##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 INTERNATIONAL LEASE FINANCE CORPORATION
  California
(State or other jurisdiction of
incorporation or organization)
    
    22-3059110
(I.R.S. Employer
Identification No.)10250 Constellation Blvd., Los Angeles, California
(Address of principal executive offices)
    
    90067
(Zip Code)
 (310) 788-1999
 þ o
 o þ
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##### Table of Contents



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
September 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Income
Three Months Ended September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Income
Nine months Ended September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Comprehensive Income
Nine months Ended September 30, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Cash Flows
Nine months Ended September 30, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8Cautionary Statement Regarding Forward Looking Information
    
    
    9Item 2.   Managements Discussion and Analysis of the Financial Condition and Results of Operations
    
    
    10Item 3.   Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.   Controls and Procedures
    
    
    23Part II.   Other InformationItem 1.   Legal Proceedings
    
    
    25Item 6.   Exhibits
    
    
    25Signatures
    
    
    27Exhibit 12Exhibit 31.1Exhibit 31.2Exhibit 32.1
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##### 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)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCash, including interest bearing accounts
of $119,458 (September 30, 2005), $97,682 (December 31, 2004)
    
    $
    119,604
    
    
    $
    99,747Current income taxes
    
    
    148,739
    
    
    
    6,507Notes receivable and net investment in finance and sales-type leases
    
    
    471,050
    
    
    
    519,739Flight equipment under operating leases
    
    
    41,024,379
    
    
    
    36,580,296Less accumulated depreciation
    
    
    7,047,027
    
    
    
    6,074,87433,977,352
    
    
    
    30,505,422Deposits on flight equipment purchases
    
    
    1,334,859
    
    
    
    1,250,168Other assets
    
    
    284,731
    
    
    
    199,653Derivative assets
    
    
    420,681
    
    
    
    1,191,602Investments
    
    
    18,866
    
    
    
    22,979Variable interest entities assets
    
    
    142,210
    
    
    
    152,417Deferred debt issue costs  less accumulated amortization of
$58,210 (September 30, 2005), $77,112 (December 31, 2004)
    
    
    79,362
    
    
    
    59,666$
    36,997,454
    
    
    $
    34,007,900LIABILITIES AND SHAREHOLDERS EQUITYAccrued interest and other payables
    
    $
    403,721
    
    
    $
    264,276Tax benefit sharing payable to AIG
    
    
    245,000
    
    
    
    245,000Debt financing, net of deferred debt discount of $44,674
(September 30, 2005),
$29,502 (December 31, 2004)
    
    
    25,703,224
    
    
    
    23,136,016Foreign currency translation adjustment related to foreign
currency denominated debt
denominated debt
    
    
    295,991
    
    
    
    1,215,809Derivative liabilities
    
    
    25,546
    
    
    
    38,810Capital lease obligations
    
    
    
    
    
    
    39,580Security and other deposits on flight equipment
    
    
    960,784
    
    
    
    876,590Rentals received in advance
    
    
    184,026
    
    
    
    160,878Deferred income taxes
    
    
    2,976,990
    
    
    
    2,630,118Variable interest entities liabilities
    
    
    65,614
    
    
    
    70,886SHAREHOLDERS 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 issued and outstanding
    
    
    1,053,582
    
    
    
    653,582Paid-in capital
    
    
    586,556
    
    
    
    579,955Accumulated other comprehensive (loss) income
    
    
    85,949
    
    
    
    22,825Retained earnings
    
    
    4,310,471
    
    
    
    3,973,575Total shareholders equity
    
    
    6,136,558
    
    
    
    5,329,937$
    36,997,454
    
    
    $
    34,007,900
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Dollars in thousands)
 2005
    
    
    2004(Unaudited)REVENUESRental of flight equipment
    
    $
    920,451
    
    
    $
    761,621Flight equipment marketing
    
    
    13,637
    
    
    
    7,016Interest and other
    
    
    13,481
    
    
    
    37,790947,569
    
    
    
    806,427EXPENSESInterest
    
    
    300,155
    
    
    
    232,802Depreciation of flight equipment
    
    
    358,245
    
    
    
    311,188Provision for overhauls
    
    
    68,856
    
    
    
    43,317Selling, general and administrative
    
    
    46,082
    
    
    
