##### 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, 2010
 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
(State or other jurisdiction of 
incorporation or organization)
    
    22-3059110
(I.R.S. Employer
Identification No.)
 10250 Constellation Blvd., Suite 3400
Los Angeles, California
(Address of principal executive offices)
    
    90067
(Zip Code)
 310) 788-1999
 þ o
 o o
  Large accelerated filer oAccelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
 
 TABLE OF CONTENTS
 PageTable of Definitions
    
    
    3Part I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets
June 30, 2010 and December 31, 2009
    
    
    4Condensed, Consolidated Statements of Income
Three months ended June 30, 2010 and 2009
    
    
    5Condensed, Consolidated Statements of Income
Six months ended June 30, 2010 and 2009
    
    
    5Condensed, Consolidated Statements of Comprehensive Income
Three months ended June 30, 2010 and 2009
    
    
    6Condensed, Consolidated Statements of Comprehensive Income
Six months ended June 30, 2010 and 2009
    
    
    6Condensed, Consolidated Statements of Cash Flows
Six months ended June 30, 2010 and 2009
    
    
    7Notes to Condensed, Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    51Item 4. Controls and Procedures
    
    
    52Part II. Other InformationItem 1. Legal Proceedings
    
    
    53Item 1A. Risk Factors
    
    
    53Item 5. Other Information
    
    
    60Item 6. Exhibits
    
    
    61Signatures
    
    
    62EX-2.1EX-3.2EX-10.2EX-10.3EX-10.4EX-12EX-31.1EX-31.2EX-32.1
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##### Table of Contents



TABLE OF DEFINITIONS
 AIG
    
    American International Group, Inc.AIG Funding
    
    AIG Funding, Inc.AIGFP
    
    AIG Financial Products Corp.Airbus
    
    Airbus S.A.S.AOCI
    
    Accumulated other comprehensive incomeASC
    
    FASB Accounting Standards CodificationBoeing
    
    The Boeing CompanyThe Company, ILFC, we, our, us
    
    International Lease Finance CorporationCPFF
    
    FRBNY Commercial Paper Funding FacilityCVA
    
    Credit Value AdjustmentECA
    
    Export Credit AgencyFASB
    
    Financial Accounting Standards BoardFitch
    
    Fitch Ratings, Inc.FRBNY
    
    Federal Reserve Bank of New YorkFRBNY Credit Agreement
    
    The credit agreement, dated as of
September 22, 2008, as amended,
between AIG and the FRBNYGAAP
    
    Generally Accepted Accounting
Principles in the United States of
AmericaKrasAir
    
    Krasnoyarsk AirlinesMoodys
    
    Moodys Investor Service, Inc.MVA
    
    Market Value AdjustmentOCI
    
    Other comprehensive incomeQSPE
    
    Qualifying special-purpose entitySEC
    
    U.S. Securities and Exchange CommissionS&P
    
    Standard and Poors, a division of The
McGraw-Hill Companies, Inc.VaR
    
    Value at RiskVIEs
    
    Variable Interest EntitiesVolare
    
    Estate of Volare AirlinesWKSI
    
    Well Known Seasoned Issuer
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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)
(Unaudited)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCash and cash equivalents, including interest bearing
accounts of $2,962,212 (2010) and $324,827 (2009)
    
    $
    2,969,395
    
    
    $
    336,911Restricted cash, including interest bearing accounts of $825,706 (2010)
and $246,115 (2009)
    
    
    883,820
    
    
    
    315,156Notes receivable, net of allowance, and net investment in finance and
sales-type leases
    
    
    151,502
    
    
    
    373,141Flight equipment under operating leases
    
    
    55,067,929
    
    
    
    57,718,323Less accumulated depreciation
    
    
    14,255,035
    
    
    
    13,788,52240,812,894
    
    
    
    43,929,801Flight Equipment Held for Sale
    
    
    2,144,936
    
    
    
    Deposits on flight equipment purchases
    
    
    149,312
    
    
    
    163,221Lease receivables and other assets
    
    
    446,736
    
    
    
    477,218Derivative assets
    
    
    1,651
    
    
    
    190,857Variable interest entities assets
    
    
    
    
    
    
    79,720Deferred debt issue costs, less accumulated amortization of $157,153
(2010) and $146,933 (2009)
    
    
    179,236
    
    
    
    101,017$
    47,739,482
    
    
    $
    45,967,042LIABILITIES AND SHAREHOLDERS EQUITYAccrued interest and other payables
    
    $
    541,370
    
    
    $
    474,971Current income taxes
    
    
    85,592
    
    
    
    80,924Tax benefit sharing payable to AIG
    
    
    
    
    
    
    85,000Loans from AIG Funding
    
    
    3,938,487
    
    
    
    3,909,567Debt financing, net of deferred debt discount of $65,492 (2010) and
$9,556 (2009)
    
    
    26,485,463
    
    
    
    24,802,172Subordinated debt
    
    
    1,000,000
    
    
    
    1,000,000Foreign currency adjustment related to foreign currency denominated debt
    
    
    56,380
    
    
    
    391,100Derivative liabilities
    
    
    70,831
    
    
    
    Security deposits on aircraft, overhauls and other
    
    
    1,691,989
    
    
    
    1,469,956Rentals received in advance
    
    
    278,307
    
    
    
    315,154Deferred income taxes
    
    
    4,932,723
    
    
    
    4,881,558Variable interest entities liabilities, net
    
    
    
    
    
    
    6,464Commitments and Contingencies  Note KSHAREHOLDERS 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
    
    
    
    1,053,582Paid-in capital
    
    
    605,504
    
    
    
    603,542Accumulated other comprehensive income (loss)
    
    
    (63,724
    )
    
    
    (138,206
    )Retained earnings
    
    
    6,962,978
    
    
    
    6,931,258Total shareholders equity
    
    
    8,658,340
    
    
    
    8,550,176$
    47,739,482
    
    
    $
    45,967,042
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009
(Dollars in thousands)
(Unaudited)
 June 30,
    
    
    June 30,2010
    
    
    2009REVENUESRental of flight equipment
    
    $
    1,291,758
    
    
    $
    1,298,870Flight equipment marketing
    
    
    (56,454
    )
    
    
    9,282Interest and other
    
    
    8,791
    
    
    
    22,0011,244,095
    
    
    
    1,330,153EXPENSESInterest
    
    
    407,708
    
    
    
    353,213Effect from derivatives, net of
change in hedged items due to
changes in
foreign
exchange rates
    
    
    4,783
    
    
    
    (6,441
    )Depreciation of flight equipment
    
    
    475,658
    
    
    
    488,777Provision for overhauls
    
    
    127,947
    
    
    
    74,084Flight equipment rent
    
    
    4,500
    
    
    
    4,500Selling, general and administrative
    
    
    49,141
    
    
    
    51,6231,069,737
    
    
    
    965,756INCOME BEFORE INCOME TAXES
    
    
    174,358
    
    
    
    364,397Provision for income taxes
    
    
    63,605
    
    
    
    127,472NET INCOME
    
    $
    110,753
    
    
    $
    236,925
 
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Dollars in thousands)
(Unaudited)
 June 30,
    
    
    June 30,2010
    
    
    2009REVENUESRental of flight equipment
    
    $
    2,616,511
    
    
    $
    2,560,256Flight equipment marketing
    
    
    (492,605
    )
    
    
    3,140Interest and other
    
    
    21,777
    
    
    
    37,3302,145,683
    
    
    
