##### 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
    
    22-3059110(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)10250 Constellation Blvd., Suite 3400
Los Angeles, California
(Address of principal executive offices)
    
    90067
(Zip Code)
 310) 788-1999
  x o
  o o x
  o x




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EXPLANATORY NOTE




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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, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Income Three months ended September 30, 2006 and 2005.
    
    
    4Condensed Consolidated Statements of Income Nine months ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Comprehensive Income Three months ended September 30, 2006 and 2005 .
    
    
    5Condensed Consolidated Statements of Comprehensive Income Nine months ended September 30, 2006 and 2005
    
    
    5Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of the Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25Part II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 6. Exhibits
    
    
    28Signatures
    
    
    29EXHIBIT 12EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 -2-




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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 31,2006
    
    
    2005(Unaudited)ASSETSCash, including interest bearing accounts
of $126,008 (September 30, 2006) and $155,953 (December 31, 2005)
    
    $
    128,865
    
    
    $
    157,960Current income taxes
    
    
    362,370
    
    
    
    148,399Notes receivable, net of allowance, and net investment in finance leases
    
    
    480,859
    
    
    
    490,422Flight equipment under operating leases
    
    
    46,552,565
    
    
    
    42,067,504Less accumulated depreciation
    
    
    8,370,938
    
    
    
    7,318,57238,181,627
    
    
    
    34,748,932Deposits on flight equipment purchases
    
    
    949,172
    
    
    
    1,148,462Other assets
    
    
    482,369
    
    
    
    290,435Derivative assets
    
    
    629,821
    
    
    
    293,576Investments
    
    
    16,630
    
    
    
    20,313Variable interest entities assets
    
    
    128,947
    
    
    
    138,277Deferred debt issue costs  less accumulated amortization of $77,019
(September 30, 2006) and $65,377 (December 31, 2005)
    
    
    99,710
    
    
    
    93,551$
    41,460,370
    
    
    $
    37,530,327LIABILITIES AND SHAREHOLDERS EQUITYAccrued interest and other payables
    
    $
    527,881
    
    
    $
    366,845Tax benefit sharing payable to AIG
    
    
    245,000
    
    
    
    245,000Debt financing, net of deferred debt discount of $41,605
(September 30, 2006) and $38,882 (December 31, 2005)
    
    
    27,922,633
    
    
    
    25,153,909Junior subordinated debentures
    
    
    1,000,000
    
    
    
    1,000,000Foreign currency translation adjustment related to foreign
currency denominated debt economically hedged with
derivative contracts
    
    
    481,318
    
    
    
    147,330Derivative liabilities
    
    
    11,430
    
    
    
    49,549Security and other deposits on flight equipment
    
    
    1,148,373
    
    
    
    1,071,676Rentals received in advance
    
    
    226,512
    
    
    
    187,957Deferred income taxes
    
    
    3,425,849
    
    
    
    3,070,302Variable interest entities liabilities
    
    
    8,597
    
    
    
    65,197SHAREHOLDERS EQUITYMarket Auction Preferred Stock, $100,000 per share
liquidation value; Series A and B
each having 500 shares issued and outstanding
    
    
    100,000
    
    
    
    100,000Common stockno par value; 100,000,000 authorized shares,
45,267,723 (September 30, 2006 and December 31, 2005)
issued and Outstanding
    
    
    1,053,582
    
    
    
    1,053,582Paid-in capital
    
    
    587,881
    
    
    
    587,484Accumulated other comprehensive income (loss)
    
    
    22,183
    
    
    
    66,401Retained earnings
    
    
    4,699,131
    
    
    
    4,365,095Total shareholders equity
    
    
    6,462,777
    
    
    
    6,172,562$
    41,460,370
    
    
    $
    37,530,327
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)REVENUESRental of flight equipment
    
    $
    1,038,297
    
    
    $
    932,027Flight equipment marketing
    
    
    4,558
    
    
    
    13,637Interest and other
    
    
    21,886
    
    
    
    13,4811,064,741
    
    
    
    959,145EXPENSESInterest
    
    
    388,237
    
    
    
