**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 20-F**

**ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**Forthe fiscal year ended  December 31,2006**

**Commissionfile number**

**AerCap Holdings N.V.**

(Exact name of Registrantas specified in its charter)

| **The Netherlands**                              |
|--------------------------------------------------|
| (Jurisdiction of  incorporation or organization) |
| **Evert van de Beekstraat 312**                  |
| **1118 CX  Schiphol Airport**                    |
| **The  Netherlands**                             |
| **+ 31 20  655 9655**                            |
| (Address of principal  executive offices)        |

 

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

| Title of each class | ** ** | **Name of each exchange on which registered** |
|---------------------|------------|-----------------------------------------------|
| Ordinary Shares     |       | The New York  Stock Exchange                  |

 

Securities registered orto be registered pursuant to Section 12(g) of the Act: **None**

Securities for which thereis a reporting obligation pursuant to Section 15(d) of the Act: **None**

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report.

| Ordinary Shares, Euro 0.01  par value | ** ** | **85,036,957** | ** ** |
|---------------------------------------|------------|----------------|------------|

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. o Yes   x No

If this report is anannual or transition report, indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. o Yes   x No

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. x Yes   o No

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and large acceleratedfiler” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer o | Accelerated filer  o | Non-accelerated  filer x |
|---------------------------|----------------------|--------------------------|

 

Indicate by check markwhich financial statement item the registrant has elected to follow. o Item 17   x Item 18

If this is an annual report, indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). o Yes   x No

 

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**TABLEOF CONTENTS**

| Special Note About Forward  Looking Statements |   |                                                                          |   |
|------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|
| PART I                                    |   |                                                                          |   |
| Item 1.                                   |   | Identity  of Directors, Senior Management and Advisers                        |   | 1 |   |   |
| Item 2.                                   |   | Offer  Statistics and Expected Timetable                                      |   | 1 |   |   |
| Item 3.                                   |   | Key  Information                                                              |   | 1 |   |   |
|                                           |   | Risk Factors                                                                  |   | 5 |   |   |
| Item 4.                                   |   | Information  on the Company                                                   |   | 24 |   |   |
| Item 4A.                                  |   | Unresolved  Staff Comments                                                    |   | 43 |   |   |
| Item 5.                                   |   | Operating  and Financial Review and Prospects                                 |   | 43 |   |   |
|                                           |   | Indebtedness                                                                  |   | 71 |   |   |
| Item 6.                                   |   | Directors,  Senior Management and Employees                                   |   | 81 |   |   |
| Item 7.                                   |   | Major  Shareholders and Related Party Transactions                            |   | 91 |   |   |
| Item 8.                                   |   | Financial  Information                                                        |   | 93 |   |   |
| Item 9.                                   |   | The  Offer and Listing                                                        |   | 93 |   |   |
| Item 10.                                  |   | Additional  Information                                                       |   | 94 |   |   |
| Item 11.                                  |   | Quantitative  and Qualitative Disclosures About Market Risk                   |   | 110 |   |   |
| Item 12.                                  |   | Description  of Securities Other than Equity Securities                       |   | 111 |   |   |
| PART II                                   |   |                                                                          |   |   |
| Item 13.                                  |   | Defaults,  Dividend Arrearages and Delinquencies                              |   | 112 |   |   |
| Item 14.                                  |   | Material  Modifications to the Rights of Security Holders and Use of Proceeds |   | 112 |   |   |
| Item 15.                                  |   | Controls  and Procedures                                                      |   | 112 |   |   |
| Item 16.                                  |   | [Reserved]                                                                    |   | 113 |   |   |
| Item 16A.                                 |   | Audit  committee financial expert                                             |   | 113 |   |   |
| Item 16B.                                 |   | Code of Conduct                                                               |   | 113 |   |   |
| Item 16C.                                 |   | Principal  Accountant Fees and Services                                       |   | 113 |   |   |
| Item 16D.                                 |   | Exemptions  from the Listing Standards for Audit Committees                   |   | 113 |   |   |
| Item 16E.                                 |   | Purchases  of Equity Securities by the Issuer and Affiliated Purchasers       |   | 114 |   |   |
| Item 17.                                       |   | Financial  Statements                                                         |   | 114 |   |   |
| PART III                                  |   |                                                                          |   |   |
| Item 18.                                  |   | Financial  Statements                                                         |   | 114 |   |   |
| Item 19.                                  |   | Exhibits                                                                      |   | 114 |   |   |
| Signatures                                     |   | 116                                                                           |   |   |
| Index  to Consolidated Financial Statements    |   | F-1                                                                           |   |   |

 

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**SPECIAL NOTE ABOUTFORWARD LOOKING STATEMENTS**

This annual reportincludes forward looking statements, principally under the captions “Item 3.Key Information—Risks Related to our Business”, “Item 4. Information on theCompany” and “Item 5. Operating and Financial Review and Prospects”. Wehave based these forward looking statements largely on our current beliefs andprojections about future events and financial trends affecting our business.Many important factors, in addition to those discussed in this annual report,could cause our actual results to differ substantially from those anticipatedin our forward looking statements, including, among other things:

·       ourability to successfully negotiate aircraft and engine purchases, sales andleases, to collect outstanding amounts due and to repossess aircraft andengines under defaulted leases, and to control costs and expenses,

·       ourability to integrate AeroTurbine’s engine and parts business with our aircraftbusiness,

·       decreasesin the overall demand for commercial aircraft and engine leasing and aircraftmanagement services,

·       theeconomic condition of the global airline and cargo industry,

·       theability of our lessees and potential lessees to make operating lease paymentsto us,

·       competitivepressures within the industry,

·       changesin interest rates and availability of capital to us and to our customers,

·       thenegotiation of aircraft management services contracts,

·       regulatorychanges affecting commercial aircraft operators, aircraft maintenance, enginestandards, accounting standards and taxes, and

·       therisks set forth in “Item 3. Key Information—Risk Factors” included in thisannual report.

The words “believe”, “may”, “will”, “aim”, “estimate”,“continue”, “anticipate”, “intend”, “expect” and similar words are intended toidentify forward looking statements. Forward looking statements includeinformation concerning our possible or assumed future results of operations,business strategies, financing plans, competitive position, industryenvironment, potential growth opportunities, the effects of future regulationand the effects of competition. Forward looking statements speak only as of thedate they were made and we undertake no obligation to update publicly or torevise any forward looking statements because of new information, future eventsor other factors. In light of the risks and uncertainties described above, theforward looking events and circumstances described in this annual report mightnot occur and are not guarantees of future performance.

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**PART I**

**Item 1.**                        Identityof Directors, Senior Management and Advisers 

Not applicable.

**Item 2.**                        OfferStatistics and Expected Timetable 

Not applicable.

**Item 3.**                        KeyInformation 

**Selected financialdata.**

The following table presents AerCap Holdings N.V.’s (thesuccessor company) and AerCap B.V.’s (the predecessor company) selectedconsolidated financial data for each of the periods indicated, prepared inaccordance with US GAAP. You should read this information in conjunction withAerCap Holdings N.V.’s audited consolidated financial statements and relatednotes and “Item 5. Operating and Financial Review and Prospects”.

AerCap Holdings N.V. wasformed as a Netherlands public limited liability company (“*naamloze vennootschap*”) on July 10,2006 and acquired all of the assets and liabilities of AerCap Holdings C.V., aNetherlands limited partnership on October 27, 2006. There was no changein accounting basis resulting from this transaction. Since AerCap Holdings C.V.and AerCap Holdings N.V. are entities organized under common control, thehistorical consolidated financial statements of AerCap Holdings C.V. became thehistorical consolidated financial statements of AerCap Holdings N.V. AerCapHoldings C.V. was formed on June 27, 2005 for the purpose of acquiring allof the shares and certain liabilities of AerCap B.V. (formerly known asdebis Air Finance B.V.), in connection with our acquisition by funds andaccounts affiliated with Cerberus Capital Management, L.P., or the 2005Acquisition. Our consolidated financial data is presented as if AerCap HoldingsN.V. had been the acquiring entity of AerCap B.V. on June 30, 2005. Thefinancial information presented as of December 31, 2005 and 2006 and forthe fiscal years ended December 31, 2004 and 2006, and the six monthsended June 30, 2005 and December 31, 2005, was derived from AerCapHoldings N.V.’s audited consolidated financial statements included in thisannual report. The financial information presented as of and for the fiscalyears ended December 31, 2002 and 2003 was derived from AerCap B.V.’sunaudited consolidated financial statements. The financial informationpresented includes the results of AeroTurbine from the date of its acquisitionon April 26, 2006 to December 31, 2006, referred to herein as theAeroTurbine Acquisition.

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**ConsolidatedIncome Statement Data:**

| ** **                                                                                                                                      | ** ** | **AerCap B.V.**                                                                      | ** **   | **AerCap  Holdings N.V.(1)**         | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|--------------|-------------------------------------------|------------|
| ** **                                                                                                                                      | ** ** | **Year ended December 31,**                                                | ** **   | **Six months  ended  June 30,** | ** ** | **Six months  ended  December 31,** | ** ** | **Year  ended  December 31,** | ** ** |
| ** **                                                                                                                                      | ** ** | **2002(2)**                                                                               | ** **   | **2003(2)**                               | ** ** | **2004** | ** ** | **2005** | ** ** | **2005(3)** | ** ** | **2006(4)** | ** ** |
| ** **                                                                                                                                      | ** ** | **(In thousands, except share and per share amounts)** | ** **   |
| **Revenues**                                                                                                                                    |       |                                                                                      |         |                                      |       |   |   |   |   | * * |   |   |   |   |   |
| Lease revenue                                                                                                                                   |       | $                                                                                         | 459,115      |                                      | $          | 343,045 |   | $ | 308,500 |   |   | $ | 175,333 | * * |   | $ | 173,568 |   | $ | 443,925 |   |
| Sales revenue                                                                                                                                   |       | 13,105                                                                                    |         | 7,499                                     |       | 32,050 |   |   | 79,574 | * * |   | 12,489 |   | 301,405 |   |
| Management fee  revenue                                                                                                                         |       | 7,160                                                                                     |         | 13,400                                    |       | 15,009 |   |   | 6,512 | * * |   | 7,674 |   | 14,072 |   |
| Interest revenue                                                                                                                                |       | 28,468                                                                                    |         | 22,432                                    |       | 21,641 |   |   | 13,130 | * * |   | 20,335 |   | 34,681 |   |
| Other revenue                                                                                                                                   |       | 1,826                                                                                     |         | 84,568                                    |       | 13,667 |   |   | 3,459 | * * |   | 1,006 |   | 20,336 |   |
| **Total  revenues**                                                                                                                             | ** ** | **509,674**                                                                               | ** **   | **470,944**                               | ** ** | **390,867** | ** ** | ** ** | **278,008** | * * | ** ** | **215,072** | ** ** | **814,419** | ** ** |
| **Expenses**                                                                                                                                    |       |                                                                                      |         |                                      |       |   |   |   |   | * * |   |   |   |   |   |
| Depreciation                                                                                                                                    |       | 202,395                                                                                   |         | 143,303                                   |       | 125,877 |   |   | 66,407 | * * |   | 45,918 |   | 102,387 |   |
| Cost of goods  sold                                                                                                                             |       | 11,012                                                                                    |         | 6,657                                     |       | 18,992 |   |   | 57,632 | * * |   | 10,574 |   | 220,277 |   |
| Interest on debt                                                                                                                                |       | 267,228                                                                                   |         | 123,435                                   |       | 113,132 |   |   | 69,857 | * * |   | 44,742 |   | 166,219 |   |
| Impairments(5)                                                                                                                                  |       | 170,498                                                                                   |         | 6,066                                     |       | 134,671 |   |   | — | * * |   | — |   | — |   |
| Other expenses                                                                                                                                  |       | 54,734                                                                                    |         | 87,079                                    |       | 66,940 |   |   | 26,726 | * * |   | 26,656 |   | 72,440 |   |
| Selling, general  and administrative expenses                                                                                                   |       | 40,472                                                                                    |         | 39,267                                    |       | 36,449 |   |   | 19,559 | * * |   | 26,949 |   | 149,364 | (a) |
| **Total  expenses**                                                                                                                             | ** ** | **746,339**                                                                               | ** **   | **405,807**                               | ** ** | **496,061** | ** ** | ** ** | **240,181** | * * | ** ** | **154,839** | ** ** | **710,687** | ** ** |
| **(Loss)  income from continuing operations before income taxes, minority interest and  cumulative effect of   change in accounting principle** | ** ** | **(236,665**                                                                              | **)**        | **65,137**                                | ** ** | **(105,194** | **)** | ** ** | **37,827** | * * | ** ** | **60,233** | ** ** | **103,732** | ** ** |
| Provision for  income taxes                                                                                                                     |       | 58,569                                                                                    |         | (28,222                                   | )          | (168 | ) |   | (4,127 | *)* |   | (10,570 | ) | (16,324 | ) |
| Minority  interest, net of tax                                                                                                                  |       | —                                                                                    |         | —                                    |       | — |   |   | — | * * |   | — |   | 588 |   |
| Cumulative effect  of change in accounting principle,   net of tax                                                                              |       | (99,491                                                                                   | )            | —                                    |       | — |   |   | — | * * |   | — | ** ** | **—** | ** ** |
| **Net  (loss) income**                                                                                                                          | ** ** | **$**                                                                                     | **(277,587** | **)**                                     | **$**      | **36,915** | ** ** | **$** | **(105,362** | **)** | ** ** | **$** | **33,700** | * * | ** ** | **$** | **49,663** | ** ** | **$** | **87,996** | ** ** |
| (Loss) earnings  per share, basic and diluted                                                                                                   |       | $                                                                                         | (377.05      | )                                         | $          | 50.14 |   | $ | (143.12 | ) |   | $ | 45.78 | * * |   | $ | 0.63 |   | $ | 1.11 |   |
| Weighted average shares  outstanding, basic and diluted                                                                                         |       | 736,203                                                                                   |         | 736,203                                   |       | 736,203 |   |   | 736,203 | * * |   | 78,236,957 |   | 78,992,513 |   |

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(a)           Includesshare-based compensation of $78.6 million.

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**ConsolidatedStatements of Cash Flows Data:**

| ** **                                           | ** ** | **AerCap B.V.**                         | ** ** | **AerCap  Holdings N.V.(1)**         | ** ** |
|------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                           | ** ** | **Year ended December 31,**   | ** ** | **Six months  ended  June 30,** | ** ** | **Six months  ended  December 31,** | ** ** | **Year  ended  December 31,** | ** ** |
| ** **                                           | ** ** | **2002(2)**                                  | ** ** | **2003(2)**                               | ** ** | **2004** | ** ** | **2005** | ** ** | **2005(3)** | ** ** | **2006(4)** | ** ** |
| ** **                                           | ** ** | **(US dollars in thousands)** | ** ** |
| Net cash provided  by operating activities           |       | $                                            | 220,234    |                                      | $          | 123,614 |   | $ | 91,933 |   | $ | 107,275 |   | $ | 109,238 |   |   | $ | 348,379 |   |   |
| Net cash (used  in) provided by investing activities |       | (676,619                                     | )          | (316,170                                  | )          | (218,481 | ) | 14,525 |   | (1,431,259 | ) |   | (843,289 | ) |   |
| Net cash provided  by (used in) financing activities |       | 389,839                                      |       | 237,901                                   |       | 136,546 |   | (142,005 | ) | 1,505,472 |   |   | 443,558 |   |   |
| **Other Data (unaudited):**                          |       |                                         |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| EBITDA(6)                                            |       | $                                            | 232,958    |                                      | $          | 331,875 |   | $ | 133,815 |   | $ | 174,091 |   | $ | 150,893 |   |   | $ | 372,926 |   |   |

 

**ConsolidatedBalance Sheets Data:**

| ** **                                           | ** ** | **AerCap B.V.**                         | ** **    | **AerCap  Holdings N.V.(1)** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------|---------------|-----------------------------------|------------|
| ** **                                           | ** ** | **As of December 31,**        | ** **    |
| ** **                                           | ** ** | **2002(2)**                                  | ** **    | **2003(2)**                       | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                           | ** ** | **(US dollars in thousands)** | ** **    |
| **Assets**                                           |       |                                         |          |                              |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                           |       | $                                            | 86,121        |                              | $          | 131,268 |   | $ | 143,640 |   | $ | 183,554 |   |   | $ | 131,201 |   |   |
| Restricted cash                                      |       | 243,336                                      |          | 206,572                           |       | 118,422 |   | 157,730 |   |   | 112,277 |   |   |
| Flight equipment  held for operating leases, net     |       | 3,476,501                                    |          | 2,484,850                         |       | 2,748,347 |   | 2,189,267 |   |   | 2,966,779 |   |   |
| Notes receivable,  net of provisions                 |       | 195,236                                      |          | 188,616                           |       | 250,774 |   | 196,620 |   |   | 167,451 |   |   |
| Prepayments on  flight equipment                     |       | 157,198                                      |          | 160,624                           |       | 135,202 |   | 115,657 |   |   | 166,630 |   |   |
| Other assets                                         |       | 343,685                                      |          | 305,498                           |       | 218,565 |   | 218,405 |   |   | 378,654 |   |   |
| **Total  assets**                                    | ** ** | **$**                                        | **4,502,077** |                              | **$**      | **3,477,428** | ** ** | **$** | **3,614,950** | ** ** | **$** | **3,061,233** | ** ** | ** ** | **$** | **3,922,992** |   |   |
| Debt                                                 |       | 3,571,178                                    |          | 2,763,666                         |       | 3,115,492 |   | 2,172,995 |   |   | 2,555,139 |   |   |
| Other liabilities                                    |       | 835,255                                      |          | 581,202                           |       | 472,443 |   | 468,575 |   |   | 637,942 |   |   |
| Shareholders’  equity                           |       | 95,644                                       |          | 132,560                           |       | 27,015 |   | 419,663 |   |   | 729,911 |   |   |
| **Total liabilities and  shareholders’ equity** | ** ** | **$**                                        | **4,502,077** |                              | **$**      | **3,477,428** | ** ** | **$** | **3,614,950** | ** ** | **$** | **3,061,233** | ** ** | ** ** | **$** | **3,922,992** |   |   |

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(1)          AerCap Holdings N.V. isa Netherlands public limited liability company (“*naamlozevennootschap*”) formed on July 10, 2006 for the purpose ofacquiring all of the assets and liabilities of AerCap Holdings C.V. AerCapHoldings C.V. is a limited partnership (“*commanditairevennootschap*”) formed under the laws of The Netherlands onJune 27, 2005 for the purposes of acquiring the share capital,subordinated debt and senior debt of debis AirFinance B.V. (“AerCap B.V.”),which occurred on June 30, 2005. In anticipation of our initial publicoffering, which closed on November 27, 2006, we changed our corporatestructure from a Netherlands partnership to a Netherlands public limitedliability company. This change was effected through the acquisition of theassets and liabilities of AerCap Holdings C.V. by AerCap Holdings N.V. onOctober 27, 2006. This acquisition was a transaction under common controland accordingly, AerCap Holdings N.V. recognized the acquisition of the assetsand liabilities of AerCap Holdings C.V. at their carrying values. Additionally,these consolidated financial data are presented as if AerCap Holdings N.V. hadbeen the acquiring entity of AerCap B.V. on June 30, 2005.

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(2)          Includes the results ofoperations and cash flows for AerCo during 2002 and the three months endedMarch 31, 2003. On March 31, 2003, we sold a portion of our interestin AerCo and then deconsolidated it from our accounts because it was determinedthat we were no longer the primary beneficiary of AerCo as of March 31,2003. The amount of total revenue attributable to AerCo in the three monthsended March 31, 2003 was $106.4 million (including $72.2 millionof other income).

(3)          We were formed onJune 27, 2005; however, we did not commence operations until June 30,2005, when we acquired all of the shares and certain of the liabilities ofAerCap B.V. Our initial accounting period was from June 27, 2005 toDecember 31, 2005, but we generated no material revenue or expense betweenJune 27, 2005 and June 30, 2005 and did not have any material assetsbefore the 2005 Acquisition. For convenience of presentation only, we havelabeled our initial accounting period in the table headings in this annualreport as the six months ended December 31, 2005.

(4)          Includes the results ofAeroTurbine for the period from April 26, 2006 (date of acquisition) toDecember 31, 2006.

(5)          Includes aircraftimpairment, investment impairment and goodwill impairment.

(6)          We define EBITDA as income (loss) fromcontinuing operations before provision for income taxes, interest on debt anddepreciation and amortization. We use EBITDA to assess our consolidatedfinancial and operating performance, and we believe this non-US GAAP measure ishelpful in identifying trends in our performance. In addition, EBITDA is ameasure that is required by one of our debt lenders to calculate our compliancewith certain covenants. EBITDA provides us with a useful measure of ouroperating performance because it assists us in comparing our operatingperformance in different periods without the impact of our capital structure(primarily interest charges on our outstanding debt) and non-cash expensesrelated to our long-lived asset base (primarily depreciation and amortization).This measure provides an assessment of controllable revenue and expenses andenhances our ability to make decisions with respect to resource allocation andwhether we are meeting established financial goals. Accordingly,EBITDA measures our financial performance based on operational factors thatmanagement can impact in the short-term, such as our cost structure orexpenses, and on a more medium-term basis, our revenues.

EBITDA has limitations as an analytical tool and should not be viewed inisolation. EBITDA is a measure of operating performance that is not calculatedin accordance with US GAAP. EBITDA should not be considered a substitute fornet income, income from operations or cash flows provided by or used inoperations, as determined in accordance with US GAAP. For more detaileddiscussion, see “Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Management’s Use of EBITDA”.

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**RISK FACTORS**

**Risks Related toOur Business**

***Our business modeldepends on the continual re-leasing of our aircraft and engines when currentleases expire, and we may not be able to do so on favorable terms, if at all.***

Our business model depends on the continual re-leasingof our aircraft and engines when our current leases expire in order to generatesufficient revenues to finance our growth and operations and pay our debtservice obligations. Between December 31, 2006 and December 31, 2009,aircraft leases accounting for approximately 44.7% of our lease revenues forthe year ended December 31, 2006, are scheduled to expire and the aircraftsubject to those leases will need to be re-leased or extended. In addition,nearly all of our engines are subject to short-term leases, which are generallyless than 180 days. Our ability to re-lease our aircraft and engines willdepend on general market and competitive conditions at the time the leasesexpire. The general market and competitive conditions may be affected by manyfactors which are outside of our control.

In 2006, we generated$35.7 million of revenues from leases that were scheduled to expire, in 2007,$61.8 million of revenues from leases that were scheduled to expire in 2008 and$100.9 million of revenues from leases that were scheduled to expire in2009. Since we lease most of our engines under short-term leases (90 to180 days), we generally re-lease our engines at least once a year. If weare unable to re-lease an aircraft or engine on acceptable terms, our leaserevenue may decline and we may need to sell the aircraft or engines atunfavorable prices to provide adequate funds for our debt service obligationsand to otherwise finance our growth and operations.

***If we are unable to successfully integrate AeroTurbine,we may not be able to implement our business strategy.***

We acquired AeroTurbine inApril 2006. Our inability to integrate AeroTurbine would adversely affecta critical component of our business strategy which is focused on leveragingour ability to manage aircraft profitably throughout their lifecycle.AeroTurbine’s engine leasing business, airframe and engine disassembly businessand its MRO capabilities are critical components of this strategy because webelieve that these businesses and capabilities broaden our ability to extractvalue from a wide range of aircraft assets, particularly older aircraft, and tolower our maintenance costs. Our ability to successfully integrate AeroTurbinewill depend, in part, on the efforts of the former owners of AeroTurbine whoare currently its Chief Executive Officer and Chief Operating Officer. If weare unable to successfully integrate AeroTurbine, we may acquire aircraft andengines that we may not be able to lease at attractive rates, if at all, orprofitably disassemble for sale by our parts business. As a result, we mayoverpay for new aircraft or engines that we acquire. AeroTurbine has differentmanagement information and accounting systems than we do, which will need to beintegrated into our systems. As we integrate these systems we may discoverweaknesses or limitations in AeroTurbine’s management information andaccounting systems and internal controls. We may be required to hire additionalpersonnel at AeroTurbine as it transitions to becoming part of our consolidatedgroup. In addition, even if we are able to successfully integrate AeroTurbine,we may be required to incur increased or unanticipated costs. If we are unableto successfully integrate AeroTurbine or if we experience increased costs in integratingAeroTurbine, we may not be able to implement our business strategy, ourfinancial results and growth prospects may be materially and adverselyaffected, and we may fail to benefit from the synergies we expect to resultfrom the AeroTurbine Acquisition.

***Changes in interest rates may adversely affect ourfinancial results and growth prospects.***

We use floating rate debt to finance the acquisitionof a significant portion of our aircraft and engines. All of our revolvingcredit facilities have floating interest rates. As of December 31, 2005and December 31, 2006, we had $1.8 billion and $2.3 billion,respectively, of indebtedness outstanding that was 

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floating rate debt. Weincurred floating rate interest expense of $135.0 million in the yearended December 31, 2006. If interest rates increase, we would be obligatedto make higher interest payments to our lenders. Our practice has been to hedgethe expected future interest payments on a portion of our floating-rateliabilities by entering into derivative contracts. However, we remain exposedto changes in interest rates to the extent that our hedges are not perfectlycorrelated to our financial liabilities. In addition, if we incur significantfixed rate debt in the future, increased interest rates prevailing in themarket at the time of the incurrence or refinancing of such debt will alsoincrease our interest expense.

Changes in interest ratesmay also adversely affect our lease revenues generated from leases with leaserates tied to floating interest rates. In the year ended December 31,2006, 30.7% of our lease revenue was attributable to leases tied to floatinginterest rates. Therefore, if interest rates were to decrease, our leaserevenue would decrease. In addition, because our fixed rate leases are based,in part, on prevailing interest rates at the time we enter into the lease; ifinterest rates decrease, new leases we enter into will be at lower lease ratesand our lease revenue will be adversely affected. As of December 31, 2006,if interest rates were to increase by 1%, we would expect to incur an increasein interest expense on our floating rate indebtedness of approximately$5.6 million on an annualized basis, excluding the offsetting benefits ofinterest rate hedges currently in effect, and, if interest rates were todecrease by 1%, we would expect to generate $11.0 million less leaserevenue on an annualized basis.

***Leasing, financingand sales of aircraft, engine, and parts has historically experienced prolongedperiods of oversupply during which lease rates and aircraft values havedeclined, and any future oversupply could materially and adversely affect ourfinancial results and growth prospects.***

In the past, theaircraft and engine leasing, buying and selling businesses have experienced prolongedperiods of aircraft and engine oversupply. The oversupply of a specific type ofaircraft or engine is likely to depress the lease rates for and the value ofthat type of aircraft or engine. The supply and demand for aircraft and enginesis affected by various cyclical and non-cyclical factors that are outside ofour control, including:

·       passengerand air cargo demand;

·       fuelcosts and general economic conditions;

·       geopoliticalevents, including war, prolonged armed conflict and acts of terrorism;

·       outbreaksof communicable diseases and natural disasters;

·       governmentalregulation;

·       interestrates;

·       theavailability of credit;

·       airlinerestructurings and bankruptcies;

·       manufacturerproduction levels and technological innovation;

·       manufacturersmerging or exiting the industry or ceasing to produce aircraft types;

·       retirementand obsolescence of aircraft models;

·       reintroductioninto service of aircraft previously in storage; and

·       airportand air traffic control infrastructure constraints.

These factors may producesharp and prolonged decreases in aircraft and engine lease rates and values,and have a material adverse effect on our ability to re-lease our aircraft andengines and/or sell our 

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aircraftengines and parts at acceptable prices. Any of these factors could materiallyand adversely affect our financial results and growth prospects.

***Our financialcondition is dependent, in part, on the financial strength of our lessees;lessee defaults and other credit problems could adversely affect our financialresults and growth prospects.***

Our financialcondition depends on the financial strength of our lessees, our ability todiligence and appropriately assess the credit risk of our lessees and theability of lessees to perform under their leases. In 2006, we generated 54.5%of our revenues from leases to the airline industry, and as a result, we areindirectly affected by all the risks facing airlines today. The ability of ourlessees to perform their obligations under our leases will depend primarily onthe lessee’s financial condition and cash flow, which may be affected byfactors outside our control, including:

·       competition;

·       farelevels;

·       passengerand air cargo rates;

·       passengerand air cargo demand;

·       geopoliticaland other events, including war, acts of terrorism, outbreaks of epidemicdiseases and natural disasters;

·       increasesin operating costs, including the price and availability of jet fuel and laborcosts;

·       labordifficulties;

·       economicconditions and currency fluctuations in the countries and regions in which thelessee operates; and

·       governmentalregulation and associated fees affecting the air transportation business.

Generally, airlines withhigh debt leverage are more likely than airlines with stronger balance sheetsto seek operating leases. As a result, many of our existing lessees are in aweakened financial condition and may suffer liquidity problems, and, at anypoint in time, may experience lease payment difficulties or be significantly inarrears in their obligations under our operating leases. Some lesseesencountering financial difficulties may seek a reduction in their lease ratesor other concessions, such as a decrease in their contribution towardmaintenance obligations. Any future downturns in the airline industry couldgreatly exacerbate the weakened financial condition and liquidity problems ofsome of our lessees and further increase the risk of delayed, missed or reducedrental payments. We may not correctly assess the credit risk of each lessee orcharge lease rates which correctly reflect the related risks and our lesseesmay not be able to continue to meet their financial and other obligations underour leases in the future. A delayed, missed or reduced rental payment from alessee decreases our revenues and cash flow. Our default levels may increaseover time if economic conditions deteriorate. If lessees of a significantnumber of our aircraft or engines default on their leases, our financialresults and growth prospects will be adversely affected.

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***The value and leaserates of our aircraft and engines could decline and this would have a materialadverse effect on our financial results and growth prospects.***

Aircraft and enginevalues and lease rates have historically experienced sharp decreases due to anumber of factors including, but not limited to, decreases in passenger and aircargo demand, increases in fuel costs, government regulation and increases ininterest rates. In addition to factors linked to the aviation industrygenerally, many other factors may affect the value and lease rates of ouraircraft and engines, including:

·       theparticular maintenance, operating history and documentary records of theaircraft or engine;

·       thenumber of operators using that type of aircraft or engine;

·       theregulatory authority under which the aircraft or engine is operated;

·       whetherthe aircraft or engine is subject to a lease and, if so, whether the leaseterms are favorable to the lessor;

·       anyrenegotiation of a lease on less favorable terms;

·       thenegotiability of clear title free from mechanics liens and encumbrances;

·       anyregulatory and legal requirements that must be satisfied before the aircraftcan be purchased, sold or re-leased;

·       compatibilityof our aircraft configurations or specifications with other aircraft owned byoperators of that type;

·       comparativevalue based on newly manufactured competitive aircraft or engines; and

·       theavailability of spare parts.

Any decrease in the valueand lease rates of aircraft or engines which may result from the above factorsor other unanticipated factors, may have a material adverse effect on ourfinancial results and growth prospects.

***The concentrationof some aircraft and engine models in our aircraft and engine portfolios couldadversely affect our business and financial results should any problemsspecific to these particular models occur.***

Due to the high concentration of Airbus A320 familyaircraft and CFM56 family engines in our aircraft and engine portfolios, ourfinancial results and growth prospects may be adversely affected if the demandfor these aircraft or engine models declines, if they are redesigned orreplaced by their manufacturer or if these aircraft or engine models experiencedesign or technical problems. As of December 31, 2006, 85.4% of the netbook value of our aircraft portfolio was represented by Airbus aircraft. Ourowned aircraft portfolio included 13 aircraft types, the three highestconcentrations of which together represented 73.4% of our aircraft by net bookvalue. The three highest concentrations were Airbus A320 aircraft, representing35.5% of the net book value of our aircraft portfolio, Airbus A321 aircraft,representing 22.7% of the net book value of our aircraft portfolio, and AirbusA330 aircraft, representing 15.2% of the net book value of our aircraftportfolio, as of December 31, 2006. No other aircraft type representedmore than 10% of our portfolio by net book value. In addition to oursignificant number of existing Airbus aircraft, we have 79 new Airbus A320family aircraft on order either directly or indirectly through our consolidatedjoint venture, AerVenture, and have 20 new Airbus A330-200 widebodyaircraft on order. We also have a significant concentration of CFM56 engines inour engine portfolio. As of December 31, 2006, 86.6% of the net book valueof our engine portfolio was represented by CFM56 engines and 8.6% wasrepresented by CF6 engines.

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Should any of these aircraft or engine types oraircraft manufactured by Airbus in general encounter technical or otherproblems, the value and lease rates of those aircraft or engines will likelydecline, and we may be unable to lease the aircraft or engines on favorableterms, if at all. Any significant technical problems with any such aircraft orengine models could result in the grounding of the aircraft or engines.

In addition, if Airbus experiences further financialdifficulty or if its restructuring plan is unsuccessful, we could be adverselyaffected. Airbus has announced that production delays on Airbus’s A380 megajetare expected to reduce profits from 2007 to 2010 by $6 billion. Airbus has alsoannounced that it will need to spend up to $13 billion to redesign its A350aircraft and that the service entry of its A350 XWB aircraft would be delayedby approximately one year to 2013.

In response to the developments, in February 2007Airbus presented the details of its Power8 restructuring plan, which isdesigned to address the challenges of the weak US dollar, increased competitivepressure, the financial costs related to the A380 delays and the need to meetAirbus future investment requirements. As part of Power8, Airbus management isexpected to implement stringent cost reduction measures, including thereduction of up to 10,000 positions across the Airbus partner countries. Certainof Airbus’ labor unions have threatened to strike if the restructuring plan isimplemented.

If Airbus experiences further financial and otherdifficulties and is unable to deliver the aircraft we have ordered from it ontime or at all, we could lose the benefit of the terms of our purchase contractfor 20 A330 aircraft and AerVenture’s purchase contract and we may be unable toobtain replacement aircraft on comparable terms, or at all, which couldmaterially and adversely affect our results of operations and growth prospects.If Airbus were to enter into reorganization or bankruptcy, we could in additionlose payments made towards aircraft not yet delivered.

Any decrease in the valueand lease rates of our aircraft and engines may have a material adverse effecton our financial results and growth prospects.

***We are indirectlysubject to many of the economic and political risks associated with emergingmarkets, which could adversely affect our financial results and growthprospects.***

A significant number of our aircraft and engines areleased to airlines in emerging market countries. As of December 31, 2006,we leased 57.7% of our aircraft and 47.1% of our engines, weighted by net bookvalue, to airlines in emerging market countries. The emerging markets in whichour aircraft are operated include Thailand, India, Taiwan, Sri Lanka, ElSalvador, Jamaica, Malaysia, Colombia, Mexico, Nepal, Turkey, Hungary, Trinidadand Tobago, Russia, Brazil, the Slovak Republic and Indonesia.

Emerging market countrieshave less developed economies that are more vulnerable to economic andpolitical problems and may experience significant fluctuations in grossdomestic product, interest rates and currency exchange rates, as well as civildisturbances, government instability, nationalization and expropriation ofprivate assets and the imposition of taxes or other charges by governmentauthorities. The occurrence of any of these events in markets served by ourlessees and the resulting economic instability that may arise could adversely affectthe value of our ownership interest in aircraft or engines subject to lease insuch countries, or the ability of our lessees which operate in these markets tomeet their lease obligations. As a result, lessees which operate in emergingmarket countries may be more likely to default than lessees that operate indeveloped countries. In addition, legal systems in emerging market countriesmay be less developed, which could make it more difficult for us to enforce ourlegal rights in such countries. For these and other reasons, our financialresults and growth prospects may be materially and adversely affected byadverse economic and political developments in emerging market countries.

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***If our lesseesencounter financial difficulties and we decide to restructure our leases, therestructuring would likely result in less favorable leases which couldadversely affect our financial results and growth prospects.***

If a lessee is late inmaking payments, fails to make payments in full or in part under a lease or hasadvised us that it will fail to make payments in full or in part under a leasein the future, we may elect or be required to restructure the lease, whichcould result in less favorable terms or termination of a lease withoutreceiving all or any of the past due amounts. We may be unable to agree uponacceptable terms for some or all of the requested restructurings and as aresult may be forced to exercise our remedies under those leases. If we, in theexercise of our remedies, repossess an aircraft or engine, we may not be ableto re-lease the aircraft or engine promptly at favorable rates, if at all. Youshould expect that restructurings and/or repossessions with some lessees willoccur in the future. The terms and conditions of possible lease restructuringsmay result in a significant reduction of lease revenue, which may adverselyaffect our financial results and growth prospects.

***If we or ourlessees fail to maintain our aircraft or engines, their value may decline andwe may not be able to lease or re-lease our aircraft and engines atfavorable rates, if at all, which would adversely affect our financial resultsand growth prospects.***

We may be exposed toincreased maintenance costs for our leased aircraft and engines associated witha lessee’s failure to properly maintain the aircraft or engine or paysupplemental maintenance rent. If an aircraft or engine is not properlymaintained, its market value may decline which would result in lower revenuesfrom its lease or sale. Under our leases, our lessees are primarily responsiblefor maintaining the aircraft and engines and complying with all governmentalrequirements applicable to the lessee and the aircraft and engines, includingoperational, maintenance, government agency oversight, registration requirementsand airworthiness directives. Although we require many of our lessees to pay usa supplemental maintenance rent, failure of a lessee to perform requiredmaintenance during the term of a lease could result in a decrease in value ofan aircraft or engine, an inability to re-lease an aircraft or engine atfavorable rates, if at all, or a potential grounding of an aircraft or engine.Maintenance failures by a lessee would also likely require us to incurmaintenance and modification costs upon the termination of the applicablelease, which could be substantial, to restore the aircraft or engine to anacceptable condition prior to sale or re-leasing. Supplemental maintenance rentpaid by our lessees may not be sufficient to fund our maintenance costs. Our lessees’failure to meet their obligations to pay supplemental maintenance rent orperform required scheduled maintenance or our inability to maintain ouraircraft or engines may materially and adversely affect our financial resultsand growth prospects.

***Competition fromother aircraft or engine lessors with greater resources or a lower cost ofcapital than us could adversely affect our financial results and growthprospects.***

The aircraft and engine leasing industry is highlycompetitive. Our competition is comprised of major aircraft leasing companiesincluding GE Commercial Aviation Services, International Lease Finance Corp.,CIT Group, Aviation Capital Group, Pegasus Aviation, GATX Air, Air CastleLimited, RBS Aviation Capital, AWAS, Babcock & Brown, Boeing CapitalCorp., Pembroke Group Ltd. and Singapore Aircraft Leasing Enterprise, and sixmajor engine leasing companies, including GE Engine Leasing, Engine LeaseFinance Corporation, Pratt & Whitney Engine Leasing LLC, Willis LeaseFinance Corporation, Rolls-Royce and Partners Finance and Shannon EngineSupport Ltd. Some of our competitors are significantly larger and have greaterresources or lower cost of capital than us; accordingly, they may be able tocompete more effectively in one or more of our markets. On October 18,2006, GE Commercial Aviation Services completed the acquisition of TheMemphis Group, Inc., an aircraft parts trading company. This acquisitioncould provide competition to our integrated business strategy.

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In addition, we mayencounter competition from other entities such as:

·       airlines;

·       aircraftmanufacturers and MRO organizations;

·       financialinstitutions, including those seeking to dispose of re-possessed aircraft atdistressed prices;

·       aircraftbrokers;

·       publicand private partnerships, investors and funds with more capital to invest inaircraft and engines; and

·       otheraircraft and engine leasing companies and MRO organizations that we do notcurrently consider our major competitors.

Some of these competitorshave greater operating and financial resources and access to lower capitalcosts than us. We may not always be able to compete successfully with suchcompetitors and other entities, which could materially and adversely affect ourfinancial results and growth prospects.

***We are exposed tosignificant regional political and economic risks due to the concentration ofour lessees in certain geographical regions which could adversely affect ourfinancial results and growth prospects.***

Through our lessees, we are exposed to local economicand political conditions. Such adverse economic and political conditionsinclude additional regulation or, in extreme cases, requisition of our aircraftor engines. The effect of these conditions on payments to us will be more orless pronounced, depending on the concentration of lessees in the region withadverse conditions. The airline industry is highly sensitive to generaleconomic conditions. A recession or other worsening of economic conditions or aterrorist attack, particularly if combined with high fuel prices or a weak Euroor other local currency, may have a material adverse effect on the ability ofour lessees to meet their financial and other obligations under our leases.

Lease rental revenues from lessees based in Asiaaccounted for 43.5% of our lease revenues in 2006. The outbreak of SARS in 2003had a significant negative effect on the Asian economy, particularly in China,Hong Kong and Taiwan. The Asian airline industry has since recovered and iscurrently experiencing strong growth; however, a recurrence of SARS or theoutbreak of another epidemic disease, such as avian influenza, which manyexperts believe would originate in Asia, could materially and adversely affectthe Asian airline industry.

Lease rental revenues from lessees based in Europeaccounted for 34.9% of our lease revenues in 2006. Commercial airlines inEurope face, and can be expected to continue to face, increased competitivepressures, in part as a result of the deregulation of the airline industry bythe European Union and the resulting expansion of low-cost carriers. Europeancountries generally have relatively strict environmental regulations andtraffic constraints that can restrict operational flexibility and decreaseaircraft productivity, which could significantly increase operating costs ofall aircraft, including our aircraft, thereby adversely affecting our lessees.

Lease rental revenues from lessees based in NorthAmerica accounted for 12.8% of our lease revenues in 2006. During the past15 years, a number of North American passenger airlines filed forbankruptcy and several major U.S. airlines ceased operations altogether. Theoutbreak of SARS, the war and prolonged conflict in Iraq and theSeptember 11, 2001 terrorist attacks in the United States have imposed additionalfinancial burdens on most U.S. airlines as a result of increased expenses dueto tightened security requirements and have in certain cases led to a temporaryreduction in demand for air travel. Lease revenues from lessees based in theCaribbean, accounted for 2.2% of our lease revenues in 2006.

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Lease revenues fromlessees based in Latin America account for 6.6% of our lease revenues in 2006.The economies of Latin American countries are generally characterized by lowerlevels of foreign investment when compared to industrialized countries andgreater economic volatility. Any economic downturn in the Latin American or theCaribbean economies may adversely affect the operations of our lessees in theseregions.

***Our substantialindebtedness incurred to acquire our aircraft and engines requires significantdebt service payments.***

As of December 31, 2006, our consolidatedindebtedness was $2.6 billion and our interest expense (including theimpact of hedging activities) was $166.2 million in 2006. Due to thecapital intensive nature of our business and our strategy of expanding ouraircraft and engine portfolios, we expect that we will incur additionalindebtedness in the future and continue to maintain high levels ofindebtedness. We currently have 79 new A320 family aircraft and 20 new A330-200widebody aircraft on order from Airbus. When we acquire all 99 of the Airbusaircraft, over the next four years, we expect to incur in excess of$4.0 billion of indebtedness to finance the purchase price of the aircraft.High levels of indebtedness may limit our cash flow available for capitalexpenditures, acquisitions and other general corporate purposes and may have amaterial adverse effect on our earnings and growth prospects.

In addition, covenants insome of the indebtedness incurred by our subsidiaries prevent our subsidiariesfrom paying dividends to us if we or the relevant subsidiary do not meetspecified financial ratios. In addition, the terms of the Aircraft LeaseSecuritisation indebtedness allow for distributions on the subordinated notesheld by us only after the senior classes of notes are repaid.

***Aircraft havelimited economically useful lives and depreciate over time, which can adverselyaffect our financial condition and growth prospects.***

As our aircraft age, theywill depreciate and generally the aircraft will generate lower revenues andcash flows. If we do not replace our older depreciated aircraft with neweraircraft, our ability to maintain or increase our revenues and cash flows willdecline. In addition, since we depreciate our aircraft for accounting purposeson a straight line basis to the aircraft’s estimated residual value over itsestimated useful life, if we dispose of an aircraft for a price that is lessthan the depreciated book value of the aircraft on our balance sheet, we willrecognize a loss on the sale.

***Our failure tomaintain effective internal controls could have a material adverse effect onour business in the future and on our access to the capital markets.***

Any failure to maintainadequate internal control over financial reporting or to implement required,new or improved controls, or difficulties encountered in their implementation,could cause us to report material weaknesses or other deficiencies in ourinternal control over financial reporting and could result in a more thanremote possibility of errors or misstatements in our consolidated financialstatements that would be material. Although we are not currently subject to therequirements of Section 404 of the Sarbanes-Oxley Act of 2002, weare in the process of documenting and testing our internal controls in order toenable us to satisfy those requirements as of December 31, 2007. Beginningwith our next annual report on Form 20-F, pursuant toSection 404 of the Sarbanes-Oxley Act, our management will berequired to assess the effectiveness of our internal control over financialreporting, and we will be required to have our independent registered publicaccounting firm audit management’s assessment and the operating effectivenessof our internal control over financial reporting. If our management or ourindependent registered public accounting firm were to conclude that ourinternal control over financial reporting was not effective, investors couldlose confidence in our reported financial information and the value of ourordinary shares could be adversely impacted. Our failure to achieve andmaintain effective internal controls could have a material adverse effect onour business in the future and on our access to the capital 

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markets.In addition, in connection with our compliance with Section 404 and theother applicable provisions of the Sarbanes-Oxley Act, our management andother personnel will need to devote a substantial amount of time, and may needto hire additional accounting and financial staff, to assure that we complywith these requirements. Compliance may also make some of our activities moretime-consuming and costly. For example, we expect these rules andregulations to make it more difficult and more expensive for us to obtaindirector and other liability insurance, and we may be required to incursubstantial costs to maintain current levels of coverage. The additionalmanagement attention and costs relating to compliance with the Sarbanes-OxleyAct could materially and adversely affect our growth and financial results.

***The advanced age ofsome of our aircraft may cause us to incur higher than anticipated maintenanceexpenses, which could adversely affect our financial results and growthprospects.***

As of December 31,2006, we owned 64 aircraft that were over ten years of age, representing 29.7%of the net book value of our aircraft portfolio. In general, the costs ofoperating an aircraft, including maintenance expenditures, increase as theyage. In addition, older aircraft are typically less fuel-efficient, noisier andproduce higher levels of emissions, than newer aircraft and may be moredifficult to re-lease or sell. In a depressed market, the value of olderaircraft may decline more rapidly than the values of newer aircraft and ouroperating results may be adversely affected. Increased variable expenses likefuel, maintenance and increased governmental regulation could make theoperation of older aircraft or engines less profitable and may result in increasedlessee defaults. Incurring higher than anticipated maintenance expensesassociated with the advanced age of some of our aircraft or our inability tosell or re-lease such older aircraft would materially and adversely affect ourfinancial results and growth prospects.

***The advent ofsuperior aircraft and engine technology could cause our existing aircraft andengine portfolio to become outdated and therefore less desirable, which couldadversely affect our financial results and growth prospects.***

As manufacturers introducetechnological innovations and new types of aircraft and engines, some of theaircraft and engines in our aircraft and engine portfolios may become lessdesirable to potential lessees. In addition, the imposition of increasedregulation regarding stringent noise or emissions restrictions may make some ofour aircraft and engines less desirable in the marketplace. Any of these risksmay adversely affect our ability to lease or sell our aircraft or engines onfavorable terms, if at all, which would have a material adverse effect on ourfinancial results and growth prospects.

***If our lessees’insurance coverage is insufficient, it could adversely affect our financialresults and growth prospects.***

While we do not directly control the operation of anyof our aircraft or engines, by virtue of holding title to aircraft, directly orindirectly, in certain jurisdictions around the world, we could be heldstrictly liable for losses resulting from the operation of our aircraft andengines, or may be held liable for those losses on other legal theories. Werequire our lessees to obtain specified levels of insurance and indemnify usfor, and insure against, liabilities arising out of their use and operation ofthe aircraft.

However, following the terrorist attacks ofSeptember 11, 2001, aviation insurers significantly reduced the amount ofinsurance coverage available to airlines for liability to persons other thanemployees or passengers for claims resulting from acts of terrorism, war orsimilar events. At the same time, aviation insurers significantly increased thepremiums for third-party war risk and terrorism liability insurance andcoverage in general. As a result, the amount of third-party war risk andterrorism liability insurance that is commercially available at any time may bebelow the amount stipulated in our leases.

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Our lessees’ insurance orother coverage may not be sufficient to cover all claims that may be assertedagainst us arising from the operation of our aircraft and engines by our lessees.Inadequate insurance coverage or default by lessees in fulfilling theirindemnification or insurance obligations will reduce the proceeds that would bereceived by us in the event we are sued and are required to make payments toclaimants, which could materially and adversely affect our financial resultsand growth prospects.

***If we incursignificant costs resulting from lease defaults it could adversely affect ourfinancial results and growth prospects.***

If we are required to repossess an aircraft or engineafter a lessee default, we may be required to incur significant unexpectedcosts. Those costs include legal and other expenses of court or othergovernmental proceedings, including the cost of posting surety bonds or lettersof credit necessary to effect repossession of aircraft or engine, particularlyif the lessee is contesting the proceedings or is in bankruptcy. In addition,during these proceedings the relevant aircraft or engine is not generatingrevenue. We may also incur substantial maintenance, refurbishment or repaircosts that a defaulting lessee has failed to pay and that are necessary to putthe aircraft or engine in suitable condition for re-lease or sale. It may alsobe necessary to pay off liens, taxes and other governmental charges on theaircraft to obtain clear possession and to remarket the aircraft effectively,including, in some cases, liens that the lessee may have incurred in connectionwith the operation of its other aircraft. We may also incur other costs inconnection with the physical possession of the aircraft or engine.

We may also suffer other adverse consequences as aresult of a lessee default and the related termination of the lease and therepossession of the related aircraft or engine. Our rights upon a lessee defaultvary significantly depending upon the jurisdiction and the applicable law,including the need to obtain a court order for repossession of the aircraftand/or consents for de-registration or re-export of the aircraft. When adefaulting lessee is in bankruptcy, protective administration, insolvency orsimilar proceedings, additional limitations may apply. Certain jurisdictionsgive rights to the trustee in bankruptcy or a similar officer to assume orreject the lease or to assign it to a third party, or entitle the lessee oranother third party to retain possession of the aircraft or engine withoutpaying lease rentals or performing all or some of the obligations under therelevant lease. In addition, certain of our lessees are owned in whole, or inpart, by government-related entities, which could complicate our effortsto repossess our aircraft or engines in that government’s jurisdiction.Accordingly, we may be delayed in, or prevented from, enforcing certain of ourrights under a lease and in re-leasing the affected aircraft or engine.

If we repossess an aircraft or engine, we will notnecessarily be able to export or de-register and profitably redeploy theaircraft or engine. For instance, where a lessee or other operator flies onlydomestic routes in the jurisdiction in which the aircraft or engine isregistered, repossession may be more difficult, especially if the jurisdictionpermits the lessee or the other operator to resist de-registration. We may alsoincur significant costs in retrieving or recreating aircraft or engine recordsrequired for registration of the aircraft or engine, and in obtaining thecertificate of airworthiness for an aircraft. If we incur significant costsrepossessing our aircraft or engines, are delayed in repossessing our aircraftor engines or are unable to obtain possession of our aircraft or engines as aresult of lessee defaults, our financial results and growth prospects may bematerially and adversely affected.

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***If we provide MROservices to third-parties, we may lose some of our existing MRO serviceprovider customers who lease our engines and purchase our parts.***

A significant portion ofour short-term engine leases are to engine MRO service providers, which in turnuse the engines to provide their customers with spare engines while the MROservice provider repairs the customer’s engines. Also, a significant portion ofour engine parts are sold directly to our engine MRO service providercustomers. If we provide MRO services directly to third parties we wouldcompete directly with some of our MRO service provider customers. Some of theseMRO service provider customers may choose to lease engines and purchase partsfrom our competitors with whom they do not directly compete in their MRObusiness.

***If our lessees failto appropriately discharge aircraft liens, we may be obligated to pay theaircraft liens, which could adversely affect our financial results and growthprospects.***

In the normal course of their business, our lesseesare likely to incur aircraft and engine liens that secure the payment ofairport fees and taxes, custom duties, air navigation charges, includingcharges imposed by Eurocontrol, landing charges, crew wages, repairer’scharges, salvage or other liens that may attach to our aircraft or engine.These liens may secure substantial sums that may, in certain jurisdictions orfor certain types of liens, particularly liens on entire fleets of aircraft,exceed the value of the particular aircraft or engine to which the liens haveattached. Aircraft and engines may also be subject to mechanical liens as aresult of routine maintenance performed by third parties on behalf of ourcustomers. Although the financial obligations relating to these liens are the responsibilityof our lessees, if they fail to fulfill their obligations, the liens may attachto our aircraft or engines and ultimately become our responsibility. In somejurisdictions, aircraft and engine liens may give the holder thereof the rightto detain or, in limited cases, sell or cause the forfeiture of the aircraft orengine.

Until they are discharged,these liens could impair our ability to repossess, re-lease or sell ouraircraft or engines. Our lessees may not comply with their obligations under theirleases to discharge aircraft liens arising during the terms of their leases. Ifthey do not, we may find it necessary to pay the claims secured by suchaircraft liens in order to repossess the aircraft or engine. Such paymentswould materially and adversely affect our financial results and growthprospects.

***Failure to obtaincertain required licenses, certificates and approvals could adversely affectour ability to re-lease or sell aircraft and engines, our ability to performmaintenance services or to provide cash management services, which wouldmaterially and adversely affect our financial condition and results ofoperations.***

Under our leases, we maybe required in some instances to obtain specific licenses, consents orapprovals for different aspects of the leases. These required items includeconsents from governmental or regulatory authorities for certain payments underthe leases and for the import, re-export or deregistration of the aircraft andengines. Subsequent changes in applicable law or administrative practice mayincrease such requirements. In addition, a governmental consent, once given,might be withdrawn. Furthermore, consents needed in connection with futurere-leasing or sale of an aircraft or engine may not be forthcoming. To performsome of our cash management services and insurance services from Ireland underour management arrangements with our joint ventures and securitizationentities, we require a license from the Irish regulatory authorities, which wehave obtained. In addition, to meet our MRO customers’ requirements to maintaincertain flight certifications, AeroTurbine requires certificates from theFederal Aviation Administration, or FAA, and European Aviation Safety Agency,or EASA, which it has obtained. A failure to maintain these licenses orcertificates or obtain any required license or certificate, consent orapproval, or the occurrence of any of the foregoing events, could adverselyaffect our ability to provide qualifying services or re-lease or sell ouraircraft or engines, which would materially and adversely affect our financialcondition and results of operations.

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***Our ability to operate in some countries is restrictedby foreign regulations and controls on investments.***

Many countries restrict orcontrol foreign investments to varying degrees, and additional or differentrestrictions or policies adverse to us may be imposed in the future. Theserestrictions and controls have limited, and may in the future restrict orpreclude, our investment in joint ventures or the acquisition of businessesoutside of the United States, or may increase the cost to us of entering intosuch transactions. Various governments, particularly in the Asia/Pacificregion, require governmental approval before foreign persons may make investmentsin domestic businesses and also limit the extent of any such investments.Furthermore, various governments may require governmental approval for therepatriation of capital by, or the payment of dividends to, foreign investors.Restrictive policies regarding foreign investments may increase our costs ofpursuing growth opportunities in foreign jurisdictions, which could materiallyand adversely affect our financial results and growth prospects.

***There are a limitednumber of aircraft and engine manufacturers and the failure of any manufacturerto meet its aircraft and engine delivery obligations to us could adverselyaffect our financial results and growth prospects.***

The supply of commercial jet aircraft is dominated bytwo airframe manufacturers, Boeing and Airbus, and three engine manufacturers,GE Aircraft Engines, Rolls-Royce plc and Pratt & Whitney.As a result, we are dependent on these manufacturers’ success in remainingfinancially stable, producing products and related components which meet the airlines’demands and fulfilling their contractual obligations to us. Airbus has recentlymade a series of announcements relating to significant delays and cost overrunsin the manufacturing process for the new commercial jet it is developing, theA380 megajet. These delays and cost overruns have resulted in several changesof Airbus’s top management and could lead to Airbus customers cancelingexisting orders, which would aggravate Airbus’s economic difficulties.

Further,competition between Airbus and Boeing for market share is escalating and maycause instances of deep discounting for certain aircraft types, which couldadversely affect our ability to obtain an attractive price when we attempt tosell our aircraft in the aftermarket. Should the manufacturers fail to respondappropriately to changes in the market environment or fail to fulfill theircontractual obligations, we may experience:

·       missedor late delivery of aircraft and engines ordered by us and an inability to meetour contractual obligations to our customers, resulting in lost or delayedrevenues, lower growth rates and strained customer relationships;

·       aninability to acquire aircraft and engines and related components on terms whichwill allow us to lease those aircraft and engines to customers at a profit,resulting in lower growth rates or a contraction in our aircraft portfolio;

·       amarket environment with too many aircraft and engines available, creatingdownward pressure on demand for the aircraft and engines in our fleet andreduced market lease rates and sale prices;

·       poorcustomer support from the manufacturers of aircraft, engines and componentsresulting in reduced demand for a particular manufacturer’s product, creatingdownward pressure on demand for those aircraft and engines in our fleet andreduced market lease rates and sale prices for those aircraft and engines; and

·       reduction in ourcompetitiveness due to deep discounting by the manufacturers, which may lead toreduced market lease rates and sale prices and may affect our ability toremarket or sell some of the aircraft and engines in our portfolio.

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***We will needadditional capital to finance our growth, and we may not be able to obtain iton terms acceptable to us, if at all, which may limit our ability to grow andcompete in the aircraft and engine leasing and trading markets.***

We will need additionalcapital to continue to expand our business by acquiring additional aircraft,engines and other aviation assets, and financing may not be available to us ormay be available to us only on terms that are not favorable. We initiallyfinance the acquisition of aircraft through a combination of medium-termrevolving credit facilities and long-term debt structures. Once we obtaina sufficient number and diversity of aircraft financed with medium-termrevolving credit facilities, we generally refinance these facilities with long-termdebt structures, including securitizations, tax advantaged structures and bankloans. As a result, we are subject to the risk that we will not be able to acquire,during the period that our credit facilities are available, a sufficient amountof eligible aircraft and engines to allow for an issuance of long-term debt. Ifwe are unable to raise additional funds or obtain capital on terms acceptableto us, we may have to delay, modify or abandon some or all of our growthstrategies. Further, if additional capital is raised through the issuance ofadditional equity securities, the percentage ownership of our then currentshareholders would be diluted. Newly issued equity securities may have rights,preferences or privileges senior to those of our ordinary shares. See “Item 10.Additional Information—Memorandum and articles of association”.

***We are subject tovarious environmental regulations that may have an adverse impact on ourfinancial results and growth prospects.***

Governmental regulations regarding aircraft and enginenoise and emissions levels apply based on where the relevant airframe isregistered, and where the aircraft is operated. For example, jurisdictionsthroughout the world have adopted noise regulations which require all aircraftto comply with noise level standards. In addition to the current requirements,the United States and the International Civil Aviation Organization, or ICAO,have adopted a new, more stringent set of standards for noise levels which willapply to engines manufactured or certified beginning in 2006. Currently, UnitedStates regulations would not require any phase-out of aircraft that qualifywith the current standards, but the European Union has established a frameworkfor the imposition of operating limitations on aircraft that do not comply withthe new standards. These regulations could limit the economic life of ouraircraft and engines, reduce their value, limit our ability to lease or sellthe non-compliant aircraft and engines or, if engine modifications are permitted,require us to make significant additional investments in the aircraft andengines to make them compliant.

In addition to more stringent noise restrictions, theUnited States and other jurisdictions are beginning to impose more stringentlimits on the emission of nitrogen oxide, carbon monoxide and carbon dioxideemissions from engines, consistent with current ICAO standards. These limitsgenerally apply only to engines manufactured after 1999. None of our 61aircraft engines were manufactured after 1999. Concerns over global warmingcould result in more stringent limitations on the operation of aircraft poweredby older, non-compliant engines.

Our operations are subjectto various federal, state and local environmental, health and safety laws andregulations in the United States, including those relating to the discharge ofmaterials into the air, water and ground, the generation, storage, handling,use, transportation and disposal of hazardous materials, and the health andsafety of its employees. A violation of these laws and regulations or permitconditions can result in substantial fines, permit revocation or other damages.Many of these laws impose liability for clean-up of contamination thatmay exist at our facilities (even if we did not know of or were not responsiblefor the contamination) or related personal injuries or natural resource damagesor costs relating to contamination at third-party waste disposal siteswhere we have sent or may send waste. We cannot assure you that we will be atall times in complete compliance with these laws, regulations or permits. Wemay have liability under environmental laws or be subject to legal actionsbrought by 

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governmentalauthorities or other parties for actual or alleged violations of, or liabilityunder, environmental, health and safety laws, regulations or permits.

***We are the managerfor several securitization vehicles and joint ventures and our financialresults would be adversely affected if we were removed from these positions.***

We are the aircraftmanager for various securitization vehicles, joint ventures and third partiesand receive annual fees for these services. In 2006, we generated revenue of$14.1 million from providing aircraft management services to non-consolidatedsecuritization vehicles and joint ventures and third parties. We may be removedas manager by the affirmative vote of a requisite number of holders of thesecurities issued by the securitization vehicles upon the occurrence ofspecified events and at specified times under our joint venture agreements. Ifwe are removed, in the case of our consolidated securitization vehicles andjoint ventures, our expenses would increase since such securitization vehiclesor joint ventures would have to hire an outside aircraft manager and, in thecase of non-consolidated securitization vehicles, joint ventures and thirdparties, our revenues would decline as a result of the loss of our fees forproviding management services to such entities. If we are removed as aircraftmanager for any securitization vehicle or joint venture that generates asignificant portion of our management fees, our financial results and growthprospects could be materially and adversely affected.

***Our limited controlover our joint ventures may delay or prevent us from implementing our businessstrategy which may adversely affect our financial results and growth prospects.***

We are currently jointventure partners in several joint ventures, including AerVenture, aconsolidated joint venture which has entered into a purchase agreement withAirbus for the purchase of up to 70 A320 family aircraft, and it is ourstrategy to enter into additional joint ventures in the future. Under the AerVenturejoint venture agreement, we share control over significant decisions with ourjoint venture partner. For example, we may not, without the consent of ourAerVenture joint venture partner, cause AerVenture to incur any debt outsidethe ordinary course of business, buy or sell assets or pay dividends to us.Since we have limited control over AerVenture and certain of our other jointventures and may not be able to exercise control over any future joint venture,we may not be able to require AerVenture or such other joint ventures to takeactions that we believe are necessary to implement our business strategy.Accordingly, this limited control could have a material adverse effect on ourfinancial results and growth prospects.

***The departure of senior managers could adverselyaffect our financial results and growth prospects.***

Our future successdepends, to a significant extent, upon the continued service of our seniormanagement personnel. For a description of the senior management team, see “Item 6.Directors, Senior Management and Employees”. The departure of senior managementpersonnel could have a material adverse effect on our ability to achieve ourbusiness strategy, including the integration of AeroTurbine.

***In certaincountries, an engine affixed to an aircraft may become an accession to theaircraft and we may not be able to exercise our ownership rights over theengine.***

In some jurisdictions, anengine affixed to an aircraft may become an accession to the aircraft, so thatthe ownership rights of the owner of the aircraft supersede the ownershiprights of the owner of the engine. If an aircraft is security for the owner’sobligations to a third party, the security interest in the aircraft maysupersede our rights as owner of the engine. This legal principle could limitour ability to repossess an engine in the event of an engine lease defaultwhile the aircraft with our engine installed remains in such jurisdiction. Wewould suffer a substantial loss if we were not able to repossess engines leasedto lessees in these jurisdictions, which would materially and adversely affectour financial results and growth prospects.

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**Risks Related to the Aviation Industry**

***As high fuel prices continue to affect theprofitability of the aviation industry, our lessees might not be able to meettheir lease payment obligations, which would adversely affect our financialresults and growth prospects.***

Fuel costs represent amajor expense to companies operating in the aviation industry. Fuel pricesfluctuate widely depending primarily on international market conditions,geopolitical and environmental events and currency/exchange rates. As a result,fuel costs are not within the control of lessees and significant increases infuel costs would materially and adversely affect their operating results.

Factors such as naturaldisasters can significantly affect fuel availability and prices. In August andSeptember 2005, Hurricanes Katrina and Rita inflicted widespread damagealong the Gulf Coast of the United States, causing significant disruptions tooil production, refinery operations and pipeline capacity in the region, and tooil production in the Gulf of Mexico. These disruptions resulted in decreasedfuel availability and higher fuel prices.

Fuel prices currentlyremain at historically high levels. The continuing high cost of fuel has had,and sustained high costs in the future may continue to have, a material adverseaffect on airlines’ profitability, including our lessees. Due to thecompetitive nature of the aviation industry, operators have been and maycontinue to be unable to pass on increases in fuel prices to their customers byincreasing fares in a manner that fully off-sets the increased fuel costs theyhave incurred. In addition, they may not be able to manage this risk by appropriatelyhedging their exposure to fuel price fluctuations. If fuel prices remain athistorically high levels or increase further due to future terrorist attacks,acts of war, armed hostilities, natural disasters or for any other reason, theyare likely to cause our lessees to incur higher costs and/or generate lowerrevenues, resulting in an adverse affect on their financial condition andliquidity. Consequently, these conditions may adversely affect our lessees’ability to make rental and other lease payments, result in lease restructuringsand/or aircraft and engine repossessions, increase our costs of servicing andmarketing our aircraft and engines, impair our ability to re-lease them orotherwise dispose of them on a timely basis at favorable rates or terms, if atall, and reduce the proceeds received for such assets upon any disposition. Anyof these events could adversely affect our financial results and growthprospects.

***If the effects of terrorist attacks and geopoliticalconditions continue to adversely affect the financial condition of theairlines, our lessees might not be able to meet their lease paymentobligations, which would adversely affect our financial results and growthprospects.***

As a result of the September 11,2001 terrorist attacks in the United States and subsequent terrorist attacksabroad, notably in the Middle East, Southeast Asia and Europe, increasedsecurity restrictions were implemented on air travel, costs for aircraftinsurance and security measures have increased, passenger and cargo demand forair travel decreased and operators have faced and continue to face increaseddifficulties in acquiring war risk and other insurance at reasonable costs. Inaddition, war or armed hostilities, or the fear of such events could furtherexacerbate many of the problems experienced as a result of terroristattacks. Uncertainty regarding the situation in Iraq and tension over Iran’sand North Korea’s nuclear programs, may lead to further instability in theMiddle East. Future terrorist attacks, war or armed hostilities, or the fear ofsuch events, could further adversely affect the aviation industry and may havean adverse effect on the financial condition and liquidity of our lessees,aircraft and engine values and rental rates, and may lead to leaserestructurings or repossessions, all of which could adversely affect ourfinancial results and growth prospects.

Terroristattacks and adverse geopolitical conditions have adversely affected theaviation industry and concerns about such events could also result in:

·       highercosts to the airlines due to the increased security measures;

·       decreasedpassenger demand and revenue due to the inconvenience of additional securitymeasures;

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·       uncertaintyof the price and availability of jet fuel and the cost and practicability ofobtaining fuel hedges under current market conditions;

·       higherfinancing costs and difficulty in raising the desired amount of proceeds onfavorable terms, if at all;

·       significantlyhigher costs of aviation insurance coverage for future claims caused by acts ofwar, terrorism, sabotage, hijacking and other similar perils, and the extent towhich such insurance has been or will continue to be available;

·       inabilityof airlines to reduce their operating costs and conserve financial resources,taking into account the increased costs incurred as a consequence of terroristattacks and geopolitical conditions, including those referred to above; and

·       specialcharges recognized by some operators, such as those related to the impairmentof aircraft and engines and other long lived assets stemming from the groundingof aircraft as a result of terrorist attacks, the economic slowdown and airlinereorganizations.

Future terrorist attacks, acts of war or armedhostilities may cause certain aviation insurance to become available only atsignificantly increased premiums, which may be for reduced amounts of coveragethat are insufficient to comply with the levels of insurance coverage currentlyrequired by aircraft and engine lenders and lessors or by applicable governmentregulations, or to be not available at all.

Although the Aircraft Transportation Safety and SystemStabilization Act adopted in the United States on September 22, 2001and similar programs instituted by the governments of other countries providefor limited government coverage under government programs for specified typesof aviation insurance, these programs may not continue and governments may notpay under these programs in a timely fashion.

Future terrorist attacks,acts of war or armed hostilities are likely to cause our lessees to incurhigher costs and to generate lower revenues, which could result in an adverseeffect on their financial condition and liquidity. Consequently, theseconditions may affect their ability to make rental and other lease payments tous or obtain the types and amounts of insurance required by the applicableleases, which may in turn lead to aircraft groundings, may result in additionallease restructurings and repossessions, may increase our cost of re-leasing orselling the aircraft and may impair our ability to re-lease or otherwisedispose of them on a timely basis at favorable rates or on favorable terms, ifat all, and may reduce the proceeds received for our aircraft and engines uponany disposition. These results could adversely affect our financial results andgrowth prospects.

***The effects of SARSor other epidemic diseases may adversely affect the airline industry in thefuture, which might cause our lessees to not be able to meet their leasepayment obligations to us, which would adversely affect our financial resultsand growth prospects.***

The linking of the 2003 outbreak of SARS to air travelmaterially and adversely affected passenger demand for air travel at that time.While the World Heath Organization’s travel bans related to SARS were lifted,SARS had a continuing negative affect on the aviation industry, which wasevidenced by a sharp reduction in passenger bookings and the cancellation ofmany flights after the air travel bans had been lifted. While these effectswere felt most acutely in Asia, the effect of SARS on the aviation industryalso adversely affected other areas, including North America.

