International Lease Finance 10-K 2005 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

     x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from_ _ to _______________

Commission file number 1-316161

INTERNATIONAL LEASE FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

California	22-3059110
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10250 Constellation Blvd., Suite 3400, Los Angeles, California (Address of principal executive offices)	90067 (Zip Code)

Registrant’s telephone number, including area code: (310) 788-1999

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
6.375% Notes due March 15, 2009	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x  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 x

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 x  NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§ 229.405 of this chapter) 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 thisForm 10-K or any amendment to thisForm 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Act). YES o  NO x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer o  Accelerated filer o  Non-accelerated filer x

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

As of June 30, 2005 and March 10, 2006, there were 42,198,119 and 45,267,723 shares of Common Stock, no par value, outstanding, all of which were held by affiliates.

Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) ofForm 10-K and is therefore filing this form with the reduced disclosure format.

INTERNATIONAL LEASE FINANCE CORPORATION

2005FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		7
Item 1B.	Unresolved Staff Comments		9
Item 2.	Properties		9
Item 3.	Legal Proceedings		11
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		11
Item 6.	Selected Financial Data		12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 8.	Financial Statements and Supplementary Data		27
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		28
Item 9A.	Controls and Procedures		28
Item 9B.	Other Information		29
PART III
Item 10.	Directors and Executive Officers of the Registrant		30
Item 14.	Principal Accountant Fees and Services		30
PART IV
Item 15.	Exhibits and Financial Statement Schedules		30
Exhibit 4.13
Exhibit 12
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I

Item 1.  Business

General

International Lease Finance Corporation (the “Company,” “ILFC,” “management,” “we,” “our,” “us”) primarily acquires new commercial jet aircraft from The Boeing Company, or Boeing, and Airbus S.A.S., or Airbus, and leases these aircraft to airlines throughout the world. In conjunction with our leasing activity, we regularly sell aircraft from our leased aircraft fleet to other leasing companies, financial services companies, investors, and airlines. In some cases we provide fleet management services to companies with aircraft portfolios for a management fee. We also remarket and sell aircraft owned by others for a fee. In terms of the number and value of transactions concluded, we are a major owner-lessor of commercial jet aircraft.

As of December 31, 2005, we owned 746 jet aircraft and had 17 aircraft in the fleet that were classified as finance leases. Additionally, we provided fleet management services for 103 jet aircraft. See “Item 2. Properties — Flight Equipment.” At December 31, 2005, we had committed to purchase 338 new and used aircraft deliverable through 2015 at an estimated aggregate purchase price of $23.3 billion, of which we currently anticipate taking delivery of 96 new aircraft in 2006 with an estimated aggregate purchase price of $6.0 billion. We also had options to purchase an additional 16 new aircraft at an estimated aggregate purchase price of $1.5 billion. The recorded basis of aircraft may be adjusted upon delivery to reflect notional credits provided by the manufacturers in connection with the leasing of aircraft. See “Item 2. Properties — Commitments.”

We maintain a mix of flight equipment to meet our customers’ needs; and to minimize the time that our aircraft are not leased to customers, we purchase those models of new and used aircraft which we believe will have the greatest airline demand and operational longevity.

We typically finance the purchase of aircraft with borrowed funds and internally generated cash flows. Management accesses the capital markets for funds at times and on terms and conditions considered appropriate. We may, but do not usually, engage in financing transactions for specific aircraft. We rely significantly on short- and medium-term financing, and thereby attempt to more closely match the lease terms of our aircraft. To date, we have been able to purchase aircraft on terms which have permitted us to lease our aircraft portfolio at a profit and have been able to obtain the necessary funding from the capital and bank markets.

The airline industry is cyclical, economically sensitive and highly competitive. See “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our continued success in the future is partly dependent on management’s ability to develop customer relationships for leasing, sales, remarketing and management services with airlines and other customers best able to maintain their economic viability and survive in the competitive environment in which they operate.

The Company is incorporated in the State of California and its principal offices are located at 10250 Constellation Blvd., Suite 3400, Los Angeles, California 90067. Our telephone number, telecopier number and website address are(310) 788-1999,(310) 788-1990, and www.ilfc.com, respectively. We make available our SEC EDGAR filings, free of charge, on our website or by written request to us. The information on our website is not part of or incorporated by reference into this report.

We are an indirect wholly owned subsidiary of American International Group, Inc. (“AIG”). AIG is a holding company which through its subsidiaries is engaged in a broad range of insurance and insurance-related activities in the United States and abroad. AIG’s primary activities include both general and life insurance operations. Other significant activities include financial services and retirement savings and asset management. The common stock of AIG is listed on, among others, the New York Stock Exchange.

Aircraft Leasing

We lease most of our aircraft under operating leases. The cost of the aircraft is not fully recovered over the term of the initial lease, and we retain the benefit as well as assume the risk of the residual value of the aircraft. In accordance with generally accepted accounting principles, rentals are reported ratably as revenue over the lease term, as they are earned. The aircraft under operating leases are included as “Flight equipment” on our Consolidated

1

Balance Sheets and are depreciated to an estimated salvage value over the estimated useful lives of the aircraft. On occasion we enter into finance and sales-type leases where the full cost of the aircraft is substantially recovered over the term of the lease. With respect to these leases, we record lease payments received as a reduction in the net investment in the finance/sales-type leases and interest income using an interest rate implicit in the lease. The aircraft under finance and sales-type leases are recorded on our Consolidated Balance Sheets in “Net investment in finance leases”. At December 31, 2005, we accounted for 746 aircraft as operating leases and 17 aircraft as finance and sales-types leases.

The initial term of our current leases range in length from one year to 17 years. See “Item 2.Properties — Flight Equipment” for information regarding scheduled lease terminations. We attempt to maintain a mix of short-, medium- and long-term leases to balance the benefits and risks associated with different lease terms and changing market conditions. Varying lease terms help to mitigate the effects of changes in prevailing market conditions at the time aircraft become eligible for re-lease or are sold.

All leases are on a “net” basis with the lessee responsible for all operating expenses, which customarily include fuel, crews, airport and navigation charges, taxes, licenses, registration and insurance. In addition, the lessee is responsible for normal maintenance and repairs, airframe and engine overhauls, and compliance with return conditions of flight equipment on lease. Under the provisions of many leases, for certain airframe and engine overhauls, we reimburse the lessee for costs incurred up to but not exceeding related hourly rentals the lessee has paid to us. Such rentals are included in the caption “Rental of flight equipment” in the Company’s Consolidated Statements of Income. We provide a charge to operations based on the estimated reimbursements during the life of the lease. This amount is included in “Provision for overhauls” in our Consolidated Statements of Income. We may, in connection with the lease of a used aircraft, agree to contribute to the cost of certain major overhauls or modifications depending on the condition of the aircraft at delivery.

The lessee is responsible for compliance with all applicable laws and regulations with respect to the aircraft. We require our lessees to comply with the standards of either the United States Federal Aviation Administration (the “FAA”) or its foreign equivalent. We periodically inspect our leased aircraft. Generally, we require a deposit as security for the lessee’s performance of obligations under the lease and the condition of the aircraft upon return. In addition, the leases contain extensive provisions regarding our remedies and rights in the event of a default by the lessee and specific provisions regarding the condition of the aircraft upon return of the aircraft. The lessee is required to continue to make lease payments under all circumstances, including periods during which the aircraft is not in operation due to maintenance or grounding.

Some foreign countries have currency and exchange laws regulating the international transfer of currencies. When necessary we require, as a condition to any foreign transaction, that the lessee or purchaser in a foreign country obtain the necessary approvals of the appropriate government agency, finance ministry or central bank for the remittance of all funds contractually owed in U.S. Dollars. We attempt to minimize our currency and exchange risks by negotiating most of our aircraft leases and all of our sales transactions in U.S. Dollars. All guarantees obtained to support various lease agreements are denominated for payment in the same currency as the lease.

To meet the needs of a growing number of airlines, some of our leases are negotiated in Euros. As the Euro to U.S. Dollar exchange rate fluctuates, airlines’ interest in entering into Euro denominated lease agreements will change. Once we agree to the rental payment currency with an airline, the negotiated currency remains for the term of the lease. We have hedged the majority of our future Euro denominated lease payments receivable cash flows. The economic risk arising from foreign currency has, to date, been immaterial to us.

Management obtains and reviews relevant business materials from all prospective lessees and purchasers before entering into a lease or extending credit. Under certain circumstances, the lessee may be required to obtain guarantees or other financial support from an acceptable financial institution or other third parties.

During the life of the lease, situations may arise whereby we will have to restructure leases with our lessees. Historically, restructurings have involved the voluntary termination of leases prior to lease expiration, the arrangement of subleases from the primary lessee to another airline and the rescheduling of lease payments and extension of the lease terms. In many situations where we repossess an aircraft, we export the aircraft from the lessee’s jurisdiction. In the majority of these situations, we have obtained the lessee’s cooperation and the return and

2

export of the aircraft was immediate. In some situations, however, the lessees have not fully cooperated in returning aircraft. In those cases we have had to take legal action in the appropriate jurisdictions. This process has delayed the ultimate return and export of the aircraft. In addition, in connection with the repossession of an aircraft, we may be required to pay outstanding mechanic’s, airport, navigation and other liens on the repossessed aircraft. These charges could relate to other aircraft that we do not own but were operated by the lessee.

Flight Equipment Marketing

We may dispose of our leased aircraft at or before the expiration of their leases. The buyers of our aircraft include the aircraft’s lessee, another aircraft operator, financial institutions, private investors and third party lessors. From time to time, we engage in transactions to buy aircraft for resale. In other cases, we assist our customers in acquiring or disposing of aircraft by providing consulting services and procurement of financing from third parties. Any gain or loss on disposition of leased aircraft is included in the caption “Flight equipment marketing” in our Consolidated Statements of Income. In 2003 and early 2004, we sold aircraft into securitization trusts which were primarily funded and owned by other subsidiaries of AIG and are consolidated by AIG. The transactions were structured as securitizations. The gains, net of expense, are included in “Flight equipment marketing — Securitization” in our Consolidated Statements of Income. See “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations”for more information on these transactions.

From time to time, we are engaged as an agent for airlines and various financial institutions in the disposition of their surplus aircraft on a fee basis. We generally act as an agent under an exclusive remarketing contract whereby we agree to sell aircraft on a commercially reasonable basis within a fixed time period. These activities generally augment our primary activities and also serve to promote relationships with prospective sellers and buyers of aircraft. We may, from time to time, participate with banks, other financial institutions and airlines to assist in financing aircraft purchased by others and by providing asset guarantees, put options, or loan guarantees collateralized by aircraft on a fee-basis.

We plan to continue to engage in providing marketing services to third parties on a selective basis involving specific situations where these activities will not conflict or compete with, but rather will complement, our leasing and selling activities.

Fleet Management Services

We provide fleet management services to third party operating lessors who are unable or unwilling to perform this service as part of their own operation. We typically provide the same services that we perform for our own fleet on a non-discriminatory basis. Specifically, we provide leasing, re-leasing and sales services on behalf of the lessor for which we charge a fee. In connection with the sales of aircraft to the trusts discussed above, we were retained to provide fleet management services for the aircraft sold for which we receive fees from the trusts. The fees for fleet management services are included in “Interest and other” in our Consolidated Statements of Income.

Financing/Source of Funds

We purchase new aircraft directly from manufacturers and used aircraft from airlines and other owners. The purchase price of flight equipment is financed using internally generated funds, secured and unsecured commercial bank financings and the issuance of commercial paper and public and private debt. See “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

3

Customers

At December 31, 2005, 2004 and 2003, we leased aircraft to customers in the following regions:

	Customers by Region
	2005					2004					2003
	Number					Number					Number
	of					of					of
Region	Customers		%			Customers		%			Customers		%
Europe		66		45.2	%		66		47.2	%		65		47.1	%
Asia and the Pacific		33		22.6			31		22.1			32		23.1
United States and Canada		24		16.5			19		13.6			20		14.5
Central and South America and Mexico		10		6.8			10		7.1			11		8.0
Africa and Middle East		13		8.9			14		10.0			10		7.3
		146		100	%		140		100	%		138		100	%

During 2005 and 2004, we had one customer that accounted for 10% or more of total Rental of flight equipment revenue, Air France ($364.6 million or 10.4% in 2005 and $309.5 million or 10.5% in 2004. No single customer accounted for more than 10% of total revenues in 2003).

Revenues include rentals of flight equipment to foreign airlines of $3,110,798,000 (2005), $2,662,182,000 (2004), and $2,497,085,000 (2003), comprising 88.9%, 90.1%, and 89.0%, respectively, of total Rentals of flight equipment revenue. See Note J ofNotes to Consolidated Financial Statements. Lease revenues from the rental of flight equipment have been reduced by payments received by our customers from the notional accounts established by the aircraft and engine manufacturers.

The following table sets forth the dollar amount and percentage of total rental revenues attributable to the indicated geographic areas based on each airline’s principal place of business for the years indicated:

	2005					2004					2003
	Amount		%			Amount		%			Amount		%
	(Dollars in thousands)
Europe	$	1,694,841		48.4	%	$	1,432,441		48.5	%	$	1,315,851		46.9	%
Asia and the Pacific		775,047		22.1			689,201		23.3			661,956		23.6
United States and Canada		482,157		13.8			382,090		12.9			424,457		15.0
Central and South America and Mexico		253,667		7.3			208,622		7.1			221,067		7.9
Africa and the Middle East		294,623		8.4			243,170		8.2			183,880		6.6
	$	3,500,335		100	%	$	2,955,524		100	%	$	2,807,211		100	%

The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue based on each airline’s principal place of business for the years indicated (2004 United States is shown for comparison):

	2005					2004					2003
	Amount		%			Amount		%			Amount		%
	(Dollars in thousands)
France	$	442,402		12.6	%	$	351,394		11.9	%	$	326,010		11.6	%
China		423,445		12.1			357,512		12.1			308,204		11.0
United States		389,536		11.1			236,353		8.0			310,126		11.0

Competition

The leasing, remarketing and sale of jet aircraft is highly competitive. We face competition from aircraft manufacturers, banks, financial institutions, other leasing companies, aircraft brokers and airlines. Competition for a leasing transaction is based on a number of factors including delivery dates, lease rates, term of lease, other lease

4

provisions, aircraft condition and the availability in the market place of the types of aircraft to meet the needs of the customer. We believe we are a strong competitor in all of these areas. However, past overcapacity in selected types of aircraft in the market place increased competition from other entities leasing aircraft which caused downward pressure on lease rates, lease revenue and aircraft values. Recently, the overcapacity of certain aircraft types has been absorbed in the market place, and we now see higher lease rates on newly signed leases on those aircraft types.

Government Regulation

The U.S. Department of State (“DOS”) and the U.S. Department of Transportation (“DOT”), including the FAA, an agency of the DOT, exercise regulatory authority over air transportation in the United States.

The DOS and DOT, in general, have jurisdiction over the economic regulation of air transportation, including the negotiation with foreign governments of the rights of U.S. carriers to fly to other countries and the rights of foreign carriers to fly to and within the United States. We are not directly subject to the regulatory jurisdiction of the DOS and DOT or their counterpart organizations in foreign countries related to the operation of aircraft for public transportation of passengers and property.

Our relationship with the FAA consists of the registration with the FAA of those aircraft which we have leased to U.S. carriers and to a number of foreign carriers where, by agreement, the aircraft are to be registered in the United States. When an aircraft is not on lease, we may obtain from the FAA, or its designated representatives, a U.S. Certificate of Airworthiness or a ferry flight permit for the particular aircraft.

Our involvement with the civil aviation authorities of foreign jurisdictions consists largely of requests to register and deregister our aircraft on those countries’ registries.

The U.S. Department of Commerce (“DOC”) exercises regulatory authority over exports. We are subject to the regulatory authority of the DOS and DOC as it relates to the export of aircraft for lease and sale to foreign entities and the export of parts to be installed on our aircraft. These Departments have, in some cases, required us to obtain export licenses for parts exported to foreign countries.

Through its regulations, DOC and the U.S. Department of Treasury (through its Office of Foreign Assets Control) impose restrictions on the operation of U.S. made goods such as aircraft and engines in sanctioned countries. In addition, they impose restrictions on the ability of U.S. companies to conduct business with entities in those countries.

The Patriot Act of 2001 gave the U.S. Secretary of State and the U.S. Secretary of the Treasury the authority to (a) designate individuals and organizations as terrorists and terrorist supporters and to freeze their U.S. assets and (b) prohibit financial transactions with U.S. persons, including U.S. individuals, entities and charitable organizations. We comply with the provisions of this Act and we closely monitor our activities with foreign entities.

A bureau of the U.S. Department of Homeland Security, U.S. Customs and Border Protection, enforces regulations related to the import of our aircraft into the United States for maintenance or lease and the importation of parts for installation on our aircraft. We monitor our imports and exports for compliance with U.S. Customs regulations.

Employees

We operate in a capital intensive rather than a labor intensive business. As of December 31, 2005, we had 160 full-time employees, which we considered adequate for our business operations. Management and administrative personnel will expand, as necessary, to meet our future growth needs. None of our employees is covered by a collective bargaining agreement and we believe that we maintain excellent employee relations. We provide certain employee benefits including retirement, health, life, disability and accident insurance plans, some of which are established and maintained by our parent, AIG.

Insurance

Our lessees are required to carry those types of insurance which are customary in the air transportation industry, including comprehensive liability insurance and aircraft hull insurance. In general, we are an additional insured on liability policies carried by the lessees. We obtain certificates of insurance from the lessees’ insurance brokers. All certificates of insurance contain a breach of warranty endorsement so that our interests are not prejudiced by any act or omission of the operator-lessee.

Insurance premiums are paid by the lessee, with coverage acknowledged by the broker or carrier. The territorial coverage is, in each case, suitable for the lessee’s area of operations. The certificates of insurance contain, among other provisions, a “noco-insurance” clause and a provision prohibiting cancellation or material change without at least

5

30 days advance written notice to the insurance broker, who is obligated to give us prompt notice. Hull/war insurance policies customarily provide seven days advance written notice for cancellation and may be subject to lesser notice under certain market conditions. Furthermore, the insurance is primary and not contributory, and all insurance carriers are required to waive rights of subrogation against us.

The stipulated loss value schedule under aircraft hull insurance policies is on an agreed value basis acceptable to us and usually exceeds the book value of the aircraft. In cases where we believe that the agreed value stated in the lease is not sufficient, we purchase additional Total Loss Only coverage for the deficiency. Aircraft hull policies contain standard clauses covering aircraft engines. The lessee is required to pay all deductibles. Furthermore, the aircraft hull policies contain full war risk endorsements, including, but not limited to, confiscation (where available), seizure, hijacking and similar forms of retention or terrorist acts. Lease agreements generally require liability limits to be in U.S. Dollars, which are shown on the certificate of insurance.

The comprehensive liability insurance listed on certificates of insurance include provisions for bodily injury, property damage, passenger liability, cargo liability and such other provisions reasonably necessary in commercial passenger and cargo airline operations. Such certificates of insurance list combined comprehensive single liability limits of not less than $250 million. As a result of the terrorist attacks on September 11, 2001, the insurance market unilaterally imposed a sublimit on each operator’s policy for third party war risk liability in the amount of $50 million. We require each lessee to purchase higher limits of third party war risk liability or obtain an indemnity from their government. Additionally, we purchase contingent liability insurance and contingent hull insurance on all aircraft in our fleet. In late 2005 the international aviation insurance market unilaterally introduced exclusions for physical damage to aircraft hulls caused by dirty bombs, bio-hazardous materials and electromagnetic pulsing. It is anticipated that exclusions for the same type of perils will be introduced into liability policies within the next twelve months as well. Our lease agreements require the airlines to obtain the broadest available write-back when it becomes available.

We also maintain other insurance covering the specific needs of our business operations. Insurance policies are generally placed or reinsured through AIG subsidiaries. AIG charges us directly for these insurance costs. We believe that our insurance is adequate both as to coverage and amount.