    292,690Income effect from derivatives, net of
change in hedged items due to changes in
foreign exchange rates
    
    
    34,186
    
    
    
    (25,565
    )Depreciation of flight equipment
    
    
    405,265
    
    
    
    349,520Flight equipment rent
    
    
    4,500
    
    
    
    Provision for overhauls
    
    
    66,638
    
    
    
    75,759Selling, general and administrative
    
    
    28,947
    
    
    
    45,872927,773
    
    
    
    738,276INCOME BEFORE INCOME TAXES
    
    
    136,968
    
    
    
    220,869Provision for income taxes
    
    
    41,545
    
    
    
    69,765NET INCOME
    
    $
    95,423
    
    
    $
    151,104
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)REVENUESRental of flight equipment
    
    $
    2,955,251
    
    
    $
    2,608,603Flight equipment marketing
    
    
    44,147
    
    
    
    49,376Interest and other (Note D)
    
    
    64,051
    
    
    
    43,4713,063,449
    
    
    
    2,701,450EXPENSESInterest
    
    
    1,084,860
    
    
    
    836,789Income effect from derivatives, net of
change in hedged items due to changes
in foreign exchange rates
    
    
    (39,672
    )
    
    
    (33,335
    )Depreciation of flight equipment
    
    
    1,154,511
    
    
    
    1,011,960Flight equipment rent
    
    
    14,468
    
    
    
    Provision for overhauls
    
    
    187,744
    
    
    
    188,861Selling, general and administrative
    
    
    129,272
    
    
    
    112,5962,531,183
    
    
    
    2,116,871INCOME BEFORE INCOME TAXES
    
    
    532,266
    
    
    
    584,579Provision for income taxes
    
    
    169,122
    
    
    
    186,965NET INCOME
    
    $
    363,144
    
    
    $
    397,614
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)NET INCOME
    
    $
    95,423
    
    
    $
    151,104OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXNet changes in cash flow hedges (net of
taxes in the amounts of $29,928 (2006) and
$2,857 (2005))
    
    
    (55,580
    )
    
    
    5,306Change in unrealized appreciation on
securities available for sale (net of taxes
in the amounts of $68 (2006) and $215
(2005))
    
    
    127
    
    
    
    (399
    )(55,453
    )
    
    
    4,907COMPREHENSIVE INCOME
    
    $
    39,970
    
    
    $
    156,011
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)NET INCOME
    
    $
    363,144
    
    
    $
    397,614OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXNet changes in cash flow hedges (net of
taxes in the amounts of $23,075 (2006) and
$27,194 (2005))
    
    
    (42,853
    )
    
    
    50,503Change in unrealized appreciation on
securities available for sale (net of taxes
in the amounts of $735 (2006) and $1,436
(2005))
    
    
    (1,364
    )
    
    
    (2,667
    )(44,217
    )
    
    
    47,836COMPREHENSIVE INCOME
    
    $
    318,927
    
    
    $
    445,450
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Dollars in thousands)
 Restated2006
    
    
    2005(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    363,144
    
    
    $
    397,614Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation of flight equipment
    
    
    1,154,511
    
    
    
    1,011,960Deferred income taxes
    
    
    379,356
    
    
    
    326,079Change in fair value of derivative instruments
    
    
    (440,293
    )
    
    
    540,098Foreign currency adjustment of cash and non-US$ denominated debt
    
    
    384,485
    
    
    
    (593,561
    )Amortization of deferred debt issue costs
    
    
    23,040
    
    
    
    33,724Other
    
    
    (2,772
    )
    
    
    (6,262
    )Changes in operating assets and liabilities:Other assets
    
    
    (51,359
    )
    
    
    51,399Change in current income taxes
    
    
    (213,971
    )
    
    
    (142,232
    )Increase in accrued interest and other payables
    
    
    104,436
    
    
    
    155,124Increase in rentals received in advance
    
    
    38,555
    
    
    
    23,148Change in unamortized debt discount
    
    
    (2,723
    )
    
    
    (15,172
    )Other
    
    
    13,342
    
    
    
