F-1 1 file1.htm FORM F-1 Table of Contents

As filed with the Securities and Exchange Commission on September 12, 2007

Registration No. 333-                        

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Babcock & Brown Air Limited

(Exact Name of Registrant as Specified in Its Charter)


Bermuda 7359 98-0536376
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)

West Pier
Dun Laoghaire
County Dublin, Ireland
Tel. +353 1 231-1900

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
Tel. (302) 738-6680

(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)


  Copies to:  
Boris Dolgonos, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Tel. (212) 310-8000
  Jay Bernstein, Esq.
Jacob Farquharson, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Tel. (212) 878-8000

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.   [ ]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.   [ ]

CALCULATION OF REGISTRATION FEE


 
Title of Each Class Of
Securities To Be Registered
Amount to
be Registered
Proposed Maximum
Offering Price
Per Share
Proposed Maximum
Aggregate
Offering Price
Amount of
Registration Fee
Common shares, par value $0.001 per share(1) 21,499,998(2 )  $ 24.00 $ 515,999,952(2 )  $ 15,842(3 ) 
(1) American Depositary Shares issuable upon deposit of the common shares registered hereby have been registered under a separate registration statement on Form F-6. Each American Depositary Share represents one common share.
(2) Includes common shares issuable upon exercise of the underwriters’ over-allotment option.
(3) Calculated in accordance with Rule 457(a).

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.




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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 2007

P R O S P E C T U S

18,695,650 American Depositary Shares

Babcock & Brown Air Limited

Representing 18,695,650 Common Shares

$        per ADS

We are selling 18,695,650 common shares in the form of American Depositary Shares, or ADSs. Each ADS represents one common share. The ADSs will be evidenced by American Depositary Receipts, or ADRs.

The selling shareholders identified in this prospectus have granted the underwriters an option to purchase up to 2,804,348 additional ADSs to cover over-allotments. We will not receive any proceeds from the sale of ADSs by the selling shareholders upon an exercise of the over-allotment option.

This is the initial public offering of our ADSs. We currently expect the initial public offering price to be between $22.00 and $24.00 per ADS. Our ADSs have been approved for listing on the New York Stock Exchange under the symbol ‘‘FLY.’’ All of our common shares will be issued in the form of ADSs. We will pay all fees of the depositary, except in connection with cancellations of ADSs and withdrawals of common shares.

Investing in our ADSs involves risks. See ‘‘Risk Factors’’ beginning on page 15.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


  Per ADS Total
Public Offering Price $      $     
Underwriting Discount $ $
Proceeds to Babcock & Brown Air Limited (before expenses) $ $

The underwriters expect to deliver the ADSs to purchasers on or about             , 2007.


Morgan Stanley Citi Merrill Lynch & Co. Credit Suisse

    Jefferies & Company            JPMorgan

                    , 2007




You should rely only on the information contained in this prospectus or any free writing prospectus prepared by us or on our behalf. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different information, you should not rely on it. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where an offer is not permitted. The information in this prospectus is only accurate on the date of this prospectus.

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Consent under the Exchange Control Act 1972 (and its related regulations) has been obtained from the Bermuda Monetary Authority for the issue and transfer of our common shares to and between non-residents of Bermuda for exchange control purposes, provided our ADSs remain listed on an appointed stock exchange, which includes the New York Stock Exchange. This prospectus will be filed with the Registrar of Companies in Bermuda in accordance with Bermuda law. In granting such consent and in accepting this prospectus for filing, neither the Bermuda Monetary Authority nor the Registrar of Companies in Bermuda accepts any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

Until                 , 2007 (25 days after the date of this prospectus), all dealers that buy, sell or trade our ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to each dealer’s obligation to deliver a prospectus when acting as underwriter and with respect to its unsold allotments or subscriptions.

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SUMMARY

This section summarizes key information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. You should carefully review the entire prospectus, including the risk factors, the financial statements and the notes related thereto and the other documents to which this prospectus refers, before making an investment decision.

All information and data contained in this prospectus relating to the commercial aircraft industry has been provided to us by Simat, Helliesen & Eichner, Inc., or SH&E, an international air transport consulting firm. See ‘‘The Commercial Aircraft Industry.’’

Unless the context requires otherwise, when used in this prospectus, (1) the terms ‘‘B&B Air,’’ ‘‘company,’’ ‘‘we,’’ ‘‘our’’ and ‘‘us’’ refer to Babcock & Brown Air Limited and its subsidiaries, (2) all references to our shares refer to our common shares held in the form of ADSs, (3) the term ‘‘Babcock & Brown’’ refers to Babcock & Brown Limited, an Australian company, and its subsidiaries, (4) the term ‘‘BBAM’’ refers to Babcock & Brown Aircraft Management LLC and Babcock & Brown Aircraft Management (Europe) Limited, collectively, (5) all references to historical financial statements refer to the consolidated financial statements of our predecesor, Jet-i Leasing LLC, and (6) all dollar amounts in this prospectus are in U.S. dollars.

All percentages and weighted average characteristics of the aircraft in our portfolio have been calculated as of June 30, 2007 using the lower of mean or median maintenance-adjusted appraised base values as of December 15, 2006. Base value reflects an appraiser’s opinion of the underlying economic value of an unleased aircraft in an open market environment with a reasonable balance of supply and demand, assuming an arm’s-length transaction between knowledgeable parties. Maintenance-adjusted base values include appropriate financial adjustments to base values based on the appraiser’s interpretation of the maintenance status of the appraised aircraft. Percentages may not total due to rounding.

Our Company

We are a newly organized company formed by Babcock & Brown to acquire and lease commercial jet aircraft and other aviation assets. Our aircraft are leased under long-term contracts to a diverse group of airlines throughout the world. Our strategy is to grow our portfolio through accretive acquisitions of aircraft and to increase our distributable cash flows, while paying regular quarterly dividends to our shareholders.

Babcock & Brown is a global investment and advisory firm whose aircraft management division, BBAM, is one of the world’s leading commercial jet aircraft lessors. Affiliates of Babcock & Brown will assist us in acquiring and leasing additional aircraft, manage our day-to-day operations and affairs and act as servicer for our portfolio of aircraft and related leases.

Our initial portfolio of 47 commercial jet aircraft, which we refer to as our Initial Portfolio, includes 45 narrow-body passenger aircraft, one wide-body passenger aircraft and one freighter. Boeing aircraft comprise 56% of our fleet and Airbus aircraft comprise the remaining 44%. The aircraft in our Initial Portfolio were manufactured between 1989 and 2007 and have a weighted average age of 5.7 years. Our leases are scheduled to expire between 2007 to 2021, and we refer to them as long-term leases.

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The following table outlines the composition of our Initial Portfolio.


Aircraft Manufacturer Aircraft Type Number of
Aircraft
Percent of
Appraised Value
Boeing B737-800   10 27.1 % 
  B757-200 9 16.8 % 
  B737-700 3 6.9 % 
  B767-300ER 1 2.9 % 
  B737-500 2 1.5 % 
  B737-300QC 1 1.0 % 
  Total 26 56.2 % 
Airbus A320-200 16 32.3 % 
  A319-100 5 11.5 % 
  Total 21 43.8 % 
Total   47 100.0 % 

All of the aircraft in our Initial Portfolio are subject to leases under which lessees are responsible for most operational and insurance costs, and the majority of the leases in our Initial Portfolio are subject to fixed rental rates. Our Initial Portfolio is diversified across 29 different airlines in 16 countries, in both developed and emerging markets. Our leases have a weighted average remaining lease term of 5.9 years and are expected to provide us with a stable source of revenues and cash flows.

We will acquire 44 of the aircraft in our Initial Portfolio from JET-i Leasing LLC, which we refer to as JET-i Leasing. JET-i Leasing is a subsidiary of JET-i Holdings LLC, a limited liability company managed by Babcock & Brown which, together with its subsidiaries, we refer to as JET-i. We will acquire the remaining three aircraft in our Initial Portfolio from three other companies in which Babcock & Brown has an ownership interest. We refer to JET-i and these three companies collectively as the Aircraft Sellers. We will fund the purchase price for our Initial Portfolio with the net proceeds of this offering, an $853.0 million aircraft lease securitization and a concurrent private placement of our shares to existing equity holders of JET-i or their affiliates, including Babcock & Brown, and a fund managed by a company in which Babcock & Brown has an interest, whom we refer to collectively as the private investors.

Our Relationship With Babcock & Brown

We will engage affiliates of Babcock & Brown as manager of our company and servicer for our aircraft portfolio under long-term management and servicing agreements. Babcock & Brown Air Management Co. Limited, which we refer to as our Manager, will manage our company under the direction of its chief executive officer, Colm Barrington, who has nearly 40 years of experience in the aviation industry and will be exclusively dedicated to our business. BBAM will act as our servicer and, in addition to arranging for the leasing of our fleet, will assist our Manager in acquiring and disposing of our aircraft, market our aircraft for lease and release, collect rents and other payments from the lessees of our aircraft, monitor maintenance, insurance and other obligations under our leases and enforce our rights against lessees. Following the completion of our initial public offering, Babcock & Brown will hold 13.2% of our outstanding shares. The pro forma management and servicing fees we would have paid in 2006 to affiliates of Babcock & Brown, including our Manager and BBAM, had we owned the Initial Portfolio as of January 1, 2006, would have been approximately $4.8 million.

Babcock & Brown has over 25 years of experience in the aircraft industry. BBAM is the fifth largest aircraft leasing company in the world, as measured by the number of owned and managed aircraft in its portfolio. BBAM manages over 240 aircraft valued at over $6 billion and has leased aircraft to more than 140 airlines worldwide. Babcock & Brown has also been a financial advisor to airlines worldwide and has been an active participant in the Asian aircraft leasing market since 1989. We

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believe Babcock & Brown’s position in the industry and relationships throughout the world will allow us to manage our portfolio effectively, acquire and lease additional aircraft, access high-growth emerging markets and remarket our aircraft when leases expire.

Our Competitive Strengths

We believe the following competitive strengths will enable us to capitalize on growth opportunities in the aircraft leasing industry:

  Babcock & Brown’s leadership in the aircraft operating leasing business.    Through BBAM and other affiliates, Babcock & Brown will service our portfolio of leased aircraft pursuant to long-term servicing agreements. As the servicer of our portfolio, BBAM will perform all remarketing, technical management, lease management and administrative services for our aircraft. BBAM will also assist our Manager in identifying aircraft acquisition opportunities and executing acquisitions and dispositions on our behalf. BBAM manages over 240 aircraft valued at over $6 billion and has leased aircraft to more than 140 airlines worldwide. We believe that we will benefit from BBAM’s experience in servicing leases and remarketing aircraft, as well as its expertise in executing aircraft acquisitions, dispositions and freighter conversions.
  Babcock & Brown’s ability to source aircraft acquisitions.    Babcock & Brown has over 17 years of aircraft origination and asset management experience, having originated over 300 aircraft from a variety of sources during such period. In addition, Babcock & Brown’s long history as an advisor in the aircraft industry provides us with extensive relationships with airlines, aircraft manufacturers, aircraft lessors, financial institutions and other participants in the industry, which will enhance our ability to source aircraft acquisitions. We believe that the diversity in Babcock & Brown’s origination sources will allow us to originate aircraft and continue to grow throughout aviation cycles.
  Global remarketing capability and diverse customer base.    We believe that Babcock & Brown’s global remarketing platform and worldwide airline relationships will enhance our ability to maintain a high utilization rate for our aircraft and limit our exposure to customer concentration and fluctuations in regional economic conditions. Since 1994, BBAM has successfully re-marketed more than 240 aircraft and developed relationships with more than 140 airlines worldwide.
  Modern, high-utility aircraft fleet.    Our Initial Portfolio primarily consists of modern, fuel-efficient narrow-body aircraft. The weighted average age of the aircraft in our Initial Portfolio is 5.7 years. These aircraft have a large operator base and long remaining useful lives. We believe these aircraft, and the additional aircraft that we will seek to acquire, are in high demand among our airline customers and are readily deployable to various markets throughout the world. In addition, BBAM’s demonstrated freighter conversion management capabilities will enhance the flexibility and extend the useful life of the aircraft in our portfolio. We believe that many of the aircraft in our Initial Portfolio could be converted from passenger into freighter aircraft, which would further extend their duration of service in our portfolio. We believe that our fleet of young, high-demand aircraft will enable us to provide stable and growing cash flows to our shareholders over the long term.
  Stable, contracted revenues from a well balanced lease portfolio.    The aircraft in our Initial Portfolio are leased under long-term contracts on a primarily fixed-rate basis to 29 different airlines dispersed across 16 countries. Our scheduled lease maturities range from 2007 to 2021, with a weighted average remaining lease term of 5.9 years. The majority of our leases are fixed rate in nature. No single lessee is expected to represent more than 10% of our minimum contracted monthly revenues as of the completion of this offering. We believe these qualities will contribute to the stability of our revenues and cash flow.

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  Babcock & Brown’s track record.    Babcock & Brown is an experienced manager of listed, private equity and institutional investment vehicles focused on a range of industries and asset classes with a strong track record of success. As of June 30, 2007, total funds and assets under its management were approximately $41.8 billion.

Our Growth Strategies

We intend to grow our lease portfolio and increase distributable cash flow per share by focusing on the following strategies:

  Capitalize on the growth in the aviation industry and our ability to acquire additional aircraft.    We believe that strong growth in the global aviation market will provide us with numerous attractive acquisition opportunities. We intend to acquire additional aircraft that are accretive to distributable cash flow per share, while maintaining desirable portfolio characteristics in terms of aircraft type, fleet age, lease term and geographic concentration. We will focus primarily on acquiring high-utility commercial jet aircraft that have long useful lives and large operator bases, such as the Boeing 737 and the Airbus A320 families. We believe these aircraft will continue to experience strong demand as the number of low-cost carriers increases and passenger traffic in emerging markets continues to rise. From time to time, we also intend to evaluate different aircraft asset types and other aviation assets. For example, with global air freight traffic expected to grow as a result of expanding world trade and increased globalization, we expect that BBAM’s experience in narrow-body passenger-to-freighter conversion will enable us to participate in the growing worldwide freighter market which we believe provides us with additional potential for growth. BBAM has built its expertise in this area, having converted such aircraft types as the Airbus A300, Boeing 757 and Boeing 747.
  Actively manage our lease portfolio to optimize returns and balance lease maturities and diversification.    We intend to manage our lease portfolio by taking into account regional trends in aircraft demand. Our focus on desirable aircraft types and low average fleet age ensures the mobility of our assets across global markets, which allows us to enter into both short and long-term leasing agreements with attractive terms. We will pursue additional acquisitions, as well as consider dispositions, remarketing and freighter conversion opportunities to enhance returns to our shareholders.
  Focus on high growth markets.    Babcock & Brown has a long established presence in the high growth Asian market and other emerging economies. Approximately 51% of our Initial Portfolio is leased to lessees located in emerging economies, such as China, India, Mexico and Russia. Over the next 20 years, these emerging economies are expected to fuel global growth for commercial air travel. Passenger and cargo traffic growth is being driven by high rates of economic growth in emerging markets and by the increasing propensity to travel to and within these areas. The Chinese domestic market is expected to generate the highest growth as airport infrastructure continues to catch up with demand and the travel market continues to mature. India, with its very large population and high number of urban population centers, is also poised for growth. We expect operating leasing in the Asia/Pacific region in general will continue its upward trajectory as the airline market fragments and new carriers continue to evolve. A growing number of low cost carriers and short-haul airlines in this region operate primarily with narrow-body aircraft such as the Boeing 737 and the Airbus A320 and should continue to generate opportunities for leasing companies. The four leading countries in which we lease our aircraft are India, United States, Mexico and China, in which we have leased 15.1%, 14.7%, 13.0%, and 12.8%, respectively, of the appraised value of our Initial Portfolio.
  Employ efficient financing strategies to execute our growth plans.    We believe our capital structure is efficient and provides flexibility to pursue acquisitions and capitalize on market

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  opportunities as they arise. The Initial Portfolio will be financed in part by an $853.0 million securitization that will have minimal debt amortization in the first five years. In addition, we have a commitment for a $1.2 billion ‘‘warehouse’’ credit facility to finance additional aircraft acquisitions, a $96 million equity tranche of which will be provided by us. This credit facility is designed to provide us with the flexibility to fund a variety of aircraft types, lease terms and lessee profiles at a highly competitive cost of funds. We also expect to fund our growth through additional debt and equity offerings, including aircraft lease portfolio securitizations. The terms of our debt instruments will prevent us from paying dividends if we fail to meet financial ratios or default on our debt service obligations.