    2,600,726EXPENSESInterest
    
    
    742,574
    
    
    
    708,607Effect from derivatives, net of change in
hedged items due to changes in
foreign
exchange rates
    
    
    44,849
    
    
    
    (4,327
    )Depreciation of flight equipment
    
    
    965,899
    
    
    
    960,900Provision for overhauls
    
    
    222,837
    
    
    
    143,385Flight equipment rent
    
    
    9,000
    
    
    
    9,000Selling, general and administrative
    
    
    84,778
    
    
    
    103,8622,069,937
    
    
    
    1,921,427INCOME BEFORE INCOME TAXES
    
    
    75,746
    
    
    
    679,299Provision for income taxes
    
    
    27,919
    
    
    
    239,417NET INCOME
    
    $
    47,827
    
    
    $
    439,882
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009
(Dollars in thousands)
(Unaudited)
 June 30,
    
    
    June 30,2010
    
    
    2009NET INCOME
    
    $
    110,753
    
    
    $
    236,925OTHER COMPREHENSIVE INCOME, NET OF TAXNet changes in fair value of cash flow
hedges, net of taxes of $(13,485) (2010)
and $15,224 (2009)
    
    
    25,045
    
    
    
    (28,274
    )Change in unrealized appreciation on
securities available for sale, net of taxes
of $79 (2010) and $(32) (2009)
    
    
    (147
    )
    
    
    5924,898
    
    
    
    (28,215
    )COMPREHENSIVE INCOME
    
    $
    135,651
    
    
    $
    208,710
 
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Dollars in thousands)
(Unaudited)
 June 30,
    
    
    June 30,2010
    
    
    2009NET INCOME
    
    $
    47,827
    
    
    $
    439,882OTHER COMPREHENSIVE INCOME, NET OF TAXNet changes in fair value of cash flow
hedges, net of taxes of $(40,172) (2010)
and $5,448 (2009)
    
    
    74,606
    
    
    
    (10,118
    )Change in unrealized appreciation on
securities available for sale, net of taxes
of $66 (2010) and $(12) (2009)
    
    
    (123
    )
    
    
    2274,483
    
    
    
    (10,096
    )COMPREHENSIVE INCOME
    
    $
    122,310
    
    
    $
    429,786
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Dollars in thousands)
(Unaudited)
 June 30,
    
    
    June 30,2010
    
    
    2009OPERATING ACTIVITIESNet (Loss) income
    
    $
    47,827
    
    
    $
    439,882Adjustments to reconcile net income to net cash provided by operating activities:Depreciation of flight equipment
    
    
    965,899
    
    
    
    960,900Change in deferred income taxes
    
    
    19,754
    
    
    
    234,379Change in fair value of derivative instruments
    
    
    374,814
    
    
    
    (75,227
    )Foreign currency adjustment of non-US$ denominated debt
    
    
    (334,720
    )
    
    
    67,570Amortization of deferred debt issue costs
    
    
    21,873
    
    
    
    22,628Amortization of debt discount
    
    
    4,983
    
    
    
    6,873Amortization of prepaid lease costs
    
    
    20,282
    
    
    
    27,741Aircraft impairment charges
    
    
    412,457
    
    
    
    Lease expenses related to aircraft sales
    
    
    89,213
    
    
    
    Interest paid-in-kind to AIG Funding
    
    
    28,920
    
    
    
    Other, including foreign exchange adjustments on foreign currency
denominated cash
    
    
    (18,192
    )
    
    
    (8,167
    )Changes in operating assets and liabilities:Decrease (increase) in lease receivables and other assets
    
    
    51,776
    
    
    
    (62,569
    )Increase in accrued interest and other payables
    
    
    65,689
    
    
    
    34,733Change in current income taxes
    
    
    4,668
    
    
    
    1,365Tax benefit sharing with AIG
    
    
    (85,000
    )
    
    
    (Decrease) increase in rentals received in advance
    
    
    (36,847
    )
    
    
    2,023Net cash provided by operating activities
    
    
    1.633,396
    
    
    
    1,652,131INVESTING ACTIVITIESAcquisition of flight equipment for operating leases
    
    
    (219,450
    )
    
    
    (2,058,544
    )Payments for deposits and progress payments
    
    
    (22,974
    )
    
    
    (49,657
    )Proceeds from disposal of flight equipment  net of gain
    
    
    24,641
    
    
    
    89,434Increase in restricted cash
    
    
    (568,664
    )
    
    
    (264,239
    )Collections on notes receivable and finance and sales-type leases 
net of income amortized
    
    
    59,791
    
    
    
    89,246Other
    
    
    
    
    
    
    (11
    )Net cash used in investing activities
    
    
    (726,656
    )
    
    
    (2,193,771
    )FINANCING ACTIVITIESNet change in commercial paper
    
    
    
    
    
    
    (1,752,000
    )Loans from AIG Funding
    
    
    
    
    
    
    1,700,000Proceeds from debt financing
    
    
    4,315,872
    
    
    
    1,328,099Payments in reduction of debt financing
    
    
    (2,637,564
    )
    
    
    (2,022,980
    )Debt issue costs
    
    
    (100,131
    )
    
    
    (44,847
    )Payment of preferred dividends
    
    
    (207
    )
    
    
    (2,560
    )Increase (decrease) in customer and other deposits
    
    
    152,616
    
    
    
    (52,779
    )Net cash provided by (used in) financing activities
    
    
    1,730,586
    
    
    
    (847,067
    )Net increase (decrease) in cash
    
    
    2,637,326
    
    
    
    (1,388,707
    )Effect of exchange rate changes on cash
    
    
    (4,842
    )
    
    
    215Cash at beginning of period
    
    
    336,911
    
    
    
    2,385,948Cash at end of period
    
    $
    2,969,395
    
    
    $
    997,456
 (Table continued on following page)
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Dollars in thousands)
(Unaudited)
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 June 30,
    
    
    June 30,2010
    
    
    2009Cash paid during the period for:Interest, excluding interest
capitalized of $3,080 (2010)
and $7,216 (2009)
    
    $
    642,037
    
    
    $
    708,278Income taxes, net
    
    
    3,495
    
    
    
    3,673
 Non-Cash Investing and Financing Activities
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Unaudited)
 A.
    
    Basis of Preparation
  Recent Accounting Pronouncements. Variable Interest Entities
 AIG Going Concern Consideration
  B.
    
    Recent Accounting Pronouncements
  Accounting for Transfers of Financial Assets
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
  Consolidation of Variable Interest Entities
 (i) (ii) Variable Interest Entities.
 Measuring Liabilities at Fair Value
  Subsequent Events
  Future Application of Accounting Standards:
 Disclosures of the Credit Quality of Financing Receivables and the Allowance for Credit Losses
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 C.
    
    Flight Equipment Marketing
  Three Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2010(Dollars in millions)Impairment charges on Flight equipment held for
sale, aircraft sold, or aircraft designated for
part-out
    
    $
    53.0
    
    
    $
    404.3Lease related charges on Flight equipment held
for sale or aircraft sold
    
    
    5.2
    
    
    
    89.2Other net flight equipment marketing activity
    
    
    (1.7
    )
    
    
    (0.9
    )$
    56.5
    
    
    $
    492.6
  Three months ended June 30, 2010:
  
    
    On July 6, 2010, we signed an agreement to sell six aircraft to a third party.
As of June 30, 2010, the six aircraft met the criteria to be recorded as Flight
equipment held for sale, and for the three-month period ended June 30, 2010, we
recorded impairment charges in Flight equipment marketing aggregating $40.1 million
and lease charges aggregating $5.9 million related to the six aircraft. The
aggregate net book value of the six aircraft after we recorded an impairment charge
of $40.1 million was approximately $290.7 million and is included in Flight
equipment held for sale on our June 30, 2010, Condensed, Consolidated Balance
Sheet.
    
