##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K

ANNUAL REPORT




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(Mark One)

|  |                                                     
|- | ----------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2002

OR



|  |                                                             
|- | ------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE

SECURITIES EXCHANGE ACT OF 1934


For the transition period from _______________
to

Commission file number 0-11350


INTERNATIONAL LEASE FINANCE
CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|California                                                         |  | 22-3059110                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|1999 Avenue of the Stars, Los Angeles,
    California              |  | 90067                                   
|(Address of principal executive
    offices)                       |  | (Zip Code)                              

Registrants telephone number, including
area code: (310) 788-1999

Securities registered pursuant to Section
12(b) of the Act:

|                                |  |                                          
|------------------------------- |  | -----------------------------------------
|Title of each class             |  | Name of each exchange on which registered
|                                |  |                                          
|6.375% Notes due March 15, 2009 |  | New York Stock Exchange                  

Securities registered pursuant to Section
12(g) of the Act:

NONE


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days. YESxNOo

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.x

Indicate by check mark whether the registrant
is an accelerated filer (as defined in Rule 12b-2 of the
Act). YESoNOx

As of June 28, 2002 and March 12,
2003, there were 35,818,122 and 42,198,119 shares of Common
Stock, no par value, respectively, outstanding, all of which
were held by affiliates.

Registrant meets the conditions set forth in
General Instruction I(1)(a) and (b) of Form 10-K and
is therefore filing this form with the reduced disclosure
format.



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TABLE OF CONTENTS



|            |                                                                                              |  |  |  |  |  |  | 
|----------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I     
|            | Item 1.Business                                                                             
|            | Item 2.Properties                                                                           
|            | Item 3.Legal Proceedings                                                                    
|PART II    
|            | Item 5.Market for Registrants Common Equity and Related Stockholder Matters                
|            | Item 6.Selected Financial Data                                                              
|            | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations
|            | Item 7A.Quantitative and Qualitative Disclosures About Market Risk                          
|            | Item 8.Financial Statements and Supplementary Data                                          
|            | Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART IV    
|            | Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES 
|EXHIBIT 4.8
|EXHIBIT 4.9
|EXHIBIT 12 
|EXHIBIT 23 



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##### Table of Contents



INTERNATIONAL LEASE FINANCE
CORPORATION

2002 FORM 10-K ANNUAL REPORT



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TABLE OF CONTENTS

|          |  |                                                                                           |  |      |    | 
|--------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|          |  |                                                                                           |  | Page
|          |  |                                                                                           |  |     
|PART I   
|Item  1.  |  | Business                                                                                  |  |      | 1  | 
|Item  2.  |  | Properties                                                                                |  |      | 8  | 
|Item  3.  |  | Legal Proceedings                                                                         |  |      | 10 | 
|PART II  
|Item  5.  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |  |      | 10 | 
|Item  6.  |  | Selected Financial Data                                                                   |  |      | 11 | 
|Item  7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |      | 12 | 
|Item  7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |  |      | 21 | 
|Item  8.  |  | Financial Statements and Supplementary Data                                               |  |      | 22 | 
|Item  9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |  |      | 22 | 
|PART III 
|Item 14.  |  | Controls and Procedures                                                                   |  |      | 22 | 
|PART IV  
|Item 15.  |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  |      | 22 | 



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PART I






Item 1. Business


General

International Lease Finance Corporation (the
Company) is primarily engaged in the acquisition of
new commercial jet aircraft and the leasing of those aircraft to
airlines throughout the world. In addition to its leasing
activity, the Company regularly sells aircraft from its leased
aircraft fleet and aircraft owned by others to third party
lessors and airlines and in some cases provides fleet management
services to these buyers. The Company, in terms of the number
and value of transactions concluded, is a major owner-lessor of
commercial jet aircraft.

As of December 31, 2002, the Companys
lease portfolio consisted of 543 owned aircraft, 13 leased by
the Company and subleased to others, and five aircraft
classified as finance leases. Additionally, the Company provided
fleet management services for 33 aircraft. See
Item 2. Properties  Flight
Equipment. At December 31, 2002, the Company had
committed to purchase 523 aircraft deliverable through 2010
at an estimated aggregate purchase price of $29.8 billion,
of which the Company currently anticipates taking delivery of 90
aircraft in 2003 with an estimated aggregate purchase price of
$4.4 billion. It also had options to purchase an additional
18 aircraft deliverable through 2008 at an estimated
aggregate purchase price of $1.3 billion. See
Item 2. Properties  Commitments.

The Company maintains the mix of flight equipment
to meet its customers needs and to minimize the time that
its aircraft are not leased to customers by purchasing those
models of new and used aircraft which it believes will have the
greatest airline demand and operational longevity.

The Company purchases, and finances the purchase
of, aircraft on terms intended to permit the Company to lease or
sell such aircraft at a profit. The Company typically finances
the purchase of aircraft with borrowed funds and internally
generated cash flow. The Company accesses the capital markets
for such funds at times and on terms and conditions it considers
appropriate. The Company may, but does not usually, engage in
financing transactions for specific aircraft. The Company relies
significantly on short- and medium-term financing, and thereby
attempts to manage interest rate exposure. To date, the Company
has been able to purchase aircraft on terms which have permitted
it to lease the aircraft at a profit and has been able to obtain
the necessary funding from the capital markets.

The Companys aircraft are usually leased on
terms under which the Company does not fully recover the
acquisition cost of such aircraft. Thus, at the termination of a
lease, the Company bears the risk of selling or re-leasing the
aircraft on terms which will cover its remaining cost.

The airline industry is cyclical, economically
sensitive and highly competitive. See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations. The Companys revenue and
income may be affected by political or economic instability,
terrorist activities, changes in national policy, competitive
pressures on certain air carriers, fuel shortages, labor
stoppages, recessions, competition from other leasing companies
and other political or economic events adversely affecting world
or regional trading markets or impacting a particular customer.
The Companys continued success is partly dependent on
managements ability in the future to develop customer
relationships for leasing, sales, remarketing and management
services with those airlines and other customers best able to
maintain their economic viability and survive in the competitive
environment in which they operate.

The Company is incorporated in the State of
California and its principal executive offices are located at
1999 Avenue of the Stars, Los Angeles, California 90067.
The Companys telephone, telecopier number and website
address are (310) 788-1999, (310) 788-1990, and
www.ilfc.com, respectively. The Company makes available its SEC
EDGAR filings, free of charge, on its website.

The Company is an indirect wholly owned
subsidiary of American International Group, Inc.
(AIG). AIG is a holding company which through its
subsidiaries is engaged in a broad range of insurance and
insurance-related activities in the United States and abroad.
AIGs primary activities include both general and

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life insurance operations. Other significant
activities include financial services and retirement savings and
asset management. The common stock of AIG is listed on, among
others, the New York Stock Exchange.


Aircraft Leasing

The initial term of the Companys current
leases range in length from one year to 15 years. See
Item 2. Properties  Flight Equipment
for information regarding scheduled lease terminations. Most of
the Companys leases are operating leases under which the
Company does not fully recover its aircraft cost and retains the
benefit and assumes the risk of the residual value of the
aircraft. The Company on occasion also enters into finance and
sales-type leases where the full cost of the aircraft is
substantially recovered over the term of the lease. At
December 31, 2002, five of the Companys leases were
accounted for as finance leases. The aircraft under operating
leases are included as Flight equipment on the Companys
balance sheet and depreciation is charged to income over the
estimated useful lives of the aircraft. In accordance with
generally accepted accounting principles, rentals are reported
ratably as revenue over the lease term as they are earned. The
Company attempts to maintain a mix of short- and medium-term
leases to balance the benefits and risks associated with
different lease terms and changing market conditions. Varying
lease terms mitigate the effects of changes in prevailing market
conditions at the time aircraft become eligible for re-lease or
sale and the uncertainty associated with the estimated residual
value of the aircraft at the end of the lease term.

All leases are on a net basis with
the lessee responsible for all operating expenses, which
customarily include fuel, crews, airport and navigation charges,
taxes, licenses, registration and insurance. In addition, normal
maintenance and repairs, airframe and engine overhauls, and
compliance with return conditions of flight equipment on lease
are provided by and paid for by the lessee. The Company may, in
connection with the lease of an aircraft, agree to contribute to
the cost of certain major overhauls depending on the condition
of the aircraft at delivery. Under the provisions of some
leases, for certain airframe and engine overhauls, the lessee is
reimbursed by the Company for costs incurred up to but not
exceeding related hourly rentals paid to the Company by the
lessee. Such rentals are included in the caption Rental of
flight equipment on the Companys Consolidated Statement of
Income. The Company provides a charge to operations for such
reimbursements based on the estimated reimbursements during the
life of the lease, which amount is included in Provision for
overhauls on the Companys Consolidated Statement of
Income. The lessee is responsible for compliance with all
applicable laws and regulations with respect to the aircraft.
The Company requires its lessees to comply with the standards of
either the Federal Aviation Administration (the FAA)
or its foreign equivalent. The Company makes periodic
inspections of the condition of its leased aircraft. Generally,
the Company requires a deposit which is security for the
condition of the aircraft upon return to the Company, the rental
payments by the lessee and the performance of other obligations
by the lessee under the lease. In addition, the leases contain
extensive provisions regarding the remedies and rights of the
Company in the event of a default by the lessee and specific
provisions regarding the condition of the aircraft upon return
of the aircraft to the Company. The lessee is required to
continue to make lease payments under all circumstances,
including periods during which the aircraft is not in operation
due to maintenance or grounding.

The Company obtains and reviews relevant business
materials from all prospective lessees and purchasers before
entering into a lease or extending credit. Under certain
circumstances, the Company may require the lessee to obtain
guarantees or other financial support from an acceptable
financial institution or other third party.

Flight Equipment Marketing

The Company also may dispose of its leased
aircraft at or before the expiration of their leases. The buyers
include the aircrafts lessee, another aircraft operator or
a third party lessor. Any gain or loss on disposition of leased
aircraft is included in the caption Flight equipment marketing.

From time to time, the Company also engages in
transactions to buy aircraft for resale. In other cases, the
Company assists its customers in acquiring or disposing of
aircraft through consulting services and procurement of
financing from third parties.

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In addition to its leasing and sales operations,
the Company is engaged, from time to time, as an agent for
airlines and various financial institutions in the disposition
of their surplus aircraft. The Company generally acts as an
agent under an exclusive remarketing contract whereby it agrees
to sell aircraft on a best efforts basis within a
fixed time period. These activities generally augment the
Companys primary activities and also serve to promote
relationships with prospective sellers and buyers of aircraft.
The Company may, from time to time, participate with banks,
airlines and other financial institutions to assist in financing
aircraft by providing asset guarantees, put options, or loan
guarantees collateralized by aircraft.

The Company plans to continue its remarketing
services on a selective basis involving specific situations
where these activities will not conflict or compete with, but
rather will be complementary to, its leasing and selling
activities.

Fleet Management Services

The Company provides fleet management services to
third party operating lessors who are unable or unwilling to
perform this service as part of their own operation. The Company
typically provides the same services that it performs for its
own fleet. Specifically, the Company provides leasing,
re-leasing and sales services on behalf of the lessor for which
the Company receives a fee.

Financing/Source of Funds

The Company purchases new aircraft directly from
manufacturers and used aircraft from airlines and other owners.
The Company finances the purchase price of flight equipment from
internally generated funds, secured and unsecured commercial
bank financings and the issuance of commercial paper, public and
private debt and preferred stock. See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations.

Customers

At December 31, 2002, the Company had
contracts to lease aircraft, and manage aircraft leased, to the
following airlines: (domestic) Alaska Airlines, American
Airlines, American Trans Air, America West, Continental
Airlines, Frontier Airlines, Hawaiian Airlines, Jet Blue
Airways, MN Airlines, North American Airlines, Omni Air,
Southwest Airlines, USA 3000 and World Airways; (foreign)
Aer Lingus, Aeris, Aero Continente, Aeroflot, Aero Lloyd,
Aeromexico, Aerosvit, Air 2000, Air Anatolia, Air Asia, Air
Astana, Air Atlanta Icelandic, Air Austral, Air Canada, Air
China, Air Europa, Air Europe SpA, Air France, Air Holland, Air
India, Air Jamaica, Air Luxor, Air Macau, Air Madagascar, Air
Malta, Air Mauritanie, Air Mauritius, Air Mediterranee, Air New
Zealand, Air Polonia, Air One, Air Plus Comet, Air Seychelles,
Air Tahiti NUI, Air Transat, Air Vanuatu, Alitalia, Asiana
Airlines, Austrian Airlines, Avianca, Belair, Braathens
S.A.F.E., Britannia Airways, British Midland Airways, Blue
Panorama, Blue Wings, BWIA, Cathay Pacific, China Airlines,
China Eastern Airlines, China Hainan Airlines, China Northwest,
China Southern Airlines, China Xinjiang, Cyprus Airways, Eagle
Aviation, Easy Jet, Emirates, Estonian Air, Euroatlantic
Airways, Eurocypria, Eurofly, Excel Airways, Finnair, Flash
Airlines, Garuda Indonesia, GOL Transportes Aeros, S.A.,
Hapag-Lloyd Flug, Hong Kong Dragon Airlines (Dragonair), Iberia,
Iberworld, Icelandair, Islandflug Icebird Airlines, Israir, JMC
Airlines, Jugoslovenski Aerotransport (JAT), KLM Royal Dutch
Airlines, KLM U.K. (BUZZ), Lauda Air Italy,
Lithuanian, Lloyd Aero Boliviano (LAB), Línea Aérea
Nacional Chile, Lotus Air, LTU Luftransport-Unternehmen,
Lufthansa, Malaysia Airlines, Malev, Mandarin Airlines, Mekong
Airlines, Meridiana, Mexicana, Middle East Airlines, MNG
Airlines, Norwegian, Olympic, Oman Air, Onur Air, Pegasus,
Polynesian Airlines, QANTAS, Region Air, Rio Sul, Royal
Jordanian, Sahara India Airlines, Shanghai, Shenzhen, Siberia
Airlines, Sichuan Airlines, Sky Airlines, Skymark, Skyservice
Airlines, South African, Southern Winds, Spanair, Star Airlines,
Sterling European, Swiss, TACV Cabo Verde, TAP Air Portugal,
Turk Hava Yollari (THY), Transaero, Transavia, Varig, Vietnam
Airlines, Virgin Atlantic Airways, Virgin Blue, Volare, Wuhan
Airlines, Xiamen Airlines and Yemenia. No single customer
accounted for more than 10% of total revenues in any of the last
three years.

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Revenues include rentals of flight equipment to
foreign airlines of $2,317,619,000 (2002), $2,173,778,000 (2001)
and $2,026,017,000 (2000) comprising 86.5%, 87.9% and 88.0%,
respectively, of total rentals of flight equipment. See Note J
of Notes to Consolidated Financial Statements.

The following table sets forth the dollar amount
and percentage of total rental revenues attributable to the
indicated geographic areas based on each airlines
principal place of business for the years indicated:

|                                     |  |                        |           |      |  |        |      |   |  |        |           |   |  |  |       |   |  |   |           |  |  |  |       |  
|------------------------------------ |  | ---------------------- | --------- | ---- |  | ------ | ---- | - |  | ------ | --------- | - |  |  | ----- | - |  | - | --------- |  |  |  | ----- | -
|                                     |  |                        |           |      |  |       
|                                     |  | 2002                   |           | 2001 |  | 2000  
|                                     |  |                        |           |      |  |       
|                                     |  | Amount                 |           | %    |  | Amount |      | % |  | Amount |           | %
|                                     |  |                        |           |      |  |        |      |   |  |        |           |  
|                                     |  |                       
|                                     |  | (Dollars in thousands)
|Europe                               |  | $                      | 1,236,123 |      |  |        | 46.2 | % |  | $      | 1,160,793 |   |  |  | 47.0  | % |  | $ | 1,054,783 |  |  |  | 45.8  | %
|Asia/Pacific                         |  |                        | 601,775   |      |  |        | 22.5 |   |  |        | 523,630   |   |  |  | 21.2  |   |  |   | 462,426   |  |  |  | 20.1  |  
|United States and Canada             |  |                        | 481,507   |      |  |        | 18.0 |   |  |        | 455,680   |   |  |  | 18.4  |   |  |   | 437,745   |  |  |  | 19.0  |  
|Central and South America and Mexico |  |                        | 202,688   |      |  |        | 7.5  |   |  |        | 199,026   |   |  |  | 8.0   |   |  |   | 229,438   |  |  |  | 10.0  |  
|Africa and the Middle East           |  |                        | 155,783   |      |  |        | 5.8  |   |  |        | 134,655   |   |  |  | 5.4   |   |  |   | 117,048   |  |  |  | 5.1   |  
|                                     |  |                        |           |      |  |        |      |   |  |        |           |   |  |  |       |   |  |   |           |  |  |  |       |  
|                                     |  | $                      | 2,677,876 |      |  |        | 100  | % |  | $      | 2,473,784 |   |  |  | 100.0 | % |  | $ | 2,301,440 |  |  |  | 100.0 | %
|                                     |  |                        |           |      |  |        |      |   |  |        |           |   |  |  |       |   |  |   |           |  |  |  |       |  

The following table sets forth revenue
attributable to individual countries representing at least 10%
of total revenue based on each airlines principal place of
business for the years indicated:

|               |  |                        |         |      |  |        |      |   |  |        |         |   |  |  |      |   |  |   |         |  |  |  |      |  
|-------------- |  | ---------------------- | ------- | ---- |  | ------ | ---- | - |  | ------ | ------- | - |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|               |  |                        |         |      |  |       
|               |  | 2002                   |         | 2001 |  | 2000  
|               |  |                        |         |      |  |       
|               |  | Amount                 |         | %    |  | Amount |      | % |  | Amount |         | %
|               |  |                        |         |      |  |        |      |   |  |        |         |  
|               |  |                       
|               |  | (Dollars in thousands)
|United States  |  | $                      | 360,257 |      |  |        | 13.5 |   |  | $      | 300,006 |   |  |  | 12.1 | % |  | $ | 275,423 |  |  |  | 12.0 | %
|United Kingdom |  |                        | 276,185 |      |  |        | 10.3 |   |  |        | 283,090 |   |  |  | 11.4 |   |  |   | 276,340 |  |  |  | 12.0 |  
|China          |  |                        | 282,776 |      |  |        | 10.6 |   |  |        | 265,871 |   |  |  | 10.8 |   |  |   | 251,372 |  |  |  | 10.9 |  

Many foreign countries have currency and exchange
laws regulating the international transfer of currencies. The
Company attempts to minimize its currency and exchange risks by
negotiating most of its aircraft leases and all of its sales
transactions in U.S. Dollars, and all guarantees obtained
to support various lease agreements are denominated for payment
in the same currency as the lease. The Company requires, as a
condition to any foreign transaction, that the lessee or
purchaser in a foreign country obtain the necessary approvals of
the appropriate government agency, finance ministry or central
bank for the remittance of all funds contractually owed to the
Company in U.S. Dollars. Some of the Companys leases are
negotiated in Euros to meet the needs of a growing number of
airlines. As the Euro to U.S. Dollar exchange rate fluctuates,
airlines interest in entering into Euro denominated lease
agreements will change. Once an airline and the Company agree to
the rental payment currency, it remains for the term of the
lease. The Company currently has sufficient Euro inflows from
leases and currency swaps to meet its Euro denominated debt
obligations. Therefore foreign currency risk has, to date, been
immaterial to the Company.

The Company has restructured leases with both
foreign and domestic lessees. Such restructurings have involved
the voluntary termination of leases prior to lease expiration,
the replacement of leased aircraft with smaller, less expensive
leased aircraft, the arrangement of subleases from the primary
lessee to another airline and the rescheduling of lease
payments. In some situations where the Company repossesses an
aircraft, it may decide to export the aircraft from the
lessees jurisdiction. In the majority of these situations,
the Company obtains the lessees cooperation and the return
and export of the aircraft is immediate. In some situations,
however, the lessees have not cooperated in returning aircraft,
in which case the Company has had to take legal action in the
appropriate jurisdictions which has delayed the ultimate return
and export of the aircraft. In addition, in connection with the
repossession of an aircraft, the Company may be required to pay
outstanding mechanics, airport and other operating liens
on the repossessed aircraft, which could include charges
relating to other aircraft operated by the lessee.

The Companys revenues and income may be
affected by political or economic instability, terrorist
activities, changes in national policy, competitive pressures on
certain air carriers, fuel shortages, labor stoppages,
recessions, competition from other leasing companies and other
political or economic events adversely affecting world or
regional trading markets or impacting a particular customer.

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As a result of the September 11, 2001
terrorist attacks on the United States, the general slowdown of
the worldwide economy, both before and after the attacks, and
world political unrest, many United States and international
commercial air carriers have reduced capacity, idled aircraft,
furloughed employees and initiated cost reduction programs and
some have filed for bankruptcy protection and/or ceased
operations. Many airlines still face significant economic
challenges. Air carriers are experiencing increased competition
from low cost carriers, a reduction in passenger traffic and an
actual or potential increase in costs, including insurance
premiums, fuel cost and security costs. These factors combined
with the potential for future terrorist attacks, the national
and international responses to terrorist attacks, and other acts
of war have created many economic and political uncertainties,
which could adversely affect the Companys business and
revenues in the short and long-term in ways that cannot
presently be predicted.

Competition

The leasing, remarketing and sale of jet aircraft
is highly competitive. The Company faces competition from
aircraft manufacturers, banks, financial institutions, other
leasing companies, aircraft brokers and airlines. Competition
for a leasing transaction is based on a number of factors
including delivery dates, lease rates, term of lease, extension
options, termination options, purchase options, aircraft
condition and the availability of the types of aircraft to meet
the needs of the customer. The Company believes it is a strong
competitor in all of these areas. However, overcapacity in the
current market place has increased competition from other
entities leasing aircraft and will cause continued downward
pressure on lease rates and lease revenue and, possibly,
aircraft values.

Government Regulation

The FAA and the U.S. Departments of
Transportation and State exercise regulatory authority over air
transportation in the United States.

The U.S. Departments of Transportation and State,
in general, have jurisdiction over the economic regulation of
air transportation, including the negotiation with foreign
governments of the rights of U.S. carriers to fly to other
countries and the rights of foreign carriers to fly to and
within the United States.

The FAA has regulatory jurisdiction over the
maintenance and operation of U.S. air carriers, the operation of
aircraft in the United States by foreign carriers and the
registration of aircraft in the United States. The FAA can
suspend or revoke the authority of U.S. air carriers or their
licensed personnel and can similarly revoke the authority of
foreign air carriers to operate within the United States for
failure to comply with FAA regulations. The FAA can also ground
aircraft if their airworthiness is in question.

In every foreign country, similar government
agencies regulate the countrys air carriers, the
operations of foreign airlines in the country and the
registration of aircraft. Like the FAA, the civil aviation
authority in a foreign country can suspend or revoke the
operating authority of an airline and ground aircraft for safety
reasons.

