OVERVIEW

Forward-Looking Statements. This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding prospects or future results of operations or financial position, made in this Annual Report on Form 10-K are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, among others, the effects on the airline industry and the global economy of events such as terrorist activity, changes in oil prices and other disruptions to the world markets; trends in the airline industry, including growth rates of markets and other economic factors; risks associated with owning and leasing jet engines and aircraft; our ability to successfully negotiate equipment purchases, sales and leases, to collect outstanding amounts due and to control costs and expenses; changes in interest rates and availability of capital, our ability to continue to meet the changing customer demands; regulatory changes affecting airline operations, aircraft maintenance, accounting standards and taxes; the market value of engines and other assets in our portfolio. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management's expectations, are described in greater detail in Item 1A. of Part I, "Risk Factors," which, along with the previous discussion, describes some, but not all, of the factors that could cause actual results to differ significantly from management's expectations.

General. Our core business is acquiring and leasing pursuant to operating leases, commercial aircraft engines and related aircraft equipment, and the selective sale of such engines, all of which we sometimes refer to as "equipment." We have no current plans to enter into finance leases although we may do so in the future. As of December 31, 2008, we had 64 lessees in 35 countries. Our portfolio is continually changing due to acquisitions and sales. As of December 31, 2008, our total lease portfolio consisted of 160 engines and related equipment, four aircraft and three spare engine parts packages with an aggregate net book value of $829.7 million. As of December 31, 2008, we also managed 11 engines and related equipment on behalf of other parties. On December 30, 2005, we entered into a joint venture with Oasis International Leasing (USA), Inc., called WOLF. WOLF completed the purchase of two Airbus A340-313 aircraft from Boeing Aircraft Holding Company for a purchase price of $96.0 million. We actively manage our portfolio and structure our leases to maximize the residual values of our leased assets. Our leasing business focuses on popular Stage III commercial jet engines manufactured by CFMI, General Electric, Pratt & Whitney, Rolls Royce and International Aero Engines. These engines are the most widely used engines in the world, powering Airbus, Boeing, McDonnell Douglas, Bombardier and Embraer aircraft.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to residual values, estimated asset lives, impairments and bad debts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances 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 or conditions.

We believe the following critical accounting policies, grouped by our activities, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Leasing Related Activities. Revenue from leasing of aircraft equipment is recognized as operating lease or finance lease revenue over the terms of the applicable lease agreements. Where collection cannot be reasonably assured, for example, upon a lessee bankruptcy, we do not recognize revenue until received. We also estimate and charge to income a provision for bad debts based on our experience in the business and with each specific customer and the level of past due accounts. The financial condition of our customers may deteriorate and result in actual losses exceeding the estimated allowances. In addition, any deterioration in the financial condition of our customers may adversely affect future lease revenues. As of December 31, 2008, all of our leases are accounted for as operating leases. Under an operating lease, we retain title to the leased equipment, thereby retaining the potential benefit and assuming the risk of the residual value of the leased equipment.

We generally depreciate engines on a straight-line basis over 15 years to a 55% residual value. Spare parts packages are generally depreciated on a straight-line basis over 15 years to a 25% residual value. Aircraft are generally depreciated on a straight-line basis over 13-20 years to a 15%-17% residual value. For equipment which is unlikely to be repaired at the end of its current expected life, and is likely to be disassembled upon lease termination, we depreciate the equipment over its estimated life to a residual value based on an estimate of the wholesale value of the parts after disassembly. Currently, 23 engines having a net book value of $44.2 million are depreciated using this policy. If useful lives or residual values are lower than those estimated by us, upon sale of the equipment, a loss may be realized. It is our policy to review estimates regularly to more accurately expense the cost of equipment over

the useful life of the engines. Beginning April 1, 2008 and again on July 1, 2008, we changed the depreciation estimate related to certain older engine types in our portfolio. This change in depreciation estimate resulted in a $3.8 million increase in depreciation during 2008 and on an annual basis will result in an increase in depreciation expense of $6.8 million per year assuming no change in our portfolio. The net effect of these changes in depreciation estimates is a reduction in 2008 net income of $2.4 million or $0.28 in diluted earnings per share over what net income would have otherwise been had these changes in depreciation estimates not been made.

Sales Related Activities. For equipment sold out of our lease portfolio, we recognize the gain or loss associated with the sale as revenue. Gain consists of sales proceeds less the net book value of the equipment sold and any costs directly associated with the sale.

Asset Valuation. Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and long-lived assets and certain identifiable intangibles to be disposed of generally be reported at the lower of carrying amount or fair value less cost to sell. Impairment is identified by comparison of undiscounted forecasted cash flows, including estimated sales proceeds, over the life of the asset with the asset's book value. If the forecasted undiscounted cash flows are less than the book value, we write the asset down to its fair value. We determine fair value by reference to independent appraisals, quoted market prices (e.g., an offer to purchase) and other factors.

