##### Table of Contents



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A

(Amendment No. 1)
QUARTERLY REPORT


[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2003

OR

[     ]
    
    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 0-11350

INTERNATIONAL LEASE FINANCE CORPORATION

(Exact name of registrant as specified in its charter)


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


Registrants telephone number, including area code:     (310) 788-1999

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes
    
    X
    
    No


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes
    
    
    
    No
    
    X


Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

As of July 25, 2003, there were 42,198,119 shares of Common Stock, no par
value, outstanding.



---

---





---



##### Table of Contents



Explanatory Note

The Company has historically provided for California state income taxes by
using a rate based on a calculation of its stand-alone apportionment rate. For
federal tax purposes, and in recognition of its tax payment allocation
agreement with American International Group, Inc. (AIG), the Company had
historically adjusted its provision to reflect charges and credits allocated to
the Company by AIG. For state tax purposes, the current provision was adjusted
to reflect the AIG unitary tax rate for California but the deferred provision
was not adjusted. The Company has concluded that generally accepted accounting
principles require that its federal and state tax methodologies should be
consistent. As a result, the Company has restated its financial position and
results of operations to reflect the AIG California unitary tax rate in its
calculation of California state income taxes. The revision generally reduces
state income tax expense in previously reported periods.

This Form 10-Q/A restates the previously issued Condensed Consolidated
Financial Statements. See Managements Discussion and Analysis of Financial
Condition and Results of Operations, and the Condensed Consolidated Financial
Statements, including Note D to the Condensed Consolidated Financial
Statements for the impact of the restatement on each period presented.

This amendment to the Companys Quarterly Report on Form 10-Q for the six
months ended June 30, 2003 amends and restates only those items of the
previously filed Form 10-Q which have been affected by the restatement,
although all items of the Form 10-Q are reproduced in this amendment. In order
to preserve the nature and character of the disclosures set forth in such items
as originally filed, no attempt has been made in this amendment to modify or
update such disclosures except as required to reflect the effects of the
restatement. For additional information regarding the restatement, see Note D
to Condensed Consolidated Financial Statements included in Part I, Item 1.

-2-



---

TABLE OF CONTENTS



|                              |                                                                                               |                                                                                                                        |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002  
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                       
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                                  
|                              |                                                                                               | CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION                                                            
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|INDEX TO EXHIBITS            
|EXHIBIT 12                   
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 



---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

PagePart I. Financial InformationItem 1. Financial Statements (Unaudited) (as restated)Condensed Consolidated Balance Sheets
June 30, 2003 and December 31, 2002
    
    
    4Condensed Consolidated Statements of Income and Comprehensive Income
Three Months Ended June 30, 2003 and 2002
    
    
    5Condensed Consolidated Statements of Income and Comprehensive Income
Six Months Ended June 30, 2003 and 2002
    
    
    6Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2003 and 2002
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    9Cautionary Statement Regarding Forward Looking Information
    
    
    11Item 2. Managements Discussion and Analysis of the Financial Condition and
Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market
Risk
    
    
    20Item 4. Controls and Procedures
    
    
    21Part II. Other InformationItem 6. Exhibits and Reports on Form 8-K
    
    
    22Signatures
    
    
    23


-3-



---



##### 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)

Restated
    
    RestatedJune 30,
    
    December 31,2003
    
    2002(Unaudited)ASSETSCash, including interest bearing accounts
of $54,050 (2003) and $65,693 (2002)
    
    $
    57,138
    
    
    $
    66,049Current income taxes receivable
    
    
    123,855
    
    
    
    179,030Notes receivable and net investment in finance leases
    
    
    553,609
    
    
    
    372,577Flight equipment under operating leases
    
    
    33,204,057
    
    
    
    29,631,150Less accumulated depreciation
    
    
    4,886,676
    
    
    
    4,343,40328,317,381
    
    
    
    25,287,747Deposits on flight equipment purchases
    
    
    1,032,535
    
    
    
    1,157,864Accrued interest, other receivables and other assets
    
    
    223,588
    
    
    
    142,817Derivative assets
    
    
    396,707
    
    
    
    170,395Investments
    
    
    63,249
    
    
    
    64,067Deferred
debt issue costs  less accumulated amortization of $52,801 (2003) and $68,516 (2002)
    
    
    45,191
    
    
    
    35,571$
    30,813,253
    
    
    $
    27,476,117LIABILITIES AND SHAREHOLDERS EQUITYAccrued interest and other payables
    
    $
    308,690
    
    
    $
    235,827Debt financing, net of deferred debt discount of $27,706
(2003) and
$31,928 (2002)
    
    
    21,403,186
    
    
    
    18,716,644Foreign currency adjustment
    
    
    434,590
    
    
    
    264,880Derivative liabilities
    
    
    109,743
    
    
    
    135,853Capital lease obligations
    
    
    205,651
    
    
    
    260,623Security and other deposits on flight equipment
    
    
    826,675
    
    
    
    864,053Rentals received in advance
    
    
    143,585
    
    
    
    129,244Deferred income taxes
    
    
    2,522,369
    
    
    
    2,250,314SHAREHOLDERS 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,
42,198,119 issued and outstanding
    
    
    653,582
    
    
    
    653,582Paid-in capital
    
    
    579,955
    
    
    
    579,955Accumulated other comprehensive loss
    
    
    (107,729
    )
    
    
    (138,620
    )Retained earnings
    
    
    3,632,956
    
    
    
    3,423,762Total shareholders equity
    
    
    4,858,764
    
    
    
    4,618,679$
    30,813,253
    
    
    $
    27,476,117


See notes to condensed consolidated financial statements.

-4-



---



##### Table of Contents






INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(Dollars in thousands)

Restated
    
    Restated2003
    
    2002(Unaudited)REVENUESRental of flight equipment
    
    $
    741,945
    
    
    $
    680,324Flight equipment marketing
    
    
    6,957
    
    
    
    6,380Interest and other
    
    
    15,507
    
    
    
    39,778764,409
    
    
    
    726,482EXPENSESInterest
    
    
    236,989
    
    
    
    218,892Depreciation of flight equipment
    
    
    282,094
    
    
    
    235,691Flight equipment rent
    
    
    13,302
    
    
    
    19,354Provision for overhauls
    
    
    26,390
    
    
    
    18,763Selling, general and administrative
    
    
    19,284
    
    
    
    22,209578,059
    
    
    
    514,909INCOME BEFORE INCOME TAXES
    
    
    186,350
    
    
    
    211,573Provision for income taxes
    
    
    63,402
    
    
    
    73,340NET INCOME
    
    
    122,948
    
    
    
    138,233COMPREHENSIVE INCOME (NET OF TAX)Net changes in cash flow hedges
    
    
    79,272
    
    
    
    61,225Foreign currency adjustment
    
    
    (67,958
    )
    
    
    (102,079
    )11,314
    
    
    
    (40,854
    )COMPREHENSIVE INCOME
    
    $
    134,262
    
    
    $
    97,379


See notes to condensed consolidated financial statements.

