This management's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under ''Risk Factors'' and included in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission (the "SEC"). Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or "US GAAP". All references to "dollars" and "$" in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.
Certain items in this Quarterly Report on Form 10-Q (this "report"), and other information we provide from time to time, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to our ability to acquire, sell and lease aircraft, raise capital, pay dividends, and increase revenues, earnings and EBITDA and the global aviation industry and aircraft leasing sector. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "may," "will," "would," "could," "should," "seeks," "estimates" and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle Limited can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this report. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from Aircastle Limited's expectations include, but are not limited to, prolonged capital markets disruption and volatility, which may adversely affect our continued ability to obtain additional capital to finance our working capital needs, our pre-delivery payment obligations and other aircraft acquisition commitments, our ability to extend or replace our existing financings, and the demand for and value of aircraft; our exposure to increased bank and counterparty risk caused by credit and capital markets disruptions; general economic conditions and business conditions affecting demand for aircraft and lease rates; our continued ability to obtain favorable tax treatment in Bermuda, Ireland and other jurisdictions; our ability to pay dividends; high or volatile fuel prices, lack of access to capital, reduced load factors and yields and other factors affecting the creditworthiness of our airline customers and their ability to continue to perform their obligations under our leases; termination payments on our interest rate hedges; and other risks detailed from time to time in Aircastle Limited's filings with the SEC, including "Risk Factors" as previously disclosed in Aircastle's 2008 Annual Report on Form 10-K, and elsewhere in this report. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. Aircastle Limited expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
WEBSITE AND ACCESS TO COMPANY'S REPORTS The Company's Internet website can be found at www.aircastle.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website under "Investors - SEC Filings" as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
The information on the Company's website is not part of, or incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.

OVERVIEW
We are a global company that acquires, leases, and sells high-utility commercial jet aircraft to passenger and cargo airlines throughout the world. High-utility aircraft are generally modern, operationally efficient jets with a large operator base and long useful lives. As of September 30, 2009, our aircraft portfolio consisted of 128 aircraft and we had 60 lessees located in 34 countries. At September 30, 2009, the average age of the aircraft in our portfolio was 10.9 years and the average remaining lease term was 4.9 years, in each case weighted by net book value. Our revenues and income from continuing operations for the three and nine months ended September 30, 2009 were $165.7 million and $34.9 million and $434.8 million and $84.9 million, respectively.
Although current market conditions have significantly reduced the availability of equity and debt capital, we plan to grow our business and profits over the long term by continuing to employ our fundamental business strategy which includes:
(1) selectively investing in additional commercial jet aircraft and other aviation assets when attractively priced opportunities and cost effective financing are available;

(2) maintaining an efficient capital structure by using varying long-term debt structures to obtain cost effective financing and leveraging the efficient operating platform we have established; and

(3) reinvesting a portion of the cash flows generated by our business and from selective asset dispositions in additional aviation assets and/or our own debt and equity securities.

