Babcock & Brown Air Reports Third Quarter 2009 Results

• Press Release
• Source: Babcock & Brown Air Limited
• On 8:00 am EST, Wednesday November 4, 2009

DUBLIN, Nov. 4 /PRNewswire-FirstCall/ -- Babcock & Brown Air Limited (NYSE: FLY - News; "B&B Air"), a global lessor of modern, fuel-efficient commercial jet aircraft, today announced its financial results for the third quarter of 2009.

Third Quarter Highlights

• Net income of $14.4 million, EPS of $0.48
• Available Cash Flow of $29.1 million, $0.96 per share
• Purchased $25 million principal amount of notes payable for $12 million
• Leased last remaining aircraft repossessed in 2008
• Unrestricted Cash of $77.9 million at quarter end
• Dividend of $0.20 per share declared on October 15th

"During the third quarter we continued to enhance shareholder value by repurchasing $25 million of our debt for approximately 50% of the principal amount," said Colm Barrington, CEO of B&B Air. "So far this year B&B Air has repurchased $144 million of its notes payable at an approximate 50% discount. The Company also owns options to acquire an additional $75 million of its notes payable for $36 million. B&B Air has also repurchased more than 2.2 million shares this year, at an average cost of $4.08 per share."

"B&B Air's portfolio continues to perform well, producing strong cash flow," added Barrington. "Our third quarter dividend of $0.20 per share represented just 21% of our Available Cash Flow for the quarter. Following the purchase of the notes payable we ended the quarter with approximately $78 million in unrestricted cash. During the quarter our fleet had a 98% utilization factor and we also reached agreement to lease the last remaining B757 aircraft repossessed in 2008. This aircraft is scheduled to be delivered in December."

Third Quarter 2009 Financial Results

B&B Air's net income and basic and diluted earnings per share for the third quarter of 2009 were $14.4 million and $0.48 per share compared to $16.0 million and $0.48 per share in the same period in the preceding year. The third quarter 2009 results include a pre-tax gain of $12.5 million from repurchasing $25 million principal amount of notes payable for $12 million and amortization of $3.4 million associated with the cost to purchase options on $100 million principal amount of notes payable. The 2008 third quarter results included a gain of $5.0 million associated with the sale of an aircraft and $4.0 million of end of lease revenue.

Net income and basic and diluted earnings per share for the nine-month period ended September 30, 2009 were $75.4 million and $2.43 per share compared to $38.8 million and $1.16 per share in the same period in the preceding year. The 2009 results included a pre-tax gain of $70.1 million associated with the purchase of approximately $144 million of notes payable and a gain of $7.7 million associated with a lease termination settlement.

Total revenues for the third quarter of 2009 were $67.8 million compared to $66.3 million for the same period in the preceding year. Operating lease revenue for the third quarter of 2009 was $54.3 million compared to $60.5 million in the same period of the previous year. The decrease is principally due to declines in lease rates that adjust with LIBOR, the absence of rent from the aircraft sold in the third and fourth quarters of 2008 and end of lease revenue, with no corresponding amount in the third quarter of 2009.

Total revenues for the nine-month period ended September 30, 2009 were $241.4 million compared to $175.5 million for the same period in the preceding year. The increase was largely due to the revenues associated with the gains on the purchase of notes payable in 2009.

Total expenses in the third quarter of 2009 were $50.2 million, compared to $47.9 million in the same period in the previous year. The increase was primarily due to amortization of the debt purchase option, partially offset by a reduction in repossession and remarketing costs. The $7 million cost of the options is being amortized on a straight line basis over the periods until their expiry.

Total expenses for the nine-month period ended September 30, 2009 were $145.3 million compared to $131.2 million for the same period in the preceding year.

Depreciation expense in the third quarter of 2009 was $21.1 million compared to $20.1 million for the same period in the previous year.

Interest expense in the third quarter of 2009 was $20.4 million compared to $21.5 million for the same period in the previous year. The decrease is mainly due to decreases in LIBOR.

Selling, general and administrative expenses were $4.8 million in the third quarter of 2009 compared to $5.4 million in the same period of the previous year. Maintenance and other expenses were $0.5 million in the third quarter of 2009 compared with $1.0 million in the same period of the previous year.

The provision for income taxes was $3.2 million in the third quarter of 2009 and reflects the recognition of deferred taxes at a 25% rate on the gain associated with the purchase of the notes. The effective income tax rate for the third quarter of 2009 was 18.0% compared to 12.9% for the same period in the previous year.

Available Cash Flow

Available Cash Flow ("ACF"), which B&B Air defines as net income plus depreciation, lease incentive amortization, amortization of debt issue costs and the deferred tax provision, was $29.1 million for the third quarter of 2009 compared to $40.2 million for the same period in the previous year. ACF for the nine-month period ended September 30, 2009 was $96.7 million compared to $103.3 million for the same period in the preceding year. ACF for the third quarter of 2008 and the nine-month period ended September 30, 2008 was favorably impacted by end of lease revenue and the gain on the sale of the aircraft recorded in those periods.

