##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from              to
 Commission File number 001-32959
 AIRCASTLE LIMITED
  Bermuda
    
    98-0444035(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)c/o Aircastle Advisor LLC 
300 First Stamford Place,
5thFloor, Stamford, CT(Address of principal executive offices)
    
    06902(Zip Code)
 Registrants telephone number, including area code (203) 504-1020
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filero
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



Aircastle Limited and Subsidiaries
 Form 10-Q
 Table of Contents
 Page No.PART I.  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of December 31, 2009 and September 30, 2010
    
    
    3Consolidated Statements of Income for the three and nine months ended
September 30, 2009 and 2010
    
    
    4Consolidated Statements of Cash Flows for the nine months ended
September 30, 2009 and 2010
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    56Item 4. Controls and Procedures
    
    
    57PART II.  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    58Item 1A. Risk Factors
    
    
    58Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    58Item 6. Exhibits
    
    
    58SIGNATURE
    
    
    59EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Aircastle Limited and Subsidiaries
 
 Consolidated Balance Sheets
(Dollars in thousands, except share data)
 December 31,
    
    
    September 30,2009
    
    
    2010(Unaudited)ASSETSCash and cash equivalents
    
    $
    142,666
    
    
    $
    310,881Accounts receivable
    
    
    2,941
    
    
    
    1,900Restricted cash and cash equivalents
    
    
    207,834
    
    
    
    190,331Restricted liquidity facility collateral
    
    
    81,000
    
    
    
    77,000Flight equipment held for lease, net of accumulated depreciation of
$586,537 and $740,786
    
    
    3,812,970
    
    
    
    3,871,054Aircraft purchase deposits and progress payments
    
    
    141,144
    
    
    
    228,023Leasehold improvements, furnishings and equipment, net of
accumulated depreciation of $2,455 and $2,746
    
    
    802
    
    
    
    534Other assets
    
    
    65,155
    
    
    
    71,569Total assets
    
    $
    4,454,512
    
    
    $
    4,751,292LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESBorrowings from secured and unsecured debt financings (including
borrowings of ACS Ireland VIEs of $331,856 and $318,736,
respectively)
    
    $
    2,464,560
    
    
    $
    2,679,909Accounts payable, accrued expenses and other liabilities
    
    
    60,392
    
    
    
    68,738Dividends payable
    
    
    7,955
    
    
    
    7,947Lease rentals received in advance
    
    
    34,381
    
    
    
    38,049Liquidity facility
    
    
    81,000
    
    
    
    77,000Security deposits
    
    
    82,533
    
    
    
    77,610Maintenance payments
    
    
    253,175
    
    
    
    299,519Fair value of derivative liabilities
    
    
    179,279
    
    
    
    217,089Total liabilities
    
    
    3,163,275
    
    
    
    3,465,861Commitments and ContingenciesSHAREHOLDERS EQUITYPreference shares, $.01 par value, 50,000,000 shares authorized,
no shares issued and outstanding
    
    
    
    
    
    
    Common shares, $.01 par value, 250,000,000 shares authorized,
79,550,421 shares issued and outstanding at December 31, 2009; and
79,471,068 shares issued and outstanding at September 30, 2010
    
    
    796
    
    
    
    795Additional paid-in capital
    
    
    1,479,995
    
    
    
    1,483,577Retained earnings
    
    
    70,294
    
    
    
    92,036Accumulated other comprehensive loss
    
    
    (259,848
    )
    
    
    (290,977
    )Total shareholders equity
    
    
    1,291,237
    
    
    
    1,285,431Total liabilities and shareholders equity
    
    $
    4,454,512
    
    
    $
    4,751,292
 The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
 3




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##### Table of Contents



Aircastle Limited and Subsidiaries
 
 Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Revenues:Lease rental revenue
    
    $
    128,283
    
    
    $
    133,486
    
    
    $
    383,683
    
    
    $
    391,741Amortization of net lease discounts and lease
incentives
    
    
    (3,992
    )
    
    
    (4,203
    )
    
    
    (7,919
    )
    
    
    (13,957
    )Maintenance revenue
    
    
    31,376
    
    
    
    2,540
    
    
    
    47,616
    
    
    
    14,630Total lease rentals
    
    
    155,667
    
    
    
    131,823
    
    
    
    423,380
    
    
    
    392,414Interest income
    
    
    556
    
    
    
    
    
    
    
    1,783
    
    
    
    Other revenue
    
    
    9,517
    
    
    
    424
    
    
    
    9,628
    
    
    
    578Total revenues
    
    
    165,740
    
    
    
    132,247
    
    
    
    434,791
    
    
    
    392,992Expenses:Depreciation
    
    
    53,130
    
    
    
    55,703
    
    
    
    156,379
    
    
    
    164,272Interest, net
    
    
    43,032
    
    
    
    47,453
    
    
    
    127,925
    
    
    
    128,578Selling, general and administrative (including
non-cash share based payment expense of $1,742 and
$1,532 for the three months ended, and $5,129 and
$5,243 for the nine months ended, September 30,
2009 and 2010, respectively)
    
    
    11,074
    
    
    
    11,334
    
    
    
    33,291
    
    
    
    34,043Impairment of aircraft
    
    
    18,211
    
    
    
    7,342
    
    
    
    18,211
    
    
    
    7,342Maintenance and other costs
    
    
    4,836
    
    
    
    1,192
    
    
    
    15,114
    
    
    
    6,829Total expenses
    
    
    130,283
    
    
    
    123,024
    
    
    
    350,920
    
    
    
    341,064Other income (expense):Gain (loss) on sale of aircraft
    
    
    162
    
    
    
    
    
    
    
    162
    
    
    
    (1,291
    )Other income (expense)
    
    
    (738
    )
    
    
    (501
    )
    
    
    855
    
    
    
    (1,047
    )Total other income (expense)
    
    
    (576
    )
    
    
    (501
    )
    
    
    1,017
    
    
    
    (2,338
    )Income from continuing operations before income
taxes
    
    
    34,881
    
    
    
    8,722
    
    
    
    84,888
    
    
    
    49,590Income tax provision
    
    
    1,423
    
    
    
    153
    
    
    
    5,388
    
    
    
    4,003Net income
    
    $
    33,458
    
    
    $
    8,569
    
    
    $
    79,500
    
    
    $
    45,587Earnings per common share  Basic
    
    $
    0.42
    
    
    $
    0.11
    
    
    $
    1.00
    
    
    $
    0.57Earnings per common share  Diluted
    
    $
    0.42
    
    
    $
    0.11
    
    
    $
    1.00
    
    
    $
    0.57Dividends declared per share
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.30
    
    
    $
    0.30
 The
accompanying notes are an integral part of these unaudited consolidated financial statements.
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Aircastle Limited and Subsidiaries
 
 Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2010Cash flows from operating activities:Net income
    
    $
    79,500
    
    
    $
    45,587Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    156,379
    
    
    
    164,272Amortization of deferred financing costs
    
    
    8,808
    
    
    
    11,494Amortization of net lease discounts and lease incentives
    
    
    7,919
    
    
    
    13,957Deferred income taxes
    
    
    4,560
    
    
    
    2,957Accretion of purchase discounts on debt investments
    
    
    (430
    )
    
    
    Non-cash share based payment expense
    
    
    5,129
    
    
    
    5,243Cash flow hedges reclassified into earnings
    
    
    10,932
    
    
    
    6,412Ineffective portion of cash flow hedges
    
    
    (116
    )
    
    
    2,533(Gain) loss on sale of flight equipment
    
    
    (162
    )
    
    
    1,291Security deposits and maintenance payments included in earnings
    
    
    (36,982
    )
    
    
    (13,026
    )Loss on sale of investments
    
    
    131
    
    
    
    Impairment of aircraft
    
    
    18,211
    
    
    
    7,342Other
    
    
    (556
    )
    
    
    990Changes in certain assets and liabilities:Accounts receivable
    
    
    (909
    )
    
    
    15Restricted cash and cash equivalents
    
    
    (35,456
    )
    
    
    17,503Other assets
    
    
    (1,975
    )
    
    
    (4,288
    )Accounts payable, accrued expenses and other liabilities
    
    
    (8,397
    )
    
    
    3,137Lease rentals received in advance
    
    
    (537
    )
    
    
    3,298Net cash provided by operating activities
    
    
    206,049
    
    
    
    268,717Cash flows from investing activities:Acquisition and improvement of flight equipment and lease incentives
    
    
    (124,082
    )
    
    
    (230,450
    )Proceeds from sale of flight equipment
    
    
    10,601
    
    
    
    34,832Aircraft purchase deposits and progress payments, net of returned deposits
    
    
    (41,912
    )
    
    
    (124,994
    )Proceeds from sale of debt investments
    
    
    5,423
    
    
    
    Principal repayments on debt investments
    
    
    3,787
    
    
    
    Leasehold improvements, furnishings and equipment
    
    
    (82
    )
    
    
    (23
    )Net cash used in investing activities
    
    
    (146,265
    )
    
    
    (320,635
    )Cash flows from financing activities:Repurchase of shares from directors and employees
    
    
    (247
    )
    
    
    (1,662
    )Proceeds from debt financings
    
    
    70,916
    
    
    
    472,682Debt repayments
    
    
    (111,619
    )
    
    
    (257,418
    )Deferred financing costs
    
    
    (3,588
    )
    
    
    (11,974
    )Restricted secured liquidity facility collateral
    
    
    (81,000
    )
    
    
    4,000Secured liquidity facility collateral
    
    
    81,000
    
    
    
    (4,000
    )Security deposits received
    
    
    39,554
    
    
    
    6,675Security deposits returned
    
    
    (11,541
    )
    
    
    (10,255
    )Maintenance payments received
    
    
    56,608
    
    
    
    89,035Maintenance payments returned
    
    
    (21,938
    )
    
    
    (39,511
    )Payments for terminated hedges
    
    
    (2,758
    )
    
    
    (3,586
    )Dividends paid
    
    
    (23,710
    )
    
    
    (23,853
    )Net cash provided by (used in) financing activities
    
    
    (8,323
    )
    
    
    220,133Net increase in cash and cash equivalents
    
    
    51,461
    
    
    
    168,215Cash and cash equivalents at beginning of period
    
    
    80,947
    
    
    
    142,666Cash and cash equivalents at end of period
    
    $
    132,408
    
    
    $
    310,881Supplemental disclosures of cash flow information:Cash paid for interest, net of capitalized interest
    
    $
    109,525
    
    
    $
    103,895Cash paid for income taxes
    
    $
    2,304
    
    
    $
    3,121Supplemental disclosures of non-cash investing activities:Security deposits, maintenance payment liabilities and other liabilities settled in sale of flight equipment
    
    $
    2,556
    
    
    $
    100Advance lease rentals and security deposits assumed in asset acquisitions
    
    $
    
    
    
    $
    4,330Supplemental disclosures of non-cash financing activities:Advance lease rentals converted to maintenance reserves
    
    $
    
    
    
    $
    1,750Security deposits converted to advance lease rentals
    
    $
    
    
    
    $
    730Security deposits converted to maintenance payment liabilities
    
    $
    11,110
    
    
    $
    
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Aircastle Limited and Subsidiaries
 
 Notes to Unaudited Consolidated Financial Statements
 (Dollars in thousands, except per share amounts)
 September 30, 2010
 Note 1. Summary of Significant Accounting Policies
 Organization
  Basis of Presentation
   Principles of Consolidation
   Recent Accounting Pronouncements
 Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities
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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
  Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
 Note 2. Fair Value Measurements
  
    
    Level 1: Observable inputs such as quoted prices in active markets for identical assets
or liabilities.
    
