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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q


QUARTERLY REPORT






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


For the quarterly period ended September 30, 2003

OR

o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


For the transition period from  to

Commission file number 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.)1999 Avenue of the Stars, 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 o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes o 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 October 24, 2003, there were 42,198,119 shares of Common Stock, no
par value, outstanding.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                              |                                                                                               | 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 4                    
|EXHIBIT 12                   
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 



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

TABLE OF CONTENTS

PagePart I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets
September 30, 2003 and December 31, 2002
    
    
    3Condensed Consolidated Statements of Income and Comprehensive Income
Three Months Ended September 30, 2003 and 2002
    
    
    4Condensed Consolidated Statements of Income and Comprehensive Income
Nine Months Ended September 30, 2003 and 2002
    
    
    5Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8Cautionary Statement Regarding Forward Looking Information
    
    
    10Item 2. Managements Discussion and Analysis of the Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20Part II. Other InformationItem 6. Exhibits and Reports on Form 8-K
    
    
    21Signatures
    
    
    22


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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)

September 30,
    
    December 31,2003
    
    2002(Unaudited)ASSETSCash, including interest bearing accounts
of $86,312 (2003) and $65,693 (2002)
    
    $
    159,683
    
    
    $
    66,049Current income taxes receivable
    
    
    65,216
    
    
    
    193,526Notes receivable and net investment in finance leases
    
    
    525,470
    
    
    
    372,577Flight equipment under operating leases
    
    
    32,894,656
    
    
    
    29,631,150Less accumulated depreciation
    
    
    4,987,488
    
    
    
    4,343,40327,907,168
    
    
    
    25,287,747Deposits on flight equipment purchases
    
    
    1,187,652
    
    
    
    1,157,864Accrued interest, other receivables and other assets
    
    
    183,141
    
    
    
    142,817Derivative assets
    
    
    441,732
    
    
    
    170,395Investments
    
    
    62,834
    
    
    
    64,067Deferred
debt issue costs  less accumulated amortization of$57,470 (2003) and $68,516 (2002)
    
    
    49,852
    
    
    
    35,571$
    30,582,748
    
    
    $
    27,490,613LIABILITIES AND SHAREHOLDERS EQUITYAccrued interest and other payables
    
    $
    368,318
    
    
    $
    235,827Debt financing, net of deferred debt discount of $25,775
(2003) and $31,928 (2002)
    
    
    20,934,942
    
    
    
    18,716,644Foreign currency adjustment
    
    
    502,128
    
    
    
    264,880Derivative liabilities
    
    
    79,805
    
    
    
    135,853Capital lease obligations
    
    
    180,954
    
    
    
    260,623Security and other deposits on flight equipment
    
    
    835,128
    
    
    
    864,053Rentals received in advance
    
    
    141,670
    
    
    
    129,244Deferred income taxes
    
    
    2,601,062
    
    
    
    2,322,327SHAREHOLDERS 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
    
    
    (93,290
    )
    
    
    (138,620
    )Retained earnings
    
    
    3,698,494
    
    
    
    3,366,245Total shareholders equity
    
    
    4,938,741
    
    
    
    4,561,162$
    30,582,748
    
    
    $
    27,490,613


See notes to condensed consolidated financial statements.

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

2003
    
    2002(Unaudited)REVENUESRental of flight equipment
    
    $
    753,551
    
    
    $
    686,833Flight equipment marketing
    
    
    33,437
    
    
    
    15,256Interest and other
    
    
    9,167
    
    
    
    28,089796,155
    
    
    
    730,178EXPENSESInterest
    
    
    233,041
    
    
    
    218,410Depreciation of flight equipment
    
    
    295,591
    
    
    
    247,580Flight equipment rent
    
    
    10,324
    
    
    
    19,343Provision for overhauls
    
    
    31,671
    
    
    
    28,548Selling, general and administrative
    
    
    21,032
    
    
    
    23,562591,659
    
    
    
    537,443INCOME BEFORE INCOME TAXES
    
    
    204,496
    
    
    
    192,735Provision for income taxes
    
    
    67,217
    
    
    
    51,499NET INCOME
    
    
    137,279
    
    
    
    141,236COMPREHENSIVE INCOME (NET OF TAX)Net changes in cash flow hedges
    
    
    45,327
    
    
    
    (49,651
    )Foreign currency adjustment
    
    
    (30,888
    )
    
    
    (8,531
    )14,439
    
    
    
    (58,182
    )COMPREHENSIVE INCOME
    
    $
    151,718
    
    
    $
    83,054


See notes to condensed consolidated financial statements.