    14,235Net cash provided by operating activities
    
    
    1,749,751
    
    
    
    1,796,154INVESTING ACTIVITIESAcquisition of flight equipment for operating leases
    
    
    (5,064,756
    )
    
    
    (4,953,601
    )Decrease (increase) in deposits and progress payments
    
    
    199,290
    
    
    
    (84,691
    )Proceeds from disposal of flight equipment  net of gain
    
    
    373,646
    
    
    
    280,220Advances on notes receivable
    
    
    (48,616
    )
    
    
    (6,500
    )Collections on notes receivable and finance leases
    
    
    41,010
    
    
    
    47,320Other
    
    
    4,189
    
    
    
    3,674Net cash used in investing activities
    
    
    (4,495,237
    )
    
    
    (4,713,578
    )FINANCING ACTIVITIESNet change in commercial paper
    
    
    535,495
    
    
    
    1,420,065Proceeds from debt financing
    
    
    5,216,655
    
    
    
    4,780,181Payments in reduction of debt financing and capital lease obligations
    
    
    (3,036,805
    )
    
    
    (3,675,839
    )Debt issue costs
    
    
    (29,199
    )
    
    
    (53,420
    )Increase in customer deposits
    
    
    53,748
    
    
    
    110,229Issuance of common stock
    
    
    
    
    
    
    400,000Payment of common and preferred dividends
    
    
    (29,108
    )
    
    
    (31,328
    )Net cash provided by financing activities
    
    
    2,710,786
    
    
    
    2,949,888Net increase (decrease) in cash
    
    
    (34,700
    )
    
    
    32,464Effect of exchange rate changes on cash
    
    
    5,605
    
    
    
    (12,607
    )Cash at beginning of period
    
    
    157,960
    
    
    
    99,747Cash at end of period
    
    $
    128,865
    
    
    $
    119,604
 (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, 2006 AND 2005
(Dollars in thousands)
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 Restated2006
    
    
    2005(UnauditedCash paid during the period for:Interest (net of amount capitalized
of $36,715 (2006) and $40,380
(2005))
    
    $
    957,022
    
    
    $
    711,756Income taxes, net
    
    
    3,725
    
    
    
    3,117
  Overhaul reimbursements in the amount of $10,392 were offset against Notes receivable.Notes in the amount of $6,000 were received as partial payment for flight equipment sold with a
net book value of $63,665.Certain payments from aircraft and engine manufacturers in the amount of $97,904 reduced the
basis of Flight equipment under operating leases and increased Other assets.$3,551 was reclassified from Debt financing to Foreign currency translation adjustment.
  Accounts receivable in the amount of $29,706 were received as a partial payment for flight
equipment. Full cash payment was subsequently received.Notes receivable in the amount of $13,286 were used as partial payment for the acquisition of
aircraft.Aircraft previously accounted for as operating leases were converted into sales-type leases in
the amount of $30,168.$5,179 was adjusted in Retained earnings and Paid-in capital as a result of an adjustment for
certain prior period compensation costs related to an incentive plan of ILFCs parent, American
International Group Inc. (AIG).Certain payments from aircraft and engine manufacturers in the amount of $142,272 reduced the
basis of Flight equipment under operating leases and increased Other assets.
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(Unaudited)
 Basis of Preparation
  Restatement of Previously Issued Financial Statements
     -8-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006
(Unaudited)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005As
    
    
    As
    
    
    As
    
    
    AsReported
    
    
    Restated
    
    
    Reported
    
    
    RestatedConsolidated Statements of Income:Rental of Flight Equipment
    
    $
    920,451
    
    
    $
    932,027
    
    
    $
    2,575,973
    
    
    $
    2,608,603Flight equipment marketing
    
    
    13,637
    
    
    
    13,637
    
    
    
    50,636
    
    
    
    49,376Interest and other
    
    
    13,481
    
    
    
    13,481
    
    
    
    43,471
    
    
    
    43,471Interest expense
    
    
    300,155
    
    
    
    267,125
    
    
    
    826,975
    
    
    
    803,454Provision for overhauls
    
    
    68,856
    
    
    