Forward-Looking Statements

This annual report onForm 10-K contains or incorporates statements that constitute forward-looking statements. Those statements appear in a number of places in thisForm 10-K and include statements regarding, among other matters, the state of the airline industry, our access to the capital markets, our ability to restructure leases and repossess aircraft, the structure of our leases, regulatory matters pertaining to compliance with governmental regulations and other factors affecting our financial condition or results of operations. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and “should” and variations of these words and similar expressions, are used in many cases to identify these forward-looking statements. Any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to vary materially from our future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. Such factors include, among others, general industry economic and business conditions, which will, among other things, affect demand for aircraft, availability and creditworthiness of current and prospective lessees, lease rates, availability and cost of financing and operating expenses, governmental actions and initiatives and environmental and safety requirements. We will not update any forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information.

6

Item 1A.  Risk Factors

Risk Factors Affecting International Lease Finance Corporation

Our business is subject to numerous risks and uncertainties, as described below and in the section titled “Item 7A.Quantitative and Qualitative Disclosures about Market Risk”.

Overall Airline Industry Risk

We operate as a supplier and financier to airlines. The risks affecting our airline customers are generally out of our control and impact our customers to varying degrees. As a result, we are indirectly impacted by all the risks facing airlines today. Our ability to succeed is dependent on the financial strength of our customers and their ability to compete effectively in the market place and manage these risks has a direct impact on us. These risks include:

•  Demand for air travel

•  Competition between carriers

•  Fuel prices and availability

•  Labor costs and stoppages

•  Maintenance costs

•  Employee labor contracts

•  Air traffic control infrastructure constraints

•  Airport access

•  Insurance costs and coverage

•  Security, terrorism and war

•  Worldwide health concerns

•  Equity and borrowing capacity

•  Environmental concerns

•  Government regulation

•  Interest rates

•  Overcapacity

To the extent that our customers are affected by these risk factors, we may experience:

•  a downward pressure on demand for the aircraft in our fleet and reduced market lease rates and lease margins;

•  a higher incident of lessee defaults, lease restructurings and repossessions resulting in lower lease margins due to maintenance, consulting and legal costs associated with the repossession, as well as lost revenue for the time the aircraft are off lease and possibly lower lease rates from the new lessees;

•  a higher incident of situations where we engage in restructuring lease rates for our troubled customers which reduces overall lease margins; and

•  an inability to immediately place new and used aircraft when they become available through our purchase commitments and regular lease terminations on commercially acceptable terms, resulting in lower lease margins due to aircraft not earning revenue and resulting in storage, insurance and maintenance costs.

•  a loss if our aircraft is damaged or destroyed by an event specifically excluded from the insurance policy such as dirty bombs, bio-hazardous materials and electromagnetic pulsing.

Airframe, Engine and Other Manufacturer Risks

The supply of jet transport aircraft, which we purchase and lease, is dominated by two airframe manufacturers, Boeing and Airbus, and a limited number of engine manufacturers. As a result, we are dependent on the manufacturers’ success in remaining financially stable, producing aircraft and related components which meet the airlines’ demands, both in type and quantity and fulfilling their contractual obligations to us. Further, competition between the manufacturers for market share is escalating and may cause instances of deep discounting for certain aircraft types and may negatively impact our competitive pricing. Should the manufacturers fail to respond appropriately to changes in the market environment or fail to fulfill their contractual obligations, we may experience:

•  missed or late delivery of aircraft ordered by us and an inability to meet our contractual obligations to our customers, resulting in lost or delayed revenues, lower growth rates and strained customer relationships;

7

•  an inability to acquire aircraft and related components on terms which will allow us to lease those aircraft to customers at a profit, resulting in lower growth rates or a contraction in our fleet;

•  a market place with too many aircraft available, creating downward pressure on demand for the aircraft in our fleet and reduced market lease rates;

•  poor customer support from the manufacturers of aircraft and components resulting in reduced demand for a particular manufacturer’s product, creating downward pressure on demand for those aircraft in our fleet and reduced market lease rates for those aircraft; and

•  reduction in our competitiveness due to deep discounting by the manufacturers, which may lead to reduced market lease rates and may impact our ability to remarket or sell some of the aircraft in our fleet.

Borrowing Risks

Liquidity — We are heavily dependent on our ability to borrow the necessary funds to finance the purchase of aircraft and to have sufficient funds to repay our existing debt obligations. Our liquidity is dependent on having continued access to debt markets and maintaining our credit ratings. We manage this risk by maintaining access to many debt markets throughout the world. With insufficient liquidity we could potentially experience:

•  an inability to acquire aircraft, for which we have signed contracts, resulting in lower growth, lost revenue and strained manufacturer and customer relationships; and

•  an inability to meet our debt maturities as they become due, resulting in payment defaults, non-compliance with debt covenants, reduced credit ratings and an inability to access certain debt markets.

Interest Rate Risks — We are impacted by fluctuations in interest rates. Our lease rates are generally fixed over the life of the lease. Changes, both increases and decreases, in our cost of borrowing, as reflected in our composite interest rate, directly impact our lease margin. We manage the interest rate volatility and uncertainty by maintaining a balance between fixed and floating rate debt, through derivative instruments and through matching debt maturities with lease maturities.

Other Risks

Residual Value — We bear the risk of re-leasing or selling the aircraft in our fleet that are subject to operating leases at the end of their lease terms. If demand for aircraft decreases, our average fleet age may increase because of an inability to sell aircraft, and market lease rates may decrease. Should this condition continue for an extended period, it could affect the market value of aircraft in our fleet and may result in impairment charges in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS 144”). See “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Polices and Estimates — Flight Equipment.”

Obsolescence Risk — Aircraft arelong-lived assets requiring long lead times to develop and manufacture. As a result, aircraft of a particular model and type tend to become obsolete and less in demand over time, when newer more advanced and efficient aircraft are manufactured. This life cycle, however, can be shortened by world events, government regulation or customer preferences. As aircraft in our fleet approach obsolescence, demand for that particular model and type will decrease. This may result in lease margins compressing or may result in impairment charges in accordance with SFAS 144.

Key Personnel — Our future success is dependent upon, among other things, the retention of our executive management team. There can be no assurance that we will be able to retain our executive officers and other key employees. The loss of the services of any of our executive officers or key employees could disrupt our operations.

Foreign currency exchange rate risk — We negotiate some of our leases in Euros to meet the demands of a growing number of airlines. If the Euro exchange rate to the U.S. Dollar deteriorates, as it did during 2004, we will record less lease revenue on those lease payments that are not hedged.

Relationship with AIG — While neither AIG nor any of its subsidiaries is a co-obligor or guarantor of our debt securities, circumstances affecting AIG can have an impact on us. For example, concurrent with ratings actions taken by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”), Moody’s Investors Service,

8

Inc. (“Moody’s”) and Fitch, Inc. (“Fitch”) with respect to AIG in 2005, the following ratings actions were taken or statements were made with respect to our ratings: (i) S&P retained our long-term debt rating at AA- on Negative Long Term Rating Outlook and our short-term rating atA-1+, (ii) Moody’s affirmed our(A1/Stable/P-1) rating with a Stable outlook and (iii) Fitch lowered our long-term rating to A+ and short-term rating to F-1 and continues to have us on Rating Watch Negative. Accordingly, we can give no assurance how further changes in circumstances related to AIG would impact us.

Item 1B.  Unresolved Staff Comments

None

Item 2.  Properties

Flight Equipment

Management frequently reviews opportunities to acquire suitable commercial jet aircraft based not only on market demand and customer airline requirements, but also on our fleet portfolio mix criteria and leasing strategies. Before committing to purchase specific aircraft, management takes into consideration factors such as estimates of future values, potential for remarketing, trends in supply and demand for the particular type, make and model of aircraft and engines, and anticipated obsolescence. As a result, certain types and vintages of aircraft do not necessarily fit the profile for inclusion in our portfolio of aircraft owned and used in our leasing operations.

At December 31, 2005, all of our fleet was Stage III compliant. This means that the aircraft hold or are capable of holding a noise certificate issued under Chapter 3 of Volume 1, Part II of Annex 16 of the Chicago Convention or have been shown to comply with the Stage III noise levels set out in Section 36.5 of Appendix C of Part 36 of the Federal Aviation Regulations of the United States. At December 31, 2005, the average age of aircraft in our fleet was 5.62 years.

The following table shows the scheduled lease terminations (for the minimum noncancelable period) by aircraft type for our operating lease portfolio at December 31, 2005:

Aircraft Type	2006		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		2021		Total
737-300/ 400/500		8		11		25		9						4																				57
737-600/ 700/800		10		19		14		4		11		29		21		13		1		7		1				9		2		2		1		144
757-200		3		25		11		15		9										1														64
767-200						2				1																								3
767-300		8		15		16		6		1		2		4		1																		53
777-200				5		4		2		3		5		8		6																		33
777-300				2		1				3		6		1										4										17
747-300								1		1																								2
747-400						4		7		1		4		1																				17
MD-82/83		1																																1
MD-11				1		3		3		1																								8
A300-600R		1		2		2				1																								6
A310		1		1		5																												7
A319		1		4		10		10		4		2		3		10		10		8		6		18										86
A320		3		9		17		20		14		9		13		8		6		1		6												106
A321		4		8		3		18		6		6				4		2						2										53
A330-200				5		11		13		6		2		5		6		2																50
A330-300		1		4				2		1		4		3																				15
A340-300		2		8		1		2						2																				15
A340-600				2		1										1				2		1		2										9
Total		43		121		130		112		63		69		65		49		21		19		14		26		9		2		2		1		746

As of March 10, 2006, leases covering 36 of the 43 aircraft with lease expiration dates in 2006 had been extended or leased to other customers.

9

Commitments

At December 31, 2005, we had committed to purchase the following new and used aircraft at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $23.3 billion for delivery as shown below. The recorded basis of aircraft may be adjusted upon delivery to reflect notional credits given by the manufacturers in connection with the leasing of aircraft.

Aircraft Type	2006		2007		2008		2009		2010		2011		2012		2013		2014		2015		Total
737-600/700/800(a)		24		24		21																69
747-400(b)		2																				2
777-200ER		6		3																		9
777-300ER		5		7		3																15
787-800										10		10										20
A319-100(a)		21		16		14		10														61
A320-200(a)		19		17		22		13														71
A321-200(a)		10		6		10		5														31
A330-200/300(a)		8		9		7		4														28
A340-600		3		1		2																6
A350-800														2		6		4		4		16
A380-800				2		3		3		2												10
Total		98		85		82		35		12		10		2		6		4		4		338

(a)  We have the right to designate the size of the aircraft within the specific model type at specific dates prior to contractual delivery.

(b)  We are acquiring the aircraft used and they are committed to sale.

At December 31, 2005, we had options to purchase the following new aircraft at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $1.5 billion for delivery as shown below. The recorded basis of aircraft may be adjusted upon delivery to reflect notional credits given by the manufacturers in connection with the leasing of aircraft.

Aircraft Type	2007		2008		2009		Thereafter		Total
737-700/800(a)		3				6				9
777-200ER/300ER(a)						3				3
787-800								4		4
Total		3		0		9		4		16

(a)  We have the right to designate the size of the aircraft within the specific model type at specific dates prior to contractual delivery.

We anticipate that a significant portion of the aggregate purchase price will be funded by incurring additional debt. The exact amount of the indebtedness to be incurred will depend, in part, upon the actual purchase price of the aircraft, which can vary due to a number of factors, including inflation. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The new aircraft listed above are being purchased pursuant to master agreements with each of Boeing and Airbus. These agreements establish the pricing formulas (which include certain price adjustments based upon inflation and other factors) and various other terms with respect to the purchase of aircraft. Under certain circumstances, we have the right to alter the mix of aircraft type ultimately acquired. As of December 31, 2005, we had madenon-refundable deposits (exclusive of capitalized interest) with respect to the aircraft which we have committed to purchase of approximately $421.2 million with Boeing and $548.3 million with Airbus.

Under arrangements with manufacturers, in certain circumstances the manufacturers establish notional accounts for our benefit, to which amounts are credited by the manufacturers in connection with the purchase by and delivery to us and the lease of aircraft. Amounts credited to the notional accounts are used at our direction to protect us from certain events, including loss when airline customers default on lease payment obligations, to provide lease subsidies and other incentives to our airline customers in connection with leases of certain aircraft and

10

to reduce our cost of aircraft purchased. The amounts credited are recorded as a reduction in flight equipment under operating leases.

As of March 10, 2006, we had entered into contracts for the lease of new aircraft scheduled to be delivered through 2010 as follows:

	Number of		Number
Delivery Year	Aircraft		Leased		% Leased
2006		96		96		100	%
2007		85		65		76	%
2008		82		11		13	%
Thereafter		73		0		0	%

We will need to find customers for aircraft presently on order and not subject to contract and any new aircraft ordered, and we will need to arrange financing for portions of the purchase price of such equipment. Although we have been successful to date in placing new aircraft on lease and have been able to obtain adequate financing in the past, there can be no assurance as to the future continued availability of lessees or of sufficient amounts of financing on acceptable terms.

Facilities

Our principal offices are located at 10250 Constellation Blvd., Suite 3400, Los Angeles, California. We occupy space under a lease which expires in 2015. As of March 10, 2006, we occupied approximately 127,000 square feet of office space. The lease provides for annual rentals of approximately $9 million, and the rental payments thereunder are subject to certain indexed escalation provisions.

Item 3.  Legal Proceedings

In connection with the January 3, 2004 crash of our737-300 aircraft on lease to Flash Airlines in Egypt, lawsuits were filed by the families of 124 of the 148 victims on the flight against us, Boeing, Honeywell International Inc., and Parker-Hannifin Corporation in the Court of First Instance at Bobigny in France. These plaintiffs have also sued Flash Airlines and its insurer in the same French court. In addition, lawsuits have been filed by the families of two of the victims on the flight against us, Ozark Aircraft Systems LLC and several individuals (including one ILFC employee) in the U.S. District Court for the Western District of Arkansas. We believe we are adequately covered in all of these cases by the liability insurance policies carried by Flash Airlines and we have substantial defenses to the actions. We do not believe the outcome of these lawsuits will have a material effect on our liquidity, financial condition or results of operations.

Between December 2001 and March 2003, we restructured the ownership of aircraft in certain lease transactions in Australia. The Australian Tax Office (“ATO”) has investigated how the goods and services tax laws of Australia (“GST”) relate to these transactions. In September 2004, we filed a Summons in the Supreme Court of New South Wales seeking declaratory relief affirming our positions on the technical GST aspects of the restructurings. In April 2005, the ATO issued their final compliance report and assessments against both ILFC Australia (“ILFCA”) and Interlease Aircraft Trading (“IATC”), both wholly owned subsidiaries of ILFC and parties to the restructuring. The assessments were made for the full tax credits claimed, including penalties and interest against both parties. Our request for declaratory relief was dismissed as a result of the assessments issued. In November 2005, our appeal of the dismissal was denied. Management believes that there are substantial arguments in support of our position and we have appealed the assessments. In January 2006, the ATO began recovery proceedings against ILFCA to collect the outstanding assessments, and we have initiated activities to stay the recovery proceeding and settle the matter. In March 2006, we reached an agreement in principle to settle all outstanding matters with the ATO. The settlement approximates amounts accrued as of December 31, 2005.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company is an indirect wholly owned subsidiary of AIG and the Company’s common stock is not listed on any national exchange or traded in any established market. We paid cash dividends to our parent company of $37.0 million (2005), $35.5 million (2004), and $49.0 million (2003). It is our intention to pay our parent company

11

an annual dividend of at least 7% of net income subject to the dividend preference of any preferred stock outstanding. Under the most restrictive provisions of our borrowing arrangements, consolidated retained earnings at December 31, 2005 in the amount of approximately $2.0 billion were unrestricted as to the payment of dividends.

On August 11, 2005, we issued 3,069,604 shares of common stock to AIG subsidiaries for approximately $400 million. This sale was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933 contained in section 4(2) of that Act.

Item 6. Selected Financial Data

The following table summarizes selected consolidated financial data and certain operating information of the Company. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and notes thereto and “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in thisForm 10-K.

	Years Ended December 31,
	2005		2004		2003		2002		2001
	(Dollar amounts in thousands)
Operating Data:
Rentals of flight equipment	$	3,500,335	$	2,955,524	$	2,807,211	$	2,546,142	$	2,411,576
Flight equipment marketing		66,790		77,664		28,988		48,454		31,840
Flight equipment marketing — securitization		—		32,854		23,245		—		—
Interest and other income		61,426		93,844		17,907		64,655		108,809
Total revenues		3,628,551		3,159,886		2,877,351		2,659,251		2,552,225
Expenses		2,978,145		2,491,779		2,236,545		2,037,784		1,859,054
Income before income taxes and cumulative effect of accounting change		650,406		668,107		640,806		621,467		693,171
Net income		422,960		462,006		435,481		417,406		471,058
Lease margin(a)(b)		16.89%		18.22%		20.32%		19.96%		22.91%
Profit margin(b)(c)		17.92%		21.14%		22.27%		23.37%		27.16%
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends(d):		1.48x		1.62x		1.58x		1.55x		1.65x
Balance Sheet Data:
Flight equipment under operating leases (net of accumulated depreciation)	$	34,748,932	$	30,505,422	$	28,190,689	$	24,864,055	$	20,613,524
Net investment in finance andsales-type leases		308,471		307,466		303,373		150,611		142,013
Total assets		37,529,871		34,007,900		31,291,562		27,148,615		22,940,830
Total debt		26,104,165		23,175,596		21,852,743		18,977,268		15,826,296
Shareholders’ equity		6,182,487		5,329,937		4,856,504		4,414,071		3,889,916
Other Data:
Aircraft lease portfolio at period end(e):
Owned		746		667		611		543		453
Leased in		—		—		—		13		18
Subject to finance and sales-type leases		17		9		9		5		4
Aircraft sold or remarketed during the period		29		49		39		8		7

See notes on following page

12

(a)	Lease margin is a non-GAAP measure. It is defined as “Rentals of flight equipment” less “Expenses”, adjusted for expenses related to variable interest entities and other expenses we consider not related to our core business operations, divided by “Rentals of flight equipment”. (See “Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”)
(b)	Includes the unrealized gain (loss) attributable to economic hedges not qualifying for hedge accounting treatment under SFAS 133. This will increase the inter-period volatility in the operating and lease margin percentages.
(c)	“Income before income taxes and cumulative effect of accounting change” divided by “Total revenues”.

 (d) See Exhibit 12.

 (e) See “Item 2.Properties — Flight Equipment.”

13

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview and Industry Condition

ILFC primarily acquires new jet transport aircraft from Boeing and Airbus and leases these aircraft to airlines throughout the world. In addition to our leasing activity, we sell aircraft from our leased aircraft fleet to other leasing companies, financial services companies and airlines. In some cases, we provide fleet management services to investors and/or, owners of aircraft portfolios for a management fee. We have also provided asset value guarantees and loan guarantees to buyers of aircraft or to financial institutions for a fee. We also remarket and sell aircraft owned or managed by others for a fee.

As of December 31, 2005, we owned 746 aircraft, had 17 aircraft in the fleet that were classified as finance leases, and provided fleet management services for 103 aircraft. We have contracted with Airbus and Boeing to buy 336 new aircraft for delivery through 2015 with an estimated purchase price of $23.3 billion, 96 of which will deliver during 2006. The recorded basis of aircraft may be adjusted to reflect notional credits provided by the manufacturers to support the leasing of aircraft.

Our sources of revenue are principally from scheduled and charter airlines and companies associated with the airline industry. The airline industry is cyclical, economically sensitive and highly competitive. Airlines and related companies may be affected by political or economic instability, terrorist activities, changes in national policy, competitive pressures on certain air carriers, fuel prices and shortages, labor stoppages, insurance costs, recessions, and other political or economic events adversely affecting world or regional trading markets. Our revenues and income will be affected by our customers’ ability to react to and cope with the volatile competitive environment in which they operate, as well as our own competitive environment.