Since the Company does not itself operate its
aircraft for public transportation of passengers and property,
the Company is not directly subject to the regulatory
jurisdiction of the U.S. Departments of Transportation and State
or their counterpart organizations in foreign countries.

The Companys relationship with the FAA
consists of the registration with the FAA of those aircraft
which are leased by the Company to U.S. carriers and to a number
of foreign carriers where, by agreement, the aircraft are to be
registered in the United States. In limited circumstances, the
Company also obtains from the FAA, or its designated
representatives, a U.S. Certificate of Airworthiness for a
particular aircraft or a ferry flight permit.

The Companys involvement with the civil
aviation authorities of foreign jurisdictions consists largely
of requests to register and deregister the Companys
aircraft on lease to carriers in those countries.

The Company also works with U.S. Customs with
respect to the import and export of the Companys aircraft
into and from the United States for maintenance or lease.

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Employees

The Company is in a capital intensive rather than
a labor intensive business. As of December 31, 2002, the
Company had 124 full-time employees, which it considered
adequate for its business operations. The Company will expand
its management and administrative personnel, as necessary, to
meet future growth. None of the Companys employees is
covered by a collective bargaining agreement and the Company
believes that it has maintained excellent employee relations.
The Company provides certain employee benefits under plans
established by its parent, AIG, including retirement, health,
life, disability and accident insurance plans.

Insurance

The Company requires its lessees to carry those
types of insurance which are customary in the air transportation
industry, including comprehensive liability insurance and
aircraft hull insurance. In general, the Company is an
additional insured on liability policies carried by the lessees.
The Company obtains certificates of insurance from the
lessees insurance brokers. All certificates of insurance
contain a breach of warranty endorsement so that the interests
of the Company are not prejudiced by any act or omission of the
operator-lessee.

Insurance premiums are paid by the lessee, with
coverage acknowledged by the broker or carrier. The territorial
coverage is, in each case, suitable for the lessees area
of operations and the certificates of insurance contain, among
other provisions, a no co-insurance clause and a
provision prohibiting cancellation or material change without at
least 30 days advance written notice to the insurance
broker, who is obligated to give prompt notice to the Company.
Hull/war insurance policies customarily provide 7 days
advance written notice and may be subject to lesser notice under
certain market conditions. Furthermore, the insurance is primary
and not contributory and all insurance carriers are required to
waive rights of subrogation against the Company.

The stipulated loss value schedule under aircraft
hull insurance policies is on an agreed value basis acceptable
to the Company, which usually exceeds the book value of the
aircraft. In cases where the Company believes that the agreed
value stated in the lease is not sufficient, the Company
purchases additional Total Loss Only coverage for the
deficiency. Aircraft hull policies contain standard clauses
covering aircraft engines. All deductibles are required to be
paid by the lessee. Furthermore, the aircraft hull policies
contain full war risk endorsements, including, but not limited
to, confiscation (where available), seizure, hijacking and
similar forms of retention or terrorist acts. Lease agreements
generally require liability limits to be in U.S. Dollars, which
are shown on the certificate of insurance.

The comprehensive liability insurance listed on
certificates of insurance include provisions for bodily injury,
property damage, passenger liability, cargo liability and such
other provisions reasonably necessary in commercial passenger
and cargo airline operations. Such certificates of insurance
list combined comprehensive single liability limits of not less
than $250 million. As a result of the terrorist attacks on
September 11, 2001, the insurance market unilaterally
imposed a sublimit on each operators policy for third
party war risk liability in the amount of $50 million. The
Company requires each lessee to purchase higher limits of third
party war risk liability or obtain an indemnity from their
government. Additionally, all aircraft in the Companys
fleet are covered by contingent liability insurance and
contingent hull insurance.

The Company also maintains other insurance
covering the specific needs of its business operations.
Insurance policies are generally placed or reinsured through AIG
subsidiaries, with costs allocated back to the Company. The
Company believes that its insurance is adequate both as to
coverage and amount.

Forward-Looking Statements

This annual report on Form 10-K contains or
incorporates statements that constitute forward-looking
statements. Those statements appear in a number of places in
this Form 10-K and include statements regarding, among
other matters, the state of the airline industry, the
Companys access to the capital markets, the Companys
ability to restructure leases and repossess aircraft, the
structure of the Companys leases, regulatory matters
pertaining to compliance with governmental regulations and other
factors affecting the

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##### Table of Contents



Companys financial condition or results of
operations. Words such as expects,
anticipates, intends, plans,
believes, seeks, estimates,
and should and variations of these words and similar
expressions, are used in many cases to identify these
forward-looking statements. Any such forward-looking statements
are not guarantees of future performance and involve risks,
uncertainties and other factors that may cause actual results,
performance or achievements of the Company or industry results
to vary materially from the Companys future results,
performance or achievements, or those of the industry, expressed
or implied in such forward-looking statements. Such factors
include, among others, general industry economic and business
conditions, which will, among other things, affect demand for
aircraft, availability and creditworthiness of current and
prospective lessees, lease rates, availability and cost of
financing and operating expenses, governmental actions and
initiatives and environmental and safety requirements. The
Company will not update any forward-looking information to
reflect actual results or changes in the factors affecting the
forward-looking information.


7



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##### Table of Contents






Item 2. Properties

Flight Equipment

The Companys management frequently reviews
opportunities to acquire suitable commercial jet aircraft based
not only on market demand and customer airline requirements, but
also on the Companys fleet portfolio mix criteria and
planning strategies for leasing. Before committing to purchase
specific aircraft, the Company takes into consideration factors
such as estimates of future values, potential for remarketing,
trends in supply and demand for the particular type, make and
model of aircraft and engines, and anticipated obsolescence. As
a result, certain types and vintages of aircraft do not
necessarily fit the profile for inclusion in the Companys
portfolio of aircraft owned and used in its leasing operations.

At December 31, 2002, all of the
Companys fleet was Stage III compliant, meaning that the
aircraft hold or are capable of holding a noise certificate
issued under Chapter 3 of Volume 1, Part II of
Annex 16 of the Chicago Convention or have been shown to
comply with the Stage III noise levels set out in
Section 36.5 of Appendix C of Part 36 of the
Federal Aviation Regulations of the United States. At
December 31, 2002, the average age of the Companys
aircraft was 4.92 years.

The following table shows the scheduled lease
terminations (for the minimum noncancelable period) by aircraft
type for the Companys operating lease portfolio at
December 31, 2002:

|                |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |     | 
|--------------- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ----- |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | --- | 
|Aircraft Type   |  | 2003 |    | 2004 |  | 2005 |    | 2006 |  | 2007 |    | 2008 |  | 2009 |    | 2010 |  | 2011 |    | 2012 |  | 2013 |    | 2014 |  | 2015 |    | 2016 |  | 2017 |    | Total
|                |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      
|737-300/400/500 |  |      | 5  |      |  |      | 13 |      |  |      | 20 |      |  |      | 15 |      |  |      | 11 |      |  |      | 7  |      |  |      | 3  |      |  |      |    |       |  |  |    |  |  |  | 4  |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 78  | 
|737-700/800     |  |      |    |      |  |      | 1  |      |  |      | 5  |      |  |      | 7  |      |  |      | 13 |      |  |      | 7  |      |  |      | 5  |      |  |      | 9  |       |  |  | 11 |  |  |  | 10 |  |  |  |    |  |  |  | 1 |  |  |  |   |  |  |  | 6 |  |  |  | 6 |  |  |  | 81  | 
|757-200         |  |      | 1  |      |  |      | 6  |      |  |      | 16 |      |  |      | 8  |      |  |      | 19 |      |  |      | 8  |      |  |      |    |      |  |      | 2  |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 60  | 
|767-200         |  |      |    |      |  |      |    |      |  |      |    |      |  |      | 3  |      |  |      | 1  |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 4   | 
|767-300         |  |      | 5  |      |  |      | 7  |      |  |      | 12 |      |  |      | 8  |      |  |      | 7  |      |  |      | 8  |      |  |      | 4  |      |  |      |    |       |  |  |    |  |  |  | 1  |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 52  | 
|777-200         |  |      |    |      |  |      | 4  |      |  |      | 2  |      |  |      |    |      |  |      | 3  |      |  |      | 2  |      |  |      | 2  |      |  |      |    |       |  |  | 2  |  |  |  | 3  |  |  |  | 3  |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 21  | 
|777-300         |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      | 1  |      |  |      | 1  |      |  |      |    |      |  |      | 3  |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 5   | 
|747-300         |  |      | 2  |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 2   | 
|747-400         |  |      |    |      |  |      |    |      |  |      | 4  |      |  |      |    |      |  |      | 1  |      |  |      | 4  |      |  |      | 4  |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 13  | 
|MD-83           |  |      |    |      |  |      | 1  |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 1   | 
|DC10-30         |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      | 2  |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 2   | 
|MD-11           |  |      |    |      |  |      |    |      |  |      | 3  |      |  |      | 3  |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 6   | 
|A300-600R       |  |      |    |      |  |      |    |      |  |      | 2  |      |  |      | 1  |      |  |      | 2  |      |  |      | 1  |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 6   | 
|A310-300        |  |      |    |      |  |      | 2  |      |  |      | 2  |      |  |      | 1  |      |  |      |    |      |  |      | 2  |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 7   | 
|A319            |  |      |    |      |  |      |    |      |  |      | 8  |      |  |      | 7  |      |  |      | 1  |      |  |      | 3  |      |  |      | 4  |      |  |      |    |       |  |  | 3  |  |  |  | 7  |  |  |  |    |  |  |  | 2 |  |  |  | 1 |  |  |  |   |  |  |  |   |  |  |  | 36  | 
|A320            |  |      | 12 |      |  |      | 9  |      |  |      | 8  |      |  |      | 15 |      |  |      | 3  |      |  |      | 1  |      |  |      | 9  |      |  |      |    |       |  |  | 1  |  |  |  | 11 |  |  |  | 5  |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 74  | 
|A321            |  |      | 6  |      |  |      | 9  |      |  |      | 3  |      |  |      | 6  |      |  |      | 8  |      |  |      | 4  |      |  |      | 6  |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 42  | 
|A330-200        |  |      |    |      |  |      | 4  |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      | 5  |      |  |      | 15 |      |  |      |    |       |  |  | 2  |  |  |  | 8  |  |  |  | 2  |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 36  | 
|A330-300        |  |      | 1  |      |  |      | 2  |      |  |      | 5  |      |  |      | 2  |      |  |      |    |      |  |      | 1  |      |  |      | 1  |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 12  | 
|A340            |  |      | 2  |      |  |      | 3  |      |  |      | 2  |      |  |      | 4  |      |  |      | 3  |      |  |      |    |      |  |      | 1  |      |  |      | 2  |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 17  | 
|                |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |     | 
|Total           |  |      | 34 |      |  |      | 61 |      |  |      | 92 |      |  |      | 80 |      |  |      | 73 |      |  |      | 56 |      |  |      | 54 |      |  |      | 16 |       |  |  | 19 |  |  |  | 44 |  |  |  | 10 |  |  |  | 3 |  |  |  | 1 |  |  |  | 6 |  |  |  | 6 |  |  |  | 555 | 




This schedule includes 13 aircraft leased by
the Company and subleased to others and excludes one aircraft
which was not subject to lease at December 31, 2002 but was
subsequently leased. As of March 20, 2003, 24 of the 34
aircraft with lease expiration dates during 2003 had been
extended or leased to other customers.

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##### Table of Contents



Commitments

At December 31, 2002, the Company had
committed to purchase the following new and used aircraft at an
estimated aggregate purchase price (including adjustment for
anticipated inflation) of approximately $29.8 billion for
delivery as shown:

|                      |       |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  |     |     | 
|--------------------- | ----- | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ----- | -- | -- |  |  | -- | -- |  |  | -- | -- |  |  | - | - |  |  | --- | --- | 
|Aircraft Type         |       | 2003 |    | 2004 |  | 2005 |    | 2006 |  | 2007 |    | 2008 |  | 2009 |    | 2010 |  | Total
|                      |       |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      
|737-600/700/800(a)(c) |       |      | 31 |      |  |      | 25 |      |  |      | 22 |      |  |      | 23 |      |  |       | 23 |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 124 |    
|767-300(b)            |       |      |    |      |  |      |    |      |  |      | 1  |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 1   |    
|777-200               |       |      | 3  |      |  |      | 5  |      |  |      | 5  |      |  |      | 5  |      |  |       | 3  |    |  |  | 2  |    |  |  | 3  |    |  |  |   |   |  |  | 26  |    
|777-300               |       |      | 3  |      |  |      | 4  |      |  |      | 1  |      |  |      | 1  |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 9   |    
|747-400               |       |      | 2  |      |  |      | 2  |      |  |      |    |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 4   |    
|MD-11(b)              |       |      | 2  |      |  |      |    |      |  |      |    |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 2   |    
|A310-200/300(b)       |       |      | 4  |      |  |      |    |      |  |      |    |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 4   |    
|A318-100(d)           |       |      |    |      |  |      |    |      |  |      | 3  |      |  |      | 5  |      |  |       | 5  |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 13  |    
|A319-100(c)           |       |      | 14 |      |  |      | 18 |      |  |      | 20 |      |  |      | 16 |      |  |       | 13 |    |  |  | 14 |    |  |  | 6  |    |  |  |   |   |  |  | 101 |    
|A320-200(c)           |       |      | 12 |      |  |      | 15 |      |  |      | 17 |      |  |      | 18 |      |  |       | 19 |    |  |  | 22 |    |  |  | 10 |    |  |  |   |   |  |  | 113 |    
|A321-200(c)           |       |      | 6  |      |  |      | 9  |      |  |      | 10 |      |  |      | 9  |      |  |       | 9  |    |  |  | 11 |    |  |  | 5  |    |  |  |   |   |  |  | 59  |    
|A330-200(c)           |       |      | 7  |      |  |      | 5  |      |  |      | 8  |      |  |      | 8  |      |  |       | 7  |    |  |  | 9  |    |  |  |    |    |  |  |   |   |  |  | 44  |    
|A330-300              |       |      |    |      |  |      | 1  |      |  |      |    |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 1   |    
|A340-300              |       |      | 4  |      |  |      |    |      |  |      |    |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 4   |    
|A340-500/600(a)(c)    |       |      | 2  |      |  |      | 2  |      |  |      | 3  |      |  |      | 2  |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 9   |    
|A380-100(c)           |       |      |    |      |  |      |    |      |  |      |    |      |  |      | 1  |      |  |       | 1  |    |  |  | 2  |    |  |  | 3  |    |  |  | 2 |   |  |  | 9   |    
|                      |       |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  |     |    
|                      | Total |      |    | 90   |  |      |    | 86   |  |      |    | 90   |  |      |    | 88   |  |       |    | 80 |  |  |    | 60 |  |  |    | 27 |  |  |   | 2 |  |  |     | 523 | 
|                      |       |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |       |    |    |  |  |    |    |  |  |    |    |  |  |   |   |  |  |     |    






|    |                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The Company has the right to designate the size
    of the aircraft within the specific model type at specific dates
    prior to contractual delivery.                                                                                                                                                           
|   
|(b) | Commitment is to acquire used aircraft.                                                                                                                                                                                                                                                                           
|   
|(c) | Subsequent to December 31, 2002, the Company
    cancelled one B737-700 for delivery in 2004, one A330-200 for
    delivery in 2008 and two A340-600 for delivery in 2005. The
    Company also deferred one A319, one A320 and one A321 deliveries
    from 2004 to 2006 and one A380 delivery from 2006 to 2008.
|   
|(d) | Under the terms of the contract with Airbus, the
    Company intends to exercise its right to redesignate these
    aircraft to other aircraft types.                                                                                                                                                             

At December 31, 2002, the Company had
options to purchase the following aircraft at an estimated
aggregate purchase price (including adjustment for anticipated
inflation) of approximately $1.3 billion for delivery as
shown:

|              |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |   |  |  |   |   |  |  |  |   |  |  |  |   |  |  |   |    | 
|------------- | ----- | ---- |  | ---- |  | ---- | - | ---- |  | ---- | - | ---- |  | ---- | - | ---- |  | ----- | - | - |  |  | - | - |  |  |  | - |  |  |  | - |  |  | - | -- | 
|Aircraft Type |       | 2003 |  | 2004 |  | 2005 |   | 2006 |  | 2007 |   | 2008 |  | 2009 |   | 2010 |  | Total
|              |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |      |  |      
|737/700/800   |       |      |  |      |  |      | 1 |      |  |      | 1 |      |  |      | 2 |      |  |       | 3 |   |  |  |   |   |  |  |  |   |  |  |  |   |  |  | 7 |   
|777-200/300   |       |      |  |      |  |      |   |      |  |      | 1 |      |  |      | 1 |      |  |       | 3 |   |  |  | 1 |   |  |  |  |   |  |  |  |   |  |  | 6 |   
|A318-100      |       |      |  |      |  |      |   |      |  |      | 1 |      |  |      | 1 |      |  |       |   |   |  |  |   |   |  |  |  |   |  |  |  |   |  |  | 2 |   
|A330-200      |       |      |  |      |  |      |   |      |  |      | 1 |      |  |      |   |      |  |       |   |   |  |  |   |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|A340-500/600  |       |      |  |      |  |      |   |      |  |      |   |      |  |      | 1 |      |  |       |   |   |  |  |   |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|A380-100      |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |      |  |       | 1 |   |  |  |   |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|              |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |   |  |  |   |   |  |  |  |   |  |  |  |   |  |  |   |   
|              | Total |      |  | 0    |  |      |   | 1    |  |      |   | 4    |  |      |   | 5    |  |       |   | 7 |  |  |   | 1 |  |  |  | 0 |  |  |  | 0 |  |  |   | 18 | 
|              |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |   |  |  |   |   |  |  |  |   |  |  |  |   |  |  |   |   

Management anticipates that a significant portion
of such aggregate purchase price will be funded by incurring
additional debt. The exact amount of the indebtedness to be
incurred will depend upon the actual purchase price of the
aircraft, which can vary due to a number of factors, including
inflation, and the percentage of the purchase price of the
aircraft which must be financed. See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations.

9



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##### Table of Contents



The aircraft listed above are being purchased
pursuant to master agreements with each of The Boeing Company
(Boeing) and AVSA, S.A.R.L., the sales subsidiary of
Airbus Industrie (Airbus). These agreements
establish the pricing formulas (which include certain price
adjustments based upon inflation and other factors) and various
other terms with respect to the purchase of aircraft. Under
certain circumstances, the Company has the right to alter the
mix of aircraft type ultimately acquired. As of
December 31, 2002, the Company had made non-refundable
deposits (exclusive of capitalized interest) with respect to the
aircraft which the Company has committed to purchase of
approximately $610 million and $407 million with
Boeing and Airbus, respectively.

As of March 20, 2003, after taking into
consideration deferrals and cancellations, the Company had
entered into contracts for the lease of 86 of the
90 aircraft to be delivered in 2003, 51 of the
82 aircraft to be delivered in 2004, 16 of the
88 aircraft to be delivered in 2005, 6 of the
90 aircraft to be delivered in 2006 and 5 of the
169 aircraft to be delivered subsequent to 2006. The
Company will need to find customers for aircraft presently on
order and not subject to contract and any new aircraft ordered
and will need to arrange financing for portions of the purchase
price of such equipment. Although the Company has been
successful to date in placing its new aircraft on lease and has
been able to obtain adequate financing in the past, there can be
no assurance as to the future continued availability of lessees
or of sufficient amounts of financing on terms acceptable to the
Company.

Facilities

The Companys principal offices are located
at 1999 Avenue of the Stars, Los Angeles, California.
The Company occupies space under leases which expire in 2005. As
of December 31, 2002, the Company occupied approximately
54,000 square feet of office space. The leases provide for
annual rentals of approximately $3,000,000, and the rental
payments thereunder are subject to certain indexed escalation
provisions. The Company signed a lease for approximately 127,000
square feet of office space at 10250 Constellation Avenue,
Los Angeles, California starting in the fourth quarter,
2003. The lease provides for average annual rent of
approximately $9,000,000 beginning in 2004. The Company is
actively seeking subleases for its currently leased office space.




Item 3. Legal
Proceedings

The Company is not a party to any significant
legal proceedings.




PART II




Item 5. Market for Registrants Common
Equity and Related Stockholder Matters

The Company is indirectly wholly owned by AIG and
the Companys common stock is not listed on any national
exchange or traded in any established market. During the years
ended December 31, 2002, 2001 and 2000, the Company paid
cash dividends to its parent company of $26,000,000,
$83,500,000, and $206,000,000, respectively. It is the intent of
the Company to pay its parent company an annual dividend of at
least 7% of net income subject to the dividend preference of any
preferred stock outstanding. Under the most restrictive
provisions of the Companys borrowing arrangements,
consolidated retained earnings at December 31, 2002 in the
amount of $1,238,697,000 were unrestricted as to the payment of
dividends. In 2002 the Company cancelled 40 shares of
Series A Preferred Stock in the amount of $400 million
owned by AIG and issued 3,951,398 shares of common stock for the
value of the cancelled Series A Preferred Stock and
2,428,599 shares for $250 million.