    75,759
    
    
    
    162,825
    
    
    
    188,861Selling, general and administrative expense
    
    
    46,082
    
    
    
    45,872
    
    
    
    112,425
    
    
    
    112,596Income before taxes
    
    
    174,231
    
    
    
    220,869
    
    
    
    547,170
    
    
    
    584,579Net income
    
    
    120,919
    
    
    
    151,104
    
    
    
    373,403
    
    
    
    397,614Shareholders Equity:Accumulated other comprehensive
Income
    
    
    
    
    
    
    
    
    
    
    85,949
    
    
    
    70,661Retained earnings
    
    
    
    
    
    
    
    
    
    
    4,310,471
    
    
    
    4,334,682Total shareholders equity
    
    
    
    
    
    
    
    
    
    
    6,136,558
    
    
    
    6,145,481
  Derivative Activities
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(Dollars in thousands)Restated
    
    
    
    
    
    
    Restated2006
    
    
    2005
    
    
    2006
    
    
    2005Change in fair value of derivative instruments
with no hedge accounting treatment under SFAS
133 (a)
    
    $
    44,913
    
    
    $
    (20,453
    )
    
    $
    (193,211
    )
    
    $
    178,303Offsetting change in value of foreign
denominated debt related to contracts with no
hedge accounting treatment under SFAS 133
    
    
    (12,488
    )
    
    
    (5,633
    )
    
    
    151,776
    
    
    
    (214,178
    )Change in fair value of derivative instruments
accounted for as fair value hedges
    
    
    5,096
    
    
    
    11,961
    
    
    
    (47,731
    )
    
    
    142,530Offsetting change in value of foreign
denominated debt related to fair value hedges
    
    
    (7,091
    )
    
    
    (11,471
    )
    
    
    47,289
    
    
    
    (140,384
    )Change in value of foreign denominated debt
related to cash flow hedges
    
    
    (10,735
    )
    
    
    (11,366
    )
    
    
    187,474
    
    
    
    (245,283
    )Offsetting reclassification to Accumulated
Other Comprehensive Income of the change in
value of foreign denominated debt related to
cash flow hedges
    
    
    10,735
    
    
    
    11,366
    
    
    
    (187,474
    )
    
    
    245,283Ineffectiveness related to cash flow hedges
    
    
    5,077
    
    
    
    31
    
    
    
    3,526
    
    
    
    394Amortization of Other Comprehensive Income
related to derivative instruments
de-designated from hedges
    
    
    (1,321
    )
    
    
    
    
    
    
    (1,321
    )
    
    
    (Income) loss related to derivative instruments
    
    $
    34,186
    
    
    $
    (25,565
    )
    
    $
    (39,672
    )
    
    $
    (33,335
    )
 
 (a)
    
    In the second quarter of 2006, we obtained hedge accounting treatment for 17 swaps, for which
the documentation was deemed insufficient in prior quarters. -9-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006
(Unaudited)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(Dollars in thousands)2006
    
    
    2005
    
    
    2006
    
    
    2005$
    (2,423
    )
    
    $
    (4,245
    )
    
    $
    (9,943
    )
    
    $
    (5,946
    )
  Related Party Transactions
   Recent Accounting Pronouncements
     -10-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006
(Unaudited)
    
    
    AIG Stock Option PlanCertain key employees of AIG and its subsidiaries and members of the AIG Board of
Directors can be granted options to purchase a maximum of 45,000,000 shares of AIG
common stock in the aggregate at prices not less than fair market value at the grant
date. The maximum number of shares that may be granted to any one grantee is limited to
900,000 in any one year. Options generally vest over four years (25 percent vesting per
year) and expire 10 years from the date of grant.
    
    AIG Stock Incentive PlanEquity-based or equity-related awards with respect to shares of AIG common stock can be
issued to employees of AIG and its subsidiaries in any year up to a maximum of that
number of shares equal to (a) 1,000,000 shares plus (b) the number of shares available
but not issued in the prior calendar year. The maximum award that a grantee may receive
under the plan per year is rights with respect to 250,000 shares.
    
