##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-31616
 INTERNATIONAL LEASE FINANCE CORPORATION
  California
    
    22-3059110(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)10250 Constellation Blvd., Suite 3400Los Angeles, California
    
    90067(Address of principal executive offices)
    
    (Zip Code)
 (310) 788-1999
 þ o
  o o þ
 o þ




---



##### Table of Contents



EXPLANATORY NOTE




---



##### 



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
 TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets
June 30, 2006 and December 31, 2005
(Restated)
    
    
    3Condensed Consolidated Statements of Income
Three months ended June 30, 2006 and 2005
(Restated)
    
    
    4Condensed Consolidated Statements of Income
Six Months Ended June 30, 2006 and 2005
(Restated)
    
    
    4Condensed Consolidated Statements of Comprehensive Income
Three months ended June 30, 2006 and 2005
(Restated)
    
    
    5Condensed Consolidated Statements of Comprehensive Income
Six Months Ended June 30, 2006 and 2005
(Restated)
    
    
    5Condensed Consolidated Statements of Cash Flows
Six months Ended June 30, 2006 and 2005
(Restated)
    
    
    6Notes to Condensed Consolidated Financial
Statements
    
    
    8Item 2. Managements Discussion and Analysis of the Financial
Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market
Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25Part II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 6. Exhibits
    
    
    28Signatures
    
    
    29EXHIBIT 12EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  -2-




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
 RestatedJune 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCash, including interest bearing accounts
of $129,231 (June 30, 2006) and $155,953 (December 31, 2005)
    
    $
    136,862
    
    
    $
    157,960Current income taxes
    
    
    271,864
    
    
    
    148,399Notes receivable, net of allowance, and net investment in finance leases
    
    
    509,697
    
    
    
    490,422Flight equipment under operating leases
    
    
    46,076,774
    
    
    
    42,067,504Less accumulated depreciation
    
    
    7,994,281
    
    
    
    7,318,57238,082,493
    
    
    
    34,748,932Deposits on flight equipment purchases
    
    
    888,446
    
    
    
    1,148,462Other assets
    
    
    474,796
    
    
    
    290,435Derivative assets
    
    
    744,710
    
    
    
    293,576Investments
    
    
    16,516
    
    
    
    20,313Variable interest entities assets
    
    
    132,371
    
    
    
    138,277Deferred debt issue costs  less accumulated amortization of $77,112
(June 30, 2006) and $65,377 (December 31, 2005)
    
    
    100,752
    
    
    
    93,551$
    41,358,507
    
    
    $
    37,530,327LIABILITIES AND SHAREHOLDERS EQUITYAccrued interest and other payables
    
    $
    424,533
    
    
    $
    366,845Tax benefit sharing payable to AIG
    
    
    245,000
    
    
    
    245,000Debt financing, net of deferred debt discount of $45,962
(June 30, 2006) and
$38,882 (December 31, 2005)
    
    
    28,042,826
    
    
    
    25,104,165Junior subordinated debentures
    
    
    1,000,000
    
    
    
    1,000,000Foreign currency translation adjustment related to foreign
currency denominated debt
denominated debt
    
    
    569,727
    
    
    
    197,074Derivative liabilities
    
    
    9,088
    
    
    
    49,549Security and other deposits on flight equipment
    
    
    1,065,403
    
    
    
    1,071,676Rentals received in advance
    
    
    224,654
    
    
    
    187,957Deferred income taxes
    
    
    3,324,406
    
    
    
    3,070,302Variable interest entities liabilities
    
    
    21,760
    
    
    
    65,197SHAREHOLDERS EQUITYMarket Auction Preferred Stock, $100,000 per share
liquidation value; Series A and B
each having 500 shares issued and outstanding
    
    
    100,000
    
    
    
    100,000Common stockno par value; 100,000,000 authorized shares,
45,267,723 (June 30, 2006 and December 31, 2005)
issued and
outstanding
    
    
    1,053,582
    
    
    
    1,053,582Paid-in capital
    
    
    587,625
    
    
    
    587,484Accumulated other comprehensive income (loss)
    
    
    77,637
    
    
    
    66,401Retained earnings
    
    
    4,612,266
    
    
    
    4,365,095Total shareholders equity
    
    
    6,431,110
    
    
    
    6,172,562$
    41,358,507
    
    
    $
    37,530,327
  -3-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)REVENUESRental of flight equipment
    
    $
    1,002,643
    
    
    $
    859,814Flight equipment marketing
    
    
    20,776
    
    
    
    26,166Interest and other
    
    
    22,216
    
    
    
    16,5471,045,635
    
    
    
