UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

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

For the quarterly period ended June 30, 2008

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

For the transition period from                      to                     

AIRCASTLE LIMITED

(Exact name of registrant as specified in its charter)

Bermuda (State or other jurisdiction of incorporation or organization)		98-0444035 (IRS Employer Identification No.)
c/o Aircastle Advisor LLC 300 First Stamford Place, 5th Floor Stamford, CT (Address of principal executive offices)		06902 (Zip Code)

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

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

     YES þ     NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

     YES o     NO þ

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

 

 

EXPLANATORY NOTE REGARDING THIS FORM 10-Q/A

     Aircastle Limited (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10—Q for the quarter ended June 30, 2008, originally filed with the Securities and Exchange Commission (the “SEC”) on August 8, 2008 (the “original Form 10-Q”) to amend and restate its consolidated statements of cash flows for the three and six months ended June 30, 2007 and 2008.

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

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

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

     This Form 10-Q/A includes new certifications as exhibits 31.1, 31.2, 32.1 and 32.2 by our principal executive officer and principal financial officer as required by Rules 12b-15 and 13a-14 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except for the amended disclosure and reclassification described above, the information in this Form 10—Q/A has not been updated to reflect events that occurred after August 8, 2008, the filing date of our original Form 10—Q. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the original Form 10-Q, including any amendments to those filings. The following information has been updated to give effect to the restatement:

Part I — Item 1 — Financial Statements

Part I — Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I — Item 4 — Controls and Procedures

Part II — Item 6 — Exhibits

Aircastle Limited and Subsidiaries

						Page
						No.
PART I. — FINANCIAL INFORMATION
		Item 1.		Financial Statements
				Consolidated Balance Sheets as of December 31, 2007 and June 30, 2008			4
				Consolidated Statements of Income for the three and six months ended June 30, 2007 and 2008			5
				Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2008 (Restated)			6
				Notes to Unaudited Consolidated Financial Statements			7
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
		Item 4.		Controls and Procedures			45
PART II. — OTHER INFORMATION
		Item 6.		Exhibits			46
		SIGNATURE					47
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

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

		December 31,				June 30,
		2007				2008
						(unaudited)
ASSETS
Cash and cash equivalents		$	13,546			$	76,947
Accounts receivable			4,957				6,688
Debt investments			113,015				20,664
Restricted cash and cash equivalents			161,317				188,141
Flight equipment held for lease, net of accumulated depreciation of $189,737 and $285,570			3,807,116				4,080,903
Aircraft purchase deposits and progress payments			245,331				82,258
Leasehold improvements, furnishings and equipment, net of accumulated depreciation of $1,335 and $1,709			1,391				1,351
Fair value of derivative assets			—				2,490
Other assets			80,969				57,052
Total assets		$	4,427,642			$	4,516,494
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings under credit facilities		$	798,186			$	255,189
Borrowings from securitizations and term debt financings			1,677,736				2,414,367
Accounts payable, accrued expenses and other liabilities			65,967				66,866
Dividends payable			55,004				19,647
Lease rentals received in advance			31,016				26,698
Repurchase agreements			67,744				—
Security deposits			74,661				72,912
Maintenance payments			208,363				244,550
Fair value of derivative liabilities			154,388				99,465
Total liabilities			3,133,065				3,199,694
Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Preference shares, $.01 par value, 50,000,000 shares authorized, no shares issued and outstanding			—				—
Common shares, $.01 par value, 250,000,000 shares authorized, 78,574,657 shares issued and outstanding at December 31, 2007; and 78,587,011 shares issued and outstanding at June 30, 2008			786				786
Additional paid-in capital			1,468,140				1,470,090
Dividends in excess of earnings			(48,960	)			(21,269	)
Accumulated other comprehensive loss			(125,389	)			(132,807	)
Total shareholders’ equity			1,294,577				1,316,800
Total liabilities and shareholders’ equity		$	4,427,642			$	4,516,494