Industry Trends

  Large and growing commercial aircraft fleet to meet global demand.    Globalization and economic growth have led to increased demand for air travel, with global airline passenger traffic increasing by nearly 135% between 1991 and 2006. Continued economic development is expected to further drive air travel growth, and Boeing forecasts an average annual revenue passenger mile growth of 4.9% and freight traffic growth of 6.1% from 2006 through 2025. According to Boeing estimates, the current global fleet of 17,330 operating commercial jet aircraft is expected to grow to 35,970 aircraft by 2025, of which 27,370 will be mainline passenger jets. In dollar terms, the current global fleet has an estimated value of $350 billion and is estimated to grow to approximately $777 billion by 2025. Nevertheless, the aircraft industry is subject to demand shifts, and any downturn in discretionary business or consumer spending or increased costs could have a significant impact on air traffic and aircraft demand.
  Emerging markets driving global aircraft growth.    Emerging markets, especially those with large populations distributed over a broad geographic area, tend to have very small commercial passenger jet aircraft fleets relative to total population size when compared to more developed regions such as North America and Europe. The current round of liberalization has extended to these markets, encouraging the launch of low-cost carriers and stimulating demand for air travel. As per capita incomes continue to rise and regulatory restrictions continue to be relaxed, we believe demand for air travel will continue to increase in emerging markets, which should fuel the need for additional supply of aircraft.
  Airlines returning to profitability and renewing fleets.    After sustaining several years of net losses, many airlines appear to be returning to profitability. Average fleet ages for many legacy carriers in the United States and international carriers such as Lufthansa, Cathay Pacific and British Airways currently exceed ten years. Demand for passenger aircraft, especially narrow-body aircraft, is expected to increase as these carriers renew and grow their fleets to satisfy increasing global demand for air travel. In addition to replacement needs for the passenger fleet, the freighter fleet requires modernization. Airlines must eventually replace aging and fuel-inefficient aircraft, and while many of these aircraft do not have natural replacements, narrow-body and midsize wide-body jets, such as the Boeing 757s, 737s and 767s, will likely be converted to meet this demand.
  Greater reliance on operating leasing.    Over the past 20 years, airlines have increasingly turned to operating leases to meet their aircraft financing needs. Operating leases permit airlines to reduce their capital commitments, improve their balance sheets, increase fleet planning flexibility and reduce residual value risk. The proportion of the global fleet under operating lease has increased from approximately 17% in 1990 to 30% in 2006. SH&E forecasts that 40% of the global aircraft fleet will operate under operating leases over the course of the next 10 years.
  Fundamental imbalance between supply and demand for aircraft.    In recent years, the increased demand for aircraft, engines and parts has resulted in a supply-demand imbalance for these goods. Aircraft demand is influenced by, among other things, rapid airline passenger

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  growth in emerging markets, higher fuel prices, which has increased demand for fuel-efficient aircraft, the emergence of low-cost carriers and industry restructuring in developed markets. The primary factors affecting aircraft supply include the aging world aircraft fleet, the significant backlog of aircraft production, the limited ability of airframe manufacturers to increase production and continued technological innovation in aviation equipment.
  Improving lease rates.    With the recent recovery of much of the global commercial aviation industry, aircraft values have stabilized and have begun to increase for some aircraft types. For a number of aircraft types, particularly the Boeing 737 and the Airbus A320, which are highly favored by low-cost carriers, supply is limited, and there is some concern that manufacturers will be unable to satisfy demand in the near term. Reductions in supply for many aircraft types have led to an increase in lease rental rates and, in some cases, aircraft values. However, the airline industry has been subject to cyclical demand patterns, and a reduction in lease rates could occur.

Our Dividend Policy

Our board of directors has adopted a policy to pay a regular quarterly cash dividend to our shareholders in an initial amount of $0.50 per share. We intend to pay the first dividend in 2008 based on $0.50 per share per quarter prorated for the period from completion of this offering through December 31, 2007.

Our dividend policy is based on the cash flow profile of our business. We generate significant cash flow under long-term leases with a diversified group of commercial aviation customers. We intend to distribute a portion of our cash flow to our shareholders, while retaining cash flow for reinvestment in our business. Retained cash flow may be used to fund acquisitions of aircraft and other aviation assets, make debt repayments and for other purposes, as determined by our Manager and board of directors. Our dividend policy reflects our judgment that by reinvesting a portion of our cash flow, we will be able to provide value to our shareholders by enhancing our long-term dividend paying capacity. Our objectives are to maintain and increase distributable cash flow per share through accretive acquisitions of additional aircraft and other aviation assets beyond our Initial Portfolio of 47 aircraft. Our management agreement includes an incentive for our Manager to increase our distributable cash flow by providing for an incentive fee that is payable to our Manager only if the quarterly dividend on our common shares exceeds specified targets.

The declaration and payment of future dividends to our shareholders will be at the discretion of our board of directors and will depend on many factors, including our financial condition, cash flows, legal requirements and other factors our board of directors deems relevant. Please read ‘‘Dividend Policy — Possible Changes in Quarterly Dividends’’ and ‘‘Risk Factors’’ for a discussion of these factors. Please read ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Our Future Cash Flows’’ and ‘‘— Our Future Sources of Liquidity’’ for a discussion of our sources of liquidity to pay our proposed dividends.

Our Formation

We were formed by Babcock & Brown to acquire our Initial Portfolio from the Aircraft Sellers and to develop a business of acquiring and leasing aircraft. We will use the net proceeds of this offering, together with the proceeds from a private placement of shares to the private investors and the net proceeds of the securitization described below, less certain expenses and a fixed cash balance we will retain for general corporate purposes, to finance the acquisition of our Initial Portfolio from the Aircraft Sellers. The purchase price that we will pay for our Initial Portfolio will be determined based on the initial public offering price in this offering as described below, even if the price is above or below the price range set forth on the cover of this prospectus, and will not be based upon an independent valuation of such assets. The purchase price will not be determined by reference to appraised values as these are theoretical values of unleased aircraft assuming certain hypothetical

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market conditions whereas the aircraft in our Initial Portfolio are subject to long-term leases that are expected to generate fixed revenues. In addition, appraised values do not take into account the long-term contracts we will enter into with affiliates of Babcock & Brown that will provide us with long-term benefits and obligations. The acquisition of our Initial Portfolio will be made through our subsidiary, Babcock & Brown Air Funding I Limited, which we refer to as B&B Air Funding.

On August 2, 2007, B&B Air Funding entered into an agreement to complete a securitization that will close concurrently with this offering. The securitization will generate net proceeds of approximately $846.3 million through the issuance of floating-rate aircraft lease-backed notes, which will finance part of the cost of the acquisition of our Initial Portfolio. The obligations of B&B Air Funding under these notes will be secured by its ownership interests in subsidiaries that will own the aircraft in our Initial Portfolio and by the leases relating to those aircraft. A description of the securitization is set forth under ‘‘Description of Indebtedness — Securitization.’’

The purchase price for our Initial Portfolio will equal the sum of the net proceeds of this offering, our private placement of 14,907,800 shares to the private investors and the securitization, less the portion of such proceeds to be used to fund our formation and offering-related expenses, up-front costs and expenses related to our securitization, and a fixed cash balance that we will retain for general corporate purposes. See ‘‘Use of Proceeds.’’ Based on an assumed initial public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, we estimate that the purchase price for our Initial Portfolio will be approximately $1,451.0 million. Upon completion of this offering, the portion of the purchase price allocable to the securitization will be held in a separate account established under the indenture for the securitization pending delivery of the aircraft. We will make equity contributions to, or subscribe for shares of, B&B Air Funding to provide the remainder of the purchase price when needed.

The purchase price will be adjusted downwards by the amount of rents received by the Aircraft Sellers from the date of completion of this offering through the date of delivery of the aircraft and adjusted upwards by the amount of aircraft expenditures paid by the Aircraft Sellers during such period (which expenditures would have been paid by us had the aircraft been delivered upon the completion of this offering). The purchase price will also be adjusted upwards by the amount of any investment earnings earned on the funds in the separate account pending delivery of the aircraft. As a result of this adjustment, (1) all base rents under the leases for the 47 aircraft in our Initial Portfolio relating to any period after completion of this offering, and maintenance reserve payments received after the completion of this offering, will be for our benefit and (2) we will be responsible for all amounts payable by the lessor in respect of maintenance payments, airworthiness directives and similar obligations or other lessor obligations relating to the period after the completion of this offering. A description of the purchase agreement for our Initial Portfolio is set forth under ‘‘Asset Purchase Agreement.’’

In connection with this offering, our subsidiary, Babcock & Brown Air Acquisition I Limited, which we refer to as B&B Air Acquisition, has received a commitment for a $1.2 billion ‘‘warehouse’’ credit facility to finance additional aircraft acquisitions, a $96 million equity tranche of which will be provided by us. A description of the credit facility is set forth under ‘‘Description of Indebtedness — Credit Facility.’’

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The following diagram summarizes our corporate structure immediately after the completion of this offering assuming no exercise by the underwriters of their over-allotment option and an initial public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

* Public investors in this offering and the private investors (other than Babcock & Brown) will own 64.0% and 22.8%, respectively, of B&B Air if the underwriters exercise in full their over-allotment option.
** We will own 100% of B&B Air Funding’s Class A common stock. For purposes of the securitization, a charitable trust will hold shares of Class B common stock of B&B Air Funding having limited voting rights and representing less than 0.001% of the economic interest in B&B Air Funding. See ‘‘Description of Indebtedness — Securitization.’’

Corporate Information

We are a Bermuda exempted company incorporated on May 3, 2007 under the provisions of Section 14 of the Companies Act 1981 of Bermuda. All of our outstanding common shares are currently owned by Babcock & Brown Investment Holdings Pty Ltd., a subsidiary of Babcock & Brown. We will repurchase those shares upon the completion of this offering for their aggregate par value of $10,000 with the net proceeds of this offering. Our registered office is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

Although we and B&B Air Funding are organized under the laws of Bermuda, we and it will be resident in Ireland for Irish tax purposes and thus will be subject to Irish corporation tax on our and their income in the same way, and to the same extent, as if we and they were organized under the laws of Ireland. Our principal executive offices are located at West Pier, Dun Laoghaire, County Dublin, Ireland. Our telephone number at that address is +353 1 231-1900. Our agent for service of process in the United States is Puglisi & Associates located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

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The Offering

Issuer Babcock & Brown Air Limited.
Securities offered 18,695,650 common shares in the form of ADSs. Our common shares are being offered only in the form of ADSs.
Offering price $23.00 per ADS.
Over-allotment option 2,804,348 common shares in the form of ADSs to be offered by the selling shareholders if the underwriters exercise the over-allotment option in full.
ADSs issued and outstanding
    immediately after this offering
33,603,450 ADSs.
Use of proceeds We expect to use the net proceeds of this offering primarily to pay a portion of the purchase price for our Initial Portfolio. Assuming that all of the aircraft in our Initial Portfolio are delivered upon completion of this offering, we estimate that we will receive an aggregate of $1,596.4 million in net proceeds from the following sources:
net proceeds of $407.2 million from this offering after deducting the underwriters’ discounts and commissions and assuming a public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus;
estimated proceeds from the sale of 14,907,800 shares to Babcock & Brown and the other private investors of $342.9 million in the concurrent private placement; and
net proceeds of $846.3 million from the securitization, after deducting the initial purchasers’ discount and fees.
These aggregate net proceeds will be used for the following purposes:
$24.6 million to pay expenses related to our formation, this offering and the securitization;
$120.8 million will be retained for general corporate purposes; and
the balance will constitute the purchase price for our Initial Portfolio.
The purchase price for our Initial Portfolio will be determined based on the initial public offering price in this offering, and will not be based upon an independent valuation of such assets. Assuming an initial public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus,

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we estimate that the purchase price for our Initial Portfolio will be $1,451.0 million.
Dividend policy Our board of directors has adopted a policy to pay a regular quarterly cash dividend to our shareholders in an initial amount of $0.50 per share. We intend to pay the first dividend in 2008 based on $0.50 per share per quarter prorated for the period from completion of this offering through December 31, 2007. The declaration and payment of future dividends to our shareholders will be at the discretion of our board of directors and will depend on many factors, including our financial condition, cash flows, legal requirements and other factors our board of directors deems relevant. Please review ‘‘Dividend Policy — Possible Changes in Quarterly Dividends’’ and ‘‘Risk Factors’’ for a discussion of these factors.
Private placement Babcock & Brown and the other private investors have agreed to purchase from us, in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 that will be consummated concurrently with this offering, 14,907,800 ADSs at a price per share equal to the initial public offering price. Babcock & Brown has agreed to purchase 4,422,529 of these ADSs. Some of the private investors (not including Babcock & Brown) may sell some of the shares they purchase in the private placement pursuant to the underwriters’ over-allotment option.
U.S. Tax Considerations U.S. shareholders will be subject to U.S. tax on any taxable income attributable to holding our shares or gain from the sale of our shares. For U.S. federal income tax purposes, we will be treated as a passive foreign investment company, or PFIC. Under the PFIC rules, a U.S. holder who disposes or is deemed to dispose of our shares at a gain, or who receives or is deemed to receive certain distributions with respect to our shares, generally will be required to treat such gain or distributions as ordinary income and to pay an interest charge on the tax imposed. A qualified electing fund, or QEF, election may be used to reduce or eliminate the adverse impact of the PFIC rules for shareholders. This election may accelerate the recognition of taxable income and may result in the recognition of ordinary income. In addition, our distributions will not qualify for the reduced rate of U.S. federal income tax that applies to qualified dividends paid to non-corporate U.S. taxpayers. Investors should consult with their own tax advisors as to whether or not to make such an election and should carefully review the information under the heading ‘‘Taxation Considerations — U.S. Federal Income Tax Considerations.’’

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Provided you make a QEF election, we estimate that if you hold the shares that you purchase in this offering through December 31, 2009, you will be allocated, on a cumulative basis, an amount of U.S. federal taxable income for such period that will be less than 33% of the cash distributions paid to you during such period. Although we have estimated that if you make a QEF election the taxable income allocated to you initially will be less than anticipated distributions, if we do not acquire additional aircraft generating sufficient depreciation deductions for U.S. tax purposes, your share of taxable income will likely exceed cash distributions at some point in the future. Please review ‘‘Tax Considerations — U.S. Federal Income Tax Considerations’’ for the basis of this estimate.
ADSs Each ADS represents one common share. The depositary will be Deutsche Bank Trust Company Americas. The ADSs will be evidenced by American Depositary Receipts, or ADRs. The depositary through its custodian will hold the common shares underlying your ADSs. You will have rights as provided in the deposit agreement. The depositary will pay you the cash dividends and other distributions it receives on our common shares, in accordance with the terms of the deposit agreement, subject to any withholding taxes and any other applicable laws and regulations. We are offering our common shares only in the form of ADSs to facilitate the use by U.S. resident shareholders of an exemption from Irish withholding taxes available to U.S. residents. For a description of Irish withholding taxes and available exemptions for holders resident in the United States and other tax-treaty countries, you should review ‘‘Taxation Considerations — Irish Tax Considerations — Irish Dividend Withholding Tax.’’ We will pay all fees of the depositary, except in connection with cancellations of ADSs and withdrawal of common shares. For a description of the ADSs, you should review ‘‘Description of American Depositary Shares’’ in this prospectus.
Listing Our ADSs have been approved for listing on the New York Stock Exchange under the symbol ‘‘FLY.’’
Conditions Precedent Completion of this offering is conditioned upon completion of the securitization and the private placement of shares to Babcock & Brown and the other private investors.
Risk Factors Investing in our shares involves a high degree of risk. You should carefully read and consider the information set forth under the heading ‘‘Risk Factors’’ and all other information set forth in this prospectus before investing in our shares.

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Unless the context otherwise requires, all information in this prospectus:

  reflects the acquisition of our Initial Portfolio, as described above under ‘‘— Our Formation;’’
  assumes an initial public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus; and
  assumes the underwriters do not exercise their over-allotment option.

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Summary Historical Consolidated and Pro Forma Financial and Other Data

The following table presents summary historical consolidated and pro forma financial and other data of JET-i Leasing, the predecessor of our company. JET-i Leasing commenced operations on November 22, 2005 and acquired its first three aircraft before the end of 2005. The summary historical consolidated financial data for the period of November 22, 2005 (commencement of operations) to December 31, 2005 and the year ended December 31, 2006 and as of the end of such periods has been derived from the audited consolidated financial statements of JET-i Leasing included elsewhere in this prospectus. The summary historical consolidated financial data for each of the six-month periods ended June 30, 2006 and 2007 has been derived from the unaudited consolidated financial statements of JET-i Leasing included elsewhere in this prospectus. The summary historical consolidated data reflects the aircraft included in our Initial Portfolio and related leases as owned, operated and financed by JET-i Leasing during each of the periods and as of each of the dates presented and reflects the results of each such aircraft only from and after the date of acquisition by JET-i Leasing or any of its subsidiaries.

