UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

þ		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2007

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)		(I.R.S. Employer Identification No.)

300 First Stamford Place, 5th Floor, Stamford, Connecticut 06902
(Address of Principal Executive Offices)

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

Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, par value $.01 per share		New York Stock Exchange

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The aggregate market value of the Registrant’s Common Shares based upon the closing price on the New York Stock Exchange on June 29, 2007 (the last business day of registrant’s most recently completed second fiscal quarter), beneficially owned by non-affiliates of the Registrant was approximately $988.6 million. For purposes of the foregoing calculation, which is required by Form 10-K, the Registrant has included in the shares owned by affiliates those shares owned by directors and executive officers and shareholders owning 10% or more of the outstanding common shares of the Registrant, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.

     As of February 21, 2008, there were 78,560,176 outstanding shares of the registrant’s common shares, par value $0.01 per share.

Documents of Which Portions Are Incorporated by Reference		Parts of Form 10-K into Which Portion of Documents Are Incorporated
Proxy Statement for Aircastle Limited 2008 Annual General Meeting of Shareholders		Part III (Items 10, 11, 12, 13 and 14)

 

 

EXPLANATORY NOTE REGARDING THIS FORM 10-K/A

     Aircastle Limited (the “Company”) is filing this Amendment No. 1 to its Annual Report on Form 10-K/A for the fiscal year ended December 31, 2007, originally filed with the Securities and Exchange Commission (“SEC”) on February 28, 2008 (the “original Form 10-K”), to amend and restate its consolidated statements of cash flows for the years ended December 31, 2005 through December 31, 2007 and its applicable selected financial data for the years ended December 31, 2004 through December 31, 2007.

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

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

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

     This Form 10-K/A includes new certifications as exhibits 31.1, 31.2, 32.1 and 32.2 by our principal executive officer and principal financial officer as required by Rules 12b-15 and 13a-14 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except for the amended disclosure and reclassification described above, the information in this Form 10-K/A has not been updated to reflect events that occurred after February 28, 2008, the filing date of our original Form 10-K. Accordingly, this Form 10-K/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the original Form 10-K, including any amendments to those filings. The following information has been updated to give effect to the restatement:

Part II — Item 6 — Selected Financial Data

Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part II — Item 8 — Financial Statements

Part II — Item 9A — Controls and Procedures

Part IV — Item 15 — Exhibits and Financial Statement Schedules

TABLE OF CONTENTS

						Page
				PART II
Item 6.				Selected Financial Data			3
Item 7.				Management’s Discussion and Analysis of Financial Condition and Results of Operation			5
Item 8.				Financial Statements and Supplementary Data			30
Item 9A.				Controls and Procedures (Restated)			31
				PART IV
Item 15.				Exhibits and Financial Statement Schedules			E-1
	SIGNATURE						S-1
EX-23.1: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

ITEM 6.		SELECTED FINANCIAL DATA

     The following information has been adjusted to reflect the restatement and reclassification of our consolidated statements of cash flows which is more fully described in the “Explanatory Note” on page 1 and Note 20, Restatement and Reclassification of Previously Issued Financial Statements located in the Consolidated Financial Statements elsewhere in this Annual Report. The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the consolidated financial statements and notes thereto, which are included elsewhere in this Annual Report.

		Period from
		October 29,
		(Commencement
		of Operations)
		Through
		December 31,				Year Ended December 31,
		2004				2005				2006				2007
		(Dollars in thousands, except per share data)
Selected Financial Data:
Consolidated Statements of Operation:
Total revenues		$	78			$	31,638			$	182,852			$	381,091
Selling, general and administrative expenses			1,117				12,493				27,836				39,040
Depreciation			102				11,286				53,424				126,403
Interest (income) expense, net			(9	)			6,846				49,566				92,660
Income (loss) from continuing operations			(1,143	)			(803	)			45,920				114,403
Discontinued operations			(322	)			1,031				5,286				12,941
Net income (loss)			(1,465	)			228				51,206				127,344
Basic income (loss) per share:
Income (loss) from continuing operations		$	(0.03	)		$	(0.02	)		$	1.00			$	1.71
Discontinued operations		$	(0.01	)		$	0.03			$	0.12			$	0.19
Net income (loss)		$	(0.04	)		$	0.01			$	1.12			$	1.90
Diluted income (loss) per share:
Income (loss) from continuing operations		$	(0.03	)		$	(0.02	)		$	1.00			$	1.70
Discontinued operations		$	(0.01	)		$	0.03			$	0.11			$	0.19
Net income (loss)		$	(0.04	)		$	0.01			$	1.11			$	1.89
Cash dividends declared per share			—				—			$	1.1375			$	2.45
Other Operating Data:
EBITDA(1)		$	(1,020	)		$	19,003			$	149,349			$	333,745
Consolidated Balance Sheet Data:
Flight equipment held for lease, net of accumulated depreciation		$	61,679			$	712,092			$	1,559,365			$	3,807,116
Debt investments, available for sale			—				26,907				121,273				113,015
Total assets			104,981				967,532				1,918,703				4,427,642
Borrowings under credit facilities			—				490,588				442,660				798,186
Borrowings under securitizations			—				—				549,400				1,677,736

		Period from
		October 29,
		(Commencement
		of Operations)
		Through
		December 31,				Year Ended December 31,
		2004				2005				2006				2007
		(Dollars in thousands, except per share data)
Repurchase agreements			—				8,665				83,694				67,744
Shareholders’ equity			99,235				410,936				637,197				1,294,577
Other Data:
Number of Aircraft (at the end of period)			2				31				68				133
Total debt to total capitalization			N/A				54.9	%			62.8	%			66.3	%
Consolidated Statements of Cash Flows:
		(Restated)				(Restated)				(Restated)				(Restated)
Cash flows (used in) provided by operations		$	(194	)		$	(20,974	)		$	42,712			$	200,210
Cash flows used in investing activities			(92,921	)			(710,317	)			(858,002	)			(2,369,796	)
Cash flows provided by financing activities			93,115				811,234				793,465				2,125,014

     The table below shows the reconciliation of net income (loss) to EBITDA for the period October 29 through December 31, 2004 and the years ended December 31, 2005, 2006 and 2007.

		Period from
		October 29,
		(Commencement
		of Operations)
		Through
		December 31,				Year Ended December 31,
		2004				2005				2006				2007
Net income (loss)		$	(1,465	)		$	228			$	51,206			$	127,344
Depreciation			102				11,286				53,424				126,403
Amortization of lease premiums (discounts)			30				734				(4,406	)			(7,379	)
Interest, net			(9	)			6,846				49,566				92,660
Income tax provision			—				940				4,845				7,658
(Earnings) loss from discontinued operations, net of income taxes			322				(1,031	)			(5,286	)			(12,941	)
EBITDA		$	(1,020	)		$	19,003			$	149,349			$	333,745

ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following information has been adjusted to reflect the restatement and reclassification of our consolidated statements of cash flows which is more fully described in the “Explanatory Note” on page 1 and Note 20, Restatement and Reclassification of Previously Issued Financial Statements located in the Consolidated Financial Statements elsewhere in this Form 10-K/A.

     This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with “Item 6 — Selected Financial Data’’ and our historical consolidated financial statements and the notes thereto appearing elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under ”Item 1A. — Risk Factors’’ in the Company’s September 30, 2008 Quarterly Report on Form 10-Q filed on the date hereof, and elsewhere in this report. Please see “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995“ in the Company’s September 30, 2008 Quarterly Report on Form 10-Q filed on the date hereof, for a discussion of the uncertainties, risks and assumptions associated with these statements. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and, unless otherwise indicated, the other financial information contained in this report has also been prepared in accordance with GAAP. Unless otherwise indicated, all references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.

OVERVIEW

     We are a global company that acquires and leases high-utility commercial jet aircraft to passenger and cargo airlines throughout the world. High-utility aircraft are generally modern, operationally efficient jets with a large operator base and long useful lives. As of December 31, 2007, our aircraft portfolio consisted of 133 aircraft that were leased to 58 lessees located in 31 countries, including two aircraft being converted to freighter configuration which are subject to leases that will commence upon completion of the conversions, and managed through our offices in the United States, Ireland and Singapore. Typically, our aircraft are subject to net operating leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs, although, in a majority of cases, we are obligated to pay a portion of specified maintenance or modification costs. We also make investments in other aviation assets, including debt investments secured by commercial jet aircraft. As of February 21, 2008, we had acquired and committed to acquire aviation assets having an aggregate purchase price equal to $4.2 billion and $1.5 billion, respectively, for a total of approximately $5.7 billion. Our revenues and income from continuing operations for the year ended December 31, 2007 were $381.1 million and $114.4 million, respectively. For the fourth quarter of 2007, our revenues and income from continuing operations were $120.7 million and $33.9 million, respectively.

     We intend to pay regular quarterly dividends to our shareholders and plan to grow our dividends per share through the acquisition of additional aviation assets using cash on hand and available credit facilities. We expect to finance our acquisitions on a long-term basis using cost effective debt structures such as non-recourse securitizations or similar bank market financings. Securitizations and similarly structured bank market financings allow companies to raise long-term capital by pledging cash flows of an asset pool, such as aircraft leases. In June 2006, we closed our first securitization, which we refer to as Securitization No. 1, a $560.0 million transaction comprising 40 aircraft and related leases, which were refer to as Portfolio No. 1. In June 2007, we closed our second securitization, which we refer to as Securitization No. 2, a $1.17 billion transaction comprising 59 aircraft and related leases, which we refer to as Portfolio No. 2. We expect that long-term debt to refinance our short-term borrowings and to fund additional investments would also be available to us in the secured bank debt market under a broadly similar security structure.

Segments

     We manage our business and analyze and report our results of operations on the basis of two business segments, Aircraft Leasing and Debt Investments. We present our segment information on a contribution margin basis consistent with the information that our Chief Executive Officer (the chief operating decision maker) reviews in assessing segment performance and allocating resources. Contribution margin includes revenue, depreciation, interest expense

and other expenses that are directly connected to our business segments. We believe contribution margin is an appropriate measure of performance because it reflects the marginal profitability of our business segments, excluding overhead.

Aircraft Leasing

     Typically, our aircraft are subject to net operating leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational and insurance costs. In many of our leases we are obligated to bear a portion of maintenance costs or costs associated with modifications required by manufacturers or regulators. We retain the benefit, and bear the risk, of re-leasing and the residual value of the aircraft upon expiry or early termination of the lease. As of December 31, 2007, our portfolio consisted of 133 aircraft with 58 lessees in 31 countries, including two aircraft being converted to freighter configuration which are subject to leases that will commence upon completion of the conversions, with a net book value of $3.80 billion. The weighted average (by net book value) age of the aircraft in the portfolio from the date of original delivery by manufacturer to December 31, 2007, was 10.2 years. The weighted average (by net book value) remaining lease term for aircraft we owned at December 31, 2007 was 5.0 years.