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

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2008				2007				2008
Revenues:
Lease rentals		$	81,926			$	144,291			$	149,284			$	277,918
Interest income			2,728				614				5,316				1,905
Other revenue			460				490				519				528
Total revenues			85,114				145,395				155,119				280,351
Expenses:
Depreciation			27,764				51,605				49,398				99,820
Interest, net			19,345				51,319				36,077				92,330
Selling, general and administrative			10,448				11,354				18,944				22,843
Other expense			380				597				761				1,242
Total operating expenses			57,937				114,875				105,180				216,235
Other income:
Gain on sale of aircraft			—				5,126				—				5,126
Other			1,154				1,328				1,154				1,083
Total other income			1,154				6,454				1,154				6,209
Income from continuing operations before income taxes			28,331				36,974				51,093				70,325
Income tax provision			1,173				1,633				3,078				3,347
Income from continuing operations			27,158				35,341				48,015				66,978
Earnings from discontinued operations, net of income taxes			10,910				—				11,594				—
Net income		$	38,068			$	35,341			$	59,609			$	66,978
Basic earnings per share:
Income from continuing operations		$	0.41			$	0.45			$	0.77			$	0.86
Earnings from discontinued operations, net of income taxes			0.16				—				0.18				—
Net income per share		$	0.57			$	0.45			$	0.95			$	0.86
Diluted earnings per share:
Income from continuing operations		$	0.41			$	0.45			$	0.77			$	0.86
Earnings from discontinued operations, net of income taxes			0.16				—				0.18				—
Net income per share		$	0.57			$	0.45			$	0.95			$	0.86
Dividends declared per share		$	0.60			$	0.25			$	1.10			$	0.50

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

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

		Six Months Ended
		June 30,
		2007				2008
		(Restated)
Cash flows from operating activities:
Net income		$	59,609			$	66,978
Adjustments to reconcile net income to net cash provided by operating activities (inclusive of amounts related to discontinued operations):
Depreciation			50,158				99,712
Amortization of deferred financing costs			3,166				6,787
Amortization of lease premiums and discounts, and other related lease items			(3,493	)			(5,216	)
Deferred income taxes			(3,109	)			2,604
Accretion of purchase discounts on debt investments			(405	)			(277	)
Non-cash share based payment expense			4,046				3,213
Cash flow hedges reclassified into earnings			(2,110	)			595
Ineffective portion of cash flow hedges			(418	)			6,027
Gain on sale of flight equipment			(10,219	)			(5,126	)
Security deposits and maintenance payments included in earnings			(815	)			(3,322	)
Loss on sale of investments			—				245
Other			(1,154	)			(918	)
Changes in certain assets and liabilities:
Accounts receivable			2,222				(1,731	)
Restricted cash and cash equivalents			(22,872	)			(26,686	)
Other assets			(2,269	)			1,318
Accounts payable, accrued expenses and other liabilities			5,187				(2,705	)
Payable to affiliates			—				(200	)
Lease rentals received in advance			404				(4,110	)
Net cash provided by operating activities			77,928				137,188
Cash flows from investing activities:
Acquisition and improvement of flight equipment			(1,024,685	)			(221,310	)
Aircraft purchase deposits and progress payments, net of return deposits			(88,413	)			8,974
Proceeds from sale of flight equipment			34,946				21,366
Purchase of debt investments			(15,251	)			—
Proceeds from sale of debt investments			—				65,335
Principal repayments on debt investments			13,372				11,467
Margin call payments on derivatives and repurchase agreements			(5,694	)			(296,605	)
Margin call receipts on derivatives and repurchase agreements			9,382				330,943
Leasehold improvements, furnishings and equipment			(259	)			(334	)
Net cash used in investing activities			(1,076,602	)			(80,164	)
Cash flows from financing activities:
Issuance of common shares in public offerings, net			493,056				—
Issuance, net of repurchases, of common shares to directors and employees			852				(1,263	)
Proceeds from securitizations and term debt financings			1,170,000				786,135
Securitization and term debt financing repayments			(10,866	)			(49,504	)
Restricted cash and cash equivalents related to unreleased securitization and credit facility borrowings			(500,565	)			(138	)
Deferred financing costs			(11,552	)			(17,568	)
Credit facility borrowings			1,009,779				482,723
Credit facility repayments			(1,112,902	)			(1,025,720	)
Security deposits and maintenance payments received			31,960				56,498
Security deposits and maintenance payments returned			(5,686	)			(14,066	)
Proceeds from terminated cash flow hedges			8,936				—
Payments for terminated cash flow hedges			—				(68,332	)
Proceeds from repurchase agreements			894				—
Principal repayments on repurchase agreements			(9,425	)			(67,744	)
Dividends paid			(56,211	)			(74,644	)
Net cash provided by financing activities			1,008,270				6,377
Net increase in cash and cash equivalents			9,596				63,401
Cash and cash equivalents at beginning of period			58,118				13,546
Cash and cash equivalents at end of period		$	67,714			$	76,947
Supplemental disclosures of non-cash investing activities
Security deposits and maintenance payment liabilities assumed in asset acquisitions		$	48,204			$	—
Lease rentals received in advance assumed in asset acquisitions		$	3,200			$	—

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

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

Note 1. Summary of Significant Accounting Policies

Organization

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

Basis of Presentation

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

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

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

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

Principles of Consolidation

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

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

Recent Accounting Pronouncements

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

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

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

Note 2. Fair Value Measurements

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

	•		Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
	•		Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.
	•		Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.

