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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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			Page
Summary					1
Risk Factors					15
Forward-Looking Statements					43
Use of Proceeds					44
Dividend Policy					45
Capitalization					48
Selected Historical Consolidated Financial and Other Data					49
Unaudited Pro Forma Financial Statements					51
Management’s Discussion and Analysis of Financial Condition and Results of Operations					61
The Commercial Aircraft Industry					74
Business					87
Asset Purchase Agreement					104
Our Manager					107
Management Agreement					109
Servicing Agreements					119
Management					124
Certain Relationships And Related-Party Transactions					128
Description of Indebtedness					131
Principal and Selling Shareholders					139
Description of Share Capital					141
Description of American Depositary Shares					151
Shares Eligible For Future Sale					158
Taxation Considerations					159
Underwriting					168
Legal Matters					177
Experts					177
Enforceability of Civil Liabilities					177
Where You Can Find Additional Information					178
Index to Predecessor Consolidated Financial Statements			F-1
Appendix 1: Our Lessees			A-1

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 ma nagement 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. W e 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 portf olio. 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 in frastructure 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 d ollar 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 repl ace 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 inc rease 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 equit y 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, airworthi ness 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 ordina ry 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 b asis 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 exemption s 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 a nd 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& rsquo;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 nea r 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 fina ncial 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 avai lable 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 wi ll 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 sign ificant 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 b e 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 a ny 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 i dentify 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 failur e 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 substi tute 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 financ ial 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 revenue s 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 aircra ft 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 decad es.

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. Howeve r, 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 no t 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 dis tributions 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 state ments. 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 q uarterly 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 &ls quo;‘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					3						37						19						44
Number of lessees					2						20						13						26

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UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The unaudited pro forma financial statements set forth below adjust the historical consolidated financial statements of our predecessor, JET-i Leasing, to give effect to the following transactions as if each had occurred as of June 30, 2007 in the case of the unaudited pro forma balance sheet, or as of January 1, 2006, in the case of the unaudited pro forma statements of operations:

	•	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 at an offering price of 99.71282%, or $850.6 million, and 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 following data should be read in conjunction with ‘‘Risk Factors,’’ ‘‘Use of Proceeds,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the consolidated financial statements of JET-i Leasing included elsewhere in this prospectus.

Our unaudited pro forma financial statements reflect the adjustments that are (1) directly attributable to the events described above, (2) factually supportable and (3) with respect to the pro forma statement of operations, expected to have a continuing impact on our operations. The unaudited pro forma financial statements have been prepared based upon available information and estimates and assumptions that we believe are reasonable. However, the unaudited pro forma financial statements are not intended to be indicative of actual results that would have been achieved had the transactions described above actually been consummated as of the dates indicated. The unaudited pro forma financial statements also should not be considered representative of our future financial condition or results of operations. This is primarily a result of the following factors:

	•	The historical consolidated financial statements may not fully reflect our ongoing cost structure. The adjustments in our pro forma financial statements reflect our estimates of the costs that we expect to incur following the completion of this offering, the securitization and our acquisition of our Initial Portfolio. However, actual costs may vary from estimates.

	•	The historical consolidated financial statements reflect capital expenditures that JET-i Leasing satisfied through financing under its warehouse facility. We expect that our financing costs will be lower than the financing costs of JET-i Leasing. The adjustments in our pro forma financial statements reflect our estimates of these reduced financing costs. However, we cannot assure you that these pro forma adjustments accurately reflect the changes in our financing costs that will occur.

	•	We expect that depreciation of capitalized major maintenance costs will be higher in future periods than reflected in JET-i Leasing’s historical consolidated financial statements due to the aging of the aircraft in our Initial Portfolio. Our pro forma financial statements do not reflect the capitalization of major maintenance costs or this increased depreciation.

See ‘‘Risk Factors — 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’’ and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Our Future Results of Operations.’’

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Unaudited Pro Forma Balance Sheet
June 30, 2007

			JET-i Leasing Historical						Adjustments for private placement						Adjustments for securitization						Adjustments for acquisition of Initial Portfolio						Subtotal						Adjustments for offering						Pro forma
			(Dollars in thousands)
Assets
Cash and cash equivalents(a)				$	121,625					$	342,879	(b)				$	827,585	(c)				$	(1,548,351	)(d)				$	(256,262	)				$	401,354	(e)				$	145,092	(f)
Rent receivables					166						—						—						(166	)(g)					—						—						—
Flight equipment under operating leases, net					1,070,239						—						—						85,021	(h)					1,155,260						—						1,155,260
Investment in direct finance leases, net					75,014						—						—						—						75,014						—						75,014
Other assets					11,520						—						22,965	(i)					(11,520	)(g)					22,965						—						22,965
Deferred tax assets					—						—						—						27,587	(j)					27,587						—						27,587
Total assets				$	1,278,564					$	342,879					$	850,550					$	(1,447,429	)				$	1,024,564					$	401,354					$	1,425,918
Liabilities and member’s capital/shareholder’s equity
Accounts payable and accrued liabilities				$	5,479						—					$	—					$	(5,479	)(g)				$	—						—					$	—
Payable to related parties					10,740						—						—						(10,740	)(g)					—						—						—
Rentals received in advance					7,076						—						—						—						7,076						—						7,076
Security deposits and maintenance payment liabilities					63,083						—						—						—						63,083						—						63,083
Warehouse credit facility/notes payable, net					1,147,598						—						850,550	(c)					(1,147,598	)(g)					850,550						—						850,550
Other liabilities					6,956						—						—						(1,022	)(g)					5,934						—						5,934
Total liabilities				$	1,240,932					$	—					$	850,550					$	(1,164,839	)				$	926,643					$	—					$	926,643
Member’s capital/shareholders’ equity				$	37,632					$	342,879	(b)				$	—					$	(282,590	)(k)				$	97,921					$	401,354	(e)				$	499,275
Total liabilities and member’s capital/shareholders’ equity				$	1,278,564					$	342,879					$	850,550					$	(1,447,429	)				$	1,024,564					$	401,354					$	1,425,918

Notes to Unaudited Pro Forma Balance Sheet

(a) Cash and cash equivalents includes restricted cash of $121.6 million on a historical basis and $24.2 million on a pro forma basis.

(b) Reflects 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 of $23.00 per share, resulting in gross proceeds to us of $342.9 million.

(c) Reflects the issuance of $853.0 million of aircraft lease-back notes in the securitization at an offering price of 99.71282%, or $850.6 million, and net proceeds of $827.6 million after deducting the initial purchasers’ discounts and fees and expenses related to the securitization.

(d) Reflects the acquisition of our Initial Portfolio. We will enter into an asset purchase agreement with the Aircraft Sellers, pursuant to which we will acquire the 47 aircraft in our Initial Portfolio. 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, the purchase price for our Initial Portfolio is estimated to be $1,451.0 million. The adjustment reflects the payment of this purchase price to the Aircraft Sellers upon completion of this offering, and $97.4 million of cash not acquired from the predecessor company, resulting in a total cash adjustment of $1,548.4 million. The purchase price for our Initial Portfolio is subject to adjustment during the period between the completion of this

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offering and the date of delivery of aircraft. See ‘‘Asset Purchase Agreement.’’ The adjustment to cash and cash equivalents does not reflect any purchase price adjustment subsequent to the completion of this offering.

We were formed to acquire our Initial Portfolio from JET-i. The transfer of these assets will be accounted for at historical cost. Upon completion of this offering, no single investor or collaborative group will own an equity interest in us of 95% or more.

The following table presents the sources and uses of cash:

• received in this offering, the concurrent private placement of shares to Babcock & Brown and the other private investors and the securitization, and

• used in connection with this offering, the securitization and the acquisition of our Initial Portfolio:

			(Dollars in thousands)
Sources of cash
Gross proceeds from this offering				$	430,000
Gross proceeds from private placement to Babcock & Brown and the other private investors(1)					342,879
Gross proceeds from securitization					850,550
Total sources				$	1,623,429
Uses of cash
Estimated fees, costs and expenses:
Underwriters’ discounts and commissions related to this offering(2)				$	(22,796	)
Expenses related to this offering					(5,850	)
Initial purchasers’ discounts related to the securitization(3)					(4,265	)
Expenses related to the securitization(3)					(18,700	)
Cash balance retained for general corporate purposes					(120,849	)
Purchase price for our Initial Portfolio					(1,450,969	)
Total uses				$	(1,623,429	)

⁽¹⁾ Assumes that all proceeds from the private placement are in the form of cash, rather than promissory notes. 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 some of the private investors, which will be repaid as the aircraft in our Initial Portfolio are delivered to us. Most of the private investors that are existing equity holders of JET-i will deliver promissory notes as payment for the privately placed shares to the extent they do not receive cash distributions from JET-i upon consummation of this offering sufficient to fund the purchase price for their shares. The aggregate principal amount of the promissory notes will depend on the number of aircraft immediately transferred to us at the closing of this offering . Should we receive promissory notes, they will be reflected in our consolidated financial statements as an offset to shareholders’ equity in accordance with Emerging Issues Task Force 85-1 (EITF 85-1), Classifying Notes Received for Capital Stock. See ‘‘Certain Relationships and Related Party Transactions — Private Placement Agreements.’’

⁽²⁾ In consideration of the arrangement of the transactions occurring in connection with this offering, certain of the private investors that are current equity holders of JET-i have agreed to pay to us an aggregate amount of $3.0 million. The underwriters’ discounts and commissions in the table are net of these $3.0 million in payments.

⁽³⁾ Debt issuance costs incurred in connection with the securitization are capitalized and amortized over the life of the related borrowing. See note (i).

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(e) Reflects 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 this prospectus, resulting in gross proceeds to us of $430.0 million and net proceeds of $401.4 million after deducting the underwriters’ discounts and commissions and expenses related to this offering.

(f) Our pro forma cash and cash equivalents consist of amounts received from the Aircraft Sellers for security deposit liabilities assumed in connection with the acquisition of our Initial Portfolio and a cash balance retained for general corporate purposes, as presented below:

			(Dollars in thousands)
Security deposits				$	24,243
Cash retained for general corporate purposes					120,849
Pro forma cash and cash equivalents				$	145,092

(g) Reflects adjustments to exclude amounts included in JET-i Leasing’s consolidated financial statements relating to the assets and liabilities of JET-i Leasing that we will not acquire or assume pursuant to the asset purchase agreement. We will acquire 44 of the aircraft included in our Initial Portfolio from JET-i Leasing and will also assume certain liabilities relating to such aircraft, including liabilities with respect to major maintenance contributions. Rent receivables, other assets, debt outstanding under the existing warehouse credit facility, accounts payables and other liabilities will not be transferred to us.

(h) Reflects an adjustment of $85.0 million for the three aircraft that we will acquire from the other Aircraft Sellers.

(i) Reflects $23.0 million of debt issuance costs associated with the securitization that have been capitalized in other assets.

(j) Reflects an adjustment to record the tax impact of the pro forma adjustments. The acquisition of our Initial Portfolio will result in a tax basis for Irish tax purposes equal to the purchase price for our Initial Portfolio of $1,451.0 million. This new tax basis results in a deferred tax asset of $27.6 million computed at an assumed tax rate of 12.5% under Irish taxation.

(k) Reflects the following adjustments to member’s capital/shareholders’ equity:

			(Dollars in thousands)
Purchase price for our Initial Portfolio				$	(1,450,969	)
Purchase price for aircraft acquired after June 30, 2007(1)					85,021
Cash not purchased					(97,382	)
Rent receivable and other assets not purchased					(11,686	)
Existing debt and other liabilities not assumed					1,164,839
Changes in deferred tax assets					27,587
Total adjustment to member’s capital/shareholders’ equity				$	(282,590	)

⁽¹⁾ Reflects cash of $85.0 million paid for three aircraft that JET-i Leasing did not own as of June 30, 2007 which we will acquire upon completion of this offering.

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Unaudited Pro Forma Statement of Operations

Year Ended December 31, 2006
			JET-i Leasing Historical						Adjustments for offering, private placement and securitization						Adjustments for acquisition of Initial Portfolio						Pro forma
			(Dollars in thousands)
Revenues
Operating lease revenue				$	56,566					$	—					$	—					$	56,566	(a)
Finance lease income					1,668						—						—						1,668	(b)
Total revenues				$	58,234					$	—					$	—					$	58,234
Expenses
Depreciation				$	17,976					$	—					$	—					$	17,976	(c)
Interest expense, net					43,013						10,101	(d)					—						53,114
Selling, general and administrative					3,321						—						9,810	(e)					13,131
Maintenance and other leasing costs					1,379						—						—						1,379
Total expenses					65,689						10,101						9,810						85,600
Income (loss) before taxes					(7,455	)					(10,101	)					(9,810	)					(27,366	)
Provision for income taxes					17						—						—	(f)					17
Net income (loss)				$	(7,472	)				$	(10,101	)				$	(9,810	)				$	(27,383	)

Notes to Unaudited Pro Forma Statement of Income

(a) JET-i Leasing acquired three, thirty and seven aircraft in 2005, 2006 and 2007, respectively. We will acquire the three remaining aircraft in our Initial Portfolio on or after the date of completion of this offering from the other Aircraft Sellers. Therefore, our predecessor financial statements do not reflect ownership of our entire Initial Portfolio for the full year ended December 31, 2006. Had all aircraft in our Initial Portfolio been purchased and assuming the existing contractual lease terms were in place as of January 1, 2006, our operating lease revenue for 2006 would have been $142.1 million.

(b) JET-i acquired four aircraft under finance leases during 2006. Therefore, our predecessor financial statements do not reflect finance lease income for the entire year ended December 31, 2006. Had all four aircraft been purchased and assuming the contractual terms of the finance leases were in place as of January 1, 2006, our finance lease income for 2006 would have been $9.9 million.

(c) JET-i Leasing acquired three, thirty and seven aircraft in 2005, 2006 and 2007, respectively. We will acquire three remaining aircraft in our Initial Portfolio on or after the date of completion of this offering from the other Aircraft Sellers. Therefore, our predecessor financial statements do not reflect ownership of our entire Initial Portfolio for the full year ended December 31, 2006. Had all aircraft in our Initial Portfolio been purchased as of January 1, 2006, our depreciation expense for 2006 would have been $47.4 million.