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

2003
    
    2002(Unaudited)REVENUESRental of flight equipment
    
    $
    2,196,991
    
    
    $
    1,976,166Flight equipment marketing
    
    
    48,344
    
    
    
    34,896Interest and other
    
    
    37,573
    
    
    
    88,1322,282,908
    
    
    
    2,099,194EXPENSESInterest
    
    
    689,141
    
    
    
    625,488Depreciation of flight equipment
    
    
    841,831
    
    
    
    700,038Flight equipment rent
    
    
    37,108
    
    
    
    58,097Provision for overhauls
    
    
    86,284
    
    
    
    68,605Selling, general and administrative
    
    
    60,893
    
    
    
    67,2941,715,257
    
    
    
    1,519,522INCOME BEFORE INCOME TAXES
    
    
    567,651
    
    
    
    579,672Provision for income taxes
    
    
    192,477
    
    
    
    190,048NET INCOME
    
    
    375,174
    
    
    
    389,624COMPREHENSIVE INCOME (NET OF TAX)Net changes in cash flow hedges
    
    
    186,530
    
    
    
    38,463Foreign currency adjustment
    
    
    (141,200
    )
    
    
    (103,398
    )45,330
    
    
    
    (64,935
    )COMPREHENSIVE INCOME
    
    $
    420,504
    
    
    $
    324,689SUPPLEMENTAL COMPREHENSIVE INCOME INFORMATIONCumulative foreign currency adjustment, net of tax
    
    $
    (313,371
    )
    
    $
    (22,523
    )Cumulative cash flow hedge loss adjustment, net of tax
    
    
    220,081
    
    
    
    (93,041
    )


See notes to condensed consolidated financial statements.

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

2003
    
    2002(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    375,174
    
    
    $
    389,624Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation of flight equipment
    
    
    841,831
    
    
    
    700,038Deferred income taxes
    
    
    254,326
    
    
    
    330,809Foreign exchange adjustment
    
    
    20,018
    
    
    
    26,874Change in derivative instruments
    
    
    (40,416
    )
    
    
    (20,719
    )Amortization of deferred debt issue costs
    
    
    30,268
    
    
    
    13,960Change in unamortized debt discount
    
    
    6,153
    
    
    
    (20,891
    )Other
    
    
    598
    
    
    
    (1,606
    )Changes in operating assets and liabilities:Increase in notes receivable
    
    
    (11,519
    )
    
    
    (40,507
    )Increase in accrued interest, other receivables and other assets
    
    
    (40,325
    )
    
    
    (99,899
    )Decrease in current income taxes receivable
    
    
    128,310
    
    
    
    11,688Increase in accrued interest and other payables
    
    
    136,086
    
    
    
    149,234Increase in rentals received in advance
    
    
    12,426
    
    
    
    14,015Net cash provided by operating activities
    
    
    1,712,930
    
    
    
    1,452,620INVESTING ACTIVITIESAcquisition of flight equipment for operating leases
    
    
    (4,223,607
    )
    
    
    (3,993,075
    )Acquisition of flight equipment for finance leases
    
    
    (165,202
    )
    
    
    (12,886
    )Increase in notes receivable
    
    
    (30,198
    )
    
    
    (28,775
    )(Increase) decrease in deposits and progress payments
    
    
    (29,788
    )
    
    
    38,857Proceeds from disposal of flight equipment  net of gain
    
    
    773,431
    
    
    
    88,281Collections on notes receivable and sales-type leases
    
    
    38,852
    
    
    
    56,259Other
    
    
    1,139
    
    
    
    873Net cash used in investing activities
    
    
    (3,635,373
    )
    
    
    (3,850,466
    )FINANCING ACTIVITIESRepurchase of preferred stock
    
    
    
    
    
