to clause (a) of the immediately preceding paragraph for such Fiscal Year, such excess Special Facilities Revenue, to the extent not otherwise encumbered or restricted, shall constitute Revenues. Notwithstanding any other provision of this Section 5.07, at such time as the Special Facility Obligations issued for a Special Facility including Special Facility Obligations issued to refinance Special Facility Obligations are fully paid or otherwise discharged, all revenues of the Authority from such facility shall be included as Revenues. Section 5.08. Maintenance of Powers. The Authority covenants that it will not do, suffer or permit any act or thing the effect of which would be to delay either the payment of the indebtedness evidenced by any of the Bonds or the performance or observance of any of the covenants herein contained.

The Authority will not take, or allow any person to take, any action which would (i) cause the Administrator of the Federal Aviation Administration, U.S. Department of Transportation or any successor to the powers and authority of such Administrator, or other

39 governmental agency having jurisdiction to suspend or revoke the Authority's operating certificates issued under the Federal Aviation Act of 1958, or any successor statute, (ii) cause the termination or reduction of the Authority's power to impose, collect and use Passenger Facility Charges or (iii) cause the Authority to be disqualified from receipt and use of grant funds for which it has received a commitment. The Authority will comply with all valid acts, rules, regulations, orders and directives of any governmental, legislative, executive, administrative or judicial body applicable to the Airport System, unless the same shall be contested in good faith, all to the end that the Airport System will remain in operation at all times. Section 5.09. Maintenance and Operation of Airport System. The Authority covenants that the Airport System shall at all times be operated and maintained in good working order and condition and in compliance with all lawful orders of any governmental agency or authority having jurisdiction (provided the Authority shall not be required to comply with any such orders so long as the validity or application thereof shall be contested in good faith), and that all licenses and permits necessary with respect to construction or operation of any part of the Airport System shall be obtained and maintained, and that all necessary repairs, improvements and replacements of the Airport System shall be made in order to maintain proper operation of the Airport System.

The Authority will, from time to time, duly pay and discharge, or cause to be paid and discharged, except to the extent the imposition or payment thereof is being contested in good faith by the Authority, all taxes (if any), assessments or other governmental charges lawfully imposed upon the Airport System or upon any part thereof, or upon the Revenues or Net Revenues, when the same shall become due, as well as any lawful claim for labor, materials or supplies or other charges which, if unpaid, might by law become a lien or charge upon the Revenues or Net Revenues or Airport System or any part thereof constituting part of the Airport System.

Section 5.10. Insurance; Application of Insurance Proceeds. (a) Subject, in each case, to the condition that insurance is obtainable at reasonable rates and upon reasonable terms and conditions:

(i) the Authority will procure and maintain or cause to be procured and maintained commercial insurance or provide Qualified Self Insurance with respect to the facilities constituting the Airport System and public liability insurance in the form of commercial insurance or Qualified Self Insurance and, in each case, in such amounts and against such risks as are, in the judgment of the Authority, prudent and reasonable taking into account, but not being controlled by, the amounts and types of insurance or self- insured programs provided by similar airports; and

(ii) the Authority will place on file with the Trustee, annually within 120 days after the close of each Fiscal Year, a certificate of an Authorized Authority Representative containing a summary of all insurance policies and self -insured programs then in effect with respect to the Airport System and the operations of the Authority.The Trustee may conclusively rely upon such

40 certificate and shall not be responsible for the sufficiency or adequacy of any insurance required herein or obtained by the Authority. (b) "Qualified Self Insurance" shall mean insurance maintained through a program of self insurance or insurance maintained with a fund, company or association in which the Authority may have a material interest and of which the Authority may have control, either singly or with others.Each plan of Qualified Self Insurance shall be established in accordance with law, shall provide that reserves be established or insurance acquired in amounts adequate to provide coverage which the Authority determines to be reasonable to protect against risks assumed under the Qualified Self Insurance plan, including any potential retained liability in the event of the termination of such plan of Qualified Self Insurance, and such self -insurance program shall be reviewed at least once every 12 months by a Consultant who shall deliver to the Authority a report on the adequacy of the reserves established thereunder. If the Consultant determines that such reserves are inadequate, he shall make a recommendation as to the amount of reserves that should be established and maintained, and the Authority shall comply with such recommendation unless it can establish to the satisfaction of and receive a certification from a Consultant that a lower amount is reasonable to provide adequate protection to the Authority. (c) If, as a result of any event, any part of the Airport System is destroyed or severely damaged, the Authority shall create within the Revenue Fund a special account and shall credit the Net Proceeds received as a result of such event of damage or destruction to such account and such Net Proceeds shall, within a reasonable period of time taking into account any terms under which insurance proceeds are paid and any insurance restrictions upon the use or timing of the use of insurance proceeds, be used to: (i) repair or replace the Airport System, or portions thereof, which were damaged or destroyed, (ii) provide additional revenue -producing Airport Facilities,(iii) redeem Bonds or Subordinated Obligations, or (iv) create an escrow fund pledged to pay (I) specified Bonds and thereby cause such Bonds to be deemed to be paid as provided in Article VII hereof; or (II) specified Subordinated Obligations and thereby cause such Subordinated Obligations to be deemed to be paid as provided in Article VII of the Master Subordinate Trust Indenture, provided, however, in either case, that the Authority shall first deliver to the Trustee a certificate of a Consultant showing that, after taking into account the use of the Net Proceeds for the redemption of such specified Bonds or Subordinated Obligations, thetestsetforthin Section 5.04(a) and (b) would, nevertheless, be met.

Section 5.11. Financial Records. The Authority covenants that it will keep and provide accurate books and records of account showing all Revenues received and all expenditures of the Authority and that it will keep or cause to be kept accurate books and records of account showing all moneys, Revenues, accounts and funds (including the Revenue Fund and all funds and accounts provided for in this Indenture) which are or shall be in the control or custody of the Authority; and that all such books and records pertaining to the Airport System shall be open upon reasonable notice during business hours to the Trustee and to the Owners of not less than 10% of the Principal Amount of Bonds then Outstanding, or their representatives duly authorized in writing. Within 210 days after the close of each Fiscal Year, so long as any of the Bonds