(d) Reflects an adjustment to record interest expense and other costs associated with our borrowings based on an assumed weighted average interest rate of 6.0% per year and the elimination of historical interest expense incurred by our predecessor:

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			(Dollars in thousands)
Securitization (1)				$	51,353
Amortization of capitalized debt issuance costs (2)					4,190
Liquidity facility commitment fees (3)					240
Amortization of discount on notes payable					446
Total pro forma interest expense					56,229
Less historical interest expense					(46,128	)
Net adjustment to interest expense				$	10,101

⁽¹⁾ The securitization notes bear interest at one-month LIBOR plus 0.30%. In order to minimize our exposure to interest rate fluctuations, JET-i has entered into an option to swap the variable one-month LIBOR rate for a fixed LIBOR rate of 5.432% on a notional balance of $646.1 million, which represents the debt allocated to aircraft that have fixed rate rental income. Should interest rates increase at the time we consummate this offering, JET-i will novate the option on the swap to us and we will exercise the option for a five-year interest rate swap pursuant to which we will receive variable monthly payments and pay fixed monthly payments on the notional balance. If interest rates decline we will enter into a new five-year interest rate swap agreement and we may reimburse JET-i for a portion of the cost of entering into the u nexercised interest rate swap option. Pro forma interest expense includes amounts payable to the policy provider and the liquidity facility provider and has been calculated assuming a maximum one-month LIBOR rate of 5.432% on a notional balance of $646.1 million. The remaining $206.9 million of debt reflects the average LIBOR rate in effect in 2006. An increase or decrease to the one-month LIBOR rates by 0.125% on the unswapped debt balance would have caused interest expense to increase or decrease by $0.3 million.

⁽²⁾ Amortization of debt issuance costs incurred in connection with the securitization and liquidity facility based on the effective yield method over five years.

⁽³⁾ Represents commitment fees on undrawn borrowings under the liquidity facility.

No adjustment has been made to estimate interest income we would have earned on excess cash balances.

(e) Represents an adjustment to selling, general, and administrative expenses based upon our estimate of the additional costs we would incur as a result of this offering and related transactions:

			(Dollars in thousands)
Servicing fees (1)				$	866
Management fee (2)					0
Management expense amount (3)					6,000
Administrative agency fees (4)					990
Directors’ fees(5)					620
Directors’ and officers’ liability insurance(6)					680
Compliance costs (7)					417
NYSE listing fee and annual fee (8)					237
Total				$	9,810

⁽¹⁾ Adjusts historical servicing fees to reflect servicing fees we would have paid to BBAM on historical revenues under our servicing agreement for our Initial Portfolio. Had all aircraft in the Initial Portfolio been on lease at January 1, 2006 and assuming our servicing agreement for our Initial Portfolio had been in place, our servicing fees for 2006 would have been $4.8 million. For more information on the servicing fees related to our servicing agreement with BBAM, please see ‘‘Servicing Agreements.’’

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⁽²⁾ Our management agreement provides that we will pay base and rent fees to our Manager. Base and rent fees paid to BBAM under our servicing agreements will be credited toward (and thereby reduce) such fees payable under our management agreement and this adjustment assumes that such credit reduces the base and rent fees payable under the management agreement to $0. In addition, we will pay to our Manager an incentive fee based on whether our quarterly dividends exceed specified targets and fees for originations and dispositions of aircraft or other aviation assets. This adjustment does not include incentive fees or fees for originations and dispositions. See ‘‘Management Agreement.’’

⁽³⁾ Reflects the management expense amount we would have paid to our Manager under our management agreement. See ‘‘Management Agreement.’’

⁽⁴⁾ Reflects the administrative agency fees we would have paid under the securitization and warehouse credit facility agreement.

⁽⁵⁾ Represents annual fees we would have paid to members of the Board of Directors for their services.

⁽⁶⁾ Represents the amount we would have paid for D&O insurance based on a quote from an insurance broker.

⁽⁷⁾ Includes our estimate of the costs of implementing a program to comply with the reporting provisions of the Sarbanes-Oxley Act of 2002. This estimate is based on terms for the first two of four phases involved in implementing such program negotiated with a consulting firm reflected in an engagement letter.

⁽⁸⁾ Reflects the NYSE listing fee and annual fee we would have paid based on the shares issued in connection with this offerring and the private placement.

The adjustment to selling, general and administrative expenses does not include amounts for accounting and audit fees, legal fees, travel expenses or secretarial services as we have not yet negotiated terms related to such matters. However, we estimate that our costs for these items on an annual basis will be approximately $3.4 million.

(f) Pro forma loss incurred would result in an income tax benefit at an assumed rate of 12.5% for Irish taxation. Given our limited operating history and pro forma net loss, a full valuation allowance is provided.

Pro Forma Earnings per Share

Basic pro forma earnings per share are calculated on the basis of the weighted average number of shares outstanding as if all shares had been issued on January 1, 2006.

			Year Ended December 31, 2006
(Dollars in thousands, except per share data)
Pro forma net loss			$(27,383)
Pro forma weighted average number of shares outstanding			33,603,450
Pro forma basic loss per share			$(0.81)

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Unaudited Pro Forma Statement of Operations

Six Months Ended June 30, 2007
			JET-i Leasing Historical						Adjustments for offering, private placement and securitization						Adjustments for acquisition of Initial Portfolio						Pro forma
			(Dollars in thousands)
Revenues
Operating lease revenue				$	61,662					$	—					$	—					$	61,662	(a)
Finance lease income					4,951						—						—						4,951
Other revenue					750						—						—						750
Total revenues				$	67,363					$	—					$	—					$	67,363
Expenses
Depreciation				$	19,877					$	—					$	—					$	19,877	(b)
Interest expense, net					32,721						(7,200	)(c)					—						25,521
Selling, general and administrative					2,493						—						4,451	(d)					6,944
Maintenance and other leasing costs					1,628						—						—						1,628
Total expenses					56,719						(7,200	)					4,451						53,970
Income (loss) before taxes					10,644						7,200						(4,451	)					13,393
Provision for income taxes					712						—						962	(e)					1,674
Net income (loss)				$	9,932					$	7,200					$	(5,413	)				$	11,719

Notes to Unaudited Pro Forma Statement of Income

(a) JET-i Leasing acquired three, thirty and seven aircraft in 2005, 2006 and 2007, respectively. We will acquire the three remaining aircraft in our Initial Portfolio on or after the date of completion of this offering from the other Aircraft Sellers. Therefore, our predecessor financial statements do not reflect ownership of our entire Initial Portfolio for the full six months ended June 30, 2007. Had all aircraft in our Initial Portfolio been purchased and assuming the existing contractual terms of the operating leases were in place as of January 1, 2007, our operating lease revenue for the six month period ended June 30, 2007 would have been $73.5 million.

(b) JET-i Leasing acquired three, thirty and seven aircraft in 2005, 2006 and 2007, respectively. We will acquire the three remaining aircraft in our Initial Portfolio on or after the date of completion of this offering from the other Aircraft Sellers. Therefore, our predecessor financial statements do not reflect ownership of our entire Initial Portfolio for the full six months ended June 30, 2007. Had all aircraft in our Initial Portfolio been purchased as of January 1, 2007, our depreciation expense for the six month period ended June 30, 2007 would have been $23.7 million.

(c) Reflects an adjustment to record interest expense and other costs associated with our borrowings based on an assumed weighted average interest rate of 6.1% per year and elimination of historical interest expense incurred by our predecessor:

			(Dollars in thousands)
Securitization (1)				$	25,909
Amortization of capitalized debt issuance costs (2)					2,058
Liquidity facility commitment fees (3)					120
Amortization of discount on notes payable					219
Total pro forma interest expense					28,306
Less historical interest expense					(35,506	)
Net adjustment to interest expense				$	(7,200	)

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⁽¹⁾ The securitization notes bear interest at one-month LIBOR plus 0.30%. In order to minimize our exposure to interest rate fluctuations, JET-i has entered into an option to swap the variable one-month LIBOR rate for a fixed LIBOR rate of 5.432% on a notional balance of $646.1 million, which represents the debt allocated to aircraft that have fixed rate rental income. Should interest rates increase at the time we consummate this offering, JET-i will novate the option on the swap to us and we will exercise the option for a five-year interest rate swap pursuant to which we will receive variable monthly payments and pay fixed monthly payments on the notional balance. If interest rates decline we will enter into a new five-year interest rate swap agreement and we may reimburse JET-i for a portion of the cost of entering into the u nexercised interest rate swap option. Pro forma interest expense includes amounts payable to the policy provider and the liquidity facility provider and has been calculated assuming a maximum one-month LIBOR rate of 5.432% on a notional balance of $646.1 million. The remaining $206.9 million of debt reflects the average one-month LIBOR rate in effect in the six month period ended June 30, 2007. An increase or decrease to the one-month LIBOR rates by 0.125% on the unswapped debt balance would have caused interest expense to increase or decrease by $0.2 million.

⁽²⁾ Amortization of debt issuance costs incurred in connection with the securitization and liquidity facility based on the effective yield method over five years.

⁽³⁾ Represents commitment fees on undrawn borrowings under the liquidity facility.

No adjustment has been made to estimate interest income we would have earned on excess cash balances.

(d) Represents an adjustment to selling, general and administrative expenses based upon our estimate of additional costs we would incur as a result of this offering and related transactions:

			(Dollars in thousands)
Servicing fees(1)				$	(121	)
Management expense(2)					0
Management expense amount(3)					3,000
Administrative agency fees(4)					495
Directors’ fees(5)					310
Directors’ and officers’ liability insurance(6)					340
Compliance costs(7)					209
NYSE listing fee and annual fee(8)					218
Total				$	4,451

⁽¹⁾ Adjusts historical servicing fees to reflect servicing fees we would have paid to BBAM on pro forma revenues under our servicing agreement for the Initial Portfolio. The adjustment is based on pro forma servicing fees of $2.2 million. Had all aircraft in the Initial Portfolio been on lease at January 1, 2007 and assuming our servicing agreement for the Initial Portfolio had been in place, our servicing fees for 2007 would have been $2.5 million. For more information on the servicing fees related to our servicing agreement with BBAM, please see ‘‘Servicing Agreements.’’

⁽²⁾ Our management agreement provides that we will pay base and rent fees to our Manager. Base and rental fees paid to BBAM under our servicing agreements will be credited toward (and thereby reduce) such fees payable under our management agreement. This adjustment assumes that such credit reduces the base and rent fees payable under the management agreement to $0. In addition, we will pay to our Manager an incentive fee based on whether our quarterly dividends exceed specified targets and fees for originations and dispositions of aircraft or other aviation assets. This adjustment does not include incentive fees or fees for origination and dispositions. See ‘‘Management Agreement.’’

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⁽³⁾ Reflects the management expense amount of $6.0 million annually we would have paid to our manager under our management agreement. See ‘‘Management Agreement.’’

⁽⁴⁾ Reflects the administrative agency fees we would have paid under the securitization and warehouse credit facility agreement.

⁽⁵⁾ Represents fees we would have paid to members of the Board of Directors for their services.

⁽⁶⁾ Represents the amount we would have paid for D&O insurance based on a quote from an insurance broker.

⁽⁷⁾ Includes our estimate of the costs of implementing a program to comply with the reporting provisions of the Sarbanes-Oxley Act of 2002. This estimate is based on terms for the first two of four phases involved in implementing such program negotiated with a consulting firm reflected in an engagement letter.

⁽⁸⁾ Reflects the NYSE listing fee and annual fee we would have paid based on the shares issued in connection with this offerring and the private placement.

The adjustment to selling, general and admininstrative expenses does not include amounts for accounting and audit fees, legal fees, travel expenses or secretarial services as we have not yet negotiated terms related to such matters. However, we estimate that our costs for these items for a six-month period will be approximately $1.7 million.

(e) Reflects an adjustment to provision for income taxes to record the impact of the other pro forma adjustments at an assumed rate of 12.5% for Irish taxation. 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.

Pro Forma Earnings per Share

Basic pro forma earnings per share are calculated on the basis of the weighted average number of shares outstanding as if all shares had been issued on January 1, 2006.

			Six Months Ended June 30, 2007
			(Dollars in thousands, except per share data)
Pro forma net income				$	11,719
Pro forma weighted average number of shares outstanding					33,603,450
Pro forma basic earnings per share				$	0.35

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical predecessor consolidated financial statements and related notes as well as our pro forma financial statements included elsewhere in this prospectus. Our predecessor financial statements are prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, and are presented in U.S. dollars. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. 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. See ‘‘Risk Factors’’ and ‘‘For ward-Looking Statements.’’

Overview

We are a newly organized company formed by Babcock & Brown to acquire and lease commercial jet aircraft and other aviation assets. 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. The aircraft in our Initial Portfolio 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 other aviation assets and to increase our distributable cash flows, while paying regular quarterly dividends to our shareholders.

We will acquire our Initial Portfolio from the Aircraft Sellers using the net proceeds of this offering, a concurrent private placement of our shares to Babcock & Brown and the other private investors and an $853.0 million aircraft lease securitization.

Our Initial Portfolio of 47 commercial jet aircraft 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.

History

We were formed on May 3, 2007. Prior to the completion of this offering, 44 of the aircraft in our Initial Portfolio were owned by JET-i, and the results of their operations were reflected in the consolidated financial statements of JET-i Leasing LLC, a subsidiary of JET-i Holdings LLC, an entity managed by Babcock & Brown. The historical consolidated financial statements included in this prospectus are those of JET-i Leasing LLC, which we consider our predecessor for financial statement purposes. JET-i Leasing LLC acquired three of the aircraft included in our Initial Portfolio in 2005 and 34 of the aircraft included in our Initial Portfolio in 2006. JET-i Leasing acquired an additional seven aircraft included in our Initial Portfolio in the first five months of 2007. We will acquire the remaining three aircraft in our Initial Portfolio upon the completion of this offering.

Our Future Results of Operations

We expect that our results of operations will be primarily affected by acquisitions of additional aircraft and general market conditions, including the lease rates associated with our aircraft, the re-lease of aircraft upon the expiration, renewal or early termination of an existing lease, whether our lessees comply with their lease obligations, prevailing lease rates at the time of leasing or re-leasing of any aircraft and our borrowing costs. We also expect that our future results of operation will vary from our predecessor’s historical results of operations as a result of a number of factors, including:

	•	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 was owned and operated during the relevant period. JET-i Leasing’s results for the period from November 22 (commencement of operations) 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.

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	•	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 will 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&rsquo ;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.

	•	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 nea r term the only significant cash tax payments we expect to make will be Irish income tax on interest income and on any capital gains.