    
    (50,000
    )Net change in commercial paper
    
    
    (2,718,408
    )
    
    
    228,478Proceeds from debt financing
    
    
    7,544,107
    
    
    
    5,096,325Payments in reduction of debt financing and capital lease obligations
    
    
    (2,693,223
    )
    
    
    (2,708,213
    )Debt issue costs
    
    
    (44,549
    )
    
    
    (21,536
    )Decrease in customer deposits
    
    
    (28,925
    )
    
    
    (104,902
    )Payment of common and preferred dividends
    
    
    (42,925
    )
    
    
    (44,635
    )Net cash provided by financing activities
    
    
    2,016,077
    
    
    
    2,395,517Increase (decrease) in cash
    
    
    93,634
    
    
    
    (2,329
    )Cash at beginning of period
    
    
    66,049
    
    
    
    79,383Cash at end of period
    
    $
    159,683
    
    
    $
    77,054


(Table continued on following page)

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

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

2003
    
    2002(Unaudited)Cash paid (received) during the period for:Interest (net of amount capitalized
of $36,159 (2003) and $44,968
(2002))
    
    $
    570,686
    
    
    $
    465,809Income taxes, net
    
    
    (190,159
    )
    
    
    (152,450
    )


2003



| |  | 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | One aircraft was received in exchange for notes receivable in the amount of
$28,715 and preferred stock in the amount of $2,202.
| |  | --------------------------------------------------------------------------------------------------------------------------------

2002



| |  | Notes in the amount of $28,775 were received as partial payment in exchange
for flight equipment sold with a net book value of $46,242.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  | One aircraft was received in exchange for notes receivable in the amount of
$10,968.
| |  | ------------------------------------------------------------------------------------



| |  | Pursuant to an agreement with the holder, the Company cancelled the
outstanding shares of Series A Preferred Stock and issued 3,951,398 shares
of common stock.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain reclassifications have been made to the 2002 unaudited
condensed consolidated financial statements to conform to the 2003
presentation. Operating results for the nine months ended September 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 10-K for the year ended
December 31, 2002.



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

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

Income (loss) related to derivative instruments:Fair value of non-hedging instruments
    
    $
    4,695Fair value of hedging instruments
    
    
    (32,657
    )Offsetting changes in fair value of hedged items
    
    
    32,590Ineffectiveness related to cash flow hedges
    
    
    (297
    )$
    4,331


During the nine months ended September 30, 2003, $16,480 (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 $59.3 million 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). 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. An entity is subject to FIN 46 and is called a VIE if it has (i)
equity that is insufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties or (ii)
equity investors that cannot make significant decisions about the entitys
operations or that do not absorb the expected losses or receive the expected
returns of the entity. A VIE is consolidated by its primary beneficiary,
which is the party that has a majority of the expected losses or a majority
of the expected residual returns of the VIE, or both. All other entities not
considered VIEs are evaluated for consolidation under existing guidance.

The provisions of FIN 46 apply at inception for any entity created
after January 31, 2003. For a VIE created before February 1, 2003, the
provisions of FIN 46 were to be applied at the beginning of the first
interim or annual period beginning after June 15, 2003. However, the FASB,
at its meeting on October 8, 2003, issued FASB staff position 46-6,
Effective Date of FASB Interpretation No. 46, Consolidation of VIEs (FSP
46-6). FSP 46-6 delayed implementation of provisions of FIN 46 for entities
created before February 1, 2003 to the first interim or annual period ending
after December 15, 2003. The Company therefore delayed implementation of
provisions of FIN 46 relating to entities created before February 1, 2003
from July 1, 2003 to December 31, 2003.

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

Beginning December 31, 2003, the Company will be required to
consolidate certain off balance sheet arrangements and other 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.

Off Balance Sheet Arrangements

The Companys off balance sheet arrangements in the form of sale
lease-back transactions entered into in 1997 exist to facilitate financing
of aircraft at favorable rates. As a result of the adoption of FIN 46 at
December 31, 2003, the Company expects to increase both assets and
liabilities by approximately $464.2 million and expects to record an
after-tax gain of approximately $1.0 million as a cumulative effect of a
change in accounting principle.

