CALCULATION OF REGISTRATION FEE

 

 

 

Filed Pursuant to Rule 424(b)(2)

Registration No. 333-133187

 

PROSPECTUS SUPPLEMENT TO PROSPECTUS, DATED APRIL 10, 2006

 

$1,146,810,000

 

 

2007-1 PASS THROUGH TRUSTS

PASS THROUGH CERTIFICATES, SERIES 2007-1

 

Three classes of the Continental Airlines Pass Through Certificates, Series 2007-1, are being offered under this prospectus supplement: Class A, B and C. A separate trust will be established for each class of certificates. The proceeds from the sale of certificates will initially be held in escrow, and interest on the escrowed funds will be payable semiannually on April 19 and October 19, commencing October 19, 2007. The trusts will use the escrowed funds to acquire equipment notes. The equipment notes will be issued by Continental Airlines to finance its purchase of 30 new Boeing aircraft scheduled for delivery from January 2008 to March 2009. Payments on the equipment notes held in each trust will be passed through to the holders of certificates of such trust.

 

The equipment notes will have a security interest in each aircraft financed by the trusts. Interest on the equipment notes will be payable semiannually on each April 19 and October 19 after issuance. Principal payments on the equipment notes held for the Class A, B and C certificates are scheduled on April 19 and October 19 in certain years, beginning on April 19, 2010.

 

The Class A certificates will rank senior to the other certificates. The Class B certificates will rank junior to the Class A certificates and will rank senior to the Class C certificates. The Class C certificates will rank junior to the other certificates.

 

RZB Finance LLC will provide a liquidity facility for the Class A and B certificates, in each case in an amount sufficient to make three semiannual interest payments. The Class C certificates will not have the benefit of a liquidity facility.

 

The certificates will not be listed on any national securities exchange.

 

Investing in the certificates involves risks. See “Risk Factors” on page S-18.

 

 

 

The underwriters will purchase all of the certificates if any are purchased. The aggregate proceeds from the sale of the certificates will be $1,146,810,000. Continental will pay the underwriters a commission of $9,174,480. Delivery of the certificates in book-entry form only will be made on or about April 10, 2007.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Joint Bookrunners and Joint Structuring Agents

 

 

Joint Lead Managers

 

 

Co-Managers

 

 

The date of this prospectus supplement is March 27, 2007.

 

PRESENTATION OF INFORMATION

 

These offering materials consist of two documents: (a) this Prospectus Supplement, which describes the terms of the certificates that we are currently offering, and (b) the accompanying Prospectus, which provides general information about our pass through certificates, some of which may not apply to the certificates that we are currently offering. The information in this Prospectus Supplement replaces any inconsistent information included in the accompanying Prospectus.

 

We have given certain capitalized terms specific meanings for purposes of this Prospectus Supplement. The “Index of Terms” attached as Appendix I to this Prospectus Supplement lists the page in this Prospectus Supplement on which we have defined each such term.

 

At various places in this Prospectus Supplement and the Prospectus, we refer you to other sections of such documents for additional information by indicating the caption heading of such other sections. The page on which each principal caption included in this Prospectus Supplement and the Prospectus can be found is listed in the Table of Contents below. All such cross references in this Prospectus Supplement are to captions contained in this Prospectus Supplement and not in the Prospectus, unless otherwise stated.

 

TABLE OF CONTENTS

 

Prospectus Supplement

 

 

Prospectus

 

 

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may be used only where it is legal to sell these securities. The information in this document may be accurate only on the date of this document.

 

PROSPECTUS SUPPLEMENT SUMMARY

 

Summary of Terms of Certificates

		Class A		Class B		Class C
		Certificates		Certificates		Certificates
Aggregate Face Amount		$756,762,000		$221,850,000		$168,198,000
Interest Rate		5.983%		6.903%		7.339%
Ratings:
Moody’s		Baa1		Ba2		B1
Standard & Poor’s		A		BBB-		B+
Initial Loan to Aircraft Value (cumulative)(1)		48.2%		62.4%		73.1%
Highest Loan to Aircraft Value (cumulative)(2)		48.9%		63.3%		73.9%
Expected Principal Distribution Window (in years)		3.0-15.0		3.0-15.0		3.0-7.0
Initial Average Life (in years from Issuance Date)		12.0		10.0		5.0
Regular Distribution Dates		April 19 and		April 19 and		April 19 and
		October 19		October 19		October 19
Final Expected Distribution Date		April 19, 2022		April 19, 2022		April 19, 2014
Final Maturity Date		October 19, 2023		October 19, 2023		April 19, 2014
Minimum Denomination		$1,000		$1,000		$1,000
Section 1110 Protection		Yes		Yes		Yes
Liquidity Facility Coverage		3 semiannual		3 semiannual		None
		interest payments		interest payments

(1)		These percentages are calculated assuming that the first 12 Boeing 737-824 aircraft of the 15 Boeing 737-824 aircraft and the first 18 Boeing 737-924ER aircraft of the 24 Boeing 737-924ER aircraft from which Continental may choose are financed hereunder and are determined as of April 19, 2009, the first Regular Distribution Date after such aircraft are scheduled to have been delivered. In calculating these percentages, we have assumed that all aircraft to be financed hereunder are delivered prior to such date and that the aggregate appraised value of such aircraft is $1,568,874,300 as of such date. The appraised value is only an estimate and reflects certain assumptions. See “Description of the Aircraft and the Appraisals—The Appraisals”.
(2)		See “—Loan to Aircraft Value Ratios”.

 

Equipment Notes and the Aircraft

		Expected				Expected				Scheduled		Principal Amount
		Registration				Manufacturer’s				Delivery		of Equipment				Appraised
Aircraft Type		Number				Serial Number				Month(1)		Notes				Base Value (2)
Boeing 737-824			N87507				31637			January 2008		$	35,296,000			$	48,900,000
Boeing 737-824			N76508				31638			February 2008			35,296,000				49,000,000
Boeing 737-824			N78509				31639			February 2008			35,296,000				49,000,000
Boeing 737-824			N77510				32828			April 2008			35,296,000				49,200,000
Boeing 737-824			N78511				33458			May 2008			35,296,000				49,300,000
Boeing 737-824			N87512				33459			May 2008			35,296,000				49,300,000
Boeing 737-824			N87513				31621			June 2008			35,296,000				49,400,000
Boeing 737-824			N76514				31626			July 2008			35,296,000				49,500,000
Boeing 737-824			N76515				37096			August 2008			35,296,000				49,600,000
Boeing 737-824			N76516				31623			August 2008			35,296,000				49,600,000
Boeing 737-824			N76517				31628			September 2008			35,296,000				49,700,000
Boeing 737-824			N77518				31605			November 2008			35,296,000				49,900,000
Boeing 737-924ER			N37413				31664			January 2008			40,181,000				55,810,000
Boeing 737-924ER			N47414				32827			January 2008			40,181,000				55,810,000
Boeing 737-924ER			N39415				32826			February 2008			40,181,000				55,909,000
Boeing 737-924ER			N39416				37093			February 2008			40,181,000				55,909,000
Boeing 737-924ER			N38417				31665			March 2008			40,181,000				56,000,000
Boeing 737-924ER			N39418				31666			March 2008			40,181,000				56,000,000
Boeing 737-924ER			N37419				33456			March 2008			40,181,000				56,000,000
Boeing 737-924ER			N37420				33457			April 2008			40,181,000				56,092,000
Boeing 737-924ER			N27421				37094			April 2008			40,181,000				56,092,000
Boeing 737-924ER			N37422				31620			May 2008			40,181,000				56,184,000
Boeing 737-924ER			N39423				32829			June 2008			40,181,000				56,273,000
Boeing 737-924ER			N38424				33460			June 2008			40,181,000				56,273,000
Boeing 737-924ER			N75425				37095			June 2008			40,181,000				56,273,000
Boeing 737-924ER			N75426				31622			July 2008			40,181,000				56,365,000
Boeing 737-924ER			N37427				37097			September 2008			40,181,000				56,550,000
Boeing 737-924ER			N75428				30130			October 2008			40,181,000				56,642,000
Boeing 737-924ER			N75429				31633			December 2008			40,181,000				56,825,000
Boeing 737-924ER			N77430				37098			December 2008			40,181,000				56,825,000

(1)		The delivery deadline for purposes of financing an aircraft pursuant to this offering is June 30, 2009 (or later under certain circumstances). The actual delivery date for any aircraft may be subject to delay or acceleration. See “Description of the Aircraft and the Appraisals—Deliveries of Aircraft”. Continental has certain rights to substitute other aircraft if the delivery of any Aircraft is expected to be delayed for more than 30 days after the month scheduled for delivery or beyond the delivery deadline. See “Description of the Aircraft and the Appraisals—Substitute Aircraft”.
(2)		The appraised base value of each Aircraft set forth above is the lesser of the average and median values of such Aircraft as appraised by three independent appraisal and consulting firms, projected as of the scheduled delivery month of each Aircraft. These appraisals are based upon varying assumptions and methodologies. An appraisal is only an estimate of value and should not be relied upon as a measure of realizable value. See “Risk Factors—Risk Factors Relating to the Certificates and the Offering—The Appraisals Are Only Estimates of Aircraft Value”. The appraised value of each of the other Boeing 737-824 and 737-924ER aircraft that Continental may choose to finance pursuant to this offering is higher than or equal to the appraised value of each of the Aircraft of the same model listed above. See “Description of the Aircraft and the Appraisals—The Appraisals”.