Debt Investments

     We also invest in debt investments secured by commercial jet aircraft, including enhanced equipment trust certificates, and other forms of collateralized debt. We believe our experience in the aircraft leasing business, coupled with knowledge of structured finance, enables us to make opportunistic investments in this market sector. Our intent is not to actively trade debt investments, and accordingly we have classified debt investments purchased to date as available-for-sale or held to maturity as defined in Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. As of December 31, 2006, we owned debt investments secured by aircraft with a fair value of $121.3 million. During the year ended December 31, 2007, we made one additional investment in debt investments secured by aviation assets. At December 31, 2007, our debt investment portfolio consisted of seven such debt investments with a fair value of $113.0 million. In February 2008, we sold two of our debt investments for $65.3 million, plus accrued interest. We repaid the outstanding balance of $52.3 million, plus accrued interest, under the related repurchase agreement. Additionally, we terminated the related interest rate swap and paid breakage fees and accrued interest of approximately $1.0 million.

Revenues

     Revenues in our Aircraft Leasing segment are comprised primarily of operating lease rentals on flight equipment held for lease. The amount of rent we receive depends on various factors, including the type, size and age of the aircraft in our portfolio. Lease rental revenue is recognized on a straight-line basis over the term of the lease. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease. However, the amount of rent we receive may vary due to several factors, including the credit worthiness of our lessees and the occurrence of delinquencies and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.

     Revenues in our Aircraft Leasing segment for the years ended December 31, 2006 and 2007 were $173.8 million and $370.7 million, respectively. Our revenues increased significantly from 2006 to 2007 primarily as a result of continued aircraft acquisitions during 2007 which caused our aircraft fleet to grow from 68 aircraft at December 31, 2006, to 133 aircraft at December 31, 2007, all of which were on lease or in freighter conversion.

     Revenues in our Debt Investments segment are recognized using the effective interest method. Certain investments which represent residual interests are accounted for using a level yield methodology based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest. Revenues in our Debt Investments segment for the year ended December 31, 2006 were $9.0 million as compared to $10.4 million for the year ended December 31, 2007.

Operating Expenses

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

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

Income Tax Provision

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

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

History

     Aircastle Limited, formerly Aircastle Investment Limited, is a Bermuda exempted company that was incorporated on October 29, 2004 by Fortress Investment Group LLC and certain of its affiliates.

Acquisitions and Dispositions

     Our financial results are impacted by the timing and size of acquisitions and dispositions we complete. As of February 21, 2008, we had acquired and committed to acquire aviation assets having an aggregate purchase price equal to $4.2 billion and $1.5 billion, respectively, or a total of approximately $5.7 billion.

     We believe the large and growing aircraft market continues to evolve, generating significant additional acquisition opportunities. Our acquisition strategy is flexible and allows us to take advantage of the best available market opportunities and is predicated on sourcing investments we believe to be accretive to shareholders. Currently, we are primarily focused on acquiring high-utility commercial jet aircraft for the passenger and freighter markets and we may also make opportunistic acquisitions of other asset-backed aviation assets. Our business strategy has been to pursue acquisitions through multiple channels across the world, such as sale-leasebacks with airlines and purchases from operating lessors, banks and other aircraft owning entities. We also explore opportunities to purchase aircraft from manufacturers. Our ability to successfully and efficiently acquire and integrate additional aviation assets on favorable terms will significantly impact our financial results and growth prospects.

     On January 22, 2007, we entered into the GAIF Acquisition Agreement, pursuant to which we agreed to acquire 38 aircraft for an aggregate base purchase price of approximately $1.595 billion, subject to certain agreed adjustments. On November 7, 2007, we agreed with GAIF to remove two aircraft from the GAIF Acquisition Agreement, reducing the total number of aircraft to be acquired to 36, with an aggregate base purchase price of approximately $1.465 billion. For certain of the aircraft, we agreed to make accelerated payments to the relevant sellers and acquire their rights and obligations under the seller’s purchase or freighter conversion agreement, with final payment and delivery of the aircraft to us being made upon delivery by the manufacturer or seller, or completion of the conversion process. We acquired 28 aircraft in 2007 related to this transaction, and of the remaining eight aircraft, we expect to acquire seven in 2008 and one in February 2009. We have made accelerated payments to the relevant GAIF seller in relation to certain of the aircraft remaining to be delivered in 2008 and 2009.

     On June 20, 2007, we entered into the Airbus A330F Agreement, under which we agreed to acquire from Airbus fifteen new A330-200F freighter aircraft, or the New A330F Aircraft. Pre-delivery payments for each aircraft are payable to Airbus and are refundable to us only in limited circumstances. We agreed to separate arrangements with Rolls-Royce PLC, or Rolls-Royce, and Pratt & Whitney, or P&W, pursuant to which we committed to acquire aircraft engines for the New A330F Aircraft. We agreed to acquire six shipsets of Trent 772B engines from Rolls-Royce and were granted options to acquire an additional four shipsets. We also committed to acquire five shipsets of PW4170 engines from P&W, and were granted options to acquire an additional five shipsets. Each shipset consists of two engines. The New A330F Aircraft are scheduled for delivery between June 2010 and November 2011, with five

scheduled for delivery in 2010. Under limited circumstances, we have the right to change certain delivery positions from A300-200F freighter configuration aircraft to A330-200 passenger configuration aircraft.

     The following table sets forth certain information with respect to the aircraft acquired or to be acquired by us as of December 31, 2007:

     AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

						Aircraft
		Owned				Committed
		Aircraft				to be Acquired
		as of				as of
		December 31,				December 31,
		2007(1)				2007(2)(5)				Total
Flight Equipment Held for Lease		$	3,807			$	363			$	4,170
Number of Aircraft			133				8				141
Number of Lessees			58				4				61
Number of Countries			31				3				32
Weighted Average Age — Passenger (years)(3) (6)			10.0				17.1				10.2
Weighted Average Age — Freighter (years)(3) (6)			10.9				—				7.9
Weighted Average Age — Combined (years)(3) (6)			10.2				3.7				9.7
Weighted Average Remaining Passenger Lease Term (years)(4) (6)			4.2				5.0				4.2
Weighted Average Remaining Cargo Lease Term (years)(4) (6)			8.7				11.0				9.3
Weighted Average Remaining Combined Lease Term (years)(4) (6)			5.0				9.7				5.5

     Our owned aircraft portfolio as of December 31, 2007 is listed in Exhibit 99.1 in the original Form 10-K. Approximately 86% of the aircraft we owned as of December 31, 2007 are what we consider to be the most current technology for the relevant airframe and engine type and airframe size, as listed under the headings “Latest Generation Narrowbody Aircraft,” “Latest Generation Midbody Aircraft,” “Latest Generation Widebody Aircraft” and “Latest Generation Widebody Freighter Aircraft” in Exhibit 99.1 in the original Form 10-K.

     PORTFOLIO DIVERSIFICATION

										Aircraft Committed to
		Owned Aircraft as of								be Acquired as of
		December 31, 2007								December 31, 2007(1)								Total
																						% of Net
																						Book Value
														% of Base								plus Base
		Number of				% of Net				Number of				Purchase				Number of				Purchase
		Aircraft				Book Value				Aircraft				Price(2)				Aircraft				Price
Aircraft Type
Passenger:
Narrowbody			92				51	%			6				21	%			98				48	%
Midbody			24				25	%			—				—	%			24				23	%
Widebody			3				5	%			—				—	%			3				4	%
Total Passenger			119				81	%			6				21	%			125				75	%
Freighter (4)			14				19	%			2				79	%			16				25	%
Total			133				100	%			8				100	%			141				100	%
Manufacturer
Boeing			93				65	%			2				79	%			95				66	%
Airbus			40				35	%			6				21	%			46				34	%
Total			133				100	%			8				100	%			141				100	%
Lessee Diversification
Top Five Lessees(5)			34				28	%			8				100	%			28				28	%
Regional Diversification
Europe(6)			65				47	%			1				39	%			66				47	%
Asia(7)			35				27	%			6				22	%			41				26	%
North America(8)			13				10	%			—				—	%			13				9	%
Latin America			12				7	%			—				—	%			12				7	%
Middle East and Africa			8				9	%			1				39	%			9				11	%
Total			133				100	%			8				100	%			141				100	%

Finance

     A key aspect of our growth strategy is our flexible capital structure which supports the financing of our acquisitions of aircraft and other aviation assets. We typically finance the initial purchase of aircraft and other aviation assets using committed short-term credit arrangements and cash on hand. We believe our ability to execute acquisitions expeditiously and without financing contingencies has benefited us in competitive bidding situations. Our short-term borrowed funds for our aircraft acquisitions and repurchase obligations for our securities are provided by secured credit facilities from banks.

     We intend to continue funding aircraft acquisitions initially through borrowings under our short-term credit facilities, and to repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings and additional equity offerings. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive. Given our existing commitments and the potential volume of aircraft acquisitions, we expect to execute additional securitizations, other long-term debt financing and/or additional equity offerings during the course of the next 12 months. We also intend to extend, modify or replace our short-term credit facilities in 2008. However, the level of new investment activity and, in turn, financing requirements will be driven by the attractiveness of new investment opportunities available in the marketplace and financial market conditions. Decisions by investors and lenders to enter into such transactions with us will depend upon a number of factors, such as our historical and projected performance, compliance with the terms of our current credit arrangements, industry and market trends, the availability of capital and the relative attractiveness of alternative investments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facilities, — Securitizations, and — Equity Offerings.”

Comparison of the year ended December 31, 2006 to the year ended December 31, 2007

Revenues and Contribution Margin

     Revenues and contribution margin by segment is set forth in the tables below. See Note 16 to our consolidated financial statements for the reconciliation to operating income and our reasons for using contribution margin to discuss our results of operations.

Aircraft Leasing

     Aircraft Leasing revenues and contribution margin were as follows:

		Year Ended
		December 31,
(Dollars in thousands)		2006				2007
Revenues:
Lease rentals		$	173,605			$	369,876
Other revenues			209				815
Total revenues			173,814				370,691
Expenses:
Depreciation			52,895				125,762
Interest			51,194				100,882
Other expenses			1,261				927
Total expenses			105,350				227,571
Contribution margin		$	68,464			$	143,120

     For the year ended December 31, 2006, the contribution margin of our Aircraft Leasing segment was $68.5 million on $173.8 million of revenues. At December 31, 2006, we owned 68 aircraft held for lease, all of which were on-lease.

     For the year ended December 31, 2007, the contribution margin of our Aircraft Leasing segment was $143.1 million on $370.7 million of revenues. At December 31, 2007, we owned 133 aircraft held for lease, all of which were on-lease or in freighter conversion. Aircraft leasing revenue of $370.7 million, depreciation expense of $125.8 million, and interest expense of $100.9 million all increased relative to the year ended December 31, 2006 due to the increase in the size of our aircraft portfolio.