41 remain Outstanding, the Authority will prepare audited financial statements including a statement of the income and expenses for such Fiscal Year and a balance sheet prepared as of the close of such Fiscal Year for the Authority all accompanied by a certificate or opinion in writing of an Independent certified public accountant of recognized standing, selected by the Authority, which opinion shall include a statement that said financial statements present fairly in all material respects the financial position of the Authority and are prepared in accordance with generally accepted accounting principles. Section 5.12. Transfer of Airport Facility or Airport Facilities. The Authority shall not, except as permitted below, transfer, sell or otherwise dispose of an Airport Facility or Airport Facilities.For purposes of this Section 5.12, any transfer of an asset over which the Authority retains substantial control in accordance with the terms of such transfer, shall not, for so long as the Authority has such control, be deemed a disposition of an Airport Facility or Airport Facilities. The Authority may transfer, sell or otherwise dispose of any property or interest in property constituting Airport Facilities only if such transfer, sale or disposition complies with one or more of the following provisions:

(a) the property being disposed of is inadequate, obsolete or worn out; or (b) the property proposed to be disposed of and all other Airport Facilities disposed of during the immediately preceding 12 -month period (but excluding property disposed of under (a) above), will not, in the aggregate, constitute a Significant Portion, the proceeds are deposited into the Revenue Fund to be used as described below and the Authority believes that such disposal will not prevent it from fulfilling its obligations under this Indenture; or

(c) the Authority receives fair market value for the property, the proceeds are deposited in the Revenue Fund to be used as described below, and prior to the disposition of such property, there is delivered to the Trustee a certificate of a Consultant to the effect that notwithstanding such disposition, but taking into account the use of such proceeds in accordance with the expectations of the Authority as evidenced by a certificate of an Authorized Authority Representative, the Consultant estimates that Authority will be in compliance with Section 5.04(a) and (b) of this Indenture during each of the three Fiscal Years immediately following such disposition. Net proceeds of sale or other disposition of property or interest in property shall be applied by the Authority to replacement of property so sold or otherwise disposed of, if deemed necessary or proper by the Authority, or, in lieu thereof, shall be deposited by the Authority to the Revenue Fund, in the case of sale or other disposition of current assets (determined in accordance with sound accounting practice) or the lease of property, and otherwise in the Renewal and Replacement Fund or Debt Service Fund, as appropriate to the intended use thereof. Notwithstanding the foregoing provisions of this Section 5.12, Airport Facilities (excluding property described in subparagraph (a) above) which were financed with the proceeds

42 of obligations the interest on which is then excluded from gross income for federal income tax purposes shall not be disposed of unless the Authority has first received a written opinion of Bond Counsel to the effect that such disposition will not cause the interest on such obligations to become includable in gross income for federal income tax purposes.

No such disposition shall be made which would cause the Authority to be in default of any other covenant contained in this Indenture.

The Authority covenants that it will not dispose of assets necessary to operate the Airport System in the manner and at the levels of activity required to enable it to perform its covenants contained herein, including, without limitation, the covenants contained in Section 5.04 hereof. Section 5.13. Eminent Domain.If a Significant Portion of any Airport Facility or Airport Facilities are taken by eminent domain proceedings or conveyance in lieu thereof, the Authority shall create within the Revenue Fund a special account and credit the Net Proceeds received as a result of such taking or conveyance to such account and shall within a reasonable period of time, after the receipt of such amounts, use such proceeds to (a) replace the Airport Facility or Airport Facilities which were taken or conveyed, (b) provide an additional revenue- producing Airport Facility or Airport Facilities, (c) redeem Bonds, or (d) create an escrow fund pledged to pay specified Bonds and thereby cause such Bonds to be deemed to be paid as provided in Article VII hereof.

Section 5.14. Covenant Against Competing Facilities. The Authority covenants that it will not construct, operate, or enter into any agreement permitting or facilitating the construction or operation of, any facilities or structures that will compete with the operations of the Airport System in a manner that would materially and adversely affect its ability to comply with the covenant set forth in Section 5.04(a) and (b) hereof; provided, however, that with respect to any airport designated by the Authority to be a part of the Airport System, the ability to comply with the covenant set forth in Section 5.04(a) and (b) shall not be deemed materially and adversely affected for purposes of this Section if the Authority takes all lawful measures necessary to produce Net Revenues sufficient to satisfy the covenant set forth In Section 5.04(a) and (b) with respect to the first full Fiscal Year commencing after the date the Authority first assumes any responsibilities or obligations with respect to operation of such designated airport. Section 5.15. Completion of Specified Project; Substitution of Specified Project. The Authority will, upon the issuance of a Series of Bonds the proceeds of which are to be used for a Specified Project, proceed with due diligence to construct or acquire such Specified Project; provided, however, that the Authority may, if the conditions set forth in this Section 5.15 are met, substitute another Project therefor and shall proceed with due diligence to construct or acquire such substituted Project. The Authority may determine not to proceed with any of the Specified Projects or may determine to substitute another Project or Projects for a Specified Project if, as a condition to discontinuing the acquisition or construction of a Specified Project or to the substitution of another Project or Projects therefor, the Authority (a) first delivers to the Trustee a certificate of a Consultant showing that after taking into account the discontinuation of such Specified Project or the substitution of Project or Projects therefor, the test set forth in Section 5.04(a) and (b) would, nevertheless, be met and (b) second, if the original Project was financed with the proceeds of obligations the interest on which is then excluded from gross

43 income for federal income tax purposes, there is delivered an opinion of Bond Counsel to the effect that the substitution of one Project for another Project will not cause interest on the Series of Bonds with respect to which the original Project was to be financed to be included in gross income of the recipients thereof for federal income tax purposes. If the Authority determines not to proceed with a Specified Project and fails to deliver the Consultant's certificate and to undertake a substitute Project or Projects, then Bond proceeds which would have been used to acquire or construct such Specified Project shall be used to redeem Bonds, or used as otherwise provided in the Supplemental Indenture pursuant to which they were issued.

Section 5.16. Covenants of Authority Binding on Authority and Successors.All covenants, stipulations, obligations and agreements of the Authority contained in this Indenture shall be deemed to be covenants, stipulations, obligations and agreements of the Authority to the full extent authorized or permitted by law.If the powers or duties of the Authority shall hereafter be transferred by amendment of the Act or a new Act or any provision of the Constitution or any other law of the Commonwealth or in any other manner there shall be a successor to the Authority, and if such transfer shall relate to any matter or thing permitted or required to be done under this Indenture by the Authority, then the entity that shall succeed to such powers or duties of the Authority shall act and be obligated in the place and stead of the Authority as in this Indenture provided, and all such covenants, stipulations, obligations and agreements shall be binding upon the successor or successors thereof from time to time and upon any officer, board, body or Authority to whom or to which any power or duty affecting such covenants, stipulations, obligations and agreement shall be transferred by or in accordance with law.

