##### 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, 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(State or other jurisdiction of incorporation or organization)
    
    98-0444035(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 oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o 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 March 31, 2010
    
    
    3Consolidated Statements of Income for the three months ended March 31, 2009 and 2010
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2010
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 4.
    
    Controls and Procedures
    
    
    42PART II.  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    43Item 1A.
    
    Risk Factors
    
    
    43Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 6.
    
    Exhibits
    
    
    43SIGNATURE
    
    
    45EX-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 31,2009
    
    
    2010(unaudited)ASSETSCash and cash equivalents
    
    $
    142,666
    
    
    $
    121,600Accounts receivable
    
    
    2,941
    
    
    
    3,196Restricted cash and cash equivalents
    
    
    207,834
    
    
    
    230,019Restricted liquidity facility collateral
    
    
    81,000
    
    
    
    80,000Flight equipment held for lease, net of accumulated depreciation of
$586,537 and $640,544
    
    
    3,812,970
    
    
    
    3,771,806Aircraft purchase deposits and progress payments
    
    
    141,144
    
    
    
    176,034Leasehold improvements, furnishings and equipment, net of
accumulated depreciation of $2,455 and $2,556
    
    
    802
    
    
    
    701Other assets
    
    
    65,155
    
    
    
    71,111Total assets
    
    $
    4,454,512
    
    
    $
    4,454,467LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESBorrowings from securitizations and term debt financings
(including borrowings of ACS Ireland VIEs of $331,856 and
$327,701, respectively)
    
    $
    2,464,560
    
    
    $
    2,426,631Accounts payable, accrued expenses and other liabilities
    
    
    60,392
    
    
    
    57,422Dividends payable
    
    
    7,955
    
    
    
    7,951Lease rentals received in advance
    
    
    34,381
    
    
    
    30,167Liquidity facility
    
    
    81,000
    
    
    
    80,000Security deposits
    
    
    82,533
    
    
    
    81,255Maintenance payments
    
    
    253,175
    
    
    
    285,118Fair value of derivative liabilities
    
    
    179,279
    
    
    
    189,196Total liabilities
    
    
    3,163,275
    
    
    
    3,157,740Commitments 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
79,503,885 shares issued and outstanding at March 31, 2010
    
    
    796
    
    
    
    795Additional paid-in capital
    
    
    1,479,995
    
    
    
    1,480,852Retained earnings
    
    
    70,294
    
    
    
    81,222Accumulated other comprehensive loss
    
    
    (259,848
    )
    
    
    (266,142
    )Total shareholders equity
    
    
    1,291,237
    
    
    
    1,296,727Total liabilities and shareholders equity
    
    $
    4,454,512
    
    
    $
    4,454,467
 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 31,2009
    
    
    2010Revenues:Lease rental revenue
    
    $
    125,994
    
    
    $
    130,122Amortization of net lease discounts and lease incentives
    
    
    (1,117
    )
    
    
    (4,845
    )Maintenance revenue
    
    
    6,603
    
    
    
    5,254Total lease rentals
    
    
    131,480
    
    
    
    130,531Interest income
    
    
    633
    
    
    
    Other revenue
    
    
    25
    
    
    
    30Total revenues
    
    
    132,138
    
    
    
    130,561Expenses:Depreciation
    
    
    51,561
    
    
    
    54,145Interest, net
    
    
    43,411
    
    
    
    40,959Selling, general and administrative (including non-cash
share based payment expense
of $1,658, and $1,782, respectively)
    
    
    11,095
    
    
    
    11,673Maintenance and other costs
    
    
    5,776
    
    
    
    2,200Total expenses
    
    
    111,843
    
    
    
    108,977Other income (expense)
    
    
    92
    
    
    
    (370
    )Total other income (expense)
    
    
    92
    
    
    
    (370
    )Income from continuing operations before income taxes
    
    
    20,387
    
    
    
    21,214Income tax provision
    
    
    1,916
    
    
    
    2,335Net income
    
    $
    18,471
    
    
    $
    18,879Earnings per common share  Basic
    
    $
    0.23
    
    
    $
    0.24Earnings per common share  Diluted
    
    $
    0.23
    
    
    $
    0.24Dividends 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 31,2009
    
    
    2010Cash flows from operating activities:Net income
    
    $
    18,471
    
    
    $
    18,879Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    51,561
    
    
    
    54,145Amortization of deferred financing costs
    
    
    2,533
    
    
    
    2,804Amortization of net lease discounts and lease incentives
    
    
    1,117
    
    
    
    4,845Deferred income taxes
    
    
    1,599
    
    
    
    1,234Accretion of purchase discounts on debt investments
    
    
    (158
    )
    
    
    Non-cash share based payment expense
    
    
    1,658
    
    
    
    1,782Cash flow hedges reclassified into earnings
    
    
    4,949
    
    
    
    2,304Ineffective portion of cash flow hedges
    
    
    (129
    )
    
    
    866Security deposits and maintenance payments included in earnings
    
    
    (3,451
    )
    
    
    (267
    )Other
    
    
    (518
    )
    
    
    370Changes in certain assets and liabilities:Accounts receivable
    
    
    (171
    )
    
    
    (346
    )Restricted cash and cash equivalents
    
    
    5,086
    
    
    
    (22,185
    )Other assets
    
    
    (1,548
    )
    
    
    (946
    )Accounts payable, accrued expenses and other liabilities
    
    
    (9,951
    )
    
    
    (9,309
    )Lease rentals received in advance
    
    
    (1,674
    )
    
    
    (2,464
    )Net cash provided by operating activities
    
    
    69,374
    
    
    
    51,712Cash flows from investing activities:Improvement of flight equipment and lease incentives
    
    
    (17,268
    )
    
    
    (10,136
    )Aircraft purchase deposits and progress payments
    
    
    (7,906
    )
    
    
    (39,551
    )Principal repayments on debt investments
    
    
    807
    
    
    
    Leasehold improvements, furnishings and equipment
    
    
    (82
    )
    
    
    Net cash used in investing activities
    
    
    (24,449
    )
    
    
    (49,687
    )Cash flows from financing activities:Repurchase of shares from directors and employees
    
    
    (247
    )
    
    
    (926
    )Securitization and term debt financing repayments
    
    
    (30,131
    )
    
    
    (37,929
    )Deferred financing costs
    
    
    
    
    
    
    (106
    )Restricted secured liquidity facility collateral
    
    
    
    
    
    
    1,000Secured liquidity facility collateral
    
    
    
    
    
    
    (1,000
    )Security deposits received
    
    
    6,950
    
    
    
    2,413Security deposits returned
    
    
    (490
    )
    
    
    (3,868
    )Maintenance payments received
    
    
    15,584
    
    
    
    31,186Maintenance payments returned
    
    
    (7,277
    )
    
    
    (5,906
    )Dividends paid
    
    
    (7,862
    )
    
    
    (7,955
    )Net cash used in financing activities
    
    
    (23,473
    )
    
    
    (23,091
    )Net increase (decrease) in cash and cash equivalents
    
    
    21,452
    
    
    
    (21,066
    )Cash and cash equivalents at beginning of period
    
    
    80,947
    
    
    
    142,666Cash and cash equivalents at end of period
    
    $
    102,399
    
    
    $
    121,600Supplemental disclosures of cash flow information:Cash paid for interest, net of capitalized interest
    