-5-



---



##### Table of Contents






INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Dollars in thousands)

Restated
    
    Restated2003
    
    2002(Unaudited)REVENUESRental of flight equipment
    
    $
    1,443,440
    
    
    $
    1,289,333Flight equipment marketing
    
    
    14,907
    
    
    
    19,640Interest and other
    
    
    28,406
    
    
    
    60,0431,486,753
    
    
    
    1,369,016EXPENSESInterest
    
    
    456,100
    
    
    
    407,078Depreciation of flight equipment
    
    
    546,240
    
    
    
    452,458Flight equipment rent
    
    
    26,784
    
    
    
    38,754Provision for overhauls
    
    
    54,614
    
    
    
    40,057Selling, general and administrative
    
    
    39,860
    
    
    
    43,7321,123,598
    
    
    
    982,079INCOME BEFORE INCOME TAXES
    
    
    363,155
    
    
    
    386,937Provision for income taxes
    
    
    120,906
    
    
    
    132,777NET INCOME
    
    
    242,249
    
    
    
    254,160COMPREHENSIVE INCOME (NET OF TAX)Net changes in cash flow hedges
    
    
    141,203
    
    
    
    88,114Foreign currency adjustment
    
    
    (110,311
    )
    
    
    (94,867
    )30,892
    
    
    
    (6,753
    )COMPREHENSIVE INCOME
    
    $
    273,141
    
    
    $
    247,407SUPPLEMENTAL COMPREHENSIVE INCOME INFORMATIONCumulative foreign currency adjustment, net of tax
    
    $
    (282,484
    )
    
    $
    (84,510
    )Cumulative cash flow hedge loss adjustment, net of tax
    
    
    174,755
    
    
    
    27,128


See notes to condensed consolidated financial statements.

-6-



---



##### Table of Contents






INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Dollars in thousands)

Restated
    
    Restated2003
    
    2002(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    242,249
    
    
    $
    254,160Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation of flight equipment
    
    
    546,240
    
    
    
    452,458Deferred income taxes
    
    
    255,421
    
    
    
    223,597Foreign exchange adjustment
    
    
    169,710
    
    
    
    20,627Change in derivative instruments
    
    
    (172,369
    )
    
    
    (20,020
    )Amortization of deferred debt issue costs
    
    
    27,349
    
    
    
    3,726Change in unamortized debt discount
    
    
    4,222
    
    
    
    (21,216
    )Other
    
    
    478
    
    
    
    3,837Changes in operating assets and liabilities:Decrease (increase) in notes receivable
    
    
    3,260
    
    
    
    (18,208
    )Increase in accrued interest, other receivables and other assets
    
    
    (80,772
    )
    
    
    (47,670
    )Decrease in current income taxes receivable
    
    
    55,175
    
    
    
    63,336Increase in accrued interest and other payables
    
    
    40,342
    
    
    
    54,913Increase in rentals received in advance
    
    
    14,342
    
    
    
    14,540Net cash provided by operating activities
    
    
    1,105,647
    
    
    
    984,080INVESTING ACTIVITIESAcquisition of flight equipment for operating leases
    
    
    (3,589,924
    )
    
    
    (3,464,404
    )Acquisition of flight equipment for finance leases
    
    
    (165,202
    )
    
    
    Increase in notes receivable
    
    
    (30,198
    )
    
    
    Decrease in deposits and progress payments
    
    
    125,329
    
    
    
    97,134Proceeds from disposal of flight equipment  net of gain
    
    
    
    
    
    
    36,215Collections on notes receivable and sales-type leases
    
    
    24,649
    
    
    
    16,766Other
    
    
    844
    
    
    
    364Net cash used in investing activities
    
    
    (3,634,502
    )
    
    
    (3,313,925
    )FINANCING ACTIVITIESRepurchase of preferred stock
    
    
    
    
    
    
    (50,000
    )Net change in commercial paper
    
    
    (891,756
    )
    
    
    248,511Proceeds from debt financing
    
    
    5,609,662
    
    
    
    4,782,799Payments in reduction of debt financing and capital lease obligations
    
    
    (2,090,559
    )
    
    
    (2,467,513
    )Debt issue costs
    
    
    (36,969
    )
    
    
    (14,511
    )Decrease in customer deposits
    
    
    (37,378
    )
    
    
    (105,521
    )Payment of common and preferred dividends
    
    
    (33,056
    )
    
    
    (29,406
    )Net cash provided by financing activities
    
    
    2,519,944
    
    
    
    2,364,359Increase (decrease) in cash
    
    
    (8,911
    )
    
    
    34,514Cash at beginning of period
    
    
    66,049
    
    
    
    79,383Cash at end of period
    
    $
    57,138
    
    
    $
    113,897


(Table continued on following page)

-7-



---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Dollars in thousands)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Restated
    
    Restated2003
    
    2002(Unaudited)Cash paid (received) during the period for:Interest (net of amount capitalized
of $24,579 (2003) and $30,446 (2002))
    
    $
    406,193
    
    
    $
    379,869Income taxes, net
    
    
    (189,690
    )
    
    
    (154,157
    )


2002

Variable interest entity assets in the amount of $13,731 were received as
partial payment in exchange for flight equipment with a book value of $14,043.

See notes to condensed consolidated financial statements.

-8-



---



##### Table of Contents






INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(Dollars in thousands)
(Unaudited)



|A. |  | Basis of Preparation
|-- |  | --------------------

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
All adjustments considered necessary for a fair presentation have been
included. Except for the restatement of the previous financial statements as
described below, the adjustments made were of a normal recurring nature.
Certain reclassifications have been made to the 2002 unaudited condensed
consolidated financial statements to conform to the 2003 presentation.
Operating results for the six months ended June 30, 2003 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2003. These statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Companys annual report on Form 10K/A for the year ended December 31, 2002.