Critical Accounting Policies and Estimates

JET-i Leasing prepared its consolidated financial statements in accordance with U.S. GAAP and we intend to do so as well. U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in our predecessor consolidated financial statements and accompanying notes. The use of estimates is or could be a significant factor affecting the reported carrying values of flight equipment, investments, deferred tax assets and accruals and reserves. JET-i Leasing utilized third party appraisers and industry valuation professionals, where possible, to support estimates, particularly with respect to flight equipment. Despite JET-i Leasing’s best efforts to accurately estimate such amounts, actual results could differ from those estimates. The following is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application.

Rent Receivables

Rental revenue from flight equipment under operating leases is recorded on a straight-line basis over the term of the lease. Rental revenue from finance leases is recognized on the interest method to produce a level yield over the life of the finance lease. Rentals received but unearned under the lease agreements are recorded in ‘‘Rentals received in advance’’ on the Consolidated Balance Sheet until earned. In certain cases, leases may provide for additional rentals based on usage which is recorded as revenue as it is earned under the terms of the lease. The usage is calculated based on passage of time or on hourly usage or cycles operated, depending on the lease agreement. Usage is typically reported

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monthly by the lessee and is non-refundable. Other leases provide for a lease-end adjustment payment by us or the lessee at the end of the lease based on usage of the aircraft and its condition upon return. Lease-end adjustment payments received are included in rental revenue of flight equipment. Lease-end adjustment payments made are capitalized in ‘‘Flight equipment under operating leases, net’’ when they relate to planned major maintenance activities or expensed when they relate to minor maintenance activities.

Rent receivables represent unpaid, current lease obligations of lessees under existing lease contracts. No revenues are recognized, and no receivable is recorded, from a lessee when collectibility is not reasonably assured. Estimating whether collectibility is reasonably assured requires some level of subjectivity and judgment as it is based primarily on the extent to which amounts outstanding exceed the value of security held, the financial strength and condition of the lessee and the current economic conditions of the lessee’s operating environment. When collectibility of rental payments is not certain, revenue is recognized when cash payments are received. Collectibility is evaluated based on factors such as the lessee’s credit rating, payment performance, financial condition and requests for modifications of lease terms and conditions as well as security received from the lessee in the form of guarantees and/or letters of credit.

There were no allowances for doubtful accounts required as of either December 31, 2005 or 2006 or as of June 30, 2007.

Flight Equipment Under Operating Leases, Net

Flight equipment under operating lease is recorded at our predecessor’s cost and depreciated on a straight-line basis over its remaining useful life to estimated residual value. Useful life is based on 25 years from the date of manufacture for new assets and is adjusted based on the current age of used aircraft. Estimated residual values are generally determined to be 15% of original manufacturer’s price of aircraft when new. We may make exceptions to this policy on a case by case basis when, in our judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations of residual values. Examples of such situations would include, but are not limited to:

	•	Flight equipment where original manufacturer’s prices are not relevant due to plane modifications and conversions.

	•	Flight equipment which is out of production and may have a shorter useful life due to obsolescence.

Estimated residual value and useful lives of flight equipment are reviewed and adjusted if appropriate at each reporting period.

We apply Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (‘‘SFAS 144’’), which addresses financial accounting and reporting for impaired flight equipment and flight equipment that we intend to and reasonably expect to sell within a twelve-month period. In accordance with SFAS 144, we evaluate flight equipment for impairment where circumstances indicate that the carrying amounts of such assets may not be recoverable. The review for recoverability has a level of subjectivity and requires the use of our judgement in the assessment of the estimated future cash flows associated with the use of an asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we assess whether the fair values of the flight equipment exceed the carrying value and an impairment loss is required. The impairment loss is measured as the excess of the carrying amount of the impaired asset over its fair value. Fair value reflects the present value of cash expected to be received from the aircraft in the future, including its expected residual value discounted at a rate commensurate with the associated risk. The estimation of these future cash flows is subjective and requires the use of estimates. Future cash flows are assumed to occur under the current market conditions and assume adequate time for a sale between a willing buyer and a willing seller. Expected future lease rates are based on all relevant information available, including the existing lease, current contracted rates for similar aircraft, appraisal data and industry trends. Residual value assumptions generally reflect an aircraft’s booked residual, except where more recent industry < /font>

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information indicates a different value is appropriate. The preparation of these impairment analyses requires the use of assumptions and estimates, including the level of future rents, the residual value of the flight equipment to be realized upon sale at some date in the future, estimated downtime between re-leasing events and the amount of re-leasing costs.

At the time of aircraft acquisition, an evaluation is made whether the lease acquired with the aircraft is at fair market value. Lease premium relates to leases acquired that are determined to be above market value; lease discounts relate to leases acquired that are determined to be below fair market value. Lease premiums are capitalized into other assets and lease discounts are reserved in other liabilities and both are amortized on a straight-line basis to rent revenue over the lease term.

Investment in Direct Finance leases

In accordance with SFAS 13, Accounting for Leases, we have recorded certain leases as investment in direct finance leases, which consists of lease receivables, plus the estimated residual value of the equipment on lease termination date less unearned income. The determination of residual values is subjective and requires the use of estimates. Residual values are determined based on estimated market values at the end of lease received from appraisers. Lease receivables represent the total rent to be received over the term of the lease reduced by rent already collected. Initial unearned income is the amount by which the original sum of the lease receivable and the estimated residual value exceeds the original cost of the leased equipment. Unearned income is amortized to finance lease income over the lease term in a man ner that produces a constant rate of return on the net investment in the lease.

Derivative Financial Instruments

Our predecessor used and we will use derivative financial instruments to manage exposure to interest rate risks. Derivatives are accounted for in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities (‘‘SFAS 133’’). All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive income until earnings are affected by the variability of cash flows of the hedged transaction. Any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative exceeds the variability in the cash flows of the forecasted transaction) is recorded in income. Changes in the fair value of derivative financial instruments that do not qualify for hedge treatment under SFAS 133 are recorded in income. For the year ended December 31, 2006, unrealized loss of $5.9 million from undesignated derivatives was included in interest expense. For the six months ended June 30, 2007, an unrealized gain of $7.0 million from undesignated derivatives was included in interest expense.

Security Deposits and Maintenance Payment Liabilities

In the normal course of leasing aircraft to third parties under certain lease agreements, our predecessor received and we will receive cash or a letter of credit as security for contractual obligations and maintenance payments to be applied against the future maintenance of aircraft. Our aircraft are typically subject to triple-net leases under which the lessee is responsible for maintenance, insurance and taxes. Amounts collected from lessees for future maintenance of the aircraft are recorded as maintenance payment liabilities. Maintenance payment liabilities are attributable to specific aircraft. Upon occurrence of qualified maintenance events, funds are disbursed and the liability is relieved. In some leases the lessor may be obligated to contribute to maintenance related expenses on an aircraft during the term of the lease. In other instances, the lessee or lessor may be obligated to make a payment to the counterparty at the end of lease based on a stipulat ion in the lease agreement. The calculation is based on the utilization and condition of the airframe, engines and other major life-limited components as determined at lease termination. We may also incur maintenance expenses on off-lease aircraft. Scheduled major maintenance or overhaul activities and costs for certain high-value components that are paid by us will be capitalized and depreciated over the estimated useful life of such maintenance or component. Amounts paid by us for maintenance, repairs and re-leasing of aircraft that do not extend the useful life of flight equipment are expensed as incurred.

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Maintenance payment liability balances at the end of a lease or any amount received as part of a redelivery adjustment are recorded as operating lease revenue at lease termination. When flight equipment is sold, maintenance payment liabilities which are not specifically assigned to the buyer are released from the balance sheet as part of the disposition gain or loss.

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized. Where amounts do not meet these recognition criteria, they are deferred and recognized in the period in which the recognition criteria are met.

	•	Operating lease revenue.    We receive lease revenues from flight equipment under operating leases. Rental income from aircraft rents is recognized on a straight-line basis over the respective lease terms. Contingent rents are recognized as revenue when they are due and payable. Revenue is not recognized when collection is not reasonably assured.

	•	Finance lease income.    Income from direct finance leases is recognized on the interest method to produce a level yield over the life of the finance lease. Expected unguaranteed residual values of leased assets are based on our assessment of residual values and independent appraisals of the values of leased assets remaining at expiration of a lease term.

	•	Sale of assets.    Revenue from sales of assets is recognized at the time title is transferred and delivery has occurred, the price is fixed and determinable, and collectibility is probable.

Results of Operations

The following discussion relates to the results of operations of our predecessor, JET-i Leasing, which commenced operations on November 22, 2005 when it entered into its warehouse credit facility.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

The number of aircraft in our predecessor’s fleet increased from 19 as of June 30, 2006 to 44 as of June 30, 2007.

Operating lease revenues increased to $61.7 million in the six months ended June 30, 2007 from $15.2 million in the six months ended June 30, 2006. The increase was primarily due to the purchase of 21 additional aircraft under operating lease subsequent to June 30, 2006 that generated $25.5 million of lease revenues during the six months ended June 30, 2007. Incremental lease revenues totaling $14.6 million was generated during the six months ended June 30, 2007 from the full six-month lease of 19 aircraft purchased during the six months ended June 30, 2006. In addition, $6.8 million of lease revenue was generated from leases re-marketed during the six month period ended June 30, 2007. These increases were partially offset by lease expirations for two aircrafts that reduced lease revenues by $0.5 million during the six months ended June 30, 2007.

Finance lease income increased to $5.0 million in the six months ended June 30, 2007 from nil in the six months ended June 30, 2006 due to the purchase of four aircraft under finance leases subsequent to June 30, 2006.

Depreciation increased to $19.9 million during the six months ended June 30, 2007 compared to $4.7 million during the six months ended June 30, 2006. This increase was due primarily to additional depreciation of $10.2 million associated with the 21 additional aircraft purchased subsequent to June 30, 2006 and an additional $5.0 million due to the full six-month impact of aircraft acquired during the six months ended June 30, 2006.

Interest expense, net and interest expense – related party increased to $32.7 million during the six months ended June 30, 2007 compared to $7.9 million during the six months ended June 30, 2006 as a result of additional interest cost of $30.7 million from the debt funding of aircraft purchased subsequent to June 30, 2006. The increase in interest expense resulting from the additional funding

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was partially offset by (1) favorable increase in the fair market value of our derivative financial instruments of $4.0 million and (2) increase in interest income of $1.9 million during the six months ended June 30, 2007 as compared to the six months ended June 30, 2006.

Selling, general and administrative expenses increased to $2.5 million during the six months ended June 30, 2007 compared to $0.8 million during the six months ended June 30, 2006 primarily due to increased servicing and management expenses as a result of the increase in the number of aircraft.

Maintenance and other leasing costs increased to $1.6 million during the six months ended June 30, 2007 compared to $0.4 million during the six months ended June 30, 2006 primarily due to the re-marketing and purchase of 21 additional aircraft subsequent to June 30, 2006.

Provision for income taxes of $0.7 million for the six months ended June 30, 2007 consists primarily of Irish income tax incurred by our predecessor’s Irish subsidiaries.

For the foregoing reasons, our predecessor’s net income increased from $1.4 million during the six months ended June 30, 2006 to $9.9 million during the six months ended June 30, 2007.

Year Ended December 31, 2006 Compared to Period from November 22 (Commencement of Operations) to December 31, 2005

The number of aircraft in our predecessor’s fleet increased from three as of December 31, 2005 to 37 as of December 31, 2006. References to 2005 and 2006 refer to the period from November 22 to December 31, 2005 and for the year ended December 31, 2006, respectively.

Operating lease revenues increased to $56.6 million in 2006 from $0.6 million in 2005. This increase was primarily due to the purchase of 30 additional aircraft under operating lease during 2006 that generated $47.6 million of lease revenue during the year and an additional $8.4 million of incremental lease revenue from the full-year lease of three aircraft acquired in 2005. Finance lease income increased to $1.7 million in 2006 from nil in 2005 due to the purchase of four aircraft under finance lease during 2006.

Depreciation increased to $18.0 million in 2006 compared to $0.2 million in 2005. This increase was due primarily to additional depreciation of $15.8 million associated with the 30 additional aircraft purchased in 2006 and an additional $2.0 million due to the full-year impact of aircraft acquired in 2005.

Interest expense, net and interest expense – related party increased to $43.0 million in 2006 compared to $0.7 million in 2005 as a result of additional interest cost from the debt funding of the additional investment in aircraft in 2006 of $854.7 million. Additionally, interest income increased by $3.1 million in 2006 as compared to 2005.

Selling, general and administrative increased to $3.3 million in 2006 compared to $0.3 million in 2005 due to an increase in servicing and management expenses of $2.0 million, and an increase in operational expenses of $1.0 million as a result of the increase in the number of aircraft.

Maintenance and other leasing costs increased to $1.4 million in 2006 compared to $0.1 million in 2005 due primarily to the purchase of 34 additional aircraft in 2006.

Provision for income tax expense of $17,000 for 2006 consists primarily of Irish income tax incurred.

For the foregoing reasons, our predecessor’s net loss increased from $792,000 in 2005 to $7.5 million in 2006.

Liquidity and Capital Resources

Cash Flows of Our Predecessor

Our predecessor generated cash from operations of $33.9 million in 2006 compared with $0.6 million in 2005. The increase in operating cash flow in 2006 compared to 2005 was primarily the result of (1) $19.0 million of increased cash flows from leasing activities arising from new aircraft additions

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during 2006 and the full-year impact of aircraft acquired in 2005 and (2) $14.3 million increase in operating assets and liabilities in 2006 compared to 2005. Our predecessor generated cash from operations of $18.8 million in the six months ended June 30, 2007 compared with $15.4 million in the six months ended June 30, 2006. The increase in operating cash flows in the six months ended June 30, 2007 compared to the six months ended June 30, 2006 was primarily the result of a $15.7 million increase in cash flows from leasing activities arising from new aircraft additions subsequent to June 30, 2006 and the full six-month impact of aircraft acquired during the six month period ended June 30, 2006. This increase was partially offset by a $12.3 decrease in operating assets and liabilities in the six months ended June 30, 2007 compared to the same period in 2006.

Cash flows from investing activities relate to the acquisition of aircraft and proceeds from finance leases. Cash used in investing activities in 2006 was $860.6 million compared with cash used in investing activities of $54.1 million in 2005. Cash used in investing activities in the six months ended June 30, 2007 was $262.2 million compared with cash used in investing activities of $446.2 million for the six months ended June 30, 2006. Cash flows utilized in the acquisition of aircraft was $267.6 million in June 30, 2007 compared with $446.2 million for the six months ended June 30, 2006. Cash provided from proceeds from finance leases was $5.4 million for the six months ended June 30, 2007. We did not have any finance leases during the six months ended June 30, 2006.