    $
    36,970
    
    
    $
    35,114Cash paid for income taxes
    
    $
    1,448
    
    
    $
    2,429Supplemental disclosures of non-cash financing activities:Advance lease rentals converted to maintenance reserves
    
    $
    
    
    
    $
    1,750
 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, 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
 6




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 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)
March 31, 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 March 31, 2010Using Fair Value HierarchyQuotedPrices inActive
    
    
    SignificantFair Value
    
    
    Markets for
    
    
    Other
    
    
    Significantas of
    
    
    Identical
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Valuation2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TechniqueAssets:Cash and cash equivalents
    
    $
    121,600
    
    
    $
    121,600
    
    
    $
    
    
    
    $
    
    
    
    MarketRestricted cash and cash equivalents
    
    
    230,019
    
    
    
    230,019
    
    
    
    
    
    
    
    
    
    
    MarketTotal
    
    $
    351,619
    
    
    $
    351,619
    
    
    $
    
    
    
    $
    Liabilities:Derivative liabilities
    
    $
    189,196
    
    
    $
    
    
    
    $
    144,156
    
    
    $
    45,040
    
    
    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, 2010
  DerivativeThree Months Ended March 31, 2010
    
    LiabilitiesBalance as of December 31, 2009
    
    $
    (38,907
    )Transfers into Level 3
    
    
    Transfers out of Level 3
    
    
    Total gains or (losses):Included in interest income
    
    
    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
    )
     December 31, 2009
    
    March 31, 2010Carrying Amount
    
    Fair Value
    
    Carrying Amount
    
    Fair Valueof Asset
    
    of Asset
    
    of Asset
    
    of Asset(Liability)
    
    (Liability)
    
    (Liability)
    
    (Liability)Securitizations and term debt financings
    
    $
    (2,324,972
    )
    
    $
    (2,037,718
    )
    
    $
    (2,289,352
    )
    
    $
    (2,050,697
    )ECA term financings
    
    
    (139,588
    )
    
    
    (140,984
    )
    
    
    (137,279
    )
    
    
    (140,700
    )
 9




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2010
 Note 3. Lease Rental Revenues and Flight Equipment Held for Lease
  Year Ending December 31,
    
    AmountRemainder of 2010
    
    $
    378,2912011
    
    
    475,3402012
    
    
    414,4522013
    
    
    314,0732014
    
    
    239,0822015
    
    
    185,871Thereafter
    
    
    329,568Total
    
    $
    2,336,677
  Three Months EndedMarch 31,Region
    
    2009
    
    2010Europe
    
    
    45
    %
    
    
    45
    %Asia
    
    
    22
    %
    
    
    20
    %North America
    
    
    16
    %
    
    
    16
    %Latin America
    
    
    6
    %
    
    
    9
    %Middle East and Africa
    
    
    11
    %
    
    
    10
    %Total
    
    
    100
    %
    
    
    100
    %
    Three Months Ended March 31,2009
    
    2010Number
    
    
    
    
    
    
    
    
    
    NumberPercent of Total
    
    of
    
    
    
    
    
    Percent of Total
    
    ofCountry
    
    Revenue
    
    Revenue
    
    Lessees
    
    Revenue
    
    Revenue
    
    LesseesUnited States
    
    $
    16,789
    
    
    
    13
    %
    
    
    3
    
    
    $
    16,645
    
    
    
    13
    %
    
    
    4Netherlands
    
    
    14,709
    
    
    
    11
    %
    
    
    4
    
    
    
    14,012
    
    
    
    11
    %
    
    
    3China(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,806
    
    
    
    11
    %
    
    
    5
 
 (a)
    
    Total revenue attributable to China was less than 10% for the three months ended March 31, 2009. 10




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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2010
  December 31, 2009
    
    March 31, 2010Number
    
    
    
    
    
    Numberof
    
    Net Book
    
    of
    
    Net BookRegion
    
    Aircraft
    
    Value %
    
    Aircraft
    
    Value %Europe
    
    
    58
    
    
    
    46
    %
    
    
    58
    
    
    
    46
    %Asia
    
    
    30
    (1)
    
    
    20
    %
    
    
    30
    
    
    
    20
    %North America
    
    
    15
    
    
    
    12
    %
    
    
    15
    
    
    
    12
    %Latin America
    
    
    10
    
    
    
    9
    %
    
    
    10
    
    
    
    9
    %Middle East and Africa
    
    
    13
    
    
    
    12
    %
    
    
    12
    
    
    
    12
    %Off-lease
    
    
    3
    (2)
    
    
    1
    %
    
    
    4
    (3)
    
    
    1
    %Total
    
    
    129
    
    
    
    100
    %
    
    
    129
    
    
    
    100
    %
 
 (1)
    
    Includes one Boeing Model 737-400 aircraft which was being
converted to freighter configuration and for which we have 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 which we are actively marketing for sale or lease and two
Boeing Model 757-200 aircraft which were returned to us early on a
consensual basis in the third quarter of 2009 for which we have an
executed sale agreement with expected delivery dates in the second
and third quarters of 2010.(3)
    
    Includes one Boeing Model 737-300 aircraft which was returned to
us on a consensual early lease termination in the third quarter of
2009 which we are actively marketing for sale or lease, one Boeing
Model 737-500 aircraft which was returned to us in late March 2010
and placed on lease to a new customer in early April 2010, and
two Boeing Model 757-200 aircraft which were returned to us early
on a consensual basis in the third quarter of 2009 for which we
have an executed sale agreement with expected delivery dates in
the second and third quarters of 2010.  December 31, 2009
    
    March 31, 2010Net Book
    
    Number of
    
    
    
    
    
    Net Book
    
    Number ofCountry
    
    Net Book Value
    
    Value %
    
    Lessees
    
    Net Book Value
    
    Value %
    
    LesseesNetherlands
    
    $
    435,796
    
    
    
    11
    %
    
    
    3
    
    
    $
    429,377
    
    
    
    11
    %
    
    
    3United States(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384,264
    
    
    
    10
    %
    
    
    4
 
 (a)
    
    The net book value of flight equipment attributable to the United States was less than 10% as of December 31, 2009.   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, 2010
  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, 2010
 Note 5. Securitizations and Term Debt Financings
  AtDecember 31,2009
    
    
    At March 31, 2010Outstanding
    
    
    Outstanding
    
    
    
    
    
    
    Final StatedDebt Obligation
    
    Borrowings
    
    
    Borrowings
    
    
    Interest Rate(1)
    
    
    Maturity(2)Securitizations and Term Debt Financings:Securitization No. 1
    
    $
    436,091
    
    
    $
    430,938
    
    
    
    0.50
    %
    
    
    6/20/31Securitization No. 2
    
    
    1,061,566
    
    
    
    1,050,978
    
    
    
    0.49
    %
    
    
    6/14/37Term Financing No. 1
    
    
    708,710
    
    
    
    696,485
    
    
    
    1.98
    %
    
    
    5/02/15Term Financing No. 2
    
    
    118,605
    
    
    
    110,951
    
    
    
    2.91
    %
    
    
    9/23/13ECA Term Financings
    
    
    139,588
    
    
    
    137,279
    
    
    4.48% and 3.96%
    
    5/27/21 and 12/03/21Total
    
    $
    2,464,560
    
    
    $
    2,426,631
 
 (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.  Available LiquidityDecember 31,
    
    March 31,
    
    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
    
    
    
    78,823
    
    
    
    0.50
    %
    
    1M Libor + 0.75%Term Financing No. 1
    
    Calyon
    
    
    14,174
    
    
    
