UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

~~FORM 10-Q~~(Amendment No. 1)


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


		~~For the quarterly period ended June 30, 2008~~

or

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
		~~For the transition period from to~~

For the transition period from to

Commission File number001-32959

AIRCASTLE LIMITED

(Exact name of registrant as specified in its charter)


Bermuda (State or other jurisdiction of incorporation or organization)		98-0444035 (IRS Employer Identification No.)

c/o Aircastle Advisor LLC
300 First Stamford Place, ~~5th~~ 5^thFloor
Stamford, CT		06902
(Address of principal executive offices)		~~06902~~ (Zip Code)

Registrant’s telephone number, including area code(203) 504-1020

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESxþ NOo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See ~~the~~ definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. ~~(Check one):~~


Large ~~Accelerated Filer~~accelerated filer þ		Accelerated ~~Filer~~ o
~~Non-accelerated~~ filer o ~~(Do~~	Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined inrule 12b-2 of the Exchange Act). YESo NOxþ

As of ~~August 1,~~May 2, 2008, there were ~~78,587,011~~78,559,976 outstanding shares of the registrant’s common shares, par value $0.01 per share.

EXPLANATORY NOTE REGARDING THIS FORM 10-Q/A

Aircastle Limited (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, originally filed with the Securities and Exchange Commission (the “SEC”) on May 9, 2008 (the “original Form 10-Q”) to amend and restate its consolidated statements of cash flows for the three months ended March 31, 2007 and 2008.

The Company identified a misstatement in its consolidated statements of cash flows with regards to the presentation of non-cash activities related to security deposits, maintenance payments and lease rentals received in advance that were assumed from sellers when aircraft were acquired. In certain cases, the amount of these assumed liabilities were offset against the cash paid for the aircraft. However, in preparing the consolidated statements of cash flows, the Company included these assumed liabilities in the amount presented as cash paid for the acquisition and improvement of flight equipment in the investing section of its consolidated statements of cash flows. In addition, the Company included these assumed liabilities in the amounts presented as changes in security deposits and maintenance payments and lease rentals received in advance in the operating section of its consolidated statements of cash flows. After a re-evaluation, management concluded that it would be more appropriate to disclose security deposits, maintenance liabilities and lease rentals received in advance assumed in asset acquisitions as non-cash activities and to present the actual cash paid for the aircraft as cash outflows for the acquisition and improvement of flight equipment in the investing section of the consolidated statements of cash flows.

In addition, the Company had decided to reclassify the cash flow activities related to security deposits and maintenance payments collected from and returned to its lessees from the operating section to the financing section of the consolidated statements of cash flows to better reflect the nature of these activities.

The misstatement and reclassification had no impact on the Company’s previously reported consolidated balance sheets, consolidated statements of income, including net income and earnings per share, consolidated statements of changes in shareholders’ equity or cash balances for any period.

This Form 10-Q/A includes new certifications as exhibits 31.1, 31.2, 32.1 and 32.2 by our principal executive officer and principal financial officer as required by Rules 12b-15 and 13a-14 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except for the amended disclosure and reclassification described above, the information in this Form 10-Q/A has not been updated to reflect events that occurred after May 9, 2008, the filing date of our original Form 10-Q. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the original Form 10-Q, including any amendments to those filings. The following information has been updated to give effect to the restatement:

Part I — Item 1 — Financial Statements
Part I — Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I — Item 4 — Controls and Procedures
Part II — Item 6 — Exhibits

Aircastle Limited and Subsidiaries

Form 10-Q/A

~~Form 10-Q~~

Table of Contents


			Page ~~No.~~
~~Part I. — Financial Information~~
			No.

PART I. — FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of December 31, 2007 and ~~June 30,~~March 31, 2008		34

		Consolidated Statements of Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2007 and 2008		45

		Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2007 and 2008 (Restated)		56

		Notes to Unaudited Consolidated Financial Statements		67

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2220
	~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~		48
	Item 4.	Controls and Procedures		50

~~Part II. — Other Information~~
	~~Item 1.~~	~~Legal Proceedings~~		5139
	~~Item 1A.~~	~~Risk Factors~~		51
PART II. — OTHER INFORMATION
	~~Item 4.~~	~~Submission of Matters to a Vote of Security Holders~~		51
	Item 6.	Exhibits		5240
		~~Signature~~		53
	SIGNATURE			41
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION
~~EX-99.1: OWNED AIRCRAFT PORTFOLIO~~

PART I. — FINANCIAL INFORMATION


~~Item 1.~~	Item 1. Financial Statements ~~Financial Statements~~

Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)


		December 31,			June 30,
		2007			2008			December 31,			March 31,
					(unaudited)			2007			2008
					(unaudited)
ASSETS	ASSETS
Cash and cash equivalents		$	13,546		$	76,947		$	13,546		$	17,351
Accounts receivable			4,957			6,688			4,957			5,899
Debt investments			113,015			20,664			113,015			22,374
Restricted cash and cash equivalents			161,317			188,141			161,317			179,289
Flight equipment held for lease, net of accumulated depreciation of $189,737 and $285,570			3,807,116			4,080,903
Flight equipment held for lease, net of accumulated depreciation of $189,737 and $237,708									3,807,116			3,980,634
Aircraft purchase deposits and progress payments			245,331			82,258			245,331			170,638
Leasehold improvements, furnishings and equipment, net of accumulated depreciation of $1,335 and $1,709			1,391			1,351
Fair value of derivative assets			—			2,490
Leasehold improvements, furnishings and equipment, net of accumulated depreciation of $1,335 and $1,526									1,391			1,390
Other assets			80,969			57,052			80,969			122,648

Total assets		$	4,427,642		$	4,516,494		$	4,427,642		$	4,500,223


LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings under credit facilities		$	798,186		$	255,189		$	798,186		$	981,592
Borrowings from securitizations and term debt financings			1,677,736			2,414,367
Borrowings from securitizations									1,677,736			1,662,044
Accounts payable, accrued expenses and other liabilities			65,967			66,866			65,967			73,302
Dividends payable			55,004			19,647			55,004			19,640
Lease rentals received in advance			31,016			26,698			31,016			26,669
Repurchase agreements			67,744			—			67,744			2,283
Security deposits			74,661			72,912			74,661			72,398
Maintenance payments			208,363			244,550			208,363			230,585
Fair value of derivative liabilities			154,388			99,465			154,388			248,365

Total liabilities			3,133,065			3,199,694			3,133,065			3,316,878


Commitments and Contingencies

SHAREHOLDERS’ EQUITY
Preference shares, $.01 par value, 50,000,000 shares authorized, no shares issued and outstanding			—			—			—			—
Common shares, $.01 par value, 250,000,000 shares authorized, 78,574,657 shares issued and outstanding at December 31, 2007; and 78,587,011 shares issued and outstanding at June 30, 2008			786			786
Common shares, $.01 par value, 250,000,000 shares authorized, 78,574,657 shares issued and outstanding at December 31, 2007; and 78,559,976 shares issued and outstanding at March 31, 2008									786			786
Additional paid-in capital			1,468,140			1,470,090			1,468,140			1,468,840
Dividends in excess of earnings			(48,960	)		(21,269	)		(48,960	)		(36,963	)
Accumulated other comprehensive loss			(125,389	)		(132,807	)		(125,389	)		(249,318	)

Total shareholders’ equity			1,294,577			1,316,800			1,294,577			1,183,345

Total liabilities and shareholders’ equity		$	4,427,642		$	4,516,494		$	4,427,642		$	4,500,223

The accompanying notes are an integral part of ~~the condensed~~these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,				Three Months Ended
	2007		2008		2007		2008		March 31,
	2007		2008
Revenues:
Lease rentals	$	81,926	$	144,291	$	149,284	$	277,918	$	67,358	$	133,627
Interest income		2,728		614		5,316		1,905		2,588		1,291
Other revenue		460		490		519		528		58		38

Total revenues		85,114		145,395		155,119		280,351		70,004		134,956

Expenses:
Depreciation		27,764		51,605		49,398		99,820		21,633		48,215
Interest, net		19,345		51,319		36,077		92,330		16,730		41,011
Selling, general and administrative		10,448		11,354		18,944		22,843
Other expense		380		597		761		1,242
Selling, general and administrative (including non-cash share based payment expense of $1,258 and $1,598, respectively)										8,497		11,489
Other expenses										382		890

Total operating expenses		57,937		114,875		105,180		216,235

Other income:
Gain on sale of aircraft.		—		5,126		—		5,126
Other		1,154		1,328		1,154		1,083

Total other income		1,154		6,454		1,154		6,209
Total expenses										47,242		101,605

Income from continuing operations before income taxes		28,331		36,974		51,093		70,325		22,762		33,351
Income tax provision		1,173		1,633		3,078		3,347		1,905		1,714

Income from continuing operations		27,158		35,341		48,015		66,978		20,857		31,637
Earnings from discontinued operations, net of income taxes		10,910		—		11,594		—		684		—

Net income	$	38,068	$	35,341	$	59,609	$	66,978	$	21,541	$	31,637


Basic earnings per share:
Income from continuing operations	$	0.41	$	0.45	$	0.77	$	0.86	$	0.35	$	0.41
Earnings from discontinued operations, net of income taxes		0.16		—		0.18		—		0.01		—

Net income per share	$	0.57	$	0.45	$	0.95	$	0.86	$	0.36	$	0.41


Diluted earnings per share:
Income from continuing operations	$	0.41	$	0.45	$	0.77	$	0.86	$	0.35	$	0.41
Earnings from discontinued operations, net of income taxes		0.16		—		0.18		—		0.01		—

Net income per share	$	0.57	$	0.45	$	0.95	$	0.86	$	0.36	$	0.41


Dividends declared per share	$	0.60	$	0.25	$	1.10	$	0.50	$	0.50	$	0.25

The accompanying notes are an integral part of ~~the condensed~~these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2007			2008			2007
	(Restated)			2008
Cash flows from operating activities:
Cash flows from Operating activities:

Net income	$	59,609		$	66,978		$	21,541		$	31,637
Adjustments to reconcile net income to net cash provided by operating activities (inclusive of amounts related to discontinued operations):
Depreciation		50,158			99,712
Adjustments to reconcile net income to net cash provided by operating activities (inclusive of amounts related to discontinued operations) Depreciation								22,394			48,162
Amortization of deferred financing costs		3,166			6,787			1,514			2,584
Amortization of lease premiums and discounts, and other related lease items		(3,493	)		(5,216	)		(1,701	)		(2,713	)
Deferred income taxes		(3,109	)		2,604			1,892			1,061
Accretion of purchase discounts on debt investments		(405	)		(277	)		(208	)		(149	)
Non-cash share based payment expense		4,046			3,213			1,258			1,598
Cash flow hedges reclassified into earnings		(2,110	)		595			(1,007	)		(139	)
Ineffective portion of cash flow hedges		(418	)		6,027			42			1,998
Gain on sale of flight equipment		(10,219	)		(5,126	)
Loss on sale of investments		—			245			—			245
Other		(1,154	)		(918	)
Security deposits and maintenance payments revenue								—			(566	)
Changes in certain assets and liabilities:
Accounts receivable		2,222			(1,731	)		4,180			(942	)
Restricted cash and cash equivalents		(22,872	)		(26,686	)		(15,373	)		(17,972	)
Other assets		(2,269	)		1,318			(458	)		574
Accounts payable, accrued expenses and other liabilities		5,187			(2,705	)		(5,056	)		(2,081	)
Payable to affiliates		—			(200	)		—			(185	)
Lease rentals received in advance		3,604			(4,110	)		2,192			(4,347	)
Security deposits and maintenance payments		67,790			39,110

Net cash provided by operating activities		149,733			179,620			31,210			58,765

Cash flows from investing activities:
Acquisition and improvement of flight equipment		(1,070,216	)		(221,310	)		(428,918	)		(117,027	)
Aircraft purchase deposits and progress payments, net of return deposits		(88,413	)		8,974
Proceeds from sale of flight equipment		34,946			21,366
Aircraft purchase deposits and progress payments								(8,600	)		(5,312	)
Purchase of debt investments		(15,251	)		—			(15,251	)		—
Proceeds from sale of debt investments		—			65,335			—			65,335
Principal repayments on debt investments		13,372			11,467			12,664			11,224
Margin call payments on derivatives and repurchase agreements		(5,694	)		(296,605	)		(5,660	)		(198,882	)
Margin call receipts on derivatives and repurchase agreements		9,382			330,943			—			158,244
Leasehold improvements, furnishings and equipment		(259	)		(334	)		—			(190	)

Net cash used in investing activities		(1,122,133	)		(80,164	)		(445,765	)		(86,608	)

Cash flows from financing activities:
Issuance of common shares in public offerings, net		493,056			—			493,056			—
Issuance, net of repurchases, of common shares to directors and employees		852			(1,263	)
Proceeds from securitizations and term debt financings		1,170,000			786,135
Securitization and term debt financing repayments		(10,866	)		(49,504	)
Restricted cash and cash equivalents related to unreleased securitization and credit facility borrowings		(500,565	)		(138	)
Repurchase of shares from directors and employees								(210	)		(898	)
Securitization repayments								(5,400	)		(15,692	)
Deferred financing costs		(11,552	)		(17,568	)		(1,227	)		(2,571	)
Credit facility borrowings		1,009,779			482,723			486,584			325,608
Credit facility repayments		(1,112,902	)		(1,025,720	)		(552,961	)		(142,202	)
Proceeds from terminated cash flow hedges		8,936			—
Security deposits and maintenance payments received								14,045			26,977
Security deposits and maintenance payments returned								(2,208	)		(6,452	)
Proceeds from repurchase agreements								140			—
Principal repayments on repurchase agreement								(3,790	)		(65,461	)
Payments for terminated cash flow hedges		—			(68,332	)		—			(32,657	)
Proceeds from repurchase agreements		894			—
Principal repayments on repurchase agreements		(9,425	)		(67,744	)
Dividends paid		(56,211	)		(74,644	)		(22,584	)		(55,004	)

Net cash provided by (used in) financing activities		981,996			(36,055	)
Net cash provided by financing activities								405,445			31,648

Net increase in cash and cash equivalents		9,596			63,401
Net decrease in cash and cash equivalents								(9,110	)		3,805
Cash and cash equivalents at beginning of period		58,118			13,546			58,118			13,546

Cash and cash equivalents at end of period	$	67,714		$	76,947		$	49,008		$	17,351


Supplemental disclosures of non-cash investing activities
Security deposits and maintenance payment liabilities assumed in asset acquisitions							$	16,688		$	—

Lease rentals received in advance assumed in asset acquisitions							$	784		$	—

The accompanying notes are an integral part of ~~the condensed~~these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
~~June 30,~~March 31, 2008


~~Note 1.~~ Note 1. Summary of Significant Accounting Policies	~~Summary of Significant Accounting Policies~~

Organization

Aircastle Limited, (“Aircastle,” the “Company,” “we,” “us,” or ~~”our”~~“our”) is a Bermuda exempted company that was incorporated on October 29, 2004 by funds managed by affiliates of Fortress Investment Group LLC and certain of its affiliates (together, the “Fortress Shareholders” or ~~”Fortress,~~“Fortress,”) under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business is investing in aviation assets, including acquiring, ~~selling,~~ managing and leasing commercial jet aircraft to airlines throughout the world and investing in aircraft related debt investments.

Pursuant to a Shareholders Agreement executed November 24, 2004, the Fortress Shareholders committed to contribute $400,000 in initial equity to Aircastle. As of December 31, 2005, the Fortress Shareholders had completed making their initial $400,000 cash capital contribution. In conjunction with the second follow-on public offering of our common shares completed in October 2007, certain Fortress Shareholders sold 11,000,000 secondary common shares in the public offering.

Basis of Presentation

Aircastle is a holding company that conducts its business through subsidiaries. Aircastle owns, directly or indirectly, all of the outstanding common shares or economic ownership interest of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in condensed financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC; however, we believe that the disclosures are adequate to make information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007.

Effective January 1, 2008, the Company adopted Financial Accountings Standards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,Accounting for Certain Investments in Debt and Equity Securities, which permits an entity to measure certain eligible financial assets and financial liabilities at fair value that are not currently measured at fair value. The company did not elect to measure any additional financial instruments at fair value for its financial assets and liabilities existing at January 1, 2008 and did not elect the fair value option on financial assets and liabilities transacted in the ~~six~~three months ended ~~June 30,~~March 31, 2008. Therefore, the adoption of SFAS No. 159 had no impact on the Company’s consolidated financial statements.

Also effective January 1, 2008, the Company adopted SFAS No. 157,Fair Value Measurements(See Note 2 — Fair Value Measurements). This pronouncement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff PositionNo. 157-2 (“FSPNo. 157-2”) which defers the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). FSPNo. 157-2 will apply to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. We are currently evaluating the requirements of the deferred provisions of this statement and have not determined the impact, if any, that adoption of the deferred provisions will have on our consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates two Variable Interest Entities in accordance with FASB Interpretation No. 46,Consolidation of Variable

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
~~June 30,~~March 31, 2008

~~Principles of Consolidation~~

The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates three Variable Interest Entities in accordance with FASB Interpretation No. 46,~~Consolidation of Variable~~ Interest Entities(“FIN 46”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

Recent Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities(“, (“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. We do not expect the adoption of SFAS No. 161 to have a material effect on our consolidated financial statements.

~~In May 2008, the FASB issued SFAS No. 162,~~~~The Hierarchy of Generally Accepted Accounting Principles~~(“SFAS No. 162”). The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company is currently evaluating the potential impacts of SFAS No. 162 on its consolidated financial statements.

~~In June 2008, the FASB issued FASB Staff PositionNo. EITF 03-6-1,~~~~Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities~~~~(“FSPNo. EITF 03-6-1”).~~ ~~FSPNo. EITF 03-6-1~~ addresses whether unvested share-based payment awards with rights to receive dividends or dividend equivalents should be considered as participating securities for the purposes of applying the two-class method of calculating earnings per share (“EPS”) under SFAS No. 128,~~Earnings per Share~~. The FASB staff concluded that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be included in the two-class method of computing EPS. FSP~~No. EITF 03-6-1~~ is effective for fiscal years beginning after December 15, 2008, and interim periods within those years (early application is not permitted), and also requires that all prior-period EPS data presented be adjusted retrospectively. The Company is currently evaluating the potential impacts of FSP~~No. EITF 03-6-1~~ ~~on its consolidated financial statements.~~


~~Note 2.~~	~~Fair Value Measurements~~

Note 2. Fair Value Measurements

As described in Note 1 — Summary of Significant Account Policies, we adopted SFAS No. 157,Fair Value Measurements, for financial assets and liabilities as of January 1, 2008. This standard defines fair value, provides a consistent framework for measuring fair value and expands certain disclosures. SFAS No. 157 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. SFAS No. 157 requires the use of

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~

valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:


	•		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.

The valuation techniques that may be used to measure fair value are as follows:


	•		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).

The following table sets forth our financial assets and liabilities as of ~~June 30,~~March 31, 2008 that we measured at fair value on a recurring basis by level within the fair value hierarchy. As required by SFAS No. 157, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.


			Fair Value Measurements at March 31, 2008
	Fair Value As		Using Fair Value Hierarchy
	Of March 31,								Valuation
	2008		Level 1		Level 2		Level 3		Technique
Assets:
Debt investments	$	22,374	$	3,012	$	19,362	$	—	Market/Income


Liabilities:
Derivative liabilities	$	248,365	$	—	$	248,365	$	—	Income

Fair Value
Fair Value Measurements at June 30, 2008
As
Using Fair Value Hierarchy
Of June 30,
Valuation
2008 Level 1 Level 2 Level 3 Technique

Assets:

Cash and cash equivalents $ 76,947 $ 76,947 $ — $ — Market
Restricted cash and cash equivalents 188,141 188,141 — — Market
Debt investments 20,664 2,686 17,978 — Market/Income
Derivative assets 2,490 — — 2,490 Income

Total $ 288,242 $ 267,774 $ 17,978 $ 2,490

Liabilities:

Derivative liabilities $ 99,465 $ — $ 98,490 $ 975 Income

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2008

Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consists largely of money market securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as level 1 within our fair value hierarchy. Our debt investments included within Level 1 are valued based on quoted market prices in active markets. When quoted prices in an active market are not available, fair values are estimated by using discounted cash flow methodologies, where the inputs to those models are based on observable market inputs of similar securities in active markets. Our derivatives ~~included in level 2~~ consist of United States dollar denominated interest rate swaps, and their fair values are determined using cash flows discounted at relevant market interest rates in effect at the period close.

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~

Our derivatives included in level 3 consist of United States dollar denominated interest rate swaps with a guaranteed notional balance. The guaranteed notional balance has a lower and upper notional band. The fair value of the interest rate swap is determined based on the upper notional band using cash flows discounted at the relevant market interest rates in effect at the period close. The range of the guarantee notional between the upper and lower band represents a premium that is valued on unobservable market inputs.

~~The following tables reflects the activity for the major classes of our assets and liabilities measured at fair value using level 3 inputs for the six months ended June 30, 2008:~~

Derivative
Derivative

Assets Liabilities Total

Balance as of December 31, 2007 $ — $ — $ —
Unrealized gains (losses) 2,490 (975 ) 1,515

Balance as of June 30, 2008 $ 2,490 $ (975 ) $ 1,515

There were no assets and liabilities measured at fair value on a nonrecurring basis.


~~Note 3.~~	~~Lease Rentals~~Note 3. Lease Rental Revenues and Flight Equipment Held ~~for Lease~~

~~The components of lease rentals on our consolidated statement of income~~ for ~~the three and six months ended June 30, 2007 and 2008 were as follows:~~Lease

Three Months Ended
Six Months Ended

June 30, June 30,
2007 2008 2007 2008

Lease rental revenue $ 80,153 $ 137,647 $ 145,852 $ 268,628
Amortization of lease premiums (discounts) 1,773 2,502 3,432 5,148
Maintenance payments⁽¹⁾
— 4,142 — 4,142

Total lease rentals $ 81,926 $ 144,291 $ 149,284 $ 277,918


~~(1)~~		~~The amount by which maintenance payments received from lessees under leases expiring in the relevant period exceed amounts paid for relevant maintenance events.~~

Minimum future annual lease rentals contracted to be ~~earned from flight equipment held for lease~~received under our existing operating leases at ~~June 30,~~March 31, 2008 were as follows:

Year Ending December 31,
Amount

Remainder of 2008 $ 268,032
2009 511,672
2010 459,379
2011 398,190
2012 335,128
2013 235,099
Thereafter 521,289

Total $ 2,728,789

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~


Year Ending December 31,	Amount
Remainder of 2008	$	392,578
2009		490,528
2010		429,441
2011		362,746
2012		298,491
2013		200,471
Thereafter		406,613

Total	$	2,580,868

Geographic concentration of lease ~~rentals~~rental revenue earned from flight equipment held for lease was as follows:


													Three Months Ended
	Three Months Ended June 30,						Six Months Ended June 30,						March 31,
Region	2007			2008			2007			2008			2007			2008

Europe		46	%		45	%		45	%		45	%		43	%		45	%
Asia		27	%		24	%		26	%		25	%		25	%		26	%
North America		18	%		12	%		20	%		12	%		22	%		12	%
Latin America		6	%		9	%		6	%		8	%		5	%		8	%
Middle East and Africa		3	%		10	%		3	%		10	%		5	%		9	%

Total		100	%		100	%		100	%		100	%		100	%		100	%

The classification of regions in the ~~table~~tables above and the table and discussion below is determined based on the principal location of the lessee of each aircraft.

For the three months ended ~~June 30,~~March 31, 2007, one customer accounted for ~~13%~~17% of lease rental revenue and ~~two~~three additional customers accounted for a combined 13% of lease rental revenue. No other customer accounted for more than 5% of lease rental revenue. For the three months ended June 30, 2008, one customer accounted for 8% of lease rental revenue and four additional customers accounted for a combined 21%22% of lease rental revenue. No other customer accounted for more than 4% of lease rental revenue.

For the ~~six~~three months ended ~~June 30, 2007,~~March 31, 2008, one customer accounted for ~~15%~~8% of lease rental revenue and three additional customers accounted for a combined 19% of lease rental revenue. No other customer accounted for more than 5% of lease rental revenue. For the six months ended June 30, 2008, one customer accounted for 8% of lease rental revenue and four additional customers accounted for a combined 20%15% of lease rental revenue. No other customer accounted for more than 4% of lease rental revenue.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2008

Geographic concentration of net book value of flight equipment held for lease was as follows:


	December 31, 2007					March 31, 2008
			Net					Net
			Book					Book
	Number of		Value			Number of		Value
Region	Aircraft		%			Aircraft		%
Europe⁽¹⁾		65		47	%		64		45	%
Asia		35		27	%		35		25	%
North America⁽¹⁾		13		10	%		14		11	%
Latin America		12		7	%		12		7	%
Middle East and Africa		8		9	%		10		12	%
Off-lease⁽²⁾		—		—	%		1		—	%

Total		133		100	%		136		100	%

December 31, 2007 June 30, 2008
Number of
Net Book
Number of
Net Book

Region
Aircraft Value% Aircraft Value%

Europe⁽¹⁾⁽²⁾
65 47 % 64 47 %
Asia⁽³⁾
35 27 % 34 23 %
North America⁽¹⁾⁽⁴⁾
13 10 % 14 11 %
Latin America 12 7 % 11 7 %
Middle East and Africa 8 9 % 10 12 %
Off-lease⁽⁵⁾
— — % 2 — %

Total 133 100 % 135 100 %


(1)		At December 31, 2007, includes one Boeing Model747-400 aircraft in Europe and one Boeing Model747-400 aircraft in North America which were being converted to freighter configuration for which we have an executed lease post-conversion with a carrier in each of these geographic regions.

