UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

Commission File number 001-32959

AIRCASTLE LIMITED

(Exact name of registrant as specified in its charter)

Bermuda		98-0444035
(State or other jurisdiction of incorporation or organization)		(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)

     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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

     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 October 29, 2010, there were 79,471,068 outstanding shares of the registrant’s common shares, par value $0.01 per share.

 

 

Aircastle Limited and Subsidiaries

Form 10-Q

Table of Contents

		Page No.
PART I. — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2009 and September 30, 2010			3
Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2010			4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2010			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			56
Item 4. Controls and Procedures			57
PART II. — OTHER INFORMATION
Item 1. Legal Proceedings			58
Item 1A. Risk Factors			58
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			58
Item 6. Exhibits			58
SIGNATURE			59
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1

PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

Aircastle Limited and Subsidiaries

Consolidated Balance Sheets
(Dollars in thousands, except share data)

		December 31,				September 30,
		2009				2010
						(Unaudited)
ASSETS
Cash and cash equivalents		$	142,666			$	310,881
Accounts receivable			2,941				1,900
Restricted cash and cash equivalents			207,834				190,331
Restricted liquidity facility collateral			81,000				77,000
Flight equipment held for lease, net of accumulated depreciation of $586,537 and $740,786			3,812,970				3,871,054
Aircraft purchase deposits and progress payments			141,144				228,023
Leasehold improvements, furnishings and equipment, net of accumulated depreciation of $2,455 and $2,746			802				534
Other assets			65,155				71,569
Total assets		$	4,454,512			$	4,751,292
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings from secured and unsecured debt financings (including borrowings of ACS Ireland VIEs of $331,856 and $318,736, respectively)		$	2,464,560			$	2,679,909
Accounts payable, accrued expenses and other liabilities			60,392				68,738
Dividends payable			7,955				7,947
Lease rentals received in advance			34,381				38,049
Liquidity facility			81,000				77,000
Security deposits			82,533				77,610
Maintenance payments			253,175				299,519
Fair value of derivative liabilities			179,279				217,089
Total liabilities			3,163,275				3,465,861
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, 79,550,421 shares issued and outstanding at December 31, 2009; and 79,471,068 shares issued and outstanding at September 30, 2010			796				795
Additional paid-in capital			1,479,995				1,483,577
Retained earnings			70,294				92,036
Accumulated other comprehensive loss			(259,848	)			(290,977	)
Total shareholders’ equity			1,291,237				1,285,431
Total liabilities and shareholders’ equity		$	4,454,512			$	4,751,292

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								Nine Months Ended
		September 30,								September 30,
		2009				2010				2009				2010
Revenues:
Lease rental revenue		$	128,283			$	133,486			$	383,683			$	391,741
Amortization of net lease discounts and lease incentives			(3,992	)			(4,203	)			(7,919	)			(13,957	)
Maintenance revenue			31,376				2,540				47,616				14,630
Total lease rentals			155,667				131,823				423,380				392,414
Interest income			556				—				1,783				—
Other revenue			9,517				424				9,628				578
Total revenues			165,740				132,247				434,791				392,992
Expenses:
Depreciation			53,130				55,703				156,379				164,272
Interest, net			43,032				47,453				127,925				128,578
Selling, general and administrative (including non-cash share based payment expense of $1,742 and $1,532 for the three months ended, and $5,129 and $5,243 for the nine months ended, September 30, 2009 and 2010, respectively)			11,074				11,334				33,291				34,043
Impairment of aircraft			18,211				7,342				18,211				7,342
Maintenance and other costs			4,836				1,192				15,114				6,829
Total expenses			130,283				123,024				350,920				341,064
Other income (expense):
Gain (loss) on sale of aircraft			162				—				162				(1,291	)
Other income (expense)			(738	)			(501	)			855				(1,047	)
Total other income (expense)			(576	)			(501	)			1,017				(2,338	)
Income from continuing operations before income taxes			34,881				8,722				84,888				49,590
Income tax provision			1,423				153				5,388				4,003
Net income		$	33,458			$	8,569			$	79,500			$	45,587
Earnings per common share — Basic		$	0.42			$	0.11			$	1.00			$	0.57
Earnings per common share — Diluted		$	0.42			$	0.11			$	1.00			$	0.57
Dividends declared per share		$	0.10			$	0.10			$	0.30			$	0.30

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)