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

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

	•		Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
	•		Income approach — Uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts.
	•		Cost approach — Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

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

		Fair Value As Of				Fair Value Measurements at June 30, 2008 Using Fair Value Hierarchy
		June 30,																Valuation
		2008				Level 1				Level 2				Level 3				Technique
Assets:
Cash and cash equivalents		$	76,947			$	76,947			$	—			$	—			Market
Restricted cash and cash equivalents			188,141				188,141				—				—			Market
Debt investments			20,664				2,686				17,978				—			Market/Income
Derivative assets			2,490				—				—				2,490			Income
Total		$	288,242			$	267,774			$	17,978			$	2,490
Liabilities:
Derivative liabilities		$	99,465			$	—			$	98,490			$	975			Income

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

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

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

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

		Derivative				Derivative
		Assets				Liabilities				Total
Balance as of December 31, 2007		$	—			$	—			$	—
Unrealized gains (losses)			2,490				(975	)			1,515
Balance as of June 30, 2008		$	2,490			$	(975	)		$	1,515

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

Note 3. Lease Rentals and Flight Equipment Held for Lease

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2008				2007				2008
Lease rental revenue		$	80,153			$	137,647			$	145,852			$	268,628
Amortization of lease premiums (discounts)			1,773				2,502				3,432				5,148
Maintenance payments (1)			—				4,142				—				4,142
Total lease rentals		$	81,926			$	144,291			$	149,284			$	277,918

     Minimum future annual lease rentals contracted to be earned from flight equipment held for lease at June 30, 2008 were as follows:

Year Ending December 31,		Amount
Remainder of 2008		$	268,032
2009			511,672
2010			459,379
2011			398,190
2012			335,128
2013			235,099
Thereafter			521,289
Total		$	2,728,789

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
Region		2007				2008				2007				2008
Europe			46	%			45	%			45	%			45	%
Asia			27	%			24	%			26	%			25	%
North America			18	%			12	%			20	%			12	%
Latin America			6	%			9	%			6	%			8	%
Middle East and Africa			3	%			10	%			3	%			10	%
Total			100	%			100	%			100	%			100	%

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

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

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

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

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

		December 31, 2007								June 30, 2008
		Number								Number
		of				Net Book				of				Net Book
Region		Aircraft				Value %				Aircraft				Value %
Europe (1) (2)			65				47	%			64				47	%
Asia (3)			35				27	%			34				23	%
North America (1) (4)			13				10	%			14				11	%
Latin America			12				7	%			11				7	%
Middle East and Africa			8				9	%			10				12	%
Off-lease (5)			—				—	%			2				—	%
Total			133				100	%			135				100	%

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

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

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

Note 4. Debt Investments

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

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

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

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

Note 5. Securitizations and Borrowings under Credit Facilities

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

		At December
		31, 2007				At June 30, 2008
		Outstanding				Outstanding								Final Stated
Debt Obligation		Borrowings				Borrowings				Interest Rate(1)				Maturity
Securitizations and Term Debt Financings:
Securitization No. 1		$	527,397			$	500,233			1 M LIBOR + .27% = 2.74%					6/20/31
Securitization No. 2			1,150,339				1,132,074			1 M LIBOR + .26% = 2.71%					6/14/37
Term Financing No. 1			—				782,060			LIBOR + 1.75% = 4.37%(2)					5/11/15
Total Securitizations			1,677,736				2,414,367
Credit Facilities:
Revolving Credit Facility			—				—			1 M LIBOR + 2.00% = 4.48%					12/11/08
Amended Credit Facility No. 2			734,059				255,189			1 M LIBOR + 1.25% = 3.73%					12/15/08
747 PDP Credit Facility			64,127				—			1 M LIBOR + 1.00% = NA					4/10/08
Total Credit Facilities			798,186				255,189
Total		$	2,475,922			$	2,669,556

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

Securitizations and Term Debt Financings:

     Term Financing No. 1

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

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

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

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

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

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

Credit Facilities

     Revolving Credit Facility

     On March 20, 2008, the parties to the Revolving Credit Facility entered into a fourth amendment to the Revolving Credit Facility (the “2006-B Fourth Amendment”), extending the Stated Termination Date (as defined therein) to December 11, 2008, and reducing the commitments of the lenders to make loans thereunder (the “Revolving Commitments”) from $250,000 to $150,000. The Revolving Commitments were reduced to $100,000 on June 30, 2008, and will reduce further to $80,000 on August 31, 2008, $60,000 on September 30, 2008 and $40,000 on October 31, 2008, with final maturity on December 11, 2008. The 2006-B Fourth Amendment also amends the Revolving Credit Facility so that Bear Stearns Corporate Lending Inc. will have no further Revolving Commitments or loans outstanding under the Revolving Credit Facility, with JPMorgan Chase Bank, N.A. and Citicorp North America, Inc. each funding one-half of the Revolving Commitments and the outstanding loans from the date of the 2006-B Fourth Amendment. The applicable margin on LIBOR-based loans under the Revolving Credit Facility increased to 200 basis points, and the remaining lenders under the Revolving Credit Facility received an up-front fee equal to 25 basis points of the $150,000 committed amount of the facility.