    AIG Employee Stock Purchase PlanEligible employees (those employed at least one year) of AIG and its subsidiaries may be
granted the right to purchase up to an aggregate of 10,000,000 shares of AIG common
stock at a price equal to 85 percent of the fair market value on the date of the grant
of the purchase privilege. Purchase privileges
 -11-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2006
(Unaudited)
 are granted quarterly and are limited to the number of whole shares that can be
purchased on an annual basis by an amount equal to the lesser of 10 percent of an
employees annual salary or $10,000.
    
    SICO Deferred Compensation Profit Participation PlansStarr International Company, Inc. (SICO) has provided a series of two-year Deferred
Compensation Profit Participation Plans to certain employees of AIG and its subsidiaries
(SICO Plans). The SICO Plans provide that shares of AIG common stock currently held by
SICO are set aside for the benefit of the participant and distributed upon retirement.
The SICO Board of Directors currently may permit an early payout of units under certain
circumstances.
    
    2005-2006 AIG Deferred Compensation Profit Participation Plan (AIG DCPPP)The AIG DCPPP provides equity-based compensation to key employees of AIG and its
subsidiaries. The AIG DCPPP is modeled on the SICO Plans.
    
    AIG Partners PlanCertain key employees of AIG and its subsidiaries can be granted compensation by the
Compensation Committee of the Board of Directors under the Partners Plan. On June 26,
2006, the Compensation Committee approved two grants for performance based Restricted
Stock Units for performance periods January 1, 2006 to December 31, 2007 and January 1,
2007 to December 31, 2008. Both grants vest 50 percent on the fourth and ninth
anniversaries of the first day of the related performance period. In addition, the
Compensation Committee approved the performance metrics for the two grants prior to the
date of grant.
    
    ILFC Deferred Compensation PlanILFC employees participate in the ILFC deferred compensation plan, which is a plan
independent of AIG. At the time of the grant, the employees choose to receive AIG stock
or cash at the vesting date. The vesting period is three years after the grant date. The
grant is forfeited at termination of employment.
  Lease Ownership Restructurings
  Canadian Airport and Navigation Fees
  -12-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 Forward-Looking Statements
 Managements Discussion and Analysis of Financial Condition
and Results of Operations  Overview and Industry Conditions Part II  Item 1A. Risk
Factors,
 -13-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Overview and Industry Condition
        -14-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
    Critical Accounting Policies and Estimates
   
    
    Lease Revenue
    
    Flight Equipment Marketing
    
    Flight Equipment
    
    Capitalized Interest
    
    Provision for Overhauls
    
    Derivative Financial Instruments
 Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
 Financial Condition
  -15-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Public bonds and medium-term notes
    
    $
    21,266,168
    
    
    $
    18,552,809Bank and other term debt
    
    
    3,537,166
    
    
    
    4,014,573Junior subordinated debentures
    
    
    1,000,000
    
    
    
    1,000,000Total public debt, bank debt and junior
subordinated debentures
    
    
    25,803,334
    
    
    
    23,567,382Commercial paper
    
    
    3,160,904
    
    
    
    2,625,409Deferred debt discount
    
    
    (41,605
    )
    
    
    (38,882
    )Total debt financing
    
    $
    28,922,633
    
    
    $
    26,153,909Selected interest rates and ratio:Composite interest rate
    
    
    5.26
    %
    
    
    5.00
    %Percentage of total debt at fixed rates
    
    
    79.50
    %
    
    
    79.03
    %Composite interest rate on fixed rate debt
    
    
    5.14
    %
    
    
    5.03
    %Bank prime rate
    
    
    8.25
    %
    
    
    7.25
    %
  -16-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Public Debt ( Exclusive of the Commercial Paper Program )
  Maximum
    
    
    Sold as of
    
    
    Sold as of
    
    
    Sold as ofOffering
    
    
    December 31, 2005
    
    
    September 30, 2006
    
    
    October 31, 2006(Dollars in millions)Registration statement
dated August 16, 2006
(including $5.0 billion
Medium-Term Note
Program)
    