    902,527EXPENSESInterest
    
    
    354,569
    
    
    
    332,459Depreciation of flight equipment
    
    
    385,451
    
    
    
    343,549Flight equipment rent
    
    
    4,500
    
    
    
    Provision for overhauls
    
    
    67,967
    
    
    
    52,685Selling, general and administrative
    
    
    56,760
    
    
    
    32,736869,247
    
    
    
    761,429INCOME BEFORE INCOME TAXES
    
    
    176,388
    
    
    
    141,098Provision for income taxes
    
    
    56,744
    
    
    
    45,253NET INCOME
    
    $
    119,644
    
    
    $
    95,845
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)REVENUESRental of flight equipment
    
    $
    1,916,953
    
    
    $
    1,676,577Flight equipment marketing
    
    
    39,589
    
    
    
    35,739Interest and other (Note D)
    
    
    42,164
    
    
    
    29,9891,998,706
    
    
    
    1,742,305EXPENSESInterest
    
    
    622,765
    
    
    
    536,329Depreciation of flight equipment
    
    
    749,246
    
    
    
    662,440Flight equipment rent
    
    
    9,967
    
    
    
    Provision for overhauls
    
    
    121,106
    
    
    
    113,102Selling, general and administrative
    
    
    100,325
    
    
    
    66,7241,603,409
    
    
    
    1,378,595INCOME BEFORE INCOME TAXES
    
    
    395,297
    
    
    
    363,710Provision for income taxes
    
    
    127,577
    
    
    
    117,200NET INCOME
    
    $
    267,720
    
    
    $
    246,510
  -4-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)NET INCOME
    
    $
    119,644
    
    
    $
    95,845OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXNet changes in cash flow hedges (net of
taxes in the amounts of $8,615 (2006) and
$10,008 (2005))
    
    
    15,998
    
    
    
    18,587Change in unrealized appreciation on
securities available for sale (net of taxes
in the amounts of $818 (2006) and $1,143
(2005))
    
    
    (1,519
    )
    
    
    (2,122
    )14,479
    
    
    
    16,465COMPREHENSIVE INCOME
    
    $
    134,123
    
    
    $
    112,310
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)NET INCOME
    
    $
    267,720
    
    
    $
    246,510OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXNet changes in cash flow hedges (net of
taxes in the amounts of $6,853 (2006) and
$24,337 (2005))
    
    
    12,727
    
    
    
    45,197Change in unrealized appreciation on
securities available for sale (net of taxes
in the amounts of $803 (2006) and $1,221
(2005))
    
    
    (1,491
    )
    
    
    (2,268
    )11,236
    
    
    
    42,929COMPREHENSIVE INCOME
    
    $
    278,956
    
    
    $
    289,439
  -5-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    267,720
    
    
    $
    246,510Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation of flight equipment
    
    
    749,246
    
    
    
    662,440Deferred income taxes
    
    
    248,054
    
    
    
    227,070Change in fair value of derivative instruments
    
    
    (472,015
    )
    
    
    846,640Foreign currency adjustment of cash and non-US$ denominated debt
    
    
    367,796
    
    
    
    (883,934
    )Amortization of deferred debt issue costs
    
    
    15,346
    
    
    
    17,332Other
    
    
    (10,477
    )
    
    
    (4,064
    )Changes in operating assets and liabilities:Other assets
    
    
    (86,731
    )
    
    
    14,504Change in current income taxes
    
    
    (123,465
    )
    
    
    (112,328
    )Increase in accrued interest and other payables
    
    
    14,251
    
    
    
    76,129Increase in rentals received in advance
    
    
    36,697
    
    
    
    24,283Change in unamortized debt discount
    
    
    (7,079
    )
    
    
    (16,686
    )Other
    
    
    9,156
    
    
    
    6,343Net cash provided by operating activities
    
    
    1,008,499
    
    
    
    1,104,239INVESTING ACTIVITIESAcquisition of flight equipment for operating leases
    
    
    (4,433,997
    )
    
    
    (4,822,093
    )Decrease in deposits and progress payments
    
    
    260,016
    
    
    
    73,054Proceeds from disposal of flight equipment  net of gain
    
    
    253,466
    
    
    
    231,749Advances on notes receivable
    
    
    (48,616
    )
    
    
    (6,500
    )Collections on notes receivable and finance leases
    
    
    34,337
    
    
    
    35,333Other
    
    
    3,968
    
    
    
    3,381Net cash used in investing activities
    
    
    (3,930,826
    )
    
    
    (4,485,076
    )FINANCING ACTIVITIESNet change in commercial paper
    
    
    1,343,499
    
    
    
