UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

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		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		06902
(Address of principal executive offices)		(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. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting companyo
				(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 May 1, 2009, there were 79,234,863 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, 2008 and March 31, 2009			3
Consolidated Statements of Income for the three months ended March 31, 2008 and 2009			4
Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2009			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures about Market Risk			33
Item 4. Controls and Procedures			34
PART II. – OTHER INFORMATION
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			35
Item 6. Exhibits			35
SIGNATURE			36
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION
EX-99.1: AIRCRAFT PORTFOLIO

PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

Aircastle Limited and Subsidiaries

		December 31,				March 31,
		2008				2009
						(unaudited)
ASSETS
Cash and cash equivalents		$	80,947			$	102,399
Accounts receivable			3,161				3,332
Debt investments			14,349				12,626
Restricted cash and cash equivalents			182,623				177,537
Flight equipment held for lease, net of accumulated depreciation of $371,591 and $422,820			3,837,543				3,798,709
Aircraft purchase deposits and progress payments			68,923				75,476
Leasehold improvements, furnishings and equipment, net of accumulated depreciation of $1,999 and $2,119			1,174				1,137
Other assets			62,852				80,634
Total assets		$	4,251,572			$	4,251,850
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings from securitizations and term debt financings		$	2,476,296			$	2,446,165
Accounts payable, accrued expenses and other liabilities			60,789				63,574
Dividends payable			7,862				7,923
Lease rentals received in advance			28,463				26,789
Security deposits			65,307				71,531
Maintenance payments			224,288				232,975
Fair value of derivative liabilities			276,401				261,977
Total liabilities			3,139,406				3,110,934
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, 78,620,320 shares issued and outstanding at December 31, 2008; and 79,234,863 shares issued and outstanding at March 31, 2009			786				792
Additional paid-in capital			1,474,455				1,474,804
Retained earnings (deficit)			(473	)			10,075
Accumulated other comprehensive loss			(362,602	)			(344,755	)
Total shareholders’ equity			1,112,166				1,140,916
Total liabilities and shareholders’ equity		$	4,251,572			$	4,251,850

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

Aircastle Limited and Subsidiaries

		Three Months Ended
		March 31,
		2008				2009
Revenues:
Lease rental revenue		$	130,981			$	125,994
Amortization of net lease discounts and lease incentives			2,646				(1,117	)
Maintenance revenue			—				6,603
Total lease rentals			133,627				131,480
Interest income			1,291				633
Other revenue			38				25
Total revenues			134,956				132,138
Expenses:
Depreciation			48,215				51,561
Interest, net			41,011				43,411
Selling, general and administrative (including non-cash share based payment expense of $1,598, and $1,658, respectively)			11,489				11,095
Other expenses			645				5,776
Total expenses			101,360				111,843
Other income (expense)			(245	)			92
Total other income (expense)			(245	)			92
Income from continuing operations before income taxes			33,351				20,387
Income tax provision			1,714				1,916
Net income		$	31,637			$	18,471
Earnings per common share — Basic		$	0.40			$	0.23
Earnings per common share — Diluted		$	0.40			$	0.23
Dividends declared per share		$	0.25			$	0.10

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

Aircastle Limited and Subsidiaries

		Three Months Ended
		March 31,
		2008				2009
Cash flows from Operating activities:
Net income		$	31,637			$	18,471
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			48,162				51,561
Amortization of deferred financing costs			2,584				2,533
Amortization of net lease discounts and lease incentives			(2,646	)			1,117
Deferred income taxes			1,061				1,599
Accretion of purchase discounts on debt investments			(149	)			(158	)
Non-cash share based payment expense			1,598				1,658
Cash flow hedges reclassified into earnings			(139	)			4,949
Ineffective portion of cash flow hedges			1,998				(129	)
Security deposits and maintenance payments included in earnings			(566	)			(3,451	)
Loss on sale of investments			245				—
Other			—				(518	)
Changes in certain assets and liabilities:
Accounts receivable			(942	)			(171	)
Restricted cash and cash equivalents			(17,972	)			5,086
Other assets			574				(1,548	)
Accounts payable, accrued expenses and other liabilities			(2,148	)			(9,951	)
Payable to affiliates			(185	)			—
Lease rentals received in advance			(4,347	)			(1,674	)
Net cash provided by operating activities			58,765				69,374
Cash flows from investing activities:
Acquisition and improvement of flight equipment and lease incentives			(117,027	)			(17,268	)
Aircraft purchase deposits and progress payments, net of returned deposits			(5,312	)			(7,906	)
Proceeds from sale of debt investments			65,335				—
Principal repayments on debt investments			11,224				807
Collateral call payments on derivatives and repurchase agreements			(198,882	)			—
Collateral call receipts on derivatives and repurchase agreements			158,244				—
Leasehold improvements, furnishings and equipment			(190	)			(82	)
Net cash used in investing activities			(86,608	)			(24,449	)
Cash flows from financing activities:
Repurchase of shares from directors and employees			(898	)			(247	)
Securitization and term debt financing repayments			(15,692	)			(30,131	)
Deferred financing costs			(2,571	)			—
Credit facility borrowings			325,608				—
Credit facility repayments			(142,202	)			—
Principal repayments on repurchase agreements			(65,461	)			—
Security deposits and maintenance payments received			26,977				22,534
Security deposits and maintenance payments returned			(6,452	)			(7,767	)
Payments for terminated cash flow hedges			(32,657	)			—
Dividends paid			(55,004	)			(7,862	)
Net cash provided by (used in) financing activities			31,648				(23,473	)
Net increase in cash and cash equivalents			3,805				21,452
Cash and cash equivalents at beginning of period			13,546				80,947
Cash and cash equivalents at end of period		$	17,351			$	102,399
Supplemental disclosures of cash flow information
Cash paid for interest, net of capitalized interest		$	38,637			$	36,970
Cash paid for income taxes		$	928			$	1,448

