CF34-3B1 Engine Hourly Rate Program Repair and Services Agreement Northwest Airlines, Inc. and Standard Aero Ltd

1.1

AGREEMENT.

This Agreement and the appended Attachments and all revisions made hereto and thereto.

1.2

AIRCRAFT. The CRJ-200 aircraft owned or operated by Northwest, as shown in Attachment A, on which Eligible Engines are installed.

1.3

AIRWORTHINESS DIRECTIVE (“AD”).   Legally enforceable rules issued by the Aviation  Authority, which specify mandatory required inspections, modifications or operations of affected Engines.

1.4

AVIATION AUTHORITY OR AVIATION AUTHORITIES.   The United States Federal Aviation Administration ( “FAA” ) or any other United States regulatory body that may perform the functions of the FAA in the future, and/or Transport Canada (“TC”).

1.5

BEYOND ECONOMIC REPAIRor BER.    For purposes of this Agreement, there shall be no BER of an Engine or LRU during a Shop Visit.  Any Engine or LRU deemed by VENDOR to be BER, will be replaced with another engine or LRU of a configuration, LLP life, total times and cycles that are substantially similar or better than the Engine which is BER, had such Engine or LRU completed a Shop Visit.  Northwest will retain the right to approve or reject any Engine or LRU replaced under this Agreement.

1.6

BILL OF MATERIAL OBJECT DAMAGEor BMOD .  Damage to an engine resulting from the failure of a part that is listed in the bill of material for such engine.

1.7

CUSTOMIZED ENGINE MAINTENANCE PROGRAMor CEMP. The Northwest program for off-wing maintenance by VENDOR and Northwest for the EHRP Eligible Engines as set forth in Attachment B.  The CEMP will become part of the Northwest approved continuous airworthiness maintenance program used to perform all inspections, overhaul, repair, modification, preservation, replacement of parts and preventative maintenance on an Engine or LRU a set forth, without limitation, in the applicable manufacturer’s inspection and repair manuals, supplemented by Northwest’s supplemental pages, ADs, Northwest Engineering Orders, and any Northwest VENDOR shop practices manual (if published).

1.9

ELIGIBLE ENGINESor ENGINES.   General Electric CF34-3B1 engines operated by Northwest which are identified in Attachment A by engine serial number and either installed on CRJ-200 Aircraft or used as spare engines on such Aircraft.  Attachment A may be updated from time-to-time as Aircraft and Eligible Engines are added to or removed from the Northwest operated CRJ-200 fleet.

1.10

ENGINE FLIGHT CYCLE – Shall be as defined in Chapter 5 of the General Electric Aircraft Engines CF34-3B1 Manual SEI-756.

1,11

ENGINE FLIGHT HOUR - Shall mean each airborne hour (or part thereof) in operation of each engine computed from the time an aircraft leaves the ground until it touches the ground at the end of a flight.

1.12

ENGINEERING ORDERor EO .  A modification or inspection to a component as approved in writing by Northwest Engineering.

1.14

FAA.   Federal Aviation Administration of the United States of America or any successor agency thereto.

1.15

ENGINE HOURLY RATE ( “EHR” ).  The rates per EHR Eligible Engine flight hours for the applicable calendar years set forth in the EHR table in Attachment C for the Services described in Section 2.6.

1.16

ENGINE HOURLY RATE PROGRAM ( “EHRP”).   The provision by VENDOR to Northwest of the Services pursuant to the provisions of this Agreement.

1.17

FOREIGN OBJECT DAMAGE ( “FOD” ).  Damage to any portion of an engine caused by impact with, or ingestion of, birds, hail or other natural causes or man-made debris.

1.18

HEAVY MAINTENANCE SHOP VISIT.  An Engine shop visit characterized by   extensive shop visit work scopes such as work scopes requiring dismantle of the Engine forward of the combustion chamber frame or aft of the number 3 carbon seal, work scopes requiring multiple module swaps, and those identified as the anticipated 22,000 / 25,000 cycle LLP visit.

1.19

LIFE LIMITED PARTS ( “LLPs” ).  Engine parts with an approved limitation on use in cumulative hours or cycles  as defined in the Airworthiness Limitation section of the applicable Production Approval Holders engine manual.

1.20

LINE REPLACEABLE UNIT ( “LRU” ).  Line replaceable unit/engine accessory as listed in Attachment C.