Cash flows from financing activities relate to movements in our restricted cash balance, proceeds from and disbursements of security deposits and maintenance payment liabilities, proceeds received from borrowings under our predecessor’s warehouse credit facility, net of repayments, and equity investments in our predecessor to fund aircraft investments and general corporate purposes. Cash provided by financing activities was $826.7 million in 2006 compared to $53.5 million in 2005. The increase was primarily due to the increase of $804.8 million in proceeds received from borrowings under our predecessor’s warehouse credit facility, net of repayments and loan issuance costs in 2006 compared to 2005. Cash provided by financing activities was $243.3 million in the six months ended June 30, 2007 and $430.9 million in the six months ended June 30, 2006. The decrease was primarily due to the decrease of $189.2 million in proceeds received from bor rowings under our predecessor’s warehouse credit facility, net of repayments and loan issuance costs for the six months ended June 30, 2007 compared to the same period in 2006.

Our Future Cash Flows

Differences Between Our Cash Flows and Our Predecessor’s Cash Flows.    Our cash flows will be materially different from our predecessor’s cash flows. The principal factors affecting the differences in our expected cash flows for the 12 months following the completion of this offering from our predecessor’s cash flows for 2006 will be differences in revenues, differences in cash interest payments, differences in selling, general and administrative expenses, differences in cash tax payments and differences in dividend payments, each of which is discussed below.

The difference in our revenues will result from a full year’s rent from the 34 aircraft added to our Initial Portfolio during 2006, the seven aircraft added by our predecessor to our Initial Portfolio during 2007 and the three aircraft we will acquire upon completion of this offering. Assuming all aircraft are under lease at current contracted rental rates, some of which rates are below current market rates, we expect to receive $153.5 million in rent from our Initial Portfolio during the 12 months following completion of this offering. This amount assumes (1) that six-month LIBOR remains at current rates, (2) there are no defaults or early termination on any of our leases and (3) there are no sales of aircraft from our Initial Portfolio.

The difference in our cash interest expense will result from the difference between the interest payments that we will be required to make on the notes issued in the securitization from that paid by our predecessor under its warehouse credit facility. Our predecessor incurred interest costs under its warehouse credit facility of $46.1 million in 2006. This includes $6.4 million of interest payable by JET-i Leasing to its parent, JET-i Holdings, which is not eliminated in our predecessor’s consolidated financial statements. The notes issued in the securitization will bear interest at an adjustable interest rate equal to the then-current one-month LIBOR plus 0.30%. Interest expense for the securitization

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also includes amounts payable to the financial guaranty policy provider and the liquidity facility provider thereunder. In order to manage our exposure to fluctuating interest rates, we intend to enter into a swap agreement at the time we consummate this offering pursuant to which we will receive monthly payments based on LIBOR and will make monthly fixed payments on an initial notional amount equal to approximately 76% of the aggregate principal amount of our securitization notes, which percentage corresponds to the proportion of the aircraft in our Initial Portfolio subject to fixed rate leases. This interest rate swap, together with the credit insurance on the notes and the spread referenced above, are expected to result in a fixed rate cost of approximately 6.1% per annum for the 12 months following the completion of this offering, and we estimate our cash interest expense on the securitization will be $53.6 million for such period. We also expect to receive interest income on our cash balances and to pa y commitment fees and interest on borrowings under our committed credit facility related to acquisitions. We intend to actively manage our interest exposure through hedging contracts.

The difference in our selling, general and administrative expenses will result from an increase in servicing fees that we expect to pay to BBAM as a result of increased revenues from a greater number of aircraft, additional expenses relating to such additional aircraft and increased costs associated with having personnel dedicated to our management and our status as a publicly listed company.

The difference in our cash tax payments will result from the fact that our predecessor 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 parent, 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 we earn on our cash balances.

The difference in our dividend payments will result from our policy to pay regular quarterly dividends to our shareholders, whereas our predecessor’s cash flows reflect no dividend payments. The declaration and payment of future dividends will be at the discretion of our board of directors and will depend on many factors. See ‘‘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. A quarterly dividend of $0.50 per share will require cash of approximately $16.8 million per quarter. Our pro forma net income for the six months ended June 30, 2007 was $11.8 million. However, our pro forma statement of operations reflects the results of our aircraft only from the dates of their acquisition by our predecessor and does not reflect the results of the aircraft that we will acquire but that our predecessor did not own, and excludes approximately $1.7 million of estimated amounts for accounting and audit fees, legal fees, travel expenses and secretarial services for which terms have not yet been negotiated. Had we operated all the aircraft in our Initial Portfolio from January 1, 2007, and assuming the existing contractual terms of the operating leases were in place as of January 1, 2007, our pro forma ope rating lease revenue for the six months ended June 30, 2007 would have increased by $11.8 million. offset by $0.3 million of additional servicing fees we would have paid on such revenues. Excluding non-cash items such as depreciation expense of $20.0 million, non-cash taxes of $1.7 million, amortization of lease discounts of ($1.2 million), loan issuance cost amortization of $2.0 million, finance lease income amortization of $0.4 million and amortization of discounts on notes payable of $0.2 million, and factoring in our estimate of additional costs, we would have generated approximately $44.6 million of cash for the six-months ended June 30, 2007, all of which would have been available for dividend distribution.

For more information on our estimated future cash expense payments, please see the notes to our pro forma statements of operations under ‘‘Unaudited Pro Forma Financial Statements.’’

Maintenance Cash Flows.    Under our leases, the lessee is generally responsible for maintenance and repairs, airframe and engine overhauls, obtaining consents and approvals and compliance with return

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conditions of aircraft on lease. In connection with the lease of a used aircraft we may agree to contribute specific additional amounts to the cost of certain major overhauls or modifications, which usually reflect the usage of the aircraft prior to the commencement of the lease. In many cases, we also agree to share with our lessees the cost of compliance with airworthiness directives.

Our Initial Portfolio includes 33 leases pursuant to which we collect maintenance reserve payments that are determined based on passage of time or usage of the aircraft measured by hours flown or cycles operated. Under these leases, we are obligated to make reimbursements to the lessee for expenses incurred for certain planned major maintenance, up to a maximum amount that is typically determined based on maintenance reserves paid by the lessee. Certain leases also require us to make maintenance contributions for costs associated with certain first major overhauls or certain other modifications in excess of any maintenance reserve payments. Major maintenance includes heavy airframe, off-wing engine, landing gear and auxiliary power unit overhauls and replacements of engine life limited parts. We are not obligated to make maintenance contributions under leases at any time that a lessee default is continuing.

Under 14 leases in our Initial Portfolio, we are not obligated to make any maintenance contributions. However, most of these 14 leases provide for a lease-end adjustment payment based on the usage of the aircraft during the lease and its condition upon return. Most such payments are likely to be made by the lessee to us, although payments may be required to be made by us to the lessee. Nine leases in our Initial Portfolio provide for maintenance reserve payments and contributions as well as lease-end adjustment payments.

We expect that maintenance reserve payments and lease-end adjustment payments we will receive from lessees will at least meet and may exceed aggregate maintenance contributions and lease-end adjustment payments that we will be required to make.

Our Future Sources of Liquidity

We operate in a capital-intensive industry. Our predecessor historically financed the purchase of aircraft with borrowings provided under its warehouse credit facility and equity from its investors. We expect to fund our capital needs from operating cash flow and debt and equity financing, including borrowings under our $1.2 billion ‘‘warehouse’’ credit facility, a $96 million tranche of which will be provided by us.

Following the completion of this offering, our short-term liquidity needs will include working capital for operations associated with our aircraft, interest payments and cash to pay dividends to our shareholders. We expect that cash on hand, cash flow provided by operations and the availability of borrowings under our liquidity facility will satisfy our short-term liquidity needs with respect to our Initial Portfolio and dividend payments through the next 12 months.

Our sole source of operating cash flows will initially be from distributions made to us by our subsidiary B&B Air Funding, through which we will hold all of the aircraft in our Initial Portfolio. Distributions of cash to us by B&B Air Funding will be subject to compliance with covenants contained in the agreements governing the securitization. See ‘‘Description of Indebtedness — Securitization.’’

Our liquidity needs also include the financing of acquisitions of additional aircraft and other aviation assets that we expect will drive our growth. We do not expect to be able to finance these liquidity needs solely from operating cash flow and plan to finance acquisitions through additional securitizations, borrowings under our credit facility and additional debt and equity offerings. Our ability to execute our business strategy to acquire these additional assets therefore depends to a significant degree on our ability to access debt and equity capital markets. We expect to refinance the notes issued in our securitization on or prior to the end of the fifth year after the issuance thereof. In the event that the notes are not repaid on or prior to such date, any excess cash flow provided by the leases in our Initial Portfolio will be used to repay the principal amount of the notes and will not be available to us to pay dividends to our shareholders.

Our access to debt and equity financing to fund acquisitions will depend on a number of factors, such as our historical and expected performance, compliance with the terms of our debt agreements,

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industry and market trends, the availability of capital and the relative attractiveness of alternative investments. We believe that funds will be available to support our growth strategy and that we will be able to pay dividends to our shareholders as contemplated by our dividend policy. However, deterioration in our performance or in the capital markets could limit our access to these sources of financing, increase our cost of capital, or both, which could negatively affect our ability to raise additional funds, grow our aircraft portfolio and pay dividends to our shareholders.

Financing

Credit Facility.    In connection with this offering, our subsidiary B&B Air Acquisition received a commitment for a senior secured revolving ‘‘warehouse’’ credit facility from an affiliate of Credit Suisse Securities (USA) LLC. The credit facility will provide for loans in an aggregate amount of up to $1.2 billion, $96 million of which constitutes a tranche that we will provide to B&B Air Acquisition and which must be fully drawn before any of the remaining $1,104 million may be drawn. Borrowings under the credit facility will be used to finance the acquisition of additional aircraft. All borrowings under the credit facility will be subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties.

For more information on the credit facility see ‘‘Description of Indebtedness — Credit Facility.’’

Securitization.    Concurrently with the completion of this offering, our subsidiary B&B Air Funding will complete an aircraft lease securitization of our Initial Portfolio that will generate net proceeds of approximately $846.3 million after deducting initial purchasers’ discounts and fees. For more information on the securitization see ‘‘Description of Indebtedness — Securitization.’’

In connection with the securitization, B&B Air Funding will enter into a revolving credit agreement providing for a liquidity facility for B&B Air Funding and its subsidiaries of up to $60 million. The liquidity facility may be drawn upon, subject to certain conditions, to pay certain expenses of B&B Air Funding, including maintenance expenses, interest rate swap payments and interest on the notes issued in the securitization.

For more information on the liquidity facility see ‘‘Description of Indebtedness — Securitization — Liquidity Facility.’’

Capital Expenditures.    In addition to acquisitions of additional aircraft and other aviation assets, we expect to make capital expenditures from time to time in connection with improvements to our aircraft. These expenditures include the cost of major overhauls and modifications. As of June 30, 2007, the weighted average age of the aircraft in our Initial Portfolio was 5.7 years. In general, the costs of operating an aircraft, including capital expenditures, increase with the age of the aircraft.

Inflation

The effects of inflation on our predecessor’s operations have had minimal impact on operating expenses. We do not consider inflation to be a significant risk to direct expenses in the current and foreseeable economic environment.

Contractual Obligations

After giving effect to this offering, the securitization, the concurrent private placement of shares to Babcock & Brown and the other private investors and the application of the net proceeds of such transactions as described in ‘‘Use of Proceeds,’’ our long-term contractual obligations as of October 1, 2007 would have consisted of the following:

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			2007						2008						2009						2010						2011						Thereafter						Total
			(Dollars in thousands)
Principal payments under securitization notes				$	—					$	—					$	—					$	11,796					$	11,904					$	829,300					$	853,000
Interest payments under securitization notes(1)					7,320						53,783						53,830						54,077						53,255						219,797						442,062
Fixed payments to affiliates of Babcock & Brown under our management agreement(2)					1,500						6,000						6,000						6,000						6,000						124,500						150,000
Fixed payments to affiliates of Babcock & Brown under our servicing agreement for our Initial Portfolio(3)					450						1,800						1,800						1,800						1,800						12,600						20,250
Fixed payments to affiliates of Babcock & Brown under our administrative service agreement for our Initial Portfolio					188						750						750						750						750						5,250						8,438
Total(1)				$	9,458					$	62,333					$	62,380					$	74,423					$	73,709					$	1,191,447					$	1,473,750

(1) The interest payable under our securitization notes will vary based on LIBOR. Interest payments assume LIBOR remains at the current rate through the term of the note and reflect amounts we expect to pay after giving effect to the interest swap we expect to enter into and amounts payable to our policy provider.

(2) Our management agreement provides that we will pay base and rent fees and a management expense amount of $6.0 million annually to our Manager. Base and rent fees paid to BBAM (but not to successor servicers) under our servicing agreements will be credited toward (and thereby reduce) such fees payable under our management agreement, and the amounts in the table assume that such credit reduces the base and rent fees payable under the management agreement to $0. In addition, we will pay to our Manager an incentive fee based on whether our quarterly dividends exceed specified targets and fees for originations and dispositions of aircraft or other aviation assets. Amounts in the table do not include incentive fees or fees for originations and dispositions. See ‘‘Management Agreement.’’

(3) Our servicing agreement for our Initial Portfolio provides that we will pay BBAM a base fee of $150,000 per month, which will increase by 0.01% of the maintenance-adjusted base value (at the time of acquisition) of each additional aircraft acquired into B&B Air Funding that is not an aircraft in our Initial Portfolio. We will also pay BBAM a rent fee equal to 1.0% of the aggregate amount of basic rent due for all or any part of a month for any of our aircraft plus 1.0% of the aggregate amount of basic rent actually paid for all or any part of a month for any of our aircraft. Amounts in the table do not reflect rent fees payable on our Initial Portfolio or the acquisition of any aircraft beyond our Initial Portfolio. See ‘‘Servicing Agreements.’’

Related-Party Transactions

We have entered into an asset purchase agreement, a management agreement, a servicing agreement, private placement agreements, a registration rights agreement and an administrative agency agreement with various subsidiaries of, and entities managed by, by Babcock & Brown. In addition, certain of our officers and directors hold interests in the private investors and certain of the Aircraft Sellers. See ‘‘Certain Relationships and Related-Party Transactions.’’