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 (“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 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, 2008.

     Effective January 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 Accounting for 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. See Note 10 – Derivatives.

     Also effective January 1, 2009, the Company adopted FASB Staff Position (“FSP”) 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 participating securities for the purposes of applying the two-class method of calculating earnings per share (“EPS”) under SFAS No. 128, Earnings per Share. The FASB staff concluded that unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities and thus should be included in the two-class method of computing EPS. The adoption of FSP No. EITF 03-6-1 requires us to present EPS using the two-class method for our current period EPS computations and to retrospectively revise our comparative prior period EPS computations using the two-class method. The adoption of FSP No. EITF 03-6-1 did not have a material effect on EPS. See Note 6 – Earnings Per Share.

Principles of Consolidation

     The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates three Variable Interest Entities (“VIEs”) 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)
March 31, 2009

Recent Accounting Pronouncements

     In April, 2009, the FASB issued three final FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides guidelines for making fair value measurements more consistent with the principles presented in FASB Statement No. 157, Fair Value Measurements. FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting by increasing the frequency of fair value disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. The FSPs are effective for interim and annual periods ending after June 15, 2009, but entities may early adopt the FSPs for the interim and annual periods ending after March 15, 2009. The Company plans to adopt these FSPs during the second quarter of 2009. Additional disclosures on a quarterly basis will be required.

Note 2. Fair Value Measurements

     SFAS No. 157, Fair Value Measurements, 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.

     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 March 31, 2009 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.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

		Fair Value				Fair Value Measurements at March 31, 2009
		as of				Using Fair Value Hierarchy
		March 31,																Valuation
		2009				Level 1				Level 2				Level 3				Technique
Assets:
Cash and cash equivalents		$	102,399			$	102,399			$	—			$	—			Market
Restricted cash and cash equivalents			177,537				177,537				—				—			Market
Debt investments			12,626				—				—				12,626			Income
Total		$	292,562			$	279,936			$	—			$	12,626
Liabilities:
Derivative liabilities		$	261,977			$	—			$	199,650			$	62,327			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 interest rate derivatives included in level 2 consist of United States dollar denominated interest rate swaps, 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.

     Our debt investments included in Level 3 consist of available-for-sale United States corporate obligations consisting of interests in pools of loans which are collateralized by interests in commercial aircraft. The fair value of our debt investments included within Level 3 is valued by using discounted cash flow methodologies, where the inputs to those models are based on unobservable market inputs. The Company used two sources of unobservable inputs; we obtained broker quotes which provided an indication of the market value and we obtained market values from a pricing service. We used the broker quotes and/or the pricing service market values to validate the discount rate used for our cash flow model for these debt investments in accordance with SFAS 157-3.

     Our interest rate derivatives included in Level 3 consist of United States dollar denominated interest rate swaps 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 balances decreases within the upper and lower notional band. The fair value of the interest rate derivative 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 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 tables reflect the activity for the major classes of our assets and liabilities measured at fair value using level 3 inputs for the three months ended March 31, 2009:

		Assets				Liabilities
		Debt				Derivative
Three Months Ended March 31, 2009		Investments				Liabilities
Balance as of December 31, 2008		$	14,349			$	(66,321	)
Transfers in (out) in first quarter 2009			—				—
Principal repayments			(807	)			—
Total gains/(losses), net:
Included in interest income			158				—
Included in other income (expense)			—				(149	)
Included in interest expense			—				(58	)
Included in other comprehensive income			(1,074	)			4,201
Balance as of March 31, 2009		$	12,626			$	(62,327	)

     There were no assets and liabilities measured at fair value on a non-recurring basis.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

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

     The contracted minimum future lease rental payments to be received under our existing operating leases at March 31, 2009 were as follows:

Year Ending December 31,		Amount
Remainder of 2009		$	375,477
2010			455,110
2011			403,761
2012			347,794
2013			250,876
2014			186,460
Thereafter			403,626
Total		$	2,423,104

