##### 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 March 31, 2011
 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 LLC300 First Stamford Place, 5thFloor, Stamford, CT
    
    06902(Address of principal executive offices)
    
    (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 filer o
    
    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
 PageNo.PART I.  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of December 31, 2010 and March 31, 2011
    
    
    3Consolidated Statements of Income for the three months ended
March 31, 2010 and 2011
    
    
    4Consolidated Statements of Cash Flows for the three months ended
March 31, 2010 and 2011
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    46Item 4. Controls and Procedures
    
    
    46PART II.  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    48Item 1A. Risk Factors
    
    
    48Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 6. Exhibits
    
    
    48SIGNATURE
    
    
    50EX-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,
    
    
    March 31,2010
    
    
    2011(Unaudited)ASSETSCash and cash equivalents
    
    $
    239,957
    
    
    $
    240,275Accounts receivable
    
    
    1,815
    
    
    
    1,447Restricted cash and cash equivalents
    
    
    191,052
    
    
    
    191,361Restricted liquidity facility collateral
    
    
    75,000
    
    
    
    71,000Flight equipment held for lease, net of accumulated depreciation of $785,490
and $835,642
    
    
    4,065,780
    
    
    
    4,120,309Aircraft purchase deposits and progress payments
    
    
    219,898
    
    
    
    186,009Other assets
    
    
    65,557
    
    
    
    72,300Total assets
    
    $
    4,859,059
    
    
    $
    4,882,701LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIESBorrowings from secured and unsecured financings (including borrowings of
ACS Ireland VIEs of $314,877 and $310,573, respectively
    
    $
    2,707,958
    
    
    $
    2,748,906Accounts payable, accrued expenses and other liabilities
    
    
    76,470
    
    
    
    63,847Dividends payable
    
    
    7,964
    
    
    
    7,857Lease rentals received in advance
    
    
    43,790
    
    
    
    38,955Liquidity facility
    
    
    75,000
    
    
    
    71,000Security deposits
    
    
    83,241
    
    
    
    82,391Maintenance payments
    
    
    342,333
    
    
    
    327,994Fair value of derivative liabilities
    
    
    179,585
    
    
    
    155,363Total liabilities
    
    
    3,516,341
    
    
    
    3,496,313Commitments 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, 79,640,285
shares issued and outstanding at December 31, 2010; and 78,568,761 shares
issued and outstanding at March 31, 2011
    
    
    796
    
    
    
    783Additional paid-in capital
    
    
    1,485,841
    
    
    
    1,468,401Retained earnings
    
    
    104,301
    
    
    
    139,121Accumulated other comprehensive loss
    
    
    (248,220
    )
    
    
    (221,917
    )Total shareholders equity
    
    
    1,342,718
    
    
    
    1,386,388Total liabilities and shareholders equity
    
    $
    4,859,059
    
    
    $
    4,882,701
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
 3




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Aircastle Limited and Subsidiaries
 
 Consolidated Statements of Income
 (Dollars in thousands, except per share amounts)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2011Revenues:Lease rental revenue
    
    $
    130,122
    
    
    $
    141,116Amortization of net lease discounts and lease incentives
    
    
    (4,845
    )
    
    
    (3,102
    )Maintenance revenue
    
    
    5,254
    
    
    
    16,844Total lease rentals
    
    
    130,531
    
    
    
    154,858Other revenue
    
    
    30
    
    
    
    3,056Total revenues
    
    
    130,561
    
    
    
    157,914Expenses:Depreciation
    
    
    54,145
    
    
    
    59,591Interest, net
    
    
    40,959
    
    
    
    45,619Selling, general and administrative (including non-cash
share based payment expense
of $1,782, and $1,895, respectively)
    
    
    11,673
    
    
    
    12,531Maintenance and other costs
    
    
    2,200
    
    
    
    3,530Total expenses
    
    
    108,977
    
    
    
    121,271Other income (expense):Gain on sale of flight equipment
    
    
    
    
    
    
    9,662Other
    
    
    (370
    )
    
    
    (359
    )Total other income (expense)
    
    
    (370
    )
    
    
    9,303Income from continuing operations before income taxes
    
    
    21,214
    
    
    
    45,946Income tax provision
    
    
    2,335
    
    
    
    3,269Net income
    
    $
    18,879
    
    
    $
    42,677Earnings per
common share  Basic
    
    $
    0.24
    
    
    $
    0.54Earnings per common share  Diluted
    
    $
    0.24
    
    
    $
    0.54Dividends declared per share
    
    $
    0.10
    
    
    $
    0.10
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
 4




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Aircastle Limited and Subsidiaries
 
 Consolidated Statements of Cash Flows
 (Dollars in thousands)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2011Cash flows from operating activities:Net income
    
    $
    18,879
    
    
    $
    42,677Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    54,145
    
    
    
    59,591Amortization of deferred financing costs
    
    
    2,804
    
    
    
    3,528Amortization of net lease discounts and lease incentives
    
    
    4,845
    
    
    
    3,102Deferred income taxes
    
    
    1,234
    
    
    
    1,853Non-cash share based payment expense
    
    
    1,782
    
    
    
    1,895Cash flow hedges reclassified into earnings
    
    
    2,304
    
    
    
    2,835Ineffective portion of cash flow hedges
    
    
    866
    
    
    
    (475
    )Security deposits and maintenance payments included in earnings
    
    
    (267
    )
    
    
    (18,534
    )Gain on sale of flight equipment
    
    
    
    
    
    
    (9,662
    )Other
    
    
    370
    
    
    
    (57
    )Changes in certain assets and liabilities:Accounts receivable
    
    
    (346
    )
    
    
    1,288Restricted cash and cash equivalents
    
    
    (22,185
    )
    
    
    (309
    )Other assets
    
    
    (946
    )
    
    
    (731
    )Accounts payable, accrued expenses and other liabilities
    
    
    (9,309
    )
    
    
    (17,416
    )Lease rentals received in advance
    
    
    (2,464
    )
    
    
    (5,381
    )Net cash provided by operating activities
    
    
    51,712
    
    
    
    64,204Cash flows from investing activities:Acquisition and improvement of flight equipment and lease incentives
    
    
    (10,136
    )
    
    
    (110,410
    )Proceeds from sale of flight equipment
    
    
    
    
    
    
    75,200Aircraft purchase deposits and progress payments
    
    
    (39,551
    )
    
    
    (36,630
    )Net cash used in investing activities
    
    
    (49,687
    )
    
    
    (71,840
    )Cash flows from financing activities:Repurchase of shares
    
    
    (926
    )
    
    
    (16,367
    )Proceeds from term debt financings
    
    
    
    
    
    
    157,161Securitization and term debt financing repayments
    
    
    (37,929
    )
    
    
    (116,340
    )Deferred financing costs
    
    
    (106
    )
    
    
    (7,346
    )Restricted secured liquidity facility collateral
    
    
    1,000
    
    
    
    4,000Secured liquidity facility collateral
    
    
    (1,000
    )
    
    
    (4,000
    )Security deposits received
    
    
    2,413
    
    
    
    7,009Security deposits returned
    
    
    (3,868
    )
    
    
    (5,312
    )Maintenance payments received
    
    
    31,186
    
    
    
    27,487Maintenance payments returned
    
    
    (5,906
    )
    
    
    (30,374
    )Dividends paid
    
    
    (7,955
    )
    
    
    (7,964
    )Net cash (used in) provided by financing activities
    
    
    (23,091
    )
    
    
    7,954Net increase (decrease) in cash and cash equivalents
    
    
    (21,066
    )
    
    
    318Cash and cash equivalents at beginning of period
    
    
    142,666
    
    
    
    239,957Cash and cash equivalents at end of period
    
    $
    121,600
    
    
    $
    240,275Supplemental disclosures of cash flow information:Cash paid for interest, net of capitalized interest
    
    $
    35,114
    
    
    $
    46,919Cash paid for income taxes
    
    $
    2,429
    
    
    $
    1,004Supplemental disclosures of non-cash financing activities:Advance lease rentals converted to maintenance reserves
    
    $
    1,750
    
    
    $
    Security deposits converted to advance lease rentals
    
    $
    
    
    
    $
    546
 The accompanying notes are an integral part of these unaudited consolidated financial statements
 5




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Aircastle Limited and Subsidiaries
 
 Notes to Unaudited Consolidated Financial Statements
 (Dollars in thousands, except per share amounts)
 March 31, 2011
 Note 1. Summary of Significant Accounting Policies
 Organization
  Basis of Presentation
    Principles of Consolidation
   Recent Accounting Pronouncements
 Leases
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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2011
  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)
March 31, 2011
 Fair Value
    
    
    Fair Value Measurements at December 31, 2010as of
    
    
    Using Fair Value HierarchyDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Valuation2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TechniqueAssets:Cash and cash equivalents
    