1.21

MISCELLANEOUS SHOP VISIT .  A shop visit to correct a specific problem that does not constitute a Heavy Maintenance Shop Visit as defined in the CEMP in Attachment B.

1.22

MODULE EXCHANGE . As defined in the CEMP in Attachment B.

1.23

OPERATOR.   Shall mean Pinnacle Airlines Inc., Mesaba Airlines, Inc., Compass Airlines, Inc.

1.24

PARTS MANUFACTURER APPROVAL ( “PMA” ).   Authority granted to a person by the FAA to manufacture airworthy products as described in Subpart K of 14 CFR 21.

1.25

PRODUCTION APPROVAL HOLDER ( “PAH” ).   General Electric Aircraft Engines.

1.26

PROGRAM MANAGER .   The VENDOR appointed manager of Northwest’s EHRP.

1.27

QUICK ENGINE CHANGE ( “QEC” ) KIT . The parts and assemblies that make up the quick engine change assembly identified by Bombardier part numbers 228-59000-813 (neutral QEC kit), 228-59001-814 (left handed QEC kit), or 228-59002-813 (right handed QEC kit).

1.28

REPAIR ORDER or SERVICE ORDER .  Any document, and amendments thereto, issued by Northwest to convey specific work instructions pursuant to this Agreement required to return an Engine or LRU to Serviceable condition.

1.30

INTENTIONALLY LEFT BLANK

1.31

SHOP VISIT.   Shall be as defined in the CEMP in Attachment B.

1.32

SPECIFIC CONDITIONS . means the Fleet Management Specific Conditions described in Attachment C upon which the EHRP Rates are predicated.

1.33

TECHNICAL CONDITION ACCEPTANCES .  Items of technical data which are approved by the FAA or FAA accepted procedures, such as internal engineering notices, engineering authorizations, source demonstrated repairs and technical work packages.

1.34

TRANSPORTATION RATE .  The rate per Eligible Engine flight hour applicable to all transportation services provided for Eligible Engines and their modules by VENDOR under this Agreement.

1.35

VENDOR SPARE ENGINES .  Any serviceable spare engines, which may include engine accessories, EBU or QEC, and BFE, provided to Northwest pursuant to the terms and conditions set forth in Sections 4 and 7.

1.37

TRANSPORT CANADA.   Same definition as that used for the FAA, only applicable to Canada.

2.1

The Services shall be performed on Engines and LRUs in accordance with the CEMP. VENDOR certifies that it is the holder of a FAA Repair Station Certificate or an Approved Maintenance Organization under Transport Canada. VENDOR shall provide documentation to Northwest for each repair station performing work pursuant to this Agreement, to include the repair station Number, Address, City, State and Country prior to commencement of Services at such repair station. VENDOR shall not utilize the services of any other repair station in the performance of Services without the prior written approval of Northwest.

2.2

All Services rendered by VENDOR for Northwest under this Agreement shall be initiated by Northwest’s issuance of its Repair or Service Order to VENDOR.  All Services shall be solely pursuant to (a) this Agreement, (b) the Attachments, schedules and other documents incorporated herein by specific reference and (c) the terms including the types, revision level, acceptable quality level, Northwest or manufacture’s part number, quantities, special packaging instructions, delivery dates and delivery destinations set forth in the Repair or Service Orders.

2.4.1

Program Management.   The Program Manager shall act as manager of this EHRP and be the principal contact person from VENDOR for Northwest.  Northwest shall appoint a program coordinator (the “Program Coordinator”) who shall act as manager of this EHRP and be the principal contact person from Northwest.  The Program Manager and the Program Coordinator shall work together to analyze EHRP Eligible Engine and module performance to identify Northwest’s maintenance requirements and schedule engine maintenance and removal in a manner consistent with the Customized Engine Maintenance Program and Northwest’s operational requirements.  The Program Manager shall also coordinate any additional support required hereunder to assist Northwest with troubleshooting and problem resolution including but not limited to:

Defining with Northwest, any additional Services that may not be included in the EHRP Rate, to be performed under the Agreement.

Maintaining the necessary liaison between VENDOR and Northwest.

Providing Northwest authorized personnel with reasonable access to Engines when such Engines are in the possession of VENDOR, and access to the maintenance records related to such Engines.