New Accounting Pronouncements

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 (‘‘SFAS 154’’). SFAS 154 requires retroactive application to prior periods’ financial statements of a

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voluntary change in accounting principles unless it is impracticable. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with earlier application permitted to accounting changes and corrections of errors made in fiscal years beginning after May 31, 2005. Adoption of SFAS No. 154 did not have a material impact on our predecessor’s financial position or results of operations.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (‘‘FIN 48’’), which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold of more-likely-than not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning af ter December 15, 2006. The adoption of FIN 48 did not have a material impact on our predecessor’s or our financial position.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (‘‘SFAS 157’’). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies in conjunction with other accounting pronouncements that require or permit fair value measurements. This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are in the process of analyzing the impact of SFAS 157, if any.

In September 2006, the FASB issued FASB Staff Position No. AUG AIR-1, Accounting for Planned Maintenance Activities (‘‘FSP’’). This FSP amends certain provisions in the AICPA Industry Guide, Audits of Airlines and eliminates the accrue-in-advance method of accounting for planned major maintenance activities. Our predecessor applied and we will apply the deferral method which requires that the actual maintenance costs for major overhauls are capitalized and depreciated over the period until the next overhaul is required.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities –Including an amendment of SFAS No. 115 (‘‘SFAS 159’’) which permits entities the option to measure many financial instruments and certain other items at fair value. The fair value option established by SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. We are currently evaluating whether to adopt the fair value option and the impact, if any, of applying the guidance provided by SFAS 159.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Interest rate risk is highly sensitive to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We will be exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposures relate to our lease agreements and our floating rate debt obligations such as the notes issued in the securitization and borrowings under our liquidity facility and our credit facility. Thirty-eight out of our 47 lease agreements require the payment of a fixed amount of rent during the term of the lease, with rent under the remaining nine leases varying based on LIBOR. Our indebtedness will require payments based on a variable interest rate index such as LIBOR. Therefore, increases i n interest rates may reduce our net income by increasing the cost of our debt without any corresponding proportional increase in rents or cash flow from our leases.

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Sensitivity Analysis

The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential impacts on our financial instruments and our variable rate leases. It does not include a varie ty of other potential factors that could affect our business as a result of changes in interest rates.

If this offering, the securitization and the other transactions described in our unaudited pro forma financial statements included elsewhere in this prospectus had been completed on January 1, 2006, then a hypothetical 100 basis-point increase (decrease) in our variable interest rates would have increased (decreased) our interest expense by $8.5 million and would have increased (decreased) our revenues by $2.8 million on an annualized basis. These increases (decreases) assume that we will not hedge our exposure to interest rate fluctuations. In fact, we will enter into interest rate swap agreements to mitigate the interest rate fluctuation risk associated with the notes issued in the securitization and to minimize the risks associated with our other variable rate debt, including any borrowings under our warehouse credit facility. We expect that these interest rate swaps would significantly reduce the additional interest expense that would be caused by an increase in variable interest rates.

Foreign Currency Exchange Risk

We currently receive all of our revenue in U.S. dollars, and we pay substantially all of our expenses in U.S. dollars. However, we will incur some of our expenses in other currencies, primarily the euro, and we may enter into leases under which we receive revenue in other currencies, primarily the euro. During the past several years, the U.S. dollar has depreciated against the euro. Depreciation in the value of the U.S. dollar relative to other currencies increases the U.S. dollar cost to us of paying such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations. We have not engaged in any foreign currency hedging transactions. However, we may consider engaging in these transactions in the future. Because we currently receive all of our revenue in U.S. dollars and pay substantially all of our expenses in U.S. dollars, a change in foreign exchange rates would not have a material impact on our results of operations.

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THE COMMERCIAL AIRCRAFT INDUSTRY

The information and data contained in this prospectus relating to the commercial aircraft industry has been provided to us by Simat, Helliesen & Eichner, Inc. (‘‘SH&E’’), an international air transport consulting firm, which has consented to being named as an expert with respect to such information and data. See ‘‘Experts.’’ SH&E has advised us that: (1) the information in the databases of other commercial aircraft data collection agencies may differ from the information in SH&E’s database, (2) some information in SH&E’s database is derived from estimates or subjective judgments and (3) although SH&E has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited verification and validation procedures, and accordingly may c ontain errors. The historical and projected information in this prospectus relating to the commercial aircraft industry that is not attributed to a specific source is derived from SH&E’s internal analyses, estimates and subjective judgments.

Industry Overview

This commercial aircraft industry overview examines the current and future market for commercial passenger and cargo jet aircraft. Demand for commercial aircraft derives from the underlying demand for passenger and cargo air transport. Figure 1 illustrates the historical link between demand for air transport and global economic activity. The translation of passenger and cargo traffic demand into demand for aircraft units is impacted by a number of factors as airlines attempt to optimize their fleets for given network structures and demand patterns. This section outlines some of the key trends that are expected to contribute to the continued demand for aircraft over the coming years.

Figure 1: Historical and Forecast World Traffic (RPMs) and GDP Growth

Source: Airline Monitor, January-February 2007 and International Monetary Fund (‘‘IMF’’) World Economic Outlook, September 2006

According to Airline Monitor, between 1991 and 2006, global passenger traffic measured in Revenue Passenger Miles (‘‘RPM’’: the measure of passenger demand, representing each mile each passenger is carried) increased by nearly 135%, or an average rate of 5.9% per year, reaching 2,635 billion RPMs in 2006. Available Seat Miles (‘‘ASM’’: the measure of capacity, representing each mile each seat is carried whether the seat is occupied or not) have grown at an average rate of 4.8% per year for the same period, amounting to 3,480 billion ASMs in 2006. Between 1995 and 2005, air cargo traffic has grown at an average rate of 5.1% per annum, from 67 billion Revenue Ton Miles (‘‘RTM’’: The most common measure of air cargo demand, representing each mile each ton of cargo is transported ) to 111 billion RTMs.

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The Airline Monitor, a respected industry forecaster, projects 5.2% annual growth in passenger traffic and 5.0% annual growth in seat capacity for the next 10 years. This forecast is consistent with other industry forecasts. The Airbus 2006 Global Market Forecast predicts that air travel demand will continue to grow an average 4.8% per year through 2025 and the Boeing 2006 Commercial Market Outlook projects 4.9% annual growth in traffic for the next 20 years. Air cargo demand globally is expected to grow even faster than passenger demand, forecast for the next 20 years at 6.0% and 6.1% annually by Airbus and Boeing respectively.

Figure 2: Historical (1998-2006) and Forecast (2006-2010) Traffic Growth by Region

Source: 1998-2005 Airline Business and latest 2005 data based on IATA estimates; Airbus Global Market Forecast 2006-2025

Figure 2 shows that passenger demand in North America, Europe and Latin America rebounded strongly from 2001 lows, while traffic in Asia, Africa and the Middle East, regions that are less dependent than Europe or Latin America on the U.S. market have experienced steady growth since 1998. Furthermore, it is expected that emerging economies will drive substantial growth in passenger demand over the next four years. Similarly, freight traffic has shown strong growth due to the growth in the global economy and international trade.

Aircraft Demand

The world fleet is expected to grow steadily as airlines continue to develop service offerings that accommodate the world’s rapidly growing travel demand.

Drivers of Fleet Growth

Key elements that are currently driving growth in demand for both new and used aircraft include:

	•	High rates of economic growth in emerging markets and increasing propensity to travel in these regions;

	•	Stable growth in traffic demand in mature markets such as North America and Europe;

	•	Relaxation of regulatory constraints on air service between countries and on new carrier development within countries; and

	•	Increasing low-cost carrier (‘‘LCC’’) penetration globally which continues to drive traffic growth rates upward and drive demand for increased seat capacity.

Market Growth & Liberalization.    Long-term air travel demand is expected to remain healthy and the emerging market economies are expected to continue to show the highest growth rates. 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, as shown in Figure 3. If per capita incomes in emerging economies continue to rise and regulatory restrictions continue to be relaxed, it is reasonable to expect the fleet size of these markets to increase substantially in the next decade.

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Figure 3: Current Ratio of Aircraft to Millions of Population by Region

Source: ACAS, IMF, SH&E Analysis

Furthermore, it is clear that continued liberalization of air travel is expected to fuel demand for additional aircraft. Many countries continue to enter into new bilateral agreements or ‘‘open-skies’’ accords that will further liberalize international air travel and continue to create opportunities for new flights, routes and operators. The recent European Union agreement with the United States is a clear example of how such liberalization will create additional service opportunities since carriers from the EU will be able to serve any point to the United States and vice versa. New nonstop services will allow carriers to use smaller aircraft to bypass major European and American hub cities, leading to the expectation that demand for long-range mid-size aircraft will increase. In general, passengers will prefer bypassing hubs where possible and international travel will likely continue to fragment towards greater point-to-point service le vels between major global regions. Aircraft such as the Boeing 777, Boeing 767, Airbus A330 and eventually the Boeing 787 and Airbus A350 are the aircraft types best positioned to take advantage of long-haul market fragmentation. Critically, the current round of liberalization has extended to emerging market countries to encourage the launch of new LCCs, where robust economic growth faces pent-up demand for air travel. These developments will drive continued demand for efficient narrow-bodies such as the Boeing 737 and Airbus A320, as untapped domestic markets of China, India, Brazil and Mexico continue to develop.

Global and Regional Demand Growth

As shown in Figure 4, the world aircraft fleet has more than doubled over the last 20 years and its composition is gradually shifting from North American dominance to a more balanced distribution between regions. Of the aircraft in the 2006 world fleet, approximately 23% are wide-bodies, 60% narrow-bodies and 17% regional jets. Historically, North America and Europe have accounted for the bulk of global aircraft demand, while the Asia/Pacific region has shown the fastest fleet growth, with an average of 7.2% per year since 1985. In North America and Europe, fleet growth rates are expected to slow relative to prior decades. Asia/Pacific and Latin America will continue to have the highest growth rate for the next 20 years.

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Figure 4: Historical Fleet Growth by Region

Source: ACAS, December 2006, Boeing Current Market Outlook 2006

North America.    Despite high fuel prices, 2006 proved to be a turnaround year for many North American carriers. Years of progress in reducing costs were finally matched by a strong revenue environment enabled partially by the domestic capacity cuts of carriers under bankruptcy protection and deferral of deliveries by some LCCs. In North America, while a large proportion of the order backlog is represented by LCCs, major airlines such as American, United, Delta, US Airways and Northwest will likely be part of the next round of new aircraft orders. New aircraft deliveries and fleet growth in North America may lag behind the rest of the world in the next five years since the manufacturers are largely sold out through 2010. The sheer size of replacement requirements will drive the largest market for narrow-body aircraft globally. In addition to replaceme nt needs for the North American passenger fleet, the freighter fleet requires modernization.

Asia/Pacific.    The Chinese market presents the primary growth engine in the region. According to ACAS, Chinese carriers took delivery of 247 new aircraft from 2005 through 2006 and the current order backlog for Chinese airlines totals 751 aircraft, nearly all of which are expected to be delivered within the next five years. The domestic market has enormous potential and, according to the Airbus Global Market Forecast 2006, the Chinese outbound tourism market is expected to be the fastest growing in the world. India, a country representing 15% of the global population, experienced limited air service growth during recent decades, but following domestic liberalization in 2003, airline activity boomed. The present strong traffic growth is expected to continue, with India’s GDP growth expected to be 7.3% for 2006 and forecasted to be 7% in 2007, ac cording to the IMF 2006 World Economic Outlook. In addition to the projected potential for substantial growth in India and China’s traffic, economic recovery in Japan and continued growth in Korea and Southeast Asia are expected to contribute to continued demand.

The export market and emerging domestic express market are also expected to drive very strong demand for both short-haul and larger payload long-haul freighters. Boeing expects the largest incremental growth in the wide-body freighter fleet to occur in the Asia/Pacific region over the next 20 years. Overall, the Asia/Pacific region will generate strong demand for both wide-body and narrow-body aircraft.

Europe.    The European market will continue to be an important source of aircraft demand. Traditional network carriers have streamlined operations, and LCCs such as Ryanair, easyJet, SkyEurope, Air Berlin and Air One continue to simultaneously stimulate new traffic and shift share from European flag carriers. In addition, air travel growth prospects for Eastern Europe and Russia

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are very positive. This passenger growth is being driven by European Union enlargement, which has bolstered the region’s economic growth and promoted continued liberalization in the aviation market.

Middle East/Africa.    Air traffic in Africa and the Middle East has also grown rapidly in the last ten years. Governments in Persian Gulf states such as the United Arab Emirates and Qatar have supported the development of airlines, including Emirates Airlines, Etihad Airways and Qatar Airways, resulting in the rapid expansion of these airlines into long-haul markets. The Middle East carrier order book is almost entirely dominated by wide-body orders because these long-haul carriers are continuing to establish hubs at the center of global airline networks. The Persian Gulf region has two established LCCs, Air Arabia and Jazeera Airways, and two Saudi Arabia-based LCCs are set to launch in 2007. Africa is also experiencing growing demand for air travel, and major European carriers have started to add capacity to the region.

Latin America.    The increased liberalization of domestic and international air transport markets has spurred renewed investment, reorganization and consolidation. Growth potential in large domestic markets such as Mexico and Brazil is substantial, and several well-run carriers are taking advantage of this demand. LCC capacity share in Latin America has risen, driven by growth in Brazil and Mexico. During the past year, Mexico saw five new ventures and Brazil’s Gol, which had successfully established itself in domestic service, has expanded its route network outside Brazil.

Low Cost Carriers

The increasing presence of LCCs across the world is generating additional demand for aircraft by creating new markets and stimulating traffic demand with low fares. Given the importance of high asset utilization and service frequency, LCC fleet growth has predominantly focused on efficient and reliable narrowbody aircraft such as the Airbus A320 and the Boeing 737. Although much of the early growth was in North America, LCC presence has strengthened in other world markets, particularly Europe. According to the Official Airline Guide (‘‘OAG’’), LCCs accounted for 25.4% of intra-Europe seat departures versus 28.9% of U.S. domestic seat departures accounted for by U.S.-based LCCs. The continued enlargement of the European Union is extending the fully liberalized European marketplace and opening new markets to LCC expansion. As a result, LCCs such as Wizz Air, Sky Europe, Centralwings and Air Berlin are exerting competitive pressure on state- owned legacy carriers, particularly in Central and Eastern Europe.