    Level 2: Inputs other than quoted prices included within Level 1 that are observable,
either directly or indirectly, such as quoted prices for similar assets or liabilities or
market corroborated inputs.
    
    Level 3: Unobservable inputs for which there is little or no market data and which
require us to develop our own assumptions about how market participants price the asset or
liability.
  
    
    Market approach  Uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.
    
    Income approach  Uses valuation techniques to convert future amounts to a single
present amount based on current market expectation about those future amounts.
    
    Cost approach  Based on the amount that currently would be required to replace the
service capacity of an asset (replacement cost).
 7




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
  Fair Value Measurements at December 31, 2009Using Fair Value HierarchyQuotedPrices inActive
    
    
    SignificantFair Value
    
    
    Markets for
    
    
    Other
    
    
    Significantas of
    
    
    Identical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Valuation2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TechniqueAssets:Cash and cash equivalents
    
    $
    142,666
    
    
    $
    142,666
    
    
    $
    
    
    
    $
    
    
    
    MarketRestricted cash and cash equivalents
    
    
    207,834
    
    
    
    207,834
    
    
    
    
    
    
    
    
    
    
    MarketTotal
    
    $
    350,500
    
    
    $
    350,500
    
    
    $
    
    
    
    $
    Liabilities:Derivative liabilities
    
    $
    179,279
    
    
    $
    
    
    
    $
    140,372
    
    
    $
    38,907
    
    
    Income
 Fair Value Measurements at September 30, 2010Using Fair Value HierarchyQuotedPrices inActive
    
    
    SignificantFair Value
    
    
    Markets for
    
    
    Other
    
    
    Significantas of
    
    
    Identical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Valuation2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TechniqueAssets:Cash and cash equivalents
    
    $
    310,881
    
    
    $
    310,881
    
    
    $
    
    
    
    $
    
    
    
    MarketRestricted cash and cash equivalents
    
    
    190,331
    
    
    
    190,331
    
    
    
    
    
    
    
    
    
    
    MarketTotal
    
    $
    501,212
    
    
    $
    501,212
    
    
    $
    
    
    
    $
    Liabilities:Derivative liabilities
    
    $
    217,089
    
    
    $
    
    
    
    $
    150,649
    
    
    $
    66,440
    
    
    Income
   8




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
   Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2010
    
    
    2010Derivative LiabilitiesBalance at beginning of period
    
    $
    (59,416
    )
    
    $
    (38,907
    )Transfers into Level 3
    
    
    
    
    
    
    Transfers out of Level 3
    
    
    
    
    
    
    Total gains or (losses):Included in interest income
    
    
    
    
    
    
    Included in other income (expense)
    
    
    (171
    )
    
    
    (446
    )Included in interest expense
    
    
    (58
    )
    
    
    (180
    )Included in other comprehensive income
    
    
    (6,795
    )
    
    
    (26,907
    )Balance at end of period
    
    $
    (66,440
    )
    
    $
    (66,440
    )
      9




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
   December 31, 2009
    
    
    September 30, 2010Carrying Amount
    
    
    Fair Value of
    
    
    Carrying Amount
    
    
    Fair Value ofof Asset
    
    
    Asset
    
    
    of Asset
    
    
    Asset(Liability)
    
    
    (Liability)
    
    
    (Liability)
    
    
    (Liability)Securitizations and term debt financings
    
    $
    (2,324,972
    )
    
    $
    (2,037,718
    )
    
    $
    (2,099,525
    )
    
    $
    (1,892,319
    )ECA term financings
    
    
    (139,588
    )
    
    
    (140,984
    )
    
    
    (201,585
    )
    
    
    (207,257
    )A330 PDP Facility
    
    
    
    
    
    
    
    
    
    
    (82,778
    )
    
    
    (82,778
    )2010-1 Notes
    
    
    
    
    
    
    
    
    
    
    (296,021
    )
    
    
    (304,500
    )
 Note 3. Lease Rental Revenues and Flight Equipment Held for Lease
  Year Ending December 31,
    
    AmountRemainder of 2010
    
    $
    134,7882011
    
    
    522,0822012
    
    
    458,4352013
    
    
    354,4192014
    
    
    270,6762015
    
    
    216,745Thereafter
    
    
    415,130Total
    
    $
    2,372,275
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Region
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Europe
    
    
    47
    %
    
    
    46
    %
    
    
    46
    %
    
    
    46
    %Asia
    
    
    18
    %
    
    
    21
    %
    
    
    20
    %
    
    
    20
    %North America
    
    
    16
    %
    
    
    14
    %
    
    
    16
    %
    
    
    15
    %Latin America
    
    
    8
    %
    
    
    9
    %
    
    
    7
    %
    
    
    9
    %Middle East and Africa
    
    
    11
    %
    
    
    10
    %
    
    
    11
    %
    
    
    10
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   10




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
   Three Months Ended September 30,2009
    
    
    2010Percent of
    
    
    Number
    
    
    
    
    
    
    Percent of
    
    
    NumberTotal
    
    
    of
    
    
    
    
    
    
    Total
    
    
    ofCountry
    
    Revenue
    
    
    Revenue
    
    
    Lessees
    
    
    Revenue
    
    
    Revenue
    
    
    LesseesUnited States
    
    $
    16,501
    
    
    
    10
    %
    
    
    4
    
    
    $
    16,980
    
    
    
    13
    %
    
    
    4China(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,714
    
    
    
    11
    %
    
    
    5Netherlands
    
    
    24,001
    
    
    
    14
    %
    
    
    4
    
    
    
    14,015
    
    
    
    11
    %
    
    
    3India(b) (c)
    
    
    19,944
    
    
    
    12
    %
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
 
 (a)
    
    Total revenue attributable to China was less than 10% for the three months ended September 30, 2009.(b)
    
    Total revenue attributable to India was less than 10% for the three months ended September 30, 2010.(c)
    
    Includes maintenance revenue of $17.2 million for the three months ended September 30, 2009. Nine Months Ended September 30,2009
    
    
    2010Percent of
    
    
    Number
    
    
    
    
    
    
    Percent of
    
    
    NumberTotal
    
    
    of
    
    
    
    
    
    
    Total
    
    
    ofCountry
    
    Revenue
    
    
    Revenue
    
    
    Lessees
    
    
    Revenue
    
    
    Revenue
    
    
    LesseesUnited States
    
    $
    48,841
    
    
    
    11
    %
    
    
    4
    
    
    $
    50,379
    
    
    
    13
    %
    
    
    4China(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,557
    
    
    
    11
    %
    
    
    5Netherlands
    
    
    53,418
    
    
    
    12
    %
    
    
    4
    
    
    
    42,042
    
    
    
    11
    %
    
    
    3India(b) (c)
    
    
    46,318
    
    
    
    11
    %
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
 
 (a)
    
    Total revenue attributable to China was less than 10% for the nine months ended September 30, 2009.(b)
    
    Total revenue attributable to India was less than 10% for the nine months ended September 30, 2010.(c)
    
    Includes maintenance revenue of $31.9 million for the nine months ended September 30, 2009.  December 31, 2009
    
    
    September 30, 2010Number
    
    
    
    
    
    
    Numberof
    
    
    Net Book
    
    
    of
    
    
    Net BookRegion
    
    Aircraft
    
    
    Value %
    
    
    Aircraft
    
    
    Value %Europe
    
    
    58
    
    
    
    46
    %
    
    
    62
    
    
    
    46
    %Asia
    
    
    30
    (1)
    
    
    20
    %
    
    
    33
    
    
    
    23
    %North America
    
    
    15
    
    
    
    12
    %
    
    
    14
    
    
    
    11
    %Latin America
    
    
    10
    
    
    
    9
    %
    
    
    11
    
    
    
    9
    %Middle East and Africa
    
    
    13
    
    
    
    12
    %
    
    
    11
    
    
    
    11
    %Off-lease
    
    
    3
    (2)
    
    
    1
    %
    
    
    1
    (3)
    
    
    
    %Total
    
    
    129
    
    
    
    100
    %
    
    
    132
    
    
    
    100
    %
 
 (1)
    
    Includes one Boeing Model 737-400 aircraft which was being
converted to freighter configuration and for which we had an
executed lease with a carrier in Asia post-conversion and which we
delivered in the first quarter of 2010.(2)
    
    Includes one Boeing Model 737-300 aircraft which was returned to
us on a consensual early lease termination in the third quarter of
2009 and which was delivered to a customer on lease in the second
quarter of 2010 and two Boeing Model 757-200 aircraft which were
returned to us early on a consensual basis in the third quarter of
2009, one of which was sold in the second quarter of 2010 and the
other which was sold in the third quarter of 2010.(3)
    
    Represents one Boeing Model 737-300 aircraft which was returned to
us late in the third quarter of 2010 when a customer ceased
operations. We are currently marketing this aircraft for lease or
sale. 11




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
  December 31, 2009
    
    
    September 30, 2010Net Book
    
    
    Net Book
    
    
    Number of
    
    
    Net Book
    
    
    Net Book
    
    
    Number ofCountry
    
    Value
    
    
    Value %
    
    
    Lessees
    
    
    Value
    
    
    Value %
    
    
    LesseesChina
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    444,396
    
    
    
    11
    %
    
    
    5Netherlands
    
    
    435,796
    
    
    
    11
    %
    
    
    3
    
    
    
    416,539
    
    
    
    11
    %
    
    
    3
 
 (a)
    
    The net book value of flight equipment attributable to China was less than 10% as of December 31, 2009.   Note 4. Variable Interest Entities
   Securitizations and Term Financing
  12




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
   ECA Term Financings
    13




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
 Note 5. Borrowings from Secured and Unsecured Debt Financings
  AtDecember 31,2009
    
    At September 30, 2010Outstanding
    
    Outstanding
    
    
    
    
    
    Final StatedDebt Obligation
    
    Borrowings
    
    Borrowings
    
    Interest Rate(1)
    
    Maturity(2)Secured Debt Financings:Securitization No. 1
    
    $
    436,091
    
    
    $
    420,444
    
    
    
    0.53
    %
    
    
    6/20/31Securitization No. 2
    
    
    1,061,566
    
    
    
    1,012,961
    
    
    
    0.52
    %
    
    
    6/14/37Term Financing No. 1
    
    
    708,710
    
    
    
    666,120
    
    
    
    2.01
    %
    
    
    5/02/15Term Financing No. 2
    
    
    118,605
    
    
    
    
    
    
    
    N/A
    
    
    
    N/AECA Term Financings
    
    
    139,588
    
    
    
    201,585
    
    
    2.65% to 4.48%
    
    5/27/21 to 08/31/22A330 PDP Facility
    
    
    
    
    
    
    82,778
    
    
    
    2.76
    %
    
    
    12/1/11
    (3)Total secured debt financings
    
    
    2,464,560
    
    
    
    2,383,888Unsecured Debt Financings:2010-1 Notes
    
    
    