    13,930
    
    
    
    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. 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, 2010
  Note 6. Dividends
   Note 7. Earnings Per Share
   Three Months EndedMarch 31,2009
    
    
    2010Weighted-average shares:Common shares outstanding
    
    
    77,941,201
    
    
    
    78,415,702Restricted common shares
    
    
    1,282,208
    
    
    
    1,237,988Total weighted-average shares
    
    
    79,223,409
    
    
    
    79,653,690Percentage of weighted-average shares:Common shares outstanding
    
    
    98.4
    %
    
    
    98.4
    %Restricted common shares
    
    
    1.6
    %
    
    
    1.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Three Months EndedMarch 31,2009
    
    
    2010Earnings per share  Basic:Net income
    
    $
    18,471
    
    
    $
    18,879Less: Distributed and undistributed earnings allocated to restricted common shares (a)
    
    
    (299
    )
    
    
    (293
    )Earnings available to common shareholders  Basic
    
    $
    18,172
    
    
    $
    18,586Weighted-average common shares outstanding  Basic
    
    
    77,941,201
    
    
    
    78,415,702
 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, 2010
 Three Months EndedMarch 31,2009
    
    
    2010Earnings per common share  Basic
    
    $
    0.23
    
    
    $
    0.24Earnings per share  Diluted:Net income
    
    $
    18,471
    
    
    $
    18,879Less: Distributed and undistributed earnings allocated to restricted common shares
    
    
    (299
    )
    
    
    (293
    )Earnings available to common shareholders  Diluted
    
    $
    18,172
    
    
    $
    18,586Weighted-average common shares outstanding  Basic
    
    
    77,941,201
    
    
    
    78,415,702Effect of dilutive shares
    
    
    
    (b)
    
    
    
    (b)Weighted-average common shares outstanding  Diluted
    
    
    77,941,201
    
    
    
    78,415,702Earnings per common share  Diluted
    
    $
    0.23
    
    
    $
    0.24
 
 (a)
    
    For the three months ended March 31, 2009 and 2010, distributed and
undistributed earnings to restricted shares is 1.6% and 1.6%, 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, 2009 and 2010, we have no dilutive shares. Note 8. Income Taxes
   Three Months EndedMarch 31,2009
    
    
    2010U.S. operations
    
    $
    457
    
    
    $
    535Non-U.S. operations
    
    
    19,930
    
    
    
    20,679Total
    
    $
    20,387
    
    
    $
    21,214
  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, 2010
  Three Months EndedMarch 31,2009
    
    
    2010Notional U.S. federal income tax expense at the statutory rate
    
    $
    7,135
    
    
    $
    7,425U.S. state and local income tax, net
    
    
    23
    
    
    
    31Non-U.S. operations
    
    
    (5,268
    )
    
    
    (5,970
    )Non-deductible expenses in the U.S.
    
    
    8
    
    
    
    854Other
    
    
    18
    
    
    
    (5
    )Provision for income taxes
    
    $
    1,916
    
    
    $
    2,335
 Note 9. Comprehensive Income (Loss)
  Three Months EndedMarch 31,2009
    
    
    2010Net income
    
    $
    18,471
    
    
    $
    18,879Net change in fair value of derivatives, net of tax expense of $231 and $83, respectively
    
    
    13,972
    
    
    
    (8,598
    )Derivative loss reclassified into earnings
    
    
    4,949
    
    
    
    2,304Net change in unrealized fair value of debt investments
    
    
    (1,074
    )
    
    
    Total comprehensive income
    
    $
    36,318
    
    
    $
    12,585
  AccumulatedOtherComprehensiveIncome (Loss)December 31, 2009, net of tax benefit of $3,057
    
    $
    (259,848
    )Net change in fair value of derivatives, net of tax expense of $83
    
    
    (8,598
    )Derivative loss reclassified into earnings
    
    
    2,304March 31, 2010
    
    $
    (266,142
    )
 Note 10. Commitments and Contingencies
   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, 2010
 Note 11. Derivatives
   Liability DerivativesFutureCurrent
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    444,749
    
    
    Jun-06
    
    Jun-16
    
    $
    444,749
    
    
    1M LIBOR+ 0.27%
    
    
    5.78
    %
    
    Fair value ofderivative liabilities
    
    $
    54,068Securitization No. 2
    
    
    1,042,262
    
    
    Jun-07
    
    Jun-12
    
    
    1,042,262
    
    
    1M LIBOR
    
    
    5.25% to5.36%
    
    
    Fair value of derivativeliabilities
    
    
    86,815Term Financing No. 1(1)
    
    
    632,350
    
    
    Jun-08
    
    May-13
    
    
    632,350
    
    
    1M LIBOR
    
    
    4.04
    %
    
    Fair value ofderivativeliabilities
    
    
    38,222Term Financing No. 1(1)
    
    
    
    
    
    May-13
    
    May-15
    
    
    491,718
    
    
    1M LIBOR
    
    
    5.31
    %
    
    Fair value of derivativeliabilities
    
    
    6,818Total interest rate derivatives
designated as cash flow hedges
    
    
    2,119,361
    
    
    
    
    
    
    
    
    
    
    
    2,611,079
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,923Interest rate derivatives not
designated as cash flow hedges:Term Financing No. 2 (2)
    
    
    99,749
    
    
    Oct-08
    
    Sep-13
    
    
    99,749
    
    
    3M LIBOR
    
    
    3.17
    %
    
    Fair value ofderivativeliabilities
    
    
    3,273Total interest rate derivatives not
designated as cash flow hedges
    
    
    99,749
    
    
    
    
    
    
    
    
    
    
    
    99,749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,273Total interest rate derivatives
    
    $
    2,219,110
    
    
    
    
    
    
    
    
    
    
    $
    2,710,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    189,196
 
 (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.(2)
    
    Although we entered into this interest rate derivative to hedge
the variable rate interest payments in connection with Term
Financing No. 2, it has not been designated as a hedge for
accounting purposes.  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, 2010
      Effective Portion
    
    Ineffective PortionAmount of
    
    
    
    
    
    Amount ofDerivatives in
    
    Gain or (Loss)
    
    Location of
    
    Gain or (Loss)
    
    
    
    Amount ofASC 815
    
    Recognized in
    
    Gain or (Loss)
    
    Reclassified from
    
    Location of
    
    Gain or (Loss)Cash Flow
    
    OCI on
    
    Reclassified from
    
    Accumulated
    
    Gain or (Loss)
    
    Recognized in IncomeHedging
    
    Derivative
    
    Accumulated
    
    OCI into Income
    
    Recognized in
    
    on DerivativeRelationships
    
    (a)
    
    OCI into Income
    
    (b)
    
    Income on Derivative
    
    (c)Interest rate derivatives
    
    $
    (33,057
    )
    
    Interest expense
    
    $
    (26,316
    )(1)
    
    Interest expense
    
    $
    (975
    )(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
three months ended March 31, 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 three months ended March 31, 2010 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, 2010.(1)
    
    Excludes accelerated deferred loss of $447 which was charged to interest expense during the three months ended
March 31, 2010 as a result of changes in projected future debt related to Term Financing No. 1. 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, 2010
 Derivatives Not
    
    Location of Gain
    

    Amount of GainDesignated as
    
    or (Loss)
    
    or (Loss)Hedging Instruments
    
    Recognized in Income
    
    Recognized in Incomeunder ASC 815
    
    On Derivative
    
    on DerivativeInterest rate derivatives.
    