Despite rising fuel prices which significantly impacted the airline industry during 2004 and 2005, overall airline industry trends showed continued improvement, particularly outside the United States. As a result, starting in 2004, and continuing in 2005, we saw an increase in demand for newer, modern, fuel efficient aircraft that comprise the bulk of our fleet, and an overall strengthening of lease rates. Although lease rates strengthened during 2004 and 2005, there is a lag between changes in market conditions and their impact on our results, as contracts signed during times of lower lease rates are still in effect, including a number of new aircraft that delivered in 2004 and 2005. Therefore, the improvement in the airline industry has yet to be completely reflected in our financial performance. We believe we are well positioned in the current industry environment with signed lease agreements for all of our 2006 deliveries of new aircraft as of December 31, 2005, and placement of 76% of our 2007 new aircraft deliveries as of March 10, 2006. During 2005, we sold aircraft from our lease portfolio to six repeat buyers of our aircraft as well as to three new buyers. As well, we experienced an increasing level of interest from third party investors and debt providers regarding the purchase of aircraft from our fleet.

Our primary source of revenue is from operating leases. One measure of profitability we use is a ratio called Lease Margin, (see “Item 7.Management’s Discussion and Analysis — Non-GAAP Financial Measures”). Our lease margin decreased 1.3% for the year ended December 31, 2005 compared to the same period in 2004. The primary reasons for the decline are (i) increasing interest rates are starting to affect our margins and (ii) an increase in the overhaul provision rate. In addition, increased lease rates have yet to fully materialize in our revenue. Our average composite borrowing rate for the year increased 0.22% to 4.66% compared to the same period in 2004. Increasing interest rates, along with other risk factors, may impact our future results. (See “Item 1A.Risk Factors”.)

We have received tax benefits under the Foreign Sales Corporation (“FSC”) law and its successor regime, the Extraterritorial Income Act (“ETI”). In October 2004, Congress passed a bill, the American Jobs Creation Act of 2004, repealing the corporate export tax benefits under the ETI, after the World Trade Organization (“WTO”) ruled the export subsidies were illegal. Under the bill, ETI export tax benefits for corporations will be phased out in 2006 and cease to exist for the year 2007. On January 26, 2006, the WTO ruled the American Jobs Creation Act fails to fully implement the recommendations from the Dispute Settlement Body as long as it includes transitional and grandfathering measures. We expect our effective tax rate to rise to a rate consistent with the “expected” statutory rate as these benefits cease to exist.

During 2005, we derived 88.9% of our revenues from airlines outside of the United States, as compared with 90.1% in 2004 and 89.0% in 2003. A key factor in our success has been a concentrated effort to maximize our lease

14

placements in regions that are strengthening, such as in Asia, Europe and the Middle East, and to minimize placements in regions that are under stress, such as the United States. We have no aircraft on lease to United Airlines, Delta, or Northwest Airlines.

Revenues from rentals of flight equipment for the year ended December 31, 2005 include $105.2 million of revenue from lessees that are presently under bankruptcy protection. To date there has been no indication, other than as discussed below, that they will cease operations. If the lessees default on the leases, we would have to remarket those aircraft and may incur costs related to re-leasing those aircraft.

On June 17, 2005, one of our customers, Varig S.A. (lessee of eleven aircraft) filed for bankruptcy protection under Brazilian Bankruptcy Law. The airline is still operating and the eleven aircraft remained on lease to Varig S.A. at December 31, 2005. Varig S.A. is currently meeting all rental obligations under the leases. In 2005, we took a charge in the amount of $6.7 million related to receivables of restructured rents from Varig S.A. The charge is included in Selling, general and administrative on the December 31, 2005 Consolidated Statement of Income.

One of our customers, Independence Air, Inc. (lessee of eight aircraft) filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on November 7, 2005, and ceased operations in January 2006. All aircraft previously leased to Independence Air Inc. were subsequently leased to other airlines.

On March 7, 2006, Airbus announced that it had decided to phase out its A300s and A310s final assembly. At December 31, 2005, we had seven A310-300s and six A300-600Rs in our fleet, all of which were leased to airlines. We believe that the market place had already reflected this event and we have considered the event in our most recent impairment analysis. The analysis did not result in an impairment charge.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue, depreciation, overhaul reserves, and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

We believe the following are our critical accounting policies, some of which require significant judgments and estimates, used in the preparation of the consolidated financial statements.

Lease Revenue: As lessor, we lease flight equipment principally under operating leases and report rental income ratably over the life of the lease. The difference between the rental income recorded and the cash received under the provisions of the lease is included in “Accrued interest, other receivables and other assets” on our Consolidated Balance Sheets.Past-due rentals are recognized on the basis of management’s assessment of collectibility. In certain cases, leases provide for additional rentals based on usage. The usage may be calculated based on hourly usage or on the number of cycles operated, depending on the lease contract. A cycle is defined as onetake-off and landing. The usage is typically reported monthly by the lessee. Rentals received, but unearned under the lease agreements, are recorded in “Rentals received in advance” on our Consolidated Balance Sheets until earned. Lease revenues from the rental of flight equipment have been reduced by payments received directly by us or by our customers from the aircraft and engine manufacturers.

Costs related to reconfiguration of aircraft cabins and other lessee specific modifications are capitalized and amortized over the life of the lease.

Flight Equipment Marketing: We market flight equipment and recognize gains and losses when leased equipment is sold and the risk of ownership of the equipment is passed to the new owner. We also engage in marketing aircraft on behalf of independent third parties. We recognize revenue for these transactions when services are rendered and an obligation to pay exists in accordance with the contract. The portion of sales proceeds as a result

15

of payments made to buyers directly by the aircraft manufacturers are not included in marketing revenue but are recorded as a reduction to the overall basis of the flight equipment.

Flight Equipment: Flight equipment under operating leases is stated at cost. Purchases, major additions and modifications and capitalized interest are capitalized. Normal maintenance and repairs, airframe and engine overhauls and compliance with return conditions of flight equipment returned from lease are provided for and paid for by the lessee. Generally, aircraft, including aircraft acquired under capital leases, are depreciated using the straight line method over a 25 year life from the date of manufacture to a 15% residual value. Because of the significant cost of aircraft carried in “Flight equipment under operating leases” in our Consolidated Balance Sheets, any change in the assumption of useful life or residual values for all aircraft could have a significant impact on our results of operations.

Under arrangements with the manufacturers, in certain circumstances the manufacturers establish notional accounts for our benefit, to which amounts are credited by them in connection with the purchase by and delivery to us and the lease of aircraft. Amounts credited to the notional accounts are used at our direction to protect us from certain events, including loss when airline customers default on lease payment obligations, to provide lease subsidies and other incentives to our airline customers in connection with leases of certain aircraft and to reduce our cost of aircraft purchased. The amounts credited to the notional accounts are recorded as a reduction to the basis of aircraft purchased at the time the amounts are available to us. Since cost is reduced, future depreciation is also reduced.

Out of production aircraft types are depreciated using the straight line method over a 25 year life from the date of manufacture to an established residual value for each aircraft type.

At the time assets are retired or sold, the cost and accumulated depreciation are removed from the related accounts and the difference, net of proceeds, is recorded as a gain or loss.

Management is very active in the airline industry and reviews issues affecting our fleet on a quarterly basis, including events and circumstances that may affect impairment of aircraft values (e.g. residual value, useful life and current and future revenue generating capacity). Management evaluates aircraft in the fleet, as necessary, based on these events and circumstances in accordance with SFAS 144. SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These evaluations for impairment are significantly impacted by estimates of future revenues and other factors which involve some amount of uncertainty. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Estimated cash flows consist of current contractual lease rates, future projected lease rates and estimated scrap values for each aircraft. The factors considered in estimating the undiscounted cash flows may change in future periods due to changes in contracted lease rates, economic conditions, technology, airline demand for a particular aircraft type and many of the risk factors discussed in Item 1A.“Risk Factors.” We have, to date, not recorded any impairment charges related to aircraft.

Capitalized Interest: We borrow funds to finance progress payments for the construction of flight equipment ordered. We capitalize interest incurred on such borrowings. This amount is calculated using our composite borrowing rate (see ‘‘Financial Condition” below) and is included in the cost of the flight equipment. Any change in our composite borrowing rate will change future amount capitalized.

Provision for Overhauls: Under the provisions of many leases, we receive overhaul rentals based on the usage of the aircraft. For certain airframe and engine overhauls, the lessee is reimbursed for costs incurred up to, but not exceeding, related overhaul rentals paid by the lessee for usage of the aircraft.

Overhaul rentals are included under the caption “Rental of flight equipment” in our Consolidated Statements of Income. We provide a charge to operations for estimated future reimbursements at the time the overhaul rentals are paid by the lessee. The charge is based on overhaul rentals received and the estimated reimbursements during the life of the lease. The historical payout rate is subject to significant fluctuations. Using its judgment, management periodically evaluates the appropriateness of the reserve for these reimbursements and its reimbursement rate, and then adjusts the provision for overhauls accordingly. This evaluation requires significant judgment. If the

16

reimbursements are materially different than our estimates, there will be a material impact on our results of operations.

Derivative Financial Instruments: In the normal course of business we utilize derivative instruments to manage our exposure to interest rate risks and foreign currency risks. We account for derivative instruments in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended and interpreted (“SFAS 133”). Accounting for derivatives is very complex. All derivatives are recognized on the balance sheet at their fair value. We obtain the values on a quarterly basis from the counter party of the derivative contracts, a related party. When hedge treatment is achieved under SFAS 133, the changes in market 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 or a fair value 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. We use the “change in variable cash flows method” for calculation of hedges not considered to be perfectly effective. 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 asset or liability. The difference is the calculated ineffectiveness and is recorded in income.

Financial Condition

We borrow funds to purchase new and used flight equipment (see “Item 2.Properties — Commitments”), including funds for progress payments during aircraft construction, and to pay off maturing debt obligations. The funds are borrowed principally on an unsecured basis from various sources. During 2005, we borrowed $7.4 billion (excluding commercial paper) and $2.3 billion was provided by operating activities to meet our needs. As of December 31, 2005, we had committed to purchase 338 new and used aircraft from Boeing, Airbus and an airline at an estimated aggregate purchase price of approximately $23.3 billion for delivery through 2015, of which we currently anticipate taking delivery of 96 aircraft in 2006 with an estimated aggregate purchase price of $6.0 billion. We also hold options to purchase 16 additional new aircraft at an estimated aggregate purchase price of approximately $1.5 billion. The recorded basis of aircraft may be adjusted to reflect notional credits given by the manufacturers to support the leasing of aircraft. We currently expect to fund expenditures for aircraft and to meet liquidity needs from a combination of available cash balances, internally generated funds and financing arrangements. Our borrowing strategy will, over time, result in approximately 15% or less of our debt, excluding commercial paper, maturing in any one year. Management continues to explore new funding sources and ways to diversify our investor base. Our debt financing and capital lease obligations were comprised of the following at the following dates:

	December 31,			December 31,			December 31,
	2005			2004			2003
	(Dollars in thousands)
Public term debt with single maturities	$	13,813,700		$	11,544,575		$	10,663,275
Public medium-term notes with varying maturities		4,689,365			5,972,171			5,960,236
Capital lease obligations		—			39,580			143,254
Synthetic lease obligations					—			464,222
Bank term debt		4,014,573			2,973,525			3,070,120
Junior subordinated debt		1,000,000			—			—
Subtotal		23,517,638			20,529,851			20,301,107
Commercial paper		2,625,409			2,675,247			1,575,957
Less: Deferred debt discount		(38,882	)		(29,502	)		(24,321	)
Total debt financing	$	26,104,165		$	23,175,596		$	21,852,743
Composite interest rate		5.00%			4.34%			4.53%
Percentage of total debt at fixed rate		79.03%			66.21%			77.07%
Composite interest rate on fixed debt		5.03%			5.07%			5.29%
Bank prime rate		7.25%			5.25%			4.00%

17

The above amounts represent our anticipated settlement of our outstanding debt obligations. Certain adjustments required to present currently outstanding debt obligations have been recorded and presented separately on the face of the Consolidated Balance Sheets, including adjustments related to foreign currency and interest rate hedging activities. We have eliminated the currency exposure arising from foreign currency denominated notes by either hedging the notes through swaps or through the offset provided by operating lease receipts denominated in the related currency. Foreign currency denominated debt is translated into U.S. Dollars using exchange rates as of each balance sheet date. The foreign exchange adjustments for the foreign currency denominated debt at December 31 were $197.0 million (2005), $1,215.8 million (2004) and $839.7 million (2003). Composite interest rates and the percentage of total debt at fixed rates reflect the effect of derivative instruments.

Public Debt

The Company has the ability to borrow under various public debt financing arrangements as follows:

	Maximum			Sold as of		Sold as of
	Offering			December 31, 2005		March 10, 2006
	(Dollars in millions)
Registration statement dated December 20, 2002 (including $2.88 billion Medium-Term Note program and $1.0 billion Retail Medium-Term Note Program)	$	6,080	(a)	$	5,710	$	5,710
Registration statement dated December 28, 2004 (including $2.0 billion Medium-Term Note program)		7,045	(b)		2,950		3,250
Euro Medium-Term Note Programme dated May 2004(c)(d)		7,000			4,979		4,979

(a)  Includes $1.08 billion, which was incorporated into the registration statement from a prior registration statement, increasing the maximum offering from $5.0 billion to $6.08 billion.

(b)  Includes $2.045 billion, which was incorporated into the registration statement from a prior registration statement, increasing the maximum offering from $5.0 billion to $7.045 billion.

(c)  We have hedged the foreign currency risk of the notes through derivatives or through the offset provided by operating lease payments denominated in the related currency.

(d)  This is a perpetual program. As a bond issue matures, the principal amount of that bond becomes available for new issuances under the program.

Capital Lease Obligations

We had Export Credit Lease financings which provided ten year, amortizing loans in the form of capital lease obligations. The interest rate on 62.5% of the original financed amount was 6.55% and the interest rate on 22.5% of the original financed amount was fixed at rates varying between 6.18% and 6.89%. These two tranches were guaranteed by various European Export Credit agencies. We prepaid the remaining 15% of the original financed amount in 2000. At December 31, 2005, all capital lease obligations had matured.

Bank Term Debt

In January 1999, we entered into an Export Credit Facility, for up to a maximum of $4.3 billion, for aircraft delivered through 2001. We used the facility to fund 85% of each aircraft’s purchase price. The facility was guaranteed by various European Export Credit agencies. We financed 62 aircraft using $2.8 billion under this facility over ten years with interest rates from 5.753% to 5.898%. The debt is collateralized by a pledge of the shares of a subsidiary of ours which holds title to the aircraft financed under the facility. At December 31, 2005, $1.2 billion was outstanding under this facility.

From time to time we enter into funded bank financing agreements. As of December 31, 2005, we had a total of $1.4 billion outstanding, which have varying maturities through 2010. One tranche of one of the loans totaling

18

$410 million was funded in Japanese Yen and swapped to U.S. Dollars. The interest rates are LIBOR based with spreads ranging from .325% to 1.625% at December 31, 2005.

In May 2004, we entered into an Export Credit Facility for up to a maximum of $2.64 billion, to finance Airbus aircraft to be delivered in 2004 and 2005, subsequently extended through May 2006. The facility is used to fund 85% of each aircraft’s purchase price. This facility becomes available as the various European Export Credit agencies provides their guarantees for aircraft based on a six-month forward-looking calendar. The financing is for a ten-year fully amortizing loan per aircraft at an interest rate determined through a bid process. We have collateralized the debt by a pledge of the shares of a subsidiary which holds title to the aircraft financed under this facility. As of December 31, 2005, 23 aircraft were financed under this facility and $1.4 billion was outstanding.

In August 2004, we received a commitment for an Ex-Im Bank comprehensive guarantee in the amount of $1.68 billion to support the financing of up to 30 new Boeing aircraft. The delivery period initially extended from September 1, 2004 through August 31, 2005. We have extended the delivery period to August 31, 2006. As of December 31, 2005, we had not financed any aircraft under this facility.

Junior Subordinated Debt

In December of 2005, ILFC entered into two tranches of junior subordinated debt totaling $1.0 billion. Both mature on December 21, 2065, but each tranche has a different call option. The $600 million tranche has a call date of December 21, 2010 and the $400 million tranche has a call date of December 21, 2015. The note with the 2010 call date has a fixed interest rate of 5.90% for the first five years. The note with the 2015 call date has a fixed interest rate of 6.25% for the first ten years. Both tranches have interest rate adjustments if the call option is not exercised. The new interest rate is a floating quarterly reset rate based on the initial credit spread plus the highest of (i) 3 month LIBOR,(ii) 10-year constant maturity treasury and(iii) 30-year constant maturity treasury.

Commercial Paper

We currently have a $6.0 billion Commercial Paper Program. Under this program, we may borrow in minimum increments of $100,000 for periods from one day to 270 days. It is our intention to only sell commercial paper to a maximum amount of 75% of the total amount of the backup facilities available (see“Bank Commitments” below). The weighted average interest rate of the outstanding commercial paper was 4.17%, 2.34% and 1.07%, at December 31, 2005, 2004, and 2003, respectively.

Bank Commitments

During 2005, we had two $500 million, 180 day revolving credit agreements with banks, each with a one-year term out option. Both loans matured prior to December 31, 2005. As of December 31, 2005, we had committed revolving credit agreements with 30 banks aggregating $6.0 billion, including a $2.0 billion364-day tranche that expires in October of 2006, with a one-year term out option, a $2.0 billion five-year tranche that expires in October of 2009, and a $2.0 billion five-year tranche that expires in October of 2010. These revolving loans and lines of credit provide for interest rates that vary according to the pricing option in effect at the time of borrowing. Pricing options include prime, a range from .25% over LIBOR to 1.85% over LIBOR based upon utilization, or a rate determined by a competitive bid process with the banks. The revolving loans and lines of credit are subject to facility fees of up to .10% of amounts available. This financing is used as backup for our maturing debt and other obligations. We expect to replace or extend these credit agreements on or prior to their expiration dates. At December 31, 2005, we had not drawn on our revolving loans and lines of credit.

Other Variable Interest Entities

We have sold aircraft to entities owned by third parties and from time to time we have issued asset value guarantees or loan guarantees related to the aircraft sold. We have determined that ten such entities, each owning one aircraft, are Variable Interest Entities (“VIEs”) in which we are deemed the primary beneficiary. In accordance with Financial Accounting Standards Board Interpretations (“FIN”) No. 46R, “Consolidation of Variable Interest Entities” (“FIN46R”), we consolidate these entities. The assets and liabilities of these entities are presented separately on our Consolidated Balance Sheets. We do not control or own the assets, nor are we directly obligated for the liabilities of these entities. At adoption of FIN 46R in 2003 we recorded after-tax charges of $11.0 million

19

related to those entities and an additional $2.4 million related to sale-lease-back transactions as a cumulative effect of an accounting change. See Note H ofNotes to Consolidated Financial Statements.

We have contributed an aircraft to a joint venture (“JV”) that leases the aircraft to a third party. We have determined that the JV is a VIE, but we are not the primary beneficiary and we do not consolidate the entity. See Note D ofNotes to Consolidated Financial Statements.

We have not established any other unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries, entered into joint ventures or created other partnership arrangements with the limited purpose of leasing aircraft or facilitating borrowing arrangements.

Derivatives

In the normal course of business, we employ a variety of derivative products to manage our exposure to interest rates risks and foreign currency risks. We enter into derivative transactions only to economically hedge interest rate risk and currency risk and not to speculate on interest rates or currency fluctuations. These derivative products include interest rate swap agreements and currency swap agreements. At December 31, 2005, we had the following derivative contracts that did not qualify for hedge accounting under SFAS 133:

•  Contracts entered into with the intention of fixing the interest rate on part of our commercial paper program, and our bank term debt and interest rate and currency on our Euro denominated debt, which do not qualify because our documentation on how to calculate ineffectiveness was deemed insufficient.

•  A contract entered into with the intention to hedge the interest rate on our capital lease obligations, where the debt and the contract dates were slightly different and the hedge thereby fell outside of the hedge ineffectiveness range, as defined by SFAS 133.

•  One contract we obtained as a result of an exercise of a guarantee that has no hedged item.

When a derivative contract does not qualify for hedge treatment under SFAS 133, the changes in market values are recorded in income. The related mark to market gains reported in income for the year ended December 31, 2005 was $10.4 million.