Other Variable Interest Entities

The Company has provided financing or guaranteed third party financing
to entities owned by independent third parties and existing for the purpose
of owning and leasing one aircraft each. The financing agreements are
collateralized by the aircraft. The Companys maximum exposure to loss as a
result of its involvement with these entities is the difference between the
market value of the aircraft and the remaining principal amount of the debt
at any given time. As a result of the adoption of FIN 46 at December 31,
2003, the Company expects to increase both assets and liabilities by
approximately $80.0 million and expects to record an after-tax charge of
approximately $9.0 million as a cumulative effect of a change in accounting
principle.

The Company sold an aircraft to a company owned by a non-related party
in the second quarter of 2003 in exchange for cash and a note receivable.
The Company determined after evaluating the entity, that the Company was the
primary beneficiary, as defined by FIN 46. The Company consolidated the
entity that bought the aircraft in accordance with FIN 46 and eliminated the
notes receivable starting June 30, 2003.



|D. |  | Related Party Transactions
|-- |  | --------------------------

The Company contracted to sell 37 aircraft to a trust during the third
quarter of 2003 for approximately $1.0 billion. The first 28 aircraft were
transferred as of September 30, 2003,with the remaining nine expected to be
transferred by December 31, 2003. The trust is consolidated by another
subsidiary of the Companys parent. Neither the trust nor the subsidiary is
consolidated by the Company. The transaction was a securitization, in which
the trust acquired the aircraft based on values assigned by independent
appraisers. Further, an unaffiliated third party acted as capital markets
advisor and initial purchaser of the notes of the securitization. Gains in
the amount of $18.5 million, net of fees and expenses, related to the
transaction are included in Flight Equipment Marketing for the periods ended
September 30, 2003. The Company will continue to manage the aircraft sold to
the trust for a fee.

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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.

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

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 maturing debt obligations. These funds are borrowed principally on
an unsecured basis from various sources. During the nine months ended
September 30, 2003, the Company borrowed $7.5 billion (excluding commercial
paper) and $1.7 billion was provided by operating activities. As of
September 30, 2003, the Company has committed to purchase 470 aircraft from
Airbus and Boeing at an estimated aggregate purchase price of $27.0 billion
for delivery through 2010 and holds options to purchase 12 additional
aircraft at an estimated aggregate purchase price of approximately $776.4
million. The Company currently expects to fund expenditures for aircraft,
and to meet its liquidity needs, from a combination of available cash
balances, internally generated funds and financing arrangements. The Company
continues to explore new funding sources and ways to diversify its investor
base. The Companys debt financing and capital lease obligations were
comprised of the following at the following dates:

September 30,
    
    December 31,2003
    
    2002(Dollars in thousands)Public term debt with single maturities
    
    $
    10,328,375
    
    
    $
    7,475,775Public medium-term notes with varying maturities
    
    
    6,025,006
    
    
    
    4,969,500Capital lease obligations
    
    
    180,954
    
    
    
    260,623Bank and other term debt
    
    
    3,107,240
    
    
    
    2,084,793Total term debt, bank debt, and capital lease obligations
    
    
    19,641,575
    
    
    
    14,790,691Commercial paper
    
    
    1,500,096
    
    
    
    4,218,504Deferred debt discount
    
    
    (25,775
    )
    
    
    (31,928
    )Total debt financing and capital lease obligations
    
    $
    21,115,896
    
    
    $
    18,977,267Selected interest rates and ratio:Composite interest rate
    
    
    4.63
    %
    
    
    4.73
    %Percentage of total debt at fixed rates
    
    
    77.79
    %
    
    
    76.67
    %Composite interest rate on fixed rate debt
    
    
    5.38
    %
    
    
    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 foreign
currency denominated debt into US dollars using current exchange rates as of
each balance sheet date. The foreign exchange adjustment for the foreign
currency denominated debt was $502.1 million (2003) and $264.8 million
(2002). Composite interest rates and percentages of total debt at fixed
rates reflect the effect of derivative instruments.