     At June 30, 2008, there were no outstanding loans and we had no outstanding letters of credit under the Revolving Credit Facility. The interest rate, including margin, applicable to loans under the Revolving Credit Facility at June 30, 2008 was 4.48%.

     Amended Credit Facility No. 2

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

     In June 2008, we refinanced and transferred 26 aircraft from Amended Credit Facility No. 2 into Term Financing No. 1. At June 30, 2008, we had borrowings of $255,189 related to 11 aircraft under our Amended Credit Facility No. 2. The interest rate, including margin, applicable to loans under the Amended Credit Facility No. 2 at June 30, 2008 was 3.73%. We expect to extend, modify or replace Amended Credit Facility No. 2 before its current maturity of December 15, 2008. In connection with the reduced commitments of the lenders under Amended Credit Facility No. 2, during the second quarter of 2008 we wrote off $553 of debt issuance costs which is reflected in interest expense on the consolidated statement of income.

     2008-A Credit Facility

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

     On May 15, 2008, we reduced our total credit commitment under the 2008-A Credit Facility to $188,000 and on June 3, 2008, we paid the remaining balance of $187,267 with proceeds from the refinancing of two aircraft transferred into Term Financing No. 1. As a result of the pay-off of the 2008-A Credit Facility, during the second quarter of 2008 we wrote off $250 of debt issuance costs which is reflected in interest expense on the consolidated statement of income.

     747 PDP Credit Facility

     On July 26, 2007, we made an accelerated payment to the relevant Guggenheim Aviation Investment Fund LP (“GAIF”) seller under our acquisition agreement with GAIF (the “GAIF Acquisition Agreement”) for three Boeing Model 747-400ERF aircraft in the amount of $106,668 and assumed a pre-delivery payment credit facility related to such 747-400ERF aircraft (the ''Accelerated ERF Aircraft’’), which we refer to as the “747 PDP Credit Facility”. The total outstanding amount of borrowings assumed under the 747 PDP Credit Facility was $95,926. On July 30, 2007, we took delivery of the first Accelerated ERF Aircraft and paid down $31,799 under the 747 PDP Credit Facility. On February 11, 2008, we took delivery of the second Accelerated ERF Aircraft and paid down $32,202 under the 747 PDP Credit Facility. The facility matured upon the delivery of the third and final Accelerated ERF aircraft on April 10, 2008 when we paid the remaining balance of $31,925.

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

Note 6. Repurchase Agreements

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

Note 7. Dividends

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

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

Note 8. Earnings Per Share

     Aircastle is required to present both basic and diluted earnings (loss) per share (“EPS”). Basic EPS is calculated by dividing net income 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 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.

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

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2008				2007				2008
Numerator
Income from continuing operations		$	27,158			$	35,341			$	48,015			$	66,978
Earnings from discontinued operations, net of income taxes			10,910				—				11,594				—
Net income		$	38,068			$	35,341			$	59,609			$	66,978
Denominator
Weighted-average shares used to compute basic earnings per share			66,554,222				77,743,022				62,730,381				77,731,504
Effect of dilutive restricted shares			269,235				82,917	(a)			227,490				56,603	(a)
Weighted-average shares outstanding and dilutive securities used to compute diluted earnings per share			66,823,457				77,825,939				62,957,871				77,788,107
Basic earnings per share:
Income from continuing operations		$	0.41			$	0.45			$	0.77			$	0.86
Earnings from discontinued operations, net of income taxes			0.16				—				0.18				—
Net income per share		$	0.57			$	0.45			$	0.95			$	0.86
Diluted earnings per share:
Income from continuing operations		$	0.41			$	0.45			$	0.77			$	0.86
Earnings from discontinued operations, net of income taxes			0.16				—				0.18				—
Net income per share		$	0.57			$	0.45			$	0.95			$	0.86

Note 9. Income Taxes

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

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2008				2007				2008
U.S. operations		$	931			$	353			$	1,376			$	988
Non-U.S. operations			27,400				36,621				49,717				69,337
Total		$	28,331			$	36,974			$	51,093			$	70,325