When interest rate and foreign currency swaps are effective as accounting hedges under the technical requirements of SFAS 133, they offset the variability of expected future cash flows or changes in the fair values of assets and liabilities, both economically and for financial reporting purposes. We have historically used such instruments to effectively mitigate foreign currency and interest rate risks. The effect of our inability to apply hedge accounting for the swaps is that changes in their fair values must be recorded in earnings each reporting period. As a result, reported net income will be directly influenced by changes in interest rates and currency rates.

The counterparty to our derivative instruments is AIG Financial Products Corp. (“AIGFP”), a related party. The derivatives are subject to a bilateral security agreement which, in certain circumstances, may allow one party to the agreement to require the second party to the agreement to provide collateral. Failure of the instruments or counterparty to perform under the derivative contracts will have a material impact on our results of operations.

Common Stock

During the year ended December 31, 2005, we issued 3,069,604 shares of our common stock to an existing shareholder for approximately $400 million. AIG has no obligation to contribute additional equity.

Market Liquidity Risks

We are in compliance with all covenants or other requirements set forth in our credit agreements. Further, we do not have any rating downgrade triggers that would automatically accelerate the maturity dates of our debt. However, a downgrade in our credit rating could adversely affect our ability to borrow on, renew existing, or obtain access to new financing arrangements and would increase the cost of such financing arrangements. For example, a downgrade in credit rating could reduce our ability to issue commercial paper under our current program.

20

While we have been able to borrow the funds necessary to finance operations in the current market environment, turmoil in the airline industry or political environment could limit our ability to borrow funds from our current funding sources. Should this occur, we would seek alternative sources of funding, including securitizations and manufacturer’s financings, drawings upon our revolving loans and lines of credit facilities or seek additional short term borrowings. If we were unable to obtain sufficient funding, we could negotiate with manufacturers to defer deliveries of certain aircraft.

The following summarizes our contractual obligations at December 31, 2005 and the possible effect of such obligations on our liquidity and cashflows in future periods.

Existing Commitments

	Commitments Due by Year
	Total		2006		2007		2008		2009		2010		Thereafter
	(Dollars in thousands)
Medium Term and Long Term Debt	$	23,517,638	$	4,018,942	$	3,799,466	$	4,311,619	$	3,832,951	$	3,298,522	$	4,256,138
Commercial Paper		2,625,409		2,625,409		—		—		—		—		—
Interest Payments on Debt Outstanding(a)(b)		7,177,609		1,102,692		908,630		723,186		513,740		315,239		3,614,122
Operating Leases		94,027		8,635		8,952		9,303		9,594		9,969		47,574
Pension Obligations(c)		12,515		1,939		2,209		2,160		2,112		2,064		2,031
Tax Benefit Sharing Agreement Due to AIG		245,000		—		160,000		—		85,000		—		—
Purchase Commitments(d)		23,319,600		6,037,100		5,599,400		4,924,100		2,134,200		1,641,200		2,983,600
Total	$	56,991,798	$	13,794,717	$	10,478,657	$	9,970,368	$	6,577,597	$	5,266,994	$	10,903,465

Contingent Commitments

	Contingency Expiration by Year
	Total		2006		2007		2008		2009		2010		Thereafter
	(Dollars in thousands)
Purchase Options on New Aircraft(d)	$	1,539,700	$	—	$	131,400	$	—	$	867,900	$	—	$	540,400
Put Options(e)		343,550		—		—		—		—		—		343,550
Asset Value Guarantees(e)		58,889		2,626		5,341		8,178		—		—		42,744
Loan Guarantees(e)		87,676		48,444		—		—		—		—		39,232
Lines of Credit		50,000		—		—		—		—		—		50,000
Total	$	2,079,815	$	51,070	$	136,741	$	8,178	$	867,900	$	—	$	1,015,926

(a)  Future interest payments on floating rate debt are estimated using floating interest rates in effect at December 31, 2005

(b)  Includes the effect of interest rate derivative instruments.

(c)  Our pension obligations are a part of intercompany expenses, which AIG allocates to us on an annual basis. The amount is an estimate of such allocation. The column “Thereafter” consists of the 2011 estimated allocation. The amount allocated has not been material to date.

(d)  The recorded basis of aircraft may be adjusted to reflect notional credits provided by the manufacturers in connection with the leasing of aircraft.

(e)  From time to time we participate with airlines, banks, and other financial institutions to assist in financing aircraft by providing asset guarantees, put options or loan guarantees collateralized by aircraft. As a result,

21

should we be called upon to fulfill our obligations, we would have recourse to the value of the underlying aircraft. To the extent that the value of the underlying aircraft is less than the guarantee, we would record a contingent loss. Guarantees entered into after December 31, 2002, are recorded at fair value in accordance with FIN No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees at Indebtedness of Others.” See Note A ofNotes to Consolidated Financial Statements.

Non-GAAP Financial Measures

Lease Margin

Lease Margin is defined as Rental of flight equipment less total expenses, adjusted for VIE expenses related to Other Variable Interest Entities and other expenses we consider not related to our core business operations, divided by Rental of flight equipment. Other expenses consists of a charge in the amount of $38.3 million related to prior year estimated aircraft ownership restructuring transactions, a write-down of notes receivable in the amount of $11.7 million (2005) and a charge we took related to a customer’s bankruptcy filing (2004). Lease Margin is a measure by which we isolate and evaluate the overall profitability of our contractual leasing operations, which constitute our primary revenue generating activity. Beginning in 2003, coinciding with the adoption of FIN 46R and to more accurately portray the trend of our core leasing operations, we adjust total expenses in the calculation of Lease Margin by excluding VIE expenses and other expenses we consider not related to our core business operations. Related VIE revenues are included in Interest and other and are by definition excluded from the calculation of Lease Margin. The most directly comparable GAAP financial measure is Profit Margin. Lease margin may not be comparable to those of other entities, as not all companies and analysts calculate this non-GAAP measure in the same manner. The following is a reconciliation of Profit Margin to Lease Margin:

	2005			2004			2003			2002			2001
	(Dollars in millions)
Total revenues (A)	$	3,628.5		$	3,159.9		$	2,877.4		$	2,659.3		$	2,552.2
Flight equipment marketing		(66.8	)		(77.7	)		(29.0	)		(48.5	)		(31.8	)
Flight equipment marketing — securitization		—			(32.9	)		(23.2	)		—			—
Interest and other		(61.4	)		(93.8	)		(17.9	)		(64.7	)		(108.8	)
Rental of flight equipment (B)		3,500.3			2,955.5			2,807.3			2,546.1			2,411.6
Total expenses (C)		2,978.1			2,491.8			2,236.5			2,037.8			1,859.1
VIE expenses		(19.1	)		(20.8	)		0.4			—			—
Other expenses		(50.0	)		(53.9	)		—			—			—
Adjusted total expenses (D)		2,909.0			2,417.1			2,236.9			2,037.8			1,859.1
Profit Margin(A)–(C)=(E)	$	650.4		$	668.1		$	640.9		$	621.5		$	693.1
Lease Margin(B)–(D)=(F)	$	591.3		$	538.4		$	570.4		$	508.3		$	552.5
Profit Margin % (E) divided by (A)		17.92	%		21.14	%		22.27	%		23.37	%		27.16	%
Lease Margin % (F) divided by (B)		16.89	%		18.22	%		20.32	%		19.96	%		22.91	%

Lease Margin for the periods decreased to 16.89% in 2005 compared to 18.22% in 2004 and 20.32% in 2003. Lease rates and interest rates on borrowings are the two components used to determine Lease Margin that are subject to the most uncertainty and are the principal causes for the fluctuations in the Lease Margin. Lease rates are impacted by the current interest rate market as operating leases are a form of financing. Lease rates are also impacted by demand for a particular aircraft type to fit the airlines requirements for capacity and efficiency compounded by the availability of those aircraft in the market place.

The decrease in 2005 Lease Margin compared to 2004 is primarily due to increasing interest rates that are starting to materialize in our margins and an increase in the overhaul provision rate. Also, increases in lease rates compared to prior years have yet to fully materialize in our revenues. Our average composite interest rate was 4.66% in 2005 compared to 4.44% in 2004. We expect that the Lease Margin could experience further downward pressure as interest rates climb. We experienced low Lease Margins in 1994–95, which resulted from the lingering impacts

22

on lease rates from leases negotiated around the time of the Gulf War in 1991–92, compounded by a high interest rate environment and higher leverage. Due to the varying terms of our leases and borrowings, the effects of events and circumstances which cause changes in lease rates and interest rates in the current market place may not fully materialize in our results of operations for three to five years.

The profit and lease margin percentages in the table above include the unrealized gain (loss) attributable to economic hedges not qualifying for hedge accounting treatment under SFAS 133, including related foreign exchange gains and losses. This will increase the inter-period volatility in the profit and lease margin percentages.

Results of Operations

2005 Compared to 2004

Revenues from rentals of flight equipment increased 18.4% to $3,500.3 million in 2005 from $2,955.5 million in 2004. The number of aircraft in our fleet increased to 746 at December 31, 2005 compared to 667 at December 31, 2004. Revenues from rentals of flight equipment increased (i) $465.9 million due to aircraft acquired and earning revenue during the entire period, or part thereof, in 2005 compared to no or partial earned revenue for the same period in 2004 and (ii) $21.2 million related to aircraft that were redelivered during the years at higher lease ratesand/or had changes in lease rates. The increase was offset by $65.1 million related to aircraft deployed during the period ended December 31, 2004 and sold prior to December 31, 2005. Overhaul revenue increased $122.8 million in 2005 compared to 2004 due to (i) an increase in collections and (ii) an increase in the aggregate number of hours flown, on which we collect overhaul revenue.

We did not have any aircraft in our fleet that were not subject to a signed lease agreement or a signed letter of intent at December 31, 2005. Lease Margin for the period decreased to 16.89% in 2005 compared to 18.22% for the same period in 2004. Profit Margin decreased to 17.92% compared to 21.14% for the same periods. The decrease in the Lease Margins are primarily due to (i) an increase in interest rates and (ii) an increase in the overhaul provision rate. Increased lease rates have yet to fully materialize in our revenue. A decrease in Interest and other further affected the decline in Profit Margin. Our average composite interest rate increased to 4.66% in 2005 compared to 4.44% in 2004.

In addition to leasing operations, we engage in the marketing of our flight equipment throughout the lease term, as well as the sale of third party owned flight equipment on a principal and commission basis. Revenues from flight equipment marketing decreased to $66.8 million in 2005 compared to $77.7 million in 2004 due to $17.5 million less commissions received from third parties in 2005 compared to 2004. The decrease was offset by higher revenues related to equipment sold in 2005 compared to 2004. We sold 29 aircraft and three engines during the year ended December 31, 2005, compared to 15 aircraft and ten engine during the same period in 2004.

During 2004 we sold 34 aircraft to a trust, which is included in the consolidated financial statements of AIG (See Note N ofNotes to Consolidated Financial Statements.) The gains of the transaction, net of expenses, are included in the caption “Flight equipment marketing — securitization.”

Interest and other revenue decreased to $61.4 million in 2005 compared to $93.8 million in 2004 due to the following; lower bankruptcy and other settlements in the amount of $23.1 million; lower dividend income by $3.4 million; lower fees and deposit forfeitures due to nonperformance by customers in the amount of $10.2 million; offset by a charge taken in 2004 related to put options exercised in the amount of $5.6 million.

Interest expense increased to $1,157.3 million in 2005 compared to $942.5 million in 2004 as a result of (i) an increase in average debt outstanding (excluding the effect of debt discount and foreign exchange adjustments),

23

primarily borrowed to finance aircraft acquisitions, to $24.7 billion in 2005 compared to $22.5 billion in 2004 and (ii) an increase in interest rates. Our composite borrowing rates fluctuated as follows:

ILFC Composite Interest Rates and Prime Rates

We account for derivatives under SFAS No. 133 “Accounting for Derivatives and Hedging Activities” as amended. Interest expense for the years ended December 31, 2005 and 2004 include a $10.4 million and a $6.0 million reduction, respectively, related to derivative activities (see Note L ofNotes to Consolidated Financial Statements).

Depreciation of flight equipment increased 13.0% to $1,372.1 million in 2005 compared to $1,214.0 million in 2004 due to the increased cost of the fleet from $36.6 billion in 2004 to $42.1 billion in 2005.

Provision for overhauls increased to $260.0 million in 2005 compared to $164.3 million in 2004 due to (i) an increase in the aggregate number of hours flown on which we collect overhaul revenue and against which the provision is computed and (ii) an increase in actual and expected overhaul related expenses.

Selling, general and administrative expenses increased to $138.7 million in 2005 compared to $117.0 million in 2004 due to (i) a net change in the amount of $6.7 million related to the write down of a notes receivable from a customer who has filed for bankruptcy protection (ii) an increase of $9.5 million in 2005 employee related expenses compared to 2004, primarily due to an increase in employee benefit charges from AIG and an increase in the number of employees from 151 to 160 and (iii) $13.1 million higher aircraft cost to support our growing fleet. The increases were offset by $3.9 million lower rent expense due to a 2004 charge related to abandoned office space and minor savings in several areas.

Other expenses consist of the following charges:

•  (2005) $38.3 million related to the restructuring of ownership of aircraft in certain lease transactions in Australia. See Note K ofNotes to Consolidated Financial Statements. $11.7 million related to a write-down of notes receivable.

•  (2004) In connection with a global aircraft lease transaction entered into in 2000 for a total of 14 aircraft, we acquired certain securities and assumed certain obligations of ATA. On October 26, 2004, ATA filed for bankruptcy protection and we recorded impairment losses in the amount of $28.9 million on out investment in ATA non-voting preferred stock and a $25.0 million charge for the assumed liabilities.

24

Our effective tax rate for the year ended December 31, 2005, was 35.0% compared to 30.8% for the same period in 2004. The increase is due to audit adjustments and related interest identified by AIG during an audit of its consolidated tax returns for prior periods and charged to us in the fourth quarter of 2005 under our tax sharing agreement with AIG. The charge was partly offset by a larger tax benefit received in 2005 under the Extraterritorial Income Act.

In 2002 and 2003 we participated in certain tax planning activities with our parent, AIG and related entities, which provided certain tax and other benefits to the AIG consolidated group. As a result of our participation in these activities, AIG shared a portion of the tax benefits of these activities attributable to us, which aggregated $245.0 million. We are required to repay those tax benefits to AIG in 2007 and 2009. The liability is recorded in “Tax benefit sharing payable to AIG” in the Consolidated Balance Sheet.

Accumulated other comprehensive income (loss) was $91.7 million at December 31, 2005 and $22.8 million at December 31, 2004 primarily due to changes in market values of cashflow hedges. See Note L ofNotes to the Consolidated Financial Statements.

We performed impairment reviews of all aircraft in our fleet as of June 30, 2005 and 2004, in accordance with SFAS 144. No impairments have been recognized related to aircraft, as the existing service potential of the aircraft in our portfolio has not been diminished. Further, we have been able to re-lease the aircraft without diminution in lease rates to an extent that would warrant an impairment write down.

2004 Compared to 2003

Revenues from rentals of flight equipment increased 5.3% to $2,955.5 million in 2004 from $2,807.2 million in 2003. The number of aircraft in our fleet increased to 667 at December 31, 2004 compared to 609 at December 31, 2003. Revenues from rentals of flight equipment increased $395.2 million due to the purchase of aircraft acquired and earning revenue during the entire period, or part thereof, in 2004 compared to no or partial earned revenue for the same period in 2003. The increase was offset by $179.1 million related to aircraft deployed during the period ended December 31, 2003 and sold prior to December 31, 2004 and $133.0 million related to aircraft that were redelivered during the years at lower lease ratesand/or had changes in lease rates, or were not earning revenues for some part of the year. Overhaul revenue increased $65.3 million in 2004 compared to 2003 due to (i) an increase in collections and (ii) an increase in the aggregate number of hours flown, on which we collect overhaul revenue.

We had one aircraft in our fleet that was not subject to a signed lease agreement or a signed letter of intent at December 31, 2004. Lease Margin for the period decreased to 18.2% in 2004 compared to 20.3% for the same period in 2003. Profit Margin decreased to 21.1% compared to 22.3% for the same periods. The decrease in the Margins are primarily due to an increase in the overhaul provision rate.

In addition to leasing operations, we engage in the marketing of our flight equipment throughout the lease term, as well as the sale of third party owned flight equipment on a principal and commission basis. Revenues from flight equipment marketing increased to $77.7 million in 2004 compared to $29.0 million in 2003 primarily due to an increase in revenue from equipment sold. We sold 15 aircraft and ten engines during the year ended December 31, 2004, compared to two aircraft and six engines during the same period in 2003. The increase was partly offset by $12.9 million lower commissions received from third parties in 2004 compared to 2003.

In 2003 we sold 37 aircraft to a trust and in 2004 we sold 34 aircraft to another trust, both of which are included in the consolidated financial statements of AIG (See Note N ofNotes to Consolidated Financial Statements.) The gains on the transactions, net of expenses, are included in the caption “Flight equipment marketing — securitization.”

Interest and other revenue increased to $93.8 million in 2004 compared to $17.9 million in 2003 due to the following increases: bankruptcy and other settlements in the amount of $26.1 million; foreign exchange gains in the amount of $31.6 million; an increase in VIE revenue in the amount of $16.2 million; management fees collected in the amount of $8.7 million; and interest and dividend income in the amount of $7.8 million. This was offset by fees received from manufacturers and customers for non-performance in the amount of $6.8 million and a charge in the amount of $5.6 million related to put options written in prior periods.

Interest expense increased to $942.5 million in 2004 compared to $920.0 million in 2003 as a result of an increase in average debt outstanding (excluding the effect of debt discount and foreign exchange adjustments),

25

primarily borrowed to finance aircraft acquisitions, to $22.5 billion in 2004 compared to $20.3 billion in 2003. The increase was partially offset by a decrease in the average composite borrowing rate to 4.3% in 2004 from 4.8% in 2003.

We account for derivatives under SFAS No. 133 “Accounting for Derivatives and Hedging Activities” as amended. Interest expense for the years ended December 31, 2004 and 2003 include a $6.0 million reduction and $29.7 million expense, respectively, related to derivative activities (see Note L ofNotes to Consolidated Financial Statements).

Depreciation of flight equipment increased 12.0% to $1,214.0 million in 2004 compared to $1,083.9 million in 2003 due to the increased cost of the fleet from $33.4 billion in 2003 to $36.6 billion in 2004.

Provision for overhauls increased to $164.3 million in 2004 compared to $112.6 million in 2003 due to (i) an increase in the aggregate number of hours flown on which we collect overhaul revenue and against which the provision is computed and (ii) an increase in actual and expected overhaul related expenses.

In prior periods we entered into sale-leaseback transactions. Through a subsidiary, we had sale-leaseback transactions related to seven aircraft as of December 31, 2003, transactions related to another seven aircraft had expired at September 30, 2003. Rent expense related to the transactions is included in Flight equipment rent on our Consolidated Statement of Income for the period ended December 31, 2003. At December 31, 2003, we consolidated the entity in accordance with FIN 46, and ceased to record rent expense starting January 1, 2004. Instead the payments were applied to interest and to pay down principal of recorded obligations of $464.2 million. As of September 30, 2004, the related leases expired and we repurchased the seven aircraft.

Selling, general and administrative expenses increased to $117.0 million in 2004 compared to $76.8 million in 2003 due to (i) an increase in VIE expenses in the amount of $20.4 million, (ii) an increase in rent and other expenses in the amount of $11.5 million related to our move to larger facilities, (iii) an increase of $3.6 million in 2004 employee related expenses compared to 2003, primarily due to an increase in employee benefit charges from AIG and an increase in the number of employees from 130 to 151 and (iv) an increase in consulting fees in the amount of $4.2 million, primarily related to audit fees and compliance with the Sarbanes-Oxley Act.

In connection with a global aircraft lease transaction entered into in 2000 for a total of 14 aircraft, we acquired certain securities and assumed certain obligations of ATA. On October 26, 2004, ATA filed for bankruptcy protection and we recorded impairment losses in the amount of $28.9 million on our investment in ATA non-voting preferred stock and a $25.0 million charge for the assumed liabilities. The liability is in the form of a derivative contract, to which we became a counterparty. Future net payments made and received will be recorded in income and the derivative will be reported on the Consolidated Balance Sheet at fair value. We do not have any other material investments in airlines. See Note D ofNotes to Consolidated Financial Statements.

