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

our subsidiaries, ACS Aircraft Finance Ireland plc (‘‘ACS Ireland’’) and ACS Aircraft Finance Bermuda Limited (‘‘ACS Bermuda’’), which we refer to together with their subsidiaries as the ‘‘ACS Group’Group,’,’ issued $560,000 of Class A-1 notes, or the ‘‘notes,Notes,’’ to a newly formed trust, the ACS 2006-1 Pass Through Trust, or the ‘‘trust.Trust.’’ The trustTrust simultaneously issued a single class of Class G-1 pass through trust certificates, or the ‘‘certificates,Certificates,’’ representing undivided fractional interests in the notes. Payments on the notesNotes will be passed through to holders of the certificates. The notesNotes are secured by ownership interests in aircraft-owning subsidiaries of ACS Bermuda and ACS Ireland and the aircraft leases, cash, rights under service agreements and any other assets they may hold. Each of ACS Bermuda and ACS Ireland has fully and unconditionally guaranteed the other’sothe r’s obligations under the notes. However, the notesNotes are neither obligations of nor guaranteed by Aircastle Limited.

The ACS Group used the proceeds from the sale of the notes to acquire 40 aircraft from Aircastle and we paid for certain expenses incurred in connection with the certificates offering of $14,356. We used a portion of the proceedsNotes mature on June 20, 2031. The terms of Securitization No. 1 require the ACS Group to return $36,932satisfy certain financial covenants, including the maintenance of debt service coverage ratios. The ACS Groups’ compliance with these covenants depends substantially upon the timely receipt of lease payments from their lessees. In particular, during the first five years from issuance, Securitization No. 1 has an amortization schedule that requires that lease payments be applied to Fortressreduce the outstanding principal balance of the indebtedness so that such balance remains at 54.8% of the assumed future depreciated value of the portfolio. If the debt service coverage ratio requirements are not met on two consecutive monthly payment dates in exchange for the cancellationfourth and fifth year following the closing date of 3,693,200 of our common shares and to repay amounts owed on Credit FacilitySecuritization No. 1, and Credit Facility No. 2, each as defined below. in any month following the fifth anniversary of the closing date , all excess securitization cash flow is required to be used to reduce the principal balance of the indebtedness and will not be available to us for other purposes, including paying dividends to our shareholders.

The notesNotes provide for monthly payments of interest at a floating rate of one-month LIBOR plus 0.27%, which at September 30, 2006March 31, 2007 was 5.60%5.59%, and scheduled payments of principal. Financial Guaranty Insurance Company issued a financial guaranty insurance policy to support the payment of interest when due on the certificatesCertificates and the payment, on the final distribution date, of the outstanding principal amount of the certificates.Certificates. The certificatesCertificates are rated Aaa and AAA by Moody'sMoody’s Investors Service and Standard & Poor'sPoor’s rating services, respectively. We have entered into a series of interest rate hedging contracts intended to hedge the interest rate exposure associated with issuing floating-rate obligations backed by primarily fixed-rate lease assets. These contracts, together with the guarantee premium, the spread referenced above and other costs of trust administration, result in a fixed rate cost of 6.60% per annum, after the amortization of issuanceis suance fees and expenses.

ACS Ireland, which had total assets of $156,938$146,485 at September 30, 2006,March 31, 2007, is a VIE which we consolidate. At September 30, 2006,March 31, 2007, the outstanding principal amount of ACS Ireland’s notes was $107,159.$105,262.

Credit Facility No. 2

On February 28, 2006, we entered into a $500,000 revolving credit facility with a group of banks as lenders, to finance the acquisition of aircraft and related improvements which we refer to as Credit Facility No. 2. The borrowing base is equal to 85% of the net book value of the aircraft. Borrowings under this credit facility incur interest at the one-month LIBOR rate plus 1.25%. Additionally, we are subject to a 0.25%0.12% fee on any unused portion of the total committed facility. Credit Facility No. 2 requires the monthly payment of interest and principal, to the extent of 85% of any decrease in the net book value of the assets. Prior to the initial public offering, Credit Facility No. 2 limited our ability to pay dividends. After the initial public offering, Credit Facility No. 2 has no restrictions on the amount of dividends we can pay, provided that we are not in default. Additionally, we are required under Credit Facility No. 2 to maintain a net worth determined in conformity with GAAP of no less than $500,000. Effective June 15, 2006, Credit Facility No. 2 was amended to increase the maximum committed amount to $750,000 and to extend the maturity to November 15, 2007. On December 15, 2006, the $750,000 credit facility was amended to increase the maximum committed amount to $1,000,000 and to extend the maturity to Dece mber 15, 2008 (‘‘Amended Credit Facility No. 2’’). In addition, the borrowing base was revised to equal 65% of the purchase price of aircraft secured under the facility. On January 22, 2007, the $1,000,000 Amended Credit Facility No. 2 was

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

amended to increase the maximum committed amount to $1,250,000; provided that such amount will reduce to $1,000,000 on the earlier of (1) the closing of our next securitization financing or (2) June 30, 2007 (or, if we pay a commitment fee to the lenders, December 31, 2007). As of September 30, 2006,March 31, 2007, we had borrowed $277,894$302,951 under Amended Credit Facility No. 2.2 and the interest rate was 6.57%.

Revolving Credit Facility

On February 24,December 15, 2006, the Company entered into a $250,000 revolving periodcredit facility (the ‘‘Revolving Credit Facility’’) with a group of banks. The Revolving Credit Facility provides loans for working capital and other general corporate purposes and also provides for issuance of letters of credit for the account of any borrower up to $125,000 and matures on December 15, 2007. The aggregate amount of borrowings together with the aggregate stated amount of all letters of credit under the Revolving Credit Facility may not exceed $250.0 million. Borrowings under the Revolving Credit Facility bear interest (a) in the case of loans with an interest rate based on the applicable base rate (the ‘‘ABR’’) plus 0.50% per annum or (b) in the case of loans with an interest rate based on the eurodollar rate (the ‘‘EDR’’), the EDR plus 1.50% per annum. Additionally, we are subject to a pe r annum fee on any unused portion of the total committed facility of 0.25%, during periods when the average outstanding loans under the Revolving Credit Facility are less than $125.0 million, and 0.125% per annum when the average outstanding loans are equal to or greater than $125.0 million. Fees on any outstanding letters of credit will equal 1.625% per annum on the stated amount thereof. We are also required to pay customary agency fees. Additionally, we are required to maintain a net worth determined in accordance with GAAP of not less that $550,000. On January 22, 2007, the Revolving Credit Facility was amended to increase the maximum committed amount to $450,000. However, upon the closing of our $600,000follow-on equity offering in February 2007, the maximum committed amount returned to $250,000. 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. At March 31, 2007, there were no outstanding loans and $53.1 million of letters of credit outstanding under the Revolving Credit Facility.

Credit Facility No. 1

In February 2005, we entered into a revolving credit facility, as subsequently amended, with a group of banks to finance the acquisition of flight equipment and related improvements, which we refer to as Credit Facility No. 1, was extended to April 28, 2006 and the maximum amount of this credit facility was reduced to $525,000.1. The other terms ofinterest rate on Credit Facility No. 1 remainedwas the same.one month LIBOR plus 1.50%. Monthly payments of interest only continuedwere required through repayment of Credit Facility No. 1.repayment. Credit Facility No. 1 was repaid in full and terminated on August 4, 2006.

Table In addition, we wrote off the remaining balance of Contentsdeferred financing fees of $1,840 upon the termination of Credit Facility No. 1.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)Credit Facility No. 3

In October 2005, the Company entered into a credit facility for $109,998 with a bank to finance the acquisition of three aircraft which we refer to as Credit Facility No. 3. The interest rate on this facility is one-month LIBOR plus 1.50%. On March 30, 2006, $36,666 of Credit Facility No. 3 was repaid using a portion of the proceeds from the disposition of flight equipment held for sale which had been financed under this facility. Credit Facility No. 3 was amended on July 18, 2006, to increase the maximum committed amount by approximately $25,116 and to extend the maturity date to March 31, 2007. The increase in the maximum committed amount was reduced by $25,116 with the closing of the initial public offering. On or prior to maturity, we intend to refinanceJanuary 26, 2007, Credit Facility No. 3 with long-term financing. However, we can give no assuranceswas amended again to extend the Company will be ablematurity date from March 31, 2007 to obtain this financing. Asthe earlier of September 30, 2006,2007 or the closing of the next securitization. A s of March 31, 2007, we had borrowed $73,332 under Credit Facility No. 3.3 and the interest rate was 6.82%.

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

The weighted average interest of these credit facilities at December 31, 2006 and March 31, 2007 were 6.64%, and 6.62%, respectively.

Note 7.    Repurchase Agreements

We enteredenter into repurchase agreements to fund a portion of the purchase price of certain of our debt investments.securities. At December 31, 20052006 and September 30, 2006,March 31, 2007 the repurchase agreements are secured by liens on the debt investmentssecurities with a fair value of $11,107$105,550 and $104,336,$94,037, respectively. The repurchase agreements provide for the payment of interest at LIBOR based rates plus spreads ranging from 0.50% to 0.75%. At March 31, 2007 the rate for LIBOR plus 0.50% was 5.82% and the rate for LIBOR plus 0.75% was 6.09%. The repurchase agreements are substantially all with parties other than those from whom we originally purchased the debt investments. At September 30, 2006,March 31, 2007, the repurchase agreements are scheduled to mature through June 2007.March 2008. Upon maturity, we intendplan to refinance the repurchase agreements on similar terms and conditions. However, there is no assurance the Company will be able to refinance the repurchase agreements. The weighted average interest rate of these repurchase agreements at September 30,At December 31, 2006 and March& nbsp;31, 2007 was 5.67%.5.88% and 5.84%, respectively.

Note 8.    Initial Public OfferingShareholders’ Equity and Share Based Payment

On February 13, 2007, the Company completed a follow-on public offering of 15,525,000 common shares at a price of $33.00 per share, raising $512,325 before offering costs. Net proceeds of the offering, after our payment of $17,931 in underwriting discounts and commissions and $1,338 in offering expenses, were $493,056. Approximately $473,074 of the net proceeds was used to repay borrowings under Amended Credit Facility No. 2 and the Revolving Credit Facility. The remainder of the net proceeds were used for other general corporate purposes.

In August 11, 2006, the Company completed its initial public offering (‘‘IPO’’) of 10,454,535 common shares at a price of $23$23.00 per share, raising $240,454 before offering costs. The net proceeds of the initial public offering, after our payment of $16,832 in underwriting discounts and commissions, and $3,777$4,027 in offering expenses were $219,845.$219,595. Approximately $205,470 of the net proceeds was used to repay a portion of Credit Facility No. 2. The remainder of the proceeds were used for working capital requirements and to fund additional aircraft acquisitions.

Note 9.    Shareholders’ Equity, Share Based Payments and Earnings (Loss) Per Share

In JanuaryOn February 8, 2006, the board of directors (the ‘‘Board’’) and the Fortress Shareholders adopted the Aircastle Investment Limited 2005 Equity and Incentive Plan, and the Board and the Fortress Shareholders approved an amendment to and restatement thereof on July 20, 2006 (as so amended and restated, the ‘‘2005 Plan’’). The purpose of the 2005 Plan is to provide additional incentive to selected management employees. The 2005 Plan provides that the Company may grant (a) share options, (b) share appreciation rights, (c) awards of restrictedpurchased 3,693,200 common shares deferred shares, performance shares, unrestricted shares or other share-based awards, or (d) any combination of the foregoing. Four million shares were reserved under the 2005 Plan, increasing by 100,000 each year beginning in 2007 through and including 2016. The 2005 Plan provides that grantees of restricted shares will have all of the rights of shareholders, including the right to receive dividends, other than the right to sell, transfer, assign or otherwise dispose of the shares until the lapse of the restricted period.

In February and March of 2006, the Board ratified the initial grants under the 2005 Plan of 347,500 restricted shares in the first half of 2005 and 25,000 restricted shares on July 5, 2005 which were provided for in certain employment contracts, and approved new grants of 412,500 restricted shares. Generally, the restricted shares vest over five year periods based on continued service and are being expensed on a straight line basis over the requisite service period of the awards. The terms of the grants provide for accelerated vesting under certain circumstances, including termination without cause following a change of control. The grants also impose lock-up restrictions on restricted shares

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Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, exceptat $10 per share amounts)

from the date of grant through 120 days after the date of any initial public offering, and provide for certain further restrictions and notice periods thereafter.

On July 20, 2006, the Board declared a dividend from cash on hand in thetotal amount of $0.35 per common share, or an aggregate of $14,367 to shareholders of record on July 26, 2006, which was paid on July 31, 2006. In addition, on August 2, 2006, our Board declared a dividend of $0.156 per common share, or an aggregate of $6,403 to shareholders of record on August 1, 2006, which was paid on August 15, 2006. The Company paid these dividends so that holders of our common shares prior to the initial public offering would receive a distribution for the period prior to the initial public offering.

$36,932. On July 21, 2006, the Company returned $36,932 of cash to Fortress in exchange for the cancellation of 3,693,200 of our common shares at $10 per share.

A summary of the fair value of nonvested shares for the ninethree months ended September 30, 2006March 31, 2007 is as follows:

Nonvested Shares			Shares (in 000’s)						Weighted Average Grant Date Fair Value						Fair Value of Nonvested Shares at Grant Date						Shares (in 000’s)						Weighted Average Grant Date Fair Value						Fair Value of Nonvested Shares at Grant Date
Nonvested at January 1, 2006					372.5					$	8.50					$	3,166
Nonvested at January 1, 2007																							901.3					$	18.05					$	16,266
Granted					483.7						22.23						10,753						119.5						33.22						3,970
Cancelled					(4.5	)					22.00						(99	)					(0.3	)					—						(9	)
Vested					(71.0	)					14.92						(1,059	)					(146.1	)					(20.45	)					(2,987	)
Forfeited					—						—						—
Nonvested at September 30, 2006					780.7					$	16.35					$	12,761
Nonvested at March 31, 2007																							874.4					$	19.71					$	17,240

The fair value of the restricted shares granted in 2006 prior to the initial public offering was determined based on an estimate of the offering range per share from the anticipated initial public offering. The fair value of restricted shares granted in 2006 subsequent to the date of the initial public offering2007 was determined based upon the market price of the shares at the grant date. We anticipate that the current requisite service periods will be obtained for employees with awards. The total unrecognized compensation cost as of September 30, 2006March 31, 2007 in the amount of $10,006$15,057 is expected to be recognized over a weighted average period of four years.

During the nine months ended September 30, 2005, a total of 372,500 restricted shares were granted at a fair value of $8.50. The fair value of the restricted shares granted in 2005 was determined based on a retrospective valuation performed by an unrelated valuation specialist. The valuation relied on observed equity investments made by the Fortress Shareholders, adjusted to reflect the lack of marketability of the shares granted to employees.

On August 7, 2006, 65,215 restricted shares were granted to non-officer directors on our board. The fair value of the restricted shares was based upon the initial public offering price of $23 per share.

In September, 2006, 6,000 restricted shares were granted to a new employee under the terms of the employee’s employment contract. The fair value of the restricted shares was based upon the market price of the shares at the grant date.

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. For the three and nine months ended September 30, 2005, based on the treasury stock

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

method, we had 20,032 and 14,655, respectively, anti-dilutiveNote 9.    Dividends

On December 13, 2006 the Board declared a fourth quarter dividend of $0.4375 per common share, equivalents resulting from restricted shares. There were no anti-dilutive common shares foror an aggregate of $22,584 to shareholders of record as of December 29, 2006, which was paid on January 15, 2007.

On March 14, 2007, the three and nine months ended SeptemberBoard declared a first quarter dividend of $0.50 per Common Share, or an aggregate of $33,634, which was paid on April 13, 2007 to the shareholders of record as of March 30, 2006.2007.

