2006 ANNUAL REPORT WHO WE ARE AIRCASTLE IS A GLOBAL COMPANY THAT ACQUIRES AND LEASES HIGH-UTILITY COMMERCIAL JET AIRCRAFT TO PASSENGER AND CARGO AIRLINES THROUGHOUT THE WORLD. High-utility aircraft are generally modern, operationally efficient jets with a large operator base and long useful lives. As of December 31, 2006, our aircraft portfolio consisted of 69 aircraft that were leased to 32 lessees located in 23 countries and managed through our offices in the United States, Ireland and Singapore. We also make investments in other aviation assets, including debt securities secured by commercial jet aircraft. As of March 31, 2007, we had acquired and committed to acquire aviation assets having an aggregate purchase price equal to $2.24 billion and $1.43 billion, respectively, for a total of approximately $3.67 billion. AIRCASTLE 2006AR : P1 SELECTED FINANCIAL DATA Year Ended December 31, (Dollars in thousands, except per share data) 2006 Selected Operating Data: Total revenues $ 189,327 Selling, general and administrative expenses 27,866 (Includes non-cash share-based payment expense of $8.895 million) Depreciation $ 56,629 Interest expense, net 50,477 Net income $ 51,206 Net income per share (diluted) $ 1.11 Other Operating Data: EBITDA(1) $ 164,279 Consolidated Statements of Cash Flows: Cash flows provided by operations $ 135,282 Consolidated Balance Sheet Data: Flight equipment held for lease, net of accumulated depreciation $ 1,590,355 Total assets $ 1,918,703 Total debt $1,075,753 Shareholders’ equity $ 637,197 Number of aircraft 69 Total debt to total capitalization 62.8% Stock Performance Data: Share price at IPO $23.00 Closing share price on December 29, 2006 $29.50 Closing share price on March 30, 2007 $35.38 Dividend declared for the quarter ended December 31, 2006 $0.4375 per common share Dividend declared for the quarter ended March 31, 2007 $0.50 per common share Dividend yield based on March 30, 2007 closing price 5.65% (1) EBITDA is a measure of operating performance that is not calculated in accordance with GAAP. EBITDA should not be considered a substitute for net income, income from operations or cash flows provided by or used in operations, as determined in accordance with GAAP. EBITDA is a key measure of our operating performance used by management to focus on consolidated operating performance exclusive of income and expense that relate to the financing and capitalization of the business. We define EBITDA as income (loss) from continuing operations before income taxes, interest expense and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-GAAP measure is helpful in identifying trends in our performance. TO OUR SHAREHOLDERS For Aircastle, 2006 was a year of exceptional accomplish- scheduled lease expirations in 2007 at aggregate lease rates ment as we moved into the ranks of the world’s top aircraft that were higher than the prior leases. leasing companies. In August 2006, we became the first During 2006 we invested approximately $1 billion in publicly traded dividend-paying, aircraft leasing company. aviation assets including 37 aircraft and ended the year with Since our formation in October 2004, Aircastle has acquired 69 owned aircraft and commitments to acquire six additional and committed to acquire approximately $3.7 billion of avia- aircraft for $231 million. Complementing our strategy of making tion assets including 115 aircraft leased to 48 lessees in one-off acquisitions, in January 2007 Aircastle committed to 27 countries. For the year we reported net income of $51.2 purchase a portfolio of 38 aircraft, comprised largely of million, of which $19.8 million was recorded during the fourth freighters, for approximately $1.6 billion. quarter, reflecting the pro rata earnings on 2006 investments In addition to the positive economic impact of this acquisi- of nearly $1 billion. tion, the transaction significantly enhances the diversity of our Our progress this past year was achieved against a back- portfolio. Combining this transaction with the other owned and drop of very favorable industry conditions. Global demand committed aircraft at year end, approximately 35% of Aircastle’s for aircraft remains strong as air travel continues growing. aircraft will be invested in freighters, up from 5% before the During 2006, revenue passenger kilometers, a measure of air deal. Further, with