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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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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,
2003

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.)
|                                                                                                                
|10250 Constellation Blvd., Suite 3400,
    Los Angeles, California
     (Address of principal executive offices) |  | 90067
    (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 30, 2003 and March 9,
2004, there were 42,198,119 shares of Common Stock, no par
value, 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, Related Stockholder Matters and Issuer Purchases of Equity Securities
|             | 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 III    
|             | Item 14.Principal Accountant Fees and Services                                                                     
|PART IV     
|             | Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K                                            
|SIGNATURES  
|EXHIBIT 3.11
|EXHIBIT 10.2
|Exhibit 10.3
|EXHIBIT 12  
|EXHIBIT 23  
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1



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##### Table of Contents



INTERNATIONAL LEASE FINANCE
CORPORATION

2003 FORM 10-K ANNUAL REPORT



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TABLE OF CONTENTS

|          |  |                                                                                                                      |  |      |    | 
|--------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|          |  |                                                                                                                      |  | Page
|          |  |                                                                                                                      |  |     
|PART I   
|Item  1.  |  | Business                                                                                                             |  |      | 1  | 
|Item  2.  |  | Properties                                                                                                           |  |      | 7  | 
|Item  3.  |  | Legal Proceedings                                                                                                    |  |      | 9  | 
|PART II  
|Item  5.  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 9  | 
|Item  6.  |  | Selected Financial Data                                                                                              |  |      | 10 | 
|Item  7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                            |  |      | 11 | 
|Item  7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                       |  |      | 23 | 
|Item  8.  |  | Financial Statements and Supplementary Data                                                                          |  |      | 24 | 
|Item  9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure                             |  |      | 24 | 
|Item  9A. |  | Controls and Procedures                                                                                              |  |      | 24 | 
|PART III 
|Item 14.  |  | Principal Accountant Fees and Services                                                                               |  |      | 24 | 
|PART IV  
|Item 15.  |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                                  |  |      | 25 | 



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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 to third party lessors and airlines. In some
cases the Company provides fleet management services to
companies with aircraft portfolios for a management fee. The
Company also remarkets and sells aircraft owned by others for a
fee. 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, 2003, the Companys
lease portfolio consisted of 611 owned jet aircraft, and nine
aircraft classified as finance leases. Additionally, the Company
provided fleet management services for 69 jet aircraft. See
Item 2. Properties  Flight
Equipment. At December 31, 2003, the Company had
committed to purchase 463 new and used aircraft deliverable
through 2010 at an estimated aggregate purchase price of
$26.2 billion, of which the Company currently anticipates
taking delivery of 102 in 2004 with an estimated aggregate
purchase price of $5.0 billion. It also had options to
purchase an additional 11 new aircraft deliverable through
2008 at an estimated aggregate purchase price of
$704.8 million. 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 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 more closely match the lease terms of the financed
aircraft. To date, the Company has been able to purchase
aircraft on terms which have permitted it to lease its aircraft
portfolio 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. Therefore, 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 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
10250 Constellation Blvd., Suite 3400, Los Angeles, California
90067. The Companys telephone number, 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 or by written request to the Company.

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 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.

1



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Aircraft Leasing

The Company leases most of its aircraft under
operating leases. The Company does not fully recover its cost of
the aircraft over the term of the initial lease and retains the
benefit as well as assumes the risk of the residual value 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 aircraft under operating
leases are included as Flight equipment on the
Companys Consolidated Balance Sheets and depreciation is
charged to income over the estimated useful lives of the
aircraft. The Company on occasion enters into finance and
sales-type leases where the full cost of the aircraft is
substantially recovered over the term of the lease. With respect
to these leases, the Company records the lease payments received
as a reduction in the net investment in the finance lease and
amortizes the interest income using a constant interest rate.
The aircraft under finance and sales-type leases are recorded on
the Companys Consolidated Balance Sheets in Net
investment in finance leases. At December 31, 2003,
the Company accounted for 611 aircraft as operating leases
and nine aircraft as finance leases.

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. 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
are sold 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 many
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 in the Companys Consolidated
Statements 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 in the
Companys Consolidated Statements 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 United States 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.

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, the applicable form of currency
remains for the term of the

2



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lease. The Company believes it 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 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 parties.

During the life of the lease, situations have
arisen whereby 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
and extention of the lease terms. In many situations where the
Company repossesses an aircraft, it exports the aircraft from
the lessees jurisdiction. In the majority of these
situations, the Company has obtained the lessees
cooperation and the return and export of the aircraft was
immediate. In some situations, however, the lessees have not
fully 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 not owned by the Company but operated
by the lessee.

Flight Equipment Marketing

The Company 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. From time to time, the Company 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. In 2003 and early 2004, the
Company sold aircraft into securitization trusts which are
primarily funded and owned by other subsidiaries of the
Companys parent and are consolidated by the Companys
parent, AIG. The transactions were structured as
securitizations. See Managements Discussion and
Analysis and Results of Operations  Related
Parties for more information on these transactions. Any
gain or loss on disposition of leased aircraft is included in
the caption Flight equipment marketing in the
Companys Consolidated Statements of Income.

From time to time, the Company is engaged as an
agent for airlines and various financial institutions in the
disposition of their surplus aircraft on a fee basis. The
Company generally acts as an agent under an exclusive
remarketing contract whereby it agrees to sell aircraft on a
commercially reasonable 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, other financial
institutions and airlines to assist in financing aircraft
purchased by others and 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 nor compete with, but
rather will complement 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. In connection with the sales of
aircraft to trusts discussed above, the Company was retained to
provide fleet management services for the aircraft sold for
which it receives fees from the trust. The fees for fleet
management services are included in Other income in
the Companys Consolidated Statements of Income.

3



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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, 2003, the Company leased aircraft
to customers in the following regions:

Customers by Region

|                             |  |              |     |      |  |              |       |   |  |              |     |   |  |  |       |  |  |  |     |  |  |  |       | 
|---------------------------- |  | ------------ | --- | ---- |  | ------------ | ----- | - |  | ------------ | --- | - |  |  | ----- |  |  |  | --- |  |  |  | ----- | 
|                             |  |              |     |      |  |             
|                             |  | 2003         |     | 2002 |  | 2001        
|                             |  |              |     |      |  |             
|                             |  | Number       |     |      |  | Number       |       |   |  | Number       |     |  
|Regions                      |  | of Customers |     | %    |  | of Customers |       | % |  | of Customers |     | %
|                             |  |              |     |      |  |              |       |   |  |              |     |  
|Europe                       |  |              | 65  |      |  |              | 47.1% |   |  |              | 66  |   |  |  | 47.5% |  |  |  | 48  |  |  |  | 40.7% | 
|Asia/Pacific                 |  |              | 32  |      |  |              | 23.1  |   |  |              | 31  |   |  |  | 22.3  |  |  |  | 30  |  |  |  | 25.4  | 
|US/Canada                    |  |              | 20  |      |  |              | 14.5  |   |  |              | 17  |   |  |  | 12.2  |  |  |  | 17  |  |  |  | 14.4  | 
|Central/South America/Mexico |  |              | 11  |      |  |              | 8.0   |   |  |              | 14  |   |  |  | 10.1  |  |  |  | 13  |  |  |  | 11.0  | 
|Africa/Middle East           |  |              | 10  |      |  |              | 7.3   |   |  |              | 11  |   |  |  | 7.9   |  |  |  | 10  |  |  |  | 8.5   | 
|                             |  |              |     |      |  |              |       |   |  |              |     |   |  |  |       |  |  |  |     |  |  |  |       | 
|                             |  |              | 138 |      |  |              | 100%  |   |  |              | 139 |   |  |  | 100%  |  |  |  | 118 |  |  |  | 100%  | 
|                             |  |              |     |      |  |              |       |   |  |              |     |   |  |  |       |  |  |  |     |  |  |  |       | 

No single customer accounted for more than 10% of
total revenues.

Revenues include rentals of flight equipment to
foreign airlines of $2,625,315,000 (2003), $2,317,619,000
(2002), and $2,173,778,000 (2001) comprising 89.3%, 86.5% and
87.9%, 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:

|                                     |  |                        |           |      |  |        |      |   |  |        |           |   |  |  |      |   |  |   |           |  |  |  |       |  
|------------------------------------ |  | ---------------------- | --------- | ---- |  | ------ | ---- | - |  | ------ | --------- | - |  |  | ---- | - |  | - | --------- |  |  |  | ----- | -
|                                     |  |                        |           |      |  |       
|                                     |  | 2003                   |           | 2002 |  | 2001  
|                                     |  |                        |           |      |  |       
|                                     |  | Amount                 |           | %    |  | Amount |      | % |  | Amount |           | %
|                                     |  |                        |           |      |  |        |      |   |  |        |           |  
|                                     |  |                       
|                                     |  | (Dollars in thousands)
|Europe                               |  | $                      | 1,398,847 |      |  |        | 47.6 | % |  | $      | 1,236,123 |   |  |  | 46.2 | % |  | $ | 1,160,793 |  |  |  | 47.0  | %
|Asia/Pacific                         |  |                        | 690,533   |      |  |        | 23.5 |   |  |        | 601,775   |   |  |  | 22.5 |   |  |   | 523,630   |  |  |  | 21.2  |  
|United States and Canada             |  |                        | 437,388   |      |  |        | 14.9 |   |  |        | 481,507   |   |  |  | 18.0 |   |  |   | 455,680   |  |  |  | 18.4  |  
|Central and South America and Mexico |  |                        | 224,748   |      |  |        | 7.6  |   |  |        | 202,688   |   |  |  | 7.5  |   |  |   | 199,026   |  |  |  | 8.0   |  
|Africa and the Middle East           |  |                        | 189,580   |      |  |        | 6.4  |   |  |        | 155,783   |   |  |  | 5.8  |   |  |   | 134,655   |  |  |  | 5.4   |  
|                                     |  |                        |           |      |  |        |      |   |  |        |           |   |  |  |      |   |  |   |           |  |  |  |       |  
|                                     |  | $                      | 2,941,096 |      |  |        | 100  | % |  | $      | 2,677,876 |   |  |  | 100  | % |  | $ | 2,473,784 |  |  |  | 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:

|               |  |                        |         |      |  |        |      |   |  |        |         |   |  |  |      |   |  |   |         |  |  |  |      |  
|-------------- |  | ---------------------- | ------- | ---- |  | ------ | ---- | - |  | ------ | ------- | - |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|               |  |                        |         |      |  |       
|               |  | 2003                   |         | 2002 |  | 2001  
|               |  |                        |         |      |  |       
|               |  | Amount                 |         | %    |  | Amount |      | % |  | Amount |         | %
|               |  |                        |         |      |  |        |      |   |  |        |         |  
|               |  |                       
|               |  | (Dollars in thousands)
|France         |  | $                      | 345,200 |      |  |        | 11.7 | % |  | $      |        |   |  |  |     | % |  | $ |        |  |  |  |     | %
|China          |  |                        | 321,805 |      |  |        | 10.9 |   |  |        | 282,776 |   |  |  | 10.6 |   |  |   | 265,871 |  |  |  | 10.8 |  
|United States  |  |                        | 315,781 |      |  |        | 10.7 |   |  |        | 360,257 |   |  |  | 13.5 |   |  |   | 300,006 |  |  |  | 12.1 |  
|United Kingdom |  |                        |        |      |  |        |     |   |  |        | 276,185 |   |  |  | 10.3 |   |  |   | 283,090 |  |  |  | 11.4 |  

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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 which has caused downward pressure on
lease rates and lease revenue and, possibly, aircraft values. As
the overcapacity is absorbed in the market place, the Company
expects lease rates to rebound.

Government Regulation

The U.S. Department of State
(DOS) and the U.S. Department of Transportation
(DOT) including the FAA, an agency of the DOT,
exercise regulatory authority over air transportation in the
United States.

The DOS and DOT, 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 Company is
not directly subject to the regulatory jurisdiction of the DOS
and DOT or their counterpart organizations in foreign countries
related to the operation of aircraft for public transportation
of passengers and property.

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. When an aircraft is not
on lease, the Company may obtain from the FAA, or its designated
representatives, a U.S. Certificate of Airworthiness or a
ferry flight permit for the particular aircraft.

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 those countries registries.

The U.S. Department of Commerce (DOC)
exercises regulatory authority over exports. The Company is
subject to the regulatory authority of the DOS and DOC as it
relates to the export of aircraft for lease and sale to foreign
entities and the export of parts to be installed on the
Companys aircraft. These Departments have, in some cases,
required the Company to obtain export licenses for parts
exported to foreign countries.

The Patriot Act of 2001 gave the Secretary of
State and the Secretary of Treasury the authority to
(a) designate individuals and organizations as terrorists
and terrorist supporters and to freeze their U.S. assets and
(b) prohibit financial transactions with U.S. persons,
including U.S. individuals, entities and charitable
organizations. The Company must comply with the provisions of
this Act and closely monitor its activities with foreign
entities.

A bureau of the U.S. Department of the Treasury,
the U.S. Customs Service, enforces regulations related to the
import of the Companys aircraft into the United States for
maintenance or lease and the importation of parts for
installation on the Companys aircraft. The Company
monitors its imports for compliance with U.S. Customs
regulations.

Employees

The Company is in a capital intensive rather than
a labor intensive business. As of December 31, 2003, the
Company had 129 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

5



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##### Table of Contents



including retirement, health, life, disability
and accident insurance plans, some of which are established by
its parent, AIG.


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
lessees 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. 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 for cancellation 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 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

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##### Table of Contents



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.





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
leasing strategies. 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, 2003, 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, 2003, the average age of the Companys
aircraft was 5.22 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, 2003:

|                |  |      |    |      |  |      |     |      |  |      |     |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |     | 
|--------------- |  | ---- | -- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ----- |  |  | -- |  |  |  | -- |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | --- | 
|Aircraft Type   |  | 2004 |    | 2005 |  | 2006 |     | 2007 |  | 2008 |     | 2009 |  | 2010 |    | 2011 |  | 2012 |    | 2013 |  | 2014 |    | 2015 |  | 2016 |    | 2017 |  | 2018 |    | Total
|                |  |      |    |      |  |      |     |      |  |      |     |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      
|737-300/400/500 |  |      | 7  |      |  |      | 21  |      |  |      | 16  |      |  |      | 11 |      |  |      | 4  |      |  |      | 2  |      |  |      |    |      |  |      |    |       |  |  | 4  |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 65  | 
|737-600/700/800 |  |      | 1  |      |  |      | 5   |      |  |      | 14  |      |  |      | 12 |      |  |      | 11 |      |  |      | 3  |      |  |      | 17 |      |  |      | 22 |       |  |  | 9  |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  | 5 |  |  |  | 6 |  |  |  | 2 |  |  |  | 107 | 
|757-200         |  |      | 1  |      |  |      | 17  |      |  |      | 12  |      |  |      | 18 |      |  |      | 9  |      |  |      |    |      |  |      | 2  |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 59  | 
|767-200         |  |      |    |      |  |      |     |      |  |      | 3   |      |  |      | 1  |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 4   | 
|767-300         |  |      | 3  |      |  |      | 14  |      |  |      | 10  |      |  |      | 6  |      |  |      | 10 |      |  |      | 5  |      |  |      | 1  |      |  |      |    |       |  |  | 3  |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 52  | 
|777-200         |  |      |    |      |  |      | 4   |      |  |      | 3   |      |  |      | 4  |      |  |      | 4  |      |  |      |    |      |  |      |    |      |  |      | 2  |       |  |  | 3  |  |  |  | 3  |  |  |  |   |  |  |  | 1 |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 24  | 
|777-300         |  |      |    |      |  |      |     |      |  |      |     |      |  |      | 1  |      |  |      | 1  |      |  |      |    |      |  |      | 3  |      |  |      | 3  |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 8   | 
|747-300         |  |      |    |      |  |      | 2   |      |  |      |     |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 2   | 
|747-400         |  |      |    |      |  |      | 4   |      |  |      |     |      |  |      | 1  |      |  |      | 4  |      |  |      | 6  |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 15  | 
|MD-82/83        |  |      | 5  |      |  |      |     |      |  |      |     |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 5   | 
|DC10-30         |  |      |    |      |  |      |     |      |  |      |     |      |  |      |    |      |  |      | 2  |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 2   | 
|MD-11           |  |      |    |      |  |      | 5   |      |  |      | 3   |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 8   | 
|A300-600R       |  |      |    |      |  |      | 2   |      |  |      | 1   |      |  |      | 2  |      |  |      | 1  |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 6   | 
|A310            |  |      | 2  |      |  |      | 3   |      |  |      | 1   |      |  |      |    |      |  |      | 2  |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 8   | 
|A319            |  |      |    |      |  |      | 6   |      |  |      | 6   |      |  |      | 1  |      |  |      | 10 |      |  |      | 6  |      |  |      |    |      |  |      |    |       |  |  | 4  |  |  |  | 9  |  |  |  | 2 |  |  |  | 1 |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 45  | 
|A320            |  |      | 4  |      |  |      | 5   |      |  |      | 22  |      |  |      | 8  |      |  |      | 7  |      |  |      | 12 |      |  |      |    |      |  |      | 2  |       |  |  | 7  |  |  |  | 8  |  |  |  |   |  |  |  | 1 |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 76  | 
|A321            |  |      | 2  |      |  |      | 5   |      |  |      | 9   |      |  |      | 7  |      |  |      | 5  |      |  |      | 7  |      |  |      | 4  |      |  |      |    |       |  |  |    |  |  |  | 4  |  |  |  | 1 |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 44  | 
|A330-200        |  |      |    |      |  |      | 1   |      |  |      | 6   |      |  |      |    |      |  |      | 6  |      |  |      | 16 |      |  |      | 1  |      |  |      | 2  |       |  |  | 7  |  |  |  | 3  |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 42  | 
|A330-300        |  |      |    |      |  |      | 6   |      |  |      | 4   |      |  |      |    |      |  |      | 1  |      |  |      | 1  |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 12  | 
|A340            |  |      | 2  |      |  |      | 4   |      |  |      | 7   |      |  |      | 4  |      |  |      | 1  |      |  |      | 1  |      |  |      | 1  |      |  |      |    |       |  |  | 1  |  |  |  | 1  |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  | 22  | 
|                |  |      |    |      |  |      |     |      |  |      |     |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |  |  |  |    |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |     | 
|Total           |  |      | 27 |      |  |      | 104 |      |  |      | 117 |      |  |      | 76 |      |  |      | 78 |      |  |      | 59 |      |  |      | 29 |      |  |      | 31 |       |  |  | 38 |  |  |  | 28 |  |  |  | 3 |  |  |  | 3 |  |  |  | 5 |  |  |  | 6 |  |  |  | 2 |  |  |  | 606 | 




This schedule excludes five aircraft which were
not subject to lease at December 31, 2003, all of which
were subsequently leased. As of March 5, 2004, leases
covering 16 of the 27 aircraft with lease expiration dates
in 2004 had been extended or leased to other customers.