Loan to Aircraft Value Ratios

 

		Assumed				Outstanding Balance (2)												LTV(3)
Regular		Aggregate				Class A				Class B				Class C				Class A				Class B				Class C
Distribution Date		Aircraft Value(1)				Certificates				Certificates				Certificates				Certificates				Certificates				Certificates
April 19, 2009			$1,568,874,300			$	756,762,000			$	221,850,000			$	168,198,000				48.2	%			62.4	%			73.1	%
October 19, 2009			1,551,289,440				756,762,000				221,850,000				168,198,000				48.8				63.1				73.9
April 19, 2010			1,520,747,340				743,360,009				219,920,115				148,867,500				48.9				63.3				73.1
October 19, 2010			1,503,162,480				729,988,736				217,919,896				129,737,849				48.6				63.1				71.7
April 19, 2011			1,472,620,380				716,666,409				215,870,732				110,793,416				48.7				63.3				70.8
October 19, 2011			1,455,035,520				703,393,027				213,772,623				92,010,996				48.3				63.0				69.4
April 19, 2012			1,424,493,420				690,168,590				211,625,569				73,372,415				48.5				63.3				68.5
October 19, 2012			1,406,908,560				676,993,099				209,429,569				54,863,067				48.1				63.0				66.9
April 19, 2013			1,376,366,460				663,866,552				207,184,625				36,470,967				48.2				63.3				65.9
October 19, 2013			1,358,781,600				650,788,951				204,890,735				18,186,105				47.9				63.0				64.3
April 19, 2014			1,328,239,500				637,760,295				202,547,899				0				48.0				63.3				N/A
October 19, 2014			1,310,654,640				624,780,585				200,156,119				0				47.7				62.9				N/A
April 19, 2015			1,280,112,540				611,849,820				197,715,393				0				47.8				63.2				N/A
October 19, 2015			1,262,527,680				598,131,283				162,055,583				0				47.4				60.2				N/A
April 19, 2016			1,231,985,580				584,494,081				133,176,207				0				47.4				58.3				N/A
October 19, 2016			1,214,400,720				570,938,213				109,511,844				0				47.0				56.0				N/A
April 19, 2017			1,183,858,620				557,463,679				89,915,632				0				47.1				54.7				N/A
October 19, 2017			1,166,273,760				544,070,480				73,533,539				0				46.7				53.0				N/A
April 19, 2018			1,135,731,660				530,758,614				59,720,179				0				46.7				52.0				N/A
October 19, 2018			1,118,146,800				517,528,083				47,981,302				0				46.3				50.6				N/A
April 19, 2019			1,087,604,700				504,378,887				37,933,787				0				46.4				49.9				N/A
October 19, 2019			1,070,019,840				489,783,518				29,277,349				0				45.8				48.5				N/A
April 19, 2020			1,039,477,740				459,459,463				21,774,225				0				44.2				46.3				N/A
October 19, 2020			1,021,892,880				392,590,109				15,234,387				0				38.4				39.9				N/A
April 19, 2021			991,350,780				271,590,366				9,504,638				0				27.4				28.4				N/A
October 19, 2021			973,765,920				113,669,889				4,460,485				0				11.7				12.1				N/A
April 19, 2022			943,223,820				0				0				0				N/A				N/A				N/A

(1)		We have assumed that the initial appraised value of each Aircraft, determined as described under “—Equipment Notes and the Aircraft”, declines by approximately 3% per year after the delivery of such Aircraft. Other rates or methods of depreciation may result in materially different LTVs. We cannot assure you that the depreciation rate and method used for purposes of the table will occur or predict the actual future value of any Aircraft. See “Risk Factors—Risk Factors Relating to the Certificates and the Offering—The Appraisals Are Only Estimates of Aircraft Value”.
(2)		In calculating the outstanding balances of each Class of Certificates, we have assumed that the Trusts will acquire the Equipment Notes for all Aircraft. Outstanding balances as of each Regular Distribution Date are shown after giving effect to distributions expected to be made on such distribution date.
(3)		The LTVs for each Class of Certificates were obtained for each Regular Distribution Date by dividing (i) the expected outstanding balance of such Class together with the expected outstanding balance of each other Class senior in right of payment to such Class after giving effect to the distributions expected to be made on such distribution date, by (ii) the assumed value of all of the Aircraft on such date based on the assumptions described above. For the purposes of these calculations it has been assumed that the first 12 Boeing 737-824 aircraft of the 15 Boeing 737-824 aircraft and the first 18 Boeing 737-924ER aircraft of the 24 Boeing 737-924ER aircraft from which Continental may choose are financed hereunder. The outstanding balances and LTVs of each Class of Certificates will change if the Trusts do not acquire Equipment Notes with respect to all the Aircraft. The LTVs will change if the Trusts acquire Equipment Notes with respect to the other aircraft from which Continental may choose.

 

Cash Flow Structure

(1)		Each Aircraft will be subject to a separate Indenture.
(2)		The Liquidity Facility for each of the Class A and B Certificates will be sufficient to cover three consecutive semiannual interest payments with respect to such Class, except that the Liquidity Facilities will not cover interest on the Deposits. There will be no Liquidity Facility for the Class C Certificates.
(3)		The proceeds of the offering of each Class of Certificates will initially be held in escrow and deposited with the Depositary, pending delivery of each Aircraft to be financed. The Depositary will hold such funds as interest-bearing Deposits. Each Trust will withdraw funds from the Deposits relating to such Trust to purchase Equipment Notes from time to time as each Aircraft is financed. The scheduled payments of interest on the Equipment Notes and on the Deposits relating to a Trust, taken together, will be sufficient to pay accrued interest on the outstanding Certificates of such Trust. If any funds remain as Deposits with respect to any Trust at the Delivery Period Termination Date, such funds will be withdrawn by the Escrow Agent and distributed to the holders of the Certificates issued by such Trust, together with accrued and unpaid interest thereon. No interest will accrue with respect to the Deposits after they have been fully withdrawn.

 

The Offering

Certificates Offered		•  Class A Certificates.
		•  Class B Certificates.
		•  Class C Certificates.
		Each Class of Certificates will represent a fractional undivided interest in a related Trust.
Use of Proceeds		The proceeds from the sale of the Certificates of each Trust will initially be held in escrow and deposited with the Depositary, pending delivery of each Aircraft to be financed. Each Trust will withdraw funds from the escrow relating to such Trust to acquire Equipment Notes as these Aircraft are delivered and financed. The Equipment Notes will be issued to finance the purchase by Continental of 30 new Boeing aircraft.
Subordination Agent, Trustee, Paying Agent and Loan Trustee		Wilmington Trust Company.
Escrow Agent		Wells Fargo Bank Northwest, National Association.
Depositary		Credit Suisse, New York Branch.
Liquidity Provider		RZB Finance LLC. The Liquidity Provider’s obligations will be guaranteed by Raiffeisen Zentralbank Österreich Aktiengesellschaft.
Trust Property		The property of each Trust will include:
		•  Equipment Notes acquired by such Trust.
		•  In case of the Class A and Class B Trust, all monies receivable under the Liquidity Facility for such Trust.
		•  Funds from time to time deposited with the Trustee in accounts relating to such Trust, including payments made by Continental on the Equipment Notes held in such Trust.
Regular Distribution Dates		April 19 and October 19, commencing on October 19, 2007.
Record Dates		The fifteenth day preceding the related Distribution Date.
Distributions		The Trustee will distribute all payments of principal, premium (if any) and interest received on the Equipment Notes held in each Trust to the holders of the Certificates of such Trust, subject to the subordination provisions applicable to the Certificates.
		Scheduled payments of principal and interest made on the Equipment Notes will be distributed on the applicable Regular Distribution Dates.
		Payments of principal, premium (if any) and interest made on the Equipment Notes resulting from any early redemption of such Equipment Notes will be distributed on a special distribution date after not less than 15 days’ notice to Certificateholders.
Subordination		Distributions on the Certificates will be made in the following order:
		•  First, to the holders of the Class A Certificates to pay interest on the Class A Certificates.
		•  Second, to the holders of Class B Certificates to pay interest on the Preferred B Pool Balance.
		•  Third, to the holders of the Class C Certificates to pay interest on the Preferred C Pool Balance.

		•  Fourth, to the holders of the Class A Certificates to make distributions in respect of the Pool Balance of the Class A Certificates.
		•  Fifth, to the holders of the Class B Certificates to pay interest on the Pool Balance of the Class B Certificates not previously distributed under clause “second” above.
		•  Sixth, to the holders of the Class B Certificates to make distributions in respect of the Pool Balance of the Class B Certificates.
		•  Seventh, to the holders of the Class C Certificates to pay interest on the Pool Balance of the Class C Certificates not previously distributed under clause “third” above.
		•  Eighth, to the holders of the Class C Certificates to make distributions in respect of the Pool Balance of the Class C Certificates.
Control of Loan Trustee		The holders of at least a majority of the outstanding principal amount of Equipment Notes issued under each Indenture will be entitled to direct the Loan Trustee under such Indenture in taking action as long as no Indenture Default is continuing thereunder. If an Indenture Default is continuing, subject to certain conditions, the “Controlling Party” will direct the Loan Trustee under such Indenture (including in exercising remedies, such as accelerating such Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes).
		The Controlling Party will be:
		•  The Class A Trustee.
		•  Upon payment of final distributions to the holders of Class A Certificates, the Class B Trustee.
		•  Upon payment of final distributions to the holders of Class B Certificates, the Class C Trustee.
		•  Under certain circumstances, and notwithstanding the foregoing, the Liquidity Provider with the largest amount owed to it.
		Subject to certain conditions, notwithstanding the foregoing, (a) if one or more holders of the Class B Certificates have purchased the Series A Equipment Notes or (b) if one or more holders of the Class C Certificates have purchased the Series A Equipment Notes and Series B Equipment Notes, in each case, issued under an Indenture, pursuant to buyout right described in “—Right to Buy Equipment Notes” below, the holders of the majority in aggregate unpaid principal amount of Equipment Notes issued under such Indenture, rather than the Controlling Party, shall be entitled to direct the Loan Trustee in exercising remedies under such Indenture.
		In exercising remedies during the nine months after the earlier of (a) the acceleration of the Equipment Notes issued pursuant to any Indenture or (b) the bankruptcy of Continental, such Equipment Notes or the Aircraft subject to the lien of such Indenture may not be sold for less than certain specified minimums.

Right to Buy Other Classes of Certificates		If Continental is in bankruptcy and certain specified circumstances then exist, the Certificateholders may have the right to buy certain other Classes of Certificates on the following basis:
		•  The Class B Certificateholders will have the right to purchase all but not less than all of the Class A Certificates.
		•  The Class C Certificateholders will have the right to purchase all but not less than all of the Class A and Class B Certificates.
		The purchase price in each case described above will be the outstanding balance of the applicable Class of Certificates plus accrued and unpaid interest.
Right to Buy Equipment Notes		Subject to certain conditions, if Continental is in bankruptcy and certain specified events have occurred or if an Indenture Default under any Indenture has continued for five years without a disposition of the related Equipment Notes or Aircraft, during a period of six months thereafter Certificateholders will have the right to buy certain Series of Equipment Notes on the following basis:
		•  The Class B Certificateholders will have the right to purchase all (but not less than all) of the Series A Equipment Notes under any one or more Indentures.
		•  The Class C Certificateholders will have the right to purchase all (but not less than all) of the Series A and B Equipment Notes under any one or more Indentures.
		The purchase price for any Equipment Note in each case described above will be the outstanding principal amount of such Equipment Note plus accrued and unpaid interest and certain other amounts.
Liquidity Facilities for Class A and B Certificates		Under the Liquidity Facility for each of the Class A and Class B Trust, the Liquidity Provider will, if necessary, make advances in an aggregate amount sufficient to pay interest on the applicable Certificates on up to three successive semiannual Regular Distribution Dates at the applicable interest rate for such Certificates. Drawings under the Liquidity Facilities cannot be used to pay any amount in respect of the Certificates other than interest and will not cover interest payable on amounts held in escrow as Deposits with the Depositary.
		There will be no Liquidity Facility for the Class C Trust.
		Notwithstanding the subordination provisions applicable to the Certificates, the holders of the Certificates to be issued by the Class A Trust or the Class B Trust will be entitled to receive and retain the proceeds of drawings under the Liquidity Facility for such Trust.
		Upon each drawing under any Liquidity Facility to pay interest on the Certificates, the Subordination Agent will reimburse the applicable Liquidity Provider for the amount of such drawing. Such reimbursement obligation and all interest, fees and other amounts owing to the Liquidity Provider under each Liquidity Facility and certain other agreements will rank equally with comparable obligations relating to the other Liquidity Facilities and will rank senior to the Certificates in right of payment.