Debt Investments

     Debt Investment revenues and contribution margin were as follows:

		Year Ended
		December 31,
(Dollars in thousands)		2006				2007
Revenues:
Interest income		$	9,038			$	10,400
Other revenues			—				—
Total revenues			9,038				10,400
Expenses:
Interest			4,572				4,017
Total expenses			4,572				4,017
Contribution margin		$	4,466			$	6,383

     For the year ended December 31, 2006, the contribution margin of our Debt Investments segment was $4.5 million on $9.0 million of revenues. At December 31, 2006, we owned $121.3 million of debt investments with $14.4 million of unrealized gains as reflected in accumulated other comprehensive income at December 31, 2006.

     For the year ended December 31, 2007, the contribution margin of our Debt Investments segment was $6.4 million on $10.4 million of revenues. At December 31, 2007, we owned $113.0 million of debt investments with $10.8 million of unrealized gains as reflected in accumulated other comprehensive loss at December 31, 2007.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses, or SG&A, consists of personnel costs, professional fees and other expenses. SG&A as of percentage of total segment assets was 0.9% for the year ended December 31, 2007, as compared with 1.5% for the same period in 2006. We expect SG&A as a percentage of total segment assets to continue to decrease as we grow our segment assets. SG&A increased $11.2 million for the year ended December 31, 2007, as compared with the same period in 2006. The increase was due to an increase of $8.7 million in personnel costs, consisting primarily of salary and non-cash share based payments, as the number of employees increased from 45 at December 31, 2006, to 69 at December 31, 2007, an increase in professional fees of $2.7 million, consisting primarily of auditing and tax compliance fees, and a decrease in other expenses. Non-cash share based payment expense of $6.7 million in 2007 included $1.7 million of compensation resulting from the acceleration of unvested shares previously granted to a former employee. Non-cash share based payment expense of $8.9 million in 2006 included $3.4 million in compensation to a director for the purchase of common shares below fair value.

Income Tax Provision

     Our provision for income taxes for the years ended December 31, 2006 and 2007 was $4.8 million and $7.7 million, respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland and the United States. The increase in our income tax provision of approximately $2.9 million from December 31, 2006 to December 31, 2007 was primarily attributable to the increase in our operating revenue subject to tax in Ireland and the United States.

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

     The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2016. Consequently, the provision for income taxes recorded

relates to income earned by certain subsidiaries of the Company which are located in or earn income in jurisdictions that impose income taxes, primarily the United States and Ireland.

     We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”), effective January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. We did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations as a result of the adoption of FIN 48.

     Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, we did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense or penalty recognized during the year. See Note 11 to our consolidated financial statements.

Discontinued Operations

     During 2005, we purchased an aircraft and immediately held it for sale. As of December 31, 2005, the aircraft was classified on the balance sheet as flight equipment held for sale and all operating activities were classified as discontinued operations. No depreciation expense was recorded on this aircraft. The aircraft was sold on March 29, 2006 for a $2.2 million gain and the related debt in the amount of $36.7 million was repaid on March 30, 2006.

     As of March 31, 2007, another aircraft was classified on the balance sheet as flight equipment held for sale and all operating activities were classified as discontinued operations. The aircraft was sold on May 22, 2007 for an $11.6 million gain. The operating activities of this aircraft have been reflected in discontinued operations for all periods presented and the aircraft is presented as flight equipment held for sale at both December 31, 2005 and 2006.

     Earnings from discontinued operations for the years ended December 31, 2006, and 2007 related solely to the two aircraft held for sale, were as follows:

		Year Ended December 31,
		2006				2007
Earnings from discontinued operations:
Lease rentals		$	8,610			$	2,364
Depreciation			(3,532	)			(761	)
Gain on disposition			2,240				11,566
Interest expense			(1,439	)			—
Other expenses			(30	)			(185	)
Earnings from discontinued operations before income tax provision			5,849				12,984
Income tax provision			(563	)			(43	)
Earnings from discontinued operations, net of income taxes		$	5,286			$	12,941

Comparison of the year ended December 31, 2005 to the year ended December 31, 2006

Revenues and Contribution Margin

     Revenues and contribution margin by segment is set forth in the tables below. See Note 16 to our consolidated financial statements for the reconciliation to operating income and our reasons for using contribution margin to discuss our results of operations.

Aircraft Leasing

     Aircraft Leasing revenues and contribution margin were as follows:

		Year Ended
		December 31,
(Dollars in thousands)		2005				2006
Revenues:
Lease rentals		$	28,590			$	173,605
Other revenues			2				209
Total revenues			28,592				173,814
Expenses:
Depreciation			11,121				52,895
Interest			7,999				51,194
Other expenses			783				1,261
Total expenses			19,903				105,350
Contribution margin		$	8,689			$	68,464

     For the year ended December 31, 2005, the contribution margin of our Aircraft Leasing segment was $8.7 million on $28.6 million of revenues. At December 31, 2005, we owned 31 aircraft held for lease, all of which were on-lease.

     For the year ended December 31, 2006, the contribution margin of our Aircraft Leasing segment was $68.5 million on $173.8 million of revenues. At December 31, 2006, we owned 68 aircraft held for lease, all of which were on-lease. Aircraft leasing revenue of $173.8 million, depreciation expense of $52.9 million, interest expense of $51.2 million and other expenses of $1.3 million all increased relative to the year ended December 31, 2005 due to the increase in the size of our aircraft portfolio.

Debt Investments

     Debt Investment revenues and contribution margin were as follows:

		Year Ended
		December 31,
(Dollars in thousands)		2005				2006
Revenues:
Interest income		$	2,942			$	9,038
Other revenues			104				—
Total revenues			3,046				9,038
Expenses:
Interest			173				4,572
Total expenses			173				4,572
Contribution margin		$	2,873			$	4,466

     For the year ended December 31, 2005, the contribution margin of our Debt Investments segment was $2.9 million on $3.0 million of revenues. At December 31, 2005, we owned $26.9 million of debt investments with $9.9 million of unrealized gains as reflected in accumulated other comprehensive income at December 31, 2005.

     For the year ended December 31, 2006, the contribution margin of our Debt Investments segment was $4.5 million on $9.0 million of revenues. At December 31, 2006, we owned $121.3 million of debt investments with $14.4 million of unrealized gains as reflected in accumulated other comprehensive income at December 31, 2006.

Selling, General and Administrative Expenses

     SG&A consists of personnel costs, professional fees and other expenses. SG&A as of percentage of total segment assets was 1.5% for the year ended December 31, 2006, as compared with 1.6% for the same period in 2005. SG&A increased $15.3 million for the year ended December 31, 2006, as compared with the same period in 2005. The increase was due to an increase of $11.7 million in personnel costs, consisting primarily of salary and non-cash share based payments, as the number of employees increased from 29 at December 31, 2005, to 45 at December 31, 2006, an increase in professional fees of $1.0 million, consisting primarily of auditing and tax compliance fees, and increases in rent, insurance, travel and other expenses of $2.6 million. Non-cash share based payment expense in 2006 was $8.9 million, including $3.4 million in compensation to a director for the purchase of common shares below fair value. Non-cash share based payment expense in 2005 was $0.4 million.

Income Tax Provision

     Our provision for income taxes for the years ended December 31, 2005 and 2006 was $0.9 million and $4.8 million, respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland and the United States.

Discontinued Operations

     During 2005, we purchased an aircraft and immediately held it for sale. As of December 31, 2005, the aircraft was classified on the balance sheet as flight equipment held for sale and all operating activities were classified as discontinued operations. No depreciation expense was recorded on this aircraft. The aircraft was sold on March 29, 2006 for a $2.2 million gain and the related debt in the amount of $36.7 million was repaid on March 30, 2006.

     As of March 31, 2007, another aircraft was classified on the balance sheet as flight equipment held for sale and all operating activities were classified as discontinued operations. The aircraft was sold on May 22, 2007 for an $11.6 million gain. The operating activities of this aircraft have been reflected in discontinued operations for all periods presented and the aircraft is presented as flight equipment held for sale at both December 31, 2005 and 2006.

     Earnings from discontinued operations for the years ended December 31, 2005 and 2006 related solely to the two aircraft held for sale were as follows:

		Year Ended December 31,
		2005				2006
Earnings from discontinued operations:
Lease rentals		$	6,014			$	8,610
Depreciation			—				(3,532	)
Gain on disposition			(3,469	)			2,240
Interest expense			(102	)			(1,439	)
Other expenses			(1,297	)			(30	)
Earnings from discontinued operations before income tax provision			1,146				5,849
Income tax provision			(115	)			(563	)
Earnings from discontinued operations, net of income taxes		$	1,031			$	5,286

APPLICATION OF CRITICAL ACCOUNTING POLICIES

     Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP, requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying footnotes. Our estimates and assumptions are based on historical experiences and currently available information. Actual results may differ from such estimates under different conditions, sometimes materially. A summary of our significant accounting policies is presented in the notes to our consolidated financial statements included elsewhere in this Annual report. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of

our financial condition and results and require our most subjective judgments, estimates and assumptions. Our most critical accounting policies and estimates are described below.

Lease Revenue Recognition

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

Income and Valuation of Debt Investments

     Income on debt investments is recognized using the effective interest method. Certain investments which represent a residual interest are accounted for using a level yield methodology based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to prepayments and defaults). These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data and market changes. These uncertainties and contingencies are difficult to predict and are subject to future events and economic and market conditions, which may alter the assumptions. We have classified our investments in debt investments as available for sale or held to maturity As such, debt investments available for sale are carried at fair value with any net unrealized gains and losses reported as a component of accumulated other comprehensive income. Fair value is based primarily upon broker quotations, which provide valuation estimates based upon reasonable market order indications or a good faith estimate thereof. These quotations are subject to significant variability based on market conditions, such as interest rates and credit spreads. Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in our results of operations and financial position. At December 31, 2007, our portfolio of debt investments available for sale had a net unrealized gain.

Maintenance Payments

     Under an operating lease, the lessee is typically required to make payments for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and are required to be made monthly in arrears or at the end of the lease term. Whether to permit a lessee to make maintenance payments at the end of the lease term, rather than requiring such payments to be made monthly, depends on a variety of factors, including the creditworthiness of the lessee, the level of security deposit which may be provided by the lessee and market conditions at the time. If a lessee is making monthly maintenance payments, we would typically be obligated to use the funds paid by the lessee during the lease term to reimburse the lessee for costs they incur for heavy maintenance, overhaul or replacement of certain high-value components, usually shortly following completion of the relevant work.

     In addition, many of our leases contain provisions which may require us to pay a portion of such costs in excess of the amounts paid to us by the lessee on a monthly basis, although the timing of the maintenance, overhaul or replacement of the relevant components and the actual cost of the work will determine the portion of the excess, if any, we must pay. As part of our due diligence review of each aircraft we purchase, we prepare an estimate of the expected maintenance payments and any excess costs which may become payable by us, taking into consideration the then-current maintenance status of the aircraft and the relevant provisions of any existing lease.

     We record maintenance payments paid by the lessee as accrued maintenance liabilities in recognition of our contractual commitment to refund such receipts. In these contracts, we do not recognize such maintenance payments as revenue during the lease. Reimbursements to the lessee upon the receipt of evidence of qualifying maintenance work are charged against the existing accrued maintenance liability. We defer income recognition of all maintenance reserve

payments collected until such time as we can reasonably estimate the amount by which reserve payments received exceed costs to be incurred by the current lessee in performing scheduled maintenance.