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~


(2)		~~At June 30,~~As of April 11, 2008, ~~includes one Airbus Model A320-200~~we had executed a lease for this aircraft, ~~that was undergoing maintenance as of June 30, 2008 for~~ which we ~~have an executed lease and which was delivered during~~expect to commence in the ~~third~~second quarter of 2008.

~~(3)~~		~~Includes one Boeing Model747-400~~ aircraft currently on short-term lease in passenger configuration to an airline in Asia. This aircraft was scheduled to go into freighter conversion in the fourth quarter of 2008. In July 2008, we terminated the freighter conversion agreement for this aircraft and have signed an agreement to sell this aircraft to a third party following lease expiry.

~~(4)~~		~~At June 30, 2008, includes one Boeing Model747-400~~ ~~aircraft in North America which was being converted to freighter configuration for which we have an executed lease post-conversion with a carrier in this geographic region.~~

~~(5)~~		~~At June 30, 2008, includes one off-lease Boeing Model757-200~~ ~~aircraft and one off-lease Boeing Model737-300~~ ~~for which we have signed letters of intent with new carriers.~~

As of December 31, 2007 and June 30, 2008, lease premiums included in other assets on the consolidated balance sheets were $6,891 and $4,938, respectively, and lease discounts included in other liabilities on the consolidated balance sheets were $30,923 and $23,822, respectively.

At December 31, 2007 and ~~June 30,~~March 31, 2008, lease acquisition costs included in other assets on the consolidated balance sheets were $417 and ~~$293,~~$394, respectively. Prepaid lease incentive costs included in other assets on the consolidated balance sheets were $586 at both December 31, 2007 and ~~June 30,~~March 31, 2008.


~~Note 4.~~	~~Debt Investments~~

Note 4. Debt Investments

In February 2008, we sold two of our debt investments for $65,335, plus accrued interest. We repaid the outstanding balance of $52,303, plus accrued interest, under the related repurchase agreement. Additionally, we terminated the related interest rate swap and paid breakage fees and accrued interest of approximately $1,040.

In 2007, we acquired a loan secured by a commercial jet aircraft that was classified as held to maturity. The loan had an outstanding balance of $13,567 at maturity, which we believe approximated its fair value. ~~The borrower elected not to repay the loan at maturity and, accordingly, we took ownership of this aircraft during the first quarter of 2008.~~

As of ~~June 30,~~March 31, 2008, all of our debt investments classified as available-for-sale were U.S. corporate obligations. These debt obligations are interests in pools of loans and are collateralized by interests in commercial aircraft of which ~~$2,686~~$3,012 are senior tranches and ~~$17,978~~$19,362 are subordinated to other debt related to such aircraft. Our debt investments had net unrealized gain positions relative to their net book values, which aggregated to $10,833 and ~~$8,819~~$10,414 at December 31, 2007 and ~~June 30,~~March 31, 2008, respectively.

At ~~June 30,~~March 31, 2008 one of our debt investments has a stated maturity in 2010. One of our debt investments has a stated maturity in ~~2018.~~2017. Our other two debt investments have remaining terms to stated maturity in excess of 10 years after ~~June 30,~~March 31, 2008. All of our debt investments provide for the periodic payment of both principal and interest and are subject to prepaymentand/or acceleration depending on certain events, including the sale of the underlying collateral aircraft and events of default. Therefore, the actual maturity of our debt investments may be less than the stated maturities.

1110

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
~~June 30,~~March 31, 2008


~~Note 5.~~	~~Securitizations and Borrowings under Credit Facilities~~

Note 5. Securitizations and Borrowings under Credit Facilities

The outstanding amounts of our securitizations ~~and term debt financings,~~ and borrowings under our credit facilities were as follows:


	At
	December 31,
	2007		At March 31, 2008
	Outstanding		Outstanding			Final Stated
Debt Obligation	Borrowings		Borrowings		Interest Rate⁽¹⁾	Maturity
Securitizations:
Securitization No. 1	$	527,397	$	521,725	1 M LIBOR + .27% = 3.09%		6/20/31
Securitization No. 2		1,150,339		1,140,319	1 M LIBOR + .26% = 3.32%		6/14/37

Total Securitizations		1,677,736		1,662,044


Credit Facilities:
Revolving Credit Facility⁽²⁾		—		10,000	1 M LIBOR + 2.00% = 4.56%		12/11/08
Amended Credit Facility No. 2⁽³⁾		734,059		846,373	1 M LIBOR + 1.25% = 4.07%		12/15/08
2008-A Credit Facility⁽⁴⁾		—		93,294	1 M LIBOR + 1.50% = 4.32%		8/04/08
747 PDP Credit Facility⁽⁵⁾		64,127		31,925	1 M LIBOR + 1.00% = 3.82%		4/10/08

Total Credit Facilities		798,186		981,592

Total	$	2,475,922	$	2,643,636

At

December 31,

2007 At June 30, 2008
Outstanding
Outstanding
Final Stated

Debt Obligation
Borrowings Borrowings Interest Rate⁽¹⁾ Maturity

Securitizations and Term Debt Financings:

Securitization No. 1 $ 527,397 $ 500,233 1 M LIBOR + .27% = 2.74% 6/20/31
Securitization No. 2 1,150,339 1,132,074 1 M LIBOR + .26% = 2.71% 6/14/37
Term Financing No. 1 — 782,060 LIBOR + 1.75% = 4.37%⁽²⁾ 5/11/15

Total Securitizations 1,677,736 2,414,367

Credit Facilities:

Revolving Credit Facility — — 1 M LIBOR + 2.00% = 4.48% 12/11/08
Amended Credit Facility No. 2 734,059 255,189 1 M LIBOR + 1.25% = 3.73% 12/15/08
747 PDP Credit Facility 64,127 — 1 M LIBOR + 1.00% = NA 4/10/08

Total Credit Facilities 798,186 255,189

Total $ 2,475,922 $ 2,669,556


(1)		London Interbank Offered Rate, or “LIBOR”, in effect at the applicable reset date.

(2)		~~LIBOR rate was based~~On March 20, 2008, the parties to the Revolving Credit Facility entered into a fourth amendment to the Revolving Credit Facility, extending the Stated Termination Date (as defined therein) to December 11, 2008, and reducing the commitments of the lenders to make loans thereunder, or the Revolving Commitments, from $250,000 to $150,000. The Revolving Commitments are further reduced to $100,000 on June 30, 2008, $80,000 on August 31, 2008, $60,000 on September 30, 2008 and $40,000 on October 31, 2008, with final maturity on December 11, 2008.

(3)		On March 20, 2008, the parties to Amended Credit Facility No. 2 entered into an amendment reducing the commitments of the lenders to make loans thereunder from $1,000,000 to $500,000, on any future date after which the loans outstanding under Amended Credit Facility No. 2 fall below $500,000.

(4)		On February 5, 2008, we entered into a senior secured credit agreement with two ~~week LIBOR~~banks, or the 2008-A Credit Agreement, which we refer to as the 2008-A Credit Facility. The 2008-A Credit Facility provides for loans in an aggregate amount of up to $300,000, with borrowings under this credit facility being used to finance a portion of the ~~first two interest periods ending~~purchase price of certain aircraft. Loans under the 2008-A Credit Facility mature on ~~July 10, 2008. All subsequent LIBOR resets~~August 4, 2008 or, if the borrower exercises its extension option, which we refer to as the Extension Option, then the maturity date will be ~~based on 1M LIBOR.~~October 29, 2008.

(5)		On April 10, 2008, we paid the remaining balance of $31,925.

~~Securitizations and Term Debt Financings:~~Credit Facilities

~~Term Financing No. 1~~

~~On May 2, 2008 two of our subsidiaries, ACS2008-1~~ Limited (“ACS Bermuda 3”) and ACS Aircraft Finance Ireland 3 Limited (“ACS Ireland 3”), to which we refer together with their subsidiaries as the “ACS 3 Group”, entered into a seven year, $786,135 term debt facility to which we refer to as “Term Financing No. 1” to finance a portfolio of 28 aircraft (“Portfolio No. 3”). The loans under Term Financing No. 1 were fully funded into an aircraft purchase escrow account on May 2, 2008. These loans were released to us from escrow as each of the financed aircraft transferred into the facility. The loans are secured by, among other things, first priority security interests in, and pledges or assignments of ownership interests in, the aircraft-owning and other subsidiaries of ACS Bermuda 3 and ACS Ireland 3, as well as by interests in aircraft leases, cash collections and other rights and properties they may hold. Each of ACS Bermuda 3 and ACS Ireland 3 has fully and unconditionally guaranteed the other’s obligations under the Term Financing No. 1. However, the loans are neither obligations of, nor guaranteed by, Aircastle Limited. The loans mature on May 11, 2015.

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~

We generally retained the right to receive future cash flows from Portfolio No. 3 after the payment of claims that are senior to our rights (“Excess Cash Flow”), including, but not limited to, payment of expenses related to the aircraft, fees of administration and fees and expenses of service providers, interest and principal on the loans, amounts owed to interest rate hedge providers and amounts, if any, owing to the liquidity provider for previously unreimbursed advances. We are entitled to receive Excess Cash Flow from Portfolio No. 3 until May 2, 2013, provided that the ACS 3 Group remains in compliance with its obligations under the Term Financing No. 1 loan documents. After that date, all Excess Cash Flow will be applied to the prepayment of the principal balance of the loans.

The loans provide for monthly payments of interest on a floating rate basis at a rate of one-month LIBOR plus 1.75%, and scheduled payments of principal, which during the first five years will equal approximately $48,900 per year. As of June 30, 2008, the ACS 3 Group had borrowings of $782,060. The Loans may be prepaid upon notice, subject to certain conditions, and the payment of expenses, if any, and the payment of a prepayment premium on amounts prepaid on or before May 2, 2010. The ACS 3 Group entered into interest rate hedging arrangements with respect to a substantial portion of the principal balance of the loans under Term Financing No. 1 in order to effectively pay interest at a fixed rate on a substantial portion of the loans. Obligations owed to hedge counter-parties under these contracts are secured pari passu basis by the same collateral that secures the loans under Term Financing No. 1 and, accordingly, the ACS 3 Group has no obligation to pledge cash collateral to secure any loss in value of the hedging contracts if interest rates fall. These hedging contracts, together with the spread referenced above and other costs of administration, result in a fixed rate cost of 7.30% per annum, after the amortization of issuance fees and expenses.

Term Financing No. 1 requires the ACS 3 Group to satisfy certain financial covenants in order to continue to receive Excess Cash Flows, including the maintenance of loan to value and debt service coverage ratios. From and after May 2, 2009, if loan to value ratio exceeds 75%, all Excess Cash Flows will be applied to prepay the principal balance of the loans until such time as the loan to value ratio falls below 75%. In addition, from and after May 2, 2009, debt service coverage must be maintained at a minimum of 1.32. If the debt service coverage ratio requirements are not met on two consecutive monthly payment dates, all Excess Cash Flows will thereafter be applied to prepay the principal balance of the loans until such time as the debt service coverage ratio exceeds the minimum level.. The ACS 3 Groups’ compliance with these covenants depends substantially upon the appraised value of Portfolio No. 3 and the timely receipt of lease payments from their lessees.

ACS Ireland 3, which had total assets of $113,372 at June 30, 2008, is a VIE which we consolidate. At June 30, 2008, the assets of ACS Ireland 3 include two aircraft transferred to ACS Ireland 3 in connection with Term Financing No. 1. The operating activities of ACS Ireland 3 are limited to the acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling the two aircraft. At June 30, 2008, the outstanding principal amount of the ACS Ireland 3 loans was $71,991.

~~Credit Facilities~~

Revolving Credit Facility

On March 20, 2008, the parties to the Revolving Credit Facility entered into a fourth amendment to the Revolving Credit Facility (the “2006-B Fourth Amendment”), extending the Stated Termination Date (as defined therein) to December 11, 2008, and reducing the commitments of the lenders to make loans thereunder (the “Revolving Commitments”) from $250,000 to $150,000. The Revolving Commitments ~~were~~are further reduced to $100,000 on June 30, 2008, ~~and will reduce further to~~ $80,000 on August 31, 2008, $60,000 on September 30, 2008 and $40,000 on October 31, 2008, with final maturity on

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~

December 11, 2008. The 2006-B Fourth Amendment also amends the Revolving Credit Facility so that Bear Stearns Corporate Lending Inc. will have no further Revolving Commitments or loans outstanding under the Revolving Credit Facility, with JPMorgan Chase Bank, N.A. and Citicorp North America, Inc. each funding one-half of the Revolving Commitments and the outstanding loans from the date of the 2006-B Fourth Amendment. The applicable margin on LIBOR-based loans under the Revolving Credit Facility increased to 200 basis points, and the remaining lenders under the Revolving Credit Facility received an up-front fee equal to 25 basis points of the $150,000 committed amount of the facility.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2008

At ~~June 30,~~March 31, 2008, there were no$10,000 in outstanding loans and ~~we had no outstanding~~$5,954 of letters of credit outstanding under the Revolving Credit Facility. The interest rate, including margin, applicable to loans under the Revolving Credit Facility at ~~June 30,~~March 31, 2008 was ~~4.48%~~4.56%.

We expect to modify or replace our Revolving Credit Facility before its current maturity of December 11, 2008.

Amended Credit Facility No. 2

On March 20, 2008, the parties to Amended Credit Facility No. 2 entered into an amendment ~~that reduced~~to Amended Credit Facility No. 2 reducing the commitments of the lenders to make loans thereunder from $1,000,000 to $500,000, on any future date after which the loans outstanding under Amended Credit Facility No. 2 fall below $500,000.

~~In June 2008, we refinanced and transferred 26 aircraft from Amended Credit Facility No. 2 into Term Financing No. 1.~~ At ~~June 30,~~March 31, 2008, we had borrowings of ~~$255,189~~$846,373 related to 1136 aircraft under our Amended Credit Facility No. 2. ~~The interest rate, including margin, applicable~~During the second quarter of 2008, we plan to ~~loans under~~refinance a majority of these aircraft, as well as three additional aircraft that we expect to acquire during the ~~Amended Credit Facility No. 2 at June 30,~~first half of 2008, ~~was 3.73%.~~with long-term financing using a cost effective debt structure such as a non-recourse securitization or similar bank market financing. We believe that similar bank market financing would be available in a single, diversified portfolio transaction structured like a securitization or would also be available in a series of smaller financings. In addition, we expect to extend, modify or replace Amended Credit Facility No. 2 with a similar aircraft acquisition facility before its current maturity of December 15, 2008. ~~In connection with the reduced commitments of the lenders under Amended~~(See Note 15 — Subsequent Events.)

2008-A Credit Facility ~~No. 2, during the second quarter of 2008 we wrote off $553 of debt issuance costs which is reflected in interest expense on the consolidated statement of income.~~

~~2008-A~~ ~~Credit Facility~~

On February 5, 2008, we entered into a senior secured credit agreement with two banks which we refer to as the~~“2008-A~~ “2008-A Credit Facility”. The2008-A Credit Facility ~~provided~~provides for loans in an aggregate amount of up to $300,000, with borrowings under this credit facility being used to finance a portion of the purchase price of certain aircraft.

~~On May 15, 2008, we reduced our total credit commitment~~Loans under the2008-A Credit Facility mature on August 4, 2008 or, if the borrower exercises its extension option, which we refer to ~~$188,000 and~~as the Extension Option, then the maturity date will be October 29, 2008, the outside maturity date following the initial closing of our ACS 2008-1 Credit Facility. (See Note 15 — Subsequent Events.) We refer to the period from August 4, 2008 to October 29, 2008 as the Extension Period.

Borrowings under the 2008-A Credit Facility bear interest (a) in the case of loans with an interest rate based on ~~June 3, 2008,~~the applicable base rate (the “ABR”), the ABR plus an applicable margin of 0.50% per annum, increasing to 1.50% per annum during the Extension Period or (b) in the case of loans with an interest rate based on the euro dollar rate (the “EDR”), the EDR plus an applicable margin of 1.50% per annum, increasing to 2.50% per annum during the Extension Period. Additionally, we ~~paid~~are subject to a 0.25% per annum fee, increasing to 0.375% per annum fee during the ~~remaining balance of $187,267 with proceeds from the refinancing of two aircraft transferred into Term Financing No. 1. As a result~~Extension Period, on any unused portion of the ~~pay-off of~~total committed facility. We are also required to pay customary agency fees. The interest rate, including margin, applicable to loans under the2008-A Credit Facility ~~during~~at March 31, 2008 was 4.32%. As of March 31, 2008, the ~~second quarter of 2008 we wrote off $250 of debt issuance costs which is reflected in interest expense on the consolidated statement of income.~~

outstanding borrowings were $93,294.

747 PDP Credit Facility

On July 26, 2007, we made an accelerated payment to the relevant Guggenheim Aviation Investment Fund LP (“GAIF”) seller under our acquisition agreement with GAIF (the “GAIF Acquisition Agreement”) for three Boeing Model747-400ERF aircraft in the amount of $106,668 and assumed a pre-delivery payment credit facility related to such747-400ERF aircraft (the “Accelerated ERF Aircraft”), which we refer to as the “747 PDP Credit Facility”. The total outstanding amount of borrowings assumed under the 747 PDP Credit Facility was $95,926. On July 30, 2007, we took delivery of the first Accelerated ERF Aircraft and paid down $31,799 under the 747 PDP Credit Facility. On February 11, 2008, we took delivery of the second Accelerated ERF Aircraft and paid down $32,202

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~

under the 747 PDP Credit Facility. Borrowings under this facility were used to finance progress payments made to Boeing during the manufacturing of the aircraft and bear interest at one-month LIBOR plus 1.00% per annum, which at March 31, 2008 was 3.82%. The facility matured upon the delivery of the third and final Accelerated ERF aircraft on April 10, 2008 when we paid the remaining balance of $31,925. As of March 31, 2008, the outstanding borrowings were $31,925. (See Note 15 — Subsequent Events.)

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2008


~~Note 6.~~	~~Repurchase Agreements~~

Note 6. Repurchase Agreements

~~As at December 31, 2007 and June 30, 2008, the~~The outstanding amounts of our repurchase agreements were ~~$67,744 and $0, respectively.~~as follows:

At
December 31,
2007 At March 31, 2008
Outstanding Outstanding Final Stated
Debt Obligation Borrowings Borrowings Interest Rate⁽¹⁾ Maturity
Repurchase Agreement⁽²⁾
$ 60,282 $ — 1 M LIBOR +  .50% = N/A —
Repurchase Agreement⁽³⁾
4,972 — 1 M LIBOR +  .75% = N/A —
Repurchase Agreement 2,490 2,283 1 M LIBOR +  .50% = 3.18% 6/28/08

Total Repurchase Agreements $ 67,744 $ 2,283


~~Note 7.~~ (1)	~~Dividends~~	LIBOR in effect at the applicable reset date.

(2)		In February 2008, we sold the underlying debt investments for $65,335 plus accrued interest and paid the outstanding amount under this repurchase agreement of $52,303 plus accrued interest. Additionally, we terminated the related interest rate swap and paid breakage fees and accrued interest of approximately $1,040.

(3)		In March 2008, we elected not to refinance this purchase agreement upon its maturity on March 15, 2008 and repaid the outstanding balance.

We enter into repurchase agreements to fund a portion of the purchase price of certain of our debt investments (See Note 4 — Debt Investments). At December 31, 2007 and March 31, 2008 the repurchase agreements are secured by liens on the debt investments with a fair value of $85,173 and $1,561, respectively.

Note 7. Dividends

On March 14, 2007, our board of directors declared a first quarter dividend of $0.50 per common share or an aggregate of $33,634, for the three months ended March 31, 2007, which was paid on April 13, 2007 to shareholders of record on March 30, 2007. On June 14, 2007, the Board declared a second quarter dividend of $0.60 per common share or an aggregate of $40,460, for the three months ended June 30, 2007, which was paid on July 13, 2007 to shareholders of record on June 29, 2007.

On March 24, 2008, our board of directors declared a first quarter dividend of $0.25 per common share, or an aggregate of $19,640, for the three months ended March 31, 2008, which was paid on April 15, 2008 to shareholders of record on March 31, 2008. On June 11, 2008, our board of directors declared a second quarter dividend of $0.25 per common share, or an aggregate of $19,647, for the three months ended June 30, 2008, which was paid on July 15, 2008 to shareholders of record on June 30, 2008.


~~Note 8.~~	~~Earnings Per Share~~

Note 8. Earnings Per Share

Aircastle is required to present both basic and diluted earnings (loss) per share (“EPS”). Basic EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during each period. The weighted average shares outstanding exclude our unvested shares for purposes of Basic EPS. Diluted EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period while also giving effect to all potentially dilutive common shares that were outstanding during the period based on the treasury stock method.

1513

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
~~June 30,~~March 31, 2008

The calculations of both basic and diluted earnings per share are as follows:

Three Months Ended
March 31,
2007 2008
Numerator

Income from continuing operations $ 20,857 $ 31,637
Earnings from discontinued operations, net of income taxes 684 —

Net income $ 21,541 $ 31,637

Denominator

Weighted-average shares used to compute basic earnings per share 58,864,054 77,719,986
Effect of dilutive restricted shares 291,573 — ^(a)

Weighted-average shares outstanding and dilutive securities used to compute diluted earnings per share 59,155,627 77,719,986

Basic earnings per share:

Income from continuing operations $ 0.35 $ 0.41
Earnings from discontinued operations, net of income taxes 0.01 —

Net income per share $ 0.36 $ 0.41

Diluted earnings per share:

Income from continuing operations $ 0.35 $ 0.41
Earnings from discontinued operations, net of income taxes 0.01 —

Net income per share $ 0.36 $ 0.41

Three Months Ended
Six Months Ended

June 30, June 30,
2007 2008 2007 2008

Numerator

Income from continuing operations $ 27,158 $ 35,341 $ 48,015 $ 66,978
Earnings from discontinued operations, net of income taxes 10,910 — 11,594 —

Net income $ 38,068 $ 35,341 $ 59,609 $ 66,978

Denominator

Weighted-average shares used to compute basic earnings per share 66,554,222 77,743,022 62,730,381 77,731,504
Effect of dilutive restricted shares 269,235 82,917 ^(a) 227,490 56,603 ^(a)

Weighted-average shares outstanding and dilutive securities used to compute diluted earnings per share 66,823,457 77,825,939 62,957,871 77,788,107

Basic earnings per share:

Income from continuing operations $ 0.41 $ 0.45 $ 0.77 $ 0.86
Earnings from discontinued operations, net of income taxes 0.16 — 0.18 —

Net income per share $ 0.57 $ 0.45 $ 0.95 $ 0.86

Diluted earnings per share:

Income from continuing operations $ 0.41 $ 0.45 $ 0.77 $ 0.86
Earnings from discontinued operations, net of income taxes 0.16 — 0.18 —

Net income per share $ 0.57 $ 0.45 $ 0.95 $ 0.86

(a) For the three ~~and six~~ months ended ~~June 30,~~March 31, 2008, based on the treasury stock method, we had ~~813,972 and 814,455~~913,912 anti-dilutive common share equivalents ~~respectively,~~ resulting from unvested restrictive shares.
Note 9. Income Taxes
~~Note 9.~~   ~~Income Taxes~~

Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2016. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in or earn income in jurisdictions that impose income taxes, primarily the United States and Ireland.
     The sources of income from continuing operations before income taxes for the three months ended March 31, 2007 and 2008 were as follows:

Three Months Ended
March 31,
2007 2008
U.S. operations $ 445 $ 635
Non-U.S. operations 22,317 32,716

Total $ 22,762 $ 33,351

1614

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
~~June 30,~~March 31, 2008

~~The sources of income from continuing operations before income taxes for the three and six months ended June 30, 2007 and 2008 were as follows:~~

Three Months Ended
Six Months Ended

June 30, June 30,
2007 2008 2007 2008

U.S. operations $ 931 $ 353 $ 1,376 $ 988
Non-U.S. operations
27,400 36,621 49,717 69,337

Total $ 28,331 $ 36,974 $ 51,093 $ 70,325

All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes arenon-U.S. corporations. Thesenon-U.S. subsidiaries generally earn income from sources outside the United States and therefore typically are not subject to U.S. federal, state or local income ~~taxes unless they~~taxes. However, certain of these non-U.S. subsidiaries own aircraft that operate to, from or within the U.S. ~~in which case they~~and therefore may be subject to federal, state and local income taxes. We also have a U.S-based subsidiary which provides management services to ournon-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes.

Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income consisted of the following:

Three Months Ended
Six Months Ended

June 30, June 30,
2007 2008 2007 2008

Notional U.S. federal income tax expense at the statutory rate $ 9,622 $ 12,942 $ 17,589 $ 24,614
U.S. state and local income tax, net 56 51 106 78
Non-U.S. operations
(8,514 ) (11,377 ) (14,649 ) (21,361 )
Non-deductible expenses in the U.S. 59 13 73 21
Other (50 ) 4 (41 ) (5 )

Provision for income taxes $ 1,173 $ 1,633 $ 3,078 $ 3,347

17

Three Months Ended
March 31,
2007 2008
Notional U.S. federal income tax expense at the statutory rate $ 7,967 $ 11,672
U.S. state and local income tax, net 50 27
Non-U.S. operations (6,135 ) (9,984 )
Non-deductible expenses in the U.S. 14 8
Other 9 (9 )

Provision for income taxes $ 1,905 $ 1,714

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~Note 10. Comprehensive Income (Loss)


~~Note 10.~~	~~Comprehensive Income~~

Total comprehensive income (loss) includes net income, the changes in the fair value and the reclassification into earnings of amounts previously deferred relating to our derivative financial instruments which qualify for hedge accounting in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, and the change in unrealized appreciation of debt ~~investments~~securities classified asavailable-for-sale. Total comprehensive income (loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2007 and 2008 was as follows:

Three Months Ended
Six Months Ended

June 30, June 30,
2007 2008 2007 2008

Net income $ 38,068 $ 35,341 $ 59,609 $ 66,978
Net change in fair value of derivatives, net of tax expense of $0 and $1,453 for the three months ended and $0 and $189 for the six months ended June 30, 2007 and 2008, respectively 70,081 117,418 58,583 (5,953 )
Derivative (gain) loss reclassified into earnings (1,103 ) 688 (2,110 ) 549
Net change in unrealized depreciation of debt investments (1,293 ) (1,595 ) (829 ) (2,014 )

Total comprehensive income $ 105,753 $ 151,852 $ 115,253 $ 59,560

Three Months Ended
March 31,
2007 2008
Net income $ 21,541 $ 31,637
Net change in fair value of derivatives, net of tax benefit of $0 and $1,264, respectively (11,498 ) (123,371 )
Derivative gain reclassified into earnings (1,007 ) (139 )
Net change in unrealized depreciation of debt investments 464 (419 )

Total comprehensive income (loss) $ 9,500 $ (92,292 )

The following table sets forth the components of accumulated other comprehensive income (loss), net of tax where applicable, at December 31, 2007 and ~~June 30,~~March 31, 2008:

Accumulated
Unrealized Other
Fair Value of Appreciation Comprehensive
Derivatives⁽¹⁾ Debt Securities Income (Loss)
December 31, 2007 $ (136,222 ) $ 10,833 $ (125,389 )
Net change in fair value of derivatives, net of tax benefit of $1,264 (123,371 ) — (123,371 )
Derivative gain reclassified into earnings (139 ) — (139 )
Net change in unrealized depreciation of debt investments — (419 ) (419 )

March 31, 2008 $ (259,732 ) $ 10,414 $ (249,318 )

Accumulated

Unrealized
Other

Fair Value of
Appreciation
Comprehensive

Derivatives⁽¹⁾ Debt Securities Income (Loss)

December 31, 2007 $ (136,222 ) $ 10,833 $ (125,389 )
Net change in fair value of derivatives, net of tax expense of $189 (5,953 ) — (5,953 )
Derivative loss reclassified into earnings 549 — 549
Net change in unrealized depreciation of debt investments — (2,014 ) (2,014 )

June 30, 2008 $ (141,626 ) $ 8,819 $ (132,807 )

(1) Net of tax benefit of $1,928 at December 31, 2007.
15

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2008


~~Note 11.~~	~~Commitments and Contingencies~~

Note 11. Commitments and Contingencies

~~During~~In the first ~~six months~~quarter of 2008, we completed the purchase of ~~four~~two aircraft under the GAIF Acquisition ~~Agreement. We also determined not to acquire certain other~~Agreement, and removed an aircraft, from the GAIF Acquisition Agreement, reducing the total number of aircraft to be acquired to ~~32.~~35. As of ~~June 30,~~March 31, 2008, we have completed the acquisition of 30 of the 32 aircraft for ~~approximately $1,385,454.~~$1,228,353. We completed the purchase of one Boeing Model 747-400ERF aircraft in April 2008. The remaining aircraft we will acquire under the GAIF Acquisition Agreement are scheduled to be delivered to us through February 2009.

On June 20, 2007, Aircastle entered into an acquisition agreement (the “Airbus A330 Agreement”) with Airbus SAS (“Airbus”) under which we agreed to acquire fifteen new Airbus Model A330-200 aircraft (the “New A330 Aircraft”). Five of the aircraft we will acquire under the Airbus A330 Agreement are scheduled to be delivered in 2010, with the remainder to be delivered in 2011. Pre-delivery payments for each aircraft are payable to Airbus and are refundable to us only in limited circumstances. We agreed to separate arrangements with Rolls-Royce PLC and Pratt & Whitney pursuant to which we committed to acquire aircraft engines for the New A330 Aircraft. As of March 31, 2008, we have made $56,029 in deposits and progress payments to Airbus. Under limited circumstances, we have the right to change certain delivery positions from A330-200 freighter configuration aircraft to A330-200 passenger configuration aircraft.

At ~~June 30,~~March 31, 2008, we had ~~commitments~~letters of intent or purchase agreements to acquire ~~convert and modify~~20 aircraft for an estimated ~~amount~~purchase price of ~~$1,249,408, including, where applicable, our estimate~~$1,357,831, comprised of ~~adjustments~~the fifteen New A330 Aircraft and the balance of the aircraft to be delivered under the GAIF Acquisition Agreement. The purchase price of certain of the aircraft under these letters of intent or purchase agreements, other than the Airbus A330 Agreement, is subject to variable price provisions that typically reduce the final purchase price if the actual closing occurs beyond an initially agreed upon date. The purchase price for aircraft we are committed to acquire under the Airbus A330 Agreement is subject to adjustment for configuration changes, engine ~~acquisition costs,~~selection and contractual price ~~escalations~~escalations.

Committed amounts for the purchase of aircraft and related flight equipment and improvements, including the aircraft purchases discussed above, together with estimated amounts for pre-delivery deposits and, based on estimates for engine acquisition cost, contractual price escalation and other ~~adjustments.~~adjustments, are approximately $213,268 in 2008, $233,355 in 2009, $408,513 in 2010 and $440,050 in 2011.

1816

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
~~June 30,~~March 31, 2008

Note 12. Derivatives

Committed amounts for the purchase, conversion and modification of aircraft, together with estimated amounts for pre-delivery deposits and, based on estimates for engine configuration acquisition cost, contractual price escalation and other adjustments, are approximately $72,104 in 2008, $234,253 in 2009, $408,513 in 2010, and $440,050 in 2011. (See Note 15 — Subsequent Events.)


~~Note 12.~~	~~Derivatives~~

We held the following interest rate derivative contracts as of ~~June 30,~~March 31, 2008:

Fair
Value
Current/ Mandatory Future of
Starting Early Maximum Derivative
Notional Effective Termination Maturity Notional Floating Fixed Asset or
Hedged Item Amount Date Date Date Amount Rate Rate (Liability)
Securitization No. 1 $ 521,725 Jun-06 N/A Jun-16 $ 521,725 1M LIBOR + 0.27% 5.78 % $ (53,603 )
Securitization No. 2 1,140,319 Jun-07 N/A Jun-12 1,140,319 1M LIBOR 5.25% to 5.36% (92,417 )
Revolving Credit Facility 28,000 Jun-07 Dec-11 Jan-12 203,000 1M LIBOR 4.89 % (7,528 )
Amended Credit Facility No. 2 240,000 Jun-07 Jun-08 Feb-13 240,000 1M LIBOR 4.88 % (17,256 )
Amended Credit Facility No. 2 and 747 PDP Credit Facility 220,000 Aug-07 Nov-08 May-13 220,000 1M LIBOR 5.33 % (17,632 )
Future debt and securitization 190,000 Jan-08 Feb-09 Feb-19 360,000 1M LIBOR 5.16 % (33,180 )
Future debt and securitization 5,000 May-08 Sep-09 Mar-14 55,000 1M LIBOR 5.41 % (4,818 )
Future debt and securitization 46,000 Apr-10 Nov-11 Oct-15 231,000 1M LIBOR 5.17 % (8,647 )
Future debt and securitization 95,000 Jan-11 May-12 Apr-16 238,000 1M LIBOR 5.23 % (7,068 )
Future debt and securitization 143,000 Jul-11 Oct-12 Sep-16 238,000 1M LIBOR 5.27 % (5,917 )
Repurchase Agreement⁽¹⁾
— N/A N/A N/A — N/A N/A (175 )
Repurchase Agreement 2,900 Jun-05 N/A Mar-13 2,900 1M LIBOR 4.21 % (124 )

Total $ 2,631,944 $ 3,449,944 $ (248,365 )

Fair Value

Current/
Mandatory
Future
of

Starting
Early
Maximum
Derivative

Notional
Effective
Termination
Maturity
Notional
Asset or

Hedged Item
Amount Date Date Date Amount Floating Rate Fixed Rate (Liability)

Securitization No. 1 $ 515,984 Jun-06 N/A Jun-16 $ 515,984 1M LIBOR 5.78% $ (30,813 )
+ 0.27 %
Securitization No. 2 1,130,171 Jun-07 N/A Jun-12 1,130,171 1M LIBOR 5.25% to 5.36% (48,433 )
Revolving Credit Facility 32,000 Jun-07 Dec-11 Jan-12 203,000 1M LIBOR 4.89% (3,099 )
Amended Credit Facility No. 2 65,932 Jan-08 Feb-09 Feb-19 220,000 1M LIBOR 5.16% (7,165 )
Future debt and securitization 46,000 Apr-10 Nov-11 Oct-15 231,000 1M LIBOR 5.17% (2,950 )
Future debt and securitization 95,000 Jan-11 May-12 Apr-16 238,000 1M LIBOR 5.23% (3,099 )
Future debt and securitization 143,000 Jul-11 Oct-12 Sep-16 238,000 1M LIBOR 5.27% (2,931 )
Term Financing No. 1 710,068 Jun-08 N/A May-13 710,068 1M LIBOR 4.04% 2,490
Term Financing No. 1 491,718 May-13 N/A May-15 491,718 1M LIBOR 5.31% (975 )

Total $ 3,229,873 $ 3,977,941 $ (96,975 )


(1)		In March 2008, we terminated this interest rate swap with a notional amount of $5,000, which was settled on April 1, 2008.

In February 2008, we terminated an interest rate swap, with notional amounts of $39,000 as of December 31, 2007 and $33,000 as of the termination date, related to a repurchase agreement we repaid when the underlying debt investments were sold, resulting in a loss of $878, which is included in interest expense on the consolidated statement of income.

In March 2008, we terminated an interest rate swap with a notional amount of $150,000 and partially terminated an interest rate swap with a notional ~~amount~~ of $440,000, resulting in a net deferred loss of $31,761, which will be amortized into interest expense using the interest rate method. In June 2008, the remaining portion of the swap that had been partially terminated was fully terminated, resulting in an additional net deferred loss of $9,800 being amortized into interest expense using the interest rate method. These swaps were hedging interest payments related to borrowings under Amended Credit Facility No. 2. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2008, ~~$1,667 and $1,885, respectively, were~~$218 was reclassified into in interest expense on the consolidated statement of income.

In May 2008, we determined that the interest rate swap that was hedging interest payments related to borrowings under the Revolving Credit Facility was no longer highly effective and no longer qualified for hedge accounting under SFAS No. 133 and, accordingly, a deferred loss in the amount of $2,728 for this swap will be amortized into interest expense using the cash flow method. Further, all subsequent mark to market adjustments will be charged to other income. For the three months ended ~~June 30, 2008, $59 of the deferred loss was reclassified into interest expense.~~

~~Aircastle Limited~~March 31, 2007 and ~~Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~

~~In June~~ 2008, we ~~terminated an interest rate swap with a notional amount~~recognized ineffectiveness losses of ~~$2,900~~$42 and $1,998 related to ~~a repurchase agreement we repaid, resulting in a gain of $19 which is~~our cash flow hedges. These amounts are included in interest expense on the consolidated ~~statement~~statements of income. Also in June 2008, we terminated interest rate swaps with notional amounts of $190,000 and $5,000 and partially terminated interest rate swaps with notional amounts of $330,000 and $46,000, resulting in a net deferred loss of $24,719 which will be amortized into interest expense using the interest rate method. These swaps were hedging interest payments related to borrowings under Amended Credit Facility No. 2, Term Financing No. 1 and future debt and securitizations. For the three months ended June 30, 2008, $183 of the deferred loss was reclassified into interest expense on the consolidated statement of income. The remaining portions of the two partially terminated swaps were re-designated as cash flow hedges for accounting purposes on June 30, 2008.

On June 6, 2008, we entered into two amortizing interest rate swap contracts with a balance guarantee notional and initial notional amounts of $710,068 and $491,718. The balance guarantee notional has a lower and upper notional band that adjusts to the outstanding principle balance on Term Financing No. 1. We entered into these interest rate hedging arrangements in connection with Term Financing No. 1 in order to effectively pay interest at a fixed rate on a substantial portion of the loans under this facility. These interest rate swaps were designated as cash flow hedges for accounting purposes on June 30, 2008.

For the three months ended June 30, 2007 and 2008, we recognized ineffectiveness gains (losses) of $459 and $(2,122), respectively, related to our cash flow hedges. For the three months ended June 30, 2007 and 2008, $459 and $(4,029) are included in interest expense and $0 and $1,907 are included in other income, respectively. For the six months ended June 30, 2007 and 2008, we recognized ineffectiveness gains (losses) of $417 and $(4,120), respectively, related to our cash flow hedges. For the six months ended June 30, 2007 and 2008, $417 and $(6,027) are included in interest expense and $0 and $1,907 are included in other income, respectively.

As of ~~June 30,~~March 31, 2008, we pledged ~~$1,541~~$76,518 in cash collateral under our interest rate swaps and our interest rate forward contracts, which is included in other assets on our consolidated balance sheet.

The weighted average interest pay rates of these derivatives at December 31, 2007 and ~~June 30,~~March 31, 2008 were 5.28% and ~~5.07%~~5.32%, respectively.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2008


~~Note 13.~~	~~Segment Reporting~~

Note 13. Segment Reporting

Historically we reported separate segment information for the operations of our Aircraft Leasing and Debt Investments segments. Beginning in the first quarter of 2008, in conjunction with the sale of two of our debt investments ~~(See~~(see Note 4 — Debt Investments), our Chief Operating Decision Maker, who is the Company’s Chief Executive Officer, began reviewing and assessing the operating performance of our business on a consolidated basis as the sale caused the operational results and asset levels of our remaining debt investments to be immaterial to our business and operations. As a result, we now operate in a single segment.

~~Aircastle Limited and Subsidiaries~~
~~Notes to Unaudited Consolidated Financial Statements~~
~~(Dollars in thousands, except per share amounts)~~
~~June 30, 2008~~Note 14. Interest, Net


~~Note 14.~~	~~Interest, Net~~

The following table shows the components of interest, ~~net for the three and six months ended June 30, 2007 and 2008:~~net:

Three Months Ended
March 31,
2007 2008
Interest expense $ 18,491 $ 46,322
Less interest income (1,761 ) (1,731 )
Less capitalized interest — (3,580 )

Interest, net $ 16,730 $ 41,011

Three Months Ended
Six Months Ended

June 30, June 30,
2007 2008 2007 2008

Interest expense $ 23,467 $ 54,950 $ 41,960 $ 101,272
Less interest income (4,122 ) (2,827 ) (5,883 ) (4,558 )
Less capitalized interest — (804 ) — (4,384 )

Interest, net $ 19,345 $ 51,319 $ 36,077 $ 92,330

~~Note 15.~~
Note 15. Subsequent Events
~~Subsequent Events~~
~~Aviation Assets~~Financing

~~In July~~On April 10, 2008, we ~~amended~~took delivery of a 747-400ERF aircraft from the ~~Airbus A330 Agreement~~manufacturer and paid down the balance of $31,925 under the 747 PDP Credit Facility. We financed this aircraft at delivery under the 2008-A Credit Facility.
     On May 2, 2008 two of our subsidiaries entered into a seven year, $786,135 term debt facility (the “ACS 2008-1 Credit Facility”) to ~~reduce~~finance a portfolio of 28 aircraft. The loans under the ~~number of~~ACS 2008-1 Credit Facility were funded into an aircraft to be acquired from fifteen to twelve and to change the Airbus A330 Agreement so that we receive a mix of freighter and passenger aircraft. Seven of the aircraft are scheduled to be delivered as freighters, including three early positions, and five aircraftpurchase escrow account on May 2, 2008. These loans will be ~~manufactured in passenger configuration. Under certain circumstances, we have~~released to us as the ~~right~~financed aircraft transfer into the facility. Proceeds from the financing will be used to change certain aircraft to alternative A330 aircraft models. Four of the aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining two are scheduled to be delivered in 2012.
~~In July 2008, we terminated an agreement to convert one Boeing Model747-400~~ ~~from passenger to freighter configuration and have an agreement to sell this aircraft to a third party. Also in July 2008, we sold one Boeing Model757-200~~ ~~aircraft that had previously been subject to a forward sales agreement and on lease to one of our customers, to a third party. The lease expired immediately prior to the sale of this aircraft.~~
~~As a result of the above two events, our committed~~repay related outstanding amounts for the ~~purchase~~aircraft under the Company’s Amended Credit Facility No. 2 and 2008-A Credit Facility. The loans will bear interest on a floating rate basis at a rate of ~~aircraft~~one-month LIBOR plus 1.75% and ~~related flight equipment~~will mature on May 2, 2015. We estimate that our aggregate up-front costs, including fees payable to the lenders and ~~improvements, including estimated amounts for pre-delivery deposits, configuration changes, engine acquisition costs, contractual price escalation~~legal and ~~other adjustments,~~professional service fees but excluding termination fees on our interest rate hedging contracts, will equal approximately $16.5 million. We will enter into interest rate hedging arrangements with respect to all or a substantial portion of the principal balance of the loans under the ACS 2008-1 Credit Facility in order to effectively pay interest at a fixed rate on all or a substantial portion of the loans. Our obligations under these hedging arrangements will be ~~approximately $34,181~~secured pari passu with the lenders and, accordingly, we do not expect that we will be obliged to pledge cash collateral to secure any loss in ~~2008, $163,115 in 2009, $337,366 in 2010, $328,683 in 2011 and $83,870 in 2012.~~
value should interest rates fall.
Fair Value of Derivatives and Margin Calls

As of ~~August 1,~~May 2, 2008, the aggregate fair value of our interest rate swaps and our interest rate forward contracts was a liability of ~~$106,499~~$167,740 and we had pledged ~~$3,295~~$57,434 in cash collateral required under certain of our interest rate swaps and our interest rate forward contracts.
Note 16. Restatement and Reclassification of Previously Issued Financial Statements
     Subsequent to the filing of the Company’s original Form 10-Q, the Company’s management determined that the unaudited consolidated statement of cash flows for the three month period ended March 31, 2007 did not properly eliminate non-cash security deposits, maintenance liabilities and lease rentals received in advance that were assumed in aircraft acquisitions from operating and investing activities. As a result, the consolidated statement of cash flows for the three months ended March 31, 2007 has been restated to correct this misstatement. There was no impact to the consolidated statement of cash flows for the three months ended March 31, 2008. In addition,

2118

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2008

the Company is reclassifying certain security deposits and maintenance payments collected from and returned to its lessees from operating activities to financing activities to better reflect the nature of these activities. The misstatement and reclassification had no impact on the Company’s previously reported consolidated balance sheets, consolidated statements of income, including net income and earnings per share, consolidated statements of changes in shareholders’ equity or cash balances for any period.

The table below presents the changes to the consolidated statement of cash flows for the three months ended March 31, 2007 and 2008.

Three Months Ended March 31,
2007 2008

Cash flows from Operations

As Reported $ 60,519 $ 79,290
Correction of misstatement (17,472 ) —
Reclassification (11,837 ) (20,525 )

Restated $ 31,210 $ 58,765

Cash flows from Investing

As Reported $ (463,237 ) $ (86,608 )
Correction of misstatement 17,472 —

Restated $ (445,765 ) $ (86,608 )

Cash flows from Financing

As Reported $ 393,608 $ 11,123
Reclassification 11,837 20,525

Restated $ 405,445 $ 31,648

Net change in cash and cash equivalents

As Reported $ (9,110 ) $ 3,805
As Restated (9,110 ) 3,805

Change $ — $ —


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information has been adjusted to reflect the restatement and reclassification of our consolidated statements of cash flows which is more fully described in the “Explanatory Note” on page 1 and Note 16. Restatement and Reclassification of Previously Issued Financial Statements located in the Consolidated Financial Statements elsewhere in this Form 10-Q/A.

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under ~~“Risk~~“Item 1A. — Risk Factors” ~~and included~~ in ~~our Annual~~the Company’s September 30, 2008 Quarterly Report onForm ~~10-K~~ ~~for~~10-Q filed on the ~~year ended December 31, 2007 filed with the SEC.~~

~~Certain items~~date hereof, and elsewhere in this ~~Quarterly Report onForm 10-Q~~ ~~(this “report”), and other information we provide from time to time, may constitute forward-looking statements within the meaning of~~report. Please see “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to our ability to acquire, sell and lease aircraft, issue aircraft lease-backed securities or raise other long-term debt, pay and grow dividends, extend, modify or replace existing financing and increase revenues, earnings and EBITDA. Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “target(s),” “project(s),” “predict(s),” “believe(s),” “may,” ”will,” “would,” “could,” “should,” “seek(s),” “estimate(s)” and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described1995” in the ~~forward-looking statements; Aircastle Limited can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance~~Company’s September 30, 2008 Quarterly Report on any forward-looking statements contained in this report. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from Aircastle Limited’s expectations include, but are not limited to, our continued ability to obtain additional capital to finance our working capital needs and our growth and to refinance our short-term debt financings with longer-term debt financings; our ability to acquire aircraft at attractive prices; our ability to find new ways to raise capital, including managing investment funds; our continued ability to obtain favorable tax treatment in Bermuda, Ireland and other jurisdictions; our ability to pay or maintain dividends; our ability to lease aircraft at favorable rates; an adverse change in the value of our aircraft; the possibility that conditions to closing of certain transactions will not be satisfied; general economic conditions and economic conditions in the markets in which we operate; competitive pressures within the industry~~and/or~~ markets in which we operate; high fuel prices and other factors affecting the creditworthiness of our airline customers; interest rate fluctuations; margin calls and termination payments on our interest rate hedges; our ability to obtain certain required licenses and approvals; the impact of future terrorist attacks or warsForm 10-Q filed on the ~~airline industry; our concentration~~date hereof, for a discussion of ~~customers, including geographical concentration; and other risks detailed from time to time in Aircastle Limited’s filings with~~ the ~~Securities and Exchange Commission ( the “SEC”), including “Risk Factors” as previously disclosed in Aircastle’s 2007 Annual Report onForm 10-K,~~ ~~and in our other filings with the SEC, press releases and other communications. In addition, new~~uncertainties, risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-lookingassumptions associated with these statements. Such forward-looking statements speak only as of the date of this report. Aircastle Limited expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

WEBSITE AND ACCESS TO COMPANY’S REPORTS

The Company’s Internet website can be found at www.aircastle.com. Our annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of

charge through our website under “Investors — SEC Filings” as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

The information on the Company’s website is not part of, or incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.

OVERVIEW

We are a global company that acquires ~~sells, manages~~ and leases high-utility commercial jet aircraft to passenger and cargo airlines throughout the world. High-utility aircraft are generally modern, operationally efficient jets with a large operator base and long useful lives. As of ~~June 30,~~March 31, 2008, our aircraft portfolio consisted of ~~135~~136 aircraft ~~and we had 58~~that were leased to 59 lessees located in ~~30 countries. At June 30, 2008,~~31 countries, including two aircraft being converted to freighter configuration, one of which is subject to a lease that will commence upon completion of the conversion, and managed through our offices in the United States, Ireland and Singapore. The weighted average (by net book value) age of the aircraft in the portfolio from the date of original delivery by manufacturer to March 31, 2008, was ~~10.1 years and the~~10.2 years. The weighted average (by net book value) remaining lease term for aircraft we owned at March 31, 2008 was ~~5.5~~5.2 years with scheduled expirations ranging from 2008 through 2020. Typically, our aircraft are subject to net operating leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs, although, in ~~each case weighted~~a majority of cases, we are obligated to pay a portion of specified maintenance or modification costs. We also make investments in other aviation assets, including debt investments secured by ~~net book value.~~commercial jet aircraft. As of May 2, 2008, we had acquired and committed to acquire aviation assets having an aggregate purchase price equal to $4.3 billion and $1.3 billion, respectively, for a total of approximately $5.6 billion. Our revenues and income from continuing operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2008 were ~~$151.9~~$135.0 million and ~~$35.3 million and $286.1 million and $67.0~~$31.6 million, respectively.

Our acquisition strategy is flexible and allows us to take advantage of the best available market opportunities and funding structures. Going forward, we are evaluating initiatives which leverage our extensive experience acquiring and managing aviation investments and include:


	(1)	~~investing in aircraft when we can add value and produce above average risk-adjusted returns;~~

~~(2) investing in our own securities, if appropriate; and~~

~~(3)~~ managed funds or other entities to invest in ~~aircraft.~~aircraft,

(2) investing in aircraft when we can add value and produce above average risk-adjusted returns; and

(3) investing in our own securities, if appropriate.

We intend to pay regular quarterly dividends to our shareholders. On March 24, 2008, our board of directors declared a ~~first quarter~~regular quarterly dividend of $0.25 per common share, or an aggregate of $19.6 million, for the three months ended March 31, 2008, which was paid on April 15, 2008 to ~~shareholders~~holders of record on March 31, 2008. On June 11, 2008, our board of directors declared a second quarter dividend of $0.25 per common share, or an aggregate of $19.6 million, for the three months ended June 30, 2008, which was paid on July 15, 2008 to shareholders of record on June 30, 2008. These dividends may not be indicative of the amount of any future dividends.

Segments

Historically we reported separate segment information for the operations of our Aircraft Leasing and Debt Investments segments. Beginning in the first quarter of 2008, in conjunction with the sale of two of our debt investments as described below, our Chief Operating Decision Maker, who is the Company’s Chief Executive Officer, began reviewing and assessing the operating performance of our business on a consolidated basis as the sale caused the operational results and asset levels of our remaining debt investments to be immaterial to our business and operations. As a result, we now operate in a single segment.