7



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##### Table of Contents



Commitments

At December 31, 2003, the Company had
committed to purchase the following new aircraft at an estimated
aggregate purchase price (including adjustment for anticipated
inflation) of approximately $25.7 billion for delivery as
shown:

|                   |       |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |    |  |  |    |    |  |  |   |   |  |  |     |     | 
|------------------ | ----- | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ----- |  |  | -- | -- |  |  | -- | -- |  |  | - | - |  |  | --- | --- | 
|Aircraft Type      |       | 2004 |    | 2005 |  | 2006 |    | 2007 |  | 2008 |    | 2009 |  | 2010 |    | Total
|                   |       |      |    |      |  |      |    |      |  |      |    |      |  |      |    |      
|737-600/700/800(a) |       |      | 25 |      |  |      | 22 |      |  |      | 23 |      |  |      | 23 |       |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 93  |    
|777-200            |       |      | 5  |      |  |      | 6  |      |  |      | 5  |      |  |      | 3  |       |  |  | 2  |    |  |  | 3  |    |  |  |   |   |  |  | 24  |    
|777-300            |       |      | 4  |      |  |      | 1  |      |  |      | 1  |      |  |      | 2  |       |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 8   |    
|747-400            |       |      | 2  |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 2   |    
|A318-100(b)        |       |      |    |      |  |      |    |      |  |      | 4  |      |  |      | 5  |       |  |  |    |    |  |  |    |    |  |  |   |   |  |  | 9   |    
|A319-100           |       |      | 19 |      |  |      | 27 |      |  |      | 18 |      |  |      | 13 |       |  |  | 14 |    |  |  | 7  |    |  |  |   |   |  |  | 98  |    
|A320-200           |       |      | 19 |      |  |      | 18 |      |  |      | 19 |      |  |      | 19 |       |  |  | 22 |    |  |  | 10 |    |  |  |   |   |  |  | 107 |    
|A321-200           |       |      | 4  |      |  |      | 5  |      |  |      | 10 |      |  |      | 9  |       |  |  | 11 |    |  |  | 5  |    |  |  |   |   |  |  | 44  |    
|A330-200/300(a)    |       |      | 6  |      |  |      | 8  |      |  |      | 8  |      |  |      | 8  |       |  |  | 8  |    |  |  |    |    |  |  |   |   |  |  | 38  |    
|A340-600           |       |      |    |      |  |      | 4  |      |  |      |    |      |  |      |    |       |  |  | 2  |    |  |  |    |    |  |  |   |   |  |  | 6   |    
|A380-100           |       |      |    |      |  |      |    |      |  |      |    |      |  |      | 1  |       |  |  | 3  |    |  |  | 3  |    |  |  | 2 |   |  |  | 9   |    
|                   |       |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |    |  |  |    |    |  |  |   |   |  |  |     |    
|                   | Total |      |    | 84   |  |      |    | 91   |  |      |    | 88   |  |      |    | 83    |  |  |    | 62 |  |  |    | 28 |  |  |   | 2 |  |  |     | 438 | 
|                   |       |      |    |      |  |      |    |      |  |      |    |      |  |      |    |       |  |  |    |    |  |  |    |    |  |  |   |   |  |  |     |    






|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | 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, 2003, the Company had
committed to purchase the following 25 used aircraft at an
estimated aggregate purchase price of approximately
$500.0 million:

|              |       |      |   |      |  |      |   |      |  |      |  |      |  |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  |  |   |    | 
|------------- | ----- | ---- | - | ---- |  | ---- | - | ---- |  | ---- |  | ---- |  | ---- |  | ----- |  |  |  | - |  |  |  | - |  |  |  | - |  |  | - | -- | 
|Aircraft Type |       | 2004 |   | 2005 |  | 2006 |   | 2007 |  | 2008 |  | 2009 |  | 2010 |  | Total
|              |       |      |   |      |  |      |   |      |  |      |  |      |  |      |  |      
|737-400/500   |       |      | 7 |      |  |      |   |      |  |      |  |      |  |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 7 |   
|757-200       |       |      | 4 |      |  |      | 4 |      |  |      |  |      |  |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 8 |   
|767-300       |       |      |   |      |  |      | 1 |      |  |      |  |      |  |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|747-400       |       |      |   |      |  |      | 2 |      |  |      |  |      |  |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 2 |   
|MD82-83       |       |      | 7 |      |  |      |   |      |  |      |  |      |  |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 7 |   
|              |       |      |   |      |  |      |   |      |  |      |  |      |  |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  |  |   |   
|              | Total |      |   | 18   |  |      |   | 7    |  |      |  | 0    |  |      |  | 0     |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |   | 25 | 
|              |       |      |   |      |  |      |   |      |  |      |  |      |  |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  |  |   |   

At December 31, 2003, the Company had
options to purchase the following new aircraft at an estimated
aggregate purchase price (including adjustment for anticipated
inflation) of approximately $704.8 million for delivery as
shown:

|               |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |       |  |  |   |   |  |  |  |   |  |  |  |   |  |  |   |    | 
|-------------- | ----- | ---- |  | ---- |  | ---- | - | ---- |  | ---- | - | ---- |  | ---- | - | ----- |  |  | - | - |  |  |  | - |  |  |  | - |  |  | - | -- | 
|Aircraft Type  |       | 2004 |  | 2005 |  | 2006 |   | 2007 |  | 2008 |   | 2009 |  | 2010 |   | Total
|               |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |      
|737-700/800(a) |       |      |  |      |  |      | 1 |      |  |      | 2 |      |  |      | 3 |       |  |  |   |   |  |  |  |   |  |  |  |   |  |  | 6 |   
|777-200/300(a) |       |      |  |      |  |      |   |      |  |      | 1 |      |  |      | 1 |       |  |  | 1 |   |  |  |  |   |  |  |  |   |  |  | 3 |   
|A318-100       |       |      |  |      |  |      |   |      |  |      | 1 |      |  |      |   |       |  |  |   |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|A380-100       |       |      |  |      |  |      |   |      |  |      |   |      |  |      | 1 |       |  |  |   |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|               |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |       |  |  |   |   |  |  |  |   |  |  |  |   |  |  |   |   
|               | Total |      |  | 0    |  |      |   | 1    |  |      |   | 4    |  |      |   | 5     |  |  |   | 1 |  |  |  | 0 |  |  |  | 0 |  |  |   | 11 | 
|               |       |      |  |      |  |      |   |      |  |      |   |      |  |      |   |       |  |  |   |   |  |  |  |   |  |  |  |   |  |  |   |   






|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

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

8



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##### Table of Contents



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.


The new 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, 2003, 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 $600.0 million and $520.0 million with
Boeing and Airbus, respectively.

As of March 5, 2004, the Company had entered
into contracts for the lease of new aircraft deliverable through
2010 as follows:

|              |  |           |    |        |  |          |    |  |  |  |     |  
|------------- |  | --------- | -- | ------ |  | -------- | -- |  |  |  | --- | -
|              |  | Number of |    | Number |  |         
|Delivery Year |  | Aircraft  |    | Leased |  | % Leased
|              |  |           |    |        |  |         
|2004          |  |           | 84 |        |  |          | 84 |  |  |  | 100 | %
|2005          |  |           | 91 |        |  |          | 63 |  |  |  | 69  |  
|2006          |  |           | 88 |        |  |          | 14 |  |  |  | 16  |  
|2007          |  |           | 83 |        |  |          | 12 |  |  |  | 14  |  
|Thereafter    |  |           | 92 |        |  |          | 4  |  |  |  | 4   |  

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 10250 Constellation Blvd., Suite 3400, Los Angeles,
California. The Company occupies space under leases which expire
in 2015. As of March 1, 2004, the Company occupied
approximately 127,000 square feet of office space. The
leases provide for annual rentals of approximately $9,000,000,
and the rental payments thereunder are subject to certain
indexed escalation provisions.




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,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

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, 2003, 2002 and 2001, the Company paid
cash dividends to its parent company of $49,000,000,
$26,000,000, and $83,500,000, respectively. It is the intention
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, 2003 in the
amount of $1,623,165,000 were unrestricted as to the payment of
dividends.

9



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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,     
|                                                                              |                          |                              
|                                                                              |                          | 2003                          |            | 2002 |  | 2001 |            | 2000 |  | 1999
|                                                                              |                          |                               |            |      |  |      |            |      |  |     
|                                                                              |                          |                              
|                                                                              |                          | (Dollar amounts in thousands)
|Operating Data:                                                               |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |    
|Rentals of flight equipment                                                   |                          | $                             | 2,941,096  |      |  | $    | 2,677,876  |      |  | $    | 2,473,784  |     |  | $ | 2,301,440  |     |  | $ | 2,080,555  |    
|Flight equipment marketing                                                    |                          |                               | 64,321     |      |  |      | 66,315     |      |  |      | 62,883     |     |  |   | 99,716     |     |  |   | 147,216    |    
|Interest and other income                                                     |                          |                               | 48,516     |      |  |      | 104,718    |      |  |      | 80,046     |     |  |   | 77,589     |     |  |   | 72,317     |    
|Total revenues                                                                |                          |                               | 3,053,933  |      |  |      | 2,848,909  |      |  |      | 2,616,713  |     |  |   | 2,478,745  |     |  |   | 2,300,088  |    
|Expenses                                                                      |                          |                               | 2,303,665  |      |  |      | 2,055,606  |      |  |      | 1,862,994  |     |  |   | 1,772,552  |     |  |   | 1,596,683  |    
|Income before income taxes and cumulative effect
    of accounting change     |                          |                               | 750,268    |      |  |      | 793,303    |      |  |      | 753,719    |     |  |   | 706,193    |     |  |   | 703,405    |    
|Net income                                                                    |                          |                               | 506,265    |      |  |      | 528,524    |      |  |      | 517,091    |     |  |   | 470,889    |     |  |   | 461,629    |    
|Lease margin(a)                                                               |                          |                               | 21.67%     |      |  |      | 23.24%     |      |  |      | 24.69%     |     |  |   | 22.98%     |     |  |   | 23.26%     |    
|Operating margin(b)                                                           |                          |                               | 24.57%     |      |  |      | 27.85%     |      |  |      | 28.80%     |     |  |   | 28.49%     |     |  |   | 30.58%     |    
|Ratio of Earnings to Fixed Charges and
    Preferred Stock Dividends(c):      |                          |                               | 1.68x      |      |  |      | 1.74x      |      |  |      | 1.75x      |     |  |   | 1.68x      |     |  |   | 1.75x      |    
|Balance Sheet Data:                                                           |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |    
|Flight equipment under operating leases (net of
    accumulated depreciation) |                          | $                             | 28,664,018 |      |  | $    | 25,287,747 |      |  | $    | 20,983,197 |     |  | $ | 17,878,389 |     |  | $ | 16,096,053 |    
|Net investment in finance and sales-type leases                               |                          |                               | 303,373    |      |  |      | 150,611    |      |  |      | 142,013    |     |  |   | 114,062    |     |  |   | 56,555     |    
|Total assets                                                                  |                          |                               | 31,705,072 |      |  |      | 27,476,117 |      |  |      | 23,153,421 |     |  |   | 19,700,170 |     |  |   | 17,516,554 |    
|Total debt                                                                    |                          |                               | 21,852,743 |      |  |      | 18,977,267 |      |  |      | 15,826,296 |     |  |   | 13,436,181 |     |  |   | 11,861,796 |    
|Shareholders equity                                                          |                          |                               | 5,216,116  |      |  |      | 4,618,679  |      |  |      | 4,023,791  |     |  |   | 3,514,670  |     |  |   | 3,259,095  |    
|Other Data:                                                                   |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |    
|Aircraft lease portfolio at period end(d):                                    |                          |                               |            |      |  |      |            |      |  |      |            |     |  |   |            |     |  |   |            |    
|                                                                              | Owned                    |                               |            | 611  |  |      |            | 543  |  |      |            | 453 |  |   |            | 383 |  |   |            | 338 | 
|                                                                              | Leased in                |                               |            |     |  |      |            | 13   |  |      |            | 18  |  |   |            | 19  |  |   |            | 19  | 
|                                                                              | Subject to finance lease |                               |            | 9    |  |      |            | 5    |  |      |            | 4   |  |   |            | 3   |  |   |            | 2   | 
|Aircraft sold or remarketed during the period                                 |                          |                               | 42         |      |  |      | 8          |      |  |      | 7          |     |  |   | 20         |     |  |   | 51         |    



---



|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

10



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##### Table of Contents






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

Overview

International Lease Finance Corporation
(the Company, we, our,
us) primarily acquires new jet transport aircraft
from Boeing and Airbus and leases these aircraft to airlines
throughout the world. In addition to this leasing activity, we
sell aircraft from our leased aircraft fleet to other leasing
companies, financial services companies and airlines. In some
cases, we provide fleet management services to companies with
aircraft portfolios for a management fee. We have also provided
asset value guarantees and loan guarantees to the buyers of
aircraft or to financial institutions for a fee. We also
remarket and sell aircraft owned or managed by others for a fee.

As of December 31, 2003, we owned 611
aircraft, had nine aircraft in the fleet that were classified as
finance leases, and provided fleet management services for 69
aircraft. We have contracted with Airbus and Boeing to buy 438
new aircraft for delivery through 2010 with an estimated
purchase price of $25.7 billion, 84 of which will deliver
during 2004.

Our primary source of revenue is from operating
leases. One measure of profitability we use is a ratio called
lease margin, which is calculated using lease revenue minus
total expenses divided by lease revenue. Lease margins have
contracted over the last two years as a result of higher
incidents of restructurings of leases with troubled airlines and
repossessions of aircraft from lessees. The airline industry has
been faced with many challenges such as higher fuel costs,
terrorism and Severe Acute Respiratory Syndrome
(SARS), among others. The market lease rate for
aircraft decreased as excess aircraft were available from
airlines with reduced capacity, idled aircraft and airlines
which ceased operations over the past two years. We believe the
airline industry is improving and lease rates will recover over
a period of prolonged economic recovery. We are well-positioned
in the current industry environment with signed lease agreements
for all of our 2004 deliveries of new aircraft. There is,
however, a lag between changes in market conditions and their
impact on our results, as contracts that are signed during times
of lower lease rates are still in effect as the market lease
rates rise. Therefore, the improvement in the airline industry
has yet to be completely reflected in our financial performance.
Recent market trends indicate a modest increase in lease rates
for the most desirable Airbus and Boeing twin engine single
aisle and wide body aircraft for placements beginning in the
second half of 2004 and beyond. Airline passenger and cargo
traffic worldwide has again exhibited measured growth since late
2003. If such traffic growth can be sustained, it should benefit
the economic recovery of the commercial airline industry.

Risk Factors Affecting International Lease
Finance Corporation

Our business is subject to numerous risks and
uncertainties, as described below and in the section titled
Quantitative and Qualitative Disclosures about Market
Risk.