While still far behind the levels seen in North America and Europe, LCC penetration in other regions is also growing significantly. LCC capacity share in Latin America has risen due to the success of Gol Transportes Aereos in Brazil and to new expansion of Mexican carriers. Meanwhile, Southeast Asia and Australia have seen significant penetration by LCCs including Air Asia and Tiger Airways, which are now spreading to other parts of the Pacific region. In addition to the successful entry of LCCs into the Southeast Asian and Australian markets, the new frontiers for LCC expansion in Asia are likely to be India and China. Recently, LCCs have begun to expand into the long-haul air service market, as reflected by recent long-haul aircraft order discussions by Jetstar, Air Asia X, Virgin Blue and the start-up operation of Oasis Hong Kong.

Drivers of Aircraft Replacement

Airline fleet planners must not only evaluate aircraft choices to cover an airline’s growth requirement, but must also assess the economic and strategic feasibility of fleet renewal. Replacement demand is driven by several key factors including:

	•	industry restructuring and consolidation;

	•	relative aircraft operating economics;

	•	technological advancement; and

	•	freighter conversions.

Industry Restructuring and Consolidation.    Following the air transport downturn in 2002-04, major carriers in Europe and North America responded to large economic losses by undertaking significant

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restructuring of their operations, schedules and capital structures, reducing fleets, renegotiating labor costs and lowering pension liabilities. Many carriers achieved significant cost savings and material revenue growth improvements by concentrating on more lucrative long-haul operations rather than marginally profitable short-haul flights. Despite some recent failed attempts, many industry observers are predicting significant global consolidation in coming years. Regardless, while the rate of fleet growth of the North American and European carriers will be lower than in Asia and Latin America, the need for fleet replacement and the substantial absolute size of these fleets will continue to translate into a substantial share of long-term deliveries for carriers in North America and Europe.

Relative Aircraft Operating Economics.    When evaluating replacement, airline fleet planners must weigh the operating cost differential (e.g. fuel, maintenance, insurance and landing/handling fees) between aircraft types against the ownership cost differential between the two types. The U.S. Department of Energy reports New York jet fuel prices increased by 90% between December 2003 and December 2006 in U.S. dollar terms and 81% in Euro terms. The sustained high price of oil may have significant ramifications for the health of the air transport industry and the jet fuel bill is expected to remain a large proportion of operating costs for the foreseeable future. An expectation that fuel prices will remain high in coming years is beginning to spur plans for accelerated fleet replacement, particularly for the oldest aircraft in the global fleet . Despite a desire to replace certain aircraft, however, many carriers simply cannot access newer equipment given the lack of supply in the market. Replacement may consequently be deferred for several more years.

Technological Advancement.    Aircraft replacement is also driven by technological advancement, as will be evidenced by the introduction of new generation aircraft such as the Boeing 787 and the Airbus A380 and A350XWB over the course of the next decade. Aircraft manufacturers must balance the development and introduction of new technology with existing resource constraints and current product-line considerations. The development cycles for new aircraft are long and often require dramatic changes mid-course as evidenced by Boeing’s cancellation of the Sonic Cruiser program and Airbus’ multiple iterations of the A350 design. In addition, once aircraft are successfully launched and developed, it takes several years for the type to achieve the critical mass necessitating large-scale fleet replacement. Large-scale deliveries of the newest techn ology wide-body aircraft are still several years away, but these aircraft will have a certain impact on the market for the aircraft types they are designed to replace.

Freighter Conversions.    Demand for freighter fleet renewal is also a driver of replacement demand for the global passenger fleet. In general, passenger aircraft become conversion candidates around the age of 15 years, when the value has depreciated sufficiently to allow purchase and conversion by a secondary user or investor. Boeing’s and Airbus’ respective cargo aircraft forecasts predict that substantial numbers of the current passenger fleet will be converted to freighters over the course of the next 20 years to meet the demand of freight carriers for fleet renewal.

Short-haul, high-frequency markets in the United States, Europe and domestically in China are expected to drive the need for smaller freighters. Replacement candidates for the large fleets of Boeing 727F, DC9F and DC8F freighters include the Boeing 737-300/400, 757-200 and 767-200. Conversion programs exist for all these types, and Airbus has announced plans to develop a freighter program for the Airbus A320 to commence in 2011. In the large-payload, long-haul markets, international trade continues to drive demand for new, efficient freighters. Aging fleets of DC10Fs, Airbus A300B4Fs, Boeing 747-100/200Fs and L1011Fs, are increasingly being replaced through Airbus A300-600, Boeing 767-300, Boeing 747-400 and MD11 passenger-to-freighter conversions.

Aircraft Supply

The supply of aircraft is determined by the number of new aircraft the manufacturers are able to deliver, as well as the fleet retirement and freighter conversion decisions of airlines, which are based on assessments of the interaction between relative aircraft economics and the levels of passenger traffic and yield.

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New Delivery Outlook

The airline industry’s financial challenges in 2001-2003 impacted aircraft and engine manufacturers. Airbus, Boeing, Pratt & Whitney, General Electric and Rolls-Royce implemented production cutbacks during that period. While neither Boeing nor Airbus experienced a high number of outright cancellations during the downturn, they deferred deliveries and adapted to much lower levels of new orders. By 2005, however, the economic recovery and rising demand for travel pushed aircraft orders to record highs. 2006 proved to be another bumper year for new aircraft orders and, despite expanded production capability since 2003, the manufacturers are reported to be largely sold out through 2010.

The current order backlog provides the best indication of the allocation of deliveries expected in the coming years. More than 5,000 aircraft are currently on order and most are due to be delivered over the next five years. Figure 5 shows that of the 4,378 orders with specified customers, 40% have been ordered by Asia/Pacific carriers, another 24% of orders are destined for North America, and 22% for Europe. Furthermore, 1,385 aircraft (27% of the backlog) are on order by LCCs and 684 (13% of the backlog) are on order by operating lessors.

Figure 5: Mainline Jet Order Backlog Share by Region

Source: ACAS December 2006;
Note: Backlog share excludes 483 lessor orders that have no disclosed customer and 205 orders by undisclosed customers

Boeing is expected to maintain production discipline despite temptation to invest in new production capacity to satisfy near term demand. The airframer has announced expectations that it will deliver approximately 440 aircraft in 2007 and up to 515 in 2008 as the 787 production begins. The 787 delivery stream will likely mitigate a potential cyclical demand downturn that may occur in coming years, since the initial several years of deliveries reflect significant pent-up demand for the mid-sized long-haul market segment.

It is expected that Airbus will leverage its popular A320 family and A330 production lines while restructuring takes place. In line with this expectation, Airbus recently announced intentions to bring A320 family production from 32 per month to 36 per month by the end of 2008. From 2009, Airbus plans to produce up to four additional A320 family aircraft per month in China.

Based on potential build rates and planning from Boeing and Airbus, Figure 6 illustrates SH&E’s view as to the expected level of new aircraft deliveries from the two manufacturers over the next five years. It is possible, however, that constraints in the supply chain (such as access to titanium and carbon fiber material) may prevent Boeing and Airbus from fully meeting production goals.

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Figure 6: World Aircraft Orders and Deliveries (1990-2006) and Delivery Forecast

Source: ACAS, December 2006, Forecast: SH&E

Aircraft Retirement Outlook

As described in the section covering fleet replacement, airlines must make fleet decisions based on a variety of economic and strategic factors. If carriers are able to execute on their fleet replacement plans and there is no demand for additional use of an aircraft by another operator, the aircraft will be permanently retired. Figure 7 shows that North America, Africa and Latin America will have a greater need for fleet replacement in the near term given their aging fleets. While some of these oldest aircraft will likely have to be retired for safety and economic reasons, there is a degree of flexibility available to airlines operating middle age aircraft.

Figure 7: Commercial Jets — Average Fleet Age, 2006

Source: ACAS, December 2006

As mentioned above, the ultimate retirement of some of the in-service freighter fleet will depend on how quickly replacement aircraft can be converted and placed into service. According to Airbus’s estimates, there are over 200 freighter aircraft, mostly Boeing 727s and DC8s, which are now over 36 years old and will need to be retired in the near future.

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Long Term Commercial Jet Fleet Outlook

The size of the global commercial jet fleet is expected to double over the next two decades. In dollar terms, the current global fleet has an estimated value of $350 billion, based on SH&E current market values, and is estimated to grow to approximately $777 billion by 2025.

Figure 8 compares the global jet fleet forecasts of Boeing, Airbus and Airline Monitor. Boeing’s 2006 Current Market Outlook forecast indicates that the world fleet will reach 35,970 aircraft in 2025, of which 27,370 will be mainline passenger jets. Boeing defines mainline passenger jets as those of more than 90 seats. Airbus, in its 2006 Global Market Forecast, forecasts growth to 33,500 total aircraft by 2025, of which 27,307 will be mainline passenger jets. Airbus defines mainline passenger aircraft as those of more than 100 seats. While the two manufacturers have similar forecasts of global traffic growth, their views of the market for ‘‘very large aircraft’’ such as the Airbus A380 are substantially different. Airbus expects congestion at major airports and low per-seat operating costs to draw airlines to the largest possible aircraft. Boeing expects passengers, and therefore airlines, to favor point-to-point service in smaller , fuel-efficient aircraft, including the Boeing 787 and Airbus A350XWB.

Figure 8: Projected Commercial Aircraft Fleet Growth

			Airline Monitor 2006-2025						Airbus 2006-2025						Boeing 2006-2025
Projected Total Fleet					40,097						33,479						35,970
Additions – Growth					21,898						17,102						17,630
Additions – Replacement					6,402						5,561						9,580
Total Additions					28,300						22,663						27,210
Additions per Year					1,415						1,133						1,361
19 Year Fleet CAGR					4.2	%					3.8	%					3.6	%

Source: Airbus Global Market Forecast, 2006; Boeing Market Outlook, 2006; the Airline Monitor, January, February 2007

Long-Term Commercial Cargo Fleet Outlook

World air cargo traffic is expected to continue to grow as global trade expands. Boeing and Airbus forecast average annual growth rates of 6.1% and 6.0%, respectively, over the next 20 years. To accommodate this growth, the world freighter fleet is expected to more than double over the same 20-year period. Boeing predicts a freighter fleet size of 3,570 and Airbus predicts the fleet to total 4,115 by 2025. Both manufacturers expect passenger aircraft conversions to account for approximately three-quarters of new freighter fleet additions. Figure 9 provides a sense of the distribution of additions to the global freighter fleet as forecast by Boeing.

Figure 9: Boeing Forecasted Composition of Freighter Additions, 2006-25

Source: Airbus Global Market Forecast, 2006; Boeing Market Outlook, 2006; the Airline Monitor, January, February 2007

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Aircraft Leasing Industry Outlook

Overview of Aircraft Leasing

Aircraft leasing has evolved over the last 40 years to become a highly sophisticated market. In effect, leasing has become a source of capital that carriers use along with debt and equity to finance their equipment acquisitions. Regardless of whether the purchased aircraft are new or used, very few airlines have the internal cash available to self-finance aircraft acquisitions. Thus, most airlines seek financing from several sources, including traditional bank debt, export credit guarantees, tax leases, capital market transactions and operating leasing.

Over the past 20 years, the world’s airlines have turned to operating leases for an increasing share of aircraft financing requirements. Airlines are attracted to operating leasing for a variety of reasons, including low capital outlay requirements, fleet planning flexibility and residual value risk avoidance. Furthermore, operating leasing is often the preferred choice for start-up carriers because it lowers the capital requirements for entering the market. In addition, many banks significantly reduced their airline exposure between 2002 and 2004, and it became more difficult for airlines to obtain financing through the capital markets. Operating lessors effectively acted as the lenders of last resort to the industry during that period, maintaining vital liquidity in an otherwise challenging market environment.

Figure 10 indicates that the proportion of the global fleet under operating lease has increased substantially over the last decade. SH&E believes that operating leases will continue to become more popular and that 40% of the global fleet will be subject to operating leases over the course of the next 10 years. Of the current backlog of more than 5,000 aircraft, 670 were ordered by leasing companies directly and a significant number more are likely to be under lease ultimately as a result of sale/leaseback transactions.

Figure 10: Historical Commercial Jet Fleet Operating Lease Share

Source: Ascend September 2006

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Operating Lease Industry — Competitive Landscape

By recent estimates, the aircraft leasing industry represents assets worth over $120 billion. Among the 20 major players, the top two together account for over half the global portfolio: GECAS owns and manages approximately 1,715 aircraft and ILFC owns and manages 929 aircraft. Other key operating lessors (see Figure 11) are significantly smaller but form the core of a competitive leasing industry.

Figure 11: Top Mainline Jet Operating Lessors

Operating Lessor			Narrow-body						Wide-body						Total
GECAS					1,529						186						1,715
ILFC					659						270						929
Boeing Capital					240						27						267
AerCap					224						20						244
Babcock & Brown					219						21						240
Aviation Capital Group					207						6						213
CIT Aerospace					185						23						208
RBS Aviation Capital					193						3						196
Pegasus Aviation					145						37						182
AWAS					105						37						142
Macquarie					131						6						137
ORIX Aviation					84						10						94
BCI					76						11						87
Singapore Aircraft Leasing					56						14						70
Pembroke					62						4						66
Aircastle Advisor					51						15						66
Sumisho					38						6						44
Allco					25						18						43
Tombo Aviation					26						6						32
Guggenheim Aviation Partners					21						10						31
Total					4,276						730						5,006

Source: Ascend AIR, March 2007; Data on Babcock & Brown fleet provided by Babcock & Brown

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Regional Penetration of Operating Leasing

Today, the leading operating lessors have a truly global reach. Although 60% of the fleet under operating leases are placed with North American and European operators, South America has the highest percentage of aircraft under lease, followed by Asia, Europe and the Pacific Rim.

Figure 12: Historical Operating Lease Penetration by Region

Source: Ascend

Europe has experienced the biggest increase in operating lease penetration, due in large part to the expansion of LCC carriers. Compared to 1990, Europe’s penetration has gone up by 25 percentage points through 2006 and is expected to continue to increase as Eastern European, Russian and the Commonwealth of Independent States (‘‘CIS’’) markets grow and increase opportunities for LCCs and other start-up carriers.

While North America has not witnessed a rapid increase in the proportion of operating leases over the last two decades, this trend is expected to change. Major carriers are no longer able to rely on the leverage leasing market, and capital market, financing has become comparatively difficult to secure. It is expected that both U.S. majors and LCCs will increase reliance on operating leasing as a key source of financing in coming years. Furthermore, given that the U.S. represents the largest narrow-body market globally, the major operating lessors are positioned to help finance these requirements.

