##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 INTERNATIONAL LEASE FINANCE CORPORATION
  California
(State or other jurisdiction of 
incorporation or organization)
    
    22-3059110
(I.R.S. Employer
Identification No.)10250 Constellation Blvd., Suite 3400
Los Angeles, California
(Address of principal executive offices)
    
    90067
(Zip Code)
 310) 788-1999
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ




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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
March 31, 2007 and December 31, 2006
    
    
    2Condensed Consolidated Statements of Income
Three months ended March 31, 2007 and 2006
    
    
    3Condensed Consolidated Statements of Comprehensive Income
Three months ended March 31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of the Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4T. Controls and Procedures
    
    
    21Part II. Other InformationItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 5. Other Information.
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25EXHIBIT 12EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCash, including interest bearing accounts of $104,464 (March 31, 2007)
and $154,812 (December 31, 2006)
    
    $
    108,516
    
    
    $
    157,120Current income taxes
    
    
    513,799
    
    
    
    448,343Notes receivable, net of allowance, and net investment in finance leases
    
    
    415,385
    
    
    
    431,944Flight equipment under operating leases
    
    
    49,309,682
    
    
    
    47,200,028Less accumulated depreciation
    
    
    9,119,052
    
    
    
    8,724,07940,190,630
    
    
    
    38,475,949Deposits on flight equipment purchases
    
    
    838,334
    
    
    
    1,077,444Lease receivables and other assets
    
    
    462,931
    
    
    
    476,670Derivative assets
    
    
    787,516
    
    
    
    738,620Variable interest entities assets
    
    
    121,312
    
    
    
    124,734Deferred debt issue costs  less accumulated amortization of $91,761
(March 31, 2007) and $83,977 (December 31, 2006)
    
    
    104,936
    
    
    
    104,704$
    43,543,359
    
    
    $
    42,035,528LIABILITIES AND SHAREHOLDERS EQUITYAccrued interest and other payables
    
    $
    479,249
    
    
    $
    417,424Tax benefit sharing payable to AIG
    
    
    245,000
    
    
    
    245,000Debt financing, net of deferred debt discount of $36,542 (March 31,
2007) and $33,105 (December 31, 2006)
    
    
    29,047,134
    
    
    
    27,860,242Subordinated debt
    
    
    1,000,000
    
    
    
    1,000,000Foreign currency adjustment related to foreign currency denominated debt
    
    
    739,744
    
    
    
    677,402Security deposits on aircraft, overhauls and other
    
    
    1,272,603
    
    
    
    1,281,833Rentals received in advance
    
    
    238,849
    
    
    
    223,313Deferred income taxes
    
    
    3,843,408
    
    
    
    3,747,141Variable interest entities liabilities
    
    
    8,087
    
    
    
    8,175SHAREHOLDERS EQUITYMarket Auction Preferred Stock, $100,000 per share liquidation
value; Series A and B each having 500 shares issued
and outstanding
    
    
    100,000
    
    
    
    100,000Common stockno par value; 100,000,000 authorized shares,
45,267,723 issued and outstanding
    
    
    1,053,582
    
    
    
    1,053,582Paid-in capital
    
    
    592,013
    
    
    
    591,757Accumulated other comprehensive income (loss)
    
    
    (12,992
    )
    
    
    2,718Retained earnings
    
    
    4,936,682
    
    
    
    4,826,941Total shareholders equity
    
    
    6,669,285
    
    
    
    6,574,998$
    43,543,359
    
    
    $
    42,035,528
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Dollars in thousands)
 2007
    
    
    2006(Unaudited)REVENUESRental of flight equipment
    
    $
    1,069,457
    
    
    $
    914,310Flight equipment marketing
    
    
    2,597
    
    
    
    18,813Interest and other
    
    
    18,623
    
    
    
    19,9491,090,677
    
    
    
    953,072EXPENSESInterest
    
    
    381,758
    
    
    
    332,206Income effect from derivatives, net of change in
hedged items due to changes in foreign exchange
rates
    
    
    12,233
    
    
    
    (64,010
    )Depreciation of flight equipment
    
    
    405,532
    
    
    
    363,795Flight equipment rent
    
    
    4,500
    
    
    