Except as otherwise provided in this Indenture, all rights, powers and privileges conferred and duties and liabilities imposed upon the Authority by the provision of this Indenture shall be exercised or performed by the Authority or by such officers, board, body or Authority as may be permitted by law to exercise such powers or to perform such duties. Section 5.17. Instruments of Further Assurance. The Authority covenants that it will do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, such Supplemental Indentures, and such further acts, instruments and transfers as the Trustee may reasonably request for the better assuring and confirming to the Trustee all and singular the rights and obligations of the Authority under and pursuant to this Indenture and the security intended to be conferred hereby to secure the Bonds. Section 5.18. Indenture To Constitute a Contract.This Indenture, including all Supplemental Indentures, is executed by the Authority for the benefit of the Bondholders and constitutes a contract with the Trustee for the benefit of the Bondholders.

Section 5.19. Obligations Secured by Other Revenues. The Authority may, from time to time, incur indebtedness payable solely from certain revenues of the Airport System which do not constitute Revenues or Net Revenues at such times and upon such terms and conditions as the Authority shall determine, provided that such indebtedness shall specifically include a provision that payment of such indebtedness is neither secured by nor payable from Net Revenues. The Authority may also, from time to time, incur indebtedness payable from and secured by both Net Revenues and certain revenues of the Airport System which do not

44 constitute Revenues or Net Revenues at such times and upon such terms and conditions as the Authority shall determine, provided that the conditions set forth in this Indenture for the issuance of indebtedness payable from and secured by Net Revenues, including, without limitation, Section 2.09, Section 2.11 and Section 5.06, as applicable, are met.

Section 5.20. Operating Budget. (a) Prior to the beginning of each Fiscal Year and as may be required pursuant to any Supplemental Indenture, the Authority shall prepare, adopt and deliver to the Trustee an Operating Budget, showing on a monthly basis the estimated Maintenance and Operation Expenses, as well as the Revenues or other moneys held hereunder estimated to be available to pay such Maintenance and Operation Expenses for the ensuing Fiscal Year, together with any other information required to be set forth therein by any Supplemental Indenture.Such Operating Budget may set forth such additional information as the Authority may determine.

(b)If for any reason the Authority shall not have adopted the Operating Budget as provided in this Section 5.20, the Operating Budget for the then current Fiscal Year shall be deemed to be the Operating Budget for the ensuing Fiscal Year until a new Operating Budget is adopted. (c) The Authority may at any time adopt an amended Operating Budget for the then current or ensuing Fiscal Year, but no such amended Operating Budget shall supersede any prior Operating Budget until the Authority shall have filed with the Trustee a copy of such amended Operating Budget. ARTICLE VI

INVESTMENTS Moneys held by the Trustee in the funds and accounts created herein and under any Supplemental Indenture shall be invested and reinvested as directed by the Authority, in Permitted Investments subject to the restrictionsset forth in this Indenture and such Supplemental Indenture. The Authority shall direct such investments by written certificate (upon which the Trustee may conclusively rely) of an Authorized Authority Representative or by telephone instruction followed by prompt written confirmation by an Authorized Authority Representative; in the absence of any such instructions, the Trustee shall, to the extent practicable, invest in Permitted Investments specified in item (ix) of the definition thereof, which includes a money market fund comprised of United States Obligations, or in a money market fund or account (which is generally referred to as the U.S. Government Fund) of the Trustee, provided it meets the requirements specified in (ix) of the definition of Permitted Investments.

The Trustee shall not be liable for any loss resulting from following the written directions of the Authority or as a result of liquidating investments to provide funds for any required payment, transfer, withdrawal or disbursement from any fund or account in which such Permitted Investment is held.

The Trustee may buy or sell any Permitted Investment through its own (or any of its affiliates) investment department.

45 ARTICLE VII

DEFEASANCE

Bonds or portions thereof (such portions to be in integral multiples of the authorized denomination) which have been paid in full or which are deemed to have been paid in full shall no longer be secured by or entitled to the benefits of this Indenture except for the purposes of payment from moneys or Defeasance Obligations held by the Trustee or a Paying Agent for such purpose. When all Bonds which have been issued under this Indenture have been paid in full or are deemed to have been paid in full, and all other sums payable hereunder by the Authority, including all necessary and proper fees, compensation and expenses of the Trustee, the Registrar and the Paying Agent, have been paid or are duly provided for, then the right, title and interest of the Trustee in and to the pledge of Net Revenues and the other assets pledged to secure the Bonds hereunder shall thereupon cease, terminate and become void, and thereupon the Trustee shall cancel, discharge and release this Indenture, shall execute, acknowledge and deliver to the Authority such instruments as shall be requisite to evidence such cancellation, discharge and release and shall assign and deliver to the Authority any property and revenues at the time subject to this Indenture which may then be in the Trustee's possession, except funds or securities in which such funds are invested and are held by the Trustee or the Paying Agent for the payment of the principal of, premium, if any, and interest on the Bonds; Provided, however, that so long as any Subordinate Obligation remains outstanding, the Trustee shall not cancel, discharge and release this Indenture. A Bond shall be deemed to be paid within the meaning of this Article VII and for all purposes of this Indenture when payment of the principal, interest and premium, if any, either (a) shall have been made or caused to be made in accordance with the terms of the Bonds and this Indenture or (b) shall have been provided for by depositing with the Trustee in trust and setting aside exclusively for such payment, (i) moneys sufficient to make such payment and/or (ii) Defeasance Obligations, maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient moneys to make such payment. At such times as Bonds shall be deemed to be paid hereunder, such Bonds shall no longer be secured by or entitled to the benefits of this Indenture, except for the purposes of payment from such moneys or Defeasance Obligations.

Any deposit under clause (b) of the foregoing paragraph shall be deemed a payment of such Bonds. Once such deposit shall have been made, the Trustee shall notify all holders of the affected Bonds that the deposit required by (b) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with this Article VII. No notice of redemption shall be required at the time of such defeasance or prior to such date as may be required by the Supplemental Indenture under which such Bonds were issued. The Authority may at any time, prior to issuing such notice of redemption as may be required by the Supplemental Indenture under which such Bonds were issued, modify or otherwise change the scheduled date for the redemption or payment of any Bond deemed to be paid under the terms of the foregoing paragraph in accordance with the terms of the Bonds or this Indenture subject to (a) receipt of an approving opinion of nationally recognized Bond Counsel that such action will not adversely affect the tax -exemption of any Bond or Bonds then Outstanding and (b) receipt of a report of a nationally recognized accounting firm verifying sufficiency of the deposit of the

46 amount of moneys and/or maturing principal of and interest on Defeasance Obligations estimated to be derived therefrom for the payment of the principal of, premium, if any, and interest on such Bonds. Notwithstanding anything in Article VII herein to the contrary, monies from the trust or escrow established for the defeasance of Bonds may be withdrawn and delivered to the Authority so long as the requirements of subparagraphs (a) and (b) above are met prior to or concurrently with any such withdrawal.