    
    
    
    296,021
    
    
    
    9.75
    %
    
    
    8/01/182010 Revolving Credit Facility
    
    
    
    
    
    
    
    
    
    
    N/A
    
    
    
    9/28/13Total unsecured debt financings
    
    
    
    
    
    
    296,021Total secured and unsecured debt financings
    
    $
    2,464,560
    
    
    $
    2,679,909
 
 (1)
    
    Reflects floating rate in effect at the applicable reset date except for the ECA Term Financings, which are fixed rate.(2)
    
    For Securitization No. 1, Securitization No. 2 and Term Financing No. 1, all cash flows available after expenses and
interest will be applied to debt amortization, if the debt is not refinanced by June 2011, June 2012, and May 2013,
respectively.(3)
    
    Reflects the last scheduled delivery month for the six relevant new Airbus A330-200 delivery positions. The final
maturity date is the earlier of the aircraft delivery date or nine months after the scheduled delivery month for the
last scheduled delivery position.  Available LiquidityDecember 31,
    
    
    September 30,
    
    
    Unused
    
    
    Interest RateFacility
    
    Liquidity Facility Provider
    
    
    2009
    
    
    2010
    
    
    Fee
    
    
    on any AdvancesSecuritization No. 1
    
    Calyon
    
    $
    42,000
    
    
    $
    42,000
    
    
    
    0.45
    %
    
    1M Libor + 1.00%Securitization No. 2
    
    HSH Nordbank AG(1)
    
    
    79,617
    
    
    
    75,972
    
    
    
    0.50
    %
    
    1M Libor + 0.75%Term Financing No. 1
    
    Calyon
    
    
    14,174
    
    
    
    13,222
    
    
    
    0.60
    %
    
    1M Libor + 1.20%
 
 (1)
    
    Following a ratings downgrade with respect to the liquidity facility
provider in May 2009, the liquidity facility was drawn and the
proceeds, or permitted investments thereof, remain available to
provide liquidity if required. Amounts drawn following a ratings
downgrade with respect to the liquidity facility provider do not bear
interest; however, net investment earnings will be paid to the
liquidity facility provider and the unused fee continues to apply. Secured Debt Financings:
 Term Financing No. 1
  14




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
   Term Financing No. 2
  ECA Term Financings
   A330 PDP Facility
   15




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
 A330 SLB Facility
  Unsecured Debt Financings:
 2010-1 Notes
     2010 Revolving Credit Facility
  16




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
 Note 6. Dividends
  Dividend
    
    
    Aggregateper Common
    
    
    DividendDeclaration Date
    
    Share
    
    
    Amount
    
    
    Record Date
    
    
    Payment DateDecember 22, 2008
    
    $
    0.10
    
    
    $
    7,862
    
    
    December 31, 2008
    
    January 15, 2009March 13, 2009
    
    $
    0.10
    
    
    
    7,923
    
    
    March 31, 2009
    
    April 15, 2009June 10, 2009
    
    $
    0.10
    
    
    
    7,923
    
    
    June 30, 2009
    
    July 15, 2009September 10, 2009
    
    $
    0.10
    
    
    
    7,925
    
    
    September 30, 2009
    
    October 15, 2009December 14, 2009
    
    $
    0.10
    
    
    
    7,955
    
    
    December 31, 2009
    
    January 15, 2010March 12, 2010
    
    $
    0.10
    
    
    
    7,951
    
    
    March 31, 2010
    
    April 15, 2010May 25, 2010
    
    $
    0.10
    
    
    
    7,947
    
    
    June 30, 2010
    
    July 15, 2010September 21, 2010
    
    $
    0.10
    
    
    
    7,947
    
    
    September 30, 2010
    
    October 15, 2010
 Note 7. Earnings Per Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Weighted-average shares:Common shares outstanding
    
    
    78,012,914
    
    
    
    78,536,704
    
    
    
    77,977,089
    
    
    
    78,470,237Restricted common shares
    
    
    1,352,974
    
    
    
    1,048,237
    
    
    
    1,309,244
    
    
    
    1,137,163Total weighted-average shares
    
    
    79,365,888
    
    
    
    79,584,941
    
    
    
    79,286,333
    
    
    
    79,607,400Percentage of weighted-average shares:Common shares outstanding
    
    
    98.30
    %
    
    
    98.68
    %
    
    
    98.35
    %
    
    
    98.57
    %Restricted common shares
    
    
    1.70
    %
    
    
    1.32
    %
    
    
    1.65
    %
    
    
    1.43
    %Total
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
 17




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Earnings per share  Basic:Net income
    
    $
    33,458
    
    
    $
    8,569
    
    
    $
    79,500
    
    
    $
    45,587Less: Distributed and undistributed earnings
allocated to restricted common shares
(a)
    
    
    (570
    )
    
    
    (113
    )
    
    
    (1,313
    )
    
    
    (651
    )Earnings available to common shareholders  Basic
    
    $
    32,888
    
    
    $
    8,456
    
    
    $
    78,187
    
    
    $
    44,936Weighted-average common shares outstanding  Basic
    
    
    78,012,914
    
    
    
    78,536,704
    
    
    
    77,977,089
    
    
    
    78,470,237Earnings per common share  Basic
    
    $
    0.42
    
    
    $
    0.11
    
    
    $
    1.00
    
    
    $
    0.57Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Earnings per share  Diluted:Net income
    
    $
    33,458
    
    
    $
    8,569
    
    
    $
    79,500
    
    
    $
    45,587Less: Distributed and undistributed earnings
allocated to restricted common shares
    
    
    (570
    )
    
    
    (113
    )
    
    
    (1,313
    )
    
    
    (651
    )Earnings available to common shareholders  Diluted
    
    $
    32,888
    
    
    $
    8,456
    
    
    $
    78,187
    
    
    $
    44,936Weighted-average common shares outstanding  Basic
    
    
    78,012,914
    
    
    
    78,536,704
    
    
    
    77,977,089
    
    
    
    78,470,237Effect of dilutive shares
    
    
    
    (b)
    
    
    
    (b)
    
    
    
    (b)
    
    
    
    (b)Weighted-average common shares outstanding  Diluted
    
    
    78,012,914
    
    
    
    78,536,704
    
    
    
    77,977,089
    
    
    
    78,470,237Earnings per common share  Diluted
    
    $
    0.42
    
    
    $
    0.11
    
    
    $
    1.00
    
    
    $
    0.57
 
 (a)
    
    For the three months ended September 30, 2009 and 2010, distributed and undistributed
earnings to restricted shares is 1.70% and 1.32%, respectively, of net income. For the
nine months ended September 30, 2009 and 2010, distributed and undistributed earnings to
restricted shares is 1.65% and 1.43%, respectively, of net income. The amount of restricted
share forfeitures for all periods present is immaterial to the allocation of distributed
and undistributed earnings.(b)
    
    For the three and nine months ended September 30, 2009 and 2010, we have no dilutive shares. 18




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
 Note 8. Income Taxes
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010U.S. operations
    
    $
    383
    
    
    $
    218
    
    
    $
    1,342
    
    
    $
    1,240Non-U.S. operations
    
    
    34,498
    
    
    
    8,504
    
    
    
    83,546
    
    
    
    48,350Total
    
    $
    34,881
    
    
    $
    8,722
    
    
    $
    84,888
    
    
    $
    49,590
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Notional U.S. federal income tax expense at the statutory rate
    
    $
    12,209
    
    
    $
    3,053
    
    
    $
    29,711
    
    
    $
    17,357U.S. state and local income tax, net
    
    
    19
    
    
    
    17
    
    
    
    68
    
    
    
    78Non-U.S. operations
    
    
    (10,972
    )
    
    
    (2,925
    )
    
    
    (24,878
    )
    
    
    (14,318
    )Non-deductible expenses in the U.S.
    
    
    6
    
    
    
    135
    
    
    
    21
    
    
    
    1,025Other
    
    
    161
    
    
    
    (127
    )
    
    
    466
    
    
    
    (139
    )Provision for income taxes
    
    $
    1,423
    
    
    $
    153
    
    
    $
    5,388
    
    
    $
    4,003
 19




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
 Note 9. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Net income
    
    $
    33,458
    
    
    $
    8,569
    
    
    $
    79,500
    
    
    $
    45,587Net change in fair value of derivatives, net of tax
benefit of $135 and $52 for the three months ended,
and tax expense of $1,068 and tax benefit of $332 for
the nine months ended, September 30, 2009 and 2010,
respectively
    
    
    (15,696
    )
    
    
    (7,716
    )
    
    
    63,596
    
    
    
    (37,541
    )Derivative loss reclassified into earnings
    
    
    5,894
    
    
    
    2,338
    
    
    
    13,690
    
    
    
    6,412Net change in unrealized fair value of debt investments
    
    
    1,836
    
    
    
    
    
    
    
    1,698
    
    
    
    Total comprehensive income
    
    $
    25,492
    
    
    $
    3,191
    
    
    $
    158,484
    
    
    $
    14,458
  AccumulatedOtherComprehensiveIncome (Loss)December 31, 2009, net of tax benefit of $3,057
    
    $
    (259,848
    )Net change in fair value of derivatives, net of tax benefit of $332
    
    
    (37,541
    )Derivative loss reclassified into earnings
    
    
    6,412September 30, 2010
    
    $
    (290,977
    )
 Note 10. Commitments and Contingencies
   Note 11. Derivatives
  20




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
  Liability DerivativesFutureCurrent
    
    
    
    
    
    
    
    
    
    
    MaximumNotional
    
    
    Effective
    
    
    Maturity
    
    
    Notional
    
    
    Floating
    
    
    FixedHedged Item
    
    Amount
    
    
    Date
    
    
    Date
    
    
    Amount
    
    
    Rate
    
    
    Rate
    
    
    Balance Sheet Location
    
    
    Fair ValueInterest rate derivatives
designated as cash flow hedges :Securitization No. 1
    
    $
    433,368
    
    
    Jun-06
    
    Jun-16
    
    $
    433,368
    
    
    1M LIBOR+ 0.27%
    
    
    5.78
    %
    
    Fair value of derivative liabilities
    
    $
    71,852Securitization No. 2
    
    
    1,004,723
    
    
    Jun-07
    
    Jun-12
    
    
    1,004,723
    
    
    1M LIBOR
    
    5.25 to 5.36
    %
    
    Fair value of derivative liabilities
    
    
    78,797Term Financing No. 1(1)
    
    
    604,773
    
    
    Jun-08
    
    May-13
    
    
    604,773
    
    
    1M LIBOR
    
    
    4.04
    %
    
    Fair value of derivative liabilities
    
    
    44,824Term Financing No. 1(1)
    
    
    
    
    
    May-13
    
    May-15
    
    
    464,181
    
    
    1M LIBOR
    
    
    5.31
    %
    
    Fair value of derivative liabilities
    
    
    21,616Total interest rate derivatives
    
    $
    2,042,864
    
    
    
    
    
    
    
    
    
    
    $
    2,507,045
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    217,089
 
 (1)
    
    The interest payments related to Term Financing No. 1 are being
hedged by two consecutive interest rate derivatives. When the
first matures in May 2013, the next becomes effective.      21




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010
   Effective Portion
    
    
    Ineffective PortionAmount ofDerivatives in
    
    Amount of
    
    
    Location of
    
    
    Gain or (Loss)
    