On a per share basis, ACF was $0.96 for the third quarter of 2009 compared to $1.20 in the same period of 2008. In the nine-month period ended September 30, 2009, ACF per share was $3.12 compared to $3.08 in the same period in 2008. Gains on the purchase of notes payable are not included in ACF.

ACF should be used as a supplement to and not as a substitute for financial measures determined in accordance with Accounting Principles Generally Accepted in the United States.

Dividend and Share Repurchases

On October 15th, B&B Air declared a dividend of $0.20 per share in respect of the third quarter of 2009. This dividend will be paid on November 20, 2009 to shareholders of record on October 30, 2009. This dividend represents 21% of ACF for the third quarter of 2009.

B&B Air did not repurchase any shares in the third quarter of 2009. During the nine-month period ended September 30, 2009, B&B Air repurchased 2,208,963 shares at an average cost of $4.08 per share or a total of $9.0 million. These shares represented 6.8% of the shares outstanding at December 31, 2008. On September 30, 2009 there were 30,279,948 shares outstanding.

Under the $30 million share repurchase program that has been extended to June 2010, B&B Air may make further share repurchases from time to time in the open market or in privately negotiated transactions. The timing of the repurchases under the program will depend upon a variety of factors, including market conditions, and may be suspended or discontinued at any time.

Financial Position

At September 30, 2009, B&B Air's total assets were $2.03 billion, including flight equipment held for operating leases with a net book value of $1.77 billion. Restricted and unrestricted cash at September 30, 2009 totaled $208.3 million, of which $77.9 million was unrestricted. These amounts compare to total cash of $170.4 million and unrestricted cash of $56.8 million at December 31, 2008.

Aircraft Portfolio

During the third quarter of 2009, B&B Air's portfolio utilization factor was 98%. At September 30, 2009, all but one of the aircraft in B&B Air's portfolio were on lease to 36 lessees in 19 countries. The aircraft off-lease has been subsequently leased and delivery is currently scheduled in December 2009.

The table below shows the aircraft in B&B Air's portfolio on September 30, 2008, December 31, 2008, and September 30, 2009:

                         September 30,     December 31,      September 30,
                              2008            2008                2009
    Portfolio On

    Airbus A319                10              10                  10
    Airbus A320                18              17                  17
    Airbus A330                 1               1                   1
    Boeing 737                 19              19                  19
    Boeing 747                  1               1                   1
    Boeing 757                 12              12                  12
    Boeing 767                  1               1                   1
    Boeing 777                  1               1                   1
       Total                   63              62                  62

At September 30, 2009, the average age of B&B Air's portfolio was 7.1 years weighted by the net book value of each aircraft. The average remaining lease term was 4.9 years, also weighted by value and including the aircraft off-lease at a lease term of zero. At September 30, 2009 the leases were generating annualized revenues of $219 million.

Conference Call and Webcast

B&B Air's senior management will host a conference call and webcast to discuss these results at 9:00 a.m. U.S. Eastern Time on Wednesday, November 4, 2009.

Participants should call +1-706-643-7953 (International) or 866-696-7906 (North America) and enter confirmation code 36176073. A replay will be available shortly after the call. To access the replay, please dial +1-706-645-9291 (International) or 800-642-1687 (North America) and enter confirmation code 36176073. The replay recording will be available for two weeks.

A live webcast of the conference call will be also available in the investor section of B&B Air's website at www.babcockbrownair.com. An archived webcast will be available for one year.

About B&B Air

B&B Air acquires and leases modern, high-demand and fuel-efficient commercial jet aircraft under multi-year operating lease contracts to a diverse group of airlines throughout the world. B&B Air is managed and serviced by Babcock & Brown Aircraft Management ("BBAM"). For more information about B&B Air, please visit our website at www.babcockbrownair.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains certain "forward - looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for B&B Air's future business and financial performance. Forward-looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks. B&B Air expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise.

    Contact:
    Matt Dallas
    Babcock & Brown
    + 1-212-796-3918
    matt.dallas@babcockbrown.com

    Babcock & Brown Air Limited
    Consolidated Statements of Operations

    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                       Three months  Three months   Nine months   Nine months
                           ended         ended         ended         ended
                         Sept. 30,     Sept. 30      Sept. 30,     Sept. 30
                           2009          2008          2009          2008
                        (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
    Revenues
      Operating lease
       revenue             $54,282       $60,516     $161,434       $165,202
      Finance lease
       income                    -             -            -          2,446
      Gain on sale of
       aircraft                  -         4,979            -          4,979
      Gain on purchases
       of notes payable     12,515             -       70,136              -
      Lease termination
       settlement              611             -        7,707              -
      Interest and
       other income            387           815        2,117          2,827
    Total revenues          67,795        66,310      241,394        175,454