    5,468Provision for overhauls
    
    
    61,973
    
    
    
    53,139Selling, general and administrative
    
    
    37,183
    
    
    
    43,565903,179
    
    
    
    734,163INCOME BEFORE INCOME TAXES
    
    
    187,498
    
    
    
    218,909Provision for income taxes
    
    
    68,338
    
    
    
    70,833NET INCOME
    
    $
    119,160
    
    
    $
    148,076
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Dollars in thousands)
 2007
    
    
    2006(Unaudited)NET INCOME
    
    $
    119,160
    
    
    $
    148,076OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXNet changes in cash flow hedges (net of taxes in the
amounts of $8,318 (2007) and $1,762 (2006))
    
    
    (15,447
    )
    
    
    (3,273
    )Change in unrealized appreciation on securities
available for sale (net of taxes in the amounts of $142
(2007) and $(15) (2006))
    
    
    (263
    )
    
    
    28(15,710
    )
    
    
    (3,245
    )COMPREHENSIVE INCOME
    
    $
    103,450
    
    
    $
    144,831
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Dollars in thousands)
 2007
    
    
    2006(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    119,160
    
    
    $
    148,076Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation of flight equipment
    
    
    405,532
    
    
    
    363,795Deferred income taxes
    
    
    104,726
    
    
    
    92,595Change in fair value of derivative instruments
    
    
    (72,660
    )
    
    
    (195,332
    )Foreign currency adjustment of non-US$ denominated debt
    
    
    63,056
    
    
    
    131,265Amortization of deferred debt issue costs
    
    
    7,784
    
    
    
    7,468Other, including foreign exchange adjustments on
foreign currency denominated cash
    
    
    (1,239
    )
    
    
    1,567Changes in operating assets and liabilities:Lease receivables and other assets
    
    
    23,760
    
    
    
    (118,853
    )Change in current income taxes
    
    
    (65,456
    )
    
    
    (22,361
    )Increase in accrued interest and other payables
    
    
    61,737
    
    
    
    79,000Increase in rentals received in advance
    
    
    15,536
    
    
    
    28,247Change in unamortized debt discount
    
    
    (3,437
    )
    
    
    (1,629
    )Other
    
    
    4,340
    
    
    
    5,962Net cash provided by operating activities
    
    
    662,839
    
    
    
    519,800INVESTING ACTIVITIESAcquisition of flight equipment for operating leases
    
    
    (1,866,499
    )
    
    
    (1,574,622
    )Increase in deposits and progress payments
    
    
    (52,664
    )
    
    
    (331,360
    )Proceeds from disposal of flight equipment  net of gain
    
    
    27,783
    
    
    
    163,181Advances on notes receivable
    
    
    
    
    
    
    (48,616
    )Collections on notes receivable and finance leases
    
    
    14,383
    
    
    
    14,987Other
    
    
    1,729
    
    
    
    396Net cash used in investing activities
    
    
    (1,875,268
    )
    
    
    (1,776,034
    )FINANCING ACTIVITIESNet change in commercial paper
    
    
    1,020,731
    
    
    
    303,821Proceeds from debt financing
    
    
    702,035
    
    
    
    1,701,498Payments in reduction of debt financing
    
    
    (533,150
    )
    
    
    (739,790
    )Debt issue costs
    
    
    (8,016
    )
    
    
    (12,896
    )(Increase) decrease in customer deposits
    
    
    (9,230
    )
    
    
    29,079Payment of common and preferred dividends
    
    
    (9,419
    )
    
    
    (10,314
    )Net cash provided by financing activities
    
    
    1,162,951
    
    
    
    1,271,398Net increase (decrease) in cash
    
    
    (49,478
    )
    
    
    15,164Effect of exchange rate changes on cash
    
    
    874
    
    
    
    1,436Cash at beginning of period
    
    
    157,120
    
    
    
    157,960Cash at end of period
    
    $
    108,516
    
    
    $
    174,560
 (Table continued on following page)
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Dollars in thousands)
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 2007
    
    
    2006(Unaudited)Cash paid during the period for:Interest (excluding interest capitalized of
$11,174 (2007) and $13,504 (2006))
    