    2,064,395Proceeds from debt financing
    
    
    3,499,100
    
    
    
    3,766,218Payments in reduction of debt financing and capital lease
obligations and synthetic lease obligations
    
    
    (1,896,859
    )
    
    
    (2,429,869
    )Debt issue costs
    
    
    (22,547
    )
    
    
    (41,499
    )(Decrease) increase in customer deposits
    
    
    (6,273
    )
    
    
    46,605Payment of common and preferred dividends
    
    
    (20,548
    )
    
    
    (20,936
    )Net cash provided by financing activities
    
    
    2,896,372
    
    
    
    3,384,914Net increase (decrease) in cash
    
    
    (25,955
    )
    
    
    4,077Effect of exchange rate changes on cash
    
    
    4,857
    
    
    
    (7,271
    )Cash at beginning of period
    
    
    157,960
    
    
    
    99,747Cash at end of period
    
    $
    136,862
    
    
    $
    96,553
 (Table continued on following page)
 -6-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Dollars in thousands)
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 Restated2006
    
    
    2005(Unaudited)Cash paid during the period for:Interest (net of amount
capitalized of $25,389 (2006) and
$27,741 (2005))
    
    $
    641,479
    
    
    $
    510,623Income taxes, net
    
    
    2,013
    
    
    
    2,459
          -7-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2006
(Unaudited)
 Basis of Preparation
  Restatement of Previously Issued Financial Statements
     -8-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006
(Unaudited)
  Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005
    
    
    December 31, 2005As
    
    
    As
    
    
    As
    
    
    As
    
    
    As
    
    
    AsReported
    
    
    Restated
    
    
    Reported
    
    
    Restated
    
    
    Reported
    
    
    RestatedConsolidated Statements of Income:Rental of Flight Equipment
    
    $
    857,420
    
    
    $
    859,814
    
    
    $
    1,655,524
    
    
    $
    1,676,577Flight equipment marketing
    
    
    21,439
    
    
    
    26,166
    
    
    
    37,000
    
    
    
    35,739Interest and other
    
    
    14,827
    
    
    
    16,547
    
    
    
    29,989
    
    
    
    29,989Interest expense
    
    
    286,414
    
    
    
    332,459
    
    
    
    526,820
    
    
    
    536,329Provision for overhauls
    
    
    49,826
    
    
    
    52,685
    
    
    
    93,969
    
    
    
    113,102Selling, general and
administrative expense
    
    
    29,980
    
    
    
    32,736
    
    
    
    66,346
    
    
    
    66,724Income before taxes
    
    
    183,917
    
    
    
    141,098
    
    
    
    372,935
    
    
    
    363,710Net income
    
    
    123,557
    
    
    
    95,845
    
    
    
    252,479
    
    
    
    246,510Shareholders Equity:Accumulated other comprehensive
Income
    
    
    
    
    
    
    
    
    
    
    59,574
    
    
    
    65,754
    
    
    
    91,715
    
    
    
    66,401Retained earnings
    
    
    
    
    
    
    
    
    
    
    4,199,938
    
    
    
    4,193,969
    
    
    
    4,349,706
    
    
    
    4,365,095Total shareholders equity
    
    
    
    
    
    
    
    
    
    
    5,599,007
    
    
    
    5,599,218
    
    
    
    6,182,487
    
    
    
    6,172,562
  Derivative Activities
  Six Months Ended
    
    
    Three Months EndedJune 30
    
    
    June 30(Dollars in thousands)Restated
    
    
    
    
    
    
    Restated(Income) loss related to derivative instruments:
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Change in fair value of derivative
instruments with no hedge accounting
treatment under SFAS 133 (a)
    
    $
    (243,839
    )
    
    $
    214,035
    
    
    $
    (107,325
    )
    
    $
    156,694Offsetting change in value of foreign
denominated debt related to contracts with
no hedge accounting treatment under SFAS
133
    
    
    164,264
    
    
    
    (208,545
    )
    
    
    89,235
    
    
    
    (117,668
    )Change in fair value of derivative
instruments accounted for as fair value
hedges
    
    
    (30,544
    )
    
    
    130,817
    
    
    
    (11,439
    )
    
    
    68,638Offsetting change in value of foreign
denominated debt related to fair value
hedges
    
    
    30,619
    
    
    
    (128,913
    )
    
    
    11,463
    
    
    
    (67,779
    )Change in value of foreign denominated
debt related to cash flow hedges
    
    
    198,209
    
    
    
    (241,055
    )
    
    
    162,406
    
    
    
    (112,425
    )Offsetting reclassification to Accumulated
Other Comprehensive Income of the change
in value of foreign denominated debt
related to cash flow hedges
    