Accumulated other comprehensive income (loss) was $22.8 million at December 31, 2004 and $(27.9) million at December 31, 2003 primarily due to changes in market values of cashflow hedges. See Note L ofNotes to the Consolidated Financial Statements.

New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R “Share-Based Payment” (“SFAS 123R”). This standard is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees”, and its related implementation guidance. SFAS 123R requires all share-based payments to employees, including grants of employee stock options to be recognized in the financial statements based on their fair values. The cost will be recognized over the period during which an employee is required to provide service in exchange for the options. SFAS 123R, is effective for nonpublic entities the first interim or annual reporting period that begins after December 15, 2005. We participate in AIG’s share-based payment programs. AIG adopted SFAS 123R in the quarter beginning July 1, 2005 and it allocated our share of the calculated costs to us. AIG allocated $896,000 for the year ended December 31, 2005 related to SFAS 123R.

26

In May 2005, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS No. 154 requires retroactive application to prior periods’ financial statements of a voluntary change in accounting principles unless it is impracticable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with earlier application permitted to accounting changes and corrections of errors made in fiscal years beginning after May 31, 2005.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Measuring potential losses in fair values has recently become the focus of risk management efforts by many companies. Such measurements are performed through the application of various statistical techniques. One such technique is Value at Risk (VaR), a summary statistical measure that uses historical interest rates and foreign currency exchange rates which estimates the volatility and correlation of these rates and prices to calculate the maximum loss that could occur over a defined period of time given a certain probability.

We believe that statistical models alone do not provide a reliable method of monitoring and controlling market risk. While VaR models are relatively sophisticated, the quantitative market risk information generated is limited by the assumptions and parameters established in creating the related models. Therefore, such models are tools and do not substitute for the experience or judgment of senior management.

We are exposed to market risk and the risk of loss of fair value and possible liquidity strain resulting from adverse fluctuations in interest rates and foreign exchange prices. We statistically measure the loss of fair value through the application of a VaR model on a quarterly basis. In this analysis the net fair value of our operations is determined using the financial instrument assets and other assets and liabilities. This includes tax adjusted future flight equipment lease revenues and financial instrument liabilities, which includes future servicing of current debt. The impact of current derivative positions is also taken into account.

We calculate the VaR with respect to the net fair value by using the historical simulation methodology. This methodology entailsre-pricing all assets and liabilities under explicit changes in market rates within a specific historical time period. In this case, the most recent three years of historical information for interest rates and foreign exchange rates were used to construct the historical scenarios at December 31, 2005 and 2004. For each scenario, each financial instrument isre-priced. Scenario values for our operations are then calculated by netting the values of all the underlying assets and liabilities. The final VaR number represents the maximum adverse deviation in fair market value incurred by these scenarios with 95% confidence (i.e. only 5% of historical scenarios show losses greater than the VaR figure). A one month holding period is assumed in computing the VaR figure. The following table presents the average, high and low VaRs for our operations with respect to its fair value as of December 31, 2005 and 2004, respectively:

ILFC Market Risk

	December 31, 2005						December 31, 2004
	Average		High		Low		Average		High		Low
	(Dollars in millions)
Combined	$	135.0		238.7		84.2	$	69.6	$	86.3	$	34.6
Interest Rate		135.4		240.3		83.9		69.7		86.4		35.0
Currency		2.1		4.2		0.5		0.3		0.5		0.2

The value at risk calculation reflects the fact that we currently have more financial liabilities (debt) than financial assets (present value of lease payments). Lengthening the average maturity of our debt increases the calculated VaR. During 2005, we locked in lower long-term funding costs on its debt, leading to an increase in its VaR.

Item 8.  Financial Statements and Supplementary Data

The response to this Item is submitted as a separate section of this report.

27

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

(A) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to our management, including the Chairman of the Board and Chief Executive Officer and the Vice Chairman, Chief Financial Officer and Chief Accounting Officer (collectively the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosure. Our management, including the Certifying Officers, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Based on our evaluation as of December 31, 2005, we have concluded that our disclosure controls and procedures were ineffective at the reasonable assurance level due to a material weakness in internal controls as described below. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has not been fully remediated as of December 31, 2005:

The Company did not maintain effective controls over the valuation and presentation and disclosure of derivative transactions. Specifically, we did not maintain adequate documentation regarding the effectiveness of certain derivative transactions used to hedge interest rate and foreign currency exchange rate risk. This control deficiency could result in a misstatement to the financial statement line items (Derivative assets, Derivative liabilities, Accumulated other comprehensive income and Interest expense) that could cause a material misstatement to the annual or interim financial statements. Accordingly, management concluded this control deficiency constitutes a material weakness.

As a result of this material weakness, management, including the Certifying Officers, concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2005 and at the end of the earlier periods covered by this Form 10-K.

Variable Interest Entities

Our consolidated financial statements include assets in the amount of $138.2 million (2005) and $152.4 million (2004) and liabilities in the amount of $65.2 million (2005) and $70.9 million (2004), and a net gain of $1.8 million (2005), a net loss of $4.1 million (2004) and a net gain of $0.1 million (2003) related to Variable Interest Entities (“VIEs”). Our assessment of disclosure controls and procedures, as described above, includes the VIEs. Each of the VIEs has a discrete number of assets and we, as lender and guarantor to the VIEs, have been provided sufficient information to conclude that our procedures with respect to these VIEs are effective in providing reasonable assurance that the information required to be disclosed by us relating to these entities is reconciled, processed, summarized and reported within the periods specified by the Securities and Exchange Commission. However, management has been unable to assess the effectiveness of internal control over financial reporting at those entities, due to our inability to dictate or modify the controls of those entities, or to assess those controls.

(B) Changes in Internal Control Over Financial Reporting

In the third and fourth quarters of 2005, we implemented internal controls to remediate a material weakness related to valuation and presentation and disclosure of certain payments received from manufacturers. These process and control improvements included performing additional steps to process, summarize, record, review and reconcile certain payments from aircraft and engine manufacturers.

28

(C) Remediation of Material Weaknesses in Internal Control Over Financial Reporting

As of December 31, 2005, we have fully remediated the material weakness in our internal control over financial reporting with respect to accounting for certain payments from aircraft and engine manufacturers discussed above. We have begun, but have not completely remediated the material weakness in our internal control over financial reporting with respect to accounting for derivative instruments as discussed above. The remediation actions include improving training and accounting reviews, all designed to ensure that all relevant personnel involved in derivatives transactions understand and apply hedge accounting in compliance with SFAS 133. In coordination with AIG’s remediation efforts related to derivative transactions, we will work closely with AIG to identify processes and procedures which will assist us in remediating our material weakness with respect to derivative transactions.

The process and control improvements described above in this Item 9A are the only changes in our internal control over financial reporting that have occurred during the period covered by this report that would have a material effect, or are reasonably likely to have a material affect on our internal control over financial reporting. We will continue to assess our controls and procedures and will take any further actions that we deem necessary.

We believe that our Consolidated Financial Statements fairly present, in all material respects, our financial condition results of operations and cash flows as of, and for, the periods presented and that this Annual Report onForm 10-K, contains no material inaccuracies or omissions of material fact and contains the information required to be included in accordance with the Exchange Act.

Item 9B. Other Information

None.

29

PART III

Item 10.  Directors and Executive Officers of the Registrant

Code of Ethics and Conduct

Our employees are subject to AIG’s Code of Conduct designed to assure that all employees perform their duties with honesty and integrity. In the second quarter of 2004, AIG adopted the AIG Director, Executive Officer, and Senior Financial Officer Code of Business Conduct and Ethics, which covers such directors and officers of AIG and its subsidiaries, including us and our Chairman of the Board and Chief Executive Officer (principal executive officer), Vice Chairman, Chief Financial Officer and Chief Accounting Officer (principal accounting and financial officer). Both of these Codes appear in the Corporate Governance section ofwww.aigcorporate.com.

Item 14.  Principal Accountant Fees and Services

Aggregate fees for professional services rendered to us by PricewaterhouseCoopers LLP (“PwC”) for the years ended December 31, 2005 and 2004, were:

	2005		2004
Audit Fees(a)	$	1,892,500	$	1,792,600
Audit-Related Fees(b)		—		215,400
Tax Fees(c)		362,309		473,226
Total Fees	$	2,254,809	$	2,481,226

(a)	Audit Fees consist of fees for professional services provided in connection with the audits of our financial statements, services rendered in connection with our registration statements filed with the Securities and Exchange Commission, the delivery of consents and the issuance of comfort letters. This also includes Sarbanes-Oxley Section 404 work performed at ILFC for AIG’s 2005 and 2004 assessment.
(b)	Audit-Related Fees consist of fees for consulting on various accounting issues.
(c)	Tax Fees consist of the aggregate fees for services rendered for tax compliance, tax planning and tax advice.

AIG’s audit committee (“the audit committee”) approves all audit and non-audit services rendered by PwC. As of March 10, 2006, the audit committee had approved $650,000 for non-audit services or for consulting and tax compliance services for the year ended December 31, 2006.

PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a)(1) and (2): Financial Statements and Financial Statement Schedule: The response to this portion of Item 15 is submitted as a separate section of this report.

(a)(3) and (b): Exhibits: The response to this portion of Item 15 is submitted as a separate section of this report.

30

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

FORM 10-K

Items 8, 15(a), and 15(b)

INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

The following consolidated financial statements of the Company and its subsidiaries required to be included in Item 8 are listed below:

	Page
Report of Independent Registered Public Accounting Firm		34
Consolidated Financial Statements:
Balance Sheets at December 31, 2005 and 2004		35
Statements of Income for the years ended December 31, 2005, 2004 and 2003		36
Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003		37
Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		38
Notes to Consolidated Financial Statements		40

The following financial statement schedule of the Company and its subsidiaries is included in Item 15(a)(2):

Report of Independent Registered Public Accounting Firm on Financial Statements Schedule 61

Schedule Number		Description	Page
	II	Valuation and Qualifying Accounts		62

All other financial statements and schedules not listed have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.

The following exhibits of the Company and its subsidiaries are included in Item 15(b):

Exhibit
Number		Description
	3.1	Restated Articles of Incorporation of the Company, as amended through December 9, 1992, filed November 3, 1993 (filed as an exhibit to Registration StatementNo. 33-50913 and incorporated herein by reference).
	3.2	Certificate of Determination of Preferences of Series A Market Auction Preferred Stock (filed December 9, 1992 as an exhibit to Registration StatementNo. 33-54294 and incorporated herein by reference).
	3.3	Certificate of Determination of Preferences of Series B Market Auction Preferred Stock (filed December 9, 1992 as an exhibit to Registration Statement33-54294 and incorporated herein by reference).
	3.4	Certificate of Determination of Preferences of Series C Market Auction Preferred Stock (filed as an exhibit toForm 10-K for the year ended December 31, 1994 and incorporated herein by reference).
	3.5	Certificate of Determination of Preferences of Series D Market Auction Preferred Stock (filed as an exhibit toForm 10-K for the year ended December 31, 1994 and incorporated herein by reference).
	3.6	Certificate of Determination of Preferences of Series E Market Auction Preferred Stock (filed as an exhibit toForm 10-K for the year ended December 31, 1994 and incorporated herein by reference).
	3.7	Certificate of Determination of Preferences of Series F Market Auction Preferred Stock (filed as an exhibit toForm 10-K for the year ended December 31, 1994 and incorporated herein by reference).
	3.8	Certificate of Determination of Preferences of Series G Market Auction Preferred Stock (filed as an exhibit toForm 10-K for the year ended December 31, 1995 and incorporated herein by reference).
	3.9	Certificate of Determination of Preferences of Series H Market Auction Preferred Stock (filed as an exhibit toForm 10-K for the year ended December 31, 1995 and incorporated herein by reference).
	3.10	Certificate of Determination of Preferences of Preferred Stock of the Company (filed as an exhibit toForm 10-K for the year ended December 31, 2001 and incorporated herein by reference).
	3.11	By-Laws of the Company, including amendment thereto dated August 31, 1990 (filed as an exhibit to Registration StatementNo. 33-37600 and incorporated herein by reference).

31

Exhibit
Number		Description
	3.12	Unanimous Written Consent of Sole Stockholder of the Company, dated January 2, 2002, amending theBy-Laws of the Company (filed as an exhibit to Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference).
	4.1	Indenture dated as of November 1, 1991, between the Company and U.S. Bank Trust National Association (successor to Continental Bank, National Association), as Trustee (filed as an exhibit to Registration StatementNo. 33-43698 and incorporated herein by reference).
	4.2	First supplemental indenture, dated as of November 1, 2000, to the Indenture between the Company and U.S. Bank Trust National Association (filed as an exhibit toForm 10-K for the year ended December 31, 2000 and incorporated herein by reference).
	4.3	Second Supplemental Indenture, dated as of February 28, 2001, to the Indenture between the Company and U.S. Bank Trust National Association. (filed as an exhibit toForm 10-Q for the quarter ended March 31, 2001 and incorporated herein by reference).
	4.4	Third Supplemental Indenture, dated as of September 26, 2001, to the Indenture between the Company and U.S. Bank Trust National Association. (filed as an exhibit toForm 10-Q for the quarter ended September 30, 2000 and incorporated herein by reference).
	4.5	Indenture dated as of November 1, 2000, between the Company and the Bank of New York, as Trustee (filed as an exhibit to RegistrationNo. 33-49566 and incorporated herein by reference).
	4.6	The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries.
	4.7	First Supplemental Indenture, dated as of August 16, 2002 to the indenture between the Company and the Bank of New York (filed as Exhibit 4.2 to Registration StatementNo. 333-100340 and incorporated herein by reference).
	4.8	Fourth Supplemental Indenture, dated as of November 6, 2002, to the indenture between the Company and U.S. Bank National Association (filed as an exhibit toForm 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	4.9	Fifth Supplemental Indenture, dated as of December 27, 2002, to the indenture between the Company and U.S. Bank National Association (filed as an exhibit toForm 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	4.10	Sixth Supplemental Indenture, dated as of June 2, 2003, to the indenture between the Company and U.S. Bank National Association (filed as an exhibit to Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference).
	4.12	Seventh Supplemental Indenture, dated as of October 8, 2004, to the indenture between the Company and U.S. Bank National Association (filed as an exhibit toForm 8-K dated October 14, 2004 and incorporated herein by reference).
	4.13	Eighth Supplemental Indenture, dated as of October 5, 2005, to the indenture between the Company and U.S. Bank National Association.
	4.14	Agency Agreement (amended and restated), dated as of September 15, 2005, among the Company, Citibank, N.A., and Dexia Banque Internationale A Luxembourg, Societe Anonyme (filed as an exhibit to Form 8-K, event date September 15, 2005, and incorporated herein by reference).
	10.1	Aircraft Facility Agreement, dated as of January 19, 1999, among the Company, Halifax PLC and the other banks listed therein providing up to $4,327,260,000 for the financing of approximatelyseventy-five Airbus aircraft (filed as an exhibit to Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).
	10.2	Aircraft Facility Agreement, dated as of May 18, 2004, among Whitney Leasing Limited, as borrower, the Company, as guarantor and the Bank of Scotland and the other banks listed therein providing up to $2,643,550,000 (plus related premiums) for the financing of aircraft (filed as an exhibit toForm 10-Q for the quarter ended June 30, 2004 and incorporated herein by reference).

32

Exhibit
Number		Description
	10.3	$2,000,000,000 Five-Year Revolving Credit Agreement, dated as of October 15, 2004, among the Company, CitiCorp USA, Inc., as Administrative Agent, and the other financial institutions listed therein (filed as an exhibit toForm 10-K for the year ended December 31, 2004 and incorporated herein by reference).
	10.4	$2,000,000,000 Five-Year Revolving Credit Agreement dated as of October 14, 2005, among the Company, CitiCorp USA, Inc as Administrative Agent, and the other financial institutions listed therein (filed as an exhibit to Form 8-K, event date October 14, 2005, and incorporated herein by reference).
	10.5	$2,000,000,000364-Day Revolving Credit Agreement, dated as of October 14, 2005, among the Company, CitiCorp USA, Inc., as Administrative Agent, and the other financial institutions listed therein (filed as an exhibit toForm 8-K event date October 14, 2005 and incorporated herein by reference).
	12	Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
	23	Consent of PricewaterhouseCoopers LLP.
	31.1	Rule 13a-14(a)/15d-14(a) Certification of Chairman of the Board and Chief Executive Officer.
	31.2	Rule 13a-14(a)/15d-14(a) Certification of Vice Chairman, Chief Financial Officer and Chief Accounting Officer.
	32.1	Certification under 18 U.S.C., Section 1350.

33

Report of Independent Registered Public Accounting Firm

To The Shareholders and Board of Directors

of International Lease Finance Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders’ equity and cash flows present fairly, in all material respects, the consolidated financial position of International Lease Finance Corporation and its subsidiaries (the “Company”) at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Los Angeles, California

March 14, 2006

34

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)

	December 31,
	2005		2004
ASSETS
Cash, including interest bearing accounts of $155,953 (2005) and $97,682 (2004)	$	157,960	$	99,747
Current income taxes		148,399		6,507
Notes receivable		181,951		212,273
Net investment in finance and sales-type leases		308,471		307,466
Flight equipment under operating leases		42,067,504		36,580,296
Less accumulated depreciation		7,318,572		6,074,874
		34,748,932		30,505,422
Deposits on flight equipment purchases		1,148,462		1,250,168
Accrued interest, other receivables and other assets		289,979		199,653
Derivative assets		293,576		1,191,602
Investments		20,313		22,979
Variable interest entities assets		138,277		152,417
Deferred debt issue costs — less accumulated amortization of $65,377 (2005) and $77,112 (2004)		93,551		59,666
	$	37,529,871	$	34,007,900
LIABILITIES
Accrued interest and other payables	$	351,221	$	264,276
Tax benefit sharing payable to AIG		245,000		245,000
Debt financing, net of deferred debt discount of $38,882 (2005) and $29,502 (2004)		25,104,165		23,136,016
Subordinated debt		1,000,000		—
Foreign currency adjustment		197,074		1,215,809
Derivative liabilities		49,549		38,810
Capital lease obligations		—		39,580
Security and other deposits on flight equipment		1,071,676		876,590
Rentals received in advance		187,957		160,878
Deferred income taxes		3,075,545		2,630,118
Variable interest entities liabilities		65,197		70,886
Commitments and contingencies — Note K
SHAREHOLDERS’ EQUITY
Market Auction Preferred Stock, $100,000 per share liquidation value; Series A and B (2005 and 2004), each series having 500 shares issued and outstanding		100,000		100,000
Common stock — no par value; 100,000,000 authorized shares, 45,267,723 shares (2005) and 42,198,119 (2004) issued and outstanding		1,053,582		653,582
Paid-in capital		587,484		579,955
Accumulated other comprehensive income (loss)		91,715		22,825
Retained earnings		4,349,706		3,973,575
Total shareholders’ equity		6,182,487		5,329,937
	$	37,529,871	$	34,007,900

See accompanying notes.

35

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands)

	Years Ended December 31,
	2005		2004		2003
REVENUES:
Rental of flight equipment	$	3,500,335	$	2,955,524	$	2,807,211
Flight equipment marketing		66,790		77,664		28,988
Flight equipment marketing — securitization		—		32,854		23,245
Interest and other		61,426		93,844		17,907
		3,628,551		3,159,886		2,877,351
EXPENSES:
Interest		1,157,282		942,527		919,961
Depreciation of flight equipment		1,372,103		1,214,048		1,083,909
Provision for overhauls		260,008		164,322		112,581
Flight equipment rent		—		—		43,314
Selling, general and administrative		138,767		116,956		76,780
Other expenses		49,985		53,926		—
		2,978,145		2,491,779		2,236,545
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE		650,406		668,107		640,806
Provision for income taxes		227,446		206,101		196,683
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		422,960		462,006		444,123
Cumulative effect of accounting change (net of tax)		—		—		(8,642	)
NET INCOME	$	422,960	$	462,006	$	435,481

See accompanying notes.