		Nine Months Ended
		September 30,
		2009				2010
Cash flows from operating activities:
Net income		$	79,500			$	45,587
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			156,379				164,272
Amortization of deferred financing costs			8,808				11,494
Amortization of net lease discounts and lease incentives			7,919				13,957
Deferred income taxes			4,560				2,957
Accretion of purchase discounts on debt investments			(430	)			—
Non-cash share based payment expense			5,129				5,243
Cash flow hedges reclassified into earnings			10,932				6,412
Ineffective portion of cash flow hedges			(116	)			2,533
(Gain) loss on sale of flight equipment			(162	)			1,291
Security deposits and maintenance payments included in earnings			(36,982	)			(13,026	)
Loss on sale of investments			131				—
Impairment of aircraft			18,211				7,342
Other			(556	)			990
Changes in certain assets and liabilities:
Accounts receivable			(909	)			15
Restricted cash and cash equivalents			(35,456	)			17,503
Other assets			(1,975	)			(4,288	)
Accounts payable, accrued expenses and other liabilities			(8,397	)			3,137
Lease rentals received in advance			(537	)			3,298
Net cash provided by operating activities			206,049				268,717
Cash flows from investing activities:
Acquisition and improvement of flight equipment and lease incentives			(124,082	)			(230,450	)
Proceeds from sale of flight equipment			10,601				34,832
Aircraft purchase deposits and progress payments, net of returned deposits			(41,912	)			(124,994	)
Proceeds from sale of debt investments			5,423				—
Principal repayments on debt investments			3,787				—
Leasehold improvements, furnishings and equipment			(82	)			(23	)
Net cash used in investing activities			(146,265	)			(320,635	)
Cash flows from financing activities:
Repurchase of shares from directors and employees			(247	)			(1,662	)
Proceeds from debt financings			70,916				472,682
Debt repayments			(111,619	)			(257,418	)
Deferred financing costs			(3,588	)			(11,974	)
Restricted secured liquidity facility collateral			(81,000	)			4,000
Secured liquidity facility collateral			81,000				(4,000	)
Security deposits received			39,554				6,675
Security deposits returned			(11,541	)			(10,255	)
Maintenance payments received			56,608				89,035
Maintenance payments returned			(21,938	)			(39,511	)
Payments for terminated hedges			(2,758	)			(3,586	)
Dividends paid			(23,710	)			(23,853	)
Net cash provided by (used in) financing activities			(8,323	)			220,133
Net increase in cash and cash equivalents			51,461				168,215
Cash and cash equivalents at beginning of period			80,947				142,666
Cash and cash equivalents at end of period		$	132,408			$	310,881
Supplemental disclosures of cash flow information:
Cash paid for interest, net of capitalized interest		$	109,525			$	103,895
Cash paid for income taxes		$	2,304			$	3,121
Supplemental disclosures of non-cash investing activities:
Security deposits, maintenance payment liabilities and other liabilities settled in sale of flight equipment		$	2,556			$	100
Advance lease rentals and security deposits assumed in asset acquisitions		$	—			$	4,330
Supplemental disclosures of non-cash financing activities:
Advance lease rentals converted to maintenance reserves		$	—			$	1,750
Security deposits converted to advance lease rentals		$	—			$	730
Security deposits converted to maintenance payment liabilities		$	11,110			$	—

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

Aircastle Limited and Subsidiaries

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 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 leasing, managing and selling 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 directly or indirectly owns all of the outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). We operate in a single segment.

     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 consolidated financial statements prepared in accordance with US 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, 2009. The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure since the balance sheet date of September 30, 2010 through the date on which the consolidated financial statements included in this Form 10-Q were issued.

Principles of Consolidation

     The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates six Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

     We consolidate VIEs in which we have determined that we are the primary beneficiary. We use judgment when deciding (a) whether an entity is subject to consolidation as a VIE, (b) who the variable interest holders are, (c) the potential expected losses and residual returns of the variable interest holders, and (d) which variable interest holder is the primary beneficiary. When determining which enterprise is the primary beneficiary, we consider (1) the entity’s purpose and design, (2) which variable interest holder has the power to direct the activities that most significantly impact the entity’s economic performance, and (3) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. When certain events occur, we reconsider whether we are the primary beneficiary of VIEs. We do not reconsider whether we are a primary beneficiary solely because of operating losses incurred by an entity.

Recent Accounting Pronouncements

     Effective January 1, 2010, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2009-17 (“ASU 2009-17”), Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest, or interests, give it a controlling financial interest in a variable

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

interest entity. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This ASU amends certain guidance for determining whether an entity is a variable interest entity and requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. ASU 2009-17 requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. The adoption of ASU 2009-17 did not have a material impact on the Company’s consolidated financial statements. See Note 4 ¯ Variable Interest Entities.

     In January 2010, the FASB issued ASU 2010-06 (“ASU 2010-06”), Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements, which requires new disclosures (1) to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers, and (2) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3), to present separately information about purchases, sales issuances, and settlements on a gross basis rather than as one net number. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU 2010-06 did not have a material impact on our consolidated financial statements.

Note 2. Fair Value Measurements

     Fair value measurements and disclosures require 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.

     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).