Overall Airline Industry Risk

We operate as a supplier and financier to
airlines. The risks affecting our airline customers are
generally out of our control and impact our customers to varying
degrees. As a result, we are indirectly impacted by all the
risks facing airlines today. Our ability to succeed is dependent
on the financial strength of our customers. Our customers
ability to compete effectively in the market place and manage
these risks has a direct impact on us. These risks include:



| |   |                                               
| | - | ----------------------------------------------
| |  | Demand for air travel                         
|
| |  | Competition between carriers                  
|
| |  | Fuel prices and availability                  
|
| |  | Labor costs                                   
|
| |  | Maintenance costs and stoppages               
|
| |  | Employee labor contracts                      
|
| |  | Air traffic control infrastructure constraints
|
| |  | Insurance costs                               
|
| |  | Security, terrorism and war                   
|
| |  | Health concerns                               
|
| |  | Equity and borrowing capacity                 
|
| |  | Environmental concerns                        
|
| |  | Government regulation                         
|
| |  | Interest rates                                

11



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##### Table of Contents



To the extent that our customers experience the
negative impact of these risk factors, we may experience



| |   |                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A downward pressure on demand for the aircraft in
    our fleet and reduced market lease rates and lease margins.                                                                                                                                                                                                                     
|
| |  | A higher incident of lessee defaults and
    repossessions resulting in lower lease margins due to
    maintenance, consulting and legal costs associated with the
    repossession, as well as lost revenue for the time the aircraft
    are off lease and possibly lower lease rates from the new
    lessees.                     
|
| |  | A higher incident of situations where we engage
    in restructuring lease rates for our troubled customers which
    reduces overall lease margins.                                                                                                                                                                                  
|
| |  | An inability to immediately place new and used
    aircraft when they become available through our purchase
    commitments and regular lease terminations on commercially
    accepted terms, resulting in lower lease margins due to aircraft
    not earning revenue and resulting in storage, insurance and
    maintenance costs.

Manufacturer Risk

The supply of jet transport aircraft, which we
purchase and lease, is dominated by two airframe manufacturers,
Boeing and Airbus, and a limited number of engine manufacturers.
As a result, we are dependent on the manufacturers success
in remaining financially stable, producing aircraft and related
components which meet the airlines demands, both in type
and quantity and fulfilling their contractual obligations to us.
We have mitigated this risk, to the extent possible, by
maintaining good relationships with all the manufacturers and
monitoring their financial stability and production plans.
Should the manufacturers fail to respond appropriately to
changes in the market environment or fail to fulfill their
contractual obligations, we may experience:



| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Missed or late delivery of aircraft ordered by us
    and an inability to meet our contractual obligations to our
    customers, resulting in lost or delayed revenues, lower growth
    rates and strained customer relationships.                                                     
|
| |  | An inability to acquire aircraft and related
    components on terms which will allow us to lease those aircraft
    to customers at a profit, resulting in lower growth rates or a
    contraction in our fleet.                                                                       
|
| |  | A market place with too many aircraft available,
    creating a downward pressure on demand for the aircraft in our
    fleet and reduced market lease rates.                                                                                                                           
|
| |  | Poor customer support from the manufacturers of
    aircraft and components resulting in a reduced demand for a
    particular manufacturers product, creating a downward
    pressure on demand for those aircraft in our fleet and reduced
    market lease rates for those aircraft.

Borrowing Risks

Liquidity
We are heavily dependent on our ability to borrow the necessary
funds to finance the purchase of aircraft and to have sufficient
funds to repay our existing debt obligations. Our liquidity is
dependent on having continued access to debt markets and
maintaining our credit ratings. We manage this risk by
maintaining access to many debt markets throughout the world.
With insufficient liquidity we could potentially experience:



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An inability to acquire aircraft, for which we
    have signed contracts, resulting in lower growth, lost revenue
    and strained manufacturer and customer relationships.                                        
|
| |  | An inability to meet our debt maturities as they
    become due, resulting in payment defaults, non-compliance with
    debt covenants, reduced credit ratings and an inability to
    access certain debt markets.

Interest Rate
Risks We are impacted by
fluctuations in interest rates. Our lease rates are generally
fixed. Changes, both increases and decreases, in our cost of
borrowing, as reflected in our composite interest rate, directly
impact our lease margin. We manage the interest rate volatility
and uncertainty by maintaining a

12



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##### Table of Contents



balance between fixed and floating rate debt,
through derivative instruments and through matching debt
maturities with lease maturities.


Other Risks

Residual
Value We bear the risk of
re-leasing or selling the aircraft in our fleet that are subject
to operating leases at the end of their lease terms. If demand
for aircraft decreases, our average fleet age may increase
because of an inability to sell, and market lease rates may
decrease. Should this condition continue for an extended period,
it could affect the market value of aircraft in our fleet and
may result in impairment charges in accordance with Statement of
Financial Accounting Standard
(SFAS) No. 144 Accounting for the
Impairment or Disposal of Long-lived Assets. See
Management Discussion and Analysis of Financial Condition and
Results of Operations  Critical Accounting Polices
and Estimates  Flight Equipment.

Obsolescence
Risk Aircraft are
long-lived assets requiring long lead times to develop and
manufacturer. As a result, aircraft of a particular model and
type tend to become obsolete and less in demand over time, when
newer more advanced and efficient aircraft are manufactured.
This life cycle, however, can be shortened by world events,
government regulation or customer preferences. We manage this
risk by purchasing and maintaining a mix of flight equipment
which we feel will meet our customers long-term needs, and
will have the greatest airline demand and operational longevity.
As aircraft in our fleet approach obsolescence, demand for that
particular model and type will decrease. This may result in
lease margins compressing or may result in impairment charges in
accordance with SFAS 144.

Key
Personnel Our future
success is dependent upon, among other things, the retention of
our executive management team. There can be no assurance that we
will be able to retain our executive officers and other key
employees. The loss of the services of any of our executive
officers or key employees could disrupt our operations.

Industry Condition

The Companys sources of revenue are
principally from scheduled and charter 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. 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.

The Company generates approximately 20% of its
revenue from customers based in Asia and the Pacific region, and
has many other customers who operate flights to and from those
areas. Travel between Asia and the rest of the world was
negatively affected during 2003 by the outbreak of SARS. Many
airlines in Asia and those traveling to Asia curtailed flights
in response to the reluctance of people to travel to Asia during
the first six months of 2003. Travel to Asia has, however,
returned to historical levels since the World Health
Organization lifted warnings against visits to SARS affected
countries in the second quarter of 2003.

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. Many airlines still face significant economic
challenges. Air carriers are experiencing increased competition
from low

13



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##### Table of Contents



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 2002 and 2003 had a negative impact on the Companys
results of operations in 2003. During 2003, two of the
Companys customers, Avianca (one owned aircraft) and
Hawaiian Airlines (four owned aircraft), filed for protection
under Chapter 11 of the United States Bankruptcy Code and
four of the Companys customers, Air Canada (eleven owned
and one managed aircraft), Aero Lloyd Flugreisen (eight
owned aircraft), Eagle Aviation (one owned and one managed
aircraft) and Aeris (three owned and one managed aircraft),
filed for protection under their respective countrys
bankruptcy laws. The Company subsequently renegotiated the
leases or placed the aircraft previously leased to those
airlines with other airlines.

The Company experienced a decrease in its lease
margin during 2003 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, and these improvements can be reflected
in lease rates received from our lessees.

On October 16, 2003, Boeing announced that
it had decided to complete production of the 757 jetliner
in late 2004. At December 31, 2003, the Company owned
59 757s, all of which were on lease to airlines. As a
result, the Company reviewed and reduced the residual values on
the Boeing 757 aircraft type to an internally established
value to more appropriately reflect managements
expectations of future values. The change in estimate will be
recorded prospectively, commencing January 1, 2004 and will
have an immaterial effect on the Companys financial
position and results of operations. The Company believes that
the market place had already reflected this event in market
lease rates and market values for these aircraft prior to the
announcement, and the Company has already considered this event
in its most recent impairment analysis. The analysis did not
result in an impairment charge.

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.

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 ratably over the life of the
lease as rentals become receivable under the provisions of the
lease. The straight-line receivable is recorded in Accrued
interest, other receivables and other assets on the
Companys Consolidated Balance Sheets. Past-due rentals are
recognized on the basis of managements assessment of
collectibility. In certain cases, leases provide for additional
rentals based on usage. The usage may be calculated based on
hourly usage or on the number of cycles operated, depending on
the lease contract. A cycle is defined as one take-off and
landing. The usage is typically reported monthly by the lessee.
Rentals received, but unearned under the lease agreements, are
recorded in Rentals received in advance on the
Companys Consolidated Balance Sheets until earned.

14



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##### Table of Contents



Costs related to reconfiguration of aircraft
cabins and other lessee specific modifications are capitalized
and amortized over the life 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
and modifications and capitalized interest 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, 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. Out of production aircraft types are depreciated using
the straight line method over a 25 year life from the date of
manufacture to an established residual value for each aircraft
type. 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. The Companys 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
SFAS 144. SFAS 144 requires that long-lived assets be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets is measured by
comparing the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. These
evaluations for impairment are significantly impacted by
estimates of future revenues and other factors which involves
some amount of uncertainty. The Company has, to date, not had
any impairment writedown of aircraft.

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

Provision for
Overhauls: Under the provisions of
many 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 in the Companys
Consolidated Statement of Income. 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 the appropriateness of
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
existing debt obligations as they mature. These funds are
borrowed principally on an unsecured basis from various sources.
During 2003, the Company borrowed $8.7 billion (excluding
commercial paper) and $2.1 billion was provided by
operating activities to meet its needs. As of December 31,
2003, the Company had committed to purchase 438 new aircraft
from Boeing and Airbus at an estimated aggregate purchase price
of approximately $25.7 billion for delivery through 2010,
of which the Company currently anticipates taking delivery of
84 aircraft in 2004 with an estimated aggregate purchase
price of $4.6 billion. The Company also holds options to
purchase 11 additional new aircraft deliverable through
2008 at an estimated aggregate purchase price of approximately
$704.8 million. In addition, the Company had committed to
purchase 25 used aircraft at an estimated purchase price of
$500.0 million. The Company currently expects to fund
expenditures for capital requirements as well as liquidity needs
from a combination of available cash balances, internally
generated

15



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funds and financing arrangements. At
December 31, 2003, 2002 and 2001, the Companys debt
financing and capital lease obligations were comprised of the
following:


|                                                 |                      |                        |            |            |  |      |           |            |  |   |           |            | 
|------------------------------------------------ | -------------------- | ---------------------- | ---------- | ---------- |  | ---- | --------- | ---------- |  | - | --------- | ---------- | 
|                                                 |                      | 2003                   |            | 2002       |  | 2001
|                                                 |                      |                        |            |            |  |     
|                                                 |                      |                       
|                                                 |                      | (Dollars in thousands)
|Public term debt with single maturities          |                      | $                      | 10,663,275 |            |  | $    | 7,475,775 |            |  | $ | 4,796,330 |           
|Public medium-term notes with varying maturities |                      |                        | 5,960,236  |            |  |      | 4,969,500 |            |  |   | 4,809,000 |           
|Capital lease obligations                        |                      |                        | 143,254    |            |  |      | 260,623   |            |  |   | 365,289   |           
|Synthetic lease obligations                      |                      |                        | 464,222    |            |  |      |          |            |  |   |          |           
|Bank term debt                                   |                      |                        | 3,070,120  |            |  |      | 2,084,793 |            |  |   | 2,368,969 |           
|                                                 |                      |                        |            |            |  |      |           |            |  |   |           |           
|                                                 | Subtotal             |                        |            | 20,301,107 |  |      |           | 14,790,691 |  |   |           | 12,339,588 | 
|Commercial paper                                 |                      |                        | 1,575,957  |            |  |      | 4,218,504 |            |  |   | 3,501,865 |           
|Less: Deferred debt discount                     |                      |                        | (24,321    | )          |  |      | (31,928   | )          |  |   | (15,157   | )         
|                                                 |                      |                        |            |            |  |      |           |            |  |   |           |           
|                                                 | Total debt financing |                        | $          | 21,852,743 |  |      | $         | 18,977,267 |  |   | $         | 15,826,296 | 
|                                                 |                      |                        |            |            |  |      |           |            |  |   |           |           
|Composite interest rate                          |                      |                        | 4.53%      |            |  |      | 4.73%     |            |  |   | 5.07%     |           
|Percentage of total debt at fixed rate           |                      |                        | 77.07%     |            |  |      | 76.67%    |            |  |   | 78.81%    |           
|Composite interest rate on fixed debt            |                      |                        | 5.29%      |            |  |      | 5.69%     |            |  |   | 5.78%     |           
|Bank prime rate                                  |                      |                        | 4.00%      |            |  |      | 4.25%     |            |  |   | 4.75%     |           

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

|                                                                                                                                                           |  |                       |       |                   |  |               |       |     |  |   |       |    
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ----- | ----------------- |  | ------------- | ----- | --- |  | - | ----- | ---
|                                                                                                                                                           |  | Maximum               |       | Sold as of        |  | Sold as of   
|                                                                                                                                                           |  | Offering              |       | December 31, 2003 |  | March 1, 2004
|                                                                                                                                                           |  |                       |       |                   |  |              
|                                                                                                                                                           |  |                      
|                                                                                                                                                           |  | (Dollars in millions)
|Registration statement dated December 20,
    2002 (including $2.88 billion Medium-Term Note program and
    $1.0 billion Retail Medium-Term Note Program) |  | $                     | 6,080 | (a)               |  | $             | 5,437 |     |  | $ | 5,449 |    
|Registration statement dated July 1, 2003
    (including $1.0 billion Medium-Term Note program)                                                            |  |                       | 5,000 |                   |  |               | 650   |     |  |   | 900   |    
|Euro Medium-Term Note Programme dated May 2002                                                                                                             |  |                       | 5,000 | (c)               |  |               | 3,393 | (b) |  |   | 3,393 | (b)






|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.
|   
|(b) | The Company has hedged the foreign currency risk
    of the notes through operating lease payments or derivatives.                                                                                 
|   
|(c) | This is a perpetual program. As a bond issue
    matures, the principal amount of that bond becomes available for
    new issuances under the program.                                             

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

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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. The remaining 15% of the original financed amount was
prepaid by the Company. The remaining outstanding debt matures
through 2005. The flight equipment associated with the
obligations and included in Flight equipment under operating
leases on the balance sheet, had a net book value of
$0.8 billion at December 31, 2003.


Synthetic Lease Obligations

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
repurchased three aircraft before the lease termination, which
were sold to third parties, and repurchased the remaining eleven
aircraft from the 1995 and 1996 sale-leaseback transactions when
the leases expired in December 2002 and September 2003,
respectively. If the Company does not negotiate extensions of
the one year operating lease terms as they expire in September
2004, it will be required to borrow additional funds at the
maturity of the transactions and reacquire the seven aircraft.
The estimated remaining minimum lease payments (exclusive of the
interest component of rent) and buy-back amounts, at the
contractual end of the transactions are $462.7 million. As
discussed under New Accounting Pronouncements, the
Companys adoption of Financial Accounting Standards Board
Interpretation (FIN) No. 46 resulted in the
consolidation of the remaining entity, starting
December 31, 2003. The Company recorded flight equipment of
$462.7 million, synthetic lease obligations of
$464.2 million, a net decrease in other liabilities of
$3.9 million and an after tax gain of $2.4 million as
a cumulative effect of an accounting change and ceased to record
rent expense for the operating leases starting January 1,
2004.

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 delivered through 2001. The
Company used 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
using $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.

During the twelve months ended December 31,
2003, the Company entered into various bank financings for a
total funded amount of $1.3 billion. The financings mature
through 2009. One tranche of one of the loans totaling
$410 million was funded in Japanese yen and swapped to
US dollars. The interest rates are LIBOR based with spreads
ranging from .375% to 1.625% at December 31, 2003.

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 75% of the aggregate amount of the backup facilities
available (see Bank Commitments). The weighted average interest
rate of the Companys outstanding commercial paper was
1.07%, 1.46% and 4.10%, at December 31, 2003, 2002, and
2001, respectively.

Bank Commitments

As of December 31, 2003, the Company had
committed revolving loans and lines of credit with
26 commercial banks aggregating $4.2 billion. These
revolving loans and lines of credit principally provide for

17



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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 .50% 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. This financing is used primarily as backup for the
Companys maturing debt and other obligations.


Other Variable Interest Entities

The Company has sold aircraft to entities owned
by third parties and has from time to time issued asset value
guarantees or loan guarantees related to the aircraft sold. The
Company has determined nine such entities each owning one
aircraft are Variable Interest Entities (VIEs) which
it is a primary beneficiary in. In accordance with FIN 46,
the Company consolidated these entities at December 31,
2003. As a result of the consolidation, assets increased by
$57.1 million and liabilities increased by
$68.1 million. In addition, the Company recorded an
after-tax charge of $11.0 million as a cumulative effect of
an accounting change.