Since 2003, there havebeen several outbreaks of avian influenza, beginning in Asia and, mostrecently, spreading to certain parts of Africa and Europe. Although human casesof avian influenza so far have been limited in number, the World HealthOrganization has expressed serious concern that a human influenza pandemiccould develop from the avian influenza virus. In such an event, numerousresponses, 

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includingtravel restrictions, might be necessary to combat the spread of the disease.Additional outbreaks of SARS or other diseases, such as avian influenza, or thefear of such events, could adversely affect passenger demand for air travel andthe aviation industry. These consequences could result in our lessees’inability to satisfy their lease payment obligations to us, which in turn wouldadversely affect our financial results and growth prospects.

***The passengeraviation industry is inherently cyclical and a significant downturn in theindustry would adversely impact our lessees’ ability to make payments to us,which would adversely affect our financial results and growth prospects.***

The years 2001 through 2004 were characterized byfalling demand and rising costs. This industry downturn was exacerbated by theterrorist attacks on 9/11, prolonged military action in Iraq and Afghanistan,rising fuel prices, SARS and avian influenza. As a result, the global airlineindustry experienced significant financial losses. Many airlines, includingsome of our lessees, announced or implemented reductions in capacity, serviceand workforce. Additionally, many airlines sought protection under bankruptcylaws. The airline bankruptcies and the reduction in demand led to the groundingof significant numbers of aircraft and engines and the negotiation ofreductions in lease rental rates, which depressed aircraft and engine marketvalues.

While the down cycle has endedand the world’s airlines are currently generally performing well, an industrydownturn is likely to occur again in the future and the impact could be similarto the impact of the prior downturn. Such a downturn would likely place alreadyfinancially weakened lessees under further duress, once again putting downwardpressure on lease rates. As in the previous downturn, the grounding ofundesirable older aircraft would also play a role in depressing aircraft andengine market values.

**Risks Related to OurOrganization and Structure**

***If the ownership ofour ordinary shares continues to be highly concentrated, it may prevent you andother minority shareholders from influencing significant corporate decisionsand may result in conflicts of interest.***

Funds and accountsaffiliated with Cerberus Capital Management, L.P., or Cerberus, have votingcontrol over approximately 69.3% of our ordinary shares, including shares oroptions held by members of our senior management, our non-executive directorsand a consultant in Bermuda holding companies which are our indirectshareholders. As a result, Cerberus is able to control fundamental corporatematters and transactions, including the appointment of a majority of ourdirectors, mergers, amalgamations, consolidations or acquisitions, the sale ofall or substantially all of our assets, the amendment of our articles ofassociation and our dissolution. This concentration of ownership may delay,deter or prevent acts that would be favored by our other shareholders, such asa change of control transaction that would result in the payment of a premiumto our other shareholders. In addition, this concentration of share ownershipmay adversely affect the trading price of our ordinary shares if the perceptionamong investors exists that owning shares in a company with a significantshareholder is not desirable.

***We are aNetherlands public limited liability company (naamloze vennootschap) and it maybe difficult for you to obtain or enforce judgments against us or our executiveofficers, some of our directors and some of our named experts in the UnitedStates.***

We were formed under the laws of The Netherlands and,as such, the rights of holders of our ordinary shares and the civil liabilityof our directors will be governed by the laws of The Netherlands and ourarticles of association. The rights of shareholders under the laws of TheNetherlands may differ from the rights of shareholders of companiesincorporated in other jurisdictions. Some of the named experts referred to inthis annual report are not residents of the United States, and most of ourdirectors and our executive officers and most of our assets and the assets ofour directors are located outside the 

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United States. Inaddition, under our articles of association, all lawsuits against us and ourdirectors and executive officers shall be governed by the laws of TheNetherlands and must be brought exclusively before the Courts of Amsterdam, TheNetherlands. As a result, you may not be able to serve process on us or on suchpersons in the United States or obtain or enforce judgments from U.S. courtsagainst them or us based on the civil liability provisions of the securitieslaws of the United States. There is doubt as to whether Netherlands courtswould enforce certain civil liabilities under U.S. securities laws in originalactions and enforce claims for punitive damages.

Under our articles ofassociation, we indemnify and hold our directors, officers and employeesharmless against all claims and suits brought against them, subject to limitedexceptions. Under our articles of association, to the extent allowed by law,the rights and obligations among or between us, any of our current or formerdirectors, officers and employees and any current or former shareholder shallbe governed exclusively by the laws of The Netherlands and subject to thejurisdiction of the Netherlands courts, unless such rights or obligations donot relate to or arise out of their capacities listed above. Although there isdoubt as to whether U.S. courts would enforce such provision in an actionbrought in the United States under U.S. securities laws, such provision couldmake enforcing judgments obtained outside of The Netherlands more difficult toenforce against our assets in The Netherlands or jurisdictions that would applyNetherlands law.

***Our international operations expose us to economic andlegal risks associated with a global business.***

We conduct ourbusiness in many countries, and we anticipate that revenue from ourinternational operations, particularly from the Asia/Pacific region, willcontinue to account for a significant amount of our future revenue. There arerisks inherent in conducting our business internationally, including:

·       generalpolitical and economic instability in international markets;

·       limitationsin the repatriation of our assets, including cash;

·       expropriationof our international assets;

·       differentliability standards and less developed legal systems that may be lesspredictable than those in the United States; and

·       intellectualproperty laws of countries that do not protect our international rights to thesame extent as the laws of the United States.

These factors may have amaterial adverse effect on our financial results and growth prospects.

***If our subsidiaries do not make distributions to us wewill not be able to pay dividends.***

Substantially all of ourassets are held by and our revenues are generated by our subsidiaries. We willbe limited in our ability to pay dividends unless we receive dividends or othercash flow from our subsidiaries. Substantially all of our owned aircraft areheld through special purpose subsidiaries or finance structures which borrowfunds to finance or refinance the aircraft. The terms of such financings placerestrictions on distributions of funds to us. If these limitations preventdistributions to us or our subsidiaries do not generate positive cash flows, wewill be limited in our ability to pay dividends and may be unable to transferfunds between subsidiaries if required to support our subsidiaries.

**Risks Related toTaxation**

***We may become a passive foreign investment company, orPFIC, for U.S. federal income tax purposes.***

We do not believe we arecurrently a PFIC and we intend to conduct our affairs in a manner that willreduce the likelihood of our being a PFIC. The determination as to whether aforeign corporation is a 

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PFIC isa complex determination based on all of the relevant facts and circumstancesand depends on the classification of various assets and income under PFICrules. In our case, the determination is further complicated by the applicationof the PFIC rules to leasing companies and to joint ventures and financingstructures common in the aircraft leasing industry. If we are or become a PFIC,U.S. shareholders may be subject to increased U.S. federal income taxes on asale or other disposition of our ordinary shares and on the receipt of certaindistributions and will be subject to increased U.S. federal income taxreporting requirements. See “Item 10. Additional Information—U.S. TaxConsiderations” for a more detailed discussion of the consequences to you if weare treated as a PFIC and a discussion of certain elections that may beavailable to mitigate the effects of that treatment. We urge you to consultyour own tax advisors regarding the application of the PFIC rules to yourparticular circumstances.

***We may becomesubject to income or other taxes in jurisdictions which would adversely affectour financial results and growth prospects.***

We and our subsidiariesare subject to the income tax laws of Ireland, The Netherlands, Sweden and theUnited States and other jurisdictions in which our subsidiaries areincorporated or based. In addition, we or our subsidiaries may be subject toadditional income or other taxes in these and other jurisdictions by reason ofthe management and control of our subsidiaries, our activities and operations,where our aircraft operate or where the lessees of our aircraft (or others inpossession of our aircraft) are located. Although we have adopted guidelinesand operating procedures to ensure our subsidiaries are appropriately managedand controlled to reduce the exposure to such additional taxation, no assurancecan be given that we will not be subject to such taxes in the future and thatsuch taxes will not be substantial. The imposition of such taxes could have amaterial adverse effect on our financial results and growth prospects.

***We may incur current tax liabilities in our primaryoperating jurisdictions in the future.***

While we have not incurredmaterial income tax liabilities in our primary operating jurisdictions in thepast due to, among other things, accelerated tax depreciation, deductiblefinancing expenses and intercompany servicing arrangements, we may incurmaterial income tax liabilities in those jurisdictions in the future. Due tothe AeroTurbine Acquisition, we expect to pay U.S. income taxes in the future.If we become subject to material income taxes in any of our other primaryoperating jurisdictions, our increased tax liabilities could adversely affectour cash flows and have a material adverse effect on our financial results andgrowth prospects.

***We may become subject to additional Irish taxes basedon the extent of our operations carried on in Ireland.***

Our Irish tax residentsubsidiaries are currently subject to Irish corporate income tax on tradingincome at a rate of 12.5%, on capital gains at 20%, and on other income at 25%.We expect that substantially all of our Irish income will be treated as tradingincome for tax purposes in future periods. As of December 31, 2006, we had$355.7 million of Irish tax losses available to carry forward against ourtrading income. The continued application of the 12.5% tax rate to tradingincome generated in our Irish tax resident subsidiaries and the ability tocarry forward Irish tax losses to shelter future taxable trading income dependsin part on the extent and nature of activities carried on in Ireland both inthe past and in the future. AerCap Ireland and its Irish tax residentsubsidiaries intend to carry on their activities in Ireland so that the 12.5%rate of tax applicable to trading income will apply and that they will beentitled to shelter future income with tax losses that arose from the sametrading activity. There can be no assurance that we will continue to beentitled to apply our loss carryforwards against future taxable trading incomein Ireland.

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***We may fail to qualify for benefits under one or moretax treaties.***

We do not expect that our subsidiaries located outsideof the United States will have any material U.S. federal income taxliability by reason of activities we carry out in the United States and thelease of assets to lessees that operate in the United States. However, thisconclusion will depend, in part, on continued qualification for the benefits ofincome tax treaties between the United States and other countries in which weare subject to tax (particularly The Netherlands and Ireland). That in turnwill depend for the most part on the nature and level of activities carried onby our subsidiaries in each jurisdiction.

There can be no assurancethat the nature of our activities will be such that our subsidiaries willcontinue to qualify for the benefits of the income tax treaties with the UnitedStates or that we will otherwise qualify for treaty benefits. Failure to soqualify could result in the imposition of U.S. federal taxes which could have amaterial adverse effect on our financial results and growth prospects.

**Item 4.**                        Informationon the Company

We are an integrated global aviation company with aleading market position in aircraft and engine leasing, trading and partssales. We possess extensive aviation expertise that permits us to extract valuefrom every stage of an aircraft’s lifecycle across a broad range of aircraftand engine types. It is our strategy to acquire aviation assets at attractiveprices, lease the assets to suitable lessees, and manage the funding and otherlease related costs efficiently. We also provide aircraft management servicesand perform aircraft and engine MRO services and aircraft disassemblies throughour certified repair stations. We believe that by applying our expertisethrough an integrated business model, we will be able to identify and executeon a broad range of market opportunities that we expect will generateattractive returns for our shareholders. We are headquartered in Amsterdam andhave offices in Ireland, Florida and Arizona with a total of 351 people.

We operate our business on a global basis, providingaircraft, engines and parts to customers in every major geographical region. Asof December 31, 2006, we owned 131 aircraft and 51 engines, managed103 aircraft, had 99 new aircraft and 6 new engines on order, had enteredinto a purchase contract for one aircraft and had executed letters of intent topurchase an additional 10 aircraft.

We lease most of our aircraft to airlines underoperating leases. Under an operating lease, the lessee is responsible for themaintenance and servicing of the equipment during the lease term and the lessorreceives the benefit, and assumes the risk, of the residual value of theequipment at the end of the lease. As of December 31, 2006, our owned andmanaged aircraft and engines were leased to 106 commercial airline and cargooperator customers in 47 countries and are managed from our offices in TheNetherlands, Ireland and the United States. We expect to expand our leasingactivity in Asia and in China in particular through our AerDragon joint venturewith China Aviation Supplies Import & Export Group Corporation, whichcommenced operations in October 2006.

We have the infrastructure, expertise and resources toexecute a large number of diverse aircraft and engine transactions in a varietyof market conditions. From January 1, 2004 to December 31, 2006, wehave executed over 800 aircraft and engine transactions, including 231 aircraftleases, 214 engine leases, 126 aircraft purchase or sale transactions, 130engine purchase or sale transactions and the disassembly of 36 aircraft and 99engines. Our teams of dedicated marketing and asset trading professionals havebeen successful in leasing and trading our aircraft and engine portfolios.Between January 1, 2004 and December 31, 2006, our weighted averageowned aircraft utilization rate was 99.1%.

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We were formed as a Netherlands public limitedliability company (“*naamloze vennootschap*”)on July 10, 2006 to acquire all of the assets and liabilities of AerCapHoldings C.V. a Netherlands limited partnership. AerCap Holdings C.V. wasformed on June 27, 2005 for the purpose of acquiring all of the shares andcertain liabilities of AerCap B.V. (formerly known as debis AirFinance B.V.). OnJune 30, 2005, AerCap Holdings C.V. acquired all of AerCap B.V.’s sharesand the liabilities owed by AerCap B.V. to its prior shareholders for a totalconsideration of $1.37 billion, $370.0 million of which was funded withequity contributions from funds and accounts affiliated with Cerberus CapitalManagement, L.P., or Cerberus. On April 26, 2006, we acquired all of the existingshare capital of AeroTurbine, Inc. an engine trading and leasing and partssales company. On October 27, 2006, AerCap Holdings N.V. acquired all ofthe assets and liabilities of AerCap Holdings C.V. On November 27, 2006,we completed the initial public offering of 6.8 million of our ordinary shareson The New York Stock Exchange.

Our principal executiveoffices are located at Evert van de Beekstraat 312, 1118 CX Schiphol Airport,The Netherlands, and our general telephone number is +31 20 655-9655. Ourwebsite address is www.aercap.com. Information contained on our website doesnot constitute a part of this annual report. Puglisi & Associates isour authorized representative in the United States. The address of Puglisi &Associates is 850 Liberty Avenue, Suite 204, Newark, DE 19711 and theirgeneral telephone number is (302) 738-6680.

**Our Business Strategy**

We intend to pursue thefollowing business strategies:

***Leverage Our Ability toManage Aircraft and Engines Profitably throughout their Lifecycle.***   We intend to continue to leverageour integrated business model by selectively:

·       purchasing aircraft and engines directly from manufacturers;

·       taking advantage of price incentives offered by sellers for thepurchase of entire portfolios of aircraft and engines of varying ages andtypes;

·       using our global customer relationships to obtain favorable lease termsand reduce time off-lease;

·       selling select aircraft and engines;

·       disassembling older airframes and engines for sale of their componentparts; and

·       providing management services to securitization vehicles, our jointventures and other aircraft owners at limited incremental cost to us.

Our ability toprofitably manage aircraft throughout their lifecycle depends in part on oursuccessful integration of AeroTurbine, which we acquired in April 2006,our ability to successfully lease aircraft and engines at profitable rates andour ability to source acquisition opportunities of new and used aircraft atfavorable prices.

***Expand Our Aircraft and Engine Portfolio.******  ***We intend to grow our portfolio ofaircraft and engines through portfolio purchases, new aircraft purchases,airline refleetings, and other opportunistic aircraft and engine purchases. Wewill rely on our experienced team of aircraft and engine market professionalsto identify and purchase assets we believe are being sold at attractive pricesor that we believe will increase in demand and value. In addition, we willcontinue to rebalance our aircraft and engine portfolios through acquisitions,sales and selective disassemblies to maintain the appropriate mix of aviationassets to meet our customers’ needs.

***Focus on High Growth Markets.******  ***Although we maintain a geographicallydiverse portfolio, we focus on high growth airline markets such as theAsia/Pacific market. In May 2006, we entered into a joint venture withChina Aviation Supplies Import & Export Group Corporation, a state-ownedaviation 

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service engaged in the import and export of civil aviationproducts and the leasing and maintenance of aircraft, engines and aviationparts. This joint venture enhances our presence in the increasingly importantChina market and will enhance our ability to lease our aircraft and enginesthroughout the entire Asia/Pacific region.

***Enter into Joint Ventures to Obtain Economies of Scale.******  ***We intend to continue to leverage ourleading market position, extensive knowledge of the aircraft and engine leasingmarkets and aircraft and engine management capabilities by entering into jointventures that increase our purchasing power and our ability to obtain pricediscounts on large aircraft orders. For example, by recently structuring alarge aircraft purchase from Airbus through a 50% owned consolidated jointventure, we were able to increase the number of aircraft we ordered from 35 to70 and obtained significantly more favorable terms than would otherwise havebeen available to us. We expect to generate fees from our joint ventures byproviding them with aircraft management services.

***Obtain Maintenance Cost Savings.******  ***We intend to lower our aircraft andengine maintenance costs by using aircraft and engine parts we obtain from theselective disassembly of acquired and existing airframes and engines. We intendto achieve further maintenance cost savings by using our FAA and EASA certifiedrepair station to perform a variety of value-added MRO services on ouraircraft and engines that would otherwise be outsourced at significantly highercosts.

***Acquire ComplementaryBusinesses.******  ***We intend to selectively pursueacquisitions that we believe will enhance our ability to manage aircraft andengines profitably throughout their lifecycle. The synergies, economies ofscale and operating efficiencies we expect to derive from our acquisitions willallow us to strengthen our competitive advantages and diversify our sources ofrevenue.

**Aircraft**

***Overview***

We operate our aircraft business on a global basis. Asof December 31, 2006, we owned and managed 234 aircraft. We owned 127aircraft in our aircraft business, managed 103 aircraft and had an additional4 aircraft which we intend to disassemble for the sale of their parts orsell at the end of their leases. As of December 31, 2006, we leased theseaircraft to 88 commercial airline and cargo operator customers in 45 countries.In addition, as of December 31, 2006, we had 79 new narrowbody aircraft onorder, including 9 directly and 70 through our consolidated joint venture,AerVenture, 20 new widebody aircraft on order, had entered into a purchasecontract for one aircraft and had executed letters of intent for the purchaseof 10 additional aircraft. Including all owned and managed aircraft, aircraftunder contract or letter of intent and aircraft in our order book, ourportfolio totals 344 aircraft.

Over the life of the aircraft, we seek to increase thereturns on our investments by managing our aircraft’s lease rates, timeoff-lease, financing costs and maintenance costs, and by carefully timing theirsale or disassembly. We lease most of our aircraft to airlines under operatingleases. Under an operating lease, the lessee is responsible for the maintenanceand servicing of the equipment during the lease term and the lessor receivesthe benefit, and assumes the risk, of the residual value of the equipment atthe end of the lease. Rather than purchase their aircraft, many airlinesoperate their aircraft under operating leases because operating leases reducetheir capital requirements and costs and allow them to manage their fleet moreefficiently. Over the past 20 years, the world’s airlines haveincreasingly turned to operating leases to meet their aircraft needs.

Our contract lease terms generally range from12 months to 120 months. By varying our lease terms, we mitigate theeffects of changes in cyclical market conditions at the time aircraft becomeeligible for re-lease. In periods of strong aircraft demand, we seek toenter into medium and long-term leases to lock-in the generally highermarket lease rates during those periods, while, in periods of low aircraft 

26

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demand we seek to enterinto short-term leases to mitigate the effects of the generally lower marketlease rates during those periods. In addition, we generally seek to reduce ourleasing transition costs by entering into lease extensions rather than takingre-delivery of the aircraft and leasing it to a new customer. The termsof our lease extensions reflect the market conditions at the time the leaseextension is signed and typically contain different terms than the originallease.

Upon expiration of an operating lease, we extend thelease term, take redelivery of the aircraft, remarket and re-lease it to newlessees, sell the aircraft, or transfer the aircraft to our disassemblybusiness for sale of its parts. Typically, we re-lease our leased aircraft wellin advance of the expiration of the then current lease and deliver the aircraftto a new lessee in less than two months following redelivery by the priorlessee. During the period in which an aircraft is in between leases, wetypically perform routine inspections and the maintenance necessary to placethe aircraft in the required condition for delivery and, in some cases, makemodifications requested by our next lessee.

Our extensive experience, global reach and operatingcapabilities allow us to rapidly complete numerous aircraft transactions, whichenables us to increase the returns on our aircraft investments and reduce thetime that our aircraft are not generating revenue for us. We successfullyexecuted 376 aircraft transactions between January 1, 2004 and December 31,2006.

Thefollowing tables set forth information regarding the aircraft transactions wehave executed between January 1, 2004 and December 31, 2006, thenumber of initial leases and re-leases we entered into, the number of leases weextended, the number of leases we restructured, the number of aircraft wepurchased and the number of aircraft we sold. The trends shown in the tablereflect the execution of the various elements of our leasing strategy for ourowned and managed portfolio, as described further below.

| ** **                                           | ** ** | **Owned Aircraft** | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|
| **Activity**                                         | ** ** | ** **              | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **Total/  Average** | ** ** |
| New leases                                           |       | 5                       |       | 11 |   | 15 | ** ** |   | **31** | ** ** |   |
| Re-leases                                            |       | 28                      |       | 9 |   | 16 | ** ** |   | **53** | ** ** |   |
| Extensions of  lease contracts                       |       | 7                       |       | 28 |   | 15 | ** ** |   | **50** | ** ** |   |
| Average lease  term for new leases (months)(1)       |       | 61.2                    |       | 68.7 |   | 103.2 | ** ** |   | **84.2** | ** ** |   |
| Average lease  term for re-leases (months)(1)        |       | 38.1                    |       | 50.6 |   | 58.7 | ** ** |   | **46.5** | ** ** |   |
| Average lease  term for lease extensions (months)(2) |       | 24.9                    |       | 23.0 |   | 22.3 | ** ** |   | **23.1** | ** ** |   |
| Lease  restructurings                                |       | 9                       |       | 6 |   | 1 | ** ** |   | **16** | ** ** |   |
| Aircraft  purchases                                  |       | 9                       |       | 6 |   | 41 | ** ** |   | **56** | ** ** |   |
| Aircraft sales                                       |       | 9                       |       | 21 |   | 17 | ** ** |   | **47** | ** ** |   |
| Average aircraft  utilization rates(3)               |       | 99.3                    | %          | 99.1 | % | 98.9 | % |   | **99.1** | **%** |   |
|                                                      |            |                         |            |  |  |  |  |  |  |  |  |  |  |

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(1)          Average lease term ofnew leases and re-leases contracted during the period. The average leaseterm for new leases and re-leases is calculated by reference to theperiod between the date of contractual delivery to the date of contractualredelivery of the aircraft.

(2)          Average lease term foraircraft extensions contracted during the period. The average lease term forlease extensions is calculated by reference to the period between the date ofthe original expiration of the lease and the new expiration date.

(3)          Ourutilization rate for aircraft is calculated based on the average number ofmonths the aircraft are on lease each year. The utilization rate is weightedproportionate to the net book value of the aircraft at the end of the periodmeasured.

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| ** **                                           | ** ** | **Managed Aircraft** | ** ** |
|------------------------------------------------------|------------|---------------------------|------------|
| **Activity**                                         | ** ** | ** **                | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **Total/  Average** | ** ** |
| New leases                                           |       | 1                         |       | — |   | — | ** ** |   | **1** | ** ** |   |
| Re-leases                                            |       | 19                        |       | 23 |   | 9 | ** ** |   | **51** | ** ** |   |
| Extensions of  lease contracts                       |       | 10                        |       | 21 |   | 14 | ** ** |   | **45** | ** ** |   |
| Average lease  term for new leases (months)(1)       |       | 72.0                      |       | — |   | — | ** ** |   | **72.0** | ** ** |   |
| Average lease  term for re-leases (months)(1)        |       | 47.3                      |       | 36.4 |   | 40.9 | ** ** |   | **41.3** | ** ** |   |
| Average lease  term for lease extensions (months)(2) |       | 20.2                      |       | 30.7 |   | 21.5 | ** ** |   | **25.5** | ** ** |   |
| Lease  restructurings                                |       | 1                         |       | 1 |   | 1 | ** ** |   | **3** | ** ** |   |
| Aircraft  purchases                                  |       | —                    |       | 1 |   | — | ** ** |   | **1** | ** ** |   |
| Aircraft sales                                       |       | —                    |       | 9 |   | 13 | ** ** |   | **22** | ** ** |   |
|                                                      |            |                           |            |  |  |  |  |  |  |  |  |  |  |

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(1)          Average lease term ofnew leases and re-leases contracted during the period. The average leaseterm for new leases and re-leases is calculated by reference to theperiod between the date of contractual delivery to the date of contractualredelivery of the aircraft.

(2)          Average lease term foraircraft lease extensions contracted during the period. The average lease termfor lease extensions is calculated by reference to the period between the dateof the original expiration of the lease and the new expiration date.

The tables above illustrate how we have implementedour leasing strategies in response to changing trends in the aircraft leasingmarket. For example, in 2004 in response to changing market conditions, severalairlines reduced their excess capacity by not renewing their aircraft operatingleases. We were able to lessen the effects of the low number of leaseextensions by identifying airlines that were increasing their capacity,including low cost carriers, and re-leasing our aircraft to those airlines. Inaddition, since aircraft lease rates were relatively low in 2004, we shortenedthe terms of our leases to position our portfolio to take advantage of anexpected upturn in the aircraft leasing market which would result in higherlease rates in the future. In contrast, in 2005, as the commercial airlinesector strengthened, we lengthened the terms of our owned aircraft leases tolock-in the generally higher lease rates prevailing in the market at the time.Leases of new aircraft generally have longer terms than used aircraft which arere-leased. The average lease term for new leases increased significantlyin 2006 due to the fact that we contracted to lease six aircraft from our orderbook to one customer, each for nine years. We have experienced a lower level oflease extension activity in 2006 as we had fewer aircraft requiring remarketingbecause of the high number of aircraft we leased in 2005 that were scheduled tocome off lease in 2006 and 2007. For our managed aircraft, the average term ofthe extensions decreased in the year ended December 31, 2006 mainly due totwo short extensions for Fokker aircraft.

Before making any decision to lease an aircraft, weperform a review of the prospective lessee, which generally includes reviewingfinancial statements, business plans, cash flow projections, maintenancerecords, operational performance histories, hedging arrangements for fuel,foreign currency and interest rates and relevant regulatory approvals anddocumentation. We also typically perform on-site credit reviews for new lesseeswhich typically includes extensive discussions with the prospective lessee’smanagement before we enter into a new lease. Depending on the credit qualityand financial condition of the lessee, we may require the lessee to obtainguarantees or other financial support from an acceptable financial institutionor other third parties.

We require our aircraft lessees to provide us withsecurity deposits in order to protect the value of our assets. We require allof our lessees to provide a security deposit for their performance under theirleases, including the return of the aircraft in the specified condition at theexpiration of the lease. The size of the security deposit is typically equal totwo months’ rent.

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All of our lessees are responsible for theirmaintenance costs during the lease term. Based on the credit quality of thelessee, we require some of our lessees to pay supplemental maintenance rent tocover scheduled major component maintenance costs. If a lessee pays thesupplemental maintenance rent we reimburse them for their maintenance costs upto the amount of their supplemental maintenance rent payments. Under the termsof our leases, at lease expiration to the extent that a lessee has paid us moresupplemental maintenance rent than we have reimbursed them for theirmaintenance costs, we retain the excess rent. As of December 31, 2006, 45of our owned aircraft lessees provided for the payment of supplementalmaintenance rent. Whether a lessee pays supplemental maintenance rent or not,we typically agree to compensate a lessee for scheduled maintenance onairframe and engines related to the prior utilization of the aircraft. For thisprior utilization, we have typically received compensation from prior lessees.

In all cases, we require the lessee to reimburse usfor any costs we incur if the aircraft is not in the required condition uponredelivery, and we compensate the lessee to the extent the aircraft is returnedin a better condition than required upon redelivery. All of our leases containextensive provisions regarding our remedies and rights in the event of adefault by the lessee, and specific provisions regarding the required conditionof the aircraft upon its redelivery.

Our lessees are also responsible for compliance withall applicable laws and regulations governing the leased aircraft and allrelated costs. We require our lessees to comply with either the FAA, EASA ortheir foreign equivalent standards.

During the term of ourleases, some of our lessees have experienced financial difficulties resultingin the need to restructure their leases. Generally, our restructurings haveinvolved a number of possible changes to the lease’s terms, including thevoluntary termination of leases prior to their scheduled expiration, thearrangement of subleases from the primary lessee to a sublessee, therescheduling of lease payments and the exchange of lease payments for otherconsideration, including convertible bonds, warrants, shares and promissorynotes. We generally seek to receive these and other marketable securities fromour restructured leases, rather than deferred receivables. In some cases, wehave been required to repossess a leased aircraft and in those cases, we havetypically exported the aircraft from the lessee’s jurisdiction to prepare itfor remarketing. In the majority of these situations, we have obtained thelessee’s cooperation and the return and export of the aircraft was completedwithout significant delay, generally within two months. In some situations,however, our lessees have not cooperated in returning aircraft and we have beenrequired to take legal action. In connection with the repossession of anaircraft, we may be required to settle claims on the aircraft or to which thelessee is subject, including outstanding liens on the repossessed aircraft.Since our inception in 1995, we have repossessed 44 aircraft under defaultedleases with 19 different lessees in 14 jurisdictions.

***Aircraft Portfolio and Existing Lessees***

Our aircraft portfolio consists primarily of modern,technologically advanced and fuel-efficient narrowbody aircraft, with aparticular concentration of Airbus A320 family. As of December 31, 2006,we owned and managed 234 aircraft. We owned 127 aircraft, managed 103 aircraftand had an additional four aircraft, which we intend to disassemble for thesale of their parts or sell at the end of their leases. Of the 234 aircraft,202 were on operating lease, which does not include the four aircraft we intendto disassemble or sell, and 28 were off-lease (four owned and 24 managed). Ofthe 28 aircraft off lease, seven were subject to our regular remarketingefforts. With respect to the other 21 aircraft (all Fairchild Dornier 328s), wehave been instructed by the client to market the aircraft for sale, rather thanseek to re-lease them. As of December 31, 2006, we leased the 202aircraft on operating leases to 88 commercial airline and cargo operatorcustomers in 45 countries. The weighted average age of our 127 ownedaircraft was 7.6 years as of December 31, 2006.

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Thefollowing table provides details regarding our aircraft portfolio by type ofaircraft as of December 31, 2006:

| ** **             | ** ** | **Owned portfolio** | ** ** | **Managed  portfolio**                  | ** ** | ** **                          | ** ** | **Number of**           | ** ** | **Total owned,**                           | ** ** |
|------------------------|------------|--------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|-------------------------------------------------|------------|
| ** **             | ** ** | ** **               | ** ** | ** **                              | ** ** | **Percentage of**              | ** ** | ** **                   | ** ** | ** **                                      | ** ** | **aircraft under** | ** ** | **managed and** | ** ** |
| **Aircraft type** | ** ** | ** **               | ** ** | **Number of  aircraft owned** | ** ** | **total  net book value** | ** ** | **Number of  aircraft** | ** ** | **Number of  aircraft on order** | ** ** | **purchase   contract** | ** ** | **ordered  aircraft** | ** ** |
| Airbus A300  Freighter |       |                     | 2          |                                    |       |                                | 2.4        | %                            |       |                                            | —     |   |   |   | — |   |   |   | — |   |   |   | 2 |   |   |
| Airbus A319            |       |                     | 8          |                                    |       |                                | 8.3        | %                            |       |                                            | —     |   |   |   | 26 |   |   |   | — |   |   |   | 34 |   |   |
| Airbus A320            |       |                     | 48         |                                    |       |                                | 35.5       | %                            |       |                                            | 12         |   |   |   | 51 |   |   |   | 1 |   |   |   | 112 |   |   |
| Airbus A321            |       |                     | 21         |                                    |       |                                | 22.7       | %                            |       |                                            | 1          |   |   |   | 2 |   |   |   | — |   |   |   | 24 |   |   |
| Airbus A330            |       |                     | 10         |                                    |       |                                | 15.2       | %                            |       |                                            | 1          |   |   |   | 20 |   |   |   | — |   |   |   | 31 |   |   |
| Airbus A340            |       |                     | 1          |                                    |       |                                | 1.3        | %                            |       |                                            | 2          |   |   |   | — |   |   |   | — |   |   |   | 3 |   |   |
| Boeing 737             |       |                     | 19         |                                    |       |                                | 9.6        | %                            |       |                                            | 30         |   |   |   | — |   |   |   | — |   |   |   | 49 |   |   |
| Boeing 767             |       |                     | 1          |                                    |       |                                | 1.1        | %                            |       |                                            | 2          |   |   |   | — |   |   |   | — |   |   |   | 3 |   |   |
| Boeing 757             |       |                     | 2          |                                    |       |                                | 1.3        | %                            |       |                                            | 3          |   |   |   | — |   |   |   | — |   |   |   | 5 |   |   |
| DHC Dash 8             |       |                     | 1          |                                    |       |                                | —     |                         |       |                                            | —     |   |   |   | — |   |   |   | — |   |   |   | 1 |   |   |
| Fokker 100             |       |                     | 12         |                                    |       |                                | 1.2        | %                            |       |                                            | 4          |   |   |   | — |   |   |   | — |   |   |   | 16 |   |   |
| Fokker 70              |       |                     | —     |                                    |       |                                | —     |                         |       |                                            | 2          |   |   |   | — |   |   |   | — |   |   |   | 2 |   |   |
| MD-11  Freighter       |       |                     | 1          |                                    |       |                                | 1.2        | %                            |       |                                            | 1          |   |   |   | — |   |   |   | — |   |   |   | 2 |   |   |
| MD-83                  |       |                     | 1          |                                    |       |                                | 0.2        | %                            |       |                                            | 9          |   |   |   | — |   |   |   | — |   |   |   | 10 |   |   |
| MD 82                  |       |                     | —     |                                    |       |                                | —     |                         |       |                                            | 11         |   |   |   | — |   |   |   | — |   |   |   | 11 |   |   |
| Fairchild  Dornier 328 |       |                     | —     |                                    |       |                                | —     |                         |       |                                            | 25         |   |   |   | — |   |   |   | — |   |   |   | 25 |   |   |
| **Total**              | ** ** | ** **               | **127**    |                                    | ** ** | ** **                          | **100**    | **%**                        | ** ** | ** **                                      | **103**    |   | ** ** | ** ** | **99** |   | ** ** | ** ** | **1** |   | ** ** | ** ** | **330** |   |   |

 

***Aircraft on Order or Subject to Letters of Intent.***

We have a large number of new aircraft on order,either directly or indirectly through our consolidated joint venture,AerVenture, and have signed letters of intent for the purchase of a number ofadditional aircraft.

*Aircrafton Order.**  *In1999, we signed an aircraft purchase order with Airbus for the purchase of32 new A320 family aircraft. As of December 31, 2006, nine aircraftremained to be delivered under the agreement. The remaining aircraft consist ofthree A319 aircraft, four A320 aircraft and two A321 aircraft. All of theseaircraft are schedule to be delivered before the end of 2007.

In January 2006, our consolidated joint venture,AerVenture, placed an order with Airbus for the purchase of 70 new A320 familyaircraft. As of December 31, 2006, all 70 of the aircraft remained to bedelivered under the agreement. The AerVenture order consists of 23 A319aircraft and 47 A320 aircraft. The initial delivery schedule for the AerVentureaircraft includes 12 aircraft to be delivered before the end of 2008 and 58aircraft to be delivered before the end of 2010.

In December 2006, we placed an order with Airbusto acquire 20 new A330-200 widebody aircraft. The delivery schedule forthe A330-200 aircraft order includes ten aircraft to be delivered in 2009and ten aircraft to be delivered in 2010.

*AircraftSubject to Purchase Agreements or Letters of Intent.**  *In December, 2006, we enteredinto a contract to sell two Fokker 100 aircraft to an airline. Theseaircraft were sold in January 2007.

In addition, in November 2006, we entered into aletter of intent with Air Castle for the sale of an A330 aircraft. Thisaircraft was sold in February 2007.

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The table below summarizesour currently outstanding letters of intent to purchase and sell new and usedaircraft. Although we expect to be able in each case to negotiate finalpurchase documentation with respect to our letters of intent, we may not beable to do so and therefore these purchases and sales may not in fact occur.

**Lettersof Intent**

| **Aircraft type** | ** ** | ** ** | ** ** | **Number of aircraft** | ** ** | **New/Used** | ** ** |
|------------------------|------------|------------|------------|----------------------------------|------------|--------------|------------|
| ***Purchases***        |       |       |       |                             |       |         |       |   |   |
| B737-800               |       |       | 2          |                             |       |         | New        |   |   |
| **Total**              | ** ** | ** ** | **2**      |                             |       |         |       |   |   |
| ***Sales***            |       |       |       |                             |       |         |       |   |   |
| A320                   |       |       | 1          |                             |       |         | Used       |   |   |
| **Total**              | ** ** | ** ** | **1**      |                             |       |         |       |   |   |

 

***Lessees***

Thefollowing table provides information regarding the percentage of lease revenuearising from leases of aircraft to the indicated lessees of our owned aircraftportfolio for the year ended December 31, 2006.

| **Lessee**                                     | ** ** | ** ** | ** ** | **Percentage of  2006 lease revenue** | ** ** |
|------------------------------------------------|------------|------------|------------|------------------------------------------------------|------------|
| Tombo Capital  Corporation                     |       |       | 9.4        | %                                                    |       |
| Thai Airways  International Public Co., Ltd.   |       |       | 6.6        | %                                                    |       |
| My Travel Airways  PLC                         |       |       | 4.7        | %                                                    |       |
| Wizz Air Hungary  Ltd.                         |       |       | 4.6        | %                                                    |       |
| Asiana Airlines  Inc.                          |       |       | 4.0        | %                                                    |       |
| Korean Air  Lease & Finance Co., Ltd. |       |       | 4.0        | %                                                    |       |
| Air Canada                                     |       |       | 3.9        | %                                                    |       |
| Kingfisher  Airlines Ltd.                      |       |       | 3.8        | %                                                    |       |
| Indian Airlines  Ltd.                          |       |       | 3.7        | %                                                    |       |
| British Midland  Airways Ltd.                  |       |       | 3.4        | %                                                    |       |
| SN Brussels  Airlines(1)                       |       |       | 3.3        | %                                                    |       |
| Bangkok Airways  Co.                           |       |       | 3.2        | %                                                    |       |
| Gemini Air Cargo  Inc.                         |       |       | 3.1        | %                                                    |       |
| Sri Lankan  Airlines Ltd.                      |       |       | 2.5        | %                                                    |       |
| British  Mediterranean Airways Ltd.            |       |       | 2.1        | %                                                    |       |
| Société Air  France                  |       |       | 2.0        | %                                                    |       |
| America West  Airlines                         |       |       | 2.0        | %                                                    |       |
| Other(2)                                       |       |       | 33.7       | %                                                    |       |
| **Total**                                      | ** ** | ** ** | **100.0**  | **%**                                                | ** ** |

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(1)          Commercial name forDelta Air Transport N.V./S.A.

(2)          No other lesseeaccounted for more than 2.0% of our lease revenue in 2006.

We lease our aircraft to lessees located in numerousand diverse geographical regions and have focused our leasing efforts on thefast growing Asia/Pacific market.

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Thefollowing table sets forth the percentage of our total lease revenue by countryin which we lease our owned aircraft for the year ended December 31, 2006.

| **Country**              | ** ** | ** ** | ** ** | **Percentage of 2006  lease revenue** | ** ** |
|--------------------------|------------|------------|------------|------------------------------------------------------|------------|
| United Kingdom           |       |       | 11.6       | %                                                    |       |
| Thailand                 |       |       | 9.8        | %                                                    |       |
| Japan                    |       |       | 9.5        | %                                                    |       |
| India                    |       |       | 8.9        | %                                                    |       |
| United States of America |       |       | 8.8        | %                                                    |       |
| Republic of Korea        |       |       | 8.0        | %                                                    |       |
| Hungary                  |       |       | 4.6        | %                                                    |       |
| Canada                   |       |       | 4.0        | %                                                    |       |
| Belgium                  |       |       | 3.6        | %                                                    |       |
| France                   |       |       | 3.4        | %                                                    |       |
| Brazil                   |       |       | 2.7        | %                                                    |       |
| Sri Lanka                |       |       | 2.5        | %                                                    |       |
| Turkey                   |       |       | 2.3        | %                                                    |       |
| Indonesia                |       |       | 2.0        | %                                                    |       |
| El Salvador              |       |       | 1.8        | %                                                    |       |
| Germany                  |       |       | 1.8        | %                                                    |       |
| Iceland                  |       |       | 1.7        | %                                                    |       |
| Spain                    |       |       | 1.6        | %                                                    |       |
| Jamaica                  |       |       | 1.1        | %                                                    |       |
| British Virgin Islands   |       |       | 1.1        | %                                                    |       |
| Mexico                   |       |       | 1.1        | %                                                    |       |
| Other(1)                 |       |       | 8.1        | %                                                    |       |
| **Total**                | ** ** | ** ** | **100.0**  | **%**                                                | ** ** |

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(1)          No other countryaccounted for more than 1.0% of our lease revenue in 2006.

As of December 31, 2006, leases representingapproximately 44.7% of our lease revenues in 2006 were scheduled to expirebefore December 31, 2009. As of December 31, 2006, our 123 ownedaircraft which are on lease (excluding the four aircraft that we intend todisassemble or sell at the end of their leases) had an average remaining leaseperiod per aircraft of 31.5 months.

Thefollowing table sets forth as of December 31, 2006 the number of leasesthat were scheduled to expire between December 31, 2006 and December 31,2015 as a percentage of our 2006 lease revenue.

| **Year**  | ** ** | ** ** | ** ** | **Percentage of 2006 lease  revenue(1)** | ** ** | **Number of aircraft with leases  expiring** | ** ** |
|-----------|------------|------------|------------|---------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| 2007      |       |       | 8.1        | %                                                       |       |                                                             | 17         |   |   |
| 2008      |       |       | 13.9       | %                                                       |       |                                                             | 34         |   |   |
| 2009      |       |       | 22.7       | %                                                       |       |                                                             | 30         |   |   |
| 2010      |       |       | 12.3       | %                                                       |       |                                                             | 16         |   |   |
| 2011      |       |       | 11.4       | %                                                       |       |                                                             | 11         |   |   |
| 2012      |       |       | 8.9        | %                                                       |       |                                                             | 13         |   |   |
| 2013      |       |       | 0.0        | %                                                       |       |                                                             | 1          |   |   |
| 2014      |       |       | 0.0        | %                                                       |       |                                                             | —     |   |   |
| 2015      |       |       | 1.5        | %                                                       |       |                                                             | 1          |   |   |
| **Total** | ** ** | ** ** | **78.8**   | **%**                                                   | ** ** | ** **                                                       | **123**    |   |   |

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(1)          The percentage of leaserevenue reflected in the table above does not sum to 100% because it does notinclude lease revenue from our owned aircraft that were sold in  2006 (2.0%), lease revenue from 

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our four aircraft thatwere off lease as of December 31, 2006 (7.2%), lease revenue from ourmanaged aircraft that were subject to our lease-in and lease-outtransactions in 2006 (5.3%) and engine lease revenue (6.7%).

(2)          OnDecember 31, 2006, we had four aircraft off lease. We have excluded four aircraftwhich we intend to disassemble for the sale of their parts or otherwise sell atthe end of their leases.

***Aircraft Acquisitions and Dispositions***

From January 1, 2004 to December 31, 2006,we purchased 56 aircraft and sold 47 aircraft, excluding our managed aircraft(57 and 69 aircraft, respectively, including our managed aircraft). Inaddition, we have negotiated and entered into contracts to purchase anadditional 99 new aircraft, 29 directly and 70 through a joint venture,entered into a purchase contract to purchase one aircraft and have executedletters of intent to purchase an additional ten aircraft. By selling our subordinatedinterests in securitization vehicles at two different occasions in past years,we also disposed of two large portfolios of aircraft totaling272 aircraft. We have a portfolio management team of 20 professionals whoare dedicated to sourcing, analyzing and executing aircraft and engineacquisition and disposition opportunities.

Due to the AeroTurbine Acquisition and our large orderbook of aircraft, we believe that we are well positioned to take advantage oftrading opportunities and expand our aircraft portfolio. We believe that ourglobal network of strong relationships with airlines, aircraft manufacturers,MRO service providers and commercial and financial institutions gives us acompetitive advantage in sourcing and executing transactions.

We purchase new and used aircraft directly fromaircraft manufacturers, airlines, financial investors, other aircraft leasingand finance companies. The aircraft we purchase are both on-lease andoff-lease, depending on market conditions and the composition of our portfolio.We believe there are additional opportunities to purchase aircraft atattractive prices from other investors in aircraft assets who lack theinfrastructure to manage their aircraft throughout their lifecycle. The buyersof our aircraft include airlines, investors and other aircraft leasingcompanies. We primarily acquire aircraft at attractive prices in two ways: bypurchasing large quantities of aircraft directly from manufacturers to takeadvantage of volume discounts, and by purchasing portfolios consisting ofaircraft of varying types and ages. In addition, we also opportunisticallypurchase individual aircraft that we believe are being sold at attractiveprices, or that we expect will increase in demand and or residual value.Through our airline marketing team, which is in frequent contact with airlinesworldwide, we are also able to identify attractive acquisition and dispositionopportunities. We sell our aircraft when we believe the market price for thetype of aircraft has reached its peak, or to rebalance the composition of ourportfolio to meet changing customer demands.

Our dedicated, full-time portfolio management groupconsists of marketing, financial, engineering, technical and creditprofessionals. Prior to a purchase, this group analyzes the aircraft’s price,fit in our portfolio, specification/configuration, maintenance history andcondition, the existing lease terms, financial condition and credit worthinessof the existing lessee, the jurisdiction of the lessee, industry trends, financingarrangements and the aircraft’s redeployment potential and values, among otherfactors.

Our revolving creditfacilities are designed to allow us to rapidly execute our trading strategiesby providing us with large-scale committed funding to acquire new andused aircraft, engines and parts. As of December 31, 2006, we had$735.4 million of committed undrawn credit facilities that allow us topurchase aircraft of up to 15 years of age and $154.3 million ofcommitted undrawn credit facilities that allow us to purchase a broad varietyof aircraft engine and part types of any age. In addition, we have $386.0million of undrawn amounts under a borrowing facility with commercial banks,which is guaranteed by European export credit agencies.

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***Joint Ventures***

We expect toconduct an increasing portion of our business in the future through jointventures. Entering into joint venture arrangements allows us to:

·       ordernew aircraft and engines in larger quantities to increase our buying power andeconomic leverage;

·       increasethe diversity of our portfolio;

·       obtainstable servicing revenues; and

·       diversifyour exposure to the economic risks related to aircraft and engine purchases.

*AerVenture.**  *In December 2005, weestablished AerVenture. In January 2006, LoadAir, an investment andconstruction company based in Kuwait City, purchased a 50% equity interest inAerVenture. We have invested $25.0 million in AerVenture and LoadAir hasinvested $25.0 million in AerVenture. We have each agreed to makeadditional equity contributions of up to $90.0 million. We consolidateAerVenture’s financial results in our financial statements. We have developedAerVenture as a joint venture because this structure allows us to leverage ourbuying power to achieve more favorable aircraft acquisition terms. We haveentered into exclusive agreements to provide management and marketing servicesto AerVenture in return for aircraft management fees and specified incentive feeswhich are tied to the profitability of AerVenture. Payments under theseagreements will not provide any additional revenues as a result ofconsolidation. These agreements may be terminated by AerVenture in 2014.

In January 2006, AerVenture placed an order withAirbus for up to 70 new A320 family aircraft which will be delivered between2007 and 2010. AerVenture closed a credit facility for a total amount of$119.0 million that will finance the pre-delivery payments on the first 30aircraft to be delivered. Upon delivery of the aircraft, AerVenture will berequired to arrange financing to cover the entire purchase price, includingrefinancing the predelivery payments, which is not covered by the joint venture’sequity contributions. The initial delivery schedule includes 12 aircraft to bedelivered before the end of 2008 and 58 aircraft to be delivered before the endof 2010.

*AerDragon.**  *In May 2006, we signed a jointventure agreement with China Aviation Supplies Import & Export GroupCorporation and affiliates of Calyon establishing AerDragon. AerDragon consistsof two companies, Dragon Aviation Leasing Company limited, based in Beijingwith a registered capital of $10.0 million and AerDragon Aviation PartnersLimited, based in Ireland with a registered capital of $50.0 million.AerDragon is 50% owned by China Aviation and 25% owned by each of us andCalyon. Following receipt of the local Chinese approvals required for it tobegin operations, AerDragon commenced operations in October 2006. We willact as the exclusive aircraft manager for the joint venture. This contract maybe terminated upon the earlier to occur of either July 1, 2009, or theoccurrence of specified events, such as AerDragon developing the expertise tomanage its own aircraft. In the future, one of the main sources of aircraft forAerDragon is likely to be the acquisition of aircraft through sale leasebacktransactions with Chinese airlines. This joint venture enhances our presence inthe increasingly important China market and will enhance our ability to leaseour aircraft and engines throughout the entire Asia/Pacific region. As of December 31,2006, we do not consolidate AerDragon’s financial results in our financialstatements. AerDragon acquired its first aircraft, an Airbus A320 aircraft in February 2007.This aircraft was acquired directly from Airbus through an assignment of ourpurchase right under our 1999 agreement with Airbus.

*Annabel and Bella.**  *In 2005, we signed a joint ventureagreement with Deucalion Capital Limited to form the Annabel joint venture inwhich we hold a 25% equity interest. Annabel purchased a used A340 aircraft in2005. The aircraft is on lease to Sri Lanka Airlines through 2008. In 2006, wesigned a 

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joint ventureagreement with Deucalion to form the Bella joint venture in which we hold a 50%equity interest. Bella purchased two used Airbus A330-322 aircraft in April 2006,one of which is on lease through 2009 and one of which is being remarketed. Wereceive fee income for providing aircraft management services to both Annabeland Bella. We do not consolidate Annabel’s financial results in our financialstatements but consolidate Bella’s financial results in our financial statements.We do not expect these joint ventures to acquire any more aircraft.

***Relationship with Airbus***

We have a close andlongstanding mutually advantageous relationship with Airbus. Our relationshipdates back to our formation, when DaimlerChrysler AG (formerly known asDaimler-Benz AG), a principal shareholder of European Aeronautic Defense &Space Company—EADS N.V., an 80% shareholder of Airbus, was one of our foundingshareholders. In the last 10 years, we, directly or through our jointventures, have contracted to purchase over 100 new commercial jet aircraft fromAirbus and 24 used aircraft from Airbus. We maintain a wide-ranging dialoguewith Airbus seeking mutually beneficial opportunities such as taking deliveryof new aircraft on short notice and purchasing used aircraft from airlinesseeking to renew their fleet with Airbus aircraft.

***Aircraft Services***

We are one of theaircraft industry’s leading providers of aircraft asset management andcorporate services to securitization vehicles, joint ventures and other thirdparties. As of December 31, 2006, we had aircraft management andadministration service contracts with 14 parties covering over 350 aircraft (including the 70 aircraft on orderby AerVenture), two of which accounted for 75% of our aircraft services revenuein 2006. We categorize our aircraft services into aircraft asset management,administrative services and cash management services. Since we have anestablished operating system to provide these services to manage our ownaircraft assets, the incremental cost of providing aircraft management servicesto securitization vehicles, joint ventures and third parties is limited. Ourprimary aircraft asset management activities are:

·       remarketingaircraft;

·       collectingrental and maintenance payments, monitoring aircraft maintenance, monitoringand enforcing contract compliance and accepting delivery and redelivery ofaircraft;

·       conductingongoing lessee financial performance reviews;

·       periodicallyinspecting the leased aircraft;

·       coordinatingtechnical modifications to aircraft to meet new lessee requirements;

·       conductingrestructurings negotiations in connection with lease defaults;

·       repossessingaircraft;

·       arrangingand monitoring insurance coverage;

·       registeringand de-registering aircraft;

·       arrangingfor aircraft and aircraft engine valuations; and

·       providingmarket research.

We charge fees for our aircraft management servicesbased primarily on a mixture of fixed retainer amounts, but we also receiveperformance-based fees related to the managed aircrafts’ lease revenue orsale proceeds, or specific upside sharing arrangements.

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We provide cash managementand administrative services to securitization vehicles and joint ventures. Asof December 31, 2006, we had four cash management agreements with clientsholding an aggregate of 270 aircraft in their portfolios and fiveadministrative agency agreements with clients holding an aggregate of 312aircraft in their portfolios. Cash management services consist of treasuryservices such as the financing, refinancing, hedging and on going cashmanagement of these vehicles. Our administrative services consist primarily ofaccounting and secretarial services, including the preparation of budgets andfinancial statements, and liaising with, in the case of securitizationvehicles, the rating agencies.

**Engine and Parts**

***Overview***

On April 26,2006, we acquired all of the share capital of AeroTurbine. AeroTurbine wasestablished in 1997 and is engaged in engine trading and leasing and thedisassembly of airframes and engines for the sale of their component parts tothe global aviation industry. We acquired AeroTurbine to:

·       implementour strategy of profitably managing aircraft throughout their lifecycle,

·       diversifyour investments in aviation assets,

·       obtaina more significant presence in the market for older aircraft equipment and

·       takeadvantage of its broad customer base.

To facilitate theintegration of AeroTurbine, we have entered into three year employmentcontracts with key members of its senior management. In addition, our indirectshareholders granted key members of AeroTurbine’s senior management indirectequity interests in us, so that they share a vested interest in achieving thesuccessful integration of our aircraft business with AeroTurbine’s engine andparts business.

***Engine Acquisitions and Dispositions***

Engine sales and purchases is a core part of ourengine and parts business. We believe that our market insight and recurringcustomer relationships have been the key factors underlying our success in thisbusiness. In addition, we opportunistically acquire engines that requiremaintenance work and refurbish those engines in our MRO operations. By pursuingthese acquisition strategies, we believe we have been able to acquire ourengines at attractive prices.

We purchase engines for which there is high marketdemand or for which we believe demand will increase in the future. Weopportunistically sell and exchange engines when we believe that the realizablevalue from a sale or exchange will equal or exceed the realizable value that wewould expect to receive from leasing or disassembling the engine for the saleof its parts.

In determining whether to purchase or sell an engine,we assess the value of each engine according to a number of factors, includingits hardware composition, airworthiness directive compliance and servicebulletin status, life-limited parts thresholds, historical maintenancedocumentation, performance data and material certifications.

Our extensive experience buying, selling, leasing,repairing and disassembling engines for their parts has provided us with in-depthtrading and management expertise across the most popular commercial productlines manufactured by General Electric, CFM International, Pratt &Whitney, Rolls-Royce and International Aero Engines. We conduct extensivetechnical and maintenance records due diligence before we purchase each engine.Our experienced team of dedicated acquisition and maintenance professionals iscomposed of 75 licensed aircraft and engine mechanics and 11 aircraftmaintenance record specialists who track and document the maintenance historyof each engine that is to be acquired. We are frequently able to correct orreconstruct engine maintenance records, which can lower the maintenance and acquisition

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cost of our engines andaircraft. Since commencing operations in 1997, AeroTurbine has sold over 300 engines,generating revenues in excess of $250 million.

We typically finance thepurchase of engines with borrowed funds and internally generated cash flows. Wehave a $220.0 million committed revolving facility which we can use tofund acquisitions of aircraft, engines and aircraft parts. We believe that weare able to react more rapidly to engine acquisition opportunities than most ofour competitors because we have substantial committed financing and can oftenidentify, conduct due diligence and close on prospective acquisitions in lessthan one week. As of December 31, 2006, we had $154.3 million offunds available under our revolving facility.

***Engine Portfolio***

We maintain a diverse inventory of high-demand,modern and fuel-efficient engines. As of December 31, 2006, we owned 51engines and had 6 new engines on order through AerVenture. Our engine portfolioconsists primarily of CFM56 series engines, one of the most widely used enginesin the commercial aviation market. As of December 31, 2006, 42 of our 51engines were CFM56 series engines manufactured by CFM International. In August 2006,AerVenture entered into a contract with CFM International to acquire four newspare CFM 56-5B and two new spare CFM 56-7B engines. These enginesare scheduled to be delivered over the next 24 months and will be eitherleased or sold.

We expect to expand and further diversify our engineportfolio in the future through engine acquisitions and aircraft disassemblies.As our aircraft portfolio ages, and specific aircraft become suitable fordisassembly, we intend to disassemble such aircraft and remove high demandengines for addition to our engine portfolio, while the remaining airframes andengines will be disassembled for sale of their component parts.

We have the ability toperform limited MRO services on CFM56 series engines, which comprise most ofthe engines in our engine portfolio. As we obtain sufficient numbers of otherengine models, we intend to further develop additional in-house MROcapabilities to achieve greater cost advantages.

***Airframe and Engine Disassembly and Parts Sales***

Over time, the combined value of a typical aircraft’sparts will eventually exceed the value of the aircraft as a whole operatingasset, at which time the aircraft may be retired from service. Traditionalaircraft lessors and airlines often retire their aircraft by selling orconsigning them to companies that specialize in aircraft and enginedisassembly. The AeroTurbine Acquisition has allowed us to incorporate thisvaluable revenue source into our integrated business model, which is focused onmanaging aircraft and engines throughout their lifecycle.

We sell airframe parts primarily to aircraft partsdistributors and MRO service providers. Airframe parts comprise a broad rangeof aircraft sub-component groups, including avionics, hydraulics and pneumaticsystems, auxiliary power units, landing gear, interiors, flight control surfaces,windows and panels. We have disassembled 62 aircraft for the sale of theirparts and we believe that we were among the first to voluntarily andstrategically disassemble Boeing 737-300 and Airbus A320 family aircraft.Our aircraft disassembly operations are focused on the strategic acquisition ofaircraft with engines that are among the most sought after in the secondarymarket.

We are focused on developing long-term supplyrelationships with clients that perform MRO services on aircraft and engines.Parts sales allow us to increase the value of our aircraft and engine assets byputting each sub-component (engines, airframes and related parts) to its mostprofitable use (sale, lease, and/or disassembly for parts sales). In addition,this capability provides us with an additional cost advantage over ournon-integrated competitors by providing us with a critical source of low costreplacement engines and parts to support the maintenance of our aircraft andengine portfolios.

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Prior to the acquisitionof our Goodyear facility described below, we outsourced the physicaldisassembly of our airframes into parts, but sold the airframe parts ourselves.

***Engine Leasing***

Generally, it is uneconomical for aircraft operatorswith small aircraft fleets to own the quantity of spare engines required toadequately cover their operational requirements. As a result, aircraftoperators often lease spare engines when they send out their engines foroff-site MRO. Spare engines are generally leased either directly from enginelessors like us, or from the MRO service provider that is repairing theaircraft operator’s engine. To meet their clients’ needs, MRO service providersoften lease engines from engine lessors. We are focused on the short-term enginelease market with a typical lease term of 60 to 180 days. Short-termengine leases tend to have higher lease rates than long-term leases, becauselessees require the engines on short notice and are willing to pay a premiumfor the flexibility of a short-term lease. Engines subject to short-termleases typically spend more time off-lease, while they are released withgreater frequency.

The short-term engine leasing market has alsodeveloped in part in response to airlines’ need to rapidly place aircraft backin service in the event of an unexpected engine problem. Short-term engineleases provide an alternative to owning spare engines or entering intolong-term leases, where the engines can needlessly sit idle for long periods.To meet clients’ urgent engine leasing needs, we typically maintain asubstantial inventory of ready-to-lease engines in our off lease inventory. Webelieve that our ability to modify and configure most of our lease portfolioengines is an important competitive advantage, since it can facilitate therapid installation of our engines onto our customers’ aircraft. In addition, wehave the capability to provide limited on-site maintenance and repair for mostof our leased engines which, in some circumstances, enables us to facilitate thereturn to service of our customers’ grounded aircraft.

Our engine leasing customer base is comprised of awide variety of airlines and cargo and charter operators, in addition to MROservice providers, and other aircraft and engine leasing companies. As of December 31,2006, we had engines on lease to 24 customers located in 19 countries.

We generally receive a fixed rental payment for ourleased engines plus a variable rental payment based on the use of the engine.We typically receive monthly rent for our engines in advance, and additionalrent for actual engine operation in arrears to compensate us for theanticipated future maintenance costs of such engines. Our engine lesseesgenerally provide us with a security deposit in the amount of two months rent,in addition to which we receive the first month’s rental payment in advance.

On a few occasions, ourengine lessees have experienced financial difficulties, requiring us toterminate or restructure our engine leases with the lessee. Over the pasteight years, we have only had to resort to legal action for therepossession of engines with two of our lease customers.

***Airframe MRO Capability***

On August 4, 2006, weleased an aircraft MRO facility located in Goodyear, Arizona, acquired certainassets and hired 74 of the employees working at the facility. In connectionwith this lease, we acquired an additional certified repair station which iscertified by the FAA and EASA and associated equipment which permits us toperform a variety of MRO services on commercial transport aircraft, includingaircraft heavy maintenance, limited powerplant repair to engine and linecomponents, which includes starters, generators, hydraulic pumps, and quickengine changes installation. The Goodyear facility includes a 226,000 squarefoot hangar with the ability to house up to four widebody aircraft, or eightnarrowbody aircraft for the purpose of performing heavy maintenance repairs,aircraft disassemblies and engine changes. The ramp area outside of the hangarcan facilitate both short and long term storage of up to 14 aircraft. Inaddition to the hangar and ramp space, there is a significant storage fieldcapable of storing 

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over 100aircraft. This transaction was primarily made to reduce our cost of aircraftdisassembly and to support the expansion of our airframe parts distributionbusiness.

**Financing**

Our management analyzes sources of financing based onthe pricing and other terms and conditions in order to optimize the return onour investments. We have the ability to access the bank, governmental secureddebt, securitization and debt capital markets. We generally do not engage infinancing transactions for individual aircraft or engines. In April 2006,we entered into a $1.0 billion revolving credit facility with a syndicateof banks led by UBS to facilitate our growth strategy and the acquisition ofaircraft up to 15 years of age. Simultaneously with the AeroTurbineAcquisition and the closing of the UBS facility, we put in place a$171.0 million facility which was later increased to $220.0 million thatenables us to acquire eligible aircraft engines and parts of any age. Thesefacilities provide us with large scale committed financing that will allow usto rapidly execute aircraft portfolio purchases.

Once we obtain sufficient aircraftthrough our revolving credit facilities, we generally leverage our extensivefinancing experience and access to the securitization and other long-term debtmarkets to obtain long-term, lower cost non-recourse financing. Since 1996, wehave raised over $18 billion of funding in the global financial marketsincluding over $9 billion of funds through initial issuances andrefinancings in the aircraft securitization market. Most recently, in September 2005,we completed a $1.0 billion securitization of 42 aircraft subject tooperating leases.

**Employees**

Thetable below provides the number of our employees at each of our geographicallocations as of the dates indicated.

| **Location**               | ** ** | ** ** | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** | **December 31, 2006** | ** ** |
|----------------------------|------------|------------|------------|---------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Amsterdam, The Netherlands |       |       | 80         |                            |       |                            | 71         |                            |       |   | 71 |   |   |
| Shannon, Ireland           |       |       | 23         |                            |       |                            | 27         |                            |       |   | 37 |   |   |
| Fort Lauderdale,  FL       |       |       | 10         |                            |       |                            | 11         |                            |       |   | 13 |   |   |
| Miami, FL(1)               |       |       | 99         |                            |       |                            | 124        |                            |       |   | 163 |   |   |
| Goodyear, AZ(2)            |       |       | —     |                            |       |                            | —     |                            |       |   | 67 |   |   |
| **Total**                  | ** ** | ** ** | **212**    |                            | ** ** | ** **                      | **233**    |                            | ** ** | ** ** | **351** |   |   |

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(1)          Employees located inMiami, Florida are employees of AeroTurbine which we acquired in April 2006.

(2)          On August 4, 2006we leased an aircraft MRO facility located in Goodyear, Arizona and hired 74 ofthe employees working at the facility.

None of our employees arecovered by a collective bargaining agreement and we believe that we maintainexcellent employee relations. Although by law we are required to have a workscouncil for our operations in The Netherlands, our employees have not electedto date to organize a works council. Recently an employee solicited otheremployees’ interest in setting up a works council. A works council is a councilcomposed of employees with the task of promoting our interests and theinterests of our employees.

**OrganizationalStructure**

AerCap Holdings N.V. is a holding company which holdsdirectly and indirectly consolidated investments in four main operatingcompanies which in turn own special purpose entities which hold our aircraftand engine assets. Within the group, we also have several inactive subsidiariesor subsidiaries which 

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are in the process ofbeing liquidated. The four principal operating subsidiaries, their shareownership and the identity of their significant asset-owning subsidiaries isdetailed below.

*AerCapB.V.**is*owned 100% by AerCap HoldingsN.V. AerCap B.V. is located in Amsterdam, Netherlands, employed 71 people as ofDecember 31, 2006 and owns 34% of the share capital of AerCap IrelandLimited. AerCap B.V., through its special purpose subsidiaries, owns theeconomic interests in 54 aircraft.

*AerCapIreland Limited*is owned 34% by AerCap B.V. and 66% byAerCap Holdings N.V. AerCap Ireland Limited is located in Shannon, Ireland,employed 37 people as of December 31, 2006 and holds our economicinterests in the following consolidated groups or joint ventures: AircraftLease Securitisation (42 aircraft); AerFunding 1 Limited (13 aircraft);AerVenture (70 aircraft on order); and Bella (two aircraft). In addition,AerCap Ireland Limited owns 15 aircraft directly or through singleaircraft-owning special purpose entities. AerCap Ireland Limited is also theholder of our joint venture investment in AerDragon (one aircraft) and owns100% of the share capital in AerCap, Inc.

*AerCap, Inc.*is owned 100% by AerCap Ireland Limited. AerCap, Inc.is located in Ft. Lauderdale, Florida and employed 13 people as of December 31,2006. AerCap, Inc. and its wholly-owned subsidiaries (excludingAeroTurbine, Inc.) are the lessees under our 11 lease-in, lease-outtransactions and own one aircraft. AerCap, Inc. owns 100% of the sharecapital of AeroTurbine, Inc.

*AeroTurbine, Inc*isowned 100% by AerCap, Inc. AeroTurbine, Inc. is located in Miami,Florida, has an office in Goodyear, Arizona and employed 230 people as of December 31,2006. AeroTurbine, Inc, owns 51 engines, four aircraft which are designated fordisassembly and part-out and an inventory of aircraft and engine parts forsale.

**Competition**

The aircraft leasing and sales business is highlycompetitive. We face competition from aircraft manufacturers, financial institutions,other leasing companies, aircraft brokers and airlines. Competition for aleasing transaction is based on a number of factors, including delivery dates,lease rates, term of lease, other lease provisions, aircraft condition and theavailability in the market place of the types of aircraft that can meet theneeds of the customer. As a result of our geographical reach, diverse aircraftportfolio and success in remarketing our aircraft, we believe we are a strongcompetitor in all of these areas; however, some of our competitors such as GECommercial Aviation Service and International Lease Finance Corporation, havesignificantly larger and more diversified aircraft portfolios and greateraccess to financing than we do. As of December 2006, GE CommercialAviation Service and International Lease Finance Corporation together,according to Airclaims Client Aviation System Enquiry Database, representapproximately 44.3% of the operating lease market and 53.8% of the orders fromBoeing and Airbus held by operating lessors.

The engine leasingindustry is fragmented and is also highly competitive. The engine leasingindustry is generally divided into two principal competitive segments:short-term engine lessors that focus on providing temporary spare engine supportwhile a customer’s engine requires off-site MRO (typical 60 to 90 daylease periods) and long-term engine lessors that focus on providing spare orprimary engines to operators as an alternative to ownership of the engine bythe lessee (typical lease periods of over one year). Though we are much moreactive in the short-term engine leasing segment, we compete in both leasesegments. The engine leasing market is primarily comprised of six major engineleasing companies, including ourselves. We believe we are a strong competitor,particularly in the short-term engine leasing segment, due to our rapidresponse in-house MRO capabilities; however, some of our competitors such as GEEngine Leasing, Shannon Engine Support, Engine Lease Finance, Pratt &Whitney Engine Leasing LLC, Rolls Royce and Partners Finance and Willis LeaseFinance, have significantly larger and more diversified engine portfolios andgreater access to financing than we do. We also encounter competition 

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fromairlines, financial institutions, engine brokers, consignment agencies andspecial purpose entities with investment objectives similar to ours.

The aircraft parts marketis generally divided into two principal segments, consisting of (i) airframeparts sales and (ii) engine parts sales specialists. While we compete inboth markets with a few large companies, we also separately compete withnumerous other parts sales organizations, MRO service providers, originalequipment manufacturers, commercial airlines and many smaller competitors primarilyin the U.S. and Europe. Additionally, there are numerous small brokers andtraders that generally sell from limited inventories and participate in nichemarkets. Competition in the aircraft and engine parts markets is based onquality, ability to provide a timely and consistent source of materials,ability to provide a multiple range of desirable products, speed of deliveryand pricing.

**Insurance**

Our lessees are requiredunder our leases to bear responsibility, through an operational indemnitysubject to customary exclusions, and to carry insurance for, any liabilitiesarising out of the operation of our aircraft or engines, including anyliabilities for death or injury to persons and damage to property thatordinarily would attach to the operator of the aircraft or engine. In addition,our lessees are required to carry other types of insurance that are customaryin the air transportation industry, including hull all risks insurance for boththe aircraft and each engine whether or not installed on our aircraft, hull warrisks insurance covering risks such as hijacking, terrorism, confiscation,expropriation, nationalization and seizure (in each case at a value stipulatedin the relevant lease which typically exceeds the net book value by 10%,subject to adjustment in certain circumstances) and aircraft spares insuranceand aircraft third party liability insurance, in each case subject to customarydeductibles. We are named as an additional insured on liability insurancepolicies carried by our lessees, and we and/or our lenders are designated as aloss payee in the event of a total loss of the aircraft or engine. We monitorthe compliance by our lessees with the insurance provisions of our leases bysecuring confirmation of coverage from the insurance brokers. We also purchaseinsurance which provides us with coverage when our aircraft or engines are notsubject to a lease or where a lessee’s policy lapses for any reason. Inaddition we carry customary insurance for our property and parts inventory, andwe also maintain customary product liability insurance covering liabilitiesarising from our aircraft, engine and aviation parts trading activities.Insurance experts advise and make recommendations to us as to the appropriateamount of insurance coverage that we should obtain.