    31,124773,338
    
    
    
    618,431INCOME BEFORE INCOME TAXES
    
    
    174,231
    
    
    
    187,996Provision for income taxes
    
    
    53,312
    
    
    
    60,610NET INCOME
    
    $
    120,919
    
    
    $
    127,386
 
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Dollars in thousands)
 2005
    
    
    2004(Unaudited)REVENUESRental of flight equipment
    
    $
    2,575,973
    
    
    $
    2,192,976Flight equipment marketing
    
    
    50,636
    
    
    
    43,460Flight equipment marketing  securitization (Note C)
    
    
    
    
    
    
    32,866Interest and other (Note C)
    
    
    43,471
    
    
    
    79,5442,670,080
    
    
    
    2,348,846EXPENSESInterest
    
    
    826,975
    
    
    
    697,228Depreciation of flight equipment
    
    
    1,020,685
    
    
    
    898,084Provision for overhauls
    
    
    162,825
    
    
    
    115,792Selling, general and administrative
    
    
    112,425
    
    
    
    86,3852,122,910
    
    
    
    1,797,489INCOME BEFORE INCOME TAXES
    
    
    547,170
    
    
    
    551,357Provision for income taxes
    
    
    173,767
    
    
    
    176,125NET INCOME
    
    $
    373,403
    
    
    $
    375,232
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Dollars in thousands)
 2005
    
    
    2004(Unaudited)NET INCOME
    
    $
    120,919
    
    
    $
    127,386OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXNet changes in cash flow hedges
    
    
    26,774
    
    
    
    (1,853
    )Change in unrealized appreciation on securities available for sale
    
    
    (399
    )
    
    
    COMPREHENSIVE INCOME
    
    $
    147,294
    
    
    $
    125,533
 
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Dollars in thousands)
 2005
    
    
    2004(Unaudited)NET INCOME
    
    $
    373,403
    
    
    $
    375,232OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXNet changes in cash flow hedges
    
    
    65,791
    
    
    
    4,203Change in unrealized appreciation on securities available for sale
    
    
    (2,667
    )
    
    
    COMPREHENSIVE INCOME
    
    $
    436,527
    
    
    $
    379,435
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Dollars in thousands)
 2005
    
    
    2004(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    373,403
    
    
    $
    375,232Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation of flight equipment
    
    
    1,020,685
    
    
    
    898,084Deferred income taxes
    
    
    312,882
    
    
    
    171,610Change in fair value of derivative instruments
    
    
    858,874
    
    
    
    49,672Foreign currency adjustment of cash and non-US$ denominated debt
    
    
    (907,212
    )
    
    
    (117,049
    )Amortization of deferred debt issue costs
    
    
    33,724
    
    
    
    19,974Change in unamortized debt discount
    
    
    (15,172
    )
    
    
    (3,886
    )Other
    
    
    (6,262
    )
    
    
    (6,955
    )Changes in operating assets and liabilities:Decrease (increase) in notes receivable
    
    
    14,235
    
    
    
    (17,146
    )Decrease in receivables and other assets
    
    
    103,549
    
    
    
    162,334Change in current income taxes
    
    
    (142,232
    )
    
    
    2,476Increase in accrued interest and other payables
    
    
    134,172
    
    
    
    135,069Increase in rentals received in advance
    
    
    23,148
    
    
    
    11,638Net cash provided by operating activities
    
    
    1,803,794
    
    
    
    1,681,053INVESTING ACTIVITIESAcquisition of flight equipment for operating leases
    
    
    (4,953,601
    )
    
    
    (3,941,495
    )Acquisition of flight equipment for finance leases
    
    
    
    
    
    
    (43,247
    )Decrease in deposits and progress payments
    
    
    (84,691
    )
    
    
    (30,833
    )Proceeds from disposal of flight equipment  net of gain
    
    
    280,220
    
    
    
    1,127,629Advances on notes receivable
    
    
    (6,500
    )
    
    
    (52,000
    )Collections on notes receivable and finance leases
    
    
    47,320
    
    
    
    47,286Other
    
    
    3,674
    
    
    
    891Net cash used in investing activities
    
    
    (4,713,578
    )
    