The Company has not established any other
unconsolidated entities 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. 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 of 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 automatically 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, continued
political unrest in the Middle East and worldwide health issues
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

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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 certain
aircraft.


The following summarizes the Companys
contractual obligations at December 31, 2003, 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                   |            | 2004 |  | 2005 |            | 2006 |  | 2007 |           | 2008 |  | Thereafter
|                                  |  |                         |            |      |  |      |            |      |  |      |           |      |  |           
|                                  |  |                        
|                                  |  | (Dollars in thousands) 
|Medium Term and Long Term Debt(a) |  | $                       | 20,157,853 |      |  | $    | 4,173,846  |      |  | $    | 3,543,226 |      |  | $          | 3,648,641 |  |  | $ | 3,040,297 |  |  | $ | 2,494,796 |  |  | $ | 3,257,047 | 
|Capital Lease Obligations         |  |                         | 143,254    |      |  |      | 101,508    |      |  |      | 41,746    |      |  |            |          |  |  |   |          |  |  |   |          |  |  |   |          | 
|Commercial Paper                  |  |                         | 1,575,957  |      |  |      | 1,575,957  |      |  |      |          |      |  |            |          |  |  |   |          |  |  |   |          |  |  |   |          | 
|Operating Leases                  |  |                         | 120,335    |      |  |      | 11,432     |      |  |      | 10,377    |      |  |            | 8,553     |  |  |   | 8,895     |  |  |   | 9,251     |  |  |   | 71,827    | 
|Purchase Commitments              |  |                         | 26,152,700 |      |  |      | 4,957,000  |      |  |      | 5,290,800 |      |  |            | 4,681,500 |  |  |   | 4,686,800 |  |  |   | 4,122,900 |  |  |   | 2,413,700 | 
|                                  |  |                         |            |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  |   |           | 
|Total                             |  | $                       | 48,150,099 |      |  | $    | 10,819,743 |      |  | $    | 8,886,149 |      |  | $          | 8,338,694 |  |  | $ | 7,735,992 |  |  | $ | 6,626,947 |  |  | $ | 5,742,575 | 
|                                  |  |                         |            |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  |   |           | 

Contingent Commitments

|                                 |  |                                |           |      |  |      |        |      |  |      |         |      |  |            |         |  |  |   |         |  |  |   |         |  |  |   |         | 
|-------------------------------- |  | ------------------------------ | --------- | ---- |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ---------- | ------- |  |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                 |  |                               
|                                 |  | Contingency Expiration by Year
|                                 |  |                               
|                                 |  | Total                          |           | 2004 |  | 2005 |        | 2006 |  | 2007 |         | 2008 |  | Thereafter
|                                 |  |                                |           |      |  |      |        |      |  |      |         |      |  |           
|                                 |  |                               
|                                 |  | (Dollars in thousands)        
|Purchase Options on New Aircraft |  | $                              | 704,800   |      |  | $    |       |      |  | $    | 38,300  |      |  | $          | 255,800 |  |  | $ | 264,100 |  |  | $ | 146,600 |  |  | $ |        | 
|Put Options(b)                   |  |                                | 678,413   |      |  |      |       |      |  |      | 233,728 |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   | 444,685 | 
|Asset Value Guarantees(b)        |  |                                | 68,089    |      |  |      | 6,126  |      |  |      | 11,041  |      |  |            | 8,178   |  |  |   |        |  |  |   |        |  |  |   | 42,744  | 
|Loan Guarantees(b)               |  |                                | 150,364   |      |  |      | 19,260 |      |  |      |         |      |  |            | 79,869  |  |  |   |         |  |  |   |        |  |  |   | 51,235  | 
|Lines of Credit                  |  |                                | 65,000    |      |  |      | 15,000 |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   | 50,000  | 
|                                 |  |                                |           |      |  |      |        |      |  |      |         |      |  |            |         |  |  |   |         |  |  |   |         |  |  |   |         | 
|Total                            |  | $                              | 1,666,666 |      |  | $    | 40,386 |      |  | $    | 283,069 |      |  | $          | 343,847 |  |  | $ | 264,100 |  |  | $ | 146,600 |  |  | $ | 588,664 | 
|                                 |  |                                |           |      |  |      |        |      |  |      |         |      |  |            |         |  |  |   |         |  |  |   |         |  |  |   |         | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes synthetic lease obligations of seven
    aircraft.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(b) | From time to time the Company participates with
    banks, airlines and other financial institutions to assist in
    financing aircraft acquired by others 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. To the extent that the value
    of the underlying aircraft is less than the guarantee, the
    Company would record a contingent loss. At December 31,
    2003 no losses were recorded as the underlying values of the
    aircraft were higher than or equal to the guaranteed value.
    Guarantees entered into after December 31, 2002, are
    recorded at fair value in accordance with FIN No. 45
    Guarantors Accounting and Disclosure Requirements
    for Guarantees, Including Indirect Guarantees at Indebtedness of
    Others. See Note A  Summary of Significant
    Accounting Policies.

Results of Operations

Revenues from the rentals of flight equipment
increased 9.8% to $2,941.1 million in 2003 compared to
$2,677.9 million in 2002 and 8.3% in 2002 compared to
$2,473.8 million in 2001 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

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industry that was exacerbated after the
September 11, 2001 terrorist attacks. At December 31,
2003 the Companys fleet, on which it earns rental revenue,
consisted of 609 aircraft compared to 556 at
December 31, 2002 and 471 at December 31, 2001. The
cost of the leased fleet, which includes aircraft subject to
sale-leaseback transactions from which rental income is earned,
increased to $34.0 billion in 2003 from $30.6 billion in
2002 and $25.8 billion in 2001.


The Companys Lease Margin (revenues from
rentals of flight equipment less total expenses divided by
revenues from rentals of flight equipment (as a percentage))
decreased to 21.7% in 2003 compared to 23.2% in 2002. In 2002,
the Lease Margin decreased from 24.7% in 2001. Lease rates and
interest rates on borrowings are the two components used to
determine Lease Margin that are subject to the most uncertainty
and are 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 2003 and 2002. 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 re-leases are realized in lease rates.
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 Operating and Lease
Margins

LOGO

|     |  |                  |       |              |  |  |       | 
|---- |  | ---------------- | ----- | ------------ |  |  | ----- | 
|     |  | Operating Margin |       | Lease Margin
|     |  |                  |       |             
|1992 |  |                  | 33.70 |              |  |  | 23.00 | 
|1993 |  |                  | 30.50 |              |  |  | 20.30 | 
|1994 |  |                  | 28.10 |              |  |  | 19.70 | 
|1995 |  |                  | 23.80 |              |  |  | 13.50 | 
|1996 |  |                  | 24.20 |              |  |  | 14.30 | 
|1997 |  |                  | 26.90 |              |  |  | 17.40 | 
|1998 |  |                  | 27.50 |              |  |  | 20.00 | 
|1999 |  |                  | 30.60 |              |  |  | 23.30 | 
|2000 |  |                  | 28.50 |              |  |  | 23.00 | 
|2001 |  |                  | 28.80 |              |  |  | 24.70 | 
|2002 |  |                  | 27.80 |              |  |  | 23.20 | 
|2003 |  |                  | 24.60 |              |  |  | 21.70 | 



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 $64.3 million in 2003 compared to
$66.3 million in 2002 and $62.9 million in 2001. The
fluctuations were principally affected by a downturn in the
market for flight equipment as well as the different types and
the number of the flight equipment marketed in each period. The

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Company sold 42 aircraft during 2003 (37 of
which were sold to a related party, see Related Party
Transactions for more information), compared to 8 in 2002
and 7 in 2001. In addition, the Company sold 6 engines
during 2003, compared to 7 engines during 2002 and
5 engines during 2001.


Interest expense increased to $944.6 million
in 2003 from $846.4 million in 2002 and $792.6 million
in 2001, as a result of an increase in average debt outstanding,
to finance aircraft acquisitions, to $20.3 billion in 2003,
from $17.4 billion in 2002 and $14.7 billion in 2001
(excluding the effect of debt discount and foreign exchange
adjustments). This increase was partially offset by a decrease
in the average composite borrowing rate to 4.8% in 2003 from
4.9% in 2002 and 5.7% in 2001. The Companys composite
borrowing rate fluctuated as follows:

ILFC Composite Interest Rates and Prime
Rates

LOGO

|       |  |                     |      |                       |  |            |      |  |  |  |      | 
|------ |  | ------------------- | ---- | --------------------- |  | ---------- | ---- |  |  |  | ---- | 
|       |  |                     |      | Composite--Fixed-Rate |  |           
|       |  | Composite--All Debt |      | Debt                  |  | Prime Rate
|       |  |                     |      |                       |  |           
|Dec-00 |  |                     | 6.37 |                       |  |            | 6.20 |  |  |  | 9.50 | 
|Mar-01 |  |                     | 5.92 |                       |  |            | 6.13 |  |  |  | 8.00 | 
|Jun-01 |  |                     | 5.49 |                       |  |            | 5.93 |  |  |  | 6.75 | 
|Sep-01 |  |                     | 5.21 |                       |  |            | 5.88 |  |  |  | 6.00 | 
|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 | 
|Mar-03 |  |                     | 4.57 |                       |  |            | 5.58 |  |  |  | 4.25 | 
|Jun-03 |  |                     | 4.51 |                       |  |            | 5.47 |  |  |  | 4.00 | 
|Sep-03 |  |                     | 4.63 |                       |  |            | 5.38 |  |  |  | 4.00 | 
|Dec-03 |  |                     | 4.46 |                       |  |            | 5.29 |  |  |  | 4.00 | 



The Company adopted SFAS No. 133
Accounting for Derivatives and Hedging Activities 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 years ended
December 31, 2003, 2002 and 2001 includes a benefit of
$1.7 million, $4.8 million and $0.6 million,
respectively, related to hedging activities.

Depreciation of flight equipment increased to
$1,124.8 million in 2003 from $954.2 million in 2002
and $802.8 million in 2001 due to an increase in the
depreciable base of the fleet. The depreciable base of flight
equipment during the same periods increased to
$34.0 billion at December 31, 2003 from
$29.6 billion in 2002 and $24.4 billion in 2001.

Provisions for overhauls increased to
$112.6 million in 2003 from $90.7 million in 2002 and
$94.4 million in 2001 due to an increase in the aggregate
number of hours flown on which the Company collects overhaul
revenue and against which the provision is computed.

The Company, in prior periods, entered into
sale-leaseback transactions. Flight equipment rent related to
the transactions decreased to $43.3 million in 2003, from
$75.4 million in 2002 and $108.0 million in 2001 due
to the maturing of two sale-leaseback transactions, one in
December 2002 and one in September 2003, principal reductions,
and a change in the lease rates resulting from changes in
interest rates, affecting the floating rate component of the
lease rates. The Company, through a subsidiary, had
sale-leaseback transactions relating to 7 aircraft as of
December 31, 2003. At December 31, 2003 the Company
consolidated

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the entity in accordance with FIN 46, and
will cease to record rent expense starting January 1, 2004.
Instead the payments will be applied to interest and to pay down
principal of recorded synthetic lease obligations of
$464.2 million.


Selling, general and administrative expenses was
$78.4 million in 2003 compared to $88.9 million in
2002 and $65.2 million in 2001 primarily due to changes in
costs related to the repossession cost and re-delivery of
aircraft from one lessee to another.

The effective tax rate was 31.4% in 2003, 33.4%
in 2002 and 33.4% in 2001. 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 Sales
Corporation and Extraterritorial Income Exclusion provisions of
the Internal Revenue Code.

The Company performed an impairment review of all
aircraft in its fleet as of June 30, 2003, 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 (loss)
changed $144.2 million to $5.4 million in 2003
compared to $(138.6) million in 2002 primarily due to a
change in the market value of cash flow hedges offset by an
increase in the Euro exchange rate to the U.S. Dollar. See
Note L  Financial Instruments in the Notes to
the Consolidated Financial Statements.

Related Party Transactions

The Company contracted to sell 37 aircraft
to a trust during the third quarter of 2003 for approximately
$1.0 billion. The first 34 aircraft were transferred
as of December 31, 2003, with the remaining three expected
to be transferred in 2004. The trust is primarily funded and
owned by other AIG subsidiaries and is consolidated by AIG.
Neither the trust nor the subsidiaries are consolidated by the
Company. The transaction was structured similar to a
securitization, in which the trust acquired the aircraft based
on values assigned by independent appraisers. Further, an
unaffiliated third party acted as capital market advisor and
initial purchaser of the notes of the securitization. The
Company recorded gains in the amount of $23.2 million
related to the transaction. The gain is included in Flight
equipment marketing in the Companys Consolidated
Statements of Income. The Company will continue to manage the
aircraft sold to the trust for a fee.

On January 14, 2004, the Company contracted
to sell 34 aircraft to a different trust for approximately
$1.0 billion. The first 23 aircraft were transferred
as of March 1, 2004, with the remaining 11 expected to be
transferred in 2004. The 2004 transaction is structured
similarly to the 2003 transaction, and the trust is consolidated
by AIG.

New Accounting Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued FIN No. 46,
Consolidation of Variable Interest Entities
(VIEs). FIN 46 changes the method of
determining whether certain entities should be consolidated in
the Companys consolidated financial statements. An entity
is subject to FIN 46 and is called a VIE if it has
(i) equity that is insufficient to permit the entity to
finance its activities without additional subordinated financial
support from other parties or (ii) equity investors that
cannot make significant decisions about the entitys
operations, or that do not absorb the expected losses or receive
the expected returns of the entity. A VIE is consolidated by its
primary beneficiary, which is the party that has a majority of
the expected losses or a majority of the expected residual
returns of the VIE, or both. All other entities not considered
VIEs are evaluated for consolidation under existing guidance. In
December 2003, the FASB issued a revision to FIN 46,
(FIN 46R).

The provisions of FIN 46R are to be applied
immediately to VIEs created after January 31, 2003, and to
VIEs in which the Company obtains an interest after that date.
For VIEs in which the Company holds a variable interest that it
acquired before February 1, 2003, FIN 46R was applied
as of December 31, 2003. For

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any VIEs that must be consolidated under
FIN 46R that were created before February 1, 2003, the
assets, liabilities and noncontrolling interest of the VIEs
would be initially measured at their carrying amounts with any
difference between the net amount added to the balance sheet and
any previously recognized interest being recognized as the
cumulative effect of an accounting change. At December 31,
2003 the Company determined it was a primary beneficiary in one
entity through which it had entered into sale-lease back
transactions for seven aircraft and nine entities for which it
had provided asset value guarantees and loan guarantees. As a
result of the consolidation of these companies, in accordance
with the transition provisions of FIN 46R, assets increased
by $519.8 million and liabilities increased by
$528.4 million. The Company recorded an after-tax charge of
$8.6 million as a cumulative effect of accounting change.





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s operations is determined using the financial
instrument assets and other assets and liabilities. 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 the historical simulation
methodology. 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
three years of historical information for interest rates and
foreign exchange rates were used to construct the historical
scenarios at December 31, 2003 and 2002 respectively. For
each scenario, each financial instrument is re-priced. Scenario
values for the Companys operations 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 period is
assumed in computing the VaR figure. The following table
presents the average, high and low VaRs for the Companys
operations with respect to its fair value as of
December 31, 2003 and 2002, respectively:

ILFC Market Risk

|              |  |                       |      |                   |  |     |      |         |  |      |     |     |  |   |      |  |  |   |      |  |  |   |     | 
|------------- |  | --------------------- | ---- | ----------------- |  | --- | ---- | ------- |  | ---- | --- | --- |  | - | ---- |  |  | - | ---- |  |  | - | --- | 
|              |  |                       |      |                  
|              |  | December 31, 2003     |      | December 31, 2002
|              |  |                       |      |                  
|              |  | Average               |      | High              |  | Low |      | Average |  | High |     | Low
|              |  |                       |      |                   |  |     |      |         |  |      |     |    
|              |  |                      
|              |  | (Dollars in millions)
|Combined      |  | $                     | 37.7 |                   |  | $   | 78.1 |         |  | $    | 7.8 |     |  | $ | 20.1 |  |  | $ | 42.8 |  |  | $ | 7.8 | 
|Interest Rate |  |                       | 37.8 |                   |  |     | 78.1 |         |  |      | 7.8 |     |  |   | 20.0 |  |  |   | 42.8 |  |  |   | 7.8 | 
|Currency      |  |                       | 0.8  |                   |  |     | 1.3  |         |  |      | 0.2 |     |  |   | 0.5  |  |  |   | 1.2  |  |  |   | 0.0 | 

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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.

Item 9A. Controls and
Procedures

(a) The Company maintains disclosure
controls and procedures that are designed to ensure that
information required to be disclosed in its filings under the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the periods specified in the
rules and forms of the Securities and Exchange Commission. Such
information is accumulated and communicated to management of the
Company, including the Chairman of the Board and Chief Executive
Officer and the Vice Chairman, Chief Financial Officer and Chief
Accounting Officer (collectively the Certifying
Officers), as appropriate, to allow timely decisions
regarding required disclosure. The management of the Company,
including the Certifying Officers, recognizes that any set of
controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the
desired control objectives.