36

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

	Market Auction										Accumulated
	Preferred Stock				Common Stock						Other
	Number				Number						Comprehensive
	of				of				Paid-in		Income			Retained
	Shares		Amount		Shares		Amount		Capital		(Loss)			Earnings			Total
Balance at December 31, 2002		1,000	$	100,000		42,198,119	$	653,582	$	579,955	$	(87,771	)	$	3,168,305		$	4,414,071
Common stock dividends															(49,000	)		(49,000	)
Preferred stock dividends															(3,891	)		(3,891	)
Comprehensive Income:
Net income															435,481			435,481
Other comprehensive income:
Cash flow derivative transactions (net of tax of $32,223)												59,843						59,843
Comprehensive Income																		495,324
Balance at December 31, 2003		1,000		100,000		42,198,119		653,582		579,955		(27,928	)		3,550,895			4,856,504
Common stock dividends															(35,500	)		(35,500	)
Preferred stock dividends															(3,826	)		(3,826	)
Comprehensive Income:
Net income															462,006			462,006
Other comprehensive income:
Cash flow derivative transactions (net of tax of $25,786)												47,887						47,887
Change in unrealized appreciation securities available-for-sale (net of tax of $1,543)												2,866						2,866
Comprehensive Income																		512,759
Balance at December 31, 2004		1,000		100,000		42,198,119		653,582		579,955		22,825			3,973,575			5,329,937
Issuance of common stock						3,069,604		400,000										400,000
Common stock dividends															(37,000	)		(37,000	)
Preferred stock dividends															(4,650	)		(4,650	)
Comprehensive income:
Net income															422,960			422,960
Other comprehensive income
Cash flow derivative transactions (net of tax of $37,954)												70,486						70,486
Change in unrealized appreciation securities available-for-sale (net of tax of ($859))												(1,596	)					(1,596	)
Comprehensive income																		491,850
Other(a)										7,529					(5,179	)		2,350
Balance at December 31, 2005		1,000	$	100,000		45,267,723	$	1,053,582	$	587,484	$	91,715		$	4,349,706		$	6,182,487

(a)  In March 2005, we reclassified $5,179 from Retained Earnings to Paid-in Capital as a result of an adjustment for certain prior period compensation costs related to an incentive plan of AIG. We also recorded $2,350 in Paid-in Capital during the year for compensation expense related to the same incentive plan.

See accompanying notes.

37

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Years Ended December 31,
	2005			2004			2003
OPERATING ACTIVITIES:
Net income	$	422,960		$	462,006		$	435,481
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of flight equipment		1,372,103			1,214,048			1,083,909
Deferred income taxes		408,333			249,331			195,813
Change in derivative instruments		1,017,204			(443,174	)		(534,362	)
Foreign currency adjustment of cash and non-US$ denominated debt		(1,006,631	)		393,902			538,024
Amortization of deferred debt issue costs		22,692			26,162			36,645
Losses related to customer bankruptcy		—			53,926			—
Other		6,118			(10,724	)		(6,992	)
Changes in operating assets and liabilities:
Decrease (increase) in notes receivable		20,585			(32,104	)		47,713
Change in unamortized debt discount		(9,380	)		(5,181	)		7,607
Decrease (increase) in accrued interest, other receivables and other assets		112,478			253,852			(31,703	)
Increase in accrued interest and other payables		81,256			11,961			104,317
(Increase) decrease in current income taxes		(141,892	)		(24,474	)		184,260
Increase in tax benefit sharing payable to AIG		—			245,000			—
Increase in rentals received in advance		27,079			14,007			17,627
Net cash provided by operating activities		2,332,905			2,408,538			2,078,339
INVESTING ACTIVITIES:
Acquisition of flight equipment for operating leases		(6,276,420	)		(5,007,201	)		(5,053,712	)
Acquisition of flight equipment for finance leases		—			(43,247	)		(165,202	)
Decrease (increase) in deposits and progress payments		101,706			4,906			(97,210	)
Proceeds from disposal of flight equipment — net of gain		454,512			1,355,422			953,897
Advance on notes receivable		(39,100	)		(80,750	)		(30,198	)
Collections on notes receivable		25,035			46,793			42,570
Collections on finance and sales-type leases (net of income amortized)		29,163			14,393			13,670
Other		7,709			1,188			1,432
Net cash used in investing activities		(5,697,395	)		(3,708,496	)		(4,334,753	)
FINANCING ACTIVITIES:
Issuance of common stock		400,000			—			—
Net change in commercial paper		(49,839	)		1,099,290			(2,642,547	)
Proceeds from debt financing		7,421,098			4,311,742			8,654,736
Payments in reduction of debt financing and capital lease obligations		(4,433,311	)		(4,082,998	)		(3,608,543	)
Debt issue costs		(56,577	)		(33,964	)		(52,939	)
Payment of common and preferred dividends		(41,650	)		(39,326	)		(52,892	)
Increase (decrease) in customer deposits		195,086			32,676			(20,139	)
Net cash provided by financing activities		3,434,807			1,287,420			2,277,676
Effect of exchange rate changes on cash		(12,104	)		10,044			9,284
Net increase (decrease) in cash		70,317			(12,538	)		21,262
Cash at beginning of year		99,747			102,241			71,695
Cash at end of year	$	157,960		$	99,747		$	102,241

38

	Years Ended December 31,
	2005			2004			2003
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest (net of amount capitalized $54,097 (2005) $48,390 (2004) and $49,679 (2003)	$	1,101,409		$	945,991		$	926,274
Income taxes, net		(38,994	)		(263,757	)		(189,690	)

2005

Accounts receivable in the amount of $29,706 were received as a payment for flight equipment sold. Full cash payment was subsequently received.

Notes receivable in the amount of $23,802 were used as payment for the acquisition of aircraft ($19,765) and investments ($4,037).

Aircraft previously accounted for as operating leases were converted into finance and sales-type leases in the amount of $30,168.

$5,179 was reclassified from Retained earnings to Paid-in capital as a result of an adjustment for certain prior period compensation costs related to an incentive plan of ILFC’s parent, AIG.

Certain payments from aircraft and engine manufacturers in the amount of $161,648 reduced the basis of Flight equipment under operating leases and increased Other assets.

2004:

One aircraft was received for investment in finance leases and notes receivables in the amount of $23,456.

Notes in the amount of $2,700 were received as partial payment in exchange for flight equipment sold with a net book value of $30,000.

A note in the amount of $4,500 was used towards a purchase of an aircraft.

Certain payments from aircraft and engine manufacturers in the amount of $147,065 reduced the basis of Flight equipment for operating leases and increased Accrued interest, other receivables and other assets.

2003:

Progress payments in the amount of $6,700 were exchanged for an aircraft with net book value at $4,043.

Flight equipment increased in the amount of $462,705 and synthetic lease obligations increased in the amount of $464,222 as a result of consolidation of sale-leaseback transaction related to seven aircraft in connection with the Company’s adoption of FIN 46R.

Variable interest entity assets in the amount of $164,481 and liabilities in the amount of $79,211 were received in exchange for notes receivables in the amount of $82,493 and preferred stock in the amount of $11,706 in connection with the Company’s adoption of FIN 46R.

Variable interest entity assets in the amount of $13,731 were received as partial payment in exchange for flight equipment with a net book value of $14,043.

One aircraft was received in exchange for notes receivable in the amount of $28,715 and preferred stock in the amount of $2,202.

Notes in the amount of $72,281 were received as partial payment for flight equipment sold with a net book value of $75,630.

Certain payments from aircraft and engine manufacturers in the amount of $90,506 reduced the basis of Flight equipment for operating leases and increased Accrued interest, other receivables and other assets.

See accompanying notes.

39

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

Note A — Summary of Significant Accounting Policies

Organization:  International Lease Finance Corporation (the “Company,” “ILFC,” “management,” “we,” “our,” “us”) is primarily engaged in the acquisition of new commercial jet aircraft and the leasing of those aircraft to airlines throughout the world. In addition to our leasing activity, we regularly sell aircraft from our leased aircraft fleet and aircraft owned by others to third party lessors and airlines and in some cases provide fleet management services to these buyers. In terms of the number and value of transactions concluded, we are a major owner-lessor of commercial jet aircraft.

Parent Company:  ILFC is an indirect wholly owned subsidiary of American International Group, Inc. (“AIG”). AIG is a holding company which through its subsidiaries is primarily engaged in a broad range of insurance and insurance-related activities in the United States and abroad. AIG’s primary activities include both general and life insurance and retirement services operations. Other significant activities include financial services and asset management.

Principles of Consolidation:  The accompanying consolidated financial statements include our accounts, accounts of all other entities in which we have a controlling financial interest, as well as accounts of variable interest entities in which we are the primary beneficiary as defined by Financial Accounting Standards Board Interpretation No. 46R “Consolidation of Variable Interest Entities (“FIN No. 46R”). Investments in equity securities in which we have more than a 20% interest, but do not have a controlling interest and are not the primary beneficiary, are carried under the equity method of accounting. Investments in which we have less than a 20% interest are carried at cost.

Intercompany Allocations and Fees:  We are party to cost sharing agreements with AIG. Generally, these agreements provide for the allocation of corporate costs based upon a proportional allocation of costs to all subsidiaries. These charges aggregated $8,050 (2005), $3,029 (2004) and $1,458 (2003) and include, but are not limited to pension costs, certain senior management compensation, and costs of various corporate services. We also pay AIG a fee related to management services provided for certain of our foreign subsidiaries. The fees aggregated $587 (2005), $550 (2004) and $542 (2003). We earned management fees from two trusts consolidated by AIG for the management of aircraft we have sold to the trusts. These management fees aggregated $9,800 (2005), $10,200 (2004) and $1,300 (2003). Accrued interest, other receivables and other assets included $34 (2005) and $1,600 (2004) related to the management of those aircraft.

Lease Revenue:  We, as lessor, lease flight equipment principally under operating leases and report rental income ratably over the life of the lease. The difference between the rental income recorded and the cash received under the provisions of the lease is included in “Accrued interest, other receivables, and other assets” on the Consolidated Balance Sheets. Past-due rentals are recognized on the basis of management’s assessment of collectibility. In certain cases, leases provide for additional rentals based on usage. The usage may be calculated based on hourly usage or on the number of cycles operated, depending on the lease contract. A cycle is defined as one take-off and landing. The lessee typically reports the usage to us monthly.

Lease revenues from the rental of flight equipment have been reduced by payments received by our customers from the notional accounts established by the aircraft and engine manufacturers.

Rentals received but unearned under the lease agreements are recorded in “Rentals received in advance” on the Consolidated Balance Sheets until earned.

Costs related to reconfiguration of the aircraft cabin and other lessee specific modifications are capitalized as pre-paid lease cost and amortized over the life of the lease.

Initial Direct Costs:  We treat as period costs internal and other costs incurred in connection with identifying, negotiating and delivering aircraft to our lessees. Amounts paid by us to lessees, or other third parties, in connection

40

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note A — Summary of Significant Accounting Policies (Continued)

with lease transactions are capitalized and amortized against Lease revenue over the initial non-cancelable term of the related lease.

Flight Equipment Marketing:  We market flight equipment both on our behalf and on behalf of independent third parties. Marketing revenues include all revenues from such operations consisting of net gains on sales of flight equipment and commissions. We recognize gains on sales when flight equipment is sold and the risk of ownership of the equipment is passed to the new owner. The portion of sales proceeds as a result of payments made to buyers directly by the aircraft manufacturers are not included in marketing revenue but are recorded as a reduction to the overall basis of the flight equipment.

Provision for Overhauls:  Under the provisions of many leases, we receive overhaul rentals based on the usage of the aircraft. For certain airframe and engine overhauls, we reimburse the lessee for costs incurred up to, but not exceeding, related overhaul rentals that the lessee has paid to us for usage of the aircraft.

Overhaul rentals are included under the caption “Rental of flight equipment” in the Consolidated Statements of Income. We provide a charge to operations for estimated reimbursements at the time the lessee pays the overhaul rentals based on overhaul rentals received and the estimated reimbursements during the life of the lease. Management periodically evaluates the reserve for these reimbursements and the reimbursement rate, and adjusts the provision for overhauls accordingly.

Cash:  Cash includes cash on hand and time deposits. Cash balances held in euros are marked to spot at the balance sheet date. Foreign currency transaction gains or losses are recognized in the period incurred and are included in “Interest and other” or “Selling, general and administrative” on the Consolidated Statements of Income.

Our financing agreements do not restrict the use of cash collected related to overhaul rentals or cash security deposits held.

Flight Equipment:  Flight equipment under operating leases is stated at cost. Purchases, major additions and modifications and interest on deposits during the construction phase are capitalized. The lessee provides and pays for normal maintenance and repairs, airframe and engine overhauls, and compliance with return conditions of flight equipment on lease.

We generally depreciate aircraft, including aircraft acquired under capital leases, using the straight-line method over a 25 year life from the date of manufacture to a 15% residual value. When an aircraft is out of production, management evaluates the aircraft types and depreciates the aircraft using the straight line method over a 25 year life from the date of manufacture to an established residual value for each aircraft type.

Under arrangements with manufacturers, in certain circumstances the manufacturers establish notional accounts for the benefit of ILFC, to which amounts are credited by them in connection with the purchase by and delivery to ILFC and the lease of aircraft. The amounts credited to the notional accounts are recorded as a reduction to the basis of aircraft purchased and charged to other assets.

At the time assets are retired or sold, the cost and accumulated depreciation are removed from the related accounts and the difference, net of proceeds, is recorded as a gain or loss.

Management is very active in the airline industry and remains current on issues affecting our fleet, including events and circumstances that may affect impairment of aircraft values (e.g. residual values, useful life, current and future revenue generating capacity). Management evaluates aircraft in the fleet, as necessary, based on these events and circumstances in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to

41

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note A — Summary of Significant Accounting Policies (Continued)

future undiscounted net cash flows expected to be generated by the asset. These evaluations for impairment are significantly impacted by estimates of future revenues and other factors which involve some amount of uncertainty.

Capitalized Interest:  We borrow funds to finance progress payments for the construction of flight equipment ordered. We capitalize interest incurred on such borrowings. This amount is calculated using our composite borrowing rate and is included in the cost of the flight equipment.

Deferred Debt Issue Costs:  We incur debt issue costs in connection with debt financing. Those costs are deferred and amortized over the life of the debt using the interest method and charged to interest expense.

Derivative Financial Instruments:  In the normal course of business, we utilize derivative financial instruments to manage our exposure to interest rate risks and foreign currency risks. We account for derivatives in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended (“SFAS 133”). All derivatives are recognized on the balance sheet at their fair value. We obtain our market values on a quarterly basis from AIG Financial Products Corporation (“AIGFP”), a related party. On the date that we enter into a derivative contract, we designate the derivative as (1) a hedge of (a) the fair value of a recognized asset or liability or (b) an unrecognized firm commitment (a “fair value” hedge); (2) a hedge of (a) a forecasted transaction or (b) the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash flow” hedge); or (3) a foreign-currency fair value or cash flow hedge (a “foreign currency” hedge). Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive income, until earnings are affected by the variability of cash flows of the hedged transaction (e.g. until periodic settlements of the variable-rate asset or liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative exceeds the variability in the cash flows of the forecasted transaction) is recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a foreign currency hedge are recorded in either current-period earnings or other accumulated comprehensive income, depending on whether the hedging relationship satisfies the criteria for a fair value or cash flow hedge, respectively. Changes in the fair value of derivative financial instruments that did not qualify for hedge treatment under SFAS 133 are reported in current-period earnings.

We formally document all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions. This includes linking all derivatives that are designated as fair value, cash flow, or foreign currency hedges to specific assets or liabilities on the balance sheet. We also assess (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flow of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively, as discussed below.

We discontinue hedge accounting prospectively when (1) we determine that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; or (3) management determines that designating the derivative as a hedging instrument is no longer appropriate.

In all situations in which hedge accounting is discontinued and the derivative remains outstanding, we carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.

42

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note A — Summary of Significant Accounting Policies (Continued)

Marketable Securities: We classify our investments in marketable securities as “available-for-sale” in accordance with the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). Available-for-sale securities are carried at fair value with the unrealized gain or loss, net of tax, reported in other comprehensive income. Unrealized losses considered to be “other-than-temporary” are recognized currently in earnings.

Variable Interest Entities: We consolidate variable interest entities in accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”). The variable interest entities that we consolidate consist of ten entities, to which we have sold aircraft and we have determined we are the primary beneficiary. The entities are owned by third parties and we provided financing or guaranteed third party financing to those entities. Each of the entities owns one aircraft each. The financing agreements are collateralized by the aircraft. Assets in the amount of $138,277 (2005) and $152,417 (2004) and liabilities in the amount of $65,197 (2005) and $70,886 (2004) are included in our Consolidated Balance Sheets and losses (gains) in the amounts of $(1,777) (2005), $4,093 (2004) and $(120) (2003) are included in our Consolidated Statements of Income. At December 31, 2003, when we adopted FIN 46R, we recorded an $11,091 after-tax charge as a cumulative effect of an accounting charge related to these entities. In addition, the adoption of FIN 46R required us to consolidate synthetic lease transactions related to seven aircraft. We recorded an after-tax gain of $2,449 as a cumulative effect of an accounting change in 2003 related to the synthetic lease transactions. These transactions expired in 2004 and we bought back the seven aircraft.

Other Comprehensive Income (Loss): We report comprehensive income or loss in accordance with SFAS No. 130, “Reporting Comprehensive Income.” Our other comprehensive income (loss) reported in shareholders’ equity as Accumulated other comprehensive income (loss) consists of gains and losses associated with changes in fair value of derivatives designated as cash flow hedges in accordance with SFAS 133 and unrealized gains on marketable securities classified as “available-for-sale.”

Guarantees: We account for guarantees in accordance with FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others.” The fair value of guarantees entered into after December 31, 2002 are included in “Accrued interest and other payables” on the 2005 and 2004 Consolidated Balance Sheets.

Income Taxes:  The Company and its U.S. subsidiaries are included in the consolidated federal income tax return of AIG. The provision for federal income taxes is calculated, generally on a separate return basis adjusted to give recognition to the effects of net operating losses, foreign tax credits and the benefit of the Foreign Sales Corporation (“FSC”) and Extraterritorial Income Exclusion (“ETI”) provisions of the Internal Revenue Code to the extent they are currently realizable in AIG’s consolidated return. Income tax payments are made pursuant to a tax payment allocation agreement whereby AIG credits or charges us for the corresponding increase or decrease (not to exceed the separate return basis calculation) in AIG’s current taxes resulting from our inclusion in AIG’s consolidated tax return. Intercompany payments are made when such taxes are due or tax benefits are realized by AIG.

The Company and its U.S. subsidiaries are included in the combined state unitary tax returns of AIG, including California. We also file separate returns in certain other states, as required. The provision for state income taxes is calculated, generally on a separate return basis giving effect to the AIG unitary rate and credits and charges allocated to us by AIG, based upon the combined filings and the resultant current tax payable.

The deferred tax liability is determined based on the difference between the financial statement and tax basis of assets and liabilities and is measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is determined by the change in the liability for deferred taxes (“Liability Method”). Current

43

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note A — Summary of Significant Accounting Policies (Continued)

income taxes on the balance sheet principally represent amounts receivable or payable from/to AIG under the tax sharing agreements.

Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications:  Certain amounts have been reclassified in the 2004 and 2003 financial statements to conform to our 2005 presentation.

New Accounting Pronouncement: In December 2004, the FASB issued SFAS No. 123R “Share-Based Payment” (“SFAS 123R”). This standard is a revision of SFAS No. 123 “Accounting forStock-Based Compensation” and supersedes Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees”, and its related implementation guidance. SFAS 123R requires allshare-based payments to employees, including grants of employee stock options to be recognized in the financial statements based on their fair values. The cost will be recognized over the period during which an employee is required to provide service in exchange for the options. SFAS 123R, is effective for nonpublic entities the first interim or annual reporting period that begins after December 15, 2005. We participate in AIG’s, share-based payment programs. AIG adopted SFAS 123R in the quarter beginning July 1, 2005 and they allocate our share of the calculated costs to us. The impact on our Consolidated Statement of Income for the year ending December 31, 2005 was $896.

In May 2005, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS No. 154 requires retroactive application to prior periods’ financial statements of a voluntary change in accounting principles unless it is impracticable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with earlier application permitted to accounting changes and corrections of errors made in fiscal years beginning after May 31, 2005.