    
    (2,891,769
    )FINANCING ACTIVITIESNet change in commercial paper
    
    
    1,420,065
    
    
    
    894,085Proceeds from debt financing
    
    
    4,780,181
    
    
    
    3,915,986Payments in reduction of debt financing, capital lease obligations
and synthetic lease obligations
    
    
    (3,657,444
    )
    
    
    (3,616,431
    )Debt issue costs
    
    
    (53,420
    )
    
    
    (26,670
    )Increase in customer deposits
    
    
    84,194
    
    
    
    55,856Issuance of common stock
    
    
    400,000
    
    
    
    Payment of common and preferred dividends
    
    
    (31,328
    )
    
    
    (27,361
    )Net cash provided by financing activities
    
    
    2,942,248
    
    
    
    1,195,465Effect of exchange rate changes on cash
    
    
    (12,607
    )
    
    
    1,310Net increase (decrease) in cash
    
    
    19,857
    
    
    
    (13,941
    )Cash at beginning of period
    
    
    99,747
    
    
    
    102,241Cash at end of period
    
    $
    119,604
    
    
    $
    88,300
 (Table continued on following page)
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Dollars in thousands)
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 2005
    
    
    2004(Unaudited)Cash paid (received) during the period for:Interest (net of amount capitalized of
$40,379 (2005) and $35,282 (2004))
    
    $
    711,756
    
    
    $
    605,333Income taxes, net
    
    
    3,117
    
    
    
    2,039
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited)
 Basis of Preparation
  Hedging Activities
  (Dollars in thousands)(Income) loss related to derivative instruments:Changes in fair value of non-hedging instruments
    
    $
    (14,255
    )Changes in fair value of hedging instruments
    
    
    142,975Offsetting changes in fair value of hedged items
    
    
    (140,384
    )Ineffectiveness related to cash flow hedges
    
    
    (199
    )$
    (11,863
    )
  Flight Equipment Marketing  Securitization
 Flight Equipment Marketing  Securitization Interest and Other Other assets Accrued interest and other payables
 Shareholders Equity
  -8-




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 Forward-Looking Statements
 Managements Discussion and Analysis of Financial Condition
and Results of Operations  Overview Risk Factors Affecting International Lease Finance
Corporation
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
    Managements Discussion and Analysis  Non-GAAP
Financial Measures
   -10-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
    Risk Factors Affecting International Lease Finance Corporation
 Quantitative and Qualitative Disclosures about Market Risk.
   
    
    Overall Airline Industry Risk
 
    
    Demand for air travel
    
    Competition between carriers
    
    Fuel prices and availability
    
    Labor costs and stoppages
    
    Maintenance costs
    
    Employee labor contracts
    
    Airport and air traffic control
infrastructure constraints
 
    
    Insurance costs
    
    Security, terrorism and war
    
    Health concerns
    
    Equity and borrowing capacity
    
    Environmental concerns
    
    Government regulation
    
    Interest rates
  
    
    Manufacturer Risk
    
    Borrowing Risks
 
    
    Liquidity
    
    Interest rates
   -11-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
    
    Other Risks
 
    
    Residual value
    
    Obsolescence
    
    Key personnel
    
    Foreign currency exchange rate risk
   " Managements
Discussion and Analysis of Financial Condition and Results of Operations
 Critical Accounting Policies and Estimates
   
    
    Lease Revenue
    
    Flight Equipment Marketing
    
    Flight Equipment
    
    Capitalized Interest
    
    Provision for Overhauls
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Financial Condition
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Public term debt with single maturities
    
    $
    12,453,200
    
    
    $
    11,544,575Public medium-term notes with varying maturities
    
    
    4,719,131
    
    
    
    5,972,171Capital lease obligations
    
    
    
    
    
    
    39,580Bank and other term debt
    
    
    4,480,255
    
    
    
    2,973,525Total term debt, bank debt, and capital lease obligations
    
    
    21,652,586
    
    
    
    20,529,851Commercial paper
    
    
    4,095,312
    
    
    
    2,675,247Deferred debt discount
    
    
    (44,674
    )
    