**Regulation**

While the airtransportation industry is highly regulated, since we do not operate aircraft,we generally are not directly subject to most of these regulations. However,our lessees are subject to extensive regulation under the laws of thejurisdiction in which they are registered and in which they operate. Theseregulations, among other things, govern the registration, operation andmaintenance of our aircraft and engines. Most of our aircraft are registered inthe jurisdiction in which the lessee of the aircraft is certified as an airoperator. Both our aircraft and engines are subject to the airworthiness andother standards imposed by our lessees’ jurisdictions of operation. Lawsaffecting the airworthiness of aviation assets are generally designed to ensurethat all aircraft, engines and related equipment are continuously maintained inproper condition to enable safe operation of the aircraft. Most countries’aviation laws require aircraft and engines to be maintained under an approvedmaintenance program having defined procedures and intervals for inspection,maintenance and repair.

In addition, under ourleases, we may be required in some instances to obtain specific licenses,consents or approvals for different aspects of the leases. These required itemsinclude consents from governmental or regulatory authorities for certainpayments under the leases and for the import, re-export or deregistration ofthe aircraft and engines. Also, to perform some of our cash management servicesand 

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insuranceservices from Ireland under our management arrangements with our joint venturesand securitization entities, we are required to have a license from the Irishregulatory authorities which we have obtained.

With regard to our MROactivities, we maintain FAA and EASA certifications to conduct limited repairstation tasks on engines. These certifications are subject to periodic review,and involve regulatory oversight and audit of the respective personnel andprocedures utilized to conduct MRO services to aircraft, engines and componentsthereof, so as to ensure that our repair station managers and mechanics areproperly qualified to perform the work for which we are certified. In addition,our MRO facility is subject to environmental regulation regarding, among otherthings, the use, storage and disposal of certain hazardous material.

**Facilities**

We lease our 30,000 squarefoot headquarters in Amsterdam, The Netherlands under a six year leasewhich began January 1, 2004. We also lease a 31,000 square foot facilityin Shannon, Ireland where we conduct our aircraft management business. We leaseour Shannon facility under a 20 year lease which began January 26,2000 and have an option to terminate after ten years. In addition, we lease an8,000 square foot facility in Fort Lauderdale, Florida under a ten yearlease which began in February 1999. We believe that our facilities inAmsterdam, Ireland and Fort Lauderdale are sufficient for our operations.

We have a seven year leasefor a 150,000 square foot complex located near the Miami International Airportthat we use as an office, distribution center and repair station. Our Goodyearfacility includes a 226,000 square foot hangar and substantial additional spacefor aircraft outdoor storage. We have a sublease expiring in April 2007upon which the sublessor of the facility has agreed to assign its leaseinterest to us.

**Trademarks**

We have registered the “AerCap”name with WIPO International (Madrid) Registry and the Benelux-Merkenbureau.We have made an application to register the “AerCap” name with the UnitedStates Patent and Trademark Office. The application is currently pending. Wehave registered the “AeroTurbine” name with the United States Patent andTrademark Office.

**Litigation**

In the ordinary course ofour business, we are a party to various legal actions, which we believe areincidental to the operation of our business. Except as disclosed below, webelieve that the outcome of the proceedings to which we are currently a partywill not have a material adverse effect on our financial position, results ofoperations and cash flows.

***VASP Litigation***

We leased 13 aircraft andthree spare engines to Viacao Aerea de Sao Paulo, or VASP, a Brazilian airline.In 1992, VASP defaulted on its lease obligations and we commenced litigationagainst VASP to repossess our aircraft. In 1992, we obtained a preliminaryinjunction for the repossession and export of 13 aircraft and threespare engines from VASP. We repossessed and exported the aircraft and enginesin 1992. VASP appealed this decision. In 1996, the High Court of the State ofSao Paulo ruled in favor of VASP on its appeal. We were instructed to returnthe aircraft and engines to VASP for lease under the terms of the originallease agreements. The High Court also granted VASP the right to seek damages inlieu of the return of the aircraft and engines. Since 1996 we have pursued thiscase in the Brazilian courts through various motions and appeals. On March 1,2006, the Superior Court of Justice dismissed our most recent appeal and on April 5,2006 a special panel of the Superior Court of Justice confirmed the SuperiorCourt of Justice decision. On May 15, 2006 we appealed this decision tothe Federal Supreme Court. On 

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February 23,2006, VASP commenced a procedure for the calculation of the award for damagesand since then both we and VASP have appointed experts to assist the court incalculating damages. Our external legal counsel has advised us that even if welose on the merits, they do not believe that VASP will be able to demonstrateany damages. We continue to actively pursue all courses of action that may beavailable to us and intend to defend our position vigorously.

We are currently pursuingclaims for damages in the English courts against VASP based on the damages weincurred as a result of the default by VASP on its lease obligations. In October 2006,the English Courts approved our motion to serve process upon VASP in Brazil.VASP will be served process in Brazil, by means of a rogatory letter which iscurrently being processed before the Brazilian Superior Court of Justice. Ourmanagement, based on the advice of external legal counsel, has determined thatit is not necessary to make any provisions for this litigation.

***Swedish Tax Dispute***

In 2001, Swedish taxauthorities challenged the position we took in tax returns we filed for theyears 1999 and 2000 with respect to certain deductions. In accordance withSwedish law, we made a guaranty payment to the tax authority of$16.8 million in 2003. We appealed the decision of the tax authorities,and, in August 2004, a Swedish Court issued a ruling in our favor whichresulted in a tax refund of $19.9 million (which included interest and theeffect of foreign exchange movements for the intervening period). In September 2004,the Swedish tax authorities appealed the decision of the Court and filed anappeal with the Administrative Court of Appeal in Sweden. We have responded to this appeal and haverequested an oral hearing on the matter. The Court has responded that theywould schedule an oral hearing, but we have not yet received notice of thetiming of such hearing. Our management, based on the advice of our taxadvisors, has determined that it is not necessary to make any provisions forthis tax dispute.

**Item 4A.     Unresolved Staff Comments**

Not applicable.

**Item 5.        Operating and Financial Review andProspects**

*You should read this discussion in conjunction withour audited consolidated financial statements and the related notes included inthis annual report. Our financial statements are presented in accordance withgenerally accepted accounting principles in the United States of America, orUS GAAP. The discussion below contains forward looking statements that arebased upon our current expectations and are subject to uncertainty and changesof circumstances. See “Item 3. Key Information—Risk Factors” and “SpecialNote About Forward-Looking Statements”.*

**Overview**

The industry environmentin 2006 was characterized by strong demand and tight supply for aircraft, withairline passenger growth exceeding 5.9%. Overall, the industry saw the stronggrowth of airlines in emerging markets, growth of low cost carriers globally,and a strengthening of the U.S. airline industry. With the growth of theindustry, we have also experienced increased competition from other aircraftlessors in the market. We see no slowdown in 2007 with respect to the growthtrends that dominated 2006. We have the infrastructure, expertise and resourcesto execute a large number of diverse aircraft and engine transactions in avariety of market conditions. From January 1, 2004 to December 31,2006, we have executed over 800 aircraft and engine transactions, including 231aircraft leases, 214 engine leases, 126 aircraft purchase or saletransactions, 130 engine purchase or sale transactions and the disassembly of36 aircraft and 99 engines. Our teams of dedicated marketing and asset tradingprofessionals have been successful in leasing and trading our aircraft andengine portfolios, and between January 1, 2004 and December 31, 2006,our weighted average owned aircraft utilization rate was 99.1%.

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***Major Developments in 2006***

·       Wecompleted our initial public offering of 26.1 million common shares on November 27,2006 at a price of $23 per share generating net proceeds of $143.0 millionretained by us. We used these proceeds primarily to pay down indebtednessincurred in the AeroTurbine Acquisition.

·       Weacquired AeroTurbine in April 2006 as part of our strategy of managingaircraft profitably throughout their lifecycle.

·       Wepurchased $973.2 million of additional aviation assets in 2006. Total consolidatedassets at December 31, 2006 was $3.9 billion.

·       Wesigned an agreement on December 11, 2006 with Airbus for a firm order of20 new A330-200 aircraft to be delivered between 2008 and 2010. Thesecontracted purchases, along with previous orders, provide us with a stronginvestment pipeline for the future and will help us to meet the needs of ourdiverse customer base in varying geographic regions.

·       We launched AerDragon, ourChinese aircraft leasing joint venture on October 26, 2006 withChina Aviation Supplies Import & Export Group Corporation andCalyon Airfinance as partners. China Aviation Supplies Import & ExportGroup Corporation is a Chinese government organization that supports the flowof aircraft into the Chinese airlines and we believe this gives us additionalaccess to the Chinese market beyond our current customer base. AerDragon tookdelivery of its first aircraft (an Airbus A320 aircraft) on lease to a Chineseairline in February 2007.

***Results of Operations***

Net income for the fullyear 2006 was $88.0 million. Net income includes charges for share-basedcompensation of $68.3 million. Our result was driven by a number of factors. Ourportfolio has grown through purchases of aircraft and other aviation assets,and we have higher sale activity coming from both the AeroTurbine Acquisitionand the sale of aircraft driven by portfolio balancing. Additionally, webenefited from improved lease rates and the leveraging of our cost base. Ourfinancial performance in 2006 reflects the strength and flexibility of ourbusiness model and demonstrates our continuing focus on investing strategicallyto grow our business.

***Charge for Share-Based Compensation***

The charge for share-basedcompensation, net of tax, was $68.3 million for full year 2006. The majority ofthis charge was triggered in connection with our initial public offering, andrelates to the restricted shares and share options in entities that have acontrolling interest in us which are held by members of our senior managementteam, independent directors and a consultant. The charge was a non-cashcharge and did not reduce our net equity.

***Earnings Per Share***

Total earnings per sharefor the full year 2006 was $1.11. Included in our earnings per share is acharge of $0.87 per share related to charges for share-based compensation. Thenumber of outstanding shares is currently at 85.0 million. The amount of sharesincreased 6.8 million during the fourth quarter as a result of our initialpublic offering, and the average shares outstanding were 79.0 million for thefull year.

***Aviation Assets***

Our total assets andportfolio continue to grow. Total assets on the balance sheet were $3.9 billionat December 31, 2006. Total assets increased 28% during 2006 whichwas driven by a net increase of 26 owned aircraft in our portfolio, alongwith the AeroTurbine Acquisition. The number of aircraft in our 

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portfoliowas 344 as of December 31, 2006, consisting of 131 owned aircraft, 103managed aircraft, 99 aircraft in our order book, one aircraft subject to aseparate purchase contract and 10 aircraft under letter of intent. Thisrepresents an increase of more than 100 aircraft since the end of 2005. Thenumber of engines owned or on contract is 57, an increase of 53 engines fromfour engines owned at the end of 2005 which highlights the impact of theAeroTurbine Acquisition. We acquired $522.8 million of aviation assets including28 aircraft. These amounts included the purchase of an aircraft portfolio fromGATX Corporation and six Boeing aircraft from ILFC. The amount of closeddeals in the fourth quarter of 2006 brought the total amount of aviation assetpurchases to $973.2 million for the full year 2006, including 41 aircraft.

***Liquidity and Access to Capital***

Our cash balance at theend of 2006 was $243.5 million including restricted cash and our operating cashflow was $348.4 million for the full year. The available lines of credit at December 31,2006 were approximately $1.4 billion. As these amounts suggest, we havesignificant access to capital for growth through our cash and available linesof credit, along with our ability to access the capital markets. Our debtbalance at December 31, 2006 was $2.6 billion and the average annualinterest rate on our debt in 2006 was 6.8%. Our debt to equity ratio stood at3.5 to 1 as of December 31, 2006. We completed several financings during2006. The net proceeds from our initial public offering were used primarily topay down debt relating to the AeroTurbine Acquisition. Additionally, arevolving line of credit for AeroTurbine was amended and increased to $220.0million. We also signed a $248.0 million financing with a bank syndicate tofund the purchase of an aircraft portfolio from GATX Corporation andestablished a pre-delivery payments facility for our AerVenture joint venture.

**Factors Affectingour Results**

Our results ofoperations have been affected by a variety of factors, primarily:

·       thenumber, type, age and condition of the aircraft and engines we own;

·       aviationindustry market conditions;

·       thedemand for our aircraft and engines and the resulting lease rates we are ableto obtain for our aircraft and engines;

·       thepurchase price we pay for our aircraft and engines;

·       thenumber, types and sale prices of aircraft and engines we sell in a period;

·       theability of our lessee customers to meet their lease obligations and maintainour aircraft and engines in airworthy and marketable condition;

·       theutilization rate of our aircraft and engines;

·       therecognition of non-cash stock-based compensation expense related tothe issuance by our Bermuda Parents of restricted stock and stock options toour employees and our non-executive directors; and

·       interest rates which affectour aircraft lease revenues and our interest on debt expense.

**Factors Affectingthe Comparability of Our Results**

***Our Acquisition by Cerberus***

On June 30, 2005, AerCap Holdings C.V., aNetherlands partnership owned by Cerberus acquired all of AerCap B.V.’s(formerly known as debis AirFinance B.V.) shares and $1.8 billion ofliabilities owed by 

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AerCap B.V. to its priorshareholders. AerCap Holdings C.V. paid total consideration of$1.4 billion for AerCap B.V.; $370 million of the total considerationpaid by AerCap Holdings C.V. was funded through equity contributions byCerberus and $1.0 billion was funded through a term loan. The 2005Acquisition resulted in a net decrease of $802.0 million of indebtednesson our balance sheet—the difference between the $1.8 billion ofintercompany liabilities and the indebtedness incurred to fund the acquisition.In accordance with FAS 141, *BusinessCombinations*, we allocated the purchase consideration to the assetsacquired and liabilities assumed based on their fair values. Since the purchaseconsideration of $1.4 billion was less than the $1.9 billion combinedcarrying value of the liabilities and the equity purchased by Cerberus, thepurchase price allocation resulted in lower carrying values for our assetsafter the 2005 Acquisition. The carrying values of our assets and liabilitiesinfluence our results of operations and, accordingly, the net decrease in assetcarrying values, which resulted from the 2005 Acquisition, has resulted inimproved operating performance when compared to periods prior to the 2005Acquisition.

The material impacts onour consolidated income statement of the 2005 Acquisition relate to purchaseaccounting adjustments in our assets which are reflected in lower depreciationexpense and lower cost of goods sold due to reduced net book values, andin lower interest on debt expense due to the elimination of $802.0 millionof debt as described in the preceding paragraph. Other than the correspondingeffect on income from continuing operations before provision for income taxesand net income, the 2005 Acquisition did not materially impact any of the otherline items in our consolidated income statement.

***AeroTurbine Acquisition***

On April 26, 2006, we acquired all of theexisting share capital of AeroTurbine, Inc. an engine trading and leasingand part sales company. We acquired AeroTurbine to implement our strategy ofmanaging aircraft profitably throughout their lifecycle, to diversify ourinvestment in aviation assets and to obtain a more significant presence in themarket for older aircraft equipment. The total payment for the AeroTurbineshares of $144.7 million, including acquisition expenses, was funded throughcash from our operations of $70.9 million and $73.8 million of cashraised from a refinancing of AeroTurbine’s existing debt. The new financingtotaled $175.0 million and included $160.0 million of senior secureddebt and a $15.0 million subordinated loan guaranteed by AerCap B.V. Asdiscussed earlier, we used the net proceeds from our initial public offering topay-off the senior and subordinated debt at AeroTurbine.

In accordance with FAS 141, *Business Combinations*, we allocated the purchase price paidto the assets acquired and liabilities assumed based on their fair values.Since the purchase consideration of $144.7 million was greater than the$82.1 million combined carrying value of the assets purchased andliabilities assumed by us, the purchase price allocation resulted in highercarrying values for the AeroTurbine assets as well as $25.6 million ofintangible assets and goodwill of $6.8 million. The inclusion of AeroTurbine inour consolidated results has increased our lease and sales revenue and cost ofgoods sold through the addition of $249.5 million of combined flight equipmentand inventory in our December 31, 2006 consolidated balance sheet. Inaddition, the interest on AeroTurbine’s debt has increased our consolidatedinterest expense and the inclusion of AeroTurbine’s operations has increasedour selling, general and administrative expenses. More specifically, werecognized $62.4 million of share-based compensation, net of taxes, inour consolidated selling, general and administrative expenses related torestricted shares granted in connection with the AeroTurbine Acquisition.

Prior to the AeroTurbineAcquisition, we operated our business as one reportable segment: leasing,financing, sales and management of commercial aircraft. From the date of theAeroTurbine Acquisition, we manage our business and analyze and report ourresults on the basis of two business segments: leasing, financing, sales andmanagement of commercial aircraft (“Aircraft”) and leasing, financing and salesof engines and parts (“Engines and Parts”).

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***Stock Compensation Expenses***

Our financial results forthe year ended December 31, 2006 include a charge of $68.3 million, net oftax of $10.3 million for non-cash share-based compensation expenserelated to the vesting of options and restricted stock previously granted orsold to the owners of AeroTurbine at the time of its acquisition by us and tomembers of our senior management, our non-executive directors and oneconsultant primarily in connection with the 2005 Acquisition. While we willcontinue to recognize some additional non-cash, share-based compensation inconnection with these options and restricted shares (excluding the shares soldto the owners of AeroTurbine), those charges are not expected to be of asimilar magnitude as those recognized in 2006.

***Goodwill Impairment***

In 2004, we recorded animpairment of all of our existing goodwill of $132.4 million as a resultof our annual goodwill impairment test. We calculated our valuation using adiscounted cash flow approach that considered all of our existing assets andliabilities as well as our business plans. Based on the factors describedbelow, in 2004 our goodwill impairment analysis resulted in the impairment ofall of our then existing goodwill. In years prior to the 2005 Acquisition, ourability to grow and make additional aviation investments was primarilycontrolled by our prior shareholders who were also our primary source of debtfunding. In 2004, we signed a new $1.6 billion facility agreement with ourprior shareholders to refinance all of our previous senior debt contracted withthem. The new facility agreement included significant constraints on ouroperations and our ability to make additional investments and required that asubstantial amount of internally generated cash from asset sales be used topre-pay our obligations under the facility agreement. In 2004, our shareholdersalso indicated that they were not willing to invest additional equity capitalin us. We revised our discounted cash flow projection downward in 2004 toreflect these factors. In addition, we were aware that our shareholders were indiscussions to sell their stake in us for consideration significantly less thanour net equity value. As a result of our analysis, we recorded a$132.4 million impairment to write down all of our then existing goodwillin 2004.

**Critical AccountingPolicies Applicable to Us**

Our Management’sDiscussion and Analysis of Financial Condition and Results of Operations isbased upon our consolidated financial statements, which have been prepared inaccordance with US GAAP, and require us to make estimates and assumptionsthat affect the amounts reported in the consolidated financial statements andaccompanying notes. The use of estimates is or could be a significant factoraffecting the reported carrying values of flight equipment, investments, tradeand notes receivable, deferred tax assets and accruals and reserves. Ourestimates and assumptions are based on historical experiences and currentlyavailable information. We utilize professional appraisers and valuationexperts, where possible, to support our estimates, particularly with respect toflight equipment. Despite our best efforts, actual results may differ from ourestimates under different conditions, sometimes materially. A summary ofour significant accounting policies is presented in Note 2 to our auditedconsolidated financial statements included elsewhere in this annual report.Critical accounting policies and estimates are defined as those that are bothmost important to the portrayal of our financial condition and results ofoperations and require our most subjective judgments, estimates andassumptions. Our most critical accounting policies and estimates are describedbelow.

***Lease Revenue Recognition***

We lease flight equipmentprincipally under operating leases and report rental income on a straight-linebasis over the life of the lease as it is earned. Virtually all of our leasecontracts require payment in advance. Rents collected in advance of when theyare earned are recorded as deferred revenue on our balance sheet and recordedas lease revenue as they are earned. Provisions for doubtful notes and 

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accountsreceivables are recorded in the income statement when rentals become past-dueand the rentals exceed security deposits held, except where it is anticipatedthat the lease will end in repossession and then provisions are made regardlessof the level of security deposits. Our management monitors the status ofcustomers and the collectability of their receivables based on factors such asthe customer’s credit worthiness, payment performance, financial condition andrequests for modifications of lease terms and conditions. Customers for whomcollectability is not reasonably assured are placed on non-accrual status andrevenue is recorded on a cash basis. When our management deems thecollectability to be reasonably assured, based on the above factors, thecustomer is removed from non-accrual status and revenue is recognized on anaccrual basis. As described below, revenue from supplemental maintenance rentis recognized when we are no longer legally obligated to refund such rent toour customer, which normally coincides with lease termination or where theterms of the lease allow us to control the occurrence, timing or amount of suchreimbursement.

***Depreciation and Amortization***

Flight equipment held for operating leases, includingaircraft, is recorded on our balance sheet at cost less accumulateddepreciation and impairment. Aircraft are depreciated over the assets’ usefullife, which is 25 years from the date of manufacture for substantially allof our aircraft, using the straight-line method to estimated residual values.Estimated residual values are generally determined to be approximately 15% ofthe manufacturer’s price.

We depreciate current production model engines on astraight-line basis over a 15-year period from the acquisition date to anestimated residual value. We estimate residual values of current productionmodel engines based on observed current market prices and managementexpectations of value trends. Out-of-production engines are depreciated on astraight-line basis over an estimated useful life ranging from five to sevenyears to an estimated residual value. The carrying value of flight equipmentthat we designate for disassembly is transferred to our inventory pool and isheld for sale at the time of such designation. We discontinue the depreciationof our flight equipment when it is held as inventory. Differences between ourestimates of useful lives and residual values and actual experience may resultin future impairments of aircraft or engines and/or additional gains or lossesupon disposal. We review residual values of aircraft and engines periodicallybased on our knowledge of current residual values and residual value trends todetermine if they are appropriate and record adjustments as necessary.

Intangibles related tocustomer relationships are amortized over ten years, which is the lengthof time that we expect to benefit from existing customer relationships. Theamortization in each year is based on the anticipated sales in each year whichbenefit from such relationships. Our FAA certificate is amortized straight-lineover 15 years, the remaining estimated useful life of the engine type towhich the repair station certificate relates. Amortization of the non-competeagreement is straight-line over six years, which is the sum of the term of theemployment agreements of the related individuals and the term of thenon-compete agreements.

***Inventory***

Inventory, which consistsexclusively of finished goods, is valued at the lower of cost or market. Costis primarily determined using the specific identification method for individualpart purchases and whole engines and on an allocated basis for dismantledengines, aircraft, and bulk inventory purchases using the relationship of thecost of the dismantled engine, aircraft or bulk inventory purchase to estimatedremaining sales value at the time of purchase. We evaluate the carrying valueof inventory on a regular basis in order to account for any permanentimpairment in values. We estimate market value for this purpose based oninternal estimates of sales values and recent sales activity of similar inventory.

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***Impairments***

In accordance with FAS 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets*, our flight equipment held for operating lease anddefinite lived intangible assets are evaluated for impairment when events andcircumstances indicate that the carrying amounts of those assets may not berecoverable. The review for recoverability includes an assessment of theestimated future cash flows associated with the use of an asset and itseventual disposition. If the sum of the expected future cash flows(undiscounted and without interest charges) is less than the carrying amount ofthe asset, an impairment loss is recognized. The loss is measured as the excessof the carrying amount of the impaired asset over its fair value. Fair value reflectsthe present value of cash expected to be received from the asset in the future,including its expected residual value discounted at a rate commensurate withthe associated risk. Future cash flows are assumed to occur under then currentmarket conditions and assume adequate time for a sale between a willing buyerand a willing seller. Expected future lease rates are based on all relevantinformation available, including current contracted rates for similar assets,appraisal data and industry trends. Residual value assumptions generallyreflect an asset’s booked residual, except where more recent industryinformation indicates a different value is appropriate.

In accordance withFAS 142, *Goodwill and Other IntangibleAssets,* we evaluate any goodwill and indefinite-livedintangible assets for impairment at the reporting unit level each year and uponthe occurrence of events or circumstances that indicate that the asset may beimpaired. We determine the fair value of our reporting units using discountedcash flow and earnings multiples approaches. When our valuation suggests thatthe fair value of our reporting unit is less than our net equity, we determinethe amount of implied goodwill by allocating the fair value of the reportingunit to our assets and liabilities as we would in purchase accounting andadjust our goodwill to its implied value through an impairment entry. If wefail to meet our forecasted future cash flows or if weak economic conditionsprevail in our primary markets, the estimated fair values of our reporting unitmay be adversely affected, resulting in impairment charges.

***Allocation of Purchase Price to Acquired Assets***

We account for businesscombinations in accordance with FAS 141, *BusinessCombinations.* We apply the purchase price of all acquisitionsto the fair value of acquired assets and liabilities, including identifiableintangible assets and liabilities. To determine fair value, we utilize acombination of third-party appraisers, our own recent experience in themarket place and discounted cash flow analyses. Our discounted cash flowanalyses require us to make estimates and assumptions of the future use ofthese assets and their impact on our financial position. We apply a discountrate to each different asset or liability based on prevailing interest ratesand the underlying credit of the obligor.

***Accrued Maintenance Liability***

In all of our leases, the lessees are responsible for maintenance andrepairs of our flight equipment and related expenses during the term of thelease. In some instances, we may incur maintenance and repair expenses foroff-lease aircraft. We recognize leasing expenses in our income statement forall such expenditures. In many operating lease and finance leasecontracts, the lessee has the obligation to make a periodic payment ofsupplemental maintenance rent which is calculated with reference to theutilization of airframes, engines and other major life-limited componentsduring the lease. In most such contracts, upon lessee presentation of invoicesevidencing the completion of qualifying maintenance on the aircraft or engine,we make a contribution to the lessee to help compensate for the cost of themaintenance, up to the maximum of the supplemental maintenance rental paymentsmade with respect to the lease contract. In other contracts withoutsupplemental maintenance rent obligations, to the extent that the aircraft orengine is redelivered in a different condition than at acceptance, there isnormally an end-of-lease compensation adjustment for the difference atre-delivery. In addition, in both types of contracts, we may 

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be obligated to contributeto the cost of specified maintenance events expected to occur during the termof the lease (lessor contributions) which result from utilization of theaircraft or engine prior to the subject lease. In all leasecontracts where we agree to make lessor contributions to compensate forqualifying maintenance work during the lease, we record an accrued maintenanceliability through a charge to leasing expenses at the commencement of the leasebased on our estimate of maintenance events which will occur during the lease.

In the majority of our leases where thelessee is required to make supplemental rent payments, we do not recognize suchsupplemental rent as revenue during the lease, but we record supplemental rentreceived from the lessee as accrued maintenance liability. Reimbursements tothe lessee upon the receipt of evidence of qualifying maintenance work arecharged against the existing accrued maintenance liability. Inshorter-term lease contracts (primarily engine lease contracts) where the termsof the lease are designed specifically to allow us to directly manage theoccurrence, timing and associated cost of qualifying maintenance work on theflight equipment, supplemental rents collected during the lease are recognizedas lease revenue. For flight equipment subject to these shorter-term contracts,we record a charge to leasing expenses at the time maintenance work isperformed on the flight equipment.

***Consolidation***

We consolidate allcompanies in which we have direct or indirect legal or effective control andall variable interest entities for which we are deemed the primary beneficiaryunder FIN 46R. Consolidated entities include certain joint ventures such as ourAerVenture and Bella joint ventures, our Aircraft Lease Securitisation vehicle,and our AerFunding financing vehicle, but exclude our investments in AerDragonand Annabel. The determination of which entities are variable interest entitiesand of which variable interest entities we are the primary beneficiary involvesthe use of significant estimates, including whether the entity has sufficientequity to finance its activities without additional subordinated financialsupport and the expected cash flows to the entity and distributions of thosecash flows in the future. We estimate expected cash flows based on the variableinterest entities’ contractual rights and obligations as well as reasonableexpectations for future business developments. We then adjust these cash flowestimates to simulate possible changes in economic trends which could impactthe variable interest entity to determine which entity will absorb a majorityof the variability in order to determine if we are the primary beneficiary ofthe variable interest entity.

***Deferred Income Taxes***

We provide for incometaxes according to FAS 109, *Accountingfor Income Taxes*. We have significant tax loss carryforwards incertain of our subsidiaries. We evaluate valuation allowances for tax losses atthe individual company level or consolidated tax group level in accordance withthe tax law in the specific jurisdiction. We evaluate the potential forrecovery of our tax losses by estimating the future taxable profits expectedfrom each subsidiary and considering prudent and feasible tax planningstrategies. In estimating future taxable profits, we consider all currentcontracts and assets of the business, as well as a reasonable estimation offuture taxable profits achievable by us. If we are not able to achieve thelevel of projected taxable profits used in our assessment, and no tax planningstrategies are available to us, an additional valuation allowance may berequired against our tax assets with a corresponding charge to our incomestatement in the future.

***Financial Period Convention***

AerCap Holdings C.V. (thepredecessor to AerCap Holdings N.V.) was formed on June 27, 2005; however,it did not commence operations until June 30, 2005, when it acquired allof the shares and certain of the liabilities of AerCap B.V. AerCap HoldingsC.V.’s initial accounting period is from June 27, 2005 to December 31,2005 but it generated no material revenue or expense between June 27, 2005and June 30, 

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2005,and did not have any material assets before the 2005 Acquisition. Forconvenience of presentation only, we have labeled AerCap Holding C.V.’s initialaccounting period in table headings in this annual report as the six monthsended December 31, 2005. In addition, for presentation purposes in thisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations, we have combined the six months ended June 30, 2005 of AerCapB.V., our predecessor, with AerCap Holding C.V.’s initial accounting periodinto a 12 month period ended December 31, 2005. The financialinformation presented for this combined period reflects the addition, with noadjustments, of the results of AerCap B.V. for the six months ended June 30,2005 and for AerCap Holdings C.V.’s initial accounting period ended December 31,2005. The combined period information is included as a combined presentationsince it is the way our management analyzes our business results. This combinedpresentation, however, is not in accordance with US GAAP and should beconsidered as supplemental information only.

**Revenues**

Our revenues consistprimarily of lease revenue from aircraft and engine leases, sales revenue,management fee revenue and interest revenue.

***Lease Revenue.***

Nearly all of ouraircraft and engine lease agreements provide for the payment of a fixed,periodic amount of rent or a floating, periodic amount of rent tied to interestrates during the term of the lease. In limited circumstances, our leases mayrequire a basic rental payment based partially or exclusively on the amount ofusage during a period. In addition, many of our leases require the payment ofsupplemental maintenance rent based on aircraft or engine utilization and leaseterm, or an end-of-lease compensation amount calculated with reference to thetechnical condition of the aircraft or engine at lease expiration. The amountof lease revenue we recognize is primarily influenced by five factors:

·       thecontracted lease rate, which is highly dependent on the age, condition and typeof the leased equipment;

·       forleases with rates tied to floating interest rates, interest rates during theterm of the lease;

·       thenumber, type, condition and age of flight equipment subject to lease contracts;

·       thelessee’s performance of their lease obligations; and

·       theamount of supplemental maintenance rent including receipt of end-of-leasecompensation adjustments we receive in excess of amounts we are required toreimburse to lessees during the lease term and any reductions we make to ouraccrued maintenance liability based on estimates of our contractual obligationsin our current lease contracts.

In addition to aircraft or engine specific factorssuch as the type, condition and age of the asset, the lease rates for ourleases with fixed rental payments are determined in part by reference to theprevailing interest rate for a debt instrument with a term similar to the leaseterm and with a similar credit quality as the lessee at the time we enter intothe lease. Many of the factors described in the bullet points above areinfluenced by global and regional economic trends, airline market conditions,the supply/demand balance for the type of flight equipment we own and ourability to remarket flight equipment subject to expiring lease contracts underfavorable economic terms.

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Weoperate our business on a global basis. As of December 31, 2006, we had131 aircraft on lease (excluding the four aircraft that we intend todisassemble or sell at the end of their leases) to 58 customers in37 countries, with no lessee accounting for more than 10% of lease revenuefor the year ended December 31, 2006. The following table shows theregional profile of our lease revenue for the periods indicated:

| ** **                | ** ** | **AerCap B.V.**                         | ** ** | **AerCap Holdings N.V.**           | ** ** |
|---------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                | ** ** | **Year ended  December 31,  2003** | ** ** | **Year ended  December 31,  2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **Six months ended  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| Asia/Pacific              |       |                                         | 34         | %                                            |       |   | 35 | % |   |   | 43 | % |   |   | 44 | % |   |   | 43 | % |   |
| Europe                    |       |                                         | 33         |                                         |       |   | 36 |   |   |   | 33 |   |   |   | 33 |   |   |   | 35 |   |   |
| North America/  Caribbean |       |                                         | 18         |                                         |       |   | 21 |   |   |   | 18 |   |   |   | 18 |   |   |   | 15 |   |   |
| Latin America             |       |                                         | 12         |                                         |       |   | 7 |   |   |   | 6 |   |   |   | 5 |   |   |   | 7 |   |   |
| Africa/Middle East        |       |                                         | 3          |                                         |       |   | 1 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| **Total**                 | ** ** | ** **                                   | **100**    | **%**                                        | ** ** | ** ** | **100** | **%** | ** ** | ** ** | **100** | **%** | ** ** | ** ** | **100** | **%** | ** ** | ** ** | **100** | **%** | ** ** |

 

The geographicalconcentration of our customer base has varied historically, reflecting theopportunities available in particular markets at a given time. The currentrecent concentration in the Asia/Pacific region reflects high growth in demandfor air travel in this developing market.

***SalesRevenue.***

Our sales revenue isgenerated from the sale of our aircraft, engines, and inventory. The price wereceive for our aircraft, engines and inventory is largely dependent on thecondition of the asset being sold, prevailing interest rates, airline marketconditions and the supply/demand balance for the type of asset we are selling.The timing of the closing of aircraft and engine sales is often uncertain, as asale may be concluded swiftly or negotiations may extend over several weeks ormonths. As a result, even if sales are comparable over a long period of time,during any particular fiscal quarter or other reporting period we may closesignificantly more or fewer sale transactions than in other reporting periods.Accordingly, sales revenue recorded in one fiscal quarter or other reportingperiod may not be comparable to sales revenue in other periods.

***Management Fee Revenue.***

We generate management feerevenue through a variety of management services that we provide to non-consolidatedaircraft securitization vehicles and joint ventures and third-partyowners of aircraft. Our management services include leasing and remarketingservices, cash management and treasury services, technical advisory servicesand accounting and administrative services. We currently generate almost three-quartersof our management fee income from services we provide to two securitizationvehicles, Airplanes Group and AerCo. Since Aircraft Lease Securitisation’sresults are consolidated in our financial statements, we do not generate anyaccounting revenue from the services we provide to it.

***Interest Revenue.***

Our interest revenue isderived primarily from deposit interest on unrestricted and restricted cashbalances and interest recognized on financial instruments we hold, such asnotes issued by lessees in connection with lease restructurings and subordinateddebt investments in unconsolidated securitization vehicles or affiliates. Theamount of interest revenue we recognize in any period is influenced by theamount of free or restricted cash balances, the principal balance of financialinstruments we hold, contracted or effective interest rates, and movements inprovisions for financial instruments which can affect adjustments to valuationsor provisions.

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***Other Revenue.***

Our other revenue includesnet gains or losses we generate from the sale of aircraft-relatedinvestments, such as our subordinated interests in securitization vehicles andnotes, warrants or convertible securities issued by our lessees, which wereceive from lessees as compensation for amounts owed to us in connection withlease restructurings. The amount of other revenue recognized in any period isinfluenced by the number of saleable financial instruments we hold, the creditprofile of the obligor and the demand for such investments in the market at thetime. Since there is limited or no market liquidity for some of the securitieswe receive in connection with lease restructurings, making the securitiesdifficult to value, and because many of the issuers of the securities are in adistressed financial condition, we may experience volatility in our revenueswhen we sell our aircraft-related investments due to significant changesin their value.

**Operating Expenses**

Our primary operatingexpenses consist of depreciation, interest on debt, other operating expenses,selling, general and administrative expenses and share-based compensationexpense.

***Depreciation.***

We depreciate our aircrafton a straight-line basis over the asset’s useful life, which is 25 yearsfrom the date of manufacture for substantially all or our aircraft, to anestimated residual value. We depreciate current production model engines on astraight-line basis over a 15-year period from the acquisition date to anestimated residual value. Out-of-production engines are depreciated on astraight-line basis over an estimated useful life ranging from five to sevenyears to an estimated residual value. Our depreciation expense is influenced bythe adjusted gross book values of our flight equipment, the depreciable life ofthe flight equipment and the estimated residual value of the flight equipment.Adjusted gross book value is the original cost of our flight equipment,including purchase expenses, adjusted for subsequent capitalized improvements,impairments, and accounting basis adjustments associated with businesscombinations.

***Cost of Goods Sold.***

Our cost of goods soldconsists of the net book value of flight equipment, including inventory, soldto third parties at the time of the sale.

***Interest on Debt.***

Our interest on debtexpense arises from a variety of funding structures and related derivativeinstruments as described in “—Indebtedness”. Interest on debt expense in anyperiod is primarily affected by contracted interest rates, principal amounts ofindebtedness, including notional values of derivative instruments andunrealized mark-to-market gains or losses on derivative instruments.

***Other Operating Expenses.***

Our other operating expenses consist primarily ofoperating lease-in costs, leasing expenses and provision for doubtful notes andaccounts receivable.

Our operating lease-in costs relate to our leaseobligations for aircraft we lease from financial investors and sublease toaircraft operators. We entered into all of our lease-in transactions between1988 and 1992 and these leases expire between 2008 and 2012. As described inNote 16 to our consolidated financial statements included in this annualreport, we have established an onerous contract accrual equal to the differencebetween the present value of our lease expenses and the sublease revenue wereceive, discounted at appropriate discount rates. The amount of this liabilityamortizes monthly as a reduction of 

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operating lease-in costson a constant yield basis as we meet our obligations to the aircrafts’ legalowners under the applicable leases.

Our leasing expenses consist primarily of maintenanceexpenses on our flight equipment, which we incur when our flight equipment isoff-lease, technical expenses we incur to monitor the maintenancecondition of our flight equipment during a lease, end-of-leasepayments, expenses to transition flight equipment from an expired lease to anew lease contract and non-capitalizable flight equipment transaction expenses.In addition, we recognize leasing expenses when we contractually agree tocontribute our own funds to maintenance events during a lease or increase ouraccrued maintenance liability based on estimates of our contractual obligationsin current lease contracts.

Our provision for doubtful notes and accountsreceivable consists primarily of provisions we establish to reduce the carryingvalue of our notes and accounts receivables to estimated collectible levels.

The primary factorsaffecting our other operating expenses are:

·       lesseedefaults, which may result in additional provisions for doubtful notes andaccounts receivable, material expenses to repossess flight equipment andrestore it to an airworthy and marketable condition, unanticipated leasetransition costs, and an increase to our onerous contract accrual, and

·       the frequency of leasetransitions and the associated costs.

***Selling, General and Administrative Expenses.***

Our principal selling,general and administrative expenses consist of personnel expenses, includingsalaries benefits, charges for share-based compensation, professional andadvisory costs and office and travel expenses as summarized in Note 23 toour audited consolidated financial statements included in this annual report.The level of our selling, general and administrative expenses is influencedprimarily by our number of employees and the extent of transactions or ventureswe pursue which require the assistance of outside professionals or advisors.Our selling, general and administrative expenses also include themark-to-market gains and losses for our foreign exchange rate hedges related toour Euro denominated selling, general and administrative expenses.

**Provisions forIncome Taxes**

Our operations are taxable primarily in four mainjurisdictions in which we manage our business: The Netherlands, Ireland, theUnited States and Sweden. Deferred income taxes are provided to reflect theimpact of temporary differences between our US GAAP income from continuingoperations before income taxes and minority interests and our taxable income.Our effective tax rate has varied significantly year to year from 2003 to 2006.The primary source of temporary differences is the availability of acceleratedtax depreciation in our primary operating jurisdictions. As a result of thetemporary differences, we have not incurred any material current net income taxliability since our inception. Our effective tax rate in any year depends onthe tax rates in the jurisdictions from which our income is derived along withthe extent of permanent differences between US GAAP income from continuingoperations before income taxes and minority interests and taxable income.

We have substantial taxlosses in certain jurisdictions which can be carried forward, which werecognize as tax assets. We evaluate the recoverability of tax assets in eachjurisdiction in each period based upon our estimates of future taxable incomein those jurisdictions. If we determine that we are not likely to generatesufficient taxable income in a jurisdiction prior to expiration, if any, of theavailability of tax losses, we establish a valuation allowance against the tax lossto reduce the tax asset to its recoverable value. We evaluate the appropriatelevel of valuation allowances annually and make adjustments as 

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necessary.Increases or decreases to valuation allowances can affect our provision forincome taxes on our consolidated income statement and consequently may affectour effective tax rate in a given year.

**Results ofOperations**

***Results ofOperations for the Year Ended December 31, 2006 Compared to the Year EndedDecember 31, 2005***

| ** **                                                                       | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Aggregate  non-GAAP**                          | ** ** | **AerCap Holdings N.V.**               | ** ** |
| ** **                                                                       | ** ** | **(US dollars in millions)**      | ** ** |
| **Revenues**                                                                     |       |                                             |       |                                             |       |   |   |   |   |
| Lease revenue                                                                    |       |                                             | $          | 348.9                                            |       |   |   | $ | 443.9 |   |   |
| Sales revenue                                                                    |       |                                             | 92.1       |                                             |       |   | 301.4 |   |   |
| Management fee  revenue                                                          |       |                                             | 14.2       |                                             |       |   | 14.1 |   |   |
| Interest revenue                                                                 |       |                                             | 33.4       |                                             |       |   | 34.7 |   |   |
| Other revenue                                                                    |       |                                             | 4.5        |                                             |       |   | 20.3 |   |   |
| **Total  revenues**                                                              | ** ** | ** **                                       | **493.1**  |                                             | ** ** | ** ** | **814.4** |   |   |
| **Expenses**                                                                     |       |                                             |       |                                             |       |   |   |   |   |
| Depreciation                                                                     |       |                                             | 112.4      |                                             |       |   | 102.4 |   |   |
| Cost of goods  sold                                                              |       |                                             | 68.2       |                                             |       |   | 220.3 |   |   |
| Interest on debt                                                                 |       |                                             | 114.6      |                                             |       |   | 166.2 |   |   |
| Operating lease  in costs                                                        |       |                                             | 25.3       |                                             |       |   | 25.2 |   |   |
| Leasing expenses                                                                 |       |                                             | 21.9       |                                             |       |   | 47.4 |   |   |
| Provision for  doubtful notes and accounts receivable                            |       |                                             | 6.2        |                                             |       |   | (0.2 | ) |   |
| Selling, general  and administrative expenses                                    |       |                                             | 46.4       |                                             |       |   | 149.4 |   |   |
| **Total  expenses**                                                              | ** ** | ** **                                       | **395.0**  |                                             | ** ** | ** ** | **710.7** |   |   |
| **Income  from continuing operations before income taxes and minority interest** | ** ** | ** **                                       | **98.1**   |                                             | ** ** | ** ** | **103.7** |   |   |
| Provision for  income taxes                                                      |       |                                             | (14.7      | )                                                |       |   | (16.3 | ) |   |
| Minority interest  net of taxes                                                  |       |                                             | —     |                                             |       |   | 0.6 |   |   |
| **Net income**                                                                   | ** ** | ** **                                       | **$**      | **83.4**                                         |       | ** ** | ** ** | **$** | **88.0** |   |   |

 

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Ourresults of operations for the year ended December 31, 2005 represent an aggregationof the results of operations for AerCap B.V. from January 1, 2005 to June 30,2005 when it was owned by our prior shareholders and the results of operationsfor AerCap Holdings N.V. from June 27, 2005 (inception of AerCap HoldingsC.V.) to December 31, 2005 following the 2005 Acquisition on June 30,2005. These results have been aggregated to provide investors with informationrelated to our operating results for the full year of 2005 on the same basisour management uses to analyze our business results and to provide a basis forcomparing our results of operations in 2005 with prior periods. Results ofoperations for AerCap Holdings N.V. after the 2005 Acquisition include theeffects of purchase accounting related to the 2005 Acquisition and, therefore,are not directly comparable to the results of operation for AerCap B.V. in theprior periods. The material impacts on our consolidated income statement of the2005 Acquisition are reflected in lower depreciation expense due to reduced netbook values, which resulted in a $20.9 million decrease in depreciationexpense in 2005, and in lower interest on debt expense due to the eliminationof certain debt, which resulted in a $19.6 million decrease in interest ondebt expense in 2005. Other than the corresponding effect on income fromcontinuing operations before income taxes and net income, the 2005 Acquisitiondid not materially impact any of the other line items in our consolidatedincome statement. We have included a reconciliation of our 2005 aggregateperiod results to our consolidated income statements prepared in accordancewith US GAAP in the table below:

| ** **                                                 | ** ** | **AerCap B.V.**                                    | ** ** | **AerCap Holdings N.V.**                          | ** ** | **Aggregate  non-GAAP**                          | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                 | ** ** | **Six months ended  June 30, 2005** | ** ** | **Six months ended  December 31, 2005** | ** ** | **Year ended  December 31, 2005** | ** ** |
| ** **                                                 | ** ** | **(US dollars in millions)**             | ** ** |
| Lease revenue                                              |       |                                                    | $          | 175.3                                                       |       |                                             |       | $ | 173.6 |   |   |   | $ | 348.9 |   |   |
| Sales revenues                                             |       |                                                    | 79.6       |                                                        |       |                                             | 12.5       |   |   |   | 92.1 |   |   |
| Management fee  revenue                                    |       |                                                    | 6.5        |                                                        |       |                                             | 7.7        |   |   |   | 14.2 |   |   |
| Interest revenue                                           |       |                                                    | 13.1       |                                                        |       |                                             | 20.3       |   |   |   | 33.4 |   |   |
| Other revenue                                              |       |                                                    | 3.5        |                                                        |       |                                             | 1.0        |   |   |   | 4.5 |   |   |
| **Total  revenue**                                         | ** ** | ** **                                              | **278.0**  |                                                        | ** ** | ** **                                       | **215.1**  |   | ** ** | ** ** | **493.1** |   |   |
| Depreciation                                               |       |                                                    | 66.4       |                                                        |       |                                             | 46.0       |   |   |   | 112.4 |   |   |
| Cost of goods  sold                                        |       |                                                    | 57.6       |                                                        |       |                                             | 10.6       |   |   |   | 68.2 |   |   |
| Interest on debt                                           |       |                                                    | 69.9       |                                                        |       |                                             | 44.7       |   |   |   | 114.6 |   |   |
| Operating lease-in  costs                                  |       |                                                    | 13.9       |                                                        |       |                                             | 11.4       |   |   |   | 25.3 |   |   |
| Leasing expenses                                           |       |                                                    | 9.7        |                                                        |       |                                             | 12.2       |   |   |   | 21.9 |   |   |
| Provisions for  doubtful notes and accounts receivable     |       |                                                    | 3.2        |                                                        |       |                                             | 3.0        |   |   |   | 6.2 |   |   |
| Selling, general  and administrative expenses              |       |                                                    | 19.5       |                                                        |       |                                             | 26.9       |   |   |   | 46.4 |   |   |
| **Total  expenses**                                        | ** ** | ** **                                              | **240.2**  |                                                        | ** ** | ** **                                       | **154.8**  |   | ** ** | ** ** | **395.0** |   |   |
| **Income  from continuing operations before income taxes** | ** ** | ** **                                              | **37.8**   |                                                        | ** ** | ** **                                       | **60.3**   |   | ** ** | ** ** | **98.1** |   |   |
| Provisions for  income taxes                               |       |                                                    | (4.1       | )                                                           |       |                                             | (10.6      | ) |   |   | (14.7 | ) |   |
| **Net income**                                             | ** ** | ** **                                              | **$**      | **33.7**                                                    |       | ** **                                       | ** ** | **$** | **49.7** |   | ** ** | ** ** | **$** | **83.4** |   |   |

 

The aggregation of the results of operations data for2005 is not in accordance with US GAAP. Since AerCap Holdings N.V is adifferent reporting entity for accounting purposes from AerCap B.V., theaggregated information should be considered as supplemental information only.The financial information presented for this combined period reflects theaddition, with no adjustments, of the results of AerCap B.V. for the sixmonths ended June 30, 2005 and the results of AerCap Holdings N.V. for theinitial accounting period ended December 31, 2005.

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*Revenues.**  *Our total revenues increased by$321.3 million, or 65.2%, to $814.4 million in the year ended December 31,2006 from $493.1 million in the year ended December 31, 2005. In theyear ended December 31, 2006, we generated $689.2 million of revenuein our aircraft segment and $125.2 million of revenue in our engine andparts segment, and, in the year ended December 31, 2005, we generated$374.0 million of revenue in our aircraft segment and no revenue in ourengine and parts segment since we had not yet acquired AeroTurbine. Theprinciple categories of our revenue and their variances were:

| ** **              | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  Difference** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------|------------|----------------------------|------------|
| ** **              | ** ** | **(US dollars in millions)**      | ** ** |
| Lease revenue           |       |                                             | $          | 348.9                                            |       |                      |       | $                          | 443.9      |   |   |   | $ | 95.0 |   |   |   | 27.2 | % |   |
| Sales revenue           |       |                                             | 92.1       |                                             |       |                      | 301.4      |                       |       |   | 209.3 |   |   |   | 227.3 | % |   |
| Management fee  revenue |       |                                             | 14.2       |                                             |       |                      | 14.1       |                       |       |   | (0.1 | ) |   |   | (0.7 | )% |   |
| Interest revenue        |       |                                             | 33.4       |                                             |       |                      | 34.7       |                       |       |   | 1.3 |   |   |   | 3.9 | % |   |
| Other revenue           |       |                                             | 4.5        |                                             |       |                      | 20.3       |                       |       |   | 15.8 |   |   |   | 351.1 | % |   |
| **Total**               | ** ** | ** **                                       | **$**      | **493.1**                                        |       | ** **                | ** ** | **$**                      | **814.4**  |   | ** ** | ** ** | **321.3** |   | ** ** | ** ** | **65.2** | **%** | ** ** |

 

The increase inlease revenue was attributable primarily to:

·       theAeroTurbine Acquisition on April 26, 2006, which resulted in a$29.0 million increase in lease revenue in the year ended December 31,2006;

·       theacquisition between January 1, 2005 and December 31, 2006 of 47 aircraftfor leasing with an aggregate net book value of $1.2 billion at the dateof acquisition, partially offset by the sale of 40 aircraft, (primarilyolder Fokker aircraft) during such period, with an aggregate net book value of$250.2 million at the date of sale, which resulted in a $28.9 millionincrease in lease revenue;

·       anincrease of $20.4 million in maintenance reserves revenue in the yearended December 31, 2006 from $21.2 million in the year ended December 31,2005 to $41.6 million in the year ended December 31, 2006. Theincrease is a result of maintenance revenue recognized at the termination ofleases on several A321 aircraft in 2006 whereas the revenue in 2005 wasprimarily the result of lease terminations on Fokker aircraft which have lower levelsof related accrued maintenance; and

·       anincrease in payments from leases with lease rates tied to floating interestrates in the year ended December 31, 2006 due to increases in marketinterest rates, which resulted in a $16.4 million increase in leaserevenue.

The increase insales revenue was attributable primarily to:

·       anincrease in average sales price to $12.2 million (19 aircraft) in the yearended December 31, 2006 from $4.4 million (21 aircraft) in theyear ended December 31, 2005. The increase of the average sales price ismainly a result of the mix of aircraft types sold and increased demand for thesold aircraft. In the year ended December 31, 2006, we sold four A320aircraft and two Boeing 757 aircraft in addition to 13 Fokker 100 aircraftwhere in the prior period we sold Fokker 50 and Fokker 100 aircraft and we onlysold one A320 aircraft; and

·       theAeroTurbine Acquisition on April 26, 2006. In the period from April 26,2006 to December 31, 2006, AeroTurbine generated $93.7 million of salesrevenue.

Management fee revenue did not materially change inthe year ended December 31, 2006 compared to the year ended December 31,2005.

Interest revenue did not materially change in the yearended December 31, 2006 compared to the year ended December 31, 2005.

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The increase in other revenue was due to the increasein revenue from the sale of financial assets in the year ended December 31,2006 compared to the year ended December 31, 2005. In the year ended December 31,2006, we sold four unsecured notes receivable for a gain of $15.8 million,received $2.1 million from an investment in liquidation, sold notessecured by aircraft for a gain of $0.7 million and received $1.7 millionfrom an insurance claim on an engine. In the year ended December 31, 2005,we sold our AerCo Series D Note for a gain of $4.6 million which waspartially offset by our sale of notes secured by aircraft for a loss of$0.1 million.

*Depreciation.**  *Depreciation decreased by$10.0 million, or 8.9%, to $102.4 million in the year ended December 31,2006 from $112.4 million in the year ended December 31, 2005 dueprimarily to the reduction of our asset values in connection with the 2005Acquisition. The decrease was partially offset by the acquisition of 41 newaircraft between December 31, 2005 and December 31, 2006 with a bookvalue at the time of the acquisition of $973.2 million and the increaseddepreciation resulting from the AeroTurbine Acquisition.

*Cost of Goods Sold.**  *Cost of goods sold increased by$152.1 million, or 223.0%, to $220.3 million in the year ended December 31,2006 from $68.2 million in the year ended December 31, 2005 dueprimarily to:

·       anincrease in average cost of goods sold for each aircraft. The average cost ofgoods sold for each aircraft increased to $9.1 million in the year ended December 31,2006 from $3.2 million in the year ended December 31, 2005. Theincrease of the average cost of goods sold is a result of the mix of aircrafttypes sold, which included four A320 aircraft in 2006;

·       theAeroTurbine Acquisition on April 26, 2006, which resulted in a$66.3 million increase in cost of goods sold.

*Interest on Debt.**  *Our interest on debt increased by$51.6 million, or 45.0%, to $166.2 million in the year ended December 31,2006 from $114.6 million in the year ended December 31, 2005. Theincrease in interest on debt was principally caused by:

·       a$24.5 million decrease in the recognition of mark-to-market gains onderivatives to $7.9 million in the year ended December 31, 2006 from$32.4 million in the year ended December 31, 2005;

·       theAeroTurbine Acquisition on April 26, 2006, which resulted in a$17.3 million increase in interest on debt; and

·       anincrease in the average interest rate on our debt in the year ended December 31,2006 to 6.4% from 6.2% in the year ended December 31, 2005 due to theincrease in market interest rates and the fact that we refinanced low interestrate indebtedness owed to our prior shareholder with higher interest rate debtwith a longer maturity.

*Other Operating Expenses.**  *Our other operating expensesincreased by $19.0 million, or 35.6%, to $72.4 million in the yearended December 31, 2006 from $53.4 million in the year ended December 31,2005. The principal categories of our other operating expenses and theirvariances were as follows:

| ** **                                            | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  difference** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **(US$ in millions)**                  | ** ** |
| Operating lease  in costs                             |       |                                             | $          | 25.3                                             |       |                      |       | $                          | 25.2       |   |   |   | $ | (0.1 | ) |   |   | (0.4 | )% |   |
| Leasing expenses                                      |       |                                             | 21.9       |                                             |       |                      | 47.4       |                       |       |   | 25.5 |   |   |   | 116.4 | % |   |
| Provision for  doubtful notes and accounts receivable |       |                                             | 6.2        |                                             |       |                      | (0.2       | )                          |       |   | (6.4 | ) |   |   | (103.2 | )% |   |
| **Total**                                             | ** ** | ** **                                       | **$**      | **53.4**                                         |       | ** **                | ** ** | **$**                      | **72.4**   |   | ** ** | ** ** | **$** | **19.0** |   | ** ** | ** ** | **35.6** | **%** | ** ** |

 

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Our leasing expenses increased in the year ended December 31,2006 primarily because of an increase of $24.9 million in the recognition ofaccrued maintenance liability for lease transitions primarily on ten aircraft.On the same ten aircraft we recorded $28.0 million of supplementalmaintenance rent income, which is recorded as lease revenue, from payments tous by the prior lessees of the aircraft.

Our provision for doubtful notes and accountsreceivable was lower in the year ended December 31, 2006 when compared tothe year ended December 31, 2005 due to the decrease in lessee defaults inthe year ended December 31, 2006 and the impact of some recoveries ofprovisioned receivables in the year ended December 31, 2006.

*Selling,General and Administrative Expenses.**  *Our selling, general andadministrative expenses increased by $102.9 million, or 221.8%, to$149.3 million in the year ended December 31, 2006 from$46.4 million in the year ended December 31, 2005, due primarily to (i) chargesfor share-based compensation in the amount of $78.6 million in 2006 which didnot occur in 2005, (ii) the AeroTurbine Acquisition on April 26,2006, which resulted in a $21.5 million increase in selling, general andadministrative expenses and (iii) start-up costs for our two consolidatedjoint ventures, AerVenture and Bella, which totaled $3.8 million.

*NetIncome From Continuing Operations Before Income Taxes and Minority Interests.**  *For the reasons explained above,our income from continuing operations before income taxes and minorityinterests increased by $5.6 million, or 5.7%, to $103.7 million inthe year ended December 31, 2006 from $98.1 million in the year endedDecember 31, 2005.

*Provisionfor Income Taxes.**  *Ourprovision for income taxes increased by $1.6 million or 10.9% to $16.3 millionin the year ended December 31, 2006 from $14.7 million in the yearended December 31, 2005. Our effective tax rate for the year endedDecember 31, 2005 was 15.0% and was 15.7% for the year endedDecember 31, 2006. The effective tax rate in 2006 was impacted by(i) charges for share-based compensation in the U.S., only a portion ofwhich are tax-deductible, (ii) a reduction in the Netherlands corporatetax rate which resulted in a reduction of our Netherlands deferred tax assetsand (iii) the reduction of a valuation allowance against our Swedish taxassets.

*Net Income.**  *For the reasons explained above,our net income increased by $4.6 million, or 5.5%, to $88.0 millionin the year ended December 31, 2006 from $83.4 million in the yearended December 31, 2005.

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***Results of Operations for 2005 Compared to 2004***

Our results of operationsfor the year ended December 31, 2005 represent an aggregation of theresults of operations for AerCap B.V. from January 1, 2005 to June 30,2005 when it was owned by our prior shareholders and the results of operationsfor AerCap Holdings N.V. from June 27, 2005 (inception of AerCap HoldingsC.V.) to December 31, 2005 following the 2005 Acquisition on June 30,2005. These results have been aggregated to provide investors with informationrelated to our operating results for the full year of 2005 on the same basisour management uses to analyze our business results and to provide a basis forcomparing our results of operations in 2005 with prior periods. Results ofoperations for AerCap Holdings N.V. after the 2005 Acquisition include theeffects of purchase accounting related to the 2005 Acquisition and, therefore,are not directly comparable to the results of operation for AerCap B.V. in theprior periods. The material impacts on our consolidated income statement of the2005 Acquisition are reflected in lower depreciation expense due to reduced netbook values, which resulted in a $20.9 million decrease in depreciationexpense in 2005, and in lower interest on debt expense due to the eliminationof certain debt, which resulted in a $19.6 million decrease in interest ondebt expense in 2005. Other than the corresponding effect on income fromcontinuing operations before income taxes and net income, the 2005 Acquisitiondid not materially impact any of the other line items in our consolidatedincome statement. We have included a reconciliation of our 2005 aggregateperiod results to our consolidated income statements prepared in accordancewith US GAAP in the table below:

**Resultsof Operations**

| ** **                                                 | ** ** | **AerCap B.V.**                                    | ** ** | **AerCap Holdings N.V.**                          | ** ** | **Aggregate  non-GAAP**                          | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                 | ** ** | **Six months ended  June 30, 2005** | ** ** | **Six months ended  December 31, 2005** | ** ** | **Year ended  December 31, 2005** | ** ** |
| ** **                                                 | ** ** | **(US dollars in millions)**             | ** ** |
| Lease revenue                                              |       |                                                    | $          | 175.3                                                       |       |                                             |       | $ | 173.6 |   |   |   | $ | 348.9 |   |   |
| Sales revenues                                             |       |                                                    | 79.6       |                                                        |       |                                             | 12.5       |   |   |   | 92.1 |   |   |
| Management fee  revenue                                    |       |                                                    | 6.5        |                                                        |       |                                             | 7.7        |   |   |   | 14.2 |   |   |
| Interest revenue                                           |       |                                                    | 13.1       |                                                        |       |                                             | 20.3       |   |   |   | 33.4 |   |   |
| Other revenue                                              |       |                                                    | 3.5        |                                                        |       |                                             | 1.0        |   |   |   | 4.5 |   |   |
| **Total  revenue**                                         | ** ** | ** **                                              | **278.0**  |                                                        | ** ** | ** **                                       | **215.1**  |   | ** ** | ** ** | **493.1** |   |   |
| Depreciation                                               |       |                                                    | 66.4       |                                                        |       |                                             | 46.0       |   |   |   | 112.4 |   |   |
| Cost of goods  sold                                        |       |                                                    | 57.6       |                                                        |       |                                             | 10.6       |   |   |   | 68.2 |   |   |
| Interest on debt                                           |       |                                                    | 69.9       |                                                        |       |                                             | 44.7       |   |   |   | 114.6 |   |   |
| Operating lease-in  costs                                  |       |                                                    | 13.9       |                                                        |       |                                             | 11.4       |   |   |   | 25.3 |   |   |
| Leasing expenses                                           |       |                                                    | 9.7        |                                                        |       |                                             | 12.2       |   |   |   | 21.9 |   |   |
| Provisions for  doubtful notes and accounts receivable     |       |                                                    | 3.2        |                                                        |       |                                             | 3.0        |   |   |   | 6.2 |   |   |
| Selling, general  and administrative expenses              |       |                                                    | 19.5       |                                                        |       |                                             | 26.9       |   |   |   | 46.4 |   |   |
| **Total  expenses**                                        | ** ** | ** **                                              | **240.2**  |                                                        | ** ** | ** **                                       | **154.8**  |   | ** ** | ** ** | **395.0** |   |   |
| **Income  from continuing operations before income taxes** | ** ** | ** **                                              | **37.8**   |                                                        | ** ** | ** **                                       | **60.3**   |   | ** ** | ** ** | **98.1** |   |   |
| Provisions for  income taxes                               |       |                                                    | (4.1       | )                                                           |       |                                             | (10.6      | ) |   |   | (14.7 | ) |   |
| **Net income**                                             | ** ** | ** **                                              | **$**      | **33.7**                                                    |       | ** **                                       | ** ** | **$** | **49.7** |   | ** ** | ** ** | **$** | **83.4** |   |   |

 

The aggregation of the results of operations data for2005 is not in accordance with US GAAP. Since AerCap Holdings N.V. is adifferent reporting entity for accounting purposes from AerCap B.V., theaggregated information should be considered as supplemental information only.The financial information presented for this combined period reflects theaddition, with no adjustments, of the results of 

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AerCap B.V. for thesix months ended June 30, 2005 and the results of AerCap Holdings N.V. forthe initial accounting period ended December 31, 2005.

*Revenues.**  *Our total revenues increased by$102.2 million, or 26.1%, from $390.9 million in 2004 to$493.1 million in 2005. The principal categories of our revenue and theiryear over year variances were:

| ** **              | ** ** | **2004**                                    | ** ** | **2005**   | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  difference** | ** ** |
|-------------------------|------------|---------------------------------------------|------------|------------|------------|---------------------------|------------|----------------------------|------------|
| ** **              | ** ** | **(US dollars in millions)** | ** ** |
| Lease revenue           |       | $                                           | 308.5      |       | $          | 348.9                     |       |                       | $          | 40.4 |   |   |   | 13.1 | % |   |
| Sales revenue           |       | 32.1                                        |       | 92.1       |       |                      | 60.0       |                       |       |   | 186.9 | % |   |
| Management fee  revenue |       | 15.0                                        |       | 14.2       |       |                      | (0.8       | )                          |       |   | (5.3 | )% |   |
| Interest revenue        |       | 21.6                                        |       | 33.4       |       |                      | 11.8       |                       |       |   | 54.6 | % |   |
| Other revenue           |       | 13.7                                        |       | 4.5        |       |                      | (9.2       | )                          |       |   | (67.2 | )% |   |
| **Total**               | ** ** | **$**                                       | **390.9**  | ** ** | **$**      | **493.1**                 | ** ** | ** **                 | **$**      | **102.2** |   | ** ** | ** ** | **26.1** | **%** | ** ** |

 

The increase inlease revenue was attributable primarily to:

·       therecognition of supplemental maintenance rent from lease terminations andreductions in our estimated accrued maintenance liability, which resulted in a$21.2 million increase in lease revenue;

·       anincrease in lease revenue due to the acquisition of 15 aircraft between January 1,2004 and December 31, 2005 with a cumulative net book value of$656.8 million at the date of acquisition, partially offset by the sale of30 primarily older Fokker aircraft during such period with a cumulative netbook value of $83.5 million at the date of sale, which resulted in a$16.2 million increase in lease revenue;

·       an increase in paymentsunder leases with lease rates tied to floating interest rates due to increasesin market interest rates, which resulted in a $13.2 million increase inlease revenue;

*partially offsetby:*

·       theabsence of voluntary lease termination penalties collected in 2005, whichgenerated $6.2 million in revenue in 2004;

·       theamortization of the intangible lease premium generated at the time of the 2005Acquisition, which resulted in a $3.3 million decrease in lease revenue;and

·       adecrease in lease revenue from the expiration of older, longer-term leases andthe entry into new leases at lower rates, which decreased lease revenue by$1.1 million.

The increase in sales revenue to $92.1 million in2005 from $32.1 million in 2004 reflects an increase in the number ofaircraft sold in 2005 (21 aircraft) as compared to those sold in 2004(nine aircraft). The average sales price per aircraft in 2005 was$4.3 million compared to $3.5 million in 2004. The number of aircraftsold in 2005 increased as our management decided to take advantage of favorablemarket conditions by selling some of our older, less desirable aircraft,including 16 of our Fokker aircraft.

Management fee revenue decreased slightly between 2004and 2005 primarily because of a reduction in AerCo fees due to lower AerCocashflows. In 2005, we generated 39.2% of our management fee revenue fromAirplanes Group and 34.9% of our management fee revenue from AerCo. In 2004, wegenerated 39.0% of our management fee revenue from Airplanes Group and 36.0% ofour management fee revenue from AerCo.

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The increase ininterest revenue in 2005 compared with 2004 was due to:

·       anincrease in our average cash and cash equivalents and restricted cash balancesto $303.9 million in 2005 compared to $295.6 million in 2004, and anincrease in the average interest rates to 2.41% in 2005 from 1.09% in 2004 onthose balances, which resulted in a $4.1 million increase in interestrevenue; and

·       theaccretion of purchase price adjustments on our interest-bearing financialassets written down in connection with the 2005 Acquisition, which resulted ina $6.1 million increase in interest revenue.

The decrease in other revenue primarily reflects thenet gain on sale of a claim which we sold in 2004, which originated from thebankruptcy of one of our lessees. The gain recognized was $8.2 million. Werecognized a gain on the sale of our AerCo Series D notes in 2005 of$4.6 million and a similar amount of other revenue in 2004 from penaltyfees received from a lessee in connection with a lease restructuring.

*Depreciation.**  *Depreciation decreased by$13.5 million, or 12.0%, to $112.4 million in 2005 from$125.9 million in 2004 due primarily to the reduction of our asset valuesin connection with the 2005 Acquisition. The decrease was partially offset byan increase in depreciation related to increased aggregate book values of ourassets resulting from the acquisition of six new aircraft with a net book valueof $250.3 million and the sale of 19 aircraft (18 of which were olderaircraft) with an aggregate net book value of $67.4 million during 2005.

*Costof Goods Sold.**  *Theincrease in cost of goods sold in 2005 reflected the increase in the number ofaircraft sold to 21 with an average carrying value of $3.2 million in 2005from nine with an average carrying value of $2.1 million in 2004.

*Interest on Debt.**  *Our interest on debt increased by$1.5 million, or 1.3%, to $114.6 million in 2005 from$113.1 million in 2004. Our interest on debt expense was principallyaffected by:

·       an increase in our averageinterest rate in 2005 to 5.9% from 5.2% in 2004 due to increases in marketinterest rates and the fact that we refinanced low interest rate indebtednessowed to our prior shareholders with higher interest rate debt with a longermaturity;

*largely offset by:*

·       a$210.2 million decrease in our average outstanding indebtedness balancewhich was $2,490.9 million in 2005 compared to $2,701.1 million in 2004;and

·       a$12.5 million increase in the recognition of mark-to-market gains onderivatives to $32.4 million in 2005 from $19.9 million in 2004.

Our average outstanding indebtedness declinedprimarily due to the 2005 Acquisition. This decrease as a result of the 2005Acquisition was only partially offset by our incurrence of $1.0 billion ofindebtedness to pay a portion of the 2005 Acquisition purchase price and $221.0 millionof indebtedness which was incurred in connection with the acquisition of newaircraft in 2005.

*Impairments.**  *In 2004, we recorded a$132.4 million impairment for all of our existing goodwill as a result ofour annual goodwill impairment test described in “—Factors Affecting theComparability of our Results—Goodwill Impairment”. We did not record anyimpairments in 2005.