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

		Three Months Ended
		March 31,
Region		2008				2009
Europe			45	%			45	%
Asia			26	%			22	%
North America			12	%			16	%
Latin America			8	%			6	%
Middle East and Africa			9	%			11	%
Total			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 March 31, 2008, one customer accounted for 8% of lease rental revenue and three additional customers accounted for a combined 15% of lease rental revenue. No other customer accounted for more than 4% of lease rental revenue. For the three months ended March 31, 2009, one customer accounted for 9% of lease rental revenue and two additional customers accounted for a combined 13% 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, 2008								March 31, 2009
		Number								Number
		of				Net Book				of				Net Book
Region		Aircraft				Value %				Aircraft				Value %
Europe			56				44	%			60				47	%
Asia			32				23	%			31	(1)			22	%
North America			14				12	%			14				12	%
Latin America			8				5	%			8				5	%
Middle East and Africa			12				11	%			13				11	%
Off-lease			8	(2)			5	%			4	(3)			3	%
Total			130				100	%			130				100	%

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

     At December 31, 2008 and March 31, 2009, lease acquisition costs included in other assets on the consolidated balance sheets were $293 and $417, respectively. Prepaid lease incentive costs included in other assets on the consolidated balance sheets were $5,127 and $12,708 at December 31, 2008 and March 31, 2009, respectively.

Note 4. Securitizations and Term Debt Financings

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

		At
		December 31,
		2008				At March 31, 2009
		Outstanding				Outstanding								Final Stated
Debt Obligation		Borrowings				Borrowings				Interest Rate(1)				Maturity
Securitizations and Term Debt Financings:
Securitization No. 1		$	472,048			$	466,718				0.83	%			6/20/31
Securitization No. 2			1,097,913				1,092,771				0.79	%			6/14/37
Term Financing No. 1			757,610				745,385				2.30	%			5/02/15
Term Financing No. 2			148,725				141,291				3.85	%			9/23/13
Total		$	2,476,296			$	2,446,165

Note 5. Dividends

     On December 11, 2007, our board of directors declared a fourth quarter dividend of $0.70 per common share or an aggregate of $55,004, for the three months ended December 31, 2007, which was paid on January 15, 2008 to shareholders of record on December 31, 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 December 22, 2008, our board of directors declared a fourth quarter dividend of $0.10 per common share or an aggregate of $7,862, for the three months ended December 31, 2008, which was paid on January 15, 2009 to shareholders of record on December 31, 2008. On March 13, 2009, our board of directors declared a first quarter dividend of $0.10 per common share, or an aggregate of $7,923, for the three months ended March 31, 2009, which was paid on April 15, 2009 to shareholders of record on March 31, 2009.

Note 6. Earnings Per Share

     As described in Note 1 — Summary of Significant Accounting Policies, on January 1, 2009 we adopted FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, which required us to include all common shares which granted under our incentive compensation plan which remain unvested (“restricted common shares”) 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 EPS 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

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

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
		March 31,
		2008				2009
Weighted-average shares:
Common shares outstanding			77,719,986				77,941,201
Restricted common shares			913,912				1,282,208
Total weighted-average shares			78,633,898				79,223,409
Percentage of weighted-average shares:
Common shares outstanding			98.8	%			98.4	%
Restricted common shares			1.2	%			1.6	%
Total			100.0	%			100.0	%

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

		Three Months Ended
		March 31,
		2008				2009
Earnings per share — Basic:
Net income		$	31,637			$	18,471
Less: Distributed and undistributed earnings allocated to restricted common shares (a)			(368	)			(299	)
Earnings available to common shareholders — Basic		$	31,269			$	18,172
Weighted-average common shares outstanding — Basic			77,719,986				77,941,201
Earnings per common share — Basic		$	0.40			$	0.23
Earnings per share — Diluted:
Net income		$	31,637			$	18,471
Less: Distributed and undistributed earnings allocated to restricted common shares			(368	)			(299	)
Earnings available to common shareholders — Diluted		$	31,269			$	18,172
Weighted-average common shares outstanding — Basic			77,719,986				77,941,201
Effect of dilutive shares			—	(b)			—	(b)
Weighted-average common shares outstanding — Diluted			77,719,986				77,941,201
Earnings per common share — Diluted		$	0.40			$	0.23

Note 7. 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.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

     The sources of income from continuing operations before income taxes for the three months ended March 31, 2008 and 2009 were as follows:

		Three Months Ended
		March 31,
		2008				2009
U.S. operations		$	635			$	457
Non-U.S. operations			32,716				19,930
Total		$	33,351			$	20,387

     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
		March 31,
		2008				2009
Notional U.S. federal income tax expense at the statutory rate		$	11,672			$	7,135
U.S. state and local income tax, net			27				23
Non-U.S. operations			(9,984	)			(5,268	)
Non-deductible expenses in the U.S.			8				8
Other			(9	)			18
Provision for income taxes		$	1,714			$	1,916