2.4.2

The Program Manager will work with the Program Coordinator to keep the ERS current taking into consideration all Northwest and VENDOR capacity, operational requirements, and other influencing factors. The Program Manager will provide a written recommendation for removal of specific ESN with a minimum two (2) weeks notice to Northwest. Northwest will make all reasonable efforts to plan the engine removal for the date required. If Northwest is unable to remove an Engine when it is scheduled, the Program Manager and the Program Coordinator will work together to agree on a revised removal schedule within a reasonable timeframe so as to maintain and minimize the impact to the overall removal schedule, and not adversely impact Northwest operations. Northwest recognizes that if it continually requests deviations from the ERS and recommendations issued by the Program Manager, such deviations could have an adverse impact on VENDOR’s ability to satisfy Minimum Spares Quantity commitments set forth in Section 4.0 hereunder, therefore, Northwest shall assist VENDOR and Operator(s) in resolving any adverse impacts caused by such deviations.

2.4.3

Engineering Services. VENDOR shall provide the following Engineering Services:

a)

Analyze ADs and/or Service Bulletins to determine those which are applicable to Northwest Engines.

c)

Provide appropriate documentation and reports in conjunction with requirements in Section 2.2.

d)

Provide written reports stating any damage detected and repairs accomplished, including any technical conclusion as to the cause of such damage.

e)

Analyze jointly with Northwest ECM and recommend Engine removals based on analyzed results.

2.4.4

Quarterly Business Reviews. VENDOR shall establish a Quarterly Business Review process with Northwest, whereby both Parties along with the Operators shall meet to review commercial and technical performance metrics, issues and corrective actions and action plans associated with Services performed under this Agreement. The locations of such reviews shall alternate equally between VENDOR and Northwest locations throughout the term of the Agreement.

2.5

Field Service Support.   The following Field Service Support will be made available by VENDOR:

2.6

2.8.1

While the EHRP Eligible Engines are in its possession, Northwest shall maintain records on the accumulated hours and cycles for all Life Limited parts and tracked parts identified in the log books, as well as other parts that VENDOR may specify as a result of an Airworthiness Directive or a PAH Alert Service Bulletin requirement.  As maintenance is performed on each EHRP Eligible Engine over time, additional detailed records concerning the work performed shall be kept.  All records of the performance of maintenance tasks that are required by the applicable Aviation Authority shall be generated and maintained  (i) by VENDOR or its designated maintenance provider in the case of the off-wing maintenance, and  (ii) by Northwest in the case of line maintenance.  The party generating and maintaining records shall make such records available to the other party in order to ensure compliance with the requirements of this Agreement and the applicable Aviation Authority.  Records shall be in the English language and shall include EHRP Eligible Engine maintenance records, configuration records, EHRP Eligible Engine test cell data (as applicable) and FAA Form 337 or other applicable Aviation Authority approved documents.  Following each off-wing maintenance visit, VENDOR or its designated maintenance provider shall provide a report identifying the service bulletins incorporated during that shop visit.  VENDOR shall provide technical support and assistance as necessary for records and maintained.  The “Advance Documentation,” shall be per paragraph 4.3 of Attachment B. 

a)

FAA Form 8130-3 Authorized Release Certificate or TC Form 24-0078 Authorized Release Certificate, or equivalent.

c)

Airworthiness Directives Compliance Report, ALS (“Airworthiness Limitation Sections”)

e)

Major Component Change Record for Life Limited parts and other tracked and serialized parts

g)

Final Engineering Report, including engine test cell data (as applicable)

h)

In addition, VENDOR shall provide Service Difficulty reports to Northwest and the applicable aviation authorities documenting any other failure, malfunction, or defect in the engine, modules or components that occurs or is detected at any time if, in its opinion, that failure, malfunction, or defect has endangered or may endanger the safe operation of the aircraft in accordance with FAR 121.703, FAR 145.221 and CAR 591 of the Canadian Aviation Regulations

i)

Status of work performed on major modules.

j)

Operator specific action authorizations

k)

Status of repetitive inspections

2.8.2

VENDOR shall maintain copies of records for all work performed under this Agreement, in accordance with the requirements set forth in the Operator’s FAA approved maintenance program.