    $
    350,544
    
    
    $
    245,143Income taxes, net
    
    
    29,067
    
    
    
    599
 Non-Cash Financing Activities
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007
(Unaudited)
 A.
    
    Basis of PreparationInternational Lease Finance Corporation (the Company, ILFC, management, we, our,
us) is an indirect wholly owned subsidiary of American International Group, Inc. (AIG). AIG
is a holding company, which through its subsidiaries is primarily engaged in a broad range of
insurance and insurance-related activities in the United States and abroad. The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States (GAAP) 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 GAAP for
complete financial statements. The accompanying unaudited condensed consolidated financial
statements include our accounts, accounts of all other entities in which we have a controlling
financial interest, as well as accounts of variable interest entities in which we are the
primary beneficiary as defined by Financial Accounting Standards Board Interpretation No. 46R
Consolidation of Variable Interest Entities. All material intercompany accounts have been
eliminated in consolidation. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair statement of the results for the
interim periods presented have been included. Certain reclassifications have been made to the
2006 unaudited condensed consolidated financial statements to conform to the 2007 presentation.
Operating results for the three months ended March 31, 2007, are not necessarily indicative of
the results that may be expected for the year ending December 31, 2007. These statements should
be read in conjunction with the consolidated financial statements and footnotes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2006.B.
    
    Derivative ActivitiesWe use derivatives to manage exposures to interest rate and foreign currency risks and we
account for derivatives in accordance with SFAS 133. During the three months ended March 31,
2007 and 2006, we recorded the following for the derivative instruments and related hedged
items in earnings:
 Three Months EndedMarch 31(Dollars in thousands)2007
    
    
    2006Change in fair value of derivative instruments
with no hedge accounting treatment under SFAS
133 (a)
    
    $
    (17,598
    )
    
    $
    (137,503
    )Offsetting change in value of foreign
denominated debt related to contracts with no
hedge accounting treatment under SFAS 133
    
    
    33,621
    
    
    
    75,029Change in fair value of derivative
instruments accounted for as fair value hedges
    
    
    
    
    
    
    (19,141
    )Offsetting change in value of foreign
denominated debt related to fair value hedges
    
    
    
    
    
    
    19,156Change in value of foreign denominated
debt related to cash flow hedges
    
    
    28,721
    
    
    
    35,803Offsetting reclassification to Accumulated
Other Comprehensive Income reflecting change
in value of foreign denominated debt related
to cash flow hedges
    
    
    (28,721
    )
    
    
    (35,803
    )Ineffectiveness related to cash flow hedges
    
    
    605
    
    
    
    (1,551
    )Reclassification of Other Comprehensive
Income related to derivative instruments
de-designated from hedges
    
    
    (4,395
    )
    
    
    Loss (income) related to derivative
instruments and related economically hedged
items
    
    $
    12,233
    
    
    $
    (64,010
    )
 
 (a)
    
    In the second quarter of 2006, we designated 17 swaps for hedge accounting under SFAS 133.
These swaps were previously outstanding but no hedge accounting was applied. -7-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007
(Unaudited)
 In addition, we recorded the following income in lease revenue related to
derivatives.
 Three Months EndedMarch 31(Dollars in thousands)2007
    
    
    2006$
    1,497
    
    
    $
    4,463
 During the three months ended March 31, 2007 and 2006, $16.1 million (net) and $3.1 million
(net) were reclassified from Accumulated other comprehensive income (loss) to interest expense
when interest was paid or received on our qualifying SFAS 133 cash flow hedges, respectively. We
estimate that within the next twelve months we will amortize into earnings approximately $5.6
million of the pre-tax balance in Accumulated other comprehensive income (loss) under cash flow
hedge accounting in connection with our program to convert debt from floating to fixed interest
rates. All components of each derivatives gain or loss were included in the assessment of
ineffectiveness.C.
    