    
    Location of
    
    
    Amount ofASC 815
    
    Gain or (Loss)
    
    
    Gain or (Loss)
    
    
    Reclassified from
    
    
    Gain or (Loss)
    
    
    Gain or (Loss)Cash Flow
    
    Recognized in OCI
    
    
    Reclassified from
    
    
    Accumulated OCI into
    
    
    Recognized in
    
    
    Recognized in IncomeHedging
    
    on Derivative
    
    
    Accumulated OCI
    
    
    Income
    
    
    Income on
    
    
    on DerivativeRelationships
    
    (a)
    
    
    into Income
    
    
    (b)
    
    
    Derivative
    
    
    (c)Interest rate derivatives
    
    $
    (109,680
    )
    
    Interest expense
    
    $
    (77,786
    ) (1)
    
    Interest expense
    
    $
    (2,866
    ) (1)
 
 (a)
    
    This represents the change in fair market value of our interest rate derivatives since year end, net of taxes, offset
by the amount of actual cash paid related to the net settlements of the interest rate derivatives for the nine months
ended September 30, 2010.(b)
    
    This represents the amount of actual cash paid, net of taxes, related to the net settlements of the interest rate
derivatives for each month of the nine months ended September 30, 2010 plus any effective amortization of net
deferred interest rate derivative losses.(c)
    
    This represents both realized and unrealized ineffectiveness incurred during the nine months ended September 30, 2010.(1)
    
    Excludes accelerated deferred loss of $766 which was charged to interest expense during the nine months ended
September 30, 2010 primarily as a result of changes in projected future debt related to Term Financing No. 1. Amount of GainLocation of Gain
    
    
    or (Loss)or (Loss)
    
    
    Recognized inDerivatives Not Designated as
    
    Recognized in Income
    
    
    Income onHedging Instruments under ASC 815
    
    On Derivative
    
    
    DerivativeInterest rate derivatives
    
    Other income (expense)
    
    $
    (990
    )
  22




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
 September 30, 2010
  Amount of Deferred(Gain) or LossAmortized (including
    
    
    Amount ofAccelerated
    
    
    DeferredUnamortized

    
    
    Amortization) into
    
    
    (Gain) or LossOriginal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    Deferred (Gain)
    
    
    Interest Expense for
    
    
    Expected to beMaximum
    
    
    
    
    
    
    
    
    
    
    Fixed
    
    
    
    
    
    
    (Gain) or
    
    
    or Loss at
    
    
    the Nine Months Ended
    
    
    AmortizedNotional
    
    
    Effective
    
    
    Maturity
    
    
    Rate
    
    
    Termination
    
    
    Loss Upon
    
    
    September 30,
    
    
    September 30,
    
    
    over the NextHedged Item
    
    Amount
    
    
    Date
    
    
    Date
    
    
    %
    
    
    Date
    
    
    Termination
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    Twelve MonthsSecuritization No. 1
    
    $
    400,000
    
    
    Dec-05
    
    Aug-10
    
    
    4.61
    
    
    Jun-06
    
    $
    (13,397
    )
    
    $
    
    
    
    $
    (2,321
    )
    
    $
    (1,847
    )
    
    $
    Securitization No. 1
    
    
    200,000
    
    
    Dec-05
    
    Dec-10
    
    
    5.03
    
    
    Jun-06
    
    
    (2,541
    )
    
    
    (106
    )
    
    
    (369
    )
    
    
    (191
    )
    
    
    (106
    )Securitization No. 2
    
    
    500,000
    
    
    Mar-06
    
    Mar-11
    
    
    5.07
    
    
    Jun-07
    
    
    (2,687
    )
    
    
    (287
    )
    
    
    (535
    )
    
    
    (511
    )
    
    
    (287
    )Securitization No. 2
    
    
    200,000
    
    
    Jan-07
    
    Aug-12
    
    
    5.06
    
    
    Jun-07
    
    
    (1,850
    )
    
    
    (609
    )
    
    
    (277
    )
    
    
    (264
    )
    
    
    (337
    )Securitization No. 2
    
    
    410,000
    
    
    Feb-07
    
    Apr-17
    
    
    5.14
    
    
    Jun-07
    
    
    (3,119
    )
    
    
    (1,743
    )
    
    
    (302
    )
    
    
    (267
    )
    
    
    (345
    )Term Financing No. 1
    
    
    150,000
    
    
    Jul-07
    
    Dec-17
    
    
    5.14
    
    
    Mar-08
    
    
    15,281
    
    
    
    9,951
    
    
    
    1,554
    
    
    
    1,450
    
    
    
    1,813Term Financing No. 1
    
    
    440,000
    
    
    Jun-07
    
    Feb-13
    
    
    4.88
    
    
    Partial  Mar-08
 Full  Jun-08
    
    
    26,281
    
    
    
    11,699
    
    
    
    4,529
    
    
    
    4,229
    
    
    
    5,286Term Financing No. 1
    
    
    248,000
    
    
    Aug-07
    
    May-13
    
    
    5.33
    
    
    Jun-08
    
    
    9,888
    
    
    
    4,134
    
    
    
    1,681
    
    
    
    2,233
    
    
    
    1,705Term Financing No. 2
    
    
    360,000
    
    
    Jan-08
    
    Feb-19
    
    
    5.16
    
    
    Partial  Jun-08
Full  Oct-08
    
    
    23,077
    
    
    
    10,603
    
    
    
    1,991
    
    
    
    1,390
    
    
    
    1,492ECA Term Financing
for New A330
Aircraft
    
    
    238,000
    
    
    Jan-11
    
    Apr-16
    
    
    5.23
    
    
    Dec-08
    
    
    19,430
    
    
    
    18,432
    
    
    
    940
    
    
    
    13
    
    
    
    1,781ECA Term Financing
for New A330
Aircraft
    
    
    231,000
    
    
    Apr-10
    
    Oct-15
    
    
    5.17
    
    
    Partial  Jun-08
Full  Dec-08
    
    
    15,310
    
    
    
    12,260
    
    
    
    1,291
    
    
    
    177
    
    
    
    2,319PDP Financing for
New A330 Aircraft
    
    
    203,000
    
    
    Jun-07
    
    Jan-12
    
    
    4.89
    
    
    Dec-08
    
    
    2,728
    
    
    
    
    
    
    
    1,465
    
    
    
    
    
    
    
    ECA Term Financing
for New A330
Aircraft
    
    
    238,000
    
    
    Jul-11
    
    Sep-16
    
    
    5.27
    
    
    Dec-08
    
    
    17,254
    
    
    
    15,969
    
    
    
    1,285
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    105,655
    
    
    $
    80,303
    
    
    $
    10,932
    
    
    $
    6,412
    
    
    $
    13,321
  23




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
 September 30, 2010
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Interest Expense:Hedge ineffectiveness (gains) losses
    
    $
    457
    
    
    $
    764
    
    
    $
    (116
    )
    
    $
    2,533Amortization:Accelerated amortization of deferred losses
    
    
    1,176
    
    
    
    313
    
    
    
    4,880
    
    
    
    766Amortization of deferred losses
    
    
    1,960
    
    
    
    2,025
    
    
    
    6,052
    
    
    
    5,646Total Amortization
    
    
    3,136
    
    
    
    2,338
    
    
    
    10,932
    
    
    
    6,412Total charged to interest expense
    
    $
    3,593
    
    
    $
    3,102
    
    
    $
    10,816
    
    
    $
    8,945Other Income (Expense):Mark to market gains (losses) on
undesignated interest rate derivatives
    
    $
    (608
    )
    
    $
    (444
    )
    
    $
    556
    
    
    $
    (990
    )Total charged to other income (expense)
    
    $
    (608
    )
    
    $
    (444
    )
    
    $
    556
    
    
    $
    (990
    )
  Note 12. Interest, Net
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Interest on borrowings, net
settlements on interest rate
derivatives, and other liabilities
    
    $
    36,779
    
    
    $
    40,144
    
    
    $
    110,191
    
    
    $
    111,090Hedge ineffectiveness (gains) losses
    
    
    457
    
    
    
    764
    
    
    
    (116
    )
    
    
    2,533Amortization of interest rate
derivatives related to deferred losses
    
    
    3,136
    
    
    
    2,338
    
    
    
    10,932
    
    
    
    6,412Amortization
of deferred financing fees and notes discount
    
    
    3,077
    
    
    
    5,734
    
    
    
    8,808
    
    
    
    11,494Interest Expense
    
    
    43,449
    
    
    
    48,980
    
    
    
    129,815
    
    
    
    131,529Less interest income
    
    
    (57
    )
    
    
    (207
    )
    
    
    (914
    )
    
    
    (247
    )Less capitalized interest
    
    
    (360
    )
    
    
    (1,320
    )
    
    
    (976
    )
    
    
    (2,704
    )Interest, net
    
    $
    43,032
    
    
    $
    47,453
    
    
    $
    127,925
    
    
    $
    128,578
 Note 13. Shareholders Equity and Share Based Payment
  24




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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
 September 30, 2010
 Note 14. Subsequent Events
    25




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
   WEBSITE AND ACCESS TO COMPANYS REPORTS
   26




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##### Table of Contents



OVERVIEW
    (1)
    
    Selectively investing in additional commercial jet aircraft and other aviation assets
when attractively priced opportunities and cost effective financing are available;
 (2)
    
    Maintaining an efficient capital structure by using varying long-term debt structures to
obtain cost effective financing and leveraging the efficient operating platform and strong
track record we have established; and
 (3)
    
    Reinvesting a portion of the cash flows generated by our business and from selective
asset dispositions in additional aviation assets and/or our own debt and equity securities.
    27




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##### Table of Contents



Revenues
    2010 Lease Expirations and Lease Placements
 
    
    Scheduled lease expirations  placements.For our 19 aircraft originally having lease
expirations in 2010, we have executed lease renewals, or commitments to lease or renew,
with respect to 16 aircraft, we have sold two aircraft and we are actively remarketing the
remaining one aircraft. We estimate that for these 19 aircraft, excluding the two we sold,
 the weighted average lease term for the new leases or renewals will be
approximately 3.5 years with monthly lease rates that are approximately 30% to 35% percent
lower than the previous rentals. The drop in lease rates for these placements reflects
more challenging market conditions when these new leases or renewals were executed, as well
as a comparatively stronger lease placement environment, on average, when the previous
leases were put in place. Given more challenging market conditions, we generally continue
to seek shorter lease terms for placements so as to allow for the opportunity to benefit
more quickly from possible market improvements.
 
    
    Aircraft acquisitions  placements.In the second quarter of 2010, we acquired one
used Boeing Model 737-800 aircraft and immediately placed it on lease with a customer.
We took delivery of two freighter-configured New
A330 Aircraft,  one in the third quarter and one in the fourth quarter of 2010.
Both aircraft are leased to an affiliate of the HNA Group, the parent company of Hainan Airlines. We
acquired three used Airbus Model A330-200 passenger configuration aircraft in the third
quarter of 2010 in a sale  leaseback transaction, and in the
fourth quarter of 2010 we acquired three Boeing Model
737-800 aircraft which were on lease when we acquired them. We also have a commitment to
acquire two Boeing Model 747-400 production freighter aircraft in the fourth quarter of
2010, and we have a commitment to lease one aircraft and a letter of
intent to lease the other following our acquisition.
 28




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##### Table of Contents



2011 Lease Expirations and Lease Placements
 
    
    Scheduled lease expirations  placements.We have 13 aircraft with lease expirations
scheduled in 2011. We have executed lease renewals, or commitments to lease or renew, with
respect to six of these aircraft, and a letter of intent
to lease two of these aircraft, and we have a signed
sale agreement to sell two
aircraft. We are actively remarketing the remaining three aircraft.
We are also remarketing a Boeing Model 737-800 aircraft we acquired in the fourth quarter of
2010 with a scheduled lease expiration in 2011.
 
