Business Activities
Babcock & Brown Aircraft Management (BBAM)
The scope of BBAM's primary activities include:
- Fund and asset management - providing management and re-marketing services to investors;
- Advising on and arranging aircraft acquisitions and leases for aircraft under management; and
- Principal investment - acquiring and selling aircraft both on its own account and on behalf of investors, to both trade and financial buyers.
BBAM typically holds aircraft only for as long as is necessary to reposition the asset before either selling it to trade buyers, syndicating, or completing a capital markets transaction. From time to time, BBAM may acquire an aircraft where there is either no lease in place or only a short lease term remaining. BBAM will then seek to reposition the asset, often by negotiating a new lease or reconfiguring the aircraft prior to resale.
On 27 September 2007, the Operating Leasing Division completed the IPO of Babcock & Brown Air Limited (NYSE: FLY) which listed on the New York Stock Exchange with a portfolio of 47 aircraft under management. At 31 December BBAir had increased its portfolio to 54 aircraft with total assets under management of $1.9billion.
During the 12 month period aircraft under management increased 23% from 219 leased commercial jets to 270 a portfolio valued at $8.5 billion. The growth was driven by:
- A 32% increase in the number of aircraft Nomura Babcock & Brown syndicated into the Japanese market pursuant to the mutually exclusive joint marketing arrangement with BBAM. In 2007 a total of 33 aircraft was syndicated compared to 25 in 2006.
- 7 aircraft acquired under the existing Jet-I aircraft warehouse facility, valued at US$299 million (A$341million) bringing the total portfolio to 44. This was transferred into the BBAir portfolio during 2007.
- 22 aircraft acquired under a new US$1 billion (A$1.1 billion) warehouse facility, established in 2007.
The BBAM fleet profile is well diversified by geography and lessee and is a high quality fleet with a weighted average age of 7.7 years versus North American market average of 14.1 years and a weighted average remaining lease term of 59.4 months.
Babcock & Brown Rail Management (BBRM)
The scope of BBRM's primary activities include:
- Principal investment – origination and acquisition of railcars through manufacturer orders and portfolio purchases utilising Babcock & Brown’s balance sheet and Babcock & Brown Rail North America (BBRNA), BBRM’s syndicated warehouse funding vehicle.
- The Division earns rental income from rail cars on the Babcock & Brown balance sheet and generates management fees when a railcar is in a wholesale fund. BBRM acts as both fleet and investment manager to BBRNA and receives a management fee for the services it provides, which include lease remarketing, equipment management and maintenance, and lease administration.
- Arranger/Structuring Agent – BBRM generates arranger and structuring fees when railcars are moved from the balance sheet into a wholesale fund.
During the period, BBRM grew its total managed freight railcar fleet by 23%, bringing total cars under management to 20,597 (16,745 at 31 December 2006). The value of AUM grew 23% to US$1.4 billion (A$1.6 billion). As a result of the growth in AUM, investment management fees earned in 2007 increased 25% compared with the prior year.
BBRNA wholesale syndicate grew by 106% from 6,752 to 13,935. The value of AUM in BBRNA grew 95% over the period.
BBRM has a well diversified fleet, with an average age of 6.0 years versus the North American average fleet age of 19.3 years. BBRM’s fleet has been 97%-100% utilised over the last five years, and in 2007 the customer retention rate was 97%.
Eurorail
On 1 August 2007, Eurorail announced that it had established a new company, CBRail Leasing S.a.r.l. to facilitate the development of the Babcock & Brown and Bank of Scotland joint venture, CBRail. The ultimate owners of CBRail Leasing Sarl are Babcock & Brown 10%, HBOS 10%, Babcock & Brown Global Investments Limited 35% and Everest Babcock & Brown 45% with debt facilities provided by nine banks. CBRail Leasing S.a.r.l. will be the principal leasing company of CBRail and has a €390 million (A$653 million) long-term financing platform. At the end of December 2007 CBRail Leasing Sarl’s portfolio of AUM was $417million with a contract to acquire an additional $116 million in assets in early 2008.
In addition, a new JV between Babcock & Brown and HBOS (CBRail Sarl) was established in Luxembourg to engage in new business activities ranging from procurement of regional passenger trains for franchises to freight locomotives or freight wagons with or without lease commitments and sale and leaseback transactions. Equity is provided by both shareholders equally and debt facilities are provided by HBOS. This is viewed as a “warehouse” company with assets once on lease to be sold to CBRail Leasing Sarl or another long-term hold vehicle.
The CBRail Sarl assets and order book currently stands at $730 million.