In February 2008, we sold two of our debt investments for $65.3 million, plus accrued interest. We repaid the outstanding balance of $52.3 million, plus accrued interest, under the related repurchase agreement. Additionally, we terminated the related interest rate swap, with notional amounts of $39.0 million at December 31, 2007 and $33.0 million as of the termination date, related to the repurchase agreement and paid breakage fees and accrued interest of approximately $1.0 million, resulting in a loss of $0.9 million, which is included in interest expense on the consolidated statement of income.

Our reduction in debt investments was done in order to deploy our capital more efficiently and to reduce short-term repurchase agreement borrowings and interest rate exposure on our hedged repurchase agreements related to these debt investments.

Revenues

Revenues are comprised primarily of operating lease rentals on flight equipment held for lease. Typically, our aircraft are subject to net operating leases whereby the lessee pays rentals and is generally responsible for maintaining the aircraft, and paying operational, maintenance and insurance costs, although in a majority of cases we are obligated to pay a portion of specified maintenance or modification costs. The amount of rent we receive depends on various factors, including the type, size and age of the aircraft in our portfolio. ~~Lease payments are typically denominated in U.S. dollars.~~ Lease rental revenue is recognized on a straight-line basis over the term of the lease. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease. However, the amount of rent we receive may vary due to several factors, including the credit worthiness of our lessees and the occurrence of delinquencies and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to

remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues. We also earn interest income from our debt investments.

We ~~owned~~had 14 aircraft that we owned at December 31, 2007 with leases originally scheduled to expire in 2008 and, as of ~~August 1,~~May 2, 2008, we had executed leases or renewals, with respect to all 14 of these aircraft. In the second quarter of 2008, a lessee took delivery of an aircraft and subsequently defaulted. We terminated the lease for that aircraft and a second aircraft scheduled to be delivered to that customer in the third quarter of 2008. We signed a letter of intent to lease these aircraft to another customer and expect to have the aircraft in revenue service in the third quarter of 2008. We estimate that forFor these 14 aircraft, the weighted average lease term for the new leases or renewals will be more than six years with monthly lease rates that will be approximately ~~12%~~14% higher than the previous rentals. Additionally, two ~~Boeing Model 757~~ aircraft with lease expiration dates in 2008 are committed for sale upon return from the existing ~~lessee and the sale of one of these aircraft was completed in the third quarter of 2008.~~lessee.

For our 20 owned aircraft originally having lease expiries in 2009, we have executed lease renewals, or commitments to lease or renew, on 16nine aircraft and are actively marketing the remaining aircraft.

Since June 2007, we purchased three off-lease Boeing ~~Model~~747-400 aircraft. In June 2007, we also entered ~~into~~in a passenger to freighter conversion agreement for these aircraft. The first two aircraft were purchased in June and August 2007, and were placed on short-term interim leases until their scheduled freighter conversion processes begin during the second and fourth quarters of 2008, respectively. We purchased the third aircraft during the fourth quarter of 2007, and its freighter conversion process ~~for the first aircraft~~ was completed at the end of March 2008 and it was delivered to a lessee on a long-term lease at the end of the first quarter of 2008. The second aircraft was placed on a short-term interim lease and began its freighter conversion process during the second quarter of 2008.lessee. We have executed a long-term, post-conversion lease for ~~this~~one of the remaining aircraft, and are actively marketing the third aircraft for lease upon completion of its freighter conversion process, currently scheduled for ~~the fourth quarter of 2008. We cancelled the freighter conversion contract for the third aircraft and signed an agreement to sell it upon completion of an interim lease.~~February 2009.

In the first quarter of 2008, we acquired one off-lease aircraft. This aircraft was subject to a lease that we entered into in 2007; however, the lessee failed to accept delivery of the aircraft and we terminated the lease in March 2008. In April 2008, we entered into a new lease for this aircraft with another customer and we ~~delivered~~expect to deliver the aircraft under the new lease in the second quarter of 2008. We also acquired an aircraft in satisfaction of a debt instrument and leased the aircraft to a follow-on ~~lessee~~lease during the first quarter of 2008; however, in April 2008, the follow-on lessee defaulted under the lease and later filed for bankruptcy protection in the U.S. We ~~recovered possession of~~are actively marketing this aircraft. For the ~~aircraft in May 2008 and signed a letter of intent to lease this aircraft to another customer and expect to have the aircraft in revenue service in the third quarter of 2008.~~

~~In the second quarter~~balance of 2008, we ~~acquired one~~have commitments to acquire three additional off-lease aircraft, for which ~~at June 30, 2008 was undergoing maintenance, and~~ we ~~delivered the aircraft under the new~~have lease ~~in the third quarter~~commitments or letters of ~~2008.~~intent for all of these aircraft.

Revenues from operating lease rentals for the three ~~and six~~ months ended ~~June 30,~~March 31, 2007 and 2008 were ~~$81.9~~$67.4 million and ~~$149.3~~$133.7 million, ~~respectively, as compared to $144.3 million and $277.9 million, respectively, for the three and six months ended June 30, 2008,~~respectively. Our operating lease revenues increased significantly from 2007 to 2008 primarily as a result of continued aircraft acquisitions during ~~the balance of~~ 2007 and ~~the first six months of~~ 2008 which caused our aircraft fleet to grow from ~~100~~77 aircraft at ~~June 30,~~March 31, 2007, to ~~135~~136 aircraft at ~~June 30,~~March 31, 2008, all but ~~two~~one of which were on ~~lease as of June 30, 2008.~~lease.

Revenues from interest income on our debt investments are recognized using the effective interest method. Certain investments which represent residual interests are accounted for using a level yield methodology based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest. Interest income from our debt investments for the three ~~and six~~ months ended ~~June 30,~~March 31, 2007 ~~was $2.7~~were $2.6 million ~~and $5.3 million, respectively,~~ as compared to ~~$0.6 million and $1.9~~$1.3 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2008. The decrease in interest income of ~~$2.1~~$1.3 million ~~and $3.4 million, respectively, for the three and six months ended June 30, 2008 as compared to the same periods in 2007~~ was primarily due to the sale of two of our debt investments in early February, 2008.

Operating Expenses

Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general and administrative expenses, or SG&A, and other expenses. As we continue to grow, we expect that depreciation of flight equipment held for lease and interest expense will grow with revenue growth. We also expect that SG&A will decline as a percentage of our total assets and of our revenues as we leverage our existing infrastructure over a greater revenue base.

Since our operating lease terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of other expenses relating to aircraft reflected in our statement of income has been nominal.

Income Tax Provision

We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to us or to any of our operations or to our shares, debentures

or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in or earn income in jurisdictions that impose income taxes, primarily Ireland and the United States.

All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes arenon-U.S. corporations. Thesenon-U.S. subsidiaries generally earn income from sources outside the United States and therefore typically are not subject to U.S. federal, state or local income ~~taxes unless they~~taxes. However, certain of these non-U.S. subsidiaries own aircraft that operate to, from or within the U.S. ~~in which case they~~and therefore may be subject to federal, state and local income taxes. We also have a U.S-based subsidiary which provides management services to ournon-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes.

Acquisitions and Dispositions

As of May 2, 2008, we had acquired and committed to acquire aviation assets having an aggregate purchase price equal to $4.3 billion and $1.3 billion, respectively, or a total of approximately $5.6 billion.

We believe the large and growing aircraft market generates additional acquisition opportunities. Our approach is predicated on sourcing investments we believe to be accretive to shareholders. Currently, our investment focus is primarily on high-utility commercial jet aircraft for the passenger and freighter markets, although we also intend to continue to explore investment opportunities for asset-backed aviation assets, such as debt investments. Our business strategy has been to pursue acquisitions through multiple channels across the world, such as sale-leasebacks with airlines and purchases from operating lessors, banks and other aircraft owning entities. We also explore opportunities to purchase aircraft from manufacturers. Going forward, we may seek to make investments through

investment vehicles involving third party investors. Our ability to successfully and efficiently acquire and integrate additional aviation assets on favorable terms, including our ability to source capital to fund acquisitions, will significantly impact our financial results and growth prospects.

We evaluate our portfolio onperiodically with a ~~regular basis in order~~view to ~~manage our investments~~deploying capital in a ~~way~~manner that we ~~believe~~expect will maximize shareholder value. ~~As part of~~Although our ~~active portfolio management,~~focus is not on trading assets, from time to time we ~~will~~may sell aircraft or debt investments in order to manage ~~exposures, to reflect~~ our ~~views of evolving market conditions,~~portfolio exposure and in cases where we believe wethat capital can ~~earn~~be better ~~returns, by selling aircraft and investing our capital in other ways. In addition, we~~deployed. We analyze each aircraft as its lease expiration ~~or other milestones approach,~~approaches to determine whether to offer it for sale ~~re-lease~~ or ~~in the case or passenger~~lease and also analyze aircraft ~~to reconfigure the aircraft~~sale opportunities on a portfolio-wide basis as ~~a freighter and then lease it. Although our focus is not on trading assets to generate short-term gains, asset sales are a fundamental part of our ongoing portfolio management.~~market conditions evolve.

On January 22, 2007, we entered into the GAIF Acquisition Agreement, pursuant to which we agreed to acquire 38 aircraft for an aggregate base purchase price of approximately $1.595 billion, subject to certain agreed adjustments. In November 2007, we agreed with GAIF to remove two aircraft from the GAIF Acquisition ~~Agreement. In~~Agreement and in March 2008, we ~~agreed to remove~~removed one ~~additional aircraft from the GAIF Acquisition Agreement and in June 2008 we determined that we would not acquire three~~ additional aircraft from the GAIF Acquisition Agreement, reducing the total number of aircraft to be acquired to ~~32,~~35, with an aggregate base purchase price of approximately ~~$1.412~~$1.452 billion. For certain of the aircraft, we agreed to make accelerated payments to the relevant sellers and acquire their rights and obligations under the seller’s purchase or freighter conversion agreements, with final payment and delivery of the aircraft to us being made upon delivery by the manufacturer or seller, or completion of the conversion process. We acquired 28 ~~of these~~ aircraft in 2007, ~~and four of these~~two aircraft during the first ~~six months~~quarter of ~~2008. As of June 30,~~ 2008 ~~we have completed the acquisition~~and one in April 2008 related to this transaction and, of the 32remaining four aircraft, ~~for approximately $1.385 billion.~~we expect to acquire three in 2008 and one in February 2009. We have made accelerated payments to the relevant GAIF seller in relation to all of the aircraft remaining to be delivered in 2008 and 2009.

On June 20, 2007, we entered into the Airbus A330 Agreement, under which we agreed to acquire from Airbus fifteen new A330-200 aircraft, or the New A330 Aircraft. Pre-delivery payments for each aircraft are payable to Airbus and are refundable to us only in limited circumstances. We agreed to separate arrangements with Rolls-Royce PLC, or Rolls-Royce, and Pratt & Whitney, or P&W, pursuant to which we committed to acquire aircraft engines for the New A330 Aircraft. We agreed to acquire six shipsets of Trent 772B engines from Rolls-Royce and were granted options to acquire an additional four shipsets. We also committed to acquire five shipsets of PW4170 engines from P&W, and were granted options to acquire an additional five shipsets. Each shipset consists of two engines. ~~In July 2008, we amended the Airbus A330 Agreement to reduce the number of~~The New A330 ~~aircraft to be acquired from fifteen to twelve and to change the Airbus A330 Agreement so that we receive a mix of freighter and passenger aircraft. Seven of the New A330 aircraft~~Aircraft are scheduled ~~to be delivered as freighters, including three early positions,~~for delivery between June 2010 and November 2011, with five ~~New A330 aircraft will be manufactured~~scheduled for delivery in ~~passenger configuration.~~2010. Under ~~certain~~limited circumstances, we have the right to change certain delivery positions from A330-200 freighter configuration aircraft to alternative A330 aircraft models. Four of the New A330 aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining two are scheduled to be delivered in 2012.

~~In May 2008, we sold three Boeing Model737-500~~ aircraft that were on lease to one of our customers, which resulted in a pre-tax gain of $5.1 million and is included in other income on our consolidated statement of income. In July 2008, we sold one Boeing Model~~757-200~~ ~~aircraft that had previously been subject to a forward sales agreement and on lease to one of our customers, to a third party. The lease expired immediately prior to the sale of this~~A330-200 passenger configuration aircraft.

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The following table sets forth certain information with respect to the aircraft acquired or to be acquired by us as of ~~June 30,~~March 31, 2008:

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

Aircraft
Owned Committed to be
Aircraft as of Acquired as
March 31, of March 31,
2008⁽¹⁾ 2008⁽²⁾⁽⁵⁾ Total
Flight Equipment Held for Lease $ 3,981 $ 195 $ 4,176
Number of Aircraft 136 5 141
Number of Lessees 59 2 61
Number of Countries 31 2 32
Weighted Average Age — Passenger (years)⁽³⁾⁽⁶⁾
10.3 16.8 10.4
Weighted Average Age — Freighter (years)⁽³⁾⁽⁶⁾
9.7 — 8.4
Weighted Average Age — Combined (years)⁽³⁾⁽⁶⁾
10.2 4.5 9.9
Weighted Average Remaining Passenger Lease Term (years)⁽⁴⁾⁽⁶⁾
4.1 5.0 4.1
Weighted Average Remaining Cargo Lease Term (years)⁽⁴⁾⁽⁶⁾
8.7 12.0 9.2
Weighted Average Remaining Combined Lease Term (years)⁽⁴⁾⁽⁶⁾
5.2 10.1 5.4

Owned

Aircraft as of

June 30, 2008⁽¹⁾

Flight Equipment Held for Lease $ 4,081
Number of Aircraft. 135
Number of Lessees 58
Number of Countries 30
Weighted Average Age – Passenger (years)⁽²⁾⁽⁵⁾
10.5
Weighted Average Age – Freighter (years)⁽²⁾⁽⁵⁾
8.8
Weighted Average Age – Combined (years)⁽²⁾⁽⁵⁾
10.1
Weighted Average Remaining Passenger Lease Term (years)⁽³⁾⁽⁴⁾
4.1
Weighted Average Remaining Cargo Lease Term (years)⁽³⁾⁽⁴⁾
9.0
Weighted Average Remaining Combined Lease Term (years)⁽³⁾⁽⁴⁾
5.5
Weighted Average Fleet Utilization during Second Quarter 2008⁽⁶⁾
99 %

(1) Calculated using net book value.

(2) Excludes 15 Airbus Model A330-200 aircraft scheduled for delivery between June 2010 and November 2011.
(3) Weighted average age (years) by net book value, or in the case of aircraft not yet acquired, base purchase price, is as of ~~June 30,~~March 31, 2008. The age of any aircraft not yet acquired is measured as of its expected acquisition date.

~~(3)~~(4) Weighted average remaining lease term (years) by net book value, or in the case of aircraft not yet acquired, base purchase price, is as of ~~June 30,~~March 31, 2008.
~~(4)~~ ~~One Boeing Model747-400~~ Remaining lease term for any aircraft ~~that was scheduled to go into freighter conversion in~~not yet acquired is measured as of the fourth quarter of 2008 is currently on a short-term lease in passenger configuration is included as “Passenger” aircraft. In July 2008, we terminated the freighter conversion contract for this aircraft and have signed an agreement to sell this aircraft to a third party following lease expiry.expected acquisition date.

(5) ~~One~~Calculated using base purchase price which represents the purchase price subject to certain agreed upon adjustments.
(6) Two Boeing Model747-400 aircraft currently ~~being converted to freighter~~on short-term leases in passenger configuration isare included as ~~“Freighter”~~“Passenger” aircraft; the remaining lease term for ~~this~~one of these aircraft, for which we have an executed lease post-conversion, is measured based on the ten-year term of that post-conversion ~~lease.~~
~~(6)~~ ~~Aircraft on-lease days as a percent of total days in period weighted by net book value, excluding aircraft in conversion.~~lease, while the remaining lease term for the other is measured based on the 2008 expiry date on the existing short-term passenger configuration leases.
Our owned aircraft portfolio as of June 30, 2008 is listed in Exhibit 99.1 to this report. Approximately 86% of the total aircraft and 92% of the freighters we owned as of June 30, 2008 are what we consider to be the most current technology for the relevant airframe and engine type and airframe size, as listed under the headings “Latest Generation Narrowbody Aircraft,” “Latest Generation Midbody Aircraft,” “Latest Generation Widebody Aircraft” and “Latest Generation Widebody Freighter Aircraft” in Exhibit 99.1 to this report.

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PORTFOLIO DIVERSIFICATION

Aircraft Committed to be Total
Acquired as of % of Net
Owned Aircraft as of March 31, 2008⁽¹⁾ Book Value
March 31, 2008 % of Base plus Base
Number of % of Net Number of Purchase Number of Purchase
Aircraft Book Value Aircraft Price⁽²⁾ Aircraft Price
Aircraft Type

Passenger:
Narrowbody 94 49 % 4 27 % 98 48 %
Midbody 24 24 % — — % 24 23 %
Widebody⁽³⁾
3 4 % — — % 3 4 %

Total Passenger 121 77 % 4 27 % 125 75 %
Freighter 15 23 % 1 73 % 16 25 %

Total
136 100 % 5 100 % 141 100 %

Manufacturer

Boeing 95 66 % 1 73 % 96 67 %
Airbus 41 34 % 4 27 % 45 33 %

Total
136 100 % 5 100 % 141 100 %

Regional Diversification

Europe 64 45 % 1 73 % 65 46 %
Asia⁽⁴⁾
35 25 % 4 27 % 39 25 %
North America 14 11 % — — % 14 10 %
Latin America 12 7 % — — % 12 7 %
Middle East and Africa 10 12 % — — % 10 12 %
Off-lease 1 — % — — % 1 — %

Total
136 100 % 5 100 % 141 100 %

Owned Aircraft as of

June 30, 2008
Number of
% of Net

Aircraft Book Value

Aircraft Type

Passenger:
Narrowbody 92 47 %
Midbody 24 23 %
Widebody⁽¹⁾
2 3 %

Total Passenger 118 73 %
Freighter⁽²⁾
17 27 %

Total
135 100 %

Manufacturer

Boeing 93 67 %
Airbus 42 33 %

Total
135 100 %

Regional Diversification

Europe⁽³⁾
64 47 %
Asia⁽⁴⁾
34 23 %
North America⁽⁵⁾
14 11 %
Latin America 11 7 %
Middle East and Africa 10 12 %
Off-lease⁽⁶⁾
2 — %

Total
135 100 %

(1) ~~One Boeing~~Excludes 15 Airbus Model~~747-400~~ A330-200 aircraft ~~that was~~ scheduled to go into freighter conversion in the fourth quarter of 2008 currently on short-term lease in passenger configuration is included as a “Passenger” aircraft. In July 2008, we terminated the freighter conversion agreement for ~~this aircraft~~delivery between June 2010 and ~~have signed an agreement to sell this aircraft to a third party following lease expiry.~~November 2011.

(2) ~~One Boeing Model747-400~~ ~~aircraft currently being converted~~Base purchase price represents the purchase price subject to ~~freighter configuration is included as “Freighter” aircraft.~~certain agreed upon adjustments.

(3) ~~Includes one Airbus~~Two Boeing Model ~~A320-200~~747-400 aircraft ~~that was undergoing maintenance~~currently on short-term leases in passenger configuration are included as ~~of June 30, 2008 for which we have an executed lease and which was delivered during the third quarter of 2008.~~“Passenger” aircraft.

(4) Includes ~~one~~two Boeing Model747-400 aircraft currently on short-term lease in passenger configuration to ~~an airline~~airlines in Asia. ~~This~~These aircraft was scheduled to go into freighter conversion in the fourth quarter of 2008. In July 2008, we terminated the freighter conversion agreement for this aircraft and have signed an agreement to sell this aircraft to a third party following lease expiry.
~~(5)~~ ~~Includes one Boeing Model747-400~~ ~~aircraft currently being~~will be converted to freighter configuration ~~for which~~in 2008 and 2009 and we have an executed a lease ~~post-conversion~~ with a carrier in North ~~America.~~
~~(6)~~ ~~At June 30, 2008, includes~~America for one ~~off-lease Boeing Model757-200~~of these aircraft ~~and one off-lease Boeing Model737-300~~ ~~for which we have signed letters of intent with new carriers.~~post-conversion.

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Our top 15 customers for aircraft we owned at ~~June 30,~~March 31, 2008, representing 6366 aircraft and 59% of the net book value of flight equipment held for lease, are as follows:


Percent of Net					Number of
Book Value		Customer		Country	Aircraft

~~Greater than~~ 6% to 8%		Martinair		Netherlands		5
per customer		Emirates		United Arab Emirates		2

	US Airways		USA		8

3% to 6%5%		~~US Airways~~ VRG Linhas Aereas/GOL Transportes Aereos⁽¹⁾		~~USA~~Brazil		8
per customer		Sterling Airlines		Denmark		7
		Iberia Airlines		Spain		6
		Jet Airways		India		8
		~~Airbridge Cargo~~		~~Russia~~		1
		~~VRG Linhas Aereas/GOL Transportes Aereos~~⁽¹⁾		~~Brazil~~		7
		KLM Royal Dutch Airlines		Netherlands		1

	Swiss International Air Lines		Switzerland		2

Less than 3%		~~Swiss International Air Lines~~		~~Switzerland~~		2
~~per customer~~		China Eastern Airlines		China		4
		~~World Airways~~⁽²⁾		~~USA~~		2
per customer		Korean Air		South Korea		2
		Malaysia Airlines		Malaysia		2
		Hainan Airlines		China		6
		Lotus Air		Egypt		4
		Great Wall Airlines		China		1


(1)		VRG Linhas Aereas and GOL Transportes Aereos are shown combined in the above table.

~~(2)~~		~~Includes one Boeing Model747-400~~ ~~aircraft currently being converted to freighter configuration and scheduled for delivery in the fourth quarter of 2008.~~

Our owned aircraft portfolio as of March 31, 2008 is listed in Exhibit 99.1 in the original Form 10-Q. Approximately 86% of the aircraft we owned as of March 31, 2008 are what we consider to be the most current technology for the relevant airframe and engine type and airframe size, as listed under the headings “Latest Generation Narrowbody Aircraft,” “Latest Generation Midbody Aircraft,” “Latest Generation Widebody Aircraft” and “Latest Generation Widebody Freighter Aircraft” in Exhibit 99.1 in the original Form 10-Q.

Finance

A key aspect of our growth strategy is our flexible capital structure which supports the financing of our acquisitions of aircraft and other aviation assets. We ~~have~~ typically ~~financed~~finance the initial purchase of aircraft and other aviation assets using committed short-term credit arrangements and cash on hand. ~~These arrangements and our long-term financings are typically secured by the acquired aircraft and related leases, and recourse to the Company is limited.~~ We believe ~~such~~our ability to execute acquisitions expeditiously and without financing ~~is available on reasonable terms given the loan to value profile we have pursued.~~contingencies has benefited us in competitive bidding situations. Our short-term borrowed funds for our aircraft acquisitions and repurchase obligations for our securities are provided by secured credit facilities from banks.

On May 2, 2008 two of our subsidiaries entered into a seven year, $786.1 million term debt facility ~~which were refer to as Term Financing No. 1,~~( the “ACS 2008-1 Credit Facility”) to finance a portfolio of 28 aircraft. The loans under ~~Term Financing No. 1~~the ACS 2008-1 Credit Facility were funded into an aircraft purchase escrow account on May 2, 2008. These loans ~~were~~will be released to us as the financed aircraft ~~transferred~~transfer into the facility. Proceeds from the financing ~~were~~will be used to repay related outstanding amounts for the aircraft under the Company’s Amended Credit Facility No. 2 and2008-A Credit Facility. The loans will bear interest on a floating rate basis at a rate of one-month LIBOR plus 1.75% and will mature on May ~~11,~~2, 2015. ~~Our~~We estimate that our aggregate up-front costs, including fees payable to the lenders and legal and professional service fees but excluding termination fees on ~~certain of~~ our ~~existing~~ interest rate hedging contracts, ~~were~~will equal approximately ~~$15.0~~$16.5 million. We ~~entered~~will enter into ~~new~~ interest rate hedging arrangements with respect to all or a substantial portion of the principal balance of the loans under ~~Term Financing No. 1~~the ACS 2008-1 Credit Facility in order to effectively pay interest at a fixed rate on all or a substantial portion of the loans. ~~Obligations owed to hedge counter-parties~~Our obligations under these ~~contracts are~~hedging arrangements will be secured pari passu ~~basis by~~with the ~~same collateral that secures the loans under~~

~~Term Financing No. 1~~lenders and, accordingly, we ~~have no obligation~~do not expect that we will be obliged to pledge cash collateral to secure any loss in value ~~of the hedging contracts if~~should interest rates fall.

~~During~~After transferring all of the ~~second quarter~~28 aircraft into the ACS 2008-1 Credit Facility, we expect to have ten aircraft with outstanding borrowings of ~~2008, we refinanced and transferred 26 aircraft from~~$249,963 in our Amended Credit Facility No. 2 ~~into~~and we expect to repay the ~~Term Financing No. 1. At June 30, 2008, we had borrowings of $255.2 million related to 11 aircraft~~outstanding balance under ~~our Amended~~the 2008-A Credit Facility ~~No. 2. On June 3, 2008, we paid the remaining balance of $187.3 million on the2008-A~~ ~~Credit Facility with proceeds from the refinancing, transferred the two aircraft into Term Financing No. 1~~ and ~~terminated the2008-A~~ ~~Credit Facility.~~terminate this facility.

To the extent that we acquire aircraft directly, we intend to continue funding aircraft acquisitions initially through borrowings under our short-term credit facilities and cash on hand, and to repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings and additional equity ~~offerings or cash generated from operations.~~offerings. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.