10



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##### Table of Contents






Item 6. Selected Financial
Data

The following table summarizes selected
consolidated financial data and certain operating information of
the Company. The selected consolidated financial data should be
read in conjunction with the Consolidated Financial Statements
and notes thereto and Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K.

|                                                                              |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |     | 
|----------------------------------------------------------------------------- | ------------------------ | ----------------------------- | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | ---------- | --- |  | - | ---------- | --- |  | - | ---------- | --- | 
|                                                                              |                          |                              
|                                                                              |                          | Years Ended December 31,     
|                                                                              |                          |                              
|                                                                              |                          | 2002                          |            | 2001 |  | 2000 |            | 1999 |  | 1998
|                                                                              |                          |                               |            |      |  |      |            |      |  |     
|                                                                              |                          |                              
|                                                                              |                          | (Dollar amounts in thousands)
|Operating Data:                                                               |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |    
|Rentals of flight equipment                                                   |                          | $                             | 2,677,876  |      |  | $    | 2,473,784  |      |  | $    | 2,301,440  |     |  | $ | 2,080,555  |     |  | $ | 1,853,983  |    
|Flight equipment marketing                                                    |                          |                               | 66,315     |      |  |      | 62,883     |      |  |      | 99,716     |     |  |   | 147,216    |     |  |   | 118,183    |    
|Interest and other income                                                     |                          |                               | 104,718    |      |  |      | 80,046     |      |  |      | 77,589     |     |  |   | 72,317     |     |  |   | 73,500     |    
|Total revenues                                                                |                          |                               | 2,848,909  |      |  |      | 2,616,713  |      |  |      | 2,478,745  |     |  |   | 2,300,088  |     |  |   | 2,045,666  |    
|Expenses                                                                      |                          |                               | 2,055,606  |      |  |      | 1,862,994  |      |  |      | 1,772,552  |     |  |   | 1,596,683  |     |  |   | 1,483,392  |    
|Income before income taxes and cumulative effect
    of accounting change     |                          |                               | 793,303    |      |  |      | 753,719    |      |  |      | 706,193    |     |  |   | 703,405    |     |  |   | 562,274    |    
|Net income                                                                    |                          |                               | 531,123    |      |  |      | 507,866    |      |  |      | 468,901    |     |  |   | 453,447    |     |  |   | 369,352    |    
|Lease margin(a)                                                               |                          |                               | 23.24%     |      |  |      | 24.69%     |      |  |      | 22.98%     |     |  |   | 23.26%     |     |  |   | 19.99%     |    
|Operating margin(b)                                                           |                          |                               | 27.85%     |      |  |      | 28.80%     |      |  |      | 28.49%     |     |  |   | 30.58%     |     |  |   | 27.49%     |    
|Ratio of Earnings to Fixed Charges and
    Preferred Stock Dividends(c):      |                          |                               | 1.74x      |      |  |      | 1.75x      |      |  |      | 1.68x      |     |  |   | 1.75x      |     |  |   | 1.60x      |    
|Balance Sheet Data:                                                           |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |    
|Flight equipment under operating leases (net of
    accumulated depreciation) |                          | $                             | 25,287,747 |      |  | $    | 20,983,197 |      |  | $    | 17,878,389 |     |  | $ | 16,096,053 |     |  | $ | 14,872,430 |    
|Net investment in finance and sales-type leases                               |                          |                               | 150,611    |      |  |      | 142,013    |      |  |      | 114,062    |     |  |   | 56,555     |     |  |   | 89,904     |    
|Total assets                                                                  |                          |                               | 27,490,613 |      |  |      | 23,167,290 |      |  |      | 19,701,478 |     |  |   | 17,507,124 |     |  |   | 16,379,632 |    
|Total debt                                                                    |                          |                               | 18,977,267 |      |  |      | 15,826,296 |      |  |      | 13,436,181 |     |  |   | 11,861,796 |     |  |   | 11,184,010 |    
|Shareholders equity                                                          |                          |                               | 4,561,162  |      |  |      | 3,963,675  |      |  |      | 3,463,779  |     |  |   | 3,210,192  |     |  |   | 2,844,375  |    
|Other Data:                                                                   |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |    
|Aircraft lease portfolio at period end(d):                                    |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |    
|                                                                              | Owned                    |                               |            | 543  |  |      |            | 453  |  |      |            | 383 |  |   |            | 338 |  |   |            | 329 | 
|                                                                              | Leased in                |                               |            | 13   |  |      |            | 18   |  |      |            | 19  |  |   |            | 19  |  |   |            | 20  | 
|                                                                              | Subject to finance lease |                               |            | 5    |  |      |            | 4    |  |      |            | 3   |  |   |            | 2   |  |   |            | 3   | 
|Aircraft sold or remarketed during the period                                 |                          |                               | 8          |      |  |      | 7          |      |  |      | 20         |     |  |   | 51         |     |  |   | 31         |    



---



|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Rentals of flight equipment less Expenses,
    divided by Rentals of flight equipment. See Item 7,
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations.
|   
|(b) | Income before income taxes and cumulative effect
    of accounting change divided by Total revenues.                                                                                               

(c) See Exhibit 12.

(d) See Item 2.
Properties  Flight Equipment.

11



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##### Table of Contents






Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations

Industry Condition

The Company receives its revenue principally from
airlines and companies associated with the airline industry. The
airline industry is cyclical, economically sensitive and highly
competitive. Airlines and related companies may be affected by
political or economic instability, terrorist activities, changes
in national policy, competitive pressures on certain air
carriers, fuel shortages, labor stoppages, insurance cost,
recessions, and other political or economic events adversely
affecting world or regional trading markets. As such, the
Companys revenues and income will be affected by its
customers ability to react to and cope with the volatile
competitive environment in which they operate as well as the
Companys own competitive environment.

From time to time, certain of the Companys
customers have experienced economic difficulties resulting in
the Companys participation in customer restructurings.
Such restructurings have involved the voluntary early
termination of leases, the replacement of leased aircraft with
smaller, less expensive leased aircraft, the arrangement of
subleases from the primary lessee to another airline and the
rescheduling of payments. In addition, in certain circumstances,
the Company has repossessed aircraft.

As a result of the September 11, 2001
terrorist attacks on the United States, the general slowdown of
the worldwide economy, both before and after the attacks, and
world political unrest, many United States and international
commercial air carriers have reduced capacity, idled aircraft,
furloughed employees and initiated cost reduction programs and
some have filed for bankruptcy protection and/or ceased
operations. As a result, many airlines still face significant
economic challenges. Air carriers are experiencing increased
competition from low cost carriers, a reduction in passenger
traffic and an actual or potential increase in costs, including
insurance premiums, fuel cost and security costs. These factors
combined with the potential for future terrorist attacks, the
national and international responses to terrorist attacks, and
other acts of war have created many economic and political
uncertainties, which could adversely affect the Companys
business and revenues in the short and long-term in ways that
cannot presently be predicted.

The effects of the worsening economic conditions,
participation in customer restructurings and requirements to
re-lease aircraft from airlines which have ceased operations
during 2001 and 2002 had a negative impact on the Companys
results of operations in 2002. During 2002, one of the
Companys customers, Sun Country (5 aircraft), filed
for protection under Chapter 11 of the United States
Bankruptcy Code and two of the Companys customers, Delsey
Airlines (3 aircraft) and National Airlines
(2 aircraft), ceased operation. The Company subsequently
placed all of the aircraft previously leased to those airlines
with other airlines. On March 21, 2003, two of the
Companys customers, Avianca (1 aircraft) and Hawaiian
Airlines (4 aircraft) filed for protection under
Chapter 11 of the United States Bankruptcy Code. Lease
Margin (Rentals of flight equipment less total expense, divided
by Rentals of flight equipment (as a percentage)) is a measure
by which the Company evaluates the overall profitability of its
leasing operations. The Company experienced a decrease in its
Lease Margin during 2002 due to the factors mentioned above.
Management believes that this trend will likely continue until
economic conditions and the global political environment
stabilize and improve.

Critical Accounting Policies and
Estimates

The Companys discussion and analysis of its
financial condition and results of operations are based upon the
Companys consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of
these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates, including those
related to revenue, depreciation, overhaul reserves, and
contingencies. The Company bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances. The results form the
basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions and conditions.

12



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##### Table of Contents



The Company believes the following are the
Companys critical accounting policies, some of which
require significant judgments and estimates, used in the
preparation of the consolidated financial statements.

Lease Revenue: The
Company, as lessor, leases flight equipment principally under
operating leases and reports income over the life of the lease
as rentals become receivable under the provisions of the lease
to the extent of amounts received or deposits held. When the
lease has varying payments, revenue is recorded under the
straight-line method over the noncancelable term of the lease.

Flight Equipment
Marketing: The Company markets flight
equipment and recognizes this revenue when the equipment is sold
and the risk of ownership of the equipment is passed to the new
owner.

Flight Equipment:
Flight equipment is stated at cost. Purchases, major additions,
capitalized interest and modifications are capitalized. Normal
maintenance and repairs, airframe and engine overhauls and
compliance with return conditions of flight equipment returned
from lease are provided for and paid for by the lessee.
Generally, aircraft are depreciated using the straight-line
method over a 25 year life from the date of manufacture to
a 15% residual value. At the time assets are retired or sold,
the cost and accumulated depreciation are removed from the
related accounts and the difference, net of proceeds, is
recorded as a gain or loss. ILFC management is very active in
the airline industry and reviews quarterly issues affecting the
Companys fleet, including events and circumstances that
may affect impairment of aircraft values (e.g. residual value,
useful life and current and future revenue generating capacity).
Management evaluates aircraft in the fleet, as necessary, based
on these events and circumstances in accordance with Statement
of Financial Accounting Standard No. 144.
(SFAS 144).

Capitalized
Interest: The Company borrows funds to
finance progress payments for the construction of flight
equipment ordered. The Company estimates the interest incurred
on such borrowings. This amount is capitalized and included in
the cost of the equipment.

Provision for
Overhauls: Under the provisions of
some leases, the Company receives overhaul rentals based on the
usage of the aircraft. For certain airframe and engine
overhauls, the lessee is reimbursed by the Company for costs
incurred up to, but not exceeding, related overhaul rentals paid
to the Company by the lessee for usage of the aircraft.

Overhaul rentals are included under the caption
Rental of flight equipment. The Company provides a charge to
operations for reimbursements at the time the overhaul rentals
are paid by the lessee, based on overhaul rentals received and
the estimated reimbursements during the life of the lease. The
Company periodically evaluates its reserve for these
reimbursements and its reimbursement rate, and then adjusts the
provision for overhauls accordingly.

Financial Condition

The Company borrows funds to purchase new and
used flight equipment (see Item 2.
Properties  Commitments), including funds for
progress payments during the construction phase, and to pay off
existing debt obligations as they mature. These funds are
borrowed principally on an unsecured basis from various sources.
During 2002, the Company borrowed $5.7 billion (excluding
commercial paper) and $1.8 billion was provided by
operating activities to meet those needs. As of
December 31, 2002, the Company had committed to purchase
523 aircraft from Boeing and Airbus at an estimated aggregate
purchase price of approximately $29.8 billion for delivery
through 2010, of which the Company currently anticipates taking
delivery of 90 aircraft in 2003 with an estimated aggregate
purchase price of $4.4 billion. It also had options to
purchase 18 additional aircraft deliverable through 2008 at an
estimated aggregate purchase price of approximately
$1.3 billion. Subsequent to year end, the Company cancelled
four of the aircraft it had committed to purchase. The Company
currently expects to fund expenditures for capital requirements
as well as liquidity needs from a combination of available cash
balances, internally generated funds and financing arrangements.
At Decem-

13



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##### Table of Contents



ber 31, 2002, 2001 and 2000, the
Companys debt financing and capital lease obligations were
comprised of the following:


|                                                 |                                                              |                        |           |            |  |      |           |            |  |   |           |            | 
|------------------------------------------------ | ------------------------------------------------------------ | ---------------------- | --------- | ---------- |  | ---- | --------- | ---------- |  | - | --------- | ---------- | 
|                                                 |                                                              | 2002                   |           | 2001       |  | 2000
|                                                 |                                                              |                        |           |            |  |     
|                                                 |                                                              |                       
|                                                 |                                                              | (Dollars in thousands)
|Public term debt with single maturities          |                                                              | $                      | 7,475,775 |            |  | $    | 4,796,330 |            |  | $ | 3,471,330 |           
|Public medium-term notes with varying maturities |                                                              |                        | 4,969,500 |            |  |      | 4,809,000 |            |  |   | 3,175,000 |           
|Capital lease obligations                        |                                                              |                        | 260,623   |            |  |      | 365,289   |            |  |   | 463,362   |           
|Bank term debt                                   |                                                              |                        | 2,084,793 |            |  |      | 2,368,969 |            |  |   | 2,072,562 |           
|                                                 |                                                              |                        |           |            |  |      |           |            |  |   |           |           
|                                                 | Total term debt, bank debt and
    capital lease obligations |                        |           | 14,790,691 |  |      |           | 12,339,588 |  |   |           | 9,182,254  | 
|Commercial paper                                 |                                                              |                        | 4,218,504 |            |  |      | 3,501,865 |            |  |   | 4,288,681 |           
|Less: Deferred debt discount                     |                                                              |                        | (31,928   | )          |  |      | (15,157   | )          |  |   | (34,754   | )         
|                                                 |                                                              |                        |           |            |  |      |           |            |  |   |           |           
|                                                 | Debt financing and capital lease obligations                 |                        | $         | 18,977,267 |  |      | $         | 15,826,296 |  |   | $         | 13,436,181 | 
|                                                 |                                                              |                        |           |            |  |      |           |            |  |   |           |           
|Composite interest rate                          |                                                              |                        | 4.73%     |            |  |      | 5.07%     |            |  |   | 6.37%     |           
|Percentage of total debt at fixed rate           |                                                              |                        | 76.67%    |            |  |      | 78.81%    |            |  |   | 68.65%    |           
|Composite interest rate on fixed debt            |                                                              |                        | 5.69%     |            |  |      | 5.78%     |            |  |   | 6.20%     |           
|Bank prime rate                                  |                                                              |                        | 4.25%     |            |  |      | 4.75%     |            |  |   | 9.50%     |           

The above amounts represent the Companys
anticipated settlement of its currently outstanding debt
obligations. Certain adjustments required to present currently
outstanding debt obligations have been recorded and presented
separately on the face of the balance sheet, including
adjustments related to foreign currency and interest rate
hedging activities. Composite interest rates and percentage of
total debt at fixed rate reflect the effect of derivative
instruments.

Public Debt

The interest on substantially all of the public
debt (exclusive of the commercial paper) is fixed for the term
of the note.

The Company has the ability to borrow under
various public debt financing arrangements as follows:

|                                                                                                     |  |                       |       |                   |  |                |       |     |  |   |       |    
|---------------------------------------------------------------------------------------------------- |  | --------------------- | ----- | ----------------- |  | -------------- | ----- | --- |  | - | ----- | ---
|                                                                                                     |  | Maximum               |       | Sold              |  | Sold          
|                                                                                                     |  | Offering              |       | December 31, 2002 |  | March 20, 2003
|                                                                                                     |  |                       |       |                   |  |               
|                                                                                                     |  |                      
|                                                                                                     |  | (Dollars in millions)
|Registration statement dated December 31,
    2002 (including $2.0 billion Medium-Term Note program) |  | $                     | 6,080 | (a)               |  | $              |      |     |  | $ | 2,326 |    
|Euro Medium-Term Note Programme dated May 2002                                                       |  |                       | 4,000 | (b)               |  |                | 2,314 | (c) |  |   | 2,314 | (c)






|    |                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes $1.08 billion, which was
    incorporated into the registration statement from a prior
    registration statement, increasing the maximum offering from
    $5.0 billion to $6.08 billion. The Company increased
    the Medium-Term Note program to $2 billion in the first
    quarter of 2003.
|   
|(b) | The Company increased its Euro Medium-Term Note
    Programme during the second quarter of 2002 from
    $2.0 billion to $4.0 billion, under which an
    additional
    1.25 billion
    and £300 million in notes were sold as of
    December 31, 2002.                                               
|   
|(c) | The Company has hedged the foreign currency risk
    of the notes through operating lease payments or derivatives.                                                                                                                                                                                        

14



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##### Table of Contents



Capital Lease Obligations

The Company has Export Credit Lease financings
which provide ten year, amortizing loans in the form of capital
lease obligations. The interest rate on 62.5% of the original
financed amount is 6.55% and the interest rate on 22.5% of the
original financed amount is fixed at rates varying between 6.18%
and 6.89%. These two tranches are guaranteed by various European
Export Credit Agencies.

Bank Term Debt

In January 1999, the Company entered into an
Export Credit Facility, up to a maximum of $4.3 billion,
for approximately 75 aircraft to be delivered through 2001.
The Company had the right, but was not required, to use the
facility to fund 85% of each aircrafts purchase price.
This facility is guaranteed by various European Export Credit
Agencies. The Company financed 62 aircraft with
$2.8 billion under this facility over ten years with
interest rates from 5.753% to 5.898%. The debt is collateralized
by a pledge of the shares of a subsidiary of the Company which
holds title to the aircraft financed under the facility.

Commercial Paper

The Company currently has a $4.8 billion
Commercial Paper Program. Under this program, the Company may
borrow in minimum increments of $100,000 for a period from one
day to 270 days. Notwithstanding the programs size,
it is the Companys intention to sell commercial paper not
to exceed one and a half times the aggregate amount of the
backup facilities available (see Bank Commitments). The weighted
average interest rate of the Companys Commercial Paper
Program was 1.46%, 4.10%, and 6.41% at December 31, 2002,
2001, and 2000, respectively.

Bank Commitments

As of December 31, 2002, the Company had
committed revolving loans and lines of credit with
20 commercial banks aggregating $3.15 billion. These
revolving loans and lines of credit principally provide for
interest rates that vary according to the pricing option in
effect at the time of borrowing. Pricing options include prime,
a range from .25% over LIBOR to .35% over LIBOR based upon
utilization, or a rate determined by a competitive bid process
with the banks. The revolving loans and lines of credit are
subject to facility fees of up to .10% of amounts available. In
addition, the facilities are subject to facility fees of up to
..10% of amounts available. This financing is used primarily as
backup for the Companys Commercial Paper program.

Off Balance Sheet Arrangements

In 1995, 1996 and 1997, the Company, through
subsidiaries, entered into sale-leaseback transactions providing
proceeds to the Company in the amounts of $413.0 million,
$507.6 million and $601.9 million, respectively, each
relating to seven aircraft. The transactions resulted in the
sale and leaseback of these aircraft under one year operating
leases, each with six one year extension options for a total of
seven years for each aircraft. The Company has not recorded any
gains related to the transactions. The Company has the option to
either buy back the aircraft or redeliver the aircraft for a fee
to the lessor at the end of any lease period. The lease rates
equate to fixed principal amortization and floating interest
payments based on LIBOR or commercial paper pricing. The Company
had repurchased three aircraft before the lease termination,
which were sold to third parties, and five aircraft when the
1995 sale-leaseback transactions expired in December 2002. If
the Company does not negotiate extensions of the one year
operating lease terms as they expire in September 2003 and 2004,
it will be required to borrow additional funds to terminate the
transactions and reacquire the assets. The estimated remaining
minimum lease payments (exclusive of the interest component of
rent) and buy-back amounts, assuming the contractual end of the
transactions are $390,810,000 (2003) and $462,391,000 (2004). As
discussed under New Accounting Pronouncements, FASB
Interpretation No. 46 may result in the consolidation of
these entities, starting in the third quarter of 2003. If the
Company is required to consolidate these entities, it expects to
record assets and liabilities of approximately $810 million
and will cease to record rent expense for the operating leases.
The Company does not have any other

15



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##### Table of Contents



relationships with unconsolidated entities, which
would have been established for the purpose of facilitating
off-balance sheet arrangements or for other contractually narrow
or limited purposes. The Company has, however, from time to time
established subsidiaries, entered into joint ventures or created
other partnership arrangements with the limited purpose of
leasing aircraft or facilitating borrowing arrangements.


Derivatives

In the normal course of business, the Company
employs a variety of derivative products to manage its exposure
to interest rates and the resulting impact of changes in
interest rates on earnings, with the objective to lower its
overall borrowing cost and to maintain its optimal mix of
variable and fixed rate interest obligations. The Company only
enters into derivative transactions to hedge interest rate risk
and currency risk and not to speculate on interest rates or
currency fluctuations. These derivative products include
interest rate swap agreements, currency swap agreements, and
interest rate floors.

The counterparty to the Companys derivative
instruments is AIG Financial Products Corp. (AIGFP),
a related party with the highest ratings available from the
credit rating agencies, who enters into identical transactions
with independent third parties. The derivatives are subject to a
bilateral security agreement which, in certain circumstances,
may allow one party to the agreement to require the second party
to the agreement to provide collateral. Failure of the
instruments or counterparty to perform under the derivative
contracts could have a material impact on the Companys
results of operations.

Common and Preferred Stock

The Company received $400.0 million from AIG for
the issuance of Series A Preferred Stock and repurchased $250.0
million at its Market Auction Preferred Stock during the year
ended December 31, 2001.

During the year ended December 31, 2002, the
Company repurchased $50.0 million of its Market Auction
Preferred Stock, cancelled $400.0 million of its
Series A Preferred Stock and issued 3,951,398 shares
of its common stock for the value of the cancelled Series A
Preferred Stock and 2,428,599 shares of its common stock
for $250 million. AIG has no obligation to contribute
additional equity to the Company.

Market Liquidity Risks

The Company is in compliance with all covenants
or other requirements set forth in its credit agreements.
Further, the Company does not have any rating downgrade triggers
that would accelerate the maturity dates of its debt. However, a
downgrade in the Companys credit rating could adversely
affect the Companys ability to borrow on, renew existing,
or obtain access to new financing arrangements and would
increase the cost of such financing arrangements. For example, a
downgrade in credit rating could preclude the Company from
issuing commercial paper under its current program.

Turmoil in the airline industry and continued
political unrest in the Middle East have led to increased
uncertainty in the debt markets in which the Company borrows
funds. While the Company has been able to borrow the funds
necessary to finance operations in the current market
environment, additional turmoil in the airline industry or
political environment could limit the Companys ability to
borrow funds from its current funding sources. Should this occur
the Company would seek alternative sources of funding, including
securitizations, manufacturers financings, drawings upon
its revolving loans and lines of credit facilities or additional
short term borrowings. If the Company was unable to obtain
sufficient funding, it would negotiate with manufacturers to
defer deliveries of aircraft.

16



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##### Table of Contents



The following summarizes the Companys
contractual obligations at December 31, 2002, and the
possible effect of such obligations on the Companys
liquidity and cash flows in future periods.