    Other income (expense)
    
    $
    (370
    )
   Amount ofDeferredAmount of Deferred
    
    
    (Gain)Unamortized
    
    
    (Gain) or Loss
    
    
    orDeferred
    
    
    Amortized
    
    
    Loss(Gain)
    
    
    (including Accelerated
    
    
    Expectedor
    
    
    Amortization) into
    
    
    to beOriginal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    Loss
    
    
    Interest Expense for
    
    
    AmortizedMaximum
    
    
    
    
    
    
    
    
    
    
    Fixed
    
    
    
    
    
    
    (Gain) or
    
    
    at
    
    
    the Three Months
    
    
    over theNotional
    
    
    Effective
    
    
    Maturity
    
    
    Rate
    
    
    Termination
    
    
    Loss Upon
    
    
    March 31,
    
    
    Ended March 31,
    
    
    Next TwelveHedged Item
    
    Amount
    
    
    Date
    
    
    Date
    
    
    %
    
    
    Date
    
    
    Termination
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    MonthsSecuritization No. 1
    
    $
    400,000
    
    
    Dec-05
    
    Aug-10
    
    
    4.61
    
    
    Jun-06
    
    $
    (13,397
    )
    
    $
    (1,102
    )
    
    $
    (783
    )
    
    $
    (745
    )
    
    $
    (1,102
    )Securitization No. 1
    
    
    200,000
    
    
    Dec-05
    
    Dec-10
    
    
    5.03
    
    
    Jun-06
    
    
    (2,541
    )
    
    
    (241
    )
    
    
    (94
    )
    
    
    (56
    )
    
    
    (241
    )Securitization No. 2
    
    
    500,000
    
    
    Mar-06
    
    Mar-11
    
    
    5.07
    
    
    Jun-07
    
    
    (2,687
    )
    
    
    (625
    )
    
    
    (180
    )
    
    
    (173
    )
    
    
    (625
    )Securitization No. 2
    
    
    200,000
    
    
    Jan-07
    
    Aug-12
    
    
    5.06
    
    
    Jun-07
    
    
    (1,850
    )
    
    
    (783
    )
    
    
    (93
    )
    
    
    (90
    )
    
    
    (345
    )Securitization No. 2
    
    
    410,000
    
    
    Feb-07
    
    Apr-17
    
    
    5.14
    
    
    Jun-07
    
    
    (3,119
    )
    
    
    (1,916
    )
    
    
    (102
    )
    
    
    (94
    )
    
    
    (335
    )Term Financing No. 1
    
    
    150,000
    
    
    Jul-07
    
    Dec-17
    
    
    5.14
    
    
    Mar-08
    
    
    15,281
    
    
    
    10,909
    
    
    
    527
    
    
    
    492
    
    
    
    1,882Term Financing No. 1
    
    
    440,000
    
    
    Jun-07
    
    Feb-13
    
    
    4.88
    
    
    Partial  Mar-08Full  Jun-08
    
    
    26,281
    
    
    
    14,494
    
    
    
    1,535
    
    
    
    1,434
    
    
    
    5,486Term Financing No. 1
    
    
    248,000
    
    
    Aug-07
    
    May-13
    
    
    5.33
    
    
    Jun-08
    
    
    9,888
    
    
    
    5,388
    
    
    
    569
    
    
    
    979
    
    
    
    1,832Term Financing No. 2
    
    
    55,000
    
    
    May-08
    
    Mar-14
    
    
    5.41
    
    
    Jun-08
    
    
    2,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Term Financing No. 2
    
    
    360,000
    
    
    Jan-08
    
    Feb-19
    
    
    5.16
    
    
    Partial  Jun-08Full  Oct-08
    
    
    23,077
    
    
    
    11,436
    
    
    
    695
    
    
    
    557
    
    
    
    1,847Repurchase Agreement
    
    
    74,000
    
    
    Feb-06
    
    Jul-10
    
    
    5.02
    
    
    Feb-08
    
    
    878
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase Agreement
    
    
    5,000
    
    
    Dec-05
    
    Sep-09
    
    
    4.94
    
    
    Mar-08
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase Agreement
    
    
    2,900
    
    
    Jun-05
    
    Mar-13
    
    
    4.21
    
    
    Jun-08
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ECA Term Financing
and New A330
Aircraft future
debt
    
    
    238,000
    
    
    Jan-11
    
    Apr-16
    
    
    5.23
    
    
    Dec-08
    
    
    19,430
    
    
    
    18,445
    
    
    
    615
    
    
    
    
    
    
    
    New A330 Aircraft future debt and securitization
    
    
    231,000
    
    
    Apr-10
    
    Oct-15
    
    
    5.17
    
    
    Partial  Jun-08Full  Dec-08
    
    
    15,310
    
    
    
    12,437
    
    
    
    674
    
    
    
        
    
    
    
    1,224New A330 Aircraft
future debt and
securitization
    
    
    203,000
    
    
    Jun-07
    
    Jan-12
    
    
    4.89
    
    
    Dec-08
    
    
    2,728
    (1)
    
    
    
    
    
    
    465
    
    
    
        
    
    
    
    New A330 Aircraft
future debt and
securitization
    
    
    238,000
    
    
    Jul-11
    
    Sep-16
    
    
    5.27
    
    
    Dec-08
    
    
    17,254
    
    
    
    15,969
    
    
    
    1,121
    
    
    
        
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    109,038
    
    
    $
    84,411
    
    
    $
    4,949
    
    
    $
    2,304
    
    
    $
    9,623
 
 (1)
    
    The deferred loss for this swap is related to the period prior to
de-designation.  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)
March 31, 2010
   Three Months EndedMarch 31,2009
    
    
    2010Interest Expense:Hedge ineffectiveness (gains) losses (unrealized)
    
    $
    (129
    )
    
    $
    867Amortization:Accelerated amortization of deferred losses
    
    
    2,875
    
    
    
    447Amortization of deferred losses
    
    
    2,074
    
    
    
    1,857Total Amortization
    
    
    4,949
    
    
    
    2,304Total charged to interest expense
    
    $
    4,820
    
    
    $
    3,171Other Income (Expense):Mark to market gains (losses) on undesignated interest rate derivatives
    
    $
    92
    
    
    $
    (370
    )Total charged to other income (expense)
    
    $
    92
    
    
    $
    (370
    )
  Note 12. Interest, Net
  Three Months EndedMarch 31,2009
    
    
    2010Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
    
    $
    36,770
    
    
    $
    35,598Hedge ineffectiveness (gains) losses (unrealized)
    
    
    (129
    )
    
    
    867Amortization of interest rate derivatives related to deferred losses
    
    
    4,949
    
    
    
    2,304Amortization of deferred financing fees
    
    
    2,533
    
    
    
    2,804Interest Expense
    
    
    44,123
    
    
    
    41,573Less interest income
    
    
    (441
    )
    
    
    (10
    )Less capitalized interest
    
    
    (271
    )
    
    
    (604
    )Interest, net
    
    $
    43,411
    
    
    $
    40,959
 20




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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
   21




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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.
    Revenues
   22




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##### Table of Contents



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 15 aircraft, we have signed sales agreements to sell two aircraft
and we are actively remarketing the remaining two aircraft and are also remarketing an
aircraft originally scheduled to expire in 2009 but delayed into 2010 by the existing
customer. We estimate that for these 19 aircraft, excluding the two we expect to sell,
the weighted average lease term for the new leases or renewals will
be between 3.5 and 4.0
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.We are scheduled to take delivery of two of the
New A330 Aircraft in 2010, both in the second half of the year. We have executed lease
agreements for both aircraft with an affiliate of the HNA Group, the parent company of
Hainan Airlines. We currently have no other commitment to acquire aircraft in 2010.
 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 three of these aircraft, and we have a signed sale agreement to sell one
aircraft. We are actively remarketing the remaining nine aircraft.
    