In connection with the redemption or defeasance, or partial redemption or defeasance of Bonds, the Authority may permit, or cause to be assigned to Bonds of a single maturity, multiple CUSIP numbers.

ARTICLE VIII

DEFAULTS AND REMEDIES Section 8.01. Events of Default. Each of the following events shall constitute and is referred to in this Indenture as an "Event of Default ":

(a) a failure to pay the principal of or premium, if any, on any of the Bonds when the same shall become due and payable at maturity or upon redemption; (b) a failure to pay any installment of interest on any of the Bonds when such interest shall become due and payable;

(c) a failure to pay the purchase price of any Bond when such purchase price shall be due and payable upon an optional or mandatory tender date as provided in a Supplemental Indenture; (d) a failure by the Authority to observe and perform any covenant, condition, agreement or provision (other than as specified in paragraphs (a), (b) and (c) of this Section 8.01) that are to be observed or performed by the Authority and which are contained in this Indenture or a Supplemental Indenture, which failure, except for a violation under Section 5.04 which shall be controlled by the provisions set forth therein, shall continue for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the Authority by the Trustee, which notice may be given at the discretion of the Trustee and shall be given at the written request of holders of 25% or more of the Principal Amount of the Bonds then Outstanding, unless the Trustee, or the Trustee and the holders of Bonds in a Principal Amount not less than the Principal Amount of Bonds the holders of which requested such notice, shall agree in writing to an extension of such period prior to its expiration; provided, however, that the Trustee or the Trustee and the holders of such principal amount of Bonds shall be deemed to have agreed to an extension of such period if corrective action is initiated by the Authority within such period and is being diligently pursued until such failure is corrected;

(e) bankruptcy,reorganization,arrangement, insolvencyorliquidation proceedings, including without limitation proceedings under Chapter 9 of the United States Bankruptcy Code, or other proceedings for relief under any federal or state

47 bankruptcy law or similar law for the relief of debtors are instituted by or against the Authority and, if instituted against the Authority, said proceedings are consented to or are not dismissed within 60 days after such institution; or

(f) the occurrence of any other Event of Default as is provided in a Supplemental Indenture. If, on any date on which payment of principal of or interest on the Bonds is due and sufficient moneys are not on deposit with the Trustee or Paying Agent to make such payment, the Trustee shall give telephone notice of such insufficiency to the Authority.

Section 8.02. Remedies.

(a) Upon the occurrence and continuance of any Event of Default, the Trustee may, and upon the written direction of the holders of 25% or more of the Principal Amount of the Bonds then Outstanding and receipt of indemnity to its satisfaction, shall, in its own name and as the Trustee of an express trust:

(i) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders, and require the Authority to carry out any agreements with or for the benefit of the Bondholders and to perform its or their duties under the Act or any other law to which it is subject and this Indenture;

(ii) bring suit upon the Bonds;

(iii) commence an action or suit in equity to require the Authority to account as if' it were the trustee of an express trust for the Bondholders; or

(iv) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Bondholders.

(b) The Trustee shall be under no obligation to take any action with respect to any Event of Default unless the Trustee has actual knowledge of the occurrence of such Event of Default and has received indemnity to its satisfaction as described in Section 8.02(a) above. (c) In no event, upon the occurrence and continuation of an Event of Default described in Section 8.01, shall the Trustee, the Bondholders, a Credit Provider or any other party have the right to accelerate the payment of principal of and interest on the Bonds Outstanding.

(d) An Event of Default with respect to the one Series of Bonds shall not cause an Event of Default with respect to any other Series of Bonds unless such event or conditions on its own constitutes an Event of Default with respect to such other Series of Bonds pursuant to Section 8.01 hereof.

48 Section 8.03. Restoration to Former Position. In the event that any proceeding taken by the Trustee to enforce any right under this Indenture shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then the Authority, the Trustee, and the Bondholders shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Trustee shall continue as though no such proceeding had been taken. Section 8.04. Bondholders' Right To Direct Proceedings. Anything in this Indenture to the contrary notwithstanding, holders of a majority in Principal Amount of the Bonds then Outstanding shall have the right, at any time, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all remedial proceedings available to the Trustee under this Indenture to be taken in connection with the enforcement of the terms of this Indenture or exercising any trust or power conferred on the Trustee by this Indenture; provided that such direction shall not be otherwise than in accordance with the provisions of the law and this Indenture and that there shall have been provided to the Trustee security and indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred as a result thereof by the Trustee. Section 8.05. Limitation on Right To Institute Proceedings. No Bondholder shall have any right to institute any suit, action or proceeding in equity or at law for the execution of any trust or power hereunder, or any other remedy hereunder or on such Bonds, unless such Bondholder or Bondholders previously shall have given to the Trustee written notice of an Event of Default as hereinabove provided and unless also holders of 25% or more of the Principal Amount of the Bonds then Outstanding shall have made written request of the Trustee to do so, after the right to institute such suit, action or proceeding under Section 8.02 hereof shall have accrued, and shall have afforded the Trustee a reasonable opportunity to proceed to institute the same in either its or their name, and unless there also shall have been offered to the Trustee security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall not have complied with such request within a reasonable time; and such notification, request and offer of indemnity are hereby declared in every such case to be conditions precedent to the institution of such suit, action or proceeding; it being understood and intended that no one or more of the Bondholders shall have any right in any manner whatever by their action to affect, disturb or prejudice the security of this Indenture, or to enforce any right hereunder or under the Bonds, except in the manner herein provided, and that all suits, actions and proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Bondholders. Section 8.06. No Impairment of Right To Enforce Payment. Notwithstanding any other provision in this Indenture, the right of any Bondholder to receive payment of the principal of and interest on such Bond or the purchase price thereof, on or after the respective due dates expressed therein and to the extent of the pledge of Net Revenues and other security provided for the Bonds, or to institute suit for the enforcement of any such payment on or after such respective date, shall not be impaired or affected without the consent of such Bondholder. Section 8.07. Proceedings by Trustee Without Possession of Bonds. All rights of action under this Indenture or under any of the Bonds secured hereby which are enforceable by the Trustee may be enforced by it without the possession of any of the Bonds, or the production

49 thereof at the trial or other proceedings relative thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in its name for the equal and ratable benefit of the Bondholders, subject to the provisions of this Indenture.

Section 8.08. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Trustee or to Bondholders is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity or by statute; provided, however, that any conditions set forth herein to the taking of any remedy to enforce the provisions of this Indenture or the Bonds shall also be conditions to seeking any remedies under any of the foregoing pursuant to this Section 8.08.

