Babcock's jet leasing unit plans to raise $1.6bn

The Irish aircraft leasing arm of investment house Babcock & Brown plans to raise $1.6 billion (€1.15 billion) through a flotation and two related deals.

Babcock & Brown Air, a Dún Laoghaire, Co Dublin-based aircraft leasing subsidiary of the Australian group that owns almost 60 per cent of Eircom, said yesterday it was planning to float on the New York Stock Exchange.

The company, run by Dublin Airport Authority director Colm Barrington, plans to raise $407.2 million after commissions and charges from an initial public offer (IPO) of 18.7 million shares at $23 each. It is also proposing to place 14.9 million shares with Babcock & Brown and other private investors to raise a further $343 million. Following flotation, the Australian group will own 30-38 per cent of the listed company.

The third transaction will involve securitising the aircraft it buys and is expected to raise $846.3 million, bringing the total close to $1.6 billion. This will involve B&B Air Funding, a subsidiary of the floated company, selling loan notes secured on the aircraft.

While Babcock & Brown Air will own the craft, its creditors will have their rights safeguarded and will be entitled to be paid first from its assets.

The cash raised from the flotation and share placement will be used to buy 47 aircraft, currently leased to 29 airlines, 44 from a company called Jet-i and three from a second firm, Double Black Diamond. According to a document filed with the US stock market regulator, the Securities and Exchange Commission (SEC), Babcock & Brown executive and chairman of the aircraft leasing company, Steve Zissis, could net over €12 million from this deal, as he owns 20 per cent of Double Black Diamond.

The document states that he the newly-floated leasing company will pay $85 million for Double Black Diamond's three craft and points out that he will receive 20 per cent of the proceeds, or $17 million (€12.22 million). The Australian group paid Mr Zissis $7 million last year.

Babcock & Brown and a number of its subsidiaries largely control Jet-i. The SEC documents state Mr Barrington holds "less than 0.5 per cent" of Babcock & Brown Global Partners, which ultimately holds 32.8 per cent of Jet-i. Mr Zissis and overall group director, Mr Fantaci, have "less than 1 per cent" of other subsidiaries which have various interests in Jet-i.

After the flotation, Mr Barrington will run the company's operations from its Irish base. Babcock & Brown Air Management will provide management services in return for fees tied to the value of the leased aircraft.

The company will benefit from a bonus scheme that will depend on the business delivering dividends of at least 67.5 cent per share to investors. Its SEC filings state that Babcock & Brown Air intends delivering dividends of at least 50 cent a share.

Babcock & Brown Air and B&B Air Funding will be Bermuda-registered but Irish resident companies, which means they will pay tax in the Republic and operate under its company law code.