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

     The following tables set forth our financial assets and liabilities as of December 31, 2009 and September 30, 2010 that we measure at fair value on a recurring basis by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

						Fair Value Measurements at December 31, 2009
						Using Fair Value Hierarchy
						Quoted
						Prices in
						Active				Significant
		Fair Value				Markets for				Other				Significant
		as of				Identical				Observable				Unobservable
		December 31,				Assets				Inputs				Inputs				Valuation
		2009				(Level 1)				(Level 2)				(Level 3)				Technique
Assets:
Cash and cash equivalents		$	142,666			$	142,666			$	—			$	—			Market
Restricted cash and cash equivalents			207,834				207,834				—				—			Market
Total		$	350,500			$	350,500			$	—			$	—
Liabilities:
Derivative liabilities		$	179,279			$	—			$	140,372			$	38,907			Income

						Fair Value Measurements at September 30, 2010
						Using Fair Value Hierarchy
						Quoted
						Prices in
						Active				Significant
		Fair Value				Markets for				Other				Significant
		as of				Identical				Observable				Unobservable
		September 30,				Assets				Inputs				Inputs				Valuation
		2010				(Level 1)				(Level 2)				(Level 3)				Technique
Assets:
Cash and cash equivalents		$	310,881			$	310,881			$	—			$	—			Market
Restricted cash and cash equivalents			190,331				190,331				—				—			Market
Total		$	501,212			$	501,212			$	—			$	—
Liabilities:
Derivative liabilities		$	217,089			$	—			$	150,649			$	66,440			Income

     Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist 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 interest rate derivatives included in Level 2 consist of United States dollar denominated interest rate derivatives, and their fair values are determined by applying standard modeling techniques under the income approach to relevant market interest rates (cash rates, futures rates, swap rates) in effect at the period close to determine appropriate reset and discount rates and incorporates an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities.

     Our interest rate derivatives included in Level 3 consist of United States dollar denominated interest rate swaps on Term Financing No. 1 with a guaranteed notional balance. The guaranteed notional balance has an upper notional band that matches the hedged debt and a lower notional band. The notional balance is guaranteed to match the hedged debt balance if the debt balance decreases within the upper and lower notional band. During the nine months ended September 30, 2010, we made supplemental principal payments on Term Financing No. 1 and the notional balance was adjusted to match the debt balance of Term Financing No. 1. The fair value of the interest rate derivative is determined based on the adjusted upper notional band using cash flows discounted at the relevant market interest rates in effect at

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

the period close. It incorporates an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities. The range of the guaranteed notional between the upper and lower band represents an option that may not be exercised independently of the debt notional and is therefore valued based on unobservable market inputs.

     The following table reflects the activity for the classes of our assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2010:

		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2010				2010
		Derivative Liabilities
Balance at beginning of period		$	(59,416	)		$	(38,907	)
Transfers into Level 3			—				—
Transfers out of Level 3			—				—
Total gains or (losses):
Included in interest income			—				—
Included in other income (expense)			(171	)			(446	)
Included in interest expense			(58	)			(180	)
Included in other comprehensive income			(6,795	)			(26,907	)
Balance at end of period		$	(66,440	)		$	(66,440	)

     We measure the fair value of certain assets and liabilities on a non-recurring basis, when US GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include aircraft. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

     In the three and nine months ended September 30, 2009, we recognized an impairment of $18,211 related to two Boeing Model 737-300 aircraft and two Boeing Model 757-200 aircraft, triggered by the early termination of the leases for these aircraft and the change to estimated future cash flows. The Company received $18,176, of which $8,382 represented lease termination payments and $9,794 related to maintenance revenue from the previous lessees of these aircraft. These lease termination payments were recorded as other revenue during the three and nine months ended September 30, 2009.

     In the three and nine months ended September 30, 2010, we recognized an impairment of $7,342 related to one Boeing Model 737-300 aircraft and one Boeing Model 737-500 aircraft, triggered by the early termination of the lease for one aircraft, a signed forward sales agreement for the other aircraft and, for each, the change to estimated future cash flows. The Company recorded $4,396 related to maintenance revenue from the previous lessees of the aircraft that is the subject of the forward sales agreement during the three months ended March 31, 2010 and $1,765 related to maintenance revenue from the lessees of one aircraft during the three months ended September 30, 2010.

     Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, amounts borrowed under financings and interest rate derivatives. The fair value of cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short term nature.

     The fair values of our securitizations which contain third-party credit enhancements are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates of borrowing arrangements that do not

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

contain third-party credit enhancements. The fair values of our term debt financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.