Escrowed Funds		Funds in escrow for the Certificateholders of each Trust will be held by the Depositary as Deposits relating to such Trust. The Trustees may withdraw these funds from time to time to purchase Equipment Notes prior to the deadline established for purposes of this offering. On each Regular Distribution Date, the Depositary will pay interest accrued on the Deposits relating to such Trust at a rate per annum equal to the interest rate applicable to the Certificates issued by such Trust. The Deposits relating to each Trust and interest paid thereon will not be subject to the subordination provisions applicable to the Certificates. The Deposits cannot be used to pay any other amount in respect of the Certificates.
Unused Escrowed Funds		All of the Deposits held in escrow may not be used to purchase Equipment Notes by the deadline established for purposes of this offering. This may occur because of delays in the delivery of Aircraft or other reasons. See “Description of the Certificates—Obligation to Purchase Equipment Notes”. If any funds remain as Deposits with respect to any Trust after such deadline, the funds held as Deposits will be withdrawn by the Escrow Agent for such Trust and distributed, with accrued and unpaid interest, to the Certificateholders of such Trust after at least 15 days’ prior written notice. See “Description of the Deposit Agreements—Unused Deposits”.
Obligation to Purchase Equipment Notes		The Trustees will be obligated to purchase the Equipment Notes issued with respect to each Aircraft pursuant to the Note Purchase Agreement. Continental will enter into a secured debt financing with respect to each Aircraft pursuant to financing agreements substantially in the forms attached to the Note Purchase Agreement. The terms of such financing agreements must not vary the Required Terms set forth in the Note Purchase Agreement. In addition, Continental must certify to the Trustees that any substantive modifications do not materially and adversely affect the Certificateholders. Continental must also obtain written confirmation from each Rating Agency that the use of financing agreements modified in any material respect from the forms attached to the Note Purchase Agreement will not result in a withdrawal, suspension or downgrading of the rating of any Class of Certificates. The Trustees will not be obligated to purchase Equipment Notes if, at the time of issuance, Continental is in bankruptcy or certain other specified events have occurred. See “Description of the Certificates—Obligation to Purchase Equipment Notes”.
Issuances of Additional Classes of Certificates		After the Delivery Period Termination Date, additional pass through certificates of one or more separate pass through trusts, which will evidence fractional undivided ownership interests in equipment notes secured by Aircraft, may be issued. Any such transaction may relate to a refinancing of Series B Equipment Notes or Series C Equipment Notes issued with respect to all (but not less than all) of the Aircraft or the issuance of one or more new series of subordinated equipment notes with respect to some or all of the Aircraft. Consummation of any such transaction will be subject to satisfaction of certain conditions, including receipt of confirmation from the Rating Agencies that it will

		not result in a withdrawal, suspension or downgrading of any Class of Certificates that remains outstanding. See “Possible Issuance of Additional Certificates and Refinancing of Certificates”.
Equipment Notes
(a) Issuer		Continental.
(b) Interest		The Equipment Notes held in each Trust will accrue interest at the rate per annum for the Certificates issued by such Trust set forth on the cover page of this Prospectus Supplement. Interest will be payable on April 19 and October 19 of each year, commencing on the first such date after issuance of such Equipment Notes. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months.
(c) Principal		Principal payments on the Equipment Notes are scheduled on April 19 and October 19 in certain years, commencing on April 19, 2010.
(d) Redemption and Purchase		Aircraft Event of Loss. If an Event of Loss occurs with respect to an Aircraft, all of the Equipment Notes issued with respect to such Aircraft will be redeemed, unless Continental replaces such Aircraft under the related financing agreements. The redemption price in such case will be the unpaid principal amount of such Equipment Notes, together with accrued interest, but without any premium.
		Optional Redemption. Continental may elect to redeem all of the Equipment Notes issued with respect to an Aircraft prior to maturity. In addition, Continental may elect to redeem the Series B or Series C Equipment Notes with respect to all Aircraft in connection with a refinancing of such Series. The redemption price in such case will be the unpaid principal amount of such Equipment Notes, together with accrued interest and Make-Whole Premium. Upon completion of any such redemption of all Equipment Notes with respect to an Aircraft, so long as no Payment Default, Bankruptcy Default or Indenture Default has occurred and is continuing under any Indenture, the relevant Aircraft will be released from the lien of the Indenture and cease to be included as collateral for any Equipment Notes. See “Description of the Equipment Notes—Redemption”.
(e) Security		The Equipment Notes issued with respect to each Aircraft will be secured by a security interest in such Aircraft.
(f) Cross-collateralization		The Equipment Notes held in the Trusts will be cross-collateralized. This means that any proceeds from the exercise of remedies with respect to an Aircraft will be available to cover shortfalls then due under Equipment Notes issued with respect to the other Aircraft. In the absence of any such shortfall, excess proceeds will be held by the relevant Loan Trustee as additional collateral for such other Equipment Notes.
(g) No Cross-default		There will not be cross-default provisions in the Indentures. This means that if the Equipment Notes issued with respect to one or more Aircraft are in default and the Equipment Notes issued with respect to the remaining Aircraft are not in default, no remedies will be exercisable with respect to the remaining Aircraft.
(h) Section 1110 Protection		Continental’s outside counsel will provide its opinion to the Trustees that the benefits of Section 1110 of the U.S. Bankruptcy Code will be available with respect to the Equipment Notes.

Certain Federal Income Tax Consequences		Each person acquiring an interest in Certificates generally should report on its federal income tax return its pro rata share of income from the relevant Deposits and income from the Equipment Notes and other property held by the relevant Trust. See “Certain U.S. Federal Income Tax Consequences”.
Certain ERISA Considerations		Each person who acquires a Certificate will be deemed to have represented that either: (a) no employee benefit plan assets have been used to purchase or hold such Certificate or (b) the purchase and holding of such Certificate are exempt from the prohibited transaction restrictions of ERISA and the Code pursuant to one or more prohibited transaction statutory or administrative exemptions. See “Certain ERISA Considerations”.
Rating of the Certificates		It is a condition to the issuance of the Certificates that they be rated by Moody’s and Standard & Poor’s not less than the ratings set forth below:

		A rating is not a recommendation to purchase, hold or sell Certificates, since such rating does not address market price or suitability for a particular investor. There can be no assurance that such ratings will not be lowered, suspended or withdrawn by a Rating Agency after the Certificates have been issued.

						Standard &
				Moody’s		Poor’s
Threshold Rating for the Depositary		Short Term		P-1		A-1+

Depositary Rating		The Depositary meets the Depositary Threshold Rating requirement.

						Standard &
				Moody’s		Poor’s
Threshold Rating for the Liquidity Provider		Short Term		P-1		A-1

Liquidity Provider Rating		Raiffeisen Zentralbank Österreich Aktiengesellschaft, an affiliate of the Liquidity Provider, meets the Liquidity Threshold Rating requirement and will guarantee the obligations of the Liquidity Provider under the Liquidity Facilities.

 

SUMMARY FINANCIAL AND OPERATING DATA

		Year Ended December 31,
		2006				2005				2004				2003				2002
		(In millions of dollars, except operating data,
		per share data and ratios)
Financial Data—Operations:(1)
Operating Revenue		$	13,128			$	11,208			$	9,899			$	9,001			$	8,511
Operating Expenses			12,660				11,247				10,137				8,813				8,841
Operating Income (Loss)			468				(39	)			(238	)			188				(330	)
Non-operating Income (Expense), net			(99	)			(29	)			(211	)			(2	)			(319	)
Income (Loss) before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle			369				(68	)			(449	)			186				(649	)
Income (Loss) before Cumulative Effect of Change in Accounting Principle			369				(68	)			(409	)			28				(462	)
Net Income (Loss)		$	343			$	(68	)		$	(409	)		$	28			$	(462	)
Earnings (Loss) per Share:
Basic		$	3.86			$	(0.96	)		$	(6.19	)		$	0.43			$	(7.19	)
Diluted		$	3.30			$	(0.97	)		$	(6.25	)		$	0.41			$	(7.19	)
Shares used for Computation:
Basic			89.0				70.3				66.1				65.4				64.2
Diluted			111.4				70.3				66.1				65.6				64.2
Ratio of Earnings to Fixed Charges(2)			1.26	x			—				—				1.14	x			—

		Year Ended December 31,
		2006				2005				2004				2003				2002
Operating Data:
Mainline Operations:
Passengers (thousands)(3)			48,788				44,939				42,743				40,613				41,777
Revenue passenger miles (millions)(4)			79,192				71,261				65,734				59,165				59,349
Available seat miles (millions)(5)			97,667				89,647				84,672				78,385				80,122
Passenger load factor(6)			81.1	%			79.5	%			77.6	%			75.5	%			74.1	%
Cargo ton miles (millions)			1,075				1,018				1,026				917				908
Passenger revenue per available seat mile (cents)			9.96				9.32				8.82				8.79				8.67
Total revenue per available seat mile (cents)			11.17				10.46				9.83				9.81				9.41
Average yield per revenue passenger mile (cents)(7)			12.29				11.73				11.37				11.64				11.71
Average fare per revenue passenger		$	201.78			$	188.67			$	177.90			$	172.83			$	169.37
Cost per available seat mile including special charges (cents)(8)			10.56				10.22				9.84				9.53				9.63
Average price per gallon of fuel, including fuel taxes (cents)			206.35				177.55				119.01				91.40				74.01
Fuel gallons consumed (millions)			1,471				1,376				1,333				1,257				1,296
Actual aircraft in fleet at end of period(9)			366				356				349				355				366
Average length of aircraft flight (miles)			1,431				1,388				1,325				1,270				1,225
Average daily utilization of each aircraft (hours)(10)			11:07				10:31				9:55				9:19				9:29
Regional Operations:
Passengers (thousands)(3)			18,331				16,076				13,739				11,445				9,264
Revenue passenger miles (millions)(4)			10,325				8,938				7,417				5,769				3,952
Available seat miles (millions)(5)			13,251				11,973				10,410				8,425				6,219
Passenger load factor(6)			77.9	%			74.7	%			71.3	%			68.5	%			63.5	%
Passenger revenue per available seat mile (cents)			17.16				15.67				15.09				15.31				15.45
Average yield per revenue passenger mile (cents)(7)			22.03				20.99				21.18				22.35				24.31
Actual aircraft in fleet at end of period(9)			272				266				245				224				188
Consolidated Operations (Mainline and Regional):
Passengers (thousands)(3)			67,119				61,015				56,482				52,058				51,041
Revenue passenger miles (millions)(4)			89,517				80,199				73,151				64,934				63,301
Available seat miles (millions)(5)			110,918				101,620				95,082				86,810				86,341
Passenger load factor(6)			80.7	%			78.9	%			76.9	%			74.8	%			73.3	%
Passenger revenue per available seat mile (cents)			10.82				10.07				9.51				9.42				9.16
Average yield per revenue passenger mile (cents)(7)			13.41				12.76				12.36				12.60				12.49