Note 8. Comprehensive Income (Loss)

     Total comprehensive income (loss) includes net income, the changes in the fair value and the reclassification into earnings of amounts previously deferred relating to our derivative financial instruments which qualify for hedge accounting in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and the change in unrealized fair value of debt securities classified as available-for-sale. Total comprehensive income (loss) for the three months ended March 31, 2008 and 2009 was as follows:

		Three Months Ended
		March 31,
		2008				2009
Net income		$	31,637			$	18,471
Net change in fair value of derivatives, net of tax benefit of $1,264 and tax expense of $231, respectively			(123,371	)			13,972
Derivative (gain) loss reclassified into earnings			(139	)			4,949
Net change in unrealized fair value of debt investments			(419	)			(1,074	)
Total comprehensive income (loss)		$	(92,292	)		$	36,318

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

     The following table sets forth the components of accumulated other comprehensive income (loss), net of tax where applicable, at December 31, 2008 and March 31, 2009:

										Accumulated
						Fair Value of				Other
		Fair Value of				Debt				Comprehensive
		Derivatives				Securities				Income (Loss)
December 31, 2008		$	(365,138	)(1)		$	2,536			$	(362,602	)
Net change in fair value of derivatives, net of tax expense of $231			13,972				—				13,972
Derivative gain reclassified into earnings			4,949				—				4,949
Net change in unrealized fair value of debt investments			—				(1,074	)			(1,074	)
March 31, 2009		$	(346,217	)		$	1,462			$	(344,755	)

Note 9. Commitments and Contingencies

     We have an acquisition agreement, which we refer to as the Airbus A330 Agreement, with Airbus S.A.S, or Airbus, under which we agreed to acquire from Airbus twelve new A330-200 aircraft, or the New A330 Aircraft. In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012. As of March 31, 2009, we had paid $60,300 in Airbus deposits and pre-delivery payments and recorded $4,697 in capitalized interest. Under certain circumstances, we have the right to change the delivery positions to alternative A330 aircraft models. Three of the New A330 Aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining three are scheduled to be delivered in 2012.

     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 $110,217 in 2009, $289,823 in 2010, $380,067 in 2011 and $156,323 in 2012.

Note 10. Derivatives

     As described in Note 1 — Summary of Significant Accounting Policies, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities on January 1, 2009. 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.

     In the normal course of business we utilize interest rate derivatives to manage our exposure to interest rate risks. Specifically, our interest rate derivatives are hedging variable rate interest payments on our various debt facilities. We account for our interest rate derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, or SFAS No. 133. Under SFAS No. 133, if certain conditions are met, an interest rate derivative may be specifically designated as a cash flow hedge. All of our designated interest rate derivatives are cash flow hedges. We have one interest rate derivative that is not designated under SFAS No. 133.

     On the date that we enter into an interest rate derivative, we formally document the intended use of the interest rate derivative and its designation as a cash flow hedge, if applicable. We also assess (both at inception and on an ongoing basis) whether the interest rate derivative has been highly effective in offsetting changes in the cash flows of the variable rate interest payments on our debt and whether the interest rate derivative is expected to remain highly

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

effective in future periods. If it were to be determined that the interest rate derivative is not (or has ceased to be) highly effective as a cash flow hedge, we would discontinue SFAS No. 133 accounting prospectively.

     At inception of an interest rate derivative designated as a cash flow hedge, we establish the method we will use to assess effectiveness and the method we will use to measure any ineffectiveness. Historically, we have elected to use the “change in variable cash flows method” for both. This method, involves a comparison of the present value of the cumulative change in the expected future cash flows on the variable leg of the interest rate derivative against the present value of the cumulative change in the expected future interest cash flows on the variable-rate debt. When the change in the interest rate derivative’s variable leg exceeds the change in the debt’s variable-rate interest cash flows, the calculated ineffectiveness is recorded in interest expense on our consolidated statement of income. Effectiveness is assessed by dividing the change in the interest rate derivative variable leg by the change in the debt’s variable-rate interest cash flows.

     We use the “hypothetical trade method” for interest rate derivatives designated as cash flow hedges subsequent to inception that did not qualify for the “change in variable cash flow method” under SFAS No. 133. The calculation involves a comparison of the change in the fair value of the interest rate derivative to the change in the fair value of a hypothetical interest rate derivative with critical terms that reflect the hedged variable-rate debt. The effectiveness of these relationships is assessed by regressing historical changes in the interest rate derivative against historical changes in the hypothetical interest rate derivative. When the change in the interest rate derivative exceeds the change in the hypothetical interest rate derivative, the calculated ineffectiveness is recorded in interest expense on our consolidated statement of income.