     The carrying amounts and fair values of our financial instruments at December 31, 2009 and September 30, 2010 are as follows:

		December 31, 2009								September 30, 2010
		Carrying Amount				Fair Value of				Carrying Amount				Fair Value of
		of Asset				Asset				of Asset				Asset
		(Liability)				(Liability)				(Liability)				(Liability)
Securitizations and term debt financings		$	(2,324,972	)		$	(2,037,718	)		$	(2,099,525	)		$	(1,892,319	)
ECA term financings			(139,588	)			(140,984	)			(201,585	)			(207,257	)
A330 PDP Facility			—				—				(82,778	)			(82,778	)
2010-1 Notes			—				—				(296,021	)			(304,500	)

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

     Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at September 30, 2010 were as follows:

Year Ending December 31,		Amount
Remainder of 2010		$	134,788
2011			522,082
2012			458,435
2013			354,419
2014			270,676
2015			216,745
Thereafter			415,130
Total		$	2,372,275

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
Region		2009				2010				2009				2010
Europe			47	%			46	%			46	%			46	%
Asia			18	%			21	%			20	%			20	%
North America			16	%			14	%			16	%			15	%
Latin America			8	%			9	%			7	%			9	%
Middle East and Africa			11	%			10	%			11	%			10	%
Total			100	%			100	%			100	%			100	%

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

     For the three months ended September 30, 2009, one customer accounted for 7% of lease rental revenue or, if combined with two companies under common control with it, 11% of lease rental revenue and for the three months ended September 30, 2010, one customer accounted for 7% of lease rental revenue or, if combined with two companies under common control with it, 10% of lease rental revenue. The obligations of these companies under common control are not guaranteed by the controlling entity.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

     For the nine months ended September 30, 2009, one customer accounted for 7% of lease rental revenue or, if combined with two companies under common control with it, 11% of lease rental revenue and for the nine months ended September 30, 2010, one customer accounted for 7% of lease rental revenue or, if combined with two companies under common control with it, 11% of lease rental revenue. The obligations of these companies under common control are not guaranteed by the controlling entity.

     The following tables set forth revenue attributable to individual countries representing at least 10% of total revenue based on each lessee’s principal place of business:

		Three Months Ended September 30,
		2009												2010
						Percent of				Number								Percent of				Number
						Total				of								Total				of
Country		Revenue				Revenue				Lessees				Revenue				Revenue				Lessees
United States		$	16,501				10	%			4			$	16,980				13	%			4
China(a)			—				—				—				14,714				11	%			5
Netherlands			24,001				14	%			4				14,015				11	%			3
India(b) (c)			19,944				12	%			3				—				—				—

		Nine Months Ended September 30,
		2009												2010
						Percent of				Number								Percent of				Number
						Total				of								Total				of
Country		Revenue				Revenue				Lessees				Revenue				Revenue				Lessees
United States		$	48,841				11	%			4			$	50,379				13	%			4
China(a)			—				—				—				42,557				11	%			5
Netherlands			53,418				12	%			4				42,042				11	%			3
India(b) (c)			46,318				11	%			3				—				—				—

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

		December 31, 2009								September 30, 2010
		Number								Number
		of				Net Book				of				Net Book
Region		Aircraft				Value %				Aircraft				Value %
Europe			58				46	%			62				46	%
Asia			30	(1)			20	%			33				23	%
North America			15				12	%			14				11	%
Latin America			10				9	%			11				9	%
Middle East and Africa			13				12	%			11				11	%
Off-lease			3	(2)			1	%			1	(3)			—	%
Total			129				100	%			132				100	%

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

     The following table sets forth net book value of flight equipment attributable to individual countries representing at least 10% of total assets based on each lessee’s principal place of business as of:

		December 31, 2009												September 30, 2010
		Net Book				Net Book				Number of				Net Book				Net Book				Number of
Country		Value				Value %				Lessees				Value				Value %				Lessees
China		$	—				—				—			$	444,396				11	%			5
Netherlands			435,796				11	%			3				416,539				11	%			3

     At December 31, 2009 and September 30, 2010, the amounts of lease incentive liabilities recorded in maintenance payments on the consolidated balance sheets were $14,859 and $19,011, respectively.

     At December 31, 2009 and September 30, 2010, the amounts of prepaid lease incentives, net of amortization, recorded in other assets on the consolidated balance sheets were $9,560 and $8,668 respectively.

Note 4. Variable Interest Entities

     As described in Note 1 — Summary of Significant Accounting Policies, effective January 1, 2010 ASU 2009-17 provided additional guidance for determining when to consolidate certain entities in which the investors do not have the characteristics of a controlling financial interest or the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support by any parties, including equity holders.

     Aircastle consolidates six VIEs of which it is the primary beneficiary. ACS Aircraft Finance Ireland plc (“ACS Ireland”), ACS Aircraft Finance Ireland 2 Limited (“ACS Ireland 2”), ACS Ireland 3 Limited (“ACS Ireland 3”), Air Knight 1 Leasing Limited (“Air Knight 1”), Air Knight 2 Leasing Limited (“Air Knight 2”) and Air Knight 3 Leasing Limited (“Air Knight 3”). The operating activities of these VIEs are limited to acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling the eighteen aircraft discussed below.