     All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes unless they operate within the U.S. in which case they may

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

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

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2008				2007				2008
Notional U.S. federal income tax expense at the statutory rate		$	9,622			$	12,942			$	17,589			$	24,614
U.S. state and local income tax, net			56				51				106				78
Non-U.S. operations			(8,514	)			(11,377	)			(14,649	)			(21,361	)
Non-deductible expenses in the U.S			59				13				73				21
Other			(50	)			4				(41	)			(5	)
Provision for income taxes		$	1,173			$	1,633			$	3,078			$	3,347

Note 10. Comprehensive Income

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2008				2007				2008
Net income		$	38,068			$	35,341			$	59,609			$	66,978
Net change in fair value of derivatives, net of tax expense of $0 and $1,453 for the three months ended and $0 and $189 for the six months ended June 30, 2007 and 2008, respectively			70,081				117,418				58,583				(5,953	)
Derivative (gain) loss reclassified into earnings			(1,103	)			688				(2,110	)			549
Net change in unrealized depreciation of debt investments			(1,293	)			(1,595	)			(829	)			(2,014	)
Total comprehensive income		$	105,753			$	151,852			$	115,253			$	59,560

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

						Unrealized				Accumulated
						Appreciation				Other
		Fair Value of				Debt				Comprehensive
		Derivatives(1)				Securities				Income (Loss)
December 31, 2007		$	(136,222	)		$	10,833			$	(125,389	)
Net change in fair value of derivatives, net of tax expense of $189			(5,953	)			—				(5,953	)
Derivative loss reclassified into earnings			549				—				549
Net change in unrealized depreciation of debt investments			—				(2,014	)			(2,014	)
June 30, 2008		$	(141,626	)		$	8,819			$	(132,807	)

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

Note 11. Commitments and Contingencies

     During the first six months of 2008, we completed the purchase of four aircraft under the GAIF Acquisition Agreement. We also determined not to acquire certain other aircraft, reducing the total number of aircraft to be acquired to 32. As of June 30, 2008, we have completed the acquisition of the 32 aircraft for approximately $1,385,454.

     At June 30, 2008, we had commitments to acquire, convert and modify aircraft for an estimated amount of $1,249,408, including, where applicable, our estimate of adjustments for configuration changes, engine acquisition costs, contractual price escalations and other adjustments.

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

Note 12. Derivatives

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

																														Fair Value
		Current/								Mandatory								Future												of
		Starting								Early								Maximum												Derivative
		Notional				Effective				Termination				Maturity				Notional				Floating				Fixed				Asset or
Hedged Item		Amount				Date				Date				Date				Amount				Rate				Rate				(Liability)
Securitization No. 1		$	515,984			Jun-06					N/A			Jun-16				$	515,984			1M LIBOR + 0.27%					5.78	%		$	(30,813	)
Securitization No. 2			1,130,171			Jun-07					N/A			Jun-12					1,130,171			1M LIBOR				5.25% to 5.36%					(48,433	)
Revolving Credit Facility			32,000			Jun-07				Dec-11				Jan-12					203,000			1M LIBOR					4.89	%			(3,099	)
Amended Credit Facility No. 2			65,932			Jan-08				Feb-09				Feb-19					220,000			1M LIBOR					5.16	%			(7,165	)
Future debt and securitization			46,000			Apr-10				Nov-11				Oct-15					231,000			1M LIBOR					5.17	%			(2,950	)
Future debt and securitization			95,000			Jan-11				May-12				Apr-16					238,000			1M LIBOR					5.23	%			(3,099	)
Future debt and securitization			143,000			Jul-11				Oct-12				Sep-16					238,000			1M LIBOR					5.27	%			(2,931	)
Term Financing No. 1			710,068			Jun-08					N/A			May-13					710,068			1M LIBOR					4.04	%			2,490
Term Financing No. 1			491,718			May-13					N/A			May-15					491,718			1M LIBOR					5.31	%			(975	)
Total		$	3,229,873															$	3,977,941											$	(96,975	)

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

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

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

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

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

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

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

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

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

Note 13. Segment Reporting

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

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

Note 14. Interest, Net

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2008				2007				2008
Interest expense		$	23,467			$	54,950			$	41,960			$	101,272
Less interest income			(4,122	)			(2,827	)			(5,883	)			(4,558	)
Less capitalized interest			—				(804	)			—				(4,384	)
Interest, net		$	19,345			$	51,319			$	36,077			$	92,330

Note 15. Subsequent Events

     Aviation Assets

     In July 2008, we amended the Airbus A330 Agreement to reduce the number of aircraft to be acquired from fifteen to twelve and to change the Airbus A330 Agreement so that we receive a mix of freighter and passenger aircraft. Seven of the aircraft are scheduled to be delivered as freighters, including three early positions, and five aircraft will be manufactured in passenger configuration. Under certain circumstances, we have the right to change certain aircraft to alternative A330 aircraft models. Four of the aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining two are scheduled to be delivered in 2012.