     In accordance with SFAS No. 133 and SFAS No. 157, all interest rate derivatives are recognized on the balance sheet at their fair value. We determine fair value for our United States dollar denominated interest rate derivatives by calculating reset rates and discounting cash flows based on cash rates, futures rates and swap rates in effect at the period close. We determine the fair value of our United States dollar denominated guaranteed notional balance interest rate derivatives based on the upper notional band using cash flows discounted at relevant market interest rates in effect at the period close. See Note 2 – Fair Value Measurements for more information.

     For our interest rate derivatives designated as cash flow hedges under SFAS No. 133, the effective portion of the interest rate derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the interest payments on the debt are recorded in earnings. The ineffective portion of the interest rate derivative is calculated and recorded in interest expense on our consolidated statement of income at each quarter end. For any interest rate derivative not designated as a cash flow hedge under SFAS No. 133, the gain or loss is recognized in other income (expense) on our consolidated statement of income.

     We may choose to terminate certain interest rate derivatives prior to their contracted maturities. Any related net gains or losses in accumulated other comprehensive income at the date of termination are not reclassified into earnings if it remains probable that the interest payments on the debt will occur. The amounts in accumulated other comprehensive income are reclassified into earnings as the interest payments on the debt affect earnings. Terminated interest rate derivatives are reviewed periodically to determine if the forecasted transactions remain probable of occurring. To the extent that the occurrence of the interest payments on the debt are deemed remote, the related portion of the accumulated other comprehensive income balance is reclassified into earnings immediately.

     Our interest rate derivatives involve counterparty credit risk. As of March 31, 2009, all of our interest rate derivatives are held with counterparties or guarantors of these counterparties who are considered highly rated (senior unsecured ratings of A3 or above by Moody’s Investors Service). As a result, we do not anticipate that any of these counterparties will fail to meet their obligations.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

     We held the following interest rate derivatives as of March 31, 2009:

		Liability Derivatives
										Future
		Current								Maximum
		Notional				Effective		Maturity		Notional				Floating		Fixed		Balance Sheet
Hedged Item		Amount				Date		Date		Amount				Rate		Rate		Location		Fair Value
Interest rate derivatives designated as cash flow hedges under Statement 133:
Securitization No. 1		$	498,341			Jun-06		Jun-16		$	498,341			1M LIBOR + 0.27%		5.78%		Fair value of derivative liabilities		$	77,898
Securitization No. 2			1,084,180			Jun-07		Jun-12			1,084,180			1M LIBOR		5.25% to 5.36%		Fair value of derivative liabilities			117,413
Term Financing No. 1(1)			676,761			Jun-08		May-13			676,761			1M LIBOR		4.04%		Fair value of derivative liabilities			50,371
Term Financing No. 1(1)			—			May-13		May-15			491,718			1M LIBOR		5.31%		Fair value of derivative liabilities			11,956
Total interest rate derivatives designated as cash flow hedges under Statement 133			2,259,282								2,751,000										257,638
Interest rate derivatives not designated as cash flow hedges under Statement 133:
Term Financing No. 2 (2)			126,395			Oct-08		Sep-13			126,395			3M LIBOR		3.17%		Fair value of derivative liabilities			4,339
Total interest rate derivatives not designated as cash flow hedges under Statement 133			126,395								126,395										4,339
Total interest rate derivatives		$	2,385,677							$	2,877,395									$	261,977

     In addition to the derivative liability above, another component of the fair value of our interest rate derivatives is accrued interest. As of March 31, 2009, accrued interest payable included in accounts payable, accrued expenses, and other liabilities on our consolidated balance sheet was $5,814 related to interest rate derivatives designated as cash flow hedges and $61 for interest rate derivatives not designated as cash flow hedges.

     The amount of loss expected to be reclassified from accumulated OCI into interest expense over the next 12 months consists of net interest settlements on active interest rate derivatives, disclosed above, in the amount of $89,096 and the amortization of deferred net losses in the amount of $7,949. For the three months ended March 31, 2009, the amount of loss reclassified from accumulated OCI into interest expense consisted of net interest settlements on active interest rate derivatives in the amount of $24,169 and the amortization of deferred net losses in the amount of $2,074, as disclosed below.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

     Following is the effect of interest rate derivatives on the statement of financial performance for the three months ended March 31, 2009:

Effective Portion								Ineffective Portion
		Amount of				Amount of				Amount of
Derivatives in		Gain or (Loss)		Location of		Gain or (Loss)				Gain or (Loss)
Statement 133		Recognized in		Gain or (Loss)		Reclassified from		Location of		Recognized in
Cash Flow		OCI on		Reclassified from		Accumulated		Gain or (Loss)		Income on
Hedging		Derivative		Accumulated		OCI into Income		Recognized in		Derivative
Relationships		(a)		OCI into Income		(b)		Income on Derivative		(c)
Interest rate derivatives		$(10,197)		Interest expense		$(26,243)		Interest expense		$(279)(1)

Derivatives Not		Location of Gain		Amount of Gain
Designated as		or (Loss)		or (Loss)
Hedging Instruments		Recognized in Income		Recognized in Income
under Statement 133		On Derivative		on Derivative
Interest rate derivatives		Other income (expense)		$92

     Generally, our interest rate derivatives are hedging current interest payments on debt and future interest payments on long-term debt. In the past, we have entered into forward-starting interest rate derivatives to hedge the anticipated interest payment on long-term financings. These interest rate derivatives were terminated and new, specifically tailored interest rate derivatives were entered into upon closing of the relevant long-term financing. We have also early terminated interest rate derivatives in an attempt to manage our exposure to collateral calls. We have no active interest rate derivatives in effect in relation to the anticipated interest payments on long-term financings required for our New A330 Aircraft.