To the extent we acquire aircraft through ~~any future~~ investment vehicles, we will seek to establish separate financings for such projects in a manner broadly consistent with the approach we have used previously. We also intend to extend, modify or replace our short-term credit facilities during the remainder of 2008 and we intend to pursue debt financing for a portion of the pre-delivery payments for the New A330 ~~Aircraft.~~aircraft. However, the level of new investment activity and, in turn, financing requirements will be driven by the attractiveness of new investment opportunities available in the marketplace and financial market conditions. Decisions by investors and lenders to enter into such transactions with us will depend upon a number of factors, such as our historical and projected performance, compliance with the terms of our current credit arrangements, industry and market trends, the availability of capital and the relative attractiveness of alternative investments. See ~~“Management’s~~‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facilities, — Securitizations, and ~~Term Debt Financing and~~ — ~~Credit Facilities.~~Equity Offerings.”

RESULTS OF OPERATIONS

Comparison of the three months ended ~~June 30,~~March 31, 2007 to the three months ended ~~June 30,~~March 31, 2008

Three Months Ended
March 31,
(Dollars in thousands) 2007 2008
Revenues:

Lease rentals $ 67,358 $ 133,627
Interest income 2,588 1,291
Other revenue 58 38

Total revenues 70,004 134,956

Expenses:

Depreciation 21,633 48,215
Interest, net 16,730 41,011
Selling, general and administrative (including non-cash share based payment expense of $1,258 and $1,598 respectively) 8,497 11,489
Other expenses 382 890

Total expenses 47,242 101,605

Income from continuing operations before income taxes 22,762 33,351
Income tax provision 1,905 1,714

Income from continuing operations 20,857 31,637
Earnings from discontinued operations, net of income taxes 684 —

Net income $ 21,541 $ 31,637

Revenues:

Three Months Ended June 30,
(Dollars in thousands)
2007 2008

Revenues:

Lease rentals $ 81,926 $ 144,291
Interest income 2,728 614
Other revenue 460 490

Total revenues 85,114 145,395

Expenses:

Depreciation 27,764 51,605
Interest, net 19,345 51,319
Selling, general and administrative 10,448 11,354
Other expense 380 597

Total operating expenses 57,937 114,875

Other income:

Gain on sale of aircraft. — 5,126
Other 1,154 1,328

Total other income 1,154 6,454

Income from continuing operations before income taxes 28,331 36,974
Income tax provision 1,173 1,633

Income from continuing operations 27,158 35,341
Earnings from discontinued operations, net of income taxes 10,910 —

Net income $ 38,068 $ 35,341

~~Revenues:~~
Total revenues increased by ~~70.8%~~92.8% or ~~$60.3~~$65.0 million for the three months ended ~~June 30,~~March 31, 2008 as compared to the three months ended ~~June 30,~~March 31, 2007, primarily as a result of the following:

Lease ~~Rentals.~~Rental Revenue.The increase in lease ~~rentals~~rental revenue of ~~$62.4~~$66.3 million for the three months ended ~~June 30,~~March 31, 2008 ~~as compared to~~over the same period in 2007 was primarily due to the increase in our owned aircraft portfolio, increasing from ~~100~~77 aircraft on lease at ~~June 30,~~March 31, 2007 to ~~135~~136 aircraft at ~~June 30,~~March 31, 2008, ~~two~~all but one of which were ~~off-lease,~~on-lease, and ~~revenue from maintenance payments related to~~an average 14% increase in lease ~~expirations in the amount of $4.1 million that were recognized~~rental rates for lease renewals which occurred during the ~~second~~first quarter of 2008.
27

Interest Income.The decrease in interest income of ~~$2.1~~$1.3 million was primarily due to the sale of two of our debt investments in February ~~2008, which we owned during the second quarter of 2007.~~

2008.

~~Operating~~ Expenses:

Total ~~operating~~ expenses increased by ~~98.3%~~115.1% or ~~$56.9~~$54.4 million for the three months ended ~~June 30,~~March 31, 2008 as compared to the three months ended ~~June 30,~~March 31, 2007 primarily as a result of the following:

Depreciation expenseincreased ~~by $23.8~~$26.6 million for the ~~second~~first quarter of 2008 over the same period in 2007 as a result of an increase in our owned aircraft portfolio from ~~100~~77 aircraft at ~~June 30,~~March 31, 2007 to ~~135~~136 aircraft at ~~June 30,~~March 31, 2008 reflecting the ~~$1.53~~$1.92 billion paid to purchase 3559 incremental aircraft.

Three Months Ended
March 31,
(Dollars in thousands) 2007 2008
Interest expense $ 18,491 $ 46,322
Less interest income (1,761 ) (1,731 )
Less capitalized interest — (3,580 )

Interest, net $ 16,730 $ 41,011

(Dollars in thousands)

~~Other Income:~~

taxes. We also have a U.S-based subsidiary which provides management services to ournon-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes.

The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2016. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.

~~Comparison of the six months ended June 30, 2007 to the six months ended June 30, 2008~~

Six Months Ended

June 30,
(Dollars in thousands)
2007 2008

Revenues:

Lease rentals $ 149,284 $ 277,918
Interest income 5,316 1,905
Other revenue 519 528

Total revenues 155,119 280,351

Expenses:

Depreciation 49,398 99,820
Interest, net 36,077 92,330
Selling, general and administrative 18,944 22,843
Other expense 761 1,242

Total operating expenses 105,180 216,235

Other income:

Gain on sale of aircraft. — 5,126
Other 1,154 1,083

Total other income 1,154 6,209

Income from continuing operations before income taxes 51,093 70,325
Income tax provision 3,078 3,347

Income from continuing operations 48,015 66,978
Earnings from discontinued operations, net of income taxes 11,594 —

Net income $ 59,609 $ 66,978

~~Revenues:~~
~~Total revenues increased by 80.7% or $125.2 million for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007, primarily as a result of the following:~~
~~Lease Rentals.~~ The increase in lease rentals of $128.6 million for the six months ended June 30, 2008 as compared to the same period in 2007 was primarily due to the increase in our owned aircraft portfolio, increasing from 100 aircraft on lease at June 30, 2007 to 135 aircraft at June 30, 2008, two of which were off-lease, and an average 12% increase in lease rental rates for lease renewals which occurred during the six months ended June 30, 2008, and revenue from maintenance payments related

33

~~to lease expirations in the amount of $4.1 million that were recognized during the second quarter of 2008.~~

~~Interest Income.~~ ~~The decrease in interest income of $3.4 million was primarily due to the sale of two of our debt investments in February 2008, which we owned during the six months ended June 30, 2007.~~

~~Operating Expenses:~~

~~Total operating expenses increased by 105.6% or $111.1 million for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007 primarily as a result of the following:~~

~~Depreciation expense~~increased by $50.4 million for the first six months of 2008 over the same period in 2007 as a result of an increase in our owned aircraft portfolio from 100 aircraft at June 30, 2007 to 135 aircraft at June 30, 2008 reflecting the $1.53 billion paid to purchase 35 incremental aircraft.

~~Interest, net~~~~consisted of the following :~~

Six Months Ended

June 30,
(Dollars in thousands)
2007 2008

Interest expense $ 41,960 $ 101,272
Less interest income (5,883 ) (4,558 )
Less capitalized interest — (4,384 )

Interest, net $ 36,077 $ 92,330

~~Interest, net~~increased $56.3 million, or 155.9%, over the six months ended June 30, 2007. The increase reflects a higher average debt balance of $2.8 billion during the six months ended June 30, 2008 as compared to $1.3 billion in the same period in 2007. In addition, during the six months ended June 30, 2008, interest expense was impacted by charges for hedge breakage and ineffectiveness of $6.0 million and the write off $0.8 million of debt issuance costs related to the reduction in the commitments of the lenders under our Amended Credit Facility No. 2 and the early termination of the~~2008-A~~ Credit facility. We also recorded lower interest income on our cash and cash equivalents of $1.3 million resulting from a lower interest rate during the six months ended June 30, 2008 as compared to the same period in 2007. This was partially offset by $4.4 million in capitalized interest related to accelerated payments and progress payments made in respect to flight equipment on forward order under the GAIF Acquisition Agreement and the Airbus A330 Agreement. We did not capitalize any interest during the six months ended June 30, 2007.
~~Selling, general and administrative expenses, or SG&A,~~for the first six months of 2008 increased by $3.9 million, or 20.6% over the first six months of 2007. This increase was due mainly to an increase in personnel costs of $1.5 million, related to increased headcount from 59 at June 30, 2007 to 73 at June 30, 2008, an increase in professional fees of $1.0 million, consisting primarily of auditing and tax compliance fees, and an increase of $1.4 million in other expenses. Non-cash share based expense was $4.0 million, including $1.7 million due to the acceleration of unvested shares for a former employee, and $3.2 million, respectively, for the six months ended June 30, 2007 and 2008. SG&A as of percentage of total assets was 0.5% for both the six months ended June 30, 2007 and 2008. We expect that there will be quarter-to-quarter variations in SG&A throughout the year driven, in part, by the timing of certain professional fees incurred during the year.
~~Other Expense~~~~increased $0.5 million primarily as a result of an increase in flight equipment insurance.~~

34

~~Other Income:~~

Total other income increased $5.1 million during the six months ended June 30, 2008 versus the same period in 2007 primarily due to a $5.1 million gain on the sale of three aircraft recorded during the second quarter of 2008.

~~Income Tax Provision~~

Our provision for income taxes for the six months ended June 30, 2007 and 2008 was $3.1 million and $3.3 million, respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland and the United States. The increase in our income tax provision of approximately $0.2 million for the six months ended June 30, 2008 as compared to the same period in 2007 was primarily attributable to the increase in our operating revenue subject to tax in Ireland and the United States.

~~All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes arenon-U.S. corporations.~~ ~~Thesenon-U.S. subsidiaries~~ generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes, unless they operate within the U.S. in which case they may be subject to federal, state and local income taxes. We also have a U.S-based subsidiary which provides management services to our~~non-U.S. subsidiaries~~ ~~and is subject to U.S. federal, state and local income taxes.~~

RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2008, the Company adopted Financial Accountings Standards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,Accounting for Certain Investments in Debt and Equity Securities, which permits an entity to measure certain eligible financial assets and financial liabilities at fair value that are not currently measured at fair value. The company did not elect to measure any additional financial instruments at fair value of its financial assets and liabilities existing at January 1, 2008 and did not elect the fair value option on financial assets and liabilities transacted in the ~~six~~three months ended ~~June 30,~~March 31, 2008. Therefore, the adoption of SFAS No. 159 had no impact on the Company’s consolidated financial statements.

~~In addition,~~Also effective January 1, 2008, the Company adopted SFAS No. 157,Fair Value Measurements(See Note 2 — Fair Value ~~Measurements to the Company’s unaudited consolidated financial statements included elsewhere in this report)~~Measurements). This pronouncement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff PositionNo. 157-2 (“FSPNo. 157-2”) which defers the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). FSPNo. 157-2 will apply to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. We are currently evaluating the requirements of the deferred provisions of this statement and have not determined the impact, if any, that adoption of the deferred provisions will have on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, or SFAS No. 161. SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of adopting this pronouncement.

~~In June 2008, the FASB issued FASB Staff PositionNo. EITF 03-6-1,~~~~Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities~~~~(“FSPNo. EITF 03-6-1”).~~ ~~FSPNo. EITF 03-6-1~~ addresses whether unvested share-based payment awards with rights to receive dividends or dividend equivalents should be considered participating securities for the purposes of applying the two-class method of calculating earnings per share (“EPS”) under SFAS No. 128,~~Earnings per Share~~. The FASB staff concluded that unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be included in the two-class method of computing EPS. FSP~~No. EITF 03-6-1~~ is effective for fiscal years beginning after December 15, 2008, and interim periods within those years (early application is not permitted), and also requires that all prior-period EPS data presented be adjusted retrospectively. The Company is currently evaluating the potential impacts of FSP~~No. EITF 03-6-1~~ ~~on its consolidated financial statements.~~

LIQUIDITY AND CAPITAL RESOURCES

We have been able to meet our liquidity and capital resource requirements by utilizing several sources, including:

Lines of credit, our securitizations, and other secured borrowings;


	•	~~lines of credit, our securitizations, and other secured borrowings;~~

	•	~~our public offerings of common shares;~~

	•	~~prior to our initial public offering, equity contributions from funds managed by affiliates of Fortress;~~

	•	~~aircraft lease revenues and maintenance payments;~~

	•	~~principal and interest payments from our debt investments; and~~

	•	~~asset sales.~~

Our public offerings of common shares;

Prior to our initial public offering, equity contributions from funds managed by affiliates of Fortress;

Aircraft lease revenues and maintenance payments; and

Principal and interest payments from our debt investments.

During the ~~six~~three months ended ~~June 30,~~March 31, 2008, we acquired commercial jet aircraft and made capital improvements to our aircraft portfolio totaling ~~$221.3 million.~~$35.5 million (excluding assets not yet earning revenue of $48.0 million, comprising deposits and progress payments and the acquisition of one off-lease aircraft as of March 31, 2008). We expect to ~~fund~~acquire approximately ~~$175.2~~$195.0 million of aircraft (including $49.0 million of purchase ~~obligations for aircraft pre-delivery and conversion payments~~deposits paid as of March 31, 2008) during the next twelve months. In addition, at ~~June 30,~~March 31, 2008, we expect capital expenditures and lessee maintenance payment draws on our owned and committed aircraft portfolio to be approximately ~~$129.9~~$145.2 million, excluding freighter conversion payments (see Purchase Obligations in “Contractual Obligations” below) and we expect maintenance payment collections from lessees on our owned aircraft portfolio of approximately ~~$120.1~~$105.8 million over the next twelve months. There can be no assurance that we will be able to acquire the additional aircraft described above, and no assurance regarding the time and amount of such acquisition. In addition, there can be no assurance that the capital expenditures described above will not be greater than expected or that our expected maintenance payment collections will equal our current estimates.

We believe that funds available from operations and our credit facilities, including ~~Term Financing No. 1~~the 2008-A Credit Agreement, the ACS 2008-1 Credit Facility and future extensions, replacements and ~~re-financings~~refinancings of our existing credit facilities, will be sufficient to satisfy our liquidity needs over the next twelve months and enable us to pay dividends to our common shareholders.

Cash Flows (Restated)


							Three Months Ended
							March 31,
	Six Months Ended June 30,						2007
(Dollars in thousands)	2007			2008			(Restated)			2008

Net cash flow provided by operating activities	$	149,733		$	179,620		$	31,210		$	58,765
Net cash flow used in investing activities		(1,122,133	)		(80,164	)		(445,765	)		(86,608	)
Net cash flow provided by (used in) financing activities		981,996			(36,055	)
Net cash flow provided by financing activities								405,445			31,648

Operating activities provided net cash flow of ~~$149.7~~$31.2 million and ~~$179.6~~$58.8 million for the ~~six~~three months ended ~~June 30,~~March 31, 2007 and ~~June 30,~~March 31, 2008, respectively. Cash flow from operations ~~increased $29.9 million~~is primarily generated from rents received pursuant to the lease agreements on our aircraft. It is reduced by interest paid on our borrowings and by selling, general and administrative expenses. The amount of rent we receive depends on various factors, including the size, age and composition of our aircraft portfolio. Our aircraft lease agreements generally provide for the ~~six months ended June 30, 2008 versus~~periodic payment of a fixed amount of rent over the ~~same period in 2007 as a result~~life of ~~increases in net income~~the lease. However, the amount of ~~$7.4 million, depreciation of $49.6 million and a net increase in other operating items of $17.2 million. The increase in depreciation was~~rent we receive may vary due to several factors, including the ~~increase~~credit worthiness of our lessees and the occurrence of delinquencies and defaults. It is also affected by the

extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases. Our success in re-leasing aircraft is affected by market conditions for our aircraft and by general industry trends. At March 31, 2007, all 77 of our aircraft were on-lease. At March 31, 2008, all but one of our 136 aircraft were on-lease. Cash flow provided by operations is also affected by the interest expense we pay on our credit facilities and by our decisions to hedge the risk of changing interest rates. All of our debt is currently floating rate and varies with changes in the ~~number~~London Interbank Offered Rate , or LIBOR. To the extent interest rates increase, we may be liable for more interest payments to our lenders. Our practice has been to hedge the expected future interest payments on a substantial portion of ~~aircraft owned from 100 at June 30, 2007~~our floating rate liabilities by entering into derivative contracts. However, we remain exposed to ~~135 at June 30, 2008. Partially offsetting these increases were reductions~~changes in ~~amounts collected for lease rentals received in advance of $7.7 million~~interest rates to the extent we decide to remain un-hedged and ~~in security and maintenance deposits of $28.7 million. In addition, accounts payable and accrued liabilities decreased $7.9 million for~~ the ~~six months ended June 30, 2008 compared with~~degree to which our hedges are not perfectly correlated to the ~~same period in 2007.~~hedged future cash flows.

Net cash flow used in investing activities totaled ~~$1.12 billion~~$445.8 million and ~~$80.2~~$86.6 million for the ~~six~~three months ended ~~June 30,~~March 31, 2007 and 2008, respectively. During the ~~six~~three months ended ~~June 30,~~March 31, 2008 we made a ~~net~~gross investment of ~~$221.3~~$117.4 million in the acquisition and improvement of flight equipment, or $117.0 million net of accrued liabilities as compared to our gross investments of $436.5 million, or $428.9 million net ~~investment~~ of ~~$1.07 billion~~accrued liabilities during the ~~six~~three months ended ~~June 30,~~March 31, 2007. The decrease in the acquisition of flight equipment resulted from fewer aircraft acquisitions during the ~~six~~three months ended

~~June 30,~~ March 31, 2008 ~~(five~~(three aircraft) as compared to the same period in 2007 ~~(32~~(nine aircraft), and as a result of progress payments made during the second half of 2007 for aircraft acquired during the first ~~six months~~quarter of 2008. We invested $15.3 million in debt investments during the ~~six~~three months ended ~~June 30,~~March 31, 2007. We did not sell any debt investments during the ~~six~~three months ended ~~June 30,~~March 31, 2007. During the ~~six~~three months ended ~~June 30,~~March 31, 2008, we did not invest in any debt investments and we sold $65.3 million of debt investments. We received ~~$13.4~~$12.7 million of principal payments on our debt investments during the ~~six~~three months ended ~~June 30,~~March 31, 2007 as compared to ~~$11.5~~$11.2 million during the ~~six~~three months ended ~~June 30,~~March 31, 2008. We paid ~~$88.4~~$8.6 million in deposits on aircraft purchased during the ~~six~~three months ended ~~June 30,~~March 31, 2007, as compared to ~~the receipt of refunds for progress payments previously made for aircraft of $9.0~~$5.3 million during the ~~six~~three months ended ~~June 30,~~March 31, 2008. Net cash collateral posted with our derivative counterparties ~~decreased $34.3~~increased $40.6 million for the ~~six~~three months ended ~~June 30,~~March 31, 2008 as a result of ~~decreased~~increased mark-to-market losses and lower interest rates as compared to December 31, 2007. For the ~~six~~three months ended ~~June 30,~~March 31, 2007, we posted ~~$3.7~~$5.7 million with our derivative counterparties. During the six months ended June 30, 2007, we received $34.9 million in proceeds from the sale of an aircraft that had been classified on the balance sheet as flight equipment held for sale. During the six months ended June 30, 2008, we received $21.4 million from the sale of three aircraft during the second quarter of 2008.

Net cash flow from financing activities totaled ~~$982.0~~$405.4 million and $31.6 million for the ~~six~~three months ended ~~June 30,~~March 31, 2007 and ~~net cash flow used in financing activities was $36.1 million for the six months ended June 30,~~ 2008, respectively. During the ~~six~~three months ended ~~June 30, 2007, we closed Securitization No. 2 in June 2007 and received proceeds of $1.17 billion. In February~~March 31, 2007, we completed a follow-on public offering of 15,525,000 common shares at a price of $33.00 per share, raising $512.3 million before offering costs. The net proceeds of the offering, after our payment of $17.9 million in underwriting discounts and commissions and $1.3 million in offering expenses, were $493.1 million. In addition, during the ~~six~~three months ended ~~June 30,~~March 31, 2007, we borrowed ~~$1.01 billion~~$486.6 million under our credit ~~facilities~~facilities. Net cash flows from financing activities also reflects net proceeds of $11.8 million from security and ~~received $8.9 million in proceeds from terminated cash flow hedges.~~maintenance deposits for the three months ended March 31, 2007. These increases for the ~~six~~three months ended ~~June 30,~~March 31, 2007 were offset by the payments of ~~$1.11 billion~~$553.0 million under our credit facilities, ~~and $500.6~~including the payments of $398.1 million ~~of restricted cash related~~ to ~~the purchase of the remaining aircraft~~repay borrowings under ~~Securitization~~Amended Credit Facility No. 2 ~~which was held by~~and $75.0 million to repay borrowings under the ~~ACS 2 Group at June 30,~~Revolving Credit Facility from the net proceeds of our follow-on public offering on February 13, 2007. We also paid ~~$56.2~~$22.6 million in dividends ~~$10.9~~which were declared in the fourth quarter of 2006, $5.4 million ~~of payments~~ under our Securitization No. 1 and ~~$9.4~~$3.8 million ~~of payments~~ under our repurchase agreements.

During the ~~six~~three months ended ~~June 30,~~March 31, 2008, we borrowed ~~$786.1 million under our Term Financing No. 1 and $482.7~~$325.6 million under our credit ~~facilities. This increase was~~facilities and received net proceeds of $20.5 million from security and maintenance deposits. These increases were offset by payments of ~~$1.03 billion~~$142.2 million under our credit facilities, ~~$67.7~~$65.5 million under our repurchase agreements as a result of the sale of our debt investments, ~~$74.6~~$55.0 million in dividends ~~$68.3~~which were declared in the fourth quarter of 2007, $32.7 million to terminate certain cash flow hedges on our credit facilities and repurchase agreements, and ~~$49.5~~$15.7 million under our ~~Securitizations~~Securitization No. 1 and ~~term debt financings.~~No. 2.

3830

Debt Obligations

The following table provides a summary of our credit facilities at ~~June 30,~~March 31, 2008:

Final
Outstanding Stated
Debt Obligation Collateral Commitment Borrowing Interest Rate⁽¹⁾ Maturity

(Dollars in thousands)

Securitization No. 1 Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests $ 521,725 $ 521,725 1M LIBOR +
0.27% = 3.09% 6/20/31

Securitization No. 2 Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests 1,140,319 1,140,319 1M LIBOR +
0.26% = 3.32% 6/14/37

Revolving Credit Facility⁽²⁾ Beneficial interests in subsidiaries 150,000 10,000 1M LIBOR +
2.00% = 4.56% 12/11/08

Amended Credit Facility No. 2⁽³⁾ Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests 1,000,000 846,373 1M LIBOR +
1.25% = 4.07% 12/15/08

2008-A Credit Facility⁽⁴⁾ Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests 300,000 93,294 1M LIBOR +
1.50% = 4.32% 8/04/08

747 PDP Credit Facility⁽⁵⁾ Interests in aircraft leases, rights under aircraft purchase contract, beneficial interest in entities and related interests 31,925 31,925 1M LIBOR +
1.00% = 3.82% 4/15/08

Repurchase Agreements Securities available for sale 2,283 2,283 1M LIBOR +
0.50% = 3.18% 6/28/08

Total $ 3,146,252 $ 2,645,919

Final

Outstanding
Stated

Debt Obligation
Collateral Commitment Borrowing Interest Rate⁽¹⁾ Maturity

(Dollars in thousands)

Securitization No. 1 Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests $ 500,233 $ 500,233 1M LIBOR +
0.27% = 2.74% 6/20/31
Securitization No. 2 Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests 1,132,074 1,132,074 1M LIBOR +
0.26% = 2.71% 6/14/37
Term Financing No. 1 Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests 782,060 782,060 LIBOR +
1.75% = 4.37%⁽²⁾ 5/11/15
Revolving Credit Facility Beneficial interests in subsidiaries 100,000 — 1M LIBOR +
2.00% = 4.48% 12/11/08
Amended Credit Facility No. 2 Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests 500,000 255,189 1M LIBOR +
1.25% = 3.73% 12/15/08

Total $ 3,014,367 $ 2,669,556

(1) LIBOR in effect at the applicable reset date.