    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. We currently have no other commitment to acquire aircraft in
2011.
 2012-2014 Lease Expirations and Lease Placements
 
    
    Scheduled lease expirations  placements.Taking into account lease and sale
commitments, we currently have 72 aircraft with lease expirations scheduled in the period
2012-2014.
    
    Aircraft acquisitions  placements.We are scheduled to take delivery of one of
the New A330 Aircraft in 2012and we are actively remarketing it. We currently have no other
commitment to acquire aircraft in the period 2012-2014.
 Operating Expenses
  23




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##### Table of Contents



Income Tax Provision
   Acquisitions and Dispositions
   AIRCASTLE AIRCRAFT INFORMATION (Dollars in millions)
 OwnedAircraft as ofMarch 31, 2010(1)Flight Equipment Held for Lease
    
    $
    3,772Number of Aircraft
    
    
    129Number of Lessees
    
    
    59Number of Countries
    
    
    33Weighted Average Age  Passenger (years)(2)
    
    
    11.3Weighted Average Age  Freighter (years)(2)
    
    
    10.5Weighted Average Age  Combined (years)(2)
    
    
    11.1Weighted Average Remaining Passenger Lease Term (years)(3)
    
    
    3.6Weighted Average Remaining Cargo Lease Term (years)(3)
    
    
    7.4Weighted Average Remaining Combined Lease Term (years)(3)
    
    
    4.8Weighted Average Fleet Utilization during First Quarter 2010(4)
    
    
    98
    %
 
 (1)
    
    Calculated using net book value as of March 31, 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. 24




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##### Table of Contents



PORTFOLIO DIVERSIFICATION
 Owned Aircraft as ofMarch 31, 2010Number of
    
    
    % of NetAircraft
    
    
    Book ValueAircraft TypePassenger:Narrowbody
    
    
    83
    
    
    
    44
    %Midbody
    
    
    24
    
    
    
    25
    %Widebody
    
    
    1
    
    
    
    2
    %Total Passenger
    
    
    108
    
    
    
    71
    %Freighter
    
    
    21
    
    
    
    29
    %Total
    
    
    129
    
    
    
    100
    %ManufacturerBoeing
    
    
    86
    
    
    
    64
    %Airbus
    
    
    43
    
    
    
    36
    %Total
    
    
    129
    
    
    
    100
    %Regional DiversificationEurope
    
    
    58
    
    
    
    46
    %Asia
    
    
    30
    
    
    
    20
    %North America
    
    
    15
    
    
    
    12
    %Latin America
    
    
    10
    
    
    
    9
    %Middle East and Africa
    
    
    12
    
    
    
    12
    %Off-lease(1)
    
    
    4
    
    
    
    1
    %Total
    
    
    129
    
    
    
    100
    %
 
 (1)
    
    Includes one Boeing Model 737-300 aircraft which was returned to
us on a consensual early lease termination in the third quarter of
2009 which we are actively marketing for sale or lease, one Boeing
Model 737-500 aircraft which was returned to us in late March 2010
and placed on lease to a new customer in early April 2010, and
two Boeing Model 757-200 aircraft which were returned to us early
on a consensual basis in the third quarter of 2009 for which we
have an executed sale agreement with expected delivery dates in
the second and third quarters of 2010.  Number ofPercent of Net Book Value
    
    Customer
    
    Country
    
    AircraftGreater than 6% per customer
    
    Martinair(1)
    
    Netherlands
    
    
    5Emirates
    
    United Arab Emirates
    
    
    2US Airways
    
    USA
    
    
    83% to 6% per customer
    
    Avianca
    
    Colombia
    
    
    2China Eastern Airlines(2)
    
    China
    
    
    8Iberia Airlines
    
    Spain
    
    
    6GOL (3)
    
    Brazil
    
    
    6Airbridge Cargo(4)
    
    Russia
    
    
    1KLM (1)
    
    Netherlands
    
    
    1World Airways
    
    USA
    
    
    2Less than 3% per customer
    
    Swiss International Air Lines
    
    Switzerland
    
    
    2Icelandair(5)
    
    Iceland
    
    
    5Korean Air
    
    South Korea
    
    
    2Cimber-Sterling
    
    Denmark
    
    
    4SriLankan Airlines
    
    Sri Lanka
    
    
    2
 25




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##### Table of Contents



(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)
    
    GOL has guaranteed the obligations of an affiliate, VRG Linhas Aereas, and accordingly, the two are shown combined in the above table.(4)
    
    Guaranteed by Volga-Dnepr.(5)
    
    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
   26




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##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of the three months ended March 31, 2009 to the three months ended March 31,
2010:
 Three Months EndedMarch 31,2009
    
    
    2010(Dollars in thousands)Revenues:Lease rental revenue
    
    $
    125,994
    
    
    $
    130,122Amortization of net lease discounts and lease incentives
    
    
    (1,117
    )
    
    
    (4,845
    )Maintenance revenue
    
    
    6,603
    
    
    
    5,254Total lease rentals
    
    
    131,480
    
    
    
    130,531Interest income
    
    
    633
    
    
    
    Other revenue
    
    
    25
    
    
    
    30Total revenues
    
    
    132,138
    
    
    
    130,561Expenses:Depreciation
    
    
    51,561
    
    
    
    54,145Interest, net
    
    
    43,411
    
    
    
    40,959Selling, general and administrative
    
    
    11,095
    
    
    
    11,673Maintenance and other costs
    
    
    5,776
    
    
    
    2,200Total operating expenses
    
    
    111,843
    
    
    
    108,977Other income (expense):Other income (expense)
    
    
    92
    
    
    
    (370
    )Total other income (expense)
    
    
    92
    
    
    
    (370
    )Income from continuing operations before income taxes
    
    
    20,387
    
    
    
    21,214Income tax provision
    
    
    1,916
    
    
    
    2,335Net income
    
    $
    18,471
    
    
    $
    18,879
 Revenues:
  Lease rental revenue
 
    
    $4.9 million of revenue from two new aircraft purchased in 2009; and
    
    $3.8 million of revenue as a result of lease transitions.
  