Note 10.    Earnings Per Share

The calculations of bothfollowing table shows how we computed basic and diluted earnings (loss) per share for the three months and nine months ended September 30, 2005 and 2006 are as follows:share:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2005						2006						2005						2006
Numerator
Income (loss) from continuing operations				$	(1,606	)				$	15,182					$	(3,856	)				$	28,013
Earnings from discontinued operations, net of income taxes					—						—						—						3,399
Net income (loss)				$	(1,606	)				$	15,182					$	(3,856	)				$	31,412
Denominator
Denominator for basic earnings per share					40,000,000						46,907,390						40,000,000						44,058,333
Effect of dilutive restricted shares					—(a	)					315,121						—(a	)					317,865
Denominator for diluted earnings per share					40,000,000						47,222,511						40,000,000						44,376,198
Basic Earnings (loss) per share:
Income (loss) from continuing operations				$	(0.04	)				$	0.32					$	(0.10	)				$	0.64
Earnings from discontinued operations, net of income taxes					—						—						—						0.08
Net income (loss) per share				$	(0.04	)				$	0.32					$	(0.10	)				$	0.72
Diluted Earnings (loss) per share:
Income (loss) from continuing operations				$	(0.04	)				$	0.32					$	(0.10	)				$	0.63
Earnings from discontinued operations, net of income taxes				$	—					$	—					$	—					$	0.08
Net income (loss) per share				$	(0.04	)				$	0.32					$	(0.10	)				$	0.71

			Three Months Ended March 31,
			2006						2007
Numerator
Income from continuing operations				$	7,435					$	20,857
Earnings from discontinued operations, net of income taxes					3,745						684
Net income				$	11,180					$	21,541
Denominator
Weighted-average shares used to compute basic earnings per share					41,322,604						58,864,054
Effect of dilutive restricted shares					78,348						291,573
Weighted-average shares outstanding and dilutive securities used to compute diluted earnings per share					41,400,952						59,155.627

(a)	Anti-dilutive

Note 10.11.    Income Taxes

Income taxes have been provided 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.

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

The sources of income (loss) from continuing operations before income taxes for the three and nine months ended September 30, 2005March 31, 2006 and 20062007 were as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2005						2006						2005						2006
Bermuda				$	(1,700	)				$	10,551					$	(3,936	)				$	14,873
Non-Bermuda					302						6,417						541						17,593
Total				$	(1,398	)				$	16,968					$	(3,395	)				$	32,466

			Three Months Ended March 31,
			2006						2007
U.S. operations				$	168					$	445
Non-U.S. operations					8,271						22,317
Total				$	8,439					$	22,762

The components of theDifferences between statutory income tax provision from continuing operations for the threerates and nine months ended September 30, 2005 and 2006our effective income tax rates applied to pre-tax income consisted of the following:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2005						2006						2005						2006
Current				$	220					$	226					$	424					$	2,214
Deferred					(12	)					1,560						37						2,239
Total				$	208					$	1,786					$	461					$	4,453

			Three Months Ended
			March 31, 2006						March 31, 2007
Notional U.S. federal income tax expense at the statutory rate:				$	2,711					$	7,967
U.S. state and local income tax, net					18						50
Non-U.S. operations					(1,913	)					(6,135	)
Non-deductible expenses in the U.S.					4						14
Other					184						9
Provision for income taxes				$	1,004					$	1,905

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Significant componentsAircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2007

We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 (‘‘FIN 48’’), on January 1, 2007. FIN 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the Company’s deferredposition. The tax assetsbenefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. W e did not have any unrecognized tax benefits and liabilities at December 31, 2005there was no effect on our financial condition or results of operations as a result of implementing FIN 48.

We conduct business globally and, September 30, 2006 consistedas a result, the Company and its subsidiaries or branches are subject to foreign, U.S. federal and various state income taxes as well as withholding taxes. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States and Ireland. With few exceptions, the Company and its subsidiaries or branches remain subject to examination for all periods since inception.

Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the following:

			December 31, 2005						September 30, 2006
Deferred tax assets:
Non-cash share based payments				$	152					$	797
Net operating loss carry forwards					49						913
Other					6						5
Total deferred tax assets					207						1,715
Deferred tax liabilities
Accelerated depreciation					(333	)					(3,655	)
Other					—						(572	)
U.S. federal withholding tax on unremitted earnings					(207	)					(60	)
Total deferred tax liabilities					(540	)					(4,287	)
Net deferred tax liabilities				$	(333	)				$	(2,572	)

The Company had approximately $390date of net operating loss carry forwards available at December 31, 2005 to offset future taxable income in Ireland. Deferredadoption of FIN 48, we did not have any accrued interest and penalties associated with any unrecognized tax assets and liabilities are included in other assets and accounts payable and accrued liabilities, respectively, inbenefits, nor was any interest expense recognized during the accompanying consolidated balance sheets.

We do not expect to incur income taxes on future distributions of undistributed earnings of non-U.S. subsidiaries and, accordingly, no deferred income taxes have been provided for the distribution of such earnings. Withholding taxes have been provided on unremitted earnings of our U.S. subsidiary.quarter.

Note 11.12.     Comprehensive Income (Loss)

Comprehensive income (loss) includes net income, (loss) and the changes in the fair value of derivatives,and the reclassification into earnings of amounts previously deferred relating to our derivative financial instruments which qualify for hedge accounting in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, and the change in unrealized appreciation of debt securities.

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Aircastle Limitedsecurities classified as available-for-sale. Comprehensive income was $26,640 and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)

Comprehensive income$9,500 for the three months ended March 31, 2006 and nine months ended September 30, 2005 and 2006 was as follows:2007, respectively.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2005						2006						2005						2006
Net income (loss)				$	(1,606	)				$	15,182					$	(3,856	)				$	31,412
Change in fair value of derivatives					8,146						(31,098	)					370						(6,169	)
Change in unrealized appreciation of debt securities					3,488						—						3,430						3,608
Comprehensive income (loss)				$	10,028					$	(15,916	)				$	(56	)				$	28,851

Note 12.13.    Commitments and Contingencies

At September 30, 2006, AircastleMarch 31, 2007, we had letters of intent or purchase agreements to acquire four37 aircraft for an estimated purchase price of $72,250. The Company anticipates completing the acquisition of these aircraft during the fourth quarter of 2006.$1,435,541. The purchase price of the aircraft under these letters of intent or purchase agreements is subject to variable price provisions that typically reduce the final purchase price if the actual closing occurs beyond an initially agreed upon date.

Note 13.14.    Related Party Transactions

Fortress provides certain support services to Aircastle. Fortress requires Aircastle to reimburse it for costs incurred on behalf of Aircastle. These costs consist primarily of professional services and office supplies purchased from third parties. These expenses are charged to Aircastle at cost and are included in selling, general and administrative expenses in our consolidated statements of income. Total costs of direct operating services for the three months ended March 31, 2006 and 2007 were $0 and $22, respectively.

During 2006, Aircastle employees participated in various benefit plans sponsored by Fortress including a voluntary savings plan (‘‘401(k) Plan’’) and other health and benefit plans. For the three months ended March 31, 2006, Aircastle reimbursed Fortress $272, for its costs under the 401(k) Plan and the health and benefit plans. Aircastle also reimburses Fortress for matching contributions up to

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

3% of eligible earnings. At December 31, 2006, Aircastle accrued $113 in annual contributions for the 2006 plan year for our employees’ participation in the 401(k) Plan sponsored by Fortress which was paid to Fortress in March 2007. In January 2007, Aircastle established a voluntary savings plan (‘‘401(k) Plan’’) and other health and benefit plans.

As of December 31, 2006 and March 31, 2007, $132 and $133, respectively, were payable to Fortress.

In May 2006, two of our operating subsidiaries entered into service agreements to provide certain leasing, remarketing, administrative and technical services to a Fortress entity, with respect to four aircraft owned by the Fortress entity and leased to third parties. Our responsibilities include remarketing the aircraft for lease or sale, invoicing the lessees for expenses and rental payments, reviewing maintenance reserves, reviewing the credit of lessees, arranging for the periodic inspection of the aircraft, securing the return of the aircraft when necessary. The agreements also provide that the Fortress entity will pay us 3.0% of the collected rentals with respect to leases of the aircraft, plus expenses incurred during the service period and will pay us 2.5% of the gross sales proceeds from the sale of any of the aircraft plus expenses incurred during the service period. As of March 31, 2007, we had accrued $58 in fees due from the Fortress e ntity. The service agreements have an initial term which expires on December 31, 2008, but will continue thereafter unless one party terminates the agreement by providing the other with advance written notice.

On August 10, 2006 we acquired an aircraft from an affiliate of one of the Fortress Shareholders for a purchase price of $11,063 which we believe representsrepresented fair market value at the acquisition date.

Aircastle employees participate in various benefit plans sponsored by Fortress including a voluntary savings plan (‘‘401(k) Plan’’) and other health and benefit plans. For the three and nine months ended September 30, 2005March 31, 2006 and 2006, Aircastle incurred $27, $32, $111 and $234, respectively, for its costs under the health and benefit plans. In addition, during the nine months ended September 30, 2006, Aircastle remitted $179 in annual contributions for the 2005 plan year for our employees’ participation in the 401(k) Plan sponsored by Fortress.

In addition, Fortress requires Aircastle to reimburse it for costs of services which it has incurred on behalf of Aircastle. These expenses are charged to Aircastle at cost and are included in selling, general and administrative expenses in the consolidated statement of operations. For the three and nine months ended September 30, 2006, no such costs were incurred. For the three and nine months ended September 30, 2005, such costs were $41 and $238, respectively, and were primarily for professional fees.

For the three and nine months ended September 30, 2006,2007, Aircastle paid $439$163 and $958,$121, respectively for legal fees related to the establishment and financing activities of our Bermuda subsidiaries, and, for the ninethree months ended September 30,March 31, 2006 and 2007, Aircastle paid $95$85 and $78 for Bermuda corporate services related to our Bermuda companies to a law firm and a corporate secretarial services provider affiliated with a Bermuda resident director serving on certain of our subsidiary boards.subsidiaries board of directors. The Bermuda resident director serves as an outside director of these subsidiaries.

Note 14.15.    Derivatives

On March 10, 2006, we designated anWe held the following interest rate swap which we had entered into on February 2, 2006derivative contracts as a hedge of the future variable rate interest payments on the repurchase agreements for debt securities we purchased during the quarter. The interest rate swap had an initial notional principal amount of $74,000 and decreases periodically based on estimated projected principal payments on the debt securities. At September 30, 2006, the notional amount was $67,000. The interest rate swap, which matures on July 1, 2010, provides for the semi-annual payment of a fixed rate of 5.02% and the monthly receipt of the one-month LIBOR rate on the notional amount.March 31, 2007:

Hedged Item			Notional Amount						Effective Date			Maturity Date			Floating Rate			Fixed Rate						Fair Value of Derivative Asset or (Liability)
			(Dollars in thousands)
Securitization No. 1				$	544,000				Jun-06			Jun-16			1 Month LIBOR + 0.27%					5.78	%				$	(16,385	)
Amended Credit Facility No. 2 and Credit Facility No. 3					500,000				Mar-06			Mar-11			1 Month LIBOR					5.07	%					(3,744	)
Amended Credit Facility No. 2 and Credit Facility No. 3					200,000				Jan-07			Aug-12			1 Month LIBOR					5.06	%					(1,674	)
Future debt and securitization					360,000				Feb-07			Apr-17			1 Month LIBOR					5.14	%					(3,586	)
Future debt and securitization					90,000				Jul-07			Dec-17			1 Month LIBOR					5.14	%					(1,278	)
Future debt and securitization					40,000				Jan-08			Feb-17			1 Month LIBOR					5.16	%					(2,758	)
Repurchase Agreement					48,000				Feb-06			Jul-10			1 Month LIBOR					5.02	%					41
Repurchase Agreement					5,000				Dec-05			Sep-09			3 Month LIBOR					4.94	%					3
Repurchase Agreement					2,900				Jun-05			Mar-13			1 Month LIBOR					4.21	%					119
Total				$	1,789,900																				$	(29,262	)

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

The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of the interest rate swap contracts, our exposure is limited to the interest rate differential on the notional amount at each settlement period over the life of the agreements. We do not anticipate any non-performance by the counterparties.

On March 21, 2006,January 23, 2007, we entered into a series ofthree interest rate forward contracts to hedge the variable interest rate payments on debt we expect to incur to finance aircraft acquisitions over the next year. The last forward contract matures in March 2011.several years. The notional amounts of the forwardinitial contracts in that series started at $100,000 with respect to the March 2006 forward contractare $360,000, $90,000 and increased$40,000 and will increase to a maximum of $500,000 with respect to$410,000, $150,000 and $360,000 respectively, and will amortize down as we repay the September 2006 forward contract. The terms of thedebt. These forward contracts provide forhave a comparisonmandatory early termination date of on average, a fixed rate of 5.07% per annumAugust 15, 2007, August 15, 2008 and of one month LIBOR. The aggregate market value of the forward contracts at September 30, 2006 was a payable of $2,706. At September 30, 2006, the notional amount was $500,000. TheFebruary 15, 2009, respectively. We have designated these interest rate forward contracts are treatedswaps as cash flow hedges for accounting purposes with fair value adjustments recorded as a component of other comprehensive income in our balance sheet.purposes.

OnIn June, 1, 2006 we enteredterminated two swaps resulting in a net deferred gain of $15,938 which will be amortized into a seriesincome using the interest method over the life of forward contractssecuritization No. 1 (the anticipated financing), which is expected to hedgebe five years. It is expected that approximately $3,926 of these gains will be reclassified into earnings in the variablenext twelve months. For the three months ended March 31, 2007, gains of $1,007 were reclassified into earnings and this amount is included in interest rate paymentsexpense on the notes issuedconsolidated statements of income.

For the three months ended March 31, 2006 and 2007, we recognized ineffectiveness gains (losses) of $253 and ($42) related to our cash flow hedges. These amounts are included in connection with Securitization No. 1. The last forward contract matures in June 2016. The notional amounts of the initial forward contracts in that series started at $560,000 with respect to the July 2006 forward contract and decrease monthly basedinterest expense on the projected principal payments on the certificates. The termsconsolidated statements of the forward contracts provide for a comparison of, on average, a fixed rate of 5.78% per annum and of one-month LIBOR plus 0.27%. The aggregate market value of the forward contracts at September 30, 2006 was a payable of $16,163. At September 30, 2006, the notional amount was $554,733. The interest rate forward contracts are treated as cash flow hedges for accounting purposes with fair value adjustments recorded as a component of other comprehensive income on our balance sheet.income.

Note 15.16.    Segment Reporting

We have two reportable segments: Aircraft Leasing and Debt Investments. We present our segment information on a contribution margin basis consistent with the information that our chief executive officer (the Chief Operating Decision Maker or ‘‘(‘‘CODM’’) reviews in assessing segment performance and allocating resources. Contribution margin includes revenue, depreciation, interest expense and other expenses that are directly connected to our business segments. We believe contribution margin is an appropriate measure of performance because it reflects the marginal profitability of our business segments excluding overhead.

Aircraft Leasing

The Aircraft Leasing segment consists of amounts earned from our commercial aircraft leasing operations. All of our aircraft are subject to net operating leases whereby the lessee is generally responsible for maintaining the aircraft and paying all operational and insurance costs. In many of our leases we are obligated to bear a portion of maintenance costs or costs associated with modifications required by manufacturers or regulators. We retain the benefit, and bear the risk, of re-leasing and the residual value of the aircraft upon expiration or early termination of the lease.

Debt Investments

The Debt Investments segment consists of amounts earned from our investments in debt securities secured by commercial jet aircraft including enhanced equipment trust certificates, or EETCs, and other forms of collateralized debt.