Existing Commitments (Exclusive of
Interest)

|                                                            |  |                         |            |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  |   |           | 
|----------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | --------- | ---- |  | ---------- | --------- |  |  | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                            |  |                        
|                                                            |  | Commitments Due by Year
|                                                            |  |                        
|                                                            |  | Total                   |            | 2003 |  | 2004 |            | 2005 |  | 2006 |           | 2007 |  | Thereafter
|                                                            |  |                         |            |      |  |      |            |      |  |      |           |      |  |           
|                                                            |  |                        
|                                                            |  | (Dollars in thousands) 
|Medium Term and Long Term Debt                              |  | $                       | 14,530,068 |      |  | $    | 3,680,673  |      |  | $    | 3,200,624 |      |  | $          | 1,960,549 |  |  | $ | 1,234,174 |  |  | $ | 2,608,424 |  |  | $ | 1,845,624 | 
|Capital Lease Obligations                                   |  |                         | 260,623    |      |  |      | 111,746    |      |  |      | 105,194   |      |  |            | 43,683    |  |  |   |          |  |  |   |          |  |  |   |          | 
|Commercial Paper                                            |  |                         | 4,218,504  |      |  |      | 4,218,504  |      |  |      |          |      |  |            |          |  |  |   |          |  |  |   |          |  |  |   |          | 
|Operating Leases                                            |  |                         | 128,045    |      |  |      | 5,411      |      |  |      | 11,336    |      |  |            | 11,485    |  |  |   | 8,575     |  |  |   | 8,918     |  |  |   | 82,320    | 
|Operating Leases under Sales-Lease-Back
    Transactions(a) |  |                         | 853,201    |      |  |      | 390,810    |      |  |      | 462,391   |      |  |            |          |  |  |   |          |  |  |   |          |  |  |   |          | 
|Purchase Commitments                                        |  |                         | 29,816,400 |      |  |      | 4,430,700  |      |  |      | 4,824,700 |      |  |            | 4,982,100 |  |  |   | 5,021,800 |  |  |   | 4,332,100 |  |  |   | 6,225,000 | 
|                                                            |  |                         |            |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  |   |           | 
|Total                                                       |  | $                       | 49,806,841 |      |  | $    | 12,837,844 |      |  | $    | 8,604,245 |      |  | $          | 6,997,817 |  |  | $ | 6,264,549 |  |  | $ | 6,949,442 |  |  | $ | 8,152,944 | 
|                                                            |  |                         |            |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  |   |           | 

Contingent Commitments

|                                 |  |                                |           |      |  |      |         |      |  |      |         |      |  |            |         |  |  |   |         |  |  |   |         |  |  |   |         | 
|-------------------------------- |  | ------------------------------ | --------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---------- | ------- |  |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                 |  |                               
|                                 |  | Contingency Expiration by Year
|                                 |  |                               
|                                 |  | Total                          |           | 2003 |  | 2004 |         | 2005 |  | 2006 |         | 2007 |  | Thereafter
|                                 |  |                                |           |      |  |      |         |      |  |      |         |      |  |           
|                                 |  |                               
|                                 |  | (Dollars in thousands)        
|Purchase Options on New Aircraft |  | $                              | 1,287,200 |      |  | $    |        |      |  | $    | 36,600  |      |  | $          | 295,100 |  |  | $ | 248,400 |  |  | $ | 567,100 |  |  | $ | 140,000 | 
|Put Options(b)                   |  |                                | 821,384   |      |  |      | 231,614 |      |  |      | 117,800 |      |  |            | 256,658 |  |  |   |        |  |  |   |        |  |  |   | 215,312 | 
|Asset Value Guarantees(b)        |  |                                | 264,850   |      |  |      | 198,161 |      |  |      | 4,726   |      |  |            | 11,041  |  |  |   | 8,178   |  |  |   |        |  |  |   | 42,744  | 
|Loan Guarantees(b)               |  |                                | 40,139    |      |  |      | 25,815  |      |  |      | 493     |      |  |            | 3,000   |  |  |   | 6,000   |  |  |   |        |  |  |   | 4,831   | 
|Lines of Credit                  |  |                                | 20,000    |      |  |      | 20,000  |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|                                 |  |                                |           |      |  |      |         |      |  |      |         |      |  |            |         |  |  |   |         |  |  |   |         |  |  |   |         | 
|Total                            |  | $                              | 2,433,573 |      |  | $    | 475,590 |      |  | $    | 159,619 |      |  | $          | 565,799 |  |  | $ | 262,578 |  |  | $ | 567,100 |  |  | $ | 402,887 | 
|                                 |  |                                |           |      |  |      |         |      |  |      |         |      |  |            |         |  |  |   |         |  |  |   |         |  |  |   |         | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes the repurchase of six aircraft in 2003
    and seven aircraft in 2004.                                                                                                                                                                                                                                                                                                                        
|   
|(b) | From time to time the Company participates with
    banks, airlines and other financial institutions to assist in
    financing aircraft by providing asset guarantees, put options,
    or loan guarantees collateralized by aircraft. As a result,
    should the Company be called upon to fulfill its obligations,
    the Company would have recourse to the value of the underlying
    aircraft.

Results of Operations

Revenues from the rentals of flight equipment
increased 8.25% to $2,677.9 million in 2002 compared to
$2,473.8 million in 2001 and $2,301.4 million in 2000 due
to an increase in the number of aircraft available for operating
lease, partially offset by an increase in the number of aircraft
being reconfigured and redelivered and therefore not earning
revenues for some part of the year. Revenues were also
negatively impacted by lower lease rates and restructured rents,
as a result of the slowdown in the airline industry that was
exacerbated after the September 11, 2001 terrorist attacks.
At December 31, 2002 the Companys fleet, on which it
earns rental revenue, consisted of 556 aircraft compared to
471 at December 31, 2001 and 402 at December 31, 2000.
The cost of the leased fleet, which includes aircraft subject to
sale-leaseback transactions from which rental income is earned,
increased to $30.6 billion in 2002 from $25.8 billion in
2001 and $22.0 billion in 2000.

The Companys Lease Margin (lease revenue
less total expenses divided by lease revenue (as a percentage))
decreased 1.5% to 23.2% in 2002 compared to 24.7% in 2001. In
2001, the Lease Margin had

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increased 1.7% from 23.0% in 2000. Lease rates
and interest rates are the two components in determining Lease
Margin which are subject to the most uncertainty and are
therefore the principal causes for the fluctuations in the Lease
Margin. Lease rates are impacted by the current interest rate
market as operating leases are a form of financing. Lease rates
are also impacted by demand for a particular aircraft type to
fit the airlines requirements for capacity and efficiency
compounded by the availability of those aircraft in the market
place.


The Companys Lease Margin has been
favorably impacted by the downward trend in interest rates
during 2002 and 2001. The benefit of these interest rate
reductions has been offset by decreasing lease rates on returned
and redelivered aircraft at lower lease rates than previously
earned. Idle and excess aircraft in the market place has
increased competition for the lease of aircraft. The Company
expects that this downward pressure on lease rates will continue
to impact Lease Margin as the effects of restructurings,
repossessions and releases are realized in lease rates and until
the market for aircraft stabilizes. Further, as interest rates
are at historically low levels, the Company expects that the
Lease Margin will experience further downward pressure as
current interest rates climb. The Company experienced low Lease
Margins in the mid-nineties, which resulted from the lingering
impacts on lease rates from leases negotiated around the time of
the Gulf War, compounded by a high interest environment and
higher leverage. Due to the varying terms of the Companys
leases and borrowings, the effects of events and circumstances
which cause changes in lease rates and interest rates in the
current market place, may not fully materialize in the
Companys results of operations for three to five years.

ILFC Historical Lease Margin

LOGO

|     |  |                         |       | 
|---- |  | ----------------------- | ----- | 
|     |  | Historical Lease Margin
|     |  |                        
|1992 |  |                         | 22.96 | 
|1993 |  |                         | 20.30 | 
|1994 |  |                         | 19.68 | 
|1995 |  |                         | 13.55 | 
|1996 |  |                         | 14.32 | 
|1997 |  |                         | 17.36 | 
|1998 |  |                         | 19.99 | 
|1999 |  |                         | 23.26 | 
|2000 |  |                         | 22.98 | 
|2001 |  |                         | 24.69 | 
|2002 |  |                         | 23.24 | 



In addition to its leasing operations, the
Company engages in the marketing of flight equipment throughout
the lease term, as well as the sales of flight equipment on a
principal and commission basis. Revenue from flight equipment
marketing was $66.3 million in 2002, $62.9 million in
2001 and $99.7 million in 2000. The fluctuations are due to
the different types and the number of the flight equipment
marketed in each period and a downturn in the market for flight
equipment. The Company sold 8 aircraft during 2002 compared
to 7 in 2001 and 20 in 2000. In addition, the Company sold
7 engines during 2002, compared to 5 engines during 2001
and 7 engines during 2000.

Interest expense increased to $846.4 million
in 2002 from $792.6 million in 2001 and $773.5 million
in 2000, as a result of an increase in debt outstanding, to
finance aircraft acquisitions, to $19.0 billion in 2002, to
$15.8 billion in 2001 and $13.4 billion in 2000
(excluding the effect of debt discount and foreign exchange

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adjustments). This increase was partially offset
by a decrease in the average composite borrowing rate to 4.9% in
2002 from 5.7% in 2001 and 6.3% in 2000. The Companys
composite borrowing rate fluctuated as follows:


ILFC Composite Interest Rates and Prime
Rate

LOGO

|       |  |                    |      |                           |  |            |      |  |  |  |      | 
|------ |  | ------------------ | ---- | ------------------------- |  | ---------- | ---- |  |  |  | ---- | 
|       |  | Composite-All Debt |      | Composite-Fixed-Rate Debt |  | Prime Rate
|       |  |                    |      |                           |  |           
|Dec-99 |  |                    | 6.14 |                           |  |            | 6.06 |  |  |  | 8.5  | 
|Mar-00 |  |                    | 6.12 |                           |  |            | 6    |  |  |  | 9    | 
|Jun-00 |  |                    | 6.33 |                           |  |            | 6.13 |  |  |  | 9.5  | 
|Sep-00 |  |                    | 6.38 |                           |  |            | 6.15 |  |  |  | 9.5  | 
|Dec-00 |  |                    | 6.37 |                           |  |            | 6.2  |  |  |  | 9.5  | 
|Mar-01 |  |                    | 5.92 |                           |  |            | 6.13 |  |  |  | 8    | 
|Jun-01 |  |                    | 5.49 |                           |  |            | 5.93 |  |  |  | 6.75 | 
|Sep-01 |  |                    | 5.21 |                           |  |            | 5.88 |  |  |  | 6    | 
|Dec-01 |  |                    | 5.07 |                           |  |            | 5.78 |  |  |  | 4.75 | 
|Mar-02 |  |                    | 4.93 |                           |  |            | 5.77 |  |  |  | 4.75 | 
|Jun-02 |  |                    | 5.03 |                           |  |            | 5.76 |  |  |  | 4.75 | 
|Sep-02 |  |                    | 4.95 |                           |  |            | 5.74 |  |  |  | 4.75 | 
|Dec-02 |  |                    | 4.73 |                           |  |            | 5.69 |  |  |  | 4.25 | 



The Company adopted SFAS 133 on
January 1, 2001 (see notes to the consolidated financial
statements). The transition adjustment in the amount of
$15.2 million is accounted for as the cumulative effect of
an accounting change. Interest expense for the year ended
December 31, 2002 and 2001 include a benefit of
$4.8 million and $0.6 million, respectively, related
to hedging activities.

Depreciation of flight equipment increased to
$954.2 million in 2002 from $802.8 million in 2001 and
$705.7 million in 2000 due to an increase in the
depreciable base of the fleet. The depreciable base of flight
equipment (which excludes aircraft subject to sale-leaseback)
during the same periods increased to $29.6 billion at
December 31, 2002 from $24.4 billion in 2001 and
$20.5 billion in 2000.

Provisions for overhauls decreased to
$90.7 million in 2002 from $94.4 million in 2001 and
$104.5 million in 2000 due to the cumulative effect of
favorable payout factors realized. Further, the Company
experienced lower overhaul revenue collections as a result of an
increase in restructured overhaul payments, a slowdown in the
economy, and in some cases lower aircraft utilization.

Flight equipment rent decreased to
$75.4 million in 2002, from $108.0 million in 2001 and
$141.0 million in 2000 due to a change in the lease rates
resulting from changes in interest rates, affecting the floating
rate component of the lease rates, and the repurchase of three
aircraft. One facility including five aircraft matured in
December 2002 and the Company repurchased the related five
aircraft. The Company, through subsidiaries, has sale-leaseback
transactions relating to 13 aircraft as of
December 31, 2002.

Selling, general and administrative expenses
increased to $88.9 million in 2002 compared to
$65.2 million in 2001 and $47.9 million in 2000
primarily due to an increase in costs related to the
reconfiguration and re-delivery of aircraft from one lessee to
another.

The effective tax rate was 33.1% in 2002, 34.6%
in 2001 and 33.6% in 2000. The Companys effective tax rate
fluctuates as a result of the effect of state taxes, foreign
taxes and benefits related to the Companys foreign

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sales corporation. During 2002, the Company
revalued its state deferred taxes based on a standalone
California apportionment factor as determined by AIG. This
revaluation reduced the effective tax rate by 1.8%.


The Company performed an impairment review of all
aircraft in its fleet as of December 31, 2002, in
accordance with SFAS 144. No impairments have been
recognized related to aircraft, as the existing service
potential of the aircraft in the Companys portfolio has
not been diminished. Further, the Company has been able to
re-lease the aircraft without diminution in lease rates to an
extent that would warrant an impairment write down.

Accumulated other comprehensive income changed
$(87,991) to $(138,620) in 2002 compared to $(50,629) in 2001
primarily due to a change in the Euro exchange rate to the U.S.
Dollar. See Note L  Financial Instruments.

New Accounting Pronouncements

In April 2002, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 145 (SFAS 145),
Recission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. In addition to amending or rescinding other
existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability
under changed conditions, SFAS 145 precludes companies from
recording gains and losses from the extinguishment of debt as an
extraordinary item. SFAS 145 is effective for financial
statements issued after May 15, 2002.

In June 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting
for Costs Associated with Exit or Disposal Activities,
(SFAS 146) which addresses financial accounting
and reporting for costs associated with exit or disposal
activities. Under SFAS 146, such costs will be recognized
when the liability is incurred, rather than at the date of
commitment to an exit plan. SFAS 146 is effective for exit
or disposal activities that are initiated after
December 31, 2002, with early application permitted.

In October 2002, the FASB issued Statement
of Financial Accounting Standards No. 147,
Acquisitions of Certain Financial Institutions, an
amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9, (SFAS 147)
which addresses accounting for purchases of certain financial
institutions. SFAS 147 is effective October 1, 2002,
with early application permitted.

In December 2002, the FASB issued Statement
of Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement
No. 123, (SFAS 148) which provides alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure
requirements of FASB Statement No. 123 to require prominent
disclosure in both annual and interim financial statements about
the method of accounting for stock-based employee compensation
and the effect of the method used on reported results.

The above mentioned statements are not applicable
to the Companys activities as of December 31, 2002
and have no impact on its results of operations, financial
conditions or cash flows.

On November 25, 2002, the FASB issued FASB
Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure requirements
for Guarantees, including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Statements No. 5,
57 and 107 and Recission of FASB interpretation No. 34.
FIN 45 elaborates on existing disclosures of guarantees and
clarifies when a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions are effective on a
prospective basis for guarantees that are issued or modified
after December 31, 2002 and the disclosure requirements are
effective for financial statements of interim or annual periods
that end after December 15, 2002. The Company adopted FIN
45 as of December 31, 2002 and it had no impact on its
financial position.

On January 15, 2003, the FASB issued
Interpretation No. 46 (FIN 46)
Consolidation of Variable Interest Entities.
FIN 46 requires a company to consolidate a Variable
Interest Entity if the company is

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determined to be the primary beneficiary of that
entity, even if the Company does not have a majority of voting
interest. A Variable Interest Entity is generally defined as an
entity where its equity is unable to finance its activities, or
where the owners of the entity lack the risk and rewards of
ownership. The provisions of this interpretation apply to any
entity created after January 31, 2003. For an entity
created before February 1, 2003 the provisions of this
interpretation must be applied at the beginning of the first
interim or annual period beginning after June 15, 2003. The
Company will adopt the interpretation in the third quarter of
2003. The Company is currently investigating the impact
FIN 46 will have on its financial position. The Company is
reviewing entities that may be considered Variable Interest
Entities and in which the Company may have a Variable Interest
as defined by FIN 46. The Company has not determined the
possible impact of the consolidation of these entities due to
the analysis and data collections effort required to apply the
requirements of FIN 46. The Company believes that the
potential liabilities that may need to be recorded as a result
of the Companys Variable Interest in accordance with
FIN 46 are currently disclosed in Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Financial Condition.


The Emerging Issues Task Force (EITF)
issued release 02-16 Accounting by a customer (including a
reseller) for certain consideration received from a Vendor
(EITF 02-16) which clarifies issues arising
from EITF Issue No. 01-9 Accounting by a Vendor for
consideration given to a customer (including a reseller of the
Vendors Products). EITF 02-16 should be applied
to new arrangements, entered into after December 31, 2002.
The Company does not expect EITF 02-16 will have a
significant impact on its financial position, its results of
operations or cash flows.




Item 7A. Quantitative and Qualitative
Disclosures About Market Risk

Measuring potential losses in fair values has
recently become the focus of risk management efforts by many
companies. Such measurements are performed through the
application of various statistical techniques. One such
technique is Value at Risk (VaR), a summary statistical measure
that uses historical interest rates and foreign currency
exchange rates which estimates the volatility and correlation of
these rates and prices to calculate the maximum loss that could
occur over a defined period of time given a certain probability.

The Company believes that statistical models
alone do not provide a reliable method of monitoring and
controlling market risk. While VaR models are relatively
sophisticated, the quantitative market risk information
generated is limited by the assumptions and parameters
established in creating the related models. Therefore, such
models are tools and do not substitute for the experience or
judgment of senior management.

The Company is exposed to market risk and the
risk of loss of fair value and possible liquidity strain
resulting from adverse fluctuations in interest rates and
foreign exchange prices. The Company statistically measures the
loss of fair value through the application of a VaR model on a
quarterly basis. In this analysis the net fair value of the
Company is determined using the financial instrument assets and
other assets. This includes tax adjusted future flight equipment
lease revenues and financial instrument liabilities, which
includes future servicing of current debt. The impact of current
derivative positions is also taken into account.

The Company calculates the VaR with respect to
the net fair value by using historical scenarios. This
methodology entails re-pricing all assets and liabilities under
explicit changes in market rates within a specific historical
time period. In this case, the most recent two and three years
of historical information for interest rates and foreign
exchange rates were used to construct the historical scenarios
at December 31, 2002 and 2001 respectively. For each
scenario, each financial instrument is re-priced. Scenario
values for the Company are then calculated by netting the values
of all the underlying assets and liabilities. The final VaR
number represents the maximum adverse deviation in fair market
value incurred by these scenarios with 95% confidence (i.e. only
5% of historical scenarios show losses greater than the VaR
figure). A one month holding

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##### Table of Contents



period is assumed in computing the VaR figure.
The following table presents the average, high and low VaRs for
the Company with respect to its fair value as of
December 31, 2002 and 2001, respectively:


ILFC Market Risk

|              |  |                       |      |                   |  |     |      |         |  |      |     |     |  |   |     |  |  |   |      |  |  |   |     | 
|------------- |  | --------------------- | ---- | ----------------- |  | --- | ---- | ------- |  | ---- | --- | --- |  | - | --- |  |  | - | ---- |  |  | - | --- | 
|              |  |                       |      |                  
|              |  | December 31, 2002     |      | December 31, 2001
|              |  |                       |      |                  
|              |  | Average               |      | High              |  | Low |      | Average |  | High |     | Low
|              |  |                       |      |                   |  |     |      |         |  |      |     |    
|              |  |                      
|              |  | (Dollars in millions)
|Combined      |  | $                     | 20.1 |                   |  | $   | 42.8 |         |  | $    | 7.8 |     |  | $ | 9.8 |  |  | $ | 13.3 |  |  | $ | 6.8 | 
|Interest Rate |  |                       | 20.0 |                   |  |     | 42.8 |         |  |      | 7.8 |     |  |   | 9.8 |  |  |   | 13.3 |  |  |   | 6.8 | 
|Currency      |  |                       | 0.5  |                   |  |     | 1.2  |         |  |      | 0.0 |     |  |   | 0.0 |  |  |   | 0.1  |  |  |   | 0.0 | 




Item 8. Financial Statements and
Supplementary Data

The response to this Item is submitted as a
separate section of this report.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.

PART III

Item 14. Controls and
Procedures

During the 90 day period before the filing
of this report, the Chairman of the Board and Chief Executive
Officer and the Vice Chairman, Chief Financial Officer and Chief
Accounting Officer of the Company (collectively, the
Certifying Officers) have evaluated the
effectiveness of the Companys disclosure controls and
procedures. These disclosure controls and procedures are those
controls and procedures which are designed to insure that all of
the information required to be disclosed by the Company in its
periodic reports filed with the Securities and Exchange
Commission (the Commission) is recorded, processed,
summarized and reported within the time periods specified by the
Commission rules and forms, and that the information is
communicated to the Certifying Officers on a timely basis.

The Certifying Officers concluded, based on their
evaluation, that the Companys disclosure controls and
procedures are effective for the Company, taking into
consideration the size and nature of the Companys business
and operations. No significant deficiencies or material
weaknesses in the controls or procedures were detected,
therefore no corrective actions were needed to be taken.
Subsequent to the date when the disclosure controls and
procedures were evaluated, there have not been any significant
changes in the Companys internal controls or in other
factors that could significantly affect such controls.




PART IV






Item 15. Exhibits, Financial Statement
Schedules and Reports on Form 8-K


(a)(1) and (2): Financial Statements and
Financial Statement Schedule: The response to this portion of
Item 14 is submitted as a separate section of this report
beginning on page 15.

(a)(3) and (c): Exhibits: The response to this
portion of Item 14 is submitted as a separate section of
this report beginning on page 15.



| |     |                                                     
| | --- | ----------------------------------------------------
| | (b) | Reports on Form 8-K: Current Report on
    Form 8-K:

Form 8-K, event date November 15, 2002
(Item 7)

Form 8-K, event date December 5, 2002
(Item 9)


Form 8-K, event date December 16, 2002
(Item 7)


Form 8-K, event date December 31, 2002
(Item 7)


22



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

FORM 10-K

Items 8, 14(a), and 14(c)


INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE

The following consolidated financial statements
of the Company and its subsidiaries required to be included in
Item 8 are listed below:

|                                   |                                                                                             |      |    |    | 
|---------------------------------- | ------------------------------------------------------------------------------------------- | ---- | -- | -- | 
|                                   |                                                                                             | Page
|                                   |                                                                                             |     
|Report of Independent Accountants  |                                                                                             |      | 25 |   
|Consolidated Financial Statements: |                                                                                             |      |    |   
|                                   | Balance Sheets at December 31, 2002 and 2001                                                |      |    | 26 | 
|                                   | Statements of Income for the years ended
    December 31, 2002, 2001 and 2000               |      |    | 27 | 
|                                   | Statements of Shareholders Equity for the
    years ended December 31, 2002, 2001 and 2000 |      |    | 28 | 
|                                   | Statements of Cash Flows for the years ended
    December 31, 2002, 2001 and 2000           |      |    | 29 | 
|                                   | Notes to Consolidated Financial Statements                                                  |      |    | 31 | 

The following financial statement schedule of the
Company and its subsidiaries is included in Item 14(a)(2):

|                |    |             |  |                                   |  |  |    | 
|--------------- | -- | ----------- |  | --------------------------------- |  |  | -- | 
|Schedule Number |    | Description |  | Page                             
|                |    |             |  |                                  
|                | II |             |  | Valuation and Qualifying Accounts |  |  | 49 | 

All other financial statements and schedules not
listed have been omitted since the required information is
included in the consolidated financial statements or the notes
thereto, or is not applicable or required.