		December 31,				December 31,
		2006				2005
		(In millions of dollars)
Financial Data—Balance Sheet:
Assets:
Cash, Cash Equivalents, including Restricted Cash, and Short-Term Investments		$	2,749			$	2,198
Other Current Assets			1,380				1,229
Total Property and Equipment, net			6,263				6,086
Routes and Airport Operating Rights, net			604				617
Other Assets			312				399
Total Assets		$	11,308			$	10,529
Liabilities and Stockholders’ Equity:
Current Liabilities		$	3,955			$	3,399
Long-Term Debt and Capital Leases			4,859				5,057
Deferred Credits and Other Long-Term Liabilities			2,147				1,847
Stockholders’ Equity			347				226
Total Liabilities and Stockholders’ Equity		$	11,308			$	10,529

(1)		Includes the following special income (expense) items (in millions):

(2)		For purposes of calculating this ratio, earnings consist of income before income taxes and cumulative effect of changes in accounting principles adjusted for undistributed income of companies in which Continental has a minority equity interest plus interest expense (net of capitalized interest), the portion of rental expense representative of interest expense and amortization of previously capitalized interest. Fixed charges consist of interest expenses, the portion of rental expense representative of interest expense, the amount amortized for debt discount, premium and issuance expense and interest previously capitalized. For the years ended December 31, 2005, 2004 and 2002, earnings were inadequate to cover fixed charges and the coverage deficiency was $102 million, $490 million and $658 million, respectively.
(3)		The number of revenue passengers measured by each flight segment flown.
(4)		The number of scheduled miles flown by revenue passengers.
(5)		The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(6)		Revenue passenger miles divided by available seat miles.
(7)		The average passenger revenue received for each passenger mile flown.
(8)		Includes operating expense special items noted in (1) above. These special items increased (decreased) mainline cost per available seat mile by 0.03, 0.07, 0.16, (0.11) and 0.25 cents in each of the five years, respectively.
(9)		Excludes aircraft that were removed from service.
(10)		The average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).

 

Although Continental achieved profitability during 2006, it has suffered substantial losses since September 11, 2001. Continental’s ability to sustain its profitability depends, among other factors, on continuing efforts to implement and maintain a more competitive cost structure, retaining its domestic length-of-haul adjusted revenue per available seat mile premium to the industry and responding effectively to the factors that threaten the airline industry as a whole. Although the U.S. domestic network carrier environment improved in 2006 as several of Continental’s network competitors reduced domestic capacity and as carriers increased fares in response to record-high fuel prices, a number of factors continue to pressure the industry. Among the many factors that threaten Continental are the continued rapid growth of low-cost carriers and resulting pressure on domestic fares, high fuel costs, excessive taxation and significant pension liabilities. Additionally, a number of Continental’s competitors are increasing their international capacity, which is resulting in pressure on yields and load factors in impacted markets.

 

Future Increases in Fuel Prices or Disruptions in Fuel Supplies Could Have a Material Adverse Effect on Continental

 

Continental’s operations depend on the availability of jet fuel supplies, and its results are significantly impacted by changes in the cost of fuel. Although fuel prices have declined from record highs and Continental experienced more success raising ticket prices in response to higher fuel costs in 2006 than it had in 2005, Continental may not be able to raise fares further to offset future increases in fuel prices. Conversely, lower fuel prices may result in lower fares and the reduction or elimination of fuel surcharges. Additionally, lower fuel prices may result in increased industry capacity, especially to the extent that reduced fuel costs justify increased utilization by airlines of less fuel-efficient aircraft that are unprofitable during periods of higher fuel prices.

 

Continental is also at risk for all of its regional carriers’ fuel costs on flights flown for Continental under capacity purchase agreements, as well as a margin on fuel costs incurred by ExpressJet Airlines, Inc. (“ExpressJet”) (up to a negotiated cap of 71.2 cents per gallon) on flights flown for Continental under a regional capacity purchase agreement that Continental has with ExpressJet and a related fuel purchase agreement with ExpressJet.

 

Fuel prices and supplies are influenced significantly by international political and economic circumstances, such as increasing demand by developing nations, conflicts or instability in the Middle East or other oil producing regions, and diplomatic tensions between the U.S. and oil producing nations, as well as OPEC production curtailments, disruptions of oil imports, environmental concerns, weather and other unpredictable events. For example, a major hurricane making landfall along the U.S. Gulf Coast could cause widespread disruption to oil production, refinery operations and pipeline capacity in that region, possibly resulting in significant increases in the price of jet fuel and diminished availability of jet fuel supplies.

 

Future increases in jet fuel prices or disruptions in fuel supplies, whether as a result of natural disasters or otherwise, could have a material adverse effect on Continental’s results of operations, financial condition and liquidity.

 

Continental’s High Leverage May Affect Its Ability to Satisfy Its Significant Financing Needs or Meet Its Obligations

 

As is the case with its principal competitors, Continental has a high proportion of debt compared to its capital. Continental has a significant amount of fixed obligations, including debt, aircraft leases and financings, leases of airport property and other facilities and pension funding obligations.

 

As of December 31, 2006, Continental had approximately:

 

 

 

In addition, Continental has substantial commitments for capital expenditures, including for the acquisition of new aircraft and related spare engines.

 

Although Continental has entered into agreements to finance the two 777-200ER aircraft scheduled to be delivered in 2007 (one of which has been delivered) and has backstop financing for some of the 737 aircraft scheduled to be delivered in 2008 and 2009 (including some of the aircraft to be financed through this Offering), Continental does not have backstop financing or any other financing currently in place for the remaining aircraft on order. Further financing will be needed to satisfy Continental’s capital commitments for its firm aircraft and other related capital expenditures. Continental can provide no assurance that sufficient financing will be available for the aircraft on order or other related capital expenditures, or for its capital expenditures in general.

 

Credit Rating Downgrades Could Have a Material Adverse Effect on Continental’s Liquidity

 

Reductions in Continental’s credit ratings may increase the cost and reduce the availability of financing to Continental in the future. Continental does not have any debt obligations that would be accelerated as a result of a credit rating downgrade. However, Continental would have to post additional collateral under its bank-issued credit card processing agreement and its workers’ compensation program if Continental’s debt rating falls below specified levels.

 

Failure by Continental to Meet Its Financial Covenants Would Adversely Affect Its Liquidity

 

Continental’s bank-issued credit card processing agreement contains financial covenants which require, among other things, that Continental maintain a minimum EBITDAR (generally, earnings before interest, taxes, depreciation, amortization, aircraft rentals and income from other companies, adjusted for certain special items) to fixed charges (interest and aircraft rentals) ratio for the preceding 12 months. The liquidity covenant requires Continental to maintain a minimum level of unrestricted cash and short-term investments and a minimum ratio of unrestricted cash and short-term investments to current liabilities. The agreement also requires Continental to maintain a minimum senior unsecured debt rating. Although Continental is currently in compliance with all of the covenants, failure to maintain compliance would result in Continental’s being required to post additional cash collateral, which would adversely affect its liquidity. Depending on Continental’s unrestricted cash and short-term investments balance at the time, the posting of a significant amount of cash collateral could cause Continental’s unrestricted cash and short-term investments balance to fall below the minimum balance requirement under its $350 million secured term loan facility, resulting in a default under that facility.

 

Continental’s Labor Costs May Not Be Competitive and Could Threaten Its Future Liquidity

 

Labor costs constitute a significant percentage of Continental’s total operating costs. All of the major hub-and-spoke carriers with whom Continental competes have achieved significant labor cost reductions, whether in or out of bankruptcy. Even given the effect of pay and benefit cost reductions Continental implemented beginning in April 2005, Continental believes that its wages, salaries and benefits cost per available seat mile, measured on a stage length adjusted basis, will continue to be higher than that of many of its competitors. These higher labor costs may adversely affect Continental’s ability to sustain its profitability while competing with other airlines that have achieved lower relative labor costs.

 

Labor Disruptions Could Adversely Affect Continental’s Operations

 

Although Continental enjoys generally good relations with its employees, Continental can provide no assurance that it will be able to maintain these good relations in the future or avoid labor disruptions. Any labor disruption that results in a prolonged significant reduction in flights would have a material adverse effect on Continental’s results of operations and financial condition.

Continental’s Obligations for Funding Its Defined Benefit Pension Plans Are Significant and Are Affected by Factors Beyond Continental’s Control

 

Continental has defined benefit pension plans covering substantially all U.S. employees other than employees of Chelsea Food Services and CMI. Continental estimates that its minimum required contributions to its defined benefit pension plans will total approximately $1.3 billion over the next ten years, after giving effect to the Pension Protection Act of 2006. The timing and amount of funding requirements depend upon a number of factors, including labor negotiations and changes to pension plan benefits as well as factors outside Continental’s control, such as asset returns, interest rates and changes in pension laws.

 

Interruptions or Disruptions in Service at One of Continental’s Hub Airports Could Have a Material Adverse Effect on Continental’s Operations

 

Continental operates principally through its hub operations at New York Liberty, Houston Bush, Cleveland Hopkins and Guam. Substantially all of Continental’s flights either originate from or fly into one of these locations, contributing to a large amount of “origin and destination” traffic. A significant interruption or disruption in service at one of Continental’s hubs resulting from air traffic control delays, weather conditions, growth constraints, relations with third party service providers, failure of computer systems, labor relations, fuel supplies, terrorist activities or otherwise could result in the cancellation or delay of a significant portion of Continental’s flights and, as a result, its business could be materially adversely affected.

 

A Significant Failure or Disruption of the Computer Systems on Which Continental Relies Could Adversely Affect Its Business

 

Continental depends heavily on computer systems and technology to operate its business, such as flight operations systems, communications systems, airport systems and reservations systems (including continental.com and third party global distribution systems). These systems could suffer substantial or repeated disruptions due to events beyond Continental’s control, including natural disasters, power failures, terrorist attacks, equipment or software failures and computer viruses and hackers. Any such disruptions could materially impair Continental’s flight and airport operations and its ability to market its services, and could result in increased costs, lost revenue and the loss or compromise of important data. Although Continental has taken measures in an effort to reduce the adverse effects of certain potential failures or disruptions, if these steps are not adequate to prevent or remedy the risks, Continental’s business may be materially adversely affected.

 

Continental’s Net Operating Loss Carryforwards May be Limited

 

At December 31, 2006, Continental had estimated net operating loss carryforwards (“NOLs”) of $4.1 billion for federal income tax purposes that will expire beginning in 2007 through 2025. The Internal Revenue Code of 1986, as amended (the “Code”) imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” If Continental were to have a change in ownership under current conditions its annual NOL utilization could be limited to approximately $161 million per year before consideration of any built-in gains.