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

Information on reportable segments for the three months ended September 30, 2005March 31, 2006 and 20062007 is as follows:

			Three Months Ended September 30, 2005																		Three Months Ended September 30, 2006																		Three Ended March 31, 2006																		Three Ended March 31, 2007
			Aircraft Leasing						Debt Investments						Total						Aircraft Leasing						Debt Investments						Total						Aircraft Leasing						Debt Investments						Total						Aircraft Leasing						Debt Investments						Total
Revenues
Lease rentals				$	6,850					$	—					$	6,850					$	50,415					$	—					$	50,415					$	29,752					$	—					$	29,752					$	67,358					$	—					$	67,358
Interest income					—						943						943						—						2,487						2,487						—						1,641						1,641						—						2,588						2,588
Other revenue					65						—						65						153						—						153						—						—						—						58						—						58
Total revenues					6,915						943						7,858						50,568						2,487						53,055						29,752						1,641						31,393						67,416						2,588						70,004
Expenses
Depreciation					3,126						—						3,126						16,277						—						16,277						8,963						—						8,963						21,485						—						21,485
Interest					1,911						26						1,937						14,741						1,265						16,006						7,530						869						8,399						17,372						1,119						18,491
Other expenses					200						—						200						324						—						324						640						—						640						382						—						382
Total expenses					5,237						26						5,263						31,342						1,265						32,607						17,133						869						18,002						39,239						1,119						40,358
Contribution Margin				$	1,678					$	917					$	2,595					$	19,226					$	1,222					$	20,448					$	12,619					$	772					$	13,391					$	28,177					$	1,469					$	29,646
Segment Assets																																								$	1,064,772					$	122,853					$	1,187,625					$	2,156,854					$	128,064					$	2,284,918

Information on reportable segments for the nine months ended September 30, 2005 and 2006 is as follows:

			Nine Months Ended September 30, 2005																		Nine Months Ended September 30, 2006
			Aircraft Leasing						Debt Investments						Total						Aircraft Leasing						Debt Investments						Total
Revenues
Lease rentals				$	13,047					$	—					$	13,047					$	121,413					$	—					$	121,413
Interest income					—						2,225						2,225						—						6,588						6,588
Other revenue					65						—						65						153						—						153
Total revenues					13,112						2,225						15,337						121,566						6,588						128,154
Expenses
Depreciation					6,561						—						6,561						37,800						—						37,800
Interest					3,726						27						3,753						36,258						3,194						39,452
Other expenses					755						—						755						1,239						—						1,239
Total expenses					11,042						27						11,069						75,297						3,194						78,491
Contribution Margin				$	2,070					$	2,198					$	4,268					$	46,269					$	3,394					$	49,663
Segment Assets				$	286,529					$	23,588					$	310,117					$	1,639,402					$	123,378					$	1,762,780

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

Total contribution margin reported as a segment profit for reportable business segments is reconciled to income (loss) from continuing operations before income taxes for the three months ended March 31, 2006 and nine months ended September 30, 2005 and 2006 was2007 as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2005						2006						2005						2006						2006						2007
Contribution Margin				$	2,595					$	20,448					$	4,268					$	49,663					$	13,391					$	29,646
Selling, general and administrative expenses					(4,270	)					(5,167	)					(8,116	)					(21,209	)					(5,874	)					(8,497	)
Depreciation and other expenses					(56	)					(142	)					(83	)					(382	)					(113	)					(148	)
Interest income on cash balances					333						1,829						536						4,394						1,035						1,761
Income (loss) from continuing operations before income taxes				$	(1,398	)				$	16,968					$	(3,395	)				$	32,466
Income from continuing operations before income taxes																												$	8,439					$	22,762

The Company'sCompany’s CODM does not consider selling, general and administrative expenses, depreciation from leasehold improvements and office equipment and other expenses in the evaluation of the operating segment’s results as such costs are recurring and do not bear a direct correlation to operating results. The Company'sCompany’s CODM does not consider interest income on all cash balances in the evaluation of the operating segment'ssegment’s results as such amounts do not bear a direct correlation to operating results.

Total segment assets are reconciled to total assets as follows:

			September 30,
			2005						2006						December 31, 2006						March 31 2007
Segment Assets				$	310,117					$	1,762,780					$	1,823,572					$	2,284,918
Operating cash accounts					62,086						38,970						58,118						49,008
Flight equipment held for sale																	31,280						30,462
All other					4,788						6,709						5,733						5,860
				$	376,991					$	1,808,459					$	1,918,703					$	2,370,248

Note 16.    Purchase

Table of Restricted Shares

Contents

In May 2006, 200,000 of the Company’s common shares were purchased by a family trust of an individual who was appointedAircastle Limited and Subsidiaries
Notes to the Board on July 20, 2006, for cash consideration of $5 per share. In addition, certain members of our management purchased 77,000 of the Company’s common sharesUnaudited Consolidated Financial Statements
(Dollars in exchange for cash consideration in the amount of $10 per share. The respective purchase prices of these shares were below the fair value of $22thousands, except per share for the Company's common shares. Accordingly, the Company recorded non-cash share based payment expense of approximately $4,324 which is recorded as selling, general and administrative expense in the accompanying financial statements for the nine months ended September 30, 2006. The fair value of the Company’s common shares was determined based on an estimate of the offering range per share from our initial public offering.amounts)
March 31, 2007

Note 17.    Subsequent Events

Aviation Asset Acquisitions

From OctoberApril 1, 20062007 through November 13, 2006,April 30, 2007, we acquired one additional aircraftaviation assets for an aggregate purchase price of approximately $25,250.$224,345. The acquisitions were funded with borrowings under our credit facilities. At April 30, 2007, all of the purchased aircraft are subject to operating leases or commitments to lease.

On October 9, 2006 the Board declared a partial third quarter dividend on its common shares of $0.194 per share, or $9,992 to holders of record of Aircastle’s common shares as of October 31, 2006. This dividend is payable on November 15, 2006. This dividend is in addition to the $0.156 per common share partial third quarter dividend the Board declared on August 2, 2006.

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

On November 3, 2006,In April 2007, we entered into a $200,000 notionalfive interest rate swapforward contracts with initial notional amounts of $70,000, $28,000, $46,000, $95,000 and $143,000 to hedge the variable interest payments on debt we expect to incur to finance aircraft acquisitions over the next year.several years. The notional amounts will increase to a maximum of $440,000, $203,000, $230,000, $238,000 and $238,000, respectively and will amortize down as we repay debt. The terms of the swapforward contracts provide for payment of a fixed rate of 5.055%4.89%, 4.89%, 5.17%, 5.23% and 5.27%, respectively, and receipt of one-month LIBOR. This swap hasLIBOR on the notional amount. These swaps have a start date of June 15, 2007, July 15, 2007, April 15, 2010, January 15, 20072011 and July 15, 2011, respectively, a termination date of February 15, 2013, January 15, 2012, October 15, 2015, April 15, 2016 and September 15, 2016, respectiv ely, and a mandatory early termination date of AugustJune 15, 2007. The Company intends to treat the2008, December 15, 2011, November 15, 2011, May 15, 2012 and October 15, 2012, respectively. We have designated these interest rate swapforward contracts as a cash flow hedgehedges for accounting purposes.

As of November 13, 2006, Aircastle had binding letters of intentOn April 5, 2007, we entered into an amendment to acquire four aircraftthe Revolving Credit Facility which, in consideration for an estimated aggregate purchase price of $72,250. Although the closing of each purchase is contingent on the seller meeting certain conditions precedent, the Company expects that allamendments, we agreed to increase our minimum net worth covenant from $550,000 to $750,000 plus one-half of the aircraft will be acquired during the fourth quarternet proceeds of 2006. The purchase price of certain of the aircraft is subject to variable price provisions that typically reduce the final purchase price if the actual closing occurs beyond an initially agreed upon closing date.any future equity capital we raise.

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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

This management'smanagement’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and uncertainties.assumptions. You should read the following discussion in conjunction with our historical and pro forma 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 listeddescribed under ‘‘Risk Factors’’ and included in our Registration StatementAnnual Report on Form S-1 (File No. 333-134669), as such registration statement became effective on August 7, 2006.10-K filed with the SEC.

Certain items in this Quarterly Report on Form 10-Q, and other information we provide from time to time may constitute forward-looking statements within the meaning of 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 on attractive terms, anticipate, manage and address industry trends and their effect on our business, pay and grow dividends, realize gains or income from our debt investments, obtain required licenses and governmental approvals, obtain favorable tax treatment, secure financing and increase revenues, earnings, and EBITDA. Words such as ‘‘anticipate(s),’’ ‘‘expect(s)’’, ‘‘intend(s)’’, ‘‘plan(s)’’, ‘‘‘‘target(s)’’, ‘‘project(s)’’, ‘‘believe(s)’&r squo;’, ‘‘will’’, ‘‘would’’, ‘‘seek(s)’’, ‘‘estimate(s)’’ and similar expressions are intended to identify such forward-looking statements. These statements are based on management'smanagement’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle Limited can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Aircastle Limited'sLimited’s expectations include, but are not limited to, our significant customer concentration; our continued ability to obtain additional capital to finance our growth; our continued ability to acquire aircraft at attractive prices; our continued ability to obtain favorable tax treatment in Bermuda and other jurisdictions; our ability to pay or maintain dividends; our ability to leaseleas e aircraft at favorable rates and maintain the value of our aircraft; the possibility that conditions to closing of certain transactions will not be satisfied; our ability to realize gains or income from our debt investments; 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; the creditworthiness of our airline customers; interest rate fluctuations; our ability to obtain certain required licenses and approvals; the impact of future terrorist attacks or wars on the airline industry; our concentration of leases in certain geographical regions; and other risks detailed from time to time in Aircastle’s filings with the Securities and Exchange Commission (‘‘SEC’’),SEC, including our Registration Statement‘‘Risk Factors’’ included elsewhere in this Quarterly Report on Form S-1 (File No. 333-134669),10-Q and as such registration statement became effectivepreviously disclosed in Aircastle’s 2006 Annual Report on August 7, 2006, and in our other filings with the SEC.Form 10-K. Such forward-looking statements speak only as of the date of this Quarterly 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 our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

OverviewOVERVIEW

We are a global company that acquires 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 September 30, 2006,March 31, 2007, our aircraft portfolio consisted of 6577 aircraft that were leased to 32with 37 lessees located in 2326 countries, subject to leases or pending leases, and managed through our offices in the United States, Ireland and Singapore. All ofTypically, our aircraft are subject to net operating leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational and insurance costs although, in a majority of cases, we are obligated to pay a portion of specified maintenance or modification costs. We also

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make investments in other aviation assets, including debt securities secured by commercial jet aircraft. As of November 13, 2006,April 30, 2007, we had acquired and committed to acquire aviation assets having an aggregate purchase price equal to $1.7$2.5 billion and $72 million,$1.4 billion, respectively, for a total of approximately $1.8 billion, including binding

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letters of intent to acquire an additional four aircraft subject to lease.$3.9 billion. Our revenues and income from continuing operations for the three and nine months ended September 30, 2006March 31, 2007 were $53.1$70.0 million and $128.2 million and $15.2 million and $28.0$20.9 million, respectively.

We intend to pay regular quarterly dividends to our shareholders. We plan to grow our dividends per share through the acquisition of additional aviation assets using cash on hand and available credit facilities. We expect to finance our acquisitions on a long-term basis using low-cost, non-recourse securitizations. Securitizations allow us to raise long-term capital by pledging cash flows of an asset pool, such as aircraft leases. In June 2006, we closed our first securitization, a $560 million transaction comprising 40 aircraft.aircraft, which we refer to as Securitization No. 1. On July 20, 2006,March 14, 2007, our board of directors (the ‘‘Board’’) declared a regular quarterly dividend of $0.35$0.50 per common share, or an aggregate of $14.4$33.6 million, for the three months ended June 30, 2006,March 31, 2007, which was paid on July 31, 2006. On August 2, 2006 the Board declared a partial third quarter dividend of $0.156 per common share, or an aggregate of $6.4 million, to shareholders of record as of August 1, 2006, which was paid on August 15, 2006. On October 9, 2006 the Board declared a partial third quarter dividend on its common shares of $0.194 per common shareApril 13, 2007 to holders of record of Aircastle’s common shares as of October 31, 2006. This dividend is payable on November 15, 2006.March 30, 2007. These dividends aremay not necessarilybe indicative of the amount of any future dividends.

Segments

We manage our business and analyze and report our results of operations on the basis of the following two business segments: Aircraft Leasing and Debt Investments. We present our segment information on a contribution margin basis consistent with the information that our Chief Executive Officer (the chief operating decision maker) reviews in assessing segment performance and allocating resources. Contribution margin includes revenue, depreciation, interest expense and other expenses that are directly connected to our business segments. We believe contribution margin is an appropriate measure of performance because it reflects the marginal profitability of our business segments excluding overhead.

Aircraft Leasing

All ofTypically, our aircraft are currently subject to net operating leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational and insurance costs. In many of our leases we are obligated to bear a portion of maintenance costs or costs associated with modifications required by manufacturers or regulators. We retain the benefit, and bear the risk, of re-leasing and the residual value of the aircraft upon expirationexpiry or early termination of the lease. As of September 30, 2006,March 31, 2007, our portfolio consisted of 6577 aircraft on lease to 32with 37 lessees in 2326 countries subject to leases or commitments to lease, with a net book value of $1.5$2.0 billion. The weighted average (by net book value) age of the aircraft in the portfolio from the date of delivery by manufacturer to September 30,March 31, 2006, was 8.628.5 years. The weighted average (by net book value) remaining lease term as of September 30, 2006for aircraft we owned at March 31, 2007 which were on-leas e was 3.744.6 years.

Debt Investments

We also invest in debt securities secured by commercial jet aircraft, including enhanced equipment trust certificates, and other forms of collateralized debt. We believe our experience in the aircraft leasing business coupled with knowledge of structured finance, enables us to make opportunistic investments in this market sector. Our intent is not to actively trade debt investments, and accordingly we have classified debt investments purchased to date as available-for-sale or held to maturity as defined in Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. As of December 31, 2005,2006, we owned debt securities secured by aircraft with a fair value of $26.9$121.3 million. From January 1, 2006 through September 30, 2006,During the three months ended March 31, 2007 we made two additional investmentsone addition al investment in debt securities secured by aviation assets. At September 30, 2006,March 31, 2007, our Debt Investmentsdebt investment portfolio consisted of sixseven such debt securities with a fair value of $120.3$124.5 million.

Revenues

Revenues in our Aircraft Leasing segment are comprised of operating lease rentals on flight equipment held for lease. The amount of rent we receive depends on various factors, including the

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type, size and age of the aircraft in our portfolio. 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 creditworthinesscredit 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.

Revenues in our Aircraft Leasing segment for the three and nine months ended September 30,March 31, 2006 were $50.5$29.8 million and $121.6 million, respectively, as compared to $33.0$67.4 million for the full yearthree months ended DecemberMarch 31, 2005.2007. Our revenues increased significantly from 20052006 to 20062007 as a result of continued aircraft acquisitions in late 2005 as well as throughout 2006.during the balance of 2006 and the first three months of 2007 which caused our aircraft fleet to grow from 42 aircraft at March 31, 2006 to 77 aircraft at March 31, 2007, all of with were subject to leases or commitments to lease.

Revenues in our Debt Investments segment 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. Revenues in our Debt Investments segment for the three and nine months ended September 30,March 31, 2006 were $2.5$1.6 million and $6.6 million, respectively, as compared to $3.0$2.6 million for the full yearthree months ended DecemberMarch 31, 2005.2007.

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 proportionately with revenue growth. We also expect that SG&A will decline as a percentage of revenues as we leverage our existing infrastructure over a greater revenue base.

Since our aircraft 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 operationsincome has been nominal.

HistoryIncome Tax Provision

We were formed in October 2004 with a capital commitment of $400 million from funds managed by Fortress Investment Group LLC and certain of its affiliates (together, the ‘‘Fortress Shareholders’’ or ‘‘Fortress’’) for the purpose of investing in aviation assets. This commitment was fully contributed by the end of 2005. On January 31, 2006, the Fortress Shareholders committed to contribute up to an additional $100 million of equity to us. On February 8, 2006, the Fortress Shareholders contributed $36.9 million pursuant to the aforementioned commitment in exchange for 3,693,200 of our common shares. On July 21, 2006, we returned the $36.9 million to the Fortress Shareholders in exchange for the cancellation of 3,693,200 of our common shares.