Accounting for Maintenance Expenditures and Maintenance Reserves. Use fees received are recognized in revenue as maintenance reserve revenue if they are not reimbursable to the lessee. Use fees that are reimbursable are recorded as a maintenance reserve liability until they are reimbursed to the lessee or the lease terminates, at which time they are recognized in revenue as maintenance reserve revenue. Our expenditures for maintenance are expensed as incurred. Expenditures that meet the criteria for capitalization are recorded as an addition to equipment recorded on the balance sheet.

YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED DECEMBER 31, 2007



Revenue is summarized as follows:



                                          Year ended December 31,
                                         2008                2007
                                    Amount       %      Amount       %
                                          (dollars in thousands)
Lease rent revenue                 $ 102,421    67.3 % $  86,084    70.6 %
Maintenance reserve revenue           33,716    22.1      28,169    23.1
Gain on sale of leased equipment      12,333     8.1       6,876     5.7
Other income                           3,823     2.5         768     0.6
Total                              $ 152,293   100.0 % $ 121,897   100.0 %

Lease Rent Revenue. Our lease rent revenue for the year ended December 31, 2008, increased 19.0% to $102.4 million from $86.1 million for the comparable period in 2007. This increase primarily reflects a growth in the size of the lease asset portfolio which translated into a higher amount of equipment on lease. The aggregate of net book value of leased equipment at December 31, 2008 and 2007, was $829.7 million and $744.8 million, respectively, an increase of 11.4%. The ten engine sale to an investor group in September 2008 resulted in a reduction in portfolio net book value of $52 million, with the Company also recognizing nine months of lease rent revenue in 2008. At December 31, 2008, and 2007, respectively, approximately 92% and 91% of equipment by net book value was on-lease. The average utilization for the year ended December 31, 2008 was 93%, the same as a year ago. During the year ended December 31, 2008, 43 engines were added to our lease portfolio at a total cost of $229.1 million (including capitalized costs). During the year ended December 31, 2007, 22 engines and 2 helicopters were added to our lease portfolio at a total cost of $201.1 million (including capitalized costs).

Maintenance Reserve Revenue. Our maintenance reserve revenue for the year ended December 31, 2008, increased 19.7% to $33.7 million from $28.2 million for the comparable period in 2007. This increase was primarily due to the larger lease asset portfolio and an increased amount of equipment on-lease during 2008.

Gain on Sale of Leased Equipment. During the year ended December 31, 2008, we sold 13 engines, 2 helicopters and various engine-related equipment from the lease portfolio for a net gain of $12.3 million. In the quarter ended September 30, 2008, the Company sold a portfolio of ten engines having a net book value of $52 million to an investor group for $63 million, contributing $11 million to gain on sale for the year ended 2008. During the year ended December 31, 2007, we sold 5 engines and various engine-related equipment from the lease portfolio for a net gain of $6.9 million.

Other Income. Our other income consists primarily of management fee income and lease administration fees, and increased $3.1 million from the prior year. 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 as well as the recording of a gain of $2.2 million related to an insurance casualty loss in the fourth quarter.

Depreciation Expense. Depreciation expense increased $6.3 million or 20.2% to $37.4 million for the year ended December 31, 2008, from the comparable period in 2007 due to increased lease portfolio value and changes in estimates of residual values on certain older engine types. Beginning April 1, 2008 and again on July 1, 2008, we changed the depreciation estimate related to certain older engine types in our portfolio. It is our policy to review estimates regularly to reflect the cost of equipment over the useful life of these engines. This change in depreciation estimate resulted in a $3.8 million increase in depreciation in 2008. The net effect of these changes in depreciation estimates is a reduction in 2008 net income of $2.4 million or $0.28 in diluted earnings per share over what net income would have otherwise been had these changes in depreciation estimates not been made.

Write-down of Equipment. Write-down of equipment to their estimated fair values totaled $6.1 million for the year ended December 31, 2008, an increase of $2.3 million from the $3.8 million recorded in the comparable period in 2007. Write-downs on held for use equipment totaled $2.5 million for the year ended December 31, 2008, due to the adjustment of carrying values for certain impaired engines and aircraft within the portfolio to reflect estimated market values. There was an additional write-down of $3.6 million for the year ended December 31, 2008 due to a management decision to consign six engines for part out and sale. Write-downs on held for use equipment to their estimated fair values totaled $1.7 million for the year ended December 31, 2007, due to the adjustment of carrying values for certain impaired engines within the portfolio to reflect estimated market values. There was an additional write-down of $2.1 million for the year ended December 31, 2007 due to a management decision to consign four engines for part out and sale.