(2) ~~LIBOR rate was based~~On March 20, 2008, the parties to the Revolving Credit Facility entered into a fourth amendment to the Revolving Credit Facility, extending the Stated Termination Date (as defined therein) to December 11, 2008, and reducing the commitments of the lenders to make loans thereunder, or the Revolving Commitments, from $250.0 million to $150.0 million. The Revolving Commitments are further reduced to $100.0 million on June 30, 2008, $80.0 million on August 31, 2008, $60.0 million on September 30, 2008 and $40.0 million on October 31, 2008, with final maturity on December 11, 2008.
(3) On March 20, 2008, the parties to Amended Credit Facility No. 2 ~~week LIBOR~~entered into an amendment reducing the commitments of the lenders to make loans thereunder from $1.0 billion to $500.0 million, on any future date after which the loans outstanding under Amended Credit Facility No. 2 fall below $500.0 million.
(4) On February 5, 2008, we entered into a senior secured credit agreement with two banks, or the 2008-A Credit Agreement, which we refer to as the 2008-A Credit Facility. The 2008-A Credit Facility provides for loans in an aggregate amount of up to $300.0 million, with borrowings under this credit facility being used to finance a portion of the ~~first two interest periods ending~~purchase price of certain aircraft. Loans under the 2008-A Credit Facility mature on ~~July 10, 2008. All subsequent LIBOR resets~~August 4, 2008 or, if the borrower exercises its extension option, which we refer to as the Extension Option, then the maturity date will be ~~based on 1M LIBOR.~~October 29, 2008. We refer to the period from August 4, 2008 to October 29, 2008 as the Extension Period.
(5) On April 10, 2008, we paid the remaining balance of $31.9 million.
~~Securitizations and Term Debt Financings~~Credit Facilities

~~On May 2, 2008 two of our subsidiaries, ACS2008-1~~ Limited, or ACS Bermuda 3, and ACS Aircraft Finance Ireland 3 Limited, or ACS Ireland 3, to which we refer together with their subsidiaries as the ACS 3 Group, entered into a seven year, $786.1 million term debt facility to which we refer to as Term Financing No. 1 to finance a portfolio of 28 aircraft, or Portfolio No. 3. The loans under Term Financing No. 1 were fully funded into an aircraft purchase escrow account on May 2, 2008. These loans were released to us from escrow as each of the financed aircraft transferred into the facility. The loans are secured by, among other things, first priority security interests in, and pledges or assignments of ownership interests in, the aircraft-owning and other subsidiaries of ACS Bermuda 3 and ACS Ireland 3, as well as by interests in aircraft leases, cash collections and other rights and properties they may hold. Each of ACS Bermuda 3 and ACS Ireland 3 has fully and unconditionally guaranteed the other’s obligations under Term Financing No. 1. However, the loans are neither obligations of, nor guaranteed by, Aircastle Limited. The loans mature on May 11, 2015, but we expect to refinance the loans on or before May 2, 2013.
We generally retained the right to receive future cash flows from Portfolio No. 3 after the payment of claims that are senior to our rights (“Excess Cash Flow”), including, but not limited to, payment of expenses related to the aircraft, fees of administration and fees and expenses of service providers, interest and principal on the loans, amounts owed to interest rate hedge providers and amounts, if any, owing to the liquidity provider for previously unreimbursed advances. We are entitled to receive Excess Cash Flow from Portfolio No. 3 until May 2, 2013, provided that the ACS 3 Group remains in compliance with its obligations under the Term Financing No. 1 loan documents. After that date, all Excess Cash Flow will be applied to the prepayment of the principal balance of the loans.

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The loans provide for monthly payments of interest on a floating rate basis at a rate of one-month LIBOR plus 1.75%, and scheduled payments of principal, which during the first five years will equal approximately $48,900 per year. As of June 30, 2008, the ACS 3 Group had borrowings of $782,060. The Loans may be prepaid upon notice, subject to certain conditions, the payment of expenses, if any, and the payment of a prepayment premium on amounts prepaid on or before May 2, 2010. The ACS 3 Group entered into interest rate hedging arrangements with respect to a substantial portion of the principal balance of the loans under Term Financing No. 1 in order to effectively pay interest at a fixed rate on a substantial portion of the loans. Obligations owed to hedge counter-parties under these contracts are secured pari passu basis by the same collateral that secures the loans under Term Financing No. 1 and, accordingly, the ACS 3 Group has no obligation to pledge cash collateral to secure any loss in value of the hedging contracts if interest rates fall. These hedging contracts, together with the spread referenced above and other costs of administration, result in a fixed rate cost of 7.30% per annum, after the amortization of issuance fees and expenses.

Term Financing No. 1 requires the ACS 3 Group to satisfy certain financial covenants in order to continue to receive Excess Cash Flows, including the maintenance of loan to value and debt service coverage ratios. From and after May 2, 2009, if loan to value ratio exceeds 75%, all Excess Cash Flows will be applied to prepay the principal balance of the loans until such time as the loan to value ratio falls below 75%. In addition, from and after May 2, 2009, debt service coverage must be maintained at a minimum of 1.32. If the debt service coverage ratio requirements are not met on two consecutive monthly payment dates, all Excess Cash Flows will thereafter be applied to prepay the principal balance of the loans until such time as the debt service coverage ratio exceeds the minimum level. The ACS 3 Groups’ compliance with these covenants depends substantially upon the appraised value of Portfolio No. 3 and the timely receipt of lease payments from their lessees.

~~Credit Facilities~~

On March 20, 2008, the parties to the Revolving Credit Facility entered into a fourth amendment to the Revolving Credit Facility, extending the Stated Termination Date (as defined therein) to December 11, 2008, and reducing the commitments of the lenders to make loans thereunder, or the Revolving Commitments, from $250.0 million to $150.0 million. The Revolving Commitments ~~were~~are further reduced to $100.0 million on June 30, 2008, ~~and will reduce further to~~ $80.0 million on August

31, 2008, $60.0 million on September 30, 2008 and $40.0 million on October 31, 2008, with final maturity on December 11, 2008. The fourth amendment also amends the Revolving Credit Facility so that Bear Stearns Corporate Lending Inc. will have no further Revolving Commitments or loans outstanding under the Revolving Credit Facility, with JPMorgan Chase Bank, N.A. and Citicorp North America, Inc. each funding one-half of the Revolving Commitments and the outstanding loans from the date of the fourth amendment. At ~~June 30,~~March 31, 2008, there were ~~no outstanding~~$10.0 million in loans. The interest rate, including margin, applicable to loans under the Revolving Credit Facility at ~~June 30,~~March 31, 2008 was ~~4.48%~~4.56% and we had ~~no outstanding~~$6.0 million of letters of credit outstanding under the Revolving Credit Facility. We are not permitted to pay dividends on our common shares to the extent a default or an event of default exists under our Revolving Credit Facility. We expect to modify or replace our Revolving Credit Facility before its current maturity of December 11, 2008.

On March 20, 2008, the parties to Amended Credit Facility No. 2 entered into an amendment reducing the commitments of the lenders to make loans thereunder from $1.0 billion to $500.0 million, on any future date after which the loans outstanding under Amended Credit Facility No. 2 fall below $500.0 million. Amended Credit Facility No. 2 matures on December 15, 2008. During the second quarter of 2008, we refinanced and transferred 26 aircraft from this facility into Term Financing No. 1. At June 30, 2008, we had borrowings of $255.2 related to 11 aircraft under our Amended Credit Facility No. 2. The interest rate, including margin, applicable to loans under Amended Credit Facility No. 2 at ~~June 30,~~March 31, 2008 was ~~3.73%~~4.07%. ~~In connection with the reduced commitments~~

At March 31, 2008, we had borrowings of ~~the lenders and the loans outstanding~~$846.4 million related to 36 aircraft under our Amended Credit Facility No. ~~2 falling below $500.0 million in~~2. During the second quarter of 2008, we ~~wrote off $0.6 million~~plan to refinance a majority of these aircraft, as well as three additional aircraft that we expect to acquire during the first half of 2008, with long-term financing using a cost effective debt ~~issuance costs which is reflected~~structure such as a non-recourse securitization or similar bank market financing. We believe that similar bank market financing would be available in ~~interest expense on the consolidated statement~~a single, diversified portfolio transaction structured like a securitization or would also be available in a series of ~~income.~~smaller financings. In addition, we expect to extend, modify or replace Amended

Credit Facility No. 2 with a similar aircraft acquisition facility before its current maturity of December 15, ~~2008~~2008.

On February 5, 2008, we entered into a senior secured credit agreement with two banks, or the2008-A Credit Agreement, which we refer to as the2008-A Credit Facility. The2008-A Credit Facility ~~provided~~provides for loans in an aggregate amount of up to $300.0 million, with borrowings under this credit facility being used to finance a portion of the purchase price of certain aircraft. Loans under the2008-A Credit Facility ~~were due to~~ mature on August 4, ~~2008. On May 15,~~ 2008 ~~we reduced our total credit commitment~~or, if the borrower exercises its extension option, then the maturity date will be October 29, 2008, the outside maturity date following closing of the ACS 2008-1 Credit Facility (as defined below). We refer to the period from August 4, 2008 to October 29, 2008 as the Extension Period. Borrowings under the2008-A Credit Facility bear interest (a) in the case of loans with an interest rate based on the applicable base rate, orABR, the ABR plus an applicable margin of 0.50% per annum, increasing to ~~$188.0 and~~1.50% per annum during the Extension Period or (b) in the case of loans with an interest rate based on ~~June 3, 2008,~~ the ~~facility matured when~~Eurodollar rate, orEDR, the EDR plus an applicable margin of 1.50% per annum, increasing to 2.50% per annum during the Extension Period. Additionally, we ~~paid~~are subject to a 0.25% per annum fee, increasing to 0.375% per annum fee during the ~~remaining balance of $187.3 million with proceeds from the refinancing and transferred the two aircraft into Term Financing No. 1. As a result~~Extension Period, on any unused portion of the ~~repayment of~~total committed facility. We are also required to pay customary agency fees. The interest rate, including margin, applicable to loans under the2008-A Credit Facility ~~during the second quarter of~~at March 31, 2008 ~~we wrote off $0.2 million of debt issuance costs which is reflected in interest expense on the consolidated statement of income.~~was 4.32%.

On July 26, 2007, we made an accelerated payment to the relevant GAIF seller under our acquisition agreement with GAIF for three Boeing Model747-400ERF and assumed a credit facility related to such747-400ERF aircraft. Borrowings under this facility were used to finance progress payments made to Boeing during the manufacturing of the ~~aircraft.~~aircraft and bear interest at one-month LIBOR plus 1.00% per annum, which at March 31, 2008 was 3.82%. The facility matured upon the delivery of the third and final747-400ERF aircraft in April 2008 when we paid the remaining balance of $31.9 million under this facility.

On May 2, 2008 two of our subsidiaries entered into a seven year, $786.1 million term debt facility ( the “ACS 2008-1 Credit Facility”) to finance a portfolio of 28 aircraft. The loans under the ACS 2008-1 Credit Facility were funded into an aircraft purchase escrow account on May 2, 2008. These loans will be released to us as the financed aircraft transfer into the facility. Proceeds from the financing will be used to repay related outstanding amounts for the aircraft under the Company’s Amended Credit Facility No. 2 and 2008-A Credit Facility. The loans will bear interest on a floating rate basis at a rate of one-month LIBOR plus 1.75% and will mature on May 2, 2015. We estimate that our aggregate up-front costs, including fees payable to the lenders and legal and professional service fees but excluding termination fees on our interest rate hedging contracts, will equal approximately $16.5 million. We will enter into interest rate hedging arrangements with respect to all or a substantial portion of the principal balance of the loans under the ACS 2008-1 Credit Facility in order to effectively pay interest at a fixed rate on all or a substantial portion of the

loans. Our obligations under these hedging arrangements will be secured pari passu with the lenders and, accordingly, we do not expect that we will be obliged to pledge cash collateral to secure any loss in value should interest rates fall.

After transferring all of the 28 aircraft into the ACS 2008-1 Credit Facility, we expect to have ten aircraft with outstanding borrowings of $250.0 million in our Amended Credit Facility No. 2 and we expect to repay the outstanding balance under the 2008-A Credit Facility and terminate this facility.

From time to time, we also enter into repurchase agreements to finance certain of our securities available for sale. Repurchase agreements are agreements to sell securities to a counterparty with the simultaneous agreement to repurchase the same or substantially identical securities from the same counterparty at a later date with accrued interest. Repurchase agreements normally do not constitute economic sales and are therefore treated as collateralized financing transactions and are carried at the amount of cash received with the underlying securities sold continuing to be recognized as securities available for sale. Interest incurred on repurchase agreements is reported in interest expense. At March 31, 2008, we had one outstanding repurchase agreement totaling $2.3 million which provides for the payment of interest at one-month LIBOR plus 0.50%, or 3.18% per annum. The repurchase agreement provides for an original term to maturity of three months. If we cannot renew or replace this repurchase agreement as it matures, we will be required to repay it from internal funds or find alternative sources of financing, as to which no assurance can be given.

Our debt obligations contain various customary ~~financial and~~ non-financial loan covenants. Such covenants do not, in management’s opinion, materially restrict our investment strategy or our ability to raise capital. We are in compliance with all of our loan covenants as of ~~June 30,~~March 31, 2008.

Contractual Obligations

Our contractual obligations consist of principal and interest payments on variable rate liabilities, obligations under binding letters of intent to purchase aircraft and rent payments pursuant to our office leases. Total contractual obligations decreased from $4.60 billion at December 31, 2007 to approximately ~~$4.27~~$4.29 billion at ~~June 30,~~March 31, 2008 due primarily to:


•	~~the~~	The reduction of amounts owed under our Securitizations No. 1 and No. 2 due to principal payments made during the first ~~six months~~quarter of ~~2008;~~2008

•	~~repayment~~	Repayment of debt outstanding under ~~our Amended Credit Facility No. 2, our2008-1~~ ~~Credit Facility, our Revolving Credit Facility,~~ our 747 PDP Credit Facility and our repurchase agreements; ~~and~~

•	~~the~~	The reduction of future amounts owed under our purchase obligations.

The following table presents our actual contractual obligations and their payment due dates as of ~~June 30,~~March 31, 2008:

Payments Due By Period as of March 31, 2008
Less than More than
Contractual Obligations Total 1 year 2-3 years 4-5 years 5 years
(Dollars in thousands)
Securitization No. 1⁽¹⁾
$ 601,527 $ 39,385 $ 79,958 $ 205,999 $ 276,185
Securitization No. 2⁽²⁾
1,378,443 93,663 170,776 245,323 868,681
Revolving Credit Facility⁽³⁾
10,343 10,343 — — —
Amended Credit Facility No. 2⁽³⁾
872,329 872,329 — — —
2008-A Credit Facility⁽³⁾
94,884 94,884 — — —
747 PDP Credit Facility⁽³⁾⁽⁴⁾
32,006 32,006 — — —
Repurchase agreements⁽³⁾
2,304 2,304 — — —
Operating leases⁽⁵⁾
5,800 1,161 2,112 1,831 696
Purchase obligations⁽⁶⁾
1,295,186 267,676 689,918 337,592 —

Total $ 4,292,822 $ 1,413,751 $ 942,764 $ 790,745 $ 1,445,562

Payments Due By Period as of June 30, 2008
Less than
More than

Contractual Obligations
Total 1 year 2-3 years 4-5 years 5 years
(Dollars in thousands)

Securitization No. 1⁽¹⁾
$ 565,475 $ 36,071 $ 80,009 $ 209,428 $ 239,967
Securitization No. 2⁽²⁾
1,321,151 79,919 157,522 259,414 824,296
Term Financing No. 1⁽³⁾
965,228 82,559 158,619 156,039 568,011
Amended Credit Facility No. 2⁽⁴⁾
262,397 262,397 — — —
Operating leases⁽⁵⁾
5,510 1,165 2,072 1,632 641
Purchase obligations⁽⁶⁾
1,154,920 175,162 778,203 201,555 —

Total $ 4,274,681 $ 637,273 $ 1,176,425 $ 828,068 $ 1,632,915

(1) Includes interest on variable rate, LIBOR-based instruments at the ~~June 30,~~March 31, 2008 rate and 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 until the securitization’s fifth anniversary, after which all excess cash flow is required to reduce the principal balances of the indebtedness. We expect that the securitization principal balance will be refinanced in full on or before June 2011.

(2) Includes interest on variable rate, LIBOR-based instruments at the ~~June 30,~~March 31, 2008 rate and principal payments based on amortization schedules through February 2018 that require the ~~securitization~~securitizations’ cash flows be applied to the outstanding principal balance of the indebtedness so that the loan to assumed aircraft values are held constant until the securitization’s fifth anniversary, after which all excess cash flow is required to reduce the principal balances of the indebtedness. We expect that the securitization principal balance will be refinanced in full on or before June 2012.

(3) Includes interest on variable rate, LIBOR-based instruments at the ~~June 30,~~March 31, 2008 rate and principal payments based on amortization schedules through May 2013 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 until the fifth anniversary, after which all excess cash flow is required to reduce the principal balances of the indebtedness. We expect that Term Financing No. 1 principal balance will be refinanced in full on or before May 2013.rate.

(4) ~~Includes interest on variable rate, LIBOR-based instruments at~~On April 10, 2008, we paid the ~~June 30, 2008 rate.~~remaining balance.

(5) Represents contractual payments on our office leases in Stamford, ~~Connecticut;~~Connecticut, Dublin, Ireland and Singapore.

(6) At ~~June 30,~~March 31, 2008, we had ~~aircraft~~ purchase agreements ~~and freighter conversion agreements,~~or binding letters of intent to acquire 20 aircraft, including ~~the acquisition of~~ 15 ~~Airbus A330 aircraft~~ from Airbus. ~~In July 2008, we amended the Airbus A330 Agreement~~Purchase agreements and binding letters of intent are subject to ~~reduce the number of aircraft~~certain conditions to closing and there can be ~~acquired from fifteen to twelve and to change the Airbus A330 Agreement so~~no assurance that ~~we receive a mix of freighter and passenger aircraft. Also in July 2008, we terminated an agreement to convert one Boeing Model747-400~~ from passenger to freighter configuration. As a result of these two events, our committed amounts for the purchase of aircraft and related flight equipment and improvements, including estimated amounts for pre-delivery deposits, engine acquisition costs, contractual price escalation and other adjustments,such conditions will be ~~approximately $947.2 million ($107.4 million - less than 1 year, $657.5 million - 2-3 years~~satisfied and ~~$182.3 million - 4-5 years).~~these acquisitions consummated.

Our hedging transactions that use derivative instruments also involve counterparty credit risk. The counterparties to our derivative arrangements are major financial institutions with high credit ratings. As a result, we do not anticipate that any of these counterparties will fail to meet their obligations.

42

However, there can be no assurance that we will be able to adequately protect against this risk and will ultimately realize an economic benefit from our hedging strategies or recover the full value of the securities underlying our repurchase agreements in the event of a default by a counterparty.

Capital Expenditures

We make capital expenditures from time to time in connection with improvements made to our aircraft. These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees. For the ~~six~~three months ended ~~June 30,~~March 31, 2007 and 2008, we incurred a total of ~~$3.9~~$1.3 million and ~~$19.2~~$6.1 million, respectively, of capital expenditures related to the acquisition of aircraft.

As of ~~June 30,~~March 31, 2008, the weighted average (by net book value) age of our aircraft was approximately ~~10.1~~10.2 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft.

Under our leases, the lessee is primarily responsible for maintaining the aircraft. We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft or a lessee fails to meet its maintenance obligations under the lease agreement. At ~~June 30,~~March 31, 2008, we held ~~$244.5~~$230.6 million of maintenance reserves. These maintenance reserves are paid by the lessee to provide for future maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments. In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by, or on behalf of, the lessee.

Actual maintenance payments by lessees in the future may be less than projected as a result of a number of factors, including defaults by the lessees. Maintenance reserves may not cover the entire amount of actual maintenance

expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age. If lessees are unable to fund their maintenance requirements on our aircraft, our cash flow and our ability to meet our debt obligations or to pay dividends on our common shares could be adversely affected.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of ~~June 30,~~March 31, 2008.

Foreign Currency Risk and Foreign Operations

At ~~June 30,~~March 31, 2008, all of our leases ~~were~~are payable to us in U.S. dollars. However, we incur Euro and Singapore dollar-denominated expenses in connection with our subsidiary in Ireland and branch office in Singapore. As of ~~June 30,~~March 31, 2008, 11 of our 7368 employees were based in Ireland and three employees were based in Singapore. For the ~~six~~three months ended ~~June 30,~~March 31, 2008, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated approximately ~~$4.3~~$2.1 million in U.S. dollar equivalents and represented approximately 19% of total selling, general and administrative expenses. Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, it is likely that our international operations and our exposure to foreign currency risk will increase over time. Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases we may enter into hedging transactions in the future to mitigate this risk. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2007 and 2008, we incurred insignificant net gains and losses on foreign currency transactions.

Interest Rate Risk

Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. These risks are highly sensitive to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposures relate to our lease agreements, debt investments, floating rate debt obligations and interest rate derivative instruments. Our lease agreements typically require the payment of a fixed amount of rent during the term of the lease. Similarly, our debt investments are predominately collateralized by fixed rate aircraft leases, and provide for a fixed coupon interest rate. However, our borrowing agreements generally require payments based on a variable interest rate index, such as LIBOR. Therefore, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents or cash flow from our securities. We are also exposed to loss, and to margin calls, on (i) our fixed-pay interest rate swaps to the extent interest rates decrease below the contractual fixed rates of our swaps and (ii) our other interest rate derivate instruments.

Changes in interest rates may also impact our net book value as our debt investments and derivatives are periodically marked-to-market through stockholders’ equity. Generally, as interest rates increase the value of our fixed rate debt investments decreases. The magnitude of the decrease is a function of the difference between the coupon rate and the current market rate of interest, the average life of the securities and the face amount of the securities. We are also exposed to loss on (i)our fixed pay interest rate swaps to the extent interest rates decrease below the contractual fixed rates of our swaps and (ii) our other derivative instruments. In general, we would expect that over time, decreases in the value of our debt investments attributable to interest rate changes will be offset to some degree by increases in the value of our derivative instruments, and vice versa. However, our policy is to hedge only a portion of the variable rate interest payments on our outstandingand/or expected future debt obligations rather than hedge the amount of our investments; therefore, our assets remain partially un-hedged. Furthermore, the relationship between spreads on debt investments and spreads on derivative instruments may vary from time to time, resulting in a net aggregate book value increase or decrease. Changes in the general level of interest rates also can ~~also~~ affect our ability to acquire new investments and our ability to realize gains from the settlement of such assets.

As of ~~June 30,~~March 31, 2008, if interest rates were to increase by 100 basis points, we would expect the annual interest expense on our credit facilities to increase by approximately ~~$2.2~~$3.0 million on an annualized basis, net of amounts received from our interest rate hedges.

Margin Calls

Our repurchase agreements and interest rate derivative instruments are, in some cases, subject to margin calls based on the value of the underlying security and the level of interest rates. Margin calls resulting from decreases in the value of our debt instruments or mark-to-market losses on our derivative instruments due to decreasing interest rates could require that we post additional collateral. Management believes that we maintain adequate cash reserves and liquidity to meet any reasonably possible margin calls resulting from these risks, but can make no assurances that we will have adequate additional collateral under all potential scenarios. At December 31, 2007 and ~~June 30,~~March 31, 2008, we had margin deposits in the amount of $35.9 million and ~~$1.5~~$76.5 million, respectively. As of ~~August 1,~~May 2, 2008, the aggregate fair value of our interest rate swaps and our interest rate forward contracts was a liability of ~~$106.5~~$167.7 million and we had pledged ~~$3.3~~$57.4 million in cash collateral required under certain of our interest rate swaps and our interest rate forward contracts.

Hedging

The objective of our hedging policy is to adopt a risk averse position with respect to changes in interest rates. Accordingly, we have entered into a number of interest rate swaps and interest rate

forward contracts to hedge the current and expected future interest rate payments on our variable rate debt. Interest rate swaps are agreements in which a series of interest rate cash flows are exchanged with a third party over a prescribed period. An interest rate forward contract is an agreement to make or receive a payment at the end of the period covered by the contract, with reference to a change in interest rates. The notional amount on a swap or forward contract is not exchanged. Our swap transactions typically provide that we make fixed rate payments and receive floating rate payments to convert our floating rate borrowings to fixed rate obligations to better match the largely fixed rate cash flows from our investments in flight equipment and debt investments. Similarly, our interest rate forward contracts typically provide for us to receive payment if interest rates increase and make a payment if they decrease. However, we can give no assurance that our net income will not be adversely affected during any period as a result of changing interest rates.

As of ~~June 30,~~March 31, 2008, we had pledged ~~$1.5~~$76.5 million to satisfy margin calls under our hedging contracts, and if interest rates were to decrease by one basis point, we would expect to be required to pledge an additional approximately ~~$0.4~~$0.8 million to satisfy margin calls under our interest rate hedging arrangements.

We held the following interest rate derivative contracts as of ~~June 30,~~March 31, 2008 (in thousands of dollars):

Fair Value
Current/ Mandatory Future of
Starting Early Maximum Derivative
Notional Effective Termination Maturity Notional Floating Asset or
Hedged Item Amount Date Date Date Amount Rate Fixed Rate (Liability)
Securitization No. 1 $ 521,725 Jun-06 N/A Jun-16 $ 521,725 1M LIBOR
+ 0.27% 5.78 % $ (53,603 )
Securitization No. 2 1,140,319 Jun-07 N/A Jun-12 1,140,319 1M LIBOR 5.25% to
5.36% (92,417 )
Revolving Credit Facility 28,000 Jun-07 Dec-11 Jan-12 203,000 1M LIBOR 4.89 % (7,528 )
Amended Credit Facility No. 2 240,000 Jun-07 Jun-08 Feb-13 240,000 1M LIBOR 4.88 % (17,256 )
Amended Credit Facility No. 2 and 747 PDP Credit Facility 220,000 Aug-07 Nov-08 May-13 220,000 1M LIBOR 5.33 % (17,632 )
Future debt and securitization 190,000 Jan-08 Feb-09 Feb-19 360,000 1M LIBOR 5.16 % (33,180 )
Future debt and securitization 5,000 May-08 Sep-09 Mar-14 55,000 1M LIBOR 5.41 % (4,818 )
Future debt and securitization 46,000 Apr-10 Nov-11 Oct-15 231,000 1M LIBOR 5.17 % (8,647 )
Future debt and securitization 95,000 Jan-11 May-12 Apr-16 238,000 1M LIBOR 5.23 % (7,068 )
Future debt and securitization 143,000 Jul-11 Oct-12 Sep-16 238,000 1M LIBOR 5.27 % (5,917 )
Repurchase Agreement⁽¹⁾
— N/A N/A N/A — N/A N/A (175 )
Repurchase Agreement 2,900 Jun-05 N/A Mar-13 2,900 1M LIBOR 4.21 % (124 )

Total $ 2,631,944 $ 3,449,944 $ (248,365 )

Fair Value

Current/
Mandatory
Future
of

Starting
Early
Maximum
Derivative

Notional
Effective
Termination
Maturity
Notional
Floating
Fixed
Asset or

Hedged Item
Amount Date Date Date Amount Rate Rate (Liability)

Securitization No. 1 $ 515,984 Jun-06 N/A Jun-16 $ 515,984 1M LIBOR
+ 0.27% 5.78% $ (30,813 )
Securitization No. 2 1,130,171 Jun-07 N/A Jun-12 1,130,171 1M LIBOR 5.25% to 5.36% (48,433 )
Revolving Credit Facility 32,000 Jun-07 Dec-11 Jan-12 203,000 1M LIBOR 4.89% (3,099 )
Amended Credit Facility No. 2 65,932 Jan-08 Feb-09 Feb-19 220,000 1M LIBOR 5.16% (7,165 )
Future debt and securitization 46,000 Apr-10 Nov-11 Oct-15 231,000 1M LIBOR 5.17% (2,950 )
Future debt and securitization 95,000 Jan-11 May-12 Apr-16 238,000 1M LIBOR 5.23% (3,099 )
Future debt and securitization 143,000 Jul-11 Oct-12 Sep-16 238,000 1M LIBOR 5.27% (2,931 )
Term Financing No. 1 710,068 Jun-08 N/A May-13 710,068 1M LIBOR 4.04% 2,490
Term Financing No. 1 491,718 May-13 N/A May-15 491,718 1M LIBOR 5.31% (975 )

Total $ 3,229,873 $ 3,977,941 $ (96,975 )

~~$1.7~~ $0.2 million ~~and $1.9 million, respectively, were~~was reclassified into interest expense on the consolidated statement of income.