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

     The following table summarizes the deferred (gains) and losses for our terminated interest rate derivatives and the related amortization into interest expense for the three months ended March 31, 2008 and 2009:

																																						Amount of
																														Amount of Deferred								Deferred
																														(Gain) or Loss								(Gain) or
																														Amortized (including								Loss
																										Unamortized				Accelerated								expected to
																										Deferred				Amortization) into								be
		Original																				Deferred				(Gain) or				Interest Expense for								amortized
		Maximum												Fixed								(Gain) or				Loss at				the Three Months								over the
		Notional				Effective				Maturity				Rate				Termination				Loss Upon				March 31,				Ended March 31,								next twelve
Hedged Item		Amount				Date				Date				%				Date				Termination				2009				2008				2009				months
Securitization No. 1		$	400,000			Dec-05				Aug-10					4.61			Jun-06				$	(13,397	)		$	(4,136	)		$	(819	)		$	(783	)		$	(3,037	)
Securitization No. 1			200,000			Dec-05				Dec-10					5.03			Jun-06					(2,541	)			(633	)			(145	)			(94	)			(342	)
Securitization No. 2			500,000			Mar-06				Mar-11					5.07			Jun-07					(2,687	)			(1,329	)			(190	)			(180	)			(704	)
Securitization No. 2			200,000			Jan-07				Aug-12					5.06			Jun-07					(1,850	)			(1,148	)			(98	)			(93	)			(364	)
Securitization No. 2			410,000			Feb-07				Apr-17					5.14			Jun-07					(3,119	)			(2,307	)			(126	)			(102	)			(391	)
Repurchase Agreement			74,000			Feb-06				Jul-10					5.02			Feb-08					878				—				878				—				—
Repurchase Agreement			5,000			Dec-05				Sep-09					4.94			Mar-08					144				—				144				—				—
Term Financing No. 1			150,000			Jul-07				Dec-17					5.14			Mar-08					15,281				12,929				83				527				2,020
Term Financing No. 1			440,000			Jun-07				Feb-13					4.88			Partial – Mar-08					26,281				20,381				134				1,535				5,888
																		Full – Jun-08
Term Financing No. 1			248,000			Aug-07				May-13					5.33			Jun-08					9,888				8,019				—				569				2,185
Repurchase Agreement			2,900			Jun-05				Mar-13					4.21			Jun-08					(19	)			—				—				—				—
Term Financing No. 2			55,000			May-08				Mar-14					5.41			Jun-08					2,380				—				—				—				—
Term Financing No. 2			360,000			Jan-08				Feb-19					5.16			Partial – Jun-08					23,077				13,883				—				695				2,447
																		Full – Oct-08
Future debt and securitization			231,000			Apr-10				Oct-15					5.17			Partial – Jun-08					15,310				13,053				—				674				—
																		Full – Dec-08
Future debt and securitization			203,000			Jun-07				Jan-12					4.89			Dec-08					2,728	(1)			1,000				—				465				247
Future debt and securitization			238,000			Jan-11				Apr-16					5.23			Dec-08					19,430				18,815				—				615				—
Future debt and securitization			238,000			Jul-11				Sep-16					5.27			Dec-08					17,254				16,133				—				1,121				—
Total																						$	109,038			$	94,660			$	(139	)		$	4,949			$	7,949

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2009

     The following table summarizes amounts charged directly to the consolidated statement of income for the three months ended March 31, 2008 and 2009, respectively, related to our interest rate derivatives:

		Three Months Ended
		March 31,
		2008				2009
Interest Expense:
Hedge ineffectiveness (gains) losses (unrealized)		$	1,998			$	(129	)
Amortization:
Accelerated amortization of deferred losses			—				2,875
Amortization of deferred (gains) losses			(1,160	)			2,074
Losses on termination of interest rate derivatives			1,021				—
Total Amortization			(139	)			4,949
Total charged to interest expense		$	1,859			$	4,820
Other Income (Expense):
Mark to market gains (losses) on undesignated interest rate derivatives		$	—			$	92
Total charged to other income (expense)		$	—			$	92

     The weighted average interest pay rates of these derivatives at December 31, 2008 and March 31, 2009 were 4.90% and 4.91%, respectively.