The following exhibits of the Company and its
subsidiaries are included in Item 14(c):

|        |      |             |  |                                                                                                                                                                                                                                  
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 3.1  |             |  | Restated Articles of Incorporation of the
    Company, as amended through December 9, 1992, filed
    November 3, 1993 (filed as an exhibit to Registration
    Statement No. 33-50913 and incorporated herein by
    reference).
|        | 3.2  |             |  | Certificate of Determination of Preferences of
    Series A Market Auction Preferred Stock (filed
    December 9, 1992 as an exhibit to Registration Statement
    No. 33-54294 and incorporated herein by reference).           
|        | 3.3  |             |  | Certificate of Determination of Preferences of
    Series B Market Auction Preferred Stock (filed
    December 9, 1992 as an exhibit to Registration Statement
    33-54294 and incorporated herein by reference).               
|        | 3.4  |             |  | Certificate of Determination of Preferences of
    Series C Market Auction Preferred Stock (filed as an
    exhibit to Form 10-K for the year ended December 31,
    1994 and incorporated herein by reference).                 
|        | 3.5  |             |  | Certificate of Determination of Preferences of
    Series D Market Auction Preferred Stock (filed as an
    exhibit to Form 10-K for the year ended December 31,
    1994 and incorporated herein by reference).                 
|        | 3.6  |             |  | Certificate of Determination of Preferences of
    Series E Market Auction Preferred Stock (filed as an
    exhibit to Form 10-K for the year ended December 31,
    1994 and incorporated herein by reference).                 
|        | 3.7  |             |  | Certificate of Determination of Preferences of
    Series F Market Auction Preferred Stock (filed as an
    exhibit to Form 10-K for the year ended December 31,
    1994 and incorporated herein by reference).                 
|        | 3.8  |             |  | Certificate of Determination of Preferences of
    Series G Market Auction Preferred Stock (filed as an
    exhibit to Form 10-K for the year ended December 31,
    1995 and incorporated herein by reference).                 
|        | 3.9  |             |  | Certificate of Determination of Preferences of
    Series H Market Auction Preferred Stock (filed as an
    exhibit to Form 10-K for the year ended December 31,
    1995 and incorporated herein by reference).                 
|        | 3.10 |             |  | Certificate of Determination of Preferences of
    Preferred Stock of the Company (filed as an exhibit to
    Form 10-K for the year ended December 31, 2001 and
    incorporated herein by reference).                          
|        | 3.11 |             |  | By-Laws of the Company, including amendment
    thereto dated August 31, 1990 (filed as an exhibit to
    Registration Statement No. 33-37600 and incorporated herein
    by reference).                                         

23



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##### Table of Contents



|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                              
|------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 4.1  |             |  | Indenture dated as of November 1, 1991, between
    the Company and U.S. Bank Trust National Association (successor
    to Continental Bank, National Association), as Trustee (filed as
    an exhibit to Registration Statement No. 33-43698 and
    incorporated herein by reference).                                                                    
|        | 4.2  |             |  | First supplemental indenture, dated as of
    November 1, 2000, to the Indenture between the Company and
    U.S. Bank Trust National Association. (filed as an exhibit to
    Form 10K for the year ended December 31, 2000 and
    incorporated herein by reference).                                                                                      
|        | 4.3  |             |  | Second supplemental indenture, dated as of
    February 28, 2001, to the Indenture between the Company and
    U.S. Bank Trust National Association. (filed as an exhibit
    to Form 10Q for the quarter ended March 31, 2001 and
    incorporated herein by reference).                                                                                    
|        | 4.4  |             |  | Third supplemental indenture, dated as of
    September 26, 2001, to the Indenture between the Company
    and U.S. Bank Trust National Association. (filed as an
    exhibit to Form 10Q for the quarter ended
    September 30, 2000 and incorporated herein by reference).                                                                                
|        | 4.5  |             |  | Indenture dated as of November 1, 2000,
    between the Company and the Bank of New York, as Trustee (filed
    as an exhibit to Registration No. 33-49566 and incorporated
    herein by reference).                                                                                                                                                        
|        | 4.6  |             |  | The Company agrees to furnish to the Commission
    upon request a copy of each instrument with respect to issues of
    long-term debt of the Company and its subsidiaries, the
    authorized principal amount of which does not exceed 10% of the
    consolidated assets of the Company and its subsidiaries.                                            
|        | 4.7  |             |  | First supplemental indenture, dated as of
    August 16, 2002 to the indenture between the Company and
    the Bank of New York (filed as Exhibit 4.2 to Registration
    Statement No. 333-100340 and incorporated herein by
    reference).                                                                                                                
|        | 4.8  |             |  | Fourth supplemental indenture, dated as of
    November 6, 2002, to the indenture between the Company and
    U.S. Bank National Association.                                                                                                                                                                                                                
|        | 4.9  |             |  | Fifth supplemental indenture, dated as of
    December 27, 2002, to the indenture between the Company and
    U.S. Bank National Association.                                                                                                                                                                                                                
|        | 10.1 |             |  | Amendment to Revolving Credit Agreement, dated as
    of January 17, 2002 among the Company, Citicorp USA, Inc.,
    and the other banks listed therein providing up to
    $1,000,000,000 (three year facility).                                                                                                                                            
|        | 10.2 |             |  | Revolving Credit Agreement, dated as of November
    17, 1999 among the Company, Citicorp USA, Inc. and other banks
    listed therein (364 day facility) (filed as an exhibit to Form
    10-K for the year ended December 31, 1999 and incorporated
    herein by reference).                                                                              
|        | 10.3 |             |  | Amendment to Revolving Credit Agreement, dated as
    of November 15, 2000, among the Company, Citicorp USA,
    Inc., and the other banks listed therein providing up to
    $1,800,000,000 (364 day facility). (filed as an exhibit to
    Form 10-K for the year ended December 31, 2000 and
    incorporated herein by reference).                       
|        | 10.4 |             |  | Second amendment to Revolving Credit Agreement,
    dated as of January 17, 2002, among the Company, Citicorp
    USA Inc., and the other banks listed therein providing up to
    $1,500,000,000 (364 day facility).                                                                                                                                        
|        | 10.5 |             |  | Aircraft Facility Agreement, dated as of
    January 19, 1999, among the Company, Halifax PLC and the
    other banks listed therein providing up to $4,327,260,000 for
    the financing of approximately seventy-five Airbus aircraft
    (filed as an exhibit to Form 10-K for the year ended
    December 31, 1998 and incorporated herein by reference).
|        | 10.6 |             |  | Boeing Purchase Agreement No. 2241 and
    related letter agreements, all dated July 30, 1999, between
    the Company and the Boeing Company (filed as an exhibit to
    Form 10-Q for the quarter ended September 30, 1999)
    (confidential treatment granted).                                                                                          
|        | 10.7 |             |  | Supplemental Agreement #5, dated
    December 29, 2000, to the Boeing Purchase Agreement
    No. 2241 between the Company and the Boeing Company (filed
    as an exhibit to Form 10-K for the year ended
    December 31, 2000 and incorporated herein by reference).
    (confidential treatment granted).                                                 
|        | 12   |             |  | Computation of Ratio of Earnings to Fixed Charges
    and Preferred Stock Dividends.                                                                                                                                                                                                                                                                         
|        | 23   |             |  | Consent of PricewaterhouseCoopers LLP, dated
    March 20, 2003.                                                                                                                                                                                                                                                                                             

24



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To The Shareholders and Board of Directors

International Lease Finance Corporation


Los Angeles, California


In our opinion, the consolidated financial
statements listed in the accompanying index appearing under
Items 15(a)(1) and (2) on page 23 present fairly, in
all material respects, the financial position of International
Lease Finance Corporation and its subsidiaries (the
Company) at December 31, 2002 and
December 31, 2001, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. These financial
statements and the financial statement schedule are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

PricewaterhouseCoopers LLP

Los Angeles, California


March 13, 2003


25



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per
share amounts)


|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |           |           | 
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | --------- | --------- | - | ---------- | --------- | --------- | 
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                           
|                                                                                                       |                                                                                                                                                                                                                                                                                          | December 31,              
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                           
|                                                                                                       |                                                                                                                                                                                                                                                                                          | 2002                       |            | 2001     
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            |            |          
|ASSETS                                                                                                
|Cash, including interest bearing accounts of
    $65,693 (2002) and $78,295 (2001)                     |                                                                                                                                                                                                                                                                                          | $                          | 66,049     |           |           | $ | 79,383     |          
|Current income taxes                                                                                   |                                                                                                                                                                                                                                                                                          |                            | 193,526    |           |           |   | 173,280    |          
|Notes receivable                                                                                       |                                                                                                                                                                                                                                                                                          |                            | 221,966    |           |           |   | 252,264    |          
|Net investment in finance leases                                                                       |                                                                                                                                                                                                                                                                                          |                            | 150,611    |           |           |   | 142,013    |          
|Flight equipment under operating leases                                                                |                                                                                                                                                                                                                                                                                          |                            | 29,631,150 |           |           |   | 24,400,217 |          
|                                                                                                       | Less accumulated depreciation                                                                                                                                                                                                                                                            |                            |            | 4,343,403 |           |   |            | 3,417,020 |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            | 25,287,747 |           |           |   | 20,983,197 |          
|Deposits on flight equipment purchases                                                                 |                                                                                                                                                                                                                                                                                          |                            | 1,157,864  |           |           |   | 1,321,699  |          
|Accrued interest, other receivables and other
    assets                                               |                                                                                                                                                                                                                                                                                          |                            | 142,817    |           |           |   | 109,672    |          
|Derivative assets                                                                                      |                                                                                                                                                                                                                                                                                          |                            | 170,395    |           |           |   | 20,799     |          
|Investments                                                                                            |                                                                                                                                                                                                                                                                                          |                            | 64,067     |           |           |   | 56,236     |          
|Deferred debt issue costs  less accumulated
    amortization of
    $68,516 (2002) and $59,056 (2001) |                                                                                                                                                                                                                                                                                          |                            | 35,571     |           |           |   | 28,747     |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          | $                          | 27,490,613 |           |           | $ | 23,167,290 |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                  
|Accrued interest and other payables                                                                    |                                                                                                                                                                                                                                                                                          | $                          | 235,827    |           |           | $ | 265,107    |          
|Debt financing, net of deferred debt discount
    of
    $31,928 (2002) and $15,157 (2001)             |                                                                                                                                                                                                                                                                                          |                            | 18,716,644 |           |           |   | 15,461,007 |          
|Foreign currency adjustment                                                                            |                                                                                                                                                                                                                                                                                          |                            | 264,880    |           |           |   | (92,129    | )        
|Derivative liabilities                                                                                 |                                                                                                                                                                                                                                                                                          |                            | 135,853    |           |           |   | 185,858    |          
|Capital lease obligations                                                                              |                                                                                                                                                                                                                                                                                          |                            | 260,623    |           |           |   | 365,289    |          
|Security and other deposits on flight equipment                                                        |                                                                                                                                                                                                                                                                                          |                            | 864,053    |           |           |   | 966,213    |          
|Rentals received in advance                                                                            |                                                                                                                                                                                                                                                                                          |                            | 129,244    |           |           |   | 114,874    |          
|Deferred income taxes                                                                                  |                                                                                                                                                                                                                                                                                          |                            | 2,322,327  |           |           |   | 1,937,396  |          
|Commitments and contingencies  Note K                                                                 |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |          
|SHAREHOLDERS EQUITY                                                                                   |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |          
|                                                                                                       | Preferred stock  no par value; 20,000,000
    authorized shares: Series A Preferred Stock; $10,000,000
    per share liquidation value; 40 shares issued and
    outstanding                                                                                                            |                            |            |          |           |   |            | 400,000   |          
|                                                                                                       | Market Auction Preferred Stock, $100,000 per
    share liquidation value; Series A, B and E (2002 and
    2001), each series having 500 shares issued. Series A
    and B each having 500 (2002 and 2001) shares outstanding and
    Series E having 500 shares outstanding in
    2001. |                            |            | 100,000   |           |   |            | 150,000   |          
|                                                                                                       | Common stock  no par value; 100,000,000
    authorized shares, 39,769,520 (2002) and 35,818,122 shares
    (2001) issued and outstanding                                                                                                                                                |                            |            | 653,582   |           |   |            | 3,582     |          
|                                                                                                       | Paid-in capital                                                                                                                                                                                                                                                                          |                            |            | 579,955   |           |   |            | 579,955   |          
|                                                                                                       | Accumulated other comprehensive loss                                                                                                                                                                                                                                                     |                            |            | (138,620  | )         |   |            | (50,629   | )        
|                                                                                                       | Retained earnings                                                                                                                                                                                                                                                                        |                            |            | 3,366,245 |           |   |            | 2,880,767 |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          | Total shareholders equity |            |           | 4,561,162 |   |            |           | 3,963,675 | 
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          | $                          | 27,490,613 |           |           | $ | 23,167,290 |          
|                                                                                                       |                                                                                                                                                                                                                                                                                          |                            |            |           |           |   |            |          

See accompanying notes.

26



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands)


|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |           |         | 
|------------------------------------------------------- | ----------------------------------- | ------------------------------------------------------------------------- | --------- | --------- | ------- | ---- | --------- | --------- | ------- |  | --------- | --------- | ------- | 
|                                                        |                                     |                                                                          
|                                                        |                                     | Years Ended December 31,                                                 
|                                                        |                                     |                                                                          
|                                                        |                                     | 2002                                                                      |           | 2001      |         | 2000
|                                                        |                                     |                                                                           |           |           |         |     
|REVENUES:                                               |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        | Rental of flight equipment          |                                                                           | $         | 2,677,876 |         |      | $         | 2,473,784 |         |  | $         | 2,301,440 |        
|                                                        | Flight equipment marketing          |                                                                           |           | 66,315    |         |      |           | 62,883    |         |  |           | 99,716    |        
|                                                        | Interest and other                  |                                                                           |           | 104,718   |         |      |           | 80,046    |         |  |           | 77,589    |        
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        |                                     |                                                                           | 2,848,909 |           |         |      | 2,616,713 |           |         |  | 2,478,745 |          
|EXPENSES:                                               |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        | Interest                            |                                                                           |           | 846,353   |         |      |           | 792,611   |         |  |           | 773,539   |        
|                                                        | Depreciation of flight equipment    |                                                                           |           | 954,246   |         |      |           | 802,850   |         |  |           | 705,715   |        
|                                                        | Provision for overhauls             |                                                                           |           | 90,763    |         |      |           | 94,383    |         |  |           | 104,486   |        
|                                                        | Flight equipment rent               |                                                                           |           | 75,372    |         |      |           | 107,992   |         |  |           | 140,956   |        
|                                                        | Selling, general and administrative |                                                                           |           | 88,872    |         |      |           | 65,158    |         |  |           | 47,856    |        
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        |                                     |                                                                           | 2,055,606 |           |         |      | 1,862,994 |           |         |  | 1,772,552 |          
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        |                                     | INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
    OF ACCOUNTING CHANGE |           |           | 793,303 |      |           |           | 753,719 |  |           |           | 706,193 | 
|Provision for income taxes                              |                                     |                                                                           | 262,180   |           |         |      | 261,044   |           |         |  | 237,292   |          
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        |                                     | INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
    CHANGE                  |           |           | 531,123 |      |           |           | 492,675 |  |           |           | 468,901 | 
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|Cumulative effect of accounting change (net of
    tax) |                                     |                                                                           |          |           |         |      | 15,191    |           |         |  |          |          
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        | NET INCOME                          |                                                                           | $         | 531,123   |         |      | $         | 507,866   |         |  | $         | 468,901   |        
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          

See accompanying notes.

27



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(Dollars in thousands)


|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |          |          |  
|---------------------------- | ------------------------------- | -------------------------------------------------------------------- | ----- | --------------- | - | ------------ | ------- | -------- | - | ----------- | -- | ------ | - | ------- | ------- | ------------- | - | ---------- | --------- | ----- | ------- | ------- |  | - | ------- |  |  | - | -------- | - | -------- | - | --------- | -------- | - | - | --------- | -------- | -------- | -
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |           
|                             |                                 | Market Auction                                                       |       |                 |   |              |         |          |   |             |    |        |   |        
|                             |                                 | Preferred Stock                                                      |       | Preferred Stock |   | Common Stock |         |          |   | Accumulated |    |        |   |        
|                             |                                 |                                                                      |       |                 |   |              |         |          |   | Other       |    |        |   |        
|                             |                                 | Number of                                                            |       |                 |   | Number of    |         |          |   | Number of   |    |        |   | Paid-in |         | Comprehensive |   | Retained   |           |      
|                             |                                 | Shares                                                               |       | Amount          |   | Shares       |         | Amount   |   | Shares      |    | Amount |   | Capital |         | Income (Loss) |   | Earnings   |           | Total
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |      
|Balance at December 31, 1999 |                                 |                                                                      | 4,000 |                 |   | $            | 400,000 |          |   |             |    |        |   |         |         |               |   | 35,818,122 |           | $     | 3,582   |         |  | $ | 579,955 |  |  |   |          |   |          | $ | 2,226,655 |          |   | $ | 3,210,192 |         
|                             | Common stock dividends          |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | (206,000 | ) |   |           | (206,000 | )       
|                             | Preferred stock dividends       |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | (18,570  | ) |   |           | (18,570  | )       
|Comprehensive Income:        |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|                             | Net income                      |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | 468,901  |   |   |           | 468,901  |         
|                             | Other comprehensive income:     |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |          |         
|                             |                                 | Foreign currency adjustment (net of tax of $5,399)                   |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          | $ | 9,256    |   |           |          |   |   |           |          | 9,256    |  
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|Comprehensive Income         |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   | 478,157   |         
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|Balance at December 31, 2000 |                                 |                                                                      | 4,000 |                 |   |              | 400,000 |          |   |             |    |        |   |         |         |               |   | 35,818,122 |           |       | 3,582   |         |  |   | 579,955 |  |  |   | 9,256    |   |          |   | 2,470,986 |          |   |   | 3,463,779 |         
|                             | Repurchase of preferred stock   |                                                                      |       | (2,500          | ) |              |         | (250,000 | ) |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           | (250,000 | )       
|                             | Issuance of preferred stock     |                                                                      |       |                 |   |              |         |          |   |             |    | 40     |   |         | $       | 400,000       |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           | 400,000  |         
|                             | Common stock dividends          |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | (83,500  | ) |   |           | (83,500  | )       
|                             | Preferred stock dividends       |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | (14,624  | ) |   |           | (14,624  | )       
|                             | Liquidation of subsidiary       |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | 39       |   |   |           | 39       |         
|Comprehensive Income:        |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|                             | Net income                      |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | 507,866  |   |   |           | 507,866  |         
|                             | Other comprehensive income:     |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |          |         
|                             |                                 | Foreign currency adjustment (net of tax of $3,734)                   |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   | 7,706    |   |           |          |   |   |           |          | 7,706    |  
|                             |                                 | Cash flow derivative transactions (net of tax of
    $(25,371))      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   | (47,118  | ) |           |          |   |   |           |          | (47,118  | )
|                             |                                 | Cumulative effect of accounting change (net of
    tax of $(11,024)) |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   | (20,473  | ) |           |          |   |   |           |          | (20,473  | )
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|Comprehensive Income         |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   | 447,981   |         
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|Balance at December 31, 2001 |                                 |                                                                      | 1,500 |                 |   |              | 150,000 |          |   |             | 40 |        |   |         | 400,000 |               |   | 35,818,122 |           |       | 3,582   |         |  |   | 579,955 |  |  |   | (50,629  | ) |          |   | 2,880,767 |          |   |   | 3,963,675 |         
|                             | Repurchase of preferred stock   |                                                                      |       | (500            | ) |              |         | (50,000  | ) |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           | (50,000  | )       
|                             | Cancellation of preferred stock |                                                                      |       |                 |   |              |         |          |   |             |    | (40    | ) |         |         | (400,000      | ) |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           | (400,000 | )       
|                             | Issuance of common stock        |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            | 6,379,997 |       |         | 650,000 |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           | 650,000  |         
|                             | Common stock dividends          |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | (26,000  | ) |   |           | (26,000  | )       
|                             | Preferred stock dividends       |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | (19,645  | ) |   |           | (19,645  | )       
|Comprehensive Income:        |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|                             | Net income                      |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | 531,123  |   |   |           | 531,123  |         
|                             | Other comprehensive income:     |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |          |         
|                             |                                 | Foreign currency adjustment (net of tax of
    $(98,285))            |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   | (182,530 | ) |           |          |   |   |           |          | (182,530 | )
|                             |                                 | Cash flow derivative transactions (net of tax of
    $50,905)        |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   | 94,539   |   |           |          |   |   |           |          | 94,539   |  
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|Comprehensive Income         |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   | 443,132   |         
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         
|Balance at December 31, 2002 |                                 |                                                                      | 1,000 |                 |   | $            | 100,000 |          |   |             |   |        |   | $       |        |               |   | 42,198,119 |           | $     | 653,582 |         |  | $ | 579,955 |  |  | $ | (138,620 | ) |          | $ | 3,366,245 |          |   | $ | 4,561,162 |         
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |          |   |   |           |         

See accompanying notes.