Flight Equipment Held for Lease

     Flight equipment held for lease is stated at cost and depreciated using the straight-line method, typically over a 25 year life from the date of manufacture for passenger aircraft and over a 30 — 35 year life for freighter aircraft, depending on whether the aircraft is a converted or purpose-built freighter, to estimated residual values. Estimated residual values are generally determined to be approximately 15% of the manufacturer’s estimated realized price for passenger aircraft when new and 5% — 10% for freighter aircraft when new. Management may make exceptions to this policy on a case-by-case basis when, in its judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations of value. Examples of situations where exceptions may arise include but are not limited to:

	•		flight equipment where estimates of the manufacturer’s realized sales prices are not relevant (e.g., freighter conversions);
	•		flight equipment where estimates of the manufacturers’ realized sales prices are not readily available; and
	•		flight equipment which may have a shorter useful life due to obsolescence.

     In accounting for flight equipment held for lease, we make estimates about the expected useful lives, the fair value of attached leases and the estimated residual values. In estimating useful lives, fair value of leases and residual values of our aircraft, we rely upon actual industry experience with the same or similar aircraft types and our anticipated utilization of the aircraft.

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

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

Derivative Financial Instruments

     In the normal course of business we utilize derivative instruments to manage our exposure to interest rate risks. We account for derivative instruments in accordance with Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, or SFAS No. 133. In accordance with SFAS No.133, all derivatives are recognized on the balance sheet at their fair value. We obtain the values on a quarterly basis from the counterparty of the derivative contracts. When hedge treatment is achieved under SFAS No.133, the changes in fair values related to the effective portion of the derivatives are recorded in other comprehensive income or in income, depending on the designation of the derivative as a cash flow hedge. The ineffective portion of the derivative contract is calculated and recorded in income at each quarter end.

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

     We use the “hypothetical trade method” for hedges that do not qualify for the “change in variable cash flow method” under SFAS No.133. The calculation involves a comparison of the change in the fair value of a hypothetical

trade to the change in the fair value of the hedge. The difference is the calculated ineffectiveness and is recorded in income as a component of interest expense.

Share Based Payments

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

Income Taxes

     Aircastle provides for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes, or SFAS No. 109. SFAS No. 109 requires an asset and liability based approach in accounting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement and tax basis of existing assets and liabilities using enacted rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount estimated by Aircastle to be realizable.

     We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, or FIN 48, effective January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. We did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations as a result of the adoption of FIN 48.

RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2006, the FASB issued statement No. 157, “Fair Value Measurements”, (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company is subject to the provisions of SFAS 157 beginning January 1, 2008. The Company has not yet determined whether SFAS 157 will have a material impact on its financial condition, results of operations, or cash flow. However, the Company believes it will likely be required to provide additional disclosures as part of future financial statements, beginning with first quarter 2008.

     In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (Statement 159). Statement 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. Statement 159 is effective for fiscal years beginning after November 15, 2007. The Company does not believe Statement 159 will result in a material adverse effect on its financial condition, results of operations, or cash flow.

     In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations, or SFAS No. 141(R). SFAS No. 141(R) will change the accounting for business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141(R) will change the accounting treatment and disclosure for certain specific items in a business combination, and applies prospectively to business combinations for which the acquisition

date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, any business combinations we engage in will be recorded and disclosed following existing GAAP until January 1, 2009. The Company has currently not determined the potential effects, if any, on the consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51, or SFAS No. 160. SFAS No. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company has currently not determined the potential effects, if any, on the consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

     The acquisition of aircraft and debt investments drives our growth and fuels our need for liquidity. We have been able to meet our liquidity requirements from several sources, including:

	•		Lines of credit, our securitizations, and other secured borrowings;
	•		Our public offerings of common shares;
	•		Prior to our initial public offering, equity contributions from the Fortress funds;
	•		Aircraft lease revenues and maintenance payments; and
	•		Principal and interest payments from our debt investments.

     During the year ended December 31, 2007, we acquired commercial jet aircraft and made capital improvements to our aircraft portfolio totaling $2.2 billion (excluding assets not yet earning revenue of $170.7 million comprising deposits and progress payments under our Airbus A330F Agreement and freighter conversion contracts and excluding payments under the GAIF Acquisition Agreement for aircraft accelerations) and $15.3 million of debt investments secured by commercial jet aircraft, for a total of $2.22 billion. We expect to acquire a substantial amount of aviation assets over the next twelve months, including approximately $363.4 million of aircraft to be delivered under the GAIF Acquisition Agreement, all of which were subject to letters of intent at December 31, 2007, and additional acquisitions that we may enter into from time to time in the ordinary course of business. In addition, at December 31, 2007, we expect capital expenditures and lessee maintenance payment draws on our owned and committed aircraft portfolio to be approximately $98.9 million, excluding freighter conversion payments (see Purchase Obligations in “Contractual Obligations” below) and we expect maintenance payment collections from lessees on our owned aircraft portfolio of approximately $131.4 million over the next twelve months. There can be no assurance that we will be able to acquire the additional aircraft described above, and no assurance regarding the timing and amount of such acquisitions. In addition, there can be no assurance that the capital expenditures described above will not be greater than expected or that our expected maintenance payment collections will equal our current estimates.

     It is our intention to fund future aircraft acquisitions, including the aircraft to be acquired from GAIF under the GAIF Acquisition Agreement, initially through borrowings under our credit facilities, and to repay all or a portion of such borrowings from time to time with the net proceeds from subsequent securitizations or other long-term debt financings and/or additional equity issuances. It is also our intention to finance investments in debt investments with borrowings arranged at the time of the investment which may include entering into repurchase agreements. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital. Given the volume of aircraft acquisitions and opportunities to invest in debt investments, we expect to execute additional non-recourse securitizations, similar bank market financings and/or additional equity offerings during the course of the next 12 months. Decisions by investors and lenders to enter into such transactions with us will depend upon a number of factors, such as our historical and projected performance, compliance with the terms of our current credit arrangements, industry and market trends, the availability of capital and the relative attractiveness of alternative investments.

     We believe that funds available from operations and our credit facilities, including the 2008-A Credit Agreement and including extensions, replacements and refinancings of our existing credit facilities, will be sufficient to satisfy our liquidity needs over the next twelve months and enable us to pay dividends to our common shareholders as contemplated by our dividend policy. At December 31, 2007, we had borrowings of $734.1 million related to 31

aircraft under our Amended Credit Facility No. 2. During the second quarter of 2008, we plan to refinance a majority of these aircraft, as well as 5 additional aircraft that we expect to acquire during the first half of 2008, with long-term financing using a cost effective debt structure such as a non-recourse securitization or similar bank market financing. We believe that similar bank market financing would be available in a single, diversified portfolio transaction structured like a securitization or would also be available in a series of smaller financings. We expect to extend, modify or replace the maturity of our Revolving Credit Facility prior to its current maturity of June 15, 2008 and to modify or replace Amended Credit Facility No. 2 with a similar aircraft acquisition facility prior to its current maturity of December 15, 2008. However, future deterioration in our performance or the markets could limit our ability to access these sources of financing and/or increase our cost of capital, which may negatively impact our ability to raise additional funds, grow our business and to pay dividends to our common shareholders.

Cash Flows (Restated)

		Year Ended				Year Ended				Year Ended
		December 31,				December 31,				December 31,
		2005				2006				2007
(Dollars in thousands)		(Restated)				(Restated)				(Restated)
Net cash flow (used in) provided by operating activities		$	(20,974	)		$	42,712			$	200,210
Net cash flow used in investing activities			(710,317	)			(858,002	)			(2,369,796	)
Net cash flow provided by financing activities			811,234				793,465				2,125,014

     Operating activities (used) provided net cash flow of $(21.0) million, $42.7 million and $200.2 million for the years ended December 31, 2005, 2006 and 2007, respectively. Cash flow from operations is primarily generated from rents received pursuant to the lease agreements on our aircraft. It is reduced by interest paid on our borrowings and by selling, general and administrative expenses. The amount of rent we receive depends on various factors, including the size, age and composition of our aircraft portfolio. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease. However, the amount of rent we receive may vary due to several factors, including the credit worthiness of our lessees and the occurrence of delinquencies and defaults. It is also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases. Our success in re-leasing aircraft is affected by market conditions for our aircraft and by general industry trends. At December 31, 2005, 2006 and 2007, all 31, 68 and 133 of our aircraft, respectively, were on-lease or inducted into the freighter conversion process. Cash flow provided by operations is also affected by the interest expense we pay on our credit facilities and by our decisions to hedge the risk of changing interest rates. All of our debt is currently floating rate and varies with changes in LIBOR. To the extent interest rates increase, we may be liable for more interest payments to our lenders. Our practice has been to hedge the expected future interest payments on a portion of our floating rate liabilities by entering into derivative contracts. However, we remain exposed to changes in interest rates to the extent we decide to remain unhedged and the degree to which our hedges are not perfectly correlated to the hedged future cash flows.

     Net cash flow used in investing activities totaled $710.3 million, $858.0 million and $2.37 billion for the years ended December 31, 2005, 2006 and 2007, respectively. The period to period increase reflects the increase in our acquisition of aviation assets during this time. During the year ended December 31, 2007, we acquired 65 aircraft, as compared with 37 aircraft during the year ended December 31, 2006 and 29 aircraft during the year ended December 31, 2005, resulting in our gross investment of $2.27 billion for the acquisition and improvement of flight equipment, or $2.21 billion net of accrued liabilities, compared with $837.4 million, or $820.0 million net of accrued liabilities, during the year ended December 31, 2006, and $634.2 million, or $632.8 million net of accrued liabilities, during the year ended December 31, 2005. We also invested $15.3 million in debt investments during the year ended December 31, 2007, as compared with $92.7 million and $29.4 million during the years ended December 31, 2006 and 2005, respectively. We paid $170.7 million in net aircraft purchase deposits and progress payments during the year ended December 31, 2007, compared with $1.2 million during the year ended December 31, 2006 and $5.6 million during the year ended December 31, 2005. Cash outflows from investing activities during the years ended December 31, 2007 and 2006 were partially offset by proceeds of $34.9 million and $57.2 million, respectively, from the sale of one aircraft in May 2007 and one aircraft in March 2006 that are reported as discontinued operations.

     Net cash flow from financing activities totaled $811.2 million, $793.5 million and $2.13 billion for the years ended December 31, 2005, 2006 and 2007, respectively. The period to period increase for 2007 as compared with 2006 and

2005 reflects the significant increase in financing the acquisition of aviation assets during these periods as discussed in investing activities above. During 2007, we raised $830.8 million through equity offerings, received $1.17 billion in proceeds from our second securitization and received net proceeds of $259.6 million from our Credit Facilities for a combined total of $2.26 billion of financings to invest in aviation assets. Net cash flows from financing activities also reflects net proceeds of $9.7 million, $29.7 million and $67.1 million from security and maintenance deposits for the years ended December 31, 2005, 2006 and 2007, respectively.