The summary pro forma financial data has been derived from the unaudited pro forma financial statements included elsewhere in this prospectus, which reflect JET-i Leasing’s historical consolidated financial data, as adjusted to give effect to each of the following transactions as if each had occurred as of January 1, 2006:

  the issuance and sale of 18,695,650 shares in this offering at an assumed initial public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, resulting in gross proceeds to us of $430.0 million and net proceeds of $407.2 million after deducting the underwriters’ discounts and commissions;
  the issuance and sale of 14,907,800 shares to Babcock & Brown and the other private investors in the concurrent private placement at a price per share of $23.00, resulting in gross proceeds to us of $342.9 million;
  the issuance of $853.0 million of aircraft lease-backed notes in the securitization for net proceeds of $846.3 million after deducting the initial purchasers’ discounts and fees;
  the use of $5.9 million to fund expenses related to this offering and the private placement of shares to Babcock & Brown and the other private investors;
  the use of $18.7 million to fund expenses related to the securitization;
  the use of $1,451.0 million to purchase the 47 aircraft in our Initial Portfolio; and
  the retention of a $120.8 million cash balance by us for general corporate purposes.

The unaudited pro forma statements of operations for the year ended December 31, 2006 and the six-month period ended June 30, 2007 do not reflect full period results for all 47 aircraft in our Initial Portfolio. The unaudited pro forma financial statements have been prepared based upon available information and assumptions that we believe are reasonable. However, the unaudited pro forma financial statements should not be considered indicative of actual results that would have been achieved had the transactions described above actually been consummated as of the assumed dates. The unaudited pro forma statements also should not be considered representative of our future financial condition or results of operations.

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The following data should be read in conjunction with ‘‘Risk Factors,’’ ‘‘Use of Proceeds,’’ ‘‘Unaudited Pro Forma Financial Statements,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the consolidated financial statements of JET-i Leasing.


  Historical Pro forma
  November 22
(commencement
of operations) to
December 31,
2005
Year Ended
December 31,
2006
Six Months
Ended
June 30,
2006
Six Months
Ended
June 30,
2007
Year Ended
December 31,
2006
Six Months
Ended
June 30,
2007
  (Dollars in thousands)
Statement of operations data:            
Revenues            
Operating lease revenue $ 550 $ 56,566 $ 15,226 $ 61,662 $ 56,566 $ 61,662
Finance lease income and other revenues 1,668 5,701 1,668 5,701
Total revenues 550 58,234 15,226 67,363 58,234 67,363
Expenses            
Depreciation 156 17,976 4,723 19,877 17,976 19,877
Interest expense, net 710 43,013 7,925 32,721 53,114 25,521
Selling, general and administrative 331 3,321 834 2,493 13,131 6,944
Maintenance and other leasing costs 145 1,379 373 1,628 1,379 1,628
Total expenses 1,342 65,689 13,855 56,719 85,600 53,970
Net income (loss) from continuing operations before provision for income taxes (792 )  (7,455 )  1,371 10,644 (27,366 )  13,393
Provision for income taxes 17 712 17 1,674
Net income (loss) $ (792 )  $ (7,472 )  $ 1,371 $ 9,932 $ (27,383 )  $ 11,719
Other data (as of end of period):            
Number of aircraft 3 37 19 44 37 44
Number of lessees 2 20 13 26 20 26

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RISK FACTORS

Investing in our shares involves a high degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, before making an investment in our company. The risks discussed below could materially and adversely affect our business, prospects, financial condition, results of operations, cash flows and ability to pay dividends and cause the trading price of our shares to decline. You may lose all or a part of your investment.

Risks Related to Our Financial Information

We have no independent operating history upon which to assess our prospects or ability to pay dividends to our shareholders.

We are a newly organized company with no independent operating history, and our prospects and ability to pay dividends must be considered in light of the risks, expenses and difficulties frequently encountered when any new business is formed. Our lack of independent operating history will make it difficult for investors to assess the quality of our management and our ability to operate profitably and pay dividends to our shareholders. The historical and pro forma financial information included in this prospectus does not reflect the financial condition, results of operations or cash flows we would have achieved during the periods presented, and therefore may not be a reliable indicator of our future financial performance or ability to pay dividends. We cannot assure you that we will be able to implement our business strategies, that any of our strategies will be achieved or that we will be able to operate profitably and pay regular dividends to our shareholders. We urge you to carefully consider the basis on which the historical and pro forma financial information included in this prospectus was prepared and presented.

The historical and pro forma financial information included in this prospectus does not reflect the financial condition, results of operations or cash flows we would have achieved during the periods presented and therefore may not be a reliable indicator of our future financial performance or ability to pay dividends.

The historical financial information included in this prospectus represents the results attributable to some of the aircraft included in our Initial Portfolio as owned, operated and financed by JET-i Leasing. Changes will occur in the cost, financing and operation of these assets after we acquire them. These changes are likely to include:

  Number of aircraft.    JET-i Leasing’s historical results included in this prospectus reflect the aircraft in our Initial Portfolio only to the extent that any such aircraft were owned and operated during the relevant period. JET-i Leasing’s results for the periods of November 22 to December 31, 2005, for the year ended December 31, 2006 and for the six months ended June 30, 2007 include only three, 37 and 44 aircraft, respectively. Our results will initially include 47 aircraft.
  Lower leverage and borrowing costs.    JET-i Leasing’s borrowing costs were incurred under a warehouse credit facility similar to our committed credit facility. Our acquisition of the Initial Portfolio will be financed through the proceeds of this offering, the private placement and a securitization that will result in lower debt leverage than that reflected in JET-i Leasing’s results and we expect to bear significantly lower interest costs than JET-i Leasing bore under its warehouse credit facility. Moreover, the interest expense included in JET-i Leasing’s historical results reflects the payment of interest to JET-i Leasing’s holding company on a tranche of debt under its warehouse facility held by JET-i Holdings. Our credit facility will contain a tranche of equity under which B&B Air Acquisition, our consolidated subsidiary, will pay to us a return at a significantly higher rate than the interest rate payable in our securitization. However, the return on this tranche of equity will be eliminated in our consolidated financial statements.

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  Incremental costs.    We will have higher operating costs than JET-i Leasing as we will have personnel dedicated to our management whereas JET-i Leasing did not. In addition, unlike JET-i Leasing, we will be a public company with listed equity in the United States and will incur legal, accounting, compliance and other costs that JET-i Leasing did not incur, such as costs associated with compliance, reporting and other requirements of U.S. securities laws, including the Sarbanes-Oxley Act of 2002 and rules thereunder.
  Aging of our aircraft.    Our depreciation of capitalized planned major maintenance costs, which is included in depreciation of flight equipment and principally relates to contributions under leases on which we collect maintenance reserve payments, will be higher than such amounts of our predecessor. This expected increase is due to the aging of the aircraft in our Initial Portfolio.
  Tax expense.    JET-i Leasing had only nominal tax expense as it was a tax flow-through entity for U.S. federal and state income tax purposes, whose taxable results flowed through to its member, JET-i Holdings, which was also a tax flow-through entity. We will be subject to corporate taxation in Ireland and expect to have more than nominal tax expense. However, we expect that our cash tax payments relating to our leasing activity will not be significant in the near term as a result of the rate at which we may depreciate our aircraft under Irish tax law. Current Irish tax law generally does not limit tax loss carryforwards. Therefore, in the near term the only significant cash tax payments we expect to make will be Irish income tax on interest income and on any capital gains.

The pro forma financial information gives effect to this offering, the securitization, the concurrent private placement to Babcock & Brown and the other private investors and the application of the proceeds from these transactions as described under ‘‘Use of Proceeds,’’ including the purchase of the aircraft in our Initial Portfolio, as if those transactions were already consummated. The unaudited pro forma statements of operations for the year ended December 31, 2006 and the six-month period ended June 30, 2007 reflect results of the aircraft included in our Initial Portfolio only to the extent that such aircraft were under lease during such periods, and therefore do not reflect full period results for all 47 aircraft in our Initial Portfolio. This pro forma financial information has been prepared based upon available information and estimates and assumptions that we believe are reasonable. However, this pro forma financial information is not intended to represent or indicate what our financial condition or results of operations would have been had those transactions occurred as of those dates, nor what they may be in the future.

Risks Related to Our Dividend Policy

We may not be able to pay or maintain dividends on our shares. The failure to do so would adversely affect the trading price of our shares.

There are a number of factors that could affect our ability to pay dividends including, but not limited to, the following:

  lack of availability of cash to pay dividends due to changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;
  our inability to make acquisitions of additional aircraft that are accretive to cash flow;
  application of funds to make and finance acquisitions of aircraft and other aviation assets;
  reduced levels of demand for, or value of, our aircraft;
  increased supply of aircraft;
  obsolescence of aircraft;
  lower lease rates on new aircraft and re-leased aircraft;
  delays in re-leasing our aircraft after the expiration or early termination of existing leases;
  impaired financial condition and liquidity of our lessees;

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  deterioration of economic conditions in the commercial aviation industry generally;
  unexpected or increased fees and expenses payable under our agreements with BBAM and its affiliates and other service providers;
  fees and other amounts payable to our Manager, BBAM and their affiliates under our management and servicing agreements;
  poor performance by our Manager, BBAM and their affiliates and other service providers and our limited rights to terminate them;
  unexpected or increased maintenance, operating or other expenses or changes in the timing thereof;
  a decision by our board of directors to modify or revoke its policy to distribute a portion of our cash flow available for distribution;
  restrictions imposed by our financing arrangements, including under the notes issued in the securitization, our credit facility and any indebtedness incurred in the future to refinance our existing debt or to expand our aircraft portfolio;
  changes in Irish tax law, the tax treaty between the United States and Ireland (the ‘‘Irish Treaty’’) or our ability to claim the benefits of such treaty;
  cash reserves established by our board of directors;
  restrictions under Bermuda law on the amount of dividends that we may pay; and
  the other factors discussed under ‘‘Risk Factors.’’

The failure to maintain or pay dividends would adversely affect the trading price of our shares. See ‘‘Dividend Policy.’’

We are a holding company and will initially rely on B&B Air Funding and its subsidiaries, the owners of the aircraft in our portfolio, to provide us with funds necessary to meet our financial obligations and pay dividends, and B&B Air Funding is significantly restricted from making funds available to us.

We are a holding company and our principal asset is the equity interest we hold in B&B Air Funding, which will own, through its subsidiaries, the aircraft in our Initial Portfolio. As a result, we will depend on loans, dividends and other payments from B&B Air Funding and from any other subsidiaries through which we may conduct operations in the future, to generate the funds necessary to meet our financial obligations and to pay dividends on our shares. B&B Air Funding is legally distinct from us and is significantly restricted from paying dividends or otherwise making funds available to us pursuant to the agreements governing the notes to be issued in the securitization. See ‘‘Description of Indebtedness — Securitization.’’ Any other subsidiaries through which we may conduct operations in the future will also be legally distinct from us and may be similarly restricted from paying dividends or otherwise making funds available to us under certain conditions. Our subsidiaries will generally be required to service their debt obligations before making distributions to us, thereby reducing the amount of our cash flow available to pay dividends, fund working capital, make capital expenditures and satisfy other needs.

We own aircraft through subsidiaries, and our rights to our aircraft are structurally subordinated to the rights of the creditors of those subsidiaries.

Our rights to the aircraft beneficially owned by B&B Air Funding and owned by our other affiliates and subsidiaries will be structurally subordinated to the rights of the creditors of B&B Air Funding. This means that the creditors of B&B Air Funding and of our other affiliates and subsidiaries will be paid from their assets before we would have any claims to those assets.

Other Risks Related to Our Business

Unforeseen difficulties and costs associated with the acquisition and/or management of our aircraft portfolio and other aviation assets could reduce or prevent our future growth and profitability.

Our growth strategy contemplates future acquisitions and leasing of additional commercial aircraft and other aviation assets. There is currently high market demand for certain aircraft, and we may

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encounter difficulties in acquiring aircraft on favorable terms or at all, including increased competition for assets, which could reduce our acquisition opportunities or cause us to pay higher prices. A significant increase in market interest rates would make it more difficult for us to make accretive acquisitions that would increase our distributable cash flows. Any acquisition of aircraft or other aviation assets may not be profitable to us after the acquisition and may not generate sufficient cash flow to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business, financial condition, results of operations and cash flows, including risks that we may:

  fail to realize anticipated benefits, such as new customer relationships or cash flow enhancements;
  impair our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions;
  significantly increase our interest expense and financial leverage to the extent we incur additional debt to finance acquisitions;
  incur or assume unanticipated liabilities, losses or costs associated with the aircraft or other aviation assets that we acquire;
  incur other significant charges, including asset impairment or restructuring charges; or
  be unable to maintain our ability to pay regular dividends to our shareholders.

Unlike new aircraft, existing aircraft typically do not carry warranties as to their conditions (although certain manufacturer warranties may still be effective and assignable when the aircraft is purchased). Although we may inspect an existing aircraft and its documented maintenance, usage, lease and other records prior to acquisition, such an inspection normally would not provide us with as much knowledge of an aircraft’s condition as we would have if it had been built for us. Repairs and maintenance costs for existing aircraft are difficult to predict and generally increase as aircraft age and may have been adversely affected by prior use. These costs could decrease our cash flow and reduce our liquidity and our ability to pay regular dividends to our shareholders.

We will need additional capital to finance our growth, and we may not be able to obtain it on acceptable terms, or at all, which may limit our ability to grow and compete in the aviation market.

We will require additional financing to expand our business through the acquisition of additional aircraft and other aviation assets. Financing may not be available to us or may be available to us only on terms that are not favorable. The terms of our credit facility and the securitization restrict our ability to incur additional debt. In addition, the terms of any other indebtedness we may incur may restrict our ability to incur additional debt. If we are unable to raise additional funds or obtain capital on acceptable terms, we may have to delay, modify or abandon some or all of our growth strategies.

We will become subject to financial and other reporting and corporate governance requirements that may be difficult for us to satisfy.

In connection with this offering we will become obligated to file with the SEC periodic reports that are specified in Section 13 of the Securities Exchange Act of 1934, and we will be required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. Upon completion of this offering, we will also become subject to requirements of the NYSE and certain provisions of the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder, which will impose significant compliance obligations upon us. Pursuant to such obligations we will be required to, among other things:

  prepare periodic reports, including financial statements, in compliance with our obligations under U.S. federal securities laws and NYSE rules;
  maintain effective internal controls over financial reporting and disclosure controls and procedures;

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  establish an investor relations function; and
  establish internal compliance policies, such as those relating to insider trading.

We may not be successful in implementing these requirements. If we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired.

Risks Related to Our Indebtedness

We may not be able to refinance the notes issued by B&B Air Funding on favorable terms or at all, which may require us to seek more costly or dilutive financing for our investments or to liquidate assets.

We currently intend to refinance the notes issued by B&B Air Funding in the securitization through a further securitization or other long-term financing prior to the date five years after the completion of this offering after which we will be required to apply all of the available cash flow from our Initial Portfolio to repay the principal thereon. We bear the risk that we will not be able to refinance our existing indebtedness on favorable terms or at all. The inability to refinance our securitization indebtedness may require us to seek more costly or dilutive financing for our aircraft or to liquidate assets. If we are not able to refinance the notes issued in the securitization before being required to apply all of the available cash flow from our Initial Portfolio to repay the principal thereon and, as a result, excess cash available for dividends from B&B Air Funding is eliminated, then our ability to continue paying dividends to our shareholders will be adversely affected if we have not developed sufficient additional sources of cash flow to replace the cash flows that will be applied to such principal amortization.

We are subject to risks related to our indebtedness that may limit our operational flexibility and our ability to pay dividends on our shares.

The terms of the notes that B&B Air Funding will issue in the securitization subject us to certain risks and operational restrictions, including:

  all the aircraft and related leases in our Initial Portfolio secure the notes issued in the securitization, the terms of which restrict our ability to sell aircraft and require us to use proceeds from sales of aircraft, in part, to repay amounts outstanding under those notes;
  we will be required to dedicate a significant portion of our cash flow from operations to debt service payments, thereby reducing the amount of our cash flow available to pay dividends, fund working capital, make capital expenditures and satisfy other needs;
  restrictions on B&B Air Funding’s or other subsidiaries’ ability to distribute excess cash flow to us under certain circumstances;
  lessee, geographical and other concentration limits on flexibility in leasing our aircraft;
  requirements to obtain the consent of the financial guaranty policy provider for the securitization, whom we refer to as the policy provider, and rating agency confirmations for certain actions; and
  restrictions on B&B Air Funding’s ability to incur additional debt, create liens on assets, sell assets, make freighter conversions and make certain investments or capital expenditures.

The restrictions described above may impair our ability to operate and to compete effectively with our competitors. Similar restrictions may be contained in the terms of future financings that we may enter into to finance our growth, including our committed credit facility.

The terms of the notes issued in the securitization will require us to apply funds otherwise available for paying dividends to the repayment of such notes commencing after the end of the fifth year after consummation of this offering. Additionally, if B&B Air Funding does not satisfy a debt service coverage ratio for two consecutive months between the 33rd and 57th months after consummation of this offering, B&B Air Funding will be required to apply funds otherwise available for paying dividends to the retirement of the securitization notes.