 

The Airline Industry Is Highly Competitive and Susceptible to Price Discounting

 

The U.S. airline industry is characterized by substantial price competition, especially in domestic markets. Carriers use discount fares to stimulate traffic during periods of slack demand or when they begin service to new cities or have excess capacity, to generate cash flow and to establish or increase market share. Some of Continental’s competitors have substantially greater financial resources (including more favorable hedges against fuel price increases) or lower cost structures than Continental has, or both. In recent years, the domestic market share held by low-cost carriers has increased significantly and is expected to continue to increase, which is dramatically changing the airline industry. The increased market presence of low-cost carriers, which engage in substantial price discounting, has diminished the ability of the network carriers to maintain sufficient pricing structures in domestic markets to achieve profitability. This has contributed to the dramatic losses for Continental and the airline industry generally. For example, a low-cost carrier began to directly compete with Continental on flights

between New York Liberty and destinations in Florida in 2005, and entered the New York to Houston market in 2006. Continental is responding vigorously to this challenge, but has experienced decreased yields on affected flights. Continental cannot predict whether or for how long these trends will continue.

 

In addition to price competition, airlines also compete for market share by increasing the size of their route system and the number of markets they serve. Several of Continental’s domestic competitors have announced aggressive plans to expand into international markets, including some destinations that Continental currently serves. Additionally, the recently ratified “open skies” agreement between the U.S. and the European Union will become effective on March 30, 2008 and could result in increased competition from European and U.S. airlines in these international markets. Continental’s ability to compete effectively in this new environment will depend in part on the availability to Continental of commercially viable operating slots and facilities at London’s Heathrow Airport. The increased competition in these international markets, particularly to the extent Continental’s competitors engage in price discounting, may have a material adverse effect on Continental’s results of operations, financial condition or liquidity.

 

Delta Air Lines, Inc. (“Delta”), Northwest Airlines, Inc. (“Northwest”) and several small competitors are currently operating under bankruptcy protection, and other carriers could file for bankruptcy or threaten to do so to reduce their costs. US Airways Group, Inc. and, more recently, United Air Lines, Inc., have emerged from bankruptcy, and Delta and Northwest have announced their plans to emerge from bankruptcy in the second quarter of 2007. Carriers operating under bankruptcy protection may be in a position to operate in a manner adverse to Continental, and could emerge from bankruptcy as more vigorous competitors with substantially lower costs than Continental’s.

 

The Airline Industry May Experience Further Consolidation That May Affect Continental’s Business Strategy

 

Since its deregulation in 1978, the U.S. airline industry has undergone substantial consolidation and may experience additional consolidation in the future. Continental’s preference is to remain independent; however, Continental would re-evaluate its strategic options if the competitive landscape were to change. Continental routinely monitors developments in the industry and engages in analysis and discussions regarding its strategic position, including alliances, asset acquisitions and business combination transactions. Continental has had, and expects to continue to have, discussions with third parties including other airlines, regarding strategic alternatives. Continental’s ability to engage in any merger may be restricted by its Series B preferred stock held by Northwest. Additionally, the ability of any third party to acquire Continental could be limited by Continental’s stockholder rights plan and Northwest’s ability to block Continental’s redemption of the rights under certain circumstances. Continental cannot predict whether consolidation will occur or the impact of any consolidation within the U.S. airline industry.

 

Additional Terrorist Attacks or International Hostilities May Further Adversely Affect Continental’s Financial Condition, Results of Operations and Liquidity

 

The terrorist attacks of September 11, 2001 involving commercial aircraft severely and adversely affected Continental’s financial condition, results of operations and liquidity, and the airline industry generally. Additional terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks (including elevated national threat warnings or selective cancellation or redirection of flights due to terrorist threats such as the August 2006 terrorist plot targeting multiple airlines, including Continental), could negatively affect Continental and the airline industry. The potential negative effects include increased security, insurance and other costs for Continental and lost revenue from increased ticket refunds and decreased ticket sales. Continental’s financial resources might not be sufficient to absorb the adverse effects of any further terrorist attacks or other international hostilities involving the United States.

 

Additional Security Requirements May Increase Continental’s Costs and Decrease Its Traffic

 

Since September 11, 2001, the Department of Homeland Security (“DHS”) and Transportation Security Administration (“TSA”) have implemented numerous security measures that affect airline operations and costs, and

they are likely to implement additional measures in the future. Most recently, DHS has begun to implement the US-VISIT program (a program of fingerprinting and photographing foreign visa holders), announced that it will implement greater use of passenger data for evaluating security measures to be taken with respect to individual passengers, expanded the use of federal air marshals on Continental’s flights (who do not pay for their seats and thus displace revenue passengers and cause increased customer complaints from displaced passengers), begun investigating a requirement to install aircraft security systems (such as active devices on commercial aircraft as countermeasures against portable surface to air missiles) and expanded cargo and baggage screening. DHS also has required certain flights to be cancelled on short notice for security reasons, and has required certain airports to remain at higher security levels than other locations. In addition, foreign governments also have begun to institute additional security measures at foreign airports Continental serves, out of their own security concerns or in response to security measures imposed by the U.S.

 

Moreover, the TSA has imposed additional measures affecting the contents of baggage that may be carried on an aircraft in response to the discovery in August 2006 of a terrorist plot targeting several airlines, including Continental. The TSA and other security regulators may be expected to impose other measures as necessary to respond to future threats.

 

A large portion of the costs of these security measures is borne by the airlines and their passengers, and Continental believes that these and other security measures have the effect of decreasing the demand for air travel and the overall attractiveness of air transportation as compared to other modes of transportation. Additional security measures required by the U.S. and foreign governments in the future, such as further expanded cargo screening, might increase Continental’s costs or decrease the demand for air travel, adversely affecting Continental’s financial results.

 

Expanded Government Regulation Could Further Increase Continental’s Operating Costs and Restrict Its Ability to Conduct Its Business

 

Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs and can adversely affect Continental. Additional laws, regulations, and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenue. The Federal Aviation Administration (the “FAA”) from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, commuter aircraft safety and increased inspections and maintenance procedures to be conducted on older aircraft.

 

Many aspects of airlines’ operations also are subject to increasingly stringent federal, state, local and foreign laws protecting the environment. Future regulatory developments in the U.S. and abroad could adversely affect operations and increase operating costs in the airline industry. For example, future actions that may be taken by the U.S. government, foreign governments (including the European Union), or the International Civil Aviation Organization to address concerns about climate change and air emissions from the aviation sector are unknown at this time, but the effect on Continental and its industry is likely to be adverse and could be significant. Among these potential actions is the European Union’s consideration of an emissions trading scheme applicable to all flights operating in the European Union, including flights to and from the United States.

 

Restrictions on the ownership and transfer of airline routes and takeoff and landing slots have been proposed and, in some cases, adopted. The ability of U.S. carriers to operate international routes is subject to change because the applicable arrangements between the United States and foreign governments may be amended from time to time, or because appropriate slots or facilities are not made available. Continental cannot provide assurance that current laws and regulations, or laws or regulations enacted in the future, will not adversely affect it.

 

The Airline Industry Is Heavily Taxed

 

The airline industry is subject to extensive government fees and taxation that negatively impact Continental’s revenue. The U.S. airline industry is one of the most heavily taxed of all industries. These fees and taxes have grown significantly in the past decade for domestic flights and various U.S. fees and taxes also are assessed on international

flights in addition to any fees and taxes imposed by foreign governments. Certain of these assessments must be included in the fares Continental advertises or quotes to its customers. Due to the competitive revenue environment, many increases in these fees and taxes that are not required to be included in fares have been absorbed by the airline industry rather than being passed on to the passenger. Further increases in fees and taxes that Continental is not required to include in the fares it advertises or quotes may reduce its revenues if it is not able to increase its fares to pass these fees on to its customers.

 

Insurance Costs Could Increase Materially or Key Coverage Could Become Unavailable

 

The September 11, 2001 terrorist attacks led to a significant increase in insurance premiums and a decrease in the insurance coverage available to commercial airlines. Accordingly, Continental’s insurance costs have increased significantly and our ability to continue to obtain certain types of insurance remains uncertain. Since the terrorist attacks, the U.S. government has provided war risk (terrorism) insurance to U.S. commercial airlines to cover losses. War risk insurance in amounts necessary for Continental’s operations, and at premiums that are not excessive, is not currently available in the commercial insurance market. If the government discontinues this coverage in whole or in part, obtaining comparable coverage in the commercial insurance market, if it is available at all, could result in substantially higher premiums and more restrictive terms. If Continental is unable to obtain adequate war risk insurance, its business could be materially and adversely affected.

 

If any of Continental’s aircraft were to be involved in an accident, Continental could be exposed to significant tort liability. Continental carries insurance to cover damages arising from any such accidents, but in the event that its liability exceeds the applicable policy limits, Continental may be forced to bear substantial losses from an accident.

 

Public Health Threats Affecting Travel Behavior Could Have a Material Adverse Effect on the Industry

 

Public health threats, such as the bird flu, Severe Acute Respiratory Syndrome (SARS) and other highly communicable diseases, outbreaks of which have already occurred in various parts of the world in which Continental operates, could adversely impact its operations and the worldwide demand for air travel. Any quarantine of personnel or inability to access Continental’s facilities or aircraft could adversely affect its operations. Travel restrictions or operational problems in any part of the world in which Continental operates, or any reduction in the demand for air travel caused by public health threats in the future, may materially impact Continental’s operations and adversely affect its financial results.

 

Continental’s Results of Operations Fluctuate Due to Seasonality and Other Factors Associated with the Airline Industry

 

Due to greater demand for air travel during the summer months, revenue in the airline industry in the second and third quarters of the year is generally stronger than revenue in the first and fourth quarters of the year for most U.S. air carriers. Continental’s results of operations generally reflect this seasonality, but also have been impacted by numerous other factors that are not necessarily seasonal, including excise and similar taxes, weather, air traffic control delays and general economic conditions, as well as the other factors discussed above. As a result, Continental’s operating results for a quarterly period are not necessarily indicative of operating results for an entire year, and historical operating results are not necessarily indicative of future operating results.

 

The Appraisals Are Only Estimates of Aircraft Value

 

Three independent appraisal and consulting firms have prepared appraisals of the Aircraft. Letters summarizing such appraisals are annexed to this Prospectus Supplement as Appendix II. Such appraisals are based on varying assumptions and methodologies, which differ among the appraisers, and were prepared without physical inspection of the Aircraft. Appraisals that are based on other assumptions and methodologies may result in valuations that are materially different from those contained in such appraisals. See “Description of the Aircraft and the Appraisals—The Appraisals”.