We are incorporated under Bermuda law and 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 isto any taxes payable by us in respect of real property owned or leased by us in Bermuda.

All of our aircraft-owning subsidiaries are non-U.S.foreign corporations that, depending upon the flight activities of the leased aircraft, generally earn income from sources outside the United States thatand therefore are not subject toexempt from U.S. federal, income tax. Income earned by our non-U.S. subsidiaries that is attributable to leased aircraft used for flights to or from places within the United States may be subject to U.S. federal income tax. In addition, certain of our non-U.S. subsidiaries may be subject to state and local income taxes on a portion of their income as a result of aircraft used for flights to or

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from particular states or localities. We own our debt securities in a Bermuda corporation. Earnings of this corporation are not subject to U.S. federal income tax because we qualify for the portfolio interest exception.taxes. We have a U.S.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.

Acquisitions and Dispositions

Our financial results are impacted by the timing and size of acquisitions and dispositions we complete. As of November 13, 2006April 30, 2007 we had acquired and committed to acquire aviation assets having an aggregate purchase price equal to $1.7$2.5 billion and $72 million,$1.4 billion, respectively, or a total of $1.8approximately $3.9 billion. To date, we have sold one aircraft and one debt security.

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We believe the large and growing aircraft market continues to evolve, generating significant additional acquisition opportunities. Our acquisition strategy is flexible and allows us to take advantage of the best available market opportunities. Currently, we are primarily focused on acquiring high-utility commercial jet aircraft for the passenger and freighter markets and we may also make opportunistic acquisitions of other asset-backed aviation assets. 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 from time to time. Our ability to successfully and efficiently acquire and integrate additional aviation assets on favorable terms will significantly impact our financial results and growth prospects.

On January 22, 2007, Aircastle entered into the Acquisition Agreement with Guggenheim Aviation Fund LP or GAIF under which we agreed to acquire 38 aircraft for an aggregate base purchase price of approximately $1.595 billion, subject to certain agreed adjustments. The aircraft we will acquire under the Acquisition Agreement are scheduled to be delivered to us through February 2009. For certain of the aircraft, we have agreed to make an accelerated payment to the relevant seller and acquire its right to obligations under the seller’s purchase acquisition or freighter conversion agreement, 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. As of March 31, 2007, we completed the acquisition of 6 of the GAIF aircraft.

Closing of the transactions contemplated by the Acquisition Agreement is subject to certain customary closing conditions for transactions of this type. There can be no assurance that these conditions will be satisfied or that we will complete the acquisition of all the aircraft contemplated by the Acquisition Agreement. Failure to close the Aircraft Acquisition could negatively impact our stock price and financial results.

We initially expect to pay for substantially all of the purchase price of the aircraft using debt financing available on our Revolving Credit Facility and Amended Credit Facility No. 2 or other borrowings that may be available to us at the time of acquisition. See ‘‘Liquidity and Capital Resources — Credit Facilities.’’ We expect to fund our aircraft on a long-term basis by securitizing their future cash flows using a structure similar to Securitization No. 1. Therefore, we expect to incur additional interest expense as a result of the Aircraft Acquisition.

The following table sets forth certain information with respect to the aircraft acquired or to be acquired by us as of March 31, 2007, including the aircraft to be acquired pursuant to the Acquisition Agreement.

AIRCASTLE AIRCRAFT INFORMATION ($ in thousands)

			Owned Aircraft as of March 31, 2007(1)						Aircraft Committed to be Acquired as of March 31, 2007						Total
Asset Net Book Value				$	1,991,768					$	1,435,541					$	3,427,309
No. of Aircraft					77						37						114
Number of Lessees					37						16						47
Number of Countries					26						12						27
Weighted Average Age (years)(2)					8.55						9.67						9.42
Weighted Average Remaining Lease Term (years)(3)					4.62						7.95						5.87
Weighted Average Remaining Cargo Lease Term (years)					8.29						9.78						9.44

(1)	Includes aircraft owned as of March 31, 2007, and excludes aircraft we were committed to acquire as of such date, and excludes one aircraft held for sale at March 31, 2007.

(2)	Weighted average age (years) is as of March 31, 2007.

(3)

Excludes one Boeing Model 737-800 scheduled for delivery to us in May 2007 which is not subject to lease, but which is subject to a letter of intent with a potential lessee, and also excludes three Boeing Model 737-400 aircraft delivered to us in February 2007, which are subject to leases but which have not delivered, and six Airbus Model A320-200 aircraft scheduled for delivery to us between December 2007 and February 2009 which are not subject to lease.

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Portfolio Diversification

			Owned Aircraft as of March 31, 2007(1)												Aircraft Committed to be Acquired as of March 31, 2007												Total
			# Aircraft						% of Net Book Value						# Aircraft						% of Net Book Value						# Aircraft						% of Net Book Value
Aircraft Type
Passenger
Narrowbody					55						55	%					25						34	%					80						46	%
Midbody					14						28	%					2						4	%					16						18	%
Widebody					1						4	%					—						0	%					1						2	%
Total Passenger					70						87	%					27						38	%					97						66	%
Freighter(1)					7						13	%					10						62	%					17						34	%
Total(6)					77						100	%					37						100	%					114						100	%
Lessee Diversification
Top Five Lessees					28						33	%					21						56	%					27						31	%
Regional Diversification
Europe					35						46	%					11						37	%					46						42	%
Asia					16						24	%					12						22	%					28						23	%
North America					13						18	%					2						9	%					15						14	%
Latin America					5						5	%					1						2	%					6						4	%
Middle East and Africa					5						4	%					4						23	%					9						12	%
Off Lease(5)					3						3	%					7						7	%					10						5	%
Total(6)					77						100	%					37						100	%					114						100	%

(1)	Includes aircraft owned as of March 31, 2007 and excludes aircraft we were committed to acquire as of such date, and excludes one aircraft held for sale at March 31, 2007.

(2)

Total off-lease column includes one Boeing Model 737-800 scheduled for delivery to us in May 2007 which is not subject to lease, but which is subject to a letter of intent with a potential lessee, and also includes three Boeing Model 737-400 aircraft delivered to us in February 2007, which are subject to leases and six Airbus Model A320-200 aircraft scheduled for delivery to us between December 2007 and February 2009 which are not subject to lease.

Finance

A key aspect of our growth strategy is our capital management approach, which supports the financing of our acquisitions of aircraft and other aviation assets. We typically finance the initial purchase of aircraft and other aviation assets using flexible, committed short-term credit arrangements and cash on hand. We believe our ability to execute acquisitions expeditiously and without financing contingencies hashave 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 term credit facilities from banks. See ‘‘— Liquidity and Capital Resources — Securitization and Credit Facilities.’’

We intend to access the securitization market or other cost effective markets to provide long-term financing for our aircraft portfolio. On June 15, 2006, we closed our first securitization of 40 aircraft, which we refer to as Securitization No. 1. The ACS 2006-1 Pass Through Trust, a newly formed trust, issued a single class of G-1 pass through trust certificates, which we refer to as the certificates, representing undivided interests in $560 million of floating rate asset-backed notes, which we refer to as notes, issued by ACS Ireland and ACS Bermuda, and supported by 40 aircraft which we refer to as Portfolio No. 1. The initial principal balance of the notes was equal to 54.8% of the Initial Appraised Value of Portfolio No. 1 of $1.022 billion. ‘‘Initial Appraised Value’’ is the lesser of the mean and the median of base value appraisals obtained from three internationally recognized appraisal firms during the period October 2005 through December 2005. We retained 100% of the rights to receive future cash flows from Portfolio No. 1 after the payment of claims that are senior to our rights. Almost all claims are senior to our rights to receive future cash flows, including but not limited to payment of expenses related to the aircraft and fees of service providers, interest and principal payments to certificate holders, amounts owed to hedge providers and amounts, if any, owed to the policy provider and liquidity provider under Securitization No. 1 for previously unreimbursed advances.

The notes bear interest at one-month LIBOR plus 0.27%. Financial Guaranty Insurance Company issued a financial guaranty insurance policy to support the payment of interest when due on the certificates and the payment, on the final distribution date, of the outstanding principal amount of the certificates. The certificates are rated Aaa and AAA by Moody's Investor Service and Standard & Poor's rating services, respectively. We have entered into a series of interest rate hedging contracts intended to hedge the interest rate exposure associated with issuing floating-rate obligations backed by primarily fixed-rate lease assets. These contracts, together with the guarantee premium, the spread referenced above and other costs of trust administration, result in a fixed rate cost of 6.6% per annum, after the amortization of issuance fees and expenses.

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We are currently utilizing a $750 million$1.25 billion senior secured credit facility, which we refer to as Amended Credit Facility No. 2, to finance up to 85%65% of the net book valuepurchase price of certain aircraft not included in Securitization No. 1. We expect to continue to purchase aircraft using our credit facilities plus cash on hand and, once a portfolio of 30 to 5060 aircraft has been acquired, to finance the portfolio on a long-term basis using a securitization structure similar to Securitization No. 1.

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Based on our expected aircraft acquisition plan, we anticipate completing one or two portfolio securitizations per year and one or two additional equity offerings per year. Our ability to successfully complete these securitizations and equity offerings on favorable terms will have a significant impact on our results of operations and financial condition.

Registration Statement and Initial Public Offering

On August 11, 2006, the Company completed its initial public offering of 10,454,535 common shares at a price of $23 per share, raising $240.5 million before offering costs. The net proceeds of the initial public offering, after our payment of $16.8 million in underwriting discounts and commissions, and $4.0 million in offering expenses were $219.8 million. $205.5 million of the net proceeds were used to repay a portion of Credit Facility No. 2. The remainder of the proceeds was used for working capital requirements and to fund additional aircraft acquisitions.

Results of Operations

For the three months ended September 30, 2006, the Company earned $0.32 per share on $53.1 million in revenues and had $15.2 million of net income. For the nine months ended September 30, 2006, the Company earned $0.72 per share on revenues of $128.2 million and had $31.4 million of net income. The significant differences in the results of operations for the three and nine months ended September 30, 2006, as compared to the results of operations for the three and nine months ended September 30, 2005, are primarily attributable to the significant growth experienced by the Company over the past twelve months, including increases in the acquisition of aviation assets available for leasing, increased borrowings under our credit facilities to finance these acquisitions and the addition of employees required to meet the demands of the growing business. As of September 30, 2006, the Company owned 65 aircraft with a net book value of $1.5 billion, as compared to 18 aircraft with a net book value of $266 million at September 30, 2005. The Company financed these acquisitions as of September 30, 2006 through borrowings of $906 million under existing credit facilities and a securitization. The Company had 38 employees at September 30, 2006 as compared to 29 employees at September 30, 2005.RESULTS OF OPERATIONS

Comparison of the three months ended September 30, 2005March 31, 2006 to the three months ended September 30, 2006March 31, 2007

Revenues and Contribution Margin

Revenues and contribution margin by segment is set forth in the tables below. See Note 1516 to our unaudited consolidated financial statements for the reconciliation to operating income and our reasons for using contribution margin to discuss our results of operations.

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Aircraft Leasing

Aircraft Leasing revenues and contribution margin were as follows:

			Three Months Ended September 30,												Three Months Ended March 31,
(Dollars in thousands)			2005						2006						2006						2007
Revenues
Lease rentals				$	6,850					$	50,415					$	29,752					$	67,358
Interest income					—						—
Other income					65						153
Other revenues																	—						58
Total revenues				$	6,915					$	50,568						29,752						67,416
Expenses
Depreciation					3,126						16,277						8,963						21,485
Interest					1,911						14,741						7,530						17,372
Other expenses					200						324						640						382
Total expenses					5,237						31,342						17,133						39,239
Contribution margin				$	1,678					$	19,226					$	12,619					$	28,177

For the three months ended September 30, 2005, the contribution margin of our Aircraft Leasing segment was $1.7 million on $6.9 million of revenues. At September 30, 2005, we owned 18 aircraft held for lease, 13 of which were on-lease.

For the three months ended September 30,March 31, 2006, the contribution margin of our Aircraft Leasing segment was $19.2$12.6 million on $50.5$29.8 million of revenues. At September 30,March 31, 2006, we owned 6542 aircraft held for lease, all of which were on-lease.

For the three months ended March 31, 2007, the contribution margin of our Aircraft Leasing segment was $28.2 million on $67.4 million of revenues. At March 31, 2007, we owned 77 aircraft held for lease, all of which were subject to leases or commitments to lease. Aircraft leasing revenue of $50.5$67.4 million, depreciation expense of $16.3$21.5 million, interest expense of $14.7$17.4 million and other expenses of $324,000$0.4 million all increased relative to the three months ended September 30, 2005March 31, 2006 due to the increase in the size of our aircraft portfolio.

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Debt Investments

Debt Investment revenues and contribution margin were as follows:

			Three Months Ended September 30,												Three Months Ended March 31,
(Dollars in thousands)			2005						2006						2006						2007
Revenues
Lease rentals				$	—					$	—
Interest income					943						2,487					$	1,641					$	2,588
Total revenues					943						2,487						1,641						2,588
Expenses
Depreciation					—						—
Interest					26						1,265						869						1,119
Other expenses					—						—
Total expenses					26						1,265						869						1,119
Contribution margin				$	917					$	1,222					$	772					$	1,469

For the three months ended September 30, 2005,March 31, 2006, the contribution margin of our Debt Investments segment was $917,000$0.8 million on $943,000$1.6 million of revenues. At September 30, 2005,March 31, 2006, we owned $23$120.6 million of debt securities with $3.4$3.8 million of unrealized gains as reflected in accumulated other comprehensive income at September 30, 2005.March 31, 2006.

For the three months ended September 30, 2006,March 31, 2007, the contribution margin of our Debt Investments segment was $1.2$1.5 million on $2.5$2.6 million of revenues. At September 30, 2006,March 31, 2007, we owned $120$124.5 million of debt securities with $13.5$14.9 million of unrealized gains as reflected in accumulated other comprehensive income at September 30, 2006.March 31, 2007.

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Selling, General, and Administrative and Other Expenses

Selling, general, and administrative and other expenses were as follows:

			Three Months Ended September 30,												Three Months Ended March 31,
(Dollars in thousands)			2005						2006						2006						2007
Personnel				$	2,462					$	3,412					$	3,802					$	5,305
Professional fees					927						738						1,371						1,550
Travel expenses																	278						590
Rent and office expenses					184						142						244						286
Depreciation of leasehold improvements and office equipment					56						142						113						148
Communication expenses					34						88						67						180
Business insurance					38						167						3						244
Other selling, general and administrative expenses					625						620						109						342
				$	4,326					$	5,309					$	5,987					$	8,645

Personnel costs consist primarily of salary, non-cash share-based payments, recruitment and relocation expenses which increased as the number of employees increased from 2932 at September 30, 2005March 31, 2006 to 3852 at September 30, 2006.March 31, 2007. Non-cash share-based payments were $1,292 and $1,258, respectively, for the three months ended March 31, 2006 and 2007. Professional fees consisted primarily of legal, accounting and tax fees associated with theour legal organization and administrationadministration. Travel expenses consisted primarily with costs associated with travel to and from the locations of the Companyaircraft to be acquired and its subsidiaries.aircraft lessees. Office expense and equipment costs, mainly rent, depreciation, communications, insurance and other general office expenses, increased with the expansion of facilities requiredto accommodate increased headcount and to meet the demands of our growing business.

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Income Tax Provision

Our provision for income taxes for the three months ended September 30, 2005March 31, 2006 and 20062007 was $208,000$1.0 million and $1.8$1.9 million, respectively. Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted and income is earned. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in jurisdictions that impose income taxes.

Comparison of the nine months ended September 30, 2005 to the nine months ended September 30, 2006

Revenues and Contribution Margin

Revenues and contribution margin by segment is set forth in the table below. See Note 15 to our unaudited consolidated financial statements for the reconciliation to operating income and our reasons for using contribution margin to discuss our results of operations.

