Overview

Our core business is acquiring and leasing, primarily pursuant to operating leases, commercial aircraft engines and related aircraft equipment; and the selective purchase and sale of commercial aircraft engines (collectively "equipment").

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates included in our 2007 Form 10-K.

Results of Operations

Three months ended September 30, 2008, compared to the three months ended September 30, 2007:

Lease Rent Revenue. Lease rent revenue for the quarter ended September 30, 2008 increased 18.6% to $26.0 million from $21.9 million for the comparable period in 2007. This increase primarily reflects growth in the size of the lease portfolio which translated into a higher amount of equipment on lease. The aggregate of net book value of lease equipment at September 30, 2008 and 2007, was $766.4 million and $703.0 million, respectively, an increase of 9.0%. Prior to the sale of ten engines on September 24, 2008, the aggregate of net book value of lease equipment was $818.3 million, an increase of 16.4% from the prior year. The average utilization for the quarter ended September 30, 2008 and 2007 was 91% and 92%, respectively. At September 30, 2008 and 2007, approximately 88% and 93% respectively of equipment held for lease by book value were on-lease.

During the quarter ended September 30, 2008, we added $56.7 million of equipment and capitalized costs to the lease portfolio. During the quarter ended September 30, 2007, we added $65.3 million of equipment and capitalized costs to the lease portfolio.

Maintenance Reserve Revenue. Our maintenance reserve revenue for the quarter ended September 30, 2008, increased 5.5% to $8.3 million from $7.8 million for the comparable period in 2007. This increase primarily reflects growth in the size of the lease portfolio which translated into a higher amount of equipment on lease.

Gain on Sale of Leased Equipment. During the quarter ended September 30, 2008, we sold eleven engines and other related equipment generating a net gain of $11.6 million. The sale of ten engines on September 24, 2008 was accompanied by the establishment of a service management agreement with the purchaser, in which the Company will provide ongoing management services for a fee. There were no sales of leased equipment in the quarter ended September 30, 2007.

Other Income. Our other income consists primarily of management fee income and lease administration fees. There was little change in other income for the quarter ended September 30, 2008 from the comparable period in 2007.

Depreciation Expense. Depreciation expense increased 21.9% to $10.1 million for the quarter ended September 30, 2008 from the comparable period in 2007, due to increased lease portfolio value and changes in estimates of useful life and residual values on certain older engine types.

Write-down of Equipment. Write-down of equipment to their estimated fair values totaled $0.9 million for the quarter ended September 30, 2008. There were no equipment write-downs in the comparable period in 2007. In the quarter, management decided to consign two engines for part out and sale. The net book value of the engines exceeded the expected net proceeds to be received through part sales arising from consignment, resulting in a write-down of $0.9 million in the quarter.

General and Administrative Expenses. General and administrative expenses increased 74.5% to $9.2 million for the quarter ended September 30, 2008, from the comparable period in 2007, mainly due to increased personnel related costs, technical service expenses and selling expenses as well as increased legal and accounting fees.

Net finance costs. Net finance costs include interest expense and interest income. Interest expense decreased 3.0% to $9.6 million for the quarter ended September 30, 2008, from the comparable period in 2007, due to a decrease in interest rates for the quarter ended September 30, 2008, from the comparable period in 2007, which was partially offset by an increase in average debt outstanding. Notes payable balance at September 30, 2008 and 2007, was $612.2 million and $536.5 million, respectively, an increase of 14.1%. At September 30, 2008 and 2007, one-month LIBOR was 3.93% and 5.12%, respectively. Interest income decreased 60.3% to $0.4 million for the quarter ended September 30, 2008, from the comparable period in 2007, due to a decrease in interest rates and average quarterly restricted cash balances. The restricted cash balance increased at quarter end on September 24, 2008 upon the sale of ten engines, with $41.2 million of the sale proceeds set aside as restricted cash to be used for future engine purchases. Prior to this transaction, the restricted cash balance was $64.6 million compared to $75.7 million at September 30, 2007.