    
    (198,209
    )
    
    
    241,055
    
    
    
    (162,406
    )
    
    
    112,425Ineffectiveness related to cash flow hedges
    
    
    (1,551
    )
    
    
    (51
    )
    
    
    
    
    
    
    (2
    )$
    (81,051
    )
    
    $
    (7,343
    )
    
    $
    (18,066
    )
    
    $
    39,883
 -9-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006
(Unaudited)
 
 (a)
    
    In the second quarter of 2006, we obtained hedge accounting treatment for 17 swaps, for
which the documentation was deemed insufficient in prior quarters.  Related Party Transactions
   Recent Accounting Pronouncements
  
    
    AIG Stock Option PlanCertain key employees of AIG and its subsidiaries and members of the AIG Board of
Directors can be granted options to purchase a maximum of 45,000,000 shares of AIG
common stock in the aggregate at prices not less than fair market value at the grant
date. The maximum number of shares that may be granted to any one grantee is limited to
900,000 in any one year. Options generally vest over four years (25 percent vesting per
year) and expire 10 years from the date of grant.
    
    AIG Stock Incentive PlanEquity-based or equity-related awards with respect to shares of AIG common stock can be
issued to employees of AIG and its subsidiaries in any year up to a maximum of that
number of shares equal to (a) 1,000,000 shares plus (b) the number of shares available
but not issued in the prior calendar year. The maximum award that a grantee may receive
under the plan per year is rights with respect to 250,000 shares.
    
    AIG Employee Stock Purchase PlanEligible employees (those employed at least one year) of AIG and its subsidiaries may be
granted the right to purchase up to an aggregate of 10,000,000 shares of AIG common
stock at a price equal to 85 percent of the fair market value on the date of the grant
of the purchase privilege. Purchase privileges are granted quarterly and are limited to
the number of whole shares that can be purchased on an annual basis by an amount equal
to the lesser of 10 percent of an employees annual salary or $10,000.
 -10-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006
(Unaudited)
 
    
    SICO Deferred Compensation Profit Participation PlansStarr International Company, Inc. (SICO) has provided a series of two-year Deferred
Compensation Profit Participation Plans to certain employees of AIG and its subsidiaries
(SICO Plans). The SICO Plans provide that shares of AIG common stock currently held by
SICO are set aside for the benefit of the participant and distributed upon retirement.
The SICO Board of Directors currently may permit an early payout of units under certain
circumstances.
    
    2005-2006 AIG Deferred Compensation Profit Participation Plan (AIG DCPPP)The AIG DCPPP provides equity-based compensation to key employees of AIG and its
subsidiaries. The AIG DCPPP is modeled on the SICO Plans.
    
    AIG Partners PlanCertain key employees of AIG and its subsidiaries can be granted compensation by the Compensation
Committee of the Board of Directors under the Partners Plan. On
June 26, 2006, the Compensation
Committee approved two grants for performance based RSUs for performance periods January 1, 2006
to December 31, 2007 and January 1, 2007 to December 31, 2008. Both grants vest 50 percent on the
fourth and sixth anniversaries of the first day of the related performance period. In addition,
the Compensation Committee approved the performance metrics for the two grants prior to the date of
grant.
    
    ILFC Deferred Compensation PlanILFC employees participate in the ILFC deferred compensation plan, which is a plan
independent of AIG. At the time of the grant, the employees choose to receive AIG stock
or cash at the vesting date. The vesting period is three years after the grant date. The
grant is forfeited at termination of employment.
  Lease Ownership Restructurings
  Canadian Airport and Navigation Fees
  -11-




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 Forward-Looking Statements
 Managements Discussion and Analysis of Financial Condition
and Results of Operations  Overview and Industry Conditions Part II  Item 1A. Risk
Factors,
 -12-




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Overview and Industry Condition
     Item 2. Managements Discussion and Analysis 
Non-GAAP Financial Measures (i) (ii) (iv)
  -13-




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
      Critical Accounting Policies and Estimates
   
    
    Lease Revenue
    
    Flight Equipment Marketing
    
    Flight Equipment
    
    Capitalized Interest
    
    Provision for Overhauls
    
    Derivative Financial Instruments
 Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
 -14-




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Financial Condition
   June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Public bonds and medium-term notes
    
    $
    19,760,827
    
    
    $
    18,503,065Bank and other term debt
    
    
    4,359,052
    
    
    
    4,014,573Junior subordinated debentures
    
    
    1,000,000
    
    
    
    1,000,000Total public debt, bank debt and junior
subordinated debentures
    
    
    25,119,879
    
    
    