the longer lease terms of the freighters we travel consumption, increased by 6.9%, according to the committed to acquire, the weighted average remaining term International Air Transport Association, despite a sharp rise in increased from 4.2 years to 6.1 years and our customer base fuel costs. The strength in demand for aircraft, coupled with a increased to 46 lessees from 32 lessees. limited supply of available modern, fuel efficient jets drove On the financing front, we completed two significant lease rates higher during 2006. Aircastle capitalized on these financings during the year. First, we closed an innovative air- conditions, and we placed all of our owned aircraft having craft portfolio securitization in June 2006 providing long-term AIRCASTLE 2006AR : P3 “ For Aircastle, 2006 was a year of exceptional accomplishment as we moved into the ranks of the world’s top aircraft leasing companies.” financing for a significant portion of our aircraft while retaining While recently competition has become more pronounced, the flexibility to pay dividends to our shareholders. In addition, we believe there will continue to be attractive investment we completed our initial public offering in August 2006. opportunities in the aircraft operating lease sector. The com- During the fourth quarter of 2006, our first full quarter as a mercial jet aircraft market is very large, with approximately public company, we increased our quarterly dividend 25% to $360 billion of aircraft in operation, and the ownership base $0.4375 per common share, up from $0.35 per common is highly fragmented and ever changing. Going forward, we share at the time of our initial public offering. In March 2007 will continue to capitalize on the capabilities of our team and we increased the dividend again to $0.50 per common share, focus on investment opportunities where we have a relative or 43% higher than at our initial public offering, to reflect the advantage and where competition is less pronounced, significant growth in the company’s investment portfolio. including the air freight sector as well as acquisitions requir- In 2007 we intend to continue making accretive invest- ing aircraft redeployment. ments to build our portfolio of high utility aircraft and grow our We are looking forward to a successful 2007 and thank dividends to shareholders. We believe that paying regular you for your support. dividends to our investors establishes a transparent perfor- Sincerely, mance metric that will drive our cost of capital lower while allowing us to retain sufficient cash to reinvest in the business and maintain our asset base. Moreover, we have developed a scaleable platform that allows us to acquire and manage a Ron Wainshal large number of additional aircraft without a proportional Chief Executive Officer change in overhead. GLOBAL GROWTH AviationAviation Assets Assets (Purchase (Purchase Price) Price) QuarterlyQuarterly Dividends Dividends Declared Declared (5-yea(5-yr constaear constant age)nt age) ($ in($ mm) in mm) ($ per($ shareper share) ) $0.5$0.50 0 2500 2500 $2,239$2,239 $0.4375$0.4375 $1,778$1,778 0.5 0.5 2000 2000 $1,682$1,682 $0.3$0.35 5 0.4 0.4 1500 1500 $1,278$1,278 $1,0$1,088 88 0.3 0.3 1000 1000 $792$792 0.2 0.2 500 500 0.1 0.1 0 0 4Q 4Q1Q 1Q2Q 2Q3Q 3Q4Q 4Q1Q 1Q 3Q 3Q 4Q 4Q 1Q 1Q ’05 ’05’06 ’06’06 ’06’06 ’06’06 ’06’07 ’07 ’06 ’06 ’06 ’06 ’07 ’07 0.0 0.0 Dublin Stamford Singapore Aircastle Offices Customer Countries UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ࠚ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2006 or □ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from to Commission file number 001-32959 AIRCASTLE LIMITED (Exact name of Registrant as Specified in its Charter) Bermuda 98-0444035 (State or other Jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) c/o Aircastle Advisor LLC 300 First Stamford Place, 5th Floor Stamford, Connecticut 06902 (Address of Principal Executive Offices) Registrant’s telephone number, including area code: (203) 504-1020 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Shares, par value $.01 per New York Stock Exchange share 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 □ No ࠚ 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 □ No ࠚ 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 ࠚ No □ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.