Section 8.09. No Waiver of Remedies. No delay or omission of the Trustee or of any Bondholder to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default, or an acquiescence therein; and every power and remedy given by this Article VIII to the Trustee and to the Bondholders, respectively, may be exercised from time to time and as often as may be deemed expedient. Section 8.10. Application of Moneys.If an Event of Default shall occur and be continuing, all amounts then held or any moneys received by the Trustee, by any receiver or by any Bondholder pursuant to any right given or action taken under the provisions of this Article VIII (which shall not include moneys provided through a Credit Facility, which moneys shall be restricted to the specific use for which such moneys were provided), after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made by the Trustee (including attorneys' fees and disbursements), shall be applied as follows:

(a) First, to payment of all Maintenance and Operation Expenses of the Airport System; and

(b) Second, to payment of the whole amount of principal and interest which then shall be due and unpaid upon Bonds, and in case such amounts shall be insufficient to pay in full the whole sums so due and unpaid, then to payment of such principal and interest ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest;

(c) Third, unless otherwise funded, to payment of all expenses and charges of the Trustee, and reimbursement of each Credit Provider, if any, for all amounts drawn under the applicable Credit Facility, if any, and used to pay principal, premium, if any, and interest on the Bonds; and

(d) Fourth, to payment of the whole amount of principal and interest which then shall be due and unpaid upon Subordinated Obligations, and in case such amounts shall be insufficient to pay in full the whole sums so due and unpaid, then to payment of such principal and interest ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest.

50 Whenever moneys are to be applied pursuant to the provisions of this Section 8.10, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an interest Payment Date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal and interest to be paid on such date shall cease to accrue. The Trustee shall give notice of the deposit with it of any such moneys and of the fixing of any such date by Mail to all Bondholders and shall not be required to make payment to any Bondholder until such Bonds shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.

Whenever all installments of interest then due on the Bonds and all unpaid principal amount of any Bonds that shall have become due have been paid under the provisions of this Section 8.10 and all expenses and charges of the Trustee have been paid, and each Credit Provider, if any, has been reimbursed for all amounts drawn under the applicable Credit Facility, if any, and used to pay principal, premium, if any, and interest on the Bonds, Revenues shall be applied in the manner, at the times and according to the priority set forth in Section 4.02 hereof by the Trustee or the Authority, as applicable.

Section 8.11. Severability of Remedies. Itis the purpose and intention of this Article VIII to provide rights and remedies to the Trustee and the Bondholders, which may be lawfully granted under the provisions of the Act and other applicable law, but should any right or remedy herein granted be held to be unlawful, the Trustee and the Bondholders shall be entitled, as above set forth, to every other right and remedy provided in this Indenture or by applicable law. Section 8.12. Additional Events of Default and Remedies. So long as any particular Series of Bonds is Outstanding, the remedies as set forth in this Article VIII may be supplemented with additional remedies as set forth in a Supplemental Indenture under which such Series of Bonds is issued.

ARTICLE IX

TRUSTEE, PAYING AGENT AND CO- PAYING AGENTS; REGISTRAR

Section 9.01. Acceptance of Trusts. The Trustee hereby accepts and agrees to execute the trusts specifically imposed upon it by this Indenture, but only upon the additional terms set forth in this Article IX, to all of which the Authority agrees and the respective Bondholders agree by their acceptance of delivery of any of the Bonds.

Section 9.02. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise its rights and powers and use the same degree of care and skill in their exercise

51 as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.

(b) The Trustee shall perform the duties set forth in this Indenture and no implied duties or obligations shall be read into this Indenture against the Trustee.

(c) Except during the continuance of an Event of Default, in the absence of any negligence on its part or any actual knowledge to the contrary, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall review the certificates and opinions to determine whether they conform to the requirements of this Indenture.

(d) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

(i) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless the Trustee was negligent in ascertaining the pertinent facts; and

(ii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it from Bondholders, any Credit Provider or the Authority in the manner provided in this Indenture. (e) The Trustee shall not, by any provision of this Indenture, be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the holders of the Bonds, unless such holders shall have offered to the Trustee satisfactory security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (f) Every provision of this Indenture that in any way relates to the Trustee is subject to all the paragraphs of this Section 9.02. Section 9.03. Rights of Trustee.Subject to the foregoing Section 9.02, the Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any resolution, notice, telegram, request, consent, waiver, certificate, direction, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good faith believe to be genuine and to have been passed or signed by the proper authority or person or to have been prepared and furnished pursuant to any of the provisions of this Indenture, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements.The Trustee may rely upon the

52 calculations provided by the entity preparing the calculation of Aggregate Annual Debt Service in connection with the amount required to be on deposit in the Debt Service Reserve Fund.

The Trustee may consult with counsel with regard to legal questions, and the opinion or advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Trustee hereunder in good faith in accordance therewith.

Whenever in the administration of the trusts or duties imposed upon it by this Indenture the Trustee shall deem it necessary that a matter be proved or established prior to taking or not taking any action hereunder, such matter may be deemed to be conclusively proved and established by a certificate of an Authorized Authority Representative, and such certificate shall be full warrant to the Trustee for any action taken or not taken by it in good faith under the provisions of this Indenture in reliance on such certificate.

The Trustee makes no representation as to the sufficiency or validity of this Indenture or of any Bonds, or in respect of the security afforded by this Indenture. The Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it under this Indenture.

In the performance of its duties hereunder, the Trustee may employ attorneys, agents and receivers and shall not be liable for any actions of such attorneys, agents and receivers to the extent selected by it with reasonable care. The Trustee shall have no responsibility with respect to any information, statement or recital whatsoever in any official statement, offering memorandum or other disclosure material prepared or distributed with respect to the Bonds. Section 9.04. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Bonds and may otherwise deal with the Authority with the same rights it would have if it were not Trustee. Any Paying Agent or other agent may do the same with like rights. The foregoing notwithstanding, the Trustee shall notify the Authority in the event that its ownership or security interests may constitute a breach of its duties hereunder as Trustee. Section 9.05. Trustee's Disclaimer.The Trustee shall not be accountable for the Authority's use of the proceeds from the Bonds paid to the Authority and it shall not be responsible for any statement in the Bonds other than its certificate of authentication.