    Unlimited(a)
    
    $
    
    
    
    $
    1,150
    
    
    $
    1,150Registration statement
dated December 20, 2002
(including $2.88 billion
Medium-Term Note Program
and $1.0 billion Retail
Medium-Term Note
Program)
    
    
    6,080
    (b)
    
    
    5,710
    
    
    
    5,752
    
    
    
    5,761Euro Medium-Term Note
Programme dated
September 2005 (c)(d)
    
    
    7,000
    
    
    
    4,979
    
    
    
    4,276
    
    
    
    4,276
 
 (a)
    
    Includes $645 million, which was incorporated into the registration statement from
a prior registration statement. As a result of the Companys Well Known Seasoned Issuer
(WKSI) status, we have an unlimited amount of debt securities registered for sale.(b)
    
    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.(c)
    
    We have hedged the foreign currency risk of the notes through derivatives or
through the offset provided by operating lease payments denominated in the related
currency.(d)
    
    This is a perpetual program. As a bond matures, the principal amount becomes
available for new issuances under the program. Bank Term Debt
    Junior Subordinated Debentures
  -17-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED
 (i) (ii) (iii)
 Commercial Paper
 Bank Commitments
 Bank Commitments
  Other Variable Interest Entities
    Derivatives
  -18-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  
    
    A contract entered into with the intention to hedge the interest rate on our
capital lease obligations, where the debt and the contract dates were slightly
different and therefore the hedge was deemed not to be highly effective, as defined
by SFAS 133. This contract will mature in the fourth quarter of 2006.
    
    One contract we obtained as a result of an exercise of a guarantee and it has no
hedged item.
    
    Two contracts entered into with the intention to fix the interest rate and swap
the foreign currency into US dollars on our Euro denominated debt. The contracts do
not qualify for hedge accounting because the ineffectiveness calculation method was
incorrectly designated. It is our intention to redesignate the contracts as of
January 1, 2007.
   Market Liquidity Risk
    -19-




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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
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter(Dollars in thousands)Public and Bank Term
Debt
    
    $
    25,803,334
    
    
    $
    3,643,348
    
    
    $
    4,026,415
    
    
    $
    4,713,339
    
    
    $
    4,399,529
    
    
    $
    4,245,340
    
    
    $
    4,775,363Commercial Paper
    
    
    3,160,904
    
    
    
    3,113,234
    
    
    
    47,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Junior Subordinated
Debentures
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Interest Payments on
Debt Outstanding
(a)
    
    
    7,928,395
    
    
    
    414,496
    
    
    
    1,208,629
    
    
    
    1,018,197
    
    
    
    801,268
    
    
    
    574,479
    
    
    
    3,911,326Operating Leases
    
    
    87,574
    
    
    
    2,182
    
    
    
    8,952
    
    
    
    9,303
    
    
    
    9,594
    
    
    
    9,969
    
    
    
    47,574Pension Obligations
(b)
    
    
    12,515
    
    
    
    1,939
    
    
    
    2,209
    
    
    
    2,160
    
    
    
    2,112
    
    
    
    2,064
    
    
    
    2,031Tax Benefit Sharing
Agreement Due to
AIG
    
    
    245,000
    
    
    
    
    
    
    
    160,000
    
    
    
    
    
    
    
    85,000
    
    
    
    
    
    
    
    Purchase Commitments
(c)
    
    
    19,212,800
    
    
    
    983,400
    
    
    
    5,292,200
    
    
    
    4,850,500
    
    
    
    3,191,700
    
    
    
    1,641,200
    
    
    
    3,253,800Total
    
    $
    57,450,522
    
    
    $
    8,158,599
    
    
    $
    10,746,075
    
    
    $
    10,593,499
    
    
    $
    8,489,203
    
    
    $
    6,473,052
    
    
    $
    12,990,094
 Contingent Commitments
 Contingency Expiration by Fiscal YearTotal
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter(Dollars in thousands)Purchase Options on
New Aircraft
(c)
    
    $
    453,500
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    183,300
    
    
    $
    
    
    