Income Taxes. Income tax expense for the quarters ended September 30, 2008 and 2007 was $6.0 million and $2.3 million, respectively. The effective tax rate for the quarters ended September 30, 2008 and 2007 was 35.8% and 38.3%, respectively. The change in effective tax rate was due primarily to a decrease in the blended state tax rate in 2008 compared to 2007.

Nine months ended September 30, 2008, compared to the nine months ended September 30, 2007:

Lease Rent Revenue. Lease rent revenue for the nine months ended September 30, 2008 increased 22.9% to $77.0 million from $62.7 million for the comparable period in 2007. This increase primarily reflects growth in the size of the lease portfolio which translated into a higher amount of equipment on lease as well as higher utilization of lease assets. The aggregate of net book value of lease equipment at September 30, 2008 and 2007, was $766.4 million and $703.0 million, respectively, an increase of 9.0%. Prior to the sale of ten engines on September 24, 2008, the aggregate of net book value of lease equipment was $818.3 million, an increase of 16.4% from the prior year. The average utilization for the nine months ended September 30, 2008 was 94% compared to 93% in the prior year. At September 30, 2008 and 2007, approximately 88% and 93% respectively of equipment held for lease by book value were on-lease.

During the nine months ended September 30, 2008, we added $137.1 million of equipment and capitalized costs to the lease portfolio. During the nine months ended September 30, 2007, we added $129.4 million of equipment and capitalized costs to the lease portfolio.

Maintenance Reserve Revenue. Our maintenance reserve revenue for the nine months ended September 30, 2008, increased 3.0% to $24.1 million from $23.4 million for the comparable period in 2007. This increase primarily reflects growth in the size of the lease portfolio which translated into a higher amount of equipment on lease.

Gain on Sale of Leased Equipment. During the nine months ended September 30, 2008, we sold eleven engines, two helicopters and other related equipment generating a net gain of $12.8 million. The sale of ten engines on September 24, 2008 was accompanied by the establishment of a service management agreement with the purchaser, in which the Company will provide ongoing management services for a fee. During the nine months ended September 30, 2007, we sold two engines and other related equipment generating a net gain of $1.3 million.

Other Income. Our other income consists primarily of management fee income and lease administration fees. Other income for the nine months ended September 30, 2008 increased 149% or $0.8 million to $1.4 million from $0.6 million for

the comparable period in 2007. The increase was due to the settlement of a claim in the first quarter of 2008 for $1.0 million to resolve a litigation arising from a lessee default.

Depreciation Expense. Depreciation expense increased 22.7% to $27.8 million for the nine months ended September 30, 2008 from the comparable period in 2007, due to increased lease portfolio value and changes in estimates of useful life and residual values on certain older engine types.

Write-down of Equipment. Write-down of equipment to their estimated fair values totaled $2.7 million for the nine months ended September 30, 2008 compared to $2.1 million in the year ago period. In the second quarter of 2008, management decided to consign seven engines for part out and sale. Of the seven engines, the net book value for two engines exceeded the expected net proceeds to be received through part sales arising from consignment, resulting in a write-down of $1.0 million. We also recorded a write-down of $0.8 million in the second quarter of 2008 for aircraft and engines that are leased to Island Air, a related party, after reviewing the current maintenance status and condition of these leased assets. In the third quarter, management decided to consign two engines for part out and sale. The net book value of the engines exceeded the expected net proceeds to be received through part sales arising from consignment, resulting in a write-down of $0.9 million in the quarter. During the nine months ended September 30, 2007, we recorded a write-down of equipment of $2.1 million due to management's decision in the second quarter of 2007 to consign four engines for part out and sale.

General and Administrative Expenses. General and administrative expenses increased 33.5% to $22.8 million for the nine months ended September 30, 2008, from the comparable period in 2007, mainly due to increased personnel related costs, technical service expenses and selling expenses as well as increased legal and accounting fees.