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*Other Operating Expenses.**  *Our other operating expensesdecreased by $13.5 million, or 20.2%, to $53.4 million in 2005 from$66.9 million in 2004. The principal categories of our other operatingexpenses and their year over year variances were as follows:

| ** **                                            | ** ** | **2004**                                    | ** ** | **2005**   | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  difference** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------|------------|------------|------------|---------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **(US dollars in millions)** | ** ** |
| Operating lease-in  costs                             |       | $                                           | 35.8       |       | $          | 25.3                      |       |                       | $          | (10.5 | ) |   |   | (29.3 | )% |   |
| Leasing expenses                                      |       | 30.5                                        |       | 21.9       |       |                      | (8.6       | )                          |       |   | (28.2 | )% |   |
| Provision for  doubtful notes and accounts receivable |       | 0.6                                         |       | 6.2        |       |                      | 5.6        |                       |       |   | 933.3 | % |   |
| **Total**                                             | ** ** | **$**                                       | **66.9**   | ** ** | **$**      | **53.4**                  | ** ** | ** **                 | **$**      | **(13.5** | **)** | ** ** | ** ** | **(20.2** | **)%** | ** ** |

 

Our operating lease-in costs decreased due primarilyto the repurchase of an aircraft previously leased-in and the termination ofour lease obligation to the prior legal owner of the aircraft and an amendmentto the lease on one of our other leased-in aircraft which lowered ourlease obligations.

Our leasing expenses decreased in 2005 primarilybecause we incurred lower maintenance expenses due to fewer lessee defaultsthan in 2004. Leasing expenses in 2004 reflected lease transition coststotaling $7.2 million related to the transition of six A320 aircraft, whichwe had repossessed in 2003, from two defaulting lessees to new lessees.

Our provision for doubtful notes and accountsreceivable was lower in 2004 when compared to 2005 due to the collection in2004 of $9.5 million of receivables for which we had previously taken areserve.

*Selling,General and Administrative Expenses.*   Ourselling, general and administrative expenses increased by $10.1 million,or 27.7%, to $46.5 million in 2005 from $36.4 million in 2004, dueprimarily to increased personnel costs of $5.1 million in 2005 mainlyarising from the hiring of new employees, an increase in professional fees of$1.9 million and an increase in foreign exchange losses of$3.9 million in 2005. We recognized an increase in net foreign exchangelosses between 2004 and 2005 as a result of losses on our mark-to-market foreignexchange hedges, which are used to partially hedge our euro expense againstchanges in the euro/US dollar exchange rate.

*IncomeFrom Continuing Operations Before Income Taxes and Minority Interests.*   Forthe reasons explained above, our income from continuing operations beforeincome taxes and minority interests increased by $203.2 million to anincome from continuing operations before income taxes and minority interests of$98.1 million in 2005 from a loss on income from continuing operationsbefore income taxes and minority interests of $105.2 million in 2004.

*Provisionfor Income Taxes.*   Our provision for income taxesincreased by $14.5 million to $14.7 million in 2005 from$0.2 million in 2004 primarily due to our increased income from continuingoperations before income taxes and minority interests. The effect of ourincrease in income from continuing operations before income taxes and minorityinterests was partially offset by a decrease in our average effective tax ratebelow the statutory tax rates as a result of the effects of the 2005Acquisition structure described above and the reduction in non-taxablepermanent differences between our US GAAP income from continuing operationsbefore income taxes and minority interests and taxable income. In 2004, we hada net tax charge despite recording a net loss primarily as a result of thegoodwill impairment charge of $132.4 million which was not tax deductiblein The Netherlands. Our 2005 tax rate was reduced below the average enacted taxrates in the relevant jurisdictions producing income in that year because wewere able to deduct interest expenses in The Netherlands on AerCap B.V.’s debtsto its parent, AerCap Holdings N.V. while the corresponding interest income forAerCap Holdings N.V. was not subject to taxes in any jurisdiction.

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*Net Income.*   Forthe reasons explained above, our net income increased by $188.8 million toa net income of $83.4 million in 2005 from a net loss of$105.4 million in 2004.

**Liquidity andCapital Resources**

We satisfy ourliquidity requirements through several sources, including:

·       linesof credit and other secured borrowings;

·       aircraftand engine lease revenues;

·       salesof aircraft, engines and parts;

·       supplementalmaintenance rent and security deposits provided by our lessees; and

·       managementfee revenue.

Aircraft leasing and trading is a capital intensivebusiness. We believe that our existing cash balance and anticipated futureoperating cash flows, including proceeds arising from the sale of aircraft,engines and parts, will be sufficient to satisfy the operating requirements ofour business through 2007. In the longer term, we expect to fund the growth ofour business, including the acquisition of aircraft and engines, throughinternally generated cash flows, the incurrence of bank debt and the issuanceof debt and equity securities. For additional information on the availabilityof funding under our revolving credit facilities see “—Indebtedness”.

The acquisition of aircraft and engines drives ourgrowth and fuels our long-term need for liquidity. It is our intention to fundfuture aircraft and engines acquisitions initially through cash flows from ouroperations, borrowings under credit facilities and government guaranteed debtissuances, and to repay all or a portion of the borrowings from time to timewith the net proceeds from a variety of capital market and bank sources,including securitizations and from aircraft and engine sale proceeds.Therefore, our ability to execute our business strategy, particularly thegrowth of our business, depends to a significant degree on our ability tosecure additional financing. Whether we will be able to obtain financing willdepend upon a number of factors, such as our historical and expectedperformance, industry and market trends, the availability of capital and therelative attractiveness of alternative investments. We believe that funds willbe available to support our growth strategy. However, future deterioration inour performance or our markets could limit our ability to obtain financingand/or increase our cost of capital, which may negatively affect our ability toraise additional funds and grow our business.

Our liquidity also depends on the ability of oursubsidiaries to distribute cash to us in the form of interest and principalpayments or the return of subordinated investments. Substantially, all of ourowned aircraft are held through special purpose subsidiaries, consolidatedjoint ventures or finance structures which borrow funds to finance or refinancethe aircraft. Most of the commercial bank loans and export credit facilityfinancings restrict the payment of dividends in the event that the borrower isin default under the applicable loan, which can include the failure to meetfinancial ratios or tests. Our revolving credit facility with a syndicate ofbanks led by affiliates of UBS Real Estate Securities Inc. permits limiteddistributions to us by the relevant subsidiary borrower during the first twoyears provided specified principal payments are made. AeroTurbine’s revolvingcredit facility with a syndicate of banks led by affiliates of Calyon permitsdistributions to us provided that specified financial ratios are met. Thesecuritization of Aircraft Lease Securitisation allows distributions on thesubordinated notes to us after the senior classes of notes are repaid. Webelieve we are in compliance with the financial covenants in all of ourindebtedness. For more information on our indebtedness, see “—Indebtedness”.

From time to time, weenter into intercompany funding arrangements with our subsidiaries and/orprovide capital contributions to them to ensure that our subsidiaries havesufficient liquidity to satisfy their contractual and operational requirements.

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***Cash Flows***

| ** **                                      | ** ** | **Aggregate Non-GAAP**                      | ** ** | **AerCap Holdings N.V.**               | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                      | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| ** **                                      | ** ** | **(US dollars in millions)**      | ** ** |
| Net cash flow provided  by operating activities |       |                                             | $          | 216.5                                            |       |   |   | $ | 348.4 |   |   |
| Net cash flow used in  investing activities     |       |                                             | (1,416.7   | )                                                |       |   | (843.3 | ) |   |
| Net cash flow provided by financing activities  |       |                                             | 1,363.5    |                                             |       |   | 443.6 |   |   |

 

*Yearended December 31, 2006 compared to year ended December 31, 2005.**  *Our cash flows for the year ended December 31,2005 represent the cash flows for AerCap B.V. from January 1, 2005 to June 30,2005, when it was owned by our prior shareholders, and the cash flows forAerCap Holdings N.V. from June 27, 2005 (inception of AerCap HoldingsC.V.) to December 31, 2005, following the 2005 Acquisition on June 30,2005. For the period from June 27, 2005 to June 30, 2005, we did notgenerate any cash flows. The cash flows have been aggregated to provideinvestors with data for year ended December 31, 2005 on the same basis ourmanagement uses to analyze our business results and to provide a basis forcomparing our cash flows for the year ended December 31, 2006 to cashflows for prior periods. We have included a reconciliation of the aggregateyear ended December 31, 2005 cash flows to the consolidated statements ofcash flows prepared in accordance with US GAAP in the table below:

| ** **                                                 | ** ** | **AerCap B.V.**                                | ** ** | **AerCap  Holdings N.V.**                          | ** ** | **Aggregate  Non-GAAP**                      | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                 | ** ** | **Six months  ended  June 30, 2005** | ** ** | **Six months  ended  December 31, 2005** | ** ** | **Year  ended  December 31, 2005** | ** ** |
| ** **                                                 | ** ** | **(US dollars in millions)**         | ** ** |
| Net cash flow provided  by operating activities            |       |                                                | $          | 107.3                                                   |       |                                         |       | $ | 109.2 |   |   |   | $ | 216.5 |   |   |
| Net cash flow provided  by (used in)  investing activities |       |                                                | 14.5       |                                                    |       |                                         | (1,431.2   | ) |   |   | (1,416.7 | ) |   |
| Net cash flow (used in) provided by  financing activities  |       |                                                | (142.0     | )                                                       |       |                                         | 1,505.5    |   |   |   | 1,363.5 |   |   |

 

The aggregation of cash flow data for the year ended December 31,2005 is not in accordance with US GAAP, as AerCap Holdings N.V. is adifferent reporting entity for accounting purposes from AerCap B.V. and theperiods presented are not directly comparable because the cash flow informationfor the six months ended December 31, 2005 includes the effects of the2005 Acquisition. The AerCap Holdings N.V. cash flow information for theyear ended December 31, 2005 reflects the addition, without adjustment, ofthe cash flows of AerCap B.V. for the six months ended June 30, 2005 andof AerCap Holdings N.V. for the six months ended December 31, 2005. Theaggregated cash flow information should be considered as supplementalinformation only.

Cash Flows From Operating Activities. Our cash flowsprovided by operating activities increased by $131.9 million, or 60.9%, to$348.4 million in the year ended December 31, 2006 from$216.5 million in the year ended December 31, 2005. This increase isdue primarily to (i) a $120.0 million increase in the change in accountspayable and accrued expenses, including maintenance liabilities and lesseedeposits, which is due primarily to the increase in accrued maintenanceliabilities and lessee deposits from the purchase of 24 used aircraft subjectto leases during 2006 and (ii) a $61.0 million increase in net incomeafter giving effect to all non-cash add-backs or deductions to net income onthe consolidated statements of cash flows. These increases are partially offsetby the use of $24.2 million in the year ended December 31, 2006 for thepurchase of inventory, which did not occur in the year ended December 31,2005 and a $38.6 million increase in the change to accounts and notesreceivable, both of which result primarily from the addition of AeroTurbine’soperations.

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Cash Flows Used in Investing Activities. Our cashflows used in investing activities decreased by $573.4 million, or 40.5%,to $843.3 million in the year ended December 31, 2006 from$1,416.7 million in the year ended December 31, 2005. The principalreason for the decrease in cash used in investing activities was theconsideration paid in 2005, net of cash acquired, of $1,245.6 million toacquire AerCap B.V., which was partially offset by a $579.4 million, or 412.1%increase in net cash used from buying and selling of flight equipment andadditional pre-delivery payments made under our aircraft purchase agreementwith Airbus to $720.0 million in the year ended December 31, 2006 from$140.6 million in the year ended December 31, 2005.

Cash Flows Provided by FinancingActivities. Our cash flows provided by financing activities decreased by$919.9 million, or 67.5%, to $443.6 million in the year ended December 31,2006 from $1,363.5 million in the year ended December 31, 2005. Thisdecrease in cash flows provided by financing activities was due primarily to (i) adecrease of $873.2 million of borrowings, net of repayments, to $300.4 millionin the year ended December 31, 2006 from $1,173.5 million in the yearended December 31, 2006 which is primarily attributable to the$1,000.0 million term loan contracted in connection with the 2005Acquisition and (ii) a $261.4 million decrease in the amount of additionalequity investments. In the year ended December 31,2005 we receivedadditional equity investments of $405.0 million in connection with the 2005Acquisition whereas in the year ended December 31, 2006 we received netadditional equity investments of $143.6 million related to our initial publicoffering.

***Indebtedness***

As of December 31, 2006, our outstanding indebtednesstotaled $2.6 billion and primarily consisted of export credit facilities,Japanese operating lease financings, commercial bank debt, revolving creditdebt, securitization debt and capital lease structures.

Thefollowing table provides a summary of our indebtedness at December 31,2006:

| **Debt Obligation**                              | ** ** | ** **                                   | ** ** | **Collateral** | ** ** | **Commitment** | ** ** | **Outstanding** | ** ** | **Undrawn  amounts** | ** **    | **Weighted  average  interest rate** | ** ** | **Final stated  Maturity** | ** **    |
|-------------------------------------------------------|------------|----------------------------------------------|------------|----------------|------------|----------------|------------|-----------------|------------|----------------------|---------------|-------------------------------------------|------------|---------------------------------|---------------|
| ** **                                            | ** ** | **(US dollars in thousands)** | ** ** |
| Export credit facilities—guaranteed financings   |       | 17  aircraft                                 |       |           | $          | 953,900        |       |            |       | $                    | 567,900       |                                      |       | $                               | 386,000       |   |   | 5.49 | % |   |   | 2018 |   |   |
| Japanese operating lease financings                   |       | 3  aircraft                                  |       |           | 100,261    |           |       |            | 100,261    |                 |          | —                                    |       |                            | 5.64          | % |   |   |   |   |   |
| Pre-delivery payment facility                         |       |                                         |       |           | 118,900    |           |       |            | 8,130      |                 |          | 110,770                                   |       |                            | 7.00          | % |   |   | 2010 |   |   |
| UBS revolving credit  facility                        |       | 8  aircraft                                  |       |           | 970,000    |           |       |            | 234,577    |                 |          | 735,423                                   |       |                            | 7.84          | % |   |   | 2012 |   |   |
| AT revolving credit  facility                         |       | 49  engines                                  |       |           | 220,000    |           |       |            | 65,688     |                 |          | 154,312                                   |       |                            | 6.87          | % |   |   | 2011 |   |   |
| GATX portfolio  acquisition facility                  |       | 24  aircraft                                 |       |           | 228,229    |           |       |            | 218,399    |                 |          | 9,830                                     |       |                            | 6.79          | % |   |   | 2013 |   |   |
| Commercial bank debt                                  |       | 10  aircraft                                 |       |           | 353,725    |           |       |            | 353,725    |                 |          | —                                    |       |                            | 6.41          | % |   |   | 2019 |   |   |
| Aircraft Lease Securitisation debt                    |       | 42  aircraft                                 |       |           | 844,308    |           |       |            | 844,308    |                 |          | —                                    |       |                            | 6.33          | % |   |   | 2016 |   |   |
| Capital lease obligations under defeasance structures |       | 4  aircraft                                  |       |           | 162,151    |           |       |            | 162,151    |                 |          | —                                    |       |                            | 5.72          | % |   |   | 2010 |   |   |
| **Total**                                             | ** ** | ** **                                   | ** ** | ** **     | **$**      | **3,951,474**  |       | ** **      | ** ** | **$**                | **2,555,139** |                                      | ** ** | **$**                           | **1,396,335** | ** ** |   |   |   |   |   |   |   |   |

 

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The weightedaverage interest rate in the table above includes the impact of relatedderivative instruments which we hold to hedge our exposure to interest rates.

See “—Indebtedness” formore information regarding our indebtedness.

***Contractual Obligations***

Our contractual obligations consist of principal andinterest payments on debt, executed purchase agreements to purchase aircraft,operating lease rentals on aircraft under lease in/lease out structures andrent payments pursuant to our office leases. We intend to fund our contractualobligations through our lines of credit and other borrowings as well asinternally generated cash flows. We believe that our sources of liquidity willbe sufficient to meet our contractual obligations.

The following table setsforth our contractual obligations and their maturity dates as ofDecember 31, 2006:

**PaymentsDue By Period as of December 31, 2006**

| **Contractual Obligations** | ** ** | ** **                                     | ** ** | **Less than one  year** | ** ** | **One to three  years** | ** ** | **Three to five  years** | ** ** | **Thereafter** | ** **    | **Total**  | ** ** |
|----------------------------------|------------|------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|------------------------------------|------------|----------------|---------------|------------|------------|
| ** **                       | ** ** | **(U.S. dollars in thousands)** | ** ** |
| Debt(1)                          |       |                                           | $          | 541,838                           |       |                              | $          | 771,980                            |       | $              | 636,799       |       | $          | 1,413,974 |   | $ | 3,364,591 |   |
| Purchase  obligations(2)(4)      |       |                                           | 572,954    |                              |       | 2,428,806                         |       | 1,554,439                          |       | —         |          | 4,556,199  |       |
| Operating  leases(3)             |       |                                           | 42,904     |                              |       | 69,271                            |       | 54,207                             |       | 24,289         |          | 190,671    |       |
| Derivative  obligations          |       |                                           | (3,386     | )                                 |       | (7,740                            | )          | (3,162                             | )          | (3,281         | )             | (17,569    | )          |
| **Total(4)**                     | ** ** | ** **                                     | **$**      | **1,154,310**                     |       | ** **                        | **$**      | **3,262,317**                      | ** ** | **$**          | **2,242,283** | ** ** | **$**      | **1,434,982** | ** ** | **$** | **8,093,892** | ** ** |

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(1)          Includes estimatedinterest payments based on one-month LIBOR as of December 31, 2006,which was 5.32%.

(2)          At December 31,2006 there were nine aircraft remaining to be delivered under our 1999 aircraftpurchase agreement with Airbus. We also had 20 new A330-200 widebodyaircraft on order from Airbus. In addition, AerVenture had 47 Airbus A320, 23Airbus A319 aircraft and six engines on order.

(3)          Represents contractualoperating lease rentals on aircraft under lease in/lease out structures andcontractual payments on our office and facility leases in Amsterdam, TheNetherlands, Miami, Florida, Fort Lauderdale, Florida, Goodyear, Arizona andShannon, Ireland.

(4)          Does not include ourcapital contributions to AerVenture required in connection with the acquisitionof aircraft, which amounts are consolidated in “purchase obligations”.

Under the AerDragon jointventure agreement, we have contributed $15.0 million of equity to fundAerDragon’s initial aircraft and engine purchases.

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***Capital Expenditures***

Ourprimary capital expenditure is the purchase of aircraft, including pre-deliverypayments under our 1999 aircraft purchase agreement with Airbus. The tablebelow sets forth our capital expenditures for the historical periods indicated.

| ** **             | ** ** | **Year ended December 31,**   | ** ** |
|------------------------|------------|----------------------------------------------|------------|
| ** **             | ** ** | **2004**                                     | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **             | ** ** | **(US dollars in thousands)** | ** ** |
| Capital  expenditures  |       | $                                            | 313,213    |   | $ | 198,870 |   | $ | 879,497 |   |
| Pre-delivery  payments |       | 33,366                                       |       | 46,315 |   | 93,708 |   |
|                        |            |                                              |            |  |  |  |  |  |  |  |

 

In 2004, our principal capital expenditures were forfive A320 aircraft, three A321 aircraft and one MD-11F aircraft which wepreviously leased-in under an operating lease and pre-delivery payments fornine aircraft. In 2005, our principal capital expenditures were for five A320aircraft and one A319 aircraft and pre-delivery payments for 12 aircraft. In2006, our principal capital expenditures were for three A319 and three A320aircraft delivered under our 1999 forward order agreement and 17 A320s, oneA319, three 737-700/800s; six 737-300/400s, four 757s and one 767purchased in portfolio or single aircraft purchase transactions.

Thetable below sets forth our expected capital expenditures for future periodsindicated based on contracted commitments as of December 31, 2006.

| ** **             | ** ** | **2007**                                     | ** **  | **2008**   | ** ** | **2009**    | ** ** | **2010** | ** **    |
|------------------------|------------|----------------------------------------------|-------------|------------|------------|-------------|------------|----------|---------------|
| ** **             | ** ** | **(US dollars in thousands)** | ** **  |
| Capital  expenditures  |       | $                                            | 456,158     |       | $          | 413,497     |       | $        | 1,234,867     |   | $ | 1,462,116 |   |
| Pre-delivery  payments |       | 116,796                                      |        | 383,409    |       | 397,033     |       | 92,323   |          |
| **Total**              | ** ** | **$**                                        | **572,954** | ** ** | **$**      | **796,906** | ** ** | **$**    | **1,631,900** | ** ** | **$** | **1,554,439** | ** ** |

 

In 2007, we expect to makecapital expenditures related to final delivery payments on nine A320 familyaircraft under our 1999 Airbus purchase contract. We expect to make capitalexpenditures related to the 47 A320 aircraft and 23 A319 aircraft on order byAerVenture between 2007 and 2010. As we implement our growth strategy andexpand our aircraft and engine portfolio, we expect our capital expenditures toincrease in the future. We anticipate that we will fund these capitalexpenditures through internally generated cash flows, draw downs on ourcommitted revolving credit facilities and the incurrence of bank debt, and otherdebt and equity issuances.

**Off-Balance SheetArrangements**

We are obligated to make sublease payments under 11aircraft operating leases of aircraft which mature between 2008 and 2012. Welease these 11 aircraft to aircraft operators. Since we are not fully exposedto the risks and rewards of ownership of these aircraft, we do not includethese aircraft on our balance sheet. In addition, we do not recognize afinancial liability for our operating lease obligations under the leases on ourbalance sheet. Due to the fact that sublease receipts related to these 11aircraft are insufficient to cover our lease obligations, we have recognized anonerous contract accrual on our balance sheet which is equal to the differencebetween the present value of the lease expenses and the present value of thesublease income discounted at appropriate discount rates. This accountingtreatment, however, does not result in the same presentation as if we accountedfor these aircraft as owned assets and the related operating lease obligationsas debt liabilities. Note 16 of our consolidated financial statementsincluded in this annual report includes more information on this arrangement,including a table of future lease obligations by year. In March 2007, wepurchased four of the 11 aircraft that had been subject to operating leases andterminated the operating leases as described in Note 29 to our consolidatedfinancial statements included herein.

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We continue to have an economic interest in AerCo.This interest is not assigned any value on our balance sheet because we do notexpect to realize any value for our investment.

We have other investments in companies or ventures inthe airline industry which we obtain primarily through restructurings in ourleasing business. The value of these investments are immaterial to ourfinancial position. We do not consolidate such companies on our balance sheetbecause the investments do not meet the requirements for consolidation.

As discussed above, wehave entered into two joint ventures, (Annabel and AerDragon) that do notqualify for consolidated accounting treatment. The assets and liabilities ofthese joint ventures are off our balance sheet and we only record our netinvestment under the equity method of accounting.

**Management’s Use ofEBITDA**

We define EBITDA as income(loss) from continuing operations before provision for income taxes, intereston debt and depreciation and amortization. We use EBITDA to assess ourconsolidated financial and operating performance, and we believe this non-USGAAP measure is helpful in identifying trends in our performance. In addition,EBITDA is a measure that is required by one of our debt lenders to calculateour compliance with certain covenants. EBITDA provides us with a useful measureof our operating performance because it assists us in comparing our operatingperformance in different periods without the impact of our capital structure(primarily interest charges on our outstanding debt) and non-cash expensesrelated to our long-lived asset base (primarily depreciation and amortization).This measure provides an assessment of controllable revenue and expenses andenhances our ability to make decisions with respect to resource allocation andwhether we are meeting established financial goals. Accordingly, EBITDAmeasures our financial performance based on operational factors that managementcan impact in the short-term, such as our cost structure or expenses, and on amore medium-term basis, our revenues.

**Limitations ofEBITDA**

EBITDA haslimitations as an analytical tool and should not be viewed in isolation. EBITDAis a measure of operating performance that is not calculated in accordance withUS GAAP. EBITDA should not be considered a substitute for net income, incomefrom continuing operations or cash flows provided by or used in operations, asdetermined in accordance with US GAAP. Material limitations in making theadjustments to our earnings to calculate EBITDA, and using this non-GAAPfinancial measure as compared to GAAP net income (loss), include:

·       depreciation,though not directly affecting our current cash position, represents the wearand tear and/or reduction in value of our aircraft, which affects the aircraft’savailability for use and may be indicative of future needs for capitalexpenditures or reduced revenue generation in the future; and

·       thecash portion of income tax (benefit) provision generally represents charges(gains), which may significantly affect our financial results.

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Westrongly urge you to review the reconciliation of EBITDA to GAAP net income(loss) in the table below, along with our audited consolidated financialstatements included in this annual report. We also strongly urge you to notrely on any single financial measure to evaluate our business. In addition,because EBITDA is not a measure of financial performance under GAAP and issusceptible to varying calculations, this measure, as presented in this annualreport, may differ from and may not be directly comparable to similarly titledmeasures used by other companies. The table below shows the reconciliation ofnet income (loss) to EBITDA for the years ended December 31, 2003, 2004the six months ended June 30, 2005, the six months ended December 31,2005 and the year ended December 31, 2006.

| ** **                   | ** ** | **AerCap, B.V.**                        | ** **  | **AerCap Holdings N.V.**        | ** ** |
|------------------------------|------------|----------------------------------------------|-------------|-------------------------------------------|------------|
| ** **                   | ** ** | **Year ended December 31,**   | ** **  | **Six months  ended  June 30,** | ** ** | **Six  months  ended  December 31,** | ** ** | **Aggregated  Year ended  December 31,** | ** ** | **Year ended  December 31,** | ** ** |
| ** **                   | ** ** | **2003**                                     | ** **  | **2004**                                  | ** ** | **2005** | ** ** | **2005** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                   | ** ** | **(US dollars in thousands)** | ** **  |
| Net income (loss)            |       | $                                            | 36,915      |                                      | $          | (105,362 | ) |   | $ | 33,700 |   |   |   | $ | 49,663 |   |   |   | $ | 83,363 |   |   |   | $ | 87,996 |   |   |
| Depreciation                 |       | 143,303                                      |        | 125,877                                   |       |   | 66,407 |   |   |   | 45,918 |   |   |   | 112,325 |   |   |   | 102,387 |   |   |
| Interest on debt             |       | 123,435                                      |        | 113,132                                   |       |   | 69,857 |   |   |   | 44,742 |   |   |   | 114,599 |   |   |   | 166,219 |   |   |
| Provision for  income  taxes |       | 28,222                                       |        | 168                                       |       |   | 4,127 |   |   |   | 10,570 |   |   |   | 14,697 |   |   |   | 16,324 |   |   |
| **EBITDA**                   | ** ** | **$**                                        | **331,875** | ** **                                | **$**      | **133,815** | ** ** | ** ** | **$** | **174,091** |   | ** ** | ** ** | **$** | **150,893** |   | ** ** | ** ** | **$** | **324,984** |   | ** ** | ** ** | **$** | **372,926** |   |   |

 

**Recent AccountingPronouncements**

In February 2006, the FASB issued SFAS No.155, “*Accounting for Certain Hybrid Financial Instruments—an amendment ofSFASB statements No. 133 and 140”*. This statement permits fairvalue measurement for any hybrid financial instrument that contains an embeddedderivative that otherwise would require bifurcation. This statement iseffective for all financial instruments acquired or issued after the beginningof an entity’s first fiscal year that begins after September 15, 2006 (January 1,2007 for us). Earlier adoption is permitted as of the beginning of an entity’sfiscal year, provided that no interim period financial statements have beenissued for the financial year. We do not anticipate that the adoption ofSFAS 155 will have a material effect on our financial statements or ourresults of operations.

In March 2006, the FASB issued SFAS No. 156,“*Accounting for Servicing of Financial Assets”*.SFAS No. 156 amends SFAS No.140. SFAS No. 156 requires that allseparately recognized servicing assets and servicing liabilities be initiallymeasured at fair value. For subsequent measurements, SFAS No. 156 permitscompanies to choose between using an amortization method or a fair valuemeasurement method for reporting purposes. SFAS No. 156 is effective as ofthe beginning of a company’s first fiscal year that begins after September 15,2006. We do not anticipate that SFAS No. 156 will have a material impacton our financial position or our results of operations.

In April 2006, the FASB issued FSP No. FIN46(R)-6, “*Determining the Variability to Be Consideredin Applying SFASB Interpretation No. 46(R)*”. The FSP addresseshow a reporting enterprise should determine the variability to be considered inapplying FIN 46(R). The variability that is considered in applying FIN 46(R) affectsthe determination of (a) whether an entity is a VIE, (b) whichinterests are “variable interests” in the entity, and (c) which party, ifany, is the primary beneficiary of the VIE. That variability affects anycalculation of expected losses and expected residual returns, if such acalculation is necessary. FSP No. FIN 46(R)-6 must be appliedprospectively to all entities (including newly created entities) and to allentities previously required to be analyzed under FIN 46(R) when a “reconsiderationevent” has occurred, in the first reporting period beginning after June 15,2006. We will evaluate the impact of this FSP at the time any such “reconsiderationevent” occurs and for any new entities created.

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In July 2006, the FASB released FASBInterpretation No. 48, “*Accounting forUncertainty in Income Taxes—an Interpretation of SFASB Statement 109”*.FIN 48 is applicable to all uncertain positions for taxes accounted forunder SFAS 109, “*Accounting for IncomeTaxes”*. FIN 48 prescribes a comprehensive model for how acompany should recognize, measure, present, and disclose in its financial statementsuncertain tax positions taken or expected to be taken on a tax return(including a decision whether to file or not to file a return in aparticular jurisdiction). Under the Interpretation, the financial statementswill reflect expected future tax consequences of such positions presuming thetaxing authorities’ full knowledge of the position and all relevant facts, butwithout considering time values. The new accounting model for uncertain taxpositions is effective for annual periods beginning after December 15,2006. We do not expect that the adoption of FIN 48 will have a material impacton our financial statements, if any.

In September 2006, the FASB issued FSP No. AUG AIR-1 “*Accounting for Planned Major Maintenance Activities*.” ThisFSP amends certain provisions in the AICPA Industry Audit guide, “Audits ofAirlines” to prohibit the use of the accrue-in-advance method of accounting forplanned major maintenance activities in annual and interim financial reportingperiods and makes this guidance applicable to entities in all industries. TheFSP is effective for the first fiscal year beginning after December 15,2006 and requires retrospective application for all fiscal years presented inthe financial statements upon adoption. Early adoption as of the beginning ofan entity’s fiscal year is permitted. We are in the process of evaluating theeffects, if any, of the FSP on our consolidated financial statements and willconclude on this topic before the filing of our first quarter 2007 results.

In September 2006, the FASB issued SFAS No. 157, “*Fair Value Measurements”*. SFAS 157 prescribes a singledefinition of fair value as the price that would be received to sell an assetor paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. SFAS 157 is effective for us beginning asof January 1, 2008. We do not anticipate that the adoption of SFAS 157will have a material effect on our financial statements or our results ofoperations.

In February 2007, theFASB issued SFAS 159, “*The Fair Value Option forFinancial Assets and Financial Liabilities*”. SFAS 159, which isexpected to expand fair value measurement, permits entities to choose tomeasure many financial instruments and certain other items at fair value. FAS 159 is effective for us beginningin the first quarter of 2008. We are currently assessing the impact FAS 159 may have on our financialstatements.

**INDEBTEDNESS**

**Export CreditFacility Financings**

***General.******  ***In April 2003, weentered into an $840.0 million export credit facility for the financing of upto 20 Airbus A320 aircraft. Funding under the facility is provided bycommercial banks, but the repayment is guaranteed by European export creditagencies. In January 2006, the export credit facility was amended andextended to cover an additional nine aircraft and its size increased to amaximum of $1.215 billion. The terms of the lending commitment in the exportcredit facility are such that the export credit agencies only approve fundingfor aircraft that are due for delivery on a six-months rolling basis and haveno obligation to fund deliveries beyond that period. At December 31, 2006,we had financed 16 aircraft under the April 2003 export credit facility,plus one aircraft under prior export credit facilities. We had $578.1 millionof loans outstanding under our April 2003 export credit facility and theprevious export credit facilities as of December 31, 2006.

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***Interest Rate.******  ***Set forth below are theinterest rates for our export credit facilities.

| ** **                                  | ** ** | **Amount outstanding at  December 31, 2006** | ** ** | **Interest rate** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **(US dollars in thousands)**                     | ** ** | ** **             | ** ** |
| Floating Rate  Tranches:                    |       |                                                             | $          | 97,532                 |       |   | Three-month LIBOR  plus 0.12% |   |
|                                        |       |                                                             | 396,087    |                   |       | Three-month LIBOR  plus 0.25% |   |
|                                        |       |                                                             | 47,453     |                   |       | Three-month LIBOR  plus 0.30% |   |
|                                        |       |                                                             | 12,604     |                   |       | Six-month LIBOR  plus 0.80% |   |
| Fixed Rate  Tranche:                        |       |                                                             | 24,467     |                   |       | Average fixed rate of  6.67% |   |
| Purchase  accounting fair value adjustments |       |                                                             | (10,243    | )                      |       |   |   |
| **Total:**                                  | ** ** | ** **                                                       | **$**      | **567,900**            |       |   |   |   |

 

***Maturity Date.******  ***We are obligated to repayprincipal on the export credit facility over a 12-year term.

***Collateral.******  ***The export credit facilitiesrequire legal title to the aircraft be transferred to and held by a specialpurpose company controlled by the respective lenders. We have entered intolease agreements on these aircraft which transfer the risk and rewards ofownership of the aircraft to AerCap. The obligations outstanding under theexport credit facilities are secured by, among other things, a pledge of theshares of the company which holds legal title to the aircraft financed underthe facility. Each subsidiary’s obligations under the financings are guaranteedby AerCap Holdings N.V.

***Certain Covenants.******  ***The export credit facilitiescontain affirmative covenants customary for secured financings. The facilitiesalso contain net worth financial covenants. In addition, loans under the 2003export credit facilities contain change of control provisions that grant thelenders the right to prepayment of their loans in the event of a change ofcontrol, unless the lenders consent to the change of control, which wasobtained in connection with the 2005 Acquisition. A change of control occursunder our April 2003 export credit facility if our shares cease to belisted on The New York Stock Exchange unless, at the time our shares cease tobe listed on The New York Stock Exchange, at least 66.66% of our ordinaryshares are owned and controlled by one or more shareholders rated at least BBB-by Standard & Poor’s Ratings Services and Baa3 or more by Moody’sInvestors Service, Inc.

**Aircraft LeaseSecuritisation**

***General.******  ***OnSeptember 15, 2005, we completed an aircraft lease portfoliosecuritization. Under the terms of the transaction, Aircraft LeaseSecuritisation issued $1.0 billion of indebtedness in four subclasses of notesto investors and certain equity securities to us. The proceeds of the sale ofthe notes were used by Aircraft Lease Securitisation to acquire 42 aircraftfrom us and to pay the expenses relating to the securitization. The proceedswere also used to make payments on certain loans made by us to subsidiaries ofAircraft Lease Securitisation and to fund cash reserves that provide a sourceof liquidity to pay interest on the notes. The primary source of payments onthe notes is lease payments on the aircraft owned by the subsidiaries ofAircraft Lease Securitisation. We retain the most junior class of notes (Enotes) in the securitization as well as a portion ($0.8 million) of thenotes immediately senior to the class E notes, and we consolidate AircraftLease Securitisation results with our financial results.

MBIA Insurance Corporation issued a financial guarantyinsurance policy to support the payment of interest when due and principal onthe final maturity on two subclasses of notes, the class G-1A and G-2Anotes. The class G-1A and G-2A notes are rated Aaa and AAA by Moody’sInvestors Service and Standard & Poor’s Ratings Services,respectively. The class C-1 notes are rated Baa2 and BBB+ by Moody’s andStandard & Poor’s, respectively, and the class D-1 notes arerated BB+ by Standard & Poor’s.

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***Liquidity.******  ***Calyon provided a liquidityfacility in the amount of $67.0 million, which may be drawn upon to payexpenses of Aircraft Lease Securitisation and its subsidiaries, senior swappayments and interest on the class G-1A and G-2A notes. AircraftLease Securitisation and its subsidiaries also maintain up to $10.0 million ofcash reserves to provide a source of liquidity to pay interest on the class C-1notes (or any subclass of class C notes that Aircraft Lease Securitisation mayissue in the future) and up to $5.0 million of cash reserves to provide asource of liquidity to pay interest on the class D-1 notes (or anysubclass of class D notes that Aircraft Lease Securitisation may issue in thefuture).

***Interest Rate.******  ***Set forth below are theinterest rates for our classes of notes.

| ** ** | ** ** | **Amount outstanding at  December 31, 2006** | ** ** | **Interest rate** | ** ** |
|------------|------------|------------------------------------------------------------------|------------|------------------------|------------|
| ** ** | ** ** | **(US dollars in thousands)**                     | ** ** | ** **             | ** ** |
| G1 A notes |       |                                                             | $          | 648,534                |       |   | One month LIBOR plus  0.40% |   |
| G 2A notes |       |                                                             | 86,029     |                   |       | One month LIBOR plus 0.45% |   |
| C 1 notes  |       |                                                             | 65,518     |                   |       | One month LIBOR plus  3.75% |   |
| D 1 notes  |       |                                                             | 44,227     |                   |       | One month LIBOR plus  6.50% |   |
| **Total**  | ** ** | ** **                                                       | **$**      | **844,308**            |       |   |   |   |

 

***Aircraft ManagementServices.******  ***Weprovide lease and aircraft management and re-leasing and remarketing servicesfor Aircraft Lease Securitisation’s aircraft for which we receive a retainerfee of 0.212% per year of the initial appraised value of the aircraft, whichwas $1.4 billion, a monthly fee equal to 1.0% of the aggregate rent actuallypaid each month, and a sales based incentive fee of 1.25% of the specifiedtarget sales prices for the sale or insured loss of an aircraft. The targetsales price for an aircraft is 90% of the appraised value of the aircraft,which is adjusted annually. We also provide insurance services for which wereceive an annual fee of $50,000 and administrative services for which wereceive a monthly fee of $1,380 for each aircraft, subject to annualadjustments for inflation and a minimum of $0.2 million per year.

We may beterminated as manager and administrative agent by Aircraft Lease Securitisationor MBIA Insurance Corporation if we default on our obligations as manager oradministrative agent or become insolvent. In addition, we may be terminated asmanager if:

·       atthe time of an event of default under the trust indenture for thesecuritization, at least 12 aircraft are not subject to leases and have beenoff-lease and reasonably available for re-lease for the previous three months,

·       anevent of default arises under the trust indenture as a result of our failure asmanager to perform certain covenants in the trust indenture and the failureaffects more than 10% of the Aircraft Lease Securitisation aircraft (based onthe most recent appraised value of the aircraft at that time), or

·       we,as manager, cease to be actively involved in the aircraft advisory andmanagement business.

We, as manager, may not be removed or resign prior tothe expiration of the servicing agreement unless a replacement manager has beenappointed.

***Payment Terms.******  ***The interest and principalpayments on the notes are due on a monthly basis. The scheduled payments ofprincipal have been calculated such that the principal balance of the noteswill be equal to a certain scheduled percentage, different for each subclass ofnotes, of the appraised value of the aircraft, as such appraised value isdecreased over time by an assumed amount of depreciation. On the first paymentdate, the scheduled percentage was 54.1361% for the class G-1A notes,which decreases gradually to 0.0% in August 2016. On the first paymentdate, the scheduled percentage was 6.9394% for the class G-2A notes and4.8570% for the class C-1 notes, which in each case decreases a total ofapproximately one percent until September 2020, and will become 0.0%beginning in October 2020. On the first payment 

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date, the scheduledpercentage was 3.1357% for the class D-1 notes, which increases graduallyto 3.3890% in September 2007 and will remain that percentage until October 2020,when the scheduled percentage will become 0.0%.

Aircraft Lease Securitisation may voluntarily redeemany subclass of the notes at a price that equals the outstanding principalbalance of the applicable notes multiplied by a scheduled percentage. On theclosing date of the securitization, the scheduled percentage was 101% for theclass G-1A and G-2A notes, 103% for the class C-1 notes and105% for the class D-1 notes, and each percentage decreases graduallyuntil September 15, 2008. On that date, the redemption price of the noteswill equal the outstanding principal balance of the notes. In addition,Aircraft Lease Securitisation must pay any accrued but unpaid interest on thenotes and any premium due to MBIA Insurance Corporation upon redemption of thenotes. Aircraft Lease Securitisation may redeem the notes in whole or in part,provided that if a default notice has been given under the trust indenture orthe maturity of any notes has been accelerated then Aircraft LeaseSecuritisation may only redeem the notes in whole.

***Maturity Date.******  ***The final maturity date ofthe notes will be September 9, 2030.

***Collateral.******  ***The property of AircraftLease Securitisation includes the rights under the financial guaranty insurancepolicy. The notes are secured by security interests in and pledges or assignmentsof equity ownership and beneficial interests in the subsidiaries of AircraftLease Securitisation, as well as by the interests of Aircraft LeaseSecuritisation’s subsidiaries’ interests in leases of the aircraft they own, bycash held by or for them and by their rights under agreements with the serviceproviders. Rentals and reserves paid under leases of the Aircraft LeaseSecuritisation aircraft will be placed in a collection account and paid outaccording to a priority of payments.

**UBS Revolving CreditFacility**

***General.******  ***On April 26, 2006, ourconsolidated subsidiary, AerFunding 1 Limited entered into a non recoursesenior secured revolving credit facility in the aggregate amount of up to $1.0billion with UBS Real Estate Securities Inc., UBS Securities Inc.,Deutsche Bank Trust Company Americas and certain other financial institutions.The revolving loans under the UBS revolving credit facility are divided intothree classes: class A loans, which have a maximum advance limit of $715.0million, class B loans, which have a maximum advance limit of $180.0 million,and class C loans, which have a maximum advance limit of $105.0 million. As of December 31,2006, we had $234.6 million of loans outstanding under the UBS revolving creditfacility. Borrowings under the UBS revolving credit facility can be used tofinance between 72% and 84% of the appraised value of the acquired aircraft or,in the case of Boeing 737NG and Airbus A320 family aircraft, between 85% and86% of the lower of the purchase price and the appraised value of the acquiredaircraft. In addition, value enhancing expenditures and required liquidityreserves are also funded by the lenders. All borrowings under the UBS revolvingcredit facility are subject to the satisfaction of customary conditions andrestrictions on the purchase of aircraft that would result in our portfoliobecoming too highly concentrated, with regard to both aircraft type andgeographical location. Notwithstanding these restrictions, we believe that theUBS revolving credit facility provides us with significant flexibility topurchase and finance aircraft.

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***Interest Rate.******  ***Borrowings under the UBSrevolving credit facility bear interest (a) in the case of class A loans,based on the eurodollar rate plus the class A applicable margin, (b) inthe case of class B loans, based on the eurodollar rate plus the class Bapplicable margin or (c) in the case of class C loans, based on theeurodollar rate plus the class C applicable margin. The following table setsforth the applicable margin for the three classes of the UBS revolving creditfacility during the periods specified:

| ** **                                      | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Class C** | ** ** |
|-------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| Borrowing period(1)                             |       |             | 1.75       | %                |       |             | 4.25       | % |   |   | 6.00 | % |   |
| First 180 days  following conversion            |       |             | 2.50       | %                |       |             | 5.00       | % |   |   | 6.75 | % |   |
| From 181 days to  360 days following conversion |       |             | 3.00       | %                |       |             | 5.50       | % |   |   | 7.25 | % |   |
| From 361 days to  450 days following conversion |       |             | 3.25       | %                |       |             | 5.75       | % |   |   | 7.50 | % |   |
| From 450 days to  541 days following conversion |       |             | 3.50       | %                |       |             | 6.00       | % |   |   | 7.75 | % |   |
| Thereafter                                      |       |             | 3.75       | %                |       |             | 6.25       | % |   |   | 8.00 | % |   |

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(1)          The borrowing period istwo years after which the loan converts to a term loan.

Additionally, we are subject to (a) a 0.22% feeon any unused portion of the unused class A loan commitment (b) a 0.37%fee on any unused portion of the unused class B loan commitment and (c) a0.50% fee on any unused portion of the unused class C loan commitment.

***Payment Terms.******  ***Interest on the loans is dueon a monthly basis. Principal on the loans amortizes on a monthly basis to theextent funds are available. All outstanding principal not paid during the termis due on the maturity date.

***Prepayment.******  ***Advances under the UBSrevolving credit facility may be prepaid without penalty upon notice, subjectto certain conditions. Mandatory partial prepayments of borrowings under theUBS revolving credit facility are required:

·       uponthe sale of certain assets by a borrower, including any aircraft or aircraftengines financed or refinanced with proceeds from the UBS revolving creditfacility;

·       uponthe occurrence of an event of loss with respect to an aircraft or aircraftengine financed with proceeds from the UBS revolving credit facility from theproceeds of insurance claims; and

·       uponthe securitization of any interests or leases with respect to aircraft oraircraft engines financed with proceeds from the UBS revolving credit facility.

***Maturity Date.******  ***The maturity date of the UBSrevolving credit facility is April 26, 2012.

***Cash Reserve.******  ***AerFunding is required tomaintain up to (a) 6.0% of the borrowing value of the aircraft in reservefor the benefit of the class A and B lenders and (b) 0.40% of theborrowing value of the aircraft in reserve for the benefit of the class Clenders. Amounts held in reserve for the benefit of the class A and B lendersare available to the extent there are insufficient funds to pay requiredexpenses, hedge payments or principal of or interest on the class A and B loanson any payment date. Amounts held in reserve for the benefit of the class Clenders are available to the extent there are insufficient funds to payprincipal of and interest on the class C loans on any payment date. The amountson reserve are funded by the lenders.

***Collateral.******  ***Borrowings under the UBSrevolving credit facility are secured by, among other things, securityinterests in and pledges or assignments of equity ownership and beneficialinterests in all of the subsidiaries of AerFunding, as well as by AerFunding’sinterests in the leases of its assets.

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***Certain Covenants.******  ***The UBS revolving creditfacility contains covenants that, among other things, restrict, subject tocertain exceptions, the ability of AerFunding and its subsidiaries to:

·       sellassets;

·       incuradditional indebtedness;

·       createliens on assets, including assets financed with proceeds from the UBS revolvingcredit facility;

·       makeinvestments, loans, guarantees or advances;

·       declareany dividends or other asset distributions other than to distribute funds paidto us out of the flow of funds under the UBS revolving credit facility;

·       makecertain acquisitions;

·       engagein mergers or consolidations;

·       changethe business conducted by the borrowers and their respective subsidiaries;

·       makespecified capital expenditures, other than those related to the purchase,maintenance or conversion of assets financed with proceeds from the UBSrevolving credit facility;

·       own,operate or lease assets financed with proceeds from the UBS revolving creditfacility; and

·       enter into a securitizationtransaction involving assets financed with proceeds from the UBS revolvingcredit facility unless certain conditions are met.

**AeroTurbine CalyonRevolving Loan Facility**

***General.******  ***On December 13,2006, AeroTurbine entered into an amended and restated senior credit agreementwith Calyon and certain other financial institutions identified therein. Pursuantto this agreement, the total commitment of the revolving loan facility under theoriginal senior credit agreement increased from $171.0 million to $220.0million, and AeroTurbine repaid in full the senior secured term loan amountsoutstanding under that agreement, as well as the junior secured term loanamounts outstanding under the related junior credit agreement. As of December 31,2006, AeroTurbine had $65.7 million outstanding under the Calyon revolvingloan facility.

***Interest Rate.******  ***Under the Calyon revolvingloan facility, AeroTurbine can borrow revolving loans based on either LIBOR orABR (which is a rate per annum equal to the greater of the prime rate in effecton such day and the federals funds effective rate in effect on such day plus 1⁄2of 1%). Interest rates depend on the type of loan borrowed and AeroTurbine’sdebt-to-earnings ratio at the time of borrowing. Set forth below are theinterest rates for the Calyon revolving loan facility.

| ** **               | ** ** | **Amount outstanding at  December 31, 2006** | ** ** | ** ** | ** ** | **Interest rate**                                                                   | ** **                                                                |
|--------------------------|------------|------------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|
| ** **               | ** ** | **(US dollars in thousands)**                     | ** ** | ** ** | ** ** | **ABR Loans**                                                                       | ** **                                                                | **LIBOR Loans** | ** ** |
| Revolving Loan  Facility | ** ** |                                                             | **$**      | **65,688** |       |                                                                                     | When  AeroTurbine’s  Consolidated Leverage  Ratio is less than 3.5:1 |   | ABR + 0.0 | % | LIBOR + 1.5 | % |
|                     |       |                                                             | ** ** |       |       | When  AeroTurbine’s  Consolidated Leverage  Ratio is equal to or greater than 3.5:1 |                                                                      | ABR + 0.5 | % | LIBOR + 2.0 | % |
| **Total**                | ** ** |                                                             | **$**      | **65,688** |       |                                                                                     |                                                                      |   |   |   |   |   |

 

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***Prepayment.******  ***Advances under the Calyonrevolving loan facility may be prepaid without prepayment penalty. Mandatoryprepayments of the Calyon revolving loan facility are required:

·       ifthe aggregate principal amount of loans under the revolving loan facilityexceeds the borrowing base; and

·       uponthe receipt of proceeds of any property or casualty insurance claim or anycondemnation proceeding relating to any asset of the AeroTurbine or itssubsidiaries.

***Payment Terms.******  ***Payments of interest underthe revolving loan facility are due quarterly (or, if the interest period isless than three months for a LIBOR loan, the last day of the interest periodfor that loan). Payments of principal on the revolving loan facility are due onthe maturity date. All outstanding loans not paid during the term shall be dueon the maturity date.

***Maturity Date.******  ***The maturity date of theCalyon revolving loan facility is December 13, 2011.

***Collateral.******  ***Borrowings under the Calyonrevolving loan facility are secured by security interests in and pledges orassignments of all the shares and other ownership interests in AeroTurbine andits subsidiaries, as well as by all assets of AeroTurbine and its subsidiaries.

***Certain Covenants.******  ***The Calyon revolving loanfacility contains a number of covenants that, among other things, restrict,subject to certain exceptions, the ability of AeroTurbine to:

·       incuradditional indebtedness;

·       createliens on assets, including assets financed with proceeds from the Calyonrevolving loan facility;

·       makeadvances, loans, extensions of credit, guarantees, capital contributions orother investments;

·       declareor pay any dividends or other asset distributions;

·       engagein mergers or consolidations;

·       engagein certain sale-leaseback transactions;

·       changethe business conducted by AeroTurbine and its subsidiaries; and

·       makecertain capital expenditures.

In addition, the Calyonrevolving loan facility requires AeroTurbine to maintain certain minimumdebt-to-earnings and earnings-to-expenses ratios.

**Japanese OperatingLease Financings**

***General.******  ***We entered into severalJapanese operating lease financing structures to finance aircraft acquisitions.Funding under these structures is provided through a combination of seniorcommercial bank debt and subordinated loans from Japanese investors. At December 31,2006, we had financed three aircraft under Japanese operating lease financings.The aggregate principal amount of the loans outstanding under Japaneseoperating leases financings was $100.3 million as of December 31, 2006.

***Interest Rate.******  ***Set forth below are theinterest rates for our senior loans and subordinated debt.

| ** **        | ** ** | **Amount outstanding at   December 31, 2006** | ** ** | **Average interest rates** | ** ** |
|-------------------|------------|------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **        | ** ** | **(US dollars in thousands)**                           | ** ** | ** **                           | ** ** |
| Senior debt       |       |                                                                   | $          | 70,409                               |       |   | Three month LIBOR plus  0.95% |   |
| Subordinated debt |       |                                                                   | 29,851     |                                 |       | Fixed rates 4.03% |   |
| **Total**         | ** ** | ** **                                                             | **$**      | **100,260**                          |       |   |   |   |

 

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***Collateral.******  ***Our Japanese operating leasesfinancings require legal title to the aircraft be transferred to and held by aspecial purpose company controlled by the respective lenders. We have enteredinto lease agreements on the subject aircraft which transfer the risk andrewards of ownership of the aircraft to us. The obligations outstanding underour Japanese operating leases financings are secured by a pledge of the sharesof the company which holds legal title to the aircraft financed under thefacility. Each subsidiary’s obligations under the financings are guaranteed byAerCap Holdings N.V.

***Certain Covenants.******  ***Our Japanese operating leasesfinancings contain affirmative covenants customary for secured financings.

**AerVenturePre-delivery Payment Facility**

***General.******  ***In November 2005,AerVenture signed a letter of intent to purchase up to 70 Airbus A320 familyaircraft. A purchase agreement for the aircraft was signed in January 2006.The aircraft are scheduled to be delivered between November 2007 and August 2010.Under the purchase agreement, AerVenture agreed to make scheduled pre-deliverypayments to Airbus prior to the physical delivery of each aircraft. Inconnection with the scheduled delivery of the first 30 aircraft before the endof 2009, AerVenture and Calyon entered into a facility on November 3, 2006in which Calyon has arranged a credit facility, the AerVenture facility, tofinance a portion of the pre-delivery payments to Airbus in an amount up to$118.9 million. Prior to drawing on the AerVenture facility, AerVenture willpay, on average, 54% of the pre-delivery payment amount owed for each aircraftto be delivered in 2007, 60% of such amounts for each aircraft to be deliveredin 2008 and 42% of such amount for each aircraft to be delivered in 2009.AerVenture must repay the lenders for the amounts drawn for the pre-deliverypayment for each aircraft at the delivery date of that aircraft or, if theaircraft is not delivered on the scheduled delivery date, within three monthsof the scheduled delivery date. We agreed with Calyon that we will invest atleast an additional $25 million in AerVenture, subject to limited exceptions.The aggregate principal amount of the loans outstanding under the AerVenturepre-delivery payment facility was $8.1 million as of December 31, 2006.

***Interest Rate.******  ***Borrowings under theAerVenture facility will bear interest at a floating interest rate of one-monthLIBOR plus a margin of 1.65%, payable monthly in arrears after the initialdrawing on the AerVenture facility.

***Prepayment.******  ***Borrowings under theAerVenture facility may be prepaid without penalty, except for break fundingcosts if payment is made on a day other than an interest payment date.AerVenture will be required to repay the pre delivery payment financingrelating to an aircraft on the date the aircraft is delivered to AerVenture.

***Maturity Date.******  ***The maturity date of theAerVenture facility will be November 3, 2009, however, in the event ofdelayed delivery of the aircraft, the maturity date may be extended up to theearlier of (i) the delayed delivery date of the aircraft and (ii) January 31,2010, for the repayment of the indebtedness financing the pre-delivery paymentsof the delayed aircraft.

***Collateral.******  ***Borrowings under theAerVenture facility are secured by, among other things, the partial assignmentof the airframe and engine purchase agreements in respect of the 30 aircraftcovered by the facility, including the right to take delivery of the aircraftwhere Calyon has provided the pre delivery payments and the aircraft remainsundelivered.

***Certain Covenants.******  ***The AerVenture facilitycontains customary affirmative and financial covenants for secured financings.We have agreed to maintain a minimum of 25% of the shares of AerVenture untilthe AerVenture facility is fully repaid. AerVenture is required to maintain aminimum net worth and a debt to equity ratio below a specified threshold.

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**Bella Term Loans**

***General.******  ***On each of April 21,2006 and May 10, 2006, our 50% owned consolidated joint venture, BellaAircraft Leasing 1 Limited, entered into a loan agreement with DVB Bank AG,London Branch to provide for two term loans of up to $31.2 million and $28.0million, each to finance the purchase of an aircraft. The maturity dates of theloans are February 27, 2009 and May 11, 2011, respectively.Borrowings under the loans are secured by security interests in and pledges ofall shares in the borrower, the accounts to which lease payments are made, theaircraft, and certain of the borrower’s rights under the lease and the loandocuments. As of December 31, 2006, the amount outstanding under each loanwas $29.2 million and $26.5 million, respectively.

***Interest Rate.******  ***Borrowings under the April 21,2006 loan agreement bear interest at a fixed rate of 7.32%. Borrowings underthe May 10, 2006 loan agreement bear interest at a fixed rate of 7.70%.

***Certain Covenants.******  ***The loans include general andoperating covenants that restrict the borrower from incurring additionalindebtedness and other limitations which are customary for such creditfacilities.

**GATX AircraftCalyon Facility**

***General.******  ***On October 12, 2006, awholly owned subsidiary entered into a senior secured loan facility in theaggregate amount of up to $248.0 million with Calyon and certain otherfinancial institutions in order to finance the purchase of up to 25 aircraftfrom GATX. Borrowings under the senior facility can be used to finance thelesser of 70% of the purchase price of each aircraft and a scheduled percentageof the loan amount allocated to such aircraft. Concurrently with this facility,we will provide junior and subordinated debt to finance the balance of thepurchase price. This subsidiary will enter into (a) a junior loan facilitywith us in an aggregate amount of up to $30.5 million to finance a portion ofthe purchase price of each aircraft not financed under the senior facility and (b) asubordinated note purchase agreement to finance the portion of the purchaseprice of each such aircraft not financed under the senior facility or thejunior facility. Initially, we or one of our wholly owned subsidiaries willprovide the junior loan facility and the subordinated note financing. As of December 31,2006, the amount outstanding under the senior facility was $218.4 million.

***Interest Rate.******  ***Borrowings under the seniorfacility bear interest at a rate of one month LIBOR plus 1.75% per annum forthe first five years of the term, and at a rate of one month LIBOR plus 2.25% per annumfor the remainder of the term.

***Prepayment.******  ***After full repayment ofamounts outstanding under the liquidity facility described below, prepayment ofborrowings under the senior facility is permitted with notice, subject to aprepayment fee during the initial two years of the senior facility. Mandatoryprepayments of borrowings related to a particular aircraft are required:

·       uponthe sale or other disposal of a financed aircraft;

·       uponthe total loss of a financed aircraft; and

·       ifany document granting a security interest to the senior and junior lenders andother secured parties ceases to be in full force and effect.

***Payment Terms.******  ***Payments of principal andinterest under the loan are due on a monthly basis, and all outstandingprincipal not paid during the term is due on the final maturity date.

***Maturity Date.******  ***The final maturity date ofthe loans is October 12, 2013.

***Put to AerCap.******  ***If the junior and seniorloans attributable to any financed aircraft are not paid by the earlier of (a) the21st anniversary of the date of manufacture of such aircraft and (b) thefinal maturity date of the loans, then the collateral agent for the lenders maycause such aircraft to be sold to our wholly 

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owned subsidiary, AerCapB.V., for a purchase price equal to the outstanding principal amount of thejunior and senior loans attributable to such aircraft together with breakagecosts plus a pro rata portion of any amounts outstanding under the liquidityfacility and taxes and expenses.

***Liquidity Facility.******  ***Calyon will provide aliquidity facility in the amount of $27.0 million through December 2006 (orFebruary 2007 subject to certain conditions); thereafter the liquidityfacility will be available in an amount equal to the greater of (i) $10.0million and (ii) $27.0 million multiplied by a fraction, the numerator ofwhich is the aggregate outstanding principal amount under the senior and juniorfacilities and the denominator of which is the aggregate amounts committedunder the senior and junior facilities. The liquidity facility may be drawnupon to finance any shortfall in certain amounts owed on any repayment date,including, minimum principal payments, payments of interest due under thesenior or junior facility and certain expenses.

***Aircraft ManagementServices.******  ***Wewill provide aircraft management services in respect of the financed aircraft,for which we will receive a fee.

***Collateral.******  ***Borrowings under the seniorfacility are secured by mortgages on the aircraft and security interest in andpledges or assignments of all the shares and other ownership interests in theborrower and its subsidiaries, as well as their bank accounts and leaseinterests.

***Certain Covenants.******  ***The loans include general andoperating covenants that restrict the borrower from incurring additionalindebtedness and other limitations which are customary for such creditfacilities.

**Other CommercialBank Financings**

We have entered into various commercial bankfinancings to fund the purchase of aircraft. The financings mature at variousdates through 2019. The interest rates are LIBOR based with spreads rangingfrom 0.95% to 1.80%. The financings are secured by, among other things, a pledgeof the shares of the subsidiaries owning the related aircraft, a guarantee fromus and, in certain cases, a mortgage on the applicable aircraft. The aggregateprincipal amount of the loans outstanding under the commercial bank financingswas $298 million as of December 31, 2006.

All of our financingscontain affirmative covenants customary for secured financings. Four of thecommercial bank financings contain change of control provisions that grant thelenders the right to prepayment of their loans in the event of a change ofcontrol, unless the lenders consent to the change of control.

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**Item 6.**                        Directors,Senior Management and Employees

**Directors and senior management.**

| **Name**                      | ** ** | ** ** | ** ** | **Age**                                                              | ** ** | **Position** |
|-------------------------------|------------|------------|------------|----------------------------------------------------------------------|------------|--------------|
| **Directors**                 |       |       |       |                                                                 |
| Pieter Korteweg               |       | 65         |       | Non-Executive  Chairman of the Board of Directors                    |
| Ronald J. Bolger              |       | 59         |       | Non-Executive  Director                                              |
| James N. Chapman              |       | 44         |       | Non-Executive  Director                                              |
| Klaus W. Heinemann            |       | 55         |       | Executive Director,  Chief Executive Officer                         |
| W. Brett Ingersoll            |       | 43         |       | Non-Executive  Director                                              |
| Marius J.L. Jonkhart          |       | 57         |       | Non-Executive  Director                                              |
| Gerald P. Strong              |       | 62         |       | Non-Executive  Director                                              |
| David J. Teitelbaum           |       | 35         |       | Non-Executive  Director                                              |
| Robert G. Warden              |       | 34         |       | Non-Executive  Director                                              |
| **Executive Officers**        |       |       |       |                                                                 |
| Wouter M. (Erwin) den  Dikken |       | 39         |       | Chief Legal Officer                                                  |
| Patrick P. den Elzen          |       | 41         |       | Head of Trading                                                      |
| Soeren E. Ferré          |       | 39         |       | Head of Europe, Middle  East, Africa & Asia/Pacific Regions |
| Nicolas Finazzo               |       | 40         |       | AeroTurbine Chief  Executive Officer                                 |
| Keith A. Helming              |       | 48         |       | Chief Financial Officer                                              |
| Aengus Kelly                  |       | 33         |       | Group Treasurer                                                      |
| Heinrich H. Loechteken        |       | 45         |       | Chief Investment Officer                                             |
| Anil Mehta                    |       | 57         |       | Executive Vice President  of Americas                                |
| Robert B. Nichols             |       | 50         |       | AeroTurbine Chief  Operating Officer                                 |
| Cole T. Reese                 |       | 42         |       | Chief Tax &  Accounting Officer                             |
| Reynoud K. Simonis            |       | 43         |       | Chief Technical Officer                                              |

 

***Directors***

**PieterKorteweg.****  **Mr. Korteweghas been a director of our company since September 20, 2005. He serves invarious positions in numerous organizations including as Chairman of theSupervisory Board of a number of Cerberus companies in the Netherlands,including Aozora Bank Ltd., consultant to and Vice Chairman of Cerberus GlobalInvestment Advisors, LLC and member of the Supervisory Boards ofDaimlerChrysler Netherlands B.V. and Hypo Real Estate Holding AG. He alsoserves as senior advisor to Anthos B.V. Mr. Korteweg previously served asChairman of the Supervisory Board of Pensions and Insurance SupervisoryAuthority of The Netherlands, Chairman of the Supervisory Board of the DutchCentral Bureau of Statistics and Vice-Chairman of the Supervisory Board of DeNederlandsche Bank from 2002 to 2004. From 1987 to 2001, Mr. Korteweg wasPresident and Chief Executive Officer of the Group Executive Committee ofRobeco Group in Rotterdam. From 1981 to 1986, he was Treasurer-General atThe Netherlands Ministry of Finance. In addition, Mr. Korteweg was aprofessor of economics from 1971 to 1998 at Erasmus University Rotterdam in TheNetherlands. Mr. Korteweg holds a PhD in Economics from Erasmus UniversityRotterdam.

**RonaldJ. Bolger.****  **Mr. Bolgerhas been a director of our company since October 11, 2005. Mr. Bolgercurrently serves as a member of the board of directors of a number of companiesincluding Ely Capital Ltd., Irish Food Processors, C & DFoods Ltd., Galway Clinic Doughiska Ltd. and Global Shares Plc. He is a formerManaging Partner of KPMG Ireland and has wide experience in the financialservices industry. He served on the Irish Prime Minister’s Committee for Dublin’sInternational Financial Services Centre from 1987 to 2002. Mr. Bolger wasappointed Honorary Consul General of Singapore in 

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Ireland in 2000. Mr. Bolgeris a Chartered Accountant and holds a BA in Economics from University CollegeDublin.

**JamesN. Chapman.****  **Mr. Chapmanhas been a director of our company since December 7, 2005. Mr. Chapmanis non-executive Vice Chairman and Director of JetWorks Leasing, LLC, anaircraft management services company based in Greenwich, Connecticut, which hejoined in December 2004. Prior to JetWorks, Mr. Chapman joinedRegiment Capital Advisors, LLC in January 2003, a high-yield hedge fundbased in Boston. Prior to Regiment, Mr. Chapman was a capital markets andstrategic planning consultant and worked with private and public companies aswell as hedge funds (including Regiment) across a range of industries. Mr. Chapmanwas affiliated with The Renco Group, Inc. from December 1996 to December 2001.Presently, Mr. Chapman serves as a member of the board of directors ofCoinmach Service Corp., as well as a number of private companies. Mr. Chapmanreceived an MBA with distinction from Dartmouth College and was elected as anEdward Tuck Scholar. He received his BA, with distinction, *magna cum laude*, from Dartmouth Collegeand was elected to *Phi Beta Kappa*,in addition to being a Rufus Choate Scholar.

**Klaus W.Heinemann.****  **Mr. Heinemannhas been the Chief Executive Officer of our company since April 2003 andhas over 25 years of experience in the aviation financing industry. Mr. Heinemannhas been a director of our company since 2002. Mr. Heinemann joined ourcompany in October 2002 from DVB Bank, where he was a Member of theExecutive Board. In 1988 he joined the Long-Term Credit Bank of Japan in Londonas Deputy General Manager and Head of the Aviation Group. He was laterappointed as Joint General Manager of the Head Office at the Long-TermCredit Bank of Japan, where he was responsible for the Transportation Financedivision before this division was sold to DVB Bank in 1998. Mr. Heinemannstarted his career with Bank of America in 1976, where he helped to build upits Aviation Finance department in Europe. Mr. Heinemann holds the degreeof Diplom-Kaufmann (Bachelor of Commerce) from the University of Hamburg.

**W.Brett Ingersoll.****  **Mr. Ingersollhas been a director of our company since September 20, 2005. He iscurrently a Managing Director of Cerberus Capital Management, L.P., a seniormember of its Private Equity Practice and a member of its Investment Committee.Mr. Ingersoll is also a director of ACE Aviation Holdings Inc. and amember of the Audit, Finance and Risk Committee and the Human Resources andCompensation Committee of ACE Aviation Holdings Inc. In addition, Mr. Ingersollis a director of various public and private companies, including Coram HealthCare, IAP Worldwide Services, Inc., Aeroplan (AER TO), Pitney Bowes,Talecris Bio Therapeutics, Inc. and Endura Care, LLC. Prior to joiningCerberus in 2002, Mr. Ingersoll was a Partner at JP Morgan Partners(formerly Chase Capital Partners) from 1993 to 2002. Mr. Ingersollreceived his MBA from Harvard Business School and his BA from Brigham YoungUniversity.

**MariusJ.L. Jonkhart.****  **Mr. Jonkharthas been a director of our company since October 11, 2005. Mr. Jonkhartis currently the Chief Executive Officer of NOB Holding N.V. He is currentlyalso a member of the Supervisory Boards of Connexxion Holding N.V., CorusNetherland N.V. and Staatsbosbeheer, Chairman of the Supervisory Board ofRuimte voor Ruimte Beheer B.V. and a non-executive director of Aozora Bank. Mr. Jonkhartis an advisor to Cerberus Global Investment Advisors, LLC. Mr Jonkhart waspreviously the Chief Executive Officer of De Nationale Investerings Bank N.V.and also served as the director of monetary affairs of the Dutch Ministry offinance. He was also a professor of finance at Erasmus University Rotterdam. Hehas served as a member of a number of supervisory boards, including theSupervisory Boards of the European Investment Bank, Bank Nederlandse GemeentenN.V., Postbank N.V., NPM Capital N.V., Kema N.V., AM Holding N.V. and De NederlandscheBank N.V. He has also served as chairman of the Investment Board of ABP PensionFund and several other funds. Mr. Jonkhart holds a Master’s degree inBusiness Administration, a Master’s degree in Business Economics and a PhD inEconomics from Erasmus University Rotterdam.

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**GeraldP. Strong.****  **Mr. Stronghas been a director of our company since July 26, 2006. He currently is aManaging Director of Cerberus Capital Partners’ operations in Europe. Mr. Stronghas extensive senior experience in a number of industries, including airlines,global communications, retailing, and consumer products. He has served seniorroles in the restructuring and building of a number of international businessesin his career. Mr. Strong was Chairman of the Advisory Board on TelecomSecurity to the government of the United Kingdom from 2002 to 2005 andPresident and Chief Executive Officer of Teleglobe International HoldingsLimited. He is also a member of the Governing Council of the Ashridge BusinessSchool, a Director of NewPage Corporation and Chairman of Virtual IT. Mr. Strongreceived his BA with honors from Trinity College, Dublin.

**DavidJ. Teitelbaum.****  **Mr. Teitelbaumhas been a director of our company since September 20, 2005. Mr. Teitelbaumis a Managing Director of Cerberus Capital Management, LLC and has worked forCerberus and/or its affiliates since 1997. Prior to joining Cerberus, Mr. Teitelbaumworked in the investment banking department of Donaldson, Lufkin &Jenrette. Mr Teitelbaum holds a BS in Business Administration from theUniversity of California, Berkeley.