Section 9.06. Notice of Defaults. If (a) an Event of Default has occurred or (b) an event has occurred which with the giving of notice and/or the lapse of time would be an Event of Default and, with respect to such events for which notice to the Authority is required before such events will become Events of Default, such notice has been given, then the Trustee shall promptly, after obtaining actual notice of such Event of Default or event described in (b) of the first sentence of this Section 9.06, give notice thereof to each Bondholder. Except in the case of a default in payment or purchase on any Bonds, the Trustee may withhold the notice if and so

53 long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Bondholders. Section 9.07. Compensation of Trustee. For acting under this Indenture, the Trustee shall be entitled to payment of fees for its services and reimbursement of advances, counsel fees and other expenses reasonably and necessarily made or incurred by the Trustee in connection with its services under this Indenture, in accordance with a separate fee schedule setting forth such terms and conditions which has been approved by the Authority. The Authority agrees to indemnify and hold the Trustee and its officers, agents and directors harmless against any liabilities, costs, claims or expenses not arising from the Trustee's own negligence, misconduct or breach of duty, which the Trustee may incur in the exercise and performance of its rights and obligations hereunder including the enforcement of any remedies and the defense of any suit. Such obligation shall survive the discharge of this Indenture or the resignation or removal of the Trustee.

Section 9.08. Eligibility of Trustee. This Indenture shall always have a Trustee that is a trust company, banking association or a bank having the powers of a trust company and is organized and doing business under the laws of the United States or any state or the District of Columbia, is authorized to conduct trust business under the laws of the Commonwealth, is subject to supervision or examination by United States, state or District of Columbia authority and has (together with its corporate parent) a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. Section 9.09. Replacement of Trustee.The Trustee may resign by notifying the Authority in writing prior to the proposed effective date of the resignation. The holders of a majority in Principal Amount of the Bonds may remove the Trustee by notifying the removed Trustee and may appoint a successor Trustee with the Authority's consent. The Authority may remove the Trustee, by notice in writing delivered to the Trustee at least 60 days prior to the proposed removal date; provided, however, that the Authority shall have no right to remove the Trustee during any time when an Event of Default has occurred and is continuing or when an event has occurred and is continuing or condition exists which with the giving of notice or the passage of time or both would be an Event of Default.

No resignation or removal of the Trustee under this Section 9.09 shall be effective until a new Trustee has taken office and delivered a written acceptance of its appointment to the retiring Trustee and to the Authority and the retiring Trustee is paid in full all of its costs, fees and expenses through the date of transfer to the successor trustee.Immediately thereafter, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, the resignation or removal of the retiring Trustee shall then (but only then) become effective and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture.

If the Trustee resigns or is removed or for any reason is unable or unwilling to perform its duties under this Indenture, the Authority shall promptly appoint a successor Trustee.

If a Trustee is not performing its duties hereunder and a successor Trustee does not take office within 60 days after the retiring Trustee delivers notice of resignation or the Authority delivers notice of removal, the retiring Trustee, the Authority or the holders of a majority in

54 Principal Amount of the Bonds may petition any court of competent jurisdiction for the appointment of a successor Trustee. Section 9.10. Successor Trustee or Agent by Merger.If the Trustee, any Paying Agent or Registrar consolidates with, merges or converts into, or transfers all or substantially all its assets (or, in the case of a bank or trust company, its corporate trust assets) to, another corporation and such corporation meets the qualifications set forth in this Indenture, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee, Paying Agent or Registrar.

Section 9.11. Paying Agent. The Authority may upon notice to the Trustee at any time or from time to time appoint a Paying Agent or Paying Agents for the Bonds or for any Series of Bonds, and each Paying Agent, if other than the Trustee, shall designate to the Authority and the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it hereunder or under a Supplemental Indenture by a written instrument of acceptance delivered to the Authority and the Trustee under which each such Paying Agent will agree, particularly: (a) to hold all sums held by it for the payment of the principal of, premium or interest on Bonds in trust for the benefit of the Bondholders until such sums shall be paid to such Bondholders or otherwise disposed of as herein provided; (b) to keep such books and records as shall be consistent with prudent industry practice, to make such books and records available for inspection by the Authority and the Trustee on each Business Day during reasonable business hours; and

Section 9.12. Registrar. The Authority shall appoint the Registrar for the Bonds or a Registrar or Registrars for any Series of Bonds and may from time to time remove a Registrar and name a replacement. Each Registrar, if other than the Trustee, shall designate to the Trustee, the Paying Agent, and the Authority its principal office and signify its acceptance of the duties imposed upon it hereunder or under a Supplemental Indenture by a written instrument of acceptance delivered to the Authority and the Trustee under which such Registrar will agree, particularly, to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Authority, the Trustee, and the Paying Agent on each Business Day during reasonable business hours. Section 9.13. Other Agents. The Authority, or the Trustee with the consent of the Authority, may from time to time appoint other agents as may be appropriate at the time to perform duties and obligations under this Indenture or under a Supplemental Indenture all as provided by a Supplemental Indenture or resolution of the Authority.

Section 9.14. Several Capacities. Anything inthisIndentureto thecontrary notwithstanding, with the consent of the Authority, the same entity may serve hereunder as the Trustee, Paying Agent, Registrar and any other agent as appointed to perform duties or obligations under this Indenture, under a Supplemental Indenture or an escrow agreement, or in any combination of such capacities, to the extent permitted by law. The Paying Agent and the

55 Registrar shall be entitled to the same protections, limitations from liability and indemnities afforded to the Trustee under this Indenture. The foregoing notwithstanding, the Trustee shall notify the Authority in the event that the performance of its duties in any capacity other than Trustee may constitute a breach of its duties hereunder as Trustee.

Section 9.15. Accounting Records and Reports of the Trustee. (a) The Trustee shall at all times keep, or cause to be kept, proper records in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of the Bonds and all funds and accounts established by it pursuant to this Indenture. Such records shall be available for inspection with reasonable prior notice by the Authority on each Business Day during reasonable business hours and by any Bondholder, or his agent or representative duly authorized in writing, at reasonable hours and under reasonable circumstances.

(b) The Trustee shall provide to the Authority each month a report of any Bond proceeds received during that month, if any, and the amounts deposited into each fund and account held by it under this Indenture and the amount disbursed from such funds and accounts, the earnings thereon, the ending balance in each of such funds and accounts and the investments of each such fund and account.