    As part of our normal recurring fleet assessment, we also recorded an impairment
charge in Flight equipment marketing of $12.4 million for the three months ended
June 30, 2010, related to one aircraft that was designated for part-out from our
leased fleet during that period.
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 
 Six months ended June 30, 2010:
  
    
    On April 13, 2010, we signed an agreement to sell 53 aircraft from our existing
fleet to a third party for an aggregate purchase price of $1.987 billion. At March
31, 2010, we considered the sale more likely than not to occur and deemed 50 of the
53 aircraft to be impaired. As a result, we recorded in Flight equipment marketing
impairment charges aggregating $319.1 million and related lease charges aggregating
$69.8 million for the three-month period ended March 31, 2010. The aggregate net
book value of the portfolio after the recorded impairment charge of $319.1 million
was approximately $1.9 billion. During the three months ended June 30, 2010,
appropriate approvals were obtained, the sales agreement was signed and 50 of the
53 aircraft in the portfolio met the criteria required to be recorded as Flight
equipment held for sale. We completed the sale of one of the 50 aircraft prior to
June 30, 2010, and the net book value of the remaining 49 aircraft is included in
Flight equipment held for sale, which is presented separately on our June 30, 2010,
Condensed, Consolidated Balance Sheet.
    
    On June 22, 2010, as part of our normal recurring fleet assessment, we sold two
aircraft from our leased fleet. At March 31, 2010, we considered the sale more
likely than not to occur and deemed the aircraft to be impaired. As a result, we
recorded in Flight equipment marketing impairment charges aggregating $32.7 million
and lease related charges aggregating $13.5 million relating to those two aircraft
for the six-month period ended June 30, 2010.
  D.
    
    Restricted Cash
 Debt Financings.
 Debt Financings.
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 Debt Financings Variable Interest Entities.
 E.
    
    Flight Equipment Held for Sale
   F.
    
    Debt Financings
 June 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)SecuredECA financings
    
    $
    3,051,370
    
    
    $
    3,004,763Loans from AIG Funding
    
    
    3,938,487
    
    
    
    3,909,567Bank debt (a)
    
    
    2,155,000
    
    
    
    Other secured financings (b)
    
    
    1,444,775
    
    
    
    153,11610,589,632
    
    
    
    7,067,446UnsecuredBonds and Medium-Term Notes
    
    
    17,435,560
    
    
    
    16,566,099Bank debt
    
    
    2,464,250
    
    
    
    5,087,75019,899,810
    
    
    
    21,653,849Total Secured and Unsecured Debt Financing
    
    
    30,489,442
    
    
    
    28,721,295Less: Deferred debt discount
    
    
    (65,492
    )
    
    
    (9,556
    )30,423,950
    
    
    
    28,711,739Subordinated Debt
    
    
    1,000,000
    
    
    
    1,000,000$
    31,423,950
    
    
    $
    29,711,739
 
 (a)
    
    On April 16 2010, we entered into an amendment to our revolving credit facility
dated October 13, 2006. Upon effectiveness of this amendment, approximately $2.2 billion
of our previously unsecured bank debt became secured by the equity interests in certain
of our non-restricted subsidiaries. Those subsidiaries, upon completion of the transfer
of certain aircraft into the subsidiaries, will hold a pool of aircraft with an
appraised value of not less than 133% of the principal amount of the outstanding loans.(b)
    
    Includes secured financings non-recourse to ILFC of $121.7 million and $129.6
million at June 30, 2010 and December 31, 2009, respectively. -13-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
  Variable Interest Entities .
 ECA Financings
     (i) (ii) (iii)
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 (iv)
 (i) (ii)
  Loans from AIG Funding
  (i) (ii) (iii)
 (i) (ii) (iii)
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
  (i) (ii)
 Secured Bank Debt
  
    
    Increase our permitted secured indebtedness basket under the credit facility
from 12.5% to 35% of our Consolidated Tangible Net Assets, as defined in the
credit agreement;
    
    Extend the scheduled maturity date of their loans totaling $2.155 billion to
October 2012. The extended loans will bear interest at LIBOR plus a margin
of 2.15%, plus facility fees of 0.2% on the outstanding principal
balance; and
    
    Permit liens securing (i)the loans held by the Electing Lenders and (ii)
certain funded term loans in an aggregate amount not to exceed $500 million.
  -16-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
    Other Secured Financing Arrangements
    -17-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
  Bonds and Medium-Term Notes
 Automatic Shelf Registration
 Euro Medium-Term Note Programme
 Other Senior Notes
 (i) (ii) (iii)
 (i) (ii) (iii) (iv) (v)
 Unsecured Bank Debt
 Revolving Credit Facility:
 -18-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 (i) (ii)
 Secured Bank Debt
 Term Loans: Unsecured
Bank DebtRevolving Credit Facility
 Subordinated Debt
 (i) (ii) (iii)
 G.
    
    Derivative Activities
    -19-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 Fair Value
Measurements
  Asset Derivatives
    
    
    Liability DerivativesNotional Value
    
    
    Fair Value
    
    
    Notional Value
    
    
    Fair ValueUSD
    
    
    
    
    
    
    USD(In thousands)June 30, 2010:Derivatives designated as hedging
instruments:Interest rate swap agreements (a)
    
    $
    
    
    
    $
    
    
    
    $
    698,115
    
    
    $
    (48,941
    )Foreign exchange swap agreements
    
    
    
    
    
    
    
    
    
    
    1,600,000
    
    
    
    (21,890
    )Total derivatives designated as
hedging instruments
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    (70,831
    )Derivatives not designated as
hedging instruments:Interest rate cap agreements
    
    $
    95,117
    
    
    $
    1,651
    
    
    $
    
    
    
    $
    Total derivatives
    
    
    
    
    
    $
    1,651
    
    
    
    
    
    
    $
    (70,831
    )December 31, 2009:Derivatives designated as hedging
instruments:Interest rate swap agreements (a)
    
    $
    
    
    
    $
    
    
    
    $
    1,070,513
    
    
    $
    (66,916
    )Foreign exchange swap agreements
    
    
    1,600,000
    
    
    
    254,261
    
    
    
    14,191
    
    
    
    (574
    )Total derivatives designated as
hedging instruments
    
    
    
    
    
    $
    254,261
    
    
    
    
    
    
    $
    (67,490
    )Derivatives not designated as
hedging instruments:Interest rate cap agreements
    
    $
    100,631
    
    
    $
    4,086
    
    
    $
    
    
    
    $
    (67,490
    )$
    258,347
    
    
    
    
    
    
    $
    (67,490
    )
 
 (a)
    
    Converts floating interest rate debt into fixed rate debt. -20-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Gain (Loss)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Effective portion of change in fair market value of derivatives (a)(b)
    
    $
    (166,030
    )
    
    $
    141,084
    
    
    $
    (221,234
    )
    
    $
    52,247Amortization of balances of de-designated hedges and other adjustments
    
    
    1,040
    
    
    
    (122
    )
    
    
    1,292
    
    
    
    (243
    )Foreign exchange component of cross currency swaps charged (credited) to
income
    
    
    203,520
    
    
    
    (184,460
    )
    