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Aircraft Leasing

Aircraft Leasing revenues and contribution margin were as follows:

			Nine Months Ended September 30,
(Dollars in thousands)			2005						2006
Revenues
Lease rentals				$	13,047					$	121,413
Interest income					—						—
Other income					65						153
Total revenues				$	13,112					$	121,566
Expenses
Depreciation					6,561						37,800
Interest					3,726						36,258
Other expenses					755						1,239
Total expenses					11,042						75,297
Contribution margin				$	2,070					$	46,269

For the nine months ended September 30, 2005, the contribution margin of our Aircraft Leasing segment was $2.1 million on $13.1 million of revenues. At September 30, 2005, we owned 18 aircraft held for lease, 13 of which were on-lease.

For the nine months ended September 30, 2006, the contribution margin of our Aircraft Leasing segment was $46.3 million on $121.6 million of revenues. At September 30, 2006, we owned 65 aircraft held for lease, all of which were on-lease. Aircraft leasing revenue of $121.6 million, depreciation expense of $37.8 million, interest expense of $36.3 million and other expenses of $1.2 all increased relative to the six months ended September 30, 2005 due to the increase in the size of our aircraft portfolio.

Debt Investments

Debt Investment revenues and contribution margin were as follows:

			Nine Months Ended September 30,
(Dollars in thousands)			2005						2006
Revenues
Lease rentals				$	—					$	—
Interest income					2,225						6,588
Total revenues					2,225						6,588
Expenses
Depreciation					—						—
Interest					27						3,194
Other expenses					—						—
Total expenses					27						3,194
Contribution margin				$	2,198					$	3,394

For the nine months ended September 30, 2005, the contribution margin of our Debt Investments segment was $2.2 million on $2.2 million of revenues. At September 30, 2005, we owned $23 million of debt securities with $3.4 million of unrealized gains as reflected in accumulated other comprehensive income at September 30, 2005.

For the nine months ended September 30, 2006, the contribution margin of our Debt Investments segment was $3.4 million on $6.6 million of revenues. At September 30, 2006, we owned $120 million of debt securities with $13.5 million of unrealized gains as reflected in accumulated other comprehensive income at September 30, 2006.

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Selling, General, Administrative and Other Expenses

Selling, general, administrative and other expenses were as follows:

			Nine Months Ended September 30,
(Dollars in thousands)			2005						2006
Personnel				$	4,890					$	11,756
Compensation to director					—						3,400
Professional fees					1,691						3,194
Rent and office expenses					298						506
Depreciation of leasehold improvements and office equipment					83						382
Communication expenses					90						251
Business insurance					38						174
Other selling, general and administrative expenses					1,109						1,928
				$	8,199					$	21,591

Personnel costs consist primarily of salary, recruitment and relocation expenses which increased as the number of employees increased from 29 at September 30, 2005 to 38 at September 30, 2006. Compensation to a director was a non-cash share based payment expense for the purchase of common shares below fair market value. Professional fees consisted primarily of legal, accounting and tax fees associated with the legal organization and administration of the Company and its subsidiaries. Office expense and equipment costs, mainly rent, depreciation, communications, insurance and other general office expenses increased with the expansion of facilities required to meet the demands of our growing business.

Income Tax Provision

Our provision for income taxes for the nine months ended September 30, 2005 and 2006 was $461,000 and $4.5 million, respectively. Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted and income is earned. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in jurisdictions that impose income taxes.

Discontinued Operations

During 2005, we purchased an aircraft and immediately held it for sale. As of December 31, 2005, the aircraft was classified on the balance sheet as flight equipment held for sale and all operating activities were classified as discontinued operations. No depreciation expenseDuring 2007, we entered into an agreement to sell one of our aircraft previously held for lease. As of March 31, 2007, the aircraft was recordedclassified on this aircraft. For the nine months ended September 30, 2006, earningsbalance sheet as flight equipment held for sale and all operating activities were classified as discontinued operations.

Earnings from discontinued operations netfor the three months ended March 31, 2006, and 2007 related solely to the two aircraft held for sale, were as follows:

			2006						2007
Earnings from discontinued operations
Lease rentals				$	3,754					$	1,619
Depreciation					(840	)					(761	)
Gain (loss) on disposition					2,240						—
Interest expense					(881	)					—
Other expenses					(80	)					(138	)
Earnings before income tax provision					4,193						720
Income tax provision					(448	)					(36	)
Earnings from discontinued operations				$	3,745					$	684

CRITICAL ACCOUNTING POLICIES

Except for the adoption of taxes, totaled $3.4 million. The aircraft earned lease rentalsFinancial Accounting Standards Board, or FASB, Interpretation No. 48 Accounting for the Uncertainty in Income Taxes — an Interpretation of FASB No. 109 on January 1, 2007 which did not have an impact on our consolidated financial statements, there have been no material changes to our critical accounting policies from the amountinformation provided in Item 7. Management’s Discussion and Analysis of $2.1 millionFinancial Condition and incurred interest expenseResults of $528,000 in 2006. Income tax associated with the aircraft in 2006 was $448,000. The aircraft was sold on March 29, 2006 for a $2.2 million gain and the related debt in the amount of $36.7 million was repaid on March 30, 2006

Operations — Application of Critical Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2006.

Management’s discussionRecently Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and analysisFinancial Liabilities — Including an Amendment of FASB Statement No. 115 (‘‘SFAS No. 159’’). SFAS No 159, which amends SFAS No. 115 allows certain financial conditionassets and results of operations is based upon our consolidated financial statements, which have been prepared in accordanceliabilities to be recognized, at the company’s election, at fair market value, with GAAP, and requires us to make estimates and assumptions that affectany gains or losses for the amounts reportedperiod recorded in the consolidated financial statementsstatement of income. This gives a company the opportunity to mitigate volatility in reported earnings caused by measuring related assets and accompanying footnotes. Our estimates and assumptions are based on historical experiences and currently available information. Actual results may differ from such estimates under different conditions, sometimes materially. A summaryliabilities differently without having to apply complex hedge accounting provisions. Currently, the Company records the gains or losses for the period in the statement of our significant accounting policies is presented in Note 1 to our consolidated financial statementscomprehensive income and in the Company’sequity section of the balance sheet. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS No.159 on its consolidated results of operating s and financial position.

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RegistrationIn September 2006, FASB issued Statement on Form S-1 (Fileof Financial Accounting Standards No. 333-134669), declared effective on August 7, 2006. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results and require our most subjective judgments, estimates and assumptions. Our most critical accounting policies and estimates are described below.

Lease Revenue Recognition

Our operating lease rentals are recognized on a straight-line basis over the term of the lease. We will neither recognize revenue nor record a receivable from a customer when collectibility is not reasonably assured. Estimating whether collectibility is reasonably assured requires some level of subjectivity and judgment. When collectibility is not certain, the customer is placed on non-accrual status and revenue is recognized when cash payments are received. Management determines whether customers should be placed on non-accrual status. When we are reasonably assured that payments will be received in a timely manner, the customer is placed on accrual status. The accrual/non-accrual status of a customer is maintained at a level deemed appropriate based on factors such as the customer credit rating, payment performance, financial condition and requests for modifications of lease terms and conditions. Events or circumstances outside of historical customer patterns can result in changes to a customer’s accrual status.

Income and Valuation of Debt Securities

Income on debt securities is recognized using the effective interest method. Certain investments which represent residual interest 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 receipts (which may be subject to prepayments and defaults)157 Fair Value Measurements (‘‘SFAS No. 157’’). These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes. These uncertainties and contingencies are difficult to predict and are subject to future events and economic and market conditions, which may alter the assumptions. We have classified our investments in debt securities as available for sale. As such, they are carried atThis Statement defines fair value, with any net unrealized gains and losses reported asestablishes a component of accumulated other comprehensive income. Fair value is based primarily upon broker quotations, as well as counterparty quotations, which provide valuation estimates based upon reasonable market order indications or a good faith estimate thereof. These quotations are subject to significant variability based on market conditions, such as interest rates and credit spreads. Changes in market conditions, as well as changes in the assumptions or methodology used to determineframework for measuring fair value could resultand expands disclosures about fair value measurements. This Statement applies in a significant increaseconjunction with other accounting pronouncements that require or decrease in ourpermit fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impacts of SFAS No. 157 on its consolidated results of operations and financial position. At September 30, 2006, each of our debt securities available for sale has unrealized gains.

Flight Equipment

Flight equipment held for lease is stated at cost and depreciated using the straight-line method over a 25 year life from the date of manufacture to estimated residual values. Estimated residual values are generally determined to be approximately 15% of the manufacturer's estimated realized price for flight equipment when new. Management may, at its discretion, make exceptions to this policy on a case-by-case basis when, in its judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations of value. Examples of situations where exceptions may arise include but are not limited to:

	•	Flight equipment where estimates of the manufacturer's realized sales prices are not relevant (e.g., freighter conversions);

	•	Flight equipment where estimates of the manufacture's realized sales prices are not readily available; and

	•	Flight equipment which may have a shorter useful life due to obsolescence.

In accounting for flight equipment held for lease, we make estimates about the expected useful lives, the fair value of attached leases and the estimated residual values. In estimating useful lives, fair

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valueLIQUIDITY AND CAPITAL RESOURCES

The acquisition of leasesaircraft and residual values ofdebt securities drives our aircraft, we rely upon actual industry experience with the same or similar aircraft typesgrowth and fuels our anticipated utilization of the aircraft.

Determining the fair value of attached leases requires us to make assumptions regarding the current fair values of leasesneed for specific aircraft. We estimate a range of fair values of like aircraft in order to determine if the attached lease is within a fair value range. If a lease is below or above fair value range, we present value the estimated amount below or above fair value range over the remaining term of the lease. Lease premiums or discounts are amortized into lease rental income over the remaining term of the lease.

Our flight equipment held for lease is evaluated for impairment when events and circumstances indicate that the assets may be impaired. Indicators include third party appraisals of our aircraft, adverse changes in market conditions for specific aircraft types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of our aircraft.

Derivative Financial Instruments

In the normal course of business we utilize derivative instruments to manage our exposure to interest rate risks. We account for derivative instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (‘‘SFAS No.133’’). In accordance with SFAS No.133, all derivatives are recognized on the balance sheet at their fair value. We obtain the values on a quarterly basis from the counterparties of the derivative contracts. When hedge treatment is achieved under SFAS No.133, the changes in fair values related to the effective portion of the derivatives are recorded in other comprehensive income or in income, depending on whether or not the derivative is designated as a cash flow hedge. The ineffective portion of the derivative contract is calculated and recorded in income at each quarter end.

At inception of the hedge, we choose a method of ineffectiveness calculation, which we must use for the life of the contract. For a majority of our hedges, we use the ‘‘change in variable cash flows method’’ for calculation of hedges not considered to be perfectly effective. In the case of swap transactions, the calculation involves a comparison of the present value of the cumulative change in the expected future cash flows on the variable leg of the swap and the present value of the cumulative change in the expected future interest cash flows on the floating-rate liability. The difference is the calculated ineffectiveness and is recorded in income.

We use the ‘‘hypothetical trade method’’ for hedges that do not qualify for the ‘‘change in variable cash flow method’’ under SFAS No.133. The calculation involves a comparison of the change in the fair value of a hypothetical trade to the change in the fair value of the hedge. The difference is the calculated ineffectiveness and is recorded in income.

Share Based Payments

Compensation costs relating to share based payments are recognized based on the fair value of the equity instruments issued in accordance SFAS No. 123(R), Share-Based Payment. We use the straight line method of accounting for compensation cost on share based payment awards that contain pro-rata vesting provisions. Prior to the initial public offering, the fair value of the equity instruments was determined based on a valuation which took into account various assumptions that were subjective. Such assumptions involved projecting our earnings through the date of the anticipated initial public offering to develop an estimated annualized rate of earnings and annualized earnings and dividends per share. Key assumptions used in developing the projection included expected monthly acquisition volume through the date of the initial public offering, leverage and interest costs, revenues from new aircraft acquisitions and the growth of selling, general and administrative expenses. Compensation costs relating to share based payments recognized subsequent to the initial public offering were measured based upon the market price of our common stock at the grant date. We anticipate that the current requisite service periods will be obtained for employees with awards.

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Liquidity and Capital Resources

liquidity. We have been able to meet our liquidity requirements from several sources, including:

	•	Lines of credit, our securitization, and other secured borrowings;

	•	Our initial public offeringofferings of common shares;

	•	Prior to our initial public offering, equity contributions from the Fortress shareholders;funds;

	•	Aircraft lease revenues and maintenance payments; and

	•	Principal and interest payments from our debt securities.investments.

We expect that cash on hand and expected cash flow provided by operations, as well as our credit facilities, will satisfy our short term liquidity needs with respect to our current portfoliosDuring the three months ended March 31, 2007, we acquired $446.4 million of commercial jet aircraft and related capital improvements and $15.3 million of debt securities over the next 12 months.

The acquisitioninvestments secured by a commercial jet aircraft, for a total of aircraft and debt securities drives our growth and fuels our long-term need for liquidity.$461.7 million. We expect to acquire a substantial amount of aviation assets over the next 12twelve months, but there canincluding approximately $1.4 billion of aircraft to be no assurances regardingdelivered under the timingAcquisition Agreement and amountletters of such acquisitions. Duringintent at March 31, 2007 and additional acquisitions that we may enter into from time to time in the first nine monthsordinary course of 2006, we acquired $746.1 million of commercial jet aircraft and related capital improvements and $92.7 million of debt securities secured by commercial jet aircraft, for a total of $838.8 million.business. In addition, over the next 12 months,at March 31, 2007, we expect capital expenditures and lessee maintenance payment draws on our owned and committed aircraft portfolio to be approximately $18 million.$33.0 million over the next twelve months. However, there can be no assurance that we will be able to acquire such additional aircraft, or regarding the timing and amount of such acqu isitions, or that such capital expendituresexpenditure will not exceed the expected amount.

It is our intention to fund future aircraft acquisitions initially through borrowings under our credit facilities, and to repay all or a portion of such borrowings from time to time with the net proceeds from subsequent securitizations and additional equity issuances. It is also our intention to finance investments in debt securities with borrowings arranged at the time of the investment which may include entering into repurchase agreements. Therefore, our ability to execute our business strategy, particularly the growth of our acquisitions, depends to a significant degree on our ability to obtain additional debt and equity capital. Depending onGiven the volume of aircraft acquisitions and opportunities to invest in debt securities, we will likely seekexpect to execute one or two additional securitizations and may seek to execute one or two additional equity offerings during the course of the next 12 months. 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. We believe that funds will be available to supportsatisfy our growth strategyliquidity needs over the next twelve months and will enable us to pay dividends to our common shareholders as contemplated by our dividend policy. However, future deterioration in our performance or our markets could limit our ability to access these sources of financing and/or increase our cost of capital, which may negatively impact our ability to raise additional funds, grow our business and to pay dividends to our common shareholders.

Cash Flows

			Nine Months Ended September 30,
(Dollars in thousands)			2005						2006
Net cash provided by operating activities				$	766					$	87,433
Net cash (used in) investing activities				$	(198,566	)				$	(820,960	)
New cash provided by financing activities				$	259,886					$	692,554

(Dollars in thousands)			Three Months Ended March 31, 2006						Three Months Ended March 31, 2007
Net cash flow provided by operating activities				$	13,904					$	60,519
Net cash flow used in investing activities					(255,199	)					(463,237	)
Net cash flow provided by financing activities					188,866						393,608

Cash Flows from Operating Activities

Operating activities provided net cash flow of $766,000 in$13.9 million for the first ninethree months of 2005ended March 31, 2006 and provided net cash flow of $87.4$60.5 million in the first ninethree months of 2006.ended March 31, 2007. Cash flow from operations is primarily generated from rents received pursuant to the lease agreements on our aircraft. It is reduced by interest expensepaid on our borrowings and by selling, general and administrative expenses. The

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amount of rent we receive depends on various factors, including the size, age and composition of our aircraft portfolio. Our aircraft lease agreements

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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. 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 September 30, 2005, 13March 31, 2006, all 42 of our 18 aircraft were on-lease. At September 30, 2006March 31, 2007, all 6577 of our aircraft were on-lease.

subject to lease agreements or commitments to lease. Cash flow fromprovided by operations is also affected by the interest expense we pay on our debtcredit facilities and by our decisions to hedge the risk associated withof changing interest rates. All of our debt is currently floating rate and varies with changes in LIBOR. To the extent interest rates increase, we may be liable for more interestint erest payments to our lenders. Our practice has been to hedge the expected future interest payments on a portion of our floating rate liabilities by entering into derivative contracts. However, we remain exposed to changes in interest rates to the extent we decide to remain un-hedgedunhedged and by the degree to which our hedges are not perfectly correlated to the hedged future cash flows.