Securitizations and Term Financing

     In connection with Securitization No. 1, two of our subsidiaries, ACS Ireland and ACS Aircraft Finance Bermuda Limited (“ACS Bermuda”) issued Class A-1 notes and each has fully and unconditionally guaranteed the other’s obligations under the notes. In connection with Securitization No. 2, two of our subsidiaries, ACS Ireland 2 and ACS 2007-1 Limited (“ACS Bermuda 2”) issued Class A-1 notes and each has fully and unconditionally guaranteed the other’s obligations under the notes. In connection with Term Financing No. 1, two of our subsidiaries, ACS Ireland 3 and ACS 2008-1 Limited (“ACS Bermuda 3”) entered into a seven year term debt facility and each has fully and unconditionally guaranteed the other’s obligations under the term debt facility. ACS Bermuda, ACS Bermuda 2 and ACS Bermuda 3 are collectively referred to as the “ACS Bermuda Group”. At September 30, 2010, the assets of the three VIEs include fifteen aircraft transferred into the VIEs at historical cost basis in connection with Securitization No. 1, Securitization No. 2 and Term Financing No. 1.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

     Aircastle is the primary beneficiary of ACS Ireland, ACS Ireland 2 and ACS Ireland 3 (collectively, the “ACS Ireland VIEs”) as we have both the power to direct the activities of the VIEs that most significantly impact the economic performance of such VIEs and we bear the significant risk of loss and participate in gains through Class E-1 Securities. Although Aircastle has not guaranteed the ACS Ireland VIEs debt, Aircastle wholly owns the ACS Bermuda Group which has fully and unconditionally guaranteed the ACS Ireland VIEs obligations. The activity that most significantly impacts the economic performance is the leasing of aircraft. Aircastle Advisor (Ireland) Limited (Aircastle’s wholly owned subsidiary) is the Remarketing Servicer and is responsible for the leasing of the aircraft. An Irish charitable trust owns 95% of the common shares of the ACS Ireland VIEs. The Irish charitable trust’s risk is limited to its annual dividend of $2 per VIE.

     The combined assets of the ACS Ireland VIEs as of September 30, 2010 are $474,142. The combined liabilities of the ACS Ireland VIEs, net of $96,016 Class E-1 Securities held by the Company which is eliminated in consolidation, as of September 30, 2010 are $425,800.

ECA Term Financings

     Air Knight 1, Air Knight 2, and Air Knight 3 (collectively, the “Air Knight VIEs”) entered into three different twelve-year term loans, two with Citibank International Plc, and one with Calyon, all of which are supported by a guarantee from Compagnie Francaise d’Assurance pour le Commerce Exterieur, (“COFACE”), the French government sponsored export credit agency (“ECA”), for the financing of three new Airbus Model A330-200 aircraft. The Air Knight VIEs are owned by a charitable trust. We refer to these COFACE-supported financings as ECA Term Financings.

     Aircastle is the primary beneficiary of the Air Knight VIEs as we have the power to direct the activities of the VIEs that most significantly impact the economic performance of such VIEs and we bear the significant risk of loss and participate in gains through a finance lease. The activity that most significantly impacts the economic performance is the leasing of aircraft of which Aircastle Advisor LLC (Aircastle’s wholly owned subsidiary) is the Servicer and is responsible for the leasing of the aircraft. There is a cross collateralization guarantee between the Air Knight VIEs. In addition, Aircastle guarantees the debt of the Air Knight VIEs.

     The only assets that the Air Knight VIEs have on their books are financing leases that are eliminated in the consolidated financial statements. The related aircraft are included in our flight equipment held for lease balance. The consolidated liabilities of the Air Knight VIEs as of September 30, 2010 are $219,256.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

Note 5. Borrowings from Secured and Unsecured Debt Financings

     The outstanding amounts of our secured and unsecured term debt financings were as follows:

		At
		December 31,
		2009				At September 30, 2010
		Outstanding				Outstanding								Final Stated
Debt Obligation		Borrowings				Borrowings				Interest Rate(1)				Maturity(2)
Secured Debt Financings:
Securitization No. 1		$	436,091			$	420,444				0.53	%			6/20/31
Securitization No. 2			1,061,566				1,012,961				0.52	%			6/14/37
Term Financing No. 1			708,710				666,120				2.01	%			5/02/15
Term Financing No. 2			118,605				—				N/A				N/A
ECA Term Financings			139,588				201,585			2.65% to 4.48%				5/27/21 to 08/31/22
A330 PDP Facility			—				82,778				2.76	%			12/1/11	(3)
Total secured debt financings			2,464,560				2,383,888
Unsecured Debt Financings:
2010-1 Notes			—				296,021				9.75	%			8/01/18
2010 Revolving Credit Facility			—				—				N/A				9/28/13
Total unsecured debt financings			—				296,021
Total secured and unsecured debt financings		$	2,464,560			$	2,679,909

     The following securitizations and term debt financing structures include liquidity facility commitments described in the table below:

						Available Liquidity
						December 31,				September 30,				Unused				Interest Rate
Facility		Liquidity Facility Provider				2009				2010				Fee				on any Advances
Securitization No. 1		Calyon				$	42,000			$	42,000				0.45	%		1M Libor + 1.00%
Securitization No. 2		HSH Nordbank AG(1)					79,617				75,972				0.50	%		1M Libor + 0.75%
Term Financing No. 1		Calyon					14,174				13,222				0.60	%		1M Libor + 1.20%