    
    $239,957
    
    
    $
    239,957
    
    
    $
    
    
    
    $
    
    
    
    MarketRestricted cash and cash equivalents
    
    
    191,052
    
    
    
    191,052
    
    
    
    
    
    
    
    
    
    
    MarketDerivative assets
    
    
    374
    
    
    
    
    
    
    
    374
    
    
    
    
    
    
    IncomeTotal
    
    
    $431,383
    
    
    $
    431,009
    
    
    $
    374
    
    
    $
    Liabilities:Derivative liabilities
    
    
    $179,585
    
    
    $
    
    
    
    $
    124,404
    
    
    $
    55,181
    
    
    IncomeFair Value
    
    
    Fair Value Measurements at March 31, 2011as of
    
    
    Using Fair Value HierarchyMarch 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Valuation2011
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TechniqueAssets:Cash and cash equivalents
    
    
    $240,275
    
    
    $
    240,275
    
    
    $
    
    
    
    $
    
    
    
    MarketRestricted cash and cash equivalents
    
    
    191,361
    
    
    
    191,361
    
    
    
    
    
    
    
    
    
    
    MarketDerivative assets
    
    
    137
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    IncomeTotal
    
    
    $431,773
    
    
    $
    431,636
    
    
    $
    137
    
    
    $
    Liabilities:Derivative liabilities
    
    
    $155,363
    
    
    $
    
    
    
    $
    106.599
    
    
    $
    48,764
    
    
    Income
   8




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2011
  LiabilitiesDerivativeLiabilitiesBalance as of December 31, 2009
    
    $
    (38,907
    )Total gains/(losses), net:Included in other income (expense)
    
    
    (139
    )Included in interest expense
    
    
    (51
    )Included in other comprehensive income
    
    
    (5,943
    )Balance as of March 31, 2010
    
    $
    (45,040
    )
 LiabilitiesDerivativeLiabilitiesBalance as of December 31, 2010
    
    $
    (55,181
    )Total gains/(losses), net:Included in other income (expense)
    
    
    (122
    )Included in interest expense
    
    
    6Included in other comprehensive income
    
    
    6,533Balance as of March 31, 2011
    
    $
    (48,764
    )
      December 31, 2010
    
    
    March 31, 2011Carrying Amount
    
    
    Fair Value
    
    
    Carrying Amount
    
    
    Fair Valueof Asset
    
    
    of Asset
    
    
    of Asset
    
    
    of Asset(Liability)
    
    
    (Liability)
    
    
    (Liability)
    
    
    (Liability)Securitizations and term debt financings
    
    
    $(2,056,012
    )
    
    $
    (1,829,277
    )
    
    
    $(1,984,507
    )
    
    $
    (1,779,493
    )ECA term financings
    
    
    (267,311
    )
    
    
    (273,203
    )
    
    
    (408,181
    )
    
    
    (414,908
    )A330 PDP Facility
    
    
    (88,487
    )
    
    
    (88,487
    )
    
    
    (59,943
    )
    
    
    (59,943
    )2010-1 Notes
    
    
    (296,148
    )
    
    
    (328,500
    )
    
    
    (296,275
    )
    
    
    (335,250
    )
 9




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2011
 Note 3. Lease Rental Revenues and Flight Equipment Held for Lease
  Year Ending December 31,
    
    AmountRemainder of 2011
    
    $
    417,3842012
    
    
    499,4902013
    
    
    397,3772014
    
    
    311,2062015
    
    
    261,2102016
    
    
    231,381Thereafter
    
    
    373,168Total
    
    $
    2,491,216
  Three Months EndedMarch 31,Region
    
    2010
    
    
    2011Europe
    
    
    45
    %
    
    
    46
    %Asia
    
    
    20
    %
    
    
    24
    %North America
    
    
    16
    %
    
    
    13
    %Latin America
    
    
    9
    %
    
    
    9
    %Middle East and Africa
    
    
    10
    %
    
    
    8
    %Total
    
    
    100
    %
    
    
    100
    %
     Three Months Ended March 31,2010
    
    
    2011Number
    
    
    
    
    
    
    
    
    
    
    NumberPercent of Total
    
    
    of
    
    
    
    
    
    
    Percent of Total
    
    
    ofCountry
    
    Revenue
    
    
    Revenue
    
    
    Lessees
    
    
    Revenue
    
    
    Revenue
    
    
    LesseesUnited States
    
    $
    16,645
    
    
    
    13
    %
    
    
    4
    
    
    $
    16,735
    
    
    
    11
    %
    
    
    4Netherlands(1)
    
    
    14,012
    
    
    
    11
    %
    
    
    3
    
    
    
    
    
    
    
    
    %
    
    
    China
    
    
    13,806
    
    
    
    11
    %
    
    
    5
    
    
    
    16,274
    
    
    
    10
    %
    
    
    5Egypt (2) (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,069
    
    
    
    11
    %
    
    
    1
 10




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2011
 
 (1)
    
    Total revenue attributable to the Netherlands was less than 10% for the three months ended March 31, 2011.(2)
    
    Total revenue attributable to Egypt was $2.5 million of lease rental revenue or 2.0% of total revenue for
the three months ended March 31, 2010.(3)
    
    Total revenue attributable to Egypt includes $1.2 million of lease rental revenue, $12.6 million of
maintenance revenue and other revenue of $2.7 million for the three months ended March 31, 2011 related
to the early termination of four leases in the first quarter of 2011. As of March 31, 2011, we have no
aircraft on lease in Egypt. Geographic concentration of net book value of flight equipment held for lease was as
follows:
 December 31, 2010
    
    
    March 31, 2011Number
    
    
    
    
    
    
    Numberof
    
    
    Net Book
    
    
    of
    
    
    Net BookRegion
    
    Aircraft
    
    
    Value %
    
    
    Aircraft
    
    
    Value %Europe
    
    
    66
    
    
    
    46
    %
    
    
    65
    
    
    
    44
    %Asia
    
    
    35
    
    
    
    26
    %
    
    
    32
    
    
    
    24
    %North America
    
    
    14
    
    
    
    10
    %
    
    
    14
    
    
    
    10
    %Latin America
    
    
    11
    
    
    
    8
    %
    
    
    11
    
    
    
    8
    %Middle East and Africa
    
    
    10
    
    
    
    10
    %
    
    
    7
    
    
    
    12
    %Off-lease
    
    
    
    
    
    
    
    %
    
    
    5
    (1)
    
    
    2
    %Total
    
    
    136
    
    
    
    100
    %
    
    
    134
    
    
    
    100
    %
 
 (1)
    
    Includes four Airbus Model A320-200 aircraft with respect to which
leases were terminated after a customer ceased operations in the
first quarter of 2011 and one Airbus Model A319-100 aircraft which
was returned to us early on a consensual basis in the first
quarter of 2011. We have commitments to lease three of these aircraft and are currently marketing the remaining two aircraft for sale or
lease.  December 31, 2010
    
    
    March 31, 2011Net Book
    
    
    Number of
    
    
    
    
    
    
    Net Book
    
    
    Number ofCountry
    
    Net Book Value
    
    
    Value %
    
    
    Lessees
    
    
    Net Book Value
    
    
    Value %
    
    
    LesseesChina
    
    $
    518,545
    
    
    
    13
    %
    
    
    5
    
    
    $
    447,932
    
    
    
    11
    %
    
    
    4Netherlands
    
    
    410,086
    
    
    
    10
    %
    
    
    3
    
    
    
    403,737
    
    
    
    10
    %
    
    
    3
   Note 4. Variable Interest Entities
  11




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2011
 Securitizations and Term Financing
    ECA Term Financings
    12




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2011
 Note 5. Securitizations and Term Debt Financings
  AtDecember 31,2010
    
    
    At March 31, 2011Outstanding
    
    
    Outstanding
    
    
    
    
    
    
    Final StatedDebt Obligation
    
    Borrowings
    
    
    Borrowings
    
    
    Interest Rate(1)
    
    
    Maturity(2)Secured Debt Financings:Securitization No. 1
    
    
    $   415,103
    
    
    $
    409,699
    
    
    
    0.53
    %
    
    
    6/20/31Securitization No. 2
    
    
    997,713
    
    
    
    943,549
    
    
    
    0.52
    %
    
    
    6/14/37Term Financing No. 1
    
    
    643,196
    
    
    
    631,259
    
    
    
    2.01
    %
    
    
    05/02/15ECA Term Financings
    
    
    267,311
    
    
    
    408,181
    
    
    2.65% to
4.48%
    
    5/27/21 to 3/18/23A330 PDP Facility
    
    
    88,487
    
    
    
    59,943
    
    
    
    2.77
    %
    
    
    12/01/11
    (3)Total secured debt financings
    
    
    2,411,810
    
    
    
    2,452,631Unsecured Debt Financings:2010-1 Notes
    
    
    296,148
    
    
    