As further discussed in Note D, in 2004 the Company restated its
consolidated financial statements for the year ended December 31, 2002, and
for all quarterly periods during the year ended December 31, 2002. The
Company also restated its condensed consolidated financial statements for
the interim periods ended March 31, 2003 and June 30, 2003.



|B. |  | Hedging Activities
|-- |  | ------------------

The Company uses derivatives to manage exposures to interest rate and
foreign currency risks. During the six months ended June 30, 2003, the
Company recorded the following in earnings.

Income (loss) related to derivative instruments:Fair value of non-hedging instruments
    
    $
    2,750Ineffectiveness related to cash flow hedges
    
    
    90$
    2,840


During the six months ended June 30, 2003, $59,314 (net) was
reclassified from accumulated other comprehensive income to interest expense
when interest was paid or received on the Companys cash flow hedges. The
Company estimates that within the next twelve months it will amortize into
earnings approximately $100,000 of the pre-tax balance in other
comprehensive income under cash flow hedge accounting in connection with the
Companys program to convert debt from floating to fixed rates.



|C. |  | Variable Interest Entities
|-- |  | --------------------------

In January 2003, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities (VIE) (FIN 46). The provisions of this interpretation apply at
inception for any entity created after January 31, 2003. For a VIE created
before February 1, 2003, the provisions of this interpretation must be
applied at the beginning of the first interim or annual period beginning
after June 15, 2003. FIN 46s consolidation criteria are based on analysis
of risk and rewards, not on ownership, and represent a significant and
complex modification of previous accounting principles. FIN 46 represents a
change in the method by which these entities are accounted for, not a change
in the underlying economics of transactions entered into by the Company.

Beginning July 1, 2003, the Company will be required to consolidate
sale lease-back transactions it entered into in 1996 and 1997 and certain
VIEs for which the Company has determined it is the primary beneficiary, as
defined by FIN 46. The Company is not acquiring the assets of these
entities, nor do its legal rights or obligations change related to these
entities.

The Company expects assets and liabilities to increase by approximately
$830.0 million related to the sale lease-back transactions and $110.0
million related to certain other VIEs. The Company expects to record an
after-tax charge of approximately $17.3 million as a cumulative effect of a
change in accounting principle as a result of the adoption of FIN 46.

-9-



---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(Dollars in thousands)
(Unaudited)

The Company sold an aircraft to a VIE owned by a non-related party in the
second quarter of 2003 in exchange for cash and a note receivable. The
Company consolidated the VIE that bought the aircraft in accordance with FIN
46.



|D. |  | Restatement
|-- |  | -----------

The Company has historically provided for California state income taxes
by using a rate based on a calculation of its stand-alone apportionment
rate. For federal tax purposes, and in recognition of its tax sharing
agreement with AIG, the Company had historically adjusted its provision to
reflect charges and credits allocated to the Company by AIG. For state tax
purposes, the current provision was adjusted to reflect the AIG Unitary tax
rate for California but the deferred provision was not adjusted. The Company
has concluded that generally accepted accounting principles require that its
federal and state tax methodologies should be consistent. As a result, the
Company has restated its financial position and results of operations to
reflect the AIG California Unitary tax rate. The revision generally reduces
state income tax expense in previously reported periods. The effect on the
condensed consolidated financial statements is as follows:

June 30, 2003
    
    December 31, 2002As Reported
    
    As Restated
    
    As Reported
    
    As RestatedConsolidated balance sheets:Current income taxes
    
    $
    131,653
    
    
    $
    123,855
    
    
    $
    193,526
    
    
    $
    179,030Total assets
    
    
    30,821,051
    
    
    
    30,813,253
    
    
    
    27,490,613
    
    
    
    27,476,117Deferred income taxes
    
    
    2,592,038
    
    
    
    2,522,369
    
    
    
    2,322,327
    
    
    
    2,250,314Retained earnings
    
    
    3,571,085
    
    
    
    3,632,956
    
    
    
    3,366,245
    
    
    
    3,423,762Shareholders equity
    
    
    4,796,893
    
    
    
    4,858,764
    
    
    
    4,561,162
    
    
    
    4,618,679


Three Months Ended
    
    Three Months EndedJune 30, 2003
    
    June 30, 2002As Reported
    
    As Restated
    
    As Reported
    
    As RestatedConsolidated statements of income:Provision for income taxes
    
    $
    65,636
    
    
    $
    63,402
    
    
    $
    76,490
    
    
    $
    73,340Net income
    
    
    120,714
    
    
    
    122,948
    
    
    
    135,083
    
    
    
    138,233


Six Months Ended
    
    Six Months EndedJune 30, 2003
    
    June 30, 2002As Reported
    
    As Restated
    
    As Reported
    
    As RestatedConsolidated statements of income:Provision for income taxes
    
    $
    125,260
    
    
    $
    120,906
    
    
    $
    138,549
    
    
    $
    132,777Net income
    
    
    237,895
    
    
    
    242,249
    
    
    
    248,388
    
    
    
    254,160


-10-



---



##### Table of Contents






CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

Forward Looking Statements

Certain of the statements in this document contain estimates and
assumptions regarding cash flows and debt financing to support future
capital requirements. While these statements are made in good faith, future
operating, market, competitive, economic and other conditions and events
could cause actual results to differ materially from those in the
statements. The Company undertakes no obligation to release publicly any
revisions to these statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of anticipated or unanticipated
events.

-11-



---



##### Table of Contents








|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As more fully described in the Explanatory Note and in Note D to the
Condensed Consolidated Financial Statements, in 2004, the Company restated
its consolidated financial statements for the year ended December 31, 2002
and the interim periods within that year. The Company also restated its
condensed consolidated financial statements for the interim periods ended
March 31, 2003 and June 30, 2003.

Managements Discussion and Analysis of Financial Condition and Results
of Operations presented below reflects certain restatements to our operating
results for the three and six months ended June 30, 2002 and 2003.