    23,517,638Commercial paper
    
    
    3,968,908
    
    
    
    2,625,409Deferred debt discount
    
    
    (45,961
    )
    
    
    (38,882
    )Total debt financing
    
    $
    29,042,826
    
    
    $
    26,104,165Selected interest rates and ratio:Composite interest rate
    
    
    5.24
    %
    
    
    5.00
    %Percentage of total debt at fixed rates
    
    
    76.22
    %
    
    
    79.03
    %Composite interest rate on fixed rate debt
    
    
    5.12
    %
    
    
    5.03
    %Bank prime rate
    
    
    8.25
    %
    
    
    7.25
    %
  -15-




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Public Debt ( Exclusive of the Commercial Paper Program )
  Maximum
    
    Sold as of
    
    Sold as of
    
    Sold as ofOffering
    
    December 31, 2005
    
    June 30, 2006
    
    July 31, 2006(Dollars in millions)Registration
statement
dated
December 20,
2002
(including
$2.88
billion
Medium-Term
Note Program
and $1.0
billion
Retail
Medium-Term
Note
Program)
    
    $
    6,080
    (a)
    
    $
    5,710
    
    
    $
    5,734
    
    
    $
    5,741Registration
statement
dated
December 28,
2004
(including
$2.0 billion
Medium Term
Note
Program)
    
    
    7,045
    (b)
    
    
    2,950
    
    
    
    5,850
    
    
    
    6,400Euro
Medium-Term
Note
Programme
dated
September
2005 (c)(d)
    
    
    7,000
    
    
    
    4,979
    
    
    
    4,276
    
    
    
    4,276
 
 (a)
    
    Includes $1.08 billion, which was incorporated into the registration statement from
a prior registration statement, increasing the maximum offering from $5.0 billion to
$6.08 billion.(b)
    
    Includes $2.045 billion, which was incorporated into the registration statement
from a prior registration statement, increasing the maximum offering from $5.0 billion to
$7.045 billion.(c)
    
    We have hedged the foreign currency risk of the notes through derivatives or
through the offset provided by operating lease payments denominated in the related
currency.(d)
    
    This is a perpetual program. As a bond matures, the principal amount becomes
available for new issuances under the program. Bank Term Debt
     -16-




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Junior Subordinated Debentures
 (i) (ii) (iii)
 Commercial Paper
 Bank Commitments
 Bank Commitments
  Other Variable Interest Entities
    -17-




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Derivatives
  
    
    A contract entered into with the intention to hedge the interest rate on our
capital lease obligations, where the debt and the contract dates were slightly
different and thereby the hedge was deemed not to be highly effective, as defined by
SFAS 133.
    
    One contract we obtained as a result of an exercise of a guarantee and it has no
hedged item.
    
    Two contracts entered into with the intention to fix the interest rate and swap
the foreign currency into US dollars on our Euro denominated debt. The contracts do
not qualify for hedge accounting because the ineffectiveness calculation method was
incorrectly designated.
   Market Liquidity Risk
    -18-




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Existing Commitments
 Commitments Due by Fiscal YearTotal
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter(Dollars in thousands)Public and Bank
Term Debt
    
    $
    24,119,879
    
    
    $
    4,301,627
    
    
    $
    3,522,018
    
    
    $
    4,499,988
    
    
    $
    4,008,136
    
    
    $
    3,833,557
    
    
    $
    3,954,553Commercial Paper
    
    
    3,968,908
    
    
    
    3,968,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Junior Subordinated
Debentures
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Interest Payments
on Debt Outstanding
(a)
    
    
    7,527,955
    
    
    
    659,283
    
    
    
    1,097,406
    
    
    
    909,682
    
    
    
    693,008
    
    
    
    446,855
    
    
    
    3,721,721Operating Leases
    
    
    89,725
    
    
    
    4,333
    
    
    
    8,952
    
    
    
    9,303
    
    
    
    9,594
    
    
    
    9,969
    
    
    
    47,574Pension Obligations
(b)
    
    
    12,515
    
    
    
    1,939
    
    
    
    2,209
    
    
    
    2,160
    
    
    
    2,112
    
    
    
    2,064
    
    
    
    2,031Tax Benefit Sharing
Agreement Due to
AIG
    
    
    245,000
    
    
    
    
    
    
    
    160,000
    
    
    
    
    
    
    
    85,000
    
    
    
    
    
    
    
    Purchase
Commitments (c)
    
    
    18,875,500
    
    
    
    1,600,900
    
    
    
    5,292,200
    
    
    
    4,850,500
    
    
    