(b) As of the end of the period covered by
this Annual Report on Form 10-K, The Company has carried
out an evaluation, under the supervision and with the
participation of management, including the Certifying Officers,
of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. Based upon
that evaluation, the Certifying Officers concluded that
disclosure controls and procedures provide reasonable assurance
that the information required to be disclosed is recorded,
processed, summarized, and reported within the periods specified
by the Securities and Exchange Commission.

(c) There have been no changes in the
Companys internal controls over financial reporting
identified in connection with the evaluation referred to above
that occurred during the Companys fourth quarter that has
materially affected, or is reasonably likely to materially
affect, the Companys internal controls over financial
reporting.






PART III





Item 14. Principal Accountant
Fees and Services

Aggregate fees for professional services rendered
to the Company by PricewaterhouseCoopers LLP
(PricewaterhouseCoopers) for the years ended
December 31, 2003 and 2002, were:

|                      |            |      |           |           |  |   |         |           | 
|--------------------- | ---------- | ---- | --------- | --------- |  | - | ------- | --------- | 
|                      |            | 2003 |           | 2002     
|                      |            |      |           |          
|Audit Fees(a)         |            | $    | 1,174,380 |           |  | $ | 956,200 |          
|Audit Related Fees(b) |            |      | 85,990    |           |  |   |        |          
|Tax Fees(c)           |            |      | 731,023   |           |  |   | 946,204 |          
|                      |            |      |           |           |  |   |         |          
|                      | Total Fees |      | $         | 1,991,393 |  |   | $       | 1,902,404 | 
|                      |            |      |           |           |  |   |         |          



---



|    |                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Audit fees consists of fees for professional
    services provided in connection with the audits of the
    Companys financial statements, services rendered in
    connection with the Companys registration statements filed
    with the Securities and Exchange Commission, the delivery of
    consents and issuance of comfort letters.
|   
|(b) | Audit Related fees consist of fees for consulting
    on various accounting issues.                                                                                                                                                                                                                                                            
|   
|(c) | Tax fees consist of the aggregate fees for
    services rendered for tax compliance, tax planning and tax
    advice.                                                                                                                                                                                                                          

The Companys parents audit committee
(the audit committee) approves all audit and
non-audit services rendered by PricewaterhouseCoopers. The audit
committee also reviews non-audit fees to ensure the

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auditors independence is maintained. The
audit committee has approved non-audit services for consulting
accounting related issues and tax compliance in the amount of
$516,000 for the year ended December 31, 2004.





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 15 is submitted as a separate section of this report.

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



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

Form 8-K, event date November 7, 2003
(Item 7)

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INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

FORM 10-K

Items 8, 15(a), and 15(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 Auditors     |                                                                                             |      | 29 |   
|Consolidated Financial Statements: |                                                                                             |      |    |   
|                                   | Balance Sheets at December 31, 2003 and 2002                                                |      |    | 30 | 
|                                   | Statements of Income for the years ended
    December 31, 2003, 2002 and 2001               |      |    | 31 | 
|                                   | Statements of Shareholders Equity for the
    years ended December 31, 2003, 2002 and 2001 |      |    | 32 | 
|                                   | Statements of Cash Flows for the years ended
    December 31, 2003, 2002 and 2001           |      |    | 33 | 
|                                   | Notes to Consolidated Financial Statements                                                  |      |    | 35 | 

The following financial statement schedule of the
Company and its subsidiaries is included in Item 15(a)(2):

|                |    |             |  |                                   |  |  |    | 
|--------------- | -- | ----------- |  | --------------------------------- |  |  | -- | 
|Schedule Number |    | Description |  | Page                             
|                |    |             |  |                                  
|                | II |             |  | Valuation and Qualifying Accounts |  |  | 54 | 

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 15(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.                                                                                                                                                   

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|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 3.12 |             |  | Unanimous Written Consent of Sole Stockholder of
    the Company, dated January 2, 2002, amending the By-Laws of
    the Company (filed as an exhibit to Form 10Q for the
    quarter ended June 30, 2003 and incorporated herein by
    reference).                                                                                                                                                  
|        | 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 (filed as an exhibit to
    Form 10-K for the year ended December 31, 2002 and
    incorporated herein by reference).                                                                                                                                    
|        | 4.9  |             |  | Fifth supplemental indenture, dated as of
    December 27, 2002, to the indenture between the Company and
    U.S. Bank National Association (filed as an exhibit to
    Form 10-K for the year ended December 31, 2002 and
    incorporated herein by reference).                                                                                                                                    
|        | 4.10 |             |  | Sixth Supplemental Indenture, dated as of
    June 2, 2003, to the indenture between the Company and
    U.S. Bank National Association (filed as an exhibit to
    Form 10Q for the quarter ended September 30, 2003 and
    incorporated herein by reference).                                                                                                                                      
|        | 4.11 |             |  | Amended and Restated Agency Agreement, dated
    May 15, 2002, between the Company, Citibank, N.A. and Dexia
    Banque Internationale a Luxembourg S.A. (filed as an exhibit to
    Form 10Q for the quarter ended June 30, 2002 and
    incorporated herein by reference).                                                                                                                          
|        | 4.12 |             |  | Supplemental Agency Agreement, dated May 16,
    2003, between the Company, Citibank, N.A. and Dexia Banque
    Internationale a Luxembourg S.A. (filed as an exhibit to
    form 10Q for the quarter ended June 30, 2003 and
    incorporated herein by reference).                                                                                                                                  
|        | 10.1 |             |  | 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).                                         
|        | 10.2 |             |  | $3,150,000,000 364-Day Revolving Credit
    Agreement, dated as of October 17, 2003, among the Company,
    CitiCorp USA, Inc., as Administrative Agent, Bank of America,
    N.A., Bank of Scotland and Credit Suisse First Boston, as
    Co-Documentation Agents, CitiGroup Global Markets Inc., as Sole
    Arranger and Book Manager, and the other financial institutions
    listed therein.   
|        | 10.3 |             |  | $1,050,000,000 Three-Year Revolving Credit
    Agreement, dated as of October 17, 2003, among the Company,
    CitiCorp USA, Inc., as Administrative Agent, Bank of America,
    N.A., Bank of Scotland and Credit Suisse First Boston, as
    Co-Documentation Agents, CitiGroup Global Markets Inc., as Sole
    Arranger and Book Manager, and the other financial institutions
    listed therein.
|        | 12   |             |  | Computation of Ratio of Earnings to Fixed Charges
    and Preferred Stock Dividends.                                                                                                                                                                                                                                                                                                                  

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|        |      |             |  |                                                                                                                       
|------- | ---- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 23   |             |  | Consent of PricewaterhouseCoopers LLP, dated
    March 9, 2004.                                                       
|        | 31.1 |             |  | Rule 13a-14(a)/15d-14(a) Certification of
    Chairman of the Board and Chief Executive Officer.                      
|        | 31.2 |             |  | Rule 13a-14(a)/15d-14(a) Certification of
    Vice Chairman, Chief Financial Officer and Chief Accounting
    Officer.
|        | 32.1 |             |  | Certification under 18 U.S.C., Section 1350.                                                                          

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REPORT OF INDEPENDENT AUDITORS

To The Shareholders and Board of Directors

International Lease Finance Corporation


Los Angeles, California:


In our opinion, the accompanying consolidated
financial statements listed in the accompanying index appearing
under Item 15(a)(1) on page 26 present fairly, in all
material respects, the financial position of International Lease
Finance Corporation and its subsidiaries (the
Company) at December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule for the year ended
December 31, 2003 listed in the accompanying index
appearing under Item 15(a)(2) on page 26 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.

As discussed in Note A to the consolidated
financial statements, on December 31, 2003, the Company
adopted Financial Accounting Standards Board Interpretation
No. 46 Consolidation of Variable Interest
Entities.

PricewaterhouseCoopers LLP

Los Angeles, California


February 11, 2004


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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,              
|                                                                                                       |                                                                                                                                                                    |                           
|                                                                                                       |                                                                                                                                                                    | 2003                       |            | 2002     
|                                                                                                       |                                                                                                                                                                    |                            |            |          
|ASSETS                                                                                                
|Cash, including interest bearing accounts of
    $90,612 (2003) and $65,693 (2002)                     |                                                                                                                                                                    | $                          | 90,780     |           |           | $ | 66,049     |          
|Current income taxes                                                                                   |                                                                                                                                                                    |                            |           |           |           |   | 179,030    |          
|Notes receivable                                                                                       |                                                                                                                                                                    |                            | 146,707    |           |           |   | 221,966    |          
|Net investment in finance leases                                                                       |                                                                                                                                                                    |                            | 303,373    |           |           |   | 150,611    |          
|Flight equipment under operating leases                                                                |                                                                                                                                                                    |                            | 34,034,724 |           |           |   | 29,631,150 |          
|                                                                                                       | Less accumulated depreciation                                                                                                                                      |                            |            | 5,370,706 |           |   |            | 4,343,403 |          
|                                                                                                       |                                                                                                                                                                    |                            |            |           |           |   |            |          
|                                                                                                       |                                                                                                                                                                    |                            | 28,664,018 |           |           |   | 25,287,747 |          
|Deposits on flight equipment purchases                                                                 |                                                                                                                                                                    |                            | 1,255,074  |           |           |   | 1,157,864  |          
|Accrued interest, other receivables and other
    assets                                               |                                                                                                                                                                    |                            | 233,125    |           |           |   | 142,817    |          
|Derivative assets                                                                                      |                                                                                                                                                                    |                            | 746,013    |           |           |   | 170,395    |          
|Investments                                                                                            |                                                                                                                                                                    |                            | 49,636     |           |           |   | 64,067     |          
|Variable interest entities assets                                                                      |                                                                                                                                                                    |                            | 164,481    |           |           |   |           |          
|Deferred debt issue costs  less accumulated
    amortization of
    $57,470 (2003) and $68,516 (2002) |                                                                                                                                                                    |                            | 51,865     |           |           |   | 35,571     |          
|                                                                                                       |                                                                                                                                                                    |                            |            |           |           |   |            |          
|                                                                                                       |                                                                                                                                                                    | $                          | 31,705,072 |           |           | $ | 27,476,117 |          
|                                                                                                       |                                                                                                                                                                    |                            |            |           |           |   |            |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                  
|Accrued interest and other payables                                                                    |                                                                                                                                                                    | $                          | 243,989    |           |           | $ | 235,827    |          
|Current income taxes                                                                                   |                                                                                                                                                                    |                            | 5,038      |           |           |   |           |          
|Debt financing, net of deferred debt discount
    of
    $24,321 (2003) and $31,928 (2002)             |                                                                                                                                                                    |                            | 21,245,267 |           |           |   | 18,716,644 |          
|Foreign currency adjustment                                                                            |                                                                                                                                                                    |                            | 697,435    |           |           |   | 264,880    |          
|Derivative liabilities                                                                                 |                                                                                                                                                                    |                            | 57,187     |           |           |   | 135,853    |          
|Capital lease obligations                                                                              |                                                                                                                                                                    |                            | 143,254    |           |           |   | 260,623    |          
|Synthetic lease obligations                                                                            |                                                                                                                                                                    |                            | 464,222    |           |           |   |           |          
|Security and other deposits on flight equipment                                                        |                                                                                                                                                                    |                            | 843,914    |           |           |   | 864,053    |          
|Rentals received in advance                                                                            |                                                                                                                                                                    |                            | 146,871    |           |           |   | 129,244    |          
|Deferred income taxes                                                                                  |                                                                                                                                                                    |                            | 2,562,568  |           |           |   | 2,250,314  |          
|Variable interest entities liabilities                                                                 |                                                                                                                                                                    |                            | 79,211     |           |           |   |           |          
|Commitments and contingencies  Note K                                                                 |                                                                                                                                                                    |                            |            |           |           |   |            |          
|SHAREHOLDERS EQUITY                                                                                   |                                                                                                                                                                    |                            |            |           |           |   |            |          
|                                                                                                       | Market Auction Preferred Stock, $100,000 per
    share liquidation value; Series A and B (2003 and 2002),
    each series having 500 shares issued and outstanding |                            |            | 100,000   |           |   |            | 100,000   |          
|                                                                                                       | Common stock  no par value; 100,000,000
    authorized shares, 42,198,119 shares (2003 and 2002) issued and
    outstanding                                       |                            |            | 653,582   |           |   |            | 653,582   |          
|                                                                                                       | Paid-in capital                                                                                                                                                    |                            |            | 579,955   |           |   |            | 579,955   |          
|                                                                                                       | Accumulated other comprehensive income (loss)                                                                                                                      |                            |            | 5,442     |           |   |            | (138,620  | )        
|                                                                                                       | Retained earnings                                                                                                                                                  |                            |            | 3,877,137 |           |   |            | 3,423,762 |          
|                                                                                                       |                                                                                                                                                                    |                            |            |           |           |   |            |          
|                                                                                                       |                                                                                                                                                                    | Total shareholders equity |            |           | 5,216,116 |   |            |           | 4,618,679 | 
|                                                                                                       |                                                                                                                                                                    |                            |            |           |           |   |            |          
|                                                                                                       |                                                                                                                                                                    | $                          | 31,705,072 |           |           | $ | 27,476,117 |          
|                                                                                                       |                                                                                                                                                                    |                            |            |           |           |   |            |          

See accompanying notes.

30



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands)


|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |           |         | 
|------------------------------------------------------- | ----------------------------------- | ------------------------------------------------------------------------- | --------- | --------- | ------- | ---- | --------- | --------- | ------- |  | --------- | --------- | ------- | 
|                                                        |                                     |                                                                          
|                                                        |                                     | Years Ended December 31,                                                 
|                                                        |                                     |                                                                          
|                                                        |                                     | 2003                                                                      |           | 2002      |         | 2001
|                                                        |                                     |                                                                           |           |           |         |     
|REVENUES:                                               |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        | Rental of flight equipment          |                                                                           | $         | 2,941,096 |         |      | $         | 2,677,876 |         |  | $         | 2,473,784 |        
|                                                        | Flight equipment marketing          |                                                                           |           | 64,321    |         |      |           | 66,315    |         |  |           | 62,883    |        
|                                                        | Interest and other                  |                                                                           |           | 48,516    |         |      |           | 104,718   |         |  |           | 80,046    |        
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        |                                     |                                                                           | 3,053,933 |           |         |      | 2,848,909 |           |         |  | 2,616,713 |          
|EXPENSES:                                               |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        | Interest                            |                                                                           |           | 944,580   |         |      |           | 846,353   |         |  |           | 792,611   |        
|                                                        | Depreciation of flight equipment    |                                                                           |           | 1,124,778 |         |      |           | 954,246   |         |  |           | 802,850   |        
|                                                        | Provision for overhauls             |                                                                           |           | 112,581   |         |      |           | 90,763    |         |  |           | 94,383    |        
|                                                        | Flight equipment rent               |                                                                           |           | 43,314    |         |      |           | 75,372    |         |  |           | 107,992   |        
|                                                        | Selling, general and administrative |                                                                           |           | 78,412    |         |      |           | 88,872    |         |  |           | 65,158    |        
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        |                                     |                                                                           | 2,303,665 |           |         |      | 2,055,606 |           |         |  | 1,862,994 |          
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        |                                     | INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
    OF ACCOUNTING CHANGE |           |           | 750,268 |      |           |           | 793,303 |  |           |           | 753,719 | 
|Provision for income taxes                              |                                     |                                                                           | 235,361   |           |         |      | 264,779   |           |         |  | 251,819   |          
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        |                                     | INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
    CHANGE                  |           |           | 514,907 |      |           |           | 528,524 |  |           |           | 501,900 | 
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|Cumulative effect of accounting change (net of
    tax) |                                     |                                                                           | (8,642    | )         |         |      |          |           |         |  | 15,191    |          
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          
|                                                        | NET INCOME                          |                                                                           | $         | 506,265   |         |      | $         | 528,524   |         |  | $         | 517,091   |        
|                                                        |                                     |                                                                           |           |           |         |      |           |           |         |  |           |          

See accompanying notes.