Secured Debt Financings:

 Term Financing No. 1

     A maintenance-adjusted appraisal of Term Financing No. 1 Portfolio must be completed each year before a date in early May by a specified appraiser. To determine the maintenance-adjusted values, the appraiser applies upward or downward, adjustments of “half-life” current market values for the aircraft in the Term Financing No. 1 Portfolio based upon the maintenance status of the airframe, engines, landing gear and auxiliary power unit (“APU”), and applies certain other upward or downward adjustments for equipment, capabilities and utilization. Compliance with the loan to value ratio is measured each month by comparing the 75% minimum ratio against the most recently completed maintenance-adjusted appraised value, less 0.5% for each month since such appraisal was provided to the lenders, plus 75% of the cash maintenance reserve balance held on deposit for the Term Financing No. 1 Portfolio. Noncompliance

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

with the loan to value ratio will require us to make supplemental principal payments but will not by itself result in a default under Term Financing No. 1.

     In March 2010, we completed the maintenance-adjusted appraisal for the Term Financing No. 1 Portfolio and determined that our loan to value ratio on the April 2010 payment date was approximately 78%. During the second quarter of 2010, we made supplemental principal payments of $11,496. In June 2010, we amended the loan documents for Term Financing No. 1 so that 75% of the stated amount of qualifying letters of credit held for maintenance events would be taken into account in the loan to value test. Based on this amendment and the supplemental principal payments previously made, we were in compliance with the loan to value ratio as of October 12, 2010.

 Term Financing No. 2

     The outstanding principal balance of Term Financing No. 2 in the amount of $103,196, plus accrued interest, loan breakage fees, interest rate derivative breakage fees of $3,586, and accrued interest on the terminated interest rate derivative, was repaid in full, and no further amounts may be drawn thereunder, from the proceeds of the 2010-1 Notes on August 12, 2010. During the third quarter of 2010, we wrote-off $1,859 of deferred financing fees, which is reflected in interest expense on the consolidated statement of income.

 ECA Term Financings

     In August 2010, we entered into a twelve-year $68,967 term loan with Citibank N.A. which is supported by a guarantee from Compagnie Francaise d’Assurance pour le Commerce Exterieur, or COFACE, the French government sponsored export credit agency, or ECA, for the financing of a new Airbus Model A330-200F freighter aircraft. The borrowing under this financing bears a fixed rate of interest equal to 2.645%. We refer to these COFACE-supported financings as “ECA Term Financings”.

     The obligations outstanding under the ECA Term Financings are secured by, among other things, a mortgage over the aircraft and a pledge of our ownership interest in our subsidiary company that leases the aircraft to the operator. The ECA Term Financings documents contain a $500,000 minimum net worth covenant for Aircastle Limited, as well as a material adverse change default, a cross default to any other recourse obligation of Aircastle Limited, and other terms and conditions customary for ECA-supported financings being completed at this time. In addition, Aircastle Limited has guaranteed the repayment of the ECA Term Financings.

 A330 PDP Facility

     In June 2010, one of our subsidiaries entered into a $108,500 loan facility to finance a portion of the pre-delivery payments (“PDP”) on six new Airbus Model A330-200 aircraft to be acquired under the Airbus A330 acquisition agreement (the “Airbus A330 Agreement”). See Note 10 — Commitments and Contingencies. We refer to this loan facility as the “A330 PDP Facility”. The loans are secured by, among other things, an assignment of certain rights under the Airbus A330 Agreement and an assignment of the lease agreement for each aircraft and are guaranteed by Aircastle Limited.

     Loans under the A330 PDP Facility bear interest on a floating rate basis of one-month Libor plus 2.50% per annum and are payable monthly in arrears following the initial drawdown on the outstanding balance of the facility. The loans are subject to a commitment fee of 0.25% per annum, payable quarterly in arrears, on the undrawn portion of the facility. The facility may be prepaid without penalty, subject to certain customary conditions. Each loan is payable in full on the delivery date of the relevant aircraft. There are no financial covenants associated with this facility.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

 A330 SLB Facility

     In July 2010, one of our subsidiaries entered into a $75,000 secured credit facility, which we refer to as the “A330 SLB Facility,” with Citicorp North America Inc., to finance the acquisition of three used Airbus Model A330-200 passenger configuration aircraft during the third quarter of 2010 from Sri Lankan Airlines in a sale-leaseback transaction. On July 26, 2010, the first of the three sale-leaseback transactions closed and we borrowed $25,000 under the facility. The outstanding balance in the amount of $25,000 plus accrued interest was repaid in full from the proceeds of the 2010-1 Notes on August 3, 2010 and no further amounts may be drawn thereunder. During the third quarter of 2010, we wrote-off $612 of deferred financing fees which is reflected in interest expense on the consolidated statement of income.