    2,507,100
    
    
    
    1,641,200
    
    
    
    2,983,600Total
    
    $
    55,839,482
    
    
    $
    10,536,990
    
    
    $
    10,082,785
    
    
    $
    10,271,633
    
    
    $
    7,304,950
    
    
    $
    5,933,645
    
    
    $
    11,709,479
 Contingent Commitments
 Contingency Expiration by Fiscal YearTotal
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter(Dollars in thousands)Purchase Options on
New Aircraft (c)
    
    $
    1,408,300
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    867,900
    
    
    $
    
    
    
    $
    540,400Put Options (d)
    
    
    343,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,550Asset Value
Guarantees (d)
    
    
    89,839
    
    
    
    2,126
    
    
    
    9,791
    
    
    
    35,178
    
    
    
    
    
    
    
    
    
    
    
    42,744Loan Guarantees (d)
    
    
    37,375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,375Lines of Credit
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Total
    
    $
    1,929,064
    
    
    $
    2,126
    
    
    $
    9,791
    
    
    $
    35,178
    
    
    $
    867,900
    
    
    $
    
    
    
    $
    1,014,069
 
 (a)
    
    Future interest payments on floating rate debt are estimated using floating
interest rate in effect at June 30, 2006.(b)
    
    Our pension obligations are part of intercompany expenses, which AIG allocates to
us on an annual basis. The amount is an estimate of such allocation. The column 2006
consists of total estimated allocations for 2006 and the column Thereafter consists of
the 2011 estimated allocation. The amount allocated has not been material to date.(c)
    
    The recorded basis of aircraft may be adjusted to reflect notional credits provided
by the manufacturers in connection with the leasing of aircraft.(d)
    
    From time to time, we participate with airlines, banks and other financial
institutions to assist in financing aircraft by providing asset guarantees, put options,
or loan guarantees collateralized by aircraft. As a result, should we be called upon to
fulfill our obligations, we would have recourse to the value of the underlying aircraft. -19-




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Non-GAAP Financial Measures
 Lease Margin
 Variable Interest Entities
  Six Months Ended
    
    
    Three Months EndedJune 30
    
    
    June 30(Dollars in millions)Restated
    
    
    
    
    
    
    Restated2006
    
    
    2005
    
    
    2006
    
    
    2005Total revenues (A)
    
    $
    1,998.7
    
    
    $
    1,742.3
    
    
    $
    1,045.6
    
    
    $
    902.5Flight equipment
marketing
    
    
    (39.6
    )
    
    
    (35.7
    )
    
    
    (20.8
    )
    
    
    (26.2
    )Interest and
other
    
    
    (42.1
    )
    
    
    (30.0
    )
    
    
    (22.2
    )
    
    
    (16.5
    )Rental of flight
equipment (B)
    
    
    1,917.0
    
    
    
    1,676.6
    
    
    
    1,002.6
    
    
    
    859.8Total expenses (C)
    
    
    1,603.4
    
    
    
    1,378.6
    
    
    
    869.2
    
    
    
    761.4VIE expenses
    
    
    (12.3
    )
    
    
    (9.8
    )
    
    
    (7.3
    )
    
    
    (4.6
    )Adjusted total
expenses (D)
    
    
    1,591.1
    
    
    
    1,368.8
    
    
    
    861.9
    
    
    
    756.8Profit margin (A) 
(C) = (E)
    
    $
    395.3
    
    
    $
    363.7
    
    
    $
    176.4
    
    
    $
    141.1Lease margin (B) 
(D) = (F)
    
    $
    325.9
    
    
    $
    307.8
    
    
    $
    140.7
    
    
    $
    103.0Profit margin % (E)
divided by (A)
    
    
    19.8
    %
    
    
    20.9
    %
    
    
    16.9
    %
    
    
    15.6
    %Lease margin % (F)
divided by (B)
    
    
    17.0
    %
    
    
    18.4
    %
    
    
    14.0
    %
    
    
    12.0
    %
 (i) (ii) (iii)
  Results of Operations
 (i)
 -20-




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 (ii)
   (i) (ii)
 (i) (ii) Note C Notes to Condensed Consolidated Financial Statements
 Increase2006
    
    2005
    
    (decrease)Beginning of Quarter
    
    
    5.12
    %
    
    
    4.49
    %
    
    
    0.63
    %End of Quarter
    
    
    5.24
    %
    
    
    4.52
    %
    
    
    0.72
    %Average
    
    
    5.18
    %
    
    
    4.51
    %
    
    
    0.67
    %
    (i) (ii) Note G. Notes to the Condensed Consolidated Financial Statements (iii) (iv)
    -21-