Financial Condition

The Company borrows funds to purchase new and used flight equipment,
including funds for progress payments during the construction phase, and to
pay off existing debt obligations as they mature. These funds are borrowed
principally on an unsecured basis from various sources. During the six
months ended June 30, 2003, the Company borrowed $5.6 billion (excluding
commercial paper) and $1.1 billion was provided by operating activities. As
of June 30, 2003, the Company had committed to purchase 459 aircraft from
Airbus and Boeing at an estimated aggregated purchase price of $26.2 billion
for delivery through 2010 and options to purchase 18 additional aircraft at
an estimated aggregate purchase price of approximately $1.3 billion. The
Company currently expects to fund expenditures for aircraft, and meets its
liquidity needs, from a combination of available cash balances, internally
generated funds and financing arrangements. The Companys debt financing and
capital lease obligations were comprised of the following at the following
dates:

June 30,
    
    December 31,2003
    
    2002(Dollars in thousands)Public term debt with single maturities
    
    $
    9,678,375
    
    
    $
    7,475,775Public medium-term notes with varying maturities
    
    
    5,956,562
    
    
    
    4,969,500Capital lease obligations
    
    
    205,651
    
    
    
    260,623Bank and other term debt
    
    
    2,469,207
    
    
    
    2,084,793Total term debt, bank debt, and capital lease obligations
    
    
    18,309,795
    
    
    
    14,790,691Commercial paper
    
    
    3,326,748
    
    
    
    4,218,504Deferred debt discount
    
    
    (27,706
    )
    
    
    (31,928
    )Total debt financing and capital lease obligations
    
    $
    21,608,837
    
    
    $
    18,977,267Selected interest rates and ratio:Composite interest rate
    
    
    4.50
    %
    
    
    4.73
    %Percentage of total debt at fixed rates
    
    
    74.07
    %
    
    
    76.67
    %Composite interest rate on fixed rate debt
    
    
    5.47
    %
    
    
    5.69
    %Bank prime rate
    
    
    4.00
    %
    
    
    4.25
    %


The above amounts represent the Companys anticipated settlement of its
currently outstanding debt obligations. Certain adjustments required to
present currently outstanding debt obligations have been recorded and
presented separately on the balance sheet, including adjustments related to
foreign currency and interest rate hedging activities. The Company has
eliminated the currency exposure arising from foreign currency denominated
notes by either hedging the notes through swaps or through the offset
provided by operating lease payments. The Company translates the debt into
US dollars using current exchange rates. The foreign exchange adjustment for
the foreign currency denominated debt was $434.6 million (2003) and $264.8
million (2002). Composite interest rates and percentages of total debt at
fixed rates reflect the effect of derivative instruments.

-12-



---



##### Table of Contents





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

Public Debt

The interest on most of the public debt (exclusive of the Commercial
Paper Program) is effectively fixed for the terms of the notes. The Company
has the ability to borrow under various public debt financing arrangements
as follows:

Maximum
    
    Sold as of
    
    Sold as of
    
    Sold as ofOffering
    
    December 31, 2002
    
    June 30, 2003
    
    July 20, 2003(Dollars in millions)Registration statement dated
December 31, 2002 (including
$2.88 billion Medium-Term
Note program and $1.0 billion
Retail Medium-Term Note
Program)
    
    $
    6,080
    (a)
    
    $
    
    
    
    $
    4,377
    
    
    $
    4,453Registration statement dated
June 20, 2003
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    Euro Medium-Term Note
Programme
dated May 2003 (b)
    
    
    5,000
    
    
    
    2,106
    
    
    
    2,808
    
    
    
    2,808




---

|(a) |  | Includes $1.08 billion, which was incorporated into the
registration statement from a prior registration statement, increasing
the maximum offering from $5.0 billion to $6.08 billion.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The Company has hedged the foreign currency risk of the notes
through operating lease payments or derivatives.                                                                         

Capital Lease Obligations

The Company has Export Credit Lease financings which provided ten-year
amortizing loans in the form of capital lease obligations. The interest rate
on 62.5% of the original financed amount is 6.55% and the interest rate on
22.5% of the original financed amount is fixed at rates varying between
6.18% and 6.89%. These two tranches are guaranteed by various European
Export Credit Agencies. The remaining 15% of the original financed amount
was prepaid by the Company.

Bank Term Debt

In January 1999, the Company entered into an Export Credit Facility, up
to a maximum of $4.3 billion, for aircraft delivered through 2001. The
Company used the facility to fund 85% of each aircrafts purchase price.
This facility is guaranteed by various European Export Credit Agencies. The
Company financed 62 aircraft using $2.8 billion under this facility over ten
years with interest rates from 5.753% to 5.898%. The debt is collateralized
by a pledge of the shares of a subsidiary of the Company which holds title
to the aircraft financed under the facility. At June 30, 2003, $1.9 billion
was outstanding under the facility.

In 2003, the Company entered into various bank financings for a total
funded amount of $530.0 million. The financings mature through 2009. The
interest rates are LIBOR based and ranged from 2.465% to 2.935% at June 30,
2003.

Commercial Paper

The Company currently has a $4.8 billion Commercial Paper Program.
Under this program, the Company may borrow in minimum increments of $100,000
for a period from one day to 270 days. Notwithstanding the programs size,
it is the Companys intention to sell commercial paper to a maximum amount
that is no more than an expected range of 100%  115% of the aggregate
amount of the backup facilities available (see Bank Commitments). The
weighted average interest rate of the Companys Commercial Paper Program was
1.12% at June 30, 2003 and 1.46% at December 31, 2002.

-13-



---



##### Table of Contents





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

Bank Commitments

As of June 30, 2003, the Company had committed revolving loans and
lines of credit with 20 commercial banks aggregating $3.15 billion. These
revolving loans and lines of credit provide for interest rates that vary
according to the pricing option in effect at the time of borrowing. Pricing
options include prime, a range from .25% to .35% over LIBOR based upon
utilization, or a rate determined by a competitive bid process with the
banks. The revolving loans and lines of credit are subject to facility fees
of up to .10% of amounts available. This financing is used primarily as
backup for the Companys Commercial Paper Program. The Company had not drawn
on its revolving loans and lines of credit as of June 30, 2003.

Off Balance Sheet Arrangements

In 1995, 1996 and 1997, the Company, through subsidiaries, entered into
sale-leaseback transactions providing proceeds to the Company in the amounts
of $413.0 million, $507.6 million and $601.9 million, respectively, each
relating to seven aircraft. The transactions resulted in the sale and
leaseback of these aircraft under one-year operating leases, each with six
one-year extension options for a total of seven years for each aircraft. The
Company has not recorded any gains related to the transactions. The Company
has the option to either buy back the aircraft or redeliver the aircraft for
a fee to the lessor at the end of any lease period. The lease rates equate
to fixed principal amortization and floating interest payments based on
LIBOR or commercial paper pricing. The Company repurchased three aircraft
before the lease termination, which were sold to third parties, and
repurchased the remaining five aircraft from the 1995 sale-leaseback
transaction when the leases expired in December 2002. If the Company does
not negotiate extensions of the one-year operating lease terms as they
expire in September 2003 and 2004, the Company will be required to borrow
additional funds to terminate the transactions and reacquire the assets. The
estimated remaining minimum lease payments (exclusive of the interest
component of rent) and buy-back amounts, assuming the current contractual
end of the transactions, are $381.0 million (2003) and $462.4 million
(2004). The Companys implementation of FASB Interpretation No. 46 (FIN
46) will require the Company to consolidate the sale-leaseback entities,
starting in the third quarter of 2003. The Company expects to record assets
and liabilities of approximately $830.0 million related to these entities
and will then cease to record rent expense for the operating leases.