    $
    270,200Put Options (d)
    
    
    343,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,550Asset Value
Guarantees (d)
    
    
    133,828
    
    
    
    
    
    
    
    250
    
    
    
    35,452
    
    
    
    16,150
    
    
    
    
    
    
    
    81,976Loan Guarantees (d)
    
    
    36,446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,446Lines of Credit
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Total
    
    $
    1,017,324
    
    
    $
    
    
    
    $
    250
    
    
    $
    35,452
    
    
    $
    199,450
    
    
    $
    
    
    
    $
    782,172
 
 (a)
    
    Future interest payments on floating rate debt are estimated using floating
interest rate in effect at September 30, 2006.(b)
    
    Our pension obligations are part of intercompany expenses, which AIG allocates to
us on an annual basis. The amount is an estimate of such allocation. The column 2006
consists of total estimated allocations for 2006 and the column Thereafter consists of
the 2011 estimated allocation. The amount allocated has not been material to date.(c)
    
    The recorded basis of aircraft may be adjusted to reflect notional credits provided
by the manufacturers in connection with the leasing of aircraft.(d)
    
    From time to time, we participate with airlines, banks and other financial
institutions to assist in financing aircraft by providing asset guarantees, put options,
or loan guarantees collateralized by aircraft. As a result, should we be called upon to
fulfill our obligations, we would have recourse to the value of the underlying aircraft. -20-




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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
  Results of Operations
 (i)
   iii (iv)
  Note C. Notes to Condensed Consolidated Financial Statements
 2006
    
    
    2005
    
    
    Increase (decrease)Beginning of Quarter
    
    
    5.24
    %
    
    
    4.52
    %
    
    
    0.72
    %End of Quarter
    
    
    5.26
    %
    
    
    4.73
    %
    
    
    0.53
    %Average
    
    
    5.25
    %
    
    
    4.63
    %
    
    
    0.62
    %
  -21-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
       Results of Operations
 (i) (ii) (i) (ii)
   (i) (ii) (iii) (i) (ii)
 -22-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 (i) (ii)
 Note C. Notes to Condensed Consolidated Financial Statements
 2006
    
    
    2005
    
    
    IncreaseBeginning of Nine Months
    
    
    5.00
    %
    
    
    4.34
    %
    
    
    0.66
    %End of Nine Months
    
    
    5.26
    %
    
    
    4.73
    %
    
    
    0.53
    %Average
    
    
    5.13
    %
    
    
    4.54
    %
    
    
    0.59
    %
    (i) Note G. of Notes to the Condensed Consolidated Financial Statements (ii) (iii)
    -23-




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Value at Risk
     ILFC Market RiskNine Months Ended
    
    
    Year EndedSeptember 30, 2006
    
    
    December 31, 2005(Dollars in millions)Average
    
    
    High
    
    
    Low
    
    
    Average
    
    
    High
    
    
    LowCombined
    
    $
    164.6
    
    
    $
    209.8
    
    
    $
    111.3
    
    
    $
    129.2
    
    
    $
    209.8
    
    
    $
    84.2Interest Rate
    
    
    163.9
    
    
    
    207.7
    
    
    
    112.7
    
    
    
    128.9
    
    
    
    207.7
    
    
    
    83.9Currency
    
    
    3.5
    
    
    
    4.2
    
    
    
    2.3
    
    
    
    2.1
    
    
    
    4.2
    
    
    
    0.5
 -24-




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ITEM 4. CONTROLS AND PROCEDURES
 (A)
    
    Evaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our filings under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the periods specified in the
rules and forms of the Securities and Exchange Commission, and such information is
accumulated and communicated to our management, including the Chairman of the Board and
Chief Executive Officer and the Vice Chairman, Chief Financial Officer and Chief
Accounting Officer (collectively the Certifying Officers), as appropriate, to allow
timely decisions regarding required disclosure. Our management, including the Certifying
Officers, recognizes that any set of controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired
control objectives.Based on our evaluation as of September 30, 2006, we have concluded that our disclosure
controls and procedures were not effective at the reasonable assurance level due to a
material weakness in internal controls as described below. A material weakness is a
control deficiency, or combination of control deficiencies, that results in more than a
remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. The following material weakness has not
been fully remediated as of September 30, 2006:The Company did not maintain effective controls over the valuation, presentation and
disclosure of derivative transactions. Specifically, we did not maintain adequate
documentation regarding the effectiveness of certain derivative transactions used to
hedge interest rate and foreign currency exchange rate risk and did not select the
correct methodology to measure the ineffectiveness in the hedging relationships of two
cross currency swaps. These control deficiencies resulted in a misstatement to the
financial statement line items (Derivative assets, Derivative liabilities, Accumulated
other comprehensive income and Interest expense) and resulted in a restatement of our
annual and interim financial statements. Accordingly, management concluded this control
deficiency constitutes a material weakness.As a result of this material weakness, management, including the Certifying Officers,
concluded that our disclosure controls and procedures were not effective at the
reasonable assurance level as of September 30, 2006. See (C) Remediation of Material
Weaknesses in Internal Control Over Financial Reporting below.Variable Interest EntitiesOur consolidated financial statements for the period ended September 30, 2006, include
assets in the amount of $128.9 million (2006) and $138.3 million (December 31, 2005),
liabilities in the amount of $8.6 million (2006) and $65.2 million (December 31, 2005)
and a net loss of $5.0 million (2006) and a net gain of $2.9 million (2005) related to
Variable Interest Entities (VIEs). Our assessment of disclosure controls and
procedures, as described above, includes the Variable Interest Entities. Each of the
VIEs has a discrete number of assets and we, as lender and guarantor to the VIEs, have
been provided sufficient information to conclude that our procedures with respect to
these VIEs are effective in providing reasonable assurance that the information required
to be disclosed by us relating to these entities is reconciled, processed, summarized
and reported within the periods specified by the Securities and Exchange Commission.
However, management has been unable to assess the effectiveness of internal controls at
those entities due to our inability to dictate or modify the control over financial
reporting of those entities, or to assess those controls.
 -25-




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##### Table of Contents



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




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 Quantitative and Qualitative Disclosures about
Market Risk.
    Overall Airline Industry Risk Demand for air travel
    
     Insurance costs Competition between carriers
    
     Security, terrorism and war Fuel prices and availability
    
     Worldwide health concerns Labor costs and stoppages
    
     Equity and borrowing capacity Maintenance costs
    
     Environmental concerns Employee labor contracts
    
     Government regulation Airport and air traffic control
infrastructure constraints
    
     Interest rates Airport access
    
     Overcapacity Airframe, Engine and Other Manufacturer Risk Borrowing Risks Liquidity Interest rate risk
 -27-




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##### Table of Contents



PART II. OTHER INFORMATION (CONTINUED)
 
    
    Other Risks
 
    
    Failure to remedy material weakness
    
    Residual value
    
    Obsolescence
    
    Key personnel
    
    Foreign currency exchange rate risk
    
    Relationship with AIG
 Item 1A. Risk
Factors
 
 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 September 30,
2003 and incorporated herein by reference).12.
    
    Computation of Ratios of Earnings to Fixed Charges
and Preferred Stock Dividends31.1
    
    Certification of Chairman of the Board and Chief
Executive Officer31.2
    
    Certification of Vice Chairman, Chief Financial
Officer and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section 1350
 -28-




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SIGNATURES
  INTERNATIONAL LEASE FINANCE CORPORATIONNovember 13, 2006
    /s/ Steven F. Udvar-HazySTEVEN F. UDVAR-HAZYChairman of the Board and
Chief Executive OfficerNovember 13, 2006
    /s/ Alan H. LundALAN H. LUNDVice Chairman,
Chief Financial Officer
and Chief Accounting Officer -29-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
  Exhibit No.12.
    
    Computation of Ratios of Earnings to Fixed Charges
and Preferred Stock Dividends31.1
    
    Certification of Chairman of the Board and Chief
Executive Officer31.2
    
    Certification of Vice Chairman, Chief Financial
Officer and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section 1350
 -30-