     In July 2008, we terminated an agreement to convert one Boeing Model 747-400 from passenger to freighter configuration and have an agreement to sell this aircraft to a third party. Also in July 2008, we sold one Boeing Model 757-200 aircraft that had previously been subject to a forward sales agreement and on lease to one of our customers, to a third party. The lease expired immediately prior to the sale of this aircraft.

     As a result of the above two events, our committed amounts for the purchase of aircraft and related flight equipment and improvements, including estimated amounts for pre-delivery deposits, configuration changes, engine acquisition costs, contractual price escalation and other adjustments, will be approximately $34,181 in 2008, $163,115 in 2009, $337,366 in 2010, $328,683 in 2011 and $83,870 in 2012.

     Fair Value of Derivatives and Margin Calls

     As of August 1, 2008, the aggregate fair value of our interest rate swaps and our interest rate forward contracts was a liability of $106,499 and we had pledged $3,295 in cash collateral required under certain of our interest rate swaps and our interest rate forward contracts.

Note 16. Restatement and Reclassification of Previously Issued Financial Statements

     Subsequent to the filing of the Company’s original Form 10-Q, the Company’s management determined that the unaudited consolidated statement of cash flows for the six month period ended June 30, 2007 did not properly eliminate non-cash security deposits, maintenance payments and lease rentals received in advance that were assumed in aircraft acquisitions from operating and investing activities. As a result, the consolidated statement of cash flows for the six months ended June 30, 2007 has been restated to correct this misstatement. There was no impact to the consolidated statement of cash flows for the six months ended June 30, 2008. In addition, the Company is reclassifying certain security deposits and maintenance payments collected from and returned to its lessees from operating activities to financing activities to better reflect the nature of these activities. The misstatement and reclassification had no impact on the Company’s previously reported consolidated balance sheets, consolidated statements of income, including net income and earnings per share, consolidated statements of changes in shareholders’ equity or cash balances for any period.

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

     The table below presents the changes to the consolidated statement of cash flows for the six months ended June 30, 2007 and 2008.

		Six Months Ended June 30,
		2007				2008
Cash flows from Operations
As Reported		$	149,733			$	179,620
Correction of misstatement			(45,531	)			—
Reclassification			(26,274	)			(42,432	)
Restated		$	77,928			$	137,188
Cash flows from Investing
As Reported		$	(1,122,133	)		$	(80,164	)
Correction of misstatement			45,531				—
Restated		$	(1,076,602	)		$	(80,164	)
Cash flows from Financing
As Reported		$	981,996			$	(36,055	)
Reclassification			26,274				42,432
Restated		$	1,008,270			$	6,377
Net change in cash and cash equivalents
As Reported		$	9,596			$	63,401
As Restated			9,596				63,401
Change		$	—			$	—

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

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

     This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under “Item 1A. — Risk Factors’’ in the Company’s September 30, 2008 Quarterly Report on Form 10-Q filed on the date hereof, and elsewhere in this report. Please see ''Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995” in the Company’s September 30, 2008 Quarterly Report on Form 10-Q filed on the date hereof, for a discussion of the uncertainties, risks and assumptions associated with these statements.

WEBSITE AND ACCESS TO COMPANY’S REPORTS

     The Company’s Internet website can be found at www.aircastle.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website under “Investors — SEC Filings” as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

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

OVERVIEW

     We are a global company that acquires, sells, manages and leases high-utility commercial jet aircraft to passenger and cargo airlines throughout the world. High-utility aircraft are generally modern, operationally efficient jets with a large operator base and long useful lives. As of June 30, 2008, our aircraft portfolio consisted of 135 aircraft and we had 58 lessees located in 30 countries. At June 30, 2008, the average age of the aircraft in the portfolio was 10.1 years and the average remaining lease term was 5.5 years, in each case weighted by net book value. Our revenues and income from continuing operations for the three and six months ended June 30, 2008 were $151.9 million and $35.3 million and $286.1 million and $67.0 million, respectively.

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

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

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

     (3) managed funds or other entities to invest in aircraft;

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

Segments

     Historically we reported separate segment information for the operations of our Aircraft Leasing and Debt Investments segments. Beginning in the first quarter of 2008, in conjunction with the sale of two of our debt

investments as described below, our Chief Operating Decision Maker, who is the Company’s Chief Executive Officer, began reviewing and assessing the operating performance of our business on a consolidated basis as the sale caused the operational results and asset levels of our remaining debt investments to be immaterial to our business and operations. As a result, we now operate in a single segment.