    
    (29,502
    )Total debt financing and capital lease obligations
    
    $
    25,703,224
    
    
    $
    23,175,596Selected interest rates and ratio:Composite interest rate
    
    
    4.73
    %
    
    
    4.34
    %Percentage of total debt at fixed rates
    
    
    70.32
    %
    
    
    66.21
    %Composite interest rate on fixed rate debt
    
    
    4.96
    %
    
    
    5.07
    %Bank prime rate
    
    
    6.75
    %
    
    
    5.25
    %
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL 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, 2004
    
    
    September 30, 2005
    
    
    October 15, 2005(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)
    
    $
    5,593
    
    
    $
    5,696
    
    
    $
    5,705Registration statement dated
December 28, 2004 (including $2.0
billion Medium Term Note Program)
    
    
    7,045
    (b)
    
    
    
    
    
    
    2,600
    
    
    
    2,950Euro Medium-Term Note Programme
dated September 2005 (c)(d)
    
    
    7,000
    
    
    
    4,475
    
    
    
    3,808
    
    
    
    3,808
 
 (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. Capital Lease Obligations
  Bank Term Debt
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Commercial Paper
 Bank Commitments
 Bank Commitments
    Other Variable Interest Entities
    -15-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Derivatives
   Market Liquidity Risk
    -16-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Existing Commitments (Exclusive of Interest)
 Commitments Due by Fiscal YearTotal
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter(Dollars in thousands)Public and Bank
Term Debt
    
    $
    21,652,588
    
    
    $
    975,693
    
    
    $
    3,808,271
    
    
    $
    3,782,842
    
    
    $
    4,300,968
    
    
    $
    3,817,285
    
    
    $
    4,967,529Commercial Paper
    
    
    4,095,312
    
    
    
    3,719,962
    
    
    
    375,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest Payments
on Debt Outstanding (a)
    
    
    2,986,544
    
    
    
    274,059
    
    
    
    868,560
    
    
    
    698,119
    
    
    
    517,161
    
    
    
    331,221
    
    
    
    297,424Operating Leases
    
    
    96,118
    
    
    
    2,098
    
    
    
    8,629
    
    
    
    8,951
    
    
    
    9,303
    
    
    
    9,594
    
    
    
    57,543Pension Obligations (b)
    
    
    9,065
    
    
    
    531
    
    
    
    1,478
    
    
    
    1,888
    
    
    
    1,796
    
    
    
    1,715
    
    
    
    1,657Tax Benefit Sharing
Agreement Due to AIG
    
    
    245,000
    
    
    
    
    
    
    
    
    
    
    
    160,000
    
    
    
    
    
    
    
    85,000
    
    
    
    Purchase Commitments (c)
    
    
    20,129,300
    
    
    
    1,372,100
    
    
    
    6,315,900
    
    
    
    5,526,700
    
    
    
    4,994,700
    
    
    
    1,552,700
    
    
    
    367,200Total
    
    $
    49,213,927
    
    
    $
    6,344,443
    
    
    $
    11,378,188
    
    
    $
    10,178,500
    
    
    $
    9,823,928
    
    
    $
    5,797,515
    
    
    $
    5,691,353
 Contingent Commitments
 Contingency Expiration by Fiscal YearTotal
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter(Dollars in thousands)Purchase Options onNew Aircraft (c)
    
    $
    987,600
    
    
    $
    
    
    
    $
    
    
    
    $
    125,700
    
    
    $
    
    
    
    $
    861,900
    
    
    $
    Put Options (d)
    
    
    343,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,550Asset Value Guarantees (d)
    
    
    59,389
    
    
    
    
    
    
    
    3,126
    
    
    
    5,341
    
    
    
    8,178
    
    
    
    
    
    
    
    42,744Loan Guarantees (d)
    
    
    141,244
    
    
    
    
    
    
    
    97,015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,229Lines of Credit
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Total
    
    $
    1,581,783
    
    
    $
    0
    
    
    $
    100,141
    
    
    $
    131,041
    
    
    $
    8,178
    
    
    $
    861,900
    
    
    $
    480,523
 
 (a)
    
    Future interest payments on floating rate debt are estimated using floating
interest rate in effect at September 30, 2005.(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
Thereafter consists of the 2010 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. -17-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Non-GAAP Financial Measures
 Lease Margin
 Other Variable Interest Entities
  Nine months Ended
    
    
    Three Months EndedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in millions)Total revenues (A)
    