31



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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, 2000 |                                 |                                                                      | 4,000 |                 |   | $            | 400,000 |          |   |             |    |        |   |         |         |               |   | 35,818,122 |           | $     | 3,582   |         |  | $ | 579,955 |  |  | $ | 9,256    |   |          | $ | 2,521,877 |         |   | $ | 3,514,670 |         
|                             | 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                      |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | 517,091 |   |   |           | 517,091  |         
|                             | 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         |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   | 457,206   |         
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   |           |         
|Balance at December 31, 2001 |                                 |                                                                      | 1,500 |                 |   |              | 150,000 |          |   |             | 40 |        |   |         | 400,000 |               |   | 35,818,122 |           |       | 3,582   |         |  |   | 579,955 |  |  |   | (50,629  | ) |          |   | 2,940,883 |         |   |   | 4,023,791 |         
|                             | 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                      |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | 528,524 |   |   |           | 528,524  |         
|                             | 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         |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   | 440,533   |         
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   |           |         
|Balance at December 31, 2002 |                                 |                                                                      | 1,000 |                 |   |              | 100,000 |          |   |             |   |        |   |         |        |               |   | 42,198,119 |           |       | 653,582 |         |  |   | 579,955 |  |  |   | (138,620 | ) |          |   | 3,423,762 |         |   |   | 4,618,679 |         
|                             | Common stock dividends          |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | (49,000 | ) |   |           | (49,000  | )       
|                             | Preferred stock dividends       |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | (3,890  | ) |   |           | (3,890   | )       
|Comprehensive Income:        |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   |           |         
|                             | Net income                      |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           | 506,265 |   |   |           | 506,265  |         
|                             | Other comprehensive income:     |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   |           |          |         
|                             |                                 | Foreign currency adjustment (net of tax of
    $(102,029))           |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   | (189,482 | ) |           |         |   |   |           |          | (189,482 | )
|                             |                                 | Cash flow derivative transactions (net of tax of
    $179,601)       |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   | 333,544  |   |           |         |   |   |           |          | 333,544  |  
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   |           |         
|Comprehensive Income         |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   | 650,327   |         
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   |           |         
|Balance at December 31, 2003 |                                 |                                                                      | 1,000 |                 |   | $            | 100,000 |          |   |             |   |        |   | $       |        |               |   | 42,198,119 |           | $     | 653,582 |         |  | $ | 579,955 |  |  | $ | 5,442    |   |          | $ | 3,877,137 |         |   | $ | 5,216,116 |         
|                             |                                 |                                                                      |       |                 |   |              |         |          |   |             |    |        |   |         |         |               |   |            |           |       |         |         |  |   |         |  |  |   |          |   |          |   |           |         |   |   |           |         

See accompanying notes.

32



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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,                                            
|                                          |                                                                                       |                                                                     
|                                          |                                                                                       | 2003                                                                 |            | 2002       |           | 2001
|                                          |                                                                                       |                                                                      |            |            |           |     
|OPERATING ACTIVITIES:                     |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|                                          | Net income                                                                            |                                                                      | $          | 506,265    |           |      | $          | 528,524    |          |   | $          | 517,091    |         
|                                          | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                      |            |            |           |      |            |            |          |   |            |            |         
|                                          |                                                                                       | Depreciation of flight equipment                                     |            |            | 1,124,778 |      |            |            | 954,246  |   |            |            | 802,850  |  
|                                          |                                                                                       | Deferred income taxes                                                |            |            | 234,682   |      |            |            | 434,283  |   |            |            | 415,843  |  
|                                          |                                                                                       | Foreign exchange adjustment of non-US $
    denominated debt         |            |            | 141,045   |      |            |            | 357,009  |   |            |            | (76,193  | )
|                                          |                                                                                       | Change in derivative instruments                                     |            |            | (141,139  | )    |            |            | (361,447 | ) |            |            | 91,201   |  
|                                          |                                                                                       | Amortization of deferred debt issue costs                            |            |            | 36,645    |      |            |            | 15,709   |   |            |            | 13,497   |  
|                                          |                                                                                       | Decrease (Increase) in notes receivable                              |            |            | 46,483    |      |            |            | (56,706  | ) |            |            | (37,286  | )
|                                          |                                                                                       | Change in unamortized debt discount                                  |            |            | 7,607     |      |            |            | (23,020  | ) |            |            | 4,543    |  
|                                          |                                                                                       | Other                                                                |            |            | (384      | )    |            |            | 465      |   |            |            | (702     | )
|                                          | Changes in operating assets and liabilities:                                          |                                                                      |            |            |           |      |            |            |          |   |            |            |         
|                                          |                                                                                       | Increase in accrued interest, other receivables
    and other assets |            |            | (182,508  | )    |            |            | (33,146  | ) |            |            | (35,921  | )
|                                          |                                                                                       | Increase in accrued interest and other payables                      |            |            | 106,639   |      |            |            | 2,001    |   |            |            | 15,929   |  
|                                          |                                                                                       | Decrease (increase) in current income taxes                          |            |            | 184,068   |      |            |            | (19,619  | ) |            |            | (101,729 | )
|                                          |                                                                                       | Increase (decrease) in rentals received in advance                   |            |            | 17,627    |      |            |            | 14,370   |   |            |            | (14,278  | )
|                                          |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|Net cash provided by operating activities |                                                                                       |                                                                      | 2,081,808  |            |           |      | 1,812,669  |            |          |   | 1,594,845  |           
|                                          |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|INVESTING ACTIVITIES:                     |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|                                          | Acquisition of flight equipment for operating
    leases                              |                                                                      |            | (5,053,712 | )         |      |            | (5,420,761 | )        |   |            | (4,109,812 | )       
|                                          | Acquisition of flight equipment for finance leases                                    |                                                                      |            | (165,202   | )         |      |            | (12,886    | )        |   |            | (39,207    | )       
|                                          | (Increase) decrease in deposits and progress
    payments                             |                                                                      |            | (97,210    | )         |      |            | 163,835    |          |   |            | (263,517   | )       
|                                          | Proceeds from disposal of flight
    equipment  net of gain                          |                                                                      |            | 953,897    |           |      |            | 173,152    |          |   |            | 208,917    |         
|                                          | Increase in notes receivable                                                          |                                                                      |            | (30,198    | )         |      |            |           |          |   |            |           |         
|                                          | Collections on notes receivable                                                       |                                                                      |            | 42,570     |           |      |            | 57,547     |          |   |            | 66,441     |         
|                                          | Collections on finance and sales-type leases (net
    of income amortized)            |                                                                      |            | 13,670     |           |      |            | 8,540      |          |   |            | 7,764      |         
|                                          | Other                                                                                 |                                                                      |            | 1,432      |           |      |            | 916        |          |   |            | 924        |         
|                                          |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|Net cash used in investing activities     |                                                                                       |                                                                      | (4,334,753 | )          |           |      | (5,029,657 | )          |          |   | (4,128,490 | )         
|                                          |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|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                                                        |                                                                      |            | (2,642,547 | )         |      |            | 716,639    |          |   |            | (786,816   | )       
|                                          | Proceeds from debt financing                                                          |                                                                      |            | 8,654,736  |           |      |            | 5,736,325  |          |   |            | 5,352,532  |         
|                                          | Payments in reduction of debt financing and
    capital lease obligations             |                                                                      |            | (3,608,543 | )         |      |            | (3,285,221 | )        |   |            | (2,195,199 | )       
|                                          | Debt issue costs                                                                      |                                                                      |            | (52,939    | )         |      |            | (16,284    | )        |   |            | (4,856     | )       
|                                          | Payment of common and preferred dividends                                             |                                                                      |            | (52,892    | )         |      |            | (45,645    | )        |   |            | (98,085    | )       
|                                          | (Decrease) increase in customer deposits                                              |                                                                      |            | (20,139    | )         |      |            | (102,160   | )        |   |            | 60,799     |         
|                                          |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|Net cash provided by financing activities |                                                                                       |                                                                      | 2,277,676  |            |           |      | 3,203,654  |            |          |   | 2,478,375  |           
|                                          |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|Net increase (decrease) in cash           |                                                                                       |                                                                      | 24,731     |            |           |      | (13,334    | )          |          |   | (55,270    | )         
|Cash at beginning of year                 |                                                                                       |                                                                      | 66,049     |            |           |      | 79,383     |            |          |   | 134,653    |           
|                                          |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|                                          |                                                                                       | Cash at end of year                                                  |            | $          | 90,780    |      |            | $          | 66,049   |   |            | $          | 79,383   |  
|                                          |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           
|(Table continued on next page)            |                                                                                       |                                                                      |            |            |           |      |            |            |          |   |            |           

33



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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,                                                                   
|                                                                                                                                                                                                                                                                                              |                                           |                                                                                            
|                                                                                                                                                                                                                                                                                              |                                           | 2003                                                                                        |  | 2002 |          | 2001
|                                                                                                                                                                                                                                                                                              |                                           |                                                                                             |  |      |          |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                                                                                                                                                                                                             |                                           |                                                                                             |  |      |          |      |  |   |          |   |  |  
|                                                                                                                                                                                                                                                                                              | Cash paid (received) during the year for: |                                                                                             |  |      |          |      |  |   |          |   |  |   |        
|                                                                                                                                                                                                                                                                                              |                                           | Interest (net of amount, capitalized $49,679
    (2003), $58,274 (2002) and $58,845 (2001)) |  | $    | 926,274  |      |  | $ | 827,280  |   |  | $ | 747,006 |  
|                                                                                                                                                                                                                                                                                              |                                           | Income taxes, net                                                                           |  |      | (189,690 | )    |  |   | (149,885 | ) |  |   | (54,115 | )
|                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                              | 2003:                                     |                                                                                             |  |      |          |      |  |   |          |   |  |   |        
|Progress payments in the amount of $6,700 were
    exchanged for an aircraft with net book value at $4,043.                                                                                                                                                                                  
|Flight equipment increased in the amount of
    $462,705 and synthetic lease obligations increased in the amount
    of $464,222 as a result of consolidation of sale-leaseback
    transaction related to seven aircraft in connection with the
    Companys adoption of FIN 46.           
|Variable interest entity assets in the amount of
    $164,481 and liabilities in the amount of $79,211 were received
    in exchange for notes receivables in the amount of $82,493 and
    preferred stock in the amount of $11,706 in connection with the
    Companys adoption of FIN 46.
|Variable interest entity assets in the amount of
    $13,731 were received as partial payment in exchange for flight
    equipment with a net book value of $14,043.                                                                                                                         
|One aircraft was received in exchange for notes
    receivable in the amount of $28,715 and preferred stock in the
    amount of $2,202.                                                                                                                                                     
|Notes in the amount of $72,281 were received as
    partial payment for flight equipment sold with a net book value
    of $75,630.                                                                                                                                                          
|                                                                                                                                                                                                                                                                                              | 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.                                                                                                                                                                                                          

See accompanying notes.

34



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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 services and asset management.

Principles of
Consolidation:The accompanying
consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and certain variable
interest entities, for which the Company is the primary
beneficiary, as discussed under Adoption of New Accounting
Pronouncements. 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 and
Fees: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 $1,458 (2003), $1,198 (2002) and $1,001
(2001). The Company also pays AIG a fee related to management
services provided for certain foreign subsidiaries. The fees
aggregated $561 (2003), $388 (2002) and $759 (2001). The Company
earned management fees from a trust consolidated by AIG for the
management of aircraft sold to the trust. These management fees
aggregated $1.3 million (2003).

Lease
Revenue:The Company, as lessor,
leases flight equipment principally under operating leases and
reports income ratably over the life of the lease as rentals
become receivable under the provisions of the lease. The
straight-line receivable is recorded in Accrued interest,
other receivables, and other assets on the balance sheet.
Past-due rentals are recognized on the basis of
managements assessment of collectibility. In certain
cases, leases provide for additional rentals based on usage. The
usage may be calculated based on hourly usage or on the number
of cycles operated, depending on the lease contract. A cycle is
defined as one take-off and landing. The usage is typically
reported to the Company monthly by the lessee.

Rentals received, but unearned under the lease
agreements are recorded in Rentals received in
advance on the balance sheet until earned.

Costs related to reconfiguration of the aircraft
cabin and other lessee specific modifications are capitalized as
pre-paid lease cost and amortized over the life of the lease.

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 many 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.

35



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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)


Overhaul rentals are included under the caption
Rental of flight equipment in the income statement. 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
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.

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 for
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. Out of production aircraft types are depreciated
using the straight line method over a 25 year life from the
date of manufacture to an established residual value for each
aircraft type.

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.

The Companys 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 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
(SFAS) 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. The Company accounts for derivatives in
accordance with SFAS No. 133 Accounting for
Derivatives and Hedging Activites. 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)

36



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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)


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 specific assets or liabilities on the balance sheet.
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 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; or (3) 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 will cease to adjust the hedged liability for
changes in fair value. 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 income (loss) reported in shareholders
equity as Accumulated other comprehensive income (loss) consists
of 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.

Guarantees:The
Company accounts for guarantees in accordance with Financial
Accounting Standards Board
(FASB) Interpretation
(FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of Indebtedness of Others. Guarantees
entered into after December 31, 2002 are included in
Accrued interest, and other payables on the 2003 balance sheet.

Income
Taxes:The Company and its U.S.
subsidiaries are included in the consolidated federal income tax
return of AIG. The provision for federal income taxes is
calculated, generally on a separate return basis adjusted to
give recognition to the effects of net operating losses, foreign
tax credits and the benefit of the Foreign Sales Corporation
(FSC) and Extraterritorial Income Exclusion
(ETI) provisions of the Internal Revenue Code to the
extent they are currently realizable in AIGs consolidated
return. 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.

37



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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)


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, generally on a separate return basis
giving effect to the AIG unitary rate and credits and charges
allocated to the Company 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). Current income
taxes on the balance sheet principally represent amount
receivable or payable from/to AIG under the tax sharing
agreements.

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 2002 and 2001 financial
statements to conform to the Companys 2003 presentation.

Adoption of New Accounting
Pronouncements:In January 2003,
the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities (VIE). FIN 46 changes
the method of determining whether certain entities should be
consolidated in the Companys consolidated financial
statements. An entity is subject to FIN 46 and is called a
VIE if it has (i) equity that is insufficient to permit the
entity to finance its activities without additional subordinated
financial support from other parties or (ii) equity
investors that cannot make significant decisions about the
entitys operations or that do not absorb the expected
losses or receive the expected returns of the entity. A VIE is
consolidated by its primary beneficiary, which is the party that
has a majority of the expected losses or a majority of the
expected residual returns of the VIE, or both. All other
entities not considered VIEs are evaluated for consolidation
under existing guidance. In December 2003, the FASB issued a
revision to FIN 46, (FIN 46R).

The provisions of FIN 46R apply immediately
to VIEs created after January 31, 2003 and to VIEs in which
the Company obtains an interest after that date. For VIEs in
which the Company holds a variable interest that it acquired
before February 1, 2003, FIN 46R was applied as of
December 31, 2003. For any VIE that must be consolidated
under FIN 46R that was created before February 1,
2003, the assets, liabilities and non-controlling interest of
the VIEs would be initially measured at their carrying amounts
with any difference between the net amount added to the balance
sheet and any previously recognized interest being recognized as
the cumulative effect of an account change. The Companys
adoption of FIN 46 had the following effect on the
Companys financial statements:

Off Balance Sheet
Arrangements:The Companys off
balance sheet arrangements in the form of sale-leaseback
transactions entered into in 1997 exist to facilitate financing
of aircraft at favorable rates. As a result of the adoption of
FIN 46R at December 31, 2003, the Company recorded
flight equipment of $462.7 million, synthetic lease
obligations of $464.2 million, a net decrease in other
liabilities of $3.9 million and an after tax gain of
$2.4 million as a cumulative effect of accounting change.

Other Variable Interest
Entities:The Company has provided
financing or guaranteed third party financing to entities owned
by independent third parties and existing for the purpose of
owning and leasing one aircraft each. The financing agreements
are collateralized by the aircraft. As a result at the adoption
of FIN 46R, the Company recorded a net increase in assets
of $57.1 million, liabilities of $68.1 million and
recorded an after-tax charge of $11.0 million as a
cumulative effect of accounting change.

38



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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)


Other New Accounting
Pronouncements:In May 2003, the
FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. SFAS 150 requires certain financial
instruments previously classified as either entirely equity or
between the liability section and equity section of the balance
sheet be classified as liabilities. SFAS 150 was effective
for quarter ended September 30, 2003.

The Company adopted Emerging Issues Task Force
(EITF) issue 02-16 Accounting by a
Customer (Including a Reseller) for Certain Consideration
Received from a Vendor 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 adoption of EITF 02-16 did not
have a significant impact on its results of operations,
financial position or cash flows.

These statements have no effect on the operations
of the Company at December 31, 2003, and the adoption did
not have any impact on the Companys results of operations,
financial position, or cash flows.

Note B  Notes Receivable

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

|                                                                     |               |      |         |        |  |   |         |         | 
|-------------------------------------------------------------------- | ------------- | ---- | ------- | ------ |  | - | ------- | ------- | 
|                                                                     |               | 2003 |         | 2002  
|                                                                     |               |      |         |       
|Fixed rate notes receivable due in varying
    installments to 2011: |               |      |         |        |  |   |         |        
|                                                                     | 0% to 5.99%   |      | $       | 74,490 |  |   | $       | 37,111  | 
|                                                                     | 6% to 7.99%   |      |         | 30,522 |  |   |         | 133,858 | 
|                                                                     | 8% to 9.99%   |      |         | 41,695 |  |   |         | 50,700  | 
|                                                                     | 10% to 12.99% |      |         |       |  |   |         | 297     | 
|                                                                     |               |      |         |        |  |   |         |        
|                                                                     |               | $    | 146,707 |        |  | $ | 221,966 |        
|                                                                     |               |      |         |        |  |   |         |        

Included above are notes receivable of $31,582
(2003) and $53,032 (2002) representing restructured lease
payments.