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

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

Revenues

     Revenues are comprised primarily of operating lease rentals on flight equipment held for lease. Typically, our aircraft are subject to net operating leases whereby the lessee pays rentals and is generally responsible for maintaining the aircraft, and paying operational, maintenance and insurance costs, although in a majority of cases we are obligated to pay a portion of specified maintenance or modification costs. The amount of rent we receive depends on various factors, including the type, size and age of the aircraft in our portfolio. Lease payments are typically denominated in U.S. dollars. Lease rental revenue is recognized on a straight-line basis over the term of the lease. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease. However, the amount of rent we receive may vary due to several factors, including the credit worthiness of our lessees and the occurrence of delinquencies and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues. We also earn interest income from our debt investments.

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

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

     Since June 2007, we purchased three off-lease Boeing Model 747-400 aircraft. In June 2007, we also entered into a passenger to freighter conversion agreement for these aircraft. The freighter conversion process for the first aircraft was completed at the end of March 2008 and it was delivered to a lessee on a long-term lease at the end of the first quarter of 2008. The second aircraft was placed on a short-term interim lease and began its freighter conversion process during the second quarter of 2008. We have executed a long-term, post-conversion lease for this aircraft upon completion of its freighter conversion process, currently scheduled for the fourth quarter of 2008. We cancelled the freighter conversion contract for the third aircraft and signed an agreement to sell it upon completion of an interim lease.

     In the first quarter of 2008, we acquired one off-lease aircraft. This aircraft was subject to a lease that we entered into in 2007; however, the lessee failed to accept delivery of the aircraft and we terminated the lease in March 2008. In April 2008, we entered into a new lease for this aircraft with another customer and we delivered the aircraft under the

new lease in the second quarter of 2008. We also acquired an aircraft in satisfaction of a debt instrument and leased the aircraft to a follow-on lessee during the first quarter of 2008; however, in April 2008, the follow-on lessee defaulted under the lease and later filed for bankruptcy protection in the U.S. We recovered possession of the aircraft in May 2008 and signed a letter of intent to lease this aircraft to another customer and expect to have the aircraft in revenue service in the third quarter of 2008.

     In the second quarter of 2008, we acquired one off-lease aircraft, which at June 30, 2008 was undergoing maintenance, and we delivered the aircraft under the new lease in the third quarter of 2008.

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

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

Operating Expenses

     Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general and administrative expenses, or SG&A, and other expenses.

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

Income Tax Provision

     We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in or earn income in jurisdictions that impose income taxes, primarily Ireland and the United States.

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

Acquisitions and Dispositions

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

airlines and purchases from operating lessors, banks and other aircraft owning entities. We also explore opportunities to purchase aircraft from manufacturers. Going forward, we may seek to make investments through investment vehicles involving third party investors. Our ability to successfully and efficiently acquire and integrate additional aviation assets on favorable terms, including our ability to source capital to fund acquisitions, will significantly impact our financial results and growth prospects.

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

     On January 22, 2007, we entered into the GAIF Acquisition Agreement, pursuant to which we agreed to acquire 38 aircraft for an aggregate base purchase price of approximately $1.595 billion, subject to certain agreed adjustments. In November 2007, we agreed with GAIF to remove two aircraft from the GAIF Acquisition Agreement. In March 2008, we agreed to remove one additional aircraft from the GAIF Acquisition Agreement and in June 2008 we determined that we would not acquire three additional aircraft from the GAIF Acquisition Agreement, reducing the total number of aircraft to be acquired to 32, with an aggregate base purchase price of approximately $1.412 billion. For certain of the aircraft, we agreed to make accelerated payments to the relevant sellers and acquire their rights and obligations under the seller’s purchase or freighter conversion agreements, with final payment and delivery of the aircraft to us being made upon delivery by the manufacturer or seller, or completion of the conversion process. In June 2008, we decided not to acquire three of these aircraft and will not recover the accelerated payments we previously made for these aircraft, although these accelerated payments were offset by fees paid to us by the aircraft seller for the right to put the aircraft to us in 2013 and 2014 for a reduced purchase price. We acquired 28 of these aircraft in 2007 and four of these aircraft during the first six months of 2008. As of June 30, 2008, we have completed the acquisition of the 32 aircraft for approximately $1.385 billion.

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

     In May 2008, we sold three Boeing Model 737-500 aircraft that were on lease to one of our customers, which resulted in a pre-tax gain of $5.1 million and is included in other income on our consolidated statement of income. In July 2008, we sold one Boeing Model 757-200 aircraft that had previously been subject to a forward sales agreement and on lease to one of our customers, to a third party. The lease expired immediately prior to the sale of this aircraft.