An appraisal is only an estimate of value. It does not indicate the price at which an Aircraft may be purchased from the Aircraft manufacturer. Nor should an appraisal be relied upon as a measure of realizable value. The proceeds realized upon a sale of any Aircraft may be less than its appraised value. In particular, the appraisals of the Aircraft are estimates of values as of future delivery dates. The value of an Aircraft if remedies are exercised under the applicable Indenture will depend on market and economic conditions, the supply of similar aircraft, the availability of buyers, the condition of the Aircraft and other factors. Accordingly, there can be no assurance that the proceeds realized upon any such exercise of remedies would be sufficient to satisfy in full payments due on the Certificates.

 

Certain Certificateholders May Not Participate In Controlling the Exercise of Remedies in a Default Scenario

 

If an Indenture Default is continuing, subject to certain conditions, the Loan Trustee under such Indenture will be directed by the “Controlling Party” in exercising remedies under such Indenture, including accelerating the applicable Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes. See “Description of the Certificates—Indenture Defaults and Certain Rights Upon an Indenture Default”.

 

The Controlling Party will be:

 

 

Subject to certain conditions, notwithstanding the foregoing, (a) if one or more holders of the Class B Certificates have purchased the Series A Equipment Notes or (b) if one or more holders of the Class C Certificates have purchased the Series A Equipment Notes and Series B Equipment Notes, in each case, issued under an Indenture, the holders of the majority in aggregate unpaid principal amount of Equipment Notes issued under such Indenture shall be entitled to direct the Loan Trustee in exercising remedies under such Indenture.

 

As a result of the foregoing, if the Trustee for a Class of Certificates is not the Controlling Party with respect to an Indenture (or, in the case of an Indenture under which there has been an Equipment Note buyout as described in the preceding paragraph, where such Trustee holds less than a majority of the outstanding principal amount of Equipment Notes issued under such Indenture), the Certificateholders of that Class will have no rights to participate in directing the exercise of remedies under such Indenture.

 

The Exercise of Remedies Over Equipment Notes May Result in Shortfalls Without Further Recourse

 

During the continuation of any Indenture Default under an Indenture, the Equipment Notes issued under such Indenture may be sold in the exercise of remedies with respect to that Indenture, subject to certain limitations. See “Description of the Intercreditor Agreement—Intercreditor Rights—Limitations on Exercise of Remedies”. The market for Equipment Notes during any Indenture Default may be very limited, and there can be no assurance as to the price at which they could be sold. If any Equipment Notes are sold for less than their outstanding principal amount, certain Certificateholders will receive a smaller amount of principal distributions under the relevant Indenture than anticipated and will not have any claim for the shortfall against Continental, any Liquidity Provider or any Trustee.

 

The Ratings of the Certificates Are Not a Recommendation to Buy and May Be Lowered or Withdrawn in the Future

 

It is a condition to the issuance of the Certificates that the Class A Certificates be rated not lower than Baa1 by Moody’s and A by Standard & Poor’s, the Class B Certificates be rated not lower than Ba2 by Moody’s and BBB- by Standard & Poor’s and the Class C Certificates be rated not lower than B1 by Moody’s and B+ by Standard & Poor’s. A rating is not a recommendation to purchase, hold or sell Certificates, because such rating does not address market

price or suitability for a particular investor. A rating may not remain unchanged for any given period of time and may be lowered, suspended or withdrawn entirely by a Rating Agency if in its judgment circumstances in the future (including the downgrading of Continental, the Depositary or a Liquidity Provider) so warrant.

 

The rating of the Certificates is based primarily on the default risk of the Equipment Notes and the Depositary, the availability of the Liquidity Facilities for the benefit of holders of the Class A and Class B Certificates, the collateral value provided by the Aircraft relating to the Equipment Notes, the cross-collateralization provisions applicable to the Indentures and the subordination provisions applicable to the Certificates. These ratings address the likelihood of timely payment of interest (at the Stated Interest Rate and without any premium) when due on the Certificates and the ultimate payment of principal distributable under the Certificates by the Final Maturity Date. The ratings do not address the possibility of certain defaults, optional redemptions or other circumstances, which could result in the payment of the outstanding principal amount of the Certificates prior to the final expected Distribution Date. Standard & Poor’s has indicated that its rating applies to a unit consisting of Certificates representing the Trust Property and Escrow Receipts initially representing interests in $1,146,810,000 of Deposits. Amounts deposited under the Escrow Agreements are not property of Continental and are not entitled to the benefits of Section 1110 of the U.S. Bankruptcy Code. Any cash collateral held as a result of the cross-collateralization of the Equipment Notes also would not be entitled to the benefits of Section 1110 of the U.S. Bankruptcy Code. Neither the Certificates nor the Escrow Receipts may be separately assigned or transferred. The ratings apply only to the Certificates and not the Equipment Notes, regardless of whether any such Equipment Notes are purchased by a Certificateholder pursuant to the purchase rights described under “Description of the Intercreditor Agreement—Intercreditor Rights—Equipment Note Buyout Rights of Subordinated Certificateholders”.

 

Escrowed Funds May Be Returned If They Are Not Used to Buy Equipment Notes

 

Under certain circumstances, all of the funds held in escrow as Deposits may not be used to purchase Equipment Notes by the deadline established for purposes of this offering. See “Description of the Deposit Agreements—Unused Deposits”. If any funds remain as Deposits with respect to any Trust after such deadline, they will be withdrawn by the Escrow Agent for such Trust and distributed, with accrued and unpaid interest but without any premium, to the Certificateholders of such Trust. See “Description of the Deposit Agreements—Unused Deposits”.

 

There May Be a Limited Market for Resale of Certificates

 

Prior to this offering, there has been no public market for the Certificates. Neither Continental nor any Trust intends to apply for listing of the Certificates on any securities exchange or otherwise. The Underwriters may assist in resales of the Certificates, but they are not required to do so. A secondary market for the Certificates may not develop. If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of your Certificates.

 

The proceeds from the sale of the Certificates being offered hereby will be used to purchase Equipment Notes issued by Continental during the Delivery Period to finance its purchase of the Aircraft. Before the proceeds are used to buy Equipment Notes, such proceeds from the sale of the Certificates of each Trust will be deposited with the Depositary on behalf of the applicable Escrow Agent for the benefit of the holders of such Certificates.

 

Continental Airlines, Inc. (“Continental” or the “Company”) is a major United States air carrier engaged in the business of transporting passengers, cargo and mail. Continental is the world’s fifth largest airline as measured by the number of scheduled miles flown by revenue passengers in 2006. Including Continental’s wholly owned subsidiary, Continental Micronesia, Inc. (“CMI”) and regional flights operated on Continental’s behalf under capacity purchase agreements with other carriers, Continental operates more than 2,700 daily departures. As of December 31, 2006, Continental flew to 136 domestic and 126 international destinations and offered additional connecting service through alliances with domestic and foreign carriers. Continental directly served 26 European cities, nine South American cities, Tel Aviv, Delhi, Hong Kong, Beijing and Tokyo as of December 31, 2006. In addition, Continental provides service to more destinations in Mexico and Central America than any other U.S. airline, serving 40 cities. Through its Guam hub, CMI provides extensive service in the western Pacific, including service to more Japanese cities than any other U.S. carrier. The Company’s executive offices are located at 1600 Smith Street, Houston, Texas 77002. The Company’s telephone number is (713) 324-2950 and its website is www.continental.com. Information contained on the Company’s website is not part of, and is not incorporated in, this Prospectus Supplement.

 

Continental operates its domestic route system primarily through its hubs in the New York metropolitan area at Newark Liberty International Airport (“New York Liberty”), in Houston, Texas at George Bush Intercontinental Airport (“Houston Bush”) and in Cleveland, Ohio at Hopkins International Airport (“Cleveland Hopkins”). Each of our domestic hubs is located in a large business and population center, contributing to a large amount of “origin and destination” traffic. Continental’s hub system allows it to transport passengers between a large number of destinations with substantially more frequent service than if each route were served directly. The hub system also allows Continental to add service to a new destination from a large number of cities using only one or a limited number of aircraft. As of December 31, 2006, Continental operated 73% of the average daily departures from New York Liberty, 85% of the average daily departures from Houston Bush and 68% of the average daily departures from Cleveland Hopkins, in each case based on scheduled commercial passenger departures and including regional flights flown for Continental under capacity purchase agreements.

 

Continental directly serves destinations throughout Europe, Canada, Mexico, Central and South America and the Caribbean, as well as Tel Aviv, Delhi, Hong Kong, Beijing and Tokyo. Continental also provides service to numerous other destinations through codesharing arrangements with other carriers and has extensive operations in the western Pacific conducted by CMI. As measured by 2006 available seat miles, approximately 47% of Continental’s mainline operations (flights using jets with a capacity of greater than 100 seats) is dedicated to international traffic.

 

New York Liberty is a significant international gateway. From New York Liberty, Continental served 26 cities in Europe, seven cities in Canada, six cities in Mexico, eight cities in Central America, five cities in South America, 18 Caribbean destinations, Tel Aviv, Delhi, Hong Kong, Beijing and Tokyo as of December 31, 2006. During 2006, Continental added service between New York Liberty and Barcelona, Spain; Copenhagen, Denmark and Cologne, Germany. Continental expects to begin service from New York Liberty to Athens, Greece in June 2007 and Mumbai, India in October 2007.

 

Houston Bush is the focus of Continental’s flights to destinations in Mexico and Central and South America. As of December 31, 2006, Continental flew from Houston Bush to 30 cities in Mexico, all seven countries in Central America, nine cities in South America, six Caribbean destinations, three cities in Canada, three cities in Europe and Tokyo.

 

At December 31, 2006, Continental flew from Cleveland Hopkins to two cities in Canada, one Caribbean destination and one city in Mexico. Continental also has seasonal service between Cleveland Hopkins and London, England and plans to begin seasonal service between Cleveland Hopkins and Paris, France in 2008.

 

From its hub operations based on the island of Guam, as of December 31, 2006, CMI provided service to eight cities in Japan, more than any other United States carrier, as well as other Pacific rim destinations, including Manila

in the Philippines; Hong Kong; Cairns, Australia and Bali, Indonesia. CMI is the principal air carrier in the Micronesian Islands, where it pioneered scheduled air service in 1968. CMI’s route system is linked to the United States market through Hong Kong, Tokyo and Honolulu, each of which CMI serves non-stop from Guam.

 

Continental has alliance agreements, which are also referred to as codeshare agreements or cooperative marketing agreements, with other carriers. These relationships may include (a) codesharing (one carrier placing its name and flight number, or “code”, on flights operated by the other carrier), (b) reciprocal frequent flyer program participation, reciprocal airport lounge access and other joint activities (such as seamless check-in at airports) and (c) capacity purchase agreements. Continental’s most significant regional capacity purchase agreements are with ExpressJet, a wholly-owned subsidiary of ExpressJet Holdings, Inc. (“Holdings”), and, beginning in January 2007, Chautauqua Airlines, Inc., (“Chautauqua”), a wholly-owned subsidiary of Republic Airways Holdings, Inc. Except for Continental’s relationships with ExpressJet and Chautauqua and certain flights operated for Continental by Champlain Enterprises, Inc. (“CommutAir”), all of Continental’s codeshare relationships are currently free-sell codeshares, where the marketing carrier sells seats on the operating carrier’s flights from the operating carrier’s inventory, but takes no inventory risk. In contrast, in capacity purchase agreements, such as the ones that Continental has with ExpressJet, Chautauqua and CommutAir, the marketing carrier purchases all seats on covered flights and is responsible for all scheduling, pricing and seat inventories. Some of Continental’s alliance relationships include other cooperative undertakings such as joint purchasing, joint corporate sales contracts, airport handling, facilities sharing or joint technology development.