    
    334,720
    
    
    
    (67,570
    )Income tax effect
    
    
    (13,485
    )
    
    
    15,224
    
    
    
    (40,172
    )
    
    
    5,448Net changes in cash flow hedges, net of taxes
    
    $
    25,045
    
    
    $
    (28,274
    )
    
    $
    74,606
    
    
    $
    (10,118
    )
 
 (a)
    
    Includes $25,208 and $47,195 and $(62,620) and $(60,407) of combined CVA and MVA for the
three and six month periods ended June 30, 2010 and 2009, respectively.(b)
    
    2010 includes losses of $(15,409) on a derivative contract that matured during the six months
ended June 30, 2010, that was de-designated as a cash flow hedge and then subsequently
re-designated during the life of the contract.  Amount of Unrealized Gain or (Loss)Recorded in OCI on Derivatives(Effective Portion)Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Derivatives Designated as Cash Flow Hedges
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Interest rate swap agreements
    
    $
    4,836
    
    
    $
    23,087
    
    
    $
    (4,582
    )
    
    $
    20,003Foreign exchange swap agreements
    
    
    (198,011
    )
    
    
    98,620
    
    
    
    (271,080
    )
    
    
    (543
    )Total (a)
    
    $
    (193,175
    )
    
    $
    121,707
    
    
    $
    (275,662
    )
    
    $
    19,460
 
 (a)
    
    Includes $25,208 and $47,195 and $(62,620) and $(60,407) of combined CVA and MVA for the
three and six month periods ended June 30, 2010 and 2009, respectively.  Amount of Gain or (Loss) Reclassified fromAOCI Into Income(Effective Portion)Three Months Ended
    
    
    Six Months EndedLocation of Gain or (Loss) Reclassified from AOCI
    
    June 30,
    
    
    June 30,into Income (Effective Portion)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Interest rate swap agreements  interest expense
    
    $
    (8,128
    )
    
    $
    4,688
    
    
    $
    (16,915
    )
    
    $
    (15,981
    )Foreign exchange swap agreements  interest expense
    
    
    (19,017
    )
    
    
    (24,382
    )
    
    
    (37,289
    )
    
    
    (18,286
    )Foreign exchange swap agreements  lease revenue
    
    
    
    
    
    
    317
    
    
    
    (224
    )
    
    
    1,480Total
    
    $
    (27,145
    )
    
    $
    (19,377
    )
    
    $
    (54,428
    )
    
    $
    (32,787
    )
 -21-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
   Amount of Gain or (Loss) Recognizedin Income on Derivatives(Ineffective Portion) (a)Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Derivatives Designated as Cash Flow Hedges:Interest rate swap agreements
    
    $
    (32
    )
    
    $
    (195
    )
    
    $
    (91
    )
    
    $
    (390
    )Foreign exchange swap agreements agreements
    
    
    (2,338
    )
    
    
    7,214
    
    
    
    (25,629
    )
    
    
    5,174Total
    
    
    (2,370
    )
    
    
    7,019
    
    
    
    (25,720
    )
    
    
    4,784Derivatives Not Designated as a Hedge:Interest rate cap agreements (b)
    
    
    (1,373
    )
    
    
    (700
    )
    
    
    (2,428
    )
    
    
    (700
    )Reconciliation to Condensed, Consolidated Statements of Income:Income effect of maturing derivative contracts
    
    
    
    
    
    
    
    
    
    
    (15,409
    )
    
    
    Reclassification of amounts de-designated as hedges recorded in AOCI
    
    
    (1,040
    )
    
    
    122
    
    
    
    (1,292
    )
    
    
    243Effect from derivatives, net of change in hedged items due to
changes in foreign exchange rates
    
    $
    (4,783
    )
    
    $
    6,441
    
    
    $
    (44,849
    )
    
    $
    4,327
 
 (a)
    
    All components of each derivatives gain or loss were included in the assessment of
effectiveness.(b)
    
    An additional $0.8 million of amortization of premium paid to the derivative counterparty was
recognized in Interest expense during the three months ended June 30, 2009. H.
    
    Fair Value Measurements
  -22-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
  CounterpartyLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Netting (a)
    
    
    Total(Dollars in thousands)June 30, 2010:Derivative assets
    
    $
    
    
    
    $
    1,651
    
    
    $
    
    
    
    $
    
    
    
    $
    1,651Derivative liabilities
    
    
    
    
    
    
    (70,831
    )(b)
    
    
    
    
    
    
    
    
    
    
    (70,831
    )Total
    
    $
    
    
    
    $
    (69,180
    )
    
    $
    
    
    
    $
    
    
    
    $
    (69,180
    )December 31, 2009:Derivative assets
    
    $
    
    
    
    $
    258,347
    (b)
    
    $
    
    
    
    $
    (67,490
    )
    
    $
    190,857Derivative liabilities
    
    
    
    
    
    
    (67,490
    )
    
    
    
    
    
    
    67,490
    
    
    
    Total
    
    $
    
    
    
    $
    190,857
    
    
    $
    
    
    
    $
    
    
    
    $
    190,857
 
 (a)
    
    As permitted under GAAP, we have elected to offset derivative assets and derivative
liabilities under our master netting agreement.(b)
    
    The balance includes CVA and MVA aggregating $(23.4) million and $24.2 million at
June 30, 2010 and December 31, 2009, respectively. Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
 Notes to
Consolidated Financial Statements
   Flight Equipment Marketing
  -23-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 I.
    
    Fair Value Disclosures of Financial Instruments
  Cash, Including Restricted Cash
 Notes Receivable
 Debt Financing
 Long-term fixed rate debt:
 Floating rate non-ECA debt:
 ECA debt:
 Junior subordinated debt:
 Derivatives
 Guarantees
  June 30, 2010
    
    December 31, 2009Carrying
    
    
    
    
    
    CarryingAmount of
    
    Fair Value
    
    Amount of
    
    Fair ValueAsset
    
    of Asset
    
    Asset
    
    of Asset(Liability)
    
    (Liability)
    
    (Liability)
    
    (Liability)Dollars in thousands)Cash, including restricted cash
    
    $
    3,853,215
    
    
    $
    3,853,215
    
    
    $
    652,067
    
    
    $
    652,067Notes receivable
    
    
    97,526
    
    
    
    99,375
    
    
    
    112,060
    
    
    
    107,063Debt financing (including loans from
AIG Funding, subordinated debt and
foreign currency adjustment,
excluding debt discount)
    
    
    (31,545,822
    )
    
    
    (30,225,767
    )
    
    
    (30,112,395
    )
    
    
    (26,762,955
    )Derivative (liabilities) assets
    
    
    (69,180
    )
    
    
    (69,180
    )
    
    
    190,857
    
    
    
    190,857Guarantees
    
    
    (12,908
    )
    
    
    (14,739
    )
    
    
    (10,860
    )
    
    
    (12,886
    )
 -24-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 J.
    