At December 31, 2003, the minimum future payments
on notes receivable are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 42,172  | 
|2005       |  |   | 19,070  | 
|2006       |  |   | 15,506  | 
|2007       |  |   | 8,976   | 
|2008       |  |   | 17,669  | 
|Thereafter |  |   | 43,314  | 
|           |  |   |         | 
|           |  | $ | 146,707 | 
|           |  |   |         | 

39



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)


Note C  Net Investment in Finance
Leases

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

|                                                                        |  |      |          |      |  |   |          |  
|----------------------------------------------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                                                        |  | 2003 |          | 2002
|                                                                        |  |      |          |     
|Total lease payments to be received                                     |  | $    | 425,920  |      |  | $ | 212,037  |  
|Estimated residual values of leased flight
    equipment (unguaranteed) |  |      | 115,259  |      |  |   | 49,045   |  
|Less: Unearned income                                                   |  |      | (237,806 | )    |  |   | (110,471 | )
|                                                                        |  |      |          |      |  |   |          |  
|Net investment in finance and sales-type leases                         |  | $    | 303,373  |      |  | $ | 150,611  |  
|                                                                        |  |      |          |      |  |   |          |  

At December 31, 2003, minimum future lease
payments on finance leases are as follows:

|                                            |  |   |         | 
|------------------------------------------- |  | - | ------- | 
|2004                                        |  | $ | 30,575  | 
|2005                                        |  |   | 30,575  | 
|2006                                        |  |   | 30,575  | 
|2007                                        |  |   | 30,575  | 
|2008                                        |  |   | 30,575  | 
|Thereafter                                  |  |   | 273,045 | 
|                                            |  |   |         | 
|Total minimum lease payments to be received |  | $ | 425,920 | 
|                                            |  |   |         | 

Note D  Investments

Investments consist of the following:

|               |                                     |         |  |        |  |         |        |        |  |  |  |     |  |   |        |        | 
|-------------- | ----------------------------------- | ------- |  | ------ |  | ------- | ------ | ------ |  |  |  | --- |  | - | ------ | ------ | 
|               |                                     |         |  |       
|               |                                     | 2003    |  | 2002  
|               |                                     |         |  |       
|               |                                     | Percent |  |        |  | Percent |        |       
|               |                                     | Owned   |  | Amount |  | Owned   |        | Amount
|               |                                     |         |  |        |  |         |        |       
|Cost method:   |                                     |         |  |        |  |         |        |        |  |  |  |     |  |   |        |       
|               | American Trans Air(a)               |         |  |        |  |         | $      | 30,000 |  |  |  |     |  |   | $      | 30,000 | 
|               | International Aircraft Investors(b) |         |  |        |  |         |        |       |  |  |  |     |  |   |        | 14,019 | 
|               | Others                              |         |  |        |  |         |        | 4,990  |  |  |  |     |  |   |        | 3,717  | 
|Equity method: |                                     |         |  |        |  |         |        |        |  |  |  |     |  |   |        |       
|               | 21937, LLC(c)                       |         |  | 99%    |  |         |        | 8,689  |  |  |  | 99% |  |   |        | 9,859  | 
|               | ILTU Ireland(d)                     |         |  | 50%    |  |         |        | 5,957  |  |  |  | 50% |  |   |        | 6,342  | 
|               | Others                              |         |  |        |  |         |        |       |  |  |  |     |  |   |        | 130    | 
|               |                                     |         |  |        |  |         |        |        |  |  |  |     |  |   |        |       
|               |                                     |         |  |        |  | $       | 49,636 |        |  |  |  |     |  | $ | 64,067 |       
|               |                                     |         |  |        |  |         |        |        |  |  |  |     |  |   |        |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | In 2000, the Company invested $30,000 in American
    Trans Air (ATA) non-voting preferred stock.                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(b) | 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. At
    December 31, 2003, the Company determined that
    International Aircraft Investors is a Variable Interest Entity
    and that it is the primary beneficiary, as defined by
    FIN 46, and consolidated the entity, in accordance with
    FIN 46. The preferred stock was eliminated in consolidation.
|   
|(c) | 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.                                                                                                                                                                                     

40



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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
(Continued)




|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d) | 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).

Note E  Debt Financing and Capital
Lease Obligations

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

|                                                 |  |      |            |      |  |   |            |  
|------------------------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                                 |  | 2003 |            | 2002
|                                                 |  |      |            |     
|Commercial Paper                                 |  | $    | 1,575,957  |      |  | $ | 4,218,504  |  
|Public Term Debt with Single Maturities          |  |      | 10,663,275 |      |  |   | 7,475,775  |  
|Public Medium-Term Notes with Varying Maturities |  |      | 5,960,236  |      |  |   | 4,969,500  |  
|Bank Term Debt                                   |  |      | 3,070,120  |      |  |   | 2,084,793  |  
|Capital Lease Obligations                        |  |      | 143,254    |      |  |   | 260,623    |  
|Synthetic Lease Obligations                      |  |      | 464,222    |      |  |   |           |  
|Less: Deferred Debt Discount                     |  |      | (24,321    | )    |  |   | (31,928    | )
|                                                 |  |      |            |      |  |   |            |  
|                                                 |  | $    | 21,852,743 |      |  | $ | 18,977,267 |  
|                                                 |  |      |            |      |  |   |            |  

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.

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
outstanding commercial paper was 1.07%, 1.46% and 4.10% at
December 31, 2003, 2002 and 2001 respectively.

Bank
Commitments

As of December 31, 2003, the Company had
committed revolving loans and lines of credit with
26 commercial banks aggregating $4.2 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 .50% 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 maturing debt and other obligations. The Company
had not drawn any funds under its committed revolving loans and
lines of credit at December 31, 2003 and 2002, respectively.

Public
Debt

As of December 31, 2003, the Company had two
effective shelf registration statements: one with respect to
$6.08 billion in debt securities including a
$2.88 billion Medium-Term Note program, which was fully
sold as of December 31, 2003, and a $1.0 billion
Retail Medium-Term Note Program, under which $357.2 million
of notes were sold through December 31, 2003; and, one with
respect to $5.00 billion in debt securities including a
$1.0 billion Medium-Term Note program, under which
$0.65 billion of notes were sold through December 31,
2003.

41



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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     |  | 2003 |            | 2002
|                                                                               |  |          |  |      |            |     
|5 3/4% Notes due January 15, 2003                                              |  | 5 years  |  | $    |            |      |  | $ | 100,000   | 
|Floating Rate Notes due February 2, 2003 (swapped
    to 5.515%)               |  | 2 years  |  |      |            |      |  |   | 250,000   | 
|4.75% Notes due June 2, 2003                                                   |  | 2 years  |  |      |            |      |  |   | 250,000   | 
|6.00% Notes due June 15, 2003                                                  |  | 5 years  |  |      |            |      |  |   | 100,000   | 
|6.75% Notes due November 3, 2003                                               |  | 3 years  |  |      |            |      |  |   | 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   | 
|Floating Rate Notes due January 13, 2005                                       |  | 2 years  |  |      | 625,000    |      |  |   |          | 
|4.375% Notes due December 15, 2005                                             |  | 3 years  |  |      | 160,000    |      |  |   | 160,000   | 
|2.95% Notes due May 23, 2006                                                   |  | 3 years  |  |      | 325,000    |      |  |   |          | 
|5.75% Notes due October 15, 2006                                               |  | 5 years  |  |      | 700,000    |      |  |   | 700,000   | 
|5.75% Notes due February 15, 2007                                              |  | 5 years  |  |      | 500,000    |      |  |   | 500,000   | 
|5.625% Notes due June 1, 2007                                                  |  | 5 years  |  |      | 900,000    |      |  |   | 900,000   | 
|3.75% Notes due Aug 1, 2007                                                    |  | 4 years  |  |      | 250,000    |      |  |   |          | 
|5.491% Notes due November 30, 2007                                             |  | 5 years  |  |      | 110,000    |      |  |   | 110,000   | 
|4.75% Notes due February 15, 2008                                              |  | 5 years  |  |      | 250,000    |      |  |   |          | 
|4.50% Notes due May 1, 2008                                                    |  | 5 years  |  |      | 400,000    |      |  |   |          | 
|4.35% Notes due September 15, 2008                                             |  | 5 years  |  |      | 400,000    |      |  |   |          | 
|6 3/8% Notes due March 15, 2009                                                |  | 7 years  |  |      | 750,000    |      |  |   | 750,000   | 
|5.875% Notes due May 13, 2013                                                  |  | 10 years |  |      | 600,000    |      |  |   |          | 
|Foreign Currency Denominated Medium Term Notes:                                |  |          |  |      |            |      |  |   |           | 
|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    |      |  |   | 666,375   | 
|Floating Rate Euro Notes due June 26, 2006
    (swapped to US$)                |  | 3 years  |  |      | 702,600    |      |  |   |          | 
|6.00% Euro Notes due October 24, 2007
    (partially swapped to US$ at 6.398%) |  | 5 years  |  |      | 444,250    |      |  |   | 444,250   | 
|4.125% Euro Notes due October 9, 2008
    (swapped to US$ at 4.225%)           |  | 5 years  |  |      | 584,900    |      |  |   |          | 
|6.625% Sterling Notes due December 7, 2009
    (swapped to US$ at 6.9326%)     |  | 7 years  |  |      | 431,700    |      |  |   | 431,700   | 
|                                                                               |  |          |  |      |            |      |  |   |           | 
|                                                                               |  |          |  | $    | 10,663,275 |      |  | $ | 7,475,775 | 
|                                                                               |  |          |  |      |            |      |  |   |           | 

The Company has a Euro Medium-Term Note Program
for $5.0 billion, under which $3.4 billion
(2.9 billion
and £300 million) in notes were outstanding at
December 31, 2003. The program is perpetual. As a bond
issue matures, the principal amount of that bond becomes
available for new issuances under the program. 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 U.S. Dollars using current exchange rates. The
foreign exchange adjustment for the foreign currency denominated
notes was $697,435 (2003) and $264,880 (2002).

42



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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
Medium-Term Notes

At December 31, 2003 the Companys
Medium-Term Notes bear interest at rates varying between 1.39%
and 8.26%, with maturities from 2004 through 2011. The
Medium-Term Notes provide for a single 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, 2003, the Company had financed
62 aircraft and had $1.8 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 on the balance sheet, had a net book
value of $3.0 billion (2003) and $3.1 billion (2002).

During the twelve months ended December 31,
2003, the Company entered into various bank financings for a
total funded amount of $1.3 billion. The financings mature
through 2009. One tranche of one of the loans totaling
$410 million was funded in Japanese yen and swapped to
U.S. Dollars. The interest rates are LIBOR based with
spreads ranging from 0.375% to 1.625% at December 31, 2003.

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 15% of the original financed amount was prepaid by the
Company. The remaining outstanding debt matures through 2005.
The flight equipment associated with the obligations, and
included in Flight equipment under operating leases on the
balance sheet, had a net book value of $824,436 (2003) and
$892,404 (2002).

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, 2003:

|                                            |  |   |         | 
|------------------------------------------- |  | - | ------- | 
|2004                                        |  | $ | 109,176 | 
|2005                                        |  |   | 43,134  | 
|                                            |  |   |         | 
|Total minimum lease payments                |  |   | 152,310 | 
|Less amount representing interest           |  |   | 9,056   | 
|                                            |  |   |         | 
|Present value of net minimum lease payments |  | $ | 143,254 | 
|                                            |  |   |         | 

Synthetic
Lease Obligations

In 1997, the Company, through a subsidiary,
entered into sale-leaseback transactions providing proceeds to
the Company in the amount of $601.9 million relating to
seven aircraft. The transactions resulted in the sale and
leaseback of these aircraft under one year operating leases 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

43



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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)


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
consolidated the transaction at December 31, 2003 in
accordance with FIN 46 and will amortize the principal
portion of the debt with the lease payments during 2004.

Maturities of debt financing, capital lease
obligations and synthetic lease obligations (excluding
commercial paper and deferred debt discount) at
December 31, 2003 are as follows:

|           |  |   |            | 
|---------- |  | - | ---------- | 
|2004       |  | $ | 4,275,354  | 
|2005       |  |   | 3,584,972  | 
|2006       |  |   | 3,648,641  | 
|2007       |  |   | 3,040,297  | 
|2008       |  |   | 2,494,796  | 
|Thereafter |  |   | 3,257,047  | 
|           |  |   |            | 
|           |  | $ | 20,301,107 | 
|           |  |   |            | 

Other

Under the most restrictive provisions of the
related borrowings, consolidated retained earnings at
December 31, 2003, in the amount of $1,623,165, 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 $1,897,500 and $1,690,454 notional amount of derivative
instruments with AIGFP during 2003 and 2002, 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 of the MAPS in the fourth quarter
of 2001 and Series E in the first and

44



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note F  Shareholders Equity
(Continued)


second quarters of 2002 for the liquidation
values and no gain or loss was recognized. During 2001 the
Company extended the Series A MAPS to 5 years at a
dividend rate of 5.90%. At December 31, 2003, the dividend
rate for Series B MAPS was 1.54%.

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.

Note G  Rental Income

Minimum future rentals on non-cancelable
operating leases and subleases of flight equipment which have
been delivered at December 31, 2003 are as follows:

|           |  |   |            | 
|---------- |  | - | ---------- | 
|Year Ended |  |  
|           |  |  
|2004       |  | $ | 2,497,806  | 
|2005       |  |   | 2,213,936  | 
|2006       |  |   | 1,819,240  | 
|2007       |  |   | 1,487,922  | 
|2008       |  |   | 1,130,233  | 
|Thereafter |  |   | 2,745,746  | 
|           |  |   |            | 
|           |  | $ | 11,894,883 | 
|           |  |   |            | 

Additional rentals earned by the Company based on
the lessees usage aggregated $289,405 (2003), $249,503
(2002) and $235,099 (2001). 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, through
subsidiaries, entered into sale-leaseback transactions providing
proceeds to the Company in the amounts of $412,626, $507,600 and
$601,860, 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 existing one-year leases at December 31, 2003, mature
on September 20, 2004. The Company repurchased three
aircraft before the lease terminated, which were sold to third
parties, and repurchased the remaining eleven aircraft from the
1995 and 1996 sale-leaseback transactions when the leases
expired in December 2002 and September 2003, respectively. The
lease rates equate to fixed principal amortization and floating
interest payments based on LIBOR or commercial paper pricing.
The Company adopted FIN 46 during the financial year ended
December 31, 2003 and determined that the entity related to
the remaining sale-leaseback transaction was a VIE in which the
Company was a primary beneficiary as defined by FIN 46. As
a result, the

45



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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note H  Rental Expense
(continued)


Company consolidated the remaining entity at
December 31, 2003 and recorded flight equipment of
$462.7 million, synthetic lease obligations in the amount
of $464.2 million, a net decrease in other liabilities of
$3.9 million and an after tax gain of $2.4 million as
a cumulative effect of accounting change.

Note I  Income Taxes

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

|             |            |      |         |         |   |      |          |          |   |   |          |          |  
|------------ | ---------- | ---- | ------- | ------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|             |            | 2003 |         | 2002    |   | 2001
|             |            |      |         |         |   |     
|Current:     |            |      |         |         |   |      |          |          |   |   |          |         
|             | Federal(a) |      | $       | (5,710  | ) |      | $        | (169,073 | ) |   | $        | (154,680 | )
|             | State      |      |         | 743     |   |      |          | (1,575   | ) |   |          | (1,122   | )
|             | Foreign    |      |         | 993     |   |      |          | 1,145    |   |   |          | (42      | )
|             |            |      |         |         |   |      |          |          |   |   |          |         
|             |            |      | (3,974  | )       |   |      | (169,503 | )        |   |   | (155,844 | )       
|Deferred(b): |            |      |         |         |   |      |          |          |   |   |          |         
|             | Federal    |      |         | 234,580 |   |      |          | 426,398  |   |   |          | 405,287  |  
|             | State      |      |         | 4,755   |   |      |          | 7,884    |   |   |          | 2,376    |  
|             |            |      |         |         |   |      |          |          |   |   |          |         
|             |            |      | 239,335 |         |   |      | 434,282  |          |   |   | 407,663  |         
|             |            |      |         |         |   |      |          |          |   |   |          |         
|             |            | $    | 235,361 |         |   | $    | 264,779  |          |   | $ | 251,819  |         
|             |            |      |         |         |   |      |          |          |   |   |          |         




|    |                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Including U.S. tax on foreign income                                                                                                                                                                                                            
|   
|(b) | Deferred taxes were also provided (charged) to
    other comprehensive income of $(77,572) (2003), $47,380 (2002)
    and $(32,661) (2001), respectively, and for cumulative effect of
    accounting change of $4,653 (2003) and $8,180 (2001).