Unsecured Debt Financings:

 2010-1 Notes

     On July 30, 2010, Aircastle Limited issued $300,000 aggregate principal amount of 9.75% Senior Notes due 2018, which we refer to as the “2010-1 Notes”, pursuant to an Indenture, dated as of July 30, 2010, between Aircastle Limited and Wells Fargo Bank, National Association, as trustee. The 2010-1 Notes were issued at 98.645% of par and were offered only to qualified institutional buyers and buyers outside the United States in accordance with Rule 144A and Regulation S, respectively, under the Securities Act of 1933. The 2010-1 Notes will mature on August 1, 2018 and bear interest at the rate of 9.75% per annum, payable semi-annually in arrears on February 1 and August 1, commencing on February 1, 2011 to holders of record on the immediately preceding January 15 and July 15.

     The Company may redeem all or a portion of the 2010-1 Notes at any time on or after August 1, 2014 at a premium decreasing ratably to zero, plus accrued and unpaid interest. In addition, prior to August 1, 2013 the Company may redeem up to 35% of the aggregate principal amount of the 2010-1 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 109.75%, plus accrued and unpaid interest. If the Company undergoes a change of control, it must offer to repurchase the 2010-1 Notes at 101% of the principal amount, plus accrued and unpaid interest. The 2010-1 Notes are the Company’s unsecured senior obligations and rank equally in right of payment with all of the Company’s existing and future senior debt and rank senior in right of payment to all of the Company’s existing and future subordinated debt. The 2010-1 Notes are effectively junior in right of payment to all of the Company’s existing and future secured debt to the extent of the assets securing such debt, and to any existing and future liabilities of the Company’s subsidiaries. The 2010-1 Notes are not guaranteed by any of the Company’s subsidiaries or any third party.

     We used a portion of the net proceeds from the 2010-1 Notes to repay all of the outstanding indebtedness under our Term Financing No. 2 and our A330 SLB Facility and for general corporate purposes, including the purchase of aviation assets.

     On September 24, 2010, the 2010-1 Notes were registered by the Company with the U.S. Securities Exchange Commission and in October 2010 we completed the exchange of all outstanding unregistered 2010-1 Notes. The registered notes have terms that are substantially identical to the privately placed notes.

 2010 Revolving Credit Facility

     On September 28, 2010, the Company entered into a three-year $50,000 senior unsecured revolving credit facility with a group of banks, which we refer to as the “2010 Revolving Credit Facility”. The 2010 Revolving Credit Facility provides loans in amounts up to $50,000 for working capital and other general corporate purposes. We have not drawn on the 2010 Revolving Credit Facility.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

Note 6. Dividends

     The following table sets forth the quarterly dividends declared by our Board of Directors for the periods covered in this report:

		Dividend				Aggregate
		per Common				Dividend
Declaration Date		Share				Amount				Record Date				Payment Date
December 22, 2008		$	0.10			$	7,862			December 31, 2008				January 15, 2009
March 13, 2009		$	0.10				7,923			March 31, 2009				April 15, 2009
June 10, 2009		$	0.10				7,923			June 30, 2009				July 15, 2009
September 10, 2009		$	0.10				7,925			September 30, 2009				October 15, 2009
December 14, 2009		$	0.10				7,955			December 31, 2009				January 15, 2010
March 12, 2010		$	0.10				7,951			March 31, 2010				April 15, 2010
May 25, 2010		$	0.10				7,947			June 30, 2010				July 15, 2010
September 21, 2010		$	0.10				7,947			September 30, 2010				October 15, 2010

Note 7. Earnings Per Share

     We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic and diluted earnings per share calculations using the two-class method. All of our restricted common shares are currently participating securities.

     Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2010				2009				2010
Weighted-average shares:
Common shares outstanding			78,012,914				78,536,704				77,977,089				78,470,237
Restricted common shares			1,352,974				1,048,237				1,309,244				1,137,163
Total weighted-average shares			79,365,888				79,584,941				79,286,333				79,607,400
Percentage of weighted-average shares:
Common shares outstanding			98.30	%			98.68	%			98.35	%			98.57	%
Restricted common shares			1.70	%			1.32	%			1.65	%			1.43	%
Total			100.00	%			100.00	%			100.00	%			100.00	%