    Related Party Transactions
  . Debt Financings.
 Fair Value Measurements Derivative Activities
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,Income Statement
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Expense (income):Interest expense on loans from AIG Funding
    
    $
    62,035
    
    
    $
    28,420
    
    
    $
    122,545
    
    
    $
    31,593Effect from derivatives on contracts with AIGFP
    
    
    (3,410
    )
    
    
    7,141
    
    
    
    (42,421
    )
    
    
    5,027Interest on derivative contracts with AIGFP
    
    
    27,144
    
    
    
    19,695
    
    
    
    54,203
    
    
    
    34,268Lease revenue related to hedging of lease receipts
with AIGFP
    
    
    
    
    
    
    (318
    )
    
    
    224
    
    
    
    (1,480
    )Allocation of corporate costs from AIG
    
    
    1,617
    
    
    
    3,221
    
    
    
    5,877
    
    
    
    3,497Management fees received
    
    
    (2,387
    )
    
    
    (2,367
    )
    
    
    (4,685
    )
    
    
    (4,660
    )Management fees paid to subsidiaries of AIG
    
    
    114
    
    
    
    257
    
    
    
    354
    
    
    
    437
 June 30,
    
    
    December 31,Balance Sheet
    
    2010
    
    
    2009(Dollars in thousands)Asset (liability):Loans payable to AIG Funding
    
    $
    (3,938,487
    )
    
    $
    (3,909,567
    )Derivative (liabilities) assets, net
    
    
    (70,831
    )
    
    
    186,771Income taxes payable to AIG
    
    
    (85,592
    )
    
    
    (80,924
    )Taxes benefit sharing payable to AIG
    
    
    
    
    
    
    (85,000
    )Accrued corporate costs payable to AIG
    
    
    (5,418
    )
    
    
    (5,298
    )Accrued interest payable to AIG
    
    
    (708
    )
    
    
    (672
    )
 K.
    
    Commitments and Contingencies
 Guarantees
 
    
    Asset Value Guarantees:We have guaranteed a portion of the residual value of 22
aircraft to financial institutions and other unrelated third parties for a fee. These
guarantees expire at various
dates through 2023 and generally obligate us to pay the shortfall between the fair
market value and the guaranteed value of the aircraft and provide us with an option to
purchase the aircraft for the
 -25-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 guaranteed value. At June 30, 2010, the maximum
commitment that we would be obligated to pay under such guarantees, without any offset
for the projected value of the aircraft, was approximately $530 million.
    
    Aircraft Loan Guarantees:We have guaranteed two loans collateralized by aircraft
to financial institutions for a fee. The guarantees expire in 2014, when the loans
mature, and obligate us to pay an amount up to the guaranteed value upon the default
of the borrower, which may be offset by a portion of the underlying value of the
aircraft collateral. At June 30, 2010, the guaranteed value, without any offset for
the projected value of the aircraft, was approximately $25 million.
  Debt
Financings
 Legal Contingencies
 
    
    Flash Airlines:We are named in lawsuits in connection with the January 3, 2004,
crash of our Boeing 737-300 aircraft on lease to Flash Airlines, an Egyptian carrier.
These lawsuits were filed by the families of victims on the flight and seek
unspecified damages for wrongful death, costs and fees. The initial lawsuit was
filed in May 2004 in California, and subsequent lawsuits were filed in California and
Arkansas. All cases filed in the U.S. were dismissed on the grounds of forum non
conveniens and transferred to the French Tribunal de Grande Instance civil court in
either Bobigny or Paris. The Bobigny plaintiffs challenged French jurisdiction,
whereupon the French civil court decided to retain jurisdiction. On appeal the Paris
Court of Appeal reversed, and on appeal the French Cour de Cassation elected to defer
its decision pending a trial on the merits. We believe we are adequately covered in
these cases by the liability insurance policies carried by Flash Airlines and we have
substantial defenses to these actions. We do not believe that the outcome of these
lawsuits will have a material effect on our consolidated financial condition, results
of operations or cash flows.
    
    Krasnoyarsk Airlines:We leased a 757-200ER aircraft to a Russian airline,
KrasAir, which is now the subject of a Russian bankruptcy-like proceeding. The
aircraft lease was assigned to another Russian carrier, Air Company Atlant-Soyuz
Incorporated, which defaulted under the lease. The aircraft has been detained by the
Russian customs authorities on the basis of certain alleged violations of the Russian
customs code by KrasAir. While we have prevailed in court proceedings, Russian custom
authorities will not provide relevant documents to permit the aircraft to be removed
from Russia. We are now pursuing alternative options to resolve the situation and, as
such, have performed a recoverability assessment of the fair value of the aircraft.
The aircraft was deemed to be impaired and we recorded an $8.1 million impairment
charge to Selling, general and administrative expenses in the three months ended June
30, 2010. The aircraft had a net book value of $19.8 million at June 30, 2010. We
cannot predict what the outcome of this matter will be, but we do not believe that it
will be material to our consolidated financial position, results of operations or
cash flows.
    
    Estate of Volare Airlines: In November 2004, Volare, an Italian airline, filed
for bankruptcy in Italy. Prior to Volares bankruptcy, we leased to Volare, through
wholly-owned subsidiaries, two A320-200 aircraft and four A330-200 aircraft. In
addition, we managed the lease to Volare by an
 -26-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
 entity that is a related party to us
of one A330-200 aircraft. In October 2009, the Volare bankruptcy receiver filed a
claim in an Italian court in the amount of 29.6 million against us and our related
party for the return to the Volare estate of all payments made by it to us and our
related party in the year prior to Volares bankruptcy filing. We have engaged
Italian counsel to represent us and intend to defend this matter vigorously. We
cannot predict the outcome of this matter, but we do not believe that it will be
material to our consolidated financial position, results of operations or cash flows.
  L.
    
    Variable Interest Entities
 (i) (ii) Debt Financings
 Investment Activities
  (i) (ii)
 Non-Recourse Financing Structures
  -27-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
   Wholly-Owned ECA Financing Vehicles
  Other Secured Financings
 Debt
Financings
 Wholly-Owned Leasing Entities
 .
 M.
    
    Subsequent Events
  -28-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2010
(Unaudited)
  -29-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Cautionary Statement Regarding Forward-looking Information
 Part II  Item 1A. Risk Factors,
 Overview
   Operating Results
 (i) (ii)
   -30-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
   Three Months Ended
    
    Six Months EndedJune 30, 2010
    
    June 30, 2010(Dollars in millions)Impairment charges taken
on aircraft
    
    $
    53.0
    
    
    $
    404.3Lease related charges
    
    
    5.2
    
    
    
    89.2
   Our Fleet
  Number of AircraftFlight equipment under operating leases at December 31, 2009
    
    
    993Aircraft reclassified from Net investment in finance and
sales-type leases
    
    
    7Aircraft purchases
    
    
    5Aircraft sold
    
    
    (2
    )Aircraft transferred to Flight equipment held for sale
    
    
    (56
    )Aircraft designated for part-out
    
    
    (1
    )Flight equipment under operating leases at June 30, 2010
    
    
    946
   -31-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Debt Financing
 Liquidity
 Industry Condition and Sources of Revenue
      -32-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Operating Results
    Liquidity
   -33-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Notes to
Condensed Consolidated Financial Statements.
  Operating Results
 Part II  Item 1A. Risk Factors  Liquidity Risk 
  Debt FinancingsLoans
from AIG Funding
 Our Relationship with AIG
 Potential Change in Ownership
  -34-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Debt Financings  Loans from AIG Funding.
  AIG Loan from the FRBNY
 Debt FinancingsLoans from AIG Funding .
 AIG Going Concern Consideration
  Critical Accounting Policies and Estimates
  -35-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  
    
    Lease Revenue
    
    Initial Indirect Costs
    
    Flight Equipment Marketing
    
    Provision for Overhauls
    
    Flight Equipment
    
    Derivative Financial Instruments
    
    Fair Value Measurements
    
    Income Taxes
 Part II 
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Notes to
Condensed, Consolidated Financial Statements
 Debt Financings
  Other Secured
Financing Arrangements
  -36-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  June 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)SecuredECA financings
    