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##### Table of Contents





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

Public Debt(Exclusive of the Commercial Paper Program)

The interest on most of the public debt 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
    
    September 30, 2003
    
    October 21, 2003(Dollars in millions)Registration
statement dated
December 20, 2002
(including $2.88
billion
Medium-Term Note
program and $1.0
billion Retail
Medium-Term Note
Program)
    
    $
    6,080
    (a)
    
    $
    
    
    
    $
    4,962
    
    
    $
    5,187Registration
statement dated
July 1, 2003
    
    
    5,000
    
    
    
    
    
    
    
    650
    
    
    
    650Euro Medium-Term
Note Programme
dated
May 2003 (b)(c)
    
    
    5,000
    
    
    
    2,106
    
    
    
    2,808
    
    
    
    3,393




---

|(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.                                                                         
|   
|(c) |  | This is a perpetual program. As a bond issue matures, the amount
becomes available again under the program.                                                                            

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 September 30, 2003, $1.9
billion was outstanding under the facility.

During the nine months ended September 30, 2003, the Company entered
into various bank financings for a total funded amount of $1.2 billion. The
financings mature through 2009. One tranche of one of the loans totaling
$410 million was funded in Japanese yen and swapped to US dollars. The
interest rates are LIBOR based and ranged from 2.063% to 2.745% at September
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 75% of the aggregate amount of the backup facilities
available (see Bank Commitments). The weighted average interest rate of the
Companys commercial paper outstanding was 1.07% at September 30, 2003 and
1.46% at December 31, 2002.

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##### Table of Contents





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

Bank Commitments

As of September 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 .50% 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 as backup for the
Companys maturing debt and other obligations. The Company had not drawn on
its revolving loans and lines of credit as of September 30, 2003. On October
17, 2003, the Company replaced its $3.15 billion loan facilities with new
facilities totaling $4.2 billion with primarily the same terms and
conditions as the previous facilities.

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 eleven aircraft from the 1995 and 1996
sale-leaseback transactions when the leases expired in December 2002 and
September 2003, respectively. If the Company does not negotiate extensions
of the one-year operating lease terms as they expire in September 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), assuming the current
contractual end of the transactions, are $5.5 million (2003). The Companys
implementation of FASB Interpretation No. 46 (FIN 46) will require the
Company to consolidate the sale-leaseback entity, beginning at December 31,
2003. The Company expects to record assets and liabilities, each of
approximately $462.4 million and expects to record an after-tax gain of
approximately $1.0 million as a cumulative change in accounting principle
related to these entities and will then cease to record rent expense for the
operating leases. See Note C at Notes to Condensed Consolidated Financial
Statements.

Other Variable Interest Entities

The Company has sold aircraft to entities owned by third parties and
has from time to time issued asset value guarantees or loan guarantees
related to the aircraft sold. The Company is a variable interest holder in
some of those entities under the provisions of FIN 46. The Company has
determined that it is the primary beneficiary, as defined by FIN 46, of
certain of those entities. As a result, effective December 31, 2003, the
Company will be required to consolidate those entities. The Company expects
to record assets and liabilities,each of approximately $80.0 million
related to these entities and expects to record an after tax charge of
approximately $9.0 million as a cumulative effect of a change in accounting
principle as a result of the adoption of FIN 46. See Note C at Notes to
Condensed Consolidated Financial Statements.

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

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##### Table of Contents





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

fluctuations. These derivative products include interest rate swap
agreements, currency swap agreements, and interest rate floor agreements.

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 then 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 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, secured 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
September 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
    
    $
    19,460,622
    
    
    $
    877,620
    
    
    $
    3,709,624
    
    
    $
    3,543,226
    
    
    $
    3,648,641
    
    
    $
    2,981,736
    
    
    $
    4,699,775Capital Lease
Obligations
    
    
    180,954
    
    
    
    37,700
    
    
    
    101,508
    
    
    
    41,746
    
    
    
    
    
    
    
    
    
    
    
    Commercial Paper
    
    
    1,500,096
    
    
    
    1,432,769
    
    
    
    67,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    124,184
    
    
    
    2,962
    
    
    
    10,653
    
    
    
    10,755
    
    
    
    8,575
    
    
    
    8,918
    
    
    
    82,321Operating Leases
under
Sale-Lease-Back
Transactions (a)
    
    
    467,886
    
    
    
    5,495
    
    
    
    462,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Commitments
    
    
    27,049,400
    
    
    