    $
    2,670.1
    
    
    $
    2,348.8
    
    
    $
    947.6
    
    
    $
    806.4Flight equipment marketing
    
    
    (50.6
    )
    
    
    (76.3
    )
    
    
    (13.6
    )
    
    
    (7.0
    )Interest and other
    
    
    (43.5
    )
    
    
    (79.5
    )
    
    
    (13.5
    )
    
    
    (37.8
    )Rental of flight equipment (B)
    
    
    2,576.0
    
    
    
    2,193.0
    
    
    
    920.5
    
    
    
    761.6Total expenses (C)
    
    
    2,122.9
    
    
    
    1,797.5
    
    
    
    773.3
    
    
    
    618.4VIE expenses
    
    
    (14.2
    )
    
    
    (15.7
    )
    
    
    (4.4
    )
    
    
    (5.0
    )Adjusted total expenses (D)
    
    
    2,108.7
    
    
    
    1,781.8
    
    
    
    768.9
    
    
    
    613.4Profit margin (A)  (C) = (E)
    
    $
    547.2
    
    
    $
    551.3
    
    
    $
    174.3
    
    
    $
    188.0Lease margin (B)  (D) = (F)
    
    $
    467.3
    
    
    $
    411.2
    
    
    $
    151.6
    
    
    $
    148.2Profit margin % (E) divided by (A)
    
    
    20.5
    %
    
    
    23.5
    %
    
    
    18.4
    %
    
    
    23.3
    %Lease margin % (F) divided by (B)
    
    
    18.1
    %
    
    
    18.8
    %
    
    
    16.5
    %
    
    
    19.5
    %
  Results of Operations
   -18-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Overview
    2005
    
    
    2004
    
    
    Increase(decrease)Beginning of Quarter
    
    
    4.52
    %
    
    
    4.15
    %
    
    0.37%End of Quarter
    
    
    4.73
    %
    
    
    4.20
    %
    
    0.53%Average
    
    
    4.63
    %
    
    
    4.18
    %
    
    0.45%
        -19-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Results of Operations
  Overview
  Notes to Condensed
Consolidated Financial Statements Flight Equipment Marketing  Securitization
   2005
    
    
    2004
    
    
    Increase(decrease)Beginning of Nine months
    
    
    4.34
    %
    
    
    4.53
    %
    
    (0.19)%End of Nine months
    
    
    4.73
    %
    
    
    4.20
    %
    
    0.53%Average
    
    
    4.54
    %
    
    
    4.37
    %
    
    0.17%
    -20-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
     -21-




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Value at Risk
     ILFC Market RiskNine months ended
    
    
    Year EndedSeptember 30, 2005
    
    
    December 31, 2004Average
    
    
    High
    
    
    Low
    
    
    Average
    
    
    High
    
    
    Low(Dollars in millions)Combined
    
    
    98.0
    
    
    
    132.3
    
    
    
    65.0
    
    
    $
    69.6
    
    
    $
    86.3
    
    
    $
    34.6Interest Rate
    
    
    98.0
    
    
    
    133.2
    
    
    
    65.0
    
    
    
    69.7
    
    
    
    86.4
    
    
    
    35.0Currency
    
    
    1.2
    
    
    
    2.8
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.2
 -22-




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ITEM 4.
    
    CONTROLS AND PROCEDURES
 (A)
    
    Evaluation of Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in its filings under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the periods specified
in the rules and forms of the Securities and Exchange Commission. Such information is
accumulated and communicated to management of the Company, including the Chairman of the
Board and Chief Executive Officer and the Vice Chairman, Chief Financial Officer and
Chief Accounting Officer (collectively the Certifying Officers), as appropriate, to
allow timely decisions regarding required disclosure. The management of the Company,
including the Certifying Officers, recognizes that any set of controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives.Under the direction of our Chief Executive Officer and Chief Financial Officer, we
evaluated our disclosure controls and procedures and have concluded that our disclosure
controls and procedures were ineffective at the reasonable assurance level as of
September 30, 2005 due to the existence of the material weaknesses 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. We identified the
following material weaknesses in our internal control over financial reporting:
 
    
    The Company did not maintain effective controls over the valuation,
presentation and disclosure of derivative transactions entered into prior to
the existence of SFAS 133. 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. This
control deficiency resulted in the restatement of our consolidated financial
statements for the years 2004, 2003, 2002 and 2001, the quarters of 2004 and
2003, and the first quarter of 2005. Additionally, this control deficiency
could result in a misstatement to the financial statement line items
(Derivative assets, Derivative liabilities, Accumulated other comprehensive
income, and Interest expense) that would cause a material misstatement to the
annual or interim financial statements. Accordingly, management concluded this
control deficiency constitutes a material weakness.
    