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Results of Operations
 (i) (ii) (i) (ii)
   (i) (ii) (iii) (i) (ii)
 (i) (ii) Note C. Notes to Condensed Consolidated Financial Statements
 Increase2006
    
    2005
    
    (decrease)Beginning of Six Months
    
    
    5.00
    %
    
    
    4.34
    %
    
    
    0.66
    %End of Six Months
    
    
    5.24
    %
    
    
    4.52
    %
    
    
    0.72
    %Average
    
    
    5.12
    %
    
    
    4.43
    %
    
    
    0.69
    %
    -22-




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 (i) (ii) Note G. Notes to the Condensed
Consolidated Financial Statements
    -23-




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Value at Risk
     ILFC Market RiskSix Months Ended
    
    Year EndedJune 30, 2006
    
    December 31, 2005(Dollars in millions)Average
    
    High
    
    Low
    
    Average
    
    High
    
    LowCombined
    
    $
    182.3
    
    
    $
    209.8
    
    
    $
    153.9
    
    
    $
    129.2
    
    
    $
    209.8
    
    
    $
    84.2Interest Rate
    
    
    180.9
    
    
    
    207.7
    
    
    
    152.5
    
    
    
    128.9
    
    
    
    207.7
    
    
    
    83.9Currency
    
    
    3.8
    
    
    
    4.2
    
    
    
    3.5
    
    
    
    2.1
    
    
    
    4.2
    
    
    
    0.5
 -24-




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 (A)
    
    Evaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our filings under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the periods specified in the
rules and forms of the Securities and Exchange Commission, and such information is
accumulated and communicated to our management, including the Chairman of the Board and
Chief Executive Officer and the Vice Chairman, Chief Financial Officer and Chief
Accounting Officer (collectively the Certifying Officers), as appropriate, to allow
timely decisions regarding required disclosure. Our management, including the Certifying
Officers, recognizes that any set of controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired
control objectives.Based on our evaluation as of June 30, 2006, we have concluded that our disclosure
controls and procedures were not effective at the reasonable assurance level due to a
material weakness in internal controls as described below. A material weakness is a
control deficiency, or combination of control deficiencies, that results in more than a
remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. The following material weakness has not
been fully remediated as of June 30, 2006:The Company did not maintain effective controls over the valuation, presentation and
disclosure of derivative transactions. Specifically, we did not maintain adequate
documentation regarding the effectiveness of certain derivative transactions used to
hedge interest rate and foreign currency exchange rate risk and did not select the
correct methodology to measure the ineffectiveness in the hedging relationships of two
cross currency swaps. These control deficiencies resulted in a misstatement to the
financial statement line items (Derivative assets, Derivative liabilities, Accumulated
other comprehensive income and Interest expense) and resulted in a restatement of our
annual and interim financial statements. Accordingly, management concluded this control
deficiency constitutes a material weakness.As a result of this material weakness, management, including the Certifying Officers,
concluded that our disclosure controls and procedures were not effective at the
reasonable assurance level as of June 30, 2006. See (C) Remediation of Material
Weaknesses in Internal Control Over Financial Reporting.Variable Interest EntitiesOur consolidated financial statements for the period ended June 30, 2006, include assets
in the amount of $132.4 million (2006) and $138.3 million (December 31, 2005),
liabilities in the amount of $21.8 million (2006) and $65.2 million (December 31, 2005)
and a net loss of $5.2 million (2006) and a net gain of $3.5 million (2005) related to
Variable Interest Entities (VIEs). Our assessment of disclosure controls and
procedures, as described above, includes the Variable Interest Entities. Each of the
VIEs has a discrete number of assets and we, as lender and guarantor to the VIEs, have
been provided sufficient information to conclude that our procedures with respect to
these VIEs are effective in providing reasonable assurance that the information required
to be disclosed by us relating to these entities is reconciled, processed, summarized
and reported within the periods specified by the Securities and Exchange Commission.
However, management has been unable to assess the effectiveness of internal controls at
those entities due to our inability to dictate or modify the control over financial
reporting of those entities, or to assess those controls.
 -25-




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES (CONTINUED)
 (B)
    
    Changes in Internal Control Over Financial ReportingExcept as described below under (C) Remediation of Material Weaknesses in Internal
Control Over Financial Reporting,during the fiscal quarter ended June 30, 2006, no
changes were made to internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal controls over
financial reporting.(C)
    