    Related Party TransactionsWe are party to cost sharing agreements with AIG. Generally, these agreements provide for
the allocation of corporate costs based upon a proportional allocation of costs to all
subsidiaries. We also pay AIG a fee related to management services provided for certain of our
foreign subsidiaries. We earned management fees from two trusts consolidated by AIG for the
management of aircraft we have sold to the trusts.Our financial statements include the following related party charges (income) recorded for
the three months ended March 31, 2007 and 2006:
 2007
    
    
    2006(Dollars in thousands)Allocation of corporate costs from AIG
    
    $
    2,359
    
    
    $
    1,879Management services paid to AIG
    
    
    26
    
    
    
    24Management fees received from trusts
consolidated by AIG
    
    
    (2,427
    )
    
    
    (2,416
    )
 Lease receivables and other assets included $0.6 million at March 31, 2007 and $0.4
million at December 31, 2006 related to the management of those aircraft.D.
    
    Recent Accounting PronouncementsIn July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No.
109, Accounting for Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprises financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes (SFAS 109). FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of
an income tax position taken or expected to be taken in a tax return and provides guidance on
de-recognition, classification, interest and penalties, accounting in interim periods,
additional disclosures and transition. We adopted the provisions of FIN 48 on January 1, 2007.
On the date of adoption we did not record any adjustment for uncertain tax liabilities.
Therefore, our adoption of FIN 48 had no effect on our financial statements.Interest and penalties, when applicable, are included in the provision for income taxes.As of the date of adoption of FIN 48, the total amount of uncertain tax liabilities was
$54.8 million (including interest of $16.4 million), which was already recognized. This amount
relates to proposed tax return adjustments for the years 1991 to 2003, which have been agreed
with, but not yet finalized by, the relevant taxing authorities. Included in the amount are
$31.6 million of tax positions, the disallowance of which would affect our effective tax rate.During the three months ended March 31, 2007, these recognized uncertain tax liabilities
were reduced by $23.9 million (including interest of $10.1 million) as a result of settlement
of a portion of such liabilities with AIG, and were increased by $1.1 million, reflecting
additional tax return adjustments and interest.
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007
(Unaudited)
 In addition, during the three months ended March 31, 2007, we recognized $10.9 million in
uncertain tax benefits related to Foreign Sales Corporation (FSC) benefits or
Extraterritorial Income (ETI) exclusions that would, if recognized, reduce the effective tax rate.We estimate our unrecognized tax benefits will increase by an amount ranging from $43.6
million to $58.0 million over the next twelve months.AIG continually evaluates proposed adjustments by taxing authorities. The tax years 1991
through 2006 remain subject to examination by tax authorities in the jurisdictions to which we
are subject (principally in the United States).In September 2006, FASB issued Statement No. 157, Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about fair value measurement that
require or permit fair value measurements. The statement is effective for fiscal years
beginning after November 15, 2007. We are currently assessing the effect of implementing this
statement.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure
at fair value many financial instruments and certain other items that are not currently
required to be measured at fair value. Subsequent changes in fair value for designated items
will be required to be reported in earnings in the current period. SFAS 159 also establishes
presentation and disclosure requirements for similar types of assets and liabilities measured
at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. We are currently assessing the effect of implementing this guidance,
which depends on the nature and extent of items elected to be measured at fair value, upon
initial application of the standard on January 1, 2008.
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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, Quantitative and Qualitative
Disclosures about Market Risk Part II  Item 1A. Risk Factors, Part I  Item 1A. Risk Factors
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Overview and Industry Condition
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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
    
    Provision for Overhauls
    
    Derivative Financial Instruments
    
    Income Taxes
 Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
 Financial Condition
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Public bonds and medium-term notes
    
    $
    21,425,886
    
    
    $
    21,317,011Bank and other term debt
    
    
    3,879,412
    
    
    
    3,818,688Subordinated debt
    
    
    1,000,000
    
    
    
    1,000,000Total public debt, bank debt and subordinated debt
    
    
    26,305,298
    
    
    
    26,135,699Commercial paper
    
    
    3,778,378
    
    
    
    2,757,647Deferred debt discount
    
    
    (36,542
    )
    
    
    (33,104
    )Total debt financing
    
    $
    30,047,134
    
    
    $
    28,860,242Selected interest rates and ratio:Composite interest rate including the effect of
all derivative instruments
    
    
    5.23
    %
    
    
    5.24
    %Composite interest rate excluding the effect of
derivative instruments with no hedge accounting
treatment under SFAS 133
    