    $
    3,051,370
    
    
    $
    3,004,763Loans from AIG Funding
    
    
    3,938,487
    
    
    
    3,909,567Bank debt (a)
    
    
    2,155,000
    
    
    
    Other secured financings (b)
    
    
    1,444,775
    
    
    
    153,11610,589,632
    
    
    
    7,067,446UnsecuredBonds and Medium-Term Notes
    
    
    17,435,560
    
    
    
    16,566,099Bank debt
    
    
    2,464,250
    
    
    
    5,087,75019,899,810
    
    
    
    21,653,849Total Secured and Unsecured Debt Financing
    
    
    30,489,442
    
    
    
    28,721,295Less: Deferred debt discount
    
    
    (65,492
    )
    
    
    (9,556
    )30,423,950
    
    
    
    28,711,739Subordinated Debt
    
    
    1,000,000
    
    
    
    1,000,000$
    31,423,950
    
    
    $
    29,711,739Selected interest rates and ratios which
include the economic effect of derivative
instruments:Composite interest rate
    
    
    5.07
    %
    
    
    4.35
    %Percentage of total debt at fixed rates
    
    
    59.66
    %
    
    
    58.64
    %Composite interest rate on fixed rate debt
    
    
    5.96
    %
    
    
    5.42
    %Bank prime rate
    
    
    3.25
    %
    
    
    3.25
    %
 
 (a)
    
    On April 16, 2010, we entered into an amendment to our revolving credit facility
dated October 13, 2006. Upon effectiveness of this amendment, approximately $2.2 billion
of our previously unsecured bank debt became secured by the equity interests in certain
of our non-restricted subsidiaries. Those subsidiaries, upon completion of the transfer
of certain aircraft into the subsidiaries, will hold a pool of aircraft with an
appraised value of not less than 133% of the principal amount of the outstanding loans.(b)
    
    Includes secured financings non-recourse to ILFC of $121.7 million and $129.6
million at June 30, 2010 and December 31, 2009, respectively.   -37-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Notes to Condensed, Consolidated Financial Statements
 ECA Financings
     (i) (ii) (iii) (iv)
 (i) (ii)
 -38-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
   Loans from AIG Funding
  (i) (ii) (iii)
 (i) (ii) (iii)
  -39-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 (i) (ii)
  Secured Bank Debt
  
    
    Increase our permitted secured indebtedness basket under the credit facility
from 12.5% to 35% of our Consolidated Tangible Net Assets, as defined in the credit
agreement;
    
    Extend the scheduled maturity date of their loans totaling $2.155 billion to
October 2012. The extended loans will bear interest at LIBOR plus a margin of
2.15%, plus facility fees of 0.2% on the outstanding principal balance; and
    
    Permit liens securing (i)the loans held by the Electing Lenders and (ii)
certain funded term loans in an aggregate amount not to exceed $500 million.
   -40-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Other Secured Financing Arrangements
    Bonds and Medium-Term Notes
 Automatic Shelf Registration
 Euro Medium-Term Note Programme
 Other Senior Notes
 -41-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  (i) (ii) (iii)
 (i) (ii) (iii) (iv) (v)
 Unsecured Bank Debt
 Revolving Credit Facility:
 (i) (ii)
 Secured Bank Debt
 Term Loans: Unsecured Bank DebtRevolving Credit Facility
 -42-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Subordinated Debt
 (i) (ii) (iii)
 Commercial Paper
 Commercial Paper: Liquidity
 Derivatives
    Credit Ratings
 (i) (ii)
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Unsecured Debt Ratings
 Date of LastRating Agency
    
    Long-term Debt
    
    Corporate Rating
    
    Outlook
    
    Ratings ActionFitch
    
    BB
    
    BB
    
    Evolving
    
    April 30, 2010Moodys
    
    B1
    
    Not Rated
    
    Negative
    
    December 18, 2009S&P
    
    BB+
    
    BBB-
    
    Negative
    
    January 25, 2010
 Secured Debt Ratings
 $750 Million
    
    $550 MillionRating Agency
    
    Term Loan
    
    Term LoanFitch
    
    BBB-
    
    BBMoodys
    
    Ba2
    
    Ba3S&P
    
    BBB
    
    BBB-
  -44-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Existing Commitments
  Commitments Due by Fiscal YearTotal
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014
    
    Thereafter(Dollars in thousands)Bonds and medium-term
notes
    
    $
    17,435,560
    
    
    $
    2,143,282
    
    
    $
    4,379,105
    
    
    $
    3,570,786
    
    
    $
    3,541,361
    
    
    $
    1,040,482
    
    
    $
    2,760,544Unsecured Bank Loans
    
    
    2,464,250
    
    
    
    2,044,250
    
    
    
    420,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Secured Bank Loans
    
    
    2,155,000
    
    
    
    
    
    
    
    
    
    
    
    2,155,000
    
    
    
    
    
    
    
    
    
    
    
    ECA Financings
    
    
    3,051,370
    
    
    
    258,216
    
    
    
    458,007
    
    
    
    428,960
    
    
    
    428,960
    
    
    
    423,863
    
    
    
    1,053,364Other Secured Financings
    
    
    1,444,775
    
    
    
    6,588
    
    
    
    13,901
    
    
    
    14,878
    
    
    
    15,963
    
    
    
    36,716
    
    
    
    1,356,729Loans from AIG Funding
    
    
    3,938,487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,938,487
    
    
    
    
    
    
    
    Subordinated Debt
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Interest Payments on Debt
Outstanding (a)(b)(c)
    
    
    8,246,245
    
    
    
    823,020
    
    
    
    1,359,429
    
    
    
    1,086,916
    
    
    
    828,988
    
    
    
    488,189
    
    
    
    3,659,703Operating Leases (d)(e)
    
    
    65,580
    
    
    
    5,792
    
    
    
    11,968
    
    
    
    12,448
    
    
    
    12,947
    
    
    
    13,362
    
    
    
    9,063Pension Obligations (f)
    
    
    8,483
    
    
    
    1,268
    
    
    
    1,319
    
    
    
    1,370
    
    
    
    1,431
    
    
    
    1,512
    
    
    
    1,583Purchase Commitments
    
    
    13,502,100
    
    
    
    
    
    
    
    247,600
    
    
    
    639,400
    
    
    
    1,103,000
    
    
    
    1,822,700
    
    
    
    9,689,400Total
    
    $
    53,311,850
    
    
    $
    5,282,416
    
    
    $
    6,891,329
    
    
    $
    7,909,758
    
    
    $
    9,871,137
    
    
    $
    3,826,824
    
    
    $
    19,530,386
 Contingent Commitments
 Contingency Expiration by Fiscal YearTotal
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014
    
    Thereafter(Dollars in thousands)AVGs (g)
    
    $
    554,524
    
    
    $
    
    
    
    $
    27,842
    
    
    $
    78,950
    
    
    $
    96,003
    
    
    $
    39,115
    
    
    $
    312,614Total (h)
    
    $
    554,524
    
    
    $
    
    
    
    $
    27,842
    
    
    $
    78,950
    
    
    $
    96,003
    
    
    $
    39,115
    
    
    $
    312,614
 
 (a)
    
    Includes interest on loans from AIG Funding.(b)
    
    Future interest payments on floating rate debt are estimated using floating interest rates in
effect at June 30, 2010.(c)
    
    Includes the effect of interest rate and foreign currency derivative instruments.(d)
    