Cash Flows from Investing Activities

Net cash flow used in investing activities totaled $198.6$255.2 million and $821.0$463.2 million for the ninethree months ended September 30, 2005March 31, 2006 and 2006,2007, respectively. The period to period increase reflectsDuring the increase in our business activities during this time. For example, during the ninethree months ended September 30,March 31, 2006 we acquired 3310 aircraft as compared to 15nine aircraft during the ninethree months ended September 30, 2005. Similarly, we invested $746.1March 31, 2007, resulting in our gross investment of $454.0 million in the acquisition and improvement of flight equipment during the ninethree months ended September 30, 2006March 31, 2007 or $446.4 million, net of accrued liabilities as compared to $173.3our gross investments of $205.4 million or $200.5 million, net of accrued liabilities during the three months ended March 31, 2006. The higher amount of investment relative to the number of aircraft purchased in 2006 (10 aircraft) versus 2007 (nine aircraft), reflects the acquisition in 2007 of larger commercial aircraft, including two freighter aircraft for a combined purchase price o f approximately $210 million. We invested $15.3 million in debt investments during the three months ended March 31, 2007 as compared to $92.7 million during the ninethree months ended September 30, 2005.March 31, 2006. We also invested $92.7received $12.7 million inof principal payments on our debt securities during the ninethree months ended September 30, 2006March 31, 2007. We paid $8.6 million in deposits on aircraft purchased during the three months ended March 31, 2007, as compared to $23.0$1.7 million forduring the ninethree months ended September 30, 2005.March 31, 2006. Cash flowoutflows from investing activities forduring the ninethree months ended September 30,March 31, 2006 also reflectare partially offset by proceeds of $57.2 million from the sale of an aircraft in March 2006 that had been reported as discontinued operations.

Cash FlowsNet cash flow from Financing Activities

Netfinancing activities totaled $188.9 million and $393.6 for the three months ended March 31, 2006 and 2007, respectively. In 2006, cash flows from financing activities totaled $259.9resulted from the Company borrowing $114.9 million under a credit facility and $692.6the receipt of $76.0 million forof proceeds from repurchase agreements.. In 2007, the nine months ended September 30, 2005 and 2006, respectively. The period to period increase primarily reflects the growth in our investment in flight equipment. Our financing strategy is to finance aircraft acquisitions on an interim basis using credit facilities until we aggregate a large enough portfolio to securitize. Borrowings under our credit facilities are collateralizedcash flows provided by leases on our aircraft, ownership interest in our subsidiaries that own aircraft, cash on deposit in lockbox accounts and other assets held by the collateral agent and rights under the service provider agreements and certain other agreements.

On August 11, 2006, the Company completed its initial public offering of 10,454,535common stock in February 2007 (discussed below) which generated $493.1 million of net proceeds, partially offset by the payment of the $22.6 million dividend declared in the fourth quarter of 2006. No comparable dividend was paid in the first quarter of 2006.

On February 13, 2007, we completed a follow-on public offering of 15,525,000 common shares at a price of $23$33.00 per share, raising $240.5$512.3 million before offering costs. The net proceeds of the initial public offering, after our payment of $16.8$17.9 million in underwriting discounts and commissions and $4.0$1.3 million in offering expenses, were $219.8 million. $205.5$493.1 million, $398.1 million of the net proceeds werewhich was used to repay a portion of Credit Facility No. 2. The remainder of the proceeds were used for working capital requirements and to fund additional aircraft acquisitions.

The increase in cash flows from financing activities also reflects an increase in the advance rates available to the Company from credit facilities and securitization executed since September 30, 2005, including Securitization No. 1,borrowings under Amended Credit Facility No. 2 and $75.0 million of which was used to repay borrowings under the Revolving Credit Facility No. 3 (each as defined below). At September 30, 2006, the Company had borrowed $906 million secured by interests in flight equipment with a net book value of $1.5 billion. At September 30, 2005, the Company had borrowed $129.1 million secured by interests in flight equipment with a net book value of $266 million.Facility. The weighted average advance ratesremainder of the Company’s borrowings under these credit facilities, relative to the net book value of the Company’s flight equipment, were 60% and 49% at September 30, 2005 and 2006, respectively.proceeds was used for general corporate purposes.

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On June 15, 2006, we closed our first portfolio securitization, which we refer to as Securitization No. 1. The net proceeds from Securitization No. 1 were used to pay down $441.2 million of debt on Credit Facility No.1 and $45.0 million on Credit Facility No. 2 and for working capital purposes.

We also repaid $36.7 million of debt outstanding on Credit Facility No. 3 on March 31, 2006 when we sold one of the aircraft that had been financed under this facility. The aircraft had been classified as held for sale for accounting purposes and results of operations related to the aircraft have been reported in Discontinued Operations.

Net cash flow from financing activities for the first nine months of 2006 also reflects the receipt of $76.0 million from repurchase agreements. Credit Facilities

The cash flow is primarily related to the acquisition and financing of two debt securities on March 10, 2006.

In 2004, the Fortress Shareholders committed to invest $400 million of equity in Aircastle. Of this amount, $93.1 million was contributed in 2004 and the remaining $306.9 million was invested in 2005. On February 8, 2006, the Fortress Shareholders contributed an additional $36.9 million in exchange for 3,693,200following table provides a summary of our common shares. credit facilities at March 31, 2007:

As of March 31, 2007

Debt Obligation

Collateral

Commitment

Outstanding Borrowings

Interest Rate

Final Stated Maturity

(Dollars in thousands)

Amended Credit Facility No. 2

Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests

$

1,250,000

$

302,951

1 Month LIBOR + 1.25%

12/15/08

Revolving Credit Facility

Beneficial interests in aircraft owning entities and related interests

250,000

—

1 Month LIBOR + 1.50%

12/15/07

Credit Facility No. 3

Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests

73,332

73,332

1 Month LIBOR + 1.50%

9/30/07

Securitization No. 1

Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests

544,000

544,000

1 Month LIBOR + 0.27%

06/20/31

Repurchase Agreements

Securities available for sale

71,327

71,327

1 Month LIBOR + 0.50%

3/1/08

Repurchase Agreements

Securities available for sale

2,837

2,837

1 Month LIBOR + 0.50%

6/28/07

Repurchase Agreement

Securities available for sale

5,880

5,880

3 Month LIBOR + 0.75%

9/12/07

$

2,197,376

$

1,000,327

On July 21,December 15, 2006, we returned the $36.9 million to Fortress in exchange for the cancellation of 3,693,200 ofamended and restated our common shares.

Securitization and Credit Facilities

On June 15, 2006, in connection with Securitization No. 1, two of our subsidiaries, ACS Aircraft Finance Ireland plc (‘‘ACS Ireland’’) and ACS Aircraft Finance Bermuda Limited (‘‘ACS Bermuda’’), which we refer to together with their subsidiaries as the ACS Group, issued $560 million of Class A-1 notes, or the notes, to a newly formed trust, ACS 2006-1 Pass Through Trust, or the trust. The trust simultaneously issued a single class of Class G-1 pass through trust certificates, or the certificates, representing undivided fractional interests in the notes. Payments on the notes will be passed through to holders of the certificates. The notes aresenior secured by ownership interests in aircraft-owning subsidiaries of ACS Bermuda and ACS Ireland and the aircraft leases, cash, rights under service agreements and any other assets they may hold. Each of ACS Bermuda and ACS Ireland has fully and unconditionally guaranteed the other’s obligations under the notes. However, the notes are neither obligations of nor guaranteed by Aircastle Limited.

The ACS Group used the proceeds from the sale of the notes to acquire 40 aircraft from us and we paid for certain expenses incurred in connection with the certificates offering of approximately $14 million. We used a portion of the proceeds of Securitization No. 1 to return $36.9 million to the Fortress Shareholders in exchange for the cancellation of 3,693,200 of our common shares and to repay of amounts owed on Credit Facility No. 1 and Credit Facility No. 2. The notes provide for monthly payments of interest at a floating rate of one-month LIBOR plus 0.27%, which at September 30, 2006 was 5.60%, and scheduled payments of principal. The scheduled payments of principal have been calculated such that the principal balance of the notes will be equal to 54.8% of the Initial Appraised Value of the aircraft as such Initial Appraised Value is decreased over time by an assumed amount of depreciation.

During the first five years of the transaction, subject to compliance with the debt service coverage ratio test in years four and five, all cash flows attributable to the underlying aircraft after payment of expenses, interest and scheduled principal payments, or excess securitization cash flows, will be available for distribution to us. We intend to use the excess securitization cash flow to pay dividends and to make additional investments. We expect to refinance the notes on or prior to June 2011. In the event that the notes are not repaid on or prior to June 2011, the excess securitization cash flows will be used to repay the principal amount of the notes and will not be available to us to pay dividends to our shareholders. If during year four or five of Securitization No. 1, the debt service coverage ratio test fails on two consecutive payment dates, the excess securitization cash flows will be used to repay the principal amount of the notes and will not be available to us to pay dividends to our shareholders.

During the twelve months subsequent to the closing of Securitization No. 1, the gross contracted lease rental revenues payable on Securitization No. 1 are scheduled to be approximately $121.8 million. Cash outflows of the securitization, not including remarketing expenses, are expected

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to be comprised of operating expenses, interest expense and principal amortization. The operating expenses incurred directly in connection Securitization No. 1 (exclusive of the servicing and administrative fees paid to us) are expected to be $3.8 million for the twelve month period. Interest expense incurred on the certificates and amortization of principal are expected to be $32.2 million and $21.5 million, respectively, for the twelve month period. Additionally, total depreciation on a GAAP basis for the initial twelve month period is expected to be $39.3 million, or $17.8 million in excess of principal amortization. Actual amounts may differ from estimated amounts.

On August 4, 2006 the $45.8 million outstanding balance on Credit Facility No. 1 was repaid in full.

On February 28, 2006, we entered into a revolving credit facility to finance aircraft acquisitionsagreement, which we refer to as Amended Credit Facility No. 2. This credit facility, initially hadwhich matures on December 15, 2008, provides for loans in an aggregate amount up to $1.25 billion provided, that such amount will reduce to $1.0 billion on the earlier of (1) closing of our next securitization or (2) June 30, 2007 (or, if we pay a $500 million facility limit and a term of 18 months. As of June 15, 2006, Credit Facility No. 2 was amendedcommitment fee to increase the maximum committed amount to $750 million and to extend the maturity to November 15, 2007. As of September 30, 2006 we had borrowed $278 million under this facility.lenders, December 31, 2007). Borrowings under Amended Credit Facility No. 2 are used to finance up to 85%65% of the net book value of aircraft. Credit Facility No. 2 requires the monthly payment of interest and principal, to the extent of 85% of any decrease in the net book valuepurchase price of the assets. Generally, borrowingsaircraft secured under the facility. As of March 31, 2007, we had $303.0 million outstanding under this facility. Borrowings under Amended Credit Facility No. 2 bear interest at(a) in the one month LIBORcase of loans with an interest rate based on the applicable base rate (the ‘‘ABR’’) which is the greater of the prime rate a nd the federal funds rate plus 0.50% , an annual rate equal to the ABR plus 0.25% or (b) in the case of loans with an interest rate based on the eurodollar rate (the ‘‘EDR’’) which is one-month LIBOR, an annual rate equal to the EDR plus 1.25% whichper annum. The interest rate at September 30, 2006March 31, 2007 was 6.58%6.57%. Additionally, we are subject to a 0.25%0.125% per annum fee on the average daily amount of theany unused portion of Credit Facility No. 2. Thisthe total committed

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facility. We are also required to pay customary agency fees. The facility has no restrictions on the amount of dividends we can pay, provided we are not in default.

Also on December 15, 2006, we entered into a senior secured revolving credit agreement, which we refer to as the Revolving Credit Facility. The Revolving Credit Facility, which matures on December 15, 2007 provides loans to certain direct and indirect subsidiaries of Aircastle for working capital and other general corporate purposes and also provides for the issuance of up to $125 million of letters of credit for the account of any borrower. The aggregate amount of borrowings together with the aggregate stated amount of all letters of credit under the Revolving Credit Facility may not exceed $250.0 million. Borrowings under the Revolving Credit Facility bear interest (a) in the case of loans with an interest rate based on the ABR, the ABR plus 0.50% per annum or (b) in the case of loans with an interest rate based on the EDR, the EDR plus 1.50% per annum. Additionally, we are subject to a per annum fee on any unused portion of the t otal committed facility of 0.25%, during periods when the average outstanding loans under the Revolving Credit Facility are less than $125.0 million, and 0.125% per annum when the average outstanding loans are equal to or greater than $125.0 million. Fees on any outstanding letters of credit will equal 1.625% per annum on the stated amount thereof. We are also required to pay customary agency fees. Under this facility, we are required to maintain a minimum consolidated net worth, determined according to GAAP in an amount originally set at $550 million and on April 5, 2007, in consideration for certain amendments, increased to $750 million plus one-half of the proceeds of any additional equity capital we raise . As of March 31, 2007, there were no less than $500 million.outstanding loans and $53.1 million of letters of credit outstanding under the Revolving Credit Facility

Also at September 30, 2006,March 31, 2007, we had a $73.3 million secured credit facility to finance the acquisition of two aircraft which we refer to as Credit Facility No. 3. This was initially a $110.0 million facility and had also been used to finance the acquisition of a third aircraft, but was repaid in part upon the sale of one of our aircraft on March 29, 2006. The interest rate on the facility is one-month LIBOR plus 1.50%, which at March 31, 2007 was 6.82% per annum. Credit Facility No. 3 matures on September 30, 2006 was 6.83%. The facility requires a monthly payment of interest. The facility was amended on July 18, 2006, to increase the maximum committed amount by approximately $25.1 million and to extend the maturity date to March 31, 2007. The increase in the maximum committed amount was reduced by $25.1 million with2007 or the closing of our initial public offering. We expect to either sell and/or obtain alternative sourcesthe next securitization. As of financing for these assets prior to the maturity date. However,March 31, 2007, we can give no assurances that we will be able to do so.had $73.3 million outstanding under Credit Facility No. 3.

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 September 30, 2006,March 31, 2007, we had fivethree outstanding repurchase agreements totaling $83.8$80.0 million. FourTwo of the repurchase agreements provide for the payment of interest at one monthone-month LIBOR plus 0.50% and one of the agreements provides for the payment of interest at three monththre e-month LIBOR plus 0.75%. At September 30, 2006,March 31, 2007, the weighted average interest rate on our repurchase agreements was 5.67%5.84% per annum. The repurchase agreements provide for an original term to maturity ranging from six months to one year. At September 30, 2006, two of the repurchase transactions totaling $2.9 million are scheduled to mature on June 28, 2007; two of the repurchase agreements totaling $75.0 million are scheduled to mature on March 1, 2007; and one of the repurchase agreements for $5.9 million is scheduled to mature on December 6, 2006. If we cannot renew or replace these repurchase transactionsagreements as they mature we will be required to repay them from internal funds or find alternative sources of financing, as to which no assurance can be given.

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Our debt obligations contain various customary 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 September 30, 2006.March 31, 2007.