    888,700
    
    
    
    4,765,600
    
    
    
    5,389,800
    
    
    
    4,611,600
    
    
    
    4,740,100
    
    
    
    6,653,600Total
    
    $
    48,783,142
    
    
    $
    3,245,246
    
    
    $
    9,117,103
    
    
    $
    8,985,527
    
    
    $
    8,268,816
    
    
    $
    7,730,754
    
    
    $
    11,435,696




---

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

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##### Table of Contents





|        |                                                                                                 
|------- | ------------------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL 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
    
    $
    776,400
    
    
    $
    
    
    
    $
    
    
    
    $
    37,700
    
    
    $
    342,600
    
    
    $
    256,000
    
    
    $
    140,100Put Options (a)
    
    
    781,695
    
    
    
    
    
    
    
    98,616
    
    
    
    457,078
    
    
    
    
    
    
    
    
    
    
    
    226,001Asset Value Guarantees (a)
    
    
    79,939
    
    
    
    
    
    
    
    17,976
    
    
    
    11,041
    
    
    
    8,178
    
    
    
    
    
    
    
    42,744Loan Guarantees (a)
    
    
    102,826
    
    
    
    
    
    
    
    19,362
    
    
    
    
    
    
    
    31,234
    
    
    
    
    
    
    
    52,230Lines of Credit
    
    
    56,000
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Total
    
    $
    1,796,860
    
    
    $
    
    
    
    $
    141,954
    
    
    $
    505,819
    
    
    $
    382,012
    
    
    $
    256,000
    
    
    $
    511,075




---

|(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 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 the nine months ended
September 30, 2003, two of the Companys customers, Avianca (one owned
aircraft) and Hawaiian Airlines (four owned aircraft), filed for protection
under Chapter 11 of the United States Bankruptcy Code and three of the
Companys customers, Air Canada (eleven owned and one managed aircraft),
Aero Lloyd Flugreisen (eight owned aircraft), and Aeris (three owned and one
managed aircraft) filed for protection under their respective countrys
bankruptcy code. At September 30, 2003, the Company had re-leased the
aircraft previously leased to Avianca. The Company has reached agreement for
the continuation of the Hawaiian and Air Canada leases, and the airlines are
in compliance with the terms of the new agreements. The Company will either
renegotiate the leases with Aero Lloyd Flugreisen and Aeris or terminate the
leases and market the aircraft to other airlines.

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 to travel to Asia during the first six months of 2003.
Travel to Asia has, however, picked up sharply since the World Health
Organization lifted the warnings against visits to SARS affected countries
in the second quarter of 2003.

On October 16, 2003, Boeing announced that it had decided to complete
production of the 757 jetliner in late 2004. At September 30, 2003, the
Company owned 59 757s, all of which were on lease to airlines. The Company
is evaluating the impact the Boeing decision will have on the future
financial viability of the Companys fleet of 757 aircraft. As a result, the
Company is reviewing its depreciation policies related to the fleet of 757s
or the economic value at the end of its useful life.

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##### Table of Contents





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

Non-GAAP Financial Measures

Lease Margin

Lease Margin is defined as Rental of flight equipment less total
expenses, divided by Rental of flight equipment. The most directly
comparable GAAP financial measure is Profit Margin, which is defined as
Income before income taxes, divided by Total revenues. The difference
between Lease Margin and Profit Margin is the exclusion of Revenues from
both Flight equipment marketing and Interest and other. Lease Margin is a
measure by which the Company isolates and evaluates the overall
profitability of its contractual leasing operations, which constitute the
Companys primary revenue generating activity.

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

Revenues from the rental of flight equipment increased 9.7% to $753.6
million in 2003 compared to $686.8 million in 2002, due to an increase in
the number of aircraft available for operating lease, partially offset by a
number of aircraft being reconfigured and redelivered and therefore not
earning revenue for the entire period. The Company did not have any aircraft
off-lease (not subject to a signed lease agreement or a signed letter of
intent) at September 30, 2003. Revenues were negatively impacted by lower
lease rates and restructured rents as a result of the slowdown and turmoil
of the airline industry.