**Robert G. Warden.****  **Mr. Warden has been a directorof our company since September 20, 2005. He is also currently a ManagingDirector of Cerberus Capital Management, L.P., which he joined in February 2003.Mr. Warden is also currently a director of Aeroplan and Bluelinx Corporation.Prior to joining Cerberus, Mr. Warden was a Vice President at J.H. Whitneyfrom May 2000 to February 2003, a Principal at Cornerstone EquityInvestors LLC from July 1998 to May 2000 and an Associate atDonaldson, Lufkin & Jenrette from July 1995 to July 1998. Mr. Wardenreceived his AB from Brown University.

***Executive Officers***

**WouterM. (Erwin) den Dikken.****  **Mr. den Dikken was appointed as our Chief LegalOfficer in 2005 and has served as the Head of the Group Legal Servicesdepartment since 2004. He joined our legal department in 1998. Prior to joiningus, Mr. den Dikken worked for an international packaging company inGermany as Senior Legal Counsel where he focused on mergers and acquisitions. Mr. denDikken holds a law degree from Utrecht University.

**PatrickP. den Elzen.****  **Mr. denElzen was appointed as the Head of Trading in 2005 and he served as the Vice Presidentof Financial Engineering of our company prior to this appointment. Prior tojoining us in October 2003, Mr. den Elzen worked as the Senior VicePresident of Corporate Development with IEM Airfinance for two years, andbefore that, he worked in various capacities with ING Bank and ING Lease foreight years. Mr. den Elzen holds a Master’s degree from the University ofAmsterdam in Business Administration and International Financial Markets.

**SoerenE. Ferré.****  **Mr. Ferréhas been the Head of Europe, Middle East, Africa & Asia/Pacific Regionof our company since June 2006. He joined our company in September 2003as Vice President of Marketing for the Asia/Pacific region. In July 2004,he was appointed as the Head of Sales and Marketing for the Asia/Pacificregion. He started his career at Airbus in 1990 and was based in Toulouse,France. In 1995, he moved to China and became the head of the marketing teamcovering China, Hong Kong and Macau for Airbus prior to becoming a SalesDirector in 1999 in charge of the major Chinese airlines. In 2001, Mr. Ferrémoved to Sydney to become the Director of Sales for the Pacific region forAirbus where he was in charge of the major airlines in that region. Mr. Ferréholds a Bachelor’s degree in Engineering from the ENAC—Ecole National de l’AviationCivile.

**NicolasFinazzo.****  **Mr. Finazzois the Chief Executive Officer of AeroTurbine, which he co-founded in1997. He has been active in the aviation industry for over 25 years. In1982 he founded Air Florida commuter carrier Southern Express Airways. In 1987 Mr. Finazzojoined Miami-based Greenwich Air Services as Vice President—Contracts. In1992 he became Vice President & General Counsel to 

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Miami-basedInternational Air Leases, and in 1997, he accepted a similar position at Miami-basedAeroThrust Corp. Mr. Finazzo earned a JD from the University of MiamiSchool of Law and a BS in Political Science from the University of Michigan. Heis a member of the Florida Bar and also holds an Airframe & Powerplantlicense issued by the Federal Aviation Administration.

**KeithA. Helming.****  **Mr. Helmingassumed the position of Chief Financial Officer of AerCap effective August 21,2006. Prior to joining us, he was a long standing executive at GE Capital Corporation,including serving recently for five years as Chief Financial Officer ataircraft lessor GE Commercial Aviation Services (GECAS). He was with GeneralElectric Company for over 25 years, beginning with their FinancialManagement Program in 1981. In addition to the GECAS role, Mr. Helmingserved as the Chief Financial Officer of GE Corporate Financial Services,GE Fleet Services and GE Consumer Finance in the United Kingdom, and also helda variety of other financial positions throughout his career at GECC. Mr. Helmingholds a Bachelor of Science degree in Finance from Indiana University.

**AengusKelly.****  **Mr. Kellyhas been the Group Treasurer of our company since 2005. He started his careerin the aviation leasing and financing business with Guinness Peat Aviation in1998 and has continued working with its successors AerFi in Ireland and debisAirFinance and AerCap in Amsterdam. Prior to joining GPA in 1998, he spentthree years with KPMG in Dublin. Mr. Kelly is a Chartered Accountant andholds a Bachelor’s degree in Commerce and a Master’s degree in Accounting andFinance from University College Dublin.

**HeinrichH. Loechteken.****  **Mr. Loechtekenhas been the Chief Investment Officer of our company since August 2006.Prior to serving as our Chief Investment Officer, Mr. Loechteken served asour Chief Financial Officer between September 2002 and August 2006.Prior to his employment with us, Mr. Loechteken served as the ChiefFinancial Officer of DaimlerChrysler Capital Services in Norwalk, Connecticut,where he was responsible for the financial operations of the non-automotivefinance activities of DaimlerChrysler in North America, Europe and Asia. Healso served as the Chief Credit Officer for DaimlerChrysler Services in Berlin,Germany prior to his appointment as Chief Financial Officer. Before joiningDaimlerChrysler in 1996, he worked for six years in various positions incorporate finance, credit analysis and credit risk management at Deutsche Bank.Mr. Loechteken holds the degree of Diplom-Kaufmann from theUniversity of Muenster where he majored in Finance and Bank Controlling.

**AnilMehta.****  **Mr. Mehtahas been the Executive Vice President of Americas for our company since June 2006.Prior to serving in this capacity, he was the Head of Europe, Middle East,Africa & Indian Subcontinent Region since 2004. Mr. Mehta joinedour company in 1997 in the Marketing and Sales Department and was promoted tobecome the Executive Vice President of Marketing and a Member of the GroupExecutive Committee in 2003. Mr. Mehta has over 30 years ofexperience in the aviation industry. Mr. Mehta has served in variouscapacities at Fokker Aircraft based in Amsterdam, holding various positions inFlight Test, Performance Engineering, Marketing and Sales. In 1989 he moved tothe United States to serve as Regional Sales Director. Anil Mehta has aBachelor’s Degree in Engineering from Birla Institute of Technology &Science in Pilani, India.

**RobertB. Nichols.****  **Mr. Nicholsis the Chief Operating Officer for AeroTurbine and co-founded AeroTurbine in1997. He has been active in the aviation industry for over 20 years. Hejoined Aviall in 1982 and assumed various roles in the administration of JT8D &CFM56-3 power plant maintenance. Mr. Nichols joined Braniff Airwaysin 1988 as Manager of Powerplant & Warranty Administration andparticipated in the oversight of outsourced powerplant maintenance coveringJT8D, V2500 and Tay-650 engines. When Braniff ceased operations, Mr. Nicholsjoined Greenwich Air Services in 1989 as Director of Engine Maintenance Sales.In 1990 he joined AeroThrust Corp. where he became Vice President of EngineSales & Leasing. Mr. Nichols is a graduate of the University ofTexas where he earned a BS in Business Administration.

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**ColeT. Reese.****  **Mr. Reesehas been the Chief Tax and Accounting Officer of our company since September 2002.Prior to joining AerCap, Mr. Reese worked for nine years for MCC FinancialCorporation, a turboprop operating lessor in Washington D.C., where heultimately became Chief Financial Officer. Mr. Reese also worked for threeyears with Ernst & Young. He is a U.S. certified public accountant andholds a Master’s degree in Accountancy and a BS in Accounting from BrighamYoung University.

**Reynoud K. Simonis.****  **Mr. Simonis has been the ChiefTechnical Officer of our company since 2005. Mr. Simonis joined ourcompany in 1998 as Technical Manager and was eventually promoted to becomeSenior Vice President of the Technical department. Mr. Simonis started hiscareer in 1989 at the Schreiner Aviation Group where he held various positionsin technical management, quality management and material management, and wasbased in The Netherlands as well as Lagos, Nigeria. In 1996, he joinedTransavia Airlines as Quality Manager. Mr. Simonis holds a Master’s degreein Aerospace Engineering from the Delft University of Technology.

***Compensation of Non-Employee Directors***

We currently pay eachnon-executive director who is not affiliated with Cerberus an annual fee of €75,000and pay each of these directors an additional €2,000 per meeting. We payour Chairman of our Board of Directors €150,000 per year. Inaddition, we pay the chairs of the Audit Committee and Nomination andCompensation Committee an annual fee of € 18,000 and each committeemember will receive an annual fee of €6,000 and a fee of €2,000per committee meeting. All members of the Board of Directors are reimbursed forreasonable costs and expenses incurred in attending meetings of our Board of Directors.

***Executive Officer Compensation***

In 2006, we paid anaggregate of approximately €9.1 million in cash andbenefits as compensation to our 14 executive officers during the year. In 2006,we paid our executive officers three types of bonuses: annual target bonuses,major transaction bonuses and loyalty bonuses. The amount of the annual targetbonus is based on the achievement of personal targets, as set out in a personaltarget agreement. Major transaction bonuses are paid to members of ourmanagement team for the completion of major transactions, such as significantdebt and equity financings and merger and acquisition activities. The loyaltybonuses are paid to retain executive officers and to retain key members of ourstaff. All bonuses are determined by our Chief Executive Officer with approvalfrom the Nomination and Compensation Committee, and the Nomination andCompensation Committee determines the amount of any bonuses paid to our ChiefExecutive Officer.

**Equity IncentivePlan**

***Bermuda Parents Equity Incentive Plan***

The Bermuda Parents, our indirect shareholders, haveimplemented an equity incentive plan that is designed to motivate and retainindividuals who are responsible for the attainment of our primary long-termperformance goals. The plan provides for the grant of nonqualified stockoptions, incentive stock options for shares of common stock and restrictedshares of common stock of the Bermuda Parents to participants of the planselected by the boards of directors of the Bermuda Parents or a committee ofeach of their respective boards of directors or the administrator of the plan.Subject to certain adjustments, the maximum number of shares available to begranted under the plan is equal to 25% of the outstanding common shares of theBermuda Parents. As of December 2006, common shares or options to purchasecommon shares of the Bermuda Parents, representing indirectly 12.5% of ourordinary shares on a fully diluted basis, were issued and are outstanding underthe plan.

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All shares and options granted under the BermudaParents equity incentive plan vested after completion of our initial publicoffering in November 2006 or as of December 31, 2006, except foroptions outstanding to three members of management representing indirectly 0.7%of our ordinary shares. Even after vesting, pursuant to a shareholdersagreement, all vested common shares and options to purchase common shares ofthe Bermuda Parents issued under the plan (other than common shares held by theformer AeroTurbine owners and our directors) are subject to repurchase by theBermuda Parents in the event the manager leaves his position without good causeor is terminated by us with cause, at a price equal to the lower of the cost orfair value until the termination of the two-year lock-up period describedbelow. All common shares and options to purchase common shares are also subjectto repurchase at fair value if the manager leaves for any other reason. Thecommon shares of the Bermuda Parents are also subject to Cerberus’s drag-alongrights and the plan participant’s tag-along rights in the event of certaintransactions involving sales of the common shares of the Bermuda Parents.

In connection with our initial public offering, themembers of our senior management and directors who have received shares oroptions to purchase shares of the Bermuda Parents under the Bermuda Parentsequity incentive plan agreed not to offer, sell, contract to sell, pledge,grant any option to purchase, make any short sale or otherwise dispose of anyof our ordinary shares directly held by them or indirectly held through theBermuda Parents. Subject to limited exceptions, the lock-up is for a period oftwo years from the date our initial public offering was consummated. Inaddition, the members of our senior management and directors holding commonshares of the Bermuda Parents also have received the right, beginning on thesecond anniversary of the consummation of this offering and ending on the fifthanniversary, to exchange Bermuda Parents common shares for our ordinary sharesheld by the selling shareholders in amounts representing their indirectinterest in us held through the Bermuda Parents. To assist our management anddirectors in the resale of our ordinary shares to be held by them upon suchexchange, we have agreed to file a registration statement and use commerciallyreasonable efforts to keep the registration statement continuously effectiveuntil all applicable ordinary shares have been sold or can be sold withoutregistration under Rule 144(k) under the Securities Act.

The indirect ownership inour ordinary shares represented by the grants of shares and options discussedabove are reflected in the table under “—Share Ownership”.

***New Equity Incentive Plan***

On October 31, 2006, we implemented an equityincentive plan that is designed to promote our interests by enabling us toattract, retain and motivate directors, employees, consultants and advisors andalign their interests with ours. Our new equity incentive plan provides for thegrant of nonqualified stock options, incentive stock options, stockappreciation rights, restricted stock, restricted stock units and other stockawards to participants of the plan selected by the Nomination and CompensationCommittee of our Board of Directors. Subject to certain adjustments, themaximum number of shares available to be granted under the plan is equal to 5%of our outstanding shares. No shares have been issued and none are outstandingunder the plan.

The terms and conditionsof awards, including vesting provisions for stock options, are determined bythe Nomination and Compensation Committee, except that, unless otherwisedetermined by the Nomination and Compensation Committee, or as set forth in anaward agreement: (a) each stock option is granted for ten years from thedate of grant, or, in the case of certain key employees, i.e., employees owningmore than 10% of our ordinary shares, for five years from the date of grant;provided, however, no stock option period may extend beyond ten years from thedate of grant; (b) the option price per share may not be less than 100% ofthe fair market value of the ordinary shares except that the option price pershare for a key employee may not be less than 110% of the fair market value ofthe ordinary shares at the time the incentive stock option is granted; and (c) incentivestock options may only be issued to the extent the aggregate fair market valueof shares with respect to the exercise of the incentive stock options for thefirst 

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time byan option holder during any calendar year is $100,000 or less, with anyadditional stock options being treated as nonqualified stock options.

**Board Practices**

***General***

Our Board of Directors currently consists of ninedirectors, eight of whom are non executive directors and are independent underthe independence definition in The Netherlands Corporate Governance Code. As aforeign private issuer, as defined by the Securities Exchange Act of 1934, asamended, we are not required to have a majority independent board of directorsunder applicable New York Stock Exchange rules.

We apply the Netherlands Corporate Governance Codeindependence criteria. According to these criteria, to be considered “independent”,a director (and his or her spouse and immediate relatives) may not, among otherthings, (i) in the five years prior to his or her appointment, have beenan employee or executive director of us or any Dutch public company affiliatedwith us, (ii) in the year prior to his or her appointment, have had animportant business relationship with us or any Netherlands public companyaffiliated with us, (iii) receive any financial compensation from us otherthan for the performance of his or her duties as a director or other than inthe ordinary course of business, (iv) hold 10% or more of our ordinaryshares (including ordinary shares subject to any shareholder’s agreement), (v) bea member of the management or supervisory board of a company owning 10% or moreof our ordinary shares, and (vi) in the year prior to his or herappointment, has temporarily managed our day-to-day affairs while the executivedirector was unable to discharge his or her duties.

The directors are appointed at the general meeting ofthe shareholders. Our directors may be elected by the vote of a majority ofvotes cast at a general meeting of shareholders provided that our Board ofDirectors has proposed the election. Without a Board of Directors proposal,directors may also be elected by the vote of a majority of the votes cast at ageneral meeting of shareholders if the majority represents at least one-thirdof our issued capital.

Shareholders may remove or suspend a director by thevote of a majority of the votes cast at a general meeting of shareholdersprovided that our Board of Directors has proposed the removal. Our shareholdersmay also remove or suspend a director, without there being a proposal by theBoard of Directors, by the vote of a majority of the votes cast at a generalmeeting of shareholders if the majority represents at least one-third of ourissued capital.

Under our Articles of Association, the rules forthe Board of Directors and the board committees and Netherlands corporate law,the members of the Board of Directors are collectively responsible for themanagement, general and financial affairs and policy and strategy of ourcompany.

The executive director is our Chief Executive Officer,who is primarily responsible for managing our day-to-day affairs as well asother responsibilities that have been delegated to the executive director inaccordance with our Articles of Association and our internal rules for theBoard of Directors. The non-executive directors supervise the Chief ExecutiveOfficer and our general affairs and provide general advice to our ChiefExecutive Officer. In performing their duties, the non-executive directors areguided by the interests of the company and shall, within the boundaries set byrelevant Netherlands law, take into account the relevant interests of ourshareholders. The internal affairs of the Board of Directors are governed byour rules for the Board of Directors.

The Chairman of the Board is obligated to insure,among other things, that (i) each director receives all information aboutmatters that he or she may deem useful or necessary in connection with theproper performance of his or her duties, (ii) each director has sufficienttime for consultation and decision 

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making, and (iii) theBoard of Directors and the board committees are properly constituted andfunctioning.

Each director has the right to cast one vote and maybe represented at a meeting of the Board of Directors by a fellow director. TheBoard of Directors may pass resolutions only if a quorum of four directors,including our Chief Executive Officer, the Chairman or Vice Chairman is presentat the meeting. All resolutions must be passed by an absolute majority of thevotes cast. If there is a tie, the matter will be decided by the Chairman ofour Board of Directors or in his or her absence, the Vice Chairman.

Subject to Netherlandslaw, resolutions may be passed in writing by a majority of the directors inoffice. Pursuant to the internal rules for our Board of Directors, adirector may not participate in discussions or the decision making process on atransaction or subject in relation to which he or she has a conflict ofinterest with us. Resolutions to enter into such transactions must be approvedby a majority of our Board of Directors, excluding such interested director ordirectors.

***Committees of the Board of Directors***

The Board of Directors has established a GroupExecutive Committee, a Group Portfolio and Investment Committee, a Group Treasuryand Accounting Committee, an Audit Committee and a Nomination and CompensationCommittee.

Our Group Executive Committee is responsible for ouroperational management. It is chaired by our Chief Executive Officer and iscomprised of ten current members of our senior management. The current membersof our Group Executive Committee are Klaus Heinemann, Heinrich Loechteken,Keith Helming, Aengus Kelly, Patrick den Elzen, Erwin den Dikken, ReynoudSimonis, Cole Reese, Soeren Ferré and Anil Mehta.

Our Group Portfolio and Investment Committee hasauthority to enter into and is responsible for transactions relating to theacquisition and disposal of aircraft, engines and financial assets that are inexcess of $100 million but less than $500 million. It is chaired by our ChiefInvestment Officer and is comprised of members of the Group Executive Committeeand non-executive directors or any other person appointed by the Board ofDirectors upon recommendation of the Nomination and Compensation Committee. Thecurrent members of our Group Portfolio and Investment Committee are KeithHelming, Soeren Ferré, Heinrich Loechteken, Klaus Heinemann, Robert Warden,Oliver Brown, Patrick den Elzen, and Reynoud Simonis.

Our Group Treasury and Accounting Committee has authorityand is responsible for committing debt funding in excess of $100 million butnot exceeding $500 million per transaction. It is chaired by our Chief FinancialOfficer and is comprised of certain members of the Group Executive Committeeand certain non-executive directors or any other person appointed by the Boardof Directors upon recommendation of the Nomination and Compensation Committee.The current members of our Group Treasury and Accounting Committee are KeithHelming, Cole Reese, David Teitelbaum, Klaus Heinemann, Aengus Kelly, HeinrichLoechteken and Robert Warden.

Our Audit Committee assists the Board of Directors infulfilling its responsibilities relating to the integrity of our financialstatements, our risk management and internal control arrangements, ourcompliance with legal and regulatory requirements, the performance,qualifications and independence of external auditors, and the performance ofthe internal audit function. The Audit Committee is chaired by a person withthe necessary qualifications who is appointed by the Board of Directors and iscomprised of three non-executive directors who are “independent” as defined by Rule 10A-3of the Securities Exchange Act of 1934, as amended, as well as under TheNetherlands Corporate Governance Code. The current members of our AuditCommittee are Marius Jonkhart, James Chapman and Ronald Bolger.

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Our Nomination andCompensation Committee selects, recruits and determines the remuneration,bonuses and other terms of employment of candidates for the positions of theChief Executive Officer, non-executive director and Chairman of the Board ofDirectors, approves the remuneration, bonuses and other terms of employment andrecommends candidates for positions in the Group Portfolio and Investment Committee,the Group Treasury and Accounting Committee, the Group Executive Committee andrecommends candidates for the Audit Committee and plans the succession withinthe Board of Directors and committees. It is chaired by the Chairman of ourBoard of Directors and is comprised of two non-executive directors appointed bythe Board of Directors. The current members of our Nomination and CompensationCommittee are Brett Ingersoll, Marius Jonkhart and Pieter Korteweg.

***Nomination and Compensation Committee Interlocks andInsider Participation***

None of our Nomination andCompensation Committee members or our executive officers have a relationshipthat would constitute an interlocking relationship with executive officers ordirectors of another entity or insider participation in compensation decisions.

***Employees***

Thetable below provides the number of our employees at each of our geographicallocations as of the dates indicated.

| **Location**                | ** ** | ** ** | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------|------------|------------|------------|---------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Amsterdam, The  Netherlands |       |       | 80         |                            |       |                            | 71         |                            |       |   | 71 |   |   |
| Shannon, Ireland            |       |       | 23         |                            |       |                            | 27         |                            |       |   | 37 |   |   |
| Fort Lauderdale,  FL        |       |       | 10         |                            |       |                            | 11         |                            |       |   | 13 |   |   |
| Miami, FL(1)                |       |       | 99         |                            |       |                            | 124        |                            |       |   | 163 |   |   |
| Goodyear, AZ(2)             |       |       | —     |                            |       |                            | —     |                            |       |   | 67 |   |   |
| **Total**                   | ** ** | ** ** | **212**    |                            | ** ** | ** **                      | **233**    |                            | ** ** | ** ** | **351** |   |   |

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(1)          Employees located inMiami, Florida are employees of AeroTurbine which we acquired in April 2006.

(2)          On August 4, 2006we leased an aircraft MRO facility located in Goodyear, Arizona and hired 74 ofthe employees working at the facility.

None of our employees arecovered by a collective bargaining agreement and we believe that we maintainexcellent employee relations. Although by law we are required to have a workscouncil for our operations in The Netherlands, our employees have not electedto date to organize a works council. Recently an employee solicited otheremployees’ interest in setting up a works council. A works council is a councilcomposed of employees with the task of promoting our interests and theinterests of our employees.

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**Share ownership.**

Thefollowing table sets forth beneficial ownership of our shares which are held bymembers of our senior management team and our non-executive directors: 

| ** **                                                                | ** ** | **Ordinary  shares  beneficially  owned(1)** | ** ** | **Ordinary  shares  underlying  vested, but  unexercised  options—no  strike price(2)** | ** ** | **Ordinary  shares  underlying  vested, but  unexercised  options(2)(3)** | ** ** | **Ordinary  shares  underlying  unvested  options(2)(3)** | ** ** | **Fully  Diluted  Ownership  Percentage** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------|------------|
| **Directors:**                                                            |       |                                         |       |                                                                                                   |       |                                                                           |       |                                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Ronald J. Bolger                                                          |       | —                                       |       |                                                                                                   | —     |                                                                           |       |                                                      | 42,098     |                                      |       |   | — |   |   |   | * |   |   |
| James N. Chapman                                                          |       | —                                       |       |                                                                                                   | —     |                                                                           |       |                                                      | 84,196     |                                      |       |   | — |   |   |   | * |   |   |
| Pieter Korteweg                                                           |       | —                                       |       |                                                                                                   | —     |                                                                           |       |                                                      | 84,196     |                                      |       |   | — |   |   |   | * |   |   |
| W. Brett  Ingersoll(4)                                                    |       | —                                       |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | — |   |   |
| Klaus W.  Heinemann(5)                                                    |       | 381,082                                      |       |                                                                                                   | 1,405,690  |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | 2.1 | % |   |
| Marius J. L.  Jonkhart                                                    |       | —                                       |       |                                                                                                   |       |                                                                           |       |                                                      | 42,098     |                                      |       |   | — |   |   |   | * |   |   |
| Gerald P.  Strong(4)                                                      |       | —                                       |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | — |   |   |
| David J.  Teitelbaum(4)                                                   |       | —                                       |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | — |   |   |
| Robert G.  Warden(4)                                                      |       | —                                       |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | — |   |   |
| **Executive  Officers:**                                                  |       |                                         |       |                                                                                                   |       |                                                                           |       |                                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Wouter M. (Erwin)  den Dikken                                             |       | 243,292                                      |       |                                                                                                   | —     |                                                                           |       |                                                      | 32,439     |                                      |       |   | 48,658 |   |   |   | * |   |   |
| Patrick den Elzen                                                         |       | 220,127                                      |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | * |   |   |
| Soeren E. Ferré                                                      |       | 254,044                                      |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | * |   |   |
| Nicolas Finazzo                                                           |       | 1,879,264                                    |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | 2.2 | % |   |
| Keith A. Helming                                                          |       | —                                       |       |                                                                                                   | —     |                                                                           |       |                                                      | 294,685    |                                      |       |   | 442,027 |   |   |   | * |   |   |
| Aengus Kelly                                                              |       | 417,608                                      |       |                                                                                                   | —     |                                                                           |       |                                                      | 64,878     |                                      |       |   | 97,317 |   |   |   | * |   |   |
| Heinrich H.  Loechteken                                                   |       | 1,823,154                                    |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | 2.1 | % |   |
| Anil Mehta                                                                |       | 120,035                                      |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | * |   |   |
| Robert B. Nichols                                                         |       | 1,879,264                                    |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | 2.2 | % |   |
| Cole T. Reese                                                             |       | 317,586                                      |       |                                                                                                   | —     |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | * |   |   |
| Reynoud K.  Simonis                                                       |       | 37,221                                       |       |                                                                                                   | 129,756    |                                                                           |       |                                                      | —     |                                      |       |   | — |   |   |   | * |   |   |
| All our directors and  executive officers as a group (21 persons)(8) |       | 7,572,677                                    |       |                                                                                                   | 1,535,446  |                                                                           |       |                                                      | 644,590    |                                      |       |   | 588,002 |   |   |   | 12.2 | % |   |

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*                    Less than1.0%.

(1)          All shareholdingsreflected in the table above reflect indirect beneficial ownership of AerCapHoldings N.V. held through ownership of common shares or options to acquirecommon shares of indirect Bermuda holding companies, or the Bermuda Parents ona fully-diluted basis, assuming the vesting and exercise of all outstandingshare options.

(2)          All options outstandingexpire on June 30, 2015.

(3)          The exercise price ofthe options is equivalent to $7.00 per ordinary share.

(4)          Mssrs. Ingersoll andWarden are each a Managing Director of Cerberus Capital Management, L.P. andMssrs. Strong and Teitelbaum are Managing Directors of affiliates of CerberusCapital Management, L.P.

(5)          Mr. Heinemann isboth a member of our Board of Directors and our Chief Executive Officer.

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All of our ordinary shares have the same votingrights.

The address for all ourofficers and directors is c/o AerCap Holdings N.V., Evert van de Beekstraat312, 1118 CX Schiphol Airport, The Netherlands.

**Item 7.**                        MajorShareholders and Related Party Transactions

Thetable below indicates the beneficial holders of 5% or more of our commonoutstanding shares as of March 21, 2007 to the best of our knowledge:

| ** **                                 | ** ** | **Ordinary shares beneficially owned**                                          | ** ** |
|--------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **       Number       ** | ** ** | **       Percent       ** | ** ** |
| **5% or Greater Beneficial Share  Owner:** |       |                                                                                           |       |   |   |   |   |   |   |
| Stephen Feinberg(1)(2)                     |       |                                                                                           | 48,325,916 |   |   |   | 56.8 | % |   |

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(1)          Cerberus beneficiallyowns 56.8% of our ordinary shares on a fully-diluted basis assuming the vestingand exercise of all outstanding Bermuda holding company options. All of theseshares have the same rights as our other ordinary shares. Stephen Feinbergexercises sole voting and investment authority over all of our ordinary sharesowned by Cerberus. Thus, pursuant to Rule 13d-3 under the ExchangeAct, Stephen Feinberg is deemed to beneficially own 57.5% of our ordinaryshares. The address for Mr. Feinberg is c/o Cerberus Capital Management,L.P., 299 Park Avenue, New York, New York 10171.

(2)          Prior to our initialpublic offering which closed on November 27, 2006, Cerberus beneficiallyowned 82% of our ordinary shares on a fully-diluted basis assuming the vestingand exercise of all outstanding Bermuda holding company options.

As of December 31,2006, none of our ordinary shares were held by record holders in the Netherlands.All of our ordinary shares have the same voting rights.

**Related PartyTransactions**

The following is a summaryof material provisions of various transactions we have entered into withrelated parties since January 1, 2004.

***Related Party Transactions with Current Affiliates***

AerCo is an aircraft securitization vehicle from whichwe hold all of the most junior class of subordinated notes and some notesimmediately senior to those junior notes. We do not recognize value for theAerCo notes which we still hold on our consolidated balance sheets. Through March 2003we consolidated AerCo, but we deconsolidated the vehicle in accordance with FIN46 at that time. Subsequent to the deconsolidation of AerCo, we have receivedinterest from AerCo on its D note investment of $8.5 million, $1.7million, $0.8 million and $1.7 million for the year ended December 31,2004, the six months ended June 30, 2005, the period from June 27,2005 to December 31, 2005 and for the year ended December 31, 2006,respectively. In addition, we provide a variety of management services to AerCofor which we received fees of $5.4 million, $2.4 million, $2.4 million and $5.2million for the year ended December 31, 2004, the six months ended June 30,2005, the period from June 27, 2005 to December 31, 2005 and for theyear ended December 31, 2006, respectively.

We have made payments to Cerberus and third parties on behalf ofCerberus totaling approximately $1.2 million since the 2005 Acquisition. Thepayments to Cerberus represent reimbursement of consulting fees paid byCerberus to individuals who have assisted us in the evaluation of portfolio orcompany purchases, including our AeroTurbine Acquisition. In addition, thisamount also includes approximately $0.2 million of reimbursements for consultingservices incurred by Cerberus in connection with Cerberus’s 

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evaluation of the 2005 Acquisition. We arecurrently establishing agreements directly with the consultants who we expectto retain for similar services instead of working with them through Cerberus.If we accept services from individuals employed by or contracted throughCerberus in the future, we expect these arrangements to reflect arms’ lengthnegotiations that will not be more favorable than the terms we could negotiatewith an independent party. Payments to third parties on behalf of Cerberusconsist of payments to advisors engaged by Cerberus in connection with the 2005Acquisition.

We lease two A320-200 model aircraft to AirCanada. One lease began on April 23, 2002 and extends for a term of sixyears. The other lease began on May 29, 2002 and extends for a term of tenyears. Cerberus indirectly controls 11% of the equity of Air Canada and has amajority equity interest in AerCap Holdings N.V. Cerberus did not hold suchequity interest in Air Canada and AerCap Holdings N.V. at the time we enteredinto the leases with Air Canada.

In February 2006, we entered into a guaranteearrangement with DvB Bank AG and Aozora Bank Limited, an entity that ismajority-owned by Cerberus. In addition, Pieter Korteweg, the Chairman ofour Board of Directors, and Marius Jacques Leonard Jonkhart, a non-executivedirector, are also on the board of directors of Aozora Bank. The guaranteesupports certain of our obligations to a Japanese operating lessor of up to$13.8 million in connection with a JOL financing. The Japanese operatinglessor required the guarantee as additional credit support following the 2005Acquisition. We leased the A320 aircraft from the Japanese operating lessorunder a lease and then subleased the aircraft to an aircraft operator. In theevent we fail to make certain payments related to JOL financing, DvB Bank willmake the payment on our behalf but will be reimbursed by Aozora Bank for anypayments made. We have agreed to indemnify Aozora Bank for any payments itmakes under the guarantee arrangement. The guarantee expires in February 2008.Under the terms of the guarantee arrangement, we are required to provide cashcollateral to Aozora Bank if we breach certain financial covenants. Currentlywe are not in breach of any of these covenants and have not provided any cashcollateral. In connection with the guarantee arrangement, we pay Aozora Bank aguarantee fee of 4.1% per annum of the amount guaranteed and have providedAozora Bank with a second priority share pledge over the shares of the entitythat entered into the financing from the Japanese operating lessor.

In April 2006, we entered into a senior securedrevolving credit facility in the aggregate amount of up to $1.0 billionwith UBS Real Estate Securities Inc., UBS Securities Inc., DeutscheBank Trust Company Americas and certain other financial institutions. AozoraBank is a syndicate member under the facility and participated in up to$50.0 million of the Class A loans and up to $25.0 million ofthe Class B loans issued thereunder, representing 7.0% of the Class Aloans and 13.9% of the Class B loans. As of December 31, 2006, we haddrawn and there remained outstanding $172.2 million of the class Aloans and $40.6 million of the class B loans.

We lease our office and warehouse located in Miami,Florida from an entity owned by the Chief Executive Officer and Chief OperatingOfficer of AeroTurbine. The lease for this facility expires on December 31,2013. The lease was amended in March 2006 to adjust the rent to currentmarket rates commencing on January 2007.

In 2004, we entered intoleases for six A320 aircraft with WizzAir Hungary Limited. As part of asubsequent restructuring of amounts outstanding, WizzAir agreed to issue us sharesof their equity representing 17.4% of their equity as of November 2004. In2005, we agreed with WizzAir’s other shareholders and creditors to enter into aShareholders’ and Noteholders’ Agreement under which we agreed to convert tradereceivables into an unsecured, non-amortizing €7.8 million note, convertible into approximately 26% of WizzAir’soutstanding shares on a fully diluted basis as of February 2005). Underthe terms of the Shareholders’ and Noteholders’ Agreement we were able toappoint a director of WizzAir between February 2005 and June 2005. Theconvertible notes were carried on our balance sheet at December 31, 2005at $1.8 million. We sold all of our WizzAir convertible notes in September 2006.

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***Related Party Transactions with Affiliates of ourPrior Shareholders***

Until the 2005 Acquisition, the Previous ShareholderLenders had provided us with subordinated loans for a total of $350.6 millionas at December 31, 2004. The interest rates on these loans were variableand are calculated on the basis of six-month LIBOR. Interest of $10.9million and $7.4 million was included in interest on indebtedness for the yearended December 31, 2004 and the six months ended June 30, 2005,respectively. These loans were acquired at the 2005 Acquisition by AerCapHoldings C.V. and are eliminated in consolidation in these consolidatedaccounts.

The Previous Shareholder Lenders also participated inour senior credit agreements prior to the 2005 Acquisition. A total of $1,516.6million was outstanding under these credit agreements at December 31, 2004.The interest rate on the credit facility is variable and is calculated on thebasis of LIBOR. Interest on the senior debt of $61.6 million and $34.8 millionis included in interest on debt for the year ended December 31, 2004 andfor the six months ended June 30, 2005, respectively.

Wings is a wholly-ownedsubsidiary of DASA, who is wholly-owned by one of our Previous ShareholderLenders. We provide aircraft lease management and remarketing services to Wingsfor which we received fees of $1.6 million and $0.7 million for the year ended December 31,2004 and the six months ended June 30, 2005, after which Wings is nolonger a related party due to the sale of our shares by our PreviousShareholder Lenders.

**Item 8.**                        FinancialInformation

**Consolidated Statementsand Other Financial Information.**

Please refer to Item 18.Financial Statements and to pages F-1 through F-59 of this annual report.

**Item 9.**                        TheOffer and Listing.

**Offer and listingdetails.**

Not applicable.

**Markets.**

The Company’s shares are traded on the New York StockExchange under the symbol “AER”.

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**Trading on the NewYork Stock Exchange**

Thefollowing table shows, for the periods indicated, the high and low sales pricesper ordinary share as reported on the New York Stock Exchange Composite Tape.

| ** **                                | ** ** | **Price Per  AerCap Holdings N.V.  Ordinary Share(1)** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **     High     **       | ** ** | **     Low     ** | ** ** |
| ** **                                | ** ** | ** **                                                                 | **($)**    | ** ** | ** ** | ** ** | **($)** | ** ** | ** ** |
| **Annual  highs and lows**                |       |                                                                       |       |   |   |   |   |   |   |
| **2006**                                  |       |                                                                       | 25.10      |   |   |   | 21.85 |   |   |
| **Quarterly  highs and lows**             |       |                                                                       |       |   |   |   |   |   |   |
| **2006**                                  |       |                                                                       | 25.10      |   |   |   | 21.85 |   |   |
| **Monthly  highs and lows**               |       |                                                                       |       |   |   |   |   |   |   |
| **2006**                                  |       |                                                                       |       |   |   |   |   |   |   |
| November                                  |       |                                                                       | 25.10      |   |   |   | 21.85 |   |   |
| December                                  |       |                                                                       | 23.46      |   |   |   | 22.10 |   |   |
| **2007**                                  |       |                                                                       |       |   |   |   |   |   |   |
| January                                   |       |                                                                       | 28.00      |   |   |   | 22.75 |   |   |
| February                                  |       |                                                                       | 28.02      |   |   |   | 25.25 |   |   |
| March (through  March 20, 2007) |       |                                                                       | 27.85      |   |   |   | 25.85 |   |   |

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(1)          Share prices providedare intra-day prices through December 31, 2006, and closing prices for allperiods presented since November 21, 2006 (the first day of trading of ourordinary shares on the New York Stock Exchange).

On March 20, 2007,the closing sales price for our ordinary shares on the New York Stock Exchangeas reported on the NYSE Composite Tape was $27.15.

**Item 10.**                 AdditionalInformation.

**Memorandum andarticles of association.**

Set out below is a summarydescription of our ordinary shares and related material provisions of ourarticles of association and of Book 2 of The Netherlands Civil Code (Boek 2 vanhet Burgerlijk Wetboek), which governs the rights of holders of our ordinaryshares.

**Ordinary ShareCapital**

As of December 31, 2006, we had 200,000,000authorized ordinary shares, par value €0.01 per share, of which85,036,957 were issued and outstanding.

Pursuant to our articlesof association, our ordinary shares may only be held in registered form. All ofour ordinary shares are registered in a register kept by us or on our behalf byour transfer agent. Transfer of registered shares requires a written deed oftransfer and the acknowledgment by the Company. Our ordinary shares are freelytransferable.

**Issuance ofOrdinary Shares**

A general meeting of shareholders can approve theissuance of ordinary shares or rights to subscribe for ordinary shares, butonly in response to a proposal for such issuance submitted by the Board ofDirectors specifying the price and further terms and conditions. In the alternative,the shareholders may designate to our Board of Directors’ authority to approvethe issuance and price of issue of ordinary 

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shares. The delegation maybe for any period of up to five years and must specify the maximum number ofordinary shares that may be issued.

Prior to our initialpublic offering in November 2006, pursuant to our articles of association,our shareholders delegated to our Board of Directors for a period of fiveyears, the power to issue and/or grant rights to subscribe for ordinary sharesup to the maximum amount of our authorized share capital which, as of the dateof this annual report was 200.0 million ordinary shares.

**Preemptive Rights**

Unless limited or excluded by our shareholders orBoard of Directors as described below, holders of ordinary shares have a prorata preemptive right to subscribe for any ordinary shares that we issue,except for ordinary shares issued for non-cash consideration or ordinary sharesissued to our employees.

Shareholders may limit orexclude preemptive rights. Shareholders may also delegate the power to limit orexclude preemptive rights to our Board of Directors with respect to ordinaryshares, the issuance of which has been authorized by our shareholders. Prior toour initial public offering in November 2006, pursuant to our articles ofassociation, the power to limit or exclude preemptive rights has been delegatedto our Board of Directors for a period of five years.

**Repurchase of OurOrdinary Shares**

We may acquire ourordinary shares, subject to certain provisions of the laws of The Netherlandsand of our articles of association, if the following conditions are met:

·       ageneral meeting of shareholders has authorized our Board of Directors toacquire the ordinary shares, which authorization may be valid for no more than18 months;

·       ourequity, after deduction of the price of acquisition, is not less than the sumof the paid-in and called-up portion of the share capital and the reserves thatthe laws of The Netherlands or our articles of association require us tomaintain; and

·       we would not hold aftersuch purchase, or hold as pledgee, ordinary shares with an aggregate par valueexceeding one-tenth of our issued share capital.

**Capital Reduction;Cancellation**

Shareholders may reduce our issued share capitaleither by cancelling ordinary shares held in treasury or by amending ourarticles of association to reduce the par value of the ordinary shares. Aresolution to reduce our capital requires the approval of at least an absolutemajority of the votes cast and, if less than one half of the share capital isrepresented at a meeting at which a vote is taken, the approval of at leasttwo-thirds of the votes cast.

A partial repayment ofordinary shares under the laws of The Netherlands is only allowed upon theadoption of a resolution to reduce the par value of the ordinary shares. Therepayment must be made pro rata on all ordinary shares. The pro ratarequirement may be waived with the consent of all affected shareholders. Insome circumstances, our creditors may be able to prevent a resolution to reduceour share capital from taking effect.

**Risk Management andControl Framework**

Our management is responsible for designing,implementing and operating an adequate functioning internal risk management andcontrol framework. The purpose of this framework is to identify and manage thestrategic, operational, financial and compliance risks to which we are exposed,to promote effectiveness and efficiency of our operations, to promote reliablefinancial reporting and to promote compliance with 

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laws and regulations. Ourinternal risk management and control framework is based on the COSO frameworkdeveloped by the Committee of Sponsoring Organizations of the TreadwayCommission (1992). The COSO framework aims to provide reasonable assuranceregarding effectiveness and efficiency of an entity’s operations, reliabilityof financial reporting, prevention of fraud and compliance with laws andregulations.

Our internal riskmanagement and control framework has the following key components:

***Planning and control cycle***

The planning and controlcycle consists of an annual budget and business plan prepared by management andapproved by our Board of Directors, quarterly forecasts and operational reviewsand monthly financial reporting.

***Code of Conduct and Whistleblower Policy***

Our Code of Conduct isapplicable to all our employees, including the Chief Executive Officer, Chief FinancialOfficer and controllers. It is designed to promote honest and ethical conductand timely and accurate disclosure in our periodic financial results. OurWhistleblower Policy provides for the reporting of alleged violations of theCode of Conduct and alleged irregularities of a financial nature by ouremployees or other stakeholders without any fear of reprisal against theindividual that reports the violation or irregularity.

***Disclosure Controls and Procedures***

The Disclosure Committeeassists management in overseeing our disclosure activities and to ensurecompliance with applicable disclosure requirements arising under U.S. andNetherlands law and regulatory requirements. The Disclosure Committee obtainsinformation for its recommendations from the operational and financial reviews,letters of representation which include a risk and internal control self assessment,input from the documentation and assessment of our internal controls overfinancial reporting and input from risk management activities during the year. TheDisclosure Committee comprises various members of senior management.

***Risk Management and Internal Controls***

We have implemented financial policies and procedures,including accounting policies, and non-financial policies and procedures toensure control by the Management Board over our operations. Managing directorsand finance directors of our main subsidiaries annually sign a detailed letterof representation with regard to financial reporting, internal controls andethical principles.

We are currently expanding our risk managementpolicies, internal control documentation and assessment of such internalcontrols to provide further assurance regarding the reliability of ourfinancial reporting. We are assessing our internal controls over financialreporting to comply with Section 404 of the Sarbanes-Oxley Act, beginningwith our Annual Report on Form 20-F for the year ending December 31,2007. Accordingly, we are documenting, evaluating, and expanding as necessaryour internal control systems over financial reporting to enable us to comply byDecember 31, 2007. The internal assessment of our internal controls overfinancial reporting to comply with Section 404 of the Sarbanes-Oxley Actmust be attested by our independent registered public accounting firm.

We have further enhancedour identification and assessment of our strategic, operational, financial,financial reporting, and compliance risks and are in the process of rollingthese processes out to our operating entities and embedding them in ourstandard business processes. This includes our AeroTurbine business, although,we are less advanced in our efforts with this subsidiary than other segments ofthe 

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AerCapbusiness due to the recent nature of this acquisition. The results of theseassessments, thus far, have been discussed with our Audit Committee.

**Controls andProcedures Statement Under the Sarbanes-Oxley Act**

As discussed above, we have undertaken significantsteps to improve the adequacy and effectiveness of our internal controls overfinancial reporting and the documentary evidence thereof in preparation forcompliance with the requirements of section 404 of the Sarbanes-Oxley Act of2002. The scope of this project includes assessment of and, where necessary,strengthening of our policies, procedures, systems and personnel with respectto financial reporting under both Dutch and US GAAP.

As of December 31,2006, our management (with the participation of our Chief Executive Officer andChief Financial Officer) conducted an evaluation pursuant to section 302 of theUS Sarbanes-Oxley Act and Rule 13a-15 promulgated under the USSecurities Exchange Act of 1934, as amended of the effectiveness of the designand operation of the our disclosure controls and procedures. Based on thisevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat as of December 31, 2006, such disclosure controls and procedures wereeffective to provide reasonable assurance that information required to bedisclosed by us in reports we file or submit under the US Securities ExchangeAct on 1934, as amended is recorded, processed, summarized and reported withinthe time periods specified in the rules and forms of the Securities andExchange Commission.

**Our Auditors**

Our external auditor is responsible for auditing thefinancial statements and auditing internal control over financial reporting. Followingthe recommendation by the Audit Committee and upon proposal by the Board ofDirectors, the General Meeting of Shareholders appoints each year the auditorto audit the financial statements of the current financial year. The externalauditor reports to our Audit Committee. The external auditor is present at themeetings of the Audit Committee when our quarterly and annual results arediscussed.

At the request of theBoard of Directors and the Audit Committee, the Chief Financial Officer and theInternal Audit department review, in advance, each service to be provided bythe auditor to identify any possible breaches of the auditor’s independence. TheAudit Committee pre-approves every engagement of our external auditor.

**Remuneration of OurBoard of Directors**

The general policy for theremuneration of our Board of Directors will be determined by a generalshareholders meeting. The remuneration of directors will be set by our Board ofDirectors in accordance with our remuneration policy and the recommendation ofthe Nomination and Compensation Committee. With regard to arrangementsconcerning remuneration in the form of ordinary shares or share options, theBoard of Directors must submit a proposal to the shareholders for approval.This proposal must, at a minimum, state the number of ordinary shares or shareoptions that may be granted to directors and the criteria that apply to thegranting of the ordinary shares or share options or the alteration of sucharrangements.

**General Meetings ofShareholders**

At least one general meeting of shareholders must beheld every year. The rights of shareholders may only be changed by amending ourarticles of association. A resolution to amend our articles of association isvalid if the Board of Directors makes a proposal amending the articles ofassociation and such proposal is adopted by a simple majority of votes cast.

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The followingresolutions require a two thirds majority vote if less than half of the issuedshare capital is present or represented at the general meeting of shareholders:

·       capitalreduction;

·       exclusionor restriction of pre emptive rights, or designation of the Board of Directorsas the authorized corporate body for this purpose;

·       mergeror demerger.

If a proposal to amend the articles of associationwill be considered at the meeting, we will make available a copy of thatproposal, in which the proposed amendments will be stated verbatim.

An agreement of theCompany to enter into a (i) statutory merger whereby the Company is theacquiring entity, or (ii) a legal demerger, with certain limitedexceptions, must be approved by the shareholders.

**Voting Rights**

Each ordinary share represents the right to cast onevote at a general meeting of shareholders. All resolutions must be passed withan absolute majority of the votes validly cast except as set forth above. Weare not allowed to exercise voting rights for ordinary shares we hold directlyor indirectly.

Any major change inthe identity or character of the Company or its business must be approved byour shareholders, including:

·       thesale or transfer of substantially all our business or assets;

·       thecommencement or termination of certain major joint ventures and ourparticipation as a general partner with full liability in a limited partnership(commanditaire vennootschap) or general partnership (vennootschap onder firma);and

·       the acquisition or disposalby us of a participating interest in a company’s share capital, the value ofwhich amounts to at least one third of the value of our assets.

**Adoption of AnnualAccounts and Discharge of Management Liability**

Each year, our Board of Directors must prepare annualaccounts within five months after the end of our financial year, unless theshareholders have approved an extension of this period for up to six additionalmonths due to certain special circumstances recognized as such under the lawsof The Netherlands. The annual accounts must be made available for inspectionby shareholders at our offices within the same period. The annual accounts mustbe accompanied by an auditor’s certificate, an annual report and certain othermandatory information. The shareholders shall appoint an accountant as referredto in Article 393 of Book 2 of The Netherlands Civil Code, to audit theannual accounts. The annual accounts are adopted by our shareholders.

The adoption of the annualaccounts by our shareholders does not release the members of our Board ofDirectors from liability for acts reflected in those documents. Any suchrelease from liability requires a separate shareholders’ resolution.

**Liquidation Rights**

If we are dissolved orwound up, the assets remaining after payment of our liabilities will be firstapplied to pay back the amounts paid up on the ordinary shares. Any remainingassets will be distributed among our shareholders, in proportion to the parvalue of their shareholdings. All distributions referred to in this paragraphshall be made in accordance with the relevant provisions of the laws of TheNetherlands.

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**Limitations on Non-Residents and Exchange Controls**

There are no limits underthe laws of The Netherlands or in our articles of association on non-residentsof The Netherlands holding or voting our ordinary shares. Currently, there areno exchange controls under the laws of The Netherlands on the conduct of ouroperations or affecting the remittance of dividends.

**Disclosure of Insider Transactions**

Members of our Board ofDirectors and other insiders within the meaning of Section 47a of TheNetherlands Securities Act must report to The Netherlands Authority for theFinancial Markets if they carry out or cause to be carried out, for their ownaccount, a transaction in our ordinary shares or in securities whose value isat least in part determined by the value of our ordinary shares.

**Netherlands Squeeze-out Proceedings**

If a person or a companyor two or more group companies within the meaning of Article 2:24b of TheNetherlands Civil Code acting in concert holds in total 95% of a Netherlandspublic limited liability company’s issued share capital by par value for theirown account, the laws of The Netherlands permit that person or company or thosegroup companies acting in concert to acquire the remaining ordinary shares inthe company by initiating squeeze out proceedings against the holders of theremaining shares. The price to be paid for such shares will be determined bythe Enterprise Chamber of the Amsterdam Court of Appeal.

**Choice of Law and Exclusive Jurisdiction**

Under our articles ofassociation, to the extent allowed by law, the rights and obligations among orbetween us, any of our current or former directors, officers and employees andany current or former shareholder shall be governed exclusively by the laws ofThe Netherlands, unless such rights or obligations do not relate to or ariseout of the capacities above. Any lawsuit or other legal proceeding by andbetween those persons relating to or arising out of their capacities listedabove shall be exclusively submitted to the courts of The Netherlands. All ofour current and former directors and officers must agree in connection with anysuch lawsuit or other legal proceeding to submit to the exclusive jurisdictionof The Netherlands courts, waive objections to such lawsuit or other legalproceeding being brought in such courts, agree that a judgment in any suchlegal action brought in The Netherlands courts is binding upon them and may beenforced in any other jurisdiction, and elect domicile at our offices inAmsterdam, The Netherlands for the service of any document relating to suchlawsuit of other legal proceedings.

**Registrar and Transfer Agent**

A register of holders ofthe ordinary shares will be maintained by American Stock Transfer &Trust Company in the United States who will also serve as the transfer agent.The telephone number of American Stock Transfer & Trust Company is 1-800-937-5449.

**Material contracts.**

Aircraft Purchase Agreement, dated December 30, 2005, betweenAirbus S.A.S. and AerVenture Limited. Pursuant to this agreement, AerVenture, ourconsolidated joint venture, placed an order with Airbus for the purchase of 70new A320 family aircraft. As of December 31, 2006, all 70 of the aircraftremained to be delivered under the agreement. The AerVenture order consists of23 A319 aircraft and 47 A320 aircraft. The initial delivery schedule forthe AerVenture aircraft includes 12 aircraft to be delivered before the end of2008 and 58 aircraft to be delivered before the end of 2010.

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Aircraft Purchase Agreement, dated December 11, 2006, between AirbusS.A.S. and AerCap Ireland Limited. Pursuant to this agreement, AerCap IrelandLimited placed an order with Airbus for the purchase of 20 new A330-200aircraft. As of December 31, 2006, all 20 of the aircraft remained to bedelivered under the agreement. The initial delivery schedule for the aircraftincludes 10 aircraft to be delivered in 2009 and 10 aircraft to be delivered in2010.

Joint Venture Agreement, dated December 30, 2005, among AerCapIreland Limited, International Cargo Airlines Company KSC and AerVentureLimited. The joint venture agreement established our AerVenture joint venture.In January 2006, LoadAir, an investment and construction company based inKuwait City, purchased a 50% equity interest in AerVenture.

Stock Purchase Agreement, dated March 16, 2006, among AerCap, Inc.and Nicolas Finazzo, Rose Ann Finazzo and Robert B. Nichols. Pursuant to theStock Purchase Agreement, in April 26, 2006, we acquired all of theexisting share capital of AeroTurbine. The purchase price for the AeroTurbineshares was $144.7 million.

Sale and Purchase Agreement for the acquisition of all shares in andcertain loans and facilities granted to Debis AirFinance B.V. by and betweenDaimlerChrysler Services AG, DaimlerChrysler Aerospace AG, DaimlerChrysler AG,Bayerische Hypo- und Vereinsbank AG, HVB Banque Luxembourg SA, BayerischeLandesbank, BLB Beteiligungsgesellschaft Beta mbH, Dresdner Bank AG, DZ Bank AGDeutsche Zentral-Genossenschaftsbank, DZ Beteiligungsgesellschaft mbH Nr.6, KfW and FERN S.a r.l. as amended by the Amendment Agreement dated June 29,2005 by and between the DaimlerChrysler Services AG, DaimlerChrysler AerospaceAG, DaimlerChrysler AG, Bayerische Hypo- und Vereinsbank AG, HVB BanqueLuxembourg SA, Bayerische Landesbank, BLB Beteiligungsgesellschaft Beta mbH,Dresdner Bank AG, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, DZBeteiligungsgesellschaft mbH Nr. 6, KfW, FERN S.a r.l., FERN GP S.a r.l. andAerCap Holdings C.V. Pursuant to the Sale and Purchase Agreement, on June 30,2005, AerCap Holdings C.V acquired all of AerCap B.V.’s (formerly known asdebis AirFinance B.V.) shares and $1.8 billion of liabilities owed byAerCap B.V. to its prior shareholders. AerCap Holdings C.V. paid totalconsideration of $1.37 billion for AerCap B.V..

In addition, we have entered into several credit facilities and otherfinancing arrangements to fund our acquisition of our aircraft. See “Item 5—Indebtedness”for more information regarding the credit facilities and financingarrangements.

**Exchange Controls**

Not applicable.

**Taxation.**

***Netherlands TaxConsiderations***

The following is a summaryof Netherlands tax consequences of the holding and disposal of ordinary shares.This summary does not purport to describe all possible tax considerations orconsequences that may be relevant to a holder or prospective holder of ordinaryshares. Holders should consult with their tax advisors with regards to the taxconsequences of investing in the ordinary shares in their particularcircumstances. The discussion below is included for general informationpurposes only.

Please note that thissummary does not describe the tax considerations for holders of ordinary sharesif such holders, and in the case of individuals, his/her partner or certain oftheir relatives by blood or marriage in the direct line (including fosterchildren), have a substantial interest or deemed substantial interest in us asdefined in The Netherlands Income Tax Act 2001. Generally speaking, a holder ofsecurities in a company is considered to hold a substantial interest in suchcompany, if such holder alone or, in the case of individuals, together withhis/her partner (statutorily defined term), directly or indirectly, 

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holds (i) aninterest of 5% or more of the total issued and outstanding capital of thatcompany or of 5% or more of the issued and outstanding capital of a certainclass of shares of that company; or (ii) holds rights to acquire, directlyor indirectly, such interest; or (iii) holds certain profit sharing rightsin that company that relate to 5% or more of the company’s annual profitsand/or to 5% or more of the company’s liquidation proceeds. A deemedsubstantial interest arises if a substantial interest (or part thereof) in acompany has been disposed of, or is deemed to have been disposed of, on anon-recognition basis. Furthermore, this summary does not describe the taxconsiderations for holders of ordinary shares if the holder has an interest inus that qualifies for the participation exemption as laid down in TheNetherlands Corporate Income Tax Act 1969. A participation as laid down in theNetherlands Corporate Income Tax Act 1969 generally exists in case of ashareholding of at least 5% of the company’s paid-up share capital.

Except as otherwiseindicated, this summary only addresses Netherlands national tax legislation andregulations, as in effect on the date hereof and as interpreted in publishedcase law on the date hereof and is subject to change after such date, includingchanges that could have retroactive effect.

***Withholding Tax***

Dividendsdistributed by us generally are subject to Netherlands dividend withholding taxat a rate of 25%. The expression “dividends distributed” includes, amongothers:

·       distributionsin cash or in kind;

·       liquidationproceeds, proceeds of redemption of ordinary shares, or proceeds of therepurchase of ordinary shares by us or one of our subsidiaries or otheraffiliated entities to the extent such proceeds exceed the average paid-incapital of those ordinary shares as recognized for the purposes of Netherlandsdividend withholding tax;

·       anamount equal to the par value of ordinary shares issued or an increase of thepar value of ordinary shares, to the extent that it does not appear that acontribution, recognized for the purposes of Netherlands dividend withholdingtax, has been made or will be made; and

·       partialrepayment of the paid-in capital, recognized for the purposes of Netherlandsdividend withholding tax, if and to the extent that we have net profits (inDutch, “*zuivere winst*”), unless the holders ofordinary shares have resolved in advance at a general meeting to make suchrepayment and the par value of the ordinary shares concerned has been reducedby an equal amount by way of an amendment of our articles of association.

If a holder of ordinaryshares is resident in a country other than The Netherlands and if a doubletaxation convention is in effect between The Netherlands and such othercountry, such holder of ordinary shares may, depending on the terms of thatdouble taxation convention, be eligible for a full or partial exemption from,or refund of, Netherlands dividend withholding tax.

A U.S. Holder, as definedbelow, generally will be entitled to the benefits of the convention between TheNetherlands and the United States for the avoidance of double taxation (“Netherlands-U.S.Treaty”) if such U.S. holder is (i) the beneficial owner of the ordinaryshares (and of dividends paid with respect thereto), (ii) an individualresident in the United States or a U.S. corporation, (iii) not resident inThe Netherlands for Netherlands tax purposes, and (iv) not subject to ananti-treaty shopping rule. In contrast a U.S. holder generally will not beeligible for the benefits of The Netherlands-U.S. Treaty if such U.S. holderholds ordinary shares in connection with either the conduct of business througha permanent establishment or the performance of services through a fixed basein The Netherlands.

In order to qualify for areduction of Netherlands withholding tax under The Netherlands-U.S. Treaty, aU.S. Holder must fill out a certificate of residence (using Form IB 92USA) and have it certified by a qualifying financial institution (generally theentity that holds the ordinary shares as custodian for the U.S. Holder).If we receive the required documentation prior to the relevant dividend paymentdate, then 

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we mayapply the reduced withholding rate at the source. If the U.S. Holder fails tosatisfy these requirements prior to the payment of a dividend, then the U.S.Holder may claim a refund of the excess of the amount withheld over the taxtreaty rate by filing form IB 92 USA, along with a supplemental statement, withThe Netherlands tax authorities. Qualifying tax-exempt pension trusts must fileform IB 96 USA for the application of relief at source from or refund ofdividend withholding tax. Qualifying tax-exempt U.S. organizations are notentitled under the Netherlands-U.S. Treaty to claim benefits at source, andinstead must file claims for refund by filing form IB 95 USA.

Individuals and corporatelegal entities who are resident or deemed to be resident in The Netherlands forNetherlands tax purposes (“Netherlands resident individuals” and “Netherlandsresident entities,” as the case may be), including individuals who have made anelection for the application of the rules of The Netherlands Income TaxAct 2001 as they apply to residents of The Netherlands, can generally creditThe Netherlands dividend withholding tax against their income tax or corporateincome tax liability. The same generally applies to holders of ordinary sharesthat are neither resident nor deemed to be resident of The Netherlands if theordinary shares are attributable to a Netherlands permanent establishment ofsuch non-resident holder.

Ingeneral, we will be required to remit all amounts withheld as Netherlandsdividend withholding tax to the Netherlands tax authorities. However, undercertain circumstances, we are allowed to reduce the amount to be remitted tothe Netherlands tax authorities by the lesser of:

·       3percent of the portion of the distribution paid by us that is subject toNetherlands dividend withholding tax; and,

·       3percent of the dividends and profit distributions, before deduction of foreignwithholding taxes, received by us from qualifying foreign subsidiaries in thecurrent calendar year (up to the date of the distribution by us) and the twopreceding calendar years, as far as such dividends and profit distributionshave not yet been taken into account for purposes of establishing the abovementioned deductions.

Although this reductionreduces the amount of Netherlands dividend withholding tax that we are requiredto pay to the Netherlands tax authorities, it does not reduce the amount of taxthat the we are required to withhold from dividends.

Pursuant to legislation tocounteract “dividend stripping”, a reduction, exemption, credit or refund ofNetherlands dividend withholding tax is denied if the recipient of the dividendis not the beneficial owner. This legislation generally targets situations inwhich shareholders retain their economic interest in shares but reduce thewithholding tax cost on dividends by a transaction with another party. Forapplication of these rules it is not a requirement that the recipient ofthe dividends is aware that a dividend stripping transaction took place. TheNetherlands State Secretary of Finance takes the position that the definitionof beneficial ownership introduced by this legislation will also be applied inthe context of a double taxation convention.

***Taxes on Income andCapital Gains***

*Non-residents of TheNetherlands.**  *Aholder of ordinary shares will not be subject to Netherlands taxes on income oron capital gains in respect of any payment under the ordinary shares or anygain realized on the disposal or deemed disposal of the ordinary shares,provided that:

(i)    suchholder is neither a resident nor deemed to be resident in The Netherlands forNetherlands tax purposes and, if such holder is an individual, such holder hasnot made an election for the application of the rules of The NetherlandsIncome Tax Act 2001 as they apply to residents of The Netherlands;

(ii)   suchholder does not have an interest in an enterprise or a deemed enterprise which,in whole or in part, is either effectively managed in The Netherlands or iscarried out through a permanent 

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establishment, a deemedpermanent establishment (statutorily defined term) or a permanentrepresentative in The Netherlands and to which enterprise or part of anenterprise the ordinary shares are attributable; and 

(iii) in theevent such holder is an individual, such holder does not carry out anyactivities in The Netherlands with respect to the ordinary shares that exceedordinary active asset management (in Dutch, “*normaalvermogensbeheer*”) and does not derive benefits from the ordinaryshares that are (otherwise) taxable as benefits from other activities in TheNetherlands (in Dutch, “*resultaat uit overigewerkzaamheden*”).

*Netherlands residentindividuals.**  *Ifa holder of ordinary shares is a Netherlands resident individual (including thenon-resident individual holder who has made an election for the application ofthe rules of The Netherlands Income Tax Act 2001 as they apply toresidents of The Netherlands), any benefit derived or deemed to be derived fromthe ordinary shares is taxable at the progressive income tax rates (with amaximum of 52%), if:

(a)           the ordinary shares areattributable to an enterprise from which The Netherlands resident individualderives a share of the profit, whether as an entrepreneur or as a person whohas an equity interest in such enterprise, without being an entrepreneur or ashareholder, as defined in The Netherlands Income Tax Act 2001; or

(b)          the holder of theordinary shares is considered to perform activities with respect to the ordinaryshares that exceed ordinary active asset management (in Dutch, “*normaal vermogensbeheer*”) or derivesbenefits from the ordinary shares that are (otherwise) taxable as benefits fromother activities (in Dutch, “*resultaat uitoverige werkzaamheden*”).

If the above-mentionedconditions (a) and (b) do not apply to an individual holder ofordinary shares, the ordinary shares are recognized as investment assets andincluded as such in such holder’s net investment asset base (in Dutch, “*rendementsgrondslag*”).Such holder will be taxed annually on a deemed income of 4% of the aggregateamount of his or her net investment assets for the year at an income tax rateof 30%. The aggregate amount of the net investment assets for the year is theaverage of the fair market value of the investment assets less the allowableliabilities at the beginning of that year and the fair market value of theinvestment assets less the allowable liabilities at the end of that year. A taxfree allowance may be available. Actual benefits derived from the ordinaryshares are as such not subject to Netherlands income tax.

*Netherlands residententities.*   Any benefit derived or deemed to bederived from the ordinary shares held by Netherlands resident entities,including any capital gains realized on the disposal thereof, will generally besubject to Netherlands corporate income tax at a rate of 25.5% (a corporateincome tax rate of 20% applies with respect to taxable profits up to €25,000and 23.5% over the following €35,000, the first twobrackets for 2007).

A Netherlands qualifyingpension fund is, in principle, not subject to Netherlands corporate income tax.A qualifying Netherlands resident investment fund (in Dutch, “*fiscale beleggingsinstelling*”) is subjectto Netherlands corporate income tax at a special rate of 0%.

***Gift, Estate and Inheritance Taxes***

*Non-residents of TheNetherlands.**  *NoNetherlands gift, estate or inheritance taxes will arise on the transfer of theordinary shares by way of a gift by, or on the death of, a holder of ordinaryshares who is neither resident nor deemed to be resident in The Netherlands,unless:

(i)    such holder at the time of the gift has or at the time of his/her death had an enterprise or an interest in an enterprise that, in whole orin part, is or was either effectively managed in The Netherlands 

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or carried outthrough a permanent establishment or a permanent representative in TheNetherlands and to which enterprise or part of an enterprise the ordinaryshares are or were attributable; or 

(ii)   in thecase of a gift of the ordinary shares by an individual who at the date of thegift was neither resident nor deemed to be resident in The Netherlands, suchindividual dies within 180 days after the date of the gift, while beingresident or deemed to be resident in The Netherlands.

*Residents of TheNetherlands.**  *Gift,estate and inheritance taxes will arise in The Netherlands with respect to atransfer of the ordinary shares by way of a gift by, or, on the death of, aholder of ordinary shares who is resident or deemed to be resident in TheNetherlands at the time of the gift or his/her death.

For purposes ofNetherlands gift, estate and inheritance taxes, amongst others, a person thatholds The Netherlands nationality will be deemed to be resident in TheNetherlands if such person has been resident in The Netherlands at any timeduring the ten years preceding the date of the gift or the death of thisperson. Additionally, for purposes of Netherlands gift tax, a person notholding the Netherlands nationality will be deemed to be resident in TheNetherlands if such person has been resident in The Netherlands at any timeduring the 12 months preceding the date of the gift. Applicable tax treatiesmay override deemed residency.

***Other Taxes andDuties***

No Netherlandsregistration tax, customs duty, stamp duty or any other similar documentary taxor duty will be payable by a holder of ordinary shares in connection withholding the ordinary shares or the disposal of the ordinary shares.

***U.S. TaxConsiderations***

Subject to the limitationsand qualifications stated herein, this discussion sets forth the material U.S. federalincome tax consequences of the purchase, ownership and disposition of theordinary shares. The discussion of the holders’ tax consequences addresses onlythose persons that hold those ordinary shares as capital assets and does notaddress the tax consequences to any special class of holder, including withoutlimitation, holders of (directly, indirectly or constructively) 5% or more ofthe ordinary shares, dealers in securities or currencies, banks, tax-exemptorganizations, life insurance companies, financial institutions, broker-dealers,regulated investment companies, real estate investment trusts, traders insecurities that elect the mark-to-market method of accounting for theirsecurities holdings, persons that hold securities that are a hedge or that arehedged against currency or interest rate risks or that are part of a straddle,conversion or “integrated” transaction, certain U.S. expatriates, partnershipsor other entities classified as partnerships for U.S. federal income taxpurposes and U.S. Holders whose functional currency for U.S. federal income taxpurposes is not the U.S. dollar. This discussion does not address the effect ofthe U.S. federal alternative minimum tax or any state, local or foreigntax laws on a holder of ordinary shares. The discussion is based on theInternal Revenue Code of 1986, as amended, its legislative history, existingand proposed regulations thereunder, published rulings and court decisions, allas currently in effect and all subject to change at any time, possibly withretroactive effect.

For purposes of thisdiscussion, a “U.S. Holder” means a beneficial owner of ordinary shares that isfor U.S. federal income tax purposes an individual citizen or resident of theU.S.; a U.S. corporation, or other entity taxable as a corporation, created ororganized in or under the laws of the United States or any politicalsubdivision thereof; a trust if the trust (i) is subject to the primarysupervision of a U.S. court and one or more U.S. persons are able to controlall substantial decisions of the trust or (ii) has elected to be treatedas a U.S. person; or an estate the income of which is subject to U.S. federalincome tax regardless of its source. A “non-U.S. Holder” is a beneficial ownerof our ordinary shares that is not a U.S. Holder.

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***Cash Dividends andOther Distributions***

A U.S. Holder of ordinaryshares generally will be required to treat distributions received with respectto such ordinary shares (including any amounts withheld pursuant to Netherlandstax law) as dividend income to the extent of AerCap’s current or accumulatedearnings and profits (computed using U.S. federal income tax principles), withthe excess treated as a non-taxable return of capital to the extent of theholder’s adjusted tax basis in the ordinary shares and, thereafter, as capitalgain, subject to the passive foreign investment company (“PFIC”) rules discussedbelow. Dividends paid to a U.S. Holder that is a corporation are not eligiblefor the dividends received deduction available to corporations. Current tax lawprovides for a maximum 15% U.S. tax rate on the dividend income of anindividual U.S. Holder with respect to dividends paid by a domestic corporationor “qualified foreign corporation” if certain holding period requirements aremet. A qualified foreign corporation generally includes a foreign corporation(other than a PFIC) if (i) its ordinary shares are readily tradable on anestablished securities market in the United States or (ii) it is eligiblefor benefits under a comprehensive U.S. income tax treaty. The ordinary sharesare expected to be readily traded on the New York Stock Exchange. As a result,assuming we are not treated as a PFIC, we should be treated as a qualifiedforeign corporation with respect to dividends paid on our ordinary shares and,therefore, dividends paid to an individual U.S. Holder with respect to ordinaryshares for which the requisite holding period is satisfied should be taxed at amaximum federal tax rate of 15%. The maximum 15% federal tax rate is scheduledto expire for taxable years commencing after December 31, 2010.