    296,275
    
    
    
    9.75
    %
    
    
    08/01/182010 Revolving Credit Facility
    
    
    
    
    
    
    
    
    
    
    N/A
    
    
    
    09/28/13Total unsecured debt financings
    
    
    296,148
    
    
    
    296,275Total secured and unsecured debt financings
    
    
    $2,707,958
    
    
    $
    2,748,906
 
 (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,
    
    
    March 31,
    
    
    Unused
    
    
    Interest RateFacility
    
    Liquidity Facility Provider

    
    2010
    
    
    2011
    
    
    Fee
    
    
    on any AdvancesSecuritization No. 1
    
    Crédit Agricole Corporate and Investment Bank
    
    
    $ 42,000
    
    
    $
    42,000
    
    
    
    0.45
    %
    
    1M Libor + 1.00%Securitization No. 2
    
    HSH Nordbank AG(1)
    
    
    74,828
    
    
    
    70,766
    
    
    
    0.50
    %
    
    1M Libor + 0.75%Term Financing No. 1
    
    Crédit Agricole Corporate and Investment Bank
    
    
    12,864
    
    
    
    12,625
    
    
    
    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
  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)
March 31, 2011
   ECA Term Financings
   Note 6. Dividends
  Dividend
    
    Aggregateper Common
    
    DividendDeclaration Date
    
    Share
    
    Amount
    
    Record Date
    
    Payment DateDecember 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, 2010December 6, 2010
    
    $
    0.10
    
    
    
    7,964
    
    
    December 31, 2010
    
    January 14, 2011March 8, 2011
    
    $
    0.10
    
    
    
    7,857
    
    
    March 31, 2011
    
    April 15, 2011
 Note 7. Shareholders Equity and Share Based Payment
  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)
March 31, 2011
 Note 8. Earnings Per Share
   Three Months EndedMarch 31,2010
    
    
    2011Weighted-average shares:Common shares outstanding
    
    
    78,415,702
    
    
    
    78,785,736Restricted common shares
    
    
    1,237,988
    
    
    
    913,671Total weighted-average shares
    
    
    79,653,690
    
    
    
    79,699,407Percentage of weighted-average shares:Common shares outstanding
    
    
    98.45
    %
    
    
    98.85
    %Restricted common shares
    
    
    1.55
    %
    
    
    1.15
    %Total
    
    
    100.00
    %
    
    
    100.00
    %
  Three Months EndedMarch 31,2010
    
    
    2011Earnings per share  Basic:Net income
    
    $
    18,879
    
    
    $
    42,677Less: Distributed and undistributed earnings allocated to restricted common shares (a)
    
    
    (293
    )
    
    
    (489
    )Earnings available to common shareholders  Basic
    
    $
    18,586
    
    
    $
    42,188Weighted-average common shares outstanding  Basic
    
    
    78,415,702
    
    
    
    78,785,736Earnings per common share  Basic
    
    $
    0.24
    
    
    $
    0.54Earnings per share  Diluted:Net income
    
    $
    18,879
    
    
    $
    42,677Less: Distributed and undistributed earnings allocated to restricted common shares (a)
    
    
    (293
    )
    
    
    (489
    )Earnings available to common shareholders  Diluted
    
    $
    18,586
    
    
    $
    42,188Weighted-average common shares outstanding  Basic
    
    
    78,415,702
    
    
    
    78,785,736Effect of dilutive shares
    
    
    
    (b)
    
    
    
    (b)Weighted-average common shares outstanding  Diluted
    
    
    78,415,702
    
    
    
    78,785,736Earnings per common share  Diluted
    
    $
    0.24
    
    
    $
    0.54
 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)
March 31, 2011
 
 (a)
    
    For the three months ended March 31, 2010 and 2011, distributed and
undistributed earnings to restricted shares is 1.55% and 1.15%, 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 months ended March 31, 2010 and 2011, we have no dilutive shares. Note 9. Income Taxes
   Three Months EndedMarch 31,2010
    
    
    2011U.S. operations
    
    $
    535
    
    
    $
    434Non-U.S. operations
    
    
    20,679
    
    
    
    45,512Total
    
    $
    21,214
    
    
    $
    45,946
   Three Months EndedMarch 31,2010
    
    
    2011Notional U.S. federal income tax expense at the statutory rate
    
    $
    7,425
    
    
    $
    16,081U.S. state and local income tax, net
    
    
    31
    
    
    
    24Non-U.S. operations:Bermuda
    
    
    (4,382
    )
    
    
    (11,996
    )Ireland
    
    
    (1,583
    )
    
    
    (1,071
    )Other
    
    
    (5
    )
    
    
    (522
    )Non-deductible expenses in the U.S
    
    
    854
    
    
    
    757Other
    
    
    (5
    )
    
    
    (4
    )Provision for income taxes
    
    $
    2,335
    
    
    $
    3,269
 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)
March 31, 2011
 Note 10. Interest, Net
  Three Months EndedMarch 31,2010
    
    
    2011Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
    
    $
    35,598
    
    
    $
    41,278Hedge ineffectiveness (gains) losses (unrealized)
    
    
    867
    
    
    
    (475
    )Amortization of interest rate derivatives related to deferred losses
    
    
    2,304
    
    
    
    2,835Amortization of deferred financing fees
    
    
    2,804
    
    
    
    3,528Interest Expense
    
    
    41,573
    
    
    
    47,166Less interest income
    
    
    (10
    )
    
    
    (161
    )Less capitalized interest
    
    
    (604
    )
    
    
    (1,386
    )Interest, net
    
    $
    40,959
    
    
    $
    45,619
 Note 11. Commitments and Contingencies
   Note 12. Derivatives
  We held the following interest rate derivatives as of March 31, 2011:
 Derivative AssetsFutureCurrent
    
    
    
    
    
    
    
    
    
    
    MaximumNotional
    
    
    Effective
    
    
    Maturity
    
    
    Notional
    
    
    Floating
    
    
    Fixed
    
    
    Balance SheetHedged Item
    
    Amount
    
    
    Date
    
    
    Date
    
    
    Amount
    
    
    Rate
    
    
    Rate
    
    
    Location
    
    
    Fair ValueInterest rate
derivatives not
designated as cash
flow hedges :ECA Term
Financing for New
A330 Aircraft
    
    $
    
    
    
    Jul-11
    
    Jul-23
    
    $
    67,000
    
    
    3M LIBOR
    
    
    4.0
    %
    
    Fair value of derivative assets
    
    $
    137
 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)
March 31, 2011
 Derivative LiabilitiesFutureCurrent
    
    
    
    
    
    MaximumNotional
    
    Effective
    
    Maturity
    
    Notional
    
    Floating
    
    Fixed
    
    Balance SheetHedged Item
    
    Amount
    
    Date
    
    Date
    
    Amount
    
    Rate
    
    Rate
    
    Location
    
    Fair ValueInterest rate derivatives 
designated as cash flow hedges :Securitization No. 1
    
    $
    421,715
    
    
    Jun-06
    
    Jun-16
    
    $
    421,715
    
    
    1M LIBOR
+ 0.27%
    
    
    5.78
    %
    
    Fair value of 

derivative 

liabilities
    
    $
    51,375Securitization No. 2
    
    
    983,265
    
    
    Jun-07
    
    Jun-12
    
    
    983,265
    
    
    1M LIBOR
    
    5.25%
to
5.36%
    
    Fair value of
derivative
liabilities
    
    
    55,224Term Financing No. 1(1)
    
    
    571,749
    
    
    Jun-08
    
    May-13
    
    
    571,749
    
    
    1M LIBOR
    
    
    4.04
    %
    
    Fair value of
derivative
liabilities
    
    
    33,840Term Financing No. 1(1)
    
    
    
    
    
    May-13
    
    May-15
    
    
    478,044
    
    
    1M LIBOR
    
    
    5.31
    %
    
    Fair value of
derivative
liabilities
    
    
    14,924Total interest rate derivatives
    
    $
    1,976,729
    
    
    
    
    
    
    $
    2,454,773
    
    
    
    
    
    
    
    
    
    
    $
    155,363
 
 (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.      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)
March 31, 2011
    Effective Portion
    
    
    Ineffective PortionAmount of
    
    
    
    
    
    
    Amount ofDerivatives in
    
    Amount of
    
    
    Location of
    
    
    Gain or (Loss)
    
    
    Location of
    
    
    Gain or (Loss)ASC 815
    
    Gain or (Loss)
    
    
    Gain or (Loss)
    
    
    Reclassified from
    
    
    Gain or (Loss)
    
    
    Recognized inCash Flow
    
    Recognized in OCI
    
    
    Reclassified from
    
    
    Accumulated OCI
    
    
    Recognized in
    
    
    Income onHedging
    
    on Derivative
    
    
    Accumulated OCI
    
    
    into Income
    
    
    Income on
    
    
    DerivativeRelationships
    
    (a)
    
    
    into Income
    
    
    (b)
    