    
    5.21
    %
    
    
    5.00
    %Percentage of total debt at fixed rates
    
    
    75.78
    %
    
    
    78.88
    %Composite interest rate on fixed rate debt
    
    
    5.11
    %
    
    
    5.12
    %Bank prime rate
    
    
    8.25
    %
    
    
    8.25
    %
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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, 2006
    
    March 31, 2007
    
    April 30, 2007(Dollars in millions)Registration
statement
dated August
16, 2006
(including
$5.0 billion
Medium-Term
Note
Program)
    
    Unlimited(a)
    
    $
    1,900
    
    
    $
    2,500
    
    
    $
    3,350Registration
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)
    
    
    5,782
    
    
    
    5,817
    
    
    
    5,824Euro
Medium-Term
Note
Programme
dated
September
2005 (c)(d)
    
    
    7,000
    
    
    
    4,276
    
    
    
    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 economically 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
    Subordinated Debt
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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
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
   Market Liquidity Risk
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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
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter(Dollars in thousands)Public and Bank Term
Debt
    
    $
    25,305,299
    
    
    $
    4,298,386
    
    
    $
    4,458,610
    
    
    $
    3,733,764
    
    
    $
    4,585,650
    
    
    $
    4,582,159
    
    
    $
    3,646,730Commercial Paper
    
    
    3,778,378
    
    
    
    3,778,378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subordinated Debt
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Interest Payments on
Debt Outstanding
(a)(b)
    
    
    7,715,435
    
    
    
    979,987
    
    
    
    1,119,661
    
    
    
    899,711
    
    
    
    674,061
    
    
    
    462,403
    
    
    
    3,579,612Operating Leases
    
    
    83,160
    
    
    
    6,720
    
    
    
    9,303
    
    
    
    9,594
    
    
    
    9,969
    
    
    
    10,367
    
    
    
    37,207Pension Obligations
(c)
    
    
    4,226
    
    
    
    637
    
    
    
    658
    
    
    
    678
    
    
    
    712
    
    
    
    753
    
    
    
    788Tax Benefit Sharing
Agreement Due to
AIG
    
    
    245,000
    
    
    
    160,000
    
    
    
    
    
    
    
    85,000
    
    
    
    
    
    
    
    
    
    
    
    Purchase
Commitments
    
    
    17,176,500
    
    
    
    3,248,600
    
    
    
    4,115,000
    
    
    
    3,069,700
    
    
    
    1,286,000
    
    
    
    1,091,000
    
    
    
    4,366,200Total
    
    $
    55,307,998
    
    
    $
    12,472,708
    
    
    $
    9,703,232
    
    
    $
    7,798,447
    
    
    $
    6,556,392
    
    
    $
    6,146,682
    
    
    $
    12,630,537Contingent CommitmentsContingency Expiration by Fiscal YearTotal
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter(Dollars in thousands)Put Options (d)
    
    
    343,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,550Asset ValueGuarantees (d).
    
    
    166,818
    
    
    
    
    
    
    
    35,452
    
    
    
    16,150
    
    
    
    
    
    
    
    27,841
    
    
    
    87,375Loan Guarantees (d)
    
    
    34,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,588Lines of Credit
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    Total
    
    $
    594,956
    
    
    $
    
    
    
    $
    35,452
    
    
    $
    16,150
    
    
    $
    
    
    
    $
    77,841
    
    
    $
    465,513
 
 (a)
    
    Future interest payments on floating rate debt are estimated using floating
interest rate in effect at March 31, 2007.(b)
    
    Includes the effect of interest rate and foreign currency derivative instruments.(c)
    
    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 2007
consists of total estimated allocations for 2007 and the column Thereafter consists of
the 2012 estimated allocation. The amount allocated has not been material to date.(d)
    
    From time to time, we participate with airlines, banks and other financial
institutions to assist in financing aircraft by providing asset guarantees, put options,
or loan guarantees collateralized by aircraft. As a result, should we be called upon to
fulfill our obligations, we would have recourse to the value of the underlying aircraft. -17-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Results of Operations
 (i) (ii)
   (i) (ii)
  Note B. Notes to Condensed Consolidated Financial Statements
 Increase2007
    