     On June 18, 2007, we closed our second portfolio securitization, which we refer to as Securitization No. 2. The net proceeds from Securitization No. 2 were used to repay amounts owed under Amended Credit Facility No. 2 and to repay Credit Facility No. 3 in full in July 2007. The remainder of the proceeds was used for working capital purposes.

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

     Net cash flow from financing activities for the year ended December 31, 2006 also reflects the receipt of $76.0 million from repurchase agreements. The cash flow is primarily related to the acquisition and financing of two debt investments on March 10, 2006.

     In 2004, Fortress Shareholders (as defined herein) committed to invest $400.0 million of equity in Aircastle. Of this amount, $93.1 million was contributed in 2004 and the remaining $306.9 million was invested in 2005. In 2005, we borrowed a total of $490.6 million on secured credit facilities and $8.7 million on repurchase agreements. During 2006, we received cash from credit facilities and securitizations of $501.5 million, net of repayments, to finance investments in aircraft, and we received cash from repurchase agreements of $75.0 million, net of repayments, to finance the acquisition of debt investments. The borrowings under our credit facilities were collateralized by leases on our aircraft, ownership interests in the subsidiaries that own the aircraft, cash on deposit in lockbox accounts and other assets held by the collateral agent and rights under the service provider agreement and certain other agreements.

Debt Obligations

     The following table provides a summary of our credit facilities at December 31, 2007:

As of December 31, 2007

Outstanding

Final Stated

Debt Obligation

Collateral

Commitment

Borrowing

Interest Rate(1)

Maturity

(Dollars in thousands)

Securitization No. 1

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

$

527,397

$

527,397

1M LIBOR + 0.27% = 5.30%

6/20/31

Securitization No. 2

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

1,150,339

1,150,339

1M LIBOR + 0.26% = 5.50%

6/14/37

747 PDP Credit Facility

Interests in aircraft leases, rights under aircraft purchase contract, beneficial interest in entities and related interests

64,127

64,127

1M LIBOR + 1.00% = 6.03%

4/15/08

Revolving Credit Facility

Beneficial interests in subsidiaries

250,000

—

1M LIBOR + 1.50% - N/A

6/15/08

Amended Credit Facility No. 2

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

1,000,000

734,059

1M LIBOR + 1.25% = 6.28%

12/15/08

Repurchase Agreements (2)

Securities available for sale

60,282

60,282

1M LIBOR + 0.50% = 5.75%

3/1/08

Repurchase Agreements

Securities available for sale

2,490

2,490

1M LIBOR + 0.50% = 5.36%

6/28/08

Repurchase Agreements (3)

Securities available for sale

4,972

4,972

1M LIBOR + 0.75% = 5.85%

1/15/08

Total

$

3,059,607

$

2,543,666

Securitizations

     On June 15, 2006, we closed Securitization No. 1 comprising 40 aircraft in Portfolio No. 1. In connection with Securitization No. 1, two of our subsidiaries, ACS Aircraft Finance Ireland plc, or ACS Ireland, and ACS Aircraft Finance Bermuda Limited, or ACS Bermuda, which we refer to together with their subsidiaries as the ACS 1 Group, issued $560.0 million of ACS 1 Notes to the ACS 2006-1 Pass Through Trust or the ACS 1 Trust. The ACS 1 Trust simultaneously issued a single class of Class G-1 pass through trust certificates, or the ACS1 Certificates, representing undivided fractional interests in the notes. Payments on the ACS 1 Notes will be passed through to holders of the ACS 1 certificates. The ACS 1 Notes are secured by ownership interests in aircraft-owning subsidiaries of ACS Bermuda

and ACS Ireland and the aircraft leases, cash, rights under service agreements and any other assets they may hold. We retained 100% of the rights to receive future cash flows from Portfolio No. 1 after the payment of claims that are senior to our rights, including but not limited to payment of expenses related to the aircraft and fees of service providers, interest and principal payments to certificate holders, amounts owed to hedge providers and amounts, if any, owed to the policy provider and liquidity provider for previously unreimbursed advances.

     Each of ACS Bermuda and ACS Ireland has fully and unconditionally guaranteed the other’s obligations under the ACS 1 Notes. However, the ACS 1 Notes are neither obligations of nor guaranteed by Aircastle Limited. The ACS 1 Notes mature on June 20, 2031, but we expect to refinance the ACS 1 Notes on or prior to June 2011. In the event that the notes are not repaid on or prior to June 2011, the excess securitization cash flow will be used to repay the principal amount of the ACS1 Notes and will not be available to us to pay dividends to our shareholders.

     During the first five years from issuance, Securitization No. 1 has an amortization schedule that requires that lease payments be applied to reduce the outstanding principal balance of the indebtedness so that such balance remains at 54.8% of the assumed future depreciated value of Portfolio No. 1. If the debt service coverage ratio requirements are not met on two consecutive monthly payment dates in the fourth and fifth year following the closing date of Securitization No. 1, all excess securitization cash flow is required to be used to reduce the principal balance of the indebtedness and will not be available to us for other purposes, including paying dividends to our shareholders. The ACS 1 Groups’ compliance with these requirements depends substantially upon the timely receipt of lease payments from their lessees.

     The ACS 1 Notes provide for monthly payments of interest at a floating rate of one-month LIBOR plus 0.27%, which at December 31, 2007 was 5.30%, and scheduled payments of principal. Financial Guaranty Insurance Company, or FGIC, issued a financial guaranty insurance policy to support the payment of interest when due on the ACS 1 Certificates and the payment, on the final distribution date, of the outstanding principal amount of the ACS 1 Certificates. A downgrade in the rating of FGIC will not result in a change in any of the rights or obligations of the parties to Securitization No. 1.

     We have entered into a series of interest rate hedging contracts intended to hedge the interest rate exposure associated with issuing floating-rate obligations backed by primarily fixed-rate lease assets. Obligations owed to the hedge counterparty under these contracts are secured on a pari passu basis with the same collateral that secures the ACS 1 Notes and, accordingly, the ACS 1 Group has no obligation to pledge cash collateral to secure any loss in value of the hedging contracts if interest rates fall. These hedging contracts, together with the guarantee premium, the spread referenced above and other costs of trust administration, result in a fixed rate cost of 6.60% per annum, after the amortization of issuance fees and expenses.

     On June 8, 2007, we completed Securitization No. 2 comprising 59 aircraft in Portfolio No. 2. In connection with Securitization No. 2, two of our subsidiaries, ACS Aircraft Finance Ireland 2 Limited, or ACS Ireland 2, and ACS 2007-1 Limited, or ACS Bermuda 2, which we refer to together with their subsidiaries as the ACS 2 Group, issued $1.17 billion of Class A notes, or the ACS 2 Notes, to a newly formed trust, the ACS 2007-1 Pass Through Trust, or the ACS 2 Trust. The ACS 2 Trust simultaneously issued a single class of Class G-1 pass through trust certificates, or the ACS 2 Certificates, representing undivided fractional interests in the ACS 2 Notes. Payments on the ACS 2 Notes will be passed through to the holders of the ACS 2 Certificates. The ACS 2 Notes are secured by ownership in aircraft owning subsidiaries of ACS Bermuda 2 and ACS Ireland 2 and the aircraft leases, cash rights under service agreements and any other assets they may hold. We retained 100% of the rights to receive future cash flows from Portfolio No. 2 after the payment of claims that are senior to our rights. All claims are senior to our rights to receive future cash flows, including but not limited to payment of expenses related to the aircraft and fees of service providers, interest and principal payments to certificate holders, amounts owed to hedge providers and amounts, if any, owed to the policy provider and liquidity provider under Securitization No. 2 for previously unreimbursed advances.

     Each of ACS Bermuda 2 and ACS Ireland 2 has fully and unconditionally guaranteed the other’s obligations under the ACS 2 Notes. However, the ACS 2 Notes are neither obligations of nor guaranteed by Aircastle Limited. The ACS 2 Notes mature on June 8, 2037, but we expect to refinance the notes on or prior to June 2012. In the event that the notes are not repaid on or prior to June 2012, the excess securitization cash flow will be used to repay the principal amount of the notes and will not be available to us to pay dividends to our shareholders.

     During the first five years from issuance, Securitization No. 2 has an amortization schedule that requires that lease payments be applied to reduce the outstanding principal balance of the indebtedness so that such balance remains at 60.6% of an assumed value of the aircraft, decreased over time by an assumed amount of depreciation. During the first five years of the transaction, subject to compliance with the debt service coverage ratio test in years four and five, all

cash flows attributable to the underlying aircraft after payment of expenses, interest and scheduled principal payments, or excess securitization cash flows, will be available for distribution to us. We have used and intend to use the excess securitization cash flow to pay dividends and to make additional investments. If during year four or five of the transaction, the debt service coverage ratio test fails on two consecutive payment dates the excess securitization cash flow will be used to repay the principal amount of the notes and will not be available to us to pay dividends to our shareholders or make additional investments. The ACS 2 Groups’ compliance with these covenants depends substantially upon the timely receipt of lease payments from their lessees.

     The ACS 2 Notes provide for monthly payments of interest at a floating rate of one-month LIBOR plus 0.26%, which at December 31, 2007 was 5.50%, and scheduled payments of principal. FGIC issued a financial guaranty insurance policy to support the payment of interest when due on the ACS 2 Certificates and the payment, on the final distribution date, of the outstanding principal amount of the ACS 2 Certificates. A downgrade in the rating of FGIC will not result in any change in the rights or obligations of the parties to Securitization No. 2.

     We have entered into a series of interest rate hedging contracts intended to hedge the interest rate exposure associated with issuing floating-rate obligations backed by primarily fixed-rate lease assets. Obligations owed to the hedge counterparty under these contracts are secured on a pari passu basis with the same collateral that secures the ACS 2 Notes and, accordingly, the ACS 2 Group has no obligation to pledge cash collateral to secure any loss in value of the hedging contracts if interest rates fall. These hedging contracts, together with the related guarantee premium, the spread referenced above and other costs of trust administration, result in a fixed rate cost of 6.20% per annum, after the amortization of issuance fees and expenses.

Credit Facilities

     On July 26, 2007, we made an accelerated payment to the relevant GAIF seller under our acquisition agreement with GAIF for three Boeing Model 747-400ERF aircraft in the amount of $106.7 million and assumed a credit facility related to such 747-400ERF aircraft, or the Accelerated ERF Aircraft, which we refer to as the 747 PDP Credit Facility. The total outstanding amount of borrowings assumed under the 747 PDP Credit Facility was $95.9 million. Borrowings under this facility were used to finance progress payments made to Boeing during the manufacturing of the aircraft and bear interest at one-month LIBOR plus 1.00% per annum, which at December 31, 2007 was 6.03%, and will mature upon delivery of the final aircraft scheduled for April 2008. On July 30, 2007, we took delivery of the first Accelerated ERF Aircraft and paid down $31.8 million under the 747 PDP Credit Facility.