    
    $3.5 million of revenue due to lower floating rate lease rentals and lease extensions;
and
    
    $1.1 million of revenue due to three aircraft sold during 2009.
 Amortization of net lease discounts and lease incentives.
 Maintenance revenue
 27




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##### Table of Contents



Interest income.
 Operating Expenses:
  Depreciation expense
     
    a $2.3 million increase in depreciation for capitalized aircraft improvements; and    
    a $1.4 million increase in depreciation for two new aircraft acquired in 2009;
  
    
    a $1.1 million decrease in depreciation for aircraft sold.
 Interest, net
 Three Months EndedMarch 31,2009
    
    
    2010(Dollars in thousands)Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
    
    $
    36,770
    
    
    $
    35,598Hedge ineffectiveness (gains) losses (unrealized)
    
    
    (129
    )
    
    
    867Amortization of interest rate derivatives related to deferred losses
    
    
    4,949
    
    
    
    2,304Amortization of deferred financing fees
    
    
    2,533
    
    
    
    2,804Interest Expense
    
    
    44,123
    
    
    
    41,573Less interest income
    
    
    (441
    )
    
    
    (10
    )Less capitalized interest
    
    
    (271
    )
    
    
    (604
    )Interest, net
    
    $
    43,411
    
    
    $
    40,959
  
    
    a $1.2 million decrease in interest expense on our borrowings primarily due to a lower
average cost of borrowing compared to the same period in 2009; and
    
    a $2.6 million decrease in amortization of deferred losses on interest rate derivatives
primarily due to:
 
    
    a $2.3 million decrease related to accelerated amortization of deferred losses from
terminated interest rate derivatives for borrowings that we no longer anticipate making
(i.e., that are no longer probable of occurring) as a result of a lower forecasted debt
financings; and
    
    a $0.3 million decrease related to amortization of deferred losses on terminated
interest rate derivatives for borrowings we anticipate making in the future (i.e., that
are probable of occurring). The deferred losses are amortized into interest expense as
the interest payments being hedged occur.
  
    
    a $0.4 million decrease in interest income earned on our cash balances reflecting
significantly lower interest rates during the first quarter of 2010 compared to the same
period in 2009; and
    
    a $1.0 million increase in losses from measured hedge ineffectiveness.
 Selling, general and administrative expenses, or SG&A,
 28




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##### Table of Contents



Maintenance and other costs
 
    
    a $2.7 million decrease in aircraft maintenance and other transitions costs primarily
relating to unscheduled lease terminations for eight aircraft returned to us in the fourth
quarter of 2008; and
    
    a $1.0 million decrease in aircraft maintenance and other transitions costs relating to
unscheduled and scheduled lease terminations  in
2009.
 Other income (expense):
  Income Tax Provision
    Other comprehensive income:
  
    
    a $22.6 million decrease in deferred losses resulting from a decrease in the net change
in the fair value of outstanding interest rate derivatives qualifying for and designated as
cash flow hedges due in part to a decreases in the 1-Month LIBOR rates during the period.
1-Month LIBOR rates as of March 31, 2010 and 2009 were 0.25% and 0.50% respectively; and
    
    a $2.6 million decrease in amortization into earnings of deferred net losses primarily
due to accelerated amortization from terminated interest rate derivatives in the first
quarter of 2009.
  
    
    a $1.1 million increase in the fair value of debt investments as a result of the sale of
our remaining debt investments in the fourth quarter of 2009; and
 29




---



##### Table of Contents




    
    a $0.4 million increase in net income.
  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;
    
    public offerings of common shares; and
    
    asset sales.
    30




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##### Table of Contents



Cash Flows
 Three Months EndedMarch 31,2009
    
    
    2010(Dollars in thousands)Net cash flow provided by operating activities
    
    $
    69,374
    
    
    $
    51,712Net cash flow used in investing activities
    
    
    (24,449
    )
    
    
    (49,687
    )Net cash flow used in financing activities
    
    
    (23,473
    )
    
    
    (23,091
    )
 Operating Activities:
  
    
    a $27.3 million increase in restricted cash reflecting increased maintenance payments
and security deposits received and an increase in restricted cash for anticipated
expenditures related to our aircraft.
  
    
    a $4.1 million increase in cash received for lease
rentals;
    
    a $1.8 million increase in cash received for maintenance revenue; and
    
    a $1.9 million decrease in cash payments for interest.
 31




---



##### Table of Contents



Investing Activities:
  
    
    $31.6 million in increased purchase deposits under our Airbus A330 Agreement and
aircraft undergoing freighter conversion; and
    
    $0.8 million lower proceeds from the sale of and principal repayments on our debt
investments.
  
    
    a $7.1 million decrease in the acquisition and improvement of flight equipment.
 Financing Activities:
  
    
    $7.8 million of higher financing repayments; and
    
    $7.9 million of lower security deposits received net of deposits returned.
  
    
    $17.0 million of higher maintenance payments received net of maintenance payments
returned.
 Debt Obligations
  FinalOutstanding
    
    Number of
    
    Interest
    
    StatedDebt Obligation
    
    Collateral
    
    Borrowing(1)
    
    Aircraft
    
    Rate(2)
    
    Maturity(3)(Dollars in thousands)Securitization No. 1
    
    Interests in
aircraft leases,
beneficial
interests in
aircraft owning
entities and
related interests
    
    $
    430,938
    
    
    
    33
    
    
    
    0.50
    %
    
    
    6/20/31Securitization No. 2
    
    Interests in
aircraft leases,
beneficial
interests in
aircraft owning
entities and
related interests
    
    
    1,050,978
    
    
    
    57
    
    
    
    0.49
    %
    
    
    6/14/37Term Financing No. 1
    
    Interests in
aircraft leases,
beneficial
interests in
aircraft owning
entities and
related interests
    
    
    696,485
    
    
    
    28
    
    
    
    1.98
    %
    
    
    5/02/15Term Financing No. 2
    
    Interests in
aircraft leases,
beneficial
interests in
aircraft owning
entities and
related interests
    
    
    110,951
    
    
    
    8
    
    
    
    2.91
    %
    
    
    9/23/13ECA Term Financings
    
    Interests in
aircraft leases,
beneficial
interests in
aircraft leasing
entities and
related interests
    
    
    137,279
    
    
    
    2
    
    
    4.48% and 3.96%
    
    5/27/21 and 12/03/21Total
    
    
    
    $
    2,426,631
 
 (1)
    
    Outstanding borrowing amount equals committed borrowing amount at March 31, 2010.(2)
    
    Reflects floating rate in effect at the most recent applicable reset date, except for the ECA Term Financings which are fixed rate.(3)
    
    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. 32




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##### Table of Contents



Available LiquidityDecember 31,
    
    March 31,
    
    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
    
    
    
    78,823
    
    
    
    0.50
    %
    
    1M Libor + 0.75%Term Financing No. 1
    
    Calyon
    
    
    14,174
    
    
    
    13,930
    
    
    
    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. Term Financing No. 1
   Contractual Obligations
  
    
    principal and interest payments made under our securitizations and term financings; and
    
    lower variable interest rates and payments made under our purchase obligations.
 33




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##### Table of Contents



Payments Due By Period as of March 31, 2010Less than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Dollars in thousands)Principal payments:Securitization No. 1(1)
    
    $
    430,938
    
    
    $
    21,238
    
    
    $
    163,587
    
    
    $
    187,513
    
    
    $
    58,600Securitization No. 2(2)
    
    
    1,050,978
    
    
    
    59,238
    
    
    
    196,946
    
    
    
    343,372
    
    
    
    451,422Term Financing No. 1(3)
    
    
    696,485
    
    
    
    68,417
    
    
    
    78,283
    
    
    
    185,839
    
    
    
    363,946Term Financing No. 2(4)
    
    
    110,951
    
    
    
    31,881
    
    
    
    65,905
    
    
    
    13,165
    
    
    
    ECA Term Financings(5)
    
    
    137,279
    
    
    
    9,449
    
    
    
    20,170
    
    
    
    22,012
    
    
    
    85,648Total principal payments
    
    
    2,426,631
    
    
    
    190,223
    
    
    
    524,891
    
    
    
    751,901
    
    
    
    959,616Interest payments:Interest payments on debt obligations(6)
    
    
    130,357
    
    
    
    29,085
    
    
    
    49,430
    
    
    