Extremely difficult financial market conditions and a weak global economy have reduced the supply of commercial financing available to airlines and aircraft leasing companies. This environment has also played a major role in changing the competitive landscape for aircraft lessors, with many large players undergoing restructuring and struggling with the financial and operational demands of large new aircraft deliveries. As a result, we believe there is considerable demand from airlines for sales and leasebacks while lessor market capacity for such transactions is quite limited.
We believe our team's capabilities in the global aircraft leasing market place us in a favorable position to explore new income-generating activities as capital becomes available for such activities. However, the financial markets continue to be very limited, which may constrain our ability to undertake new transactions. As such, during the near term, we intend to focus our efforts on investment opportunities that both tap commercial financial capacity where it accessible on reasonable terms and also where there is potential availability of debt that benefits from government guarantees either from the European Export Credit Agencies, or ECAs, or from the Export-Import Bank of the United States, or EXIM.
In addition to the current financial markets turmoil, the global economic slowdown has reduced both passenger and cargo air traffic, as evidenced by the sharp drop in traffic levels during the past few months. The International Air Transport Association reported year on year declines in international passenger traffic for the first nine months in 2009 of more than 5% and declines in international freight traffic in excess of 16%. This has translated into increased financial pressures on airlines as well as reduced demand for aircraft. With an average remaining lease term of 4.9 years and relatively modest scheduled releasing requirements over the next year, we believe our portfolio is well positioned. Our management team has significant experience in the leasing and technical management of aviation assets, and extensive experience managing lease restructuring and aircraft repossessions, which we believe is critical to mitigate our customer default exposure. However, we expect the business environment will continue to be very challenging for the aircraft leasing industry throughout 2009 and perhaps beyond.
We intend to pay regular quarterly dividends to our shareholders. On March 13, 2009, our board of directors declared a first quarter dividend of $0.10 per common share, or an aggregate of $7.9 million, for the three months ended March 31, 2009, which was paid on April 15, 2009 to holders of record on March 31, 2009. On June 10, 2009, our board of directors declared a second quarter dividend of $0.10 per common share, or an aggregate of $7.9 million, for the three months ended June 30, 2009, which was paid on July 15, 2009 to shareholders of record on June 30, 2009. On September 10, 2009, our board of directors declared a third quarter dividend of $0.10 per common share, or an aggregate of $7.9 million, for the three months ended September 30, 2009, which was paid on October 15, 2009 to shareholders of record on September 30, 2009. These dividends may not be indicative of the amount of any future dividends.

Revenues
Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease. In addition, we recognize revenue from lease termination payments and retained maintenance payments related to lease expirations. We also earn interest income from our debt investments.
Typically, our aircraft are subject to net operating leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs, although in a majority of cases we are obligated to pay a portion of specified maintenance or modification costs. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft, and market conditions at the time the lease is committed. The amount of rent we receive will depend on a number of factors, including the credit-worthiness of our lessees and the occurrence of delinquencies, restructurings and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry conditions and trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues. 2009 Lease Expirations and Lease Placements
• Scheduled lease expirations - placements. For our 20 owned aircraft originally having lease expirations in 2009, we executed leases and lease renewals, or commitments to lease or renew, with respect to 19 aircraft, including one aircraft we have taken back earlier than originally scheduled in 2009 on a consensual basis from a lessee. We are actively marketing the remaining aircraft. For the 19 aircraft, the weighted average lease term for the new leases or renewals will be six years with monthly lease rates that are approximately five percent higher than the previous rentals. The relatively strong lease rate performance reflects a generally strong market at the time the new leases or renewals were executed, when our strategy was to lock in re-lease and renewal rates as far in advance of lease expiry as practicable and to seek longer lease terms.

• Aircraft acquisitions - placements. In May 2009, we took delivery of one new Airbus Model A330-200 aircraft and immediately placed it on lease with Aerovias del Continente Americano, or Avianca, a new customer. In the third quarter of 2009, we agreed to advance one of our New A330 Aircraft (as defined below) positions, and to acquire and lease another Airbus Model A330-200 aircraft to Avianca, and we expect to close that transaction in the fourth quarter of 2009. We currently have no other commitments to acquire aircraft in 2009.

• Repossessions and other lease transitions - placements. In 2009, we delivered on lease eight aircraft we repossessed in 2008. In addition to the early transition mentioned in "Scheduled lease expiration - placements" above, we completed consensual early lease terminations for eight aircraft in 2009:

• Two Airbus Model A320-200 aircraft, which were placed on lease with new customers in the first and second quarters, respectively, of 2009.

• One Boeing Model 767-300ER aircraft, which was placed on a short-term lease, and which is subject to a nonbinding letter of intent for an 18 month lease extension.

• Two Boeing Model 737-300 aircraft, which were returned to us in the third quarter of 2009, one of which we sold in the third quarter and the other is being marketed for sale or lease.

• One Airbus Model A330-300 aircraft with an originally scheduled lease expiry in 2011, which we leased to another customer upon return in the fourth quarter of 2009.

• Two Boeing Model 757-200 aircraft, which had scheduled lease expirations in 2010 but were returned to us in the fourth quarter of 2009 and which are contracted for sale to a buyer in the second quarter of 2010.