2.9

2.10

Elements of Off-wing Maintenance not included in the EHRP

2.10.1

The following elements of off-wing maintenance will be provided but are not covered by the EHR. VENDOR will charge Northwest for providing such Services at the VENDOR Rates provided in Attachment C of this Agreement, with the labor rate adjusted in accordance with the adjustment formula set forth therein. Neither VENDOR nor Northwest shall purposely engage in any activity intended to result in Excluded Cause shop visits as defined in Section 2.10.2.

2.10.2

Shop visits, and/or specific maintenance tasks during a shop visit resulting from one or more of the following Excluded Causes; (i) Northwest’s negligence or accident, (ii) the hostile act of any person (excluding employees of VENDOR acting in the capacity of their employment),  (iii) operation outside the engine operating limits established by the equipment Production Approval Holder as a result of Northwest’s error,  (iv) maintenance performed by Northwest that is not in accordance with its FAA approved maintenance program, (v) Foreign Object Damage (subject to Section 13), and (vi) acts of God (including, but not limited to, fire, flood, volcanic eruption, and sand storm).

2.10.2.1

For any EHRP Eligible Engine on which VENDOR performs an Excluded Cause Shop Visit, VENDOR shall invoice Northwest on a time and material basis as set forth in Attachment C for such Services, less any time and material charges that would be considered as normal refurbishment, adjusted on a pro-rata basis, based on expected normal life between Shop Visits.

2.10.2.2

In addition, the following calculation shall be performed to determine if the Excluded Cause Shop Visit results in a reduction to costs expected to be incurred against such Engine during the remainder of the Term of the Agreement:

2.10.2.3

With respect to maintenance performed due to an Excluded Cause Shop Visit, the time and material work scope shall be performed in accordance with the CEMP.

2.11

In the event VENDOR is unable to provide the Services to Northwest in accordance with the terms and conditions of this Agreement, VENDOR shall procure Services from Northwest approved sources so as to ensure uninterrupted supply to Northwest at no additional cost; provided, however, if VENDOR is unable to ensure uninterrupted supply at no additional cost to Northwest despite VENDOR’s best efforts, then Northwest may, at its option, obtain the Services from any other source and any reasonable costs or expenses incurred by Northwest, under the circumstances at that time, as a result of using such other source shall be paid by VENDOR.

2.12

VENDOR shall deliver the Engines or LRUs in accordance with the terms and conditions of this Agreement and the CEMP. If there is any dispute relative to interpretation of any portion of CEMP, the Parties including the Operators shall forthwith meet to resolve the matter amicably but if the Parties are unable to reach a resolution, Northwest’s interpretation shall prevail.  Operator may elect to proceed with its own interpretation of the CEMP, and any incremental costs to the EHRP will be payable by the Operator.

SECTION 3.0:

The build standard or specification for Services performed by VENDOR on each Eligible Engine or LRU under this Agreement, will be compliant with the requirement that such Services will cause the Eligible Engine to perform on-wing in a manner which allows it to reach its next scheduled removal for off-wing maintenance. VENDOR shall utilize the standards set forth in the CEMP for all Eligible Engines going through a Shop Visit throughout the Term of this Agreement, including the last visit of each Eligible Engine, based on what is due for each specific Engine at the specific scheduled visit.

At the end of the Term of this Agreement, each Eligible Engine shall be compliant with the Minimum Cycle Conditions as set forth in Attachment F. Any Eligible Engine that fails to meet this requirement shall be returned to VENDOR for accomplishment of Services required to bring the discrepant Eligible Engine up to the minimum, end of Agreement Term conditions specified.

5.1

Historical TAT on Program Shop Visits will be reviewed and analyzed at Quarterly Business Reviews and will form the basis for operational performance management discussions only. This program will be managed to the following turnaround time (TAT) objectives:

5.1.3

The TAT for a Heavy Maintenance Shop Visit [***] days.

5.1.4

The TAT for repair work scopes not identified above – [***] to [***] days depending on the detailed work scope.

5.2

Except as set forth herein, measurement of TAT shall commence upon the receipt of a EHRP Eligible Engine by VENDOR on dock, at its designated maintenance facility. Measurement of TAT shall end on the calendar day on which the EHRP Eligible Engine is ready for delivery from the VENDOR designated maintenance facility, to Northwest. Total TAT achieved for each Engine or LRU shall exclude any delays resulting from work scope approvals by Northwest, late or missing Northwest provided documentation, missing LRUs as identified in the CEMP required for Engine performance guarantees, or any investigative actions required, where VENDOR cannot utilize alternate processes, parts or repairs to mitigate such delays.