Net finance costs. Net finance costs include interest expense and interest income. Interest expense increased 3.8% to $29.0 million for the nine months ended September 30, 2008, from the comparable period in 2007, due to an increase in average debt outstanding for the nine months ended September 30, 2008, from the comparable period in 2007, which was partially offset by a decrease in interest rates. Notes payable balance at September 30, 2008 and 2007, was $612.2 million and $536.5 million, respectively, an increase of 14.1%. At September 30, 2008 and 2007, one-month LIBOR was 3.93% and 5.12%, respectively. Interest income decreased 47.2% to $1.5 million for the nine months ended September 30, 2008, from the comparable period in 2007, due to a decrease in interest rates and average restricted cash balances. The restricted cash balance increased at quarter end on September 24, 2008 upon the sale of ten engines, with $41.2 million of the sale proceeds set aside as restricted cash to be used for future engine purchases. Prior to this transaction, the restricted cash balance was $64.6 million compared to $75.7 million at September 30, 2007.

Income Taxes. Income tax expense for the nine months ended September 30, 2008 and 2007 was $12.9 million and $7.4 million, respectively. The effective tax rate for the nine months ended September 30, 2008 and 2007 was 36.8% and 37.0%, respectively. The change in effective tax rate was due primarily to a decrease in the blended state tax rate in 2008 compared to 2007.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations," which modifies the accounting for business acquisitions. SFAS No. 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. SFAS No. 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company presently does not expect the adoption of SFAS No. 141R to have an effect on its financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," which establishes new standards governing the accounting for and reporting of noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for financial statements issued for the fiscal year beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company presently does not expect the adoption of SFAS No. 160 to have an effect on its financial statements.

In March 2008, the FASB issued Statement No. 161, "Disclosures about Derivatives Instruments and Hedging Activities"("SFAS 161"), an amendment of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities"("SFAS 133"). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures stating how and why an entity uses derivative instruments; how

derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. SFAS 161 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 also encourages but does not require comparative disclosures for earlier periods at initial adoptions. We are currently evaluating the impact that the adoption of SFAS 161 will have on our financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section, 411 The Meaning of "Present Fairly in Conformity with Generally Accepted Accounting Principles". The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP). The Company presently does not expect the adoption of SFAS No. 162 to have an effect on its financial statements.

Liquidity and Capital Resources

Historically, we have financed our growth through borrowings secured by our equipment lease portfolio. Cash of approximately $334.4 million and $131.6 million, in the nine-month periods ended September 30, 2008 and 2007, respectively, was derived from this activity. In these same time periods $289.8 million and $60.7 million, respectively, was used to pay down related debt. Cash flow from operating activities provided $37.9 million and $28.3 million in the nine-month periods ended September 30, 2008 and 2007, respectively. Cash received in the nine months ended September 30, 2008 related to the sale of WEST engines is restricted from general use and is only available for future equipment purchases. Cash receipts resulting from WEST engine sales have increased the restricted cash balance at September 30, 2008 and have reduced cash flows from investing activities by $28.5 million in the nine months ended September 30, 2008. At September 30, 2008, $42.8 million of restricted cash is available to fund future equipment purchases. Cash flow from the release of restricted cash provided $13.6 million in the nine month-period ended September 30, 2007, which was made available to fund equipment purchases.

Our primary use of funds is for the purchase of equipment for lease. Purchases of equipment (including capitalized costs) totaled $139.7 million and $122.3 million for the nine-month periods ended September 30, 2008 and 2007, respectively.

Cash flows from operations are driven significantly by payments made under our lease agreements, which comprise lease revenue and maintenance reserves, and are offset by general and administrative expenses and interest expense. Note that cash received from reserves arrangements for some of our engines on lease are restricted per our debt arrangements. The lease revenue stream, in the short-term, is at fixed rates while virtually all of our debt is at variable rates. If interest rates increase, it is unlikely we could increase lease rates in the short term and this would cause a reduction in our earnings. Revenue and maintenance reserves are also affected by the amount of equipment off lease. Approximately 88%, by book value, of our assets were on-lease at September 30, 2008, compared to approximately 93% at September 30, 2007, and the average utilization rate for the nine-month period ended September 30, 2008, was 94% compared to 93% in the prior year. If there is any increase in off-lease rates or deterioration in lease rates that are not offset by reductions in interest rates, there will be a negative impact on earnings and cash flows from operations.