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

|                                                                                              |  |      |           |      |  |   |           |  
|--------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                                                              |  | 2003 |           | 2002
|                                                                                              |  |      |           |     
|Accelerated depreciation on flight equipment                                                  |  | $    | 2,671,813 |      |  | $ | 2,301,339 |  
|Excess of state income taxes not currently
    deductible
    for Federal income tax purposes |  |      | (11,216   | )    |  |   | (9,227    | )
|Tax versus book lease differences                                                             |  |      |          |      |  |   | 125,450   |  
|Provision for overhauls                                                                       |  |      | (24,464   | )    |  |   | (41,984   | )
|Capitalized overhauls                                                                         |  |      | (33,779   | )    |  |   | (29,340   | )
|Rentals received in advance                                                                   |  |      | (56,775   | )    |  |   | (50,995   | )
|Straight line rents                                                                           |  |      | 23,306    |      |  |   | 26,412    |  
|Derivatives                                                                                   |  |      | 3,781     |      |  |   | 3,793     |  
|Other comprehensive income                                                                    |  |      | 2,930     |      |  |   | (74,642   | )
|Other                                                                                         |  |      | (13,028   | )    |  |   | (492      | )
|                                                                                              |  |      |           |      |  |   |           |  
|                                                                                              |  | $    | 2,562,568 |      |  | $ | 2,250,314 |  
|                                                                                              |  |      |           |      |  |   |           |  

46



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

|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                  |  | 2003 |         | 2002 |  | 2001
|                                                                  |  |      |         |      |  |     
|Computed expected provision based upon a federal
    rate of 35%  |  | $    | 262,594 |      |  | $    | 277,656 |   |  | $ | 263,802 |  
|State income taxes, net of Federal income taxes                   |  |      | 3,574   |      |  |      | 4,101   |   |  |   | 816     |  
|Foreign sales corporation and extraterritorial
    income benefit |  |      | (29,598 | )    |  |      | (18,517 | ) |  |   | (6,590  | )
|Foreign taxes(a)                                                  |  |      | (1,242  | )    |  |      | 2,564   |   |  |   | (6,080  | )
|Other                                                             |  |      | 33      |      |  |      | (1,025  | ) |  |   | (129    | )
|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  
|                                                                  |  | $    | 235,361 |      |  | $    | 264,779 |   |  | $ | 251,819 |  
|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  



---

| |     |                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------
| | (a) | Includes realized foreign tax credits in 2003 and
    realized Canadian tax credits in 2001 for taxes paid in prior
    years.

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 $25,663 in 2002. Such amount is reflected in the
Companys 2002 current and deferred provision.

Federal tax benefits provided by the
Extraterritorial Income Exclusion (ETI) and the
Foreign Sales Corporation (FSC) may not be available
in 2004. The World Trade Organization has ruled that these are
unfair export subsidies, and the European Union has begun to
impose trade sanctions as a result of these subsidies not being
repealed by the United States. The United States has proposed
legislation to repeal the ETI and FSC export benefits and
possibly provide other tax benefits to domestic corporations.
The effect this proposed legislation will have on the Company
will not be determinable until the legislation is finalized.

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 $2,625,315 (2003), $2,317,619 (2002) and
$2,173,778 (2001).

47



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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:

|                                  |  |        |           |      |  |        |      |   |  |        |           |   |  |  |       |   |  |   |           |  |  |  |       |  
|--------------------------------- |  | ------ | --------- | ---- |  | ------ | ---- | - |  | ------ | --------- | - |  |  | ----- | - |  | - | --------- |  |  |  | ----- | -
|                                  |  |        |           |      |  |       
|                                  |  | 2003   |           | 2002 |  | 2001  
|                                  |  |        |           |      |  |       
|                                  |  | Amount |           | %    |  | Amount |      | % |  | Amount |           | %
|                                  |  |        |           |      |  |        |      |   |  |        |           |  
|Europe                            |  | $      | 1,398,847 |      |  |        | 47.6 | % |  | $      | 1,236,123 |   |  |  | 46.2  | % |  | $ | 1,160,793 |  |  |  | 47.0  | %
|Asia/Pacific                      |  |        | 690,533   |      |  |        | 23.5 |   |  |        | 601,775   |   |  |  | 22.5  |   |  |   | 523,630   |  |  |  | 21.2  |  
|United States and Canada          |  |        | 437,388   |      |  |        | 14.9 |   |  |        | 481,507   |   |  |  | 18.0  |   |  |   | 455,680   |  |  |  | 18.4  |  
|Central, South America and Mexico |  |        | 224,748   |      |  |        | 7.6  |   |  |        | 202,688   |   |  |  | 7.5   |   |  |   | 199,026   |  |  |  | 8.0   |  
|Africa and the Middle East        |  |        | 189,580   |      |  |        | 6.4  |   |  |        | 155,783   |   |  |  | 5.8   |   |  |   | 134,655   |  |  |  | 5.4   |  
|                                  |  |        |           |      |  |        |      |   |  |        |           |   |  |  |       |   |  |   |           |  |  |  |       |  
|                                  |  | $      | 2,941,096 |      |  |        | 100  | % |  | $      | 2,677,876 |   |  |  | 100.0 | % |  | $ | 2,473,784 |  |  |  | 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:

|               |  |        |         |      |  |        |      |   |  |        |         |   |  |  |      |   |  |   |         |  |  |  |      |  
|-------------- |  | ------ | ------- | ---- |  | ------ | ---- | - |  | ------ | ------- | - |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|               |  |        |         |      |  |       
|               |  | 2003   |         | 2002 |  | 2001  
|               |  |        |         |      |  |       
|               |  | Amount |         | %    |  | Amount |      | % |  | Amount |         | %
|               |  |        |         |      |  |        |      |   |  |        |         |  
|France         |  | $      | 345,200 |      |  |        | 11.7 | % |  | $      |        |   |  |  |     | % |  | $ |        |  |  |  |     | %
|China          |  |        | 321,805 |      |  |        | 10.9 |   |  |        | 282,776 |   |  |  | 10.6 |   |  |   | 265,871 |  |  |  | 10.8 |  
|United States  |  |        | 315,781 |      |  |        | 10.7 |   |  |        | 360,257 |   |  |  | 13.5 |   |  |   | 300,006 |  |  |  | 12.1 |  
|United Kingdom |  |        |        |      |  |        |     |   |  |        | 276,185 |   |  |  | 10.3 |   |  |   | 283,090 |  |  |  | 11.4 |  

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 US 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, 2003 by $478,000.

Note K  Commitments and
Contingencies

Aircraft
Orders

At December 31, 2003, the Company had
committed to purchase 463 new and used aircraft deliverable
from 2004 through 2010 at an estimated aggregate purchase price
(including adjustment for anticipated inflation) of
approximately $26.2 billion.

The Company also had options to purchase an
additional 11 new aircraft deliverable through 2008 at an
estimated aggregate purchase price of $704.8 million.

48



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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 to
purchase new aircraft 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 A318, 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,
2003, the Company had made non-refundable deposits (exclusive of
capitalized interest) on the aircraft which the Company has
committed to purchase of approximately $600.0 million and
$520.0 million 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 23 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, 2003, the maximum exposure if the Company were
to pay under such guarantees was $68,089. In addition, the
Company has written put options for 15 aircraft in the
amount of $678,413.

Other
Guarantees

The Company has guaranteed certain obligations
for entities in which it has an investment. The Company
guaranteed seven loans at December 31, 2003, all but one
collateralized by aircraft, aggregating $150,363. As a result of
the Companys adoption of FIN 46, the Company
consolidated the entities with loan guarantees collateralized by
aircraft and recorded liabilities in the amount of $54,905
related to these entities.

Stand
by Lines of Credit

The Company has extended unsecured lines of
credit to two entities in the amount of $65,000.

49



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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)


Leases

The Company has operating leases for office space
and office equipment extending through 2015. Rent expense was
$3,575, $3,475 and $3,221 for the years ended 2003, 2002 and
2001 respectively. Commitments for minimum rentals under the
noncancelable leases at the end of 2003 are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 9,100   | 
|2005       |  |   | 8,225   | 
|2006       |  |   | 8,553   | 
|2007       |  |   | 8,895   | 
|2008       |  |   | 9,251   | 
|Thereafter |  |   | 71,827  | 
|           |  |   |         | 
|Total      |  | $ | 115,851 | 
|           |  |   |         | 

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.

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. The Company has
executed $1,897,500 and $1,690,454 notional amount of derivative
instruments with AIGFP during 2003 and 2002, 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 AIGFP 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 on 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.
    The carrying amount of these investments at December 31,
    2003 represents the original cost or original cost plus the
    Companys share of earnings of the investment. For
    investments held by the

50



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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)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Company that had a quoted market price at
    December 31, 2003, 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 US Treasury bonds for similar debt at year-end.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Guarantees:As of
    December 31, 2003, the Companys maximum commitment
    under the guarantees was $68,089. It is not practical to
    determine the fair value of the Companys guarantees. The
    Company regularly reviews the underlying values of the
    collateral aircraft, to determine its exposure under these
    guarantees. At December 31, 2003, the Company had not
    recorded any liabilities related to these guarantees, as the
    market values of the aircraft equaled or exceeded the guaranteed
    value. The Company adopted FIN 45 for guarantees entered
    into after December 31, 2002. Guarantees in the amount of
    $3,000 (2003) are included in Accrued interest and other
    liabilities on the Companys balance sheet related to
    guarantees entered into after December 31, 2002.



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The carrying amounts and fair values of the
    Companys financial instruments at December 31, 2003
    and 2002 are as follows:

|                                                                                                                          |  |                   |             |                   |  |                   |             |                   |  |   |             |   |  |   |             |  
|------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | ----------------- |  | ----------------- | ----------- | ----------------- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                                          |  |                   |             |                  
|                                                                                                                          |  | 2003              |             | 2002             
|                                                                                                                          |  |                   |             |                  
|                                                                                                                          |  | Carrying          |             |                   |  | Carrying          |             |                  
|                                                                                                                          |  | Amount of         |             | Fair Value of     |  | Amount of         |             | Fair Value of    
|                                                                                                                          |  | Asset (Liability) |             | Asset (Liability) |  | Asset (Liability) |             | Asset (Liability)
|                                                                                                                          |  |                   |             |                   |  |                   |             |                  
|Cash and cash equivalents                                                                                                 |  | $                 | 90,780      |                   |  | $                 | 90,780      |                   |  | $ | 66,049      |   |  | $ | 66,049      |  
|Notes receivable                                                                                                          |  |                   | 146,707     |                   |  |                   | 150,011     |                   |  |   | 221,966     |   |  |   | 219,914     |  
|Investments                                                                                                               |  |                   | 49,636      |                   |  |                   | 50,266      |                   |  |   | 64,067      |   |  |   | 63,631      |  
|Debt financing (including foreign currency
    adjustment, synthetic lease obligations and capital lease
    obligations) |  |                   | (22,550,178 | )                 |  |                   | (23,302,677 | )                 |  |   | (19,242,147 | ) |  |   | (19,507,647 | )

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 $(700) (2003),
$1,000 (2002) and $1,000 (2001). Hedge ineffectiveness related
to cash flow hedges for the period was immaterial to the Company
for years 2003, 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 |        
|                                                                    |                                                   |   |        |        

51



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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)

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,
2003, 2002 and 2001, the Company recorded the following in
earnings in accordance with SFAS 133:

|                                                                    |                                                  |      |       |          |   |      |       |         |   |   |     |        |  
|------------------------------------------------------------------- | ------------------------------------------------ | ---- | ----- | -------- | - | ---- | ----- | ------- | - | - | --- | ------ | -
|                                                                    |                                                  | 2003 |       | 2002     |   | 2001
|                                                                    |                                                  |      |       |          |   |     
|Related to non-hedging instruments:                                 |                                                  |      |       |          |   |      |       |         |   |   |     |       
|                                                                    | Fair value of non-hedging instruments            |      | $     | 2,480    |   |      | $     | 3,678   |   |   | $   | 1,943  |  
|Related to previous designated fair value hedging
    relationships |                                                  |      |       |          |   |      |       |         |   |   |     |       
|                                                                    | Fair value of hedging instruments                |      |       | 152,969  |   |      |       | (18,133 | ) |   |     | (6,366 | )
|                                                                    | Offsetting changes in fair value of hedged items |      |       | (153,685 | ) |      |       | 19,093  |   |   |     | 5,406  |  
|                                                                    | Ineffectiveness of cash flow hedges              |      |       | (47      | ) |      |       | 200     |   |   |     | (338   | )
|                                                                    |                                                  |      |       |          |   |      |       |         |   |   |     |       
|Total effect on earnings                                            |                                                  | $    | 1,717 |          |   | $    | 4,838 |         |   | $ | 645 |       
|                                                                    |                                                  |      |       |          |   |      |       |         |   |   |     |       

At December 31, 2003, 2002 and 2001, the
Companys accumulated other comprehensive income (loss)
consisted of the following:

|                                                           |  |      |          |      |  |      |          |   |  |   |         |  
|---------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                           |  | 2003 |          | 2002 |  | 2001
|                                                           |  |      |          |      |  |     
|Cumulative foreign currency adjustment, net of tax         |  | $    | (361,654 | )    |  | $    | (172,172 | ) |  | $ | 42,416  |  
|Cumulative cash flow hedge loss adjustment, net
    of tax |  |      | 367,096  |      |  |      | 33,552   |   |  |   | (93,045 | )
|                                                           |  |      |          |      |  |      |          |   |  |   |         |  
|Total accumulated other comprehensive income
    (loss)    |  | $    | 5,442    |      |  | $    | (138,620 | ) |  | $ | (50,629 | )
|                                                           |  |      |          |      |  |      |          |   |  |   |         |  

During the twelve months ended December 31,
2003, $31,038 (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 $63,434 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.

Note M  Related Party
Transactions

The Company contracted to sell 37 aircraft to a
trust during the third quarter of 2003 for approximately
$1.0 billion. The first 34 aircraft were transferred as of
December 31, 2003, the remaining three are to be
transferred in 2004. Notes Receivable include $69,149 related to
the transaction. The trust is primarily funded and owned by
other subsidiaries of AIG and is consolidated by AIG. Neither
the trust nor the subsidiary is consolidated by the Company. The
transaction was structured similar to a securitization, in which
the trust acquired the aircraft based on values assigned by
independent appraisers. Further, an unaffiliated third party
acted as capital market advisor and initial purchaser of the
notes of the securitization. The Company recorded gains in the
amount of $23.2 million related to the transaction. The
gain is included in Flight equipment marketing in the
Companys income statement. The Company will continue to
manage the aircraft sold to the trust for a fee.

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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Dollars in thousands)




Note M  Related Party Transactions
(Continued)


Subsequent event:

On January 14, 2004, the Company contracted
to sell 34 aircraft to a different trust for approximately
$1.0 billion. The first 23 aircraft were transferred as of
March 1, 2004, with the remaining 11 expected to be
transferred in 2004. The 2004 transaction is structured
similarly to the 2003 transaction, and the trust is consolidated
by the AIG.

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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, 2003 |  | $                      | 118,244 |            |  | $          | 112,581 |              |  |               |  |  |  | $ | 161,925 |  |  | $ | 68,900  | 
|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 | 



---



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

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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 11, 2004



| |                                        
| | ---------------------------------------
| | 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          
|                                              |  |                                                                                   |  |               
|                                             
|/s/ LESLIE L. GONDALeslie L. Gonda            |  | Director                                                                          |  | March 11, 2004
|                                             
|/s/ STEVEN F. UDVAR-HAZY Steven F. Udvar-Hazy |  | Chief Executive Officer and Director                                              |  | March 11, 2004
|                                             
|/s/ JOHN L. PLUEGERJohn L. Plueger            |  | Director                                                                          |  | March 11, 2004
|                                             
|/s/ LOUIS L. GONDALouis L. Gonda              |  | Director                                                                          |  | March 11, 2004
|                                             
|/s/ M. R. GREENBERG M. R. Greenberg           |  | Director                                                                          |  | March 11, 2004
|                                             
|/s/ EDWARD E. MATTHEWS Edward E. Matthews     |  | Director                                                                          |  | March 11, 2004
|                                             
|/s/ WILLIAM N. DOOLEY William N. Dooley       |  | Director                                                                          |  | March 11, 2004
|                                             
|/s/ HOWARD I. SMITH Howard I. Smith           |  | Director                                                                          |  | March 11, 2004
|                                             
|/s/ ALAN H. LUND Alan H. Lund                 |  | Director, Vice Chairman, Chief Financial
    Officer and Chief Accounting Officer |  | March 11, 2004

55