    
    Derivative
    
    
    (c)Interest rate derivatives
    
    $
    1,021
    
    
    Interest expense
    
    $
    (25,283
    )
    
    Interest expense
    
    $
    62
 
 (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 each
of the three months ended March 31, 2011.(b)
    
    This represents the amount of actual cash paid, net of taxes, related to the net settlements of the interest rate
derivatives for each of the three months ended March 31, 2011 plus any effective amortization of net deferred
interest rate derivative losses.(c)
    
    This represents both realized and unrealized ineffectiveness incurred during the three months ended March 31, 2011. 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)
    
    $
    (359
    )
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##### Table of Contents



Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2011
  Amount of Deferred (Gain)Amortized or Loss(including AcceleratedUnamortized

    
    Amortization) into

    
    Amount of DeferredOriginal

    
    
    
    
    
    
    
    
    
    
    
    Deferred
    

    Deferred (Gain) or
    

    Interest Expense for the
    

    (Gain) or LossMaximum

    
    
    
    
    
    Fixed

    
    
    
    (Gain) or

    
    Loss at

    
    Three Months

    
    Expected to beNotional

    
    Effective
    
    Maturity
    
    Rate

    
    Termination
    
    Loss Upon

    
    March

    
    Ended March 31,

    

    Amortized over theHedged Item
    
    Amount

    
    Date
    
    Date
    
    %

    
    Date
    
    Termination

    
    31, 2011

    
    2010

    
    2011

    
    Next Twelve MonthsSecuritization No. 1
    
    $
    400,000
    
    
    Dec-05
    
    Aug-10
    
    
    4.61
    
    
    Jun-06
    
    $
    (12,968
    )
    
    $
    
    
    
    $
    (745
    )
    
    $
    
    
    
    $
    Securitization No. 1
    
    
    200,000
    
    
    Dec-05
    
    Dec-10
    
    
    5.03
    
    
    Jun-06
    
    
    (2,541
    )
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    Securitization No. 2
    
    
    500,000
    
    
    Mar-06
    
    Mar-11
    
    
    5.07
    
    
    Jun-07
    
    
    (2,687
    )
    
    
    
    
    
    
    (173
    )
    
    
    (122
    )
    
    
    Securitization No. 2
    
    
    200,000
    
    
    Jan-07
    
    Aug-12
    
    
    5.06
    
    
    Jun-07
    
    
    (1,850
    )
    
    
    (438
    )
    
    
    (90
    )
    
    
    (85
    )
    
    
    (248
    )Securitization No. 2
    
    
    410,000
    
    
    Feb-07
    
    Apr-17
    
    
    5.14
    
    
    Jun-07
    
    
    (3,119
    )
    
    
    (1,581
    )
    
    
    (94
    )
    
    
    (82
    )
    
    
    (270
    )Term Financing No. 1
    
    
    150,000
    
    
    Jul-07
    
    Dec-17
    
    
    5.14
    
    
    Mar-08
    
    
    15,281
    
    
    
    9,027
    
    
    
    492
    
    
    
    458
    
    
    
    1,321Term Financing No. 1
    
    
    440,000
    
    
    Jun-07
    
    Feb-13
    
    
    4.88
    
    
    Partial  Mar-08Full  Jun-08
    
    
    26,281
    
    
    
    9,006
    
    
    
    1,434
    
    
    
    1,334
    
    
    
    3,851Term Financing No. 1
    
    
    248,000
    
    
    Aug-07
    
    May-13
    
    
    5.33
    
    
    Jun-08
    
    
    9,888
    
    
    
    3,272
    
    
    
    979
    
    
    
    418
    
    
    
    1,194Term Financing No. 2
    
    
    360,000
    
    
    Jan-08
    
    Feb-19
    
    
    5.16
    
    
    Partial  Jun-08Full  Oct-08
    
    
    23,077
    
    
    
    9,776
    
    
    
    557
    
    
    
    394
    
    
    
    934ECA Term Financing
for New A330
Aircraft
    
    
    238,000
    
    
    Jan-11
    
    Apr-16
    
    
    5.23
    
    
    Dec-08
    
    
    19,430
    
    
    
    18,432
    
    
    
    
    
    
    
    
    
    
    
    2,841ECA Term Financing
for New A330 Aircraft
    
    
    231,000
    
    
    Apr-10
    
    Oct-15
    
    
    5.17
    
    
    Partial  Jun-08Full  Dec-08
    
    
    15,310
    
    
    
    11,212
    
    
    
    
    
    
    
    520
    
    
    
    2,019ECA Term Financing
for New A330
Aircraft
    
    
    238,000
    
    
    Jul-11
    
    Sep-16
    
    
    5.27
    
    
    Dec-08
    
    
    17,254
    
    
    
    15,969
    
    
    
    
    
    
    
    
    
    
    
    421Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    103,356
    
    
    $
    74,675
    
    
    $
    2,304
    
    
    $
    2,835
    
    
    $
    12,063
  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)
March 31, 2011
  Three Months EndedMarch 31,2010
    
    
    2011Interest Expense:Hedge ineffectiveness (gains) losses (unrealized)
    
    $
    867
    
    
    $
    (475
    )Amortization:Accelerated amortization of deferred losses
    
    
    447
    
    
    
    Amortization of deferred losses
    
    
    1,857
    
    
    
    2,835Total Amortization
    
    
    2,304
    
    
    
    2,835Total charged to interest expense
    
    $
    3,171
    
    
    $
    2,360Other Income (Expense):Mark to market gains (losses) on undesignated interest rate derivatives
    
    $
    (370
    )
    
    $
    (359
    )Total charged to other income (expense)
    
    $
    (370
    )
    
    $
    (359
    )
 Note 13. Other Assets
  December 31,
    
    
    March 31,2010
    
    
    2011Deferred debt issuance costs, net of amortization of $43,826 and $47,227, respectively
    
    $
    30,045
    
    
    $
    33,991Deferred federal income tax asset
    
    
    11,905
    
    
    
    11,798Lease incentives and lease premiums, net of amortization of $26,749 and $14,725, respectively
    
    
    9,115
    
    
    
    11,151Other assets
    
    
    14,492
    
    
    
    15,360Total other assets
    
    $
    65,557
    
    
    $
    72,300
 Note 14. Accounts Payable, Accrued Expenses and Other Liabilities
  December 31,
    
    
    March 31,2010
    
    
    2011Accounts payable and accrued expenses
    
    $
    32,145
    
    
    $
    24,769Deferred federal income tax liability
    
    
    24,114
    
    
    
    25,860Accrued interest payable
    
    
    20,211
    
    
    
    13,218Total accounts payable, accrued expenses and other liabilities
    
    $
    76,470
    
    
    $
    63,847
 21




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2011
 Note 15. Accumulated Other Comprehensive Income (Loss)
  Three Months EndedMarch 31,2010
    
    
    2011Net income
    
    $
    18,879
    
    
    $
    42,677Net change in fair value of derivatives, net
of tax benefit of $83 and tax expense of
$400, respectively
    
    
    (8,598
    )
    
    
    23,468Derivative loss reclassified into earnings
    
    
    2,304
    
    
    
    2,835Total comprehensive income
    
    $
    12,585
    
    
    $
    68,980
  AccumulatedOtherComprehensiveIncome (Loss)December 31, 2010, net of tax benefit of $2,789
    
    $
    (248,220
    )Net change in fair value of derivatives, net of tax expense of $400
    
    
    23,468Derivative loss reclassified into earnings
    
    
    2,835March 31, 2011
    
    $
    (221,917
    )
 22




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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
  23




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##### Table of Contents



OVERVIEW
   
    
    Selectively investing in additional commercial jet aircraft and other
aviation assets when attractively priced opportunities and cost effective financing are
available.We believe the large and growing aircraft market will continue to provide
significant acquisition opportunities over the long term and that the recent improvements in
economic conditions, coupled with the continued lack of traditional aviation bank debt
lending for mid-age, current technology aircraft, will offer attractive near term investment
opportunities. We regularly evaluate potential aircraft acquisitions and expect to continue
our investment program through additional passenger and cargo aircraft purchases when
attractively priced opportunities and cost effective financing are available.
    
    Maintaining an efficient capital structure by using various long-term
financing structures to obtain cost effective financing and leveraging the efficient
operating platform and strong operating track record we have established.We have financed
our aircraft acquisitions using various long-term debt structures obtained through several
different markets to obtain cost effective financing. We expect capital to continue to be
available in the short-term and going forward, thus allowing us to acquire additional
aircraft and other aviation assets to optimize the return on our investments and to grow our
business and profits. We will also seek opportunities to increase our profits by leveraging
the efficient operating platform we have established.
    