The Company has sold aircraft to VIEs owned by third parties and has
from time to time issued asset value guarantees or loan guarantees related
to the sold asset. The Company will be a variable interest holder pursuant
to FIN 46 in some of those entities. See Note C at Notes to Condensed
Consolidated Financial Statements. The Company has determined that it is the
primary beneficiary, as defined by FIN 46, of certain of those entities. As
a result, effective July 1, 2003, the Company will be required to
consolidate those entities.

The Company expects to record assets and liabilities of approximately
$110.0 million related to these assets and to record an after tax charge of
approximately $17.3 million as a cumulative effect of a change in accounting
principle as a result of the adoption of FIN 46.

The Company has not established any other unconsolidated entities, for
the purpose of facilitating off-balance sheet arrangements or for other
contractually narrow or limited purposes. The Company has, however, from
time to time established subsidiaries, entered into joint ventures or
created other partnership arrangements with the limited purpose of leasing
aircraft or facilitating borrowing arrangements.

Derivatives

In the normal course of business, the Company employs a variety of
derivative products to manage its foreign currency exposure and its exposure
to interest rates and the resulting impact of changes in interest rates and
exchange rates on earnings, with the objective of lowering its overall
borrowing cost and maintaining an optimal mix of variable and fixed rate
interest obligations. The Company only enters into derivative transactions
to hedge interest rate risk and currency risk and not to speculate on
interest rates or currency fluctuations. These derivative products include
interest rate swap agreements, currency swap agreements, and interest rate
floor agreements.

-14-



---



##### Table of Contents





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

The counterparty to the Companys derivative instruments is AIG
Financial Products Corp., a related party with the highest ratings available
from the credit rating agencies, which enters into transactions with
independent third parties. The derivatives are subject to a bilateral
security agreement, which, in certain circumstances, may allow one party to
the agreement to require the second party to the agreement to provide
collateral. Failure of the instruments or counterparty to perform under the
derivative contracts could have a material impact on the Companys results
of operations.

Market Liquidity Risk

The Company is in compliance with all covenants and other requirements
set forth in its credit agreements. Further, the Company does not have any
rating downgrade triggers that would automatically accelerate the maturity
dates of its debt. However, a downgrade in the Companys credit rating could
adversely affect the Companys ability to renew existing, or obtain access
to new financing arrangements and could increase the cost of financing
arrangements. For example, a downgrade in credit rating could preclude the
Company from issuing commercial paper under its current program.

Turmoil in the airline industry, continued global political unrest, and
worldwide health issues have led to increased uncertainty in the debt
markets in which the Company borrows funds. While the Company has been able
to borrow the funds necessary to finance operations in the current market
environment, additional turmoil in the airline industry or political
environment could limit the Companys ability to borrow funds from its
current funding sources. Should this occur the Company would seek
alternative sources of funding, including securitizations, manufacturers
financings, drawings upon its revolving loans and lines of credit or
additional short-term borrowings. If the Company were unable to obtain
sufficient funding, it would negotiate with manufacturers to defer
deliveries of aircraft.

The following summarizes the Companys contractual obligations at June
30, 2003.

Existing Commitments (Exclusive of Interest)

Commitments Due by Fiscal YearTotal
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter(Dollars in thousands)Public and Bank
Term Debt
    
    $
    18,104,144
    
    
    $
    1,455,587
    
    
    $
    3,709,624
    
    
    $
    3,115,726
    
    
    $
    2,941,374
    
    
    $
    2,715,753
    
    
    $
    4,166,080Capital Lease
Obligations
    
    
    205,651
    
    
    
    56,774
    
    
    
    105,194
    
    
    
    43,683
    
    
    
    
    
    
    
    
    
    
    
    Commercial Paper
    
    
    3,326,748
    
    
    
    3,326,748
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    126,396
    
    
    
    3,780
    
    
    
    11,317
    
    
    
    11,485
    
    
    
    8,575
    
    
    
    8,918
    
    
    
    82,321Operating Leases
under
Sale-Lease-Back Transactions (a)
    
    
    829,552
    
    
    
    367,161
    
    
    
    462,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Commitments
    
    
    26,169,600
    
    
    
    1,147,600
    
    
    
    4,633,600
    
    
    
    4,720,400
    
    
    
    5,052,500
    
    
    
    4,332,100
    
    
    
    6,283,400Total
    
    $
    48,762,091
    
    
    $
    6,357,650
    
    
    $
    8,922,126
    
    
    $
    7,891,294
    
    
    $
    8,002,449
    
    
    $
    7,056,771
    
    
    $
    10,531,801




---

|(a) |  | Includes the repurchase of six aircraft in 2003 and seven aircraft in
2004.
|--- |  | ---------------------------------------------------------------------------

-15-



---



##### Table of Contents





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

Contingent Commitments

Contingency Expiration by Fiscal YearTotal
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter(Dollars in thousands)Purchase Options on New Aircraft
    
    $
    1,287,200
    
    
    $
    
    
    
    $
    36,600
    
    
    $
    295,100
    
    
    $
    248,400
    
    
    $
    567,000
    
    
    $
    140,100Put Options (a)
    
    
    781,695
    
    
    
    231,614
    
    
    
    67,422
    
    
    
    256,658
    
    
    
    
    
    
    
    
    
    
    
    226,001Asset Value Guarantees (a)
    
    
    116,189
    
    
    
    36,250
    
    
    
    17,976
    
    
    
    11,041
    
    
    
    8,178
    
    
    
    
    
    
    
    42,744Loan Guarantees (a)
    
    
    109,496
    
    
    
    
    
    
    
    3,343
    
    
    
    
    
    
    
    52,000
    
    
    
    
    
    
    