    Excludes fully defeased aircraft sale-lease back transactions.(e)
    
    Minimum rentals have not been reduced by minimum sublease rentals of $7.2 million receivable
in the future under non-cancellable subleases.(f)
    
    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 2010 consists of
total estimated allocations for 2010 and the column Thereafter consists of the 2015
estimated allocation. The amount allocated has not been material to date.(g)
    
    From time to time, we participate with airlines, banks and other financial institutions in
the financing of 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.(h)
    
    Excluded from total contingent commitments are $196.5 million of uncertain tax liabilities.
The future cash flows to these liabilities are uncertain and we are unable to make reasonable
estimates of the outflows. -45-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Off-Balance-Sheet Arrangements
 Notes to Condensed, Consolidated Financial Statements
 Results of Operations
 Income before Income Taxes for the Three and Six Months Ended June 30, 2010 Versus 2009
  
    
    To generate liquidity to repay maturing debt obligations, at April 13, 2010, and July
6, 2010, we contracted to sell two portfolios aggregating 59 aircraft. During the three
months ended June 30, 2010, we transferred 56 aircraft from our leased fleet to Flight
equipment held for sale and completed the sale of one of those aircraft. As part of our
normal recurring fleet assessment, we also completed the sale of two other aircraft and
designated another aircraft for part-out. Due to current market conditions we recorded
impairment charges on the aircraft sold or classified as Flight equipment held for sale.
We also recorded lease related charges related to some of those aircraft.
    
    Our cost of borrowing for new financings is increasing due to our current long-term
debt ratings, which affects our composite interest rates. Our average composite interest
rate for the three- and six-month periods ended June 30, 2010, increased 0.57% and 0.33%,
respectively, as compared to the same periods in 2009.
    
    Our estimated future overhaul reimbursements increased and we recorded related charges
to Provision for overhauls for the three and six months ended June 30, 2010.
  Three Months Ended June 30, 2010 Versus 2009
 (i) (ii) (iii) (i) (ii) (iii)
 -46-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Notes to Condensed, Consolidated Financial Statements
 (i) (ii) (iii) (iv) (i) (ii)
   Increase2010
    
    2009
    
    (Decrease)Beginning of Quarter
    
    
    4.69
    %
    
    
    4.37
    %
    
    
    0.32
    %End of Quarter
    
    
    5.07
    %
    
    
    4.25
    %
    
    
    0.82
    %Average
    
    
    4.88
    %
    
    
    4.31
    %
    
    
    0.57
    %
 Notes to Condensed, Consolidated
Financial Statements.
  -47-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
   (i) (ii) (iii) (i) (ii)
   Six Months Ended June 30, 2010 Versus 2009
 (i) (ii) (iii) (i) (ii ) (iii)
   -48-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Notes to Condensed, Consolidated Financial Statements
 (i) (ii) (iii) (i) (ii) (iii)
   Increase2010
    
    2009
    
    (Decrease)Beginning of six months
    
    
    4.35
    %
    
    
    4.51
    %
    
    
    (0.16
    )%End of six months
    
    
    5.07
    %
    
    
    4.25
    %
    
    
    0.82
    %Average
    
    
    4.71
    %
    
    
    4.38
    %
    
    
    0.33
    %
 Notes
to Condensed, Consolidated Financial Statements.
  (i)
 -49-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 (ii) (iii)
  (i) (ii) (iii) (i) (ii) (iii) (iv)
   -50-




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Value at Risk
     ILFC Market RiskAt
    
    AtJune 30, 2010
    
    December 31, 2009(Dollars in millions)Average
    
    High
    
    Low
    
    Average
    
    High
    
    LowCombined
    
    $
    56.2
    
    
    $
    106.1
    
    
    $
    20.0
    
    
    $
    46.5
    
    
    $
    80.0
    
    
    $
    35.9Interest Rate
    
    
    56.2
    
    
    
    106.1
    
    
    
    20.0
    
    
    
    46.6
    
    
    
    80.0
    
    
    
    36.2Currency
    
    
    0.1
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    
    0.7
    
    
    
    0.1
 -51-




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ITEM 4.
    
    CONTROLS AND PROCEDURES
 (A)
    
    Evaluation of Disclosure Controls and Procedures
   (B)
    
    Changes in Internal Control Over Financial Reporting
   -52-




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Flash Airlines:
 Krasnoyarsk Airlines:
 Estate of Volare Airlines:
  
 ITEM 1A. RISK FACTORS
  Capital Structure Risk
  -53-




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PART II. OTHER INFORMATION (CONTINUED)
  
    
    making it more difficult for us to satisfy our obligations with respect to our
indebtedness;
    
    requiring us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thereby reducing funds available for other purposes,
including acquiring new aircraft and exploring business opportunities;
    
    increasing our vulnerability to adverse economic and industry conditions;
    
    limiting our flexibility in planning for, or reacting to, changes in our business and
industry; and
    
    limiting our ability to borrow additional funds or refinance our existing
indebtedness.
 Liquidity Risk
   Notes to Condensed
Consolidated Financial Statements.
  -54-




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##### Table of Contents



PART II. OTHER INFORMATION (CONTINUED)
      Borrowing Risks
 Credit Ratings Downgrade Risk 
 (i) (ii)
 -55-




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PART II. OTHER INFORMATION (CONTINUED)
   Interest Rate Risk 
  Restrictive Covenants on Our Operations
  
    
    incur debt;
    
    encumber our assets;
    
    dispose of certain assets;
    
    consolidate, merge, sell or otherwise dispose of all or substantially all of our
assets;
    
    enter into sale-leaseback transactions;
    
    make equity or debt investments in other parties;
    
    enter into transactions with affiliates;
    
    make capital expenditures;
    
    designate our subsidiaries as unrestricted subsidiaries; and
    
    pay dividends and distributions.
  Relationship with AIG
 AIG as Our Parent Company
 AIG as Our Counterparty of Derivatives
 -56-




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PART II. OTHER INFORMATION (CONTINUED)
 AIG Going Concern Consideration
 Key Personnel Risk
  -57-




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PART II. OTHER INFORMATION (CONTINUED)
 Overall Airline Industry Risk
  
    
    Demand for air travel
    
    Competition between carriers
    
    Fuel prices and availability
    
    Labor costs and stoppages
    
    Maintenance costs
    
    Employee labor contracts
    
    Air traffic control
infrastructure constraints
    
    Airport access
    
    Insurance costs and coverage
    
    Heavy reliance on automated
systems
    
    Geopolitical events
    
    Security, terrorism and war
    
    Worldwide health concerns
    
    Equity and borrowing capacity
    
    Environmental concerns
    
    Government regulation
    
    Interest rates
    
    Overcapacity
    
    Natural disasters
  
    
    lower demand for the aircraft in our fleet and reduced market lease rates and lease
margins;
    
    a higher incidence of lessee defaults, lease restructurings and repossessions
affecting net income due to maintenance, consulting and legal costs associated with the
repossessions, as well as lost revenue for the time the aircraft are off lease and
possibly lower lease rates from the new lessees;
    
    a higher incidence of situations where we engage in restructuring lease rates for our
troubled customers which reduces overall lease revenue;
    
    an inability to immediately place new and used aircraft on commercially acceptable
terms when they become available through our purchase commitments and regular lease
terminations, resulting in lower lease margins due to aircraft not earning revenue and
resulting in payments for storage, insurance and maintenance; and
    
    a loss if our aircraft is damaged or destroyed by an event specifically excluded from
the insurance policy such as dirty bombs, bio-hazardous materials and electromagnetic
pulsing.
 Lessee Non-Performance Risk
 Overall Airline Industry
Risk
  Airframe, Engine and Other Manufacturer Risks
  -58-