    Reinvesting a portion of the cash flows generated by our business in
additional aviation assets and/or our own debt and equity securities.Aircraft have a finite
useful life and through a strategy of reinvesting a portion of our cash flows from
operations and asset sales in our business, we will generally seek to maintain and grow our
asset and earnings base.
    
    Selling assets when attractive opportunities arise and for portfolio
management purposes.We pursue asset sales as opportunities over the course of the business
cycle with the aim of realizing profits and reinvesting proceeds where more accretive
investments are available. We also use asset sales for portfolio management
 24




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##### Table of Contents



purposes such
as reducing lessee specific concentrations and lowering residual value exposures to certain
aircraft types.
    Revenues
    25




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##### Table of Contents



2011 Lease Expirations and Lease Placements
 
    
    Lease expirations and terminations  placements.We currently have nine aircraft with
lease expirations scheduled in 2011. We have commitments to
lease five of these aircraft and we have signed sale agreements
for two aircraft. With respect to the five aircraft leases we terminated in the first
quarter of 2011, we have commitments to lease two Airbus Model A320-200 aircraft and one
Airbus Model A319-100 aircraft and are actively remarketing the remaining two Airbus Model
A320-200 aircraft. Three of the Airbus Model A320-200 aircraft are in Cairo, in the possession of a maintenance
facility under our direction, and we are working to move them to the U.S. or Europe for maintenance work in
preparation for placement with a new customer. We expect these five aircraft to return to revenue utilization
during the third quarter of 2011.The four aircraft we are remarketing for lease in 2011 represent 2% of
our net book value of flight equipment held for lease at March 31, 2011.
    
    Aircraft acquisitions  placements.At January 1, 2011, we were scheduled to take
delivery of seven of the New A330 Aircraft in 2011, with one of these aircraft committed
for lease to an affiliate of the HNA Group, and the remaining six of these aircraft
committed for lease to South African Airways (PTY) LTD, or SAA. The first two aircraft
committed for lease to SAA were delivered in the first quarter of 2011. In addition:
 
    
    In April 2011, we acquired an off-lease Boeing Model 747-400 passenger aircraft and
we executed an agreement for the conversion of this aircraft into freighter
configuration, a process we expect to complete in late 2011 or early 2012. We are
currently marketing this aircraft for lease.
    
    We have a commitment to acquire another off-lease Boeing Model 747-400 passenger
aircraft in the second quarter of 2011 and a letter of intent for the acquisition of a
used Boeing Model 747-400 aircraft that is on lease in passenger configuration until
the second quarter of 2012. We expect to convert these aircraft into freighter
configuration as well. We are marketing these aircraft for lease as freighters.
    
    We also have a commitment to acquire one used Airbus Model A320-200 passenger
aircraft that is on lease to an airline in China and a letter of intent to acquire a
sistership.
 
    
    Aircraft sales.During the first quarter of 2011, we sold four Boeing Model 737-400SF
freighter aircraft.
 2012 Lease Expirations and Lease Placements
 
    
    Scheduled Lease expirations  placements.We currently have 24 aircraft with lease expirations
scheduled in 2012. These 24 aircraft represent 16% of our net book value of flight
equipment held for lease at March 31, 2011.
    
    Aircraft acquisitions  placements.We are scheduled to take delivery of the final New
A330 Aircraft in 2012 and we have executed a lease agreement for this aircraft with Virgin
Blue Airlines Pty Ltd. We currently have no other commitments to acquire aircraft in 2012.
 26




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##### Table of Contents



2013-2015 Lease Expirations and Lease Placements
 
    
    Scheduled lease expirations  placements.Taking into account lease and sale
commitments, we currently have the following number of aircraft with lease expirations
scheduled in the period 2013-2015 representing the percentage of our net book value of
flight equipment held for lease at March 31, 2011 specified below:
 
    
    2013: 27 aircraft, representing 11%;
    
    2014: 22 aircraft, representing 13%; and
    
    2015: 12 aircraft, representing 5%.
 Operating Expenses
  Income Tax Provision
   Acquisitions and Dispositions
   27




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##### Table of Contents



AIRCASTLE AIRCRAFT INFORMATION (Dollars in millions)
 OwnedAircraft as ofMarch 31, 2011(1)Flight Equipment Held for Lease
    
    $
    4,120Number of Aircraft
    
    
    134Latest Generation Aircraft (Percentage of Total Aircraft)
    
    
    92
    %Number of Lessees
    
    
    63Number of Countries
    
    
    34Weighted Average Age  Passenger (years)(2)
    
    
    11.4Weighted Average Age  Freighter (years)(2)
    
    
    9.4Weighted Average Age  Combined (years)(2)
    
    
    10.7Weighted Average Remaining Passenger Lease Term (years)(3)
    
    
    3.6Weighted Average Remaining Cargo Lease Term (years)(3)
    
    
    7.1Weighted Average Remaining Combined Lease Term (years)(3)
    
    
    4.7Weighted Average Fleet Utilization during First Quarter 2011(4)
    
    
    99
    %
 
 (1)
    
    Calculated using net book value as of March 31, 2011.(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. PORTFOLIO DIVERSIFICATION
 Owned Aircraft as ofMarch 31, 2011Number of
    
    
    % of NetAircraft
    
    
    Book ValueAircraft TypePassenger:Narrowbody
    
    
    83
    
    
    
    39
    %Midbody
    
    
    29
    
    
    
    28
    %Widebody
    
    
    1
    
    
    
    2
    %Total Passenger
    
    
    113
    
    
    
    69
    %Freighter
    
    
    21
    
    
    
    31
    %Total
    
    
    134
    
    
    
    100
    %ManufacturerBoeing
    
    
    84
    
    
    
    58
    %Airbus
    
    
    50
    
    
    
    42
    %Total
    
    
    134
    
    
    
    100
    %Regional DiversificationEurope
    
    
    65
    
    
    
    44
    %Asia
    
    
    32
    
    
    
    24
    %North America
    
    
    14
    
    
    
    10
    %Latin America
    
    
    11
    
    
    
    8
    %Middle East and Africa
    
    
    7
    
    
    
    12
    %Off-lease(1).
    
    
    5
    
    
    
    2
    %Total
    
    
    134
    
    
    
    100
    %
 
 (1)
    
    Includes four Airbus Model A320-200 aircraft with respect to which
leases were terminated after a customer ceased operations in the
first quarter of 2011 and one Airbus Model A319-100 aircraft which
were returned to us early on a consensual basis in the first
quarter of 2011. We have commitments to lease three of these aircraft
and are currently marketing the remaining two aircraft for
sale or lease. 28




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##### Table of Contents



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
    
    HNA Group (2)
    
    China
    
    8US Airways
    
    USA
    
    8SriLankan Airlines
    
    Sri Lanka
    
    5Airbridge Cargo(3)
    
    Russia
    
    2South African Airways
    
    South Africa
    
    2Avianca
    
    Colombia
    
    2China Eastern Airlines(4)
    
    China
    
    8Iberia Airlines
    
    Spain
    
    6GOL (5)
    
    Brazil
    
    6KLM (1)
    
    Netherlands
    
    1Less than 3% per customer
    
    World Airways
    
    USA
    
    2Icelandair(6)
    
    Iceland
    
    5Korean Air
    
    South Korea
    
    2
 
 (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 two other affiliated customers, represent 11% of flight equipment held for lease.(2)
    
    Eight aircraft on lease to affiliates of the HNA Group, although the HNA Group does not guarantee the leases.(3)
    
    Guaranteed by Volga-Dnepr.(4)
    
    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.(5)
    
    GOL has guaranteed the obligations of an affiliate, VRG Linhas Aereas, and accordingly, the two are shown combined in the above table.(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. Finance
  29




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##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of the three months ended March 31, 2010 to the three months ended March 31,
2011:
 Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands)Revenues:Lease rental revenue
    
    $
    130,122
    
    
    $
    141,116Amortization of net lease discounts and lease incentives
    
    
    (4,845
    )
    
    
    (3,102
    )Maintenance revenue
    
    
    5,254
    
    
    
    16,844Total lease rentals
    
    
    130,531
    
    
    
    154,858Other revenue
    
    
    30
    
    
    
    3,056Total revenues
    
    
    130,561
    
    
    
    157,914Expenses:Depreciation
    
    
    54,145
    
    
    
    59,591Interest, net
    
    
    40,959
    
    
    
    45,619Selling, general and administrative
    
    
    11,673
    
    
    
    12,531Maintenance and other costs
    
    
    2,200
    
    
    
    3,530Total operating expenses
    
    
    108,977
    
    
    
    121,271Other income (expense):Gain on sale of flight equipment
    
    
    
    
    
    
    9,662Other income (expense)
    
    
    (370
    )
    
    
    (359
    )Total other income (expense)
    
    
    (370
    )
    