Distributions to U.S.Holders of additional ordinary shares or preemptive rights with respect toordinary shares that are made as part of a pro rata distribution to all of ourshareholders generally will not be subject to U.S. federal income tax, but inother circumstances may constitute a taxable dividend.

Distributions paid in acurrency other than U.S. dollars will be included in a U.S. Holder’s grossincome in a U.S. dollar amount based on the spot exchange rate in effect on thedate of actual or constructive receipt whether or not the payment is convertedinto U.S. dollars at that time. The U.S. Holder will have a tax basis insuch currency equal to such U.S. dollar amount, and any gain or loss recognizedupon a subsequent sale or conversion of the foreign currency for a differentU.S. dollar amount will be U.S. source ordinary income or loss. If the dividendis converted into U.S. dollars on the date of receipt, a U.S. Holder generallyshould not be required to recognize foreign currency gain or loss in respect ofthe dividend income.

Subject to applicablelimitations that may vary depending upon the circumstances, foreign taxeswithheld from dividends on ordinary shares, to the extent the taxes do notexceed those taxes that would have been withheld had the holder been eligiblefor and actually claimed the benefits of any reduction in such taxes underapplicable law or tax treaty, will be creditable against the U.S. Holder’sfederal income tax liability. The limitation on foreign taxes eligible forcredit is calculated separately with respect to specific classes of income. Therules governing foreign tax credits are complex and, therefore, prospectivepurchasers of ordinary shares should consult their own tax advisor regardingthe availability of foreign tax credits in their particular circumstances.Instead of claiming a credit, a U.S. Holder may, at his election, deduct suchotherwise creditable foreign taxes in computing his taxable income, subject togenerally applicable limitations under U.S. law.

A non-U.S. Holdergenerally will not be subject to U.S. federal income or withholding tax ondividends paid with respect to ordinary shares unless such income iseffectively connected with the conduct by the non-U.S. Holder of a trade orbusiness within the United States.

***Sale or Dispositionof Ordinary Shares***

A U.S. Holder generallywill recognize gain or loss on the taxable sale or exchange of the ordinaryshares in an amount equal to the difference between the U.S. dollar amountrealized on such sale or 

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exchange(determined in the case of shares sold or exchanged for currencies other thanU.S. dollars by reference to the spot exchange rate in effect on the date ofthe sale or exchange or, if the ordinary shares sold or exchanged are traded onan established securities market and the U.S. Holder is a cash basis taxpayeror an electing accrual basis taxpayer, the spot exchange rate in effect on thesettlement date) and the U.S. Holder’s adjusted tax basis in the ordinaryshares determined in U.S. dollars. The initial tax basis of the ordinary sharesto a U.S. Holder will be the U.S. Holder’s U.S. dollar purchase price for theshares (determined by reference to the spot exchange rate in effect on the dateof the purchase, or if the shares purchased are traded on an establishedsecurities market and the U.S. Holder is a cash basis taxpayer or an electingaccrual basis taxpayer, the spot exchange rate in effect on the settlementdate). Assuming that the Company is not a PFIC and has not been treated as aPFIC during your holding period for our ordinary shares, such gain or loss willbe capital gain or loss and will be long-term gain or loss if the ordinary shareshave been held for more than one year. With respect to sales occurring intaxable years commencing before January 1, 2011, the maximum long-termcapital gain tax rate for an individual U.S. Holder is 15%. For sales beginningin taxable years after December 31, 2010, under current law the long-termcapital gain rate for an individual U.S. Holder is 20%. The deductibility ofcapital losses is subject to limitations. Capital gain or loss, if any,recognized by a U.S. Holder generally will be treated as U.S. source income orloss for U.S. foreign tax credit purposes.

A non-U.S. Holder ofordinary shares will not be subject to United States income or withholding taxon gain from the sale or other disposition of ordinary shares unless (i) suchgain is effectively connected with the conduct of a trade or business withinthe United States or (ii) the non-U.S. Holder is an individual who ispresent in the United States for at least 183 days during the taxable yearof the disposition and certain other conditions are met.

***PotentialApplication of Passive Foreign Investment Company Provisions***

We do not expect to beclassified as a PFIC for the current year. In general, a non-U.S. corporationwill be classified as a PFIC for U.S. federal income tax purposes in any taxableyear in which, after applying certain look-through rules, either (1) atleast 75% of its gross income is “passive income” or (2) at least 50% ofthe average value of its gross assets is attributable to assets that produce“passive income” or are held for the production of “passive income”. Passiveincome for this purpose generally includes dividends, interest, royalties,rents and gains from commodities, foreign currency and securities transactions.Certain exceptions are provided, however, for rental income derived in theactive conduct of a business.

Our belief that we willnot be classified as a PFIC for the current taxable year is based on(i) our financial statements and (ii) our current plans, expectationsand projections regarding the use of the net proceeds of the offering, thevalue and nature of our assets and the sources and nature of our income.However, the determination as to whether a foreign corporation is a PFIC is acomplex determination that is based on all of the relevant facts andcircumstances and that depends on the classification of various assets and incomeunder the rules that apply in determining whether a foreign corporation isa PFIC. It is unclear how some of these rules apply to us. Further, thisdetermination must be tested annually at the end of the taxable year and, whilewe intend to conduct our affairs in a manner that will reduce the likelihood ofour becoming a PFIC, our circumstances may change or our business plan mayresult in our engaging in activities that could cause us to become a PFIC.Accordingly, there can be no assurance that we will not be classified as a PFICfor the current taxable year or any future taxable year.

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If we are or become a PFIC in a taxable year in whichwe pay a dividend or the prior taxable year, the 15% dividend rate discussedabove with respect to dividends paid to non-corporate holders would not apply.If we are a PFIC, subject to the discussion of the qualified electing fundelection below, a U.S. Holder of ordinary shares will be subject toadditional tax and an interest charge on “excess distributions” received withrespect to the ordinary shares or gains realized on the disposition of suchordinary shares. Such a U.S. Holder will have an excess distribution ifdistributions during any tax year exceed 125% of the average amount receivedduring the three preceding tax years (or, if shorter, the U.S. Holder’sholding period). A U.S. Holder may realize gain on an ordinary share not onlythrough a sale or other disposition, but also by pledging the ordinary share assecurity for a loan or entering into certain constructive dispositiontransactions. To compute the tax on an excess distribution or any gain, (i) theexcess distribution or gain is allocated ratably over the U.S. Holder’s holdingperiod, (ii) the amount allocated to the current tax year and amountsallocated to any year before the first year in which we are a PFIC is taxed asordinary income in the current tax year, and (iii) the amount allocated toeach previous tax year (other than the any year before the first year in whichwe are a PFIC) is taxed at the highest applicable marginal rate in effect forthat year and an interest charge is imposed to recover the deemed benefit fromthe deferred payment of the tax. These rules effectively prevent a U.S.Holder from treating the gain realized on the disposition of an ordinary shareas capital gain.

If we are a PFIC and our ordinary shares are “regularlytraded” on a “qualified exchange,” a U.S. Holder may make a mark-to-marketelection, which may mitigate the adverse tax consequences resulting from theCompany’s PFIC status. The ordinary shares will be treated as “regularly traded”in any calendar year during which more than a *deminimis* quantity of ordinary shares are traded on a qualifiedexchange on at least 15 days during each calendar quarter. The New YorkStock Exchange on which the ordinary shares are expected to be regularly tradedis a qualified exchange for U.S. federal income tax purposes.

If a U.S. Holder makes the mark-to-market election,for each year in which we are a PFIC the holder generally will include asordinary income the excess, if any, of the fair market value of the ordinaryshares at the end of the taxable year over their adjusted basis, and will bepermitted an ordinary loss in respect of the excess, if any, of the adjustedbasis of the ordinary shares over their fair market value at the end of thetaxable year (but only to the extent of the net amount of previously includedincome as a result of the mark-to-market election). If a U.S. Holder makes theelection, his basis in the ordinary shares will be adjusted to reflect any suchincome or loss amounts. Any gain recognized on the sale or other disposition ofordinary shares, for which the mark-to-market election has been made, willgenerally be treated as ordinary income.

Alternatively, if we become a PFIC in any year, a U.S.Holder of ordinary shares may wish to avoid the adverse tax consequencesresulting from our PFIC status by making a qualified electing fund (“QEF”)election with respect to our ordinary shares in such year. If a U.S. Holdermakes a QEF election, the holder will be required to include in gross incomeeach year (i) as ordinary income, its pro rata share of our earnings andprofits in excess of net capital gains and (ii) as long-term capitalgains, its pro rata share of our net long-term capital gains, in each case,whether or not cash distributions are actually made. The amounts recognized bya U.S. Holder making a QEF election generally are treated as income fromsources outside the U.S. If, however, U.S. Holders hold at least half of theordinary shares, a percentage of our income equal to the proportion of ourincome that we receive from U.S. sources will be U.S. source income for theU.S. Holders of ordinary shares. Because a U.S. Holder of shares in a PFIC thatmakes a QEF election is taxed currently on its pro rata share of our income,the amounts recognized will not be subject to tax when they are distributed tothe U.S. Holder. An electing U.S. Holder’s basis in the ordinary shares will beincreased by any amounts included in income currently as described above anddecreased by any amounts not subjected to tax at the time of distribution. Ifwe are or become a PFIC, a U.S. Holder would make a QEF election in respect ofits ordinary shares by attaching a properly completed 

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IRS Form 8621 inrespect of such shares to the holder’s timely filed U.S. federal income taxreturn. For any taxable year that we determine that we are a PFIC, we will (i) providenotice of our status as a PFIC as soon as practicable following such taxableyear and (ii) comply with all reporting requirements necessary for U.S.Holders to make QEF elections, including providing to shareholders upon requestthe information necessary for such an election.

Although a U.S. Holder normally is not permitted tomake a retroactive QEF election, a retroactive election (a “retroactive QEFelection”) may be made for a taxable year of the U.S. Holder (the “retroactiveelection year”) if the U.S. Holder (i) reasonably believed that, as of thedate the QEF election was due, the foreign corporation was not a PFIC for itstaxable year that ended during the retroactive election year and (ii) tothe extent provided for in applicable Treasury Regulations, filed a protectivestatement with respect to the foreign corporation, applicable to theretroactive election year, in which the U.S. Holder described the basis for itsreasonable belief and extended the period of limitation on the assessment oftaxes for all taxable years of the shareholder to which the protectivestatement applies. If required to be filed to preserve the U.S. Holder’sability to make a retroactive QEF election, the protective statement must befiled by the due date of the investor’s return (including extensions) for thefirst taxable year to which the statement is to apply. U.S. Holders shouldconsult their own tax advisor regarding the advisability of filing a protectivestatement.

As discussed above, if we are a PFIC, a U.S. Holder ofordinary shares that makes a QEF election (including a proper retroactive QEFelection) will be required to include in income currently its pro rata share ofour earnings and profits whether or not we actually distribute earnings. Theuse of earnings to fund reserves or pay down debt or to fund other investmentscould result in a U.S. Holder of ordinary shares recognizing income in excessof amounts it actually receives. In addition, our income from an investment forU.S federal income tax purposes may exceed the amount we actually receive. Ifwe are a PFIC and a U.S. Holder makes a valid QEF election in respect of theirordinary shares, such holder may be able to elect to defer payment, subject toan interest charge for the deferral period, of the tax on income recognized onaccount of the QEF election. Prospective purchasers of ordinary shares shouldconsult their tax advisors about the advisability of making a QEF election,protective QEF election and deferred payment election.

Miscellaneous itemized deductions of an individualU.S. person can only be deducted to the extent that all of such person’smiscellaneous itemized deductions exceed 2% of their adjusted gross income. Inaddition, an individual’s miscellaneous itemized deductions are not deductiblefor purposes of computing the alternative minimum tax. Certain expenses of theCompany might be a miscellaneous itemized deduction if incurred by anindividual. A U.S. person that owns an interest in a “pass-through entity” istreated as recognizing income in an amount corresponding to its share of anyitem of expense that would be a miscellaneous itemized deduction and asseparately deducting that item subject to the limitations described above. Ifit is determined that we are a PFIC, the IRS could take the position that weare a “pass-through entity” with respect to a U.S. Holder of ordinary sharesthat makes a QEF election.

Special rules apply to determine the foreign taxcredit with respect to withholding taxes imposed on distributions on shares ina PFIC. If a U.S. Holder owns ordinary shares during any year in which we are aPFIC, such Holder must file Internal Revenue Service Form 8621.

We urge prospective purchasersof ordinary shares to consult their tax advisers concerning the taxconsiderations relevant to an investment in a PFIC, including the availabilityand consequences of making the mark-to-market election and QEF electiondiscussed above.

***Information Reporting and Backup Withholding***

Information reporting to the U.S. Internal RevenueService generally will be required with respect to payments on the ordinaryshares and proceeds of the sale of the ordinary shares paid to holders that are

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U.S. taxpayers, other thancorporations and other exempt recipients. A 28% “backup” withholding tax mayapply to those payments if such a holder fails to provide a taxpayeridentification number to the paying agent and to certify that no loss ofexemption from backup withholding has occurred. Holders that are not subject toU.S. taxation may be required to comply with applicable certificationprocedures to establish that they are not U.S. taxpayers in order to avoid theapplication of such information reporting requirements and backup withholding.The amounts withheld under the backup withholding rules are not anadditional tax and may be refunded, or credited against the holder’s U.S.federal income tax liability, if any, provided the required information isfurnished to the U.S. Internal Revenue Service.

THE ABOVE DISCUSSION IS AGENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OFIMPORTANCE TO A PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR IS STRONGLYURGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF ANINVESTMENT IN THE ORDINARY SHARES.

**Dividends.**

Dividends may in principle only be paid out of profitas shown in the adopted annual accounts. We will only have power to makedistributions to shareholders and other persons entitled to distributableprofits to the extent our equity exceeds the sum of the paid and called upportion of the ordinary share capital and the reserves that must be maintainedin accordance with provisions of the laws of The Netherlands or our articles ofassociation. The profits must first be used to set up and maintain reservesrequired by law and must then be set off against certain financial losses. Wemay not make any distribution of profits on ordinary shares that we hold. OurBoard of Directors determines whether and how much of the remaining profit theywill reserve, the manner and date of such distribution and notifiesshareholders.

All calculations todetermine the amounts available for dividends will be based on our annualNetherlands GAAP statutory accounts, which may be different from ourconsolidated financial statements under US GAAP, such as those included in thisform 20-F. Our statutory accounts have to date been prepared, and willcontinue to be prepared, under Netherlands GAAP and are deposited with theCommercial Register in Amsterdam, The Netherlands. Our net income for the 12months ended December 31, 2006 and our equity as of December 31, 2006as set forth in our annual statutory accounts were $106.9 million and $748.8million, respectively. We are dependent on dividends or other advances from ouroperating subsidiaries to fund any dividends we may pay on our ordinary shares.

**Documents ondisplay.**

You may read and copy the reports and otherinformation we file with the Securities and Exchange Commission, including thisannual report and the exhibits thereto, at the Commission’s Public Reference Room at100 F Street, N.E., Washington, D.C. 20549 and at the Commission’s regionaloffices at 175 W. Jackson Boulevard, Suite 900, Chicago,Illinois 60604, and 3 World Financial Center, Room 4300, New York, NewYork 10281. You may also obtain copies of these materials by mail from thePublic Reference Room of the Commission at 100 F Street, N.E., Washington,D.C. 20549, at prescribed rates. You may obtain information on the operation ofthe Commission’s Public Reference Room by calling the Commission in theUnited States at 1-800-SEC-0330. You may also access ourannual reports and some of the other information we file with or submit to theCommission electronically through the Commission’s website at www.sec.gov. Inaddition, you may inspect material we file at the offices of the New YorkStock Exchange at 20 Broad Street, New York, New York 10005.

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**Item 11.**                 Quantitativeand Qualitative Disclosures About Market Risk.

Our primary market risk exposure is interest rate riskassociated with short and long-term borrowings bearing variable interest ratesand lease payments under leases tied to floating interest rates. To manage thisinterest rate exposure, we enter into interest rate swap and cap agreements. Weare also exposed to foreign currency risk, which can adversely affect ouroperating profits. To manage this risk, we enter into forward exchangecontracts.

The following discussionshould be read in conjunction with Notes 1, 2 and 11 to our auditedconsolidated financial statements contained in this annual report, whichprovide further information on our derivative instruments contained in thisannual report.

**Interest Rate Risk**

The rentals we receive under our leases are based onfixed and variable interest rates. We fund our operations with a mixture offixed and floating rate US dollar denominated debt and finance leaseobligations. An interest rate exposure arises to the extent that the mix ofthese obligations are not matched with our assets. This exposure is primarilymanaged through the use of interest rate caps and interest rate swaps using acash flow based risk management model. This model takes the expected cash flowsgenerated by our assets and liabilities and then calculates by how much thevalue of these cash flows will change for a given movement in interest rates.Our policy is to seek to ensure that the net worth of our business will not beexposed to more than a $15 million movement from a 1% parallel shift in USdollar interest rates across the yield curve.

Under our interest rate swaps, we pay fixed amountsand receive floating amounts on a monthly basis. The swaps amortize based on anumber of factors, including the expiration dates of the leases under which ourlessees are contracted to make fixed rate rental payments and the three—or six—monthLIBOR reset dates under our floating rate leases. Under our interest rate caps,we will receive the excess, if any, of LIBOR, reset monthly or quarterly on anactual/360 adjusted basis, over the strike rate of the relevant cap.

The table below providesinformation as of December 31, 2006 regarding our derivative financialinstruments that are sensitive to changes in interest rates on our borrowing,including our interest rate swaps and caps. The table presents the notionalamounts and weighted average interest rates by contracted maturity dates.Notional amounts are used to calculate the contractual payments to be exchangedunder the contract. Weighted average variable rates are based on impliedforward rates in the yield curve at the applicable date.

| ** **                    | ** ** | **2007**                                     | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair value** | ** ** |
|-------------------------------|------------|----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|---------------------|------------|
| ** **                    | ** ** | **(US Dollars in thousands)** | ** ** |
| **Interest rate caps**        |       |                                         |       |     |       |     |       |     |       |     |       |           |       |      |       |                |       |   |   |
| Notional amounts              |       | $                                            | 75,000     |     | $          | 575,000  |       | $        | 575,000    |     | $          | 355,000        |       | $         | 200,000    |                | $          | 616,000 |   | $ | 2,396,000 |   |   | $ | 17,357 |   |   |
| Weighted average strike  rate |       | 4.90                                         | %          | 5.59     | %          | 5.09     | %          | 5.31     | %          | 5.78     | %          | 5.78           | %          | 5.47      | %          |                |       |   |   |
|                               |            |                                              |            |          |            |          |            |          |            |          |            |                |            |           |            |                     |            |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                    | ** ** | **2007**                                     | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair value** | ** ** |
|-------------------------------|------------|----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|---------------------|------------|
| ** **                    | ** ** | **(US Dollars in thousands)** | ** ** |
| **Interest rate swaps**       |       |                                         |       |     |       |     |       |     |       |     |       |           |       |      |       |                |       |   |   |
| Notional amounts              |       | $                                            | —     |     | $          | 60,000   |       | $        | —     |     | $          | —         |       | $         | —     |                | $          | — |   | $ | 60,000 |   |   | $ | 212 |   |   |
| Weighted average pay  rate    |       | —                                       |       | 5.38     | %          | —   |       | —   |       | —   |       | —         |       | 5.38      | %          |                | —     |   |   |
| Weighted average receive rate |       | —                                       |       | 5.36     | %          | —   |       | —   |       | —   |       | —         |       | 5.36      | %          |                | —     |   |   |
|                               |            |                                              |            |          |            |          |            |          |            |          |            |                |            |           |            |                     |            |  |  |  |  |  |  |  |  |  |  |

 

As of December 31, the interest rate swaps andcaps had notional amounts of $2.5 billion and a fair value of $17.6 million.The variable benchmark interest rates associated with these instruments rangedfrom one to six—month LIBOR.

Our Board of Directors isresponsible for reviewing and approving our overall interest rate managementpolicies and transaction authority limits. Specific hedging contracts areapproved by the treasury committee acting within the overall policies andlimits. Our counterparty risk is monitored on an ongoing basis, but ismitigated by the fact that all of our interest rate derivatives, exceptAircraft Lease Securitisation’s derivatives, require two-way cashcollateralization. Our counterparties are subject to the prior approval of the treasurycommittee.

**Foreign CurrencyRisk and Foreign Operations**

Our functional currency isthe U.S. dollar. As of December 31, 2006, all of our aircraft leases andall of our engine leases were payable in U.S. dollars. We incur Euro-denominatedexpenses in connection with our offices in The Netherlands and Ireland. For theyear ended December 31, 2006, our aggregate expenses denominated incurrencies other than the U.S. dollar, such as payroll and office costs andprofessional advisory costs, were $38.0 million in U.S. dollar equivalents andrepresented 25.5% of total selling, general and administrative expenses. Weenter into foreign exchange contracts based on our projected exposure toforeign currency risks in order to protect ourselves from the effect of periodover period exchange rate fluctuations. Mark-to-market gains or losses on suchcontracts are recorded as part of selling, general and administrative expensessince most of our non-US denominated payments relate to such expenses. Since wecurrently receive substantially all of our revenues in US dollars and we hedgea material portion of our non-dollar denominated expenditures, we do notbelieve that a change in foreign exchange rates will have material impact onour results of operations. However, the portion of our business conducted inforeign currencies could increase in the future, which could increase ourexposure to losses arising from currency fluctuations.

**Inflation**

Inflation generallyaffects our costs, including selling, general and administrative expenses andother expenses. However, we do not believe that our financial results havebeen, or will be, adversely affected by inflation in a material way.

**Item 12.**                 Descriptionof Securities Other than Equity Securities.

Not applicable.

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**PART II**

**Item 13.**                 Defaults,Dividend Arrearages and Delinquencies.

None.

**Item 14.**                 MaterialModifications to the Rights of Security Holders and Use of Proceeds.

Not applicable.

**Item 15.**                 Controlsand Procedures.

**Disclosure Controlsand Procedures*.***

Our disclosure controlsand procedures are designed to provide reasonable assurance that informationrequired to be disclosed in this report is recorded, processed, summarized andreported on a timely basis. Our management, with the participation of thechairman of our board of directors and the members of our Disclosure committee,has evaluated, as of December 31, 2006, our disclosure controls andprocedures, as such term is defined under Rules 13a-15(e) and Rule 15d-15(e) underthe Securities Exchange Act of 1934. Based on such evaluation, our ChiefExecutive Officer and Chief Financial Officer have concluded that, as of December 31,2006, our disclosure controls and procedures are effective to achieve theirintended objectives.

**Management’s AnnualReport on Internal Control Over Financial Reporting**

This annual report doesnot include a report of management’s assessment regarding internal control overfinancial reporting or an attestation report of the company’s registered publicaccounting firm due to a transition period established by rules of theSecurities and Exchange Commission for newly public companies.

**Changes in InternalControl Over Financial Reporting**

We continue tofocus significant efforts on improving the system of internal controls whicheffect our financial reporting processes. The following specific changes havebeen implemented or are in progress:

(i)            We have hiredadditional accounting and finance personnel at our locations in theNetherlands, Ireland and at AeroTurbine. Many of these additional personnel areinvolved in the identification, documentation and design of key controls asprescribed in Section 404 of the Sarbanes-Oxley Act.

(ii)        We have recently recruitedan additional person in our internal audit department and our internal auditfunction as a whole is more firmly established in the Company and working on adefined list of internal audits as agreed directly with our audit committee.

(iii)    Senior management across allsignificant departments are involved in the documentation and design of enhancedinternal controls in accordance with the Company's timeline for end of 2007compliance with Section 404 of the Sarbanes-Oxley Act.

(iv)      We have established anincreased financial analysis capability both at our headquarter offices inAmsterdam and at AeroTurbine to help senior management better analyze group andsubsidiary results and to identify potential internal control deficiencies.

We believe that these measures along with othermeasures already implemented have led to an improvement in our systems ofinternal control over financial reporting.

112

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**Item 16.**                 [Reserved]

**Item 16A.**         Auditcommittee financial expert.

Our board of directors hasdetermined that Ronald Bolger is an “audit committee financial expert” as thatterm is defined by SEC rules, and that he is “independent” as that term isdefined under applicable New York Stock Exchange listing standards.

**Item 16B.**        Codeof Conduct.

Our board of directors hasadopted our code of conduct, a code that applies to members of the board ofdirectors including its chairman and other senior officers, including the ChiefFinancial Officer and the Chief Accounting Officer. This code is publiclyavailable on our website at www.aercap.com.

**Item 16C.**        PrincipalAccountant Fees and Services.

In January 2003,the SEC adopted rules requiring disclosure of fees billed by a publiccompany’s independent auditors in each of the company’s two most recent fiscalyears. Our auditors charged the following fees for professional servicesrendered for the years ended December 31, 2005 and December 31, 2006:

| ** **          | ** ** | **     2005     ** | ** ** | **     2006     ** | ** ** |
|---------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **          | ** ** | **(Euros in thousands)**                                   | ** ** |
| Audit fees          |       |                                                                 | €     | 1,471                                                                |       |   |   | € | 3,074 |   |   |
| Audit-related  fees |       |                                                                 | —     |                                                                 |       |   | 200 |   |   |
| **Total**           | ** ** | ** **                                                           | **€** | **1,471**                                                            |       | ** ** | ** ** | **€** | **3,274** |   |   |

 

***Audit Fees***are defined as the standard audit work that needs to be performed each year inorder to issue opinions on our consolidated financial statements and to issue reportson our local statutory financial statements. Also included are services thatcan only be provided by our auditor, such as auditing of nonrecurringtransactions and implementation of new accounting policies, reviews ofquarterly financial results, consents and comfort letters and any other auditservices required for US Securities and Exchange Commission or other regulatoryfilings.

***Audit-Related Fees***include those other assurance services provided by the independent auditor butnot restricted to those that can only be provided by the auditor signing theaudit report. These fees comprise amounts for services for Sarbanes-Oxley 404controls design effectiveness review.

During the 12-monthperiods ended December 31, 2005 and December 31, 2006, our auditorswere not engaged to perform any services that are defined as tax fees or forany other type of services.

***Policy on Pre-Approval of Audit and Non-Audit Servicesof Independent Auditors***

The Audit Committee’spolicy is to pre-approve all audit and non-audit services provided by ourauditor. These services may include audit services, audit-related services, taxservices and other services, as described above. Pre-approval is detailed as tothe particular service or categories of services, and is subject to a specificbudget. Our management and our auditor report to the Audit Committee regardingthe extent of services provided in accordance with this pre-approval and thefees for the services performed to date on an annual basis. The Audit Committeemay also pre-approve additional services on a case-by-case basis.

**Item 16D.**       Exemptionsfrom the Listing Standards for Audit Committees.

Not applicable.

113

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**Item 16E.**        Purchasesof Equity Securities by the Issuer and Affiliated Purchasers.

Not applicable.

**Item 17.**                 FinancialStatements

Not applicable.

**PART III**

**Item 18.**                 FinancialStatements.

Please refer to pages F-1through F-59 of this annual report.

**Item 19.**                 Exhibits.

Wehave filed the following documents as exhibits to this annual report:

| Exhibit   Number | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | **Description   of Exhibit** |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|
| 1.1              |       | Articles of Association†                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 2.1              |       | Aircraft Purchase  Agreement, dated December 30, 2005, between Airbus S.A.S. and AerVenture  Limited(1)†                                                                                                                                                                                                                                                                                                                                                                            |
| 2.2              |       | Credit Agreement, dated  April 26, 2006, among AerFunding 1 Limited, AerCap Ireland Limited, UBS  Real Estate Securities Inc. and other financial institutions named as  Class A Lenders, Class B Lenders, and Class C Lenders, UBS  Securities LLC, the other Funding Agents named therein and Deutsche Bank Trust  Company Americas†                                                                                                                               |
| 2.3              |       | Security Trust  Agreement, dated April 26, 2006, among AerFunding 1 Limited, the  additional grantors referred to therein as grantors, UBS Securities LLC and  Deutsche Bank Trust Company Americas†                                                                                                                                                                                                                                                                                |
| 2.4              |       | Guarantee and Collateral  Agreement, dated April 26, 2006, among AeroTurbine, Inc., The  Subsidiary Guarantors of AeroTurbine, Inc., the borrower’s party thereto  and Calyon New York Branch†                                                                                                                                                                                                                                                                  |
| 2.5              |       | Aircraft Asset Security  Agreement, dated April 26, 2006, among AeroTurbine, Inc. The  Subsidiary Guarantors of AeroTurbine, Inc., the borrower’s party  thereto, the trusts party thereto, as trusts and Calyon New York Branch†                                                                                                                                                                                                                                    |
| 2.6              |       | Amended and Restated  Senior Credit Agreement, dated as of December 13, 2006, among  AeroTurbine, Inc., as Borrower, the Several Lenders from time to time as  Parties thereto, Calyon New York Branch, as Administrative Agent, HSH  Nordbank AG, as Syndication Agent and Wachovia Bank N.A. and  National City Bank, as Co-Documentation Agents†                                                                                                                  |
| 2.7              |       | Pledge Agreement, dated  April 26, 2006, between AerCap, Inc., and Calyon New York Branch†                                                                                                                                                                                                                                                                                                                                                                           |
| 2.8              |       | Joint Venture Agreement,  dated December 30, 2005, among AerCap Ireland Limited, International  Cargo Airlines Company KSC and AerVenture Limited†                                                                                                                                                                                                                                                                                                                                  |
| 2.9              |       | Stock Purchase  Agreement, dated March 16, 2006, among AerCap, Inc. and Nicolas  Finazzo, Rose Ann Finazzo and Robert B. Nichols†                                                                                                                                                                                                                                                                                                                                              |
| 2.10             |       | Facility Agreement,  dated April 23, 2003, among the Banks and Financial Institutions named  therein as ECA Lenders, the Banks and Financial Institutions named therein as  Mismatch Lenders, Credit Lyonnais, Kreditanstalt Für Wiederaufbau, Sunrise  Leasing Limited, Sundance Leasing Limited, Sunray Leasing Limited, Sunshine  Leasing Limited, Sunglow Leasing Limited, Sunflower Aircraft Leasing Limited,  Debis Aircraft Leasing XXX B.V. and Debis AirFinance B.V.† |

114

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| 2.11 |   | Senior Facility  Agreement, dated October 12, 2006, between AerCap Dutch Aircraft  Leasing I B.V., Calyon and the financial institutions named  therein†                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.12 |   | Sale and Purchase Agreement regarding the  acquisition of all shares in and certain loans and facilities granted to  debis AirFinance B.V. by and between DaimlerChrysler Services AG,  DaimlerChrysler Aerospace AG, DaimlerChrysler AG, Bayerische Hypo- und  Vereinsbank AG, HVB Banque Luxembourg SA, Bayerische Landesbank, BLB Beteiligungsgesellschaft  Beta mbH, Dresdner Bank AG, DZ Bank AG Deutsche Zentral-Genossenschaftsbank,  DZ Beteiligungsgesellschaft mbH Nr. 6, KfW and FERN S.a r.l. as amended  by the Amendment Agreement dated June 29, 2005 by and between the  DaimlerChrysler Services AG, DaimlerChrysler Aerospace AG, DaimlerChrysler  AG, Bayerische Hypo- und Vereinsbank AG, HVB Banque Luxembourg SA, Bayerische  Landesbank, BLB Beteiligungsgesellschaft Beta mbH, Dresdner Bank AG, DZ Bank  AG Deutsche Zentral-Genossenschaftsbank, DZ Beteiligungsgesellschaft  mbH Nr. 6, KfW, FERN S.a r.l., FERN GP S.a r.l. and AerCap Holdings  C.V.† |
| 2.13 |   | AerCap Holdings N.V.  2006 Equity Incentive Plan (including form of Stock Option Agreement)†                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 2.14 |   | Facility Agreement,  dated November 3, 2006, between AerVenture Limited, as Borrower, and  Calyon s.A., as Lender, Security Trustee and Agent†                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.15 |   | Aircraft Purchase  Agreement, dated December 11, 2006, between Airbus S.A.S. and AerCap  Ireland Limited††                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 8.1  |   | List of Significant  Subsidiaries of AerCap N.V.†                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 12.1 |   | Certification of the  Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley  Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 12.2 |   | Certification of the  Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley  Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 12.3 |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

----

| †       |   | Previously filed with  Registration Statement on Form F-1, File No. 333-138381                                                                                |
|--------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| †† |   | Portions of this exhibit have been omitted pursuant  to a request for confidential treatment submitted to the Securities and  Exchange Commission under separate cover. |

 

115

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**SIGNATURES**

Theregistrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersignedto sign this annual report on its behalf.

|                 |     |                       |   |
|----------------------|----------|----------------------------|--------|
|                      |     | AERCAP  HOLDINGS N.V.      |   |
|                 |     | /S/ KLAUS HEINEMANN        |   |
|                 |     | KLAUS  HEINEMANN           |   |
|                 | * * | *Chief  Executive Officer* |   |
| Date: March 21, 2007 |     |                       |   |

 

116

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**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

| **AerCap Holdings N.V. Consolidated Financial Statements**                                                                                                                                                                                            |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Reports of Independent  Registered Public Accounting Firm                                                                                                                                                                                             |   | F-2    |
| Consolidated Balance Sheets As of  December 31, 2005 and 2006                                                                                                                                                                                    |   | F-4    |
| Consolidated Income Statements  For the Year Ended December 31, 2004, the Six Months Ended June 30,  2005, the Period from June 27, 2005 to December 31, 2005 and the  Year Ended December 31, 2006                          |   | F-5    |
| Consolidated Statements of  Cash Flows For the Years Ended December 31, 2004, the Six Months Ended  June 30, 2005, the Period from June 27, 2005 to December 31,  2005 and the Year Ended December 31, 2006                  |   | F-6    |
| Consolidated Statements of  Shareholders’ Equity For the Year Ended December 31, 2004, the Six  Months Ended June 30, 2005, the Period from June 27, 2005 to  December 31, 2005 and   the Year Ended December 31, 2006. |   | F-7    |
| Notes to the Consolidated Financial Statements                                                                                                                                                                                                        |   | F-8    |
| Additional Information—Financial Statements  Schedule I                                                                                                                                                                                     |   | F-55   |

 

F-1

----

**REPORTS OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**Report of Independent Registered Public Accounting Firm**

To the Board of Directors andShareholders of AerCap Holdings N.V.,

We have audited the accompanyingconsolidated balance sheets of AerCap Holdings N.V. and its subsidiariesas of December 31, 2006 and 2005 and the related consolidated statementsof income, shareholders’ equity and cash flows for the year ended December 31,2006 and for the period from June 27, 2005 to December 31, 2005. Inconnection with our audits of the consolidated financial statements, we havealso audited the related financial statement Schedule I.  These financial statements and the financialstatement Schedule I are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements andthe financial statement Schedule I based on our audits.

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of AerCap Holdings N.V. and itssubsidiaries, at December 31, 2006 and 2005, and the results of theiroperations and cash flows for the year ended December 31, 2006 and for theperiod June 27, 2005 to December 31, 2005 in conformity withaccounting principles generally accepted in the United States of America. Also,in our opinion, the related financial statement Schedule I presentsfairly, in all material respects, the information set forth therein when readin conjunction with the related consolidated financial statements.

Rotterdam,March 21, 2007PricewaterhouseCoopers Accountants N.V.

/s/ A Tukker RA

F-2

----

**Report ofIndependent Registered Public Accounting Firm**

To the Board of Directors and Shareholders of AerCapHoldings N.V.,

We have audited the accompanyingconsolidated statements of income, shareholders’ equity and cash flows of debisAirFinance B.V. (“AerCap B.V.”) and its subsidiaries for the period from January 1, 2005 to June 30, 2005 and for the yearended December 31, 2004. In connection with our audits of the consolidatedfinancial statements, we have also audited the related financial statementSchedule I.   These financial statements and financialstatement Schedule I are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements and thefinancial statement Schedule I based on our audits.

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the statements of income,shareholders’ equity and cash flows are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the statements of income, shareholders’ equity and cash flows.An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall income,shareholders’ equity and cash flow statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

Inour opinion, the consolidated statements of income, shareholders’ equity andcash flows referred to above present fairly, in all material respects, theresults of their operations, cash flows and other data shown therein of debisAirFinance B.V. and its subsidiaries for the period January 1, 2005 toJune 30, 2005 and for the year ended December 31, 2004 in conformitywith accounting principles generally accepted in the United States of America.Also, in our opinion, the related financial statement Schedule I presentsfairly, in all material respects, the information set forth therein when readin conjunction with the related consolidated financial statements.

Rotterdam, March 21, 2007PricewaterhouseCoopers Accountants N.V.

/s/ A Tukker RA

F-3

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**AerCap Holdings N.V. and Subsidiaries**Consolidated Balance Sheetsas of December 31, 2005 and 2006

| ** **                                                                                                                                                               | ** ** | ** ** | ** ** | **December 31,**                                                                                                                                                                                    | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                               | ** ** | **Note**   | ** ** | **                2005                ** | ** ** | **                2006                ** | ** ** |
| ** **                                                                                                                                                               | ** ** | ** ** | ** ** | **(US dollars in thousands except share and  per share amounts)**                                                                                                | ** ** |
| **Assets**                                                                                                                                                               |       |       |       |                                                                                                                                                                                                     |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                               |       |       |       |                                                                                                                                                                                                     |       |   | $ | 183,554 |   |   |   | $ | 131,201 |   |   |
| Restricted cash                                                                                                                                                          |       |       | 3          |                                                                                                                                                                                                     |       |   | 157,730 |   |   |   | 112,277 |   |   |
| Trade  receivables, net of provisions of $3,405 and $2,496                                                                                                               |       |       | 4          |                                                                                                                                                                                                     |       |   | 6,575 |   |   |   | 25,058 |   |   |
| Flight equipment  held for operating leases, net                                                                                                                         |       |       | 5          |                                                                                                                                                                                                     |       |   | 2,189,267 |   |   |   | 2,966,779 |   |   |
| Net investment in  direct finance leases                                                                                                                                 |       |       | 6          |                                                                                                                                                                                                     |       |   | 1,072 |   |   |   | — |   |   |
| Notes receivable,  net of provisions, of $2,563 and nil                                                                                                                  |       |       | 7          |                                                                                                                                                                                                     |       |   | 196,620 |   |   |   | 167,451 |   |   |
| Prepayments on  flight equipment                                                                                                                                         |       |       | 8          |                                                                                                                                                                                                     |       |   | 115,657 |   |   |   | 166,630 |   |   |
| Investments                                                                                                                                                              |       |       | 9          |                                                                                                                                                                                                     |       |   | 3,000 |   |   |   | 18,000 |   |   |
| Goodwill                                                                                                                                                                 |       |       | 10         |                                                                                                                                                                                                     |       |   | — |   |   |   | 6,776 |   |   |
| Intangibles                                                                                                                                                              |       |       | 10         |                                                                                                                                                                                                     |       |   | 38,571 |   |   |   | 34,229 |   |   |
| Inventory                                                                                                                                                                |       |       | 11         |                                                                                                                                                                                                     |       |   | — |   |   |   | 82,811 |   |   |
| Derivative assets                                                                                                                                                        |       |       | 12         |                                                                                                                                                                                                     |       |   | 18,420 |   |   |   | 17,871 |   |   |
| Deferred income  taxes                                                                                                                                                   |       |       | 17         |                                                                                                                                                                                                     |       |   | 99,346 |   |   |   | 101,477 |   |   |
| Other assets                                                                                                                                                             |       |       | 13         |                                                                                                                                                                                                     |       |   | 51,421 |   |   |   | 92,432 |   |   |
| **Total  Assets**                                                                                                                                                        |       |       |       |                                                                                                                                                                                                     |       |   | $ | 3,061,233 |   |   |   | $ | 3,922,992 |   |   |
| **Liabilities  and Shareholders’ Equity**                                                                                                                           |       |       |       |                                                                                                                                                                                                     |       |   |   |   |   |   |   |   |   |
| Accounts payable                                                                                                                                                         |       |       |       |                                                                                                                                                                                                     |       |   | $ | 2,575 |   |   |   | $ | 6,958 |   |   |
| Accrued expenses  and other liabilities                                                                                                                                  |       |       | 14         |                                                                                                                                                                                                     |       |   | 76,562 |   |   |   | 92,466 |   |   |
| Accrued  maintenance liability                                                                                                                                           |       |       |       |                                                                                                                                                                                                     |       |   | 150,322 |   |   |   | 285,788 |   |   |
| Lessee deposit  liability                                                                                                                                                |       |       |       |                                                                                                                                                                                                     |       |   | 56,386 |   |   |   | 77,686 |   |   |
| Debt                                                                                                                                                                     |       |       | 15         |                                                                                                                                                                                                     |       |   | 2,172,995 |   |   |   | 2,555,139 |   |   |
| Accrual for  onerous contracts                                                                                                                                           |       |       | 16         |                                                                                                                                                                                                     |       |   | 152,634 |   |   |   | 111,333 |   |   |
| Deferred revenue                                                                                                                                                         |       |       |       |                                                                                                                                                                                                     |       |   | 22,009 |   |   |   | 28,391 |   |   |
| Derivative  liabilities                                                                                                                                                  |       |       | 12         |                                                                                                                                                                                                     |       |   | 8,087 |   |   |   | — |   |   |
| Deferred income  taxes                                                                                                                                                   |       |       | 17         |                                                                                                                                                                                                     |       |   | — |   |   |   | 3,383 |   |   |
| Commitments and  contingencies                                                                                                                                           |       |       | 26         |                                                                                                                                                                                                     |       |   | — |   |   |   | — |   |   |
| **Total  Liabilities**                                                                                                                                                   |       |       |       |                                                                                                                                                                                                     |       |   | 2,641,570 |   |   |   | 3,161,144 |   |   |
| Minority interest, net of taxes                                                                                                                                          |       |       |       |                                                                                                                                                                                                     |       |   | — |   |   |   | 31,937 |   |   |
| Ordinary share capital, €.01  par value (200,000,000 ordinary shares authorized, 78,236,957 and 85,036,957  ordinary shares issued   and outstanding, respectively) |       |       | 18         |                                                                                                                                                                                                     |       |   | 646 |   |   |   | 699 |   |   |
| Additional  paid-in capital                                                                                                                                              |       |       |       |                                                                                                                                                                                                     |       |   | 369,354 |   |   |   | 591,553 |   |   |
| Accumulated  retained earnings                                                                                                                                           |       |       |       |                                                                                                                                                                                                     |       |   | 49,663 |   |   |   | 137,659 |   |   |
| **Total  Shareholders’ Equity**                                                                                                                                     |       |       |       |                                                                                                                                                                                                     |       |   | 419,663 |   |   |   | 729,911 |   |   |
| **Total  Liabilities and Shareholders’ Equity**                                                                                                                     |       |       |       |                                                                                                                                                                                                     |       |   | $ | 3,061,233 |   |   |   | $ | 3,922,992 |   |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

F-4

----

**AerCap Holdings N.V. andSubsidiaries**

**Consolidated IncomeStatements**

**For the Year Ended December 31,2004, the Six Months Ended June 30, 2005,**

**the Period From June 27,2005 to December 31, 2005 and**

**the Year Ended December 31, 2006**

| ** **                                                                              | ** ** | ** ** | ** ** | **AerCap B.V.**                                                                                           | ** ** | ** **                     | ** ** | ** ** | ** ** | **AerCap Holdings N.V.** | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------|------------|------------------------------------|------------|
| ** **                                                                              | ** ** | ** ** | ** ** | **Year ended **                                                                                      | ** ** | **Six months ended** | ** ** | ** ** | ** ** | ** **                         | ** ** | **June 27, 2005 to** | ** ** | **Year ended** | ** ** |
| ** **                                                                              | ** ** | **Note**   | ** ** | **December 31, 2004**                                                                                | ** ** | **June 30, 2005**    | ** ** | ** ** | ** ** | ** **                         | ** ** | **December 31, 2005** | ** ** | **December 31, 2006** | ** ** |
| ** **                                                                              | ** ** | ** ** | ** ** | **(US dollars in thousands, except share and per share amounts)** | ** ** |
| **Revenues**                                                                            |       |       |       |                                                                                                           |       |                           |       |       |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lease revenue                                                                           |       |       | 20         |                                                                                                           |       |                           | $          | 308,500    |       |                               |       | $ | 175,333 |   |   |   |   |   |   |   | $ | 173,568 |   |   |   | $ | 443,925 |   |   |
| Sales revenue                                                                           |       |       |       |                                                                                                           |       |                           | 32,050     |       |       |                               | 79,574     |   |   |   |   |   |   |   | 12,489 |   |   |   | 301,405 |   |   |
| Management fee revenue                                                                  |       |       |       |                                                                                                           |       |                           | 15,009     |       |       |                               | 6,512      |   |   |   |   |   |   |   | 7,674 |   |   |   | 14,072 |   |   |
| Interest revenue                                                                        |       |       |       |                                                                                                           |       |                           | 21,641     |       |       |                               | 13,130     |   |   |   |   |   |   |   | 20,335 |   |   |   | 34,681 |   |   |
| Other revenue                                                                           |       |       |       |                                                                                                           |       |                           | 13,667     |       |       |                               | 3,459      |   |   |   |   |   |   |   | 1,006 |   |   |   | 20,336 |   |   |
| **Total Revenues**                                                                      |       |       |       |                                                                                                           |       |                           | 390,867    |       |       |                               | 278,008    |   |   |   |   |   |   |   | 215,072 |   |   |   | 814,419 |   |   |
| **Expenses**                                                                            |       |       |       |                                                                                                           |       |                           |       |       |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                            |       |       | 5          |                                                                                                           |       |                           | 125,877    |       |       |                               | 66,407     |   |   |   |   |   |   |   | 45,918 |   |   |   | 102,387 |   |   |
| Cost of goods sold                                                                      |       |       |       |                                                                                                           |       |                           | 18,992     |       |       |                               | 57,632     |   |   |   |   |   |   |   | 10,574 |   |   |   | 220,277 |   |   |
| Goodwill impairment                                                                     |       |       | 21         |                                                                                                           |       |                           | 132,411    |       |       |                               | —     |   |   |   |   |   |   |   | — |   |   |   | — |   |   |
| Impairment of investments                                                               |       |       | 22         |                                                                                                           |       |                           | 2,260      |       |       |                               | —     |   |   |   |   |   |   |   | — |   |   |   | — |   |   |
| Interest on debt                                                                        |       |       | 15         |                                                                                                           |       |                           | 113,132    |       |       |                               | 69,857     |   |   |   |   |   |   |   | 44,742 |   |   |   | 166,219 |   |   |
| Operating lease in costs                                                                |       |       | 16         |                                                                                                           |       |                           | 35,770     |       |       |                               | 13,877     |   |   |   |   |   |   |   | 11,441 |   |   |   | 25,232 |   |   |
| Leasing expenses                                                                        |       |       |       |                                                                                                           |       |                           | 30,536     |       |       |                               | 9,688      |   |   |   |   |   |   |   | 12,213 |   |   |   | 47,394 |   |   |
| Provision for doubtful notes and accounts receivable                                    |       |       | 4,7        |                                                                                                           |       |                           | 634        |       |       |                               | 3,161      |   |   |   |   |   |   |   | 3,002 |   |   |   | (186 | ) |   |
| Selling, general and administrative expenses                                            |       |       | 23         |                                                                                                           |       |                           | 36,449     |       |       |                               | 19,559     |   |   |   |   |   |   |   | 26,949 |   |   |   | 149,364 | (a) |   |
| **Total Expenses**                                                                      |       |       |       |                                                                                                           |       |                           | 496,061    |       |       |                               | 240,181    |   |   |   |   |   |   |   | 154,839 |   |   |   | 710,687 |   |   |
| **(Loss) income from continuing operations before  income taxes and minority interest** |       |       |       |                                                                                                           |       |                           | (105,194   | )          |       |                               | 37,827     |   |   |   |   |   |   |   | 60,233 |   |   |   | 103,732 |   |   |
| Provision for income taxes                                                              |       |       | 17         |                                                                                                           |       |                           | (168       | )          |       |                               | (4,127     | ) |   |   |   |   |   |   | (10,570 | ) |   |   | (16,324 | ) |   |
| Minority interest, net of taxes                                                         |       |       |       |                                                                                                           |       |                           | —     |       |       |                               | —     |   |   |   |   |   |   |   | — |   |   |   | 588 |   |   |
| **Net (Loss) Income**                                                                   |       |       |       |                                                                                                           |       |                           | $          | (105,362   | )          |                               |       | $ | 33,700 |   |   |   |   |   |   |   | $ | 49,663 |   |   |   | $ | 87,996 |   |   |
| Basic and diluted (loss) earnings per share                                             |       |       | 24         |                                                                                                           |       |                           | $          | (143.12    | )          |                               |       | $ | 45.78 |   |   |   |   |   |   |   | $ | 0.63 |   |   |   | $ | 1.11 |   |   |
| Weighted average  shares outstanding, basic and diluted                                 |       |       |       |                                                                                                           |       |                           | 736,203    |       |       |                               | 736,203    |   |   |   |   |   |   |   | 78,236,957 |   |   |   | 78,992,513 |   |   |

----

(a)           —Includes share-basedcompensation of $78,635

The accompanying notes are an integral part of these consolidated financial statements.

F-5

----

**AerCap Holdings N.V. andSubsidiaries**Consolidated Statements of Cash Flows

**For the Year EndedDecember 31, 2004, the Six Months Ended June 30, 2005,the Period From June 27, 2005 to December 31, 2005 and the Year EndedDecember 31, 2006**

| ** **                                                                                         | ** ** | **AerCap B.V.**                         | ** ** | ** **                                          | ** ** | **AerCap Holdings N.V.** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                         | ** ** | **Year ended  December 31,  2004** | ** ** | **Six months  ended  June 30, 2005** | ** ** | ** **                         | ** ** | **June 27, 2005  to December 31,  2005** | ** ** | **Year ended  December 31,  2006** | ** ** |
| ** **                                                                                         | ** ** | **(US dollars in thousands)** | ** ** |
| Net (loss) income                                                                                  |       |                                         | $          | (105,362                                            | )          |                               |       | $ | 33,700 |   |   |   |   |   | $ | 49,663 |   |   |   | $ | 87,996 |   |   |
| **Adjustments to reconcile net (loss) income to  net cash provided by operating activities:** |       |                                         |       |                                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority interest                                                                                  |       |                                         |       |                                                |       |                               |       |   |   |   |   |   |   |   |   |   | (588 | ) |   |
| Depreciation                                                                                       |       |                                         | 125,877    |                                                |       |                               | 66,407     |   |   |   |   |   | 45,918 |   |   |   | 102,387 |   |   |
| Amortization of  debt issuance costs                                                               |       |                                         | 835        |                                                |       |                               | 885        |   |   |   |   |   | 566 |   |   |   | 11,777 |   |   |
| Amortization of  intangibles                                                                       |       |                                         | —     |                                                |       |                               | —     |   |   |   |   |   | 6,563 |   |   |   | 10,132 |   |   |
| Goodwill  impairment                                                                               |       |                                         | 132,411    |                                                |       |                               | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Provision for  doubtful notes and accounts receivable                                              |       |                                         | 634        |                                                |       |                               | 3,161      |   |   |   |   |   | 3,002 |   |   |   | (186 | ) |   |
| Capitalized  interest on pre-delivery payments                                                     |       |                                         | (7,850     | )                                                   |       |                               | (3,084     | ) |   |   |   |   | (2,767 | ) |   |   | (4,888 | ) |   |
| Release of  provision against debt                                                                 |       |                                         | —     |                                                |       |                               | —     |   |   |   |   |   | — |   |   |   | (4,139 | ) |   |
| Gain on disposal  of assets                                                                        |       |                                         | (21,311    | )                                                   |       |                               | (24,906    | ) |   |   |   |   | (2,645 | ) |   |   | (67,720 | ) |   |
| Mark-to-market  of non-hedged derivatives                                                          |       |                                         | (22,708    | )                                                   |       |                               | (11,783    | ) |   |   |   |   | (19,028 | ) |   |   | (9,166 | ) |   |
| Deferred taxes                                                                                     |       |                                         | (1,799     | )                                                   |       |                               | 3,505      |   |   |   |   |   | 10,101 |   |   |   | 16,089 |   |   |
| Share-based  compensation                                                                          |       |                                         | —     |                                                |       |                               | —     |   |   |   |   |   | — |   |   |   | 78,635 |   |   |
| **Changes in assets and liabilities:**                                                             |       |                                         |       |                                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade receivables  and notes receivable, net                                                       |       |                                         | 16,842     |                                                |       |                               | 59,023     |   |   |   |   |   | 9,846 |   |   |   | 30,299 |   |   |
| Inventories                                                                                        |       |                                         | —     |                                                |       |                               | —     |   |   |   |   |   | — |   |   |   | (24,216 | ) |   |
| Other assets and  derivative assets                                                                |       |                                         | 13,347     |                                                |       |                               | (18,986    | ) |   |   |   |   | (57 | ) |   |   | (7,990 | ) |   |
| Accounts payable  and accrued expenses, including accrued maintenance liability, lessee  deposits  |       |                                         | (42,059    | )                                                   |       |                               | (909       | ) |   |   |   |   | 5,727 |   |   |   | 124,853 |   |   |
| Deferred revenue                                                                                   |       |                                         | 3,076      |                                                |       |                               | 262        |   |   |   |   |   | 2,349 |   |   |   | 5,104 |   |   |
| **Net cash  provided by operating activities**                                                     |       |                                         | 91,933     |                                                |       |                               | 107,275    |   |   |   |   |   | 109,238 |   |   |   | 348,379 |   |   |
| Purchase of flight  equipment                                                                      |       |                                         | (313,213   | )                                                   |       |                               | (74,679    | ) |   |   |   |   | (124,191 | ) |   |   | (879,497 | ) |   |
| Proceeds from  sale/disposal of assets                                                             |       |                                         | 16,379     |                                                |       |                               | 91,863     |   |   |   |   |   | 12,718 |   |   |   | 253,199 |   |   |
| Principle  repayments from investments                                                             |       |                                         | 9,821      |                                                |       |                               | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Prepayments on  flight equipment                                                                   |       |                                         | (33,366    | )                                                   |       |                               | (19,711    | ) |   |   |   |   | (26,604 | ) |   |   | (93,708 | ) |   |
| Purchase of  subsidiaries, net of cash acquired                                                    |       |                                         | 5,769      |                                                |       |                               | —     |   |   |   |   |   | (1,245,609 | ) |   |   | (143,100 | ) |   |
| Purchase of  investments                                                                           |       |                                         | (2,260     | )                                                   |       |                               | (3,000     | ) |   |   |   |   | — |   |   |   | (15,000 | ) |   |
| Purchase of  intangibles                                                                           |       |                                         | —     |                                                |       |                               | —     |   |   |   |   |   | — |   |   |   | (10,636 | ) |   |
| Movement in  restricted cash                                                                       |       |                                         | 98,389     |                                                |       |                               | 20,052     |   |   |   |   |   | (47,573 | ) |   |   | 45,453 |   |   |
| **Net cash  (used in) provided by investing activities**                                           |       |                                         | (218,481   | )                                                   |       |                               | 14,525     |   |   |   |   |   | (1,431,259 | ) |   |   | (843,289 | ) |   |
| Issuance of debt                                                                                   |       |                                         | 303,170    |                                                |       |                               | 63,085     |   |   |   |   |   | 2,231,633 |   |   |   | 908,077 |   |   |
| Repayment of debt                                                                                  |       |                                         | (160,842   | )                                                   |       |                               | (239,369   | ) |   |   |   |   | (1,058,095 | ) |   |   | (607,721 | ) |   |
| Debt issuance  costs paid                                                                          |       |                                         | (5,782     | )                                                   |       |                               | (772       | ) |   |   |   |   | (38,066 | ) |   |   | (32,940 | ) |   |
| Issuance of equity  interests                                                                      |       |                                         | —     |                                                |       |                               | 35,051     |   |   |   |   |   | 370,000 |   |   |   | 143,617 |   |   |
| Dividends paid to  minority interests                                                              |       |                                         | —     |                                                |       |                               | —     |   |   |   |   |   | — |   |   |   | (225 | ) |   |
| Capital  contributions from minority interests                                                     |       |                                         | —     |                                                |       |                               | —     |   |   |   |   |   | — |   |   |   | 32,750 |   |   |
| **Net cash  provided by (used in) financing activities**                                           |       |                                         | 136,546    |                                                |       |                               | (142,005   | ) |   |   |   |   | 1,505,472 |   |   |   | 443,558 |   |   |
| Net increase  (decrease) in cash and cash equivalents                                              |       |                                         | 9,998      |                                                |       |                               | (20,205    | ) |   |   |   |   | 183,451 |   |   |   | (51,352 | ) |   |
| Effect of exchange  rate changes                                                                   |       |                                         | 2,374      |                                                |       |                               | 233        |   |   |   |   |   | 103 |   |   |   | (1,001 | ) |   |
| Cash and cash  equivalents at beginning of period                                                  |       |                                         | 131,268    |                                                |       |                               | 143,640    |   |   |   |   |   | — |   |   |   | 183,554 |   |   |
| **Cash and  cash equivalents at end of period**                                                    |       |                                         | $          | 143,640                                             |       |                               |       | $ | 123,668 |   |   |   |   |   | $ | 183,554 |   |   |   | 131,201 |   |   |
| **Supplemental cash flow information:**                                                            |       |                                         |       |                                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest paid                                                                                      |       |                                         | $          | 124,210                                             |       |                               |       | $ | 77,042 |   |   |   |   |   | $ | 54,980 |   |   |   | 145,793 |   |   |
| Taxes (refunded)  paid                                                                             |       |                                         | 1,734      |                                                |       |                               | 55         |   |   |   |   |   | (605 | ) |   |   | 267 |   |   |
| ***Fair values of assets acquired and liabilities  assumed in purchase acquisitions***             | ** ** | ** **                                   | ** ** | ** **                                          | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                         | ** ** | ** **                                   | **Ancla**  | ** **                                          | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **AerCap B.V.** | ** ** | ** ** | ** ** | **AeroTurbine** | ** ** | ** ** |
| Assets acquired                                                                                    |       |                                         | $          | 139,114                                             |       |                               |       |   |   |   |   |   |   | $ | 2,838,918 |   |   |   | $ | 305,321 |   |   |
| Liabilities  assumed                                                                               |       |                                         | (132,903   | )                                                   |       |                               |       |   |   |   |   |   | (1,469,641 | ) |   |   | (160,619 | ) |   |
| Cash paid                                                                                          |       |                                         | $          | 6,211                                               |       |                               |       |   |   |   |   |   |   | $ | 1,369,277 |   |   |   | $ | 144,702 |   |   |
|                                                                                                    |            |                                              |            |                                                     |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these consolidated financial statements.

F-6

----

**AerCap Holdings N.V. andSubsidiaries**

**Consolidated Statementsof Shareholders’ EquityFor the Year Ended December 31, 2004, the Six Months Ended June 30,2005,**

**the Period From June 27,2005 to December 31, 2005 and the Year Ended**

**December 31, 2006.**

| ** **                                                    | ** **   | **Number of  Shares**                                                        | ** **   | **Share  capital** | ** ** | **Additional  paid-in  capital** | ** **   | **Accumulated  other  comprehensive  loss** | ** **   | **Retained  (loss)  earnings** | ** **   | **Total  shareholders’  equity** | ** **   |
|---------------------------------------------------------------|--------------|-----------------------------------------------------------------------------------|--------------|--------------------|------------|----------------------------------|--------------|---------------------------------------------|--------------|--------------------------------|--------------|---------------------------------------|--------------|
| ** **                                                    | ** **   | **(US dollars in thousands, except share amounts)** | ** **   |
| ***AerCap  B.V.***                                            | *** *** |                                                                              | *** *** | *** ***       |       | *** ***                     | *** *** |                                        | *** *** | *** ***                   |         |                                  | *** *** | *** *** |   | *** *** | *** *** |   | *** *** | *** *** |   |
| **Year  ended December 31, 2004**                        | ** **   |                                                                              | ** **   | *** ***       |       | ** **                       | ** **   |                                        | ** **   | *** ***                   |         |                                  | ** **   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Balance at January 1, 2004                               |         |                                                                              | 736,203      | *** ***       |       | 333,780                          |         |                                        | —       | *** ***                   |         |                                  | —       |   |   | (201,222 | ) |   | 132,558 |   |   |
| Comprehensive income:                                         |         |                                                                              |         | *** ***       |       |                             |         |                                        |         | *** ***                   |         |                                  |         |   |   |   |   |   |   |   |   |
| Net loss for the year                                         |         |                                                                              | —       | *** ***       |       | $                                | —       |                                        |         | —                         | *** *** |                                  |         | $ | — |   |   | $ | (105,362 | ) |   | $ | (105,362 | ) |   |
| Other  comprehensive income:                                  |         |                                                                              |         | *** ***       |       |                             |         |                                        |         | *** ***                   |         |                                  |         |   |   |   |   |   |   |   |   |
| Other                                                         |         |                                                                              | —       | *** ***       |       | —                           |         |                                        | —       | *** ***                   |         |                                  | (181         | ) |   | — |   |   | (181 | ) |   |
| Comprehensive income                                          |         |                                                                              |         | *** ***       |       |                             | * *     |                                        | * *     | *** ***                   |         |                                  | * *     | * * |   | — | * * |   | (105,543 | ) |   |
| Balance at December 31, 2004                             |         |                                                                              | 736,203      | *** ***       |       | $                                | 333,780      |                                        |         | $                              | —       | *** ***                          |         |   | $ | (181 | ) |   | $ | (306,584 | ) |   | $ | 27,015 |   |   |
| **Six  months ended June 30, 2005**                      | ** **   |                                                                              | ** **   | *** ***       |       | ** **                       | ** **   |                                        | ** **   | *** ***                   |         |                                  | ** **   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Balance at January 1, 2005                               |         |                                                                              | 736,203      | *** ***       |       | $                                | 333,780      |                                        |         | —                         | *** *** |                                  |         | $ | (181 | ) |   | $ | (306,584 | ) |   | $ | 27,015 |   |   |
| Issuance of equity capital                                    |         |                                                                              | 63,797       | *** ***       |       | 35,051                           |         |                                        | —       | *** ***                   |         |                                  | —       |   |   | — |   |   | 35,051 |   |   |
| Comprehensive income:                                         |         |                                                                              |         | *** ***       |       |                             |         |                                        |         | *** ***                   |         |                                  |         |   |   |   |   |   |   |   |   |
| Net income for the period                                     |         |                                                                              | —       | *** ***       |       | —                           |         |                                        | —       | *** ***                   |         |                                  | —       |   |   | 33,700 |   |   | 33,700 |   |   |
| Comprehensive income                                          |         |                                                                              |         | *** ***       |       |                             |         |                                        |         | *** ***                   |         |                                  |         |   |   |   |   |   | 33,700 |   |   |
| Balance at June 30, 2005                                 |         |                                                                              | 800,000      | *** ***       |       | $                                | 368,831      |                                        |         | $                              | —       | *** ***                          |         |   | $ | (181 | ) |   | $ | (272,884 | ) |   | $ | 95,766 |   |   |
|                                                          |
| ***AerCap  Holdings N.V.***                                   | *** *** |                                                                              | *** *** | *** ***       |       | *** ***                     | *** *** |                                        | *** *** | *** ***                   |         |                                  | *** *** | *** *** |   | *** *** | *** *** |   | *** *** | *** *** |   |
| **Period  from June 27, 2005 to December 31, 2005** | ** **   |                                                                              | ** **   | *** ***       |       | ** **                       | ** **   |                                        | ** **   | *** ***                   |         |                                  | ** **   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Balance at June 27, 2005                                 |         |                                                                              | —       | *** ***       |       | —                           |         |                                        | —       | *** ***                   |         |                                  | —       |   |   | — |   |   | — |   |   |
| Issuance of equity capital                                    |         |                                                                              | 78,236,957   | *** ***       |       | $                                | 646          |                                        |         | $                              | 369,354      | *** ***                          |         |   |   |   |   |   |   |   | $ | 370,000 |   |   |
| Comprehensive income:                                         |         |                                                                              |         | *** ***       |       |                             |         |                                        |         | *** ***                   |         |                                  |         |   |   |   |   |   |   |   |   |
| Net income for the period                                     |         |                                                                              | —       | *** ***       |       | —                           |         |                                        | —       | *** ***                   |         |                                  | —       |   |   | 49,663 |   |   | 49,663 |   |   |
| Comprehensive income                                          |         |                                                                              |         | *** ***       |       |                             |         |                                        |         | *** ***                   |         |                                  |         |   |   |   |   |   | 49,663 |   |   |
| Balance at December 31, 2005                             |         |                                                                              | 78,236,957   | *** ***       |       | $                                | 646          |                                        |         | $                              | 369,354      | *** ***                          |         |   | $ | — |   |   | $ | 49,663 |   |   | $ | 419,663 |   |   |
| **Year  ended December 31, 2006**                        | ** **   |                                                                              | ** **   | *** ***       |       | ** **                       | ** **   |                                        | ** **   | *** ***                   |         |                                  | ** **   | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Balance at January 1, 2006                               |         |                                                                              | 78,236,957   | *** ***       |       | $                                | 646          |                                        |         | $                              | 369,354      | *** ***                          |         |   | — |   |   | $ | 49,663 |   |   | $ | 419,663 |   |   |
| Issuance of equity capital in public offering                 |         |                                                                              | 6,800,000    | *** ***       |       | 53                               |         |                                        | 143,564      | *** ***                   |         |                                  |         |   |   |   |   |   | 143,617 |   |   |
| Share-based compensation                                      |         |                                                                              | —       | *** ***       |       | —                           |         |                                        | 78,635       | *** ***                   |         |                                  | —       |   |   | — |   |   | 78,635 |   |   |
| Comprehensive income:                                         |         |                                                                              |         | *** ***       |       |                             |         |                                        |         | *** ***                   |         |                                  |         |   |   |   |   |   |   |   |   |
| Net income for the period                                     |         |                                                                              | —       | *** ***       |       | —                           |         |                                        | —       | *** ***                   |         |                                  | —       |   |   | 87,996 |   |   | 87,996 |   |   |
| Comprehensive income                                          |         |                                                                              |         | *** ***       |       |                             |         |                                        |         | *** ***                   |         |                                  |         |   |   |   |   |   | 87,996 |   |   |
| Balance at  December 31, 2006                            |         |                                                                              | 85,036,957   | *** ***       |       | $                                | 699          |                                        |         | $                              | 591,553      | *** ***                          |         |   | $ | — |   |   | $ | 137,659 |   |   | $ | 729,911 |   |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

F-7

----

**AerCap Holdings N.V. and Subsidiaries** Notes to the Consolidated Financial Statements(US dollars in thousands)

**1. General**

**The Company**

We are an integrated global aviation company,conducting aircraft and engine leasing and trading and parts sales.  We also provide a wide range of aircraftmanagement services to other owners of aircraft. We are headquartered in Amsterdam,The Netherlands, and have offices in Shannon, Ireland, Ft. Lauderdale andMiami, Florida and Goodyear, Arizona.

These consolidatedfinancial statements include the accounts of AerCap Holdings N.V. and itssubsidiaries.  AerCap Holdings N.V. is aNetherlands public limited liability company (“*naamloze**vennootschap*”) formed on July 10,2006 for the purpose of acquiring all of the assets and liabilities of AerCapHoldings C.V.  AerCap Holdings C.V. is alimited partnership (“*commanditairevennootschap*”) formed under the laws of The Netherlands on June 27,2005 for the purposes of acquiring the share capital, subordinated debt andsenior debt of debis AirFinance B.V. (“AerCap B.V.”), which occurred on June 30,2005.  In anticipation of our initialpublic offering, we changed our corporate structure from a Netherlandspartnership to a Netherlands public limited liability company. This change waseffected through the acquisition of all of the assets and liabilities of AerCapHoldings C.V. by AerCap Holdings N.V. on October 27, 2006. In accordancewith Statement of Financial Accounting Standards (“SFAS”) 141, *“Business Combinations”*, this acquisition was a transactionunder common control and accordingly, AerCap Holdings N.V. recognized theacquisition of the assets and liabilities of AerCap Holdings C.V. at theircarrying values and no goodwill or other intangible assets were recognized.Additionally in accordance with SFAS 141, these consolidated financialstatements are presented as if AerCap Holdings N.V. had been the acquiringentity of AerCap B.V. on June 30, 2005. On November 27, 2006, wecompleted an initial public offering of 6,800,000 of our common shares at $23per share (Note 18) generating net proceeds of $143,017 which we used to repaydebt. 

**Acquisition ofAeroTurbine, Inc.**

On April 26, 2006 we purchased all of the existing share capital ofAeroTurbine, Inc (‘‘AT’’). AT has been included in our consolidated financialstatements from April 26, 2006.  ATis engaged primarily in the distribution of turbojet aircraft, aircraftengines, and aircraft parts as well as the sale, lease and overhaul managementof engines to the commercial aviation industry worldwide. AT is headquarteredin Miami, Florida and has a location in Goodyear, Arizona. We acquired AT inorder to diversify our investments in aviation assets and to give us a moresignificant presence in the market for older equipment. The total cash paymentfor the purchase was $144,702 including acquisition expenses.  The consideration for the purchase was fundedthrough cash from our operations of $70,946 and $73,756 of cash raised fromrefinancing AT’s existing debt. The new financing totaled $175,000 and included$160,000 of senior unsecured debt, $15,000 of subordinated debt and a revolvingcredit facility of $171,000 to fund future growth. As discussed further in Note18, we used the net proceeds from our initial public offering plus group cashto fully pre-pay the AT senior and subordinated debt. At the time of theprepayment of the AT senior and suborbinated debt, we amended and restated theterms of the senior and subordinated facility and increased the availabilityunder the revolving credit facility to $220,000.