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

     AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

		Owned
		Aircraft
		as of
		June 30,
		2008(1)
Flight Equipment Held for Lease		$	4,081
Number of Aircraft			135
Number of Lessees			58
Number of Countries			30
Weighted Average Age — Passenger (years)(2) (5)			10.5
Weighted Average Age — Freighter (years)(2) (5)			8.8
Weighted Average Age — Combined (years)(2) (5)			10.1
Weighted Average Remaining Passenger Lease Term (years)(3) (4)			4.1
Weighted Average Remaining Cargo Lease Term (years)(3) (4)			9.0
Weighted Average Remaining Combined Lease Term (years)(3) (4)			5.5
Weighted Average Fleet Utilization during Second Quarter 2008(6)			99	%

     Our owned aircraft portfolio as of June 30, 2008 is listed in Exhibit 99.1 in the original Form 10-Q. Approximately 86% of the total aircraft and 92% of the freighters we owned as of June 30, 2008 are what we consider to be the most current technology for the relevant airframe and engine type and airframe size, as listed under the headings “Latest Generation Narrowbody Aircraft,” “Latest Generation Midbody Aircraft,” “Latest Generation Widebody Aircraft” and “Latest Generation Widebody Freighter Aircraft” in Exhibit 99.1 in the original Form 10-Q.

PORTFOLIO DIVERSIFICATION

		Owned Aircraft as of
		June 30, 2008
		Number of				% of Net
		Aircraft				Book Value
Aircraft Type
Passenger:
Narrowbody			92				47	%
Midbody			24				23	%
Widebody (1)			2				3	%
Total Passenger			118				73	%
Freighter (2)			17				27	%
Total			135				100	%
Manufacturer
Boeing			93				67	%
Airbus			42				33	%
Total			135				100	%
Regional Diversification
Europe (3)			64				47	%
Asia (4)			34				23	%
North America (5)			14				11	%
Latin America			11				7	%
Middle East and Africa			10				12	%
Off-lease (6)			2				—	%
Total			135				100	%

     Our top 15 customers for aircraft we owned at June 30, 2008, representing 63 aircraft and 59% of the net book value of flight equipment held for lease, are as follows:

Percent of Net						Number of
Book Value		Customer		Country		Aircraft
Greater than 6%		Martinair		Netherlands			5
per customer		Emirates		United Arab Emirates			2
3% to 6%		US Airways		USA			8
per customer		Sterling Airlines		Denmark			7
		Iberia Airlines		Spain			6
		Jet Airways		India			8
		Airbridge Cargo		Russia			1
		VRG Linhas Aereas/GOL Transportes Aereos (1)		Brazil			7
		KLM Royal Dutch Airlines		Netherlands			1
Less than 3%		Swiss International Air Lines		Switzerland			2
per customer		China Eastern Airlines		China			4
		World Airways (2)		USA			2
		Korean Air		South Korea			2
		Malaysia Airlines		Malaysia			2
		Hainan Airlines		China			6

Finance

     We have typically financed the initial purchase of aircraft using committed short-term credit arranagements and cash on hand. These arrangements and our long-term financings are typically secured by the acquired aircraft and related leases, and recourse to the Company is limited. We believe such financing is available on reasonable terms given the loan to value profile we have pursued.

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

     During the second quarter of 2008, we refinanced and transferred 26 aircraft from Amended Credit Facility No. 2 into the Term Financing No. 1. At June 30, 2008, we had borrowings of $255.2 million related to 11 aircraft under our Amended Credit Facility No. 2. On June 3, 2008, we paid the remaining balance of $187.3 million on the 2008-A

Credit Facility with proceeds from the refinancing, transferred the two aircraft into Term Financing No. 1 and terminated the 2008-A Credit Facility.

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

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

RESULTS OF OPERATIONS

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

		Three Months Ended
(Dollars in thousands)		June 30,
		2007				2008
Revenues:
Lease rentals		$	81,926			$	144,291
Interest income			2,728				614
Other revenue			460				490
Total revenues			85,114				145,395
Expenses:
Depreciation			27,764				51,605
Interest, net			19,345				51,319
Selling, general and administrative			10,448				11,354
Other expense			380				597
Total operating expenses			57,937				114,875
Other income:
Gain on sale of aircraft			—				5,126
Other			1,154				1,328
Total other income			1,154				6,454
Income from continuing operations before income taxes			28,331				36,974
Income tax provision			1,173				1,633
Income from continuing operations			27,158				35,341
Earnings from discontinued operations, net of income taxes			10,910				—
Net income		$	38,068			$	35,341