     On December 15, 2006, the Company entered into a $250.0 million revolving credit facility, which we refer to as the Revolving Credit Facility, with a group of banks. The Revolving Credit Facility provides loans for working capital and other general corporate purposes and also provides for issuance of for the account of any borrower up to $250.0 million. Borrowings under the Revolving Credit Facility bear interest (a) in the case of loans with an interest rate based on the applicable base rate, or ABR, plus 0.50% per annum or (b) in the case of loans with an interest rate based on the euro dollar rate, or EDR, the EDR plus 1.50% per annum. Additionally, we are subject to a per annum fee on any unused portion of the total committed facility of 0.25% during periods when the average outstanding loans under the Revolving Credit Facility are less than $125.0 million, and 0.125% per annum when the average outstanding loans are equal to or greater than $125.0 million. Fees on any outstanding letters of credit will equal 1.625% per annum on the stated amount thereof. We are also required to pay customary agency fees. Additionally, we are required to maintain a net worth determined in accordance with GAAP of not less that $550 million. On January 22, 2007, our Revolving Credit Facility was amended to increase the maximum committed amount to $450.0 million. The maximum committed amount was subsequently reduced to $250.0 million upon the closing of our follow-on offering in February 2007. On April 5, 2007, we entered into an amendment to the Revolving Credit Facility which increased our minimum net worth covenant from $550.0 million to $750.0 million plus one-half of the net proceeds of any future equity capital we raise, which, as of December 31, 2007 resulted in a minimum net worth covenant equal to $918.9 million. On August 20, 2007, the Company and the other parties to the Revolving Credit Facility entered into a third amendment to the Revolving Credit Facility extending its maturity to June 15, 2008. At December 31, 2007, there were no outstanding loans. The interest rate, including margin, applicable to loans under the Revolving Credit Facility at December 31, 2007 was 6.53% and $6.0 million of letters of credit outstanding under the Revolving Credit Facility. We are not permitted to pay dividends on our common shares to the extent a default or an event of default exists under our Revolving Credit Facility. We expect to extend, modify or replace the maturity of our Revolving Credit Facility before its current maturity of June 15, 2008.

     On February 28, 2006, we entered into a $500.0 million revolving credit facility with a group of banks to finance the acquisition of aircraft and related improvements which we refer to as Credit Facility No. 2. The borrowing base is equal to 85% of the net book value of the aircraft. Borrowings under this credit facility incur interest at one-month LIBOR plus 1.25%. Additionally, we are subject to a 0.12% fee on any unused portion of the total committed facility. Credit Facility No. 2 requires the monthly payment of interest and principal, to the extent of 85% of any decrease in the net book value of the assets. Effective June 15, 2006, Credit Facility No. 2 was amended to increase the maximum committed amount to $750.0 million and to extend the maturity to November 15, 2007. On December 15, 2006, the $750.0 million credit facility was amended to increase the maximum committed amount to $1.0 billion and to extend the maturity to December 15, 2008 (''Amended Credit Facility No. 2’’). In addition, the borrowing base was revised to equal 65% of the purchase price of aircraft secured under the facility. On January 22, 2007, the $1.0 billion Amended Credit Facility No. 2 was amended to increase the maximum committed amount to $1.25 billion; provided that such amount will reduce to $1.0 billion on the earlier of (1) the closing of our next securitization financing or (2) June 30, 2007 (or, if we pay a commitment fee to the lenders, December 31, 2007). On June 8, 2007, the maximum committed amount of Amended Credit Facility No. 2 was reduced to $1.0 billion and $509.9 million was repaid on Amended Credit Facility No. 2 from the proceeds of Securitization No. 2. Borrowings under Amended Credit Facility No. 2 bear interest (a) in the case of loans with an interest rate based on the ABR plus 0.25% or (b) in the case of loans with an interest rate based on the EDR at an annual rate equal to the EDR plus 1.25% per annum. Additionally, we are subject to a 0.125% fee on any unused portion of the total committed facility. Amended Credit Facility No. 2 requires the monthly payment of interest and the monthly payment of principal, to the extent of 65% of any decrease in the net book value of the aircraft securing Amended Credit Facility No. 2. Amended Credit Facility No. 2 matures on December 15, 2008. On September 14, 2007, the parties to the credit agreement entered into an amendment to the credit agreement permitting us to finance under the credit agreement a portion of the cost of converting from passenger to freighter configuration three Boeing Model 747-400 aircraft which we have acquired or committed to acquire. The interest rate, including margin, applicable to loans under Amended Credit Facility No. 2. at December 31, 2007 was 6.28%.

     At December 31, 2007, we had borrowings of $734.1 million related to 31 aircraft under our Amended Credit Facility No. 2. During the second quarter of 2008, we plan to refinance a majority of these aircraft, as well as 5 additional aircraft that we expect to acquire during the first half of 2008, with long-term financing using a cost effective debt structure such as a non-recourse securitization or similar bank market financing. We believe that similar bank market financing would be available in a single, diversified portfolio transaction structured like a securitization or would also be available in a series of smaller financings. In addition, we expect to extend, modify or replace Amended Credit Facility No. 2 with a similar aircraft acquisition facility before its current maturity of December 15, 2008.

     In February 2005, we entered into a $300.0 million revolving credit facility with a group of banks to finance the acquisition of flight equipment and related improvements, which we refer to as Credit Facility No. 1. The interest rate on Credit Facility No. 1 was the one-month LIBOR plus 1.50%. In August 2005, the terms of Credit Facility No. 1 were amended to increase the amount of the facility to $600.0 million. On February 24, 2006, the revolving period of our $600.0 million Credit Facility No. 1 was extended to April 28, 2006 and the maximum amount of this credit facility was reduced to $525.0 million. The other terms of Credit Facility No. 1 remained the same. Monthly payments of interest only continued through repayment of Credit Facility No. 1. Credit Facility No. 1 was repaid in full and terminated on August 4, 2006. In addition, we wrote off the remaining balance of deferred financing fees of $1.8 million upon the termination of Credit Facility No. 1.

     In October 2005, the Company entered into a credit facility for $110.0 million with a bank to finance the acquisition of three aircraft, which we refer to as Credit Facility No. 3. The interest rate on this facility is one-month LIBOR plus 1.50%. On March 30, 2006, $36.7 million of Credit Facility No. 3 was repaid using a portion of the proceeds from the disposition of flight equipment held for sale which had been financed under this facility. Credit Facility No. 3 was amended on July 18, 2006, to increase the maximum committed amount by approximately $25.1 million and to extend the maturity date to March 31, 2007. The increase in the maximum committed amount was reduced by $25.1 million with the closing of the initial public offering. On January 26, 2007, Credit Facility No. 3 was amended to extend the maturity date from March 31, 2007 to the earlier of September 30, 2007 or the transfer of the related aircraft financed on Credit Facility No. 3 into Securitization No. 2. Credit Facility No. 3 was repaid in full in July 2007 with a portion of the proceeds of Securitization No. 2.

     From time to time, we also enter into repurchase agreements to finance certain of our securities available for sale. Repurchase agreements are agreements to sell securities to a counterparty with the simultaneous agreement to

repurchase the same or substantially identical securities from the same counterparty at a later date with accrued interest. Repurchase agreements normally do not constitute economic sales and are therefore treated as collateralized financing transactions and are carried at the amount of cash received with the underlying securities sold continuing to be recognized as securities available for sale. Interest incurred on repurchase agreements is reported in interest expense. At December 31, 2007, we had three outstanding repurchase agreements totaling $67.7 million. Two of the repurchase agreements provide for the payment of interest at one-month LIBOR plus 0.50% and one of the agreements provides for the payment of interest at one-month LIBOR plus 0.75%. At December 31, 2007, the weighted average interest rate on our repurchase agreements was 5.74% per annum. The repurchase agreements provide for an original term to maturity ranging from one to six months. If we cannot renew or replace these repurchase agreements as they mature we will be required to repay them from internal funds or find alternative sources of financing, as to which no assurance can be given.

     Our debt obligations contain various customary non-financial loan covenants. Such covenants do not, in management’s opinion, materially restrict our investment strategy or our ability to raise capital. We are in compliance with all of our loan covenants as of December 31, 2007.

Equity Offerings

     On August 11, 2006, we completed our initial public offering of 10,454,535 common shares at a price of $23.00 per share, raising approximately $240.5 million before offering costs. The net proceeds of the initial public offering, after our payment of $16.8 million in underwriting discounts and commissions and $4.1 in offering expenses, were $219.6 million, of which $205.5 million was used to repay a portion of the outstanding balance on Amended Credit Facility No. 2. The remainder of the net proceeds was used for working capital requirements and to fund additional aircraft acquisitions.

     On February 13, 2007, we completed a follow-on public offering of 15,525,000 common shares at a price of $33.00 per share, raising $512.3 million before offering costs. The net proceeds of the offering, after our payment of $17.9 million in underwriting discounts and commissions and $1.3 million in offering expenses, were $493.1 million, $398.1 million of which was used to repay borrowings under Amended Credit Facility No. 2 and $75.0 million of which was used to repay borrowings under the Revolving Credit Facility. The remainder of the net proceeds was used for other general corporate purposes.

     On October 10, 2007, the Company completed a second follow-on public offering of 11,000,000 primary common shares at a public offering price of $31.75 per share, including 1,000,000 common shares pursuant to the underwriter’s option to cover over-allotments, resulting in gross proceeds from the offering of $349.3 million before offering costs. The net proceeds of the offering, after our payment of $10.5 million in underwriting discounts and commissions, and approximately $1.0 million in offering expenses were $337.8 million. Approximately $230.9 million of the proceeds was used to repay borrowings under Amended Credit Facility No. 2. The remainder of the net proceeds was used for aircraft acquisitions and working capital requirements. In conjunction with the second follow-on public offering, certain Fortress Shareholders offered 11,000,000 secondary common shares in the public offering, including 1,000,000 common shares from the selling Fortress Shareholders pursuant to the underwriter’s option to cover over-allotments. The Company did not receive any funds from this secondary offering by the selling Fortress Shareholders.

Contractual Obligations

     Our contractual obligations consist of principal and interest payments on variable rate liabilities, obligations under binding letters of intent to purchase aircraft and rent payments pursuant to our office leases. Total contractual obligations increased from $1.69 billion at the end of 2006 to approximately $4.66 billion at December 31, 2007 due primarily to:

	•		The closing of Securitization No. 2 in June 2007; and
	•		The increase in purchase obligations mainly due to the Airbus A330F Agreement in June 2007, the remaining purchase obligations under the GAIF transaction and the 747 PDP Credit Facility.

