Lead Manager

SECTION 3
BUSINESS OVERVIEW
BABCOCK & BROWN PROSPECTUS
Aircraft leasing industry
There are approximately 15 significant groups operating in the aircraft operating-leasing industry, with ILFC and
GECAS (subsidiaries of AIG and GE respectively) being the largest participants with a combined market share
estimated to be in excess of 60%. Of the remaining market participants there are several groups of a similar size to
BBAM linked to major commercial banks or equipment finance organisations. Business models vary widely
between groups. For example, GECAS and ILFC generally place large orders with the aircraft manufacturers,
whereas BBAM principally engages in sale/lease-back transactions with airlines and opportunistic trading
acquisitions which subsequently can be syndicated to investor groups.
The international airline industry has recently been through a significant downturn driven by the global
terrorism threat, political instability in the Middle East, increasing oil prices and SARS in Asia and Canada.
Babcock & Brown believes current market conditions, however, have improved considerably and consider the
outlook for the European and Asian airline industry to be more robust than at any time in the last three years.
Airline Monitor forecasts global passenger traffic, a key driver for aircraft operating lessors, to increase by 8.7%
and 6.5% in 2004 and 2005, respectively.Through the first six months of 2004, IATA reported that international
passenger traffic increased 20.4% over 2003.
Following the recent downturn in the industry, several aircraft operating lessors have reduced their investment in
the sector. In contrast, BBAM continued to engage actively in the sector and has grown its aircraft portfolio by
26% since the end of 2001. As demand for leased aircraft continues to grow Babcock & Brown is in a strong
position due to the fact that its aircraft fleet is being primarily focused on modern, narrow body jet aircraft with
broad customer appeal. Furthermore, its model of syndicating ownership of its managed fleet generally places the
primary-residual value risk with third parties.
According to Boeing’s Current Market Outlook 2004, the worldwide jet fleet is estimated to more than double by
the end of 2023 to 34,764 jet aircraft. Babcock & Brown believes that approximately 25-30% of current year
deliveries of new aircraft will be financed using operating leases and that airlines will need to rely more on
operating lessors in the future as banks and capital markets will be slow to finance airlines directly.This long-term
situation is expected to underpin ongoing activity in the aircraft leasing market which should provide ongoing
opportunities to BBAM.
Leased aircraft portfolio
BBAM manages a portfolio of 144 leased commercial jets with a total value in excess of US$3.8 billion.The fleet
is currently 99% utilised and is leased to 47 customers.The fleet has an average age (weighted by value) of
7.0 years, with 42% of BBAM’s portfolio being less than six years old.The average remaining lease term
(weighted by value) within the portfolio is 47 months.The growth of Babcock & Brown’s managed aircraft fleet
over time is shown in the chart below.
AIRCRAFT PORTFOLIO SIZE AND VALUE
160
5
No. of Aircraft
120
80
40
3.8
3.7
3.5 3.5
2.9
4
3
2
1
US$ billion
0
102 114 127 137 144
Dec00 Dec01 Dec02 Dec03 Jun04
0
Aircraft managed
Source: Babcock & Brown
Portfolio value
67