Commencing after the end of the 57th month after consummation of this offering, B&B Air Funding will be required to apply all of its available cash flow to repay the principal of the securitization notes.

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If B&B Air Funding’s debt service coverage ratio (as defined in the indenture for the securitization notes) is less than 1.80 to 1.00 on any two consecutive monthly payment dates occurring between the 33rd and 57th month after consummation of this offering, B&B Air Funding will be required to apply all of its available cash flow to repay the principal of the securitization notes. If B&B Air Funding has not refinanced the notes prior to being required to apply all available cash flow to repay the principal amount of the notes, then the cash flow from the aircraft in our Initial Portfolio will not be available to us to pay dividends or to finance acquisitions of additional aircraft.

B&B Air Funding’s notes will be subject to interest rate risk, which could impair its ability to make distributions to us and our ability to pay dividends to you.

The notes that B&B Air Funding will issue in the securitization will have a floating interest rate, which will subject B&B Air Funding to the risk of an increase in interest rates and to the risk that its cash flow may be insufficient to make scheduled interest payments on its notes if interest rates were to increase. To limit this risk and to maintain the ratings of its notes, B&B Air Funding has entered into interest rate swaps or other interest rate hedging arrangements with one or more counterparties. Although the initial counterparties to such hedging arrangements will have credit ratings of A1/P1, we may not continue to be able to enter into hedging arrangements with counterparties with similar credit ratings. If any counterparty were to default on its obligations, then a mismatch in the floating rate interest obligations and fixed rate lease payments may arise, which could impair B&B Air Funding’s ability to make distributions to us, which would, in turn, adversely affect our ability to meet our financial obligations and pay dividends to our shareholders.

Risks Related to Our Relationship with Babcock & Brown

We will be wholly dependent on Babcock & Brown to manage our business and to service our aircraft portfolio.

Babcock & Brown will manage our business and all of our affairs. Therefore, our success or failure will be wholly dependent on the skill and care with which Babcock & Brown performs its services under our management and servicing agreements. We will depend on the diligence, skill and network of business contacts of our Manager and our servicer. Our Manager will manage our company and will be responsible for our day-to-day operations. Our servicer will be responsible for arranging the leasing of our fleet, acquiring and disposing our aircraft, marketing our aircraft for lease and re-lease, collecting rents and other payments from the lessees of our aircraft, monitoring maintenance, insurance and other obligations under our leases and enforcing our rights against lessees. Our continued success will depend on the continued service of key employees of our Manager and our servicer. The departure of any key employee of our Manager or our servicer, or of a significant number of professionals of our Manager or our servicer, could have a material adverse effect on our performance. As described in the risk factors below, if our board of directors is not satisfied with the performance of Babcock & Brown under these agreements, we may not be able to terminate Babcock & Brown and would have to continue to rely on Babcock & Brown notwithstanding our board’s dissatisfaction with the management and aircraft lease services being provided to us.

Babcock & Brown will have conflicts of interest with us, and their limited contractual or other duties will not restrict them from favoring their own business interests to our detriment.

Conflicts of interest will arise between us and Babcock & Brown, as the manager of our business and the servicer for our aircraft, with respect to our operations and business opportunities. These conflicts will arise because BBAM acquires, manages and remarkets for lease or sale aircraft for us and for other entities, including entities in which Babcock & Brown has an economic interest. We may compete directly with such other managed entities for investment opportunities. For example, BBAM performs aircraft acquisition, disposal and management services pursuant to a joint marketing agreement between Babcock & Brown and Nomura Babcock & Brown Co., Ltd, which we refer to as NBB. BBAM has arranged a significant number of aircraft acquisitions and dispositions pursuant to the NBB arrangement. We expect that BBAM will continue to arrange acquisition and disposition

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opportunities with NBB and that we may compete with NBB for such opportunities. A conflict of interest will arise if Babcock & Brown identifies an aircraft acquisition opportunity that would meet our investment objectives as well as those of NBB or any other entity managed by Babcock & Brown. We do not have any exclusive right to participate in aircraft acquisition opportunities originated or identified by Babcock & Brown. Under our agreements with Babcock & Brown, our Manager has agreed to act in the best interests of our shareholders. However, neither BBAM nor any other Babcock & Brown affiliate will be restricted from pursuing, or offering to a third party, including NBB or any other party managed by, or otherwise affiliated or associated with, Babcock & Brown, any investment or disposal opportunity or will be required to establish any investment protocol in relation to prioritization of any investment or disposal opportunity. In addition, we may purchase additional aircraft beyond the Initial Portfolio from entities in which Babcock & Brown has an ownership interest. Although such purchases will be required to be approved by our independent directors, the pricing and other terms of these transactions may be less advantageous to us than if they had been the result of transactions among unaffiliated third parties.

Under our servicing agreement with BBAM, if a conflict of interest arises as to our aircraft and other aircraft managed by BBAM, BBAM must perform the services in good faith, and, to the extent that our aircraft or other aircraft managed by BBAM have substantially similar objectively identifiable characteristics that are relevant for purposes of the particular services to be performed, BBAM has agreed not to discriminate among our aircraft or between any of our aircraft and any other managed aircraft on an unreasonable basis. Nevertheless, despite these contractual undertakings, BBAM as servicer may favor its own interests and the interests of other managed entities over our interests. Conflicts may arise when our aircraft are leased to entities that also lease other aircraft managed by BBAM and decisions affecting some aircraft may have an adverse impact on others. For example, when a lessee in financial distress seeks to return some of its aircraft, BBAM may be required to decide which aircraft to accept for return and may favor its or another managed entity’s interest over ours. Conflicts also may arise, for example, when our aircraft are being marketed for re-lease or sale at a time when other aircraft managed by BBAM are being similarly marketed.

Under the terms of our servicing agreement, we are not entitled to be informed of all conflicts of interest involving BBAM and are limited in our right to replace BBAM because of conflicts of interest. Any replacement servicer may not provide the same quality of service or may not afford us terms as favorable as the terms currently offered by BBAM. If BBAM, as the servicer, makes a decision that is adverse to our interests, our business, financial condition, results of operations and cash flows could suffer. See ‘‘— Even if we are dissatisfied with Babcock & Brown’s performance, there are only limited circumstances under which we will be able to terminate our management and servicing agreements and we may not terminate the servicing agreement for our Initial Portfolio without the prior written consent of the policy provider.’’

Even if we are dissatisfied with Babcock & Brown’s performance, there are only limited circumstances under which we will be able to terminate our management and servicing agreements and we may not terminate the servicing agreement for our Initial Portfolio without the prior written consent of the policy provider.

The management agreement provides for a 25-year term and is subject to termination only under the following limited circumstances:

  at least 75% of our independent directors and holders of 75% or more of all of our outstanding common shares (measured by vote) determine by resolution that there has been unsatisfactory performance by our Manager that is materially detrimental to us;
  our Manager materially breaches the management agreement and fails to remedy such breach within 90 days of receiving written notice from us requiring it to do so, or such breach results in liability to us and is attributable to our Manager’s gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care;

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  any license, permit or authorization held by the Manager which is necessary for it to perform the services and duties under the management agreement is materially breached, suspended or revoked, or otherwise made subject to conditions which, in the reasonable opinion of our board of directors, would prevent the Manager from performing the services and the situation is not remedied within 90 days;
  our Manager becomes subject to bankruptcy or insolvency proceedings that are not discharged within 75 days, unless our Manager is withdrawn and replaced within 90 days of the initiation of such bankruptcy or insolvency proceedings with an affiliate or associate of Babcock & Brown that is able to make correctly the representations and warranties set out in the management agreement;
  Babcock & Brown in aggregate ceases to hold (directly or indirectly) more than 50% of the issued share capital of our Manager; or
  an order is made for the winding up of our Manager, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of Babcock & Brown that is able to make correctly the representations and warranties set out in the management agreement.

Even though our shareholders (with the concurrence of 75% of our independent directors) have the right under the management agreement to terminate our Manager, it may not be possible for them to exercise this right in view of the number of shares expected to be held by Babcock & Brown and its managed entities. Upon completion of this offering and the concurrent private placement to the private investors, Babcock & Brown and its managed entities will own approximately 38.2% of our outstanding common shares (assuming no exercise of the underwriters’ over-allotment option), or approximately 29.8% (assuming full exercise of the underwriters’ over-allotment option), and termination of our management agreement requires the vote of holders of 75% of our outstanding common shares.

We have the right to terminate the servicing agreement for our Initial Portfolio (with the prior written consent of the policy provider) and the policy provider has the independent right to terminate the agreement (without our consent) in the following limited circumstances:

  BBAM ceases to be at least majority-owned directly or indirectly by Babcock & Brown;
  BBAM fails in any material respect to perform any material services under the servicing agreement which results in liability of BBAM due to its gross negligence or willful misconduct (including willful misconduct constituting fraud) in respect of its obligation to apply the standard of care or conflicts standard in respect of performance of the services in a manner that is materially adverse to us and our applicable subsidiaries taken as a whole;
  BBAM fails in any material respect to perform any material services under the servicing agreement in accordance with the standard of care or the conflicts standard in a manner that is materially adverse to us and our applicable subsidiaries taken as a whole;
  specified Babcock & Brown entities (including BBAM) become subject to bankruptcy or insolvency proceedings;
  with respect to the Initial Portfolio Servicing Agreement, we have insufficient funds for the payment of interest on the notes for a period of at least 60 days;
  at least 15% of the number of aircraft assets remain off-lease but reasonably available for re-lease for a period of at least three months following specified events set forth in the trust indenture;
  without limiting BBAM’s rights under the security trust agreement, BBAM takes any steps for the purpose of processing the appointment of an administrative receiver or the making of any administrative order or for instituting a bankruptcy, reorganization, arrangement, insolvency, winding up, liquidation, composition or any similar proceeding under the laws of any jurisdiction with respect to any jurisdiction with respect to B&B Air Funding, and any of its subsidiaries, or any of the aircraft assets;
  we cease to own all of the aircraft in our initial portfolio;
  BBAM withdraws from servicing a specified number of our aircraft for specified periods of time due to conflicts of interest; or

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  BBAM ceases to be actively involved in the aircraft leasing business.

If the servicing agreement for our Initial Portfolio is terminated by us or the policy provider and another servicer is engaged to service our Initial Portfolio, we will no longer be entitled to a credit against fees due under the management agreement for servicing fees paid with respect to our Initial Portfolio and our expenses would increase substantially. Please read ‘‘Management Agreement — Fees and Expenses.’’ Although this will be a disincentive for us to terminate the servicing agreement for our Initial Portfolio, it is not likely to be a factor in a decision by the policy provider to exercise its independent ability to terminate the agreement.

Our management and servicing agreements limit our remedies against BBAM for unsatisfactory performance and provide certain termination rights to the policy provider.

Under our management and servicing agreements with Babcock & Brown, in many cases we may not have the right to recover damages from BBAM for unsatisfactory performance. Moreover, we have agreed to indemnify our Manager, BBAM and their affiliates for broad categories of losses arising out of the performance of services, unless they are finally adjudicated to have been caused directly by our Manager’s or BBAM’s gross negligence, fraud, deceit or willful misconduct in respect of its obligation to apply its standard of care or, in the case of the servicing agreement for our Initial Portfolio, conflicts standard in the performance of its services. We have also agreed to indemnify BBAM and its affiliates for losses arising out of the disclosures in this prospectus (except certain disclosures provided to us by BBAM) and losses arising out of our compliance with our obligations to any holders of any securities issued by us or any of our subsidiaries or any governmental authorities. In addition, because of our substantial dependence on Babcock & Brown, our board of directors may be reluctant to initiate litigation against Babcock & Brown to enforce contractual rights under our management and servicing agreements.

Under certain circumstances the provider of the financial guarantee insurance policy with respect to the securitization notes has the right to terminate BBAM as the servicer for our Initial Portfolio without our consent and may terminate BBAM at a time which may be disadvantageous to us.

Our Manager may terminate the management agreement if we breach the management agreement and that breach is not remedied within 90 days of notice.

Our Manager may terminate the management agreement if we fail to make any payment due under the management agreement to our Manager within 15 days after the same becomes due or we materially breach the agreement and that breach is not remedied within 90 days of notice from our Manager, whether or not we have found a replacement manager. If our Manager terminates the management agreement, we may not be able to find a new manager or hire internal management with similar expertise to provide the same or equivalent services on acceptable terms, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial results could be adversely affected, and the market price of our shares may decline. Further, if the management agreement is terminated, we and, where applicable, our subsidiaries will be required to promptly change our names to remove any references to ‘‘Babcock & Brown.’’

BBAM may resign as servicer under our servicing agreement for the Initial Portolio under certain circumstances, which would significantly impair our ability to re-lease or sell aircraft and service our leases.

BBAM may resign under the servicing agreement for our Initial Portfolio with respect to all aircraft serviced thereunder or any affected aircraft, as the case may be, if it reasonably determines that directions given, or services required, would, if carried out, be unlawful under applicable law, be likely to lead to an investigation by any governmental authority of BBAM or its affiliates, expose BBAM to liabilities for which, in BBAM’s good faith opinion, adequate bond or indemnity has not been provided or place BBAM in a conflict of interest with respect to which, in BBAM’s good faith opinion, BBAM could not continue to perform its obligations under the servicing agreement with respect to all serviced aircraft or any affected aircraft, as the case may be (but with respect to the foregoing circumstance, BBAM may resign only with respect to the affected aircraft). Whether or not

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it resigns, BBAM is not required to take any action of the foregoing kind. BBAM may also resign if it becomes subject to taxes for which we do not indemnify it. BBAM’s decision to resign would significantly impair our ability to re-lease or sell aircraft and service our leases.

The terms of our agreements with Babcock & Brown were negotiated without independent assessment on our behalf, and these terms may be less advantageous to us than if they had been the result of transactions among unaffiliated third parties.

We will enter into various agreements with Babcock & Brown that will effect the transactions relating to our formation, this offering, the securitization and the application of the proceeds from this offering and the securitization to acquire our Initial Portfolio, and our ongoing operations and business. Although the pricing and other terms of these agreements were reviewed by our board of directors, they were determined by Babcock & Brown in the overall context of this offering and the related transactions. As a result, provisions of these agreements may be less favorable to us than they might have been had they been the result of arm’s-length transactions among unaffiliated third parties.

Risks Relating to Our Aircraft Portfolio

The variability of supply and demand for aircraft and other aviation assets could depress lease rates and the value of our leased assets, which would have an adverse effect on our financial results and growth prospects and on our ability to meet our debt obligations and pay dividends.

The aviation leasing and sales industry has experienced periods of aircraft oversupply and undersupply. The oversupply of a specific type of aircraft or other aviation asset in the market is likely to depress lease rates for, and the value of, that type of asset. The supply and demand for aircraft is affected by various cyclical and non-cyclical factors that are not under our control, including:

  passenger air travel and air cargo demand;
  geopolitical and other events, including war, acts of terrorism, outbreaks of epidemic diseases and natural disasters;
  operating costs, availability of jet fuel and general economic conditions affecting our lessees’ operations;
  governmental regulation, including new airworthiness directives;
  interest rates;
  airline restructurings and bankruptcies;
  cancellations of orders for aircraft;
  delays in delivery by manufacturers;
  availability of credit;
  manufacturer production levels and technological innovation;
  retirement and obsolescence of aircraft models;
  manufacturers merging or exiting the industry or ceasing to produce aircraft or engine types;
  accuracy of estimates relating to future supply and demand made by manufacturers and lessees;
  reintroduction into service of aircraft or engines previously in storage; and
  airport and air traffic control infrastructure constraints.

These factors may produce sharp decreases in asset values and achievable lease rates, which would have an impact on our cost of acquiring aircraft or other aviation assets, may result in lease defaults and could delay or prevent the aircraft or other aviation assets from being re-leased or re-leased on favorable terms, or, if desired, sold on favorable terms.

Factors that increase the risk of decline in aircraft value and achievable lease rates could have an adverse affect on our financial results and growth prospects and on our ability to meet our debt obligations and to pay dividends.

In addition to factors linked to the aviation industry generally, other factors that may affect the value and achievable lease rates of our aircraft and other aviation assets include:

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  the particular maintenance and operating history of the airframes and engines;
  the number of operators using that type of aircraft or engine;
  whether an aircraft or other aviation asset is subject to a lease and, if so, whether the lease terms are favorable to the lessor;
  the age of our aircraft and other aviation assets;
  airworthiness directives and service bulletins;
  aircraft noise and emission standards;
  any tax, customs, regulatory and other legal requirements that must be satisfied when an aircraft is purchased, sold or re-leased;
  compatibility of our aircraft configurations or specifications with other aircraft owned by operators of that type; and
  decreases in the creditworthiness of our lessees.

Any decrease in the values of and achievable lease rates for commercial aircraft or other aviation assets that may result from the above factors or other unanticipated factors may have a material adverse effect on our financial results and growth prospects and our ability to meet our debt obligations and to pay dividends.