6.1.1

VENDOR shall provide Northwest with the In-flight Shutdown Guarantee as described in Attachment E.

6.2

Interstage Turbine Temperature (“ITT”) Guarantee

6.2.2

VENDOR shall provide Northwest with the Interstage Turbine Temperature Guarantee as described in Attachment E.

6.3.1

VENDOR shall provide Northwest with the Module Exchange Shop Visit Reliability Guarantee Plan as described in Attachment E.

7.1

Title.  Parts and material incorporated into Engines and LRUs as required in performing Services on Northwest Engines and LRUs hereunder, shall be deemed to have been sold to Northwest, and title to such parts and material thereon shall pass to Northwest upon delivery of the Engine or LRU embodying such items, to Northwest.  Risk of loss or damage of an Engine or LRU shall pass to Northwest upon delivery to Northwest of the Engine or LRU.  Title to and risk of loss or damage to any parts removed from Northwest Engines or LRUs, which are replaced by other parts, shall pass to VENDOR upon removal of such parts from Northwest’s Engines or LRUs.

 7.2.1

On or before November 15, 2007, Northwest may elect to have VENDOR arrange and pay for the round trip transportation costs, including all customs brokerage and clearance fees, for the removed/repaired EHRP Eligible Engines or related modules to and from VENDOR’s designated facility(ies) Delivery Duty Paid (“DDP”) Northwest.  Upon such notification, Northwest will pay the Transportation Rate as set forth in Attachment C, effective September 1, 2007.   Risk of loss or damage shall remain with Northwest at all times during round trip transportation.  Should Northwest elect not to have VENDOR provide transportation services in accordance with this Section either by formal notification of such decision or by default with no notification by November 15, 2007, transportation responsibility shall be as per Section 7.2.2 and 7.2.3 below, and VENDOR shall invoice Northwest for transportation costs incurred for movement of any Engines under this Agreement, from the Effective Date until notification by Northwest or November 15, 2007, whichever is earlier.

7.2.3

For Engines that VENDOR may elect to move between its facilities for performance of Services under this Agreement, after delivery thereof to VENDOR, VENDOR shall be responsible for all transportation costs, customs duties and brokerage fees and risk of loss or damage in connection with such movement.

7.2.4

[***]

7.2.4

For Module Exchanges, VENDOR shall provide, at no charge all necessary shipping containers that properly protect from damage and secure the removed module during transportation to and from the VENDOR designated facility.

7.2.5

For Engines, Northwest shall provide containers that properly protect and secure the Engine being returned to the VENDOR designated facility, unless the Engine is VENDOR-provided , in which case VENDOR shall provide the appropriate shipping container. While in the possession of VENDOR, loss or damage to any Northwest-owned container shall be the responsibility of VENDOR.

7.3.1

[***]

7.3.2

Delivery shall be Delivery Duty Paid (“DDP”) Incoterms, Northwest, if such VENDOR-provided spare engine is being shipped to Northwest from outside of the United States, otherwise delivery will be Carriage and Insurance Paid (“CIP”) to Northwest.  Risk of loss during round trip transportation of any VENDOR-provided spare engine shall remain with VENDOR.  VENDOR will be responsible for all transportation costs, customs brokerage and applicable duties. If Northwest exceeds the time requirements described in this Section 7.3, then Northwest shall pay to VENDOR an amount equal to the market lease rate for a CF34-3B1 engine for each day such VENDOR-provided spare engine is delayed.

8.2

VENDOR shall advise Northwest of any anticipated Excusable Delays as soon as practicable and keep Northwest advised of any developments. Upon the occurrence of an Excusable Delay, VENDOR shall immediately, and in any case within 48 hours of such occurrence, give Northwest notice by telephone and in writing (via fax, and express mail) of such event (with full particulars of its nature) and of the estimated effect thereof on the deliveries hereunder, and of the steps taken or to be taken to minimize or eliminate any delay. Within 24 hours after the end of the Excusable Delay, VENDOR shall give Northwest notice in writing (via facsimile and express mail) of the date when the Excusable Delay came to an end. Upon notification from VENDOR of any delay, Northwest and VENDOR shall use reasonable efforts to re-schedule Services and delivery of Engines, LRUs or other items at no cost to Northwest. Both Parties agree to work with each other to explore and implement practical alternatives for the purposes of minimizing any impact resulting from an Excusable Delay.