    
    9,303Income from continuing operations before income taxes
    
    
    21,214
    
    
    
    45,946Income tax provision
    
    
    2,335
    
    
    
    3,269Net income
    
    $
    18,879
    
    
    $
    42,677
 Revenues:
  Lease rental revenue
 
    
    $18.0 million of revenue from two new aircraft purchased in 2011, and the
full quarter revenue of two new aircraft and eight used aircraft purchased in 2010.
  30




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##### Table of Contents




    
    $3.1 million due to aircraft sales and disposals;
 
    
    $2.3 million from the effect of lease terminations and other changes; and
 
    
    $1.6 million due to lease extensions and transitions at lower rentals.
 Amortization of net lease discounts and lease incentives.
 Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands)Amortization of lease discounts
    
    $
    659
    
    
    $
    596Amortization of lease premiums
    
    
    (137
    )
    
    
    (76
    )Amortization of lease incentives
    
    
    (5,367
    )
    
    
    (3,622
    )Amortization of net lease discounts and lease incentives
    
    $
    (4,845
    )
    
    $
    (3,102
    )
  Maintenance revenue
 Three Months Ended March 31,2010

    
    2011Dollars
    
    
    
    Number
    
    Dollars
    
    
    
    Number(in thousands)
    
    
    
    of Leases

    
    (in thousands)
    
    
    
    of LeasesUnscheduled lease terminations
    
    $
    669
    
    
    
    1

    
    $
    13,032
    
    
    
    5Scheduled lease terminations
    
    
    4,585
    
    
    
    1

    
    
    3,812
    
    
    
    2Maintenance revenue
    
    $
    5,254
    
    
    
    2
    
    $
    16,844
    
    
    
    7
   Other revenue
 Operating Expenses:
  Depreciation expense
 
    
    $5.1 million increase in depreciation for aircraft acquired; and
    
    $1.3 million increase in depreciation for capitalized aircraft improvements.
 31




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##### Table of Contents




    
    a $1.0 million decrease in depreciation for aircraft sold.
 Interest, netconsisted of the following:
 Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands)Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
    
    $
    35,598
    
    
    $
    41,278Hedge ineffectiveness losses
    
    
    867
    
    
    
    (475
    )Amortization of interest rate derivatives related to deferred losses
    
    
    2,304
    
    
    
    2,835Amortization of deferred financing fees and notes discount
    
    
    2,804
    
    
    
    3,528Interest Expense
    
    
    41,573
    
    
    
    47,166Less interest income
    
    
    (10
    )
    
    
    (161
    )Less capitalized interest
    
    
    (604
    )
    
    
    (1,386
    )Interest, net
    
    $
    40,959
    
    
    $
    45,619
  
    
    a $5.7 million increase in interest expense on our borrowings primarily due to a higher
weighted average debt balance ($2.71 billion for the three months ended March 31, 2011 as
compared to $2.45 billion for the three months ended March 31, 2010).
  
    
    a $1.3 million decrease resulting from changes in measured hedge ineffectiveness due
primarily to changes in our prior year debt.
 Selling, general and administrative expenses
 Maintenance and other costs
 Other income (expense):
  Income Tax Provision
  32




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##### Table of Contents



Other comprehensive income:
 Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands)Net income
    
    $
    18,879
    
    
    $
    42,677Net change in fair value of derivatives, net
of tax benefit of $83 and tax expense of
$400, respectively
    
    
    (8,598
    )
    
    
    23,468Derivative loss reclassified into earnings
    
    
    2,304
    
    
    
    2,835Total comprehensive income
    
    $
    12,585
    
    
    $
    68,980
  
    
    $42.7 million of net income;
    
    $23.5 million gain from a change in fair value of interest rate derivatives, net of
taxes which is due primarily to net settlements for the three months ended March 31, 2011
combined with a relatively flat LIBOR curve; and
    
    $2.8 million of amortization of deferred net losses reclassified into earnings related
to terminated interest rate derivatives.
  
    
    $18.9 million of net income;
    
    $8.6 million loss from a change in fair value of interest rate derivatives, net of taxes
due primarily to a worsened LIBOR curve offset by net settlements for the three months
ended March 31, 2010; and
    
    $2.3 million of amortization of deferred net losses reclassified into earnings related
to terminated interest rate derivatives.
  33




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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
 Leases
 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 indebtedness, including an unsecured revolving credit facility and unsecured
senior notes;
    
    public offerings of common shares; and
    
    asset sales.
   
    
    a $108.5 million pre-delivery payment financing loan facility from Sumitomo Mitsui
Banking Corporation (SMBC) with respect to new Airbus A330-200 passenger aircraft
scheduled for delivery on long-term leases to SAA during 2011 of which we had drawn down
$59.9 million under this facility as of March 31, 2011 with $13.4 million available to
be drawn down;
    
    $698.0 million financing commitments for our New A330 Aircraft, which we expect to
benefit from an ECA guarantee provided by Compagnie Francaise dAssurance pour le
Commerce Exterieur, or COFACE, of which we borrowed $408.1 million as of March 31, 2011,
and
    
    $50.0 million senior unsecured revolving credit facility with Citigroup Global
Markets Inc., which has a three-year term scheduled to expire in September 2013; we have
not yet drawn down on this facility.
 34




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##### Table of Contents



35




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##### Table of Contents



Cash Flows
 Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands)Net cash flow provided by operating activities
    
    $
    51,712
    
    
    $
    64,204Net cash flow used in investing activities
    
    
    (49,687
    )
    
    
    (71,840
    )Net cash flow (used in) provided by financing activities
    
    
    (23,091
    )
    
    
    7,954
 Operating Activities:
  
    
    A net $21.9 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.This increase was offset partially by:
 
    
    A $9.2 million decrease in cash from other working capital.
 Investing Activities:
  
    
    a $100.3 million increase in the acquisition and improvement of flight equipment.This increase was offset partially by:
 
    
    a $75.2 million increase in proceeds from the sale of flight equipment; and
    
    $2.9 million of lower purchase deposits under our Airbus A330 Agreement.
 Financing Activities:
  
    
    $157.2 million of higher proceeds from term debt financings; and
    
    $3.2 million of higher security deposits received net of security deposits returned.The outflows were offset partially by:
 
    
    $78.4 million of higher financing repayments on our securitizations and term debt
financings;
    
    $28.2 million of lower maintenance payments received net of maintenance payments
returned;
    
    $15.4 million of increased repurchases of our common shares; and
    
    $7.2 million in additional deferred financing costs.
 36




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##### Table of Contents



Debt Obligations
 t
 Outstanding
    
    Number of
    
    
    
    
    
    FinalBorrowing
    
    Aircraft
    
    Interest
    
    StatedDebt Obligation
    
    Collateral
    
    (Dollars in thousands)
    
    Rate(1)
    
    Maturity(2)Secured Debt Financings:Securitization No. 1
    
    Interests in aircraft
leases, beneficial
interests in aircraft
owning entities and
related interests
    
    $
    409,699
    
    
    
    33
    
    
    
    0.53
    %
    
    06/20/31Securitization No. 2
    
    Interests in aircraft
leases, beneficial
interests in aircraft
owning entities and
related interests
    
    
    943,549
    
    
    
    50
    
    
    
    0.52
    %
    
    06/14/37Term Financing No. 1
    
    Interests in aircraft
leases, beneficial
interests in aircraft
owning entities and
related interests
    
    
    631,259
    
    
    
    27
    
    
    
    2.01
    %
    
    05/02/15ECA Term Financings
    
    Interests in aircraft
leases, beneficial
interests in aircraft
leasing entities and
related interests
    
    
    408,181
    
    
    
    6
    
    
    2.65% to 4.48%
    
    05/27/21
to 03/18/23A330 PDP Facility
    
    Interests in Airbus A330
Agreement and aircraft
leases
    
    
    59,943
    
    
    
    
    
    
    
    2.77
    %
    
    12/01/11(3)Total secured debt
financings
    
    
    
    
    2,452,631Unsecured Debt Financings:Senior Notes due 2018
    
    None
    
    
    296,275
    
    
    
    
    
    
    
    9.75
    %
    
    08/01/182010 Revolving Credit Facility
    
    None
    
    
    
    
    
    
    
    
    
    
    
    
    
    09/28/13Total unsecured debt financings
    
    
    
    
    296,275Total secured and unsecured
debt financings
    
    
    
    $
    2,748,906
 
 (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.  Available LiquidityDecember 31,
    
    March 31,2010
    
    2011
    
    Unused
    
    Interest RateFacility
    
    Liquidity Facility Provider
    
    (Dollars in thousands)
    
    Fee
    
    on any AdvancesSecuritization No. 1
    
    Crédit Agricole Corporate
and Investment Bank
    
    $
    42,000
    

    $
    42,000
    
    
    0.45
    %
    
    1M Libor + 1.00%Securitization No. 2
    
    HSH Nordbank AG(1)
    
    
    74,828
    
    
    70,766
    
    
    0.50
    %
    
    1M Libor + 0.75%Term Financing No. 1
    
    Crédit Agricole Corporate
and Investment Bank
    
    
    12,864
    
    
    12,625
    
    
    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. 37




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##### Table of Contents



Secured Debt Financings:
 Term Financing No. 1
   ECA Term Financings
   Contractual Obligations
  
    
    an increase in borrowings under our ECA Term Financings.These increases were partially offset by:
    
    principal and interest payments made under our securitizations, term financings and our
A330 PDP Facility; and
    
    lower variable interest rates and payments made under our purchase obligations.
 