The following table provides a summarySecuritization

On June 15, 2006, two of our subsidiaries, ACS Aircraft Finance Ireland plc and ACS Aircraft Finance Bermuda Limited, which we refer to together as the ACS Group, issued $560 million of Class A-1 notes, or the notes to a newly formed trust, ACS 2006-1 Pass Through Trust, or the trust. The trust simultaneously issued a single class of Class G-1 pass through trust certificates, or the certificates,

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representing undivided fractional interests in the notes. Payments on the notes will be passed through to the holders of the certificates. The notes are secured by ownership interests in aircraft-owning subsidiaries of ACS Bermuda and ACS Ireland and the individual aircraft leases, any cash or other assets held by the security trustee and rights under the service provider agreements and certain other agreements and assets. Each of ACS Bermuda and ACS Ireland has fully and unconditionally guaranteed each other’s obligations under the notes. However, the notes are neither obligations of or guaranteed by Aircastle Limited. The ACS Group used the proceeds from the sale of the notes to acquire directly or indirectly 40 aircraft from us and we paid for certain expenses incurred in connection with the offering of approximately $14.5 million. We used a portion of the proceeds of Securitization No. 1 to return $36.9 million to the Fortress funds in exchange for the cancellation of 3,693,200 of our com mon shares and $487.0 million of the proceeds to repay in full the amount outstanding under our previously existing $525.0 million senior secured credit facilities (dollarsfacility. The notes provide for monthly payments of interest at a floating rate of one-month LIBOR plus 0.27% which was 5.59% at March 31, 2007 and scheduled payments of principal. The scheduled payments of principal have been calculated such that the principal balance of the notes is equal to 54.8% of the Initial Appraised Value of the aircraft, as such Initial Appraised Value is decreased over time by an assumed amount of depreciation. During the first five years of the transaction, subject to compliance with the debt service coverage ratio test in thousands):years four and five, all cash flows attributable to the underlying aircraft after payment of expenses, interest and scheduled principal payments, or excess securitization cash flows, will be available for distribution to us. We have used and intend to use the excess securitization cash flow t o pay dividends and to make additional investments. We expect to refinance the notes on or prior to June 2011. In the event that the notes are not repaid on or prior to June 2011, the excess securitization cash flow will be used to repay the principal amount of the notes and will not be available to us to pay dividends to our shareholders. If during year four or five of the transaction, the debt service coverage ration test fails on two consecutive payment dates the excess securitization cash flow will be used to repay the principal amount of the notes and will not be available to us to pay dividends to our shareholders.

As of September 30, 2006

Debt Obligations

Collateral

Commitment

Outstanding

Interest Rate

Final Stated Maturity

Credit Facility No. 2

Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests

$750,000

$277,894

1 Month LIBOR + 1.25%

11/15/07

Credit Facility No. 3

Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests

73,332

73,332

1 Month LIBOR + 1.50%

03/31/07

Securitization No. 1

Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests

554,733

554,733

1 Month LIBOR + 0.27%

06/20/31

Repurchase Agreements

Securities available for sale

77,959

77,959

1 Month LIBOR + 0.50%

06/28/07 and 03/01/07

Repurchase Agreement

Securities available for sale

5,880

5,880

3 Month LIBOR + 0.75%

12/06/06

$1,461,904

$989,798

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 increased from $723.2 million$1.69 billion at the end of 20052006 to approximately $1.4$2.7 billion at September 30, 2006.March 31, 2007 due primarily to an increase in aircraft purchase obligations. The primary reasonsreason for the increase are:is:

	•	an increase in borrowings on credit facilities and Securitization No.1, which reflects the increase in our flight equipment held for lease;

	•	an increase in repurchase agreements to finance the acquisition of securities available for sale, reflecting the increase in our debt investments; and

	•	an increase in purchase obligations mainly due to acquire additional flight equipment.the GAIF transaction finalized in January 2007.

The increase in contractual obligations due in greater than one year as compared to December 31, 2005 reflects the replacement of short term credit facilities with longer term financing under Securitization No. 1.

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The following table presents our actual contractual obligations and their maturity dates as of September 30, 2006 (dollars in thousands):March 31, 2007:

Payments Due By Period as of March 31, 2007

			Payments due by period as of September 30, 2006
Contractual Obligations			Total						Less than 1 year						1-3 years						3-5 years						More than 5 years						Total						Less than 1 year						1-3 years						3-5 years						More than 5 years
Credit Facility No. 2(1)(2)				$	302,598					$	24,355					$	278,243					$	—					$	—
																																	(Dollars in thousands)
Amended Credit Facility No. 2(1)																																		$	337,259					$	38,431					$	298,828					$	—					$	—
Credit Facility No. 3(1)					75,864						75,864						—						—						—						75,930						75,930						—						—						—
Securitization No. 1(1)					872,347						51,177						102,076						123,897						595,197						718,828						52,619						104,499						158,723						402,987
Repurchase Agreements(1)					85,811						85,811						—						—						—
Operating Leases(3)					4,764						635						1,322						1,349						1,458
Purchase Obligations(4)					77,250						77,250						—						—						—
Repurchase agreements(1)																																			84,444						84,444						—						—						—
Operating leases(2)																																			3,880						671						1,361						1,214						634
Purchase obligations(3)																																			1,435,541						1,435,541						—						—						—
Total				$	1,418,634					$	315,092					$	381,641					$	125,246					$	596,655					$	2,655,882					$	1,687,636					$	404,688					$	159,937					$	403,621

(1)	Includes interest on variable rate, LIBOR-based instruments at the September 30, 2006March 31, 2007 rate.

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(2)	$205.5 million of the net proceeds from our initial public offering were used to repay a portion of Credit Facility No. 2 on August 15, 2006.

(3)	Represents contractual payments on our office leases in Stamford, Connecticut and Dublin, Ireland.

(4)(3)	At September 30, 2006,March 31, 2007, we had binding letters of intent to acquire four aircraft. It is anticipated that37 aircraft, including 32 from GAIF. As of April 30, 2007, thirteen of the acquisitionGAIF aircraft were subsequently acquired; the remaining letters of all four aircraft will be completed during the fourth quarter of 2006.intent are still pending.

Our hedging transactions useusing derivative instruments and our securities repurchase transactions also involve counterparty credit risk. The counterparties to our derivative arrangements and repurchase agreements 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.

However, there can be no assurance that we will be able to adequately to 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 thea counterparty.

Margin Calls

Our repurchase agreements and interest rate derivative instruments are also 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, 2006 and March 31, 2007, we had margin deposits in the amount of $4.3 million and $10.0 million, respectively.

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. In 2005For the three months ended March 31, 2006, we madeincurred a total of $30.5$1.5 million of capital expenditures related to the acquisition of aircraft. For the ninethree months ending September 30, 2006ended March 31, 2007, we madeincurred a total of $2.9$1.3 million of capital expenditures related to the acquisition of aircraft.

As of September 30, 2006,March 31, 2007, the weighted average (by net book value) age of our aircraft was approximately 8.628.5 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

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obligations under the lease agreement. Under 37 of our leases, the lessee is required to make periodic payments to us in order to provide for the payment of maintenance tied to the usage of the aircraft. Under the terms of 26 of our leases, the lessee may be required to make a maintenance payment to us at the end of the lease based upon certain utilization criteria. Two of our leases require that the lessee make both a monthly maintenance payment and an additional maintenance payment to us at the end of the lease term in certain circumstances. At September 30, 2006,March 31, 2007, we held $72.6$102.5 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 theth e costs of maintenance events performed by or on behalf of the lessee.

Actual maintenance reserve 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 at September 30, 2006 and Decemberas of March 31, 2005.2007.

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Foreign Currency Risk and Foreign Operations

At September 30, 2006, except for one lease expiring in November, 2006, where the lease rentals are payable in euros, lease rentals underMarch 31, 2007, all of our leases are payable in U.S. dollars. However, we incur euroEuro and Singapore dollar denominated expenses in connection with our subsidiary in Ireland and branch office in Singapore. As of September 30, 2006, sixMarch 31, 2007, 10 of our 3852 employees were based in Ireland and two employees2 were based in Singapore. For the ninethree months ended September 30, 2006,March 31, 2007, expenses denominated in currencies other than the U.S. dollar, such as payroll and office costs, aggregated approximately $2.8$1.4 million in U.S. dollar equivalents and represented approximately 13%16% of total selling, general and administrative expenses. Our international operations are a significant component of our business strategy and permit us more effectively to 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 ninethree months ended September 30, 2005March 31, 2006 and 20062007 we incurred a net loss of $11,000$9,000 and a net gain of $12,000 on$20,000 in foreign currency transactions, respectively.

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 securities are generallypredominately collateralized by largely 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 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.

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Changes in interest rates may also impact our net book value as our debt securities and derivatives are periodically marked-to-market.marked-to-market through stockholders’ equity. Generally, as interest rates increase the value of our fixed rate debt securities 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 securities 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 paymentspa yments on our outstanding and/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 securities and spreads on derivative instruments may vary from time to time, resulting in a net aggregate book value increase or decline. Changes in the general level of interest rates also can affect our ability to acquire new investments and our ability to realize gains from the settlement of such assets.

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 flows are exchanged with a

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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 securities. 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. We held the following interest rate derivative contracts as of September 30, 2006:March 31, 2007:

(Dollars in thousands)
Hedged Item			Notional Amount						Effective Date			Maturity Date			Floating Rate			Fixed Rate						Fair Value Of Derivative Asset or (Liability)
Securitization No. 1(e)				$	554,733				Jun-06			Jun-16			1 Month LIBOR + 0.27%					5.78	%				$	(16,163	)
Credit Facility No. 2 and 3(a)					500,000				Mar-06			Mar-11			1 Month LIBOR					5.07	%					(2,706	)
Repurchase Agreement(b)					67,000				Feb-06			Jul-10			1 Month LIBOR					5.02	%					153
Repurchase Agreement(c)					5,000				Dec-05			Sep-09			3 Month LIBOR					4.94	%					17
Repurchase Agreement(d)					2,900				Jun-05			Mar-13			1 Month LIBOR					4.21	%					138
				$	1,129,633																				$	(18,561	)

Hedged Item			Notional Amount						Effective Date			Maturity Date			Floating Rate			Fixed Rate						Fair Value of Derivative Asset or (Liability)
			(Dollars in thousands)
Securitization No. 1				$	544,000				Jun-06			Jun-16			1 Month LIBOR + 0.27%					5.78	%				$	(16,385	)
Amended Credit Facility No. 2 and Credit Facility No. 3					500,000				Mar-06			Mar-11			1 Month LIBOR					5.07	%					(3,744	)
Amended Credit Facility No. 2 and Credit Facility No. 3					200,000				Jan-07			Aug-12			1 Month LIBOR					5.06	%					(1,674	)
Future debt and securitization					360,000				Feb-07			Apr-17			1 Month LIBOR					5.14	%					(3,586	)
Future debt and securitization					90,000				Jul-07			Dec-17			1 Month LIBOR					5.14	%					(1,278	)
Future debt and securitization					40,000				Jan-08			Feb-17			1 Month LIBOR					5.16	%					(2,758	)
Repurchase Agreement					48,000				Feb-06			Jul-10			1 Month LIBOR					5.02	%					41
Repurchase Agreement					5,000				Dec-05			Sep-09			3 Month LIBOR					4.94	%					3
Repurchase Agreement					2,900				Jun-05			Mar-13			1 Month LIBOR					4.21	%					119
Total				$	1,789,900																				$	(29,262	)

(a)

On March 21, 2006 we entered into a series of interest rate forward contracts to hedge the variable interest rate payments on debt we expect to incur to finance aircraft acquisitions over the next year. The notional amounts of the forward contracts in that series started at $100 million with respect to the March 2006 forward contract and increase to a maximum of $500 million with respect to the September 2006 forward contract. The increase in notional amount over time reflected projected aircraft acquisitions and related borrowings through September 2006. To the extent that actual interest payments on borrowings do not match anticipated cash flows from forward contracts, we may be required to recognize additional income or expense on the forward contracts. The terms of the forward contracts provide for a comparison of, on average, a fixed rate of 5.07% per annum and of one month LIBOR. The aggregate market value of the forward

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	contracts at September 30, 2006 was a payable of $2.7 million. The interest rate forward contracts are treated as cash flow hedges for accounting purposes with fair value adjustments recorded as a component of other comprehensive income in our balance sheet

(b)

In March 2006 we designated an interest rate swap which we had entered into in February 2006 as a hedge of the future variable-rate interest payments on a repurchase agreement we executed to finance our acquisition of securities. The interest rate swap had an initial notional principal amount of $74 million and decreases periodically based on estimated projected principal payments on the securities. The interest rate swap, which matures in July 2010, requires that we make semi-annual payments of a fixed rate of 5.02% per annum and receive monthly an amount based on the one-month LIBOR rate and the then current notional principal amount. At September 30, 2006 the market value of the swap was a receivable of $153,000. The interest rate swap is treated as a cash flow hedge for accounting purposes with fair value adjustments recorded as a component of other comprehensive income on our balance sheet.

(c)

On December 5, 2005, we entered into a four-year interest rate swap with a notional amount of $5 million to hedge a securities repurchase agreement we had entered into to finance our acquisition of securities. The swap requires that we make semi-annual fixed rate payments of 4.94% and receive quarterly floating rate payments equal to three-month LIBOR. The market value of the swap was a receivable of approximately $17,000 at September 30, 2006. The interest rate swap is treated as a cash flow hedge for accounting purposes with fair value adjustments recorded as a component of other comprehensive income in the balance sheet.

(d)

On June 28, 2005, we entered into a seven-year interest rate swap with a notional amount of $2.9 million to hedge a floating rate securities repurchase agreement we had entered into to finance our acquisition of securities. The swap requires that we make quarterly fixed rate payments at 4.21% per annum and receive monthly floating rate payments equal to one-month LIBOR. The market value of the swap was a receivable of approximately $138,000 at September 30, 2006. The interest rate swap is treated as a cash flow hedge for accounting purposes with fair value adjustments recorded as a component of other comprehensive income in the balance sheet.

(e)

On June 1, 2006, we entered into a series of forward contracts to hedge the variable interest rate payments on Securitization No. 1. The notional amounts of the initial forward contracts in that series start at $560 million with respect to the July 2006 forward contract and decrease monthly based on the projected principal payments on the certificates. The terms of the forward contracts provide for a comparison of, on average, a fixed rate of 5.78% per annum and of one-month LIBOR plus 0.27%. The aggregate market value of the forward contracts at September 30, 2006 was a payable of $16.2 million. The interest rate forward contracts are treated as cash flow hedges for accounting purposes with fair value adjustments recorded as a component of other comprehensive income on our balance sheet.

Related Party Transactions

Prior to our initial public offering, substantially all of the ownership interests in Aircastle were beneficially owned by our employees and funds managed by affiliates of Fortress. In 2004, Fortress committed to invest $400 million of equity in Aircastle, all of which was drawn as of December 31, 2005. On February 8, 2006, the Fortress funds contributed an additional $36.9 million in exchange for 3,693,200 of our common shares. On July 21, 2006, we returned the $36.9 million to the Fortress funds in exchange for the cancellation of 3,693,200 of our common shares.

During partInflation

Inflation generally affects our costs, including SG&A expenses and other expenses. However, we do not believe that our financial results have been, or will be, adversely affected by inflation in a material way.

Management’s Use of 2005,EBITDA

We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our primary operations were managed by Fortress. Fortress, actingconsolidated financial and operating performance, and we believe this non-GAAP measure is helpful in identifying trends in our performance. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as manager, incurred directwell as achieve 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 costsperformance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our behalf. These operating costs primarily included payroll costs, office supplies and professional fees paid to third parties. These costs are included in selling, general and administrative expenses in the consolidated statement of operations. As of December 31, 2004, ‘‘Due to affiliate’’ represented reimbursable expenditures of $1.1 million paid by Fortress in 2004. In 2005, all amounts due to or from affiliates were settled by cash payment. During acapital structure

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portion of 2005, we occupied space in facilities leased by Fortress(primarily interest charges on our outstanding debt) and rent of $43,000, determinedasset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on actual costsoperational 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 Fortress, was reimbursedreview 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 Fortress.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 tear and/or reduction in value of our aircraft, which affects the aircraft’s availability for use and may be indicative of future needs for capital expenditures; and

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

An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. You should not rely on EBITDA as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of EBITDA to GAAP net income (loss), along with our consolidated financial statements included elsewhere in this report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the EBITDA measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies. The table below shows the reconciliation of net income (loss) to EBITDA for the three months ended March 31, 2006 and 2007.