 

Continental is a member of SkyTeam, a global alliance of airlines that offers greater destination coverage and the potential for increased revenue. SkyTeam members include Aeroflot, Aeromexico, Air France, Alitalia, CSA Czech, Delta, KLM, Korean Air and Northwest. As of December 31, 2006, SkyTeam members served 373 million passengers with over 14,600 daily departures to 728 global destinations in 149 countries. As a member of SkyTeam, Continental has bilateral codeshare, frequent flyer program participation and airport lounge access agreements with each of the SkyTeam members.

 

Continental also has domestic codesharing agreements with Hawaiian Airlines, Alaska Airlines, and Horizon Airlines. Additionally, Continental has codeshare agreements with Gulfstream International Airlines, CommutAir, Hyannis Air Service, Inc. (“Cape Air”), Colgan Airlines, Inc. (“Colgan”), Hawaii Island Air, Inc. (“Island Air”) and American Eagle Airlines, who provide Continental with commuter feed traffic. Continental also has the first train-to-plane alliance in the United States with Amtrak.

 

In addition to its domestic alliances, Continental seeks to develop international alliance relationships that complement its own route system and permit expanded service through its hubs to major international destinations. International alliances assist in the development of its route structure by enabling Continental to offer more frequencies in a market, provide passengers connecting service from Continental’s international flights to other destinations beyond an alliance airline’s hub and expand the product line that Continental may offer in a foreign destination. In addition to its agreements with the SkyTeam member airlines, Continental also currently has international codesharing agreements with Air Europa of Spain, Emirates (the flag carrier of the United Arab Emirates), EVA Airways Corporation (an airline based in Taiwan), Virgin Atlantic Airways, Copa Airlines of Panama (“Copa Airlines”) and French rail operator SNCF. Continental owns 10% of the common equity of Copa Holdings, S.A. (“Copa”), the parent of Copa Airlines and Aero Republica of Colombia.

 

Continental’s regional operations are conducted by other operators on its behalf, primarily under capacity purchase agreements. Continental’s regional operations using regional jet aircraft are conducted under the name “Continental Express” and those using turboprop aircraft are conducted under the name “Continental Connection”. Through December 31, 2006, Continental Express flights were operated by ExpressJet. Beginning in January 2007, a portion of Continental’s regional jet capacity is being operated by Chautauqua. As of December 31, 2006, ExpressJet served 113 destinations in the U.S., 27 cities in Mexico, seven cities in Canada and one Caribbean destination on Continental’s behalf. Continental believes this regional jet service complements Continental’s operations by carrying traffic that connects onto Continental’s mainline jets and by allowing more frequent flights to

smaller cities than could be provided economically with larger jet aircraft. Additional commuter feed traffic is currently provided to Continental by other alliance airlines, as discussed above.

 

Continental purchases available seat miles for a negotiated price under a capacity purchase agreement with ExpressJet (the “ExpressJet CPA”). Continental is responsible for all scheduling, pricing and seat inventories of ExpressJet’s flights covered by the ExpressJet CPA. Therefore, Continental is entitled to all revenue associated with those flights and is responsible for all revenue-related expenses, including commissions, reservations, catering and passenger ticket processing expenses. In exchange for ExpressJet’s operation of the flights and performance of other obligations under the ExpressJet CPA, Continental pays ExpressJet based on scheduled block hours (the hours from gate departure to gate arrival) in accordance with a formula designed to initially provide ExpressJet with an operating margin of approximately 10% before taking into account performance incentive payments and variations in some costs and expenses that are generally controllable by ExpressJet, primarily wages, salaries and related costs. Continental assumes the risk of revenue volatility associated with fares and passenger traffic, price volatility for specified expense items such as fuel and the cost of all distribution and revenue-related costs. Continental is currently in negotiations with ExpressJet concerning the block hour rates for 2007 and other related matters. Continental has been unable to reach agreement on 2007 rates and has initiated binding arbitration as provided in the ExpressJet CPA.

 

Under the ExpressJet CPA, Continental has the right every three years, upon no less than 12 months’ notice to ExpressJet, to withdraw 25% of the then-remaining aircraft covered by the contract. In December 2005, Continental gave notice to ExpressJet that Continental would withdraw 69 of the 274 regional jet aircraft from the ExpressJet CPA because of Continental’s belief that the rates charged by ExpressJet for regional capacity are above the current market. The withdrawal of the 69 aircraft began in December 2006 and is expected to be completed in August 2007. Two aircraft had been withdrawn as of December 31, 2006. On May 5, 2006, ExpressJet notified Continental that it will retain all of the 69 regional jets (consisting of 44 ERJ-145XR and 25 ERJ-145 aircraft) covered by Continental’s withdrawal notice, as permitted by the ExpressJet CPA. Accordingly, ExpressJet must retain each of those 69 regional jets for the remaining term of the applicable underlying aircraft lease and, as each aircraft is withdrawn from the ExpressJet CPA, the implicit interest rate used to calculate the scheduled lease payments that ExpressJet will make to Continental under the applicable aircraft sublease will automatically increase by 200 basis points to compensate Continental for its continued participation in ExpressJet’s lease financing arrangements. The ExpressJet CPA currently expires on December 31, 2010, but allows Continental to terminate the agreement at any time upon 12 months’ notice, or at any time without notice for cause (as defined in the agreement). Continental may also terminate the agreement at any time upon a material breach by ExpressJet that does not constitute cause and continues for 90 days after notice of such breach, or without notice or opportunity to cure if it determines that there is a material safety concern with ExpressJet’s flight operations. Continental has the unilateral option to extend the term of the agreement with 24 months’ notice for up to four additional five year terms through December 31, 2030.

 

On July 21, 2006, Continental announced its selection of Chautauqua to provide and operate 44 50-seat regional jets as a Continental Express carrier to be phased in during 2007, under a new capacity purchase agreement (the “Chautauqua CPA”). Continental intends to use these aircraft to replace a portion of the capacity represented by the 69 regional jet aircraft being retained by ExpressJet. Under the Chautauqua CPA, Continental will schedule and market all of its Continental Express regional jet service provided thereunder. The Chautauqua CPA requires Continental to pay a fixed fee to Chautauqua, which is subject to specified reconciliations and annual escalations, for its operation of the aircraft. Chautauqua will supply the aircraft that it will operate under the agreement. The Chautauqua CPA has a five year term with respect to ten aircraft and an average term of 2.5 years for the balance of the aircraft. In addition, Continental has the unilateral right to extend the Chautauqua CPA on the same terms on an aircraft-by-aircraft basis for a period of up to five years in the aggregate for 20 aircraft and for up to three years in the aggregate for 24 aircraft, subject to the renewal terms of the related aircraft lease.

 

On February 5, 2007, Continental announced the selection of Colgan, a subsidiary of Pinnacle Airlines Corp., to operate 15 74-seat Bombardier Q400 twin-turboprop aircraft on short and medium-distance routes from New York Liberty starting in early 2008. Colgan will operate the flights as a Continental Connection carrier under a new capacity purchase agreement. Colgan will supply the aircraft that it will operate under the agreement. The agreement has a ten-year term.

 

The following summary describes the material terms of the Certificates. The summary does not purport to be complete and is qualified in its entirety by reference to all of the provisions of the Basic Agreement, which was filed with the Securities and Exchange Commission (the “Commission”) as an exhibit to the Company’s Current Report on Form 8-K dated September 25, 1997, and to all of the provisions of the Certificates, the Trust Supplements, the Deposit Agreements, the Escrow Agreements, the Intercreditor Agreement and the trust supplements applicable to the Successor Trusts, each of which will be filed as an exhibit to a Current Report on Form 8-K to be filed by Continental with the Commission.

 

Except as otherwise indicated, the following summary relates to each of the Trusts and the Certificates issued by each Trust. The references to Sections in parentheses in the following summary are to the relevant Sections of the Basic Agreement unless otherwise indicated.

 

Each Pass Through Certificate (collectively, the “Certificates”) will represent a fractional undivided interest in one of the three Continental Airlines 2007-1 Pass Through Trusts (the “Class A Trust”, the “Class B Trust”, and the “Class C Trust”, and, collectively, the “Trusts”). The Trusts will be formed pursuant to a pass through trust agreement between Continental and Wilmington Trust Company, as trustee (the “Trustee”), dated as of September 25, 1997 (the “Basic Agreement”), and three separate supplements thereto (each, a “Trust Supplement” and, together with the Basic Agreement, collectively, the “Pass Through Trust Agreements”) relating to such Trusts between Continental and the Trustee, as trustee under the Class A Trust (the “Class A Trustee”), trustee under the Class B Trust (the “Class B Trustee”) and trustee under the Class C Trust (the “Class C Trustee”). The Certificates to be issued by the Class A Trust, the Class B Trust and the Class C Trust are referred to herein as the “Class A Certificates”, the “Class B Certificates” and the “Class C Certificates”.

 

Each Certificate will represent a fractional undivided interest in the Trust created by the Basic Agreement and the applicable Trust Supplement pursuant to which such Certificate is issued. (Section 2.01) The Trust Property of each Trust (the “Trust Property”) will consist of:

 

 

The Certificates of each Trust will be issued in fully registered form only and will be subject to the provisions described below under “—Book Entry; Delivery and Form”. The Certificates will be issued only in minimum denominations of $1,000 or integral multiples thereof, except that one Certificate of each Trust may be issued in a different denomination. (Section 3.01)

The Certificates represent interests in the respective Trusts, and all payments and distributions thereon will be made only from the Trust Property of the related Trust. (Section 3.09) The Certificates do not represent an interest in or obligation of Continental, the Trustees or any of the Loan Trustees or any affiliate of any thereof.

 

Pursuant to the Escrow Agreement applicable to each Trust, the Certificateholders of such Trust as holders of the Escrow Receipts affixed to each Certificate are entitled to certain rights with respect to the Deposits relating to such Trust. Accordingly, any transfer of a Certificate will have the effect of transferring the corresponding rights with respect to the Deposits, and rights with respect to the Deposits may not be separately transferred by holders of the Certificates (the “Certificateholders”). Rights with respect to the Deposits and the Escrow Agreement relating to a Trust, except for the right to request withdrawals for the purchase of Equipment Notes, will not constitute Trust Property of such Trust.

 

Payments of interest on the Deposits with respect to each Trust and payments of principal, premium (if any) and interest on the Equipment Notes or with respect to other Trust Property held in each Trust will be distributed by the Paying Agent (in the case of the Deposits) or by the Trustee (in the case of Trust Property of such Trust) to Certificateholders of such Trust on the date receipt of such payment is confirmed, except in the case of certain types of Special Payments.