    54,153Lines of Credit
    
    
    20,000
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,314,580
    
    
    $
    287,864
    
    
    $
    125,341
    
    
    $
    562,799
    
    
    $
    308,578
    
    
    $
    567,000
    
    
    $
    462,998




---

|(a) |  | From time to time, the Company participates 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 the Company be called
upon to fulfill its obligations, the Company would have recourse to the
value of the underlying aircraft.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Industry Condition

The Companys sources of revenue are principally from scheduled and
charter airlines and companies associated with the airline industry. The
Companys revenues and results of operation are therefore affected by how
its customers cope with the economic environment in which airlines operate.
In the past two years, the airline industry has been negatively affected by
a number of factors, including acts of terrorism and related lingering
fears, the war in Iraq, a sluggish worldwide economy, the cost of fuel, the
cost of insurance and most recently the outbreak of Severe Acute Respiratory
Syndrome (SARS). The Companys revenues and results of operations have
been negatively affected in 2002 and 2003 by participation in customer
restructurings and requirements to re-lease aircraft repossessed from
airlines which have ceased operations. During 2003, two of the Companys
customers, Avianca (1 owned aircraft) and Hawaiian Airlines (4 owned
aircraft), filed for protection under Chapter 11 of the United States
Bankruptcy Code and one of the Companys customers, Air Canada (11 owned and
one managed aircraft), filed for bankruptcy under Canadas Companies
Creditors Arrangement Act. At June 30, 2003, the Company had re-leased the
aircraft previously leased to Avianca. Hawaiian and Air Canada continue to
operate leased aircraft under the protection of the bankruptcy proceedings.
The Company has reached agreement for the continuance of these leases, and
the airlines are currently paying under the terms of the new agreements.

The Company generates approximately 20% of its revenues from customers
based in Asia and the Pacific region, and has numerous other customers who
operate flights to and from those areas. Travel between Asia and the rest
of the world was negatively impacted by the outbreak of SARS. Many airlines
in Asia and those traveling to Asia curtailed flights in response to the
reluctance of people willing to travel to Asia during the six months ended
June 30, 2003. Travel to Asia has, however, picked up sharply with the June
2003 lifting of World Health Organization warnings against visits to SARS
affected countries. Trips to Singapore and China have risen by approximately
60% and 80%, respectively, from May lows.

-16-



---



##### Table of Contents





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

Results of Operations- Three months ended June 30, 2003 versus 2002.

Revenues from the rental of flight equipment increased 9.0% to $741.9
million in 2003 compared to $680.3 million in 2002, due to an increase in
the number of aircraft available for operating lease, partially offset by an
increase in the number of aircraft being reconfigured and redelivered and
therefore not earning revenue for the entire period. At June 30, 2003, the
Company had two aircraft off-lease (not subject to a signed lease agreement
or a signed letter of intent), both of which had been off-lease for less
than three months. As of July 23, 2003, one of the two unleased aircraft was
placed. Revenues were also negatively impacted by lower lease rates and
restructured rents, as a result of the slowdown and turmoil of the airline
industry. The 2002 revenue from rental of flight equipment included
approximately $26.3 million from a settlement related to a lessee in
bankruptcy.

Lease margin (Rental of flight equipment less total expense, divided by
Rental of flight equipment) is a measure by which the Company isolates and
evaluates the overall profitability of its contractual leasing operations,
which constitutes the Companys primary revenue generating activity. The
Companys lease margin for the period decreased to 22.1% in 2003 compared to
24.3% for the same period in 2002. The most directly comparable GAAP
financial measure is income before income taxes divided by total revenues,
which was 24.4% in 2003 compared to 29.1% for the same period in 2002, and
the difference between this calculation and the lease margin is the
exclusion of revenues from flight equipment marketing and interest and other
that aggregated $22.5 million and $46.2 million in 2003 and 2002,
respectively. The Company expects factors described in Industry Conditions
to further negatively impact revenues in 2003 and beyond as airlines
continue to experience financial difficulties. At June 30, 2003 the
Companys fleet, on which it earns rental revenue, consisted of 616 aircraft
compared to a fleet of 532 aircraft at June 30, 2002. The cost of the leased
fleet, which includes aircraft subject to sale-lease back transactions from
which rental income is earned, increased to $34.2 billion at June 30, 2003
compared to $29.1 billion at June 30, 2002.

In addition to its leasing operations, the Company engages in the
marketing of flight equipment throughout the lease term, as well as the sale
of third party owned flight equipment on a principal and commission basis.
Revenues from flight equipment marketing remained relatively constant at
$7.0 million in 2003 compared to $6.4 million in 2002.

Interest and other revenue decreased to $15.5 million in 2003 compared
to $39.8 million in 2002 primarily due to a decrease in forfeitures of
security and other deposits and contract termination fees resulting from
nonperformance by customers and manufacturers which totaled $0.5 million in
2003 as compared to $31.4 million in 2002.

Interest expense increased to $237.0 million in 2003 compared to $219.0
million in 2002 as a result of an increase in average debt outstanding,
which is borrowed to finance aircraft acquisitions (excluding the effect of
debt discount and foreign exchange adjustments), to $21.0 billion in 2003
compared to $17.6 billion in 2002. This increase was partially offset by a
decrease in the average composite borrowing rate to 4.54% in 2003 compared
to 4.98% in 2002. The Companys composite borrowing rate decreased as
follows:

2003
    
    2002
    
    DecreaseBeginning of Quarter
    
    
    4.57
    %
    
    
    4.93
    %
    
    
    0.36
    %End of Quarter
    
    
    4.50
    %
    
    
    5.03
    %
    
    
    0.53
    %Average
    
    
    4.54
    %
    
    
    4.98
    %
    
    
    0.44
    %


Interest expense for the three months ended June 30, 2003 includes a
$0.3 million benefit related to derivative activities.

Depreciation of flight equipment increased 19.7% to $282.1 million in
2003 compared to $235.7 million in 2002 due to the increased cost of the
fleet.

The Company, in prior periods, had entered into sale-leaseback
transactions. Currently 13 aircraft are accounted for under these
transactions. Flight equipment rent decreased to $13.3 million in 2003
compared to $19.4 million in 2002 due to the repurchase of five aircraft in
connection with the termination of the leases in December 2002 and principal
amortization. Furthermore, there was a decrease in the 2003 lease rates
compared to 2002, resulting from a decrease in interest rates, affecting the
floating rate component of the lease rates.