General and Administrative Expenses. General and administrative expenses increased 33.2% to $30.8 million for the year ended December 31, 2008, from the comparable period in 2007 due mainly to increases in employment related costs ($1.3 million), engine thrust rental fees, maintenance and freight ($1.3 million), stock-based compensation ($1.1 million), servicing fees for regional engine portfolio ($1.0 million), corporate travel and entertainment ($0.9 million), accounting and legal services ($0.8 million) and employee severance costs ($0.7 million).

Net Finance Costs. Net finance costs include interest expense, interest income and net (gain)/loss on debt extinguishment. Interest expense increased 1.8% to $38.6 million for the year ended December 31, 2008, from the comparable period in 2007, due to an increase in average debt outstanding, which was partially offset by decreased interest rates. Interest income for the year ended December 31, 2008, decreased to $1.9 million from $3.8 million for the year ended December 31, 2007, due to a decrease in deposit balances and decreased interest rates. Virtually of our debt is tied to one-month US dollar LIBOR which decreased from 4.60% at December 31, 2007 to 0.44% at December 31, 2008.

We recorded $2.7 million as a loss upon extinguishment of debt in 2007 due to the change in ownership of our WEST Series 2005-B1 Floating Rate Notes and a portion of the existing WEST Series 2005-A1 Floating Rate Notes. As part of the second issuance of WEST, the existing WEST Series 2005-B1 Floating Rate Notes were purchased by our investment banker in 2007 and then re-sold to a different investor. Also, as a result of this process, $33.1 million of existing WEST Series 2005-A1 Floating Rate Notes were sold by an investor to a different investor. As a result of these transactions, we wrote off approximately $1.5 million and $0.8 million of unamortized WEST Series 2005-B1 Floating Rate Note debt issuance costs and WEST Series 2005-A1 Floating Rate Note debt issuance costs, respectively. The change in ownership of the WEST Series 2005-A1 Floating Rate Notes also resulted in the write off of $0.4 million in unamortized WEST Series 2005-A1 Floating Rate Note purchase discount in 2007.

Income Taxes. Income taxes for the year ended December 31, 2008, increased to $15.4 million from $10.1 million for the comparable period in 2007 reflecting increased pre-tax income. The overall effective tax rate for the year ended December 31, 2008, was 36.7% compared to 36.4% for the prior year. Our tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, the proportions of revenue generated within and outside of California and numerous other factors, including changes in tax law.

YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED DECEMBER 31, 2006



Revenue is summarized as follows:



                                          Year ended December 31,
                                         2007                2006
                                    Amount       %      Amount       %
                                          (dollars in thousands)
Lease rent revenue                 $  86,084    70.6 % $  69,230    65.3 %
Maintenance reserve revenue           28,169    23.1      32,744    30.9
Gain on sale of leased equipment       6,876     5.7       3,781     3.5
Other income                             768     0.6         300     0.3
Total                              $ 121,897   100.0 % $ 106,055   100.0 %

Lease Rent Revenue. Our lease rent revenue for the year ended December 31, 2007, increased 24.3% to $86.1 million from $69.2 million for the comparable period in 2006. This increase primarily reflects a growth in the size of the lease asset portfolio which translated into a higher amount of equipment on lease. The aggregate of net book value of leased equipment at December 31, 2007 and 2006, was $744.8 million and $604.1 million, respectively, an increase of 23.3%. Lease rent revenues also increased due to stronger utilization of lease assets in 2007 compared to a year ago. At December 31, 2007, and 2006, respectively, approximately 91% and 90% of equipment by net book value was on-lease. The average utilization for the year ended December 31, 2007, was 93% compared to 90% in the prior year. During the year ended December 31, 2007, 22 engines and 2 helicopters were added to our lease portfolio at a total cost of $201.1 million (including capitalized costs). During the year ended December 31, 2006, 18 engines were added to our lease portfolio at a total cost of $142.5 million (including capitalized costs).

Maintenance Reserve Revenue. Our maintenance reserve revenue for the year ended December 31, 2007, decreased 14.0% to $28.2 million from $32.7 million for the comparable period in 2006. This decrease was primarily due to the recording of $14.1 million in maintenance reserve revenue in 2006 related to nine long term leases terminated with a single customer in that year. This decrease was partially offset by the larger lease asset portfolio and an increased amount of equipment on-lease during 2007.

Gain on Sale of Leased Equipment. During the year ended December 31, 2007, we sold 5 engines and various engine-related equipment from the lease portfolio for a net gain of $6.9 million. During the year ended December 31, 2006, we sold 11 engines and various engine-related equipment from the lease portfolio for a net gain of $3.8 million.

Other Income. Our other income consists primarily of management fee income and lease administration fees, and increased $0.5 million due to an increase in the number of engines on lease.