8.4

VENDOR shall provide written notice to Northwest 90 days prior to the expiration of any collective bargaining agreement. VENDOR shall also periodically apprise Northwest of the status of collective bargaining agreement negotiations to which VENDOR is a party and potentially affecting the Services or delivery of the Engines, LRUs or other items, and an assessment of the effect such negotiations will have on VENDOR’s ability to perform hereunder.

8.5

In the event of a delay other than an Excusable Delay affecting the delivery of Services and/or Engines, LRUs or other items, both Parties agree to use reasonable efforts to address the results of such delay at no cost to Northwest. Northwest's cooperation in such endeavors shall not be construed to be a waiver of any rights Northwest may have with respect to VENDOR's non-performance. Both Parties agree to work with each other to explore and implement practical acceptable alternatives to minimize any impact. All reasonable efforts will be made by VENDOR (and VENDOR shall require the same of its contractors and other suppliers) at no additional cost to Northwest to regain the time lost, including the working of weekends, overtime and holidays.

SECTION 10.0:

VENDOR shall include all lawfully imposed sales tax on each invoice. Except as provided below, Northwest shall pay all sales taxes that are lawfully imposed by any government authority within the United States and are based on or measured by any payments of Northwest pursuant to this Agreement, and for which no exemption is available. VENDOR shall pay all taxes that are (a) on, based on, or measured by, gross or net income or gross or net receipts (including any capital gains taxes or minimum taxes), or taxes which are capital, doing business, excess profits, net worth, or franchise or port fees; (b) lawfully imposed by any governmental authority outside of the United States; or (c) caused by or arising out of the willful misconduct or negligence of VENDOR. In addition, VENDOR shall pay any interest, additions to tax, or penalties associated with the taxes set forth in (a), (b) or (c) above. No sales tax shall be collected by VENDOR if (a) a specific exemption applies to (i) the Services purchased hereunder or (ii) any transaction occurring pursuant to this Agreement; (b) Northwest has been authorized to make tax payments directly to the applicable state authorities; or (c) VENDOR is obligated to pay the taxes as set forth herein. VENDOR shall promptly, upon receipt from any tax authority of any levy, notice, assessment, or withholding of any tax for which Northwest may be obligated, notify Northwest in writing directed to the following address: Senior Tax Counsel, Northwest Airlines, Inc., Dept. A4450, 2700 Lone Oak Parkway, Eagan, MN 55121-1534. If under the applicable law of the taxing jurisdiction Northwest is allowed to directly contest such tax in its own name, then Northwest shall be entitled, at its own expense and in its own name, to contest the imposition, validity, applicability or amount of such tax and, to the extent permitted by law, withhold payment during pendency of such contest. If Northwest is not permitted by law to contest such tax in its own name, upon Northwest’s request, VENDOR shall in good faith, at Northwest’s expense, contest the imposition, validity, applicability or amount of such tax.  VENDOR shall (a) supply Northwest with such information and documents reasonably requested by Northwest as are necessary or advisable for Northwest to control or participate in any proceeding to the extent permitted herein, and (b) make all reasonable efforts to assist Northwest with evidentiary and procedural development of such proceeding or contest.  VENDOR shall in good faith and using best efforts assist Northwest with the accumulation of information and documentation requested by Northwest to recover or seek a refund of any sales or use tax paid by Northwest as a result of its purchases pursuant to this Agreement.

The provision of any equipment or Services hereunder to Northwest is contingent upon VENDOR being able to do so in compliance with all applicable laws, including without limitation, laws relating to the import and export of Engines. Northwest shall be the importer of record for all such equipment and Northwest shall be responsible for making arrangements to ensure that such equipment clears customs where applicable and paying any and all customs, duties, taxes and any fees imposed by any governmental authority unless otherwise specified in this Agreement. VENDOR will be liable for customs, duties, taxes and any fees imposed by any governmental authority for EHRP Eligible Engines and/or parts it ships out of the United States and back for Services.