Provision for overhauls increased to $26.4 million in 2003 compared to
$18.8 million in 2002 due to an increase in the aggregate number of hours
flown on which the Company collects overhaul revenue and against which the
provision is computed.

The provision for income taxes decreased to $63.4 million in 2003
compared to $73.3 million in 2002. The effective tax rate decreased to 34.0%
from 34.6% for the second quarter 2003 compared to the same period in 2002.
The decrease resulted from the increased impact of the Extraterritorial
Income Exclusion Act of 2000 due to new deliveries in 2003.

-17-



---



##### Table of Contents





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

The Company typically contracts to re-lease aircraft before the end of
the existing lease term. For aircraft returned before the end of the lease
term, the Company has generally been able to re-lease aircraft within two to
six months of its return. The Company has not recognized any impairment
related to its fleet, as the existing service potential of the aircraft in
the Companys portfolio has not been diminished. Further, the Company has
been able to re-lease aircraft without diminution in lease rates to an
extent that would warrant an impairment write down.

Results of Operations- Six months ended June 30, 2003 versus 2002.

Revenue from the rentals of flight equipment increased 12.0% to
$1,443.4 million in 2003 compared to $1,289.3 million in 2002, due to an
increase in the number of aircraft available for operating lease, partially
offset by an increase in the number of aircraft being reconfigured and
redelivered and therefore not earning revenue for the entire period. At June
30, 2003, the Company had two aircraft off-lease (not subject to a signed
lease agreement or a signed letter of intent), both of which had been
off-lease for less than three months. As of July 23, 2003, one of the two
unleased aircraft was placed. Revenues were also negatively impacted by
lower lease rates and restructured rents, as a result of the slowdown and
turmoil of the airline industry. The 2002 revenue from rental of flight
equipment included approximately $26.3 million from a settlement related to
a lessee in bankruptcy.

The Companys lease margin for the period decreased to 22.2% in 2003
compared to 23.8% for the same period in 2002. The most directly comparable
GAAP financial measure is income before income taxes divided by total
revenues, which was 24.4% in 2003 compared to 28.3% for the same period in
2002, and the difference between this calculation and the lease margin is
the exclusion of revenues from flight equipment marketing and interest and
other that aggregated $43.3 million and $79.7 million in 2003 and 2002,
respectively. The Company expects factors described in Industry Conditions
to further negatively impact revenues in 2003 and beyond as airlines
continue to experience financial difficulties. At June 30, 2003 the
Companys fleet, on which it earns rental revenue, consisted of 616 aircraft
compared to a fleet of 532 aircraft at June 30, 2002. The cost of the leased
fleet, which includes aircraft subject to sale-lease back transactions from
which rental income is earned, increased to $34.2 billion at June 30, 2003
compared to $29.1 billion at June 30, 2002.

In addition to its leasing operations, the Company engages in the
marketing of flight equipment throughout the lease term, as well as the sale
of third party owned flight equipment on a principal and commission basis.
Revenues from flight equipment marketing decreased to $14.9 million in 2003
compared to $19.6 million in 2002 as a result of the type of equipment
marketed in each of the periods and net book value of the Company-owned
equipment sold. The Company sold no Company-owned aircraft during the six
months ended June 30, 2003, and sold two Company-owned aircraft during the
same period in 2002.

Interest and other revenue decreased to $28.4 million in 2003 compared
to $60.0 million in 2002 primarily due to a decrease in forfeitures of
security and other deposits and contract termination fees resulting from
nonperformance by customers and manufacturers which totaled $0.5 million in
2003 as compared to $42.8 million in 2002.

Interest expense increased to $456.1 million in 2003 compared to $407.1
million in 2002 as a result of an increase in average debt outstanding,
which is borrowed to finance aircraft acquisitions (excluding the effect of
debt discount and foreign exchange adjustments), to $20.3 billion in 2003
compared to $17.1 billion in 2002. This increase was partially offset by a
decrease in the average composite borrowing rate to 4.62% in 2003 compared
to 5.05% in 2002. The Companys composite borrowing rate decreased as
follows:

2003
    
    2002
    
    DecreaseBeginning of six months
    
    
    4.73
    %
    
    
    5.07
    %
    
    
    0.34
    %End of six months
    
    
    4.50
    %
    
    
    5.03
    %
    
    
    0.53
    %Average
    
    
    4.62
    %
    
    
    5.05
    %
    
    
    0.43
    %


Interest expense for the six months ended June 30, 2003 includes a $2.8
million benefit related to derivative activities.

Depreciation of flight equipment increased 20.7% to $546.2 million in
2003 compared to $452.5 million in 2002 due to the increased cost of the
fleet.

The Company, in prior periods, had entered into sale-leaseback
transactions. Currently 13 aircraft are accounted for under these
transactions. Flight equipment rent decreased to $26.8 million in 2003
compared to $38.8 million in 2002 due to the repurchase of five aircraft in
connection with the termination of the leases in

-18-



---



##### Table of Contents





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

December 2002 and principal amortization. Furthermore, there was a decrease
in the 2003 lease rates compared to 2002, resulting from a decrease in
interest rates, affecting the floating rate component of the lease rates.

Provision for overhauls increased to $54.6 million in 2003 compared to
$40.1 million in 2002 due to an increase in the aggregate number of hours
flown on which the Company collects overhaul revenue and against which the
provision is computed.

The provision for income taxes decreased to $120.9 million in 2003
compared to $132.8 million in 2002. The effective tax rate decreased to
33.3% from 34.3% for the six months ended June 30, 2003 compared to 2002.
The decrease resulted from the increased impact of the Extraterritorial
Income Exclusion Act of 2000 due to new deliveries in 2003.

The Company typically contracts to re-lease aircraft before the end of
the existing lease term. For aircraft returned before the end of the lease
term, the Company has generally been able to re-lease aircraft within two to
six months of its return. The Company has not recognized any impairment
related to its fleet, as the existing service potential of the aircraft in
the Companys portfolio has not been diminished. Further, the Company has
been able to re-lease aircraft without diminution in lease rates to an
extent that would warrant an impairment write down.

-19-



---



##### Table of Contents








|        |                                                           
|------- | ----------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

Value at Risk

Measuring potential losses in fair values has recently become the focus
of risk management efforts by many companies. Such measurements are
performed through the application of various statistical techniques. One
such technique is Value at Risk (VaR), a summary statistical measure that
uses historical interest rates, foreign currency exchange rates and equity
prices which estimates the volatility and correlation of these rates and
prices to calculate the maximum loss that could occur over a defined period
of time given a certain probability.