    34,961
    
    
    
    16,881Interest payments on interest rate derivatives(7)
    
    
    326,395
    
    
    
    100,551
    
    
    
    145,203
    
    
    
    64,018
    
    
    
    16,623Total interest payments
    
    
    456,752
    
    
    
    129,636
    
    
    
    194,633
    
    
    
    98,979
    
    
    
    33,504Office leases(8)
    
    
    3,712
    
    
    
    1,132
    
    
    
    1,985
    
    
    
    366
    
    
    
    229Purchase obligations(9)
    
    
    690,468
    
    
    
    284,067
    
    
    
    406,401
    
    
    
    
    
    
    
    Total
    
    $
    3,577,563
    
    
    $
    605,058
    
    
    $
    1,127,910
    
    
    $
    851,246
    
    
    $
    993,349
 
 (1)
    
    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.(2)
    
    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 Less than 1 year commitments
include repayment of $16.3 million and the 1-3 years commitments include repayments of $7.3 million related to contracted sales for two
aircraft in 2010 and one aircraft in 2011.(3)
    
    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. The figure in the Less than 1 year commitments includes approximately $20 million of
supplemental principal payments that we expect to make based on the results of the 2010 annual appraisal for this portfolio.(4)
    
    Includes principal payments equal to 85% of the estimated cash flow remaining after the payment of expenses, fees, interest and amounts
owing to interest rate hedge providers.(5)
    
    Includes scheduled principal based upon fixed rate, 12 year, fully amortizing loans.(6)
    
    Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at March 31, 2010.(7)
    
    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, 2010.(8)
    
    Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.(9)
    
    At March 31, 2010, we had aircraft purchase agreements including the acquisition of 10 New A330 Aircraft from Airbus. For the two New
A330 Aircraft being delivered in 2010, we expect to debt finance 75% to 85% of the total cost of these aircraft upon delivery. After
taking into consideration pre-delivery and buyer furnished equipment
payments and the anticipated debt financing, we expect to receive an
aggregate of
$25.0 million to $35.0 million in net cash upon delivery. Capital Expenditures
   34




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##### Table of Contents



Off-Balance Sheet Arrangements
  Foreign Currency Risk and Foreign Operations
  Hedging
  35




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##### Table of Contents



Liability DerivativesFutureCurrent
    
    
    
    
    
    
    
    
    
    
    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 flow hedges :Fair value of1M LIBOR
    
    
    
    
    
    derivativeSecuritization No. 1
    
    $
    444,749
    
    
    Jun-06
    
    Jun-16
    
    $
    444,749
    
    
    
    + 0.27%
    
    
    
    5.78
    %
    
    liabilities
    
    $
    54,068Fair value ofderivativeSecuritization No. 2
    
    
    1,042,262
    
    
    Jun-07
    
    Jun-12
    
    
    1,042,262
    
    
    1M LIBOR
    
    
    5.25% to 5.36
    %
    
    liabilities
    
    
    86,815Fair value ofderivativeTerm Financing No. 1(1)
    
    
    632,350
    
    
    Jun-08
    
    May-13
    
    
    632,350
    
    
    1M LIBOR
    
    
    4.04
    %
    
    liabilities
    
    
    38,222Fair value ofderivativeTerm Financing No. 1(1)
    
    
    
    
    
    May-13
    
    May-15
    
    
    491,718
    
    
    1M LIBOR
    
    
    5.31
    %
    
    liabilities
    
    
    6,818Total interest rate derivatives
designated as cash flow hedges
    
    
    2,119,361
    
    
    
    
    
    
    
    
    
    
    
    2,611,079
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,923Interest rate derivatives not
designated as cash flow hedges:Fair value ofderivativeTerm Financing No. 2 (2)
    
    
    99,749
    
    
    Oct-08
    
    Sep-13
    
    
    99,749
    
    
    3M LIBOR
    
    
    3.17
    %
    
    liabilities
    
    
    3,273Total interest rate derivatives not
designated as cash flow hedges
    
    
    99,749
    
    
    
    
    
    
    
    
    
    
    
    99,749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,273Total interest rate derivatives
    
    $
    2,219,110
    
    
    
    
    
    
    
    
    
    
    $
    2,710,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    189,196
 
 (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.(2)
    
    Although we entered into this interest rate derivative to hedge
the variable rate interest payments in connection with Term
Financing No. 2, it has not been designated as a hedge for
accounting purposes.    36




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##### 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 Three Months
    
    
    AmortizedNotional
    
    
    Effective
    
    
    Maturity
    
    
    Rate
    
    
    Termination
    
    
    Loss Upon
    
    
    March 31,
    
    
    Ended March 31,
    
    
    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
    )
    
    $
    (1,102
    )
    
    $
    (783
    )
    
    $
    (745
    )
    
    $
    (1,102
    )Securitization No. 1
    
    
    200,000
    
    
    Dec-05
    
    Dec-10
    
    
    5.03
    
    
    Jun-06
    
    
    (2,541
    )
    
    
    (241
    )
    
    
    (94
    )
    
    
    (56
    )
    
    
    (241
    )Securitization No. 2
    
    
    500,000
    
    
    Mar-06
    
    Mar-11
    
    
    5.07
    
    
    Jun-07
    
    
    (2,687
    )
    
    
    (625
    )
    
    
    (180
    )
    
    
    (173
    )
    
    
    (625
    )Securitization No. 2
    
    
    200,000
    
    
    Jan-07
    
    Aug-12
    
    
    5.06
    
    
    Jun-07
    
    
    (1,850
    )
    
    
    (783
    )
    
    
    (93
    )
    
    
    (90
    )
    
    
    (345
    )Securitization No. 2
    
    
    410,000
    
    
    Feb-07
    
    Apr-17
    
    
    5.14
    
    
    Jun-07
    
    
    (3,119
    )
    
    
    (1,916
    )
    
    
    (102
    )
    
    
    (94
    )
    
    
    (335
    )Term Financing No. 1
    
    
    150,000
    
    
    Jul-07
    
    Dec-17
    
    
    5.14
    
    
    Mar-08
    
    
    15,281
    
    
    
    10,909
    
    
    
    527
    
    
    
    492
    
    
    
    1,882Term Financing No. 1
    
    
    440,000
    
    
    Jun-07
    
    Feb-13
    
    
    4.88
    
    
    Partial  Mar-08Full  Jun-08
    
    
    26,281
    
    
    
    14,494
    
    
    
    1,535
    
    
    
    1,434
    
    
    
    5,486Term Financing No. 1
    
    
    248,000
    
    
    Aug-07
    
    May-13
    
    
    5.33
    
    
    Jun-08
    
    
    9,888
    
    
    
    5,388
    
    
    
    569
    
    
    
    979
    
    
    
    1,832Term Financing No. 2
    
    
    55,000
    
    
    May-08
    
    Mar-14
    
    
    5.41
    
    
    Jun-08
    
    
    2,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Term Financing No. 2
    
    
    360,000
    
    
    Jan-08
    
    Feb-19
    
    
    5.16
    
    
    Partial  Jun-08Full  Oct-08
    
    
    23,077
    
    
    
    11,436
    
    
    
    695
    
    
    
    557
    
    
    
    1,847Repurchase Agreement
    
    
    74,000
    
    
    Feb-06
    
    Jul-10
    
    
    5.02
    
    
    Feb-08
    
    
    878
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase Agreement
    
    
    5,000
    
    
    Dec-05
    
    Sep-09
    
    
    4.94
    
    
    Mar-08
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase Agreement
    
    
    2,900
    
    
    Jun-05
    
    Mar-13
    
    
    4.21
    
    
    Jun-08
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ECA Term Financing
and New A330
Aircraft future
debt
    