    2006
    
    (decrease)Beginning of Quarter
    
    
    5.24
    %
    
    
    5.00
    %
    
    
    0.24
    %End of Quarter
    
    
    5.23
    %
    
    
    5.12
    %
    
    
    0.11
    %Average
    
    
    5.24
    %
    
    
    5.06
    %
    
    
    0.18
    %
    (i)
 -18-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 (ii)
    -19-




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Value at Risk
     ILFC Market RiskThree months Ended
    
    Year EndedMarch 31, 2007
    
    December 31, 2006(Dollars in millions)Average
    
    High
    
    Low
    
    Average
    
    High
    
    LowCombined
    
    $
    87.0
    
    
    $
    102.3
    
    
    $
    71.6
    
    
    $
    151.5
    
    
    $
    208.7
    
    
    $
    102.3Interest Rate
    
    
    87.0
    
    
    
    102.2
    
    
    
    71.8
    
    
    
    151.3
    
    
    
    208.0
    
    
    
    102.2Currency
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.9
    
    
    
    1.6
    
    
    
    0.3
 -20-




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ITEM 4T.
    
    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 and Chief Financial 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 March 31, 2007, we have concluded that our disclosure
controls and procedures were effective at the reasonable assurance level.Variable Interest EntitiesOur consolidated financial statements for the period ended March 31, 2007, include
assets in the amount of $121.3 million (2007) and $124.7 million (December 31, 2006),
liabilities in the amount of $8.1 million (2007) and $8.2 million (December 31, 2006)
and a net loss of $0.8 million (2007) and a net loss of $1.7 million (2006) 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.(B)
    
    Identification of Material Weaknesses in Internal Control Over Financial
ReportingA material weakness existed in our internal control over financial reporting with
respect to accounting for derivative instruments as of December 31, 2006 and was
remediated in the first quarter of 2007. 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. As of December 31, 2006, we 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. This control
deficiency 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 financial statements for the years
ended 2001 through 2005 and our 2005 and 2006 interim financial statements. Accordingly,
management had concluded this control deficiency constituted a material weakness. This
material weakness was remediated as of March 31, 2007; see Item4(c)  Changes in
Internal Control Over Financial Reporting.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.
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ITEM 4T.
    
    CONTROLS AND PROCEDURES (CONTINUED)
 (C)
    
    Changes in Internal Control Over Financial ReportingRemediation of Material Weaknesses in Internal Control over Financial ReportingWe took the following actions to remediate the material weakness:
 
    
    We established enhanced procedures performed by accounting personnel over
documentation with respect to hedge accounting.
    
    We established reviews of ineffectiveness measures by qualified personnel to
ensure acceptable methods are used.
 Accordingly, management has concluded that this material weakness has been remediated as
of March 31, 2007.There has been no other changes in our internal control over financial reporting during
the three months ended March 31, 2007 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
 -22-




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PART II.
    
    OTHER INFORMATION
 ITEM 1.
    
    LEGAL PROCEEDINGSOn June 9, 2006, the Supreme Court of Canada ruled in favor of various Canadian
airport authorities and NAV Canada against aircraft owners of Canada 3000s
(C3) fleet, for charges incurred but not paid by C3 prior to its bankruptcy in
November 2001. ILFC posted letters of credit of approximately CAD$10.0 million,
which constituted about 110% of the amount which had been allocated to the ILFC
owned and managed aircraft to cover navigation and landing charges and related
costs. We recorded a charge in the amount of $9.6 million in Selling, general
and administrative on the Condensed Consolidated Statements of Income for the
three months ended March 31, 2006. In January 2007, we settled the charges for
an amount approximately equal to the amount accrued in 2006.ITEM 1A.
    