    Expenses
      Depreciation          21,128        20,080       62,488         53,989
      Interest expense      20,382        21,485       60,969         59,118
      Selling, general
       and administrative    4,765         5,385       15,888         15,739
      Debt purchase option
       amortization          3,409             -        4,476              -
      Maintenance and
       other costs             498           962        1,493          2,403
    Total expenses          50,182        47,912      145,314        131,249

    Net income before
     provision for
     income taxes           17,613        18,398       96,080         44,205
    Provision for
     income taxes            3,164         2,369       20,686          5,430
    Net income             $14,449       $16,029      $75,394        $38,775
    Weighted average
     number of shares   30,279,948    33,451,580   31,017,554     33,552,304
    Basic and diluted
     earnings per share      $0.48         $0.48        $2.43          $1.16
    Dividends declared
     and paid per share      $0.20         $0.50        $0.60          $1.50

    Babcock & Brown Air Limited
    Consolidated Balance Sheets

    (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)

                                              September 30,      December 31,
                                                  2009               2008
                                               (Unaudited)         (Audited)
    Assets
        Cash and cash equivalents               $77,852             $56,763
        Restricted cash and cash
         equivalents                            130,461             113,658
        Rent receivables                          8,604               4,148
        Flight equipment held for
         operating leases, net                1,769,265           1,830,612
        Deferred tax asset, net                  16,421              40,734
        Fair market value of derivative
         asset                                        -               2,368
        Other assets, net                        29,584              37,891
    Total assets                              2,032,187           2,086,174
    Liabilities
        Accounts payable and accrued
         liabilities                              4,982              13,809
        Rentals received in advance               9,481               9,476
        Payable to related parties                6,045               2,728
        Security deposits                        34,739              35,664
        Maintenance payment liability           108,474              88,526
        Notes payable, net                      682,508             826,301
        Borrowings under aircraft
         acquisition facility                   597,471             597,471
        Credit facility                          32,290                   -
        Fair market value of derivative
         liabilities                             81,224             113,374
        Other liabilities                        11,603               9,412
    Total liabilities                         1,568,817           1,696,761
    Shareholders' equity
       Common shares, $0.001 par
        value; 499,999,900 shares
        authorized; 30,279,948 and
        32,488,911 shares issued and
        outstanding at September 30,
        2009 and December 31, 2008,
        respectively                                 30                  32
       Manager shares, $0.001 par
        value; 100 shares authorized,
        issued and outstanding
        outstanding                                   -                   -
       Additional paid-in capital               490,818             499,882
       Retained earnings (deficit)               40,201             (16,584)
       Accumulated other comprehensive
        loss, net                               (67,679)            (93,917)
    Total shareholders' equity                  463,370             389,413
    Total liabilities and
     shareholders' equity                    $2,032,187          $2,086,174

    Babcock & Brown Air Limited
    Reconciliation of Available Cash Flow, a Non-GAAP Financial Measure
     to Net Income

    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                       Three months  Three months   Nine months   Nine months
                           ended         ended         ended         ended
                         Sept. 30,     Sept. 30      Sept. 30,     Sept. 30
                           2009          2008          2009          2008
                        (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)

    Net income           $14,449       $16,029       $75,394       $38,775
    Add (less):
      Depreciation        21,128        20,080        62,488        53,989
      Amortization of
       lease incentives    1,065             -         3,188             -
      Amortization of
       debt issue costs    1,847         1,793         5,204         5,089
      Gain on purchases
       of notes payable  (12,515)            -       (70,136)            -
      Provision for
       deferred
       income taxes        3,137         2,343        20,564         5,424
    Available cash flow  $29,111       $40,245       $96,702      $103,277
    Weighted average
     share
     outstanding      30,279,948    33,451,580    31,017,554    33,552,304
    Available cash
     flow per share        $0.96         $1.20         $3.12         $3.08

B&B Air defines Available Cash Flow ("ACF") as net income plus depreciation, amortization of lease incentives and debt issue costs, and deferred income taxes. In addition, gain on purchases of notes payable is excluded from ACF. B&B Air's definition of ACF may not be consistent with similar definitions used by other companies. The reconciliation above compares ACF to net income computed in accordance with Accounting Principles Generally Accepted in the United States (GAAP), the most directly comparable GAAP financial measure. B&B Air believes ACF provides investors with a measure for evaluating its ability to pay dividends and reinvest in its business. However, ACF excludes certain positive and negative cash items, including principal payments, if any, and has certain important limitations as an indicator of B&B Air's ability to pay dividends and reinvest in its business. Management uses ACF as a measure for assessing B&B Air's operating performance. ACF should be considered in addition to, not as a substitute for net income or other financial measures determined in accordance with GAAP. For additional information, please see B&B Air's financial statements and "Management's Discussion and Analysis of Operations and Financial Condition" that will be included in the periodic report it expects to file with the Securities and Exchange Commission with respect to the financial statements discussed herein.

Buzz up!