 38




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##### Table of Contents



Payments Due By Period as of March 31, 2011Less 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)
    
    
    409,699
    
    
    
    31,167
    
    
    
    124,492
    
    
    
    131,294
    
    
    
    122,746Securitization No. 2(3)
    
    
    943,549
    
    
    
    57,266
    
    
    
    254,931
    
    
    
    284,667
    
    
    
    346,685Term Financing No. 1(4)
    
    
    631,259
    
    
    
    47,750
    
    
    
    129,658
    
    
    
    453,851
    
    
    
    ECA Term Financings(5)
    
    
    408,181
    
    
    
    29,681
    
    
    
    62,664
    
    
    
    67,326
    
    
    
    248,510A330 PDP Facility(6)
    
    
    59,943
    
    
    
    59,943
    
    
    
    
    
    
    
    
    
    
    
    Total principal payments
    
    
    2,752,631
    
    
    
    225,807
    
    
    
    571,745
    
    
    
    937,138
    
    
    
    1,017,941Interest payments:Interest payments on debt obligations(7)
    
    
    383,802
    
    
    
    64,168
    
    
    
    117,322
    
    
    
    95,750
    
    
    
    106,562Interest payments on interest rate derivatives(8)
    
    
    224,627
    
    
    
    91,366
    
    
    
    83,938
    
    
    
    45,794
    
    
    
    3,529Total interest payments
    
    
    608,429
    
    
    
    155,534
    
    
    
    201,260
    
    
    
    141,544
    
    
    
    110,091Office leases(9)
    
    
    2,221
    
    
    
    1,052
    
    
    
    921
    
    
    
    220
    
    
    
    28Purchase obligations(10)
    
    
    412,117
    
    
    
    360,877
    
    
    
    51,240
    
    
    
    
    
    
    
    Total
    
    $
    3,775,398
    
    
    $
    743,270
    
    
    $
    825,166
    
    
    $
    1,078,902
    
    
    $
    1,128,060
 
 (1)
    
    Includes scheduled balloon payment on August 1, 2018.(2)
    
    For this non-recourse financing, includes principal payments based on amortization schedules so that the loan to assumed aircraft values
are held constant through the June 2011 payment date; thereafter, estimated principal payments for this financing are based on excess
cash flows available from forecasted lease rentals, net maintenance funding and proceeds from asset disposition after the payment of
forecasted operating expenses and interest payments, including interest payments on existing swap agreements and policy provider fees.(3)
    
    For this non-recourse financing, includes principal payments based on amortization schedules so that the loan to assumed aircraft values
are held constant through the June 2012 payment date; thereafter, estimated principal payments for this financing are based on excess
cash flows available from forecasted lease rentals, net maintenance funding and proceeds from asset disposition after the payment of
forecasted operating expenses and interest payments, including interest payments on existing swap agreements and policy provider fees.
Payments due in less than one year includes repayments of $13.7 million related to contracted sales of two aircraft.(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 March 31, 2011.(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 March 31, 2011.(9)
    
    Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.(10)
    
    At March 31, 2011, we had aircraft purchase agreements including the acquisition of six New A330 Aircraft from Airbus. Capital Expenditures
   39




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##### Table of Contents



Off-Balance Sheet Arrangements
  Foreign Currency Risk and Foreign Operations
  Hedging
  40




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##### Table of Contents



We held the following interest rate derivatives as of March 31, 2011:
 Derivative AssetsFutureCurrent
    
    
    
    
    
    MaximumNotional
    
    Effective
    
    Maturity
    
    Notional
    
    Floating
    
    Fixed
    
    Balance SheetHedged Item
    
    Amount
    
    Date
    
    Date
    
    Amount
    
    Rate
    
    Rate
    
    Location
    
    Fair Value(Dollars in thousands)Interest rate derivatives 
designated as cash not 
flow hedges :ECA Term
Financing for New
A330 Aircraft
(1)
    
    $
    
    
    
    Jul-11
    
    Jul-23
    
    $
    67,000
    
    
    3M LIBOR
    
    
    4.0
    %
    
    Fair value of derivative assets
    
    $
    137Interest rate derivatives 
designated as cash flow hedges :Securitization No. 1
    
    $
    421,715
    
    
    Jun-06
    
    Jun-16
    
    $
    421,715
    
    
    1M LIBOR
+ 0.27%
    
    
    5.78
    %
    
    Fair value of
derivative
liabilities
    
    $
    51,375Securitization No. 2
    
    
    983,265
    
    
    Jun-07
    
    Jun-12
    
    
    983,265
    
    
    1M LIBOR
    
    5.25%
to
5.36%
    
    Fair value of
derivative
liabilities
    
    
    55,224Term Financing No. 1(1)
    
    
    571,749
    
    
    Jun-08
    
    May-13
    
    
    571,749
    
    
    1M LIBOR
    
    
    4.04
    %
    
    Fair value of
derivative
liabilities
    
    
    33,840Term Financing No. 1(1)
    
    
    
    
    
    May-13
    
    May-15
    
    
    478,044
    
    
    1M LIBOR
    
    
    5.31
    %
    
    Fair value of
derivative
liabilities
    
    
    14,924Total interest rate derivatives
    
    $
    1,976,729
    
    
    
    
    
    
    $
    2,454,773
    
    
    
    
    
    
    
    
    
    
    $
    155,363
 
 (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.       41




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##### Table of Contents



Amount of Deferred (Gain)or LossAmortized(including Accelerated
    
    Amount of DeferredOriginal
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    Unamortized
    
    Amortization) into
    
    (Gain) or LossMaximum
    
    
    
    
    
    Fixed
    
    
    
    (Gain) or
    
    Deferred (Gain) or
    
    Interest Expense for the
    
    Expected to beNotional
    
    Effective
    
    Maturity
    
    Rate
    
    Termination
    
    Loss Upon
    
    Loss at
    
    Three Months Ended March
    
    Amortized over theHedged Item
    
    Amount
    
    Date
    
    Date
    
    %
    
    Date
    
    Termination
    
    March 31, 2011
    
    31,2010
    
    2011
    
    Next Twelve Months(Dollars in Thousands)Securitization No. 1
    
    $
    400,000
    
    
    Dec-05
    
    Aug-10
    
    
    4.61
    
    
    Jun-06
    
    $
    (12,968
    )
    
    $
    
    
    
    $
    (745
    )
    
    $
    
    
    
    $
    Securitization No. 1
    
    
    200,000
    
    
    Dec-05
    
    Dec-10
    
    
    5.03
    
    
    Jun-06
    
    
    (2,541
    )
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    Securitization No. 2
    
    
    500,000
    
    
    Mar-06
    
    Mar-11
    
    
    5.07
    
    
    Jun-07
    
    
    (2,687
    )
    
    
    
    
    
    
    (173
    )
    
    
    (122
    )
    
    
    Securitization No. 2
    
    
    200,000
    
    
    Jan-07
    
    Aug-12
    
    
    5.06
    
    
    Jun-07
    
    
    (1,850
    )
    
    
    (438
    )
    
    
    (90
    )
    
    
    (85
    )
    
    
    (248
    )Securitization No. 2
    
    
    410,000
    
    
    Feb-07
    
    Apr-17
    
    
    5.14
    
    
    Jun-07
    
    
    (3,119
    )
    
    
    (1,581
    )
    
    
    (94
    )
    
    
    (82
    )
    
    
    (270
    )Term Financing No. 1
    
    
    150,000
    
    
    Jul-07
    
    Dec-17
    
    
    5.14
    
    
    Mar-08
    
    
    15,281
    
    
    
    9,027
    
    
    
    492
    
    
    
    458
    
    
    
    1,321Term Financing No. 1
    
    
    440,000
    
    
    Jun-07
    
    Feb-13
    
    
    4.88
    
    
    Partial  Mar-08
Full  Jun-08
    
    
    26,281
    
    
    
    9,006
    
    
    
    1,434
    
    
    
    1,334
    
    
    
    3,851Term Financing No. 1
    
    
    248,000
    
    
    Aug-07
    
    May-13
    
    
    5.33
    
    
    Jun-08
    
    
    9,888
    
    
    
    3,272
    
    
    
    979
    
    
    
    418
    
    
    
    1,194Term Financing No. 2
    
    
    360,000
    
    
    Jan-08
    
    Feb-19
    
    
    5.16
    
    
    Partial  Jun-08
Full  Oct-08
    
    
    23,077
    
    
    
    9,776
    
    
    
    557
    
    
    
    394
    
    
    
    934ECA Term Financing
for New A330
Aircraft.
    