As a consequence of the early return of two Boeing Model 737-300 aircraft and two Boeing Model 757-200 aircraft in the third quarter of 2009, we recognized $18.2 million in maintenance revenue and lease termination revenue. For these four aircraft, the early lease terminations, along with a change in the forecasted cash flows, triggered an impairment charge for such aircraft in an aggregate amount of $18.2 million for the third quarter 2009.

2010 Lease Expirations and Lease Placements
• Scheduled lease expirations - placements. For our 19 owned aircraft originally having lease expirations in 2010, we have executed lease renewals, or commitments to lease or renew, with respect to nine aircraft, we have signed sale agreements to sell two aircraft and we are actively remarketing the remaining eight aircraft. As mentioned above, one Boeing Model 767-300ER was delivered on a short-term lease in 2009, which is scheduled to expire in the first quarter of 2010, and for which we have a nonbinding letter of intent for an 18 month lease extension. We estimate that for these 19 aircraft, excluding the two we expect to sell, the weighted average lease term for the new leases or renewals will be between 3.5 and 4.5 years with monthly lease rates that are approximately 25% to 30% percent lower than the previous rentals. The drop in lease rates for these placements reflects more challenging current market conditions as well as a comparatively stronger lease placement environment (on average) when the current leases where put in place. Given weak current demand, we are generally seeking shorter lease terms for current placements so as to allow for the opportunity to benefit more quickly from possible market improvements.

• Aircraft acquisitions - placements. In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012 and in July 2009 we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from 2010 to 2011. We are scheduled to take delivery of two of the New A330 Aircraft, both in the second half of 2010. We have executed lease agreements for both aircraft with a carrier in Asia. We currently have no other commitment to acquire aircraft in 2010.

2011-2014 Lease Expirations and Lease Placements
• Scheduled lease expirations - placements. We have 11 owned aircraft originally having lease expirations scheduled in 2011. We have executed lease renewals, or commitments to lease or renew, with respect to three of these aircraft, and we have a signed sale agreement to sell one aircraft. We are actively remarketing the remaining seven aircraft. We currently have 68 aircraft with lease expirations scheduled in the period 2012-2014.

• Aircraft acquisitions - placements. We are scheduled to take delivery of six of the New A330 Aircraft in 2011 and two in 2012, provided that we advance one of our 2012 positions in connection with the lease of one new Airbus Model A330-200 aircraft to Avianca in the fourth quarter of 2009 mentioned above. We have executed a lease agreement for one of the New A330 Aircraft scheduled for delivery in 2011 with a carrier in Asia and we are actively remarketing the remaining aircraft. We currently have no other commitment to acquire aircraft in the period 2011-2014.

Operating Expenses
Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general and administrative expenses, or SG&A, aircraft impairment charges and maintenance and other costs. Because our operating lease terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of maintenance and other costs relating to aircraft reflected in our statement of income has been nominal; however, to the extent our customers failed to pay operating, maintenance, insurance or transition costs, our portion of these expenses for unscheduled lease terminations reflected in our income statement has increased significantly as compared to prior years.

Income Tax Provision
We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland and the United States.
All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. We also have a U.S-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. In addition, those subsidiaries that are resident in Ireland are subject to Irish tax.
Acquisitions and Dispositions
We have an acquisition agreement, or the Airbus A330 Agreement, with Airbus S.A.S, or Airbus, under which we agreed to acquire from Airbus twelve new Airbus Model A330-200 aircraft, or the New A330 Aircraft. In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012. On May 27, 2009, we advanced one of the New A330 Aircraft positions and took delivery of one Airbus Model A330-200 aircraft and placed it on lease with Avianca, a new customer. In July 2009, we agreed with Airbus to defer one of the 2010 delivery positions to 2011. An additional 2012 delivery position is expected to be advanced in connection with the lease of one Airbus Model A330-200 Aircraft to Avianca in the fourth quarter of 2009. Two of the New A330 Aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining two, providing we advance one position in the fourth quarter of 2009 as expected, are scheduled to be delivered in 2012.
During the third quarter of 2009, we sold three Boeing Model 737-300 aircraft. The leases expired immediately prior to the sale of these aircraft. These sales resulted in a pre-tax gain of $0.2 million which is included in other income (expense) on our consolidated statement of income.