F-8

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**AerCap Holdings N.V. and Subsidiaries** Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)

**1.General (Continued)**

We have allocated thepurchase price to the assets acquired and liabilities assumed as of the date ofthe acquisition as indicated in the table below:

| ** **                               | ** ** | **Fair Values  Acquired** | ** ** |
|------------------------------------------|------------|--------------------------------|------------|
| Cash and cash  equivalents               |       |                           | $          | 1,601 |   |   |
| Equipment held for  operating lease, net |       |                           | 158,820    |   |   |
| Inventory                                |       |                           | 49,874     |   |   |
| Intangible assets                        |       |                           | 25,600     |   |   |
| Goodwill                                 |       |                           | 38,199     |   |   |
| Property and equipment                   |       |                           | 7,896      |   |   |
| Other                                    |       |                           | 23,331     |   |   |
| **Total  assets**                        |       |                           | 305,321    |   |   |
| Debt                                     |       |                           | 93,104     |   |   |
| Deferred taxes                           |       |                           | 46,315     |   |   |
| Other                                    |       |                           | 21,200     |   |   |
| **Total  liabilities**                   |       |                           | 160,619    |   |   |
| **Total consideration paid**             |       |                           | $          | 144,702 |   |   |

 

Thetotal amount of goodwill has been allocated to the Engine and Parts segment andis not tax deductible.  A summary of theintangible assets acquired is as follows:

| ** **                          | ** ** | **Estimated fair value** | ** ** | **Estimated useful lives  in years** | ** ** |
|-------------------------------------|------------|------------------------------------|------------|-----------------------------------------------------|------------|
| Customer relationship—parts    |       |                               | $          | 19,800                                              |       |   |   | 10 |   |   |
| Customer  relationship—engines |       |                               | 3,600      |                                                |       |   | 10 |   |   |
| FAA certificate                     |       |                               | 1,100      |                                                |       |   | 15 |   |   |
| Non-compete agreement               |       |                               | 1,100      |                                                |       |   | 6 |   |   |

 

Amortization of the customer relationshipintangibles is based on the anticipated sales in the periods after the ATacquisition of both parts and engines which benefit from such relationships.  Amortization of the FAA certificate isstraight-line over 15 years, the remaining estimated useful life of the enginetype to which the repair station certificate relates. Amortization of thenon-compete agreement is straight-line over six years, which is the sum of theterm of the employment agreements of the related individuals and the term ofthe non-compete agreements.  Thefollowing pro forma condensed consolidated information for the year ended December 31,2006 gives effect to our acquisition of AT as if it had occurred on January 1,2006. The pro forma condensed consolidated information for the year ended December 31,2005 gives effect to our acquisition by Cerberus (discussed below) and ouracquisition of AT, as if they had both occurred on January 1, 2005:

| ** **                            | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                            | ** ** | **(unaudited)**                                  | ** ** | **(unaudited)**                                  | ** ** |
| Revenues                              |       |                                             | $          | 617,583                                          |       |   |   | $ | 868,056 |   |   |
| Net income                            |       |                                             | 53,588     |                                             |       |   | 90,959 |   |   |
| Earnings per share, basic and diluted |       |                                             | 0.69       |                                             |       |   | 1.15 |   |   |
| Outstanding shares, basic and diluted |       |                                             | 78,236,957 |                                             |       |   | 78,992,513 |   |   |

 

F-9

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**AerCap Holdings N.V. and Subsidiaries** Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)

**1.General (Continued)**

**Acquisition ofAerCap B.V.**

On June 30, 2005, Cerberus purchased all of theshare capital of AerCap B.V. from DaimlerChrysler Coordination Center SCS,DaimlerChrysler Aerospace AG, Bayerische Landesbank Girozentrale, DZ BANKAG Deutsche-Zentral-Genossenschaftsbank, Dresdner Bank AG inFrankfurt am Main, HVB Banque Luxembourg Société Anonyme (collectively, the “PreviousShareholders”) and Kreditanstalt für Wiederaufbau (collectively with thePrevious Shareholders, the “Previous Shareholder Lenders”), as well as therights and obligations of the Previous Shareholder Lenders under certainsubordinated and senior debt instruments under which AerCap B.V. was obligated(the “2005 Acquisition”).

The 2005 Acquisition was effected through an all-cashpayment of $1,291,493 to the Previous Shareholder Lenders. $1,000,000 of thepurchase price was financed through a term loan from a syndicate of lenders andarranged by a US investment bank. The remainder was financed from equitycapital contributed by Cerberus.

The 2005 Acquisition by Cerberus and its affiliates isaccounted for as a purchase in conformity with SFAS 141.

Thesources and uses of funds in connection with the 2005 Acquisition aresummarized below:

| *Sources:*                                     | * * | * *   | * *  |
|------------------------------------------------|----------|------------|-----------|
| Proceeds from  secured term loan               |     | $          | 1,000,000 |   |
| Proceeds from  equity capital invested         |     | 370,000    |      |
| Total sources                                  |     | 1,370,000  |      |
| *Uses:*                                        | * * | * *   | * *  |
| Payment to Previous  Shareholder Lenders       |     | (1,291,493 | )         |
| Transaction costs                              |     | (42,733    | )         |
| Additional equity  contribution to AerCap B.V. |     | (35,051    | )         |
|                                           |     | (1,369,277 | )         |
| Remaining cash                                 |     | $          | 723       |   |

 

F-10

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**AerCap Holdings N.V. and Subsidiaries** Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)

**1.General (Continued)**

We have allocated thepurchase price to the assets acquired and liabilities assumed as of the date ofthe acquisition as indicated in the table below:

| ** **                                 | ** ** | **Fair Values  Acquired** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|
| Flight equipment  held for operating lease |       | $                              | 2,085,221  |   |
| Prepayments on  flight equipment           |       | 119,200                        |       |
| Intangible lease  premium                  |       | 45,134                         |       |
| Deferred tax  asset                        |       | 109,447                        |       |
| Cash and cash  equivalents                 |       | 123,668                        |       |
| Other                                      |       | 359,019                        |       |
| **Total assets**                           |       | 2,841,689                      |       |
| Accrued  maintenance liability             |       | 135,114                        | (a)        |
| Debt                                       |       | 999,457                        |       |
| Other                                      |       | 337,841                        |       |
| **Total liabilities**                      |       | 1,472,412                      |       |
| **Cash  paid**                             |       | $                              | 1,369,277  |   |

----

(a)           Representsthe present value effect of our legal obligation to: (i) releasesupplemental rent collected by the lessor for maintenance incurred; and (ii) contributeto lessor maintenance obligations.

**Acquisition ofAncla Ireland Limited**

Weacquired all the shares in an Irish incorporated company (“Ancla”) which ownedone MD11 aircraft under finance lease on October 18, 2004. The results ofoperations for Ancla are included in our consolidated financial statements fromthe date of the acquisition. A summary of the fair value of assets acquired andliabilities assumed is as follows:

| ** **                              | ** ** | **Fair values  acquired** | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|
| Net investment in  direct finance lease |       |                           | $          | 127,134 |   |   |
| Cash                                    |       |                           | 11,980     |   |   |
| **Total  assets**                       |       |                           | 139,114    |   |   |
| Debt                                    |       |                           | 126,716    |   |   |
| Deferred tax  liability                 |       |                           | 6,187      |   |   |
| **Total  liabilities**                  |       |                           | 132,903    |   |   |
| **Cash paid**                           |       |                           | $          | 6,211 |   |   |

 

**Variable interest entities**

In January 2006, we sold a 50% equity interest in AerVenture Ltd. (‘‘AerVenture’’),previously a wholly-owned entity, to LoadAir, a subsidiary of Al Fawares, aninvestment and construction company based in Kuwait.  AerVenture has contracted with Airbus for thedelivery of up to 70 A320 family aircraft between November 2007 and August 2010,with the intent of leasing these aircraft to third parties.  The joint venture agreement requires us tomake certain specified equity contributions and additional equity 

F-11

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**AerCap Holdings N.V. and Subsidiaries** Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)

**1. General (Continued)**

capital available to AerVenture depending oncapital needs in the future. We have entered into agreements to providemanagement and marketing services to AerVenture in return for management fees. Wehave determined that AerVenture is a variable interest entity for which we arethe primary beneficiary. As such, we have continued to consolidate AerVenturein our accounts.

In April 2006, we signed a joint venture agreement with Deucalionto form the Bella joint venture in which we hold a 50% equity interest. Bellawas formed to purchase two used Airbus A330-322 aircraft for leasing. Theseaircraft were purchased in April and May 2006 and have subsequentlybeen leased to third parties. We have entered into agreements to provide toBella aircraft management and marketing services in return for management fees.We have determined that Bella is a variable interest entity for which we arethe primary beneficiary. As such, we have consolidated Bella in our accounts.

As further discussed inNote 15, we hold equity and subordinated debt investments in ALS andAerFunding. ALS and AerFunding are variable interest entities and we, as theirprimary beneficiaries under FIN 46(R), consolidate the accounts of ALS andAerFunding in our accounts since their inception dates.

**Investments in unconsolidated joint ventures**

In May 2006, we signed a joint ventureagreement with China Aviation Supplies Import and Export Group Corporation andaffiliates of Calyon establishing AerDragon.  AerDragon is 50% owned by China Aviation and25% owned by each of us and Calyon.  Thejoint venture did not own any aircraft at December 31, 2006, but purchasedan aircraft from Airbus in February 2007 through an assignment of ourpurchase right under our 1999 Forward Order. We provide aircraft managementservices to AerDragon in return for fees.  As of December 31, 2006, we havedetermined that AerDragon is not a variable interest entity and accordingly, weaccount for our investment in AerDragon according to the equity method.

**Risks anduncertainties**

We are dependent upon the viability of the commercialaviation industry, which determines our ability to service existing and futureoperating leases of our aircraft and engines and our ability to sell aircraftand engines parts. The global airline industry has experiencedpassenger growth in the last two years, which has led to increased demand fornew aircraft and a strengthening of lease rates in most aircraft categories. Thecontinued growth of the global aviation industry is dependent on severalfactors, most notably sustained global GDP growth and price stability in theoil markets. Substantial increases in jet kerosene prices in recent years hascaused a depression in airline earnings and in some cases liquidity shortages. Theimpact of continued or rising oil prices as well as overcapacity andhigh levels of competition in some geographical markets may create occasionalunscheduled lease returns and possible supply surpluses, which may createpressure on rentals and aircraft and engine values. The value of the largestasset on our balance sheet—flight equipment held for operating leases—issubject to fluctuations in the values of commercial aircraft and enginesworldwide. A material decrease in aircraft or engine values could have adownward effect on lease rentals and residual values and may require that thecarrying value of our flight equipment be materially reduced. In addition, ifwe are not able to sell our existing parts and engine inventory, we may berequired to reduce the carrying value of such inventory through impairmentcharges.

F-12

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**AerCap Holdings N.V. and Subsidiaries** Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)

**1.General (Continued)**

The values of trade receivables, notes receivable,intangible lease premium assets and the accrual for onerous contracts aredependent upon the financial viability of related lessees, which is directlytied to the health of the commercial aviation market worldwide.

We have significant tax losses carried forward in someof our Irish and Swedish subsidiaries, which are recognized as tax assets onour balance sheets. The recoverability of these assets is dependent upon theability of the Irish and Swedish entities to generate a certain level oftaxable income in the future. If those entities cannot generate such taxableincome, we will not realize the value of those tax assets and a correspondingvaluation allowance and tax charge will be required.

We expect to fund a significant portion of our forwardorder delivery obligations (Note 8) through borrowings secured by therelated aircraft. The unavailability to us of such secured borrowings at thetime of delivery could have a material impact on our ability to meet ourobligations under the forward order contract. If we cannot meet our obligationsunder such contract, we will not recover the value of prepayments on flightequipment on our balance sheets and may be subject to other contract breachdamages.

We periodically performreviews of the carrying values of our aircraft and customer receivables, the recoverablevalue of deferred tax assets and the sufficiency of accruals and provisions,substantially all of which are sensitive to the above risks and uncertainties.

**2. Summary of significantaccounting policies**

**Basis forpresentation**

Our financial statements are presented in accordancewith accounting principles generally accepted in the United States of America.

We consolidate all companies in which we have a directand indirect legal or effective control and all variable interest entities forwhich we are deemed the primary beneficiary under FIN 46R. All intercompanybalances and transactions with consolidated subsidiaries have been eliminated.The results of consolidated entities are included from the effective date ofcontrol or, in the case of variable interest entities, from the date that weare or become the primary beneficiary. The results of subsidiaries sold orotherwise deconsolidated are excluded from the date that we cease to controlthe subsidiary or, in the case of variable interest entities, when we cease tobe the primary beneficiary.

Certainreclassifications have been made to prior years to reflect the current yearpresentation.

Other investments in which we have the ability to exercise significant influence andjoint ventures are accounted for under the equity method of accounting.

The consolidated financial statements are stated inUnited States dollars, which is our functional currency.

F-13

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**2.Summary of significant accounting policies (Continued)**

As a result of the 2005Acquisition, the assets and liabilities of AerCap B.V. are stated at their fairvalues at the acquisition date. The consolidated financial statements of thepredecessor reflect historical cost. The consolidated financial statements showboth the predecessor accounts and successor accounts. Due to these differentbases of accounting, predecessor and successor amounts are not directly comparable.

**Use of estimates**

The preparation ofconsolidated financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the amounts reported in the consolidated financial statements andaccompanying notes. For us, the use of estimates is or could be a significantfactor affecting the reported carrying values of flight equipment, inventory,goodwill, investments, trade and notes receivable, deferred tax assets andaccruals and reserves. Management utilize professional appraisers and valuationexperts, where possible, to support estimates, particularly with respect toflight equipment. Despite management’s best efforts to accurately estimate suchamounts, actual results could materially differ from those estimates.

**Cash and cashequivalents**

Cash and cash equivalentsinclude cash and highly liquid investments with an original maturity of threemonths or less.

**Restricted cash**

Restricted cash includescash held by banks that is subject to withdrawal restrictions.

**Trade receivables**

Trade receivablesrepresent unpaid, current lease obligations of lessees under existing leasecontracts. Allowances are made for doubtful accounts where it is consideredthat there is a significant risk of non-recovery. The assessment of risk ofnon-recovery is primarily based on the extent to which amounts outstandingexceed the value of security held, together with an assessment of the financialstrength and condition of a debtor and the economic conditions persisting inthe debtor’s operating environment.

**Flight equipmentheld for operating leases, net**

Flight equipment held for operating leases, includingaircraft, is stated at cost less accumulated depreciation and impairment. Costsincurred in the acquisition of aircraft or related leases are included in thecost of the flight equipment and depreciated over the useful life of theequipment. In instances where the purchase price includes additionalconsideration which can be allocated to the value of an acquired leasecontaining above market terms, such allocated cost is amortized over the termof the related lease. The cost of improvements to flight equipment are normallyexpensed unless the improvement materially increases the long-term valueof the flight equipment or extends the useful life of the flight equipment. Ininstances where the increased value benefits the existing lease, suchcapitalized cost is depreciated over the 

F-14

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**2.Summary of significant accounting policies (Continued)**

life of the lease. Otherwise,the capitalized cost is depreciated over the remaining useful life of theaircraft. Flight equipment acquired is depreciated over the assets’ usefullife, based on 25 years from the date of manufacture, using thestraight-line method to the estimated residual value. The current estimates forresidual (salvage) values for most aircraft types are 15% of originalmanufacture cost.

Theestimates of useful lives are as follows:

| Stage III  Aircraft |   | 20-25 years |   |
|---------------------|--------|-------------|--------|
| Turboprop Aircraft  |   | 20 years    |   |

 

We depreciate current production model engines on a straight-line basisover a 15-year period from the acquisition date to an estimated residualvalue. Out-of-production engines are depreciated on a straight-line basis overan estimated useful life ranging from five to seven years to an estimated residualvalue. The carrying value of flight equipment that is designated for part-outis transferred to the inventory pool.

We apply SFAS 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*,which addresses financial accounting and reporting for the impairment oflong-lived assets and for long-lived assets to be disposed of and requires thatall long-lived assets be evaluated for impairment where circumstances indicatethat the carrying amounts of such assets may not be recoverable. The review forrecoverability includes an assessment of the estimated future cash flowsassociated with the use of an asset and its eventual disposition. If the sum ofthe expected future cash flows (undiscounted and without interest charges) isless than the carrying amount of the asset, an impairment loss is recognized. Theloss is measured as the excess of the carrying amount of the impaired assetover its fair value.

Fair value reflects thepresent value of cash expected to be received from the aircraft in the future,including its expected residual value discounted at a rate commensurate withthe associated risk. Future cash flows are assumed to occur under then currentmarket conditions and assume adequate time for a sale between a willing buyerand a willing seller. Expected future lease rates are based on all relevantinformation available, including current contracted rates for similar aircraft,appraisal data and industry trends. Residual (salvage) value assumptionsgenerally reflect an aircraft’s booked residual, except where more recentindustry information indicates a different value is appropriate.

**Net investment indirect finance leases**

Net investment in directfinance leases consists of contracted lease receivables plus the expectedresidual value on lease termination date of equipment under finance lease lessunearned income. Initial unearned income for newly acquired aircraft underfinance lease is the amount by which the lease contract receivables plus theexpected residual value exceeds the initial investment in the leased equipmentat lease inception. In instances where the terms of a new aircraft leaseagreement require the classification of the aircraft and related lease from aprevious operating lease to a direct finance lease, initial unearned incomeunder the finance lease is the difference between the lease contract receivableand the fair value of the equipment at the time of the new agreement. Unearnedincome is recognized as lease revenue over the lease term in a manner whichproduces a constant rate of return on the net investment in the finance lease.

F-15

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**2.Summary of significant accounting policies (Continued)**

**Notes receivable**

Notes receivable ariseprimarily from (i) the restructuring and deferring of trade receivablesfrom lessees experiencing financial difficulties and (ii) the sale ofaircraft to lessees where we finance a portion of the aircraft purchase pricethrough an interest bearing note secured by a security interest in the aircraftsold. Allowances are made for doubtful accounts where there is a significantrisk of non-recovery of the note receivable. The assessment of the risk ofnon-recovery is primarily based on the extent to which amounts outstandingexceed the value of security held, together with an assessment of the financialstrength and condition of a debtor and the economic conditions persisting inthe debtor’s operating environment.

**Capitalization ofinterest**

We capitalize interestrelated to progress payments made in respect of flight equipment on forwardorder and add such amount to prepayments on flight equipment. The amount ofinterest capitalized is the actual interest costs incurred on funding specificto the progress payments or the amount of interest costs which could have beenavoided in the absence of such progress payments.

**Investments**

We may hold debt and equity interests in thirdparties, including interests in asset securitization vehicles. In instanceswhere those interests are in the form of debt securities or equity securitiesthat have readily determinable fair values, we apply the provisions of SFAS115, *Accounting for Certain Investments in Debt andEquity Securities* and designate each security as either held tomaturity or available for sale securities.

We report equity investments where the fair value is notreadily determinable at cost, reduced for any other than temporary impairment.

We evaluate ourinvestments in all debt and equity instruments regularly for other thantemporary impairments in their carrying value and record a write-down toestimated fair market value as appropriate.

**Goodwill**

Goodwill represents the excess of the costof acquisition of subsidiaries over the fair value of identifiable net assetsat the dates of acquisition. Goodwill is not amortized, but is tested forimpairment annually or more often when events or circumstances indicate thatthere may have been impairment.

**Definite-lived intangible assets**

We recognize intangible assets acquired in abusiness combination in accordance with the principles of SFAS 141. Theidentified intangible assets are recorded at fair value on the date ofacquisition. The rate of amortization of definite-lived intangible assets iscalculated with reference to the period over which we expect to derive economicbenefits from such assets. Ininstances where the purchase of flight equipment or the allocated fair value ina business combination includes consideration which can be allocated to thevalue of an acquired lease containing above market terms, such allocated costsis recognized as an intangible lease 

F-16

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**2.Summary of significant accounting policies (Continued)**

premium asset and amortized on a straight-linebasis over the term of the related lease as a reduction of lease revenue. Similarly,we recognize a lease deficiency liability as part of accrued expenses and otherliabilities for lease contracts where the terms of the lease contract areunfavorable to market terms and amortize the liability over the term of therelated lease as an addition to lease revenue. We consider lease renewals on alease by lease basis. We generally do not assume lease renewals in thedetermination of the lease premiums or deficiencies given a market participantwould expect the lessee to renegotiate the lease on then market terms. Weevaluate all definite-lived intangible assets for impairment in accordance withSFAS 144*.*

**Inventory**

Inventory, which consists exclusively offinished goods, is valued at the lower of cost or market. Cost is primarilydetermined using the specific identification method for individual partpurchases and whole engines and on an allocated basis for dismantled engines,aircraft, and bulk inventory purchases using the relationship of the cost ofthe dismantled engine, aircraft or bulk inventory purchase to estimatedremaining sales value at the time of purchase. Inventories are comprisedprimarily of engines, aircraft and engine parts, rotables and expendables. Expendituresrequired for the recertification or betterment of flight equipment arecapitalized in inventory and are expensed as the parts associated with suchcosts are sold. Inventory acquired in the purchase of a subsidiary is accountedfor in accordance with SFAS 141 at estimated selling prices less the sum of (a) costsof disposal and (b) a reasonable profit allowance for the selling effortof the acquiring entity.

**Derivativefinancial instruments**

We use derivative financial instruments to manage ourexposure to interest rate risks and foreign currency risks. Derivatives areaccounted for in accordance with SFAS 133, *Accountingfor Derivative Instruments and Hedging Activities*.

All derivatives arerecognized on the balance sheet at their fair value. Changes in fair valuesbetween periods are recognized as a reduction or increase of interest expenseon the income statement ,as we do not currently apply hedge accounting to ourderivatives. Net cash received or paid under derivative contracts wherematerial in any reporting period is classified as operating cash flow in ourconsolidated cash flow statements.

**Deferred incometaxes (assets and liabilities)**

We report deferred taxesof our taxable subsidiaries resulting from the temporary differences betweenthe book values and the tax values of assets and liabilities using theliability method. The differences are calculated at nominal value using the enactedtax rate applicable at the time the temporary difference is expected to reverse.Deferred tax assets attributable to unutilized losses carried forward or othertiming differences are reduced by a valuation allowance if it is more likelythan not that such losses will not be utilized to offset future taxable income.

F-17

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**2.Summary of significant accounting policies (Continued)**

**Other assets**

Other assets consist ofprepayments, debt issuance costs, interest and other receivables and othertangible fixed assets. Other tangible fixed assets consist of computerequipment, motor vehicles and office furniture and are valued at acquisitioncost and depreciated at various rates between 16% to 33% per annum over theassets’ useful lives using the straight-line method. We capitalize costsincurred in arranging financing as debt issuance costs. Debt issuance costs areamortized to interest expense over the term of the related financing.

**Accrued maintenanceliability**

In all of our leases, the lessees are responsible for maintenance andrepairs of our flight equipment and related expenses during the term of thelease. In some instances, we may incur maintenance and repair expenses foroff-lease aircraft. We recognize leasing expenses in our income statement forall such expenditures. In many operating lease and finance lease contracts, thelessee has the obligation to make periodic payments of supplemental rent whichare calculated with reference to the utilization of airframes, engines andother major life-limited components during the lease. In most such contracts,upon lessee presentation of invoices evidencing the completion of qualifyingmaintenance on the flight equipment, we make a contribution to the lessee tohelp compensate for the cost of the maintenance, up to the amount ofsupplemental rents collected. In other contracts where supplemental rents arenot paid, the lessee is required to re-deliver the aircraft in a similarmaintenance condition (normal wear and tear excepted) as when accepted underthe lease, with reference to major life-limited components of the aircraft. Tothe extent that such components are redelivered in a different condition thanat acceptance, there is normally an end-of-lease compensation adjustment forthe difference at redelivery. In addition, in both types of contracts, we maybe obligated to make contributions to the lessee for maintenance relatedexpenses (lessor contributions) on flight equipment during the term of thelease. In all lease contracts where we agree to make lessor contributions to compensate for qualifying maintenance work duringthe lease, we record an accrued maintenance liability through a charge toleasing expenses at the commencement of the lease based on our estimate ofmaintenance events which will occur during the lease.

In the majority of our leases where the lessee is required to makesupplemental rent payments, we do not recognize such supplemental rent asrevenue during the lease, but we record supplemental rent received from thelessee as accrued maintenance liability. Reimbursements to the lessee upon thereceipt of evidence of qualifying maintenance work are charged against theexisting accrued maintenance liability. In shorter-term lease contracts(primarily engine lease contracts) where the terms of the lease are designedspecifically to allow us to directly manage the occurrence, timing andassociated cost of qualifying maintenance work on the flight equipment,supplemental rents collected during the lease are recognized as lease revenue. Forflight equipment subject to these shorter-term contracts, we record a charge toleasing expenses at the time maintenance work is performed on the flightequipment.

For all of our lease contracts, any amountsof accrued maintenance liability at the end of a lease and any amounts receivedas part of a redelivery adjustment are recorded as lease revenue at leasetermination. We regularly review the level of accrued maintenance liability tocover our contractual obligations in current lease contracts and makeadjustments as necessary. When flight equipment is sold, the portion of 

F-18

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**2. Summary of significant accounting policies(Continued)**

the accruedmaintenance liability which is not specifically assigned to the buyer isreleased from the balance sheet and recognized as sales revenue as part of thesale of the flight equipment.

**Accrual for onerouscontracts**

We make an accrual foronerous contracts where the undiscounted costs of performing under a contractor series of related contracts exceed the undiscounted benefits expected to bederived from such contracts. In connection with a purchase businesscombination, accruals are recorded at the present value of such differences.

**Revenue recognition**

As lessor, we lease flight equipment principally underoperating leases and report rental income ratably over the life of the lease asit is earned. We account for lease agreements that include step rent clauses ona straight line basis. Lease agreements for which base rent is based onfloating interest rates are included in minimum lease payments based on thefloating interest rate existing at the inception of the lease; any increases ordecreases in lease payments that result from subsequent changes in the floatinginterest rate are contingent rentals and are recorded as increases or decreasesin lease revenue in the period of the interest rate change. In certain cases,leases provide for rentals based on usage. The usage may be calculated based onhourly usage or on the number of cycles operated, depending on the leasecontract. We cease revenue recognition on a lease contract when thecollectibility of such rentals is no longer reasonably assured. For past-duerentals which have been recognized as revenue, provisions are established onthe basis of management’s assessment of collectibility and to the extent suchrentals exceed related security deposits held, and are recorded as expenses onthe income statement.

Most of our lease contracts require payment in advance.Rentals received, but unearned under these lease agreements are recorded asdeferred revenue on the balance sheet.

Sales revenues originate from the sale of aircraft,engines and parts and are recognized when the delivery of the relevant asset iscomplete and the risk of loss has transferred to the buyer.

Revenues from direct finance leases are recognized onthe interest method to produce a level yield over the life of the finance lease.Expected unguaranteed residual values of leased assets are based on ourassessment of residual values and independent appraisals of the values ofleased assets remaining at expiration of the lease terms.

Revenue from securedloans, notes receivables and other interest bearing instruments is recognizedon an effective yield basis as interest accrues under the associated contracts.Revenue from lease management fees is recognized as income as it accrues overthe life of the contract. Revenue from the receipt of lease terminationpenalties is recorded at the time cash is received or when the lease isterminated, if collection is reasonably assured. Other revenue includes any netgains we generate from the sale of aircraft related investments, such as oursubordinated interests in securitization vehicles and notes, warrants orconvertible securities issued by our lessees, which we receive from lessees ascompensation for amounts owed to us in connection with lease restructurings.

F-19

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**2.Summary of significant accounting policies (Continued)**

**Pensions**

We operate a number ofnon-contributory defined benefit plans and defined contribution schemes forsubstantially all of our employees. Defined benefit plan obligations andcontributions are determined periodically by qualified actuaries. We recognizepension liabilities and prepaid pension costs in accordance with SFAS No. 158,‘‘*Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans**—**anamendment of SFASB Statements No. 87, 88, 106, and 132 (R)”*.

**Share-basedcompensation**

We account for share-basedcompensation in accordance with FAS 123R, *Share-based payment*.Accordingly, we recognize compensation expense when it becomes probable thatparticipants in share-based incentive plans who hold direct or indirect equityinterests in our shares or options to acquire such shares will be able toachieve fair value. The amount of such expense is determined by reference tothe fair value of the share or share option on the date of grant. The timing ofexpense recognition is determined with reference to the timing of lapsing ofrestrictions on restricted shares and vesting on share options, including the lapsingof repurchase rights which allow other parties to repurchase participants’shares at less than fair market value.

**Foreign currencies**

Foreign currencytransactions are translated into U.S. dollars at the exchange rate prevailingat the time the transaction took place or at the rates of exchange underrelated forward contracts where such contracts exist. Subsequent receivables orpayables resulting from such foreign currency transactions are translated intoU.S. dollars at the exchange rate prevailing at each balance sheet date. Allresulting exchange gains and losses are taken to the income statement.

**Variable interestentities**

We account for investmentin variable interest entities in accordance with Revised Interpretation No. 46(“FIN 46(R)”), *Consolidation of VariableInterest Entities* and its predecessor, Interpretation 46 (“FIN 46”),*Consolidation of Variable Interest Entities,an interpretation of ARB No. 51*. We adopted FIN 46 in January 2003and FIN 46(R) in January 2005.

**Earnings Per Share**

Earnings per share is presented in accordance withSFAS 128, *Earnings Per Share*whichrequires the presentation of “basic” earnings per share and “diluted” earningsper share. Basic earnings per share is computed by dividing income available tocommon shareholders by the weighted-average shares of common stockoutstanding during the period. For the purposes of calculating diluted earningsper share, the denominator includes both the weighted average number of sharesof common stock outstanding during the period and the weighted average numberof potential common stock, such as stock options.

F-20

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**3. Restricted cash**

Restrictedcash consists of the following at December 31:

| ** **                                                                                                                                                                      | ** ** | **2005** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash received  under lease agreements restricted per the terms of the relevant lease and  cash securing our obligations under debt and derivative instruments                   |       | $        | 105,060    |     | $          | 72,523 |   |
| Cash securing our  obligations under the LILO head leases (Note 16) and cash securing the  guarantee of lease obligations/indebtedness of a LILO sublessee (Note  14) |       | 49,710   |       | 38,074   |       |
| Other                                                                                                                                                                           |       | 2,960    |       | 1,680    |       |
|                                                                                                                                                                            |       | $        | 157,730    |     | $          | 112,277 |   |

 

Restricted cash securingour obligations under debt includes amounts related to the ALS securitizationdebt (Note 15), which requires that cash be placed in liquidity reserves.

**4. Trade receivables, netof provisions**

Tradereceivables consist of the following at December 31:

| ** **                       | ** ** | **2005** | ** ** | **2006** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Trade receivables                |       | $        | 9,980      |     | $          | 27,554 |   |
| Allowance for  doubtful accounts |       | (3,405   | )          | (2,496   | )          |
|                             |       | $        | 6,575      |     | $          | 25,058 |   |

 

Trade receivables include amounts invoiced to lesseesin respect of lease rentals and maintenance reserves.

The changein the allowance for doubtful trade receivable is set forth below:

| ** **                                      | ** ** | **AerCap B.V.**                             | ** ** | **AerCap Holdings N.V.**                      | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                      | ** ** | **Year ended  December 31, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **Period from  June 27, 2005 to  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| Provision at  beginning of period               |       |                                             | $          | 20,535                                                  |       |   |   | $ | 23,255 |   |   |   | $ | — |   |   |   | $ | 3,405 |   |   |
| Expense for  doubtful accounts receivable       |       |                                             | 636        |                                                    |       |   | (5,906 | ) |   |   | 1,225 |   |   |   | 320 |   |   |
| Reclassification  to notes receivable allowance |       |                                             |       |                                                    |       |   | (9,961 | ) |   |   | — |   |   |   | (2,326 | ) |   |
| Other(a)                                        |       |                                             | 2,084      |                                                    |       |   | (4,596 | ) |   |   | 2,180 |   |   |   | 1,097 |   |   |
| Provision at the end of  period                 |       |                                             | $          | 23,255                                                  |       |   |   | $ | 2,792 |   |   |   | $ | 3,405 |   |   |   | $ | 2,496 |   |   |

----

(a)           Otherincludes direct write offs and receipt of direct write offs.

F-21

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**5. Flight equipment heldfor operating leases, net**

Movementsin flight equipment held for operating leases during the periods presented wereas follows:

| ** **                                                                              | ** ** | **AerCap B.V.**                             | ** ** | **AerCap Holdings N.V.**                      | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **Year ended  December 31, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **Period from  June 27, 2005 to  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| Net book value at  beginning of period                                                  |       |                                             | $          | 2,484,850                                               |       |   |   | $ | 2,748,347 |   |   |   | $ | — |   |   |   | $ | 2,189,267 |   |   |
| Fair value of  flight equipment acquired in business combinations                  |       |                                             | —     |                                                    |       |   | — |   |   |   | 2,085,221 |   |   |   | 158,820 |   |   |
| Additions                                                                               |       |                                             | 406,406    |                                                    |       |   | 93,244 |   |   |   | 157,104 |   |   |   | 928,468 |   |   |
| Depreciation                                                                            |       |                                             | (124,454   | )                                                       |       |   | (65,963 | ) |   |   | (45,537 | ) |   |   | (106,240 | ) |   |
| Disposals                                                                               |       |                                             | (8,784     | )                                                       |       |   | (52,783 | ) |   |   | (7,521 | ) |   |   | (195,273 | ) |   |
| Transfers to/from  direct finance leases                                                |       |                                             | (9,671     | )                                                       |       |   | (4,748 | ) |   |   | — |   |   |   | — |   |   |
| Other(a)                                                                                |       |                                             | —     |                                                    |       |   | — |   |   |   | — |   |   |   | (8,263 | ) |   |
| Net book value at  end of period                                                        |       |                                             | $          | 2,748,347                                               |       |   |   | $ | 2,718,097 |   |   |   | $ | 2,189,267 |   |   |   | $ | 2,966,779 |   |   |
| Accumulated  depreciation/impairment at December 31, 2004, 2005 and 2006 |       |                                             | $          | (970,565                                                | )          |   |   | — |   |   |   | $ | (45,537 | ) |   |   | $ | (151,958 | ) |   |

----

(a)           As discussed further inNote 15, we settled a capital lease obligation at a discount of $8,263. Thediscount was applied to reduce the net book value of the related aircraft.

At December 31, 2006 we owned 131 aircraft and 51engines, which we leased under operating leases to 79 lessees in 41 countries. Thegeographic concentrations of leasing revenues are set out in Note 20.

Prepayments on flight equipment (including relatedcapitalized interest) of $66,638, $18,564, $32,914 and $48,971 have beenapplied against the purchase of aircraft during the year ended December 31,2004, the six months ended June 30, 2005, the period from June 27 to December 31,2005 and the year ended December 31, 2006, respectively.

Thefollowing table indicates our contractual commitments for the prepayment andpurchase of flight equipment in the periods indicated as of December 31,2006:

| ** **             | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** |
|------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Capital  expenditures  |       | $        | 456,158    |     | $          | 413,497  |       | $        | 1,234,867  |   | $ | 1,462,116 |   |
| Pre-delivery  payments |       | 116,796  |       | 383,409  |       | 397,033  |       | 92,323   |       |
|                   |       | $        | 572,954    |     | $          | 796,906  |       | $        | 1,631,900  |   | $ | 1,554,439 |   |

 

F-22

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**5. Flightequipment held for operating leases, net (Continued)**

Our current operatinglease agreements expire over the next eight years. The contracted minimumfuture lease payments receivable from lessees for equipment on non-cancelable operatingleases at December 31, 2006 are as follows:

| ** ** | ** ** | **Contracted minimum  future lease  receivables** | ** ** |
|------------|------------|-------------------------------------------------------------|------------|
| 2007       |       |                                                        | $          | 427,002 |   |   |
| 2008       |       |                                                        | 402,915    |   |   |
| 2009       |       |                                                        | 289,095    |   |   |
| 2010       |       |                                                        | 204,586    |   |   |
| 2011       |       |                                                        | 152,558    |   |   |
| Thereafter |       |                                                        | 285,019    |   |   |
|       |       |                                                        | $          | 1,761,175 |   |   |

 

The titles to certainaircraft leased in the United States are held by a U.S. trust company asrequired by U.S. law. We are the beneficial owner of these aircraft and theaircraft are recorded under flight equipment held for operating lease on theconsolidated balance sheets. The trust company is administered by a bank. Theaircraft are segregated from the bank’s assets and will not be considered partof the bank’s bankruptcy estate in the event of a trustee bankruptcy.

**6. Net investment indirect finance leases**

Netinvestment in direct finance leases consists of the following at December 31,2005:

| ** **                               | ** ** | **2005** | ** ** |
|------------------------------------------|------------|----------|------------|
| Gross finance  lease rentals receivable  |       | $        | 1,123      |   |
| Unearned income                          |       | (51      | )          |
| Net investment in direct  finance leases |       | $        | 1,072      |   |

 

The entire amount offinance lease rentals receivable at December 31, 2005 was received in2006.

**7. Notes receivable**

Notesreceivable consist of the following at December 31:

| ** **                                   | ** ** | **2005** | ** ** | **2006** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Secured notes  receivable                    |       | $        | 4,146      |     | $          | 1,092 |   |
| Notes receivable  in defeasance structures   |       | 146,772  |       | 162,808  |       |
| Notes receivable  from lessee restructurings |       | 48,265   |       | 3,551    |       |
| Allowance for  doubtful accounts             |       | (2,563   | )          | —   |       |
|                                         |       | $        | 196,620    |     | $          | 167,451 |   |

 

F-23

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**7. Notesreceivable (Continued)**

The minimum futurereceipts under notes receivable at December 31, 2006 are as follows:

| ** ** | ** ** | **Minimum future  notes receivable** | ** ** |
|------------|------------|------------------------------------------------|------------|
| 2007       |       |                                           | $          | 15,070 |   |   |
| 2008       |       |                                           | 43,080     |   |   |
| 2009       |       |                                           | 5,249      |   |   |
| 2010       |       |                                           | 104,052    |   |   |
|       |       |                                           | $          | 167,451 |   |   |

 

Thechange in the allowance for doubtful notes receivable is set forth below:

| ** **                                        | ** ** | **AerCap B.V.**                             | ** ** | **AerCap Holdings N.V.**                      | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                        | ** ** | **Year ended  December 31, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **Period from  June 27, 2005 to  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| Provision at  beginning of period                 |       |                                             | $          | 51,291                                                  |       |   |   | $ | 51,500 |   |   |   | $ | — |   |   |   | $ | 2,563 |   |   |
| Expense for  doubtful notes receivable            |       |                                             | (2         | )                                                       |       |   | 9,066 |   |   |   | 1,777 |   |   |   | (506 | ) |   |
| Reclassification  from trade receivable allowance |       |                                             | —     |                                                    |       |   | 9,961 |   |   |   | — |   |   |   | 2,326 |   |   |
| Other(a)                                          |       |                                             | 211        |                                                    |       |   | — |   |   |   | 786 |   |   |   | (4,383 | ) |   |
| Provision at the end of  period                   |       |                                             | $          | 51,500                                                  |       |   |   | $ | 70,527 |   |   |   | $ | 2,563 |   |   |   | $ | — |   |   |

----

(a)           Other includes directwrite offs and receipt of direct write offs.

**8. Prepayments on flightequipment**

In 1999, we signed a forward order contract withAirbus for the acquisition of up to 32 new aircraft between 2004 and 2009 (“1999Forward Order”). Of that original order, one aircraft delivery was cancelledpursuant to cancellation rights granted by Airbus and 16 aircraft have beendelivered through December 31, 2006. In January 2006, we exercisedcancellation rights on a further six aircraft deliveries originally scheduledfor delivery in 2008 and 2009, leaving nine firm aircraft remaining under thecontract to be delivered in 2007.

In 2005, through a wholly-owned special purposecompany (“AerVenture”), we signed a letter of intent with Airbus for theforward purchase of 70 aircraft (“2005 Forward Order”). As discussed above, weconsolidate the accounts of AerVenture as it is a variable interest entity forwhich we are the primary beneficiary.

In December 2006, we placed an order with Airbusto acquire 20 new A330-200 widebody aircraft (“A330 Forward Order”). Thedelivery schedule for the A330 Forward Order includes ten aircraft to bedelivered in 2009 and ten aircraft to be delivered in 2010.

F-24

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**8.Prepayments on flight equipment (Continued)**

In connection with all three forward order contracts,we are required to make scheduled prepayments toward these future deliveries(see table in Note 5). A total amount of interest of $7,850, $3,084, $2,767 and$6,236 was capitalized with respect to these payments for the year ended December 31,2004, the six months ended June 30, 2005, the period from June 27,2005 to December 31, 2005 and the year ended December 31, 2006,respectively. As described in Note 16, because the contracted purchaseprices of the aircraft at delivery under the 1999 Forward Order are in excessof the anticipated fair market value of the aircraft at delivery, we haverecognized an accrual for onerous contracts with respect to this forward orderat the 2005 Acquisition.

Followingis a summary of the movements in prepayments on flight equipment during theyear ended December 31, 2004, the six months ended June 30, 2005, theperiod from June 27, 2005 to December 31, 2005 and the year ended December 31,2006:

| ** **                                                         | ** ** | **AerCap B.V.**                             | ** ** | **AerCap Holdings N.V.**                  | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                         | ** ** | **Year ended  December 31, 2004** | ** ** | **Six months  ended  June 30, 2005** | ** ** | **Period from  June 27 to  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| Net book value at  beginning of period                             |       |                                             | $          | 160,624                                             |       |   |   | $ | 135,202 |   |   |   | $ | — |   |   |   | $ | 115,657 |   |   |
| Fair value of  acquired prepayments                                |       |                                             | —     |                                                |       |   | — |   |   |   | 119,200 |   |   |   | — |   |   |
| Prepayments made                                                   |       |                                             | 33,366     |                                                |       |   | 19,711 |   |   |   | 26,604 |   |   |   | 93,708 |   |   |
| Prepayments  applied against the purchase of flight equipment |       |                                             | (66,638    | )                                                   |       |   | (18,564 | ) |   |   | (32,914 | ) |   |   | 48,971 | ) |   |
| Interest  capitalized                                              |       |                                             | 7,850      |                                                |       |   | 3,084 |   |   |   | 2,767 |   |   |   | 6,236 |   |   |
| Net book value at end of  period                                   |       |                                             | $          | 135,202                                             |       |   |   | $ | 139,433 |   |   |   | $ | 115,657 |   |   |   | $ | 166,630 |   |   |

 

**9. Investments**

Investmentsconsist of the following at December 31:

| ** **                                                         | ** ** | **2005** | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Subordinated debt  investment in single aircraft owning company    |       | $        | 3,000      |     | $          | 3,000 |   |
| 25% equity  investment in unconsolidated joint venture (AerDragon) |       | —   |       | 15,000   |       |
|                                                               |       | $        | 3,000      |     | $          | 18,000 |   |

 

Our subordinated debtinvestment in a single aircraft owning company is accounted for at cost. Our25% equity investment in an unconsolidated joint venture is accounted for underthe equity method.

F-25

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**10. Intangible assets**

Thefollowing table presents details of amortizable intangible assets and relatedaccumulated amortization and goodwill:

| ** **     | ** ** | **As of December 31, 2005** | ** ** |
|----------------|------------|-------------------------------------------------|------------|
| ** **     | ** ** | **Gross**                                       | ** ** | **Accumulated  amortization** | ** ** | **Other** | ** ** | **Net** | ** ** |
| Lease premiums |       | $                                               | 45,134     |   |   | $ | (6,563 | ) |   |   | $ | — |   |   | $ | 38,571 |   |
|                |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                           | ** ** | **As of December 31, 2006** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|
| ** **                           | ** ** | **Gross**                                       | ** ** | **Accumulated  amortization** | ** ** | **Other  (Note 17)** | ** ** | **Net** | ** ** |
| Lease premiums                       |       | $56,510                                         |       | $(16,869 | )(a) | $(29,064 | )(b) | $10,577 |   |
| Customer  relationships—parts   |       | 19,800                                          |       | (890 | ) | — |   | 18,910 |   |
| Customer  relationships—engines |       | 3,600                                           |       | (883 | ) | — |   | 2,717 |   |
| FAA certificate                      |       | 1,100                                           |       | (50 | ) | — |   | 1,050 |   |
| Non-compete  agreement               |       | 1,100                                           |       | (125 | ) | — |   | 975 |   |
| Net book value at end of  period     |       | $82,110                                         |       | $(18,817 | ) | $(29,064 | ) | $34,229 |   |

----

(a)           Includes ($1,382) fromthe write-off of lease premium in connection with the sale of related aircraft.

(b)          Reduction of $17,431 and$5,386 inclusive of deferred tax effect determined through an iterativecalculation due to elimination of valuation allowances in Ireland and the U.S.,respectively existing at the date of the 2005 Acquisition (Note 17).

Thefollowing table presents the changes to amortizable intangible assets duringthe periods indicated:

| ** **                                                                   | ** ** | **Period from  June 27, 2005 to  December 31, 2005 (c)** | ** ** | **Year ended  December 31, 2006** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| Net carrying  value at beginning of period                                   |       |                                                                                        | $          | —                                           |       |   |   | $ | 38,571 |   |   |
| Lease premiums  acquired in 2005 Acquisition                                 |       |                                                                                        | 45,134     |                                             |       |   | — |   |   |
| Intangible assets  acquired in AT Acquisition                                |       |                                                                                        | —     |                                             |       |   | 25,600 |   |   |
| Purchases of  intangible lease premiums                                      |       |                                                                                        | —     |                                             |       |   | 11,376 |   |   |
| Amortization                                                                 |       |                                                                                        | (6,563     | )                                                |       |   | (10,872 | ) |   |
| Disposals                                                                    |       |                                                                                        | —     |                                             |       |   | (1,382 | ) |   |
| Write-off of  intangibles from decrease in tax valuation allowance (note 17) |       |                                                                                        | —     |                                             |       |   | (29,064 | ) |   |
| Net carrying value at  end of period                                         |       |                                                                                        | $          | 38,571                                           |       |   |   | $ | 34,229 |   |   |

----

(c)           No intangible assetsexisted prior to this period.

F-26

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**10.Intangible assets (Continued)**

Future amortization of theintangible assets over the terms of their useful lives is as follows:

| ** ** | ** ** | **Amortization  of intangible  assets** | ** ** |
|------------|------------|----------------------------------------------|------------|
| 2007       |       |                                         | $          | 5,930 |   |   |
| 2008       |       |                                         | 5,791      |   |   |
| 2009       |       |                                         | 5,842      |   |   |
| 2010       |       |                                         | 4,012      |   |   |
| 2011       |       |                                         | 2,716      |   |   |
| Thereafter |       |                                         | 9,938      |   |   |
|       |       |                                         | $          | 34,229 |   |   |

 

The remaining weighted average amortization period forthe amortizable intangible assets is 90 months.

We recognized goodwill of$38,199 in the AT Acquisition. As described below in Note 17, as a result ofthe AT acquisition, we reduced goodwill by $31,423 in connection with thereduction of a valuation allowance against our US tax assets.

**11. Inventory**

We hadno inventory at December 31, 2005. Following are the major classes ofinventory at December 31, 2006:

| Engine and  airframe parts |   | 66,486 |   |
|----------------------------|--------|--------|--------|
| Work-in-process            |   | 3,971  |   |
| Airframes                  |   | 2,005  |   |
| Engines                    |   | 10,349 |   |
|                       |   | $      | 82,811 |   |
|                            |        |        |        |  |

 

**12. Derivative assets andliabilities**

We use a variety of derivative instruments to manageexposure to interest rate and foreign currency risk. These derivative productscan include interest rate caps, swaps, options and forward contracts.

As of December 31,2006 the interest rate swaps and caps had notional amounts of $2,500,000 and afair value of $17,569. The variable benchmark interest rates associated withthese instruments ranged from one to six-month LIBOR.

F-27

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**12. Derivative assets andliabilities (Continued)**

Wehave not applied hedge accounting under SFAS 133, *Accountingfor Derivatives,*to any of the above derivatives. The change in fairvalue of the derivatives, therefore, is recorded in income from continuingoperations before income taxes and minority interests as a reduction ofinterest expense as specified below:

| ** **                            | ** ** | **AerCap B.V.**            | ** ** | **AerCap Holdings N.V.** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | **Year ended**             | ** ** | **Six months ended**     | ** ** | **June 27 to** | ** ** | **Year ended** | ** ** |
| ** **                            | ** ** | **December 31, 2004** | ** ** | **June 30, 2005**        | ** ** | **December 31, 2005** | ** ** | **December 31, 2006** | ** ** |
| Change in fair  value of  derivatives |       |                            | $          | 19,913                             |       |   |   | $ | 11,592 |   |   |   | $ | 20,813 |   |   |   | $ | 7,874 |   |   |
|                                       |            |                                 |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Our agreement with the derivative counterpartiesrequires a two-way cash collateralization of derivative fair values, except forthose owned by ALS. Cash paid and received under such arrangements is includedin restricted cash (note 3).

The maximum length of timeover which we are hedging our exposure to the variability in future cash flowsfor forecasted transactions, excluding those forecasted transactions related tothe payment of variable interest on existing financial instruments, is 2016.

**13. Other assets**

Otherassets consist of the following at December 31:

|                                         | ** ** | **2005** | ** ** | **2006** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
| Debt issuance  costs                    |       | $        | 36,510     |     | $          | 56,628 |   |
| Other tangible  fixed assets            |       | 2,431    |       | 12,437   | (a)        |
| Receivables from  aircraft manufacturer |       | 5,884    |       | 4,228    |       |
| Prepaid expenses                        |       | 2,711    |       | 5,491    |       |
| Other receivables                       |       | 3,885    |       | 13,647   |       |
|                                    |       | $        | 51,421     |     | $          | 92,431 |   |

----

(a)    The increasein other tangible fixed assets and other receivables between 2005 and 2006 isdue primarily to the acquisition of AeroTurbine.

Amortization of debtissuance costs was $835, $885, $566 and $11,777 for the year ended December 31,2004, the six months ended June 30, 2005, the period from June 27 to December 31,2005 and the year ended December 31, 2006, respectively. The unamortizeddebt issuance costs at December 31, 2006 amortize annually from 2007through 2018.

F-28

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**14. Accrued expenses andother liabilities**

Accruedexpenses and other liabilities consist of the following at December 31:

| ** **           | ** ** | **2005** | ** ** | **2006** | ** ** |
|----------------------|------------|----------|------------|----------|------------|
| Guarantee  liability |       | $        | 18,798     |     | $          | 15,668 |   |
| Accrued expenses     |       | 31,294   |       | 42,681   |       |
| Accrued interest     |       | 11,776   |       | 14,373   |       |
| Lease deficiency     |       | 14,694   |       | 19,744   |       |
|                 |       | $        | 76,562     |     | $          | 92,466 |   |

 

*Guaranteeliability—**In*1996, we terminated leaseagreements with two head lessors covering 12 A320 aircraft under which we wereobligated as head-lessee. In connection with this early termination, weassigned our rights as sublessor under sublease agreements covering the 12aircraft to the respective head lessors.

In addition to the sublease assignments, we alsoissued guarantees to the head lessors covering the sublessee’s obligations tothe head lessors under the assigned subleases. We would be required to makepayments under the guarantees if the sublessee were to default under the leaseagreements with the head lessors. At December 31, 2006, the maximum amountwhich we could be required to pay is estimated at $31,074. The subleases andour obligations under the guarantees expire between the years 2007 and 2012. Asreferenced in Note 3, our potential obligations under the guarantees aresecured by cash held in restricted bank accounts. This restricted cash isreleased back to us according to a set schedule as the sublessee fulfills itsobligations under the leases.

We have recognized a liability equal to the estimatedfair value of the guarantee since the time we became obligated for theguarantee as a result of a previous company acquisition. At the date of the2005 Acquisition, we adjusted the fair value of the guarantee obligation inconnection with the purchase accounting.

*Lease deficiency—**Lease* deficiencyrepresents lease rates for current lease contracts which are below currentmarket rentals for the applicable aircraft at the time of purchase. The leasedeficiency amortizes over the remaining term of the related lease agreements asa non-cash increase in lease revenue. The remaining weighted averageamortization period for the lease deficiency is 29 months.

F-29

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**15. Debt**

Debtconsists of the following as of December 31:

| ** **                                             | ** ** | **2005** | ** ** | **2006** | ** ** | **Weighted average  interest rate  December 31, 2006** | ** ** | **Maturity** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|----------------------------------------------------------------------------|------------|--------------|------------|
| ECA-guaranteed  financings                             |       | $        | 570,950    |     | $          | 567,900                                                                    |       |         | 5.49       | % |   | 2007-2018 |   |
| JOL financings                                         |       | 149,037  |       | 100,261  |       |                                                                       | 5.64       | %            |       | 2007-2015 |   |
| Pre-delivery payment  facility                         |       | —   |       | 8,130    |       |                                                                       | 7.00       | %            |       | 2007-2010 |   |
| UBS revolving  credit facility                         |       | —   |       | 234,577  |       |                                                                       | 7.84       | %            |       | 2007-2012 |   |
| AT revolving  credit facility                          |       | —   |       | 65,688   |       |                                                                       | 6.87       | %            |       | 2007-2011 |   |
| GATX portfolio  acquisition facility                   |       | —   |       | 218,399  |       |                                                                       | 6.79       | %            |       | 2007-2013 |   |
| ALS securitization  debt (G1, G2, C and D classes)     |       | 946,047  |       | 844,308  |       |                                                                       | 6.33       | %            |       | 2007-2016 |   |
| Commercial bank  debt                                  |       | 335,583  |       | 353,725  |       |                                                                       | 6.41       | %            |       | 2007-2019 |   |
| Capital lease  obligations                             |       | 24,606   |       | —   |       |                                                                       | —     |         |       | — |   |
| Capital lease  obligations under defeasance structures |       | 146,772  |       | 162,151  |       |                                                                       | 5.72       | %            |       | 2007-2010 |   |
|                                                   |       | $        | 2,172,995  |     | $          | 2,555,139                                                                  |       |         |       |   |   |   |   |

 

The weighted average interest rate in the table aboveincludes the impact of derivative instruments which we hold to hedge ourexposure to interest rates.

Aggregatematurities of debt and capital lease obligations during the next five years andthereafter are as follows:

|            | ** ** | **Debt  maturing** | ** ** |
|------------|------------|--------------------|------------|
| 2007       |       | $                  | 390,945    |   |
| 2008       |       | 277,676            |       |
| 2009       |       | 241,931            |       |
| 2010       |       | 316,128            |       |
| 2011       |       | 145,007            |       |
| Thereafter |       | 1,183,452          |       |
|       |       | $                  | 2,555,139  |   |

 

**ECA-guaranteedfinancings****—In******April 2003,we entered into an $840,000 export credit facility (“ECA Facility”) for thefinancing of up to 20 A320 Airbus Family aircraft up to December 31, 2005.Funding under the facility is provided by commercial banks, but the repaymentis guaranteed by European export credit agencies (“ECAs”). In January 2006,the ECA Facility was amended and extended to cover an additional nine aircraftand its size increased to a maximum of $1,215,000 for a further three years. Theterms of the lending commitment in the ECA Facility are such that the ECAs onlyapprove funding for aircraft that are due for delivery on a six-month rollingbasis and have no obligation to fund deliveries beyond that time frame. Themargin over three-month Libor ranges from 0.25% for aircraft deliveredunder the original facility and 0.12% for those aircraft delivered subsequentlyto the January 2006 

F-30

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**15. Debt(Continued)**

amendment. We areobligated to repay principal on ECA loans over a 12-year term. The ECAFacility contains certain net worth financial covenants, a breach of whichwould cause us to lose some of our operational flexibility under our leases,such as a requirement to grant pledges over certain bank accounts to therespective lenders. In addition, all loans under the ECA Facility containchange of control provisions that grant the lenders the right to prepayment oftheir loans in the event of a change of control, unless the lenders consent tothe change of control.

The security structures of the ECA-guaranteed debtrequire that legal title to the aircraft be transferred to and held by aspecial purpose company controlled by the lenders. We have entered into headlease agreements on the subject aircraft which transfer the risk and rewards ofownership of the aircraft to us. Aircraft subject to these structures arerecorded as flight equipment held for operating lease on our balance sheets. Theobligations outstanding under the ECA financings are secured by a pledge of ourshares to the lenders which hold legal title to the aircraft financed under therespective financing. The obligations of each of our aircraft-owningsubsidiaries under the ECA Facility are guaranteed by us.

At December 31, 2006, we had financed 17 aircraftunder the ECA Facility, plus four aircraft financed under ECA financings priorto the April 2003 facility agreement. The net book value of aircraftpledged to the ECAs under the ECA Facility and the previous ECA loans was$598,366 at December 31, 2006.

**JOLFinancings****—We**have entered into severalJapanese operating lease (“JOL “) finance structures to finance aircraftacquisitions. Funding under these structures is provided through a combinationof senior commercial bank debt and subordinated loans from Japanese investors. Theinterest rate on the subordinated loans is fixed and the interest rate on thesenior loans are variable based on three- and six-month LIBOR withspreads ranging from 0.25% to 1.35%. The security structures of the JOLfinancings require that legal title to the aircraft be transferred to and heldby a special purpose company controlled by the respective lenders. We haveentered into head lease agreements on the subject aircraft which transfer therisk and rewards of ownership of the aircraft to us. Aircraft subject to thesestructures are recorded as flight equipment held for operating lease on ourbalance sheets. The obligations outstanding under the JOL financings aresecured by a pledge of our shares to the lenders which hold legal title to theaircraft financed under the respective financing. The obligations of each ofour aircraft-owning subsidiaries under the JOL financings are guaranteed by us.All loans under the JOL financings contain change of control provisions thatgrant the lenders the right to prepayment of their loans in the event of achange of control, unless the lenders consent to the change of control. At December 31,2006, we had financed three aircraft under JOL structures. The net book valueof aircraft pledged to JOL financings was $89,671 at December 31, 2006.

**Pre-deliveryPayment Facility****—Our**consolidated joint venture vehicle, AerVenture, has entered into acredit facility during 2006 with Calyon to finance a portion of thepre-delivery payments to Airbus in an amount up to $118,900 (“AerVenture Facility”).Prior to drawing on the facility, AerVenture will pay, on average, 54% of thepre-delivery payment amount owed for each aircraft to be delivered in 2007, 60%of such amounts for each aircraft to be delivered in 2008 and 42% of suchamount for each aircraft to be delivered in 2009. AerVenture must repay thelenders for the amounts drawn for the pre-delivery payment for each aircraft atthe delivery date of that aircraft or, if the aircraft is not delivered on thescheduled delivery date, within three months of the scheduled delivery date. Borrowingsunder the AerVenture Facility are secured by, among other things, the partialassignment of the airframe and engine purchase 

F-31

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**15. Debt(Continued)**

agreements inrespect of the 30 aircraft covered by the facility, including the right to takedelivery of the aircraft where Calyon has provided the pre-delivery paymentsand the aircraft remains undelivered. The AerVenture Facility containscustomary affirmative and financial covenants for secured financings. We haveagreed to maintain a minimum of 25% of the shares of AerVenture until theAerVenture Facility is fully repaid. AerVenture is required to maintain aminimum net worth and a debt to equity ratio below a specified threshold.

**UBS Revolving Credit Facility****—AerFunding******1 Limited (“AerFunding”) is a special purpose companyincorporated with limited liability in Bermuda. The share capital of AerFundingis owned 95% by a charitable trust and 5% by AerCap Ireland. AerFunding wasformed for the purpose of acquiring used aircraft assets which we acquire inthe market. AerFunding entered into a non recourse senior secured revolvingcredit facility during 2006 in the aggregate amount of up to $1,000,000 with asyndicate of financial institutions led by UBS. The revolving loans under thecredit facility are divided into three classes: class A loans, which have amaximum advance limit of $715,000, class B loans, which have a maximum advancelimit of $180,000, and class C loans, which have a maximum advance limit of $105,000.In addition to borrowings under the revolving credit facilities, AerFunding hasalso issued subordinated notes to us at each aircraft purchase. Borrowingsunder the revolving credit facility can be used to finance between 72% and 84%of the appraised value of the acquired aircraft or, in the case of Boeing 737NGand Airbus A320 family aircraft, between 85% and 86% of the lower of thepurchase price and the appraised value of the acquired aircraft. In addition,value enhancing expenditures and required liquidity reserves are also funded bythe lenders. All borrowings under the revolving credit facility are subject tothe satisfaction of customary conditions and restrictions on the purchase ofaircraft that would result in our portfolio becoming too highly concentrated,with regard to both aircraft type and geographical location. Borrowings underthe revolving credit facility are secured by, among other things, securityinterests in and pledges or assignments of equity ownership and beneficialinterests in all of the subsidiaries of AerFunding, as well as by AerFunding’sinterests in the leases of its assets.

The UBS revolving credit facility includesgeneral and operating covenants that restrict additional indebtedness in theAerFunding subsidiaries owning the related aircraft, the payment of dividendsand other limitations which are customary for such credit facilities.

At December 31, 2006,we had financed ten aircraft under the UBS revolving credit facility. The netbook value of the ten aircraft pledged to lenders under the credit facility was$295,191 at December 31, 2006.

**AeroTurbine Revolving LoanFacility****—In**connection with the prepaymentof the existing senior and subordinated debt with Calyon with the proceeds ofour initial public offering, we amended and restated our AeroTurbine creditfacilities and increased the capacity under the revolving loan facility to $220,000.Borrowings under the revolvingloan facility are secured by security interests in and pledges or assignmentsof all the shares and other ownership interests in AeroTurbine and itssubsidiaries, as well as by all assets of AeroTurbine and its subsidiaries. Therevolving loan facility contains a number of covenants that, among otherthings, restrict, subject to certain exceptions, the ability of AeroTurbine toincur additional indebtedness;  create liens on assets, including assets financed with proceeds fromthe revolving loan facility; make advances, loans, extensions of credit,guarantees, capital contributions or other investments; engage in mergers or consolidations;engage in certain sale-leaseback transactions; change the business conducted by AeroTurbine and its subsidiaries; and make certain capital expenditures. 

F-32

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**15. Debt (Continued)**

Additionally, the revolving loan facility includes a restriction inAeroTurbine’s ability to declare or pay dividends or other asset distributionsto other group companies above a certain defined threshold. The revolving loanfacility also requires AeroTurbine to maintain certain minimum debt-to-earningsand earnings-to-expenses ratios. All of AeroTurbine’s tangible assets ofapproximately $328,332 at December 31, 2006 are pledged as collateral forthe revolving loan facility.

**GATX Portfolio AcquisitionFacility****—In**connection with the purchase of a portfolio of up to 25 aircraft fromGATX, our consolidated subsidiary entered into a senior secured loanfacility in the aggregate amount of up to $248,000 with Calyon and certainother financial institutions. Borrowings under the senior facility can be usedto finance the lesser of 70% of the purchase price of each aircraft and ascheduled percentage of loan amounts related to such aircraft. Borrowings underthe senior facility are secured by mortgages on the aircraft and securityinterests in and pledges or assignments of all the shares and other ownershipinterests in the borrower and its subsidiaries, as well as their bank accountsand lease interests. The loans include general and operating covenants thatrestrict the borrower from incurring additional indebtedness and otherlimitations which are customary for such credit facilities. At December 31,2006, we had financed 24 aircraft under the loan facility. The net book valueof the 24 aircraft pledged to lenders under the loan facility was $316,793 at December 31,2006.

**ALSSecuritization Debt****—**ALS is a special purpose companyincorporated with limited liability in Jersey, Channel Islands, on August 10,2005. The share capital of ALS is owned 95% by Jersey charitable trusts and 5%by AerCap Ireland. ALS was formed for the purpose of raising securitized debtfinancing on 42 of our aircraft which were not then subject to other securedfinancings. On September 15, 2005, ALS issued five subclasses (G-1A,G-2A, C-1, D-1 and E-1) of securitized notes secured bythe 42 aircraft. The class G-1A, class G-2A andclass C notes and a portion of the class D notes were issued topublic investors for cash upon closing. The remaining class D notes ($773)and the class  E notes are held by us. The net book value of the 42aircraft pledged as collateral for the securitization debt was $949,474 at December 31,2006.

ALS is bankruptcy-remote from us and the lendersto ALS may only look to proceeds derived from the 42 ALS aircraft for repayment.The indenture agreement, which governs the securitized notes, require that ALShold a designated amount of cash aside in restricted accounts for future cashflow requirements of ALS. All cash held by ALS is recorded as restricted cashon our balance sheets. The indenture also requires ALS to comply with a numberof general and operating covenants including, but not limited to the following:

Limitations on aircraft modifications, acquisition anddisposals.

Limitation on transactions with us and our affiliates.

Maintenance of separate existence.

Compliance withconcentration limits with regard to financial strength, regional location andspecific country of lessees.

F-33

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**15. Debt(Continued)**

**CommercialBank Debt****—**We have entered into variouscommercial bank financings to fund the purchase of individual or small groupsof aircraft. The financings mature at various dates through 2019. The interestrates are a mix of one-, three- and six-month LIBOR-basedwith spreads ranging from 0.95% to 1.80%. The financings are secured by apledge of the shares of the subsidiaries owning the related aircraft and aguarantee from us.  Most of ourcommercial bank debt contain affirmative covenants customary for securedfinancings, such as the regular provision of financial information anddisclosure of material events affecting us, among others. At December 31,2006, we had financed 14 aircraft under commercial bank financings. The netbook value of the 14 aircraft pledged to commercial bank financings was$438,634 at December 31, 2006.

**Capital Lease Obligations****—We**are obligatedunder capital lease agreements involving four aircraft that originated fromsale-leaseback transactions. Our obligations under these capital leases aredefeased through interest bearing receivables held by the lenders to thesale-leaseback structures. We have also placed additional commercial debtfinancing of $108,929 at December 31, 2006 on these four aircraft. The netbook value at December 31, 2006 of the four aircraft securing the capitallease obligations was $144,325, which is also included in the net book value ofaircraft securing commercial bank debt above. Depreciation of $8,858, $3,084,$4,429 and $6,169 have been charged on these assets during the year ended December 31,2004, the six months ended June 30, 2005, the period from June 27,2005 to December 31, 2005 and the year ended December 31, 2006. Thefuture minimum lease payments under the capital leases, together with thescheduled return of principal amounts in related defeased structures are asfollows:

|                                    | ** ** | **Rental  commitments** | ** ** | **Defeased notes  receivable** | ** ** | **Net rental  Commitments** | ** ** |
|------------------------------------|------------|-------------------------|------------|-------------------------------------|------------|----------------------------------|------------|
| 2007                               |       |                    | $          | 11,456                              |       |                             |       | $ | 11,456 |   |   |   | — |   |   |
| 2008                               |       |                    | 50,865     |                                |       |                             | 50,865     |   |   |   | — |   |   |
| 2009                               |       |                    | 6,154      |                                |       |                             | 6,154      |   |   |   | — |   |   |
| 2010                               |       |                    | 121,653    |                                |       |                             | 121,653    |   |   |   | — |   |   |
|                               |       |                    | 190,128    |                                |       |                             | 190,128    |   |   |   | — |   |   |
| Less amount  representing interest |       |                    | (27,977    | )                                   |       |                             | (27,977    | ) |   |   | — |   |   |
| Present value of minimum  payments |       |                    | $          | 162,151                             |       |                             |       | $ | 162,151 |   |   |   | — |   |   |

 

During 2006, we purchased an aircraft that waspreviously subject to a capital lease and terminated the capital leaseobligation. The purchase consideration represented a discount of $8,263 to thecarrying value of our capital lease obligation. In accordance with FIN 26, *Accounting for Purchase of a Leased Asset by the Lessee during the Termof the Lease *an interpretation of FASB Statement No. 13,**theamount of the discount has been applied to reduce the net book value of therelated aircraft.

At December 31, 2006, we had also issued letters ofcredit in an amount of $44,556 in support of certain obligations. All issuedletters of credit are fully cash collateralized with restricted cash. Inaddition, at December 31, 2006, we had committed credit facilities of$922,300 and an on-demand overdraft facility of $10,000, which were undrawn.

F-34

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**15. Debt(Continued)**

A total amount ofcapitalized interest of $7,850, $3,084, $2,767 and $4,888 reduced interestexpense in respect of the prepayments on flight equipment (Note 8) for the yearended December 31, 2004, the six months ended June 30, 2005, theperiod from June 27, 2005 to December 31, 2005 and  the year ended December 31, 2006,respectively.

**16. Accrual for onerouscontracts**

Accrual for onerouscontracts consist of the following items, which are described below at December 31:

|                                   | ** ** | **2005** | ** ** | **2006** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Lease-in,  lease-out transactions |       | $        | 86,148     |     | $          | 72,959 |   |
| 1999 Forward  Order               |       | 66,486   |       | 38,374   |       |
|                              |       | $        | 152,634    |     | $          | 111,333 |   |

 

*Lease-in,Lease-out transactions—At*December 31, 2006, weleased in 11 aircraft from several different lessors under operating headleases that mature between 2008 and 2012. We have entered into subleaseagreements with several different customers covering these same 11 aircraft. Inall cases, the lease termination dates of the subleases are matched to thelease termination dates under the head leases. The contracted subleasereceipts, however, are insufficient to cover our monthly obligations under thehead leases. These transactions are recorded at their net present value as aresult of purchase accounting.

We have established a liability equal to thedifference between the present value of head lease expenses and the presentvalue of sublease revenue, discounted at appropriate discount rates. The amountof this liability amortizes to income monthly on a constant yield basis as wemeet our obligations under the head leases.