28



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Dollars in thousands)


|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |            |         |  
|----------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ---------- | ---------- | -------- | ---- | ---------- | ---------- | -------- | - | ---------- | ---------- | ------- | -
|                                          |                                                                                       |                                                                     
|                                          |                                                                                       | Years Ended December 31,                                            
|                                          |                                                                                       |                                                                     
|                                          |                                                                                       | 2002                                                                 |            | 2001       |          | 2000
|                                          |                                                                                       |                                                                      |            |            |          |     
|OPERATING ACTIVITIES:                     |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|                                          | Net income                                                                            |                                                                      | $          | 531,123    |          |      | $          | 507,866    |          |   | $          | 468,901    |        
|                                          | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                      |            |            |          |      |            |            |          |   |            |            |        
|                                          |                                                                                       | Depreciation of flight equipment                                     |            |            | 954,246  |      |            |            | 802,850  |   |            |            | 705,715 |  
|                                          |                                                                                       | Deferred income taxes                                                |            |            | 432,311  |      |            |            | 437,629  |   |            |            | 298,944 |  
|                                          |                                                                                       | Foreign exchange adjustment of non-US $
    denominated debt         |            |            | 357,009  |      |            |            | (76,193  | ) |            |            |        |  
|                                          |                                                                                       | Change in derivative instruments                                     |            |            | (361,447 | )    |            |            | 91,201   |   |            |            |        |  
|                                          |                                                                                       | Amortization of deferred debt issue costs                            |            |            | 15,709   |      |            |            | 13,497   |   |            |            | 9,762   |  
|                                          |                                                                                       | Increase in notes receivable                                         |            |            | (56,706  | )    |            |            | (37,286  | ) |            |            | (76,237 | )
|                                          |                                                                                       | Equity in net loss (income) of affiliates                            |            |            | 465      |      |            |            | (702     | ) |            |            | 2,827   |  
|                                          |                                                                                       | Change in unamortized debt discount                                  |            |            | (23,020  | )    |            |            | 4,543    |   |            |            | (6,753  | )
|                                          | Changes in operating assets and liabilities:                                          |                                                                      |            |            |          |      |            |            |          |   |            |            |        
|                                          |                                                                                       | Increase in accrued interest, other receivables
    and other assets |            |            | (33,146  | )    |            |            | (35,921  | ) |            |            | (15,894 | )
|                                          |                                                                                       | (Decrease) Increase in accrued interest and other
    payables       |            |            | 2,001    |      |            |            | 15,929   |   |            |            | (36,025 | )
|                                          |                                                                                       | Increase in current income taxes receivable                          |            |            | (20,246  | )    |            |            | (114,290 | ) |            |            | (73,360 | )
|                                          |                                                                                       | Increase (decrease) in rentals received in advance                   |            |            | 14,370   |      |            |            | (14,278  | ) |            |            | 18,717  |  
|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|Net cash provided by operating activities |                                                                                       |                                                                      | 1,812,669  |            |          |      | 1,594,845  |            |          |   | 1,296,597  |           
|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|INVESTING ACTIVITIES:                     |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|                                          | Acquisition of flight equipment for operating
    leases                              |                                                                      |            | (5,420,761 | )        |      |            | (4,109,812 | )        |   |            | (2,990,287 | )      
|                                          | Acquisition of flight equipment for finance leases                                    |                                                                      |            | (12,886    | )        |      |            | (39,207    | )        |   |            | (81,770    | )      
|                                          | Decrease (increase) in deposits and progress
    payments                             |                                                                      |            | 163,835    |          |      |            | (263,517   | )        |   |            | (209,452   | )      
|                                          | Proceeds from disposal of flight
    equipment  net of gain                          |                                                                      |            | 173,152    |          |      |            | 208,917    |          |   |            | 543,665    |        
|                                          | Advances on notes receivable                                                          |                                                                      |            |           |          |      |            |           |          |   |            | (20,702    | )      
|                                          | Collections on notes receivable                                                       |                                                                      |            | 57,547     |          |      |            | 66,441     |          |   |            | 52,884     |        
|                                          | Collections on finance and sales-type leases (net
    of income amortized)            |                                                                      |            | 8,540      |          |      |            | 7,764      |          |   |            | 5,533      |        
|                                          | Decrease (increase) in investments                                                    |                                                                      |            | (262       | )        |      |            | 298        |          |   |            | (42,286    | )      
|                                          | Dividends from unconsolidated subsidiaries                                            |                                                                      |            | 1,178      |          |      |            | 626        |          |   |            | 440        |        
|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|Net cash used in investing activities     |                                                                                       |                                                                      | (5,029,657 | )          |          |      | (4,128,490 | )          |          |   | (2,741,975 | )         
|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|FINANCING ACTIVITIES:                     |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|                                          | Issuance of common Stock                                                              |                                                                      |            | 250,000    |          |      |            |           |          |   |            |           |        
|                                          | Issuance of preferred stock                                                           |                                                                      |            |           |          |      |            | 400,000    |          |   |            |           |        
|                                          | Repurchase of preferred stock                                                         |                                                                      |            | (50,000    | )        |      |            | (250,000   | )        |   |            |           |        
|                                          | Net change in commercial paper                                                        |                                                                      |            | 716,639    |          |      |            | (786,816   | )        |   |            | 1,310,328  |        
|                                          | Proceeds from debt financing                                                          |                                                                      |            | 5,736,325  |          |      |            | 5,352,532  |          |   |            | 2,565,843  |        
|                                          | Payments in reduction of debt financing and
    capital lease obligations             |                                                                      |            | (3,285,221 | )        |      |            | (2,195,199 | )        |   |            | (2,295,033 | )      
|                                          | Debt issue costs                                                                      |                                                                      |            | (16,284    | )        |      |            | (4,856     | )        |   |            | (3,747     | )      
|                                          | Payment of common and preferred dividends                                             |                                                                      |            | (45,645    | )        |      |            | (98,085    | )        |   |            | (224,570   | )      
|                                          | (Decrease) increase in customer deposits                                              |                                                                      |            | (102,160   | )        |      |            | 60,799     |          |   |            | 104,101    |        
|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|Net cash provided by financing activities |                                                                                       |                                                                      | 3,203,654  |            |          |      | 2,478,375  |            |          |   | 1,456,922  |           
|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|Net (decrease) increase in cash           |                                                                                       |                                                                      | (13,334    | )          |          |      | (55,270    | )          |          |   | 11,544     |           
|Cash at beginning of year                 |                                                                                       |                                                                      | 79,383     |            |          |      | 134,653    |            |          |   | 123,109    |           
|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|                                          |                                                                                       | Cash at end of year                                                  |            | $          | 66,049   |      |            | $          | 79,383   |   |            | $          | 134,653 |  
|                                          |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           
|(Table continued on next page)            |                                                                                       |                                                                      |            |            |          |      |            |            |          |   |            |           

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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

(Dollars in thousands)


|                                                                                                                                                                        |                                           |                                                                                              |  |      |          |      |  |   |         |   |  |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | -------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | - | ------- | - |  | - | ------- | 
|                                                                                                                                                                        |                                           |                                                                                             
|                                                                                                                                                                        |                                           | Years Ended December 31,                                                                    
|                                                                                                                                                                        |                                           |                                                                                             
|                                                                                                                                                                        |                                           | 2002                                                                                         |  | 2001 |          | 2000
|                                                                                                                                                                        |                                           |                                                                                              |  |      |          |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                                                                                       |                                           |                                                                                              |  |      |          |      |  |   |         |   |  |  
|                                                                                                                                                                        | Cash paid (received) during the year for: |                                                                                              |  |      |          |      |  |   |         |   |  |   |        
|                                                                                                                                                                        |                                           | Interest (net of amount, capitalized $58,274
    (2002), $58,845 (2001), and $50,019 (2000)) |  | $    | 827,280  |      |  | $ | 747,006 |   |  | $ | 720,966 | 
|                                                                                                                                                                        |                                           | Income taxes, net                                                                            |  |      | (149,885 | )    |  |   | (54,115 | ) |  |   | 11,709  | 
|                                                                                                                                                                       
|                                                                                                                                                                        | 2002:                                     |                                                                                              |  |      |          |      |  |   |         |   |  |   |        
|Preferred stock was received in exchange for
    notes receivable in the amount of $14,019.                                                                            
|Notes in the amount of $28,775 were received as
    partial payment in exchange for flight equipment sold with a net
    book value of $46,242.                        
|One aircraft was received in exchange for notes
    receivable in the amount of $10,968.                                                                               
|Pursuant to an agreement with the holder, the
    Company cancelled the outstanding shares of Series A
    Preferred Stock and issued 3,951,398 shares of common stock.
|                                                                                                                                                                        | 2001:                                     |                                                                                              |  |      |          |      |  |   |         |   |  |   |        
|One aircraft was received in exchange for notes
    receivable in the amount of $18,136.                                                                               
|One aircraft with net book value of $11,372 was
    contributed to a joint venture.                                                                                    
|                                                                                                                                                                        | 2000                                      |                                                                                              |  |      |          |      |  |   |         |   |  |   |        
|Two aircraft were received in exchange for notes
    receivable and other assets in the amount of $41,429.                                                             

See accompanying notes.

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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Dollars in thousands)


Note A  Summary of Significant
Accounting Policies

Organization:International
Lease Finance Corporation (the Company) is primarily
engaged in the acquisition of new commercial jet aircraft and
the leasing of those aircraft to airlines throughout the world.
In addition to its leasing activity, the Company regularly sells
aircraft from its leased aircraft fleet and aircraft owned by
others to third party lessors and airlines and in some cases
provides fleet management services to these buyers. The Company,
in terms of the number and value of transactions concluded, is a
major owner-lessor of commercial jet aircraft.

Parent
Company:International Lease
Finance Corporation is an indirect wholly owned subsidiary of
American International Group, Inc. (AIG). AIG is a
holding company which through its subsidiaries is primarily
engaged in a broad range of insurance and insurance-related
activities in the United States and abroad. AIGs primary
activities include both general and life insurance operations.
Other significant activities include financial services and
retirement savings and assets management.

Principles of
Consolidation:The accompanying
consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Investments of less
than 20% in other entities are carried at cost. Investments of
between 20% and 50% in other entities are carried under the
equity method. All significant intercompany balances and
transactions have been eliminated in consolidation.

Intercompany
Allocations:The Company is party
to cost sharing agreements with AIG. Generally, these agreements
provide for the allocation of costs based upon either a specific
identification basis or a proportional cost allocation basis.
The charges aggregated $1,198 (2002), $1,001 (2001) and $1,213
(2000). The Company also pays AIG a fee related to management
services provided for certain foreign subsidiaries. The fees
aggregated $388 (2002), $759 (2001) and $249 (2000).

Rentals:The
Company, as lessor, leases flight equipment principally under
operating leases and reports income over the life of the lease
as rentals become receivable under the provisions of the lease
to the extent of amounts received and deposits held or, when the
lease has varying payments, revenue is recorded under the
straight-line method over the noncancelable term of the lease.
In certain cases, leases provide for additional rentals based on
usage.

Flight Equipment
Marketing:The Company is a
marketer of flight equipment. Marketing revenues include all
revenues from such operations consisting of net gains on sales
of flight equipment and commissions. The Company recognizes
marketing revenue when flight equipment is sold and the risk of
ownership of the equipment is passed to the new owner.

Provision for
Overhauls:Under the provisions
of some leases, the Company receives overhaul rentals based on
the usage of the aircraft. For certain airframe and engine
overhauls, the lessee is reimbursed by the Company for costs
incurred up to, but not exceeding, related overhaul rentals paid
to the Company by the lessee for usage of the aircraft.

Overhaul rentals are included under the caption
Rental of Flight Equipment. The Company provides a charge to
operations for reimbursements at the time the overhaul rentals
are paid by the lessee, based on overhaul rentals received and
the estimated reimbursements during the life of the lease. The
Company periodically evaluates its reserve for these
reimbursements and its reimbursement rate, and then adjusts the
provision for overhauls accordingly.

Cash:Cash
includes cash on hand, time deposits and cash held in trust for
Internal Revenue Code Section 1031 exchanges.

31



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note A  Summary of Significant
Accounting Policies (Continued)


Flight
Equipment:Flight equipment is
stated at cost. Purchases, major additions and modifications and
capitalized interest are capitalized. Normal maintenance and
repairs, airframe and engine overhauls, and compliance with
return conditions of flight equipment on lease are provided by
and paid for by the lessee.

Generally, aircraft, including aircraft acquired
under capital leases, are depreciated using the straight-line
method over a 25 year life from the date of manufacture to a 15%
residual value.

At the time the Company disposes of assets, the
cost and accumulated depreciation are removed from the related
accounts and the difference, net of proceeds, is recorded as a
gain or loss.

Quarterly, management reviews issues affecting
the Companys fleet, including events and circumstances
that may affect impairment of aircraft values (e.g. residual
values, useful life, current and future revenue generating
capacity). Management evaluates aircraft in the fleet, as
necessary, based on these events and circumstances in accordance
with Statement of Financial Accounting Standards No. 144
Accounting for the Impairment or Disposal of Long-Lived
Assets.

Capitalized
Interest:The Company borrows
certain funds to finance progress payments for the construction
of flight equipment ordered. The interest incurred on such
borrowings is capitalized and included in the cost of the
equipment.

Deferred Debt Issue
Costs:Deferred debt issue costs
incurred in connection with debt financing are amortized over
the life of the debt using the interest method and are charged
to interest expense.

Financial
Instruments:In the normal course
of business, the Company utilizes derivative financial
instruments to manage its exposure to interest rate risks and
foreign currency risks. All derivatives are recognized on the
balance sheet at their fair value. On the date that the Company
enters into a derivative contract, it designates the derivative
as (1) a hedge of (a) the fair value of a recognized
asset or liability or (b) an unrecognized firm commitment
(a fair value hedge); (2) a hedge of (a) a
forecasted transaction or (b) the variability of cash flows
that are to be received or paid in connection with a recognized
asset or liability (a cash flow hedge); or
(3) a foreign-currency fair value or cash flow hedge (a
foreign currency hedge). Changes in the fair value
of a derivative, that is highly effective and that is designated
and qualifies as a fair-value hedge, along with changes in the
fair value of the hedged asset or liability that are
attributable to the hedged risk, are recorded in current-period
earnings. Changes in the fair value of a derivative that is
highly effective and that is designated and qualifies as a cash
flow hedge, to the extent that the hedge is effective, are
recorded in accumulated other comprehensive income, until
earnings are affected by the variability of cash flows of the
hedged transaction (e.g. until periodic settlements of the
variable-rate asset or liability are recorded in earnings). Any
hedge ineffectiveness (which represents the amount by which the
changes in the fair value of the derivative exceed the
variability in the cash flows of the forecasted transaction) is
recorded in current-period earnings. Changes in the fair value
of a derivative that is highly effective and that is designated
and qualifies as a foreign currency hedge are recorded in either
current-period earnings or other accumulated comprehensive
income, depending on whether the hedging relationship satisfies
the criteria for a fair value or cash flow hedge. Changes in the
fair value of derivative financial instruments that did not
qualify for hedge treatment under SFAS 133 are reported in
current-period earnings.

The Company formally documents all relationships
between hedging instruments and hedged items, as well as risk
management objectives and strategies for undertaking various
hedge transactions. This includes linking all derivatives that
are designated as fair value, cash flow, or foreign currency
hedges to (1) specific assets or liabilities on the balance
sheet or (2) specific firm commitments or forecasted
transactions. The Company also assesses (both at the
hedges inception and on an ongoing basis) whether the
derivatives that are used in hedging transactions have been
highly effective in offsetting changes in the fair value or cash
flow

32



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INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note A  Summary of Significant
Accounting Policies (Continued)


of hedged items and whether those derivatives may
be expected to remain highly effective in future periods. When
it is determined that a derivative is not (or has ceased to be)
highly effective as a hedge, the Company will discontinue hedge
accounting prospectively, as discussed below.

The Company will discontinue hedge accounting
prospectively when (1) it determines that the derivative is
no longer effective in offsetting changes in the fair value or
cash flows of a hedged item; (2) the derivative expires or
is sold, terminated, or exercised; (3) it is no longer
probable that the forecasted transaction will occur; (4) a
hedged firm commitment no longer meets the definition of a firm
commitment; or (5) management determines that designating
the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued due to the
Companys determination that the derivative no longer
qualifies as an effective fair value hedge, the Company will
continue to carry the derivative on the balance sheet at its
fair value, but cease to adjust the hedged liability for changes
in fair value. When the Company discontinues hedge accounting
because it is no longer probable that the forecasted transaction
will occur in the originally expected period, the gain or loss
on the derivative remains in accumulated other comprehensive
income and is reclassified into earnings when the forecasted
transaction affects earnings. However, if it is probable that a
forecasted transaction will not occur by the end of the
originally specified time period or within an additional
two-month period of time thereafter, the gains and losses that
were accumulated in accumulated other comprehensive income will
be recognized immediately in earnings. In all situations in
which hedge accounting is discontinued and the derivative
remains outstanding, the Company will carry the derivative at
its fair value on the balance sheet, recognizing changes in the
fair value in current-period earnings.

Other Comprehensive Income (Loss):The Company reports comprehensive
income or loss in accordance with SFAS No. 130,
Reporting Comprehensive Income. The Companys
other comprehensive loss reported in shareholders equity
as Accumulated Other Comprehensive Income (Loss) consists of
foreign currency adjustments of debt denominated in a foreign
currency, translated into US dollars using the current exchange
rates and the gains and losses associated with changes in fair
value of derivatives designated as cash flow hedges in
accordance with SFAS 133.

Income
Taxes:The Company and its U.S.
subsidiaries are included in the consolidated federal income tax
return of AIG. The provision for income taxes is calculated on a
separate return basis. Income tax payments are made pursuant to
a tax payment allocation agreement whereby AIG credits or
charges the Company for the corresponding increase or decrease
(not to exceed the separate return basis calculation) in
AIGs current taxes resulting from the inclusion of the
Company in AIGs consolidated tax return. Intercompany
payments are made when such taxes are due or tax benefits are
realized by AIG. Current income taxes on the Consolidated
Balance Sheet represent amounts receivable from AIG under the
agreement.

The Company and its U.S. subsidiaries are
included in the combined state unitary tax returns of AIG,
including California. The Company also files separate returns in
certain other states, as required. The provision for state
income taxes is calculated on a separate return basis. Current
income tax expense is adjusted to reflect credits and charges
allocated to ILFC by AIG, based upon the combined filings and
the resultant current tax payable.

The deferred tax liability is determined based on
the difference between the financial statement and tax basis of
assets and liabilities and is measured at the enacted tax rates
that will be in effect when these differences reverse. Deferred
tax expense is determined by the change in the liability for
deferred taxes (Liability Method).

33



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INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note A  Summary of Significant
Accounting Policies (Continued)


Use of
Estimates:The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.

Reclassifications:Certain
amounts have been reclassified in the 2001 and 2000 financial
statements to conform to the Companys 2002 presentation.

New Accounting
Pronouncements:The Company
adopted Financial Accounting Standards Board (FASB)
Interpretation No. 45 (FIN 45)
Guarantors Accounting and Disclosure requirements for
Guarantees, including Indirect Guarantees of Indebtedness of
Others in December 2002. FIN 45 requires a guarantor
to recognize a liability for the fair value of the obligation
undertaken in issuing the guarantee. The adoption of FIN 45
had no impact on the Companys results of operations,
financial position, or cash flows as of December 31, 2002.

The Company will adopt SFAS 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections, SFAS 146 Accounting for Costs
Associated with Exit or Disposal Activities SFAS 147,
Acquisitions of Certain Financial Institutions, an
amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9, and SFAS 148
Accounting for Stock-Based Compensation 
Transition and Disclosure  an amendment of FASB
Statement No. 123 for the fiscal year ended
December 31, 2003.

SFAS No. 145 precludes companies from
recording gains and losses from the extinguishment of debt as an
extraordinary item. SFAS No. 146 requires that a liability
be recognized for exit and disposal costs only when the
liability has been incurred and when it can be measured at fair
value. SFAS No. 147 addresses a change in classification
and treatment of recorded goodwill. SFAS No. 148 permits
two additional transition methods for companies that elect to
adopt the fair-value-based method of accounting for stock-based
employee compensation. These statements are not applicable to
the operations of the Company as of December 31, 2002, and
it does not expect any impact from adopting these statements on
its results of operations, financial position, or cash flows.

The Company will adopt FASB Interpretation
No. 46 (FIN 46) Consolidation of Variable
Interest Entities in the third quarter of 2003.
FIN 46 requires a company to consolidate a Variable
Interest Entity if the company is determined to be the primary
beneficiary. The Company is currently investigating the impact
FIN 46 will have on its financial position. The Company is
reviewing entities that may be considered Variable Interest
Entities and in which the Company may have a Variable Interest
as defined by FIN 46. The Company has not yet determined
the possible impact of the consolidation of these entities due
to the analysis and data collections effort required to apply
the requirements of FIN 46. The Company believes that the
potential liabilities that may need to be recorded as a result
of the Companys Variable Interest in accordance with
FIN 46 are currently disclosed in Note D and
Note K.

The Company will adopt EITF issue 02-16
which provides guidance on accounting for cash considerations
received by a customer from a vendor as either a reduction of
cost of sales, as revenue, or as reduction of cost incurred by
the customer to sell the vendors product. The Company does
not expect EITF 02-16 to have a significant impact on its
financial position.

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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)


Note B  Notes Receivable

Notes receivable are primarily from the sale of
and collaterized by flight equipment and are summarized as
follows:

|                                                                           |               |      |         |         |  |   |         |         | 
|-------------------------------------------------------------------------- | ------------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                           |               | 2002 |         | 2001   
|                                                                           |               |      |         |        
|Fixed rate notes receivable due in varying
    installments to 2011:       |               |      |         |         |  |   |         |        
|                                                                           | 0% to 5.99%   |      | $       | 37,111  |  |   | $       | 43,870  | 
|                                                                           | 6% to 7.99%   |      |         | 133,858 |  |   |         | 139,299 | 
|                                                                           | 8% to 9.99%   |      |         | 50,700  |  |   |         | 53,509  | 
|                                                                           | 10% to 12.99% |      |         | 297     |  |   |         | 4,618   | 
|LIBOR plus 1.1% to LIBOR plus 1.5% due in varying
    installments to 2002 |               |      |         |         |  |   | 10,968  |        
|                                                                           |               |      |         |         |  |   |         |        
|                                                                           |               | $    | 221,966 |         |  | $ | 252,264 |        
|                                                                           |               |      |         |         |  |   |         |        

Included above are notes receivable of $53,032
(2002) and $59,230 (2001) representing restructured lease
payments.

At December 31, 2002, the minimum future payments
on notes receivable are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 39,894  | 
|2004       |  |   | 26,245  | 
|2005       |  |   | 19,796  | 
|2006       |  |   | 17,063  | 
|2007       |  |   | 18,694  | 
|Thereafter |  |   | 100,274 | 
|           |  |   |         | 
|           |  | $ | 221,966 | 
|           |  |   |         | 

Note C  Net Investment in Finance
Leases

The following lists the components of the net
investment in finance leases:

|                                                                        |  |      |          |      |  |   |          |  
|----------------------------------------------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                                                        |  | 2002 |          | 2001
|                                                                        |  |      |          |     
|Total lease payments to be received                                     |  | $    | 212,037  |      |  | $ | 205,011  |  
|Estimated residual values of leased flight
    equipment (unguaranteed) |  |      | 49,045   |      |  |   | 49,045   |  
|Less: Unearned income                                                   |  |      | (110,471 | )    |  |   | (112,043 | )
|                                                                        |  |      |          |      |  |   |          |  
|Net investment in finance and sales-type leases                         |  | $    | 150,611  |      |  | $ | 142,013  |  
|                                                                        |  |      |          |      |  |   |          |  

At December 31, 2002, minimum future lease
payments on finance leases are as follows:

|                                            |  |   |         | 
|------------------------------------------- |  | - | ------- | 
|2003                                        |  | $ | 19,630  | 
|2004                                        |  |   | 18,178  | 
|2005                                        |  |   | 18,178  | 
|2006                                        |  |   | 18,178  | 
|2007                                        |  |   | 18,178  | 
|Thereafter                                  |  |   | 119,695 | 
|                                            |  |   |         | 
|Total minimum lease payments to be received |  | $ | 212,037 | 
|                                            |  |   |         | 

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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)


Note D  Investments

Investments consist of the following:

|               |                                     |         |  |        |   |         |        |        |  |  |  |    |   |   |        |        | 
|-------------- | ----------------------------------- | ------- |  | ------ | - | ------- | ------ | ------ |  |  |  | -- | - | - | ------ | ------ | 
|               |                                     |         |  |       
|               |                                     | 2002    |  | 2001  
|               |                                     |         |  |       
|               |                                     | Percent |  |        |   | Percent |        |       
|               |                                     | Owned   |  | Amount |   | Owned   |        | Amount
|               |                                     |         |  |        |   |         |        |       
|Cost method:   |                                     |         |  |        |   |         |        |        |  |  |  |    |   |   |        |       
|               | Air New Zealand(a)                  |         |  | .9     | % |         | $      | 2,180  |  |  |  | .9 | % |   | $      | 6,986  | 
|               | American Trans Air(a)               |         |  |        |   |         |        | 30,000 |  |  |  |    |   |   |        | 30,000 | 
|               | International Aircraft Investors(d) |         |  |        |   |         |        | 14,019 |  |  |  |    |   |   |        |        | 
|               | Others                              |         |  |        |   |         |        | 1,537  |  |  |  |    |   |   |        | 1,832  | 
|Equity method: |                                     |         |  |        |   |         |        |        |  |  |  |    |   |   |        |       
|               | 21937, LLC(b)                       |         |  | 99     | % |         |        | 9,859  |  |  |  | 99 | % |   |        | 10,782 | 
|               | ILTU Ireland(c)                     |         |  | 50     | % |         |        | 6,342  |  |  |  | 50 | % |   |        | 6,517  | 
|               | Others                              |         |  |        |   |         |        | 130    |  |  |  |    |   |   |        | 119    | 
|               |                                     |         |  |        |   |         |        |        |  |  |  |    |   |   |        |       
|               |                                     |         |  |        |   | $       | 64,067 |        |  |  |  |    |   | $ | 56,236 |       
|               |                                     |         |  |        |   |         |        |        |  |  |  |    |   |   |        |       






|    |                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | In 2000, the Company invested $6,986 in common
    stock of Air New Zealand and $30,000 in American Trans Air
    (ATA) non-voting preferred stock. In 2002, the
    investment in Air New Zealand was adjusted ($4,806) to lower of
    cost or market value.                                   
|   
|(b) | In 2001, the Company contributed an aircraft with
    a net book value of $11,372 for a 99% interest in 21937, LLC, a
    joint venture that leases the aircraft to a third party. This
    investment is not consolidated due to the Companys lack of
    effective control in the joint venture.
|   
|(c) | In 2000, the Company invested $5,000 for a 50%
    interest in ILTU Ireland (ILTU), an Irish
    corporation. ILTU presently owns one Boeing 767-300 on lease to
    an airline. The Company has guaranteed a loan from a related
    party to ILTU (see Note K).                                
|   
|(d) | In 2002, the Company received International
    Aircraft Investors non-voting preferred stock as a partial
    settlement of notes receivables in the amount of $14,019.                                                                                                                           

Note E  Debt Financing and Capital
Lease Obligations

Debt financing and capital lease obligations are
comprised of the following:

|                                                 |  |      |            |      |  |   |            |  
|------------------------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                                 |  | 2002 |            | 2001
|                                                 |  |      |            |     
|Commercial Paper                                 |  | $    | 4,218,504  |      |  | $ | 3,501,865  |  
|Public Term Debt with Single Maturities          |  |      | 7,475,775  |      |  |   | 4,796,330  |  
|Public Medium-Term Notes with Varying Maturities |  |      | 4,969,500  |      |  |   | 4,809,000  |  
|Bank Term Debt                                   |  |      | 2,084,793  |      |  |   | 2,368,969  |  
|Capital Lease Obligations                        |  |      | 260,623    |      |  |   | 365,289    |  
|Less: Deferred Debt Discount                     |  |      | (31,928    | )    |  |   | (15,157    | )
|                                                 |  |      |            |      |  |   |            |  
|                                                 |  | $    | 18,977,267 |      |  | $ | 15,826,296 |  
|                                                 |  |      |            |      |  |   |            |  

The above amounts represent the Companys
anticipated settlement of its currently outstanding debt
obligations. Certain adjustments required to present currently
outstanding debt obligations have been recorded and presented
separately on the face of the balance sheet, including
adjustments related to foreign currency and interest rate
hedging activities.