     As of March 31, 2009, we did not have any cash collateral pledged under our interest rate derivatives, nor do we have any existing agreements that require cash collateral postings.

Note 11. Interest, Net

     The following table shows the components of interest, net:

		Three Months Ended
		March 31,
		2008				2009
Interest on borrowings and other liabilities		$	41,879			$	36,770
Hedge ineffectiveness (gains) losses (unrealized)			1,998				(129	)
Amortization of interest rate derivative contracts related to deferred (gains) losses			(1,160	)			4,949
Losses on termination of interest rate swaps			1,021				—
Amortization of deferred financing fees			2,584				2,533
Interest Expense			46,322				44,123
Less interest income			(1,731	)			(441	)
Less capitalized interest			(3,580	)			(271	)
Interest, net		$	41,011			$	43,411

Note 12. Shareholders’ Equity and Share Based Payment

     In January 2009, the Company granted restricted common shares to employees with a total fair value of $2,846. The 597,350 restricted common shares granted had grant prices which ranged between $4.42 and $5.36 per share. Of these restricted common shares, 347,350 vest over three years. The remaining 250,000 restricted common shares vest over five years. In February 2009, the Company granted 125,000 restricted common shares to certain directors with a total fair value of $351. The shares vest on January 1, 2010. The fair value of the restricted common shares granted is determined based upon the market price of the common shares at grant date.

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 ''Risk Factors’’ and included in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission (the “SEC”). Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. All references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.

     Certain items in this Quarterly Report on Form 10-Q (this “report”), and other information we provide from time to time, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to our ability to acquire, sell and lease aircraft, raise capital, pay dividends, and increase revenues, earnings and EBITDA and the global aviation industry and aircraft leasing sector. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “may,” “will,” “would,” “could,” “should,” “seeks,” “estimates” and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle Limited can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this report. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from Aircastle Limited’s expectations include, but are not limited to, prolonged capital markets disruption and volatility, which may adversely affect our continued ability to obtain additional capital to finance our working capital needs, our pre-delivery payment obligations and other aircraft acquisition commitments, our ability to extend or replace our existing financings, and the demand for and value of aircraft; our exposure to increased bank and counterparty risk caused by credit and capital markets disruptions; general economic conditions and business conditions affecting demand for aircraft and lease rates; our continued ability to obtain favorable tax treatment in Bermuda, Ireland and other jurisdictions; our ability to pay dividends; high or volatile fuel prices, lack of access to capital, reduced load factors and yields and other factors affecting the creditworthiness of our airline customers and their ability to continue to perform their obligations under our leases; termination payments on our interest rate hedges; and other risks detailed from time to time in Aircastle Limited’s filings with the SEC, including “Risk Factors” as previously disclosed in Aircastle’s 2008 Annual Report on Form 10-K, and elsewhere in this report. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. Aircastle Limited expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

WEBSITE AND ACCESS TO COMPANY’S REPORTS

     The Company’s Internet website can be found at www.aircastle.com. Our annual reports 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, leases and sells 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 March 31, 2009, our aircraft portfolio consisted of 130 aircraft and we had 58 lessees located in 32 countries. At March 31, 2009, the average age of the aircraft in our portfolio was 10.7 years and the average remaining lease term was 5.1 years, in each case weighted by net book value. Our revenues and income from continuing operations for the three months ended March 31, 2009 were $132.1 million and $20.4 million, respectively.

     Although current market conditions have significantly reduced the availability of equity and debt capital, we plan to grow our business and profits over the long term by continuing to employ our fundamental business strategy which includes:

	(1)		Selectively investing in additional commercial jet aircraft and other aviation assets when attractively priced opportunities and cost effective financing are available;
	(2)		Maintaining an efficient capital structure by using varying long-term debt structures to obtain cost effective financing and leveraging the efficient operating platform we have established; and
	(3)		Reinvesting a portion of the cash flows generated by our business and from selective asset dispositions in additional aviation assets and/or our own debt and equity securities.

     We believe our team’s capabilities in the global aircraft leasing market place us in a favorable position to explore new income-generating activities when capital becomes available for such activities. However, the financial markets are under severe distress and the disruption has reached unprecedented levels. It is not clear when credit will become readily available in sufficient volume to satisfy the financing and refinancing needs in the aviation industry. If current levels of financial market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital, on our cost of capital or on our business, financial condition or results of operations.

     In addition to the current financial markets turmoil, the global economic slowdown has reduced both passenger and cargo air traffic, as evidenced by the sharp drop in traffic levels during the past few months. The International Air Transport Association reported year on year declines in international passenger traffic for the first three months in 2009 of more than 9% and declines in international freight traffic in excess of 20%. This has translated into increased financial pressures on airlines as well as reduced demand for aircraft. With an average remaining lease term of 5.1 years and relatively modest scheduled releasing requirements over the next year, we believe our portfolio is well positioned. Our management team has significant experience in the leasing and technical management of aviation assets, and extensive experience managing lease restructuring and aircraft repossessions, which we believe is critical to mitigate our customer default exposure. However, we expect the business environment in 2009 will continue to be very challenging for the aircraft leasing industry.