    
    238,000
    
    
    Jan-11
    
    Apr-16
    
    
    5.23
    
    
    Dec-08
    
    
    19,430
    
    
    
    18,445
    
    
    
    615
    
    
    
    
    
    
    
    New A330 Aircraft future debt and securitization
    
    
    231,000
    
    
    Apr-10
    
    Oct-15
    
    
    5.17
    
    
    Partial  Jun-08Full  Dec-08
    
    
    15,310
    
    
    
    12,437
    
    
    
    674
    
    
    
        
    
    
    
    1,224New A330 Aircraft
future debt and
securitization
    
    
    203,000
    
    
    Jun-07
    
    Jan-12
    
    
    4.89
    
    
    Dec-08
    
    
    2,728
    (1)
    
    
    
    
    
    
    465
    
    
    
        
    
    
    
    New A330 Aircraft
future debt and
securitization
    
    
    238,000
    
    
    Jul-11
    
    Sep-16
    
    
    5.27
    
    
    Dec-08
    
    
    17,254
    
    
    
    15,969
    
    
    
    1,121
    
    
    
        
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    109,038
    
    
    $
    84,411
    
    
    $
    4,949
    
    
    $
    2,304
    
    
    $
    9,623
 
 (1)
    
    The deferred loss for this swap is related to the period prior to
de-designation. 37




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##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2010(Dollars in thousands)Interest Expense:Hedge ineffectiveness (gains) losses (unrealized)
    
    $
    (129
    )
    
    $
    867Amortization:Accelerated amortization of deferred losses
    
    
    2,875
    
    
    
    447Amortization of deferred losses
    
    
    2,074
    
    
    
    1,857Total Amortization
    
    
    4,949
    
    
    
    2,304Total charged to interest expense
    
    $
    4,820
    
    
    $
    3,171Other Income (Expense):Mark to market gains (losses) on undesignated interest rate derivatives
    
    $
    92
    
    
    $
    (370
    )Total charged to other income (expense)
    
    $
    92
    
    
    $
    (370
    )
 Managements Use of EBITDA
    38




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##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2010(Dollars in thousands)Net income
    
    $
    18,471
    
    
    $
    18,879Depreciation
    
    
    51,561
    
    
    
    54,145Amortization of net lease discounts and lease incentives
    
    
    1,117
    
    
    
    4,845Interest, net
    
    
    43,411
    
    
    
    40,959Income tax provision
    
    
    1,916
    
    
    
    2,335EBITDA
    
    $
    116,476
    
    
    $
    121,163
 Managements Use of Adjusted Net Income and Adjusted Net Income plus Depreciation and
Amortization
   Three Months EndedMarch 31,2009
    
    
    2010(Dollars in thousands)Net income
    
    $
    18,471
    
    
    $
    18,879Ineffective portion and termination of hedges(1)
    
    
    2,746
    
    
    
    1,314Mark to market of interest rate derivative contracts(2)
    
    
    (92
    )
    
    
    370Adjusted net income
    
    
    21,125
    
    
    
    20,563Depreciation
    
    
    51,561
    
    
    
    54,145Amortization of net lease discounts and lease incentives
    
    
    1,117
    
    
    
    4,845Adjusted net income plus depreciation and amortization
    
    $
    73,803
    
    
    $
    79,553
 
 (1)
    
    Included in Interest, net.(2)
    
    Included in Other income (expense). Three Months EndedMarch 31,2009
    
    
    2010Weighted-average shares:Common shares outstanding
    
    
    77,941,201
    
    
    
    78,415,702Restricted common shares
    
    
    1,282,208
    
    
    
    1,237,988Total weighted-average shares
    
    
    79,223,409
    
    
    
    79,653,690
 Three Months EndedMarch 31,2009
    
    
    2010Percentage of weighted-average shares:Common shares outstanding
    
    
    98.38
    %
    
    
    98.45
    %Restricted common shares
    
    
    1.62
    %
    
    
    1.55
    %Total
    
    
    100.00
    %
    
    
    100.00
    %
 39




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##### Table of Contents



Three Months EndedMarch 31,2009
    
    2010Weighted-average common shares outstanding  Basic and Diluted(b)
    
    
    77,941,201
    
    
    
    78,415,702
 Three Months EndedMarch 31,2009
    
    
    2010(Dollars in thousands,except per share amounts)Adjusted net income allocation:Adjusted net income
    
    $
    21,125
    
    
    $
    20,563Less: Distributed and undistributed earnings allocated to restricted common shares(a)
    
    
    (342
    )
    
    
    (320
    )Adjusted net income allocable to common shares  Basic and Diluted
    
    $
    20,783
    
    
    $
    20,243Adjusted net income per common share  Basic
    
    $
    0.27
    
    
    $
    0.26Adjusted net income per common share  Diluted
    
    $
    0.27
    
    
    $
    0.26
 Three Months EndedMarch 31,2009
    
    
    2010(Dollars in thousands,except per share amounts)Adjusted net income plus depreciation and amortization allocation:Adjusted net income plus depreciation and amortization
    
    $
    73,803
    
    
    $
    79,553Less: Distributed and undistributed earnings allocated to restricted common shares(a)
    
    
    (1,194
    )
    
    
    (1,236
    )Adjusted net income plus depreciation and amortization allocable to common shares  Basic and
Diluted
    
    $
    72,609
    
    
    $
    78,317Adjusted net income plus depreciation and amortization per common share  Basic
    
    $
    0.93
    
    
    $
    1.00Adjusted net income plus depreciation and amortization per common share  Diluted
    
    $
    0.93
    
    
    $
    1.00
 
 (a)
    
    For the three months ended March 31, 2009 and 2010, distributed and
undistributed earnings to restricted shares is 1.62% and 1.56%, 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, 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
 40




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##### Table of Contents




    
    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.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
    Sensitivity Analysis
   41




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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
  42




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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
  MaximumTotal Number of
    
    
    Number ofTotal
    
    
    Average
    
    
    Shares Purchased
    
    
    Shares that may yetNumber
    
    
    Price
    
    
    as Part of Publicly
    
    
    be Purchased underof Shares
    
    
    Paid
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Purchased(a)
    
    
    per Share
    
    
    Programs(b)
    
    
    Programs(b)January
    
    
    93,978
    
    
    $
    9.85
    
    
    N/A
    
    
    N/AFebruary
    
    
    
    
    
    
    
    
    
    N/A
    
    
    N/AMarch
    
    
    
    
    
    
    
    
    
    N/A
    
    
    N/ATotal
    
    
    93,978
    
    
    $
    9.85
    
    
    N/A
    
    
    N/A
 
 (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 2010.(b)
    
    The Company does not participate in any Publicly Announced Plans or Programs. 
 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.31.1
    
    Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002 ∆31.2
    
    Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002 ∆32.1
    
    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 ∆
 43




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit32.2
    
    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 ∆99.1
    
    Owned Aircraft Portfolio at March 31, 2010 ∆
 
 
    
    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.∆
    
    Filed herewith. 44




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##### Table of Contents



SIGNATURE
   AIRCASTLE LIMITED
(Registrant)By:
    /s/ Aaron DahlkeAaron DahlkeChief Accounting Officer and Authorized Officer 45