ARTICLE X

MODIFICATION OF THIS INDENTURE Section 10.01. Limitations.This Indenture shall not be modified or amended in any respect subsequent to the first delivery of fully executed and authenticated Bonds except as provided in and in accordance with and subject to the provisions of this Article X. Section 10.02. Supplemental Indentures Not Requiring Consent of Bondholders. The Authority may, from time to time and at any time, without the consent of or notice to the Bondholders, execute and deliver Supplemental Indentures supplementing and/or amending this Indenture or any Supplemental Indenture as follows:

(a) to provide for the issuance of a Series or multiple Series of Bonds under the provisions of Section 2.09 of this Indenture and to set forth the terms of such Bonds and the special provisions which shall apply to such Bonds;

(b) to cure any formal defect, omission, inconsistency or ambiguity in, or answer any questions arising under, this Indenture or any Supplemental Indenture, provided such supplement or amendment is not materially adverse to the Bondholders;

(c) to add to the covenants and agreements of the Authority in this Indenture or any Supplemental Indenture other covenants and agreements, or to surrender any right or power reserved or conferred upon the Authority, provided such supplement or amendment shall not adversely affect the interests of the Bondholders;

56 (d) to confirm, as further assurance, any interest of the Trustee in and to the pledge of Net Revenues or in and to the funds and accounts held by the Trustee or in and to any other moneys, securities or funds of the Authority provided pursuant to this Indenture or to otherwise add additional security for the Bondholders; (e) to evidence any change made in the terms of any Series of Bonds if such changes are authorized by the Supplemental Indenture at the time the Series of Bonds is issued and such change is made in accordance with the terms of such Supplemental Indenture; (f) to comply with the requirements of the Trust Indenture Act of 1939, as amended from time to time; (g) to modify, alter, amend or supplement this Indenture or any Supplemental Indenture in any other respect which is not materially adverse to the Bondholders; (h) to provide for book -entry only Bonds or for the issuance of coupons and bearer Bonds or Bonds registered only as to principal;

(i) to qualify the Bonds or a Series of Bonds for a rating or ratings from a Rating Agency; (j) to accommodate the technical, operational and structural features of Bonds which are issued or are proposed to be issued or of a Program which has been authorized or is proposed to be authorized, including, but not limited to, changes needed to accommodate commercial paper, auction bonds, swaps, variable rate or adjustable rate bonds, discounted or compound interest bonds or other forms of indebtedness which the Authority from time to time deems appropriate to incur;

(k) to accommodate the use of a Credit Facility or Liquidity Facility for specific Bonds or a specific Series of Bonds; and

(1) to comply with the requirements of the Code as are necessary, in the opinion of Bond Counsel, to prevent the federal income taxation of the interest on the Bonds, including, without limitation, the segregation of Revenues into different funds.

Before the Authority shall, pursuant to this Section 10.02, execute any Supplemental Indenture, there shall have been delivered to the Authority and Trustee an opinion of Bond Counsel to the effect that such Supplemental Indenture is authorized or permitted by this Indenture, the Act and other applicable law, complies with their respective terms, will, upon the execution and delivery thereof, be valid and binding upon the Authority in accordance with its terms and will not cause interest on any of the Bonds which is then excluded from gross income of the recipient thereof for federal income tax purposes to be included in gross income for federal income tax purposes.

57 Section 10.03. Supplemental Indenture Requiring Consent of Bondholders.

(a) Except for any Supplemental Indenture entered into pursuant to Section 10.02 and any Supplemental Indenture entered into pursuant to Section 10.03(b) below, subject to the terms and provisions contained in this Section 10.03 and not otherwise, the holders of not less than a majority in aggregate Principal Amount of the Bonds then Outstanding shall have the right from time to time to consent to and approve the execution by the Authority of any Supplemental Indenture deemed necessary or desirable by the Authority for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in this Indenture or in a Supplemental Indenture; provided, however, that, unless approved in writing by the holders of all the Bonds then Outstanding or unless such change affects less than all Series of Bonds and the following subsection (b) is applicable, nothing herein contained shall permit, or be construed as permitting, (i) a change in the scheduled times, amounts or currency of payment of the principal of, interest on or Accreted Value of any Outstanding Bonds or (ii) a reduction in the principal amount or redemption price of any Outstanding Bonds or the rate of interest thereon; and provided that nothing herein contained, including the provisions of Section 10.03(b) below, shall, unless approved in writing by the holders of all the Bonds then Outstanding, permit or be construed as permitting (iii) the creation of a lien (except as expressly permitted by this Indenture) upon or pledge of the Net Revenues created by this Indenture, ranking prior to or on a parity with the claim created by this Indenture, (iv) except with respect to additional security which may be provided for a particular Series of Bonds, a preference or priority of any Bond or Bonds over any other Bond or Bonds with respect to the security granted therefor under the Granting Clauses hereof, or (v) a reduction in the aggregate Principal Amount of Bonds the consent of the Bondholders of which is required for any such Supplemental Indenture. Nothing herein contained, however, shall be construed as making necessary the approval by Bondholders of the execution of any Supplemental Indenture as authorized in Section 10.02, including the granting, for the benefit of particular Series of Bonds, security in addition to the pledge of the Net Revenues. (b) The Authority may, from time to time and at any time, execute a Supplemental Indenture which amends the provisions of an earlier Supplemental Indenture under which a Series or multiple Series of Bonds were issued.If such Supplemental Indenture is executed for one of the purposes set forth in Section 10.02, no notice to or consent of the Bondholders shall be required.If such Supplemental Indenture contains provisions which affect the rights and interests of less than all Series of Bonds Outstanding and Section 10.02 is not applicable, then this subsection (b) rather than subsection (a) above shall control and, subject to the terms and provisions contained in this Section 10.03(b) and not otherwise, the holders of not less than a majority in aggregate Principal Amount of the Bonds of all Series which are affected by such changes shall have the right from time to time to consent to any Supplemental Indenture deemed necessary or desirable by the Authority for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in such Supplemental Indenture and affecting only the Bonds of such Series; provided, however, that, unless approved in writing by the holders of all the Bonds of all the affected Series then Outstanding, nothing herein contained shall permit, or be

58 construed as permitting, (i) a change in the scheduled times, amounts or currency of payment of the principal of, interest on or Accreted Value of any Outstanding Bonds of such Series or (ii) a reduction in the principal amount or redemption price of any Outstanding Bonds of such Series or the rate of interest thereon.Nothing herein contained, however, shall be construed as making necessary the approval by Bondholders of the adoption of any Supplemental Indenture as authorized in Section 10.02, including the granting, for the benefit of particular Series of Bonds, security in addition to the pledge of the Net Revenues. (c) If at any time the Authority shall desire to enter into any Supplemental Indenture for any of the purposes of this Section 10.03, the Authority shall cause notice of the proposed execution of the Supplemental Indenture to be given by Mail to all Bondholders or, under Section 10.03(b), all Bondholders of the affected Series.Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the office of the Authority for inspection by all Bondholders and it shall not be required that the Bondholders approve the final form of such Supplemental Indenture but it shall be sufficient if such Bondholders approve the substance thereof. (d) The Authority may execute and deliver such Supplemental Indenture in substantially the form described in such notice, but only if there shall have first been delivered to the Authority (i) the required consents, in writing, of Bondholders and (ii) the opinion of Bond Counsel required by the last paragraph of Section 10.02. (e) If Bondholders of not less than the percentage of Bonds required by this Section 10.03 shall have consented to and approved the execution and delivery thereof as herein provided, no Bondholders shall have any right to object to the adoption of such Supplemental Indenture, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution and delivery thereof, or to enjoin or restrain the Authority from executing the same or from taking any action pursuant to the provisions thereof. Section 10.04. Effect of Supplemental Indenture. Upon execution and delivery of any Supplemental Indenture pursuant to the provisions of this Article X, this Indenture or the Supplemental Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture and the Supplemental Indenture of the Authority, the Trustee, the Paying Agent, the Registrar and all Bondholders shall thereafter be determined, exercised and enforced under this Indenture and the Supplemental Indenture, if applicable, subject in all respects to such modifications and amendments.