The purchase price we are paying for the aircraft in our Initial Portfolio will be based on the purchase price of our shares in this offering and the value of such shares is subject to all of the risks set forth in this prospectus.

We will acquire the aircraft in our Initial Portfolio pursuant to an asset purchase agreement with the Aircraft Sellers. See ‘‘Asset Purchase Agreement.’’ The asset purchase agreement has not been negotiated on an arm’s-length basis. The price per share to be paid by investors who purchase our shares in this offering will be used in a formula to determine the purchase price we pay for the aircraft and related leases in our Initial Portfolio, and such purchase price will not be based on a valuation of such assets or their net book value reflected in the predecessor financial statements. See ‘‘Use of Proceeds.’’ The value of such shares is uncertain and subject to all the risks set forth in this prospectus.

We may be required to substitute some aircraft in our Initial Portfolio.

Many of the aircraft in our Initial Portfolio will not be delivered upon the completion of this offering. Under the asset purchase agreements, the Aircraft Sellers are obligated to use commercially reasonable efforts to deliver the aircraft not delivered at closing within 210 days of the completion of this offering. However, the transfer of the aircraft to us will require the cooperation of lessees, and we cannot assure you that they will cooperate or that all of the aircraft in our Initial Portfolio will be delivered before the end of this delivery period. If the Aircraft Sellers are unable to deliver any aircraft before the end of this period for any reason other than the destruction of, or substantial damage to, the aircraft, then the Aircraft Sellers must use reasonable efforts to designate a substitute aircraft for the undelivered aircraft before the end of such 210-day period. If an aircraft is destroyed or substantially damaged, the Aircraft Sellers may identify a substitute aircraft if they choose. A substitute aircraft, individually or in the aggregate with other substitute aircraft, must be reasonably acceptable to us, the rating agencies that rate the securitization debt and the policy provider. In determining whether to grant our consent we will consider various factors including appraised value, lease terms, and type, location and remaining useful life of the aircraft and the delivery of substitute aircraft will be subject to confirmation by each of the rating agencies rating the notes issued in the securitization that it will not lower, qualify or withdraw its rating on the notes as a result of the delivery of that substitute aircraft and the consent of the policy provider. If a substitute aircraft is not delivered within the 210-day period following the completion of this offering for any reason, the Aircraft Sellers will be required to make a payment to us designed to make us whole for our cost of capital and any hedging costs attributable to failure to deliver any aircraft to us. See ‘‘Asset Purchase Agreement.’’

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If substitute aircraft are delivered, we may be required to restate our predecessor financial statements and pro forma financial statements to reflect the substitute aircraft and related leases if the substitution were to have a material impact on our predecessor financial statements. A restatement could impair our access to capital markets, increase the likelihood of litigation against us and reduce the trading price of our shares.

Some of the aircraft in our Initial Portfolio have been damaged and subsequently repaired.

Under the asset purchase agreements, we are obligated to accept delivery of any aircraft that has been materially damaged if such aircraft has been repaired prior to delivery and otherwise meets the conditions precedent for aircraft delivery. At least one of the aircraft in our Initial Portfolio has been damaged. Even though this aircraft has been repaired, we may not be able to resell or re-lease such aircraft on terms as favorable as those for an aircraft that has not been damaged.

The advent of superior aircraft technology could cause our existing aircraft portfolio to become outdated and therefore less desirable, which could adversely affect our financial results and growth prospects and our ability to compete in the marketplace.

As manufacturers introduce technological innovations and new types of aircraft, including the Boeing 787 and the Airbus A350 (currently scheduled to enter service in 2008 and 2012, respectively) and potential replacement types for the Boeing 737 and Airbus A320 families of aircraft, certain aircraft in our existing aircraft portfolio may become less desirable to potential lessees. In addition, although all of the aircraft in our Initial Portfolio are Stage 3 noise-compliant, the imposition of more stringent noise or emissions standards may make certain of our aircraft less desirable in the marketplace. Any of these risks could adversely affect our ability to lease or sell our aircraft on favorable terms or at all or our ability to charge rental amounts that we would otherwise seek to charge.

Our operational costs will increase as our aircraft age, which will adversely affect the amounts available to pay dividends.

As of June 30, 2007, the weighted average age of the aircraft in our Initial Portfolio was 5.7 years. In general, the cost of redelivering an aircraft under a re-lease, including maintenance and modification expenditures, increases with the age of the aircraft. The costs of converting an aging passenger aircraft to a cargo aircraft are also substantial. The incurrence of these greater expenses as our fleet ages could adversely affect our ability to pay dividends.

The concentration of aircraft types in our portfolio could harm our business and financial results should any difficulties specific to these particular types of aircraft occur.

Of the aircraft in our Initial Portfolio, 32.3% are Airbus A320-200 aircraft, 27.1% are Boeing 737-800 aircraft, 16.8% are Boeing 757-200 aircraft and 23.8% are various other aircraft. If any of these aircraft types (or other types that we acquire in the future) should encounter technical or other difficulties, such affected aircraft types may be subject to grounding or diminution in value and we may be unable to lease such affected aircraft types on favorable terms or at all. The inability to lease the affected aircraft types may reduce our revenues and net income to the extent the affected aircraft types comprise a significant percentage of our aircraft portfolio. In addition, the abandonment or rejection of the lease of any of the types of aircraft listed above by one or more carriers in reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code or comparable statutes in non-U.S. jurisdictions may diminish the value of such aircraft and will subject us to re-leasing risks.

There may be possible variation in the Initial Portfolio.

As of the date of this prospectus we have not yet taken delivery of any of the aircraft included in our Initial Portfolio. We cannot assure you that all or even any of the aircraft in our Initial Portfolio will be delivered before the end of the agreed-upon delivery period. If the Aircraft Sellers are unable to deliver any aircraft within the delivery period because a condition precedent in the asset purchase agreement is not met or for any reason other than the destruction of, or substantial damage to, the

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aircraft, then the Aircraft Sellers must use reasonable commercial efforts to designate a substitute aircraft for the undelivered aircraft before the end of the delivery period. If an aircraft is destroyed or substantially damaged, the Aircraft Sellers may identify a substitute aircraft if they so choose. If a defaulting Aircraft Seller does not deliver an aircraft or a substitute aircraft prior to the end of the agreed-upon delivery period, the allocable debt portion of the purchase price for the relevant aircraft will be required to be applied to repay the notes issued in the securitization. The actual mix of aircraft, lessees and leases in our Initial Portfolio may be different than described herein and will change over time if any aircraft are not delivered within the agreed-upon deliver period, if there are any substitute aircraft or if aircraft are sold or additional aircraft are acquired and as the aircraft are re-leased to different lessees. See ‘‘— We may be required to substitute some aircraft in our Initial Portfolio’’ and ‘‘Asset Purchase Agreement — Substitute Aircraft.’’

We operate in a highly competitive market for investment opportunities in aircraft and other aviation assets.

The leasing and remarketing of commercial jet aircraft is highly competitive. As the exclusive servicer of our aircraft, BBAM competes in leasing, re-leasing and selling our aircraft with other aircraft leasing companies, including GE Commercial Aviation Services (GECAS), International Lease Finance Corporation (ILFC), AerCap, Aircastle, Aviation Capital Group, AWAS, Boeing Capital, CIT Aerospace, Genesis Lease Limited, Macquarie Aircraft Leasing, Pegasus Aviation, RBS Aviation Capital and BOC Aviation (formerly Singapore Aircraft Leasing Enterprise). We also may encounter competition from other entities that selectively compete with us, including:

  airlines;
  aircraft manufacturers;
  financial institutions (including those seeking to dispose of repossessed aircraft at distressed prices);
  aircraft brokers;
  special purpose vehicles formed for the purpose of acquiring, leasing and selling aircraft; and
  public and private partnerships, investors and funds, including private equity and hedge funds.

Competition for a leasing transaction is based principally upon lease rates, delivery dates, lease terms, reputation, management expertise, aircraft condition, specifications and configuration and the availability of the types of aircraft necessary to meet the needs of the customer. Some of our competitors have significantly greater resources than we have. In addition, some competing aircraft lessors have a lower overall cost of capital and may provide financial services, maintenance services or other inducements to potential lessees that we cannot provide. Given the financial condition of the airline industry, many airlines have reduced their capacity by eliminating select types of aircraft from their fleets. This has resulted in an increase in available aircraft of these types, a decrease in rental rates for these aircraft and a decrease in market values of these aircraft.

Competition in the purchase and sale of used aircraft is based principally on the availability of used aircraft, price, the terms of the lease to which an aircraft is subject and the creditworthiness of the lessee. When we decide to dispose of an aircraft, BBAM, as our servicer, will arrange the disposition pursuant to the terms of the servicing agreement for that aircraft. In doing so, BBAM will compete with the aircraft leasing companies listed above, as well as with the other types of entities described above and other investors.

If demand for leased aircraft does not increase, we may not be able to expand our business.

Over the past 20 years, the world’s airlines have leased a growing proportion of their aircraft. The proportion of the global fleet owned by operators has declined from 71% in 1990 to 54% in 2005, and the portion of the global fleet under operating lease has increased from approximately 18% to 30% during this period. Our growth strategy contemplates future acquisitions and leasing of additional commercial aircraft and other aviation assets. If, however, the aggregate demand for leased aircraft

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does not expand, then we may be unable to implement our growth strategy through aircraft acquisitions. Failure to expand our aircraft portfolio would impair our ability to sustain our revenues or support our expected dividend payments.

Depreciation expenses and impairment charges could have a material adverse effect on our financial condition and results of operations.

Our aircraft have finite economic lives, their values depreciate in the ordinary course over time and their ability to generate earnings and cash flow for our business declines over time. If depreciated aircraft are not replaced with newer aircraft, our ability to generate earnings and cash to pay dividends will be reduced. In addition, we depreciate our aircraft for accounting purposes on a straight-line basis to the aircraft’s estimated residual value over its estimated useful life. If we dispose of an aircraft for a price that is less than its depreciated value, then we would be required to recognize a loss that would reduce our net income during the period of the disposition and reduce our total assets and shareholders’ equity.

In addition, aircraft in our Initial Portfolio and any other aircraft and other aviation assets that we acquire in the future are expected to be under operating leases that are subject to periodic review for impairment for accounting purposes. We believe the carrying value of the aircraft in our Initial Portfolio is currently recoverable through the cash flows expected to result from their use and eventual disposition. However, if these expected cash flows are adversely affected by factors including credit deterioration of a lessee, declines in rental rates, other market conditions and residual values, then we may be required to recognize material impairment charges that would reduce our net earnings or increase our net losses. Under GAAP, once an impairment results in a reduction to the carrying value of an asset, the carrying value of such asset cannot thereafter be increased.

The appraised base values of the aircraft in our Initial Portfolio were prepared in connection with the securitization and should not be relied upon as indicative of the value of our Initial Portfolio.

The appraised base values of the aircraft in our Initial Portfolio prepared in connection with the securitization was determined in accordance with market practice for securitizations without regard to rental revenues from existing leases relating to such aircraft or any physical inspection of the aircraft. Contrary to these assumptions, each aircraft in our Initial Portfolio is subject to a lease providing for a stream of contracted rents. The appraisers for the securitization also assumed an open, unrestricted stable market environment with a balance of supply and demand, as well as other factors common for aircraft appraisals. In practice, market conditions will vary from the appraisers’ assumptions, and there are typically imbalances of aircraft supply and demand that may be particularly pronounced for specific aircraft types. At a cyclical low, the market value of most aircraft types may be less than the appraised base values. Accordingly, you should not rely on the appraised base values as a measure of current realizable value or as a measure of the value to us of our Initial Portfolio as a source of revenues and cash flows. See ‘‘Description of Indebtedness — Securitization — Payment Terms.’’

Our subsidiaries in many cases have owned the aircraft prior to our acquisition of them and may have unknown contingent liabilities that we may be required to fund.

There is a risk that our subsidiaries, many of which have owned the aircraft in our Initial Portfolio prior to our acquisition of such subsidiaries, could have material contingent liabilities that are unknown to us and that were incurred by third parties from operating and leasing the aircraft in our Initial Portfolio or for other reasons.

The Aircraft Sellers, from whom we will acquire our Initial Portfolio, will make representations and warranties relating to:

  the existence of a valid and final transfer of the beneficial interests of entities that hold the aircraft or entities that hold the beneficial interests of any such entities and that are sold to us by each of the Aircraft Sellers;
  the title of our aircraft-owning subsidiaries to the applicable aircraft; and

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  the lack of additional liabilities of our aircraft-owning subsidiaries or liens on the aircraft other than disclosed to us.

These representations and warranties are subject to time limits. If a liability arises and we are called on to pay it but are not able to recover any amount from the sellers for such liability, our liquidity could decrease significantly and we may be unable to pay dividends to our shareholders.

Aircraft liens could impair our ability to repossess, re-lease or resell the aircraft.

In the normal course of business, liens that secure the payment of airport fees and taxes, custom duties, air navigation charges, landing charges, crew wages, repairers’ charges, salvage or other obligations are likely, depending on the laws of the jurisdictions where aircraft operate, to attach to the aircraft (or, if applicable, to the engines separately). The liens may secure substantial sums that may, in certain jurisdictions or for limited types of liens (particularly fleet liens), exceed the value of any particular aircraft to which the liens have attached. Until they are discharged, the liens described above could impair our ability to repossess, re-lease or resell our aircraft.

If our lessees fail to fulfill their financial obligations, liens may attach to our aircraft. In some jurisdictions, aircraft liens or separate engine liens may give the holder thereof the right to detain or, in limited cases, sell or cause the forfeiture of the aircraft (or, if applicable, the engines separately). We cannot assure you that the lessees will comply with their obligations under the leases to discharge liens arising during the terms of the leases. We may, in some cases, find it necessary to pay the claims secured by such liens in order to repossess the aircraft or obtain the aircraft or engines from a creditor thereof. These payments would be a required expense for us and would reduce our net income and our cash flows.

We cannot assure you that all lessees will comply with the registration requirements in the jurisdiction where they operate.

All of our aircraft are required to be registered at all times with appropriate governmental authorities. Generally, in jurisdictions outside the United States, failure by a lessee to maintain the registration of a leased aircraft would be a default under the applicable lease, entitling us to exercise our rights and remedies thereunder. If an aircraft were to be operated without a valid registration, the lessee operator or, in some cases, the owner or lessor might be subject to penalties, which could constitute or result in a lien being placed on such aircraft. Failure to comply with registration requirements also could have other adverse effects, including inability to operate the aircraft and loss of insurance. We cannot assure you that all lessees will comply with these requirements.

Government regulations could require substantial expenditures, reduce our profitability and limit our growth.

Certain aspects of our business are subject to regulation and require the oversight and regulation by state, federal and foreign governmental authorities. Aircraft are subject to regulations imposed by aviation authorities regarding aircraft maintenance and airworthiness. Laws affecting the airworthiness of aircraft generally are designed to ensure that all aircraft and related equipment are continuously maintained in proper condition to enable safe operation of the aircraft. Aircraft manufacturers also may issue their own recommendations. Airworthiness directives and similar requirements typically set forth particular special maintenance actions or modifications to certain aircraft types or models that the owners or operators of aircraft must implement.

Each lessee generally is responsible for complying with airworthiness directives with respect to its aircraft and is required to maintain the aircraft’s airworthiness. To the extent that a lessee fails to comply with airworthiness directives required to maintain its certificate of airworthiness or other manufacturer requirements in respect of an aircraft or if the aircraft is not currently subject to a lease, we may have to bear the cost of such compliance. Under many leases, we have agreed to share with our lessees the cost of obligations under airworthiness directives (or similar requirements). These expenditures can be substantial, and, to the extent we are required to pay them, our cash flow and ability to pay dividends could be substantially adversely affected.

In addition to these expenditures, which may be substantial, significant new requirements with respect to noise standards, emission standards and other aspects of our aircraft or their operation could cause

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our costs to increase and could cause the value of our aircraft portfolio to decrease. Other governmental regulations relating to noise and emissions levels may be imposed not only by the jurisdictions in which the aircraft are registered, possibly as part of the airworthiness requirements, but also by other jurisdictions where the aircraft operate. In addition, most countries’ aviation laws require aircraft to be maintained under an approved maintenance program having defined procedures and intervals for inspection, maintenance and repair. To the extent that our aircraft are off-lease or a lessee defaults in effecting such compliance, we will be required to comply with such requirements at our expense.

Risks Relating to Our Leases

We will need to re-lease or sell aircraft as leases expire to continue to generate sufficient funds to meet our debt obligations, finance our growth and operations and pay dividends. We may not be able to re-lease or sell aircraft on favorable terms, or at all.