36



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note E  Debt Financing and Capital
Lease Obligations (Continued)


Commercial
Paper

The Company has a $4.8 billion Commercial
Paper Program. Under this program, the Company may borrow in
minimum increments of $100 for a period from one day to 270
days. The weighted average interest rate of the Companys
Commercial Paper Program was 1.46%, 4.10% and 6.41% at
December 31, 2002, 2001 and 2000 respectively.

Bank
Commitments

As of December 31, 2002, the Company had
committed revolving loans and lines of credit with
20 commercial banks aggregating $3.15 billion. These
revolving loans and lines of credit principally provide for
interest rates that vary according to the pricing option in
effect at the time of borrowing. Pricing options include prime,
a range from .25% over LIBOR to .35% over LIBOR based upon
utilization, or a rate determined by a competitive bid process
with the banks. The revolving loans and lines of credit are
subject to facility fees of up to .10% of amounts available.
Such financing is used primarily as backup for the
Companys Commercial Paper program. The Company had not
drawn any funds under its committed revolving loans and lines of
credit at December 31, 2002 and 2001, respectively.

Public
Debt

The interest on substantially all of the public
debt (exclusive of the commercial paper) is fixed for the term
of the note. As of December 31, 2002 the Company had an
effective shelf registration statement with respect to
$6.08 billion in debt securities including a
$1.0 billion Medium-Term Note program, under which no notes
were sold through December 31, 2002.

37



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note E  Debt Financing and Capital
Lease Obligations (Continued)


Public
Term Debt

The Company has issued the following Notes which
provide for a single principal payment at maturity and cannot be
redeemed prior to maturity:

|                                                                                  |  |          |  |      |           |      |  |   |           | 
|--------------------------------------------------------------------------------- |  | -------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                                                                  |  | Initial  |  |      |           |     
|                                                                                  |  | Term     |  | 2002 |           | 2001
|                                                                                  |  |          |  |      |           |     
|6 3/8% Notes due February 15, 2002                                                |  | 5 years  |  |      |           |      |  | $ | 100,000   | 
|5.90% Notes due April 15, 2002                                                    |  | 4 years  |  |      |           |      |  |   | 100,000   | 
|5 5/8% Notes due April 15, 2002                                                   |  | 3 years  |  |      |           |      |  |   | 100,000   | 
|5 5/8% Notes due May 1, 2002                                                      |  | 3 years  |  |      |           |      |  |   | 175,000   | 
|6.00% Notes due May 15, 2002                                                      |  | 4 years  |  |      |           |      |  |   | 100,000   | 
|Floating Rate Notes due June 3, 2002
    (swapped to 7.195%)                      |  | 2 years  |  |      |           |      |  |   | 250,000   | 
|6 3/8% Notes due August 1, 2002                                                   |  | 5 years  |  |      |           |      |  |   | 100,000   | 
|6.75% Notes due October 1, 2002                                                   |  | 2 years  |  |      |           |      |  |   | 150,000   | 
|5 3/4% Notes due January 15, 2003                                                 |  | 5 years  |  | $    | 100,000   |      |  |   | 100,000   | 
|Floating Rate Notes due February 2, 2003 (swapped
    to 5.515%)                  |  | 2 years  |  |      | 250,000   |      |  |   | 250,000   | 
|4.75% Notes due June 2, 2003                                                      |  | 2 years  |  |      | 250,000   |      |  |   | 250,000   | 
|6.00% Notes due June 15, 2003                                                     |  | 5 years  |  |      | 100,000   |      |  |   | 100,000   | 
|6.75% Notes due November 3, 2003                                                  |  | 3 years  |  |      | 250,000   |      |  |   | 250,000   | 
|Floating Rate Notes due February 13, 2004
    (swapped to 5.586%)                 |  | 3 years  |  |      | 300,000   |      |  |   | 300,000   | 
|Floating Rate Notes due April 1, 2004 (swapped to
    5.48%)                      |  | 3 years  |  |      | 250,000   |      |  |   | 250,000   | 
|5.25% Notes due May 3, 2004                                                       |  | 3 years  |  |      | 200,000   |      |  |   | 200,000   | 
|5 1/8% Notes due August 1, 2004                                                   |  | 3 years  |  |      | 300,000   |      |  |   | 300,000   | 
|Floating Rate Notes due October 18, 2004 (swapped
    to 3.315%)                  |  | 3 years  |  |      | 150,000   |      |  |   | 150,000   | 
|8 3/8% Notes due December 15, 2004                                                |  | 10 years |  |      | 100,000   |      |  |   | 100,000   | 
|4.375% Notes due December 15, 2005                                                |  | 3 years  |  |      | 160,000   |      |  |   |           | 
|5.75% Notes due October 15, 2006                                                  |  | 5 years  |  |      | 700,000   |      |  |   | 700,000   | 
|5.75% Notes due February 15, 2007                                                 |  | 5 years  |  |      | 500,000   |      |  |   |           | 
|5.625% Notes due June 1, 2007                                                     |  | 5 years  |  |      | 900,000   |      |  |   |           | 
|5.491% Notes due November 30, 2007                                                |  | 5 years  |  |      | 110,000   |      |  |   |           | 
|6 3/8% Notes due March 15, 2009                                                   |  | 7 years  |  |      | 750,000   |      |  |   |           | 
|Foreign Currency Denominated Medium Term Notes:                                   |  |          |  |      |           |      |  |   |           | 
|3.625% Euro Notes due July 1, 2002 (swapped
    to US$ at 5.80%)                  |  | 3 years  |  |      |           |      |  |   | 207,880   | 
|4.125% Euro Notes due July 12, 2004
    (partially swapped to US$ at 6.375%)      |  | 5 years  |  |      | 563,450   |      |  |   | 563,450   | 
|4.00% Euro Notes due April 25, 2005 (swapped
    to US$ at 5.4714%)               |  | 3 years  |  |      | 666,375   |      |  |   |           | 
|6.00% Euro Notes due October 24, 2007
    (partially swapped to US$ at 6.398%)    |  | 5 years  |  |      | 444,250   |      |  |   |           | 
|Floating Rate Sterling Notes due December 7,
    2009 (swapped to US$ at 6.9326%) |  | 7 years  |  |      | 431,700   |      |  |   |           | 
|                                                                                  |  |          |  |      |           |      |  |   |           | 
|                                                                                  |  |          |  | $    | 7,475,775 |      |  | $ | 4,796,330 | 
|                                                                                  |  |          |  |      |           |      |  |   |           | 

The Company has a Euro Medium-Term Note Program
for $4.0 billion, under which $2,106 million
(1,800 million
and £300 million) in notes were outstanding at
December 31, 2002. The Company has eliminated the currency
exposure arising from the notes by either hedging the notes
through swaps or through the offset provided by operating lease
payments. The Company translates the debt into US dollars
using current exchange rates. The foreign exchange adjustment
for the euro denominated note was $264,880 (2002) and $(92,129)
(2001).

Public
Medium-Term Notes

At December 31, 2002 the Companys
Medium-Term Notes bear interest at rates varying between 1.595%
and 8.35%, with maturities from 2003 through 2007. The
Medium-Term Notes provide for a single

38



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note E  Debt Financing and Capital
Lease Obligations (Continued)


principal payment at the maturity of the
respective note and cannot be redeemed by the Company prior to
maturity.

Bank
Term Debt

In January 1999, the Company entered into an
Export Credit Facility for up to a maximum of $4.3 billion,
for up to 75 aircraft to be delivered from 1999 through 2001.
The Company had the right, but was not required, to use the
facility to fund 85% of each aircrafts purchase price.
This facility is guaranteed by various European Export Credit
Agencies. The interest rate varies from 5.753% to 5.898%
depending on the delivery date of the aircraft. At
December 31, 2002 the Company had financed 62 aircraft
and had $2.1 billion outstanding debt under this facility.
The debt is collateralized by a pledge of the shares of a
subsidiary of the company which holds title to the aircraft
financed under the facility. The flight equipment associated
with the obligations, included in flight equipment under
operating leases in the balance sheet, had a net book value of
$3.1 billion (2002) and $3.2 billion (2001).

Capital
Lease Obligations

The Companys capital lease obligations
provide 10 year, fully amortizing debt in two interest rate
tranches. The first 62.5% of the original debt is at a fixed
rate of 6.55%. The second 22.5% of the original debt is at fixed
rates varying between 6.18% and 6.89%. These two tranches are
guaranteed by various European Export Credit Agencies. The
remaining debt matures through 2005. The flight equipment
associated with the obligations, and included in flight
equipment under operating leases in the balance sheet, had a net
book value of $892,404 (2002) and $931,296 (2001).

The following is a schedule by years of future
minimum lease payments under capitalized leases together with
the present value of the net minimum lease payments as of
December 31, 2002:

|                                            |  |   |         | 
|------------------------------------------- |  | - | ------- | 
|2003                                        |  | $ | 127,256 | 
|2004                                        |  |   | 113,179 | 
|2005                                        |  |   | 45,136  | 
|                                            |  |   |         | 
|Total minimum lease payments                |  |   | 285,571 | 
|Less amount representing interest           |  |   | 24,948  | 
|                                            |  |   |         | 
|Present value of net minimum lease payments |  | $ | 260,623 | 
|                                            |  |   |         | 

Maturities of debt financing and capital lease
obligations (excluding commercial paper and deferred debt
discount) at December 31, 2002 are as follows:

|           |  |   |            | 
|---------- |  | - | ---------- | 
|2003       |  | $ | 3,792,419  | 
|2004       |  |   | 3,305,818  | 
|2005       |  |   | 2,004,232  | 
|2006       |  |   | 1,234,174  | 
|2007       |  |   | 2,608,424  | 
|Thereafter |  |   | 1,845,624  | 
|           |  |   |            | 
|           |  | $ | 14,790,691 | 
|           |  |   |            | 

39



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note E  Debt Financing and Capital
Lease Obligations (Continued)


Other

Under the most restrictive provisions of the
related borrowings, consolidated retained earnings at
December 31, 2002, in the amount of $1,238,697, are
unrestricted as to payment of dividends based on consolidated
tangible net worth requirements.

See Note L  Financial Instruments.

The Company has entered into various debt and
derivative transactions with AIGFP, a related party. The Company
executed $1,690,454 and $1,456,000 notional amount of derivative
instruments with the related party during 2002 and 2001,
respectively.

Note F  Shareholders
Equity

Preferred
Stock

The Board of Directors is authorized to issue up
to 20,000,000 shares of preferred stock that may be issued
in one or more series and with such stated value and terms as
may be determined by the Board of Directors.

Series
A Preferred Stock

In December 2001, the Company issued
40 shares of Series A preferred shares with a
liquidation value of $10 million per share. AIG, as holder
of the Series A Preferred Stock, was entitled to quarterly
dividends at a rate of 5% per annum. The Series A Preferred
Stock was nonconvertible, and was redeemable at the
Companys option. In September 2002, pursuant to an
agreement with the holder, the Company cancelled the outstanding
shares of Series A preferred shares. The Company issued
3,951,398 shares of Common Stock for the value of the cancelled
Series A preferred shares.

Market
Auction Preferred Stock

The Market Auction Preferred Stock (MAPS) have a
liquidation value of $100 thousand per share and are not
convertible. The dividend rate, other than the initial rate, for
each dividend period for each series is reset approximately
every 7 weeks (49 days) on the basis of orders placed
in an auction. The Company repurchased Series C, D, F, G
and H in the fourth quarter of 2001 and Series E in the
first six months of 2002 for the liquidation values and no gain
or loss was recognized. During 2001 the Company extended the
Series A to 5 years at a dividend rate of 5.90%. At
December 31, 2002, the dividend rate for Series B was
2.15%.

Common
Stock

On September 24, 2002, the Company issued
3,951,398 shares of Common Stock to AIG in exchange for the
value of the cancelled Series A preferred shares. On
December 4, 2002, the Company issued and sold 2,428,599
shares of Common Stock to AIG for proceeds of $250,000.

Other
Comprehensive Income

The Other Comprehensive Income consists of fair
value adjustments of cash flow derivative instruments and
foreign currency adjustment of liabilities denominated in a
foreign currency. The debt was translated into US dollars using
the current exchange rate. The cash flow derivatives were
adjusted using market values obtained from a related party
broker-dealer.

40



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)


Note G  Rental Income

Minimum future rentals on non-cancelable
operating leases and subleases of flight equipment which have
been delivered at December 31, 2002 are as follows:

|           |  |   |            | 
|---------- |  | - | ---------- | 
|Year Ended |  |  
|           |  |  
|2003       |  | $ | 2,305,548  | 
|2004       |  |   | 2,080,984  | 
|2005       |  |   | 1,789,967  | 
|2006       |  |   | 1,450,978  | 
|2007       |  |   | 1,145,359  | 
|Thereafter |  |   | 2,913,316  | 
|           |  |   |            | 
|           |  | $ | 11,686,152 | 
|           |  |   |            | 

Additional rentals earned by the Company based on
the lessees usage aggregated $249,503 (2002), $235,099
(2001), and $222,579 (2000). Flight equipment is leased, under
operating leases, with remaining terms ranging from one to
15 years.

Note H  Flight Equipment Rent and
Off Balance Sheet Arrangements

During 1995, 1996 and 1997, the Company entered
into sale-leaseback transactions providing proceeds to the
Company in the amounts of $412,626, $507,600 and $601,860,
respectively, relating to seven aircraft for each transaction.
The transactions resulted in the sale and leaseback of these
aircraft under one-year operating leases, each with six one-year
extension options. The existing one-year leases mature on
September 20, 2003 and September 12, 2003,
respectively. One aircraft was repurchased in each of 1997, 1999
and 2001 and sold to third parties and five aircraft were
repurchased in the fourth quarter of 2002 when the 1995
transaction matured and the operating leases of these aircraft
expired. The lease rates equate to fixed principal amortization
and floating interest payments based on LIBOR or commercial
paper pricing.

Minimum future rental expense for 2003 is $36,155
at December 31, 2002.

Note I  Income Taxes

The provision (benefit) for income taxes is
comprised of the following:

|             |            |      |          |          |   |      |          |          |   |   |         |         |  
|------------ | ---------- | ---- | -------- | -------- | - | ---- | -------- | -------- | - | - | ------- | ------- | -
|             |            | 2002 |          | 2001     |   | 2000
|             |            |      |          |          |   |     
|Current:     |            |      |          |          |   |      |          |          |   |   |         |        
|             | Federal(a) |      | $        | (169,073 | ) |      | $        | (154,680 | ) |   | $       | (49,989 | )
|             | State      |      |          | (2,202   | ) |      |          | (13,683  | ) |   |         | (10,871 | )
|             | Foreign    |      |          | 1,145    |   |      |          | (43      | ) |   |         | (791    | )
|             |            |      |          |          |   |      |          |          |   |   |         |        
|             |            |      | (170,130 | )        |   |      | (168,406 | )        |   |   | (61,651 | )      
|Deferred(b): |            |      |          |          |   |      |          |          |   |   |         |        
|             | Federal    |      |          | 427,797  |   |      |          | 400,320  |   |   |         | 278,614 |  
|             | State(c)   |      |          | 4,513    |   |      |          | 29,130   |   |   |         | 20,329  |  
|             |            |      |          |          |   |      |          |          |   |   |         |        
|             |            |      | 432,310  |          |   |      | 429,450  |          |   |   | 298,943 |        
|             |            |      |          |          |   |      |          |          |   |   |         |        
|             |            | $    | 262,180  |          |   | $    | 261,044  |          |   | $ | 237,292 |        
|             |            |      |          |          |   |      |          |          |   |   |         |        




|    |                                     
|--- | ------------------------------------
|(a) | Including U.S. tax on foreign income

41



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note I  Income Taxes
(Continued)




|    |                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Deferred taxes were also provided (charged) to
    other comprehensive income of $47,380 (2002), $(32,661) (2001)
    and $5,399 (2000), respectively, and for cumulative effect of
    accounting change of $8,180 (2001).
|   
|(c) | Includes benefit realized from change in
    California state apportionment of $21,634 (2002).                                                                                                                             

The provision for deferred income taxes is
comprised of the following temporary differences:

|                                                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                              |  | 2002 |         | 2001 |  | 2000
|                                                                                              |  |      |         |      |  |     
|Accelerated depreciation on flight equipment                                                  |  | $    | 496,050 |      |  | $    | 423,846 |   |  | $ | 294,334 |  
|Excess of state income taxes not currently
    deductible
    for Federal income tax purposes |  |      | (961    | )    |  |      | (5,164  | ) |  |   | (3,045  | )
|Tax versus book lease differences                                                             |  |      | (28,580 | )    |  |      | 11,745  |   |  |   | 22,416  |  
|Provision for overhauls                                                                       |  |      | 8,294   |      |  |      | 4,594   |   |  |   | (6,871  | )
|Capitalized overhauls                                                                         |  |      | (30,863 | )    |  |      |        |   |  |   |        |  
|Rentals received in advance                                                                   |  |      | (6,316  | )    |  |      | 4,503   |   |  |   | (5,186  | )
|Derivatives                                                                                   |  |      | 1,517   |      |  |      | (5,675  | ) |  |   |        |  
|Straight line rents                                                                           |  |      | 10,139  |      |  |      | (1,227  | ) |  |   | (459    | )
|Change in state apportionment factor                                                          |  |      | (21,634 | )    |  |      |        |   |  |   |        |  
|Other                                                                                         |  |      | 4,664   |      |  |      | (3,172  | ) |  |   | (2,246  | )
|                                                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|                                                                                              |  | $    | 432,310 |      |  | $    | 429,450 |   |  | $ | 298,943 |  
|                                                                                              |  |      |         |      |  |      |         |   |  |   |         |  

The deferred tax liability consists of the
following deferred tax liabilities (assets):

|                                                                                              |  |      |           |      |  |   |           |  
|--------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                                                              |  | 2002 |           | 2001
|                                                                                              |  |      |           |     
|Accelerated depreciation on flight equipment                                                  |  | $    | 2,403,134 |      |  | $ | 1,927,970 |  
|Excess of state income taxes not currently
    deductible
    for Federal income tax purposes |  |      | (40,813   | )    |  |   | (39,852   | )
|Tax versus book lease differences                                                             |  |      | 131,325   |      |  |   | 161,688   |  
|Provision for overhauls                                                                       |  |      | (44,164   | )    |  |   | (53,145   | )
|Capitalized overhauls                                                                         |  |      | (30,863   | )    |  |   |          |  
|Rentals received in advance                                                                   |  |      | (53,647   | )    |  |   | (47,939   | )
|Straight line rents                                                                           |  |      | 27,784    |      |  |   | 17,871    |  
|Derivatives                                                                                   |  |      | 3,990     |      |  |   | 2,505     |  
|Other comprehensive income                                                                    |  |      | (74,642   | )    |  |   | (27,262   | )
|Other                                                                                         |  |      | 223       |      |  |   | (4,440    | )
|                                                                                              |  |      |           |      |  |   |           |  
|                                                                                              |  | $    | 2,322,327 |      |  | $ | 1,937,396 |  
|                                                                                              |  |      |           |      |  |   |           |  

42



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note I  Income Taxes
(Continued)


A reconciliation of computed expected total
provision for income taxes to the amount recorded is as follows:

|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                  |  | 2002 |         | 2001 |  | 2000
|                                                                  |  |      |         |      |  |     
|Computed expected provision based upon a federal
    rate of 35%  |  | $    | 277,656 |      |  | $    | 263,802 |   |  | $ | 247,168 |  
|State income taxes, net of Federal income taxes(b)                |  |      | 1,502   |      |  |      | 10,041  |   |  |   | 6,148   |  
|Foreign sales corporation and extraterritorial
    income benefit |  |      | (18,517 | )    |  |      | (6,590  | ) |  |   | (13,499 | )
|Foreign taxes(a)                                                  |  |      | 2,564   |      |  |      | (6,080  | ) |  |   | (3,997  | )
|Other                                                             |  |      | (1,025  | )    |  |      | (129    | ) |  |   | 1,472   |  
|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  
|                                                                  |  | $    | 262,180 |      |  | $    | 261,044 |   |  | $ | 237,292 |  
|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  



---

| |     |                                                                                 
| | --- | --------------------------------------------------------------------------------
| | (a) | Includes realized Canadian tax credit in 2001 for
    taxes paid in prior years.



|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(b) | Includes benefit realized from change in
    California state apportionment factor of $14,062 (2002).