At September 30, 2008, notes payable consists of loans totaling $612.2 million payable over periods of 21 months to 15 years with interest rates varying between approximately 5.1% and 9.9% (excluding the effect of our interest rate derivative instruments). The significant facilities are described below.

At September 30, 2008, we had a $289.0 million revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes. As of September 30, 2008, $124.6 million was available under this facility. The revolving facility was amended on June 7, 2007, and the revolving period ends in June 2009 with a final maturity in June 2010. The interest rate on this facility at September 30, 2008 was LIBOR plus 1.75%. Under the revolving credit facility, all subsidiaries except WEST Engine Funding LLC jointly and severally guarantee payment and performance of the terms of the loan agreement. The maximum guarantee is $289.0 million plus any accrued and unpaid interest, fees or reimbursements but is limited at any given time to the sum of the principal outstanding plus accrued interest and fees. The guarantee would be triggered by a default under the agreement.

At September 30, 2008, we had $377.8 million of WEST term notes and $47.0 million of WEST warehouse notes outstanding. The term notes are divided into $151.3 million Series 2005-A1 notes, $22.3 million Series 2005-B1 notes and $204.2 million Series 2008-A1 notes. At September 30, 2008, interest on the Series 2005-A1 notes is one-month LIBOR plus

a margin of 1.25%. At September 30, 2008, interest on the Series 2005-B1 notes is one-month LIBOR plus a margin of 3.00% and a supplemental margin of 3.00%, for a total margin of 6.00%. At September 30, 2008, interest on the Series 2008-A1 notes is one-month LIBOR plus a margin of 1.50%.

The sale of $212.4 million of Series 2008-A1 notes and $20.3 million of Series 2008-B1 notes closed on March 28, 2008. At the closing, WEST agreed to acquire 11 engines from us directly. As a result of the transfer of engines from us to WEST, we no longer have access to these engines and they are managed to repay the note holders of WEST and for us as the equity holder of WEST. These transactions did not change the book value of the engines in the consolidated financial statements. We used these funds net of a $2.9 million discount on the Series 2008-A1 notes to pay off the balance remaining of the Series 2005-A2 and B2 notes of $164.1 million, pay off $62.0 million of our indebtedness related to the transfer of 11 engines from us to WEST, pay transaction expenses of approximately $3.2 million and received cash of approximately $0.5 million for general corporate purposes. Interest on the Series 2008-A1 and B1 notes is one-month LIBOR plus a margin of 1.50% and 3.50%, respectively. The Series 2008-A1 term notes expected maturity is March 2021 and the Series 2008-B1 term notes expected maturity is March 2023.

From March 28, 2008 to June 30, 2008, our investment banker, acting as our agent to sell the notes, was the holder of $20.3 million of the Series 2008-B1 notes. On June 30, 2008, we secured a $20.0 million senior term loan and used the loan proceeds to re-purchase the Series 2008-B1 from our investment banker. The Series 2008-B1 notes were pledged as collateral for the $20.0 million senior term loan. The loan is for a term of two years with maturity on July 1, 2010 and is structured as a bullet loan with no amortization with all amounts due at maturity. The interest rate for the term loan is one month LIBOR plus 3.50%. Our investment banker will continue to market the Series 2008-B1 notes and in the event the Series 2008-B1 notes are placed with an investor within the next two years, the term loan will be repaid with the proceeds from the sale of the Series 2008-B1 notes.

On December 13, 2007, we closed on a new $200.0 million warehouse facility within WEST, consisting of $175.0 million of Series 2007-A2 notes and $25.0 million of Series 2007-B2 notes. At September 30, 2008, $153.0 million was available under these warehouse notes. The 2007 series warehouse notes allow for borrowings during a three-year term, after which it is expected that they will be converted to term notes of WEST. Interest on the Series 2007-A2 notes and B2 notes is one-month LIBOR plus a margin of 1.25% and 2.75%, respectively. The facility has a committed amount of $200.0 million. The Series 2007-A2 notes mature approximately December 2020 and the Series 2007-B2 notes mature approximately December 2022.