Depreciation Expense. Depreciation expense increased $4.9 million or 18.6% to $31.1 million for the year ended December 31, 2007, from the comparable period in 2006 due to increased lease portfolio value and changes in estimates of residual values on certain older engine types. Beginning April 1, 2007, we changed the depreciation estimate related to certain older engine types in our portfolio. It is our policy to review estimates regularly to reflect more accurately the cost of equipment over the useful life of these engines. This change in depreciation estimate resulted in a $3.3 million increase in depreciation in 2007. The net effect of this change in depreciation estimate is a reduction in 2007 net income of $2.1 million or $0.24 in diluted earnings per share over what net income would have otherwise been had this change in depreciation estimate not been made.

Write-down of Equipment. Write-down of equipment to their estimated fair values totaled $3.8 million for the year ended December 31, 2007, an increase of $0.4 million from the $3.4 million recorded in the comparable period in 2006. Write-downs on held for use equipment totaled $1.7 million for the year ended December 31, 2007, due to the adjustment of carrying values for certain impaired engines within the portfolio to reflect estimated market values. There was an additional write-down of $2.1 million for the year ended December 31, 2007 due to a management decision to consign four engines for part out and sale. Write-downs on held for use equipment to their estimated fair values totaled $2.8 million for the year ended December 31, 2006, due to the adjustment of carrying values for certain impaired engines within the portfolio to reflect estimated market values. There was an additional write-down of $0.6 million for the year ended December 31, 2006 due to a management decision to dispose of, rather than repair, two engines.

General and Administrative Expenses. General and administrative expenses increased 7.4% to $23.1 million for the year ended December 31, 2007, from the comparable period in 2006 due mainly to increases in employment related costs ($1.8 million), administration and insurance expense ($0.3 million), consulting fees ($0.1 million), technical services, engine maintenance and freight ($0.1 million) and offset by reductions in travel and entertainment ($0.4 million), and accounting and legal services ($0.6 million).

Net Finance Costs. Net finance costs include interest expense, interest income, net (gain)/loss on debt extinguishment and realized and unrealized (gains) and losses on derivative instruments. Interest expense increased 20.0% to $37.9 million for the year ended December 31, 2007, from the comparable period in 2006, due to increases in interest rates and average debt outstanding. Interest income for the year ended December 31, 2007, increased to $3.8 million from $3.1 million for the year ended December 31,

2006, due to an increase in deposit balances and increased interest rates. Virtually all of our debt is tied to one-month US dollar LIBOR which decreased from 5.32% at December 31, 2006 to 4.60% at December 31, 2007. Despite this year over year reduction at December 31, the yearly average one-month LIBOR rate for 2007 increased to 5.28% from 5.09% in 2006 due to increases in the rate throughout 2006 and the first three quarters of 2007, before falling in the fourth quarter. Realized and unrealized gains on derivative instruments decreased net finance costs by $0.2 million for the year ended December 31, 2006 and had no impact on finance costs for the year ended December 31, 2007.

We recorded $2.7 million as a loss upon extinguishment of debt in 2007 due to the change in ownership of our WEST Series 2005-B1 Floating Rate Notes and a portion of the existing WEST Series 2005-A1 Floating Rate Notes. The WEST Series 2005-B1 Floating Rate Notes were purchased by our investment banker in 2007 and then re-sold to a different investor. Also, as a result of the second issuance of WEST in 2007, $33.1 million of existing WEST Series 2005-A1 Floating Rate Notes were sold by an investor to a different investor. As a result of these transactions, we wrote off approximately $1.5 million and $0.8 million of unamortized WEST Series 2005-B1 Floating Rate Note debt issuance costs and WEST Series 2005-A1 Floating Rate Note debt issuance costs, respectively. The change in ownership of the WEST Series 2005-A1 Floating Rate Notes also resulted in the write off of $0.4 million in unamortized WEST Series 2005-A1 Floating Rate Note purchase discount in 2007.

Income Taxes. Income taxes for the year ended December 31, 2007, increased to $10.1 million from $9.1 million for the comparable period in 2006 reflecting increased pre-tax income and a higher effective tax rate. The overall effective tax rate for the year ended December 31, 2007, was 36.4% compared to 34.0% for the prior year due to the decrease in the amount of benefit obtained under the Extraterritorial Income Exclusion as a percentage of pre-tax income in 2007 compared to 2006. Our tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, the proportions of revenue generated within and outside of California and numerous other factors, including changes in tax law.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Statement No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position No. SFAS 157-2, "Effective Date of FASB Statement No. 157", which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Effective January 1, 2008, we adopted the provisions of SFAS 157 with respect to our financial assets and liabilities. We have applied SFAS 157 to our recording of derivative instruments at fair value as either an asset or liability, and have deferred adoption for non-recurring fair value measurements, principally impairment of equipment.

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 . . .