Note B — Notes Receivable

Notes receivable are primarily from the sale of flight equipment and are summarized as follows:

	2005		2004
Fixed rate notes receivable due in varying installments to 2025:
Below 6.00%	$	130,491	$	150,927
6% to 7.99%		33,698		25,092
8% to 9.99%		17,762		36,254
	$	181,951	$	212,273

Included above are notes receivable (net of allowance) of $23,065 (2005) and $33,643 (2004) representing restructured lease payments. At December 31, 2005, we had $18,150 receivables from lessees who had filed for bankruptcy protection.

44

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note B — Notes Receivable (Continued)

At December 31, 2005, the minimum future payments on notes receivable are as follows:

2006	$	22,405
2007(a)		74,386
2008		22,787
2009		10,090
2010		8,415
Thereafter		43,868
	$	181,951

(a)  Includes a balloon payment for a note related to a sale of flight equipment.

Note C — Net Investment in Finance Leases

The following lists the components of the net investment in finance leases:

	December 31,			December 31,
	2005			2004
Total lease payments to be received	$	414,283		$	406,112
Estimated residual values of leased flight equipment (unguaranteed)		135,028			132,558
Less: Unearned income		(240,840	)		(231,204	)
Net investment in finance leases	$	308,471		$	307,466

At December 31, 2005, minimum future lease payments on finance leases are as follows:

2006	$	43,280
2007		35,667
2008		35,822
2009		31,904
2010		30,404
Thereafter		237,206
Total minimum lease payments to be received	$	414,283

Note D — Investments

Investments consist of the following:

	December 31,		December 31,
	2005		2004
Marketable securities; at value	$	8,248	$	9,223
Other securities		12,065		13,756
	$	20,313	$	22,979

Our investments in marketable securities are classified as available-for-sale. These investments are stated at fair value with any unrealized holding gains or losses, net of tax, included in Other comprehensive income (loss) until realized. Unrealized losses are charged against net income when a decline in value is determined to be other than temporary. The determination that a security has incurred an other-than temporary decline in value and the

45

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note D — Investments (Continued)

amount of any loss recognition requires management’s judgement and continual review of our investments. We recorded $0 (2005), $661 (2004) and $0 (2003) of charges for other-than-temporary declines. In 2005, we received proceeds in the amount of $7,368 for sale of marketable securities and recorded a gain of $4,858. We used specific identification when determining the book value.

Other securities consist of American Trans Air (“ATA”) non-voting preferred stock, two joint ventures (ILTU LLC and 21937 LLC) that each own one aircraft on lease to third parties, and other minor investments. We have a 50% interest in ILTU Ireland (“ILTU”), an Irish corporation. We have a 99% interest in 21937 LLC (“21937”). Management has determined that 21937 is a VIE, as defined by FIN-46R, but we have determined that we are not the primary beneficiary as defined byFIN-46R, and as such, we do not consolidate the entity.

Note E — Debt Financing and Capital Lease Obligations

Debt financing and capital lease obligations are comprised of the following:

	2005			2004
Commercial Paper	$	2,625,409		$	2,675,247
Public Term Debt with Single Maturities		13,813,700			11,544,575
Public Medium-Term Notes with Varying Maturities		4,689,365			5,972,171
Bank Term Debt		4,014,573			2,973,525
Junior Subordinated Debt		1,000,000			—
Capital Lease Obligations		—			39,580
Less: Deferred Debt Discount		(38,882	)		(29,502	)
	$	26,104,165		$	23,175,596

The above amounts represent the anticipated settlement of our outstanding debt obligations. Certain adjustments required to present currently outstanding debt obligations have been recorded and presented separately on the face of the balance sheet, including adjustments related to foreign currency and interest rate hedging activities.

Commercial Paper

We have a $6.0 billion Commercial Paper Program. Under this program, we may borrow in minimum increments of $100 thousand for a period from one day to 270 days. The weighted average interest rate of our outstanding commercial paper was 4.17%, 2.34% and 1.07% at December 31, 2005, 2004 and 2003, respectively.

Bank Commitments

During 2005, we had two $500 million, 180 day revolving credit agreements with banks, each with a one-year term out option, both of which matured prior to December 31, 2005. At December 31, 2005 we had committed revolving credit agreements with 30 banks aggregating $6.0 billion, including a $2.0 billion364-day tranche that expires in October of 2006 with a one-year term out option, a $2.0 billion five-year tranche that expires in October of 2009 and a $2.0 billion five-year tranche that expires in October of 2010. These revolving loans and lines of credit provide for interest rates that vary according to the pricing option in effect at the time of borrowing. Pricing options include prime, a range from .25% over LIBOR to 1.85% over LIBOR based upon utilization, or a rate determined by a competitive bid process with the banks. The revolving loans and lines of credit are subject to facility fees of up to .10% of amounts available. This financing is used as backup for our maturing debt and other obligations. We expect to replace or extend these credit agreements on or prior to their expiration dates. We had not drawn any funds under our committed revolving loans and lines of credit at December 31, 2005 and 2004, respectively.

46

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note E — Debt Financing and Capital Lease Obligations (Continued)

Public Debt

As of December 31, 2005, we had two effective U.S. shelf registration statements and a Euro Note Programme:

	Maximum			Sold as of
	Offering			December 31, 2005
Registration statement dated December 20, 2002 (including $2.88 billion Medium-Term Note program and $1.0 billion Retail Medium-Term Note Program)	$	6,080,000	(a)	$	5,710,000
Registration statement dated December 28, 2004 (including $2.0 billion Medium-Term Note program)		7,045,000	(b)		2,950,000
Euro Medium-Term Note Programme dated May 2004(c)(d)		7,000,000			4,979,000

(a)  Includes $1,080,000, which was incorporated into the registration statement from a prior registration statement, increasing the maximum offering from $5,000,000 to $6,080,000.

(b)  Includes $2,045,000, which was incorporated into the registration statement from a prior registration statement, increasing the maximum offering from $5,000,000 to $7,045,000.

(c)  We have hedged the foreign currency risk of the notes through derivatives or through the offset provided by operating lease payments denominated in the related currency.

(d)  This is a perpetual program. As a bond issue matures, the principal amount of that bond becomes available for new issuances under the program.

47

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note E — Debt Financing and Capital Lease Obligations (Continued)

Public Term Debt with Single Maturities

We have issued the following Notes which provide for a single principal payment at maturity and cannot be redeemed prior to maturity:

	Initial
	Term	2005		2004
Floating Rate Notes due January 13, 2005	2 years	$	—	$	625,000
4.375% Notes due December 15, 2005	3 years		—		160,000
2.95% Notes due May 23, 2006	3 years		325,000		325,000
5.75% Notes due October 15, 2006	5 years		700,000		700,000
5.75% Notes due February 15, 2007	5 years		500,000		500,000
5.625% Notes due June 1, 2007	5 years		900,000		900,000
3.75% Notes due Aug 1, 2007	4 years		250,000		250,000
5.491% Notes due November 30, 2007	5 years		110,000		110,000
4.75% Notes due February 15, 2008	5 years		250,000		250,000
4.50% Notes due May 1, 2008	5 years		400,000		400,000
4.35% Notes due September 15, 2008	5 years		400,000		400,000
63/8% Notes due March 15, 2009	7 years		750,000		750,000
3.50% Notes due April 1, 2009	5 years		600,000		600,000
4.75% Notes due July 1, 2009	5 years		500,000		500,000
5.00% Notes due April 15, 2010	5 years		800,000		—
4.875% Notes due September 1, 2010	5 years		600,000		—
5.125% Notes due November 1, 2010	5 years		350,000		—
4.75% Notes due January 13, 2012	7 years		500,000		—
5.00% Notes due September 15, 2012	7 years		300,000		—
5.875% Notes due May 13, 2013	10 years		600,000		600,000
Foreign Currency Denominated Medium Term Notes:
4.00% Euro Notes due April 25, 2005 (swapped to US$ at 5.4714%)	3 years		—		666,375
Floating Rate Euro Notes due June 26, 2006 (swapped to US$)	3 years		702,600		702,600
6.00% Euro Notes due October 24, 2007 (partially swapped to US$ at 6.398%)	5 years		444,250		444,250
4.125% Euro Notes due October 9, 2008 (swapped to US$ at 4.225%)	5 years		584,900		584,900
Floating Rate Euro Notes due November 12, 2008 (swapped to US$ at 4.370%)	5.5 years		912,750		912,750
6.625% Sterling Notes due December 7, 2009 (swapped to US$ at 6.9326%)	7 years		431,700		431,700
Floating Rate Euro Notes due July 6, 2010 (swapped to US$ at 4.615%)	6 years		732,000		732,000
Floating Rate Euro Notes due August 15, 2011 (swapped to US$ at 5.367%)	6 years		876,375		—
Floating Rate Euro Notes due August 15, 2011 (swapped to US$ at 5.355%)	6 years		294,125		—
		$	13,813,700	$	11,544,575

We have a Euro Medium-Term Note Program for $7,000,000, under which $4,978,700 (€4.0 billion and £300 million) in notes were outstanding at December 31, 2005. The program is perpetual. As a bond issue matures, the principal amount of that bond becomes available for new issuances under the program. We have eliminated the

48

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note E — Debt Financing and Capital Lease Obligations (Continued)

currency exposure arising from the notes by either hedging the notes through swaps or through the offset provided by operating lease payments denominated in Euros. We translate the debt into U.S. Dollars using current exchange rates prevailing at the balance sheet date. The foreign exchange adjustment for the foreign currency denominated notes was $197,074 (2005) and $1,215,809 (2004).

Public Medium-Term Notes with Varying Maturities

At December 31, 2005 our Medium-Term Notes bear interest at rates varying between 2.250% and 6.980%, with maturities from 2006 through 2013. The Medium-Term Notes provide for a single principal payment at the maturity of the respective note and cannot be redeemed prior to maturity.

Bank Term Debt

In January 1999, we entered into an Export Credit Facility for up to a maximum of $4.3 billion, for up to 75 aircraft to be delivered from 1999 through 2001. We had the right, but were not required, to use the facility to fund 85% of each aircraft’s purchase price. This facility is guaranteed by various European Export Credit Agencies. The interest rates varies from 5.753% to 5.898% depending on the delivery date of the aircraft. We financed 62 aircraft using $2.8 billion and at December 31, 2005 and 2004, $1.2 billion and $1.5 billion was outstanding under this facility. We have collateralized the debt by a pledge of the shares of a subsidiary which holds title to the aircraft financed under this facility. The flight equipment associated with the obligations, included in “Flight equipment under operating leases” on the Consolidated Balance Sheets, had a net book value of $2.8 billion (2005) and $2.9 billion (2004).

We have entered into funded bank financing agreements. At December 2005 and 2004 we had totals of $1.4 billion and $1.3 billion outstanding with varying maturities through 2010. One tranche of one of the loans totaling $410 million was funded in Japanese yen and swapped to U.S. Dollars. The interest rates are LIBOR based with spreads ranging from 0.325% to 1.625% at December 31, 2005.

In May 2004, we entered into an Export Credit Facility for up to a maximum of $2.64 billion, for Airbus aircraft to be delivered from 2004 through May 2006. At December 2005, 23 aircraft were financed under the facility. The facility was used to fund 85% of each aircraft’s purchase price. This facility became available as the various European Export Credit Agencies provided their guarantees for aircraft based on a six-month forward-looking calendar. The financing is for a ten-year fully amortizing loan per aircraft at an interest rate determined through a bid process. We have collateralized the debt by a pledge of the shares of a subsidiary which holds title to the aircraft financed under this facility. At December 31, 2005 and 2004, we had $1.4 billion and $201.6 million outstanding under this facility.

Junior Subordinated Debt

In December 2005, we entered into two tranches of junior subordinated debt totaling $1,000,000. Both mature on December 21, 2065, but each tranche has a different call option. The $600,000 tranche has a call date of December 21, 2010 and the $400,000 tranche has a call date of December 21, 2015. The note with the 2010 call date has a fixed interest rate of 5.90% for the first five years. The note with the 2015 call date has a fixed interest rate of 6.25% for the first ten years. Both tranches have interest rate adjustments if the call option is not exercised. The new interest rate is a floating quarterly reset rate based on the initial credit spread plus the highest of (i) 3 mo LIBOR,(ii) 10-year constant maturity treasury and(iii) 30-year constant maturity treasury.

49

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note E — Debt Financing and Capital Lease Obligations (Continued)

Capital Lease Obligations

Our capital lease obligations provided 10 year, fully amortizing debt in two interest rate tranches. The first 62.5% of the original debt is at a fixed rate of 6.55%. The second 22.5% of the original debt is at fixed rates varying between 6.18% and 6.89%. These two tranches are guaranteed by various European Export Credit Agencies. We prepaid the remaining 15% of the original financed amount. The remaining outstanding debt matured in 2005.

Maturities of debt financing (excluding commercial paper and deferred debt discount) at December 31, 2005 are as follows:

2006	$	4,018,942
2007		3,799,466
2008		4,311,619
2009		3,832,951
2010		3,298,522
Thereafter		4,256,138
	$	23,517,638

Other

Under the most restrictive provisions of the related borrowings, consolidated retained earnings at December 31, 2005, in the amount of $1,989,810, are unrestricted as to payment of dividends based on consolidated tangible net worth requirements.

We have entered into various debt and derivative transactions with AIGFP. We executed $2,787,156 and $1,780,582 notional amount of derivative instruments with AIGFP during 2005 and 2004, respectively. See Note L — Derivative Financial Instruments.

Note F — Shareholders’ Equity

Preferred Stock

Our certificate of incorporation, as amended, provides for up to 20,000,000 shares of preferred stock that may be issued in one or more series and with such stated value and terms as may be determined by the Board of Directors.

Market Auction Preferred Stock

The Market Auction Preferred Stock (“MAPS”) have a liquidation value of $100 thousand per share and are not convertible. The dividend rate, other than the initial rate, for each dividend period for each series is reset approximately every 7 weeks (49 days) on the basis of orders placed in an auction. During 2001 we extended the Series A MAPS to 5 years at a dividend rate of 5.90%. At December 31, 2005, the dividend rate for Series B MAPS was 4.51%.

Common Stock

On August 11, 2005, we issued 3,069,604 shares of common stock to an existing shareholder for approximately $400 million.

50

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note F — Shareholders’ Equity (Continued)

Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of fair value adjustments of derivative instruments that qualify as cash flow hedges and unrealized gains on marketable securities classified as “available-for-sale.” The fair value of derivatives were determined using market values obtained from a related partybroker-dealer. The fair value of marketable securities were determined using quoted market prices.

Note G — Rental Income

Minimum future rentals on non-cancelable operating leases and subleases of flight equipment which have been delivered at December 31, 2005 are shown below. This does not include the rentals to be received from lessees as a result of payments made to them directly by the aircraft manufacturers.

Year Ended
2006		3,226,988
2007		2,813,189
2008		2,295,793
2009		1,820,275
2010		1,489,679
Thereafter		3,740,564
	$	15,386,488

Additional rentals we earned based on the lessees’ usage aggregated $488,644 (2005), $368,264 (2004), and $289,405 (2003). Flight equipment is leased, under operating leases, with remaining terms ranging from one to 16 years.

Note H — Flight Equipment Rent and Off Balance Sheet Arrangements

During 1995, 1996 and 1997, through subsidiaries, we entered into sale-leaseback transactions providing proceeds to us in the amounts of $412,626, $507,600 and $601,860, respectively, each relating to seven aircraft. The transactions resulted in the sale and leaseback of these aircraft under one-year operating leases, each with six one-year extension options for a total of seven years for each aircraft. We repurchased three aircraft before the lease terminated, which were sold to third parties, and repurchased the remaining eighteen aircraft when the leases expired in December 2002 and September 2003 and 2004. The lease rates equated to fixed principal amortization and floating interest payments based on LIBOR or commercial paper pricing. We adopted FIN 46 during the financial year ended December 31, 2003 and determined that the entity related to the remaining sale-leaseback transaction was a VIE in which we were a primary beneficiary as defined by FIN 46R. As a result, we consolidated the remaining entity at December 31, 2003 and ceased to record rental expense, recorded flight equipment of $462.7 million, synthetic lease obligations in the amount of $464.2 million, a net decrease in other liabilities of $3.9 million and an after tax gain of $2.4 million as a cumulative effect of accounting change.

51

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note I — Income Taxes

The provision (benefit) for income taxes is comprised of the following:

	2005			2004			2003
Current:
Federal(a)	$	(180,243	)	$	(43,912	)	$	(5,521	)
State		(1,461	)		7			746
Foreign		818			675			993
		(180,886	)		(43,230	)		(3,782	)
Deferred(b):
Federal		409,058			244,212			196,276
State(c)		(726	)		5,119			4,189
		408,332			249,331			200,465
	$	227,446		$	206,101		$	196,683

(a)  Including U.S. tax on foreign income

(b)  Deferred taxes were also provided (charged) to other comprehensive income of $35,115 (2005), $(27,329) (2004), and $(32,223) (2003) and for cumulative effect of accounting change of $4,653 (2003).

(c)  Includes a benefit of $6,027 (2005) and a charge of $564 (2004) for revaluation of state deferred taxes as a result of a change in our California apportionment factor.

The net deferred tax liability consists of the following deferred tax liabilities (assets):

	2005			2004
Deferred Tax Liabilities
Accelerated depreciation on flight equipment	$	3,207,552		$	2,758,768
Indirect payment for manufactures		36,546			15,414
Straight line rents		20,474			20,486
Other comprehensive income		49,386			12,291
Total Deferred Tax Liabilities	$	3,313,958		$	2,806,959
Deferred Tax Assets
Excess of state income taxes not currently deductible	$	(11,384	)	$	(12,114	)
Provision for overhauls		(50,326	)		(24,097	)
Capitalized overhauls		(32,615	)		(32,360	)
Rent received in advance		(74,334	)		(61,931	)
Investments		(5,316	)		(6,965	)
Derivatives		(25,068	)		(24,307	)
Accruals and reserves		(32,858	)		(6,665	)
Other		(6,512	)		(8,402	)
Total Deferred Tax Assets		(238,413	)		(176,841	)
Net Deferred Tax Liability	$	3,075,545		$	2,630,118

52

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note I — Income Taxes (Continued)

A reconciliation of the computed expected total provision for income taxes to the amount recorded is as follows:

	2005			2004			2003
Computed expected provision @ 35%	$	227,642		$	233,838		$	224,282
State income tax, net of Federal		(1,421	)		3,332			3,208
FSC & ETI		(36,338	)		(30,979	)		(29,598	)
Foreign Taxes		976			721			(1,242	)
Audit Adjustments (a)		24,770			—			—
Other		11,817			(811	)		33
Provision for Income Taxes	$	227,446		$	206,101		$	196,683

(a)  During the fourth quarter of 2005, we were advised of certain IRS and other adjustments identified in the U.S. Consolidated AIG tax return which were attributable to our operations. Under our tax sharing arrangement, we were charged for the effect of the adjustments and the related interest attributable to our operations.

We have certain foreign subsidiaries which are treated as branches for U.S. income tax purposes. We have not provided any foreign deferred tax liabilities with respect to these foreign branch operations, as any future foreign tax attributable to these foreign branch operations will be offset by fully realizable foreign tax credits.

Federal tax benefits provided by the Extraterritorial Income Exclusion (“ETI”) and the Foreign Sales Corporation (“FSC”) will not be available after 2006. In October 2004, Congress passed the American Jobs Creation Act of 2004, repealing the corporate export tax benefits under the ETI, after the World Trade Organization (“WTO”) ruled the export subsidies were illegal. Under the act, ETI export tax benefits for corporations would be phased out in 2005 and 2006 and cease to exist for the year 2007. On January 26, 2006, the WTO ruled the American Jobs Creation Act fails to fully implement the recommendations from the Dispute Settlement Body as long as it includes transitional and grandfathering measures. We expect our effective tax rate to rise to a rate more consistent with the “expected” statutory rate as these benefits cease to exist.