Following the sale of two Bell 412 EP helicopters on May 8, 2008, we repaid the Export Development Canada credit facility in the amount of $13.6 million.

The assets of WEST, WEST Engine Funding and any associated Owner Trust are not available to satisfy the obligations of ours or any of our affiliates. WEST is consolidated for financial statement presentation purposes.

At September 30, 2008 and December 31, 2007, we had warehouse and revolving credit facilities totaling approximately $489.0 million and $660.4 million, respectively. At September 30, 2008, and December 31, 2007, respectively, approximately $277.6 million and $300.0 million were available under these combined facilities. Included in the $277.6 million available at September 30, 2008 is $124.6 million available under the revolving credit facility that ends in June 2009, with a final maturity in June 2010.

At September 30, 2008 and December 31, 2007, one-month LIBOR was 3.93% and 4.60%, respectively.

Approximately $609.2 million of the above debt is subject to our continuing to comply with the covenants of each financing, including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. In addition, we can typically borrow 70% to 83% of an engine purchase and 50% to 85% of an aircraft or spare parts purchase under these facilities. We must have other funds available for the balance of the purchase price of any new equipment to be purchased or we will not be permitted to draw on these facilities. The facilities are also cross-defaulted. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, debt is secured by engines on lease to customers and to the extent that engines are returned from lease early or are sold, repayment of that portion of the debt could be accelerated. We were in compliance with all covenants at September 30, 2008.

Approximately $34.2 million of our debt is repayable during the next year. Such repayments consist of scheduled installments due under term loans. The table below summarizes our contractual commitments at September 30, 2008.

                                                              Payment due by period
                                             Less than 1                                  More than 5
                                Total           Year         1-3 Years     3-5 Years         Years
Long-term debt
obligations                  $   616,216    $      34,236    $  252,887    $   72,310    $     256,783
Interest payments under
long - term debt
obligations                      175,522           33,854        51,277        32,360           58,031
Operating lease
obligations                        3,619              642         1,159         1,043              775
Purchase obligations             268,180          209,730        58,450             -                -
Total                        $ 1,063,537    $     278,462    $  363,773    $  105,713    $     315,589

We have commitments to purchase, during the remainder of 2008 and 2009, 25 engines and 3 helicopters for a gross purchase price of $268.2 million, for delivery from October 2008 to December 2009. As at September 30, 2008, non-refundable deposits paid related to this purchase commitment were $13.2 million.

We believe our equity base, internally generated funds and existing debt facilities are sufficient to maintain our level of operations for the next twelve months. A decline in the level of internally generated funds, such as could result if off-lease rates increase or there is a decrease in availability under our existing debt facilities, would impair our ability to sustain our level of operations. If we are not able to access additional capital, our ability to continue to grow our asset base consistent with historical trends will be impaired and our future growth limited to that which can be funded from internally generated capital.

Management of Interest Rate Exposure

At September 30, 2008, all of our borrowings of $612.2 million are on a variable rate basis tied to one-month LIBOR. Our equipment leases are generally structured at fixed rental rates for specified terms. Increases in interest rates could narrow or eliminate the spread, or result in a negative spread, between the rental revenue we realize under our leases and the interest rate that we pay under our borrowings.

To mitigate exposure to interest rate changes, we have entered into interest rate swap agreements, which have notional outstanding amounts of $329.0 million, with remaining terms of between four and sixty months and fixed rates of between 3.46% and 5.05%.

The net cash settlements on these derivative instrument arrangements increased expense by $3.8 million for the nine month period ended September 30, 2008 and reduced expense by $1.6 million for the nine month period ended September 30, 2007. This incremental cost for the swaps effective for hedge accounting was included in interest expense for the nine month period ended September 30, 2008. For further information see Note 6 to the consolidated financial statements. We will be exposed to risk in the event of non-performance of the interest rate . . .