The following table sets forth certain information with respect to the aircraft owned by us as of September 30, 2009:

AIRCASTLE AIRCRAFT INFORMATION

                                                                                     Owned
                                                                                Aircraft as of
(Dollars in millions)                                                        September 30, 2009(1)
Flight Equipment Held for Lease                                               $           3,767
Number of Aircraft                                                                          128
Number of Lessees                                                                            60
Number of Countries                                                                          34
Weighted Average Age - Passenger (years)(2)(5)                                             11.2
Weighted Average Age - Freighter (years)(2)(5)                                             10.1
Weighted Average Age - Combined (years)(2)(5)                                              10.9
Weighted Average Remaining Passenger Lease Term (years)(3)(5)                               3.7
Weighted Average Remaining Cargo Lease Term (years)(3)(5)                                   7.9
Weighted Average Remaining Combined Lease Term (years)(3)(5)                                4.9
Weighted Average Fleet Utilization during Third Quarter 2009(4)                             100 %
Weighted Average Fleet Utilization for the nine months ended
September 30, 2009(4)                                                                        98 %

(1) Calculated using net book value as of September 30, 2009.

(2) Weighted average age (years) by net book value.

(3) Weighted average remaining lease term (years) by net book value.

(4) Aircraft on-lease days as a percent of total days in period weighted by net book value, excluding aircraft in freighter conversion.

(5) Four Boeing Model 737-400 aircraft which will be converted to freighter configuration are included as "Freighter" aircraft; the remaining lease terms for these aircraft, for which we have executed leases post-conversion, are measured based on the ten-year terms of the post-conversion leases.

PORTFOLIO DIVERSIFICATION

                                              Owned Aircraft as of
                                               September 30, 2009
                                          Number of          % of Net
                                           Aircraft         Book Value
               Aircraft Type
               Passenger:
               Narrowbody                         83                 45 %
               Midbody                            23                 23 %
               Widebody                            1                  2 %

               Total Passenger                   107                 70 %
               Freighter(1)                       21                 30 %

               Total                             128                100 %


               Manufacturer
               Boeing                             86                 66 %
               Airbus                             42                 34 %

               Total                             128                100 %


               Regional Diversification
               Europe                             61                 48 %
               Asia(1)                            30                 21 %
               North America                      14                 12 %
               Latin America                       9                  7 %
               Middle East and Africa             13                 12 %
               Off-lease (2)                       1                  - %

               Total                             128                100 %

(1) Includes four Boeing Model 737-400 aircraft which will be converted to freighter configuration and for which we have executed leases with a carrier in Asia post-conversion, two of which were delivered in the fourth quarter of 2009 and the remaining two of which we expect to deliver in the fourth quarter of 2009.

(2) One Boeing Model 737-300 aircraft which was returned to us on a consensual early lease termination in the third quarter of 2009 which we are actively marketing for sale or lease.

Our largest customer represents less than 8% of the net book value of flight equipment held for lease at September 30, 2009. Our top 15 customers for aircraft we owned at September 30, 2009, representing 52 aircraft and 59% of the net book value of flight equipment held for lease, are as follows:

                                                                                       Number of
Percent of Net Book Value               Customer                  Country              Aircraft
Greater than 6% per customer      Martinair(1)              Netherlands                     5
                                  Emirates                  United Arab Emirates            2
                                  US Airways                USA                             8

3% to 6% per customer             Iberia Airlines           Spain                           6
                                  GOL (2)                   Brazil                          6
                                  Airbridge Cargo(3)        Russia                          1
                                  KLM (1)                   Netherlands                     1
                                  World Airways             USA                             2
                                  Icelandair(4)             Iceland                         5

Less than 3% per customer         Swiss International       Switzerland                     2
                                  Air Lines
                                  China Eastern             China                           4
                                  Airlines(5)
                                  Korean Air                South Korea                     2
                                  SriLankan Airlines        Sri Lanka                       2
                                  Cimber-Sterling           Denmark                         4
                                  Malaysia Airlines         Malaysia                        2

(1) Martinair is a wholly owned subsidiary of KLM. Although KLM does not guarantee Martinair's . . .