    The Company did not maintain effective controls over the valuation,
presentation and disclosure of certain payments received from manufacturers.
This control deficiency resulted in the restatement of our consolidated
financial statements for the years 2004, 2003, 2002, 2001 and 2000 and the
quarters of 2004 and 2003. Additionally, this control deficiency could result
in a misstatement to the revenue accounts that would cause a material
misstatement to the annual or interim financial statements. Accordingly,
management concluded this control deficiency constitutes a material weakness.
 As a result of these material weaknesses, management, including the Certifying Officers,
concluded that our disclosure controls and procedures were not effective at the
reasonable assurance level as of September 30, 2005.
 Variable Interest Entities
 The Companys consolidated financial statements for the period ended September 30, 2005,
include assets in the amount of $142.2 million, liabilities in the amount of $65.6
million and a net gain of $2.9 million related to Variable Interest Entities (VIEs).
The Companys 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 the Company, as lender and guarantor to the VIEs, has been provided
sufficient information to conclude that the Companys procedures with respect to these
VIEs are effective in providing reasonable assurance that the information required to be
disclosed by the Company relating to these entities is reconciled, processed, summarized
and reported within the
 -23-




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ITEM 4.
    
    CONTROLS AND PROCEDURES
(CONTINUED)
 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
the Companys inability to dictate or modify the control over financial reporting of
those entities, or to assess those controls.(B)
    
    Changes in Internal Control Over Financial ReportingDuring the fiscal quarter ended on September 30, 2005, the following changes were made
to internal control over financial reporting:
 
    
    Additional accounting reviews and account reconciliations were added to
ensure that the notional accounts with manufacturers are appropriately recorded
in the Companys books and records.
 (C)
    
    Remediation of Material Weaknesses in Internal Control Over Financial ReportingAs of the date of this filing, we have implemented changes in our internal controls over
financial reporting as described in Item 4 (B) above and continue to remediate the
material weaknesses in our internal control over financial reporting with respect to
accounting for derivative instruments and the accounting for certain payments from
manufacturers discussed above. We expect to have these material weaknesses fully
remediated by the end of the Companys 2005 fiscal year. The remediation actions
include:
 
    
    Improving training, education and adding additional staff as necessary, all
designed to ensure that all relevant personnel involved in derivatives
transactions understand and apply hedge accounting in compliance with SFAS 133.
    
    Improving training, education and adding additional staff as necessary, all
designed to ensure that all relevant personnel involved in the purchase of
aircraft from the manufacturers understand the appropriate accounting treatment
for the funds received from the manufacturers, for the related purchase of
aircraft and engines and the subsequent lease of the manufacturers aircraft.
 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.
 -24-




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS
 a)
    
    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).
 -25-




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PART II. OTHER INFORMATION (CONTINUED)
 4.1
    
    Amended and Restated Agency Agreement, dated as of
September 15, 2005, among the Company, Citibank, N.A. and Dexia Banque
Internationale à Luxembourg, Société anonyme. (Filed as an exhibit to
Form 8-K, event date September 15, 2005 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
 -26-




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SIGNATURES
  INTERNATIONAL LEASE FINANCE CORPORATIONNovember 8, 2005
    /s/ Steven F. Udvar-HazySTEVEN F. UDVAR-HAZYChairman of the Board and
Chief Executive OfficerNovember 8, 2005
    /s/ Alan H. LundALAN H. LUNDVice Chairman,
Chief Financial Officer
and Chief Accounting Officer -27-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
  Exhibit No.4.1
    
    Amended and Restated Agency Agreement, dated as
of September 15, 2005, among the Company, Citibank, N.A. and Dexia
Banque Internationale à Luxembourg, Société anonyme. (Filed as an
exhibit to Form 8-K, event date September 15, 2005 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-