Operating leasing in the Asia/Pacific region will also continue its upward trajectory as the market liberalizes and new carriers continue to evolve. The major Asian airlines, such as Singapore Airlines and Cathay Pacific, have access to low-cost bank financing due to their strong credit standing and will be unlikely to be major users of operating leasing, but the growing set of LCC and short-haul airlines in this region operating primarily narrow-body aircraft will continue to generate opportunities for leasing companies. Lessors are already very active in both China and India, where domestic fleet requirements, both leased and owned, will continue to grow.

In recent years, operating lease penetration has increased in the Middle East due to rapid fleet growth and short-term capacity requirements by several carriers. Latin America has long had the highest proportion of operating leasing and this is primarily a result of carriers in the region having limited access to capital.

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Aircraft Lease Rates and Lease Rate Trends

Aircraft operating lease rates generally represent market-clearing prices that reflect current supply and demand. Lease rates depend upon the type of lease, interest rates, tax liabilities, lease term, value of the aircraft at lease inception, the forecasted residual value of the aircraft at lease termination and the credit quality of the lessee. During the air transport demand downturn of 2002 and 2003, lessors showed considerable pricing flexibility and often entered into short-term leases at reduced rates in order to keep assets deployed. Now that global passenger traffic has recovered, lease rates have firmed substantially, and lessors are able to realize lease rates above pre-2001 levels on certain aircraft types. Lease rate and value trends for four aircraft types are presented in Figure 13. SH&E believes that, barring some unforeseen geopolitical event, lease rates for most of the in-service aircraft will continue to increase over the next few years o r, at the very least, remain stable.

Figure 13: Aircraft Value Curves

Source: SH&E Analysis

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BUSINESS

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 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. Pursuant to these agreements 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.

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 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. W e 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.

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	•	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 portf olio. 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.

	•	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 A300B4, 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

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		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 a reas. 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 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.

Our Initial Portfolio

Our Initial Portfolio of 47 commercial jet aircraft includes 45 narrow-body passenger aircraft, one wide-body passenger aircraft and one freighter. Forty-four of these aircraft constitute the entire aircraft portfolio currently held by JET-i, an entity in which Babcock & Brown has an ownership interest. The three remaining aircraft are held by three other companies in which Babcock & Brown also has an ownership interest. 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. We estimate that the useful life of our passenger aircraft is approximately 25-30 years, including, in the case of an aircraft originally manufactured as a passenger aircraft and later converted to freighter configuration, 15-20 years as a passenger aircraft and an additional 10-20 years as a freighter aircraft follow ing the accomplishment of such conversion.

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The following table presents the aircraft in our Initial Portfolio:

Lessee Name

Equipment Type

Airframe Type

Engine Type(1)

Date of Manufacture

Percent of Appraised Value

1

Aeroflot-don

B737-500

Narrow-body

CFM 56-3C1

February 27, 1992

0.75%

2

Aeroflot-don

B737-500

Narrow-body

CFM 56-3C1

March 17, 1992

0.74%

3

Aeromexico

B737-700

Narrow-body

CFM 56-7B22

July 8, 2005

2.52%

4

Aeromexico

B737-700

Narrow-body

CFM 56-7B22

August 3, 2005

2.53%

5

Aigle Azur

A320-200

Narrow-body

CFM 56-5B4/P

September 4, 1998

1.75%

6

Air Berlin

B737-800

Narrow-body

CFM 56-7B27

October 18, 1999

2.07%

7

Air China

B737-800

Narrow-body

CFM 56-7B26

December 14, 2006

3.12%

8

Air Europa

B737-800

Narrow-body

CFM 56-7B27

November 5, 2001

2.30%

9

ATA Airlines

B757-200

Narrow-body

RB211-535E4

November 30, 1996

1.54%

10

ATA Airlines

B757-200

Narrow-body

RB211-535E4

October 31, 1997

1.96%

11

ATA Airlines

B757-200

Narrow-body

RB211-535E4

July 21, 1998

2.17%

12

ATA Airlines

B757-200

Narrow-body

RB211-535E4

December 16, 1998

2.05%

13

CCM

A320-200

Narrow-body

CFM 56-5B4/2P

March 22, 1995

1.48%

14

CCM

A320-200

Narrow-body

CFM 56-5B4/2P

July 6, 1995

1.46%

15

Chang’an Airlines

B737-800

Narrow-body

CFM 56-7B26

August 25, 2006

3.11%

16

China Southern

B757-200

Narrow-body

RB211-535E4

June 9, 1999

2.19%

17

China Southern

B757-200

Narrow-body

RB211-535E4

June 25, 1999

1.82%

18

easyJet

A319-100

Narrow-body

CFM 56-585/P

February 1, 2007

2.55%

19

First Choice

B757-200

Narrow-body

RB211-535E4

April 30, 1999

2.20%

20

First Choice

B757-200

Narrow-body

RB211-535E4

June 2, 1999

1.94%

21

Hainan

A319-100

Narrow-body

CFM 56-5B6/P

July 26, 2006

2.53%

22

Kingfisher

A320-200

Narrow-body

IAE V2527-A5

August 5, 2005

2.88%

23

Kingfisher

A320-200

Narrow-body

IAE V2527-A5

January 12, 2006

3.14%

24

Mexicana

A320-200

Narrow-body

CFM 56-5B4/2P

November 22, 1995

1.53%

25

Omni Air

B757-200

Narrow-body

RB211-535E4-37

September 21, 1989

0.94%

26

Spicejet

B737-800

Narrow-body

CFM 56-7B24

January 20, 2006

2.99%

27

Spicejet

B737-800

Narrow-body

CFM 56-7B24

November 2, 2006

3.06%

28

Spicejet

B737-800

Narrow-body

CFM 56-7B24

December 2, 2006

3.06%

29

Sunwing

B737-800

Narrow-body

CFM 56-7B26

May 18, 2006

3.19%

30

Swiss Int’l

A320-200

Narrow-body

CFM 56-5B4/2P

June 20, 1995

1.50%

31

Swiss Int’l

A320-200

Narrow-body

CFM 56-5B4/2P

October 25, 1995

1.42%

32

Swiss Int’l

A320-200

Narrow-body

CFM 56-5B4/2P

January 19, 1996

1.54%

33

TACA(2)

A320-200

Narrow-body

IAE V2527E-A5

September 18, 1997

1.69%

34

TACA(2)

A320-200

Narrow-body

IAE V2527E-A5

October 20, 1997

1.66%

35

THY

A320-200

Narrow-body

CFM 56-5B4/2P

September 7, 1995

1.54%

36

THY

A320-200

Narrow-body

CFM 56-5B4/2P

October 9, 1995

1.53%

37

Tiger

A320-200

Narrow-body

IAE V2527-A5

March 9, 2006

3.06%

38

Titan Airways

B737-300QC

Freighter

CFM 56-3C1

October 25, 1991

1.04%

39

Transavia

B737-700

Narrow-body

CFM 56-7B24

June 7, 2001

1.84%

40

Travel Service Airlines

B737-800

Narrow-body

CFM 56-7B26

May 14, 1999

2.04%

41

TUI AG(3)

B767-300ER

Wide-body

CF6-80C2-B7F

February 20, 1997

2.93%

42

Virgin America

A320-200

Narrow-body

CFM 56-5B4/2P

December 12, 2005

3.03%

43

Virgin America(4)

A320-200

Narrow-body

CFM 56-5B4/2P

March 17, 2006

3.04%

44

Volaris

A319-100

Narrow-body

IAE V2524-A5

November 17, 1999

1.75%

45

Volaris

A319-100

Narrow-body

IAE V2524-A5

January 8, 2000

1.87%

46

Volaris

A319-100

Narrow-body

IAE V2527M-A5

January 1, 2007

2.80%

47

XL Airways(5)

B737-800

Narrow-body

CFM 56-7B26

May 2, 2000

2.14%

(1) Engine manufacturer key:

CFM CFM International

CF6 General Electric

RB Rolls Royce

IAE International Aero Engines

(2) These aircraft are leased to TACA and are subleased, collectively, to Trans American Airlines, domiciled in Peru, Lineas Aereas Costarricenses, domiciled in Costa Rica, Aviateca, domiciled in Guatemala, and TACA Costa Rica, domiciled in El Salvador.

(3) This aircraft is leased to TUI and subleased to Thomsonfly, domiciled in England.

(4) This aircraft is leased to Virgin America and subleased to TAM Linhas Aéreas, domiciled in Brazil.

(5) This aircraft is leased to XL Airways and subleased on a seasonal basis (winter) to Miami Air International, domiciled in the United States.

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The following table and pie chart summarize the composition of our Initial Portfolio by manufacturer and aircraft type:

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	%

We believe the high utility and young age of these aircraft ensure a long remaining useful life and increase our ability to redeploy aircraft at attractive lease rates.

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The following table and bar chart present the composition of our Initial Portfolio based on age, as of June 30, 2007

Year of Manufacture			Number of Aircraft						Percent of Appraised Value
1989					1						0.9	%
1990					—						—
1991					1						1.0	%
1992					2						1.5	%
1993					—						—
1994					—						—
1995					7						10.5	%
1996					2						3.1	%
1997					4						8.2	%
1998					3						6.0	%
1999					7						14.0	%
2000					2						4.0	%
2001					2						4.1	%
2002					—						—
2003					—						—
2004					—						—
2005					4						11.0	%
2006					10						30.3	%
2007					2						5.4	%
Total					47						100.0	%

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Approximately 78% of the aircraft (measured by appraised value) in our Initial Portfolio are members of the narrow-body Airbus A320 and next generation Boeing 737 aircraft families, both of which enjoy high worldwide demand due to their fuel-efficient design, relatively low maintenance costs, and an increase in customer demand for point-to-point destination service. These aircraft are used on more routes around the world than any other airframe and thus have the largest installed base. As a result, we believe they are easier and more cost-efficient to lease and market than wide-body jets or other specialized types of aircraft.

The following table presents the composition of our Initial Portfolio based on airframe type:

Airframe Type			Number of Aircraft			Percent of Appraised Value
Narrow-body			45			96.0%
Wide-body			1			2.9%
Freighter			1			1.1%
Total			47			100.0%

JET-i Leasing has agreed to sell one of the aircraft in our Initial Portfolio, a Boeing 757-200, upon the expiration of the lease thereof in 2010. Upon our acquisition of this aircraft we will assume the rights and obligations under the agreement related to such sale.

Our Leases

Lease Terms

All of our aircraft are subject to leases under which lessees are responsible for most operational and insurance costs, and 38 of the 47 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, which are scheduled to expire between 2007 and 2021 and have a weighted average remaining lease term of 5.9 years, are expected to provide us with a stable source of revenues and cash flows.

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The following table and bar chart present the scheduled lease maturity of the aircraft in our Initial Portfolio:

Year of Lease Expiration			Airframe Type																								Percent of Appraised Value
			Narrow						Wide						Freight						Total
2007					3						—						—						3						4.9	%
2008					4						—						—						4						7.8	%
2009					5						—						—						5						9.1	%
2010					5						—						—						5						8.3	%
2011					5						1						—						6						13.3	%
2012					6						—						1						7						11.2	%
2013					1						—						—						1						3.1	%
2014					1						—						—						1						2.5	%
2015					4						—						—						4						11.3	%
2016					3						—						—						3						9.1	%
2017					1						—						—						1						2.6	%
2018					3						—						—						3						9.1	%
2019					—						—						—						—						—
2020					—						—						—						—						—
2021					4						—						—						4						7.7	%
Total					45						1						1						47						100.0	%

Under our leases, the lessees agree to lease the aircraft for a fixed term, although in some cases the lessees have termination rights or extension rights. Most lease rentals are payable monthly in advance, but some lease rentals are payable quarterly. Of our leases, 38 have fixed rental rates and nine have floating rental rates based on six-month LIBOR. We generally enter into leases with fixed rental rates, except in situations where a lessee expresses a preference for a lease with a floating rental rate. In addition, because most of our debt will bear floating rates of interest, we intend to manage interest-rate payment risk by entering into interest-rate swaps pursuant to which we will make fixed-rate interest payments and receive floating-rate payments on our leases. All leases are on a ‘‘net’’

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basis with the lessee generally responsible for all operating expenses, which customarily include maintenance, fuel, crews, airport and navigation charges, taxes, licenses, aircraft registration and insurance premiums.

Most of our leases generally provide that the lessee’s payment obligations are absolute and unconditional under any and all circumstances. Lessees are generally required to make payment without deduction on account of any amounts that we may owe the lessee or any claims that the lessee may have against us. Most of our leases also require lessees to gross up lease payments where they are subject to withholdings and other taxes, although there are some exceptions to this obligation, including withholdings that arise out of transfers of the aircraft to or by us or due to our corporate structure. In addition, changes in law may result in the imposition of withholding and other taxes and charges that are not reimbursable by the lessee under the lease or that cannot be reimbursed under applicable law. Furthermore, lessees may fail to reimburse us even when obligated under the lease to do so. Our leases also require lessees to indemnify us for certain other tax l iabilities relating to the leases and the aircraft, including, in most cases, value added tax and stamp duties.

The cost of an aircraft typically is not fully recovered over the term of the initial lease. We therefore retain the benefit and assume the risk of the rent at which we can re-lease the aircraft upon expiration or early termination of the lease and of the ultimate residual value. Operating leases allow airlines greater fleet and financial flexibility than outright ownership because of the relatively shorter-term nature of operating leases, the relatively small initial capital outlay necessary to obtain use of the aircraft and the significant reduction in aircraft residual value risk.

Extension Options.    The lessee under 14 of the leases in our Initial Portfolio has the option to extend the term of the lease. Nine of the 14 extension options become effective more than four years after the completion of this offering. Five of the extensions could become effective by the end of 2011. One of those requires approximately nine months’ notice and permits the extension of the lease at the same rental amount as the base rental for up to one year. Another requires approximately eight months’ notice and permits two extensions of the lease at the same rental amount as the base rental for up to one year per extension. The other three require approximately nine months’ notice. Two of those leases each permit extension for 18 months at the same rental amount as the base rental in effect at the time of extension, and the third lease permits two 18-month extensions at a 15% decreased rental rate for the first extension period and an 11.8% increase from the then current rental rate for the second extension period.

Early Termination Rights.    Five of the leases in our Initial Portfolio provide the lessees with early termination rights. Four of these leases permit early termination of the lease commencing in February 2011 upon a determination by the lessee that the relevant aircraft is obsolete or surplus to its equipment requirements. One lease is terminable only due to illegality and change in law if the parties cannot in good faith agree to amend the lease documents to avoid the illegality.