    
    Aircraft acquisitions  placements.We are scheduled to take delivery of seven of the
New A330 Aircraft in 2011. We executed a lease agreement for one of the New A330 Aircraft
scheduled for delivery in 2011 with an affiliate of the HNA Group, and we executed lease
agreements for six of the New A330 Aircraft scheduled for delivery in 2011 with South
African Airways (PTY) LTD, or SAA. We currently have no other commitments to acquire
aircraft in 2011.
 2012-2014 Lease Expirations and Lease Placements
 
    
    Scheduled lease expirations  placements.Taking into account lease and sale
commitments, as of September 30, 2010, we had the following number of aircraft with lease
expirations scheduled in the period 2012-2014:
 
    
    2012: 27 aircraft, representing 19% of our net book value of flight
equipment held for lease at September 30, 2010;
    
    2013: 26 aircraft, representing 12% of our net book value of flight
equipment held for lease at September 30, 2010; and
    
    2014: 22 aircraft, representing 15% of our net book value of flight
equipment held for lease at September 30, 2010.
 We also acquired two aircraft in October 2010 with
scheduled lease expirations in  2013.
 
    
    Aircraft acquisitions  placements.We are scheduled to take delivery of one of
the New A330 Aircraft in 2012 and we have signed a letter of intent to lease the aircraft.
We currently have no other commitments to acquire aircraft in the period 2012-2014.
 Operating Expenses
  Income Tax Provision
  29




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##### Table of Contents



Acquisitions and Dispositions
     AIRCASTLE AIRCRAFT INFORMATION (Dollars in millions)
 OwnedAircraft as ofSeptember 30, 2010(1)Flight Equipment Held for Lease
    
    $
    3,871Number of Aircraft
    
    
    132Latest Generation Aircraft (Percentage of Total Aircraft)
    
    
    89
    %Number of Lessees
    
    
    63Number of Countries
    
    
    36Weighted Average Age  Passenger (years)(2)
    
    
    11.3Weighted Average Age  Freighter (years)(2)
    
    
    10.2Weighted Average Age  Combined (years)(2)
    
    
    11.2Weighted Average Remaining Passenger Lease Term (years)(3)
    
    
    3.4Weighted Average Remaining Cargo Lease Term (years)(3)
    
    
    7.3Weighted Average Remaining Combined Lease Term (years)(3)
    
    
    4.6Weighted Average Fleet Utilization for the three months ended September 30, 2010(4)
    
    
    100
    %Weighted Average Fleet Utilization for the nine months ended September 30, 2010(4)
    
    
    98
    %
 
 (1)
    
    Calculated using net book value as of September 30, 2010.(2)
    
    Weighted average age (years) by net book value.(3)
    
    Weighted average remaining lease term (years) by net book value.(4)
    
    Aircraft on-lease days as a percent of total days in period weighted by net book value, excluding aircraft in freighter conversion. 30




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##### Table of Contents



PORTFOLIO DIVERSIFICATION
 Owned Aircraft as ofSeptember 30, 2010Number of
    
    
    % of NetAircraft
    
    
    Book ValueAircraft TypePassenger:Narrowbody
    
    
    82
    
    
    
    41
    %Midbody
    
    
    27
    
    
    
    27
    %Widebody
    
    
    1
    
    
    
    2
    %Total Passenger
    
    
    110
    
    
    
    70
    %Freighter
    
    
    22
    
    
    
    30
    %Total
    
    
    132
    
    
    
    100
    %ManufacturerBoeing
    
    
    85
    
    
    
    61
    %Airbus
    
    
    47
    
    
    
    39
    %Total
    
    
    132
    
    
    
    100
    %Regional DiversificationEurope
    
    
    62
    
    
    
    46
    %Asia
    
    
    33
    
    
    
    23
    %North America
    
    
    14
    
    
    
    11
    %Latin America
    
    
    11
    
    
    
    9
    %Middle East and Africa
    
    
    11
    
    
    
    11
    %Off-lease(1)
    
    
    1
    
    
    
    
    %Total
    
    
    132
    
    
    
    100
    %
 
 (1)
    
    Represents one Boeing Model 737-300 aircraft which was returned to
us when a customer ceased operations late in the third quarter of
2010. We are currently marketing this aircraft for sale or lease.  Number ofPercent of Net Book Value
    
    Customer
    
    Country
    
    AircraftGreater than 6% per customer
    
    Emirates
    
    United Arab Emirates
    
    2Martinair(1)
    
    Netherlands
    
    53% to 6% per customer
    
    US Airways
    
    USA
    
    8SriLankan Airlines
    
    Sri Lanka
    
    5Avianca
    
    Colombia
    
    2China Eastern Airlines(2)
    
    China
    
    8HNA Group (3)
    
    China
    
    7Iberia Airlines
    
    Spain
    
    6GOL (4)
    
    Brazil
    
    6Airbridge Cargo(5)
    
    Russia
    
    1KLM (1)
    
    Netherlands
    
    1World Airways
    
    USA
    
    2Less than 3% per customer
    
    Icelandair(6)
    
    Iceland
    
    5Korean Air
    
    South Korea
    
    2Cimber-Sterling
    
    Denmark
    
    4
 
 (1)
    
    Martinair is a wholly owned subsidiary of KLM. Although KLM does not guarantee Martinairs obligations under the relevant lease, if
combined, the two, together with another affiliated customer, represent 11% of flight equipment held for lease.(2)
    
    Includes the aircraft leased to Shanghai Airlines, which was recently acquired by China Eastern Airlines. China Eastern Airlines
does not guarantee the obligations of the aircraft we lease to Shanghai Airlines.(3)
    
    Seven aircraft on lease to affiliates of the HNA Group, although the HNA Group does not guarantee the leases.(4)
    
    GOL has guaranteed the obligations of an affiliate, VRG Linhas Aereas, and accordingly, the two are shown combined in the above table.(5)
    
    Guaranteed by Volga-Dnepr.(6)
    
    Icelandair Group hf, the parent company of Icelandair, has guaranteed the obligations of an affiliate, SmartLynx, and accordingly,
the two are shown combined in the above table. 31




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##### Table of Contents



Finance
   32




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##### Table of Contents



RESULTS OF OPERATIONS
 Overview
   Comparison of the three months ended September 30, 2009 to the three months ended September 30,
2010:
 Three Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Revenues:Lease rental revenue
    
    $
    128,283
    
    
    $
    133,486Amortization of net lease discounts and lease incentives
    
    
    (3,992
    )
    
    
    (4,203
    )Maintenance revenue
    
    
    31,376
    
    
    
    2,540Total lease rentals
    
    
    155,667
    
    
    
    131,823Interest income
    
    
    556
    
    
    
    Other revenue
    
    
    9,517
    
    
    
    424Total revenues
    
    
    165,740
    
    
    
    132,247Expenses:Depreciation
    
    
    53,130
    
    
    
    55,703Interest, net
    
    
    43,032
    
    
    
    47,453Selling, general and administrative
    
    
    11,074
    
    
    
    11,334Impairment of aircraft
    
    
    18,211
    
    
    
    7,342Maintenance and other costs
    
    
    4,836
    
    
    
    1,192Total operating expenses
    
    
    130,283
    
    
    
    123,024Other income (expense):Gain (loss) on sale of aircraft
    
    
    162
    
    
    
    Other income (expense)
    
    
    (738
    )
    
    
    (501
    )Total other income (expense)
    
    
    (576
    )
    
    
    (501
    )Income from continuing operations before income taxes
    
    
    34,881
    
    
    
    8,722Income tax provision
    
    
    1,423
    
    
    
    153Net income
    
    $
    33,458
    
    
    $
    8,569
 Revenues:
  Lease rental revenue
 
    
    $6.4 million of additional revenue from the six aircraft we purchased since September
30, 2009.
 33




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##### Table of Contents



Amortization of net lease discounts and lease incentives.
 Three Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Amortization of lease discounts
    
    $
    1,386
    
    
    $
    596Amortization of lease premiums
    
    
    (441
    )
    
    
    (76
    )Amortization of lease incentives
    
    
    (4,937
    )
    
    
    (4,723
    )Amortization of net lease discounts and lease incentives
    
    $
    (3,992
    )
    
    $
    (4,203
    )
   Maintenance revenue
 Three Months Ended
September 30,2009
    
    
    2010Dollars
(in thousands)
    
    Number
ofLeases
    
    
    Dollars
(in thousands)
    
    Number
ofLeasesUnscheduled lease terminations
    
    $
    21,647
    
    
    5
    
    
    $
    2,457
    
    
    1Scheduled
lease terminations
    
    
    9,729
    
    
    3
    
    
    
    83
    
    
    Maintenance revenue
    
    $
    31,376
    
    
    8
    
    
    $
    2,540
    
    
    1
   Interest income.
 34




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##### Table of Contents



Other revenue
 Operating Expenses:
  Depreciation expense
 
    
    a $1.7 million increase in depreciation for capitalized aircraft improvements and
planned major maintenance activities; and
    
    a $2.0 million increase in depreciation for new aircraft
acquired in late 2009 and in  2010.
  
    
    a $1.0 million decrease in depreciation for aircraft sold.
 Interest, net
 Three Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
    
    $
    36,779
    
    
    $
    40,144Hedge ineffectiveness (gains) losses
    
    
    457
    
    
    
    764Amortization of interest rate derivatives related to deferred losses
    
    
    3,136
    
    
    
    2,338Amortization
of deferred financing fees and notes discount
    
    
    3,077
    
    
    
    5,734Interest Expense
    
    
    43,449
    
    
    
    48,980Less interest income
    
    
    (57
    )
    
    
    (207
    )Less capitalized interest
    
    
    (360
    )
    
    
    (1,320
    )Interest, net
    
    $
    43,032
    
    
    $
    47,453
  
    
    a $3.4 million increase in interest on borrowings primarily due to a higher weighted
average debt balance ($2.60 billion in the three months ended September 30, 2010 as
compared to $2.46 billion in the three months ended September 30, 2009); and
    
    a $2.5 million increase in deferred financing fees primarily from the accelerated
write-off of deferred financings fees triggered by the prepayment of Term Financing No.
2 and the A330 SLB facility.
 Selling, general and administrative expenses
 Impairment of aircraft
  35




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##### Table of Contents



Maintenance and other costs
 Income Tax Provision
    Other comprehensive income:
 Three Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Net income
    
    $
    33,458
    
    
    $
    8,569Net change in fair value of derivatives, net of tax benefit of $135 and $52, respectively
    
    
    (15,696
    )
    
    
    (7,716
    )Derivative loss reclassified into earnings
    
    
    5,894
    
    
    