In May 2008, we determined that the interest rate swap that was hedging interest payments related to borrowings under the Revolving Credit Facility was no longer highly effective and no longer qualified for hedge accounting under SFAS No. 133,~~Accounting for Derivative Instruments and Hedging Activities~~, and accordingly, a deferred loss in the amount of $2.7 million for this swap will be amortized into interest expense using the cash flow method. Further, all subsequent mark to market adjustments will be charged to other income. For the three months ended ~~June 30, 2008, $0.1 million of the deferred loss was reclassified into interest expense.~~

~~In June~~March 31, 2007 and 2008, we ~~terminated an interest rate swap with a notional amount~~recognized ineffectiveness losses of ~~$2.9~~$0 million and $2.0 million related to ~~a repurchase agreement we repaid, resulting in a gain of $19 thousand which is~~our cash flow hedges. These amounts are included in interest expense on the consolidated ~~statement~~statements of income. Also in June 2008, we terminated interest rate swaps with notional amounts of $190.0 million and $5.0 million and partially terminated interest rate swaps with notional amounts of $330.0 million and $46.0 million, resulting in a net deferred loss of $24.7 million which will be amortized into interest expense using the interest rate method. These swaps were hedging interest payments related to borrowings under Amended Credit Facility No. 2, Term Financing No. 1 and future debt and securitizations. For the three months ended June 30, 2008, $0.2 million of the deferred loss was reclassified into interest expense on the consolidated statement of income. The remaining portions of the two partially terminated swaps were re-designated as cash flow hedges for accounting purposes on June 30, 2008.

On June 6, 2008, we entered into two amortizing interest rate swap contracts with a balance guarantee notional and initial notional amounts of $710.1 million and $491.7 million. The balance guarantee notional has a lower and upper notional band that adjusts to the outstanding principle balance on Term Financing No. 1. We entered into these interest rate hedging arrangements in connection with Term Financing No. 1 in order to effectively pay interest at a fixed rate on a substantial portion of the loans under this facility. These interest rate swaps were designated as cash flow hedges for accounting purposes on June 30, 2008.

For the three months ended June 30, 2007 and 2008, we recognized ineffectiveness gains (losses) of $0.5 million and $(2.1) million, respectively related to our cash flow hedges. For the three months ended June 30, 2007 and 2008, $0.5 million and $(4.0) million are included in interest expense and $0 million and $1.9 million are included in other income, respectively. For the six months ended June 30, 2007 and 2008, we recognized ineffectiveness gains (losses) of $0.4 million and $(4.1) million, respectively related to our cash flow hedges. For the six months ended June 30, 2007 and 2008, $0.4 million and $(6.0) million are included in interest expense and $0 million and $1.9 million are included in other income, respectively.

As of ~~June 30,~~March 31, 2008, we had pledged ~~$1.5~~$76.5 million in cash collateral under our interest rate swaps and our interest rate forward contracts, which is included in other assets on our ~~consolidated~~consolidating balance sheet.

~~The weighted average~~We will enter into interest rate hedging arrangements with respect to all or a substantial portion of the principal balance of the loans under the ACS 2008-1 Credit Facility in order to effectively pay interest at a fixed rate on all or a substantial portion of the loans. Our obligations under these hedging arrangements will be secured pari passu with the lenders and, accordingly, we do not expect that we will be obliged to pledge cash collateral to secure any loss in value should interest rates ~~of these derivatives at December 31, 2007 and June 30, 2008 were 5.28% and 5.07%, respectively.~~fall.

optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. EBITDA is one of the metrics used by senior management and the board of directors to review the consolidated financial performance of our business.

Limitations of EBITDA

EBITDA has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate EBITDA, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:


	•		depreciation and amortization, though not directly affecting our current cash position, represent the wear and tearand/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; and

	•		the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results.


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

We are exposed to the impact of interest rate changes through our securities portfolio, our variable rate liabilities and our interest rate swap and forward contracts. Increases in interest rates could decrease the fair value of our debt investments, increase the amount of interest payments on our variable rate debt and reduce the spread we earn between our generally fixed-rate revenues and our variable rate interest expense. We enter into interest rate swaps and forward contracts to minimize the risks associated with our variable rate debt. Decreases in interest rates would decrease the value of our interest rate hedging contracts, which may result in margin calls from our hedge counterparties pursuant to which we are required to pledge cash collateral to secure such a loss in value. As of June 30, 2008, we had pledged $1.5 million in cash collateral under our interest rate swaps and our interest rate forward contracts, as identified in the table below, and a change in swap rates equal to one basis point will result in a change in the required cash collateral amount of approximately $0.4 million. As of August 1, 2008, the aggregate fair value of our interest rate swaps and our interest rate forward contracts was a liability of $106.5 million and we had pledged $3.3 million in cash collateral required under certain of our interest rate swaps and our interest rate forward contracts.

The following table provides information about our derivative financial instruments and other financial instruments which are sensitive to changes in interest rates. For our debt investments and variable rate liabilities, the table presents principal cash flows by expected maturity date and related weighted-average interest rates as of the end of each period. Weighted-average variable rates are based on implied forward rates as derived from appropriate spot rate observations as of the reporting date. For interest rate swaps and forward contracts, the table presents notional amounts by expected maturity date and weighted-average interest rates as of the end of each period:

Face/Notional/
Face/Notional Amount Maturing

Market Value amount Twelve Months Ended June 30, Fair Value
December 31,
June 30,
June 30,
December 31,

(Dollars in thousands) 2007 2008 2009 2010 2011 2012 2013 Thereafter 2008 2007

Fixed Rate Assets

Securities Available for Sale⁽¹⁾
$ 101,340 $ 24,814 $ 1,151 $ 6,552 $ 738 $ 665 $ 721 $ 14,987 $ 20,664 $ 99,118
Weighted average coupon rate, end of period 7.77 % 7.83 % 7.84 % 8.13 % 8.14 % 8.15 % 8.16 % 8.16 %
Security Held Until Maturity⁽²⁾
$ 13,897 $ — $ — $ — $ — $ — $ — $ — $ — $ 13,897
Average interest rate 8.88 % N/A
Variable Rate Liabilities

Borrowed under Credit Facilities⁽³⁾⁽⁴⁾
$ 798,186 $ 255,189 $ 255,189 $ — $ — $ — $ — $ — $ 255,189 $ 798,186
Weighted average interest rate end of period 6.26 % 3.73 %
Securitized Notes

Notes Issued $ 1,677,736 $ 1,632,307 $ 72,023 $ 73,912 $ 81,513 $ 154,807 $ 245,668 $ 1,004,384 $ 1,488,807 $ 1,623,522
Weighted average interest rate, end of period 5.44 % 2.72 % 3.36 % 3.83 % 4.17 % 4.41 % 4.56 %
Term Debt Financings

Borrowed under Term Debt Financings⁽⁵⁾
$ — $ 782,060 $ 48,900 $ 48,900 $ 48,900 $ 48,900 $ 54,913 $ 531,547 $ 782,060 $ —
Weighted average interest rate end of period N/A 4.37 % 4.85 % 5.32 % 5.66 % 5.89 % 6.05 %
Repurchase Obligations⁽¹⁾
$ 67,744 $ — $ — $ — $ — $ — $ — $ — $ — $ 67,744
Weighted average interest rate, end of period 5.74 % N/A
Interest Rate Swaps Related to Repurchase Obligations

Pay fixed/receive variable⁽¹)
$ 46,900 $ — $ — $ — $ — $ — $ — $ — $ — $ (633 )
Weighted average pay fixed rate 4.96 % N/A
Weighted average receive variable rate, end of period 4.61 % N/A
Interest Rate Forwards Related to Securitization No. 1

Notional Amounts $ 527,396 $ 515,984 $ 23,666 $ 24,820 $ 32,042 $ 81,986 $ 36,145 $ 317,325 $ (30.813 ) $ (33,842 )
Weighted average pay fixed rate 5.78 % 5.78 % 5.78 % 5.78 % 5.78 % 5.78 % 5.78 %
Weighted average receive variable rate, end of period 4.87 % 2.74 % 3.37 % 3.84 % 4.18 % 4.41 % 4.57 %
Interest Rate Forwards Related to Securitization No. 2

Notional Amounts $ 1,150,339 $ 1,130,171 $ 56,276 $ 50,760 $ 50,795 $ 972,340 $ — $ — $ (48,433 ) $ (54,110 )
Weighted average pay fixed rate 5.26 % 5.26 % 5.25 % 5.25 % 5.30 %
Weighted average receive variable rate, end of period 4.60 % 2.45 % 3.10 % 3.57 % 3.91 %
Interest Rate Swaps Related to Term Financing No. 1

Notional Amounts⁽⁵⁾
$ — $ 710,068 $ 44,410 $ 44,410 $ 44,410 $ 44,410 $ 49,684 $ 482,744 $ 1,515 $ —
Weighted average pay fixed rate N/A 4.04 % 4.04 % 4.04 % 4.04 % 4.04 % 5.31 %
Weighted average receive variable rate, end of period N/A 2.45 % 3.10 % 3.57 % 3.91 % 4.14 % 4.30 %
Interest Rate Forwards Related to Amended Credit Facility No. 2, Revolving Credit Facility and Future Debt

Notional Amounts⁽⁶⁾
$ 860,000 $ 97,932 $ (155,410 ) $ (158,410 ) $ (322,410 ) $ (120,410 ) $ 345,316 $ 509,256 $ (19,244 ) $ —
Weighted average pay fixed rate 5.05 % 5.07 % 5.06 % 5.03 % 5.15 % 5.21 % 5.24 %
Weighted average receive variable rate, end of period 4.60 % 2.47 % 3.10 % 3.57 % 3.91 % 4.14 % 4.30 %
~~(1)~~ In February 2008, we terminated an interest rate swap, with notional amounts of $39,000 at December 31, 2007 and $33,000 as of the termination date, related to two of our debt investments which were sold. We repaid the outstanding balance under the related repurchase agreement and paid breakage fees and accrued interest. In March 2008, we terminated an interest rate swap with a notional amount of $5,000, which was settled on April 1, 2008, related to one of our repurchase agreements which was not refinanced when it became due on March 15, 2008. In June 2008, we terminated an interest rate swap with a notional amount of $2,900 related to a repurchase agreement which was not refinanced when it became due on June 28, 2008.


~~(2)~~		In 2007, we acquired a loan secured by a commercial jet aircraft that was classified as held to maturity at December 31, 2007. The loan matured on December 17, 2007, and had an outstanding balance of $13,897 at December 31, 2007. The borrower elected not to repay the loan at maturity and, accordingly, we took ownership of this aircraft in March 2008.

~~(3)~~		On March 20, 2008, the parties to the Revolving Credit Facility entered into a fourth amendment to the Revolving Credit Facility, extending the Stated Termination Date (as defined therein) to December 11, 2008, and reducing the commitments of the lenders to make loans thereunder, or the Revolving Commitments, from $250,000 to $150,000. The Revolving Commitments were reduced to $100,000 on June 30, 2008, and will reduce further to $80,000 on August 31, 2008, $60,000 on September 30, 2008 and $40,000 on October 31, 2008, with final maturity on December 11, 2008.

~~(4)~~		On March 20, 2008, the parties to Amended Credit Facility No. 2 entered into an amendment reducing the commitments of the lenders to make loans thereunder from $1,000,000 to $500,000, on any date after which the loans outstanding under Amended Credit Facility No. 2 fall below $500,000. This occurred in June 2008 with the refinancing and transfer of 26 aircraft into Term Financing No. 1.

~~(5)~~		On May 2, 2008 two of our subsidiaries entered into a seven year, $786.1 million term debt facility, which were refer to as Term Financing No. 1, to finance a portfolio of 28 aircraft. The loans under Term Financing No. 1 were funded into an aircraft purchase escrow account on May 2, 2008. These loans were released to us as the financed aircraft transferred into the facility. Each of the subsidiaries has fully and unconditionally guaranteed the other’s obligations under Term Financing No. 1. However, the loans are neither obligations of, nor guaranteed by, Aircastle Limited. We entered into new interest rate hedging arrangements with respect to a substantial portion of the principal balance of the loans under Term Financing No. 1 in order to effectively pay interest at a fixed rate on a substantial portion of the loans. Obligations owed to hedge counter-parties under these contracts are secured pari passu basis by the same collateral that secures the loans under Term Financing No. 1 and, accordingly, we have no obligation to pledge cash collateral to secure any loss in value of the hedging contracts if interest rates fall.

~~(6)~~		In March 2008, we terminated an interest rate swap with a notional amount of $150,000 and partially terminated an interest rate swap with a notional of $440,000, leaving a notional amount of $240,000. In June 2008, the remaining portion of the swap that had been partially terminated was fully terminated. Also in June 2008, we terminated interest rate swaps with notional amounts of $190,000 and $5,000, and partially terminated interest rate swaps with notional amounts of $330,000 and $46,000.


Item 4.	~~Controls and Procedures~~

~~Management’s Evaluation of Disclosure~~ Controls and Procedures

Restatement of Previously Issued Financial Statements

~~The term “disclosure controls and procedures”~~In connection with the restatement of our unaudited consolidated financial statements, which is ~~defined inRules 13a-15(e)~~ ~~and15d-15(e)~~ of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a companymore fully described in the ~~reports that it files under~~“Explanatory Note” on page 1 and Note 16. Restatement and Reclassification of Previously Issued Financial Statements located in the ~~Exchange Act is recorded, processed, summarized~~Unaudited Consolidated Financial Statements elsewhere in this Form 10-Q/A and ~~reported within the time periods specified by the SEC. An evaluation was performed~~ under the supervision and with the participation of the Company’s management, including the Chief Executive Officer ~~or CEO,~~ and the Chief Financial Officer, ~~or CFO,~~we reevaluated our disclosure controls and procedures and identified a material weakness in our internal control over financial reporting with respect to the presentation of non-cash activities in the consolidated statement of cash flows. Solely as a result of this material weakness, as described below in “Changes in Internal Control Over Financial Reporting,” we concluded that our disclosure controls and procedures were not effective as of March 31, 2008.

Evaluation of Disclosure Controls and Procedures

As a result of the restatement described above, the Company has reevaluated, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the ~~Company’s~~design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of ~~June 30,~~March 31, 2008. Based ~~on that evaluation,~~upon this reevaluation, management, the Company’s ~~management, including the CEO~~Chief Executive Officer and ~~CFO,~~Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of ~~June 30, 2008.~~

March 31, 2008 solely as a result of this material weakness in the Company’s internal control over financial reporting relating to the consolidated statement of cash flows, as described below in “Changes in Internal Control over Financial Reporting.”

Changes in Internal Control over Financial Reporting

As disclosed in our Form 10-K/A for the year ended December 31, 2008, filed on November 17, 2008, our management identified a material weakness in the Company’s internal control over financial reporting resulting from the failure to maintain effective controls over the preparation of the Company’s consolidated statement of cash flows.

~~There~~ As previously reported, there were no additional changes in the Company’s internal control over financial reporting that occurred during the quarter ended ~~June 30,~~March 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Remediation Steps to Address Material Weakness

To remediate the material weakness in the Company’s internal control over financial reporting as described above, management is enhancing its controls over the preparation and the review of the Company’s consolidated statement of cash flows, specifically by adding additional review of the Company’s consolidated statement of cash flows and by providing staff training on preparation of the consolidated statement of cash flows in accordance with SFAS No. 95Statement of Cash Flows. The Company anticipates that the actions described above and the resulting improvements in controls will strengthen its internal control over financial reporting relating to the preparation of the consolidated statement of cash flows and will remediate the material weakness identified by December 31, 2008.

5039

~~Part II. — Other Information~~
~~Item 1.~~   ~~Legal Proceedings~~
~~The Company is not a party to any material legal or adverse regulatory proceedings.~~
~~Item 1A.~~   ~~Risk Factors~~
~~There have been no material changes to the disclosure related to the risk factors described in our Annual Report onForm 10-K~~ ~~filed with the SEC for the year ended December 31, 2007.~~
~~Item 4.~~   ~~Submission of Matters to a Vote of Security Holders~~
The annual general meeting of the shareholders of Aircastle Limited was held on May 15, 2008, at which meeting our shareholders voted to (1) elect Joseph P. Adams, Jr., John Z. Kukral and Ronald L. Merriman as Class II directors of the Company and (2) appoint Ernst & Young LLP as independent registered public accounting firm for the Company for fiscal year 2008 and to authorize the directors of Aircastle Limited, acting by the Audit Committee, to determine the independent registered public accounting firm’s fees. The voting results for each proposal submitted to a vote were as listed below.
~~Election of Class II Directors:~~
~~Joseph P. Adams, Jr.: 66,024,307 votes for, 6,891,787 votes withheld and 0 votes for write-in nominees.~~
~~John Z. Kukral: 66,085,583 votes for, 6,830,511 votes withheld and 0 votes for write-in nominees.~~
~~Ronald L. Merriman: 72,341,061 votes for, 575,033 votes withheld and 0 votes for write-in nominees.~~
The other directors whose terms of office continued after the meeting are: Ronald W. Allen and Douglas A. Hacker as Class I directors; and Wesley R. Edens and Peter V. Ueberroth as Class III directors.
~~Appointment of Ernst & Young LLP as Independent Public Accounting Firm for Fiscal Year 2008:~~
~~72,534,043 votes for, 245,358 votes against, 32,896 votes abstaining and 103,797 broker non-votes.~~

51

Item 6. Exhibits


~~Item 6.~~	~~Exhibits~~

Exhibit No.
Description of Exhibit

2 .1 Asset Purchase Agreement, dated as of January 21, 2007, by and among the Sellers listed onSchedule 1-A, each of which is a direct or indirect subsidiary of Guggenheim Aviation Investment Fund, LP, a Delaware limited partnership, and the Purchasers listed onSchedule 1-B, each of which is a direct or indirect subsidiary of Aircastle Limited, a Bermuda exempted company.††
3 .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.†
10 .1 Credit Agreement (2008-B), dated as of May 2, 2008, by and among ACS2008-1 Limited and ACS Aircraft Finance Ireland 3 Limited, as Borrowers, each lender from time to time party thereto, as Lenders, Calyon New York Branch, as Sole Bookrunner and Facility Agent, and Calyon New York Branch, HSH Nordbank AG, KfW Ipex-Bank GmbH and DVB Bank AG, as Joint Lead Arrrangersˆ
10 .2 Intercreditor Agreement, dated as of May 2, 2008, by and among ACS2008-1 Limited, as Borrower, ACS Aircraft Finance Ireland 3 Limited, as Guarantor, Aircastle Advisor LLC, as Administrative Agent, Calyon New York Branch, as Facility Agent, Collateral Agent and Liquidity Facility Provider, and Deutsche Bank Trust Company Americas, as Operating Bankˆ
10 .3 Intercreditor Agreement, dated as of May 2, 2008, by and among ACS Aircraft Finance Ireland 3 Limited, as Borrower, ACS2008-1 Limited, as Guarantor, Aircastle Advisor LLC, as Administrative Agent, Calyon New York Branch, as Facility Agent, Collateral Agent and Liquidity Facility Provider and Deutsche Bank Trust Company Americas, as Operating Bankˆ
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
32 .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 June 30, 2008
† ~~Incorporated by reference to the Company’s registration statement onForm S-1,~~ ~~filed with the SEC on June 2, 2006, as amended on July 10, 2006, July 25, 2006 and August 2, 2006.~~

††Exhibit No. ~~Incorporated by reference to the Company’s current report onForm 8-K~~ ~~filed with the SEC on January 25, 2007.~~Description of Exhibit
31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
ˆ31.2 ~~Incorporated~~Certification by ~~reference~~the Chief Financial Officer pursuant to ~~Amendment No. 1~~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 ~~Company’s current report onForm 8-K~~ ~~filed with~~Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the ~~SEC on May 5, 2008.~~Sarbanes-Oxley Act of 2002

5240

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: ~~August 8,~~November 17, 2008
~~AIRCASTLE LIMITED~~
~~(Registrant)~~
AIRCASTLE LIMITED
(Registrant)

By: /s/ Aaron Dahlke
Aaron Dahlke
Chief Accounting Officer and Authorized Officer
~~Aaron Dahlke~~
~~Chief Accounting Officer and Authorized Officer~~

5341


	Fair Value		Fair Value Measurements at June 30, 2008
	As		Using Fair Value Hierarchy
	Of June 30,								Valuation
	2008		Level 1		Level 2		Level 3		Technique

Assets:
Cash and cash equivalents	$	76,947	$	76,947	$	—	$	—	Market
Restricted cash and cash equivalents		188,141		188,141		—		—	Market
Debt investments		20,664		2,686		17,978		—	Market/Income
Derivative assets		2,490		—		—		2,490	Income

Total	$	288,242	$	267,774	$	17,978	$	2,490

Liabilities:
Derivative liabilities	$	99,465	$	—	$	98,490	$	975	Income


	Derivative		Derivative
	Assets		Liabilities			Total

Balance as of December 31, 2007	$	—	$	—		$	—
Unrealized gains (losses)		2,490		(975	)		1,515

Balance as of June 30, 2008	$	2,490	$	(975	)	$	1,515


Year Ending December 31,	Amount

Remainder of 2008	$	268,032
2009		511,672
2010		459,379
2011		398,190
2012		335,128
2013		235,099
Thereafter		521,289

Total	$	2,728,789


	December 31, 2007					June 30, 2008
	Number of		Net Book			Number of		Net Book
Region	Aircraft		Value%			Aircraft		Value%

Europe⁽¹⁾⁽²⁾		65		47	%		64		47	%
Asia⁽³⁾		35		27	%		34		23	%
North America⁽¹⁾⁽⁴⁾		13		10	%		14		11	%
Latin America		12		7	%		11		7	%
Middle East and Africa		8		9	%		10		12	%
Off-lease⁽⁵⁾		—		—	%		2		—	%

Total		133		100	%		135		100	%


	At
	December 31,
	2007		At June 30, 2008
	Outstanding		Outstanding			Final Stated
Debt Obligation	Borrowings		Borrowings		Interest Rate⁽¹⁾	Maturity

Securitizations and Term Debt Financings:
Securitization No. 1	$	527,397	$	500,233	1 M LIBOR + .27% = 2.74%		6/20/31
Securitization No. 2		1,150,339		1,132,074	1 M LIBOR + .26% = 2.71%		6/14/37
Term Financing No. 1		—		782,060	LIBOR + 1.75% = 4.37%⁽²⁾		5/11/15

Total Securitizations		1,677,736		2,414,367

Credit Facilities:
Revolving Credit Facility		—		—	1 M LIBOR + 2.00% = 4.48%		12/11/08
Amended Credit Facility No. 2		734,059		255,189	1 M LIBOR + 1.25% = 3.73%		12/15/08
747 PDP Credit Facility		64,127		—	1 M LIBOR + 1.00% = NA		4/10/08

Total Credit Facilities		798,186		255,189

Total	$	2,475,922	$	2,669,556


(a)		For the three ~~and six~~ months ended ~~June 30,~~March 31, 2008, based on the treasury stock method, we had ~~813,972 and 814,455~~913,912 anti-dilutive common share equivalents ~~respectively,~~ resulting from unvested restrictive shares.