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##### Table of Contents



PART II. OTHER INFORMATION (CONTINUED)
  
    
    missed or late delivery of aircraft ordered by us and an inability to meet our
contractual obligations to our customers, resulting in lost or delayed revenues, lower
growth rates and strained customer relationships;
    
    an inability to acquire aircraft and related components on terms which will allow us
to lease those aircraft to customers at a profit, resulting in lower growth rates or a
contraction in our fleet;
    
    a marketplace with too many aircraft available, creating downward pressure on demand
for the aircraft in our fleet and reduced market lease rates;
    
    poor customer support from the manufacturers of aircraft and components resulting in
reduced demand for a particular manufacturers product, creating downward pressure on
demand for those aircraft in our fleet and reduced market lease rates for those aircraft;
and
    
    reduction in our competitiveness due to deep discounting by the manufacturers, which
may lead to reduced market lease rates and may impact our ability to remarket or sell
aircraft in our fleet.
  Aircraft Related Risks
 Residual Value  (i) (ii) (iii) Part II  Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical
Accounting Policies and Estimates  Flight Equipment
 Obsolescence Risk 
 -59-




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##### Table of Contents



PART II. OTHER INFORMATION (CONTINUED)
 Greenhouse Gas Emissions Risk 
 Other Risks
 Foreign Currency Risk 
 Accounting Pronouncements 
 
 ITEM 5. OTHER INFORMATION
 a)
    
    Changes have been made to our board of directors since the filing of our quarterly
report on Form 10-Q for the three months ended March 31, 2010. As of the date of this
quarterly report, our directors are as follows:
 Name
    
    TitleDouglas M. Steenland
    
    ChairmanHenri Courpron
    
    Chief Executive Officer and DirectorAlan H. Lund
    
    Vice Chairman and PresidentLeslie L. Gonda
    
    DirectorRobert H. Benmosche
    
    DirectorWilliam N. Dooley
    
    DirectorDavid L. Herzog
    
    Director
 -60-




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##### Table of Contents



PART II. OTHER INFORMATION (CONTINUED)
 
 ITEM 6. EXHIBITS
 a)
    
    Exhibits
 2.1
    
    Aircraft Sale Agreement, dated as of April 13, 2010, by and between
Macquarie Aerospace Limited, as buyer, and the Company, as seller.3.1
    
    Restated Articles of Incorporation of the Company (filed as an exhibit to
Form 10-Q for the quarter ended September 30, 2008, and incorporated herein by
reference).3.2
    
    Amended and Restated By-laws of the Company, as adopted on April 13, 2010.4.1
    
    The Company agrees to furnish to the Commission upon request a copy of each
instrument with respect to issues of long-term debt of the Company and its
subsidiaries, the authorized principal amount of which does not exceed 10% of the
consolidated assets of the Company and its subsidiaries.10.1
    
    Employment Letter, dated May 17, 2010, by and between Henri Courpron and
American International Group, Inc. (filed as an exhibit to the Form 8-K filed on May
19, 2010, and incorporated herein by reference).10.2
    
    Amendment No. 3 to Schedules of Certain Loan Documents made and entered
into as of May 25, 2010, by and among the Company, certain subsidiaries of the
Company named therein, AIG Funding Inc., as lender, the Federal Reserve Bank of New
York and Wells Fargo Bank Northwest, National Association, as trustee. (Portions of
this exhibit have been omitted pursuant to a request for confidential treatment.)10.3
    
    Amendment No. 4 to Schedules of Certain Loan Documents made and entered
into as of June 2, 2010, by and among the Company, certain subsidiaries of the
Company named therein, AIG Funding Inc., as lender, the Federal Reserve Bank of New
York and Wells Fargo Bank Northwest, National Association, as trustee. (Portions of
this exhibit have been omitted pursuant to a request for confidential treatment.)10.4
    
    Amendment No. 5 to Schedules of Certain Loan Documents made and entered
into as of July 9, 2010, by and among the Company, certain subsidiaries of the
Company named therein, AIG Funding Inc., as lender, the Federal Reserve Bank of New
York and Wells Fargo Bank Northwest, National Association, as trustee. (Portions of
this exhibit have been omitted pursuant to a request for confidential treatment.)12.
    
    Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends.31.1
    
    Certification of Chief Executive Officer.31.2
    
    Certification of Senior Vice President and Chief Financial Officer.32.1
    
    Certification under 18 U.S.C., Section 1350.
 -61-




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SIGNATURES
   August 6, 2010
    /s/ Henri CourpronHENRI COURPRONChief Executive Officer
(Principal Executive Officer)August 6, 2010
    /s/ Frederick S. CromerFREDERICK S. CROMERSenior Vice President and

Chief Financial Officer
(Principal Financial Officer)August 6, 2010
    /s/ Kurt H. SchwarzKURT H. SCHWARZSenior Vice President,
Chief Accounting Officer and
Controller
(Principal Accounting Officer) -62-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
   2.1
    
    Aircraft Sale Agreement, dated as of April 13, 2010, by and between
Macquarie Aerospace Limited, as buyer, and the Company, as seller.3.1
    
    Restated Articles of Incorporation of the Company (filed as an exhibit to
Form 10-Q for the quarter ended September 30, 2008, and incorporated herein by
reference).3.2
    
    Amended and Restated By-laws of the Company, as adopted on April 13, 2010.4.1
    
    The Company agrees to furnish to the Commission upon request a copy of each
instrument with respect to issues of long-term debt of the Company and its
subsidiaries, the authorized principal amount of which does not exceed 10% of the
consolidated assets of the Company and its subsidiaries.10.1
    
    Employment Letter, dated May 17, 2010, by and between Henri Courpron and
American International Group, Inc. (filed as an exhibit to the Form 8-K filed on May
19, 2010, and incorporated herein by reference).10.2
    
    Amendment No. 3 to Schedules of Certain Loan Documents made and entered
into as of May 25, 2010, by and among the Company, certain subsidiaries of the
Company named therein, AIG Funding Inc., as lender, the Federal Reserve Bank of New
York and Wells Fargo Bank Northwest, National Association, as trustee. (Portions of
this exhibit have been omitted pursuant to a request for confidential treatment.)10.3
    
    Amendment No. 4 to Schedules of Certain Loan Documents made and entered
into as of June 2, 2010, by and among the Company, certain subsidiaries of the
Company named therein, AIG Funding Inc., as lender, the Federal Reserve Bank of New
York and Wells Fargo Bank Northwest, National Association, as trustee. (Portions of
this exhibit have been omitted pursuant to a request for confidential treatment.)10.4
    
    Amendment No. 5 to Schedules of Certain Loan Documents made and entered
into as of July 9, 2010, by and among the Company, certain subsidiaries of the
Company named therein, AIG Funding Inc., as lender, the Federal Reserve Bank of New
York and Wells Fargo Bank Northwest, National Association, as trustee. (Portions of
this exhibit have been omitted pursuant to a request for confidential treatment.)12.
    
    Computation of Ratios of Earnings to Fixed Charges and Preferred Stock
Dividends.31.1
    
    Certification of Chief Executive Officer.31.2
    
    Certification of Senior Vice President and Chief Financial Officer.32.1
    
    Certification under 18 U.S.C., Section 1350.
 -63-