The Companys Lease Margin for the period stayed relatively flat at
21.5% in 2003 compared to 21.8% for the same period in 2002. The Companys
Profit Margin decreased to 25.7% compared to 26.4% for the same periods. The
Company expects factors described in Industry Conditionsto further
negatively impact revenues in the fourth quarter of 2003 and beyond, as some
airlines continue to experience financial difficulties. At September 30,
2003, the Companys fleet, on which it earns rental revenue, consisted of
599 aircraft compared to a fleet of 542 aircraft at September 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 $33.5 billion
at September 30, 2003 compared to $29.7 billion at September 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 increased to $33.4 million in 2003
compared to $15.3 million in 2002. The Company sold 29 aircraft and two
engines during the third quarter of 2003, compared to two aircraft and one
engine during the third quarter of 2002. Flight equipment marketing includes
gains of $18.5 million from sales to a related party (see Note D of Notes to
Condensed Consolidated Financial Statements).

Interest and other revenue decreased to $9.2 million in 2003 compared
to $28.1 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 $0.8 million in
2003 as compared to $20.0 million in 2002.

Interest expense increased to $233.0 million in 2003 compared to $218.4
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 $21.4 billion in 2003
compared to $18.4 billion in 2002. This increase was partially offset by a
decrease in the average composite borrowing rate to 4.57% in 2003 compared
to 4.99% in 2002. The Companys composite borrowing rate decreased as
follows:

2003
    
    2002
    
    DecreaseBeginning of Quarter
    
    
    4.50
    %
    
    
    5.03
    %
    
    
    0.53
    %End of Quarter
    
    
    4.63
    %
    
    
    4.95
    %
    
    
    0.32
    %Average
    
    
    4.57
    %
    
    
    4.99
    %
    
    
    0.42
    %


Interest expense for the three months ended September 30, 2003 includes
a $1.7 million benefit related to derivative activities.

Depreciation of flight equipment increased 19.4% to $295.6 million in
2003 compared to $247.6 million in 2002 due to the increased cost of the
fleet.

The Company, in prior periods, had entered into sale-leaseback
transactions. Currently seven aircraft are accounted for under these
transactions. Flight equipment rent decreased to $10.3 million in 2003
compared to $19.3 million in 2002 due to the repurchase of eleven aircraft
in connection with the terminations of the leases in December 2002 and
September 2003 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.

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##### Table of Contents





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

Provision for overhauls increased to $31.7 million in 2003 compared to
$28.5 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 increased to $67.2 million in 2003
compared to $51.5 million in 2002. The effective tax rate increased to 32.9%
from 26.7% for the third quarter 2003 compared to the same period in 2002.
The reduced rate in 2002 was the result of the Company reevaluating state
deferred taxes in the third quarter of 2002. The reevaluation was the result
of a reduction in the Companys state apportionment factor used in the
filing of the state unitary return.

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- Nine months ended September 30, 2003 versus 2002.

Revenue from the rentals of flight equipment increased 11.2% to
$2,197.0 million in 2003 compared to $1,976.2 million in 2002, due to an
increase in the number of aircraft available for operating lease, partially
offset by a number of aircraft being reconfigured and redelivered and
therefore not earning revenue for the entire period. The Company did not
have any aircraft off-lease (not subject to a signed lease agreement or a
signed letter of intent) at September 30, 2003. Revenues were 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 21.9% in 2003
compared to 23.1% for the same period in 2002. The Companys Profit Margin
decreased to 24.9% compared to 27.6% for the same periods. The Company
expects factors described in Industry Conditionsto further negatively
impact revenues in 2003 and beyond as airlines continue to experience
financial difficulties. At September 30, 2003, the Companys fleet, on which
it earns rental revenue, consisted of 599 aircraft compared to a fleet of
542 aircraft at September 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 $33.5 billion at September 30, 2003 compared
to $29.7 billion at September 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 increased to $48.3 million in 2003
compared to $34.9 million in 2002. The Company sold 30 aircraft and two
engines during the nine months ended September 30, 2003, and sold four
aircraft and two engines during the same period in 2002. Flight equipment
marketing includes gains of $18.5 million from sales to a related party (see
Note D of Notes to Condensed Consolidated Financial Statements).