Our business strategy entails the need to re-lease aircraft as our current leases expire to generate sufficient revenues to meet our debt obligations, finance our growth and operations and pay dividends to our shareholders. The ability to re-lease aircraft will depend on general market and competitive conditions. Some of our competitors may have greater access to financial resources and, as a result of restrictions on us contained in the terms of our indebtedness, may have greater operational flexibility. If we are not able to re-lease an aircraft or to do so on favorable terms, we may be required to attempt to sell the aircraft to provide funds for debt service or operating expenses. Our ability to re-lease or sell aircraft on favorable terms or without significant off-lease time could be adversely affected by depressed conditions in the airline and aircraft industries, airline bankruptcies, the effects of terrorism and war, the sale of other aircraft by financial institutions or other factors.

We rely on our lessees’ continuing performance of their lease obligations.

We operate as a supplier to airlines and are indirectly impacted by the risks facing airlines today. Our success depends upon the financial strength of our lessees, our ability to assess the credit risk of our lessees and the ability of lessees to perform their contractual obligations to us. The ability of each lessee to perform its obligations under its lease will depend primarily on the lessee’s financial condition and cash flow, which may be affected by factors beyond our control, including:

  competition;
  fare levels;
  air cargo rates;
  passenger air travel and air cargo demand;
  geopolitical and other events, including war, acts of terrorism, outbreaks of epidemic diseases and natural disasters;
  operating costs, availability and cost of jet fuel and general economic conditions affecting our lessees’ operations;
  labor difficulties;
  economic conditions and currency fluctuations in the countries and regions in which the lessee operates; and
  governmental regulation of, or affecting, the air transportation business.

Some of our lessees may experience payment difficulties. A delayed, missed or reduced rental payment from a lessee decreases our revenues and cash flow and may adversely affect our ability to make payments on our indebtedness and pay dividends to shareholders. We may experience delinquencies, particularly if economic conditions deteriorate. In addition, the demand for aircraft generally diminishes as they age, and the creditworthiness of the lessees of older aircraft is generally lower than the creditworthiness of the lessees of newer aircraft.

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We will typically not be in possession of any aircraft while the aircraft are on lease to the lessees. Consequently, our ability to determine the condition of the aircraft or whether the lessees are properly maintaining the aircraft will be limited to periodic inspections that we perform or that are performed on our behalf by third-party service providers or aircraft inspectors. A lessee’s failure to meet its maintenance obligations under a lease could:

  result in a grounding of the aircraft;
  cause us to incur costs in restoring the aircraft to an acceptable maintenance condition to re-lease the aircraft;
  adversely affect lease terms in the re-lease of the aircraft; and
  adversely affect the value of the aircraft.

We cannot assure you that, in the event that a lessee defaults under a lease, any security deposit paid or letter of credit provided by the lessee will be sufficient to cover the lessee’s outstanding or unpaid lease obligations and required maintenance expenses or be sufficient to discharge liens that may have attached to our aircraft.

Because some airlines are in a weak financial condition and suffer liquidity problems, we may have trouble collecting lease payments on a timely basis or at all, which would adversely affect our revenues and cash flows and may adversely affect our ability to meet our debt obligations and pay dividends.

Some airlines are in a weak financial condition and suffer liquidity problems, and this is likely to be the case in the future with other airlines. Two of our lessees, ATA Airlines and the predecessor of SpiceJet, were recently in bankruptcy or insolvency proceedings. In addition, many airlines are exposed to currency risk due to the fact that they earn revenues in their local currencies and certain of their liabilities and expenses are denominated in U.S. dollars, including lease payments to us. Given the size of our aircraft portfolio, we expect that some lessees from time to time, and possibly in the near future, will be slow in making or will fail to make their payments in full under the leases. Some lessees encountering financial difficulties may seek a reduction in their lease rates or other concessions such as a decrease in their contribution toward maintenance obligations. A delayed, missed or reduced rental payment from a lessee would reduce our revenues and may adversely affect our ability to make payments on the notes issued in the securitization and pay dividends on our shares. While we may experience some level of delinquency under our leases, default levels may increase over time, particularly as our aircraft portfolio ages and if economic conditions deteriorate.

If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result in less favorable leases, significant reductions in our cash flows and adversely affect our ability to meet our debt obligations and pay dividends on our shares.

We may be required to restructure a lease when a lessee is late in making payments, fails to make required payments or has otherwise advised us that it expects to default in making required payments. Restructuring may involve anything from a simple rescheduling of payments to the termination of a lease without receiving all or any of the past-due amounts. The terms and conditions of possible lease restructurings could result in significant reductions of rental payments, which would have an adverse impact on our cash flow available for distribution and reduced dividends to shareholders.

Because many of our lessees operate in emerging markets, we are indirectly subject to many of the economic and political risks associated with competing in such markets.

Emerging markets are countries which have developing economies that are vulnerable to business and political disturbances, such as significant economic instability, interest and exchange rate fluctuations, civil unrest, government instability, and the nationalization or expropriation of private assets. The occurrence of any of these events in markets served by our lessees and the resulting instability may adversely affect our ownership interest in aircraft or the ability of lessees which operate in these markets to meet their lease obligations and these lessees may be more likely to default than lessees that operate in developed economies. Our Initial Portfolio includes 23 aircraft leased to lessees that are domiciled in emerging markets, representing 50.9% of our Initial Portfolio.

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We may be required to purchase repossession insurance if BBAM re-leases any of our aircraft to lessees located in certain jurisdictions.

Under the servicing agreement for our Initial Porfolio, BBAM has broad discretion to re-lease aircraft to lessees around the world, subject to concentration limits and other restrictions contained in the securitization debt. If an aircraft is leased to a lessee in certain specified jurisdictions (including, among others, Belarus, Bhutan, Kazakhstan and Mongolia), B&B Funding may be required to purchase insurance to ensure its ability to repossess the aircraft. If BBAM re-leases any of the aircraft to lessees in these jurisdictions, expenses may increase due to the need to purchase repossession insurance.

Lease defaults could result in significant expenses and loss of revenues.

If we are unable to agree upon acceptable terms for a lease restructuring, then we have the right to repossess aircraft and to exercise other remedies upon a lessee default. However, repossession, re-registration and flight and export permissions after a lessee default typically result in greater costs than those incurred when an aircraft is returned at the end of a lease. These costs include legal expenses that could be significant, particularly if the lessee is contesting the proceedings or is in bankruptcy. Delays resulting from repossession proceedings also would increase the period of time during which an aircraft or other aviation asset does not generate rental revenue. In addition, we may incur substantial maintenance, refurbishment or repair costs that a defaulting lessee has failed to pay and that are necessary to put the aircraft in a condition suitable for re-lease or sale, and we may need to pay off liens, taxes and governmental charges on the aircraft or other aviation asset to obtain clear possession and to remarket the asset effectively.

If we repossess an aircraft or other aviation asset, we will not necessarily be able to export or deregister and profitably redeploy the asset. For instance, where a lessee or other operator flies only domestic routes in the jurisdiction in which an aircraft is registered, repossession may be more difficult, especially if the jurisdiction permits the lessee or the other operator to resist deregistration. Significant costs may also be incurred in retrieving or recreating aircraft records required for registration of the aircraft and obtaining a certificate of airworthiness for the aircraft or engine.

Our lessees’ failure to fund their maintenance requirements on our aircraft could significantly harm our revenues, cash flows and ability to pay dividends.

The standards of maintenance observed by our lessees and the condition of aircraft at the time of sale or lease may affect the values and rental rates of our aircraft. Under each of our leases, the lessee is primarily responsible for maintaining the aircraft and complying with all governmental requirements applicable to the lessee and to the aircraft, including operational, maintenance, and registration requirements and airworthiness directives. A lessee’s failure to perform required maintenance during the term of a lease could result in a diminution in the value of an aircraft, an inability to lease the aircraft at favorable rates or at all, or a potential grounding of the aircraft, and would likely require us to incur maintenance and modification costs upon the expiration or earlier termination of the lease to restore the aircraft to an acceptable condition prior to sale or re-leasing.

Failure to pay certain potential additional operating costs could result in the grounding of our aircraft and prevent the re-lease, sale or other use of our aircraft, which would negatively affect our business, financial condition and results of operations.

As in the case of maintenance costs, we may incur other operational costs upon a lessee default or where the terms of the lease require us to pay a portion of those costs. Such costs, which can be substantial, include:

  the costs of casualty, liability, war and political risk insurance and the liability costs or losses when insurance coverage has not been or cannot be obtained as required or is insufficient in amount or scope;
  the costs of licensing, exporting or importing an aircraft, costs of storing and operating an aircraft, airport taxes, customs duties, air navigation charges, landing fees and similar governmental or quasi-governmental impositions; and

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  penalties and costs associated with the failure of lessees to keep the aircraft registered under all appropriate local requirements or obtain required governmental licenses, consents and approvals.

The failure to pay some of these costs can result in liens on the aircraft or a loss of insurance. Any of these events could result in the grounding of the aircraft and prevent the re-lease, sale or other use of the aircraft until the problem is cured.

Our lessees may have inadequate insurance coverage or fail to fulfill their respective indemnity obligations, which could result in us not being covered for claims asserted against us and may negatively affect our business, financial condition and results of operations.

Although we do not expect to control the operation of our leased aircraft, our ownership of the aircraft could give rise, in some jurisdictions, to strict liability for losses resulting from their operation. Our lessees are required to indemnify us for, and insure against, liabilities arising out of the use and operation of the aircraft, including third-party claims for death or injury to persons and damage to property for which we may be deemed liable. Lessees are also required to maintain public liability, property damage and hull all risks and hull war risks insurance on the aircraft at agreed upon levels. However, they are not generally required to maintain political risk insurance. There may be circumstances under which it would be desirable for us to maintain ‘‘top-up’’ and/or political risk coverage at our expense, which would add to our operating expenses.

Following the terrorist attacks of September 11, 2001, aviation insurers significantly reduced the amount of insurance coverage available to airlines for liability to persons other than employees or passengers for claims resulting from acts of terrorism, war or similar events. At the same time, they significantly increased the premiums for such third-party war risk and terrorism liability insurance and coverage in general. As a result, the amount of such third-party war risk and terrorism liability insurance that is available at any time may be below the amount required under the initial leases and required by the market in general.

We cannot assure you that the insurance maintained by our lessees will be sufficient to cover all types of claims that may be asserted against us. Any inadequate insurance coverage or default by lessees in fulfilling their indemnification or insurance obligations, as well as the lack of available insurance, could reduce the proceeds upon an event of loss and could subject us to uninsured liabilities, either of which could adversely affect our business, financial condition and results of operations.

Failure to obtain certain required licenses, consents and approvals could negatively affect our ability to re-lease or sell aircraft, which would negatively affect our business, financial condition and results of operations.

Aircraft leases often require specific licenses, consents or approvals. These include consents from governmental or regulatory authorities for certain payments under the leases and for the import, re-export or deregistration of the aircraft. Subsequent changes in applicable law or administrative practice may increase or otherwise modify these requirements. In addition, a governmental consent, once given, might be withdrawn. Furthermore, consents needed in connection with future re-leasing or sale of an aircraft may not be forthcoming. Any of these events could adversely affect our ability to re-lease or sell aircraft, which would negatively affect our business, financial condition and results of operations.

Some of our leases provide the lessees with early termination rights.

Five of the leases in our Initial Portfolio provide the lessees with early termination rights. We also could enter into leases in the future that provide lessees with early termination rights. If any lease is terminated early at a time when we could not re-lease the aircraft at rates at least as favorable to us as the terminated lease, our results of operations and ability to pay dividends could be adversely affected. See ‘‘Business — Our Leases — Early Termination Rights.’’

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Risks associated with the concentration of our lessees in certain geographical regions could harm our business.

Our business is exposed to local economic and political conditions that can influence the performance of lessees located in a particular region. The effect of these conditions on payments to us will be more or less pronounced, depending on the concentration of lessees in the region with adverse conditions.

European concentration.    Revenues from nine lessees based in Europe accounted for 49% of total revenues for the year ended December 31, 2006. Commercial airlines in Europe face, and can be expected to continue to face, increased competitive pressures, in part as a result of the deregulation of the airline industry by the European Union and the development of low-cost carriers. European countries generally have relatively strict environmental regulations and traffic constraints that can restrict operational flexibility and decrease aircraft productivity, which could significantly increase aircraft operating costs.

Asian concentration.    Revenues from three lessees based in Asia (including India) accounted for 23% of total revenues for the year ended December 31, 2006, and lease rental revenues from two lessees based in India accounted for 19% of total revenues. There are significant obstacles to the Indian airline industry’s development, including poor aviation infrastructure, continuing losses from operations due to overcapacity and other factors, continuing government control and regulation over the industry. If this control and regulation persists or expands, the Indian airline industry likely would experience a significant decrease in growth or restrictions on future growth.

North American concentration.    Revenues from four lessees based in North America accounted for 21% of total revenues for the year ended December 31, 2006. During the past 15 years a number of North American passenger airlines filed Chapter 11 bankruptcy proceedings and several major U.S. airlines ceased operations altogether. The outbreak of Severe Acute Respiratory Syndrome (SARS), high labor costs, high fuel costs, the strength of labor unions in collective bargaining negotiations, the war and prolonged conflict in Iraq and the September 11, 2001 terrorist attacks in the United States have imposed additional financial burdens on most U.S. airlines.

South and Central American concentration.    Revenues from four lessees based in South and Central America accounted for 7% of total revenues for the year ended December 31, 2006. While lessees throughout the world are affected by exchange rate fluctuations as a result of the mismatch of U.S. dollar exposure between their operating expenses and revenues, airlines in South and Central America are particularly sensitive to this risk because of the history of currency devaluations in this region. Any strengthening of the U.S. dollar against the local currency could negatively impact the profitability of these airlines and their ability to meet their lease obligations to us. These risks are exacerbated by the potential for South and Central American currencies to be devalued by governments as they have been periodically during the last four decades.

The risks associated with the geographical concentration of our lessees may become exacerbated as our aircraft are re-leased to lessees or subleased to sublessees in other regions or as we acquire additional aircraft.

Risks Related to the Aviation Industry

A deterioration in the financial condition of the commercial airline industry would have an adverse impact on our ability to lease our aircraft, sustain our revenues and pay dividends.

The financial condition of the commercial airline industry is of particular importance to us because we lease most of our aircraft to commercial airline customers. Our ability to achieve our primary business objectives of growing our lease portfolio and increasing distributable cash flow per share will depend on the financial condition and growth of the commercial airline industry. The risks affecting our airline customers are generally out of our control, but because they have a significant impact on our customers they affect us as well. The risk factors that follow describe risks that affect the commercial airline industry generally and therefore have an impact on our business, financial condition and results of operations. These risks are generally not within our control. Our ability to succeed depends on the

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financial strength of our customers and their ability to manage these risks. To the extent that our customers are adversely affected by these risk factors, we may experience:

  downward pressure on demand for the aircraft in our fleet and reduced market lease rates and lease margins;
  a higher incidence of lessee defaults, lease restructurings, repossessions and airline bankruptcies and restructurings, resulting in lower lease margins due to maintenance and legal and other costs associated with the repossession, as well as lost revenue for the time the aircraft are off lease and possibly lower lease rates from the new lessees;
  an inability to lease aircraft on commercially acceptable terms, resulting in lower lease margins due to such aircraft not earning revenue and resulting in storage, insurance and maintenance costs; and
  a loss if our aircraft is damaged or destroyed by an event specifically excluded from an insurance policy, such as dirty bombs, bio-hazardous materials and electromagnetic pulsing.

Airline reorganizations could impair our lessees’ ability to comply with their lease payment obligations to us.

In recent years, several U.S. airlines have sought to reorganize (and, in certain instances, have completed reorganization) under Chapter 11, and numerous other airlines have filed for similar protection under their local laws. Historically, airlines involved in reorganizations have undertaken substantial fare discounting to maintain cash flows and to encourage continued customer loyalty. This fare discounting has led to lower yields for all airlines, including certain of our lessees. The bankruptcies have led to the grounding of significant numbers of aircraft, rejections of leases and negotiated reductions in aircraft lease rentals, with the effect of depressing aircraft market values.

Additional reorganizations or liquidations by airlines under applicable bankruptcy or reorganization laws or further rejection or abandonment of aircraft by airlines in bankruptcy proceedings may depress aircraft values and aircraft lease rates. Additional grounded aircraft and lower market values would adversely affect our ability to sell certain of our aircraft or re-lease other aircraft at favorable rates.

As high fuel prices continue to affect the profitability of the airline industry, our lessees might not be able to meet their lease payment obligations to us.

Fuel costs represent a major expense to companies operating within the airline industry, and fuel prices fluctuate widely depending primarily on international market conditions, geopolitical and environmental events and currency exchange rates. In addition, natural disasters can significantly affect fuel availability and prices. For example, in August and September 2005, Hurricanes Katrina and Rita inflicted widespread damage along the Gulf Coast of the United States, causing significant disruptions to oil production, refinery operations and pipeline capacity in the region and to oil production in the Gulf of Mexico. These disruptions resulted in decreased fuel availability and higher fuel prices.