    2,338Net change in unrealized fair value of debt investments
    
    
    1,836
    
    
    
    Total comprehensive income
    
    $
    25,492
    
    
    $
    3,191
  
    
    a $8.0 million decrease in deferred losses resulting from changes in the fair value of
outstanding interest rate derivatives qualifying for and designated as cash flow hedges due
primarily to a sharper decrease in the forward LIBOR curve at September 30, 2009 versus
June 30, 2009 as compared to the decrease in the forward LIBOR curve at September 30, 2010
versus June 30, 2010;
    
    a $3.6 million decrease in amortization into earnings of deferred net losses primarily
due to additional accelerated amortization from terminated interest rate derivatives in the
third quarter of 2009 versus the third quarter of 2010; and
    
    a $24.9 million decrease in net income.
 36




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##### Table of Contents



Comparison of the nine months ended September 30, 2009 to the nine months ended September 30, 2010:
 Nine Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Revenues:Lease rental revenue
    
    $
    383,683
    
    
    $
    391,741Amortization of net lease discounts and lease incentives
    
    
    (7,919
    )
    
    
    (13,957
    )Maintenance revenue
    
    
    47,616
    
    
    
    14,630Total lease rentals
    
    
    423,380
    
    
    
    392,414Interest income
    
    
    1,783
    
    
    
    Other revenue
    
    
    9,628
    
    
    
    578Total revenues
    
    
    434,791
    
    
    
    392,992Expenses:Depreciation
    
    
    156,379
    
    
    
    164,272Interest, net
    
    
    127,925
    
    
    
    128,578Selling, general and administrative
    
    
    33,291
    
    
    
    34,043Impairment of aircraft
    
    
    18,211
    
    
    
    7,342Maintenance and other costs
    
    
    15,114
    
    
    
    6,829Total operating expenses
    
    
    350,920
    
    
    
    341,064Other income (expense):Gain (loss) on sale of aircraft
    
    
    162
    
    
    
    (1,291
    )Other income (expense)
    
    
    855
    
    
    
    (1,047
    )Total other income (expense)
    
    
    1,017
    
    
    
    (2,338
    )Income from continuing operations before income taxes
    
    
    84,888
    
    
    
    49,590Income tax provision
    
    
    5,388
    
    
    
    4,003Net income
    
    $
    79,500
    
    
    $
    45,587
 Revenues:
  Lease rental revenue
  
    
    $5.8 million of revenue due to three aircraft sold during 2009 and two aircraft sold in
2010; and
    
    $1.5 million of revenue due to lease extensions and transitions at lower rentals.
 Amortization of net lease discounts and lease incentives.
 Nine Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Amortization of lease discounts
    
    $
    5,505
    
    
    $
    1,851Amortization of lease premiums
    
    
    (1,766
    )
    
    
    (290
    )Amortization of lease incentives
    
    
    (11,658
    )
    
    
    (15,518
    )Amortization of net lease discounts and lease incentives
    
    $
    (7,919
    )
    
    $
    (13,957
    )
   37




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##### Table of Contents



Maintenance revenue
 Nine  Months Ended September 30,2009
    
    
    2010Dollars
(in thousands)
    
    Number
ofLeases
    
    
    Dollars
(in thousands)
    
    Number
ofLeasesUnscheduled lease terminations
    
    $
    29,303
    
    
    9
    
    
    $
    3,039
    
    
    1Scheduled lease terminations
    
    
    18,313
    
    
    7
    
    
    
    11,591
    
    
    3Maintenance revenue
    
    $
    47,616
    
    
    16
    
    
    $
    14,630
    
    
    4
   Interest income.
 Other revenue
 Operating Expenses:
  Depreciation expense
 
    
    a $7.8 million increase in depreciation for capitalized aircraft improvements and
planned major maintenance activities; and
    
    a $3.5 million increase in depreciation for new aircraft
acquired in late 2009 and in 2010.
  
    
    a $3.3 million decrease in depreciation for aircraft sold.
 38




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##### Table of Contents



Interest, netconsisted of the following:
 Nine Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
    
    $
    110,191
    
    
    $
    111,090Hedge ineffectiveness (gains) losses
    
    
    (116
    )
    
    
    2,533Amortization of interest rate derivatives related to deferred losses
    
    
    10,932
    
    
    
    6,412Amortization
of deferred financing fees and notes discount
    
    
    8,808
    
    
    
    11,494Interest Expense
    
    
    129,815
    
    
    
    131,529Less interest income
    
    
    (914
    )
    
    
    (247
    )Less capitalized interest
    
    
    (976
    )
    
    
    (2,704
    )Interest, net
    
    $
    127,925
    
    
    $
    128,578
  
    
    a $0.9 million increase in interest expense on our borrowings primarily due to a higher
weighted average debt balance ($2.48 billion for the nine months ended September 30, 2010
as compared to $2.46 billion for the nine months ended September 30, 2009); and
    
    a $2.5 million increase in deferred financing fees primarily from the accelerated
write-off of deferred financing fees triggered by prepayment of Term Financing No. 2 and
the A330 SLB facility.
  
    
    a $4.5 million decrease in amortization of deferred losses on interest rate derivatives
primarily due to a decrease related to accelerated amortization of deferred losses from
terminated interest rate derivatives for borrowings that we no longer anticipate utilizing
(i.e., that are no longer probable of occurring) as a result of a lower forecasted debt on
our hedged financings.
 Selling, general and administrative expenses
 Impairment of aircraft
  Maintenance and other costs
 
    
    a $4.8 million decrease in aircraft maintenance and other transitions costs primarily
relating to unscheduled lease terminations for aircraft returned to us in the fourth
quarter of 2008; and
    
    a $1.2 million decrease in aircraft maintenance and other transitions costs relating to
unscheduled and scheduled lease terminations in 2009.
 Other income (expense):
  39




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##### Table of Contents



Income Tax Provision
    Other comprehensive income:
 Nine Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Net income
    
    $
    79,500
    
    
    $
    45,587Net change in fair value of derivatives, net of tax
expense of $1,068 and tax benefit of $332,
respectively
    
    
    63,596
    
    
    
    (37,541
    )Derivative loss reclassified into earnings
    
    
    13,690
    
    
    
    6,412Net change in unrealized fair value of debt investments
    
    
    1,698
    
    
    
    Total comprehensive income
    
    $
    158,484
    
    
    $
    14,458
  
    
    a $101.1 million increase in deferred losses resulting from changes in the fair value of
outstanding interest rate derivatives qualifying for and designated as cash flow hedges due
primarily to an increase in the forward LIBOR curve at September 30, 2009 versus December
31, 2008 compared to a decrease in the forward LIBOR curve at September 30, 2010 versus
December 31, 2009;
    
    a $7.3 million decrease in amortization into earnings of deferred net losses primarily
due to additional accelerated amortization from terminated interest rate derivatives in the
first nine months of 2009 versus the first nine months of 2010; and
    
    a $33.9 million decrease in net income.
  40




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##### Table of Contents



Summary of Impairments
     41




---



##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
 Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities
 Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
 LIQUIDITY AND CAPITAL RESOURCES
  
    
    lines of credit, our securitizations, term financings and, more recently, secured
borrowings supported by export credit agencies for new aircraft acquisitions;
    
    unsecured borrowings, including an unsecured revolving credit facility;
    
    public offerings of common shares; and
    
    asset sales.
   42




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##### Table of Contents




    
    Sumitomo Mitsui Banking Corporation (SMBC) committed $250.0 million in debt to finance
the first three New A330 Aircraft; and
    
    Citibank, N.A. committed approximately $221.0 million to finance the three New A330
Aircraft of which we borrowed $69.0 for the delivery of one New A330 Aircraft.
    
    The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BOTM) committed approximately $227.0 million, to
finance the three New A330 Aircraft of which we borrowed $69.3 million for the delivery of
one New A330 Aircraft in November 2010.
     43




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##### Table of Contents



Cash Flows
 Nine Months EndedSeptember 30,2009
    
    
    2010(Dollars in thousands)Net cash flow provided by operating activities
    
    $
    206,049
    
    
    $
    268,717Net cash flow used in investing activities
    
    
    (146,265
    )
    
    
    (320,635
    )Net cash flow provided by (used in) financing activities
    
    
    (8,323
    )
    
    
    220,133
 Operating Activities:
  
    
    a net $53.0 million increase in cash from the release of restricted cash from returned
security deposits, the payment of expenses which was offset by the receipt of maintenance
payments;
    
    a $14.0 million increase in cash from working capital; and
    
    a $5.6 million increase in cash from a decrease in cash payments for interest.
  
    
    $11.8 million lower cash from end of lease maintenance revenue.
 Investing Activities:
  
    
    a $106.4 million increase in the acquisition and improvement of flight equipment; and
    
    a $83.1 million increase in purchase deposits under our Airbus A330 Agreement and
aircraft undergoing freighter conversion; and
    
    $9.2 million lower proceeds from the sale of and principal payments on our debt
investments, as we had sold all of our debt investments by the end of 2009.
 44




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##### Table of Contents



This increase was offset partially by:
 
    
    $24.2 million higher proceeds from the sale of flight equipment.
 Financing Activities:
  
    
    $401.8 million higher proceeds from term debt financings; and
    
    $14.9 million of higher maintenance payments received net of maintenance payments
returned.
 The inflows were offset partially by:
 
    
    $145.8 million of higher financing repayments on our securitizations and term debt
financings; and
    
    $31.6 million of lower security deposits received net of deposits returned; and
    
    an $8.4 million increase in deferred financing costs.
 Debt Obligations
 t
 Outstanding
    
    
    Number of
    
    
    Interest
    
    
    FinalDebt Obligation
    
    Collateral
    
    Borrowing
    
    
    Aircraft
    
    
    Rate(1)
    
    
    Stated Maturity(2)(Dollars in thousands)Secured Debt Financings:Securitization No. 1
    
    Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests
    
    $
    420,444
    
    
    
    33
    
    
    
    0.53
    %
    
    
    6/20/31Securitization No. 2
    
    Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests
    
    
    1,012,961
    
    
    
    55
    
    
    
    0.52
    %
    
    
    6/14/37Term Financing No. 1
    
    Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests
    
    
    666,120
    
    
    
    28
    
    
    
    2.01
    %
    
    
    5/02/15ECA Term Financings
    
    Interests in aircraft leases, beneficial interests in aircraft leasing entities and related interests
    
    
    201,585
    
    
    
    3
    
    
    2.65% to 4.48%
    
    5/27/21 to 8/31/22A330 PDP Facility
    
    Interests in Airbus A330 Agreement and aircraft leases
    
    
    82,778
    
    
    
    6
    
    
    
    2.76
    %
    
    
    12/1/11
    (3)Total secured debt financings
    
    
    
    
    2,383,888Unsecured Debt Financings:Senior Notes due 2018
    
    None
    
    
    296,021
    
    
    
    
    
    
    
    9.75
    %
    
    
    8/01/182010 Revolving Credit Facility
    
    None
    
    
    
    
    
    

    
    
    
    
    N/A
    
    
    
    9/28/13Total unsecured debt financings
    
    
    
    
    296,021Total secured and unsecured debt financings
    
    
    
    $
    2,679,909
 
 (1)
    