     We intend to pay regular quarterly dividends to our shareholders. On March 13, 2009, our board of directors declared a regular quarterly dividend of $0.10 per common share, or an aggregate of $7.9 million, for the three months ended March 31, 2009, which was paid on April 15, 2009 to holders of record on March 31, 2009. This dividend may not be indicative of the amount of any future dividends.

Revenues

     Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease. In addition, we recognize revenue from retained maintenance payments related to lease expirations. We also earn interest income from our debt investments.

     Typically, our aircraft are subject to net operating leases whereby the lessee pays lease 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. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and the amount of the

contracted rent will depend upon the type, age, specification and condition of the aircraft, and market conditions at the time the lease is committed. The amount of rent we receive will depend on a number of factors, including the credit-worthiness of our lessees and the occurrence of delinquencies, restructurings 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 conditions and trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.

2009 Lease Expirations and Lease Placements

	•		Scheduled lease expirations — placements. For our 20 owned aircraft originally having lease expirations in 2009, we executed leases and lease renewals, or commitments to lease or renew, with respect to 17 aircraft, including one aircraft we have taken back earlier than originally scheduled in 2009 on a consensual basis from a lessee. We are actively marketing the remaining three aircraft. We estimate that for the 20 aircraft, the weighted average lease term for the new leases or renewals will be approximately six years with monthly lease rates that are approximately six percent higher than the previous rentals.
	•		Aircraft acquisitions — placements. We currently have no commitment to acquire any aircraft in 2009.
	•		Repossessions — placements. In 2009, we delivered on lease or executed lease commitments for all of the 12 aircraft we repossessed in 2008. In addition to the early transition mentioned in “Scheduled lease expiration — placements” above, we completed a consensual early lease termination for one aircraft and placed it with a new lessee in the first quarter of 2009. We expect to complete another consensual early lease termination for a second aircraft in the second quarter of 2009 and have a commitment to lease the aircraft to another lessee.

2010 Lease Expirations and Lease Placements

	•		Scheduled lease expirations — placements. For our 19 owned aircraft originally having lease expirations in 2010, we have executed lease renewals with respect to four aircraft, we have signed sale agreements to sell two aircraft and we are actively remarketing the remaining aircraft.
	•		Aircraft acquisitions — placements. We are scheduled to take delivery of three of the new A330-200 aircraft, all in the second half of 2010. We have executed lease agreements for all three aircraft with a carrier in Asia. We currently have no other commitment to acquire aircraft in 2010.

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. Because 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; however, to the extent our customers fail to pay operating, maintenance, insurance or transition costs, our portion of these expenses reflected in our income statement would increase.

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 have an acquisition agreement, or the Airbus A330 Agreement, with Airbus S.A.S, or Airbus, under which we agreed to acquire from Airbus twelve new A330-200 aircraft, or the New A330 Aircraft. In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012. Three of the New A330 Aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining three are scheduled to be delivered in 2012.

     The following table sets forth certain information with respect to the aircraft owned by us as of March 31, 2009:

AIRCASTLE AIRCRAFT INFORMATION

		Owned
		Aircraft as of
(Dollars in millions)		March 31, 2009(1)
Flight Equipment Held for Lease		$	3,799
Number of Aircraft			130
Number of Lessees			58
Number of Countries			32
Weighted Average Age — Passenger (years)(2)(5)			11.2
Weighted Average Age — Freighter (years)(2)(5)			9.7
Weighted Average Age — Combined (years)(2)(5)			10.7
Weighted Average Remaining Passenger Lease Term (years)(3)(5)			3.6
Weighted Average Remaining Cargo Lease Term (years)(3)(5)			8.3
Weighted Average Remaining Combined Lease Term (years)(3)(5)			5.1
Weighted Average Fleet Utilization during First Quarter 2009(4)			96	%

PORTFOLIO DIVERSIFICATION

		Owned Aircraft as of
		March 31, 2009
		Number of				% of Net
		Aircraft				Book Value
Aircraft Type
Passenger:
Narrowbody			88				47	%
Midbody			22				21	%
Widebody			1				2	%
Total Passenger			111				70	%
Freighter(1)			19				30	%
Total			130				100	%
Manufacturer
Boeing			89				68	%
Airbus			41				32	%
Total			130				100	%
Regional Diversification
Europe			60				47	%
Asia(1)			31				22	%
North America			14				12	%
Latin America			8				5	%
Middle East and Africa			13				11	%
Off-lease (2)			4				3	%
Total			130				100	%

     Our largest customer represents less than 8% of the net book value of flight equipment held for lease at March 31, 2009. Our top 15 customers for aircraft we owned at March 31, 2009, representing 58 aircraft and 60% of the net book value of flight equipment held for lease, are as follows:

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