     The following table presents our actual contractual obligations and their maturity dates as of December 31, 2007:

		Payments Due By Period as of December 31, 2007
						Less than												More than
Contractual Obligations		Total				1 year				2-3 years				4-5 years				5 years
						(Dollars in thousands)
Securitization No. 1 (1)		$	671,359			$	50,943			$	101,305			$	205,890			$	313,221
Securitization No. 2 (2)			1,561,177				119,173				217,512				261,927				962,565
747 PDP Credit Facility (3)			65,095				65,095				—				—				—
Amended Credit Facility No. 2 (3)			780,670				780,670				—				—				—
Repurchase agreements (3)			68,675				68,675				—				—				—
Operating leases (4)			5,941				1,134				2,112				1,953				742
Purchase obligations (5)			1,450,107				368,488				641,569				440,050				—
Total		$	4,603,024			$	1,454,178			$	962,498			$	909,820			$	1,276,528

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

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

Margin Calls

     Our repurchase agreements and interest rate derivative instruments are, in some cases, subject to margin calls based on the value of the underlying security and the level of interest rates. Margin calls resulting from decreases in the value of our debt instruments or mark-to-market losses on our derivative instruments due to decreasing interest rates could require that we post additional collateral. Management believes that we maintain adequate cash reserves and liquidity to meet any reasonably possible margin calls resulting from these risks, but can make no assurances that we will have adequate additional collateral under all potential scenarios. At December 31, 2006, and December 31, 2007, we had margin deposits in the amount of $4.3 million and $35.9 million, respectively. As of February 21, 2008, the aggregate fair value of our interest rate swaps and our interest rate forward contracts was a liability of $216.5 million and we had pledged $53.9 million in cash collateral required under certain of our interest rate swaps and our interest rate forward contracts.

Capital Expenditures

     We make capital expenditures from time to time in connection with improvements made to our aircraft. These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees. For the years ended December 31, 2005, 2006 and 2007, we incurred a total of $30.5 million, $6.2 million and $11.4 million, respectively, of capital expenditures related to the acquisition of aircraft.

     As of December 31, 2007, the weighted average (by net book value) age of our aircraft was approximately 10.2 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Under our leases, the lessee is primarily responsible for maintaining the aircraft. We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft or a lessee fails to meet its maintenance obligations under the lease agreement. At December 31, 2007, we held $208.4 million of maintenance reserves. These maintenance reserves are paid by the lessee to provide for future maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments. In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee.

     Actual maintenance payments by lessees in the future may be less than projected as a result of a number of factors, including defaults by the lessees. Maintenance reserves may not cover the entire amount of actual maintenance expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age. See “Item 1A. Risk Factors — If lessees are unable to fund their maintenance requirements on our aircraft, our cash flow and our ability to meet our debt obligations or to pay dividends on our common shares could be adversely affected in the original Form 10K.”

Off-Balance Sheet Arrangements

     We did not have any off-balance sheet arrangements as of December 31, 2007.

Foreign Currency Risk and Foreign Operations

     At December 31, 2007, all of our leases are payable to us in U.S. dollars. However, we incur Euro and Singapore dollar denominated expenses in connection with our subsidiary in Ireland and branch office in Singapore. As of December 31, 2007, 11 of our 69 employees were based in Ireland and three employees were based in Singapore. For the year ended December 31, 2007, expenses denominated in currencies other than the U.S. dollar, such as payroll and office costs, aggregated approximately $5.4 million in U.S. dollar equivalents and represented approximately 14% of total selling, general and administrative expenses. Our international operations are a significant component of our business strategy and permit us more effectively to source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, it is likely that our international operations and our exposure to foreign currency risk will increase over time. Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases we may enter into hedging transactions in the future to mitigate this risk. For the years ended December 31, 2005, 2006 and 2007, we incurred insignificant net gains and losses on foreign currency transactions.

Interest Rate Risk

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

margin calls, on (i) our fixed-pay interest rate swaps to the extent interest rates decrease below the contractual fixed rates of our swaps and (ii) our other interest rate derivative instruments.

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

Hedging

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

     We held the following interest rate derivative contracts as of December 31, 2007:

																				Fair Value
		Current/						Mandatory				Future								of
		Starting						Early				Maximum								Derivative
		Notional				Effective		Termination		Maturity		Notional				Floating		Fixed		Asset or
Hedged Item		Amount				Date		Date		Date		Amount				Rate		Rate		(Liability)
Securitization No. 1		$	527,396			Jun-06		N/A		Jun-16		$	527,396			1M LIBOR + 0.27%		5.78%		$	(33,842	)
Securitization No. 2			1,150,339			Jun-07		N/A		Jun-12			1,150,339			1M LIBOR		5.25% to 5.36%			(54,110	)
Revolving Credit Facility			28,000			Jun-07		Dec-11		Jan-12			203,000			1M LIBOR		4.89%			(3,827	)
Amended Credit Facility No. 2			440,000			Jun-07		Jun-08		Feb-13			440,000			1M LIBOR		4.88%			(15,569	)
Amended Credit Facility No. 2			150,000			Jul-07		Aug-08		Dec-17			150,000			1M LIBOR		5.14%			(6,642	)
Amended Credit Facility No. 2 and 747 PDP Credit Facility			242,000			Aug-07		Nov-08		May-13			247,000			1M LIBOR		5.33%			(10,669	)
Future debt and securitization			40,000			Jan-08		Feb-09		Feb-19			360,000			1M LIBOR		5.16%			(16,454	)
Future debt and securitization			5,000			May-08		Sep-09		Mar-14			55,000			1M LIBOR		5.41%			(2,885	)
Future debt and securitization			46,000			Apr-10		Nov-11		Oct-15			231,000			1M LIBOR		5.17%			(3,796	)
Future debt and securitization			95,000			Jan-11		May-12		Apr-16			238,000			1M LIBOR		5.23%			(3,163	)
Future debt and securitization			143,000			Jul-11		Oct-12		Sep-16			238,000			1M LIBOR		5.27%			(2,798	)
Repurchase Agreement			2,900			Jun-05		N/A		Mar-13			2,900			1M LIBOR		4.21%			(2	)
Repurchase Agreement			5,000			Dec-05		N/A		Sep-09			5,000			3M LIBOR		4.94%			(85	)
Repurchase Agreement (1)			39,000			Feb-06		N/A		Jul-10			39,000			1M LIBOR		5.02%			(546	)
Total		$	2,913,635									$	3,886,635							$	(154,388	)

     As of December 31, 2007, we had pledged $35.9 million in cash collateral under our interest rate swaps and our interest rate forward contracts and is included in other assets on our consolidating balance sheet.

Related Party Transactions

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

     In conjunction with the follow-on public offering of our common shares on October 10, 2007, certain Fortress Shareholders offered 11,000,000 secondary common shares in a public offering, including 1,000,000 common shares from the selling Fortress Shareholders pursuant to the underwriter’s option to cover over-allotments. Following this offering, funds managed by the Fortress Shareholders and certain officers of Fortress Investment Group LLC beneficially owned approximately 38.9% of the Company’s common shares. The Company did not receive any funds from this secondary offering by the Fortress Shareholders.

     During part of 2005, our primary operations were managed by Fortress. Fortress, acting as manager, incurred direct operating costs on our behalf. These operating costs primarily included payroll costs, office supplies and professional fees paid to third parties. These costs are included in selling, general and administrative expenses in the consolidated statement of operations. As of December 31, 2004, “Due to affiliate” represented reimbursable expenditures of $1.1 million paid by Fortress in 2004. In 2005, all amounts due to or from affiliates were settled by cash payment. During a portion of 2005, we occupied space in facilities leased by Fortress and rent of $43 thousand, determined based on actual costs to Fortress, was reimbursed to Fortress.

Inflation

     Inflation generally affects our costs, including SG&A expenses and other expenses. Inflation also will increase the price of the airframes and engines we purchase under the Airbus A330F Agreement, although we have agreed with the manufacturers to certain limitations on price escalation in order to reduce our exposure to inflation. Our contractual commitments described elsewhere in this report include estimates we have made concerning the impact of inflation on our acquisition cost under the Airbus A330F Agreement. We do not believe that our financial results have been, or will be, adversely affected by inflation in a material way.

Management’s Use of EBITDA

     We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-GAAP measure is helpful in identifying trends in our performance.

     This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

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

Limitations of EBITDA

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

	•		depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft’s availability for use and may be indicative of future needs for capital expenditures; and
	•		the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results.

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

     EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. You should not rely on EBITDA as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of EBITDA to GAAP net income (loss), along with our consolidated financial statements included elsewhere in this Annual report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the EBITDA measure, as presented in this Annual report, may differ from and may not be comparable to similarly titled measures used by other companies. The table below shows the reconciliation of net income (loss) to EBITDA for the years ended December 31, 2005, 2006 and 2007.

		Year Ended December 31,
		2005				2006				2007
		(Dollars in thousands, except per share data)
Net income		$	228			$	51,206			$	127,344
Depreciation			11,286				53,424				126,403
Amortization of lease premiums (discounts)			734				(4,406	)			(7,379	)
Interest, net			6,846				49,566				92,660
Income tax provision			940				4,845				7,658
Earnings from discontinued operations, net of income taxes			(1,031	)			(5,286	)			(12,941	)
EBITDA		$	19,003			$	149,349				333,745

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements and notes thereto, referred to in Item 15(A)(1) of this Form 10-K/A, are filed as part of this report and appear in this Form 10-K/A beginning on page F-1.

ITEM 9A. CONTROLS AND PROCEDURES (RESTATED)

Evaluation of Disclosure Controls and Procedures

     In connection with the restatement of our consolidated financial statements, which is more fully described in the “Explanatory Note” on page 1 and Note 20. Restatement and Reclassification of Previously Issued Financial Statements, located in the Consolidated Financial Statements elsewhere in this Form 10-K/A, and under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, we reevaluated our disclosure controls and procedures and identified a material weakness in our internal control over financial reporting with respect to the presentation of non-cash activities in the consolidated statement of cash flows. Solely as a result of this material weakness, as described below in “Management’s Annual Report on Internal Control over Financial Reporting (Restated),” we concluded that our disclosure controls and procedures were not effective as of December 31, 2007.

Management’s Annual Report on Internal Control over Financial Reporting (Restated)

     The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate.

     Under the supervision and with the participation of our management, including our CEO and CFO, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2007, based on the Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. In the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on February 28, 2008, management concluded that our internal control over financial reporting was effective as of December 31, 2007. However, in connection with the restatement discussed in the “Explanatory Note” on page 1 and in Note 20. Restatement and Reclassification of Previously Issued Financial Statements in the Consolidated Financial Statements contained in this Form 10-K/A, the Company’s management has revised its assessment of the effectiveness of the Company’s internal control over financial reporting due to a material weakness that was subsequently identified as a failure to maintain effective controls over the preparation of the consolidated statements of cash flows for each of the three years in the period ended December 31, 2007. Specifically, the Company inappropriately reported material non-cash transactions in the consolidated statement of cash flows for 2007.

     Solely as a result of this material weakness, the Company’s management has revised its earlier assessment and has now concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2007.

     Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements, has audited the effectiveness of our in internal control over financial reporting as of December 31, 2007. As stated in their report, which is included herein, they have restated their opinion and now conclude that the Company did not maintain effective internal control over financial reporting as of December 31, 2007.