    RISK FACTORSOur business is subject to numerous risks and uncertainties, as described
below and in the sections titled Managements Discussion and Analysis of
Financial Condition and Results of Operations  Overview and Industry
Conditionsand Quantitative and Qualitative Disclosures about Market Risk.We operate as a supplier and financier to airlines. The risks affecting our
airline customers are generally out of our control and impact our customers to
varying degrees. As a result, we are indirectly impacted by all the risks facing
airlines today. Our customers ability to compete effectively in the market
place and manage these risks has a direct impact on us and our operating
results.Risks directly or indirectly affecting our business include:
 
    
    Overall Airline Industry Risk
  Ø
    
    Demand for air travelØ
    
    Competition between carriersØ
    
    Fuel prices and availabilityØ
    
    Labor costs and stoppagesØ
    
    Maintenance costsØ
    
    Employee labor contractsØ
    
    Air traffic control infrastructure constraintsØ
    
    Airport access
 Ø
    
    Insurance costs and coverageØ
    
    Security, terrorism and warØ
    
    Worldwide health concernsØ
    
    Equity and borrowing capacityØ
    
    Environmental concernsØ
    
    Government regulationØ
    
    Interest ratesØ
    
    Overcapacity
   
    
    Airframe, Engine and Other Manufacturer Risk
    
    Borrowing Risks
  Ø
    
    LiquidityØ
    
    Interest rate risk
   -23-




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PART II. OTHER INFORMATION (CONTINUED)
 
    
    Other Risks
 Ø
    
    Residual valueØ
    
    ObsolescenceØ
    
    Key personnelØ
    
    Foreign currency exchange rate riskØ
    
    Relationship with AIGØ
    
    Accounting pronouncements
 For a detailed discussion of risk factors affecting us, see Item 1A. Risk
Factorsin our Annual Report on Form 10-K for the year ended December 31,
2006.
 
 ITEM 5.
    
    OTHER INFORMATION
 On January 9, 2007, effective January 1, 2007, Kurt Schwarz was appointed Senior Vice
President, Chief Accounting Officer and Controller of the Company. Mr. Schwarz, age 48, had
been Senior Vice President and Controller of the Company from January 1, 2005 to January 9,
2007 and Vice President and Controller from April 17, 1995 to January 1, 2005.
 
 ITEM 6. EXHIBITS
 a)
    
    Exhibits
 3.1
    
    
    Restated Articles of Incorporation of the Company,
as amended through December 9, 1992, filed November 3, 1993 (filed as an
exhibit to Registration Statement No. 33-50913 and incorporated herein by
reference).3.2
    
    
    Certificate of Determination of Preferences of
Series A Market Auction Preferred Stock (filed December 9, 1992 as an
exhibit to Registration Statement No. 33-54294 and incorporated herein by
reference).3.3
    
    
    Certificate of Determination of Preferences of
Series B Market Auction Preferred Stock (filed December 9, 1992 as an
exhibit to Registration Statement 33-54294 and incorporated herein by
reference).3.4
    
    
    Certificate of Determination of Preferences of
Series C Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.5
    
    
    Certificate of Determination of Preferences of
Series D Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.6
    
    
    Certificate of Determination of Preferences of
Series E Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.7
    
    
    Certificate of Determination of Preferences of
Series F Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.8
    
    
    Certificate of Determination of Preferences of
Series G Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).3.9
    
    
    Certificate of Determination of Preferences of
Series H Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).3.10
    
    
    Certificate of Determination of Preferences of
Preferred Stock of the Company (filed as an exhibit to Form 10-K for the
year ended December 31, 2001 and incorporated herein by reference).3.11
    
    
    By-Laws of the Company, including amendment thereto
dated August 31, 1990 (filed as an exhibit to Form 10-K for the year
ended December 31, 2003 and incorporated herein by reference).3.12
    
    
    Unanimous Written Consent of Sole Stockholder of
the Company, dated January 2, 2002, amending the Bylaws of the Company
(filed as an exhibit to Form 10-Q for the quarter ended June 30, 2003 and
incorporated herein by reference).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 and Chief Financial Officer32.1
    
    
    Certification under 18 U.S.C., Section 1350
 -24-




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SIGNATURES
   May 14, 2007
    /S/ Steven F. Udvar-HazySTEVEN F. UDVAR-HAZYChairman of the Board and
Chief Executive OfficerMay 14, 2007
    /S/ Alan H. LundALAN H. LUNDVice Chairman and
Chief Financial Officer -25-




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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 and Chief Financial Officer32.1
    
    Certification under 18 U.S.C., Section 1350
 -26-