No Supplemental Indenture shall modify the duties, rights or obligations of the Trustee, Paying Agent or Registrar without the written consent of such party thereto.

Section 10.05. Supplemental Indentures To Be Part of This Indenture. Any Supplemental Indenture adopted in accordance with the provisions of this Article X shall thereafter form a part of this Indenture or the Supplemental Indenture which they supplement or

59 amend, and all of the terms and conditions contained in any such Supplemental Indenture as to any provision authorized to be contained therein shall be and shall be deemed to be part of the terms and conditions of this Indenture or the Supplemental Indenture which they supplement or amend for any and all purposes.

ARTICLE XI

CREDIT PROVIDERS

If a Credit Facility is provided for a Series of Bonds or for specific Bonds, the Authority may in the Supplemental Indenture under which such Bonds are issued, provide any or all of the following rights to the Credit Provider as the Authority shall deem to be appropriate:

(a) the right to make requests of, direct or consent to the actions of the Trustee or to otherwise direct proceedings all as provided in Article VIII of this Indenture to the same extent and in place of the owners of the Bonds which are secured by the Credit Facility and for such purposes the Credit Provider shall be deemed to be the Bondholder of such Bonds; and

(b) the right to act in place of the owners of the Bonds which are secured by the Credit Facility for purposes of removing a Trustee or appointing a Trustee under Article IX hereof. The rights granted to any such Credit Provider, with respect to the provisions of Articles VIII and IX hereof shall be disregarded and be of no effect if the Credit Provider is in default of its payment obligations under its Credit Facility. ARTICLE XII

MISCELLANEOUS PROVISIONS Section 12.01. Parties in Interest.Except as herein otherwise specifically provided, nothing in this Indenture expressed or implied is intended or shall be construed to confer upon any person, firm or corporation other than the Authority, the Trustee, the Paying Agent, other agents from time to time hereunder, the Bondholders and, to the limited extent provided by Supplemental Indenture, the Credit Providers any right, remedy or claim under or by reason of this Indenture, this Indenture being intended to be for the sole and exclusive benefit of the Authority, the Trustee, the Paying Agent, such other agents, the Bondholders and, to the limited extent provided in the applicable Supplemental Indenture, the Credit Providers.

Section 12.02. Severability. In case any one or more of the provisions of this Indenture, or of any Bonds issued hereunder shall, for any reason, be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of this Indenture or of Bonds, and this Indenture and any Bonds issued hereunder shall be construed and enforced as if such illegal or invalid provisions had not been contained herein or therein. Section 12.03. No Personal Liability.No covenant or agreement contained in the Bonds or in this Indenture shall be deemed to be the covenant or agreement of any present or

60 future Authority member, official, officer, agent or employee of the Authority or the Airport System, in their individual capacity, and neither the members of the Authority, the officers and employees of the Authority, nor any person executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. Section 12.04. Execution of Instruments; Proof of Ownership.Any request, direction, consent or other instrument in writing required or permitted by this Indenture to be signed or executed by Bondholders or on their behalf by an attorney -in -fact may be in any number of concurrent instruments of similar tenor and may be signed or executed by such Bondholders in person or by an agent or attorney -in -fact appointed by an instrument in writing or as provided in the Bonds. Proof of the execution of any such instrument and of the ownership of Bonds shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner:

(a) The fact and date of the execution by any person of any such instrument may be proved by the certificate of any officer in any jurisdiction who, by the laws thereof, has power to take acknowledgments within such jurisdiction, to the effect that the person signing such instrument acknowledged before him the execution thereof, or by an affidavit of a witness to such execution.

(b) The ownership of Bonds shall be proved by the registration books kept under the provisions of Section 2.04 hereof.

Nothing contained in this Section 12.04 shall be construed as limiting the Trustee to such proof. The Trustee may accept any other evidence of matters herein stated which it may deem sufficient. Any request, consent of, or assignment by any Bondholder shall bind every future Bondholder of the same Bonds or any Bonds issued in lieu thereof in respect of anything done by the Trustee or the Authority in pursuance of such request or consent. Section 12.05. Governing Law.The laws of the Commonwealth shall govern the construction and enforcement of this Indenture and of all Bonds issued hereunder.

Section 12.06. Notices.Except as otherwise provided in this Indenture, all notices, certificates, requests, requisitions or other communications by the Authority, the Trustee, the Paying Agent, the Registrar, other agents or a Credit Provider, pursuant to this Indenture shall be in writing and shall be sufficiently given and shall be deemed given when sent by facsimile or mailed by registered mail, postage prepaid, addressed as follows:

if to the Authority: Susquehanna Area Regional Airport Authority 208 Airport Drive Middletown, PA 17057 Attention: Director of Aviation Facsimile: (717) 948 -4636

61 if to the Trustee: Manufacturers and Traders Trust Company Corporate Trust Services 213 Market Street Harrisburg, PA 17101 Facsimile: (717) 231 -2615

if to a Registrar, Paying Agent, or another agent: to such address as is designated in writing to the Trustee and the Authority.

Any of the foregoing may, by notice given hereunder to each of the others, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent hereunder.

Section 12.07. Holidays.If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Indenture, shall not be a Business Day, such payment may, unless otherwise provided in this Indenture or, with respect to any Series of Bonds or portion of Series of Bonds, provided in the Supplemental Indenture under which such Bonds are issued, be made or act performed or right exercised on the next succeeding Business Day with the same force and effect as if done on the nominal date provided in this Indenture. Section 12.08. Counterparts.This Indenture may be signed in several counterparts. Each will be an original, but all of them together constitute the same instrument.

62 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first above written.

SUSQUEHANNA AREA REGIONAL AIRPORT AUTHORITY

By. Attest: Chairman

By: Secretary

MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee

By O ,lr Authorized Officer O