The Company believes that statistical models alone do not provide a
reliable method of monitoring and controlling market risk. While VaR models
are relatively sophisticated, the quantitative market risk information
generated is limited by the assumptions and parameters established in
creating the related models. Therefore, such models are tools and do not
substitute for the experience or judgment of senior management.

The Company is exposed to market risk and the risk of loss of fair
value and possible liquidity strain resulting from adverse fluctuations in
interest rates and foreign exchange prices. The Company statistically
measures the loss of fair value through the application of a VaR model on a
quarterly basis. In this analysis the net fair value of the Company is
determined using the financial instrument and other assets. This includes
tax adjusted future flight equipment lease revenues, and financial
instrument liabilities, which includes future servicing of current debt. The
estimated impact of current derivative positions is also taken into account.

The Company calculates the VaR with respect to the net fair value by
using historical scenarios. This methodology entails re-pricing all assets
and liabilities under explicit changes in market rates within a specific
historical time period. In this case, the most recent three years of
historical information for interest rates and foreign exchange rates were
used to construct the historical scenarios at June 30, 2003 and December 31,
2002, respectively. For each scenario, each financial instrument is
re-priced. Scenario values for the Company are then calculated by netting
the values of all the underlying assets and liabilities. The final VaR
number represents the maximum adverse deviation in fair market value
incurred under these scenarios with 95% confidence (i.e. only 5% of
historical scenarios show losses greater than the VaR figure). A one month
holding period is assumed in computing the VaR figure. The following table
presents the average, high and low VaRs for the Company with respect to its
fair value for the periods ended June 30, 2003 and December 31, 2002:

ILFC Market RiskSix months Ended
    
    
    
    
    
    Year EndedJune 30, 2003
    
    
    
    
    
    December 31, 2002(Dollars in millions)Average
    
    High
    
    Low
    
    Average
    
    High
    
    LowCombined
    
    $
    14.2
    
    
    $
    27.1
    
    
    $
    7.8
    
    
    $
    20.1
    
    
    $
    42.8
    
    
    $
    7.8Interest Rate
    
    
    14.3
    
    
    
    27.1
    
    
    
    7.8
    
    
    
    20.0
    
    
    
    42.8
    
    
    
    7.8Currency
    
    
    0.9
    
    
    
    1.3
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    1.2
    
    
    
    0.0


-20-



---



##### Table of Contents








|        |                        
|------- | -----------------------
|ITEM 4. | CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Chairman of the
Board and Chief Executive Officer and the Vice Chairman, Chief Financial
Officer and Chief Accounting Officer of the Company (collectively, the
Certifying Officers) have evaluated the effectiveness of the Companys
disclosure controls and procedures. These disclosure controls and
procedures are those controls and procedures which are designed to insure
that all of the information required to be disclosed by the Company in its
periodic reports filed with the Securities and Exchange Commission (the
Commission) is recorded, processed, summarized and reported within the
time periods specified by the Commissions rules and forms, and that the
information is communicated to the Certifying Officers on a timely basis.
The Certifying Officers concluded, based on their evaluation, that the
Companys disclosure controls and procedures are effective for the Company,
taking into consideration the size and nature of the Companys business and
operations. There were no changes in the Companys internal control over
financial reporting that occurred during the Companys most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.

-21-



---



##### Table of Contents






PART II. OTHER INFORMATION






|        |                                 
|------- | --------------------------------
|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K

a)
    
    Exhibits1.
    
    Amended and Restated
Programme Agreement, dated May 16, 2003, between the
Company and the Dealers named therein (filed an exhibit to
Form 10-Q for the period ended June 30, 2003 and
incorporated herein by reference)3.
    
    Unanimous Written Consent of Sole
Stockholder of the Company, dated January 2, 2002,
amending the By-Laws of the Company (filed an exhibit to
Form 10-Q for the period ended June 30, 2003 and
incorporated herein by reference)4.
    
    Supplemental Agency Agreement, dated May
16, 2003, between the Company, Citibank, N.A. and Dexia
Banque International a Luxembourg S.A. (filed an exhibit
to Form 10-Q for the period ended June 30, 2003 and
incorporated herein by reference)12.
    
    Computation of Ratios of Earnings to
Fixed Charges and Preferred Stock Dividends31.1
    
    Rule 13a-14 (a) / 15d-14 (a)
Certification of Chairman of the Board and Chief Executive
Officer31.2
    
    Rule 13a-14 (a) / 15d-14 (a)
Certification of Vice Chairman, Chief Financial Officer
and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section
1350b)
    
    Reports on Form 8-K:Form 8-K, event date April 15, 2003 (Item 7)Form 8-K, event date April 24, 2003 (Item 7 and Item 9)Form 8-K, event date April 24, 2003 (Item 7)Form 8-K, event date May 19, 2003 (Item 7)Form 8-K, event date May 20, 2003 (Item 7)


-22-



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

INTERNATIONAL LEASE FINANCE CORPORATIONFebruary 19, 2004
    
    /S/ Steven F. Udvar-HazySTEVEN F. UDVAR-HAZYChairman of the Board and
Chief Executive OfficerFebruary 19, 2004
    
    /S/ Alan H. LundALAN H. LUNDVice Chairman,
Chief Financial Officer
and Chief Accounting Officer


-23-



---



##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES




INDEX TO EXHIBITS

Exhibit No.

1.
    
    Amended and Restated Programme Agreement, dated May 16, 2003,
between the Company and the Dealers named therein (filed an exhibit
to Form 10-Q for the period ended June 30, 2003 and incorporated
herein by reference)3.
    
    Unanimous Written Consent of Sole Stockholder of the Company,
dated January 2, 2002, amending the By-Laws of the Company (filed an
exhibit to Form 10-Q for the period ended June 30, 2003 and
incorporated herein by reference)4.
    
    Supplemental Agency Agreement, dated May 16, 2003, between
the Company, Citibank, N.A. and Dexia Banque International a
Luxembourg S.A. (filed an exhibit to Form 10-Q for the period ended
June 30, 2003 and incorporated herein by reference)12.
    
    Computation of Ratios of Earnings to Fixed Charges and
Preferred Stock Dividends31.1
    
    Rule 13a-14 (a) / 15d-14 (a) Certification of Chairman of the
Board and Chief Executive Officer31.2
    
    Rule 13a-14 (a) / 15d-14 (a) Certification of Vice Chairman,
Chief Financial Officer and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section 1350


-24-