(Dollars in thousands)			Three Months Ended March 31, 2006						Three Months Ended March 31, 2007
Net income (loss)				$	11,180					$	21,541
Depreciation					9,076						21,633
Amortization					(104	)					(1,659	)
Interest, net					7,364						16,730
Income tax provision					1,004						1,905
Earnings from discontinued operations, net of income taxes					(3,745	)					(684	)
EBITDA				$	24,775					$	59,466

ItemITEM 3.    Quantitative and Qualitative Disclosures About Market RiskQUANTITATIVE 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. Significant increases in interest rates could decrease the fair value of our debt securities, 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 variable rate debt.

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The following table provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For our debt securities 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 annual spot rate observations as of the reporting date. For interest rate swaps and forward contracts, the table presents notional amounts by expected maturity date or mandatory termination date and weighted-average interest rates as of the end of each period (dollars in thousands):period:

									Face/Notional Amount Maturing
									Twelve Months Ended September 30,
			Face/Notional/ Market Value amount September 30, 2006						2007						2008						2009						2010						2011						Thereafter						Fair Value September 30, 2006
Fixed Rate Assets
Securities Available for Sale				$	120,271					$	34,687					$	14,862					$	24,118					$	27,116					$	3,071					$	16,417					$	120,271
Average coupon rate, end of period(1)					7.77	%					7.78	%					7.79	%					7.90	%					8.09	%					8.14	%
Variable Rate Liabilities(2)
Borrowed under Credit Facilities				$	351,226					$	73,893					$	277,333					$	—					$	—					$	—					$	—					$	351,226
Average coupon rate, end of period(4)					6.63	%					6.55	%					6.40	%					—						—						—
Securitized Notes(3)
Certificates Issued				$	554,733					$	21,734					$	22,825					$	23,951					$	25114					$	38,394					$	422,715					$	554,733
Average coupon rate, end of period(4)					5.60	%					5.57	%					5.42	%					5.37	%					5.37	%					5.37	%
Repurchase Obligations				$	83,839					$	8,784					$	75,055					$	—					$	—					$	—					$	—					$	83,839
Average coupon rate, end of period(4)					5.67	%					5.80	%					5.65	%					—						—						—
Interest Rate Swaps Related to Credit Facilities
Pay/fixed/receive variable				$	74,900					$	28,000					$	11,500					$	14,500					$	18,000					$	—					$	2,900					$	308
Average pay fixed rate					4.98	%					4.96	%					4.94	%					4.88	%					4.21	%					4.21	%
Average receive variable rate, end of period(5)(6)					5.33	%					5.34	%					5.14	%					5.10	%					5.10	%					5.10	%
Interest Rate Forwards Related to Credit Facilities
Notional Amounts(7)				$	500,000					$	—					$	—					$	—					$	—					$	—					$	500,000					$	(2,706	)
Average pay fixed rate					5.07	%					5.07	%					5.07	%					5.07	%					5.07	%					5.07	%
Average receive variable rate, end of period(5)(6)					5.33	%					5.30	%					5.10	%					5.10	%					5.05	%					5.10	%
Interest Rate Forwards Related to Securitization No.1
Notional Amounts(8)				$	554,733					$	21,734					$	22,825					$	23,952					$	25,113					$	78,268					$	382,841					$	(16,163	)
Average pay fixed rate					5.78	%					5.78	%					5.78	%					5.78	%					5.78	%					5.78	%
Average receive variable rate, end of period(5)(6)					5.60	%					5.57	%					5.42	%					5.37	%					5.37	%					5.37	%

(Dollars in thousands)			Face/Notional/ Market Value amount March 31, 2007						Face/Notional Amount Maturing																																				Fair Value March 31, 2007
									Twelve Months Ended December 31,
									2008						2009						2010						2011						2012						Thereafter
Fixed Rate Assets
Securities Available for Sale				$	107,865					$	27,197					$	15,785					$	25,242					$	23,224					$	664					$	15,753					$	109,427
Weighted average coupon rate, end of period					7.77	%					7.78	%					7.78	%					7.92	%					8.10	%					8.15	%
Security Held Until Maturity				$	15,414					$	—					$	—					$	—					$	—					$	—					$	—					$	15,414
Average interest rate					8.88	%
Variable Rate Liabilities
Borrowed under Credit Facilities				$	376,283					$	91,798					$	284,485					$	—					$	—					$	—					$	—					$	376,283
Weighted average interest rate end of period					6.62	%					7.17	%					—						—						—						—						—						—
Securitized Notes
Notes Issued				$	544,000					$	22,275					$	23,384					$	24,528					$	25,708					$	83,240					$	364,865					$	544,000
Weighted average interest rate, end of period					5.59	%					6.15	%					6.07	%					5.94	%					5.85	%					5.69	%
Repurchase Obligations				$	80,044					$	80,044					$	—					$	—					$	—					$	—					$	—					$	80,044
Weighted average interest rate, end of period					5.85	%					—						—						—						—						—						—						—
Interest Rate Swaps Related to Repurchase Obligations
Pay fixed/receive variable				$	55,900					$	15,000					$	13,000					$	21,000					$	4,000					$	—					$	2,900					$	163
Average pay fixed rate					4.98	%					4.95	%					4.92	%					4.67	%					4.21	%					4.21	%					—						—
Average receive variable rate, end of period					5.32	%					5.92	%					5.82	%					5.65	%					5.55	%					5.41	%					—						—
Interest Rate Forwards Related to Credit Facilities
Notional Amounts				$	500,000					$	500,000					$	—					$	—					$	—					$	—					$	—					$	(3,744	)
Weighted average pay fixed rate					5.07	%
Weighted average receive variable rate, end of period					5.32	%					—						—						—						—						—						—						—
Interest Rate Swaps Related to Credit Facilities
Notional Amounts				$	200,000					$	200,000					$	—					$	—					$	—					$	—					$	—					$	(1,674	)
Average pay fixed rate					5.06	%
Average receive variable rate, end of period					5.32	%					—						—						—						—						—						—						—
Interest Rate Forwards Related to Securitization No.1
Notional Amounts				$	544,000					$	22,275					$	23,384					$	24,528					$	25,708					$	85,598					$	362,507					$	(16,385	)
Weighted average pay fixed rate					5.78	%					5.78	%					5.78	%					5.78	%					5.78	%					5.78	%					—						—
Weighted average receive variable rate, end of period					5.59	%					6.15	%					6.07	%					5.94	%					5.85	%					5.69	%					—						—
Interest Rate Forwards Related to Future Borrowings
Notional Amounts				$	360,000					$	20,000					$	350,000					$	—					$	—					$	—					$	—					$	(3,586	)
Average pay fixed rate					5.14	%					5.15	%
Average receive variable rate, end of period					5.59	%					5.92	%					—						—						—						—						—						—

(1)	Refers to the weighted-average interest rate on the face amount of securities remaining at the end of each period.

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(2)	Amounts shown as projected future variable-rate liabilities maturing excluding cash interest receipts or payments when due.

(3)	As described in Note 6, on June 15, 2006 the Company issued certificates under Securitization No. 1. A portion of the proceeds were used to repay in full Credit Facility No. 1 previously reported above in our consolidated balance sheets in the combined balance of amounts included under ‘‘Borrowings under credit facilities’’.

(4)	Refers to the weighted-average interest rate on the face amount of variable-rate liabilities outstanding at the end of each period.

(5)	Refers to the weighted-average interest rate on notional amount of interest rate swaps and forward contracts outstanding at the end of each period.

(6)	The variable rate on our interest rate swaps and equivalent rate on our forward contracts is reset monthly at one-month LIBOR or quarterly at three-month LIBOR, as applicable.

(7)	On March 21, 2006, the Company entered into a series of interest rate forward contracts to hedge the variability of future interest payments on our credit facilities. The notional amounts of the forward contracts in that series started at $100 million with respect to March 2006 forward contract and increased to a maximum of $500 million with respect to the September 2006 forward contract.

(8)	On June 1, 2006 the Company entered into a series of forward contracts to hedge variable interest rate payments on Securitization No. 1. The notional amounts of the initial contracts in that series start at $560 million with respect to the July 2006 forward contract and decrease monthly based upon projected principal payments on the certificates.

The fair value of debt securities available for sale, repurchase obligations and interest rate swaps related to repurchase agreements all increased from December 31, 20052006 to September 30, 2006March 31, 2007 because of our purchase of additionala debt securities during the nine months ended September 30, 2006, our execution of repurchase agreementssecurity. In addition, subsequent to finance the acquisition of debt securities and our execution ofMarch 31, 2007 we entered into three interest rate swaps to hedge the variable interest rate payments on the LIBOR-based repurchase agreements. The amount of borrowings under credit facilities also increased during the nine months ending September 30, 2006 in connection with the financing of additional aircraft acquisitions. Also, in the first quarter of 2006 we entered into a new series of interest rate forward agreements to hedge the variable interest payments on the additional debt we expect to incur from Credit Facility No. 2, which was executed in March 2006.

Inflation

Inflation generally affects our costs, including SG&A expenses and other expenses. However, we do not believe that our financial results have been, or will be, adversely affected by inflation in a material way.

Management's Use of EBITDA

We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-GAAP measure is helpful in identifying trends in our performance. This measure provides an assessment of controllable expenses and affords managementfinance aircraft acquisitions over the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.next several years.

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:

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	•	depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft's availability for use and may be indicative of future needs for capital expenditures; and

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

An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. You should not rely on EBITDA as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of EBITDA to GAAP net income (loss), along with our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the EBITDA measure, as presented in this prospectus, may differ from and may not be comparable to similarly titled measures used by other companies. The table below shows the reconciliation of net income (loss) to EBITDA for the three and six months ended September 30, 2005 and 2006 (dollars in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2005						2006						2005						2006
Net (loss) income				$	(1,606	)				$	15,182					$	(3,856	)				$	31,412
Depreciation					3,182						16,419						6,644						38,182
Amortization					183						(1,475	)					551						(3,093	)
Interest					1,604						14,177						3,217						35,058
Income tax provision					208						1,786						461						4,453
Earnings from discontinued Operations, net taxes					—						—						—						(3,399	)
EBITDA				$	3,571					$	46,089					$	7,017					$	102,613

Item 4.    Controls and Procedures

a)    Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), as of the end of the period covered by this report. Our Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2006,March 31, 2007, our disclosure controls and procedures were effective.

b)    Changes in Internal Controls

There have not been any changes in our internal control over financial reporting (as such terms is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 Registration StatementAnnual Report on Form S-1 (File No. 333-134669), originally10-K filed with the SEC on June 2, 2006 and subsequently amended, and effective on August 7,for the year ended December 31, 2006.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.    Defaults upon Senior Securities

None

Item 4.    Submission of Matters to Vote of Security Holders

None

Item 5.    Other informationInformation

None

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Item 6.    Exhibits

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	3	.1				Memorandum of Association*
	3	.2				Form of Amended and Restated Bye-laws*
	4	.1				Specimen Share Certificate*
	4	.2				Form of 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				Aircraft Sale and Purchase Agreement, dated as of August 17, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee)†
	10	.2				Aircraft Lease Novation and Amendment Agreement, dated as of August 17, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) and Sterling Airlines A/S†
	10	.3				Aircraft Lease Agreement, dated as of September 12, 2005, between Maersk Aircraft A/S and Sterling Airlines A/S†
	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 and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit No.						Description
	2	.1				Asset Purchase Agreement, dated as of January 21, 2007 by and among the Sellers listed on Schedule 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 on Schedule 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 Mac ro Master Fund Ltd.†
	10	.14				Letter Agreement, dated January 8, 2007, between Aircastle Advisor LLC and Michael Platt††††
	10	.37				Amendment No. 2, dated as of January 26, 2007 to the Amended 364-Day Senior Secured Credit Agreement, dated as of October 25, 2005, as amended by Amendment No. 1 thereto dated as of July 21, 2006, by and among Wells Fargo Bank Northwest, National Association as Borrowers 337 and 342, Aircastle Ireland No. 2 Limited, a limited liability company incorporated in Ireland and Citibank, N.A., as lender and agent**
	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 and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†
*	Filed as an Exhibit to Amendment No. 2Incorporated by reference to the Company's Registration StatementCompany’s registration statement on Form S-1, datedfiled with the SEC on June 2, 2006, as amended on July 10, 2006, July 25, 2006 and incorporated by reference herein.August 2, 2006.

††††	Filed as an ExhibitIncorporated by reference to the Company's Current ReportCompany’s current report on Form 8-K dated as of August 18, 2006, and incorporatedfiled with the SEC on January 9, 2007.

†††††

Incorporated by reference herein.to the Company’s current report on Form 8-K filed with the SEC on January 25, 2007.

**	Incorporated by reference to the Company’s current report on Form 8-K filed with the SEC on January 30, 2007.

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Schedule 1

The following documents have been omitted from this Quarterly Report on Form 10-Q, in accordance with Instruction 2 to Item 601(a) of Regulation S-K, as they are substantially identical in all material respects to the documents filed.

1.    Aircraft Sale and Purchase Agreement, to be dated on or about August 21, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) in respect of Aircraft msn 28008.

2.    Aircraft Sale and Purchase Agreement, to be dated on or about August 23, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) in respect of Aircraft msn 28009.

3.    Aircraft Sale and Purchase Agreement, dated August 17, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) in respect of Aircraft msn 28013.

4.    Aircraft Sale and Purchase Agreement, dated August 17, 2006, between A/S Maersk Aviation Holding and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) in respect of Aircraft msn 28014.

5.    Aircraft Sale and Purchase Agreement, dated August 17, 2006, between A/S Maersk Aviation Holding and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) in respect of Aircraft msn 28015.

6.    Aircraft Lease Novation and Amendment Agreement, to be dated on or about August 21, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) and Sterling Airlines A/S in respect of Aircraft msn 28008.

7.     Aircraft Lease Novation and Amendment Agreement, to be dated on or about August 23, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) and Sterling Airlines A/S in respect of Aircraft msn 28009.

8.    Aircraft Lease Novation and Amendment Agreement, dated August 17, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) and Sterling Airlines A/S in respect of Aircraft msn 28013.

9.    Aircraft Lease Novation and Amendment Agreement, dated August 17, 2006, between A/S Maersk Aviation Holding and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) and Sterling Airlines A/S in respect of Aircraft msn 28014.

10.    Aircraft Lease Novation and Amendment Agreement, dated August 17, 2006, between Maersk Aircraft A/S and Wells Fargo Bank Northwest, N.A. (not in its individual capacity but solely as Owner Trustee) and Sterling Airlines A/S in respect of Aircraft msn 28015.

11.    Lease Agreement, dated September 12, 2005, between Maersk Aircraft A/S and Sterling Airlines A/S in respect of msn 28008.

12.    Lease Agreement, dated September 12, 2005, between Maersk Aircraft A/S and Sterling Airlines A/S in respect of msn 28009.

13.    Lease Agreement, dated September 12, 2005, between Maersk Aircraft A/S and Sterling Airlines A/S in respect of msn 28013.

14.    Lease Agreement, dated as of September 12, 2005, between A/S Maersk Aviation Holding and Sterling Airlines A/S in respect of msn 28014.

15.    Lease Agreement, dated as of September 12, 2005, between A/S Maersk Aviation Holding and Sterling Airlines A/S in respect of msn 28015.

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SIGNATURESignature

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.

			AIRCASTLE LIMITED (Registrant)
Date: November 14, 2006May 15, 2007			By:			/s/ Aaron Dahlke
						Aaron Dahlke
						Chief Accounting Officer and Authorized Officer