    Reflects floating rate in effect at the most recent applicable reset date, except for the ECA Term Financings which are fixed rate.(2)
    
    For Securitization No. 1, Securitization No. 2 and Term Financing No. 1, all cash flows available after expenses and interest will
be applied to debt amortization, if the debt is not refinanced by June 2011, June 2012, and May 2013, respectively.(3)
    
    Reflects the last scheduled delivery month for the six relevant new Airbus A330-200 delivery positions. The final maturity date
is the earlier of the aircraft delivery date or nine months after the scheduled delivery month for the last scheduled delivery
position. 45




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##### Table of Contents



Available LiquidityDecember 31,
    
    
    September 30,
    
    
    Unused
    
    
    Interest RateFacility
    
    Liquidity Facility Provider
    
    2009
    
    
    2010
    
    
    Fee
    
    
    on any Advances(Dollars in thousands)Securitization No. 1
    
    Calyon
    
    $
    42,000
    
    
    $
    42,000
    
    
    
    0.45
    %
    
    1M Libor + 1.00%Securitization No. 2
    
    HSH Nordbank AG(1)
    
    
    79,617
    
    
    
    75,972
    
    
    
    0.50
    %
    
    1M Libor + 0.75%Term Financing No. 1
    
    Calyon
    
    
    14,174
    
    
    
    13,322
    
    
    
    0.60
    %
    
    1M Libor + 1.20%
 
 (1)
    
    Following a ratings downgrade with respect to the liquidity
facility provider in May 2009, the liquidity facility was drawn
and the proceeds, or permitted investments thereof, remain
available to provide liquidity if required. Amounts drawn
following a ratings downgrade with respect to the liquidity
facility provider do not bear interest; however, net investment
earnings will be paid to the liquidity facility provider and the
unused fee continues to apply. Secured Debt Financings:
 Term Financing No. 1
   Term Financing No. 2
  46




---



##### Table of Contents



ECA Term Financings
   A330 PDP Facility
   A330 SLB Facility
  Unsecured Debt Financings:
 2010-1 Notes
   47




---



##### Table of Contents



2010 Revolving Credit Facility
  Contractual Obligations
  
    
    An increase in borrowings under our 2010-1 Notes and under our A330 PDP Facility.
 These increases were partially offset by:
    
    principal and interest payments made under our securitizations and term financings,
including the prepayment of Term Financing No. 2 and the A330 SLB facility; and
    
    lower variable interest rates and payments made under our purchase obligations.
 48




---



##### Table of Contents



Payments Due By Period as of September 30, 2010Less than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Dollars in thousands)Principal payments:2010-1 Notes(1)
    
    $
    300,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    300,000Securitization No. 1(2)
    
    
    420,444
    
    
    
    43,261
    
    
    
    177,354
    
    
    
    189,648
    
    
    
    10,181Securitization No. 2(3)
    
    
    1,012,961
    
    
    
    42,964
    
    
    
    262,194
    
    
    
    354,367
    
    
    
    353,436Term Financing No. 1(4)
    
    
    666,120
    
    
    
    61,657
    
    
    
    109,168
    
    
    
    495,295
    
    
    
    ECA Term Financings(5)
    
    
    201,585
    
    
    
    14,608
    
    
    
    30,918
    
    
    
    33,358
    
    
    
    122,701A330 PDP Facility(6)
    
    
    82,778
    
    
    
    82,778
    
    
    
    
    
    
    
    
    
    
    
    Total principal payments
    
    
    2,683,888
    
    
    
    245,268
    
    
    
    579,634
    
    
    
    1,072,668
    
    
    
    786,318Interest payments:Interest payments on debt obligations(7)
    
    
    361,733
    
    
    
    59,515
    
    
    
    107,528
    
    
    
    89,994
    
    
    
    104,696Interest payments on interest rate derivatives(8)
    
    
    266,831
    
    
    
    94,075
    
    
    
    111,163
    
    
    
    54,404
    
    
    
    7,189Total interest payments
    
    
    628,564
    
    
    
    153,590
    
    
    
    218,691
    
    
    
    144,398
    
    
    
    111,885Office leases(9)
    
    
    3,160
    
    
    
    1,115
    
    
    
    1,537
    
    
    
    370
    
    
    
    138Purchase obligations
    
    
    746,271
    
    
    
    627,225
    
    
    
    119,046
    
    
    
    
    
    
    
    Total
    
    $
    4,061,883
    
    
    $
    1,027,198
    
    
    $
    918,908
    
    
    $
    1,217,436
    
    
    $
    898,341
 
 (1)
    
    Includes scheduled balloon payment on August 1, 2018.(2)
    
    Includes principal payments based on amortization schedules through October 2015 that require the securitization cash
flows be applied to the outstanding principal balance of the indebtedness so that the loan to assumed aircraft values
are held constant through June 2011, after which all excess cash flow is required to reduce the principal balances of
the indebtedness.(3)
    
    Includes principal payments based on amortization schedules through February 2018 that require the securitization cash
flows be applied to the outstanding principal balance of the indebtedness so that the loan to assumed aircraft values
are held constant through June 2012, after which all excess cash flow is required to reduce the principal balances of
the indebtedness. The 1-3 years commitments include repayments of $7.3 million related to contracted sales for one
aircraft in 2011.(4)
    
    Includes scheduled principal payments through May 2013, after which all excess cash flow is required to reduce the
principal balances of the indebtedness until maturity in May 2015.(5)
    
    Includes scheduled principal payments based upon fixed rate, 12 year, fully amortizing loans.(6)
    
    Includes principal payments based upon the scheduled delivery of aircraft. The final maturity date is the earlier of the
delivery date or nine months after the scheduled delivery date.(7)
    
    Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect
at September 30, 2010.(8)
    
    Future interest payments on derivative financial instruments are estimated using the spread between the floating
interest rates and the fixed interest rates in effect at September 30, 2010.(9)
    
    Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore. Capital Expenditures
  49




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Foreign Currency Risk and Foreign Operations
  Hedging
  50




---



##### Table of Contents



Liability DerivativesFutureCurrent
    
    
    
    
    
    
    
    
    
    
    MaximumNotional
    
    
    Effective
    
    
    Maturity
    
    
    Notional
    
    
    Floating
    
    
    FixedHedged Item
    
    Amount
    
    
    Date
    
    
    Date
    
    
    Amount
    
    
    Rate
    
    
    Rate
    
    
    Balance Sheet Location
    
    
    Fair Value(Dollars in thousands)Interest rate derivatives
designated as cash flow hedges :Securitization No. 1
    
    $
    433,368
    
    
    Jun-06
    
    Jun-16
    
    $
    433,368
    
    
    1M LIBOR + 0.27%
    
    
    5.78
    %
    
    Fair value of derivative liabilities
    
    $
    71,852Securitization No. 2
    
    
    1,004,723
    
    
    Jun-07
    
    Jun-12
    
    
    1,004,723
    
    
    1M LIBOR
    
    5.25%  to 5.36%
    
    Fair value of derivative liabilities
    
    
    78,797Term Financing No. 1(1)
    
    
    604,773
    
    
    Jun-08
    
    May-13
    
    
    604,773
    
    
    1M LIBOR
    
    
    4.04
    %
    
    Fair value of derivative liabilities
    
    
    44,824Term Financing No. 1(1)
    
    
    
    
    
    May-13
    
    May-15
    
    
    464,181
    
    
    1M LIBOR
    
    
    5.31
    %
    
    Fair value of derivative liabilities
    
    
    21,616Total interest rate derivatives
    
    $
    2,042,864
    
    
    
    
    
    
    
    
    
    
    $
    2,507,045
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    217,089
 
 (1)
    
    The interest payments related to Term Financing No. 1 are being
hedged by two consecutive interest rate derivatives. When the
first matures in May 2013, the next becomes effective.      51




---



##### Table of Contents



Amount of Deferred(Gain) or LossAmortized (including
    
    
    Amount ofUnamortized
    
    
    Accelerated
    
    
    DeferredDeferred
    
    
    Amortization) into
    
    
    (Gain) or LossOriginal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    (Gain) or Loss
    
    
    Interest Expense for
    
    
    Expected to beMaximum
    
    
    
    
    
    
    
    
    
    
    Fixed
    
    
    
    
    
    
    (Gain) or
    
    
    at
    
    
    the Nine Months Ended
    
    
    AmortizedNotional
    
    
    Effective
    
    
    Maturity
    
    
    Rate
    
    
    Termination
    
    
    Loss Upon
    
    
    September 30,
    
    
    September 30,
    
    
    over the NextHedged Item
    
    Amount
    
    
    Date
    
    
    Date
    
    
    %
    
    
    Date
    
    
    Termination
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    Twelve Months(Dollars in Thousands)Securitization No. 1
    
    $
    400,000
    
    
    Dec-05
    
    Aug-10
    
    
    4.61
    
    
    Jun-06
    
    $
    (13,397
    )
    
    $
    
    
    
    $
    (2,321
    )
    
    $
    (1,847
    )
    
    $
    Securitization No. 1
    
    
    200,000
    
    
    Dec-05
    
    Dec-10
    
    
    5.03
    
    
    Jun-06
    
    
    (2,541
    )
    
    
    (106
    )
    
    
    (369
    )
    
    
    (191
    )
    
    
    (106
    )Securitization No. 2
    
    
    500,000
    
    
    Mar-06
    
    Mar-11
    
    
    5.07
    
    
    Jun-07
    
    
    (2,687
    )
    
    
    (287
    )
    
    
    (535
    )
    
    
    (511
    )
    
    
    (287
    )Securitization No. 2
    
    
    200,000
    
    
    Jan-07
    
    Aug-12
    
    
    5.06
    
    
    Jun-07
    
    
    (1,850
    )
    
    
    (609
    )
    
    
    (277
    )
    
    
    (264
    )
    
    
    (337
    )Securitization No. 2
    
    
    410,000
    
    
    Feb-07
    
    Apr-17
    
    
    5.14
    
    
    Jun-07
    
    
    (3,119
    )
    
    
    (1,743
    )
    
    
    (302
    )
    
    
    (267
    )
    
    
    (345
    )Term Financing No. 1
    
    
    150,000
    
    
    Jul-07
    
    Dec-17
    
    
    5.14
    
    
    Mar-08
    
    
    15,281
    
    
    
    9,951
    
    
    
    1,554
    
    
    
    1,450
    
    
    
    1,813Term Financing No. 1
    
    
    440,000
    
    
    Jun-07
    
    Feb-13
    
    
    4.88
    
    
    Partial  Mar-08 
Full  Jun-08
    
    
    26,281
    
    
    
    11,699
    
    
    
    4,529
    
    
    
    4,229
    
    
    
    5,286Term Financing No. 1
    
    
    248,000
    
    
    Aug-07
    
    May-13
    
    
    5.33
    
    
    Jun-08
    
    
    9,888
    
    
    
    4,134
    
    
    
    1,681
    
    
    
    2,233
    
    
    
    1,705Term Financing No. 2
    
    
    360,000
    
    
    Jan-08
    
    Feb-19
    
    
    5.16
    
    
    Partial  Jun-08 
Full  Oct-08
    
    
    23,077
    
    
    
    10,603
    
    
    
    1,991
    
    
    
    1,390
    
    
    