Remediation Steps to Address Material Weakness

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

Changes in Internal Control over Financial Reporting

     Other than expressly noted in this Item 9A, there were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Aircastle Limited

We have audited Aircastle Limited’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Aircastle Limited’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our report dated February 27, 2008, we expressed an unqualified opinion that Aircastle Limited maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based upon the COSO criteria. Management has subsequently determined that a deficiency in controls relating to the presentation of Aircastle Limited’s consolidated statement of cash flows existed as of the previous assessment date, and has further concluded that such deficiency represented a material weakness as of December 31, 2007. As a result, management revised its assessment, as presented in the accompanying Management’s Annual Report on Internal Control over Financial Reporting (Restated), to conclude that Aircastle Limited’s internal control over financial reporting was not effective as of December 31, 2007. Accordingly, our present opinion on the effectiveness of Aircastle Limited’s internal control over financial reporting as of December 31, 2007, as expressed herein, is different from that expressed in our previous report.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Aircastle Limited identified a material weakness related to its internal control over financial reporting resulting from the failure to maintain effective controls over the preparation of the consolidated statement of cash flows. The material weakness resulted in the restatement of Aircastle Limited’s consolidated statements of cash flows for each of the three years in the period ended December 31, 2007. This material weakness was considered in determining the

nature, timing, and extent of audit tests applied in our audits of the consolidated financial statements and this report does not affect our report dated February 27, 2008, except for Note 20 as to which the date is November 13, 2008, on those financial statements (as restated).

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Aircastle Limited has not maintained effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

New York, New York		/s/ Ernst & Young LLP
February 27, 2008, except for the effects of the material weakness described in the sixth paragraph above, as to which the date is November 13, 2008

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

	(A) 1.		Consolidated Financial Statements.
			The following is a list of the “Consolidated Financial Statements” of Aircastle Limited and its subsidiaries included in this Annual report on Form 10-K/A, which are filed herewith pursuant to Item 8:
			Report of Independent Registered Public Accounting Firm.
			Consolidated Balance Sheets as of December 31, 2006 and December 31, 2007.
			Consolidated Statements of Income for the years ended December 31, 2005, December 31, 2006 and December 31, 2007.
			Consolidated Statements of Cash Flows for the years ended December 31, 2005, December 31, 2006 and December 31, 2007 (As Restated).
			Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2005, December 31, 2006 and December 31, 2007.
			Notes to Consolidated Financial Statements.
	2.		Financial Statement Schedules.
			There are no Financial Statement Schedules filed as part of this annual report, since the required information is included in the Consolidated Financial Statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present.
	3.		Exhibits.
			The exhibits filed herewith are listed on the Exhibit Index filed as part of this report on Form 10-K/A.

(B) EXHIBIT INDEX

Exhibit No.		Description of Exhibit
23.1		Consent of Independent Registered Public Accounting Firm
31.1		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Index to Consolidated Financial Statements

		Page No.
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2006 and 2007		F-3
Consolidated Statements of Income for the years ended December 31, 2005, 2006 and 2007		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2006 and 2007 (Restated)		F-5
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2005, 2006 and 2007		F-6
Notes to Consolidated Financial Statements		F-7

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Aircastle Limited

We have audited the accompanying consolidated balance sheets of Aircastle Limited and subsidiaries as of December 31, 2006 and 2007, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aircastle Limited and subsidiaries at December 31, 2006 and 2007 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 20 to the consolidated financial statements, the accompanying consolidated statements of cash flows have been restated to correct the Company’s accounting for non-cash items in its consolidated statements of cash flows.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Aircastle Limited and subsidiaries internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2008, except for the effects of the material weakness described in the sixth paragraph of that report, as to which the date is November 13, 2008, and expressed an adverse opinion thereon.

New York, New York
February 27, 2008, except for Note 20,
as to which the date is November 13, 2008

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

		December 31,
		2006				2007
ASSETS
Cash and cash equivalents		$	58,118			$	13,546
Accounts receivable			7,696				4,957
Debt investments			121,273				113,015
Restricted cash and cash equivalents			106,069				161,317
Flight equipment held for sale			31,280				—
Flight equipment held for lease, net of accumulated depreciation of $64,111 and $189,737			1,559,365				3,807,116
Aircraft purchase deposits and progress payments			4,650				245,331
Leasehold improvements, furnishings and equipment, net of accumulated depreciation of $694 and $1,335			1,506				1,391
Fair value of derivative assets			313				—
Other assets			28,433				80,969
Total assets		$	1,918,703			$	4,427,642
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings under credit facilities		$	442,660			$	798,186
Borrowings from securitizations			549,400				1,677,736
Accounts payable, accrued expenses and other liabilities			31,384				65,967
Dividends payable			22,584				55,004
Lease rentals received in advance			11,068				31,016
Repurchase agreements			83,694				67,744
Security deposits			39,767				74,661
Maintenance payments			82,914				208,363
Fair value of derivative liabilities			18,035				154,388
Total liabilities			1,281,506				3,133,065
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, 51,621,279 shares issued and outstanding at December 31, 2006; and 78,574,657 shares issued and outstanding at December 31, 2007			516				786
Additional paid-in capital			630,154				1,468,140
Dividends in excess of earnings			(3,382	)			(48,960	)
Accumulated other comprehensive income (loss)			9,909				(125,389	)
Total shareholders’ equity			637,197				1,294,577
Total liabilities and shareholders’ equity		$	1,918,703			$	4,427,642

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

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

		Year Ended December 31,
		2005				2006				2007
Revenues:
Lease rentals		$	28,590			$	173,605			$	369,876
Interest income			2,942				9,038				10,400
Other revenue			106				209				815
Total revenues			31,638				182,852				381,091
Expenses:
Depreciation			11,286				53,424				126,403
Interest, net			6,846				49,566				92,660
Selling, general and administrative (including non-cash share based payment expense of $409, $8,895 and $6,674, respectively)			12,493				27,836				39,040
Other expenses			876				1,261				927
Total expenses			31,501				132,087				259,030
Income from continuing operations before income taxes			137				50,765				122,061
Income tax provision			940				4,845				7,658
Income (loss) from continuing operations			(803	)			45,920				114,403
Earnings from discontinued operations, net of income taxes			1,031				5,286				12,941
Net income		$	228			$	51,206			$	127,344
Basic earnings (loss) per share:
Income (loss) from continuing operations		$	(0.02	)		$	1.00			$	1.71
Earnings from discontinued operations, net of income taxes			0.03				0.12				0.19
Net income per share		$	0.01			$	1.12			$	1.90
Diluted earnings (loss) per share:
Income (loss) from continuing operations		$	(0.02	)		$	1.00			$	1.70
Earnings from discontinued operations, net of income taxes			0.03				0.11				0.19
Net income per share		$	0.01			$	1.11			$	1.89
Dividends paid per share		$	—			$	0.70			$	2.1875

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

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

		Year Ended December 31,
		2005				2006				2007
		(Restated)				(Restated)				(Restated)
Cash flows from operating activities:
Net income (loss)		$	228			$	51,206			$	127,344
Adjustments to reconcile net (loss) income to net cash provided by operating activities (inclusive of amounts related to discontinued operations)
Depreciation			14,460				56,629				127,164
Amortization of deferred financing costs			1,175				6,380				6,991
Amortization of lease premiums and discounts, and other related lease items			897				(3,705	)			(7,379	)
Deferred income taxes			333				2,341				(2,957	)
Accretion of purchase discounts on debt investments			(787	)			(756	)			(849	)
Non-cash share based payment expense			409				8,895				6,674
Cash flow hedges reclassified into earnings			—				(2,213	)			(4,849	)
Ineffective portion of cash flow hedges			126				(814	)			171
Security deposits and maintenance payments included in earnings			(516	)			196				(6,898	)
Gain on the sale of flight equipment			—				(2,240	)			(11,566	)
Loss on sale of debt investments			7				—				—
Other			—				—				(1,154	)
Changes in certain assets and liabilities:
Accounts receivable			(2,765	)			(4,581	)			2,739
Restricted cash and cash equivalents			(40,652	)			(65,417	)			(55,248	)
Other assets			(535	)			(634	)			(4,867	)
Accounts payable, accrued expenses and other liabilities			9,700				(255	)			12,263
Payable to affiliates			(988	)			27				68
Lease rentals received in advance			(2066	)			(2,347	)			12,563
Net cash (used in) provided by operating activities			(20,974	)			42,712				200,210
Cash flows from investing activities:
Acquisition and improvement of flight equipment			(632,816	)			(820,002	)			(2,207,530	)
Investment in purchase of flight equipment held for sale			(54,917	)			—				—
Disposition of flight equipment held for sale			—				57,157				34,945
Aircraft purchase deposits and progress payments			(3,465	)			(1,186	)			(170,700	)
Purchase of debt investments			(29,376	)			(92,726	)			(15,251	)
Principal repayments on debt investments			10,461				3,606				20,801
Proceeds from sale of debt investments			2,688				—				—
Margin call payments on derivatives and repurchase agreements			—				(4,345	)			(104,121	)
Margin call receipts on derivatives and repurchase agreements			—				—				72,586
Leasehold improvements, furnishings and equipment			(2,892	)			(506	)			(526	)
Net cash used in investing activities			(710,317	)			(858,002	)			(2,369,796	)
Cash flows from financing activities:
Issuance of common shares in public offerings, net			—				219,595				830,809
Issuance of common shares to Fortress, directors and employees			—				38,703				1,218
Repurchase of shares from Fortress, directors and employees			—				(36,932	)			(445	)
Proceeds from securitizations			—				560,000				1,170,000
Securitization repayments			—				(10,600	)			(41,664	)
Deferred financing costs			(4,613	)			(19,434	)			(14,140	)
Credit facility borrowings			490,588				751,736				2,059,741
Credit facility repayments			—				(799,664	)			(1,800,141	)
Proceeds from repurchase agreements			8,679				76,007				1,967
Principal repayment on repurchase agreements			(14	)			(978	)			(17,917	)
Security deposits and maintenance payments received			9,709				34,210				85,691
Security deposits and maintenance payments returned			—				(4,558	)			(18,547	)
Proceeds from terminated cash flow hedges			—				16,142				8,944
Dividends paid			—				(30,762	)			(140,502	)
Capital contributions			306,885				—				—
Net cash provided by financing activities			811,234				793,465				2,125,014
Net increase (decrease) in cash and cash equivalents			79,943				(21,825	)			(44,572	)
Cash and cash equivalents at beginning of year			—				79,943				58,118
Cash and cash equivalents at end of year		$	79,943			$	58,118			$	13,546
Supplemental Disclosures of cash flow information
Cash paid during the year for interest, net of capitalized interest		$	6,695			$	49,012			$	94,677
Cash paid during the year for income taxes		$	—			$	2,288			$	5,804
Non-cash investing activities
Security deposits and maintenance liabilities assumed in asset acquisitions		$	24,421			$	55,744			$	106,322
Lease rentals received in advance assumed in asset acquisitions		$	7,406			$	7,174			$	7,385