Fuel prices have recently been at historically high levels. The continuing high cost of fuel will likely have a material adverse impact on airline profitability. Due to the competitive nature of the airline industry, airlines may not be able to pass on increases in fuel prices to their customers by increasing fares. If they pass on the higher costs, it may adversely affect demand for air travel, which would reduce revenues to our customers. In addition, airlines may not be able to manage this risk by appropriately hedging their exposure to fuel price fluctuations. If fuel prices remain at historically high levels or increase further, they are likely to cause our lessees to incur higher costs or experience reduced revenues. Consequently, these conditions may:

  affect our lessees’ ability to make rental and other lease payments;
  result in lease restructurings and aircraft and engine repossessions;

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  increase our costs of servicing and marketing aircraft;
  impair our ability to re-lease the aircraft and other aviation assets or re-lease or otherwise dispose of the assets on a timely basis at favorable rates; and
  reduce the proceeds received for the aircraft or other aviation assets upon any disposition.

The effects of various environmental regulations may negatively affect the airline industry. This may cause lessees to default on their lease payment obligations to us.

Governmental regulations regarding aircraft and engine noise and emissions levels apply based on where the relevant aircraft is registered and operated. For example, jurisdictions throughout the world have adopted noise regulations which require all aircraft to comply with noise level standards. In addition to the current requirements, the United States and the International Civil Aviation Organization, or ICAO, have adopted a new, more stringent set of standards for noise levels which applies to engines manufactured or certified on or after January 1, 2006. Currently, U.S. regulations would not require any phase-out of aircraft that qualify with the older standards applicable to engines manufactured or certified prior to January 1, 2006, but the European Union has established a framework for the imposition of operating limitations on aircraft that do not comply with the new standards. These regulations could limit the economic life of the aircraft and engines, reduce their value, limit our ability to lease or sell the non-compliant aircraft and engines or, if engine modifications are permitted, require us to make significant additional investments in the aircraft and engines to make them compliant.

In addition to more stringent noise restrictions, the United States and other jurisdictions are beginning to impose more stringent limits on nitrogen oxide, carbon monoxide and carbon dioxide emissions from engines, consistent with current ICAO standards. These limits generally apply only to engines manufactured after 1999. Certain of the aircraft engines owned by us were manufactured after 1999. Because aircraft engines are replaced from time to time in the usual course, it is likely that the number of such engines may increase over time. Concerns over global warming could result in more stringent limitations on the operation of aircraft powered by older, non-compliant engines.

European countries generally have relatively strict environmental regulations that can restrict operational flexibility and decrease aircraft productivity. The European Parliament has confirmed that aviation is to be included in the European Union’s Emissions Trading Scheme starting from 2012. This inclusion could possibly distort the European air transport market leading to higher ticket prices and ultimately a reduction in the number of airline passengers. As an answer to these concerns, European airlines have established the Committee for Environmentally Friendly Aviation to promote the positive environmental performance of airlines. The United Kingdom has doubled its air passenger duties, effective February 1, 2007, in recognition of the environmental costs of air travel. Similar measures may be implemented in other jurisdictions as a result of environmental concerns.

Compliance with current or future regulations, taxes or duties imposed to deal with environmental concerns could cause the lessees to incur higher costs and to generate lower net revenues, resulting in an adverse impact on their financial conditions. Consequently, such compliance may affect the lessees’ ability to make rental and other lease payments and reduce the value received for the aircraft upon any disposition, which could have an adverse effect on our ability to pay the interest on and principal of the securitization notes in full or on a timely basis.

The effects of terrorist attacks and geopolitical conditions may negatively affect the airline industry. This may cause our lessees to default on their lease payment obligations to us.

As a result of the September 11, 2001 terrorist attacks in the United States and subsequent terrorist attacks abroad, airports have increased security restrictions, airline costs for aircraft insurance and security measures have increased and airlines have faced increased difficulties in acquiring war risk and other insurance at reasonable costs. Terrorist attacks and geopolitical conditions have harmed the airline industry, and concerns about geopolitical conditions and further terrorist attacks could harm airlines in the future as a result of various factors, including:

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  higher costs to airlines because of increased security measures;
  the inconvenience of additional security measures;
  the price and availability of jet fuel and the cost and practicability of obtaining fuel hedges under current market conditions; and
  significantly higher costs of aircraft insurance coverage for claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has been or will continue to be available.

Future terrorist attacks, war or armed hostilities, or the fear of such events, may further increase airline costs, depress air travel demand, cause certain aviation insurance to become available only at significantly increased premiums or not be available at all and could have a further adverse impact on the airline industry and on the financial condition and liquidity of our lessees, aircraft values and rental rates, all of which could adversely affect our financial results, growth prospects and ability to pay dividends.

The effects of war or armed hostilities may negatively affect the airline industry. This may cause lessees to default on their lease payment obligations to us.

War or armed hostilities in the Middle East, North Korea, or elsewhere, or the fear of such events, could reasonably be expected to further exacerbate many of the problems experienced by the aviation industry as a result of the terrorist attacks on September 11, 2001. The situation in Iraq continues to be uncertain and tension over Iran’s nuclear program continues, and either or both may lead to further instability in the region. Potential problems include increased security restrictions on air travel in the United States and elsewhere, increased airline costs for, and restricted availability of, aircraft insurance and fuel, enhanced security measures, a decline in passenger demand for air travel, increased difficulties in acquiring war risk and other insurance at reasonable costs, and additional lessee restructurings.

The effects of pandemic diseases may negatively affect the airline industry. This may cause our lessees to default on their lease payment obligations to us.

The 2003 outbreak of SARS was linked to air travel early in its development and had a severe adverse impact on the aviation industry, which was evidenced by a sharp reduction in passenger bookings, cancellation of many flights and employee layoffs. In addition, since 2003, there have been several outbreaks of avian influenza, or the bird flu, beginning in Asia and, most recently, spreading to certain parts of Africa and Europe. Additional outbreaks of SARS or other pandemic diseases, or the fear of such events, could provoke responses, including government-imposed travel restrictions, which could negatively affect passenger demand for air travel and the financial condition of the aviation industry.

We depend on aircraft and engine manufacturers’ success in remaining financially stable and producing aircraft.

The supply of aircraft, which we purchase and lease, is dominated by two airframe manufacturers, Boeing and Airbus, and a limited number of engine manufacturers. We therefore depend on these manufacturers’ success in remaining financially stable and producing aircraft and related components which meet airlines’ demands and providing customer support. Further, competition between the manufacturers for market share is escalating and may cause instances of deep discounting for certain aircraft types and may have a negative impact on our competitive pricing when we sell or lease aircraft. Should the manufacturers fail to respond appropriately to changes in the market environment or fail to fulfill their contractual obligations, we may experience:

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

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  poor customer support from the manufacturers of aircraft and components resulting in reduced demand for a particular manufacturer’s product, creating downward pressure on demand for those aircraft and components in our fleet and reduced market lease rates for those aircraft; and
  reduction in our competitiveness due to deep discounting by the manufacturers, which may lead to reduced market lease rates and may adversely affect the value of our portfolio and our ability to remarket or sell some of the aircraft in our fleet.

Risks Related to the Ownership of Our Shares

Market interest rates may have an effect on the trading value of our shares.

One of the factors that investors may consider in deciding whether to buy or sell our shares is our dividend rate as a percentage of our share price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher dividend yield on our shares or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and capital market conditions can affect the market value of our shares. For instance, if interest rates rise, it is likely that the market price of our shares will decrease as market rates on interest-bearing securities, such as bonds, increase.

Our common shares and the ADSs through which they will be held have no public market, and we cannot assure you that an active trading market will develop.

Prior to this offering, there has not been a market for our common shares or ADSs. Although we have applied to list our ADSs on the NYSE, an active trading market in our shares might not develop or continue. If you purchase shares in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that was determined through negotiations with the representative of the underwriters based upon an assessment of the valuation of our shares and a book-building process. The public market may not agree with or accept this valuation, in which case you may not be able to sell your shares at or above the initial public offering price.

Our common shares will not be listed on any exchange.

The market price and trading volume of our shares may be volatile and may be affected by market conditions beyond our control.

Even if an active trading market for our shares develops, the market price of our shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in the ADSs may fluctuate and cause significant price variations to occur. If the market price of the shares declines significantly, you may be unable to resell your shares at or above your purchase price, if at all. We cannot assure you that the market price of the shares will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our shares price or result in fluctuations in the price or trading volume of our shares include:

  variations in our quarterly operating results;
  failure to meet our earnings estimates;
  publication of research reports about us, other aircraft lessors or the aviation industry or the failure of securities analysts to cover our shares after this offering;
  additions or departures of key management personnel;
  adverse market reaction to any indebtedness we may incur or preference or common shares or ADSs we may issue in the future;
  changes in our dividend payment policy or failure to execute our existing policy;
  actions by shareholders;

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  changes in market valuations of similar companies;
  announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;
  speculation in the press or investment community; and
  changes or proposed changes in laws or regulations affecting the aviation industry or enforcement of these laws and regulations, or announcements relating to these matters.

In the past, the stock market has experienced extreme price and volume fluctuations. These market fluctuations could result in extreme volatility in the trading price of the shares, which could cause a decline in the value of your investment. You should also be aware that price volatility may be greater if the public float and trading volume of the shares is low.

We may issue additional shares without your approval, which would dilute your ownership interests and may depress share prices.

Upon the completion of this offering and the private placement, we will have 33,603,450 shares issued and outstanding. We expect to implement our growth strategy through the acquisition of additional aircraft and other aviation assets financed primarily by issuances of debt and equity securities. Subject to the rules of the NYSE and the provisions of our charter, we may issue additional shares without shareholder approval in a number of circumstances.

Our issuance of additional shares or other equity securities of equal or senior rank will have the following effects:

  our shareholders’ proportionate ownership interest in us will decrease;
  the amount of cash available for dividends payable on our shares may decrease; and
  the market price of our shares may decline.

We have anti-takeover provisions in our bye-laws that may discourage a change of control.

Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These include:

  provisions that permit us to require any competitor of BBAM that acquires beneficial ownership of more than 15% of our common shares either to tender for all of our remaining common shares for no less than their fair market value, or sell such number of common shares to us or to third parties as would reduce its beneficial ownership to less than 15%, in either case within 90 days of our request to so tender or sell;
  provisions that reduce the vote of each common share held by a competitor of BBAM that beneficially owns 15% or more, but less than 50%, of our common shares to three-tenths of one vote per share on all matters upon which shareholders may vote;
  provisions that permit our board of directors to determine the powers, preferences and rights of any preference shares we may issue and to issue any such preference shares without shareholder approval;
  advance notice requirements by shareholders for director nominations and actions to be taken at annual meetings; and
  no provision for cumulative voting in the election of directors, such that all the directors standing for election may be elected by our shareholders by a plurality of votes cast at a duly convened annual general meeting, the quorum for which is two or more persons present in person or by proxy at the start of the meeting and representing in excess of 25% of all votes attaching to all shares in issue entitling the holder to vote at the meeting.

These provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and/or our board of directors.

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Public shareholders who might desire to participate in these types of transactions may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control of our company or change our board of directors and, as a result, may adversely affect the market price of our shares and your ability to realize any potential change of control premium. See ‘‘Description of Share Capital — Anti-Takeover Provisions.’’

We are a Bermuda company that is managed and controlled in Ireland. It may be difficult for you to enforce judgments against us or against our directors and executive officers.

We were incorporated under the laws of Bermuda and are managed and controlled in Ireland. Our business is based outside the United States, a majority of our directors and officers, and some of the experts named in this prospectus, reside outside the United States and a majority of our assets and some or all of the assets of such persons are located outside the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon us or those persons, or to recover against us or them on judgments of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. Further, no claim may be brought in Bermuda or Ireland against us or our directors and officers in the first instance for violation of U.S. federal securities laws because these laws have no extraterritorial application under Bermuda or Irish law and do not have force of law in Bermuda or Ireland. However, a Bermuda or Irish court may impose civil liability, including the possibility of monetary damages, on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Bermuda or Irish law.

There is doubt as to whether the courts of Bermuda or Ireland would enforce judgments of U.S. courts obtained in actions against us or our directors and officers, as well as the experts named herein, predicated upon the civil liability provisions of the U.S. federal securities laws, or entertain actions brought in Bermuda or Ireland against us or such persons predicated solely upon U.S. federal securities laws. Further, there is no treaty in effect between the United States and Bermuda or Ireland providing for the enforcement of judgments of U.S. courts in civil and commercial matters, and there are grounds upon which Bermuda or Irish courts may decline to enforce the judgments of U.S. courts. Some remedies available under the laws of U.S. jurisdictions, including some remedies available under the U.S. federal securities laws, may not be allowed in Bermuda or Irish courts as contrary to public policy in Bermuda or Ireland. Because judgments of U.S. courts are not automatically enforceable in Bermuda or Ireland, it may be difficult for you to recover against us or our directors and officers based upon such judgments.

As a shareholder of our company, you may have greater difficulties in protecting your interests than as a shareholder of a U.S. corporation.

The Companies Act 1981 of Bermuda, as amended, which we refer to as the ‘‘Companies Act,’’ applies to our company and differs in material respects from laws generally applicable to U.S. corporations and their shareholders. Taken together with the provisions of our bye-laws, some of these differences may result in your having greater difficulties in protecting your interests as a shareholder of our company than you would have as a shareholder of a U.S. corporation. This affects, among other things, the circumstances under which transactions involving an interested director are voidable, whether an interested director can be held accountable for any benefit realized in a transaction with our company, what approvals are required for business combinations by our company with a large shareholder or a wholly-owned subsidiary, what rights you may have as a shareholder to enforce specified provisions of the Companies Act or our bye-laws, and the circumstances under which we may indemnify our directors and officers.

Risks Related to Taxation

We will be a passive foreign investment company, or PFIC. Unless U.S. holders of our shares make certain elections under U.S. federal income tax rules, they will be subject to certain adverse U.S. federal income tax rules.

Because we will be a PFIC, U.S. holders of our shares will be subject to certain adverse U.S. federal income tax rules. Under the PFIC rules, a U.S. holder who disposes or is deemed to dispose of our

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shares at a gain, or who receives or is deemed to receive certain distributions with respect to our shares, generally will be required to treat such gain or distributions as ordinary income and pay an interest charge on the tax imposed. Certain elections may be used to reduce or eliminate the adverse impact of the PFIC rules for holders of our shares (‘‘QEF elections’’ and ‘‘mark-to-market’’ elections), but these elections may accelerate the recognition of taxable income and may result in the recognition of ordinary income in excess of amounts distributed to you. Although we have estimated that if you make a QEF election the taxable income allocated to you initially will be less than projected distributions, if we do not acquire additional aircraft generating sufficient depreciation deductions for U.S. tax purposes, your share of the taxable income will likely exceed cash distributions at some point in the future. In addition, because we will be a PFIC, our distributions will not qualify for the reduced rate of U.S. federal income tax that applies to qualified dividends paid to non-corporate U.S. taxpayers. The PFIC rules are extremely complex, and prospective U.S. investors are urged to consult their own tax advisers regarding the potential consequences to them of our being classified as a PFIC. See ‘‘Taxation Considerations — U.S. Federal Income Tax Considerations — Taxation of U.S. Holders of Shares.’’

We may fail to qualify for tax treaty benefits, U.S. statutory tax exemptions and withholding tax exemptions which would reduce our net income and cash flow by the amount of the applicable tax.

Special U.S. tax rules apply to U.S. source transportation income. U.S. source rental income that is not connected with a U.S. trade or business may be subject to 30% withholding tax or, alternatively, could be subject to a 4% gross transportation tax. U.S. source transportation income connected to a U.S. trade or business may be taxable in the United States on a net income basis. In order for us to be exempt from U.S. federal income taxation on each category of U.S. source transportation income, we and our Irish tax resident subsidiaries must qualify for benefits of the Irish Treaty and must not maintain a ‘‘permanent establishment’’ within the United States. Qualification for Irish Treaty benefits depends on many factors, including that at least 50% of the vote and value of our Irish tax resident subsidiaries continues to be held by us and that our principal class of shares be substantially and regularly traded on one or more recognized stock exchanges. We may not satisfy all the requirements of the Irish Treaty and thereby may not qualify each year for the benefits of the Irish Treaty. Similarly, whether or not we or any of our Irish tax resident subsidiaries maintain a permanent establishment within the United States depends on a number of factors, and there can be no assurance that we or one of our Irish subsidiaries will not be treated as having a permanent establishment. Failure to so qualify or the maintenance of a permanent establishment within the United States could result in the income attributable to aircraft used for flights to, from or within the United States being subject to U.S. federal income taxation. The imposition of such taxes would adversely affect our business and would result in decreased cash available for distribution to our shareholders. See ‘‘Taxation Considerations — U.S. Federal Income Tax Considerations — Taxation of B&B Air and Our Subsidiaries.’’