    1,492ECA Term Financing for New A330 Aircraft
    
    
    238,000
    
    
    Jan-11
    
    Apr-16
    
    
    5.23
    
    
    Dec-08
    
    
    19,430
    
    
    
    18,432
    
    
    
    940
    
    
    
    13
    
    
    
    1,781ECA Term Financing for New A330 Aircraft
    
    
    231,000
    
    
    Apr-10
    
    Oct-15
    
    
    5.17
    
    
    Partial  Jun-08 
Full  Dec-08
    
    
    15,310
    
    
    
    12,260
    
    
    
    1,291
    
    
    
    177
    
    
    
    2,319ECA Term Financing for New A330 Aircraft
    
    
    203,000
    
    
    Jun-07
    
    Jan-12
    
    
    4.89
    
    
    Dec-08
    
    
    2,728
    (1)
    
    
    
    
    
    
    1,465
    
    
    
    
    
    
    
    ECA Term Financing for New A330 Aircraft
    
    
    238,000
    
    
    Jul-11
    
    Sep-16
    
    
    5.27
    
    
    Dec-08
    
    
    17,254
    
    
    
    15,969
    
    
    
    1,285
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    105,655
    
    
    $
    80,303
    
    
    $
    10,932
    
    
    $
    6,412
    
    
    $
    13,321
 
 (1)
    
    The deferred loss for this swap is related to the period prior to
de-designation.   52




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010(Dollars in thousands)Interest Expense:Hedge ineffectiveness (gains) losses
    
    $
    457
    
    
    $
    764
    
    
    $
    (116
    )
    
    $
    2,533Amortization:Accelerated amortization of deferred losses
    
    
    1,176
    
    
    
    313
    
    
    
    4,880
    
    
    
    766Amortization of deferred losses
    
    
    1,960
    
    
    
    2,025
    
    
    
    6,052
    
    
    
    5,646Total Amortization
    
    
    3,136
    
    
    
    2,338
    
    
    
    10,932
    
    
    
    6,412Total charged to interest expense
    
    $
    3,593
    
    
    $
    3,102
    
    
    $
    10,816
    
    
    $
    8,945Other Income (Expense):Mark to market gains (losses) on
undesignated interest rate derivatives
    
    $
    (608
    )
    
    $
    (444
    )
    
    $
    556
    
    
    $
    (990
    )Total charged to other income (expense)
    
    $
    (608
    )
    
    $
    (444
    )
    
    $
    556
    
    
    $
    (990
    )
 Managements Use of EBITDA
     Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010(Dollars in thousands)Net income
    
    $
    33,458
    
    
    $
    8,569
    
    
    $
    79,500
    
    
    $
    45,587Depreciation
    
    
    53,130
    
    
    
    55,703
    
    
    
    156,379
    
    
    
    164,272Amortization of net lease discounts and lease incentives
    
    
    3,992
    
    
    
    4,203
    
    
    
    7,919
    
    
    
    13,957Interest, net
    
    
    43,032
    
    
    
    47,453
    
    
    
    127,925
    
    
    
    128,578Income tax provision
    
    
    1,423
    
    
    
    153
    
    
    
    5,388
    
    
    
    4,003EBITDA
    
    $
    135,035
    
    
    $
    116,081
    
    
    $
    377,111
    
    
    $
    356,397
 53




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##### Table of Contents



Managements Use of Adjusted Net Income and Adjusted Net Income plus Depreciation and
Amortization
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010(Dollars in thousands)Net income
    
    $
    33,458
    
    
    $
    8,569
    
    
    $
    79,500
    
    
    $
    45,587Ineffective portion and termination of cash flow hedges(1)
    
    
    1,633
    
    
    
    1,077
    
    
    
    4,764
    
    
    
    3,299Mark to market of interest rate derivative contracts(2)
    
    
    608
    
    
    
    444
    
    
    
    (556
    )
    
    
    990Write-off of deferred financing fees
    
    
    
    
    
    
    2,471
    
    
    
    
    
    
    
    2,471(Gain) loss on sale of aircraft(2)
    
    
    (162
    )
    
    
    
    
    
    
    (162
    )
    
    
    1,291Loss on sale of debt investments(2)
    
    
    131
    
    
    
    
    
    
    
    131
    
    
    
    Adjusted net income
    
    
    35,668
    
    
    
    12,561
    
    
    
    83,677
    
    
    
    53,638Depreciation
    
    
    53,130
    
    
    
    55,703
    
    
    
    156,379
    
    
    
    164,272Amortization of net lease discounts and lease incentives
    
    
    3,992
    
    
    
    4,203
    
    
    
    7,919
    
    
    
    13,957Adjusted net income plus depreciation and amortization
    
    $
    92,790
    
    
    $
    72,467
    
    
    $
    247,975
    
    
    $
    231,867
 
 (1)
    
    Included in Interest, net.(2)
    
    Included in Other income (expense). Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Weighted-average shares:Common shares outstanding
    
    
    78,012,914
    
    
    
    78,536,704
    
    
    
    77,977,089
    
    
    
    78,470,237Restricted common shares
    
    
    1,352,974
    
    
    
    1,048,237
    
    
    
    1,309,244
    
    
    
    1,137,163Total weighted-average shares
    
    
    79,365,888
    
    
    
    79,584,941
    
    
    
    79,286,333
    
    
    
    79,607,400
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Percentage of weighted-average shares:Common shares outstanding
    
    
    98.30
    %
    
    
    98.68
    %
    
    
    98.35
    %
    
    
    98.57
    %Restricted
common shares(a)
    
    
    1.70
    %
    
    
    1.32
    %
    
    
    1.65
    %
    
    
    1.43
    %Total
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Weighted-average common shares outstanding  Basic and Diluted(b)
    
    
    78,012,914
    
    
    
    78,536,704
    
    
    
    77,977,089
    
    
    
    78,470,237
 54




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010(Dollars in thousands, except per share amounts)Adjusted net income allocation:Adjusted net income
    
    $
    35,668
    
    
    $
    12,561
    
    
    $
    83,677
    
    
    $
    53,638Less: Distributed and undistributed earnings allocated to
restricted common shares(a)
    
    
    (608
    )
    
    
    (165
    )
    
    
    (1,382
    )
    
    
    (766
    )Adjusted net income allocable to common shares  Basic and Diluted
    
    $
    35,060
    
    
    $
    12,396
    
    
    $
    82,295
    
    
    $
    52,872Adjusted net income per common share  Basic
    
    $
    0.45
    
    
    $
    0.16
    
    
    $
    1.06
    
    
    $
    0.67Adjusted net income per common share  Diluted
    
    $
    0.45
    
    
    $
    0.16
    
    
    $
    1.06
    
    
    $
    0.67
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010(Dollars in thousands, except per share amounts)Adjusted net income plus depreciation and
amortization allocation:Adjusted net income plus depreciation and amortization
    
    $
    92,790
    
    
    $
    72,467
    
    
    $
    247,975
    
    
    $
    231,867Less: Distributed and undistributed earnings
allocated to restricted common shares(a)
    
    
    (1,582
    )
    
    
    (954
    )
    
    
    (4,095
    )
    
    
    (3,312
    )Adjusted net income plus depreciation and
amortization allocable to common shares  Basic and
Diluted
    
    $
    91,208
    
    
    $
    71,513
    
    
    $
    243,880
    
    
    $
    228,555Adjusted net income plus depreciation and
amortization per common share  Basic
    
    $
    1.17
    
    
    $
    0.91
    
    
    $
    3.13
    
    
    $
    2.91Adjusted net income plus depreciation and
amortization per common share  Diluted
    
    $
    1.17
    
    
    $
    0.91
    
    
    $
    3.13
    
    
    $
    2.91
 
 (a)
    
    For the three months ended September 30, 2009 and 2010, distributed and undistributed
earnings to restricted shares is 1.70% and 1.32%, respectively, of net income. For the
nine months ended September 30, 2009 and 2010, distributed and undistributed earnings to
restricted shares is 1.65% and 1.43%, respectively, of net income. The amount of restricted
share forfeitures for all periods presented is immaterial to the allocation of distributed
and undistributed earnings.(b)
    
    For the three and nine months ended September 30, 2009 and 2010, we have no dilutive shares. Limitations of EBITDA, ANI and ANIDA
   
    
    depreciation and amortization, though not directly affecting our current cash position,
represent the wear and tear and/or reduction in value of our aircraft, which affects the
aircrafts availability for use and may be indicative of future needs for capital
expenditures;
 
    
    the cash portion of income tax (benefit) provision generally represents charges (gains),
which may significantly affect our financial results;
 
    
    elements of our interest rate derivative accounting may be used to evaluate the
effectiveness of our hedging policy; and
 
    
    gains and losses from asset sales, which may not reflect the overall financial return of
the asset, may be an indicator of the current value of our portfolio of assets.
 55




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
    Sensitivity Analysis
   56




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##### Table of Contents



Item 4.
    
    Controls and Procedures
 Managements Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  57




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##### Table of Contents



PART II.  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 None.
 
 Item 6.
    
    Exhibits
 Exhibit No.
    
    Description of Exhibit3.1
    
    Memorandum of Association3.2
    
    Bye-laws4.1
    
    Specimen Share Certificate4.2
    
    Amended and Restated Shareholders Agreement among Aircastle Limited and Fortress
Investment Fund III LP, Fortress Investment Fund III (Fund B) LP, Fortress Investment Fund
III (Fund C) LP, Fortress Investment Fund III (Fund D) L.P., Fortress Investment Fund III
(Fund E) LP, Fortress Investment Fund III (Coinvestment Fund A) LP, Fortress Investment
Fund III (Coinvestment Fund B) LP, Fortress Investment Fund III (Coinvestment Fund C) LP,
Fortress Investment Fund III (Coinvestment Fund D) L.P., Drawbridge Special Opportunities
Fund LP, Drawbridge Special Opportunities Fund Ltd. and Drawbridge Global Macro Master
Fund Ltd.4.3
    
    Indenture, dated as of July 30, 2010, by and among Aircastle Limited and Wells Fargo Bank,
National Association, as trustee. **10.1
    
    Letter Agreement, dated July 13, 2010, between Aircastle Advisor LLC and Ron Wainshal. *, #10.2
    
    Registration Rights Agreement, dated as of July 30, 2010, by and among Aircastle Limited
and Citigroup Global Markets Inc., as representative of the several Initial Purchasers
named therein. **31.1
    
    Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley
Act of 2002 Δ31.2
    
    Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley
Act of 2002 Δ32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Δ32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Δ99.1
    
    Owned Aircraft Portfolio at September 30, 2010 Δ
 
 
    
    Incorporated by reference to the Companys registration statement on Form S-1, filed with the SEC on June 2, 2006, as amended on July 10, 2006,
July 25, 2006 and August 2, 2006.#
    
    Management contract or compensatory plan or arrangement.Δ
    
    Filed herewith.*
    
    Incorporated by reference to the Companys current report on Form 8-K filed with the SEC on July 15, 2010.**
    
    Incorporated by reference to the Companys current report on Form 8-K filed with the SEC on August 4, 2010. 58




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SIGNATURE
   AIRCASTLE LIMITED
(Registrant)By:
    /s/ Aaron DahlkeAaron DahlkeChief Accounting Officer and Authorized Officer 59