							Accumulated
				Unrealized			Other
	Fair Value of			Appreciation			Comprehensive
	Derivatives⁽¹⁾			Debt Securities			Income (Loss)
December 31, 2007	$	(136,222	)	$	10,833		$	(125,389	)
Net change in fair value of derivatives, net of tax benefit of $1,264		(123,371	)		—			(123,371	)
Derivative gain reclassified into earnings		(139	)		—			(139	)
Net change in unrealized depreciation of debt investments		—			(419	)		(419	)

March 31, 2008	$	(259,732	)	$	10,414		$	(249,318	)


							Accumulated
				Unrealized			Other
	Fair Value of			Appreciation			Comprehensive
	Derivatives⁽¹⁾			Debt Securities			Income (Loss)

December 31, 2007	$	(136,222	)	$	10,833		$	(125,389	)
Net change in fair value of derivatives, net of tax expense of $189		(5,953	)		—			(5,953	)
Derivative loss reclassified into earnings		549			—			549
Net change in unrealized depreciation of debt investments		—			(2,014	)		(2,014	)

June 30, 2008	$	(141,626	)	$	8,819		$	(132,807	)


																Fair
																Value
	Current/				Mandatory				Future							of
	Starting				Early				Maximum							Derivative
	Notional		Effective		Termination		Maturity		Notional		Floating		Fixed			Asset or
Hedged Item	Amount		Date		Date		Date		Amount		Rate		Rate			(Liability)
Securitization No. 1	$	521,725	Jun-06			N/A	Jun-16		$	521,725	1M LIBOR + 0.27%			5.78	%	$	(53,603	)
Securitization No. 2		1,140,319	Jun-07			N/A	Jun-12			1,140,319	1M LIBOR		5.25% to 5.36%				(92,417	)
Revolving Credit Facility		28,000	Jun-07		Dec-11		Jan-12			203,000	1M LIBOR			4.89	%		(7,528	)
Amended Credit Facility No. 2		240,000	Jun-07		Jun-08		Feb-13			240,000	1M LIBOR			4.88	%		(17,256	)
Amended Credit Facility No. 2 and 747 PDP Credit Facility		220,000	Aug-07		Nov-08		May-13			220,000	1M LIBOR			5.33	%		(17,632	)
Future debt and securitization		190,000	Jan-08		Feb-09		Feb-19			360,000	1M LIBOR			5.16	%		(33,180	)
Future debt and securitization		5,000	May-08		Sep-09		Mar-14			55,000	1M LIBOR			5.41	%		(4,818	)
Future debt and securitization		46,000	Apr-10		Nov-11		Oct-15			231,000	1M LIBOR			5.17	%		(8,647	)
Future debt and securitization		95,000	Jan-11		May-12		Apr-16			238,000	1M LIBOR			5.23	%		(7,068	)
Future debt and securitization		143,000	Jul-11		Oct-12		Sep-16			238,000	1M LIBOR			5.27	%		(5,917	)
Repurchase Agreement⁽¹⁾		—		N/A		N/A		N/A		—		N/A		N/A			(175	)
Repurchase Agreement		2,900	Jun-05			N/A	Mar-13			2,900	1M LIBOR			4.21	%		(124	)

Total	$	2,631,944							$	3,449,944						$	(248,365	)


												Fair Value
	Current/			Mandatory		Future						of
	Starting			Early		Maximum						Derivative
	Notional		Effective	Termination	Maturity	Notional						Asset or
Hedged Item	Amount		Date	Date	Date	Amount		Floating Rate			Fixed Rate	(Liability)

Securitization No. 1	$	515,984	Jun-06	N/A	Jun-16	$	515,984		1M LIBOR		5.78%	$	(30,813	)
									+ 0.27	%
Securitization No. 2		1,130,171	Jun-07	N/A	Jun-12		1,130,171		1M LIBOR		5.25% to 5.36%		(48,433	)
Revolving Credit Facility		32,000	Jun-07	Dec-11	Jan-12		203,000		1M LIBOR		4.89%		(3,099	)
Amended Credit Facility No. 2		65,932	Jan-08	Feb-09	Feb-19		220,000		1M LIBOR		5.16%		(7,165	)
Future debt and securitization		46,000	Apr-10	Nov-11	Oct-15		231,000		1M LIBOR		5.17%		(2,950	)
Future debt and securitization		95,000	Jan-11	May-12	Apr-16		238,000		1M LIBOR		5.23%		(3,099	)
Future debt and securitization		143,000	Jul-11	Oct-12	Sep-16		238,000		1M LIBOR		5.27%		(2,931	)
Term Financing No. 1		710,068	Jun-08	N/A	May-13		710,068		1M LIBOR		4.04%		2,490
Term Financing No. 1		491,718	May-13	N/A	May-15		491,718		1M LIBOR		5.31%		(975	)

Total	$	3,229,873				$	3,977,941					$	(96,975	)


~~Note 15.~~ Note 15. Subsequent Events	~~Subsequent Events~~


	Three Months Ended March 31,
	2007			2008

Cash flows from Operations
As Reported	$	60,519		$	79,290
Correction of misstatement		(17,472	)		—
Reclassification		(11,837	)		(20,525	)

Restated	$	31,210		$	58,765


Cash flows from Investing
As Reported	$	(463,237	)	$	(86,608	)
Correction of misstatement		17,472			—

Restated	$	(445,765	)	$	(86,608	)


Cash flows from Financing
As Reported	$	393,608		$	11,123
Reclassification		11,837			20,525

Restated	$	405,445		$	31,648


Net change in cash and cash equivalents
As Reported	$	(9,110	)	$	3,805
As Restated		(9,110	)		3,805

Change	$	—		$	—


			Aircraft
	Owned		Committed to be
	Aircraft as of		Acquired as
	March 31,		of March 31,
	2008⁽¹⁾		2008⁽²⁾⁽⁵⁾		Total
Flight Equipment Held for Lease	$	3,981	$	195	$	4,176
Number of Aircraft		136		5		141
Number of Lessees		59		2		61
Number of Countries		31		2		32
Weighted Average Age — Passenger (years)⁽³⁾⁽⁶⁾		10.3		16.8		10.4
Weighted Average Age — Freighter (years)⁽³⁾⁽⁶⁾		9.7		—		8.4
Weighted Average Age — Combined (years)⁽³⁾⁽⁶⁾		10.2		4.5		9.9
Weighted Average Remaining Passenger Lease Term (years)⁽⁴⁾⁽⁶⁾		4.1		5.0		4.1
Weighted Average Remaining Cargo Lease Term (years)⁽⁴⁾⁽⁶⁾		8.7		12.0		9.2
Weighted Average Remaining Combined Lease Term (years)⁽⁴⁾⁽⁶⁾		5.2		10.1		5.4


	Owned
	Aircraft as of
	June 30, 2008⁽¹⁾

Flight Equipment Held for Lease	$	4,081
Number of Aircraft.		135
Number of Lessees		58
Number of Countries		30
Weighted Average Age – Passenger (years)⁽²⁾⁽⁵⁾		10.5
Weighted Average Age – Freighter (years)⁽²⁾⁽⁵⁾		8.8
Weighted Average Age – Combined (years)⁽²⁾⁽⁵⁾		10.1
Weighted Average Remaining Passenger Lease Term (years)⁽³⁾⁽⁴⁾		4.1
Weighted Average Remaining Cargo Lease Term (years)⁽³⁾⁽⁴⁾		9.0
Weighted Average Remaining Combined Lease Term (years)⁽³⁾⁽⁴⁾		5.5
Weighted Average Fleet Utilization during Second Quarter 2008⁽⁶⁾		99	%


(1)		Calculated using net book value.

(2)		Excludes 15 Airbus Model A330-200 aircraft scheduled for delivery between June 2010 and November 2011.

(3)		Weighted average age (years) by net book value, or in the case of aircraft not yet acquired, base purchase price, is as of ~~June 30,~~March 31, 2008. The age of any aircraft not yet acquired is measured as of its expected acquisition date.

~~(3)~~(4)		Weighted average remaining lease term (years) by net book value, or in the case of aircraft not yet acquired, base purchase price, is as of ~~June 30,~~March 31, 2008.

~~(4)~~		~~One Boeing Model747-400~~ Remaining lease term for any aircraft ~~that was scheduled to go into freighter conversion in~~not yet acquired is measured as of the fourth quarter of 2008 is currently on a short-term lease in passenger configuration is included as “Passenger” aircraft. In July 2008, we terminated the freighter conversion contract for this aircraft and have signed an agreement to sell this aircraft to a third party following lease expiry.expected acquisition date.

(5)		~~One~~Calculated using base purchase price which represents the purchase price subject to certain agreed upon adjustments.

(6)		Two Boeing Model747-400 aircraft currently ~~being converted to freighter~~on short-term leases in passenger configuration isare included as ~~“Freighter”~~“Passenger” aircraft; the remaining lease term for ~~this~~one of these aircraft, for which we have an executed lease post-conversion, is measured based on the ten-year term of that post-conversion ~~lease.~~

~~(6)~~		~~Aircraft on-lease days as a percent of total days in period weighted by net book value, excluding aircraft in conversion.~~lease, while the remaining lease term for the other is measured based on the 2008 expiry date on the existing short-term passenger configuration leases.


						Aircraft Committed to be					Total
						Acquired as of							% of Net
	Owned Aircraft as of					March 31, 2008⁽¹⁾							Book Value
	March 31, 2008							% of Base					plus Base
	Number of		% of Net			Number of		Purchase			Number of		Purchase
	Aircraft		Book Value			Aircraft		Price⁽²⁾			Aircraft		Price
Aircraft Type
Passenger:
Narrowbody		94		49	%		4		27	%		98		48	%
Midbody		24		24	%		—		—	%		24		23	%
Widebody⁽³⁾		3		4	%		—		—	%		3		4	%

Total Passenger		121		77	%		4		27	%		125		75	%
Freighter		15		23	%		1		73	%		16		25	%

Total		136		100	%		5		100	%		141		100	%

Manufacturer
Boeing		95		66	%		1		73	%		96		67	%
Airbus		41		34	%		4		27	%		45		33	%

Total		136		100	%		5		100	%		141		100	%

Regional Diversification
Europe		64		45	%		1		73	%		65		46	%
Asia⁽⁴⁾		35		25	%		4		27	%		39		25	%
North America		14		11	%		—		—	%		14		10	%
Latin America		12		7	%		—		—	%		12		7	%
Middle East and Africa		10		12	%		—		—	%		10		12	%
Off-lease		1		—	%		—		—	%		1		—	%

Total		136		100	%		5		100	%		141		100	%


	Owned Aircraft as of
	June 30, 2008
	Number of		% of Net
	Aircraft		Book Value

Aircraft Type
Passenger:
Narrowbody		92		47	%
Midbody		24		23	%
Widebody⁽¹⁾		2		3	%

Total Passenger		118		73	%
Freighter⁽²⁾		17		27	%

Total		135		100	%

Manufacturer
Boeing		93		67	%
Airbus		42		33	%

Total		135		100	%

Regional Diversification
Europe⁽³⁾		64		47	%
Asia⁽⁴⁾		34		23	%
North America⁽⁵⁾		14		11	%
Latin America		11		7	%
Middle East and Africa		10		12	%
Off-lease⁽⁶⁾		2		—	%

Total		135		100	%


(1)		~~One Boeing~~Excludes 15 Airbus Model~~747-400~~ A330-200 aircraft ~~that was~~ scheduled to go into freighter conversion in the fourth quarter of 2008 currently on short-term lease in passenger configuration is included as a “Passenger” aircraft. In July 2008, we terminated the freighter conversion agreement for ~~this aircraft~~delivery between June 2010 and ~~have signed an agreement to sell this aircraft to a third party following lease expiry.~~November 2011.

(2)		~~One Boeing Model747-400~~ ~~aircraft currently being converted~~Base purchase price represents the purchase price subject to ~~freighter configuration is included as “Freighter” aircraft.~~certain agreed upon adjustments.

(3)		~~Includes one Airbus~~Two Boeing Model ~~A320-200~~747-400 aircraft ~~that was undergoing maintenance~~currently on short-term leases in passenger configuration are included as ~~of June 30, 2008 for which we have an executed lease and which was delivered during the third quarter of 2008.~~“Passenger” aircraft.

(4)		Includes ~~one~~two Boeing Model747-400 aircraft currently on short-term lease in passenger configuration to ~~an airline~~airlines in Asia. ~~This~~These aircraft was scheduled to go into freighter conversion in the fourth quarter of 2008. In July 2008, we terminated the freighter conversion agreement for this aircraft and have signed an agreement to sell this aircraft to a third party following lease expiry.

~~(5)~~		~~Includes one Boeing Model747-400~~ ~~aircraft currently being~~will be converted to freighter configuration ~~for which~~in 2008 and 2009 and we have an executed a lease ~~post-conversion~~ with a carrier in North ~~America.~~

~~(6)~~		~~At June 30, 2008, includes~~America for one ~~off-lease Boeing Model757-200~~of these aircraft ~~and one off-lease Boeing Model737-300~~ ~~for which we have signed letters of intent with new carriers.~~post-conversion.


	Three Months Ended
	March 31,
(Dollars in thousands)	2007		2008
Revenues:
Lease rentals	$	67,358	$	133,627
Interest income		2,588		1,291
Other revenue		58		38

Total revenues		70,004		134,956

Expenses:
Depreciation		21,633		48,215
Interest, net		16,730		41,011
Selling, general and administrative (including non-cash share based payment expense of $1,258 and $1,598 respectively)		8,497		11,489
Other expenses		382		890

Total expenses		47,242		101,605

Income from continuing operations before income taxes		22,762		33,351
Income tax provision		1,905		1,714

Income from continuing operations		20,857		31,637
Earnings from discontinued operations, net of income taxes		684		—

Net income	$	21,541	$	31,637


	Payments Due By Period as of March 31, 2008
			Less than						More than
Contractual Obligations	Total		1 year		2-3 years		4-5 years		5 years
			(Dollars in thousands)
Securitization No. 1⁽¹⁾	$	601,527	$	39,385	$	79,958	$	205,999	$	276,185
Securitization No. 2⁽²⁾		1,378,443		93,663		170,776		245,323		868,681
Revolving Credit Facility⁽³⁾		10,343		10,343		—		—		—
Amended Credit Facility No. 2⁽³⁾		872,329		872,329		—		—		—
2008-A Credit Facility⁽³⁾		94,884		94,884		—		—		—
747 PDP Credit Facility⁽³⁾⁽⁴⁾		32,006		32,006		—		—		—
Repurchase agreements⁽³⁾		2,304		2,304		—		—		—
Operating leases⁽⁵⁾		5,800		1,161		2,112		1,831		696
Purchase obligations⁽⁶⁾		1,295,186		267,676		689,918		337,592		—

Total	$	4,292,822	$	1,413,751	$	942,764	$	790,745	$	1,445,562


	Payments Due By Period as of June 30, 2008
			Less than						More than
Contractual Obligations	Total		1 year		2-3 years		4-5 years		5 years
	(Dollars in thousands)

Securitization No. 1⁽¹⁾	$	565,475	$	36,071	$	80,009	$	209,428	$	239,967
Securitization No. 2⁽²⁾		1,321,151		79,919		157,522		259,414		824,296
Term Financing No. 1⁽³⁾		965,228		82,559		158,619		156,039		568,011
Amended Credit Facility No. 2⁽⁴⁾		262,397		262,397		—		—		—
Operating leases⁽⁵⁾		5,510		1,165		2,072		1,632		641
Purchase obligations⁽⁶⁾		1,154,920		175,162		778,203		201,555		—

Total	$	4,274,681	$	637,273	$	1,176,425	$	828,068	$	1,632,915


(1)		Includes interest on variable rate, LIBOR-based instruments at the ~~June 30,~~March 31, 2008 rate and 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 until the securitization’s fifth anniversary, after which all excess cash flow is required to reduce the principal balances of the indebtedness. We expect that the securitization principal balance will be refinanced in full on or before June 2011.

(2)		Includes interest on variable rate, LIBOR-based instruments at the ~~June 30,~~March 31, 2008 rate and principal payments based on amortization schedules through February 2018 that require the ~~securitization~~securitizations’ cash flows be applied to the outstanding principal balance of the indebtedness so that the loan to assumed aircraft values are held constant until the securitization’s fifth anniversary, after which all excess cash flow is required to reduce the principal balances of the indebtedness. We expect that the securitization principal balance will be refinanced in full on or before June 2012.

(3)		Includes interest on variable rate, LIBOR-based instruments at the ~~June 30,~~March 31, 2008 rate and principal payments based on amortization schedules through May 2013 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 until the fifth anniversary, after which all excess cash flow is required to reduce the principal balances of the indebtedness. We expect that Term Financing No. 1 principal balance will be refinanced in full on or before May 2013.rate.

(4)		~~Includes interest on variable rate, LIBOR-based instruments at~~On April 10, 2008, we paid the ~~June 30, 2008 rate.~~remaining balance.

(5)		Represents contractual payments on our office leases in Stamford, ~~Connecticut;~~Connecticut, Dublin, Ireland and Singapore.

(6)		At ~~June 30,~~March 31, 2008, we had ~~aircraft~~ purchase agreements ~~and freighter conversion agreements,~~or binding letters of intent to acquire 20 aircraft, including ~~the acquisition of~~ 15 ~~Airbus A330 aircraft~~ from Airbus. ~~In July 2008, we amended the Airbus A330 Agreement~~Purchase agreements and binding letters of intent are subject to ~~reduce the number of aircraft~~certain conditions to closing and there can be ~~acquired from fifteen to twelve and to change the Airbus A330 Agreement so~~no assurance that ~~we receive a mix of freighter and passenger aircraft. Also in July 2008, we terminated an agreement to convert one Boeing Model747-400~~ from passenger to freighter configuration. As a result of these two events, our committed amounts for the purchase of aircraft and related flight equipment and improvements, including estimated amounts for pre-delivery deposits, engine acquisition costs, contractual price escalation and other adjustments,such conditions will be ~~approximately $947.2 million ($107.4 million - less than 1 year, $657.5 million - 2-3 years~~satisfied and ~~$182.3 million - 4-5 years).~~these acquisitions consummated.


																Fair Value
	Current/				Mandatory				Future							of
	Starting				Early				Maximum							Derivative
	Notional		Effective		Termination		Maturity		Notional		Floating					Asset or
Hedged Item	Amount		Date		Date		Date		Amount		Rate		Fixed Rate			(Liability)
Securitization No. 1	$	521,725	Jun-06			N/A	Jun-16		$	521,725	1M LIBOR + 0.27%			5.78	%	$	(53,603	)
Securitization No. 2		1,140,319	Jun-07			N/A	Jun-12			1,140,319	1M LIBOR		5.25% to 5.36%				(92,417	)
Revolving Credit Facility		28,000	Jun-07		Dec-11		Jan-12			203,000	1M LIBOR			4.89	%		(7,528	)
Amended Credit Facility No. 2		240,000	Jun-07		Jun-08		Feb-13			240,000	1M LIBOR			4.88	%		(17,256	)
Amended Credit Facility No. 2 and 747 PDP Credit Facility		220,000	Aug-07		Nov-08		May-13			220,000	1M LIBOR			5.33	%		(17,632	)
Future debt and securitization		190,000	Jan-08		Feb-09		Feb-19			360,000	1M LIBOR			5.16	%		(33,180	)
Future debt and securitization		5,000	May-08		Sep-09		Mar-14			55,000	1M LIBOR			5.41	%		(4,818	)
Future debt and securitization		46,000	Apr-10		Nov-11		Oct-15			231,000	1M LIBOR			5.17	%		(8,647	)
Future debt and securitization		95,000	Jan-11		May-12		Apr-16			238,000	1M LIBOR			5.23	%		(7,068	)
Future debt and securitization		143,000	Jul-11		Oct-12		Sep-16			238,000	1M LIBOR			5.27	%		(5,917	)
Repurchase Agreement⁽¹⁾		—		N/A		N/A		N/A		—		N/A		N/A			(175	)
Repurchase Agreement		2,900	Jun-05			N/A	Mar-13			2,900	1M LIBOR			4.21	%		(124	)

Total	$	2,631,944							$	3,449,944						$	(248,365	)


	Face/Notional/						Face/Notional Amount Maturing
	Market Value amount						Twelve Months Ended June 30,																		Fair Value
	December 31,			June 30,																					June 30,			December 31,
(Dollars in thousands)	2007			2008			2009			2010			2011			2012			2013			Thereafter			2008			2007

Fixed Rate Assets
Securities Available for Sale⁽¹⁾	$	101,340		$	24,814		$	1,151		$	6,552		$	738		$	665		$	721		$	14,987		$	20,664		$	99,118
Weighted average coupon rate, end of period		7.77	%		7.83	%		7.84	%		8.13	%		8.14	%		8.15	%		8.16	%		8.16	%
Security Held Until Maturity⁽²⁾	$	13,897		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	13,897
Average interest rate		8.88	%		N/A
Variable Rate Liabilities
Borrowed under Credit Facilities⁽³⁾⁽⁴⁾	$	798,186		$	255,189		$	255,189		$	—		$	—		$	—		$	—		$	—		$	255,189		$	798,186
Weighted average interest rate end of period		6.26	%		3.73	%
Securitized Notes
Notes Issued	$	1,677,736		$	1,632,307		$	72,023		$	73,912		$	81,513		$	154,807		$	245,668		$	1,004,384		$	1,488,807		$	1,623,522
Weighted average interest rate, end of period		5.44	%		2.72	%		3.36	%		3.83	%		4.17	%		4.41	%		4.56	%
Term Debt Financings
Borrowed under Term Debt Financings⁽⁵⁾	$	—		$	782,060		$	48,900		$	48,900		$	48,900		$	48,900		$	54,913		$	531,547		$	782,060		$	—
Weighted average interest rate end of period		N/A			4.37	%		4.85	%		5.32	%		5.66	%		5.89	%		6.05	%
Repurchase Obligations⁽¹⁾	$	67,744		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	67,744
Weighted average interest rate, end of period		5.74	%		N/A
Interest Rate Swaps Related to Repurchase Obligations
Pay fixed/receive variable⁽¹)	$	46,900		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	(633	)
Weighted average pay fixed rate		4.96	%		N/A
Weighted average receive variable rate, end of period		4.61	%		N/A
Interest Rate Forwards Related to Securitization No. 1
Notional Amounts	$	527,396		$	515,984		$	23,666		$	24,820		$	32,042		$	81,986		$	36,145		$	317,325		$	(30.813	)	$	(33,842	)
Weighted average pay fixed rate		5.78	%		5.78	%		5.78	%		5.78	%		5.78	%		5.78	%		5.78	%
Weighted average receive variable rate, end of period		4.87	%		2.74	%		3.37	%		3.84	%		4.18	%		4.41	%		4.57	%
Interest Rate Forwards Related to Securitization No. 2
Notional Amounts	$	1,150,339		$	1,130,171		$	56,276		$	50,760		$	50,795		$	972,340		$	—		$	—		$	(48,433	)	$	(54,110	)
Weighted average pay fixed rate		5.26	%		5.26	%		5.25	%		5.25	%		5.30	%
Weighted average receive variable rate, end of period		4.60	%		2.45	%		3.10	%		3.57	%		3.91	%
Interest Rate Swaps Related to Term Financing No. 1
Notional Amounts⁽⁵⁾	$	—		$	710,068		$	44,410		$	44,410		$	44,410		$	44,410		$	49,684		$	482,744		$	1,515		$	—
Weighted average pay fixed rate		N/A			4.04	%		4.04	%		4.04	%		4.04	%		4.04	%		5.31	%
Weighted average receive variable rate, end of period		N/A			2.45	%		3.10	%		3.57	%		3.91	%		4.14	%		4.30	%
Interest Rate Forwards Related to Amended Credit Facility No. 2, Revolving Credit Facility and Future Debt
Notional Amounts⁽⁶⁾	$	860,000		$	97,932		$	(155,410	)	$	(158,410	)	$	(322,410	)	$	(120,410	)	$	345,316		$	509,256		$	(19,244	)	$	—
Weighted average pay fixed rate		5.05	%		5.07	%		5.06	%		5.03	%		5.15	%		5.21	%		5.24	%
Weighted average receive variable rate, end of period		4.60	%		2.47	%		3.10	%		3.57	%		3.91	%		4.14	%		4.30	%


~~Item 4.~~	~~Submission of Matters to a Vote of Security Holders~~


Exhibit No.			Description of Exhibit

	2	.1	Asset Purchase Agreement, dated as of January 21, 2007, by and among the Sellers listed onSchedule 1-A, each of which is a direct or indirect subsidiary of Guggenheim Aviation Investment Fund, LP, a Delaware limited partnership, and the Purchasers listed onSchedule 1-B, each of which is a direct or indirect subsidiary of Aircastle Limited, a Bermuda exempted company.††
	3	.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.†
	10	.1	Credit Agreement (2008-B), dated as of May 2, 2008, by and among ACS2008-1 Limited and ACS Aircraft Finance Ireland 3 Limited, as Borrowers, each lender from time to time party thereto, as Lenders, Calyon New York Branch, as Sole Bookrunner and Facility Agent, and Calyon New York Branch, HSH Nordbank AG, KfW Ipex-Bank GmbH and DVB Bank AG, as Joint Lead Arrrangersˆ
	10	.2	Intercreditor Agreement, dated as of May 2, 2008, by and among ACS2008-1 Limited, as Borrower, ACS Aircraft Finance Ireland 3 Limited, as Guarantor, Aircastle Advisor LLC, as Administrative Agent, Calyon New York Branch, as Facility Agent, Collateral Agent and Liquidity Facility Provider, and Deutsche Bank Trust Company Americas, as Operating Bankˆ
	10	.3	Intercreditor Agreement, dated as of May 2, 2008, by and among ACS Aircraft Finance Ireland 3 Limited, as Borrower, ACS2008-1 Limited, as Guarantor, Aircastle Advisor LLC, as Administrative Agent, Calyon New York Branch, as Facility Agent, Collateral Agent and Liquidity Facility Provider and Deutsche Bank Trust Company Americas, as Operating Bankˆ
	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
	32	.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 June 30, 2008


†		~~Incorporated by reference to the Company’s registration statement onForm S-1,~~ ~~filed with the SEC on June 2, 2006, as amended on July 10, 2006, July 25, 2006 and August 2, 2006.~~

††Exhibit No.		~~Incorporated by reference to the Company’s current report onForm 8-K~~ ~~filed with the SEC on January 25, 2007.~~Description of Exhibit
31.1		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
ˆ31.2		~~Incorporated~~Certification by ~~reference~~the Chief Financial Officer pursuant to ~~Amendment No. 1~~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 ~~Company’s current report onForm 8-K~~ ~~filed with~~Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the ~~SEC on May 5, 2008.~~Sarbanes-Oxley Act of 2002


	AIRCASTLE LIMITED (Registrant)
	By:	/s/ Aaron Dahlke
		Aaron Dahlke
		Chief Accounting Officer and Authorized Officer