Interest and other revenue decreased to $37.5 million in 2003 compared
to $88.1 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 $5.8 million in
2003 as compared to $62.8 million in 2002.

Interest expense increased to $689.1 million in 2003 compared to $625.5
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 $20.1 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 4.68% in 2003 compared
to 5.01% in 2002. The Companys composite borrowing rate decreased as
follows:

2003
    
    2002
    
    DecreaseBeginning of nine months
    
    
    4.73
    %
    
    
    5.07
    %
    
    
    0.34
    %End of nine months
    
    
    4.63
    %
    
    
    4.95
    %
    
    
    0.32
    %Average
    
    
    4.68
    %
    
    
    5.01
    %
    
    
    0.33
    %


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##### Table of Contents





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

Interest expense for the nine months ended September 30, 2003 includes
a $4.3 million benefit related to derivative activities.

Depreciation of flight equipment increased 20.3% to $841.8 million in
2003 compared to $700.0 million in 2002 due to the increased cost of the
fleet.

The Company, in prior periods, had entered into sale-leaseback
transactions. Currently seven aircraft are accounted for under these
transactions. Flight equipment rent decreased to $37.1 million in 2003
compared to $58.1 million in 2002 due to the repurchase of eleven aircraft
in connection with the terminations of the leases in December 2002 and
September 2003 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 $86.3 million in 2003 compared to
$68.6 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 increased to $192.5 million in 2003
compared to $190.0 million in 2002. The effective tax rate increased to
33.9% from 32.8% for the nine months ended September 30, 2003 compared to
2002. The reduced rate in 2002 was the result of the Company reevaluating
state deferred taxes in the third quarter of 2002. The reevaluation was the
result of a reduction in the Companys state apportionment factor used in
the filing of the state unitary return.

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.

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|        |                                                           
|------- | ----------------------------------------------------------
|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 and 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 September 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 September 30, 2003 and December 31, 2002:

ILFC
Market RiskNine Months Ended
    
    Year EndedSeptember 30, 2003
    
    December 31, 2002(Dollars in millions)Average
    
    High
    
    Low
    
    Average
    
    High
    
    LowCombined
    
    $
    27.6
    
    
    $
    67.8
    
    
    $
    7.8
    
    
    $
    20.1
    
    
    $
    42.8
    
    
    $
    7.8Interest Rate
    
    
    27.7
    
    
    
    67.9
    
    
    
    7.8
    
    
    
    20.0
    
    
    
    42.8
    
    
    
    7.8Currency
    
    
    0.9
    
    
    
    1.3
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    1.2
    
    
    
    0.0


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

As of September 30, 2003, 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 have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

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PART II. OTHER INFORMATION






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



| | 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 Registration Statement No. 33-37600 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)4.
    
    Sixth Supplemental Indenture, dated as of
June 2, 2003, to the indenture between the Company and
U.S. Bank National Association.12.
    
    Computation of Ratios of Earnings to
Fixed Charges and Preferred Stock Dividends31.1
    
    Certification of Chairman of the Board
and Chief Executive Officer31.2
    
    Certification of Vice Chairman, Chief
Financial Officer and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section
1350




| | b) |  | Reports on Form 8-K:
| | -- |  | --------------------

Form 8-K, event date July 11, 2003 (Item 7)
Form 8-K, event date July 29, 2003 (Item 7)
Form 8-K, event date September 4, 2003 (Item 7)

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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 CORPORATIONOctober 30, 2003
    
    /S/ Steven F. Udvar-HazySTEVEN F. UDVAR-HAZYChairman of the Board andChief Executive OfficerOctober 30, 2003
    
    /S/ Alan H. LundALAN H. LUNDVice Chairman,Chief Financial Officerand Chief Accounting Officer


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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES




INDEX TO EXHIBITS

Exhibit No.4.
    
    Sixth Supplemental Indenture, dated as of
June 2, 2003, to the indenture between the Company and
U.S. Bank National Association.12.
    
    Computation of Ratios of Earnings to
Fixed Charges and Preferred Stock Dividends31.1
    
    Certification of Chairman of the Board
and Chief Executive Officer31.2
    
    Certification of Vice Chairman, Chief
Financial Officer and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section
1350


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