Followingis a summary of the undiscounted contracted minimum lease payments under therespective head leases and subleases:

| ** ** | ** ** | **Head lease  payments** | ** ** | **Sublease  Receipts** | ** ** |
|------------|------------|-------------------------------|------------|------------------------|------------|
| 2007       |       | $                             | 39,129     |                   | $          | 23,748 |   |
| 2008       |       | 34,640                        |       | 20,368                 |       |
| 2009       |       | 28,339                        |       | 15,858                 |       |
| 2010       |       | 25,652                        |       | 15,708                 |       |
| 2011       |       | 24,911                        |       | 15,708                 |       |
| Thereafter |       | 21,745                        |       | 10,573                 |       |
|       |       | $                             | 174,416    |                   | $          | 101,963 |   |

 

As referenced in Note 3, we are required, in someinstances, to maintain deposits in restricted accounts or to cash-back lettersof credit which are security to the respective headlessors for our obligationsunder the LILO transactions.

F-35

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**16. Accrual for onerouscontracts (Continued)**

*Forward order contract—**As*indicated inNote 8, we are committed for the purchase of nine firm aircraft under the1999 Forward Order contract for delivery in 2007. The purchase price of theseaircraft will be determined at the date of delivery. The final price dependsupon the specification of the aircraft and the level of escalation applied tothe contracted price which is dependent upon economic indices. An amount of$63,433, exclusive of capitalized interest, is prepaid in respect of deliveryof these aircraft at December 31, 2006. Because the contracted purchaseprices of the aircraft at delivery are in excess of the anticipated fair marketvalue of the aircraft at delivery, we have recognized an accrual for onerouscontracts with respect to the forward order. The accrual was recognized at thedate of the Acquisition as the excess of the net present value of costs to beincurred under the contract over the estimated fair value of the aircraft atdelivery.

**17. Income taxes**

Wehave subsidiaries in a number of tax jurisdictions, principally, TheNetherlands, Ireland, the United States of America and Sweden. Income taxexpense by tax jurisdiction is summarized below for the periods indicated.

| ** **                         | ** ** | **AerCap B.V.**                                   | ** ** | **AerCap Holdings N.V.**                      | ** ** |
|------------------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                         | ** ** | **Year ended   December 31, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **June 27 to  December 31, 2005** | ** ** | **Year ended  December 2006** | ** ** |
| **Deferred tax expense (benefit)** |       |                                                   |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| The Netherlands                    |       |                                                   | $          | (11,825                                                 | )          |   |   | $ | 705 |   |   |   | $ | 9,802 |   |   |   | $ | 22,664 |   |   |
| Ireland                            |       |                                                   | 11,504     |                                                    |       |   | 3,190 |   |   |   | 890 |   |   |   | 9,399 |   |   |
| United States of  America          |       |                                                   | —     |                                                    |       |   | — |   |   |   | — |   |   |   | (8,044 | ) |   |
| Sweden                             |       |                                                   | —     |                                                    |       |   | — |   |   |   | — |   |   |   | (9,010 | ) |   |
| Other                              |       |                                                   | 495        |                                                    |       |   | 324 |   |   |   | (83 | ) |   |   | (115 | ) |   |
|                               |       |                                                   | 174        |                                                    |       |   | 4,219 |   |   |   | 10,609 |   |   |   | 14,894 |   |   |
| **Current tax (benefit) expense**  |       |                                                   |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| United States of  America          |       |                                                   | (6         | )                                                       |       |   | (92 | ) |   |   | (39 | ) |   |   | 1,430 |   |   |
| **Income tax expense**             |       |                                                   | $          | 168                                                     |       |   |   | $ | 4,127 |   |   |   | $ | 10,570 |   |   |   | $ | 16,324 |   |   |

 

F-36

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**17.Income taxes (Continued)**

Reconciliation ofstatutory income tax expense to actual income tax expense is as follows:

| ** **                                                    | ** ** | **AerCap B.V.**                             | ** ** | **AerCap Holdings N.V.**                      | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                    | ** ** | **Year ended  December 31, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **June 27 to  December 31, 2005** | ** ** | **Year ended  December 2006** | ** ** |
| Income tax  (benefit) expense at statutory income tax rate(a) |       |                                             | $          | (31,559                                                 | )          |   |   | $ | 11,197 |   |   |   | $ | 17,829 |   |   |   | $ | 30,705 |   |   |
| Increase (reduction) in  tax resulting from:                  |       |                                             |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax exempt  (income) expense                                  |       |                                             | 39,724     |                                                    |       |   | — |   |   |   | — |   |   |   | 18,813 |   |   |
| Reduction of  Netherlands corporate tax rate(b)               |       |                                             | —     |                                                    |       |   | — |   |   |   | — |   |   |   | 6,158 |   |   |
| Non-taxable  results of limited partnership operations        |       |                                             | —     |                                                    |       |   | — |   |   |   | (6,123 | ) |   |   | (12,421 | ) |   |
| Reduction in  Swedish valuation allowance                     |       |                                             | —     |                                                    |       |   | — |   |   |   | — |   |   |   | (9,010 | ) |   |
| Tax on global  activities                                     |       |                                             | (7,997     | )                                                       |       |   | (7,070 | ) |   |   | (1,136 | ) |   |   | (17,921 | ) |   |
|                                                          |       |                                             | 31,727     |                                                    |       |   | (7,070 | ) |   |   | (7,259 | ) |   |   | (14,381 | ) |   |
| Actual income tax  expense                                    |       |                                             | $          | 168                                                     |       |   |   | $ | 4,127 |   |   |   | $ | 10,570 |   |   |   | $ | 16,324 |   |   |

----

(a)           The statutory incometax rates in the Netherlands were 34.5% for the year ended December 31,2004, 31.5% for the six months ended June 30, 2005 and the period from June 27,2005 to December 31, 2005 and 29.6% for the year ended December 31,2006.

(b)          The Netherlandscorporate income tax rate dropped to 25.5% effective January 1, 2007. As aresult, we recognized a reduction to our related deferred tax asset through acharge to the income tax provision.

The calculation of income for tax purposes differssignificantly from book income. Deferred income tax is provided to reflect theimpact of temporary differences between the amounts of assets and liabilitiesfor financial reporting purposes and such amounts as measured under tax law inthe various jurisdictions. Tax loss carryforwards and accelerated taxdepreciation on flight equipment held for operating leases give rise to themost significant timing differences. In addition, the U.S. subsidiaries havesignificant timing difference in respect of payments and receipts under thelease-in, lease-out transactions described in Note 16 and timingdifferences with respect to capitalized expenses.

F-37

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**17.Income taxes (Continued)**

The following tablesdescribe the principal components of our deferred tax assets and liabilities byjurisdiction at December 31, 2005 and 2006.

| ** **                                             | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                             | ** ** | **The  Netherlands**            | ** ** | **Ireland** | ** ** | **U.S.** | ** ** | **Sweden** | ** ** |
| Depreciation/Impairment                                |       |                            | $          | (57,608 | ) |   | $ | (155 | ) | $ | (1,566 | ) | — |   |
| Prepayments on  flight equipment                       |       |                            | (4,297     | ) |   | — |   | — |   | — |   |
| Lease premium  asset                                   |       |                            | 9,131      |   |   | 1,017 |   | — |   | — |   |
| Lessee  receivables                                    |       |                            | —     |   |   | — |   | 8,130 |   | — |   |
| Loss-making  contracts                                 |       |                            | (21,401    | ) |   | — |   | (29,068 | ) | — |   |
| Obligations under  capital leases and debt obligations |       |                            | —     |   |   | (8,136 | ) | — |   | — |   |
| Capitalized  expenses                                  |       |                            | —     |   |   | — |   | (1,229 | ) | — |   |
| Investments                                            |       |                            | 39,827     |   |   | (2,500 | ) | — |   | — |   |
| Losses and  credits forward                            |       |                            | (22,072    | ) |   | (50,925 | ) | (5,616 | ) | $ | (8,829 | ) |
| Other                                                  |       |                            | 1,953      |   |   | (1,611 | ) | (4,823 | ) | — |   |
| Valuation  allowance on tax assets                     |       |                            | —     |   |   | 17,431 |   | 34,172 |   | 8,829 |   |
| Net deferred tax (asset)  liability                    |       |                            | $          | (54,467 | ) |   | $ | (44,879 | ) | $ | — |   | $ | — |   |

 

| ** **                                             | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                             | ** ** | **The  Netherlands**            | ** ** | **Ireland** | ** ** | **U.S.** | ** ** | **Sweden** | ** ** |
| Depreciation/Impairment                                |       |                            | $          | (42,507 | ) |   | $ | 2,922 |   | $ | 27,242 |   | $ | — |   |
| Prepayments on  flight equipment                       |       |                            | (2,503     | ) |   | — |   | — |   | — |   |
| Intangibles                                            |       |                            | —     |   |   | — |   | 8,927 |   | — |   |
| Lessee  receivables                                    |       |                            | —     |   |   | — |   | (1,807 | ) | — |   |
| Inventory                                              |       |                            | —     |   |   | — |   | 2,145 |   | — |   |
| Loss-making  contracts                                 |       |                            | (9,785     | ) |   | — |   | (21,097 | ) | — |   |
| Obligations under  capital leases and debt obligations |       |                            | —     |   |   | (7,881 | ) | — |   | — |   |
| Capitalized  expenses                                  |       |                            | —     |   |   | — |   | (1,275 | ) | — |   |
| Investments                                            |       |                            | 25,389     |   |   | (2,500 | ) | — |   | — |   |
| Losses and  credits forward                            |       |                            | (7,098     | ) |   | (44,303 | ) | (7,236 | ) | (9,010 | ) |
| Other                                                  |       |                            | (3,287     | ) |   | (710 | ) | (3,720 | ) | — |   |
| Valuation  allowance on tax assets                     |       |                            | —     |   |   | — |   | — |   | — |   |
| Net deferred tax (asset)  liability                    |       |                            | $          | (39,791 | ) |   | $ | (52,472 | ) | $ | 3,179 |   | $ | (9,010 | ) |

 

F-38

----

**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**17.Income taxes (Continued)**

The change in thevaluation allowance for the deferred tax asset has been as follows:

| ** **                                      | ** ** | **AerCap B.V.**                                    | ** ** | **AerCap Holdings N.V.**                    | ** **   |
|-------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------|--------------|
| ** **                                      | ** ** | **Six months ended  June 30, 2005** | ** ** | **June 27 to  December 31, 2005** | ** **   | **Year ended  December 31, 2006** | ** ** |
| Valuation  allowance at beginning of period     |       |                                                    | $          | 83,697                                                |         |   |   | $ | 64,138 |   |   |   | $ | 60,432 |   |   |
| Reduction of  allowance to income tax provision |       |                                                    | (19,559    | )                                                     |         |   | (3,706 | ) |   |   | (9,010 | ) |   |
| Reduction of  allowance to intangible assets    |       |                                                    | —     |                                             |    |   | — |    |    |   | (22,817 | ) |   |
| Reduction of  allowance to goodwill             |       |                                                    | —     |                                             |    |   | — |    |    |   | (30,058 | ) |   |
| Increase of  allowance to income tax provision  |       |                                                    | —     |                                                  |         |   | — |   |   |   | 1,453 |   |   |
| Valuation allowance at  end of period           |       |                                                    | $          | 64,138                                                |         |   |   | $ | 60,432 |   |   |   | — |   |   |

 

***The Netherlands***

The majority of ourNetherlands subsidiaries are part of a single Netherlands fiscal unity and areincluded in a consolidated tax filing. Due to the existence of losses forwardand accelerated tax depreciation, no current tax expense arises with respect tothe Netherlands subsidiaries. Deferred income tax is calculated using theNetherlands corporate income tax rate legislated to be in effect when thetemporary differences reverse of 25.5%.

***Ireland***

Our aircraft owning andprincipal operating Irish resident subsidiaries enjoyed the benefit of a 10%rate of corporate tax on qualifying trading activities until December 31,2005. After December 2005, the enacted tax rate is 12.5%. Some of theIrish entities have significant losses forward at December 31, 2006 which giverise to deferred tax assets. The availability of these losses does not expirewith time. Accordingly, no Irish tax charge arose during the year. Based onprojected taxable profits in our Irish subsidiaries, including the anticipatedinterest income to be received from ALS securitization notes which we hold andthe interest to be received by our Irish subsidiaries on loans transferred toIreland in connection with our change in corporate structure described in Note1, we expect to recover the full value of our Irish tax assets and haveeliminated the previous valuation allowance at December 31, 2006. Inaccordance with SFAS 109, *Accounting for IncomeTaxes,*theoffsetting entry to the reduction in the valuation allowance which wasestablished at the 2005 Acquisition, reduced the intangible lease premium assetthat was recognized at the time of the 2005 Acquisition.

***United States of America***

Our U.S. subsidiaries are assessable to federal andstate U.S. taxes. Prior to our acquisition of AeroTurbine, our U.S.subsidiaries had significant timing differences available to offset futurefederal taxable profits and no current tax charge arose in periods prior to theAeroTurbine acquisition. Following a change of ownership of the U.S. Company inNovember 2000, and the change of control at the 2005 Acquisition, certainrestrictions, under Section 382 of the IRS tax code, were imposed on theutilization of the net losses in existence at those dates and no tax asset hadbeen recognized for these losses occurring prior to these changes of control. Asof December 31, 2005, $5,616 of net losses occurring subsequent to the2005 Acquisition existed, which would begin to expire in 2025. Based onprojections of taxable income 

F-39

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**17.Income taxes (Continued)**

in the U.S. at December 31,2005, however, the realizability of any portion of these deferred tax assetswas unlikely and a valuation allowance had been established to cover the entireamount.

As a result of the AeroTurbine acquisition, ourprojections of future taxable income of the U.S. group indicate we willgenerate sufficient taxable income to recover the full value of all tax assetsin the U.S. group, including net operating losses which begin to expire in 2025which are not otherwise restricted under Section 382. Based on theseprojections, we have eliminated our U.S. valuation allowance at December 31,2006. In accordance with SFAS 109*,*the offsetting entry to the reduction in thevaluation allowance which was established at the 2005 Acquisition, reduced theremaining intangible lease premium asset of $5,386 recognized at the time ofthe 2005 Acquisition and then reduced goodwill recognized in the AeroTurbineAcquisition of $30,058.

Beginning with the taxyear ending December 31, 2006, we will file a consolidated federal incometax return in the U.S. which will include the accounts of AeroTurbine.Section 384 of the IRS code restricts the use of net operating losses ofan acquiring entity to offset recognized built-in gains of an acquired entityin certain circumstances. As a result of recognized built-in gains from theoperations of AeroTurbine in the period between the AeroTurbine Acquisition andDecember 31, 2006 which exceed the losses of the consolidated U.S. groupduring the same period, we expect to pay current federal and state income taxesof $1,430 related to 2006.

***Sweden***

The Swedish entities havesignificant losses forward at December 31, 2006 which give rise todeferred tax assets. The availability of these losses does not expire with time.Accordingly, no Swedish tax charge arose during the year. Based on projectedtaxable profits in our Swedish subsidiaries we expect to recover the full valueof our Swedish tax assets and have eliminated the previous valuation allowanceat December 31, 2006. As theintangible lease premium asset that was recognized at the time of the 2005Acquisition was completely reduced by the release of the Irish and U.S.valuation allowance, theoffsetting entry to the reduction in the Swedish valuation allowance which wasestablished at the 2005 Acquisition, reduced the provision for income taxes inaccordance with SFAS 109, *Accounting for IncomeTaxes,*

**18. Share capital**

From the date of our acquisition of AerCap B.V. tojust prior to our initial public offering, we were a Netherlands limitedpartnership under the name of AerCap Holdings C.V. with $370,000 of partnershipcapital held by four limited partners and one general partner, all located inLuxemburg. In anticipation of our public offering, AerCap Holdings N.V. wasformed with 45,000 shares held by the same Luxemburg entities. AerCap HoldingsN.V. issued one additional share to acquire all of the assets and liabilitiesof AerCap Holdings C.V. in a common control transaction after which, AerCapHoldings C.V. was put in liquidation. On November 10, 2006, we effected a1,738.6 for one stock split resulting in total shares issued and outstanding of78,236,957 and reduced the par value of each common share from €1.00to €.01.Because our conversion from a Netherlands limited partnership to a Netherlandspublic limited liability company was accomplished in a common controltransaction, we have retroactively reflected our capital structure during theperiod when our group was owned by AerCap Holdings C.V. (limited partnership)as if it were owned by AerCap Holdings N.V. based on 78,236,957 sharesoutstanding.

F-40

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**18. Sharecapital (Continued)**

On November 21, 2006, we sold 6.8 million sharesat $23 per share in an initial public offering. We received net proceeds of$143,017 after deducting underwriting discounts and commissions and offeringexpenses payable by us. We used the netproceeds from the initial public offering plus existing cash to retire $168,600of senior and subordinated debt of AeroTurbine, our wholly-owned subsidiary. Inconnection with the early retirement of this debt, we wrote off $3,300 of debtissuance costs and paid prepayment penalties of $1,686.

As of December 31, 2006, our authorized sharecapital consists of 200,000,000 common shares with a par value of €.01with 85,036,957 issued and outstanding.

As described in Note 15,the ability of our wholly-owned subsidiary, AeroTurbine, to declare and paydividends to us of cash or other assets, above a certain threshold isrestricted under the terms of its revolving loan facility. Our consolidatedshareholders’ equity includes shareholders’ equity attributable to AeroTurbineof $258,483.

**19. Share-basedcompensation**

Effective June 30, 2005, Bermuda holdingcompanies (“Bermuda Parents”) which indirectly owned 100% of our equityinterests put into place an Equity Incentive Plan (“Equity Plan”) under whichmembers of our senior management, Board of Directors and a consultant (the “participants”)can be granted either restricted shares or share options (“Equity Grants”) inthe Bermuda Parents. The Bermuda Parents from which the restricted shares andshare options have been granted were formed with identical capital structures(95% preferred shares and 5% common shares) and each have an equal percentageindirect ownership interest in us, representing 100% of our ownership interestsin aggregate prior to our initial public offering and 69.3% after our initialpublic offering. The Bermuda Parents do not own any other significant assets orconduct any other significant activities outside of their indirect investmentin us and the value of the Bermuda Parents is derived exclusively withreference to the value of our shares.

We apply the provisions of SFAS 123(R), *“Share-based payments”*in accounting for the Equity Grants. In addition to formal vestingrestrictions, the terms of the Equity Grants contain provisions which allow theBermuda Parents to repurchase any restricted shares or shares obtained throughthe exercise of options at the occurrence of certain employment terminationevents or cessation of service on the board of directors for share optionsissued to our independent directors. Allholders of Equity Grants signed a Share Agreement in connection with our publicoffering which gives each of them the right to exchange their Bermuda Parentshares or share options for our shares or options on our shares directly withthe Bermuda Parents. Such right is not exercisable until two years from ourinitial public offering date. The Share Agreement also restricts all suchholders from selling or pledging their interests in the Bermuda Parents. At theexpiration of the two-year period, the participants will not be restricted fromselling their interests in our shares.

In December 2005, restricted shares and share optionswere issued to members of our senior management and a consultant. The terms ofthe Equity Grants contain provisions which allow the Bermuda Parents torepurchase any restricted shares or shares obtained through the exercise ofoptions at no cost at the occurrence of certain employment termination events. Accordingto the terms of the Equity Grants issued at that time, the options were to vestand certain restrictions on the restricted shares were to 

F-41

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**19.Share-based compensation (Continued)**

lapse during the periodfrom June 2005 to December according to certain time and performancecriteria. As set forth in the restricted share and option agreements, all shareoptions vested and all restrictions on restricted shares lapsed (other than therepurchase rights referred to above), upon the closing of our initial publicoffering. The fair value of the shares and options issued in December 2005were calculated with reference to the transaction price for the 2005Acquisition on June 30, 2005 and considered all factors effecting thevalue between that date and the grant date. For all shares and share optionsexcept those held by a consultant, expense recognition under SFAS 123(R) isbased on the grant date fair value. The share-based compensation for theconsultant is based on the mark-to-market value of the underlying shares ateach reporting date. Despite the formal vesting of these restricted shares andshare options at the date of our initial public offering, expense recognitionof these Equity Grants will be recognized between the date of our initialpublic offering and two years from that date, which is the date that theholders can exchange their Bermuda holding company shares for shares in ourcompany and sell them in the market. This period of two years represents  the period of “substantial vesting” underSFAS 123(R).

On April 26, 2006, (the date of the AT Acquisition) the sellingshareholders of AT purchased restricted shares in the Bermuda Parents. Theserestricted shares were subject to certain time and performance criteria similarto the December 2005 grants. The agreements which govern the restrictedshares, allow the Bermuda Parents to call the restricted shares and allow the employees to put their shares back to theBermuda Parents at fair market value upon the occurrence of certain employmenttermination events.  In connection withour initial public offering, all restrictions on these restricted shares, otherthan the put and call rights referred to above, lapsed.

On August 21, 2006 and September 5, 2006 the Bermuda Parentsissued stock options under the Equity Plan to three members of the Company’ssenior management. The options vest over a four-year  period of time according to both time andperformance-based criteria. Twenty-percent of the options vested upon ourinitial public offering and another 20% vested on December 31, 2006 basedon achievement of performance measures. All of these options issued vest upon achange of control, excluding an initial public offering of our shares. Theoption agreements contain provisions which allow the Bermuda Parents torepurchase any shares obtained through the exercise of options at the lower offair market value or the exercise price paid at the occurrence of certainemployment termination events.

On September 5, 2006, the Bermuda Parents granted options under theEquity Plan to four non-executive directors of the Company. The options grantedto the directors are not subject to vesting criteria and are exercisable for aperiod of ten years. The Bermuda Parents have the right to repurchase anyshares acquired through the exercise of options at fair market value within 90days of the conclusion of any director’s term on the board of directors.

Since all of the Equity Grants outstanding are shares or share optionsin the Bermuda Parents and since the right of the holders of the Equity Grantsto exchange their shares in the Bermuda Parents for our shares after thetwo-year period is not directly with us, the existence of the restricted shareand share options is not dilutive to our share ownership.

The fair values of all shares and share options granted in 2006 asdescribed above were calculated assuming the midpoint valuation of our sharesheld by the Bermuda Parents in connection with the public offering of our shares.To this value, a discount for lack of marketability (‘‘DLOM’’) was applied toreflect 

F-42

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued)(US dollars in thousands)**

**19. Share-based compensation (Continued)**

the fact that (i) the shares beingvalued represent an illiquid minority interest in a closely-held indirectholding company without access to a recognized market and (ii) the sharesare subject to significant restrictions which prevent their transfer or pledge.The application of a DLOM was supported by empirical data from studies ofrestricted shares and pre-IPO studies of share prices. In addition, the DLOMwas supported by a ‘‘put-option’’ analysis which calculates the inherentdifference in value between a freely traded share and an illiquid, restrictedshare.

With the exception of 25% of the restricted shares purchased by the ATexecutive, a DLOM of 20% was applied in the April 2006 valuationsupporting the issuance of shares to the two AT executives. Because the ATexecutives had control over an employment termination right that would allowthem to put the shares at fair market value to the Bermuda Parents immediatelyupon vesting, 25% of the shares purchased qualified as a liability award andthe value of those shares was subject to mark-to-market movements until September 19,2006, when the put right was modified through an amendment to the restrictedshare purchase agreement. A DLOM of 10% was applied to the valuation supportingthe issuances in August and September 2006 and the 25% tranche heldby the AT executives. The decrease to the DLOM between the two valuation datesreflects the increased probability of a successful public offering of ourshares and the resulting closer proximity to a liquid market for shares in theBermuda Parents.

In accordance with SFAS 123R, the amount ofcompensation expense recognized for restricted shares is derived with referenceto the excess of fair market value of the shares at the date of grant (or thedate of the amendment related to  the 25%fourth tranche held by the AT executives) over the price paid. The amount ofexpense recognized with respect to share options is based on the fair value ofthe option using the share valuation method described above and then applying aBlack-Scholes option pricing model to the underlying share value. The value ofeach of the Equity Grants is recognized on a straight-line basis over theapplicable vesting periods.

Foroptions valued with a Black-Scholes option pricing model, we have used thefollowing assumptions:
| Volatility               |   | 38.25%  - 39.90% |   |
|--------------------------|--------|------------------|--------|
| Expected life            |   | 5.00-5.93  years |   |
| Risk-free  interest rate |   | 4.67%  - 4.72%   |   |
| Dividend yield rate      |   | 0.00%            |   |

 

Since our shares had not traded in the public market,we derived our volatility assumptions by comparison to peer group companies.The expected life represents the period of time the options are expected to beoutstanding. The risk free rate is based on the U.S. Treasury yield curve ineffect at the time of grant and has a term equal to the expected life of theoptions. The expected dividend yield is based on our history of not payingregular dividends in the past and our current intention not to pay regulardividends in the foreseeable future. The differing volatilities and interestrates used result from the differences in expected life among the differenttranches of stock options valued.

F-43

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued) (US dollars in thousands)**

**19. Share-basedcompensation (Continued)**

The offsetting entry for the compensation expenserecognized for Equity Grants is to additional paid-in capital with no resultingeffect on total shareholders’ equity, other than the positive effect of thedeferred tax benefit ($10,291) related to the tax deductible portion ofshare-based compensation charges.

Asummary of issuances under the Equity Plan at December 31, 2006 is setforth below. Because the number of shares and share options under the EquityPlan are shares and share options of the BermudaParents, ownership interests in the table below have been stated as theequivalent number of our shares which are represented by the Bermuda holdingcompany shares at December 31, 2006. 
|                                       | ** ** | ** **                                 | ** ** | ** **       | ** ** | **Grant Date Fair** | ** ** | **Expense  recognized in the  year ended  December 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|------------------|------------|-------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Grant Date**                        | ** ** | **Shares(a)(b)** | ** ** | **Options(a)**                | ** ** | **Value**                                                                    | ** ** | **        2006 (f)        ** | ** ** |
| December 2005 Grant (executives) |       | December 29,  2005                    |       |             | 3,898,085  |                          |       |                                                                         | 1,535,446  |   |   |   | $  | 3,056 | (c) |   |   | $ | 3,134 |   |   |
| AT Executive Issuance                 |       | April 26,  2006                       |       |             | 3,758,529  |                          |       |                                                                         | —     |   |   |   | 70,125 |   |   |   | 70,125 |   |   |
| Senior Management Issuance            |       | August 21  /   September 5, 2006 |       |             | —     |                          |       |                                                                         | 980,004    | (e) |   |   | 9,712 | (d) |   |   | 1,453 |   |   |
| Independent Director Issuance         |       | September 5,  2006                    |       |             | —     |                          |       |                                                                         | 252,587    | (e) |   |   | 3,923 |   |   |   | 3,923 |   |   |
|                                  | ** ** | ** **                                 |       |             | 7,656,614  |                          |       |                                                                         | 2,768,037  |   |   |   | $ | 86,816 |   |   |   | $ | 78,635 |   |   |

----

(a)           On a fully-dilutedbasis assuming all options vest and are exercised.

(b)          In addition to sharesgranted under the Equity Plan, members of management have purchased Bermudaholding company shares indirectly representing 186,389 of our common shares.

(c)           Excludes the fair valueof 270,325 indirect shares owned by a consultant whose value is determinedunder FAS 123(R) based on the mark-to-market value at each reporting date.

(d)          Excludes the fair valueof 367,502 indirect options where vesting is determined with respect to futureperformance criteria which has not yet been established. The share-basedcompensation charges for these options will be determined when those criteriaare formally established.

(e)           These indirect optionsare subject to an exercise price of $7.00 per share.

(f)             For those shares andshare options which have a grant date under SFAS 123(R) (excluding optionswhich vest according to yet-to-be established performance criteria andrestricted shares held by a consultant), we expect to record share-basedcompensation of $5,190, $4,716 and $347 in 2007, 2008 and 2009, respectively.

F-44

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued) (US dollars in thousands)**

Followingis a summary of the issuances of new restricted shares and share options underthe Equity Plan and the substantive vesting of such restricted shares and shareoptions during the year ended December 31, 2006. All share numbers arecalculated on a fully-diluted basis assuming the vesting, exercise andconversion to shares of AerCap Holdings N.V.
|                                                                           | ** ** | **Unvested  Restricted  Shares/Options  Not Subject to  a Strike Price** | ** ** | **Unvested  Options  Subject to a  $7.00 Strike  Price** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| Balance at  January 1, 2006                                          |       |                                                                                         | 5,433,531  |                                                                    |       |   | — |   |   |
| Issuance of  restricted shares in connection with AeroTurbine Acquisition |       |                                                                                         | 3,758,529  |                                                                    |       |   | — |   |   |
| Issuance to  senior management                                            |       |                                                                                         |       |                                                                    |       |   | 980,004 |   |   |
| Substantive  vesting during year                                          |       |                                                                                         | (5,645,100 | )                                                                       |       |   | (392,002 | ) |   |
| Balance at  December 31, 2006                                        |       |                                                                                         | 3,546,960  |                                                                    |       |   | 588,002 |   |   |

 

**19. Share-based compensation (Continued)**

On October 31, 2006, we implemented anequity incentive plan that is designed to promote our interests by enabling usto attract, retain and motivate directors, employees, consultants and advisorsand align their interests with ours. Our new equity incentive plan provides forthe grant of nonqualified stock options, incentive stock options, stockappreciation rights, restricted stock, restricted stock units and other stockawards to participants of the plan selected by the Nomination and CompensationCommittee of our Board of Directors. Subject to certain adjustments, themaximum number of shares available to be granted under the plan is equal to 5%of our outstanding shares. No shares have been issued and none are outstandingunder the plan. The terms and conditions of awards, including vestingprovisions for stock options, are determined by the Nomination and CompensationCommittee, except that, unless otherwise determined by the Nomination andCompensation Committee, or as set forth in an award agreement: (a) eachstock option is granted for ten years from the date of grant, or, in the caseof certain key employees, (i.e., employees owning more than 10% of our ordinaryshares), for five years from the date of grant; provided, however, no stockoption period may extend beyond ten years from the date of grant; (b) theoption price per share may not be less than 100% of the fair market value ofthe ordinary shares except that the option price per share for a key employeemay not be less than 110% of the fair market value of the ordinary shares atthe time the incentive stock option is granted; and (c) incentive stockoptions may only be issued to the extent the aggregate fair market value ofshares with respect to the exercise of the incentive stock options for thefirst time by an option holder during any calendar year is $100,000 or less,with any additional stock options being treated as nonqualified stock options.

**20. Segment information**

*Reportable Segments*

Priorto the acquisition of AT, we operated in one reportable segment—leasing,financing and management of commercial aircraft. From the date of theacquisition of AT, we manage our business, analyze and report our results ofoperations on the basis of two business segments—leasing, financing, sales andmanagement of commercial aircraft (“Aircraft”) and leasing, financing and salesof engines and parts (“Engine and Parts”).

F-45

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued) (US dollars in thousands)**

Thefollowing sets forth significant information from our reportable segments:
|                                   | ** ** | **AerCap B.V.  Year ended December 31, 2004** | ** ** |
|-----------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Aircraft**                                                           | ** ** | **Engines and parts** | ** ** | **Total** | ** ** |
| Revenues from  external customers |       | $                                                                      | 390,867    |   |   | — |   |   | $ | 390,867 |   |
| Segment loss                      |       | (105,362                                                               | )          |   | — |   |   | (105,362 | ) |
| Segment assets                    |       | 3,614,950                                                              |       |   | — |   |   | 3,614,950 |   |
| Depreciation                      |       | 125,877                                                                |       |   | — |   |   | 125,877 |   |
|                                   |            |                                                                        |            |  |  |  |  |  |  |  |  |

**20. Segment information (Continued)**
|                                   | ** ** | **AerCap B.V.  Six months ended June 30, 2005** | ** ** |
|-----------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Aircraft**                                                                  | ** ** | **Engines and parts** | ** ** | **Total** | ** ** |
| Revenues from  external customers |       | $                                                                             | 278,008    |   |   | — |   |   | $ | 278,008 |   |
| Segment profit                    |       | 33,700                                                                        |       |   | — |   |   | 33,700 |   |
| Segment assets                    |       | 2,841,689                                                                     |       |   | — |   |   | 2,841,689 |   |
| Depreciation                      |       | 66,407                                                                        |       |   | — |   |   | 66,407 |   |
|                                   |            |                                                                               |            |  |  |  |  |  |  |  |  |

 
|                                   | ** ** | **AerCap Holdings N.V.  June 27, 2005 to December 31, 2005** | ** ** |
|-----------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Aircraft**                                                                                         | ** ** | **Engines and parts** | ** ** | **Total** | ** ** |
| Revenues from  external customers |       | $                                                                                                    | 215,072    |   |   | — |   |   | $ | 215,072 |   |
| Segment profit                    |       | 49,663                                                                                               |       |   | — |   |   | 49,663 |   |
| Segment assets                    |       | 3,061,233                                                                                            |       |   | — |   |   | 3,061,233 |   |
| Depreciation                      |       | 45,918                                                                                               |       |   | — |   |   | 45,918 |   |
|                                   |            |                                                                                                      |            |  |  |  |  |  |  |  |  |

 
|                                   | ** ** | **AerCap Holdings, N.V.  Year ended December 31, 2006** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Aircraft**                                                                          | ** ** | **Engines and parts (a)** | ** ** | **Total** | ** ** |
| Revenues from  external customers |       | $                                                                                     | 689,226    |   |   | $ | 125,193 |   |   | $ | 814,419 |   |
| Segment profit  (loss)            |       | 145,801                                                                               |       |   | (57,805 | ) |   | 87,996 |   |
| Segment assets                    |       | 3,532,809                                                                             |       |   | 390,183 |   |   | 3,922,992 |   |
| Depreciation                      |       | 95,933                                                                                |       |   | 6,454 |   |   | 102,387 |   |
|                                   |            |                                                                                       |            |  |  |  |  |  |  |  |  |  |

----

(a)           Reportingfor this segment began on April 26, 2006.

*GeographicalInformation*

Thedistribution of our lease revenue by geographic regions is as follows for theperiods indicated:
|                              | ** ** | **Year ended  December 31, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **June 27 to  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
|------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| Europe                       |       |                                             | 36         | %                                                       |       |                                                  | 33         | %                                                |       |   | 33 | % |   |   | 35 | % |   |
| Asia/Pacific                 |       |                                             | 35         | %                                                       |       |                                                  | 43         | %                                                |       |   | 44 | % |   |   | 43 | % |   |
| Latin America                |       |                                             | 7          | %                                                       |       |                                                  | 6          | %                                                |       |   | 5 | % |   |   | 7 | % |   |
| North America and  Caribbean |       |                                             | 21         | %                                                       |       |                                                  | 18         | %                                                |       |   | 18 | % |   |   | 15 | % |   |
| Africa/Middle  East          |       |                                             | 1          | %                                                       |       |                                                  | —     |                                             |       |   | — |   |   |   | — |   |   |
|                         |       |                                             | 100        | %                                                       |       |                                                  | 100        | %                                                |       |   | 100 | % |   |   | 100 | % |   |

 

F-46

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements (Continued) (US dollars in thousands)**

No lessee accounted formore than 10% of lease revenue in any of the periods indicated above. Salesrevenue is comprised of 69% from our aircraft segment and 31% from our engineand parts segment. We have not provided a geographical breakdown of salesrevenue because a material percentage of our sales are of movable flightequipment and are to buyers that have multiple locations. In addition, we havenot provided a breakdown of management fee revenue, interest revenue or otherrevenue because amounts are 

**20.Segment information (Continued)**

lessmaterial than lease and sales revenue and we do not believe a geographicalbreakdown of such revenues is helpful in identifying geographical concentrationrisks to our business.

Thefollowing table indicates the percentage of long-lived assets (flight equipmentand intangible assets) that are leased to or associated with customers in theindicated regions as at December 31, 2005 and December 31, 2006:
|                              | ** ** | **2005** | ** ** | **2006** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|
| Europe                       |       |     | 46         | %        |       |   | 41 | % |   |
| Asia/Pacific                 |       |     | 37         | %        |       |   | 35 | % |   |
| Latin America                |       |     | 3          | %        |       |   | 6 | % |   |
| North America and  Caribbean |       |     | 14         | %        |       |   | 18 | % |   |
| Africa/Middle  East          |       |     | —     |     |       |   | — |   |   |
|                         |       |     | 100        | %        |       |   | 100 | % |   |

 

**21. Goodwill impairment**

We recorded an impairmentof all existing goodwill $132,411 as a result of our annual goodwill impairmenttest in 2004. The valuation of our single reporting unit was calculated througha discounted cash flow approach and considered all of our then-existing assetsand liabilities. In years prior to 2004, our ability to grow and makeadditional aviation investments was primarily controlled by the PreviousShareholder Lenders. Our strategic growth plans were based on an assumed easingof operational restrictions placed on us through our loans with the PreviousShareholder Lenders and an infusion of equity capital. We were not able toachieve such measures in 2004 and reforecasted our estimated cash flows, whichwere substantially less than the projected cashflows in previous years. Further,we became aware that the Previous Shareholder Lenders intended to sell us for aprice below our book equity value.

**22. Impairment oninvestment**

During 2004, we acceptedcommon shares in one of our lessees in lieu of cash in satisfaction of thelessee’s obligation for security deposits under the related leases. At the timeof receipt of the shares, we recorded the fair value of the shares asinvestment on the balance sheet. Later in 2004, due to liquidity problems andfinancial uncertainty of the lessee, we recorded an impairment charge on theentire carrying amount of the investment in recognition of a permanentimpairment in value of the shares.

F-47

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements(US dollars in thousands)**

**23. Selling, general andadministrative expenses**

Selling,general and administrative expenses include the following expenses:
|                        | ** ** | **AerCap B.V.**                             | ** ** | **AerCap Holdings N.V.**                      | ** ** |
|------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **             | ** ** | **Year ended  December 31, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **June 27 to  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| Personnel  expenses    |       |                                             | $          | 17,678                                                  |       |   |   | $ | 9,360 |   |   |   | $ | 13,417 |   |   |   | $  | 114,463 | (a) |   |
| Travel expenses        |       |                                             | 3,381      |                                                    |       |   | 1,277 |   |   |   | 1,270 |   |   |   | 4,635 |   |   |
| Professional  services |       |                                             | 9,488      |                                                    |       |   | 4,702 |   |   |   | 6,662 |   |   |   | 19,415 |   |   |
| Office expenses        |       |                                             | 3,865      |                                                    |       |   | 1,474 |   |   |   | 1,571 |   |   |   | 4,590 |   |   |
| Other expenses         |       |                                             | 2,037      |                                                    |       |   | 2,746 |   |   |   | 4,029 |   |   |   | 6,261 |   |   |
|                   |       |                                             | $          | 36,449                                                  |       |   |   | $ | 19,559 |   |   |   | $ | 26,949 |   |   |   | $ | 149,364 |   |   |

----

(a)           Includes share-basedcompensation of $78,635

We had 100 and 351 personsin employment as at December 31, 2005 and 2006, respectively. The increasein numbers of employees between  theperiods is primarily the result of the acquisition of AeroTurbine and employeeshired at our leased facility in Goodyear, Arizona.

**24. Earnings per commonshare**

Basicand diluted earnings per share (EPS) is calculated by dividing net income bythe weighted average of our common shares outstanding. We have no dilutiveshares or share options. The computations of basic and diluted earnings percommon share for the periods indicated below are shown in the following table:

| ** **                                                                     | ** ** | **Year ended  December 31, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **June 27 to  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| Net (loss) income  for the computation of basic and diluted earnings per share |       |                                             | $          | (105,362                                                | )          |                                                  |       | $                                                | 33,700     |   |   |   | $ | 49,663 |   |   |   | $ | 87,996 |   |   |
| Weighted average  common shares outstanding                                    |       |                                             | 736,203    |                                                    |       |                                                  | 736,203    |                                             |       |   | 78,236,957 |   |   |   | 78,992,513 |   |   |
| Basic and diluted (loss)  earnings per common share                            |       |                                             | $          | (143.12                                                 | )          |                                                  |       | $                                                | 45.78      |   |   |   | $ | 0.63 |   |   |   | $ | 1.11 |   |   |

 

**25. Related partytransactions**

Until the 2005 Acquisition, the Previous ShareholderLenders had provided us with subordinated loans for a total of $350,650 as at December 31,2004. The interest rates on these loans were variable and are calculated on thebasis of six-month LIBOR. Interest of $10,866 and $7,373 was included ininterest on indebtedness for the year ended December 31, 2004 and the sixmonths ended June 30, 2005, respectively. These loans were acquired at the2005 Acquisition by AerCap Holdings C.V. and are eliminated in consolidation inthese consolidated accounts.

The Previous Shareholder Lenders also participated inour senior credit agreements prior to the B.V. Acquisition. A total of$1,516,604 was outstanding under these credit agreements at December 31,2004. 

F-48

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements(US dollars in thousands)**

**25.Related party transactions (Continued)**

The interest rate on thecredit facility is variable and is calculated on the basis of LIBOR. Intereston the senior debt of $61,634 and $34,842 is included in interest on debt forthe year ended December 31, 2004 and for the six months ended June 30,2005, respectively.

Wings is a wholly-owned subsidiary of DASA, who iswholly-owned by one of our Previous Shareholder Lenders. We provide aircraftlease management and remarketing services to Wings for which we received feesof $1,623 and $685 for the year ended December 31, 2004 and the six monthsended June 30, 2005, after which Wings is no longer a related party due tothe sale of our shares by our Previous Shareholder Lenders.

AerCo is an aircraft securitization vehicle from whichwe hold all of the most junior class of subordinated notes and some notesimmediately senior to those junior notes. We do not recognize value for theAerCo notes which we still hold on our consolidated balance sheets. Through March 2003we consolidated AerCo, but we deconsolidated the vehicle in accordance with FIN46 at that time. Subsequent to the deconsolidation of AerCo, we have receivedinterest from AerCo on its D note investment of $8,500, $1,733, $850 and $1,700 for the year ended December 31,2004, the six months ended June 30, 2005, the period from June 27,2005 to December 31, 2005 and for the year ended December 31, 2006,respectively. In addition, we provide a variety of management services to AerCofor which we received fees of $5,400, $2,358,$2,440 and $5,208 for the yearended December 31, 2004, the six months ended June 30, 2005, theperiod from June 27, 2005 to December 31, 2005 and for the year endedDecember 31, 2006, respectively

We have made payments to Cerberus and thirdparties on behalf of Cerberus totaling $1,203 since the 2005 Acquisition. Thepayments to Cerberus represent reimbursement of consulting fees paid byCerberus to individuals who have assisted us in the evaluation of portfolio orcompany purchases, including our acquisition of AeroTurbine. In addition, thisamount also includes approximately $200 of reimbursements for consultingservices incurred by Cerberus in connection with Cerberus’s evaluation of the2005 Acquisition. If we accept services from individuals employed by orcontracted through Cerberus in the future, we expect these arrangements toreflect arms’ length negotiations that will not be less favorable than theterms we could negotiate with an independent party. Payments to third partieson behalf of Cerberus consist of payments to advisors engaged by Cerberus inconnection with the 2005 Acquisition.

We lease two A320-200 model aircraft to AirCanada. One lease began on April 23, 2002 and extends for a term of sixyears. The other lease began on May 29, 2002 and extends for a term of tenyears. Cerberus indirectly controls 11% of the equity of Air Canada as from September 30,2004 and has a majority equity interest in AerCap Holdings N.V. as from June 30,2005. Cerberus did not hold such equity interest in Air Canada and AerCap HoldingsN.V. at the time we entered into the leases with Air Canada.

In February 2006, we entered into a guaranteearrangement with DvB Bank AG and Aozora Bank Limited, an entity that ismajority-owned by Cerberus. In addition, Pieter Korteweg, the Chairman ofour Board of Directors, and Marius Jacques Leonard Jonkhart, a non-executivedirector, are also on the board of directors of Aozora Bank. The guaranteesupports certain of our obligations to a Japanese operating lessor of up to $13,800in connection with a JOL financing. The Japanese operating lessor required 

F-49

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements(US dollars in thousands)**

**25.Related party transactions (Continued)**

the guarantee asadditional credit support following the 2005 Acquisition. We leased the A320aircraft from the Japanese operating lessor under a lease and then subleasedthe aircraft to an aircraft operator. In the event we fail to make certainpayments related to JOL financing, DvB Bank will make the payment on our behalfbut will be reimbursed by Aozora Bank for any payments made. We have agreed toindemnify Aozora Bank for any payments it makes under the guaranteearrangement. The guarantee expires in February 2008. Under the terms ofthe guarantee arrangement, we are required to provide cash collateral to AozoraBank if we breach certain financial covenants. Currently we are not in breachof any of these covenants and have not provided any cash collateral. Inconnection with the guarantee arrangement, we pay Aozora Bank a guarantee feeof 4.1% per annum of the amount guaranteed and have provided Aozora Bank with asecond priority share pledge over the shares of the entity that entered intothe financing from the Japanese operating lessor.

In April 2006, we entered into a senior securedrevolving credit facility in the aggregate amount of up to $1,000,000 with UBSReal Estate Securities Inc., UBS Securities Inc., Deutsche Bank TrustCompany Americas and certain other financial institutions. Aozora Bank is asyndicate member under the facility and participated in up to $50,000 the Class Aloans and up to $25,000 of the Class B loans issued thereunder,representing 7.0% of the Class A loans and 13.9% of the Class B loans.As of December 31, 2006, we had drawn and there remained outstanding $172,243of the class A loans and $40,625 of the class B loans.

We lease our office and warehouse located in Miami,Florida from an entity owned by the Chief Executive Officer and Chief OperatingOfficer of AeroTurbine. The lease for this facility expires on December 31,2013. The lease was amended in March 2006 to adjust the rent to currentmarket rates commencing on January 2007.

In 2004, we entered intoleases for six A320 aircraft with WizzAir Hungary Limited. As part of asubsequent restructuring of amounts outstanding, WizzAir agreed to issue usshares of their equity representing 17.4% of their equity as of November 2004.In 2005, we agreed with WizzAir’s other shareholders and creditors to enterinto a Shareholders’ and Noteholders’ Agreement under which we agreed toconvert trade receivables into an unsecured, non-amortizing  €7,800 note, convertibleinto approximately 26% of WizzAir’s outstanding shares on a fully diluted basisas of February 2005. Under the terms of the Shareholders’ and Noteholders’Agreement we were able to appoint a director of WizzAir between February 2005and June 2005. The convertible notes were carried on our balance sheet at December 31,2005 at $1,800. We sold all of our WizzAir convertible notes in September 2006.

F-50

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements(US dollars in thousands)**

**26. Commitments andcontingencies**

***Property and other rental commitments***

We haveentered into property rental commitments with third parties, which expire in2011, amounting to $7,499 and $16,255 as of December 31, 2005 and 2006,respectively. We also have lease arrangements with respect to company cars andoffice equipment. Minimum payments under the property rental agreements are asfollows:

| 2007       |   | $     | 3,775  |   |
|------------|--------|-------|--------|--------|
| 2008       |   | 3,220 |   |
| 2009       |   | 3,072 |   |
| 2010       |   | 1,822 |   |
| 2011       |   | 1,822 |   |
| Thereafter |   | 2,544 |   |
|       |   | $     | 16,255 |   |

 

**Legal proceedings**

**VASP litigation**

We leased 13 aircraft and three spare engines to VicaoAerea de Sao Paulo (“VASP”), a Brazilian airline. In 1992, VASP defaulted onits lease obligations and we commenced litigation against VASP to repossess itsaircraft. In 1992, we obtained a preliminary injunction for the repossessionand export of 13 aircraft and three spare engines (the “Repossessed Assets”)from VASP. We repossessed and exported the Repossessed Assets in 1992. VASPappealed this decision.

In 1996, the High Court of the State of São Paulo (the“High Court”) found in favor of VASP on its appeal. We were instructed toreturn the Repossessed Assets to VASP for the lease under the terms of theoriginal lease agreements between us and VASP. The High Court also granted VASPthe right to seek damages in lieu of the return of Repossessed Assets. Since1996, we have pursued in this case in the Brazilian courts through variousmotions and appeals.

On March 1, 2006, the Superior Court of Justicedismissed our most recent appeal and on April 5, 2006 a special panel ofthe Superior Court of Justice confirmed the Superior Court of Justice decision.On May 15, 2006, we appealed this decision to the Federal Supreme Court. OnFebruary 23, 2006, VASP commenced a procedure for the calculation of theaward for damages. Our external legal counsel has advised us that even if welose on the merits, they do not believe that VASP will be able to demonstrateany damages. In October 2006, the English Courts approved our motion toserve process upon VASP in Brazil.

We continue to activelypursue all courses of action that may be available to us and intend to defendour position vigorously and to pursue each of our claims against VASP based onthe damages we incurred as a result of the default by VASP on its leaseobligations. Our management, based on the advice of external legal counsel, hasdetermined that it is not necessary to make any provisions for this litigation.

F-51

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements(US dollars in thousands)**

**26.Commitments and contingencies (Continued)**

**Swedish tax dispute**

In 2001, the Swedish taxauthorities challenged our position in tax returns filed for the years 1999 and2000 with respect to certain deductions. In accordance with Swedish law, wemade a guarantee payment to the tax authority of $16,792 in 2003, which wasrecorded as a receivable in anticipation that we would prevail in our arguments.We appealed the decision of the tax authorities and in August 2004, aSwedish court ruled in our favor,  whichresulted in a tax refund of $19,887 (which included interest and the effect offoreign exchange movements for the intervening period) to us, which was offsetagainst the receivable established. In September 2004, the Swedish taxauthorities appealed the decision of the Court and filed an appeal with theAdministrative Court of Appeal in Sweden. We have responded to this appeal andhave requested an oral hearing on the matter. The Court has responded that theywould schedule an oral hearing, but we have not yet received notice of thetiming of such hearing. Management, based on the advice of our tax advisors,has determined that it is not necessary to make any provisions for this taxdispute.

**27. Fair values offinancial instruments**

Statement of FinancialAccounting Standards No. 107 “Disclosures about Fair Value of FinancialInstruments” defines the fair value of a financial instrument as the amount atwhich the instrument could be exchanged in a current transaction betweenwilling parties, other than in a forced or liquidation sale. Fair values offinancial instruments have been determined with reference to available marketinformation. However, considerable management judgment is required ininterpreting market data to arrive at estimates of fair values. Accordingly,the estimates presented herein may not be indicative of the amounts that wecould realize in a current market exchange.

| ** **                 | ** ** | **December 31, 2005** | ** ** | **December 31, 2006** | ** ** |
|----------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **Book value**             | ** ** | **Fair value**             | ** ** | **Book value** | ** ** | **Fair value** | ** ** |
| **Assets**                 |       |                            |       |                            |       |   |   |   |   |
| Investments                |       | $                               | 3,000      |                            | $     | 3,000 | (a) | $ | 3,000 |   | $  | 3,000 | (a) |
| Notes receivable           |       | 196,620                         |       | 196,620                         |       | 167,451 |   | 167,451 |   |
| Restricted cash            |       | 157,730                         |       | 157,730                         |       | 112,277 |   | 112,277 |   |
| Derivative assets          |       | 18,420                          |       | 18,420                          |       | 17,871 |   | 17,871 |   |
| Cash and cash  equivalents |       | 183,554                         |       | 183,554                         |       | 131,201 |   | 131,201 |   |
|                       |       | $                               | 559,324    |                            | $          | 559,324 |   | $ | 431,800 |   | $ | 431,800 |   |
| **Liabilities**            |       |                            |       |                            |       |   |   |   |   |
| Debt                       |       | $                               | 2,172,995  |                            | $          | 2,185,739 |   | $ | 2,555,139 |   | $ | 2,555,139 |   |
| Derivative  liabilities    |       | 8,087                           |       | 8,087                           |       | — |   | — |   |
| Guarantees                 |       | 18,798                          |       | 18,798                          |       | 15,668 |   | 15,668 |   |
|                       |       | $                               | 2,199,880  |                            | $          | 2,212,624 |   | $ | 2,570,807 |   | $ | 2,570,807 |   |

----

(a)           This represents aninvestment of 12 percent in a class of subordinated debt of a private company.  We do not believe it is practicable toestimate the fair value of this investment and have listed its fair value asequal to our carrying value, which equals its historical cost.

F-52

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements(US dollars in thousands)**

**28. Recent AccountingPronouncements**

In February 2006, the FASB issued SFAS No.155, “*Accounting for Certain Hybrid Financial Instruments—an amendment ofSFASB statements No. 133 and 140”*. This statement permits fairvalue measurement for any hybrid financial instrument that contains an embeddedderivative that otherwise would require bifurcation. This statement iseffective for all financial instruments acquired or issued after the beginningof an entity’s first fiscal year that begins after September 15, 2006 (January 1,2007 for us). Earlier adoption is permitted as of the beginning of an entity’sfiscal year, provided that no interim period financial statements have beenissued for the financial year. We do not anticipate that the adoption ofSFAS 155 will have a material effect on our financial statements or ourresults of operations.

In March 2006, the FASB issued SFAS No. 156,“*Accounting for Servicing of Financial Assets”*.SFAS No. 156 amends SFAS No.140. SFAS No. 156 requires that allseparately recognized servicing assets and servicing liabilities be initiallymeasured at fair value. For subsequent measurements, SFAS No. 156 permitscompanies to choose between using an amortization method or a fair valuemeasurement method for reporting purposes. SFAS No. 156 is effective as ofthe beginning of a company’s first fiscal year that begins after September 15,2006. We do not anticipate that SFAS No. 156 will have a material impacton our financial position or our results of operations.

In April 2006, theFASB issued FSP No. FIN 46(R)-6, “*Determiningthe Variability to Be Considered in Applying SFASB Interpretation No. 46(R)*”.The FSP addresses how a reporting enterprise should determine the variabilityto be considered in applying FIN 46(R). The variability that is considered inapplying FIN 46(R) affects the determination of (a) whether anentity is a VIE, (b) which interests are “variable interests” in theentity, and (c) which party, if any, is the primary beneficiary of the VIE.That variability affects any calculation of expected losses and expectedresidual returns, if such a calculation is necessary. FSP No. FIN 46(R)-6must be applied prospectively to all entities (including newly createdentities) and to all entities previously required to be analyzed under FIN 46(R) whena “reconsideration event” has occurred, in the first reporting period beginningafter June 15, 2006. We will evaluate the impact of this FSP at the timeany such “reconsideration event” occurs and for any new entities created.

In July 2006, the FASB released FASBInterpretation No. 48, “*Accounting forUncertainty in Income Taxes—an Interpretation of SFASB Statement 109”*.FIN 48 is applicable to all uncertain positions for taxes accounted forunder SFAS 109, “*Accounting for IncomeTaxes”*. FIN 48 prescribes a comprehensive model for how acompany should recognize, measure, present, and disclose in its financialstatements uncertain tax positions that we have taken or expect to take on atax return (including a decision whether to file or not to file a returnin a particular jurisdiction). Under the Interpretation, the financialstatements will reflect expected future tax consequences of such positionspresuming the taxing authorities’ full knowledge of the position and allrelevant facts, but without considering time values. The new accounting modelfor uncertain tax positions is effective for annual periods beginning after December 15,2006. We do not expect that the adoption of FIN 48 will have a material impacton our financial statements, if any.

In September 2006, the FASB issued FSP No. AUG AIR-1 ‘‘*Accounting for Planned Major Maintenance Activities*.’’ ThisFSP amends certain provisions in the AICPA Industry Audit guide, ‘‘Audits ofAirlines’’ to prohibit the use of the accrue-in-advance method of accountingfor planned major maintenance activities in annual and interim financialreporting periods and makes this guidance applicable to entities in allindustries. The FSP is effective for the first fiscal year beginning after 

F-53

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**AerCap Holdings N.V. and Subsidiaries Notes to the Consolidated Financial Statements(US dollars in thousands)**

**28. Recent Accounting Pronouncements** (Continued)

December 15, 2006 and requiresretrospective application for all fiscal years presented in the financialstatements upon adoption. Early adoption as of the beginning of an entity’sfiscal year is permitted. We are in the process of evaluating the effects, ifany, of the FSP on our consolidated financial statements and will conclude onthis topic before the filing of our first quarter 2007 results.

In September 2006, the FASB issued SFAS No. 157, ‘‘*Fair Value Measurements’*’. SFAS 157 prescribes a singledefinition of fair value as the price that would be received to sell an assetor paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. SFAS 157 is effective for us beginning asof January 1, 2008. We do not anticipate that the adoption of SFAS 157will have a material effect on our financial statements or our results ofoperations.

In February 2007, theFASB issued SFAS 159, “*The Fair Value Option forFinancial Assets and Financial Liabilities*”. SFAS 159, which isexpected to expand fair value measurement, permits entities to choose tomeasure many financial instruments and certain other items at fair value. FAS 159 is effective for us beginningin the first quarter of 2008. We are currently assessing the impact FAS 159 may have on our financial statements.

**29. Subsequent Events**

In March 2007, we purchased a portfolio of nineaircraft and three spare engines. We were previously the lessee under alease-in, lease-out structure for four of the nine aircraft for which we haverecognized an onerous contract accrual (Note 16). The purchase economicsreflected a discounted settlement of our onerous contract accrual. We haveapplied the principles in FIN 26 to the accounting for this transaction andreduced the net book value of the four purchased aircraft by the amount of thediscount on the settlement of onerous contract accrual. At December 31,2006 we had recognized a guarantee liability of $10,511 in relation to aguarantee we had given on the leases of these five aircraft to a U.S. airline. Inconnection with the purchase of the portfolio, our guarantee liability has beenextinguished and we will recognize the $10,511 as other income in our 2007consolidated income statement.

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**AdditionalInformation—Financial StatementsSchedule I**

**AerCap Holdings N.V.**Condensed Balance SheetsAs of December 31, 2005 and 2006

| ** **                                                                                                                                                             | ** ** | **December 31,**                                                                                                                                                | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                             | ** ** | **             2005             ** | ** ** | **             2006             ** | ** ** |
| ** **                                                                                                                                                             | ** ** | **(US dollars in thousands except share and  per share amounts)**                                                            | ** ** |
| **Assets**                                                                                                                                                             |       |                                                                                                                                                                 |       |   |   |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                             |       |                                                                                                                                                                 | $          | 720 |   |   |   | $ | 792 |   |   |
| Investments                                                                                                                                                            |       |                                                                                                                                                                 | 540,431    |   |   |   | 729,566 |   |   |
| Other assets                                                                                                                                                           |       |                                                                                                                                                                 | 9,775      |   |   |   | — |   |   |
| **Total  Assets**                                                                                                                                                      |       |                                                                                                                                                                 | $          | 550,926 |   |   |   | $ | 730,358 |   |   |
| **Liabilities  and Shareholders’ Equity**                                                                                                                         |       |                                                                                                                                                                 |       |   |   |   |   |   |   |
| Accrued expenses  and other liabilities                                                                                                                                |       |                                                                                                                                                                 | 350        |   |   |   | 447 |   |   |
| Payable to  subsidiary                                                                                                                                                 |       |                                                                                                                                                                 | 130,913    |   |   |   | — |   |   |
| **Total  Liabilities**                                                                                                                                                 |       |                                                                                                                                                                 | 131,263    |   |   |   | 447 |   |   |
| Ordinary share capital, €.01  par value (200,000,000 ordinary shares authorized, 78,236,957 and 85,036,957  ordinary shares issued and outstanding, respectively) |       |                                                                                                                                                                 | 646        |   |   |   | 699 |   |   |
| Additional  paid-in capital                                                                                                                                            |       |                                                                                                                                                                 | 369,354    |   |   |   | 591,553 |   |   |
| Accumulated  retained earnings                                                                                                                                         |       |                                                                                                                                                                 | 49,663     |   |   |   | 137,659 |   |   |
| **Total  Shareholders’ Equity**                                                                                                                                   |       |                                                                                                                                                                 | 419,663    |   |   |   | 729,911 |   |   |
| **Total  Liabilities and Shareholders’ Equity**                                                                                                                   |       |                                                                                                                                                                 | $          | 550,926 |   |   |   | $ | 730,358 |   |   |

 

The accompanying notes are an integral part of these condensed financial statements.

F-55

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**AdditionalInformation—Financial StatementsSchedule I**

**AerCap Holdings N.V.**Condensed Income Statements

**For the Year Ended December 31, 2004, the SixMonths Ended June 30, 2005,the Period from June 27, 2005 to December 31, 2005 and the Year EndedDecember 31, 2006**

| ** **                                                                                                | ** **   | **AerCap B.V.**                                                                                           | ** **   | **AerCap Holdings N.V.** | ** ** |
|-----------------------------------------------------------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------|--------------|------------------------------------|------------|
| ** **                                                                                                | ** **   | **Year ended**                                                                                            | ** **   | **Six months ended**     | ** ** | **June 27, 2005 to** | ** ** | **Year ended** | ** ** |
| ** **                                                                                                | ** **   | **December 31, 2004**                                                                                | ** **   | **June 30, 2005**        | ** ** | **December 31, 2005** | ** ** | **December 31, 2006** | ** ** |
| ** **                                                                                                | *** *** | **(US dollars in thousands, except share and per share amounts)** | *** *** |
| **Revenues**                                                                                              |         |                                                                                                           |         |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Lease revenue                                                                                             |         |                                                                                                           | $            | 12,917                             |       |   |   | $ | 6,904 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Sales revenue                                                                                             |         |                                                                                                           | 11,982       |                               |       |   | 96,946 |   |   |   | — |   |   |   | — |   |   |
| Management fee  revenue                                                                                   |         |                                                                                                           | 1,052        |                               |       |   | 173 |   |   |   | — |   |   |   | — |   |   |
| Interest revenue                                                                                          |         |                                                                                                           | 1,587        |                               |       |   | 2,034 |   |   |   | — |   |   |   | — |   |   |
| Other revenue                                                                                             |         |                                                                                                           | 2,135        |                               |       |   | 223 |   |   |   | — |   |   |   | — |   |   |
| **Total  Revenues**                                                                                       |         |                                                                                                           | 29,673       |                               |       |   | 106,280 |   |   |   | — |   |   |   | — |   |   |
| **Expenses**                                                                                              |         |                                                                                                           |         |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                                              |         |                                                                                                           | 5,971        |                               |       |   | 2,317 |   |   |   | — |   |   |   | — |   |   |
| Cost of goods  sold                                                                                       |         |                                                                                                           | 7,200        |                               |       |   | 107,060 |   |   |   | — |   |   |   | — |   |   |
| Goodwill  impairment                                                                                      |         |                                                                                                           | 1,289        |                               |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Interest on debt                                                                                          |         |                                                                                                           | 63,039       |                               |       |   | 36,535 |   |   |   | 16,128 |   |   |   | — |   |   |
| Leasing expenses                                                                                          |         |                                                                                                           | 10,661       |                               |       |   | 3,297 |   |   |   | — |   |   |   | — |   |   |
| Provision for  doubtful notes and accounts receivable                                                     |         |                                                                                                           | (4,702       | )                                  |       |   | (30 | ) |   |   | — |   |   |   | — |   |   |
| Selling, general  and administrative expenses                                                             |         |                                                                                                           | 14,560       |                               |       |   | 10,098 |   |   |   | 845 |   |   |   | 833 |   |   |
| **Total  Expenses**                                                                                       |         |                                                                                                           | 98,018       |                               |       |   | 159,277 |   |   |   | 16,973 |   |   |   | 833 |   |   |
| **Loss from continuing operations before income  taxes and equity in (loss) profit of subsidiaries** |         |                                                                                                           | (68,345      | )                                  |       |   | (52,997 | ) |   |   | (16,973 | ) |   |   | (833 | ) |   |
| Provision for income taxes                                                                                |         |                                                                                                           | 20,845       |                               |       |   | 15,687 |   |   |   | — |   |   |   | 212 |   |   |
| Equity in (loss)  profit of subsidiaries                                                                  |         |                                                                                                           | (57,862      | )                                  |       |   | 71,010 |   |   |   | 66,636 |   |   |   | 88,617 |   |   |
| **Net (Loss) Income**                                                                                     |         |                                                                                                           | $            | (105,362                           | )          |   |   | $ | 33,700 |   |   |   | $ | 49,663 |   |   |   | $ | 87,996 |   |   |
| Basic and diluted  (loss) earnings per share                                                              |         |                                                                                                           | $            | (143.12                            | )          |   |   | $ | 45.78 |   |   |   | $ | 0.63 |   |   |   | $ | 1.11 |   |   |
| Weighted average shares  outstanding, basic and diluted                                                   |         |                                                                                                           | 736,203      |                               |       |   | 736,203 |   |   |   | 78,236,957 |   |   |   | 78,992,513 |   |   |

 

The accompanying notes are an integral part of these condensed financial statements.

F-56

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**AdditionalInformation—Financial StatementsSchedule I**

**AerCapHoldings N.V.**

**Condensed Statements of Cash Flows**

**For the Years Ended December 31, 2004, the SixMonths Ended June 30, 2005,**

**thePeriod from June 27, 2005 to December 31, 2005 and the Year Ended December 31,2006**

| ** **                                            | ** ** | **AerCap B.V.**                         | ** ** | **AerCap Holdings N.V.**                      | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                            | ** ** | **Year ended  December 31,  2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **June 27, 2005 to  December 31,  2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| ** **                                            | ** ** | **(US dollars in thousands)** | ** ** |
| Net cash used in  operating activities                |       |                                         | $          | (35,040                                                 | )          |   |   | $ | (46,672 | ) |   |   | $ | (16,973 | ) |   |   | $ | (833 | ) |   |
| Net cash provided  by (used in) investing activities  |       |                                         | 201,710    |                                                    |       |   | 180,425 |   |   |   | (352,307 | ) |   |   | (142,712 | ) |   |
| Net cash (used  in) provided by financing activities  |       |                                         | (87,990    | )                                                       |       |   | (157,049 | ) |   |   | 370,000 |   |   |   | 143,617 |   |   |
| Net increase  (decrease) in cash and cash equivalents |       |                                         | 78,680     |                                                    |       |   | (23,296 | ) |   |   | 720 |   |   |   | 72 |   |   |
| Cash and cash  equivalents at beginning of period     |       |                                         | 47,307     |                                                    |       |   | 125,987 |   |   |   | — |   |   |   | 720 |   |   |
| **Cash and cash equivalents at  end of period**       |       |                                         | $          | 125,987                                                 |       |   |   | $ | 102,691 |   |   |   | $ | 720 |   |   |   | $ | 792 |   |   |

 

The accompanying notes are an integral part of these condensed financial statements.

F-57

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**Additional Information—Financial Statements Schedule I**

**AerCap HoldingsN.V.Notes to the Condensed Financial Statements(US dollars in thousands)**

**1. General**

**The Company**

AerCap Holdings N.V. is the parent company of a groupthat operates as an integrated global aviation company, conducting aircraft andengine leasing and trading and parts sales.  AerCap Holdings N.V. is a holding company,whose principal purpose is to hold the shares in operating companies throughwhich the AerCap group conducts is activities.

AerCap Holdings N.V. is a Netherlands public limitedliability company (“naamloze vennootschap”) formed on July 10, 2006 forthe purpose of acquiring all of the assets and liabilities of AerCap HoldingsC.V.  AerCap Holdings C.V. is a limitedpartnership (“*commanditaire vennootschap*”)formed under the laws of The Netherlands on June 27, 2005 for the purposesof acquiring the share capital, subordinated debt and senior debt of debisAirFinance B.V. (“AerCap B.V.”), which occurred on June 30, 2005.  In anticipation of our initial publicoffering, the Company changed its holding company structure from a Netherlandspartnership to a Netherlands public limited liability company. This change waseffected through the acquisition of all of the assets and liabilities of AerCapHoldings C.V. by AerCap Holdings N.V. on October 27, 2006. Because ourconversion from a Netherlands limited partnership to a Netherlands publiclimited liability company was accomplished in a common control transaction,these financial statements are presented as if our public limited liability holdingcompany structure led by AerCap Holdings N.V. had existed as of June 27,2005 (the formation date of AerCap Holdings C.V.) with total shares outstandingof 78,236,957. On November 27, 2006, we completed an initial publicoffering of 6,800,000 of our common shares at $23 per share generating netproceeds of $143,017 which we used to make additional equity investments in asubsidiary for the purpose of debt repayment at our subsidiary level.

The income statements andstatements of cash flows for AerCap B.V. are presented to align with thefinancial statement presentation in our consolidated financial statements. Thesefinancial statements are not comparable to the Company’s financial statements. Asnoted above, the Company acquired the shares in AerCap B.V., an operatingcompany, on June 30, 2005.

**2. Summary ofsignificant accounting policies**

**Basis forpresentation**

The accompanying condensed financial statements arepresented in accordance with accounting principles generally accepted in theUnited States of America.

The Company records its investment in its subsidiariesunder the equity method of accounting as prescribed in APB Opinion No. 18,“The Equity Method of Accounting for Investments in Common Stock”. Suchinvestment is presented on the balance sheet as “Investment” and our portion ofthe subsidiaries’ profit or loss as “Equity in (loss) profit of subsidiaries”on the income statements.

The subsidiaries of the Company did not pay anydividends to the Company for the periods presented.

F-58

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**Additional Information—Financial Statements Schedule I**

Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been condensed or omitted. The footnote disclosures containsupplemental information relating to the operations of the Company., as such,these statements should be read in conjunction with the notes to theconsolidated financial statements of AerCap Holdings N.V.

**3. Commitments andcontingencies**

The Company has issued a declaration of liability as referred to in Article 403of the Netherlands Civil Code in respect of its subsidiary, AerCap B.V. Suchdeclaration operates as a full guarantee of all the obligations of AerCap B.V.to third parties.

The Company has guaranteed the re-payment of loans issued by some of itssubsidiaries under commercial bank debt which is guaranteed by European creditagencies as further described in our consolidated financial statements. Amountsoutstanding under these loans are $567,900.

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