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2010				2009				2010
Earnings per share — Basic:
Net income		$	33,458			$	8,569			$	79,500			$	45,587
Less: Distributed and undistributed earnings allocated to restricted common shares (a)			(570	)			(113	)			(1,313	)			(651	)
Earnings available to common shareholders – Basic		$	32,888			$	8,456			$	78,187			$	44,936
Weighted-average common shares outstanding — Basic			78,012,914				78,536,704				77,977,089				78,470,237
Earnings per common share — Basic		$	0.42			$	0.11			$	1.00			$	0.57
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2010				2009				2010
Earnings per share — Diluted:
Net income		$	33,458			$	8,569			$	79,500			$	45,587
Less: Distributed and undistributed earnings allocated to restricted common shares			(570	)			(113	)			(1,313	)			(651	)
Earnings available to common shareholders – Diluted		$	32,888			$	8,456			$	78,187			$	44,936
Weighted-average common shares outstanding – Basic			78,012,914				78,536,704				77,977,089				78,470,237
Effect of dilutive shares			—	(b)			—	(b)			—	(b)			—	(b)
Weighted-average common shares outstanding – Diluted			78,012,914				78,536,704				77,977,089				78,470,237
Earnings per common share — Diluted		$	0.42			$	0.11			$	1.00			$	0.57

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

Note 8. 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 nine months ended September 30, 2009 and 2010 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2010				2009				2010
U.S. operations		$	383			$	218			$	1,342			$	1,240
Non-U.S. operations			34,498				8,504				83,546				48,350
Total		$	34,881			$	8,722			$	84,888			$	49,590

     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.

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2010				2009				2010
Notional U.S. federal income tax expense at the statutory rate		$	12,209			$	3,053			$	29,711			$	17,357
U.S. state and local income tax, net			19				17				68				78
Non-U.S. operations			(10,972	)			(2,925	)			(24,878	)			(14,318	)
Non-deductible expenses in the U.S.			6				135				21				1,025
Other			161				(127	)			466				(139	)
Provision for income taxes		$	1,423			$	153			$	5,388			$	4,003

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

Note 9. 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 and the change in unrealized fair value of debt securities classified as available-for-sale. Total comprehensive income for the three and nine months ended September 30, 2009 and 2010 was as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2010				2009				2010
Net income		$	33,458			$	8,569			$	79,500			$	45,587
Net change in fair value of derivatives, net of tax benefit of $135 and $52 for the three months ended, and tax expense of $1,068 and tax benefit of $332 for the nine months ended, September 30, 2009 and 2010, respectively			(15,696	)			(7,716	)			63,596				(37,541	)
Derivative loss reclassified into earnings			5,894				2,338				13,690				6,412
Net change in unrealized fair value of debt investments			1,836				—				1,698				—
Total comprehensive income		$	25,492			$	3,191			$	158,484			$	14,458

     The following table sets forth the components of accumulated other comprehensive income (loss), net of tax where applicable, at December 31, 2009 and September 30, 2010:

		Accumulated
		Other
		Comprehensive
		Income (Loss)
December 31, 2009, net of tax benefit of $3,057		$	(259,848	)
Net change in fair value of derivatives, net of tax benefit of $332			(37,541	)
Derivative loss reclassified into earnings			6,412
September 30, 2010		$	(290,977	)

Note 10. Commitments and Contingencies

     On June 20, 2007, we entered into the Airbus A330 Agreement, under which we agreed to acquire new A330 aircraft (the “New A330 Aircraft”), from Airbus S.A.S. We currently have nine New A330 Aircraft remaining to be delivered, with one scheduled for delivery in 2010, seven in 2011 and one in 2012. During 2009, we acquired two New A330 Aircraft and in August 2010, we acquired one New A330 Aircraft, configured as an Airbus Model A330-200F freighter aircraft.

     Committed amounts to acquire, convert, and modify aircraft including, where applicable, our estimate of adjustments for configuration changes, engine acquisition costs, contractual price escalations and other adjustments, net of amounts already paid, are approximately $265,385 in 2010, $419,492 in 2011 and $61,394 in 2012.

Note 11. Derivatives

     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 derivatives to hedge the current and expected future interest rate payments on our variable rate debt. Interest rate derivatives are agreements in which a series of interest rate cash flows are exchanged with a third party over a prescribed period. The notional amount on an interest rate derivative is not exchanged. Our interest rate derivatives 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.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2010

     We held the following interest rate derivatives as of September 30, 2010:

		Liability Derivatives
														Future
		Current												Maximum
		Notional				Effective				Maturity				Notional				Floating				Fixed
Hedged Item		Amount				Date				Date				Amount				Rate				Rate				Balance Sheet Location				Fair Value
Interest rate derivatives designated as cash flow hedges :
Securitization No. 1		$	433,368			Jun-06				Jun-16				$	433,368			1M LIBOR+ 0.27%					5.78	%		Fair value of derivative liabilities				$	71,852
Securitization No. 2			1,004,723			Jun-07				Jun-12					1,004,723			1M LIBOR				5.25 to 5.36		%		Fair value of derivative liabilities					78,797
Term Financing No. 1(1)			604,773			Jun-08				May-13					604,773			1M LIBOR					4.04	%		Fair value of derivative liabilities					44,824
Term Financing No. 1(1)			—			May-13				May-15					464,181			1M LIBOR					5.31	%		Fair value of derivative liabilities					21,616
Total interest rate derivatives		$	2,042,864											$	2,507,045															$	217,089