    
    238,000
    
    
    Jan-11
    
    Apr-16
    
    
    5.23
    
    
    Dec-08
    
    
    19,430
    
    
    
    18,432
    
    
    
    
    
    
    
    
    
    
    
    2,841ECA Term Financing
for New A330
 Aircraft.
    
    
    231,000
    
    
    Apr-10
    
    Oct-15
    
    
    5.17
    
    
    Partial  Jun-08
Full  Dec-08
    
    
    15,310
    
    
    
    11,212
    
    
    
    
    
    
    
    520
    
    
    
    2,019ECA Term Financing
for New A330
Aircraft.
    
    
    238,000
    
    
    Jul-11
    
    Sep-16
    
    
    5.27
    
    
    Dec-08
    
    
    17,254
    
    
    
    15,969
    
    
    
    
    
    
    
    
    
    
    
    421Total.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    103,356
    
    
    $
    74,675
    
    
    $
    2,304
    
    
    $
    2,835
    
    
    $
    12,063
  42




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##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands)Interest Expense:Hedge ineffectiveness (gains) losses (unrealized)
    
    $
    867
    
    
    $
    (475
    )Amortization:Accelerated amortization of deferred losses
    
    
    447
    
    
    
     ̄Amortization of deferred losses
    
    
    1,857
    
    
    
    2,835Total Amortization
    
    
    2,304
    
    
    
    2,835Total charged to interest expense
    
    $
    3,171
    
    
    $
    2,360Other Income (Expense):Mark to market gains (losses) on undesignated interest rate derivatives
    
    $
    (370
    )
    
    $
    (359
    )Total charged to other income (expense)
    
    $
    (370
    )
    
    $
    (359
    )
 Managements Use of EBITDA
     Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands)Net income
    
    $
    18,879
    
    
    $
    42,677Depreciation
    
    
    54,145
    
    
    
    59,591Amortization of net lease discounts and lease incentives
    
    
    4,845
    
    
    
    3,102Interest, net
    
    
    40,959
    
    
    
    45,619Income tax provision
    
    
    2,335
    
    
    
    3,269EBITDA
    
    $
    121,163
    
    
    $
    154,258
 Managements Use of Adjusted Net Income and Adjusted Net Income plus Depreciation and
Amortization
  43




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##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands)Net income
    
    $
    18,879
    
    
    $
    42,677Ineffective portion and termination of hedges(1)
    
    
    1,314
    
    
    
    (475
    )Mark to market of interest rate derivative contracts(2)
    
    
    370
    
    
    
    359Gain on sale of flight equipment (2)
    
    
    
    
    
    
    (9,662
    )Adjusted net income
    
    
    20,563
    
    
    
    32,899Depreciation
    
    
    54,145
    
    
    
    59,591Amortization of net lease discounts and lease incentives
    
    
    4,845
    
    
    
    3,102Adjusted net income plus depreciation and amortization
    
    $
    79,553
    
    
    $
    95,592(1)     Included in Interest, net.(2)     Included in Other income (expense).Three Months EndedMarch 31,2010
    
    
    2011Weighted-average shares:Common shares outstanding
    
    
    78,415,702
    
    
    
    78,785,736Restricted common shares
    
    
    1,237,988
    
    
    
    913,671Total weighted-average shares
    
    
    79,653,690
    
    
    
    79,699,407Three Months EndedMarch 31,2010
    
    
    2011Percentage of weighted-average shares:Common shares outstanding
    
    
    98.45
    %
    
    
    98.85
    %Restricted common shares
    
    
    1.55
    %
    
    
    1.15
    %Total
    
    
    100.00
    %
    
    
    100.00
    %Three Months EndedMarch 31,2010
    
    
    2011Weighted-average common shares outstanding  Basic and Diluted(b)
    
    
    78,415,702
    
    
    
    78,785,736Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands,except per share amounts)Adjusted net income allocation:Adjusted net income
    
    $
    20,563
    
    
    $
    32,899Less: Distributed and undistributed earnings allocated to restricted common shares(a)
    
    
    (320
    )
    
    
    (377
    )Adjusted net income allocable to common shares  Basic and Diluted
    
    $
    20,243
    
    
    $
    32,522Adjusted net income per common share  Basic
    
    $
    0.26
    
    
    $
    0.41Adjusted net income per common share  Diluted
    
    $
    0.26
    
    
    $
    0.41
 44




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##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2011(Dollars in thousands,except per share amounts)Adjusted net income plus depreciation and amortization allocation:Adjusted net income plus depreciation and amortization
    
    $
    79,553
    
    
    $
    95,592Less: Distributed and undistributed earnings allocated to restricted common shares(a)
    
    
    (1,236
    )
    
    
    (1,096
    )Adjusted net income plus depreciation and amortization allocable to common shares  Basic and
Diluted
    
    $
    78,317
    
    
    $
    94,496Adjusted net income plus depreciation and amortization per common share  Basic
    
    $
    1.00
    
    
    $
    1.20Adjusted net income plus depreciation and amortization per common share  Diluted
    
    $
    1.00
    
    
    $
    1.20
 
 (a)
    
    For the three months ended March 31, 2010 and 2011, distributed and
undistributed earnings to restricted shares is 1.55% and 1.15%, 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 months ended March 31, 2010 and 2011, 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.
  45




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
    Sensitivity Analysis
   
 Item 4. Controls and Procedures
 Managements Evaluation of Disclosure Controls and Procedures
  46




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  47




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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
 Issuer Purchases of Equity Securities
 During the first quarter of 2011, we purchased our common shares as follows:
 Maximum Number (orTotal Number of
    
    
    Approximate DollarShares Purchased as
    
    
    Value) of SharesTotal
    
    
    Average
    
    
    Part of Publicly
    
    
    that May Yet BeNumber
    
    
    Price
    
    
    Announced Plans or
    
    
    Purchased Under theof Shares
    
    
    Paid
    
    
    Programs
    
    
    Plans or ProgramsPeriod
    
    Purchased
    
    
    per Share
    
    
    (b)
    
    
    (b)(Dollars in thousands, except per share amounts)January
    
    
    105,119
    (a)
    
    $
    10.45
    
    
    
     ̄
    
    
    
     ̄February
    
    
    28,664
    (a)
    
    
    10.62
    
    
    
     ̄
    
    
    
     ̄March
    
    
    1,261,658
    (b)
    
    
    11.86
    
    
    
    1,261,658
    
    
    $
    45,036Total
    
    
    1,395,441
    
    
    $
    11.73
    
    
    
    1,261,658
    
    
    $
    45,036
 
 (a)
    
    Our Compensation Committee approved the repurchase of common
shares pursuant to an irrevocable election made under the Amended
and Restated Aircastle Limited 2005 Equity and Incentive Plan, in
satisfaction of minimum tax withholding obligations associated
with the vesting of restricted common shares during the first
quarter of 2011.(b)
    
    On March 10, 2011 the Company announced the repurchase of up to
$60 million of the Companys common shares. Under the program, the
Company may purchase its common shares from time to time in the
open market or in privately negotiated transactions. The amount
and timing of the purchases will depend on a number of factors
including the price and availability of the Companys common
shares, trading volume and general market conditions. The Company
may also from time to time establish a trading plan under Rule
10b5-1 of the Securities Exchange Act of 1934 to facilitate
purchases of its common shares under this authorization. In
addition, as of April 29, 2011, we repurchased an additional
1,613,003 common shares at an aggregate cost of $19.9 million,
including commissions (with an average price of $12.34 per share
following the close of the first quarter of 2011. Accordingly, as
of April 29, 2011, we have repurchased under this program a total
of 2,874,661 common shares at a total cost of $34.9 million
including commissions, at an average price per share of $12.13,
and the approximate dollar value of common shares that may yet be
purchased under the program was $25.1 million. 
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibit3.1
    
    Memorandum of Association3.2
    
    Bye-laws4.1
    
    Specimen Share Certificate
 48




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit4.2
    
    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.31.1
    
    Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002 D31.2
    
    Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002 D32.1
    
    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 D32.2
    
    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 D99.1
    
    Owned Aircraft Portfolio at March 31, 2011 D
 
 
    
    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.D
    
    Filed herewith. 49




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SIGNATURE
   AIRCASTLE LIMITED
(Registrant)By:
    /s/ Aaron DahlkeAaron DahlkeChief Accounting Officer and Authorized Officer 50