During 2002, the Company settled an open audit
issue with the Internal Revenue Service which required the
Company to capitalize for tax purposes certain overhaul
reimbursements made between 1991 and 2001. The adjustment had no
impact on the total provision but required the Company to
establish a current tax liability and a corresponding deferred
tax asset of $27,130 in 2002. Such amount is reflected in the
Companys 2002 current and deferred provision.

During 2002, the Company revalued its state
deferred taxes based on a reduction in the Companys
standalone California apportionment factor, as determined by
AIG. The revaluation reduced the total state provision by
$21,634 and the total provision including the Federal income tax
effect of the revaluation by $14,062.

Federal tax benefits provided by the
Extraterritorial Income Exclusion (ETI) and the
Foreign Sales Corporation (FSC) may not be available
in 2003. The World Trade Organization has ruled that these are
unfair export subsidies, and the European Union has threatened
trade sanctions if these subsidies are not repealed by the
United States. To avoid these sanctions, the United States may
repeal the legislation that provides for ETI and FSC export
benefits.

Note J  Other Information

Concentration
of Credit Risk

The Company leases and sells aircraft to airlines
and others throughout the world. The lease receivables and notes
receivable are from entities located throughout the world. The
Company generally obtains deposits on leases and obtains
collateral in flight equipment on notes receivable. The Company
has no single customer which accounts for 10% or more of
revenues.

Segment
Information

The Company operates within one industry: the
leasing, sales and management of flight equipment.

Revenues include rentals of flight equipment to
foreign airlines of $2,317,619 (2002), $2,173,778 (2001), and
$2,026,017 (2000).

43



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note J  Other Information
(Continued)


The following table sets forth the dollar amount
and percentage of total rental revenues attributable to the
indicated geographic areas based on each airlines
principal place of business for the years indicated:

|                                  |  |        |           |      |  |        |       |   |  |        |           |   |  |  |       |   |  |   |           |  |  |  |       |  
|--------------------------------- |  | ------ | --------- | ---- |  | ------ | ----- | - |  | ------ | --------- | - |  |  | ----- | - |  | - | --------- |  |  |  | ----- | -
|                                  |  |        |           |      |  |       
|                                  |  | 2002   |           | 2001 |  | 2000  
|                                  |  |        |           |      |  |       
|                                  |  | Amount |           | %    |  | Amount |       | % |  | Amount |           | %
|                                  |  |        |           |      |  |        |       |   |  |        |           |  
|Europe                            |  | $      | 1,236,123 |      |  |        | 46.2  | % |  | $      | 1,160,793 |   |  |  | 47.0  | % |  | $ | 1,054,783 |  |  |  | 45.8  | %
|Asia/Pacific                      |  |        | 601,775   |      |  |        | 22.5  |   |  |        | 523,630   |   |  |  | 21.2  |   |  |   | 462,426   |  |  |  | 20.1  |  
|United States and Canada          |  |        | 481,507   |      |  |        | 18.0  |   |  |        | 455,680   |   |  |  | 18.4  |   |  |   | 437,745   |  |  |  | 19.0  |  
|Central, South America and Mexico |  |        | 202,688   |      |  |        | 7.5   |   |  |        | 199,026   |   |  |  | 8.0   |   |  |   | 229,438   |  |  |  | 10.0  |  
|Africa and the Middle East        |  |        | 155,783   |      |  |        | 5.8   |   |  |        | 134,655   |   |  |  | 5.4   |   |  |   | 117,048   |  |  |  | 5.1   |  
|                                  |  |        |           |      |  |        |       |   |  |        |           |   |  |  |       |   |  |   |           |  |  |  |       |  
|                                  |  | $      | 2,677,876 |      |  |        | 100.0 | % |  | $      | 2,473,784 |   |  |  | 100.0 | % |  | $ | 2,301,440 |  |  |  | 100.0 | %
|                                  |  |        |           |      |  |        |       |   |  |        |           |   |  |  |       |   |  |   |           |  |  |  |       |  

The following table sets forth revenue
attributable to individual countries representing at least 10%
of total revenue based on each airlines principal place of
business for the years indicated:

|               |  |        |         |      |  |        |      |   |  |        |         |   |  |  |      |   |  |   |         |  |  |  |      |  
|-------------- |  | ------ | ------- | ---- |  | ------ | ---- | - |  | ------ | ------- | - |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|               |  |        |         |      |  |       
|               |  | 2002   |         | 2001 |  | 2000  
|               |  |        |         |      |  |       
|               |  | Amount |         | %    |  | Amount |      | % |  | Amount |         | %
|               |  |        |         |      |  |        |      |   |  |        |         |  
|United States  |  | $      | 360,257 |      |  |        | 13.5 | % |  | $      | 300,006 |   |  |  | 12.1 | % |  | $ | 275,423 |  |  |  | 12.0 | %
|United Kingdom |  |        | 276,185 |      |  |        | 10.3 |   |  |        | 283,090 |   |  |  | 11.4 |   |  |   | 276,340 |  |  |  | 12.0 |  
|China          |  |        | 282,776 |      |  |        | 10.6 |   |  |        | 265,871 |   |  |  | 10.8 |   |  |   | 251,372 |  |  |  | 10.9 |  

Currency
Risk

The Company attempts to minimize its currency and
exchange risks by negotiating most of its aircraft leases in US
dollars. Some of the Companys leases, however, are
negotiated in Euros to meet the needs of a growing number of
airlines. These Euro denominated leases are primarily used as a
hedge against Euro denominated debt obligations of the Company.
Therefore, the Companys foreign currency gain (loss) has
not been material to the Companys consolidated financial
statements to date.

Employee
Benefit Plans

The Companys employees participate in
various benefit plans sponsored by AIG, including a
noncontributory qualified defined benefit retirement plan,
various stock option and purchase plans and a voluntary savings
plan (401(k) plan).

AIGs U.S. plans do not separately identify
projected benefit obligations and plan assets attributable to
employees of participating affiliates. AIGs projected
benefit obligations exceeded the plan assets at
December 31, 2002 by $428,500.

Note K  Commitments and
Contingencies

Aircraft
Orders

At December 31, 2002, the Company had committed
to purchase 523 aircraft deliverable from 2003 through 2010
at an estimated aggregate purchase price (including adjustment
for anticipated inflation) of approximately $29.8 billion.

The Company also had options to purchase an
additional 18 aircraft deliverable through 2008 at an
estimated aggregate purchase price of $1.3 billion.

44



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note K  Commitments and
Contingencies (Continued)




Aircraft orders (continued)


Most of these purchase commitments and options
are based upon master agreements with each of The Boeing Company
(Boeing) and AVSA, S.A.R.L., the sales subsidiary of
Airbus Industrie (Airbus).

The Boeing aircraft (models 737, 747 and 777),
and the Airbus aircraft (models A319, A320, A321, A330, A340 and
A380) are being purchased pursuant to agreements executed by the
Company and Boeing or Airbus. These agreements establish the
pricing formulas (which include certain price adjustments based
upon inflation and other factors) and various other terms with
respect to the purchase of aircraft. Under certain
circumstances, the Company has the right to alter the mix of
aircraft type ultimately acquired. As of December 31, 2002, the
Company had made non-refundable deposits (exclusive of
capitalized interest) on the aircraft which the Company has
committed to purchase of approximately $610,000 and $407,000
with Boeing and Airbus, respectively.

Management anticipates that a significant portion
of the aggregate purchase price will be funded by incurring
additional debt. The exact amount of the indebtedness to be
incurred will depend upon the actual purchase price of the
aircraft, which can vary due to a number of factors, including
inflation, and the percentage of the purchase price of the
aircraft which must be financed.

Asset
Value Guarantees

The Company has guaranteed a portion of the
residual value of 52 aircraft to financial institutions.
These guarantees expire at various dates through 2013 and
generally provide for the Company to pay the difference between
the fair market value of the aircraft and the guaranteed value
up to certain specified amounts, or, at the option of the
Company, purchase the aircraft for the guaranteed value. At
December 31, 2002, the maximum exposure if the Company were
to pay under such guarantees was $264,850. In addition, the
Company has written put options for 28 aircraft in the
amount of $821,384.

Other
Guarantees

The Company has guaranteed certain obligations
for entities in which it has an investment. The Company
guaranteed eight loans at December 31, 2002, all
collateralized by aircraft, aggregating $40,139.

Leases

The Company has operating leases for office space
extending through 2015. In 2001, the Company signed a lease for
additional office space with rents commencing in 2003. Rent
expense was $3,475, $3,221, and $1,967 for the years ended 2003,
2001 and 2000 respectively. Commitments for minimum rentals
under the noncancelable leases at the end of 2002 are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 5,411   | 
|2004       |  |   | 11,336  | 
|2005       |  |   | 11,485  | 
|2006       |  |   | 8,575   | 
|2007       |  |   | 8,918   | 
|Thereafter |  |   | 82,320  | 
|           |  |   |         | 
|Total      |  | $ | 128,045 | 
|           |  |   |         | 

45



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)


Note L  Financial Instruments

In the normal course of business, the Company
employs a variety of derivative transactions with the objective
of lowering its overall borrowing cost and maintaining its
optimal mix of variable and fixed rate interest obligations.
These derivative products include interest rate swap agreements,
currency swap agreements, and interest rate floors. The Company
enters into derivative transactions only to hedge interest rate
and currency risk and not to speculate on interest rates or
currency fluctuation.

All derivatives are recognized on the balance
sheet at their fair value and the change in fair value is
recorded in operating income or other comprehensive income
depending on the designation of the hedging instrument. (See
Note A  Summary of Significant Accounting
Policies, Financial instruments).

Credit risk exposure arises from the potential
that the counterparty may not perform under these derivative
transactions. The Companys counterparty for all of its
derivatives is AIGFP, a related party with the highest ratings
available from the credit rating agencies, who enters into
identical transactions with independent third parties. The
Company has executed $1,690,454 and $1,456,000 notional amount
of derivative instruments with the related party during 2002 and
2001, respectively. The Company currently does not require, nor
is it required by its counterparty, to provide collateral for
its positions with the Company although it can in certain
circumstances.

Failure of a counterparty to perform under the
agreement with respect to these transactions could have an
material effect on the Companys results of operations.

The following methods and assumptions were used
by the Company in estimating its fair value disclosures for
financial instruments:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and cash
    equivalents:The carrying value
    reported in the balance sheet for cash and cash equivalents
    approximates its fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Notes receivable:The fair values for notes receivable are estimated using
    discounted cash flow analyses, using interest rates currently
    being offered for similar loans to borrowers with similar credit
    ratings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Investments:It was
    not practicable to determine the fair value of most of the
    Companys investments in the common and preferred stocks of
    other companies because of the lack of a quoted market price and
    the inability to determine fair value without incurring
    excessive costs due to their short maturities. The carrying
    amount of these investments at December 31, 2002 represents
    the original cost or original cost plus the Companys share
    of earnings of the investment. For investments held by the
    Company that had a quoted market price at December 31,
    2002, the Company used such quoted market price in determining
    the fair value of such investments.
|
| | Debt financing:The
    carrying value of the Companys commercial paper and term
    debt maturing within one year approximates its fair value. The
    fair value of the Companys long-term debt is estimated
    using discounted cash flow analyses, based on the Companys
    spread to U.S. Treasury bonds for similar debt at year-end.                                                                                                                                                                                                                                                                                                                                                                        
|
| | Guarantees:As of
    December 31, 2002, the Companys maximum commitment
    under the guarantees was $264,850. It is not practical to
    determine the fair value of the Companys guarantees at
    this time. The Company regularly reviews the underlying values
    of the collateral aircraft, to determine its exposure under
    these guarantees. The Company will adopt Financial Accounting
    Standards Board Interpretation No. 45
    Guarantors Accounting and Disclosure Requirements
    for Guarantees, including Indirect Guarantees of Indebtedness of
    Others for guarantees entered into after December 31,
    2002.                                                                    

46



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note L  Financial Instruments
(Continued)




| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The carrying amounts and fair values of the
    Companys financial instruments at December 31, 2002
    and 2001 are as follows:

|                                                                                         |  |                   |             |                   |  |                   |             |                   |  |   |             |   |  |   |             |  
|---------------------------------------------------------------------------------------- |  | ----------------- | ----------- | ----------------- |  | ----------------- | ----------- | ----------------- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                         |  |                   |             |                  
|                                                                                         |  | 2002              |             | 2001             
|                                                                                         |  |                   |             |                  
|                                                                                         |  | Carrying          |             |                   |  | Carrying          |             |                  
|                                                                                         |  | Amount of         |             | Fair Value of     |  | Amount of         |             | Fair Value of    
|                                                                                         |  | Asset (Liability) |             | Asset (Liability) |  | Asset (Liability) |             | Asset (Liability)
|                                                                                         |  |                   |             |                   |  |                   |             |                  
|Cash and cash equivalents                                                                |  | $                 | 66,049      |                   |  | $                 | 66,049      |                   |  | $ | 79,383      |   |  | $ | 79,383      |  
|Notes receivable                                                                         |  |                   | 221,966     |                   |  |                   | 219,914     |                   |  |   | 252,264     |   |  |   | 264,791     |  
|Investments                                                                              |  |                   | 64,067      |                   |  |                   | 63,631      |                   |  |   | 56,236      |   |  |   | 49,654      |  
|Debt financing (including foreign currency
    adjustment) and capital lease obligations |  |                   | (19,242,508 | )                 |  |                   | (19,507,647 | )                 |  |   | (15,734,166 | ) |  |   | (15,800,028 | )

Derivatives

The Company uses derivatives to manage exposures
to interest rate and foreign currency risks. The Company
recorded hedge ineffectiveness in interest expense related to
cross currency fair value hedges in the amount of
$(1.0) million (2002) and $1.0 million (2001). Hedge
ineffectiveness related to cash flow hedges for the period was
immaterial to the Company for years 2002 and 2001. In accordance
with the transition provision of SFAS 133, the Company
recorded the following cumulative effect adjustments in earnings
as of January 1, 2001, net of taxes:

|                                                                    |                                                   |   |        |         |  
|------------------------------------------------------------------- | ------------------------------------------------- | - | ------ | ------- | -
|Related to non-hedging instruments:                                 |                                                   |   |        |        
|                                                                    | Fair value of non-hedging instruments             |   | $      | 2,805   |  
|Related to previous designated fair value hedging
    relationships |                                                   |   |        |        
|                                                                    | Fair value of hedging instruments                 |   |        | (13,954 | )
|                                                                    | Offsetting changes in fair value of hedged items  |   |        | 13,954  |  
|                                                                    | Previously deferred hedging gains and losses, net |   |        | 12,386  |  
|                                                                    |                                                   |   |        |        
|Total cumulative effect on earnings, net of tax                     |                                                   | $ | 15,191 |        
|                                                                    |                                                   |   |        |        

In addition, the Company recorded the following
net-of-tax cumulative effect adjustments in other comprehensive
income as of January 1, 2001:

|                                                                             |                                             |   |         |         |  
|---------------------------------------------------------------------------- | ------------------------------------------- | - | ------- | ------- | -
|Related to previously designated cash flow
    hedging relationships:        |                                             |   |         |        
|                                                                             | Fair value of hedging instruments           |   | $       | (45,927 | )
|                                                                             | Previously defined hedging gains and losses |   |         | 25,454  |  
|                                                                             |                                             |   |         |        
|Total cumulative effect on other comprehensive
    income (loss), net of tax |                                             | $ | (20,473 | )      
|                                                                             |                                             |   |         |        

During the twelve months ended December 31,
2002 and 2001, the Company recorded the following in earnings in
accordance with SFAS 133:

|                                                                    |                                                  |      |       |         |   |   |     |        |  
|------------------------------------------------------------------- | ------------------------------------------------ | ---- | ----- | ------- | - | - | --- | ------ | -
|                                                                    |                                                  | 2002 |       | 2001   
|                                                                    |                                                  |      |       |        
|Related to non-hedging instruments:                                 |                                                  |      |       |         |   |   |     |       
|                                                                    | Fair value of non-hedging instruments            |      | $     | 3,678   |   |   | $   | 1,943  |  
|Related to previous designated fair value hedging
    relationships |                                                  |      |       |         |   |   |     |       
|                                                                    | Fair value of hedging instruments                |      |       | (18,133 | ) |   |     | (6,366 | )
|                                                                    | Offsetting changes in fair value of hedged items |      |       | 19,093  |   |   |     | 5,406  |  
|                                                                    |                                                  |      |       |         |   |   |     |       
|Total effect on earnings                                            |                                                  | $    | 4,638 |         |   | $ | 983 |       
|                                                                    |                                                  |      |       |         |   |   |     |       

47



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note L  Financial Instruments
(Continued)


At December 31, 2002 and 2001, the Companys
accumulated other comprehensive income (loss) consisted of the
following:

|                                                           |  |      |          |      |  |   |         |  
|---------------------------------------------------------- |  | ---- | -------- | ---- |  | - | ------- | -
|                                                           |  | 2002 |          | 2001
|                                                           |  |      |          |     
|Cumulative foreign currency adjustment, net of tax         |  | $    | (172,172 | )    |  | $ | 42,416  |  
|Cumulative cash flow hedge loss adjustment, net
    of tax |  |      | 33,552   |      |  |   | (93,045 | )
|                                                           |  |      |          |      |  |   |         |  
|Total accumulated other comprehensive loss                 |  | $    | (138,620 | )    |  | $ | (50,629 | )
|                                                           |  |      |          |      |  |   |         |  

During the twelve months ended December 31,
2002, $83,868 (net) was reclassified from accumulated other
comprehensive income to interest expense when interest was paid
or received on the Companys cash flow hedges. The Company
estimates that within the next twelve months it will amortize
into earnings $90,000 of the pre-tax balance in accumulated
other comprehensive income under cash flow hedge accounting in
connection with the Companys program to convert debt from
floating to fixed rates.

48



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                             |  |                        |         |            |  |            |         |              |  |               |  |  |  |   |         |  |  |   |         | 
|---------------------------- |  | ---------------------- | ------- | ---------- |  | ---------- | ------- | ------------ |  | ------------- |  |  |  | - | ------- |  |  | - | ------- | 
|                             |  |                        |         |            |  |            |         |             
|COL. A                       |  | COL. B                 |         | COL. C     |  | COL. D     |         | COL. E      
|                             |  |                        |         |            |  |            |         |             
|                             |  |                        |         |            |  |            |         |             
|                             |  |                        |         | ADDITIONS  |  |            |         |             
|                             |  |                        |         |            |  | Charged to |         |              |  |              
|                             |  | Balance at             |         | Charged to |  | Other      |         |              |  |              
|                             |  | Beginning of           |         | Costs and  |  | Accounts  |         | Deductions  |  | Balance at   
|Description                  |  | Period                 |         | Expenses   |  | Describe   |         | Describe(a)  |  | End of Period
|                             |  |                        |         |            |  |            |         |              |  |              
|                             |  |                       
|                             |  | (Dollars in thousands)
|Reserve for overhaul:        |  |                        |         |            |  |            |         |              |  |               |  |  |  |   |         |  |  |   |         | 
|Year ended December 31, 2002 |  | $                      | 142,715 |            |  | $          | 90,763  |              |  |               |  |  |  | $ | 115,234 |  |  | $ | 118,244 | 
|Year ended December 31, 2001 |  | $                      | 154,865 |            |  | $          | 94,383  |              |  |               |  |  |  | $ | 106,533 |  |  | $ | 142,715 | 
|Year ended December 31, 2000 |  | $                      | 136,451 |            |  | $          | 104,486 |              |  |               |  |  |  | $ | 86,072  |  |  | $ | 154,865 | 



---



|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(a) | Reimbursements to lessees for overhauls performed
    and amounts transferred to buyers for aircraft sold.

49



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##### Table of Contents






SIGNATURES

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

Dated: March 27, 2003



| |                                        
| | ---------------------------------------
| | INTERNATIONAL LEASE FINANCE CORPORATION



| |    |                         
| | -- | ------------------------
| | By | /s/ STEVEN F. UDVAR-HAZY

| |                          
| | -------------------------
| |                          
| | Steven F. Udvar-Hazy     
| | Chairman of the Board and
| | Chief Executive Officer  

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the date indicated.

|                                              |  |                                                                    |  |               
|--------------------------------------------- |  | ------------------------------------------------------------------ |  | --------------
|Signature                                     |  | Title                                                              |  | Date          
|                                              |  |                                                                    |  |               
|Leslie L. Gonda                               |  | Director                                                           |  |               
|                                             
|/s/ STEVEN F. UDVAR-HAZY Steven F. Udvar-Hazy |  | Chief Executive Officer and Director                               |  | March 27, 2003
|                                             
|/s/ JOHN L. PLUEGERJohn L. Plueger            |  | Director                                                           |  | March 27, 2003
|                                             
|Louis L. Gonda                                |  | Director                                                           |  |               
|                                             
|/s/ M. R. GREENBERG M. R. Greenberg           |  | Director                                                           |  | March 27, 2003
|                                             
|/s/ EDWARD E. MATTHEWS Edward E. Matthews     |  | Director                                                           |  | March 27, 2003
|                                             
|/s/ WILLIAM N. DOOLEY William N. Dooley       |  | Director                                                           |  | March 27, 2003
|                                             
|/s/ HOWARD I. SMITH Howard I. Smith           |  | Director                                                           |  | March 27, 2003
|                                             
|/s/ ALAN H. LUND Alan H. Lund                 |  | Director, Chief Financial Officer and Chief
    Accounting Officer |  | March 27, 2003

50



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##### Table of Contents



CERTIFICATIONS

I, Steven F. Udvar-Hazy, certify that:

1. I have reviewed this annual report on
Form 10-K of International Lease Finance Corporation;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                                      
| | -----------------------------------------------------
| | /s/ STEVEN F. UDVAR-HAZY                             
| |                                                      
| | Steven F. Udvar-Hazy                                 
| | Chairman of the Board and Chief Executive
    Officer

Date: March 27, 2003

51



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##### Table of Contents



CERTIFICATIONS

I, Alan H. Lund, certify that:

1. I have reviewed this annual report on
Form 10-K of International Lease Finance Corporation;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                                                        
| | -----------------------------------------------------------------------
| | /s/ ALAN H. LUND                                                       
| |                                                                        
| | Alan H. Lund                                                           
| | Vice Chairman, Chief Financial Officer and
    Chief Accounting Officer

Date: March 27, 2003

52



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##### Table of Contents



SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

Since the Registrant is an indirect wholly owned
subsidiary of AIG, no annual report to security holders or proxy
statement, form of proxy or other proxy soliciting materials
have been sent to security holders since January 1, 1990.

53