In addition, the Irish tax residency of B&B Air Funding entitles certain of our lessees to avail themselves of certain double taxation treaty benefits in respect of withholding taxes. If B&B Air Funding fails to qualify for Irish tax residency, lessees may be required to deduct withholding taxes from rent payments and our net income and cash flows may be reduced, as such additional taxes may be excluded from applicable lessee tax indemnity provisions.

We may become subject to income or other taxes in the jurisdictions in which our aircraft operate, where our lessees are located or where we perform certain services which would adversely affect our business and result in decreased cash available for distributions to shareholders.

We and our Irish tax resident subsidiaries will be subject to the income tax laws of Ireland. In addition, we may be subject to income or other taxes in other jurisdictions by reason of our activities and operations or those of our service providers, where our aircraft operate or where the lessees of our aircraft (or others in possession of our aircraft) are located. The imposition of such taxes would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.

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In addition, because Ireland does not have tax treaties with all jurisdictions, we may find it necessary to establish subsidiaries in other jurisdictions to lease or sublease aircraft to customers in those jurisdictions. Such subsidiaries may be subject to taxation in the jurisdictions in which they are organized, which would reduce our net income and have an adverse impact on our cash flow available for distribution to our shareholders.

The tax rate applicable to us would be higher than we expect if we were considered not to be carrying on a trade in Ireland for the purposes of Irish law.

We expect to be subject to Irish corporation tax on our net trading income at the rate of 12.5%. Under Irish tax law, non-trading income is taxed at the rate of 25% and capital gains are taxed at the rate of 20%. We intend to carry on sufficient activity in Ireland, directly through our board of directors and indirectly through the services of our Manager and BBAM, so as to be treated as carrying on a trade in Ireland for the purposes of Irish tax law. In calculating our net trading income we will, in addition to all related expenses, deduct tax depreciation on the aircraft. Whether we and our Irish tax-resident subsidiaries are carrying on a trade for the purposes of Irish tax or have beneficial title to the aircraft are questions of fact and we cannot assure you that we or they will qualify or that we have full beneficial ownership of the aircraft.

One of the grounds for B&B Air Funding being treated as engaged in an active business in Ireland is that BBAM Ireland, one of the servicers for our Initial Portfolio, is an Irish company, and BBAM Ireland will perform its obligations under the servicing agreement for the Initial Portfolio in Ireland. However, the servicing agreement does not require that BBAM Ireland will perform any of its obligations in Ireland, and BBAM Ireland could relocate its operations in the future and not perform any such obligations in Ireland. If B&B Air Funding were found to be not engaged in an active business in Ireland, all of its net income from leasing would be subject to the general Irish corporate tax rate of 25%. As a result, B&B Air Funding would be liable in greater amounts for tax on such income.

If we or any of our Irish tax-resident subsidiaries were considered not to be carrying on a trade in Ireland, we or they may be subject to additional Irish tax liabilities. The application of a higher tax rate (25% instead of 12.5%) on taxable income could reduce the cash flow available for distribution to our shareholders. In addition, we cannot assure you that the 12.5% tax rate applicable to trading income, the 20% tax rate applicable to capital gains or the 25% tax rate applicable to non-trading income will not be changed in the future.

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FORWARD-LOOKING STATEMENTS

Some of the statements under ‘‘Summary,’’ ‘‘Risk Factors,’’ ‘‘Unaudited Pro Forma Financial Statements,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ ‘‘The Commercial Aircraft Industry,’’ ‘‘Business,’’ ‘‘Taxation Considerations’’ and elsewhere in this prospectus include forward-looking statements. These statements include forward-looking statements both with respect to us specifically and the aircraft leasing industry generally. Statements that include the words ‘‘expect,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘believe,’’ ‘‘project,’’ ‘‘anticipate,’’ ‘‘will,’’ and similar statements of a future or forward-looking nature identify forward-looking statements.

The forward-looking statements contained in this prospectus are based on management’s current expectations (or those of SH&E in the case of ‘‘The Commercial Aircraft Industry’’) and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include, but are not limited to, those described under ‘‘Risk Factors’’ and elsewhere in this prospectus. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

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USE OF PROCEEDS

Assuming that all of the aircraft in our Initial Portfolio are delivered upon completion of this offering, we estimate that we will receive an aggregate of $1,596.4 million in net proceeds from the following sources:

  net proceeds of $407.2 million from this offering after deducting the underwriters’ discounts and commissions and assuming a public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus,
  estimated proceeds from the sale of 14,907,800 shares to Babcock & Brown and the other private investors of $342.9 million in the concurrent private placement; and
  net proceeds of $846.3 million from the securitization, after deducting the initial purchasers’ discount and fees.

These aggregate net proceeds will be used for the following purposes:

  $24.6 million to pay expenses related to our formation, this offering and the securitization,
  $120.8 million will be retained for general corporate purposes; and
  the balance will constitute the purchase price for our Initial Portfolio.

The purchase price for our Initial Portfolio will be determined based on the initial public offering price in this offering, and will not be based upon an independent valuation of such assets. Assuming an initial public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, we estimate that the purchase price for our Initial Portfolio will be $1,451.0 million.

A $1.00 increase (decrease) in the assumed initial public offering price of $23.00 per share would:

  increase (decrease) the aggregate net proceeds to us from this offering and the concurrent private placement to Babcock & Brown and the other private investors by $33.5 million; and
  increase (decrease) the purchase price for our Initial Portfolio by $33.5 million.

We will acquire our Initial Portfolio from companies managed by Babcock & Brown. For more information on the purchase of our Initial Portfolio, please read ‘‘Asset Purchase Agreement.’’ Upon consummation of the private placement we may receive a portion of the purchase price for the privately placed shares in the form of promissory notes from the private investors which will be repaid as the aircraft in the Initial Portfolio are delivered. See ‘‘Certain Relationships and Related Party Transactions — Private Placement Agreements.’’

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DIVIDEND POLICY

Overview

Our board of directors has adopted a policy to pay a regular quarterly cash dividend to our shareholders in an initial amount of $0.50 per share. We intend to pay the first dividend in 2008 based on $0.50 per share per quarter prorated for the period from completion of this offering through December 31, 2007.

Our dividend policy is based on the cash flow profile of our business. We generate significant cash flow from leases with a diversified group of commercial aviation customers. The distributable cash flow on which we focus is derived principally from our minimum contracted lease rentals, reduced by our net cash interest expenses, cash selling, general and administrative expenses and cash taxes.

We intend to distribute a portion of our cash flow to our shareholders, while retaining cash flow for reinvestment in our business. Retained cash flow may be used to fund acquisitions of aircraft and other aviation assets, make debt repayments and for other purposes, as determined by our management and board of directors. Our dividend policy reflects our judgment that by reinvesting a portion of our cash flow, we will be able to provide value to our shareholders by enhancing our long-term dividend paying capacity. Our objectives are to maintain and to increase distributable cash flow per share through acquisitions of additional aircraft and other aviation assets beyond our Initial Portfolio of 47 aircraft. We cannot assure you that we will be successful in achieving these objectives. Our management agreement includes an incentive for our Manager to increase our distributable cash flow by providing for an incentive fee that is payable to our Manager only if the quarterly dividend on our common shares exceeds specified targets.

Our dividend policy has certain risks and limitations. We may not pay dividends according to our policy or at all, if, among other things, we do not have sufficient cash to pay the intended dividends or if our financial performance does not achieve expected results. To the extent that we do not have sufficient cash to pay dividends, we do not intend to borrow funds to pay dividends. By paying dividends rather than investing all of our earnings in future growth, we risk slowing our growth and not having a sufficient amount of cash to fund our operations or unanticipated capital expenditures.

The declaration and payment of future dividends to holders of our common shares will be at the discretion of our board of directors and will depend on many factors, including our financial condition, cash flows, legal requirements and other factors as our board of directors deems relevant. Please read ‘‘ — Possible Changes in Quarterly Dividends’’ below, as well as ‘‘Risk Factors,’’ for a detailed discussion of these factors. Please read ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Our Future Cash Flows’’ and ‘‘— Our Future Sources of Liquidity’’ for a discussion of our sources of liquidity to pay our proposed dividends. Please see ‘‘Unaudited Pro Forma Financial Statements’’ for our pro forma financial information.

Possible Changes in Quarterly Dividends

Our goal is to increase our distributable cash flow per share through accretive acquisitions of additional aircraft. If we are successful, our board of directors will consider an increase in our quarterly dividends. Our plan, however, is not to increase dividends unless the board concludes we are retaining adequate funds in our business to assure that we maintain our long-term dividend paying ability.

There are a number of factors that could affect our ability to pay dividends including, but not limited to, the following:

  lack of availability of cash to pay dividends due to changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;
  our inability to make acquisitions of additional aircraft that are accretive to cash flow;
  application of funds to make and finance acquisitions of aircraft and other aviation assets;

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  reduced levels of demand for, or value of, our aircraft;
  increased supply of aircraft;
  obsolescence of aircraft;
  lower lease rates on new aircraft and re-leased aircraft;
  delays in re-leasing our aircraft after the expiration or early termination of existing leases;
  impaired financial condition and liquidity of our lessees;
  deterioration of economic conditions in the commercial aviation industry generally;
  unexpected or increased fees and expenses payable under our agreements with BBAM and its affiliates and other service providers;
  fees and other amounts payable to our Manager, BBAM and their affiliates under our management and servicing agreements;
  poor performance by our Manager, BBAM and their affiliates and other service providers and our limited rights to terminate them;
  unexpected or increased maintenance, operating or other expenses or changes in the timing thereof;
  a decision by our board of directors to modify or revoke its policy to distribute a portion of our cash flow available for distribution;
  restrictions imposed by our financing arrangements, including under the notes issued in the securitization, our credit facility and any indebtedness incurred in the future to refinance our existing debt or to expand our aircraft portfolio;
  changes in Irish tax law, the Irish Treaty or our ability to claim the benefits of such treaty;
  cash reserves established by our board of directors;
  restrictions under Bermuda law on the amount of dividends that we may pay; and
  the other factors discussed under ‘‘Risk Factors.’’

Our growth strategy contemplates that we will fund the acquisition of additional aircraft and other aviation assets beyond our Initial Portfolio through a combination of retained cash flow and debt and equity financing. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions solely with cash from operations, which would reduce or even eliminate the amount of cash available for dividends.

Our ability to pay dividends to holders of our common stock is limited as a practical matter by the terms of our securitization and our warehouse credit facility, which restrict our ability to pay dividends. Based upon our anticipated results of operations and expected cash flows, we currently expect to be in compliance with all of the covenants under the securitization and our warehouse credit facility after this offering. However, a default under these debt documents could prevent us from paying dividends.

We will be a PFIC, and our dividends will not be eligible for either the dividends-received deduction for corporate U.S. holders or treatment as ‘‘qualified dividend income’’ (which currently is taxable at the rates generally applicable to long-term capital gains) for U.S. holders taxed as individuals. U.S. holders that make a QEF election will not be subject to U.S. federal income tax on dividends and will instead be taxed currently on their pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital gain as long-term capital gain, and generally capital gain from the sale, exchange or other disposition of shares held more than one year will be long-term capital gain eligible for a maximum 15% rate of taxation for non-corporate holders. U.S. holders who make a QEF election may be required to include amounts in income for U.S. federal income tax purposes in excess of amounts distributed by us. See ‘‘Taxation Considerations — U.S. Federal Income Tax Considerations.’’

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Provided you make a QEF election, we estimate that if you hold the shares that you purchase in this offering through December 31, 2009, you will be allocated, on a cumulative basis, an amount of U.S. federal taxable income for such period that will be less than 33% of the cash distributions paid to you during such period. Although we have estimated that if you make a QEF election the taxable income allocated to you initially will be less than anticipated distributions, if we do not acquire additional aircraft generating sufficient depreciation deductions for U.S. tax purposes, your share of taxable income will likely exceed cash distributions at some point in the future. Please review ‘‘Tax Considerations — U.S. Federal Income Tax Considerations’’ for the basis of this estimate.

As a Bermuda company, our ability to pay dividends is subject to certain restrictions imposed by Bermuda law. For a discussion of these restrictions, see ‘‘Description of Share Capital — Dividend Rights.’’

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CAPITALIZATION

The following table presents, as of June 30, 2007, (1) the historical cash and cash equivalents and capitalization of JET-i Leasing and (2) our unaudited pro forma cash and cash equivalents and capitalization, assuming the following:

  the completion of this offering at an assumed initial public offering price of $23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus;
  the completion of the concurrent private placement of shares to Babcock & Brown and the other private investors;
  the completion of the securitization; and
  the acquisition of the aircraft in our Initial Portfolio as described under ‘‘Use of Proceeds.’’

The information presented below should be read in conjunction with the sections of this prospectus entitled ‘‘Use of Proceeds,’’ ‘‘Unaudited Pro Forma Financial Statements,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ and the consolidated financial statements of JET-i Leasing, with the notes thereto.


  June 30, 2007
  Historical Pro Forma
  (Dollars in thousands)
Cash and cash equivalents(1) $ 121,625 $ 145,092
Debt    
Warehouse credit facility $ 1,147,598 $
Securitization notes(2) 850,550
Total debt 1,147,598 850,550
Member’s capital/shareholders’ equity 37,632 499,275
Total capitalization $ 1,185,230 $ 1,349,825
(1) Cash and cash equivalents includes restricted cash of $121.6 million on a historical basis and $24.2 million on a pro forma basis.
(2) Reflects the issuance of $853.0 million of securitization notes at an offering price of 99.71282%. See ‘‘Description of Indebtedness — Securitization.’’

A $1.00 increase (decrease) in the assumed initial public offering price of $23.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering and the concurrent private placement of shares to Babcock & Brown and the other private investors by $33.5 million. Such an increase (decrease) would have no impact on our pro forma cash and cash equivalents, but would increase (decrease) our pro forma total shareholders’ equity and our pro forma total capitalization by $33.5 million.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following table presents selected historical consolidated and other data of JET-i Leasing, the predecessor of our company. JET-i Leasing commenced operations on November 22, 2005 and acquired its first three aircraft before the end of 2005. The selected historical consolidated financial data for the period of November 22, 2005 (commencement of operations) to December 31, 2005 and the year ended December 31, 2006 and as of the end of such periods has been derived from the audited consolidated financial statements of JET-i Leasing included elsewhere in this prospectus. The selected historical consolidated financial data for each of the six-month periods ended June 30, 2006 and 2007 has been derived from the unaudited consolidated financial statements of JET-i Leasing included elsewhere in this prospectus. The selected historical consolidated data reflects the aircraft included in our Initial Portfolio and related leases as owned, operated and financed by JET-i Leasing during each of the periods and as of each of the dates presented and reflects the results of each such aircraft only from and after the date of acquisition by JET-i Leasing or any of its subsidiaries.

The following data should be read in conjunction with ‘‘Risk Factors,’’ ‘‘Use of Proceeds,’’ ‘‘Unaudited Pro Forma Financial Statements,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ and the consolidated financial statements of JET-i Leasing.

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  November 22
(commencement of
operations) to
December 31, 2005
Year Ended
December 31, 2006
Six Months
Ended
June 30, 2006
Six Months
Ended
June 30, 2007
  (Dollars in thousands)
Statement of operations data:        
Revenues        
Operating lease revenue $ 550 $ 56,566 $ 15,226 $ 61,662
Finance lease income and other revenues 1,668 5,701
Total revenues 550 58,234 15,226 67,363
Expenses        
Depreciation 156 17,976 4,723 19,877
Interest expense, net 710 43,013 7,925 32,721
Selling, general and administrative 331 3,321 834 2,493
Maintenance and other leasing costs 145 1,379 373 1,628
Total expenses 1,342 65,689 13,855 56,719
Net income (loss) from continuing operations before provision for income taxes (792 )  (7,455 )  1,371 10,644
Provision for income taxes 17 712
Net income (loss) $ (792 )  $ (7,472 )  $ 1,371 $ 9,932
Balance sheet data (as of end of period):        
Assets        
Cash and cash equivalents $ $ 20   $ 21
Rent receivables 740   166
Restricted cash and cash equivalents 18,130 101,194   121,604
Flight equipment under operating leases, net 52,306 822,234   1,070,239
Investment in direct finance leases, net 75,635   75,014
Other assets, net 13,060 11,052   11,520
Total assets $ 83,496 $ 1,010,875   $ 1,278,564
Liabilities        
Accounts payable and accrued liabilities $ 791 $ 7,394   $ 5,479
Rentals received in advance 478 4,488   7,076
Payable to related parties 3,121 5,438   10,740
Security deposits and maintenance payment liabilities 1,397 51,476   63,083
Warehouse credit facility 51,828 901,145   1,147,598
Other liabilities 13,234   6,956
Total liabilities 57,615 983,175   1,240,932
Member’s capital        
Member’s contributions 26,673 35,964   35,964
Accumulated (deficit) earnings (792 )  (8,264 )    1,668
Total member’s capital 25,881 27,700   37,632
Total liabilities and member’s capital $ 83,496 $ 1,010,875   $ 1,278,564
Other data (as of end of period):        
Number of aircraft