    Remediation of Material Weaknesses in Internal Control Over Financial ReportingWe have begun, but have not completely remediated, the material weakness in our internal
control over financial reporting with respect to accounting for derivative instruments
as discussed above. The remediation actions include improving training and accounting
reviews, all designed to ensure that all relevant personnel involved in derivatives
transactions understand and apply hedge accounting in compliance with SFAS 133. During
our remediation efforts, we found errors related to designations of methodologies used
to calculate ineffectiveness of two derivative contracts. In coordination with AIGs
remediation efforts related to derivative transactions, we will work closely with AIG to
identify processes and procedures which will assist us in remediating our material
weakness with respect to derivative transactions.We will describe additional remediation efforts in our future filings. In addition, we
will continue to assess our controls and procedures and will take any further actions
that we deem necessary.We believe that our Consolidated Financial Statements fairly present, in all material
respects, our financial condition, results of operations and cash flows as of, and for,
the periods presented and that this Quarterly Report on Form 10-Q contains no material
inaccuracies or omissions of material fact and contains the information required to be
included in accordance with the Exchange Act.
 -26-




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
 Quantitative and Qualitative Disclosures about Market
Risk.
   
    
    Overall Airline Industry Risk
 Ø Demand for air travelØ Insurance costsØ Competition between carriersØ Security, terrorism and warØ Fuel prices and availabilityØ Worldwide health concernsØ Labor costs and stoppagesØ Equity and borrowing capacityØ Maintenance costsØ Environmental concernsØ Employee labor contractsØ Government regulationØ Airport and air traffic control infrastructure constraintsØ Interest ratesØ Airport accessØ Overcapacity
 
    
    Airframe, Engine and Other Manufacturer Risk
    
    Borrowing Risks
 Ø LiquidityØ Interest rate risk
 -27-




---



##### Table of Contents



PART II. OTHER INFORMATION (CONTINUED)
 
    
    Other Risks
 Ø Failure to remedy material weaknessØ Residual valueØ ObsolescenceØ Key personnelØ Foreign currency exchange rate riskØ Relationship with AIG
 Item 1A. Risk
Factors
 
 ITEM 6. EXHIBITS
  3.1
    
    Restated Articles of Incorporation of the Company,
as amended through December 9, 1992, filed November 3, 1993 (filed as an
exhibit to Registration Statement No. 33-50913 and incorporated herein by
reference).3.2
    
    Certificate of Determination of Preferences of
Series A Market Auction Preferred Stock (filed December 9, 1992 as an
exhibit to Registration Statement No. 33-54294 and incorporated herein by
reference).3.3
    
    Certificate of Determination of Preferences of
Series B Market Auction Preferred Stock (filed December 9, 1992 as an
exhibit to Registration Statement 33-54294 and incorporated herein by
reference).3.4
    
    Certificate of Determination of Preferences of
Series C Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.5
    
    Certificate of Determination of Preferences of
Series D Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.6
    
    Certificate of Determination of Preferences of
Series E Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.7
    
    Certificate of Determination of Preferences of
Series F Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.8
    
    Certificate of Determination of Preferences of
Series G Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).3.9
    
    Certificate of Determination of Preferences of
Series H Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).3.10
    
    Certificate of Determination of Preferences of
Preferred Stock of the Company (filed as an exhibit to Form 10-K for the
year ended December 31, 2001 and incorporated herein by reference).3.11
    
    By-Laws of the Company, including amendment thereto
dated August 31, 1990 (filed as an exhibit to Form 10-K for the year
ended December 31, 2003 and incorporated herein by reference).3.12
    
    Unanimous Written Consent of Sole Stockholder of
the Company, dated January 2, 2002, amending the Bylaws of the Company
(filed as an exhibit to Form 10-Q for the quarter ended June 30, 2003 and
incorporated herein by reference).12.
    
    Computation of Ratios of Earnings to Fixed Charges
and Preferred Stock Dividends31.1
    
    Certification of Chairman of the Board and Chief
Executive Officer31.2
    
    Certification of Vice Chairman, Chief Financial
Officer and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section 1350
 -28-




---



##### Table of Contents



SIGNATURES
  INTERNATIONAL LEASE FINANCE CORPORATIONAugust 11, 2006
    
    /s/ Steven F. Udvar-HazySTEVEN F. UDVAR-HAZYChairman of the Board andChief Executive OfficerAugust 11, 2006
    
    /s/ Alan H. LundALAN H. LUNDVice Chairman,Chief Financial Officerand Chief Accounting Officer
 -29-




---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
   12.
    
    Computation of Ratios of Earnings to Fixed Charges
and Preferred Stock Dividends31.1
    
    Certification of Chairman of the Board and Chief
Executive Officer31.2
    
    Certification of Vice Chairman, Chief Financial
Officer and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section 1350
 -30-