 

Interest

 

The Deposits held with respect to each Trust and the Equipment Notes held in each Trust will accrue interest at the applicable rate per annum for Certificates to be issued by such Trust set forth on the cover page of this Prospectus Supplement, payable on April 19 and October 19 of each year, commencing on October 19, 2007 (or, in the case of Equipment Notes issued after such date, commencing with the first April 19 or October 19 to occur after such Equipment Notes are issued). Such interest payments will be distributed to Certificateholders of such Trust on each such date until the final Distribution Date for such Trust, subject in the case of payments on the Equipment Notes to the Intercreditor Agreement. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months.

 

Payments of interest applicable to the Certificates to be issued by each of the Trusts (other than the Class C Trust) will be supported by a separate Liquidity Facility to be provided by the Liquidity Provider for the benefit of the holders of such Certificates in an aggregate amount sufficient to pay interest thereon at the Stated Interest Rate for such Trust on up to three successive Regular Distribution Dates (without regard to any future payments of principal on such Certificates), except that no Liquidity Facility will cover interest payable by the Depositary on the Deposits. The Liquidity Facility for any Class of Certificates does not provide for drawings or payments thereunder to pay for principal of or premium, if any, on the Certificates of such Class, any interest on the Certificates of such Class in excess of the Stated Interest Rate for such Trust, or, notwithstanding the subordination provisions of the Intercreditor Agreement, principal of or interest or premium, if any, on the Certificates of any other Class. Therefore, only the holders of the Certificates to be issued by a particular Trust will be entitled to receive and retain the proceeds of drawings under the Liquidity Facility for such Trust. See “Description of the Liquidity Facilities”. The Class C Certificates will not have the benefit of a liquidity facility.

 

Principal

 

Payments of principal of the Equipment Notes are scheduled to be received by the Trustee on April 19 and October 19 in certain years depending upon the terms of the Equipment Notes held in such Trust.

 

Scheduled payments of interest on the Deposits and of interest or principal on the Equipment Notes are herein referred to as “Scheduled Payments”, and April 19 and October 19 of each year, commencing on October 19, 2007, until the final expected Regular Distribution Date are herein referred to as “Regular Distribution Dates”. See “Description of the Equipment Notes—Principal and Interest Payments”. The “Final Maturity Date” for the Class A and B Certificates is October 19, 2023 and for the Class C Certificates is April 19, 2014.

Distributions

 

The Paying Agent with respect to each Escrow Agreement will distribute on each Regular Distribution Date to the Certificateholders of the Trust to which such Escrow Agreement relates all Scheduled Payments received in respect of the related Deposits, the receipt of which is confirmed by the Paying Agent on such Regular Distribution Date. The Trustee of each Trust will distribute, subject to the Intercreditor Agreement, on each Regular Distribution Date to the Certificateholders of such Trust all Scheduled Payments received in respect of Equipment Notes held on behalf of such Trust, the receipt of which is confirmed by the Trustee on such Regular Distribution Date. Each Certificateholder of each Trust will be entitled to receive its proportionate share, based upon its fractional interest in such Trust, of any distribution in respect of Scheduled Payments of interest on the Deposits relating to such Trust and, subject to the Intercreditor Agreement, of principal or interest on Equipment Notes held on behalf of such Trust. Each such distribution of Scheduled Payments will be made by the applicable Paying Agent or Trustee to the Certificateholders of record of the relevant Trust on the record date applicable to such Scheduled Payment subject to certain exceptions. (Sections 4.01 and 4.02; Escrow Agreements, Section 2.03) If a Scheduled Payment is not received by the applicable Paying Agent or Trustee on a Regular Distribution Date but is received within five days thereafter, it will be distributed on the date received to such holders of record. If it is received after such five-day period, it will be treated as a Special Payment and distributed as described below.

 

Any payment in respect of, or any proceeds of, any Equipment Note, or Collateral under (and as defined in) any Indenture other than a Scheduled Payment (each, a “Special Payment”) will be distributed on, in the case of an early redemption or a purchase of any Equipment Note, the date of such early redemption or purchase (which shall be a Business Day), and otherwise on the Business Day specified for distribution of such Special Payment pursuant to a notice delivered by each Trustee as soon as practicable after the Trustee has received funds for such Special Payment (each, a “Special Distribution Date”). Any such distribution will be subject to the Intercreditor Agreement. Any unused Deposits to be distributed after the Delivery Period Termination Date or the occurrence of a Triggering Event, together with accrued and unpaid interest thereon (each, also a “Special Payment”), will be distributed on a date 25 days after the Paying Agent has received notice of the event requiring such distribution (also, a “Special Distribution Date”). However, if such date is within ten days before or after a Regular Distribution Date, such Special Payment shall be made on such Regular Distribution Date.

 

“Triggering Event” means (x) the occurrence of an Indenture Default under all Indentures resulting in a PTC Event of Default with respect to the most senior Class of Certificates then outstanding, (y) the acceleration of all of the outstanding Equipment Notes (provided that during the Delivery Period the aggregate principal amount thereof exceeds $450 million) or (z) certain bankruptcy or insolvency events involving Continental.

 

Each Paying Agent, in the case of the Deposits, and each Trustee, in the case of Trust Property, will mail a notice to the Certificateholders of the applicable Trust stating the scheduled Special Distribution Date, the related record date, the amount of the Special Payment and the reason for the Special Payment. In the case of a redemption or purchase of the Equipment Notes held in the related Trust or any distribution of unused Deposits after the Delivery Period Termination Date or the occurrence of a Triggering Event, such notice will be mailed not less than 15 days prior to the date such Special Payment is scheduled to be distributed, and in the case of any other Special Payment, such notice will be mailed as soon as practicable after the Trustee has confirmed that it has received funds for such Special Payment. (Section 4.02(c); Trust Supplements, Section 3.03; Escrow Agreements, Sections 2.03 and 2.06) Each distribution of a Special Payment, other than a final distribution, on a Special Distribution Date for any Trust will be made by the Paying Agent or the Trustee, as applicable, to the Certificateholders of record of such Trust on the record date applicable to such Special Payment. (Section 4.02(b); Escrow Agreements, Section 2.03) See “—Indenture Defaults and Certain Rights Upon an Indenture Default” and “Description of the Equipment Notes—Redemption”.

 

Each Pass Through Trust Agreement requires that the Trustee establish and maintain, for the related Trust and for the benefit of the Certificateholders of such Trust, one or more non-interest bearing accounts (the “Certificate Account”) for the deposit of payments representing Scheduled Payments received by such Trustee. Each Pass Through Trust Agreement requires that the Trustee establish and maintain, for the related Trust and for the benefit of the Certificateholders of such Trust, one or more accounts (the “Special Payments Account”) for the deposit of payments representing Special Payments received by such Trustee, which shall be non-interest bearing except in

certain circumstances where the Trustee may invest amounts in such account in certain permitted investments. Pursuant to the terms of each Pass Through Trust Agreement, the Trustee is required to deposit any Scheduled Payments relating to the applicable Trust received by it in the Certificate Account of such Trust and to deposit any Special Payments so received by it in the Special Payments Account of such Trust. (Section 4.01; Trust Supplements, Section 3.02) All amounts so deposited will be distributed by the Trustee on a Regular Distribution Date or a Special Distribution Date, as appropriate. (Section 4.02; Trust Supplements, Section 3.03)

 

Each Escrow Agreement requires that the Paying Agent establish and maintain, for the benefit of the Receiptholders, one or more accounts (the “Paying Agent Account”), which shall be non-interest bearing. Pursuant to the terms of the Escrow Agreements, the Paying Agent is required to deposit interest on Deposits relating to a Trust and any unused Deposits withdrawn by the Escrow Agent in the related Paying Agent Account. All amounts so deposited will be distributed by the Paying Agent on a Regular Distribution Date or Special Distribution Date, as appropriate.

 

The final distribution for each Trust will be made only upon presentation and surrender of the Certificates for such Trust at the office or agency of the Trustee specified in the notice given by the Trustee of such final distribution. The Trustee will mail such notice of the final distribution to the Certificateholders of such Trust, specifying the date set for such final distribution and the amount of such distribution. (Trust Supplements, Section 7.01) See “—Termination of the Trusts” below. Distributions in respect of Certificates issued in global form will be made as described in “—Book Entry; Delivery and Form” below.

 

If any Distribution Date is a Saturday, Sunday or other day on which commercial banks are authorized or required to close in New York, New York, Houston, Texas or Wilmington, Delaware (any other day being a “Business Day”), distributions scheduled to be made on such Regular Distribution Date or Special Distribution Date will be made on the next succeeding Business Day, without additional interest.

 

The “Pool Balance” for each Trust or for the Certificates issued by any Trust indicates, as of any date, the original aggregate face amount of the Certificates of such Trust less the aggregate amount of all payments made in respect of the Certificates of such Trust or in respect of Deposits relating to such Trust other than payments made in respect of interest or premium or reimbursement of any costs or expenses incurred in connection therewith. The Pool Balance for each Trust or for the Certificates issued by any Trust as of any Distribution Date shall be computed after giving effect to any special distribution with respect to unused Deposits, payment of principal of the Equipment Notes or payment with respect to other Trust Property held in such Trust and the distribution thereof to be made on that date. (Trust Supplements, Section 2.01)

 

The “Pool Factor” for each Trust as of any Distribution Date is the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the original aggregate face amount of the Certificates of such Trust. The Pool Factor for each Trust or for the Certificates issued by any Trust as of any Distribution Date shall be computed after giving effect to any special distribution with respect to unused Deposits, payment of principal of the Equipment Notes or payments with respect to other Trust Property held in such Trust and the distribution thereof to be made on that date. (Trust Supplements, Section 2.01) The Pool Factor for each Trust will be 1.0000000 on the date of issuance of the Certificates; thereafter, the Pool Factor for each Trust will decline as described herein to reflect reductions in the Pool Balance of such Trust. The amount of a Certificateholder’s pro rata share of the Pool Balance of a Trust can be determined by multiplying the par value of the holder’s Certificate of such Trust by the Pool Factor for such Trust as of the applicable Distribution Date. Notice of the Pool Factor and the Pool Balance for each Trust will be mailed to Certificateholders of such Trust on each Distribution Date. (Trust Supplements, Section 3.01)

 

The following table sets forth the expected aggregate principal amortization schedule for the Equipment Notes held in each Trust (the “Assumed Amortization Schedule”) and resulting Pool Factors with respect to such Trust. The scheduled distribution of principal payments for any Trust would be affected if Equipment Notes with respect to any Aircraft are not acquired by such Trust, if any Equipment Notes held in such Trust are redeemed or purchased or if a default in payment on such Equipment Notes occurs. Accordingly, the aggregate principal amortization schedule applicable to a Trust and the resulting Pool Factors may differ from those set forth in the following table.