In 2002 and 2003, we participated in certain tax planning activities with our parent, AIG and related entities, which provided certain tax and other benefits to the AIG consolidated group. As a result of our participation in these activities, AIG shared a portion of the tax benefits of these activities attributable to us which aggregated $245,000. We are required to repay $160,000 in 2007 and $85,000 in 2009 to AIG. The liability is recorded in “Tax benefit sharing payable to AIG” in the Consolidated Balance Sheet.

Note J — Other Information

Concentration of Credit Risk

We lease and sell aircraft to airlines and others throughout the world. The lease and notes receivables are from entities located throughout the world. We generally obtain deposits on leases and obtain collateral in flight equipment on notes receivable. We have one customer, Air France (lease revenues of approximately $364,600 or 10.4% in 2005 and $309,500 or 10.5% in 2004), which accounted for 10% or more of Rental of flight equipment revenue. No single customer accounted for more than 10% of total revenues in 2003.

2005 revenues from rentals of flight equipment includes a $105,229 (3.0% of total revenue) from lessees who have filed for bankruptcy protection.

53

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note J — Other Information (Continued)

Segment Information

We operate within one industry: the leasing, sales and management of flight equipment.

Revenues include rentals of flight equipment to foreign airlines of $3,110,798 (2005) $2,662,182 (2004), and $2,497,085 (2003). Lease revenues from the rental of flight equipment have been reduced by payments received by our customers from the aircraft and engine manufacturers.

The following table sets forth the dollar amount and percentage of total rental revenues attributable to the indicated geographic areas based on each airline’s principal place of business for the years indicated:

	2005					2004					2003
	Amount		%			Amount		%			Amount		%
Europe	$	1,694,841		48.4	%	$	1,432,441		48.5	%	$	1,315,851		46.9	%
Asia/Pacific		775,047		22.1			689,201		23.3			661,956		23.6
United States and Canada		482,157		13.8			382,090		12.9			424,457		15.0
Central, South America and Mexico		253,667		7.3			208,622		7.1			221,067		7.9
Africa and the Middle East		294,623		8.4			243,170		8.2			183,880		6.6
	$	3,500,335		100	%	$	2,955,524		100	%	$	2,807,211		100	%

The following table sets forth revenue attributable to individual countries represent at least 10% of total revenue based on each airline’s principal place of business for the years indicated (2004 United States is shown for comparison:

	2005					2004					2003
	Amount		%			Amount		%			Amount		%
France	$	442,402		12.6	%	$	351,394		11.9	%	$	326,010		11.6	%
China		423,445		12.1			357,512		12.1			308,204		11.0
United States		389,536		11.1			236,353		8.0	%		310,126		11.0

Currency Risk

We attempt to minimize our currency and exchange risks by negotiating most of our aircraft leases in U.S. Dollars. Some of our leases, however, are negotiated in Euros to meet the needs of a growing number of airlines. We have hedged the majority of future lease payments receivable through 2010. The remainder of Euro denominated leases receivable are partly used as an economic hedge against $40,000 of our Euro denominated debt obligations maturing in 2007. We bear risk of receiving less U.S. Dollar rental revenue on lease payments not hedged and incurring future currency losses on cash held in Euros if the value of the Euro deteriorates against the U.S. Dollar. Foreign currency translation gain (loss) has not been material to our consolidated financial statements to date.

Employee Benefit Plans

Our employees participate in various benefit plans sponsored by AIG, including a noncontributory qualified defined benefit retirement plan, various stock option and purchase plans and a voluntary savings plan (401(k) plan). Charges in the amounts $2,488 (2005), $1,394 (2004) and $305 (2003), for our allocated cost of those plans are included in “Selling, general and administrative” on our Consolidated Statements of Income.

54

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note J — Other Information (Continued)

AIG’s U.S. plans do not separately identify projected benefit obligations and plan assets attributable to employees of participating affiliates. AIG’s projected benefit obligations exceeded the plan assets at December 31, 2005 by $569 million.

Note K — Commitments and Contingencies

Aircraft Orders

At December 31, 2005, we had committed to purchase 338 new and used aircraft scheduled to deliver from 2006 through 2015 at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $23.3 billion. We also had options to purchase an additional 16 new aircraft at an estimated aggregate purchase price of $1.5 billion. Most of these purchase commitments and options to purchase new aircraft are based upon master agreements with each of The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”). The recorded basis of aircraft may be adjusted upon delivery to reflect notional credits given by the manufacturers in connection with the leasing of aircraft.

The Boeing aircraft (models 737, 747, 777 and 787), and the Airbus aircraft (models A318, A319, A320, A321, A330, A340, A350 and A380) are being purchased pursuant to agreements executed by us and Boeing or Airbus. These agreements establish the pricing formulas (which include certain price adjustments based upon inflation and other factors) and various other terms with respect to the purchase of aircraft. Under certain circumstances, we have the right to alter the mix of aircraft type ultimately acquired. As of December 31, 2005, we had made non-refundable deposits (exclusive of capitalized interest) on the aircraft which we have committed to purchase of approximately $421,000 and $548,000 with Boeing and Airbus, respectively.

Management anticipates that a significant portion of the aggregate purchase price will be funded by incurring additional debt. The exact amount of the indebtedness to be incurred will depend upon the actual purchase price of the aircraft, which can vary due to a number of factors, including inflation, and the percentage of the purchase price of the aircraft which must be financed.

Asset Value Guarantees

We have guaranteed a portion of the residual value of 20 aircraft to financial institutions. These guarantees expire at various dates through 2013 and generally provide for us to pay the difference between the fair market value of the aircraft and the guaranteed value up to certain specified amounts, or, at our option, purchase the aircraft for the guaranteed value. At December 31, 2005, the maximum exposure if we were to pay under such guarantees was $58,889. In addition, we have written put options for 11 aircraft in the amount of $343,550. Management regularly reviews the underlying values of the collateral aircraft, to determine the exposure under these guarantees and options. At December 31, 2004, we recorded a $5,600 loss contingency related to certain exercised put options. We have adopted FIN 45 for guarantees entered into after December 31, 2002. Guarantees in the amounts of $10,037 (2005) and $5,507 (2004), are included in “Accrued interest and other liabilities” on our Consolidated Balance Sheets.

Other Guarantees

We have guaranteed certain obligations for entities in which we have an investment. We had guaranteed loans at December 31, 2005, all but one collateralized by aircraft. As a result of our adoption of FIN 46, we consolidate all but one of the entities with loan guarantees collateralized by aircraft. Assets in the amount of $138,277 (2005) and $152,417 (2004) and liabilities in the amount of $65,197 (2005) and $70,886 (2004) related to these entities are included in our Consolidated Balance Sheets. The loan balances of the entities that are not consolidated was $48,444 and $39,282 at December 31, 2005 and 2004, respectively.

55

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note K — Commitments and Contingencies (Continued)

We had guaranteed obligations to ATA in connection with a global aircraft lease transaction entered into in 2000 for a total of 14 aircraft. In 2004, we recorded a charge to income in the amount of $25,026 related to the guarantee after ATA filed for bankruptcy on October 26, 2004. The liability is in the form of a derivative to which we became a counterparty. Net payments made/received has been recorded in income and the derivative is reported in our Consolidated Balance Sheets at fair value.

Stand by Lines of Credit

We have extended unsecured lines of credit to two entities in the amount of $60,000. At December 31, 2005 one of the entities had drawn $10,000 on its unsecured line of credit. The amount is included in “Notes receivable” on our Consolidated Balance Sheets.

Leases

We have operating leases for office space and office equipment extending through 2015. Rent expense was $9,333 (2005), $13,216 (2004) and $3,575 (2003). Commitments for minimum rentals under the noncancelable leases at the end of 2004 are as follows:

2006	$	8,635
2007		8,952
2008		9,303
2009		9,594
2010		9,969
Thereafter		47,574
Total	$	94,027

Contigencies

“In connection with the January 3, 2004 crash of our 737-300 aircraft on lease to Flash Airlines in Egypt, lawsuits filed by the families of 124 of the 148 victims on the flight against us, Boeing, Honeywell International Inc and Parker-Hannifin Corporation in the Court of First Instance at Bobigny in France. These plaintiffs have also sued Flash Airlines and its insurer in the same French court. In addition, lawsuits have been filed by the families of two of the victims on the flight against the Company, Ozark Aircraft Systems LLC and several individuals (including one ILFC employee) in the U.S. District Court for the Western District of Arkansas. We believe the Company is adequately covered in all of these cases by the liability insurance policies carried by Flash Airlines and has substantial defenses to the actions. We do not believe the outcome of these lawsuits will have a material effect on our liquidity, financial condition or results of operations.”

Between December 2001 and March 2003, we restructured the ownership of aircraft in certain lease transactions in Australia. The Australian Tax Office (“ATO”) has investigated how the goods and services tax laws of Australia (“GST”) relate to these transactions. In September 2004, we filed a Summons in the Supreme Court of New South Wales seeking declaratory relief affirming our positions on the technical GST aspects of the restructurings. In April 2005, the ATO issued their final compliance report and assessments against both ILFC Australia (“ILFCA”) and Interlease Aircraft Trading (“IATC”), both wholly owned subsidiaries of ILFC and parties to the restructuring. The assessments were made for the full tax credits claimed, including penalties and interest against both parties. Our request for declaratory relief was dismissed as a result of the assessments issued. In November 2005, our appeal of the dismissal was denied. Management believes that there are substantial arguments in support of our position and we have appealed the assessments. In January 2006, the ATO began recovery

56

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note K — Commitments and Contingencies (Continued)

proceedings against ILFCA to collect the outstanding assessments, and have initiated activities to stay the recovery proceeding and settle the matter. A charge in the amount of $38,275 is included in Other expenses in our 2005 Consolidated Statement of Income. In March 2006, we reached an agreement in principle to settle all outstanding matters with the ATO. The settlement approximates amounts accrued as of December 31, 2005.

We are also a party to various other claims and matters of litigation incidental to the normal course of our business. We believe that the final resolution of these matters will not have a material adverse effect on our financial position, cash flows or results of operations.

Note L — Derivative Financial Instruments

In the normal course of business, we employ a variety of derivative transactions with the objective of lowering our overall borrowing cost, maintaining an optimal mix of variable and fixed rate interest obligations and managing our foreign currency exchange rate risk. These derivative products include interest rate and currency swap agreements and interest rate floors. We enter into derivative transactions only to economically hedge interest rate and currency risk and not to speculate on interest rates or currency fluctuation.

All derivatives are recognized on the balance sheet at their fair value and the change in fair value is recorded in operating income or accumulated other comprehensive income depending on the designation of the hedging instrument. Where hedge accounting is not achieved pursuant to SFAS 133, the change in fair value of the derivative is recorded in operating income.

We recorded hedge ineffectiveness in interest expense related to cross currency fair value hedges in the amount of $3,094 (2005), $1,097 (2004), and $700 (2003) and related to cash flow hedges in the amount of $777 (2005), $515 (2004) and $0 (2003). The Company recorded $(10,427) (2005), $5,495 (2004) and (29,020) (2003) in interest expense related to derivative instruments that does not qualify for hedge treatment under SFAS 133.

During the twelve months ended December 31, 2005, 2004 and 2003, the Company recorded the following income (loss) in earnings in accordance with SFAS 133:

	2005			2004			2003
Related to non-hedging instruments:
Changes in fair value of non-hedging instruments	$	10,427		$	12,201		$	(29,020	)
Changes in fair value of previously designated fair value hedging relationships no longer effective		—			(381,572	)		—
Offsetting changes in fair value of the previously designated hedged item		3,800			374,866			—
Related to designated fair value hedging relationships:
Changes in fair value of hedging instruments		(175,297	)		—			152,969
Offsetting changes in fair value of hedged items		172,203						(153,685	)
Ineffectiveness of cash flow hedges		(777	)		515			—
Total effect on earnings	$	10,356		$	6,010		$	(29,736	)

At December 31, 2005 and 2004, the Company’s accumulated other comprehensive income (loss) consisted of the following:

	2005		2004
Cumulative cash flow hedge loss adjustment, net of tax	$	90,445	$	19,959
Mark to market of securities held for sale, net of tax		1,270		2,866
Total accumulated other comprehensive income (loss)	$	91,715	$	22,825

57

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note L — Derivative Financial Instruments (Continued)

During the year ended December 31, 2005, $21,482 (net) was reclassified from accumulated other comprehensive income to interest expense when interest was paid or received on the Company’s cash flow hedges. The Company estimates that within the next twelve months it will amortize into earnings $7,134 of the pre-tax balance in accumulated other comprehensive income (loss) under cash flow hedge accounting in connection with the Company’s program to convert debt from floating to fixed rates.

Credit risk exposure arises from the potential that the counterparty may not perform under these derivative transactions. The counterparty for all of our derivatives is AIGFP, a related party. The derivatives are subject to a bilateral security agreement which, in certain circumstances, may allow one party to the agreement to require the second party to the agreement to provide collateral. We executed $2,790,419 and $1,780,582 notional amount of derivative instruments with AIGFP during 2005 and 2004, respectively.

Failure of AIGFP to perform under the agreement with respect to these transactions would have a material effect on our results of operations.

Note M — Fair Value Disclosures

We used the following methods and assumptions in estimating our fair value disclosures for financial instruments:

Cash:  The carrying value reported on the balance sheet for cash and cash equivalents approximates its fair value.

Notes receivable: The fair values for notes receivable are estimated using discounted cash flow analyses, using the prime rate plus 1%, except for floating rate notes where carrying value approximates fair market value.

Investments: It was not practicable to determine the fair value of the investments that we account for under the cost or equity method because of the lack of a quoted market price and their relative immateriality to our financial statements. The carrying amount of these investments at December 31, 2005 represents the original cost or original cost plus our share of earnings of the investment. For investments in marketable securities, we used a quoted market price in determining the fair value.

Debt financing: The carrying value of our commercial paper, floating rate term debt and term debt maturing within one year approximates its fair value. The fair value of our long-term debt is estimated using discounted cash flow analyses, based on our spread to U.S. Treasury bonds for similar debt at year-end.

Derivatives: Fair values were based on the use of AIGFP valuation models that utilize among other things, current interest, foreign exchange and volatility rates, as applicable.

Guarantees: As of December 31, 2005, our maximum commitment under the guarantees was $58,889. It is not practical to determine the fair value of such guarantees. Management regularly reviews the underlying values of the collateral aircraft, to determine the exposure under these guarantees. We have adopted FIN 45 for guarantees entered into after December 31, 2002. Guarantees are included in “Accrued interest and other liabilities” on our Consolidated Balance Sheets.

58

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note M — Fair Value Disclosures (Continued)

The carrying amounts and fair values of the Company’s financial instruments at December 31, 2005 and 2004 are as follows:

	2005						2004
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
	of Asset			of Asset			of Asset			of Asset
	(Liability)			(Liability)			(Liability)			(Liability)
Cash	$	157,960		$	157,960		$	99,747		$	99,747
Notes receivable		181,951			153,829			212,273			211,692
Investments		20,313			20,313			22,979			22,979
Debt financing (including foreign currency adjustment and capital lease obligations (2004) and excluding debt discount)		(26,340,121	)		(26,650,800	)		(24,420,907	)		(24,750,855	)
Derivative assets		293,576			293,576			1,191,602			1,191,602
Derivative liabilities		(49,549	)		(49,549	)		(38,810	)		(38,810	)
Guarantees		(10,037	)		(10,037	)		(5,507	)		(5,507	)

Note N — Flight Equipment Marketing — Securitization

We sold 37 aircraft to a trust during the third quarter of 2003 for approximately $1.0 billion. Accrued interest, other receivables and other assets includes $69,149 (2003) related to the transaction. The trust is primarily funded and owned by other subsidiaries of AIG and is consolidated by AIG. We do not consolidate the trust, nor do we consolidate the subsidiary. The transaction was structured similar to a securitization, in which the trust acquired the aircraft based on values assigned by independent appraisers. Further, an unaffiliated third party acted as capital market advisor and initial purchaser of the notes of the securitization.

On January 14, 2004, we sold 34 aircraft to a different trust for approximately $1.0 billion. The 2004 transaction is structured similarly to the 2003 transaction, and the trust is consolidated by AIG.

We recorded gains, net of expenses, in the amounts of $32,854 (2004) and $23,245 (2003) related to the transactions. The gains are included in “Flight equipment marketing — securitization” in our Consolidated Statements of Income. We continue to manage the aircraft sold to the trusts for a fee. At December 31, we recorded management fees in the amounts of $9,833 (2005), $10,209 (2004) and $1,291 (2003) in income related to management services provided to the trusts and $34 (2005) and $1,600 (2004) accounts receivable related to the management of those aircraft is included in “Accrued interest, other receivables and other assets” on our Consolidated Balance Sheet.

59

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)

Note O — Quarterly Financial Information (Unaudited)

ILFC has set forth below selected quarterly financial data for the years ended December 31, 2005 and 2004. The following quarterly financial information for each of the three months ended and at March 31, June 30, September 30, and December 31, 2005 and 2004 is unaudited.

	Quarter
	First		Second		Third		Fourth			Total
Fiscal 2005
Total Revenues	$	828,824	$	893,686	$	947,569	$	958,472		$	3,628,551
Pre-tax Income		189,018		183,917		174,231		103,240	(a)		650,406
Net Income		128,922		123,557		120,919		49,562	(b)		422,960
Fiscal 2004
Total Revenues	$	762,895	$	779,524	$	806,427	$	811,040		$	3,159,886
Pre-tax Income		189,744		173,617		187,996		116,750			668,107
Net Income		129,108		118,737		127,386		86,775			462,006

(a)  In the fourth quarter of 2005, we accrued $16.9 million of additional overhaul revenue based on estimated hours flown, net of overhaul provision. Previously such revenues have been recorded when received. As discussed in Note K, in the fourth quarter of 2005, we recorded a charge of $38,275 to settle the Australian Tax Office assessment.

(b)  As discussed in Note I, in the fourth quarter we recorded additional tax expense of $36,587 related to audit and other adjustments.

60

Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule

To the Shareholders and Board of Directors
of International Lease Finance Corporation:

Our audits of the consolidated financial statements referred to in our report dated March 14, 2006 appearing in this Annual Report onForm 10-K of International Lease Finance Corporation also included an audit of the financial statement schedule listed in Item 15(a)(2) of thisForm 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Los Angeles, California

March 14, 2006

61

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

COL. A	COL. B		COL. C			COL. D		COL. E
			ADDITIONS
					Charged to
	Balance at		Charged to		Other
	Beginning of		Costs and		Accounts —	Deductions —		Balance at
Description	Period		Expenses		Describe	Describe(a)		End of Period
	(Dollars in thousands)
Reserve for overhaul:
Year ended December 31, 2005	$	67,849	$	260,008		$	185,804	$	142,053
Year ended December 31, 2004	$	68,900	$	164,322		$	165,373	$	67,849
Year ended December 31, 2003	$	118,244	$	112,581		$	161,925	$	68,900

(a)  Reimbursements to lessees for overhauls performed and amounts transferred to buyers for aircraft sold.

62

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 16, 2006

INTERNATIONAL LEASE FINANCE CORPORATION

By  /s/  STEVEN F. UDVAR-HAZY

Steven F. Udvar-Hazy

Chairman of the Board and

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Signature	Title	Date
/s/  STEVEN F. UDVAR-HAZY Steven F. Udvar-Hazy	Chairman of the Board and Chief Executive Officer	March 16, 2006
/s/  LESLIE L. GONDA Leslie L. Gonda	Director, Chairman of the Executive Committee	March 16, 2006
/s/  JOHN L. PLUEGER John L. Plueger	Director, President and Chief Operating Officer	March 16, 2006
/s/  LOUIS L. GONDA Louis L. Gonda	Director	March 16, 2006
/s/  MARTIN J. SULLIVAN Martin J. Sullivan	Director	March 16, 2006
/s/  WILLIAM N. DOOLEY William N. Dooley	Director	March 16, 2006
/s/  STEVEN J. BENSINGER Steven J. Bensinger	Director	March 16, 2006
/s/  ALAN H. LUND Alan H. Lund	Director, Vice Chairman, Chief Financial Officer and Chief Accounting Officer	March 16, 2006

63

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

Since the Registrant is an indirect wholly owned subsidiary of AIG, no annual report to security holders or proxy statement, form of proxy or other proxy soliciting materials has been sent to security holders since January 1, 1990.

64