Operating Costs and Expenses.    The lessee is liable through various operational indemnities for operating costs and expenses accrued or payable during the term of the relevant lease, which would normally include costs and expenses associated with the maintenance and operation of the aircraft, airport and navigation charges, certain taxes, licenses, consents and approvals, aircraft registration and hull all risk and public liability insurance programs.

Security Deposits and Letters of Credit.    Thirty-nine of our leases provide for cash security deposits and/or letters of credit which may be drawn down in the event that a lessee defaults under any of these leases. These security deposits and/or letters of credit may mitigate losses we may incur while attempting to re-lease the aircraft. Under certain circumstances, the lessee may be required to obtain guarantees or other financial support from an acceptable financial institution or other third parties.

Maintenance Obligations.    Under our leases, the lessee is generally responsible for normal maintenance and repairs, airframe and engine overhauls, obtaining consents and approvals and compliance with return conditions of aircraft on lease. In connection with the lease of a used aircraft we sometimes agree to contribute specific additional amounts to the cost of certain first major

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overhauls or modifications, which usually reflect the usage of the aircraft prior to the commencement of the lease. In many cases, we also agree to share with our lessees the cost of compliance with airworthiness directives.

Our Initial Portfolio includes 33 leases pursuant to which we collect maintenance reserve payments that are determined based on passage of time or usage of the aircraft measured by hours flown or cycles operated. Under these leases, we are obligated to make reimbursements to the lessee for expenses incurred for certain planned major maintenance, up to a maximum amount that is typically determined based on maintenance reserves paid by the lessee. Certain leases also require us to make maintenance contributions for costs associated with certain major maintenance events in excess of any maintenance reserve payments. Major maintenance includes heavy airframe, off-wing engine, landing gear and auxiliary power unit overhauls and replacements of engine life limited parts. We are not obligated to make maintenance contributions under leases at any time that a lessee default is continuing.

Under 14 leases in our Initial Portfolio, we are not obligated to make any maintenance contributions. However, most of these 14 leases provide for a lease-end adjustment payment based on the usage of the aircraft during the lease and its condition upon return. Most such payments are likely to be made by the lessee to us, although payments may be required to be made by us to the lessee. Nine leases in our Initial Portfolio provide for maintenance reserve payments and contributions as well as lease-end adjustment payments.

Compliance with Laws.    The lessee is responsible for compliance with all applicable laws and regulations with respect to the aircraft. We generally require our lessees to comply with the standards of either the U.S. Federal Aviation Administration or its non-U.S. equivalent. We often require a deposit as security for the lessee’s performance of obligations under the lease and the condition of the aircraft upon return. In addition, the leases contain extensive provisions regarding our remedies and rights in the event of a default by the lessee and specific provisions regarding the return condition of the aircraft. Except at the commencement of the term of a lease of a used aircraft, the lessee generally is required to continue to make lease payments during any period in which the aircraft is not in operation due to maintenance or grounding.

General.    Each aircraft generally must remain in the possession of the applicable lessee and any sublessees of the aircraft generally must be approved by the lessor unless, in some leases, certain conditions are met. Under most of our leases, the lessees may enter into charter or ‘‘wet lease’’ arrangements in respect of the aircraft (i.e., a lease with crew and services provided by the lessor under the lease), provided the lessee does not part with operational control of the aircraft. Under some of our leases, the lessee is permitted to enter into subleases with specified operators or types of operators without the lessor’s consent, provided certain conditions are met. We are aware that five of the aircraft are currently subject to subleases. Our leases also generally permit the lessees to subject the equipment or components to removal or replacement and, in certain cases, to pooling arrangements (temporary borrowing of equipment), without the lessor’s consent but subject to conditions and criteria set forth in the applicable lease. Under our leases, the lessee may deliver possession of the aircraft, engines and other equipment or components to the relevant manufacturer for testing or similar purposes, or to a third party for service, maintenance, repair or other work required or permitted under the lease.

Some foreign countries have currency and exchange laws regulating the international transfer of currencies. When necessary, we will require as a condition to any foreign transaction, that the lessee or purchaser in a foreign country obtain the necessary approvals of the appropriate government agency, finance ministry or central bank for the remittance of all funds contractually owed in U.S. dollars. We attempt to minimize our currency and exchange risks by negotiating most of our aircraft leases and all of our sales transactions in U.S. dollars. The terms of the securitization will permit B&B Air Funding to have up to 5% of its leases denominated in euros. All of our leases are currently payable in U.S. dollars.

Lease Restructurings.    During the term of a lease, a lessee’s business circumstances may change to the point where it is economically sensible for us to consider restructuring the terms of the lease.

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Restructurings may involve the voluntary termination of leases prior to contracted lease expiration, the arrangement of subleases from the primary lessee to another airline, the rescheduling of lease payments, the forgiveness and/or reduction of lease obligations and the extension of the lease terms.

Aircraft Repossessions.    If a restructuring is not possible, we may seek to terminate the lease and gain possession of the aircraft for remarketing. Although the majority of repossessions are accomplished through negotiation, if we cannot obtain the lessee’s cooperation we would have to take legal action in the appropriate jurisdiction. This legal process could delay the ultimate return of the aircraft. In addition, in connection with the repossession of an aircraft, we may be required to pay outstanding mechanic’s, airport, navigation and other liens on the repossessed aircraft. These charges could relate to other aircraft that we do not own but were operated by the lessee. In contested repossessions, we likely would incur substantial additional costs for maintenance, refurbishment and remarketing of the aircraft.

Lease Management and Remarketing

We will outsource our lease management and aircraft remarketing activities to BBAM. Pursuant to our servicing agreements with BBAM, BBAM will provide us with most services related to leasing our fleet, including marketing aircraft for lease and re-lease or sale, 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. See ‘‘Servicing Agreements.’’

From time to time, we may decide to dispose of our leased aircraft at or before the expiration of their leases. As with acquisitions, our primary objective of growing our distributable cash flow while maintaining desired portfolio characteristics will guide our analysis of aircraft disposition opportunities. Although our Manager will decide whether or not to make any such dispositions, subject to board approval, as required, dispositions will be executed on our behalf by BBAM pursuant to our management and servicing agreements.

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Our Lessees

The following table presents a list of the lessees of our Initial Portfolio:

Lessee Name			Domicile			Aircraft Type						Number of Aircraft						Percent of Appraised Value
Aeroflot-don			Russia					B737-500						2						1.5	%
Aeromexico			Mexico					B737-700						2						5.0	%
Aigle Azur			France					A320-200						1						1.7	%
Air Berlin			Germany					B737-800						1						2.1	%
Air China			China					B737-800						1						3.1	%
Air Europa			Spain					B737-800						1						2.3	%
ATA Airlines			United States					B757-200						4						7.7	%
CCM			France					A320-200						2						2.9	%
Chang’an Airlines			China					B737-800						1						3.1	%
China Southern			China					B757-200						2						4.0	%
easyJet			United Kingdom					A319-100						1						2.6	%
First Choice			United Kingdom					B757-200						2						4.1	%
Hainan			China					A319-100						1						2.5	%
Kingfisher			India					A320-200						2						6.0	%
Mexicana			Mexico					A320-200						1						1.5	%
Omni Air			United States					B757-200						1						0.9	%
Spicejet			India					B737-800						3						9.1	%
Sunwing			Canada					B737-800						1						3.2	%
Swiss Int’l			Switzerland					A320-200						3						4.5	%
TACA			El Salvador					A320-200						2	(1)					3.4	%
THY			Turkey					A320-200						2						3.1	%
Tiger			Singapore					A320-200						1						3.1	%
Titan Airways			United Kingdom					B737-300QC						1						1.0	%
Transavia			Holland					B737-700						1						1.8	%
Travel Service Airlines			Czech Republic					B737-800						1						2.0	%
TUI AG			Germany					B767-300ER						1	(2)					2.9	%
Virgin America			United States					A320-200						2	(3)					6.1	%
Volaris			Mexico					A319-100						3						6.4	%
XL Airways			United Kingdom					B737-800						1	(4)					2.1	%

(1) These aircraft are leased to TACA and are subleased, collectively, to Trans American Airlines, domiciled in Peru, Lineas Aereas Costarricenses, domiciled in Costa Rica, Aviateca, domiciled in Guatemala, and TACA Costa Rica, domiciled in El Salvador.

(2) This aircraft is leased to TUI and subleased to Thomsonfly, domiciled in England.

(3) One of these aircraft is subleased to TAM Linhas Aéreas, domiciled in Brazil.

(4) This aircraft is leased to XL Airways and subleased on a seasonal basis (winter) to Miami Air International, domiciled in the United States.

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The following pie chart illustrates the proportion of the aircraft in our Initial Portfolio leased to certain airlines based on percentage of appraised value.

The aircraft in our Initial Portfolio are leased to 29 different airlines dispersed across 16 countries. As of June 30, 2007, no more than 9.1% of the total appraised value of our Initial Portfolio was leased to any single lessee. Our top five lessees leased 35.3% of the total appraised value of our Initial Portfolio as of June 30, 2007. These top five lessees operate predominantly in high-growth, emerging market regions of the world, such as India and Mexico.

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. Approximately 51% of the aircraft in our Initial Portfolio are based in emerging economies, such as China, India, Mexico and Russia. The remaining 49% of the aircraft in our Initial Portfolio are based in developed nations. The following table presents the composition of our Initial Portfolio based on the geographic location of our lessees:

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Developed Regions			Number of Aircraft						Number of Lessees						Percent of Appraised Value
Europe
United Kingdom					5						4						9.9	%
Germany					2						2						5.0	%
France					3						2						4.7	%
Switzerland					3						1						4.5	%
Spain					1						1						2.3	%
Holland					1						1						1.8	%
Total					15						11						28.2	%
North America
USA					7						3						14.7	%
Canada					1						1						3.2	%
Total					8						4						17.9	%
Asia
Singapore					1						1						3.1	%
Total					1						1						3.1	%
Total Developed					24						16						49.2	%

Emerging Regions			Number of Aircraft						Number of Lessees						Percent of Appraised Value
Asia
India					5						2						15.1	%
China					5						4						12.8	%
Total					10						6						27.9	%
Africa, Europe & Other
Turkey					2						1						3.1	%
Czech Republic					1						1						2.0	%
Russia					2						1						1.5	%
Total					5						3						6.6	%
Latin America & South America
Mexico					6						3						13.0	%
El Salvador					2						1						3.3	%
Total					8						4						16.3	%
Total Emerging					23						13						50.8	%

Further information about the lessees of our Initial Portfolio can be found in Appendix 1 to this prospectus.

Our Investment Strategy

We intend to acquire additional aircraft that are accretive to distributable cash flow, 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 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 that maximize returns and distributable cash flow to shareholders. We will also selectively dispose of aircraft where we believe that this maximizes the long-term return to our shareholders.

A variety of aspects of a potential investment will be considered before we commit to purchase an aircraft, including its price, specification/configuration, age, condition and maintenance history, operating efficiency, lease terms, financial condition and liquidity of the lessee, jurisdiction, industry trends and future redeployment potential and values, among other factors.

Financing

A key component of our growth strategy is our flexible capital structure that allows us to capitalize on favorable market conditions to acquire additional aircraft and other aviation assets in order to optimize the return on our investments and increase our distributable cash flow. In connection with this offering, we have 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. See ‘‘Description of Indebtedness — Credit Facility.’’ 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.

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Competition

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 GECAS, ILFC, AerCap, Aircastle, Aviation Capital Group, AWAS, Genesis Lease, Boeing Capital, CIT Aerospace, 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. We believe we will be able to compete favorably in leasing our aircraft due to the reputation and experience of Babcock & Brown and our ability to structure lease rates and other lease terms to respond to market dynamics and customer needs. However, 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 aircraft from their fleets. This has re sulted in an increase in available aircraft of these eliminated 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.

Insurance

We require our lessees to carry those types of insurance which are customary in the air transportation industry. These include aircraft all-risk hull covering the aircraft and its engines, spares insurance and hull war and allied perils insurance covering risks such as hijacking, terrorism, confiscation, expropriation, seizure and nationalization to the extent normally available in the international market. Coverage under aircraft hull insurance policies generally is subject to standard deductible levels in respect of partial damage to the aircraft, in some instances and under certain circumstances the lessee has the right to self-insure some or all of the risk. The lessee is required to pay all deductibles, and also would be responsible for payment of amounts self-insured.

We also carry comprehensive liability insurance, including war and allied perils coverage, provisions for bodily injury, property damage, passenger liability, cargo liability and such other provisions reasonably necessary in commercial passenger and cargo airline operations. Coverage under liability policies generally is not subject to deductibles except as to baggage and cargo that are standard in the airline industry.

In general, we are named as an additional insured and loss payee on the hull and hull war policy for the sum of the stipulated loss value or agreed value of the aircraft and our own contingent coverage in

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place is at least equal to the appraised value of the aircraft. In cases where the servicer believes that the agreed value stated in the lease is not sufficient, the servicer will purchase additional total loss only coverage for the deficiency and as additional insured on the liability policies carried by our lessees.

The servicer will obtain certificates of insurance from the lessees’ insurance brokers to evidence the existence of such insurance. These certificates of insurance generally include, in addition to the information above, (1) a breach of warranty endorsement so that, subject to certain standard exceptions, our interests are not prejudiced by any act or omission of the lessee, (2) confirmation that the liability insurance is primary and not contributory, (3) agreement that insurers waive rights of subrogation against us and (4) in respect to all policies, notice of cancellation or material change 30 days in respect of most polices but war and allied perils insurance policies customarily provide seven days advance written notice for cancellation and may be subject to lesser notice under certain market conditions.

As a result of the terrorist attacks on September 11, 2001, the insurance market unilaterally terminated war risk liability coverage for a short period of time. When it became available again, the insurance market imposed a sub limit on each operator’s policy for third-party war risk liability, which is currently between $50 million and $150 million on the customary war-risk liability endorsement available in the London market. U.S., Canadian and certain other non-European Community-based airlines have government war-risk insurance programs available in which they currently participate. Although we currently require each lessee to purchase third party war risk liability in amounts greater than such sublimits, or obtain an indemnity from their government, the market or applicable governments may discontinue to make such excess coverage available for premiums that are acceptable to carriers. As a result, it is possible that we may be required to pe rmit lessees to operate with considerably less third-party war risk liability coverage than currently carried, which could have a material adverse effect on the financial condition of our lessees and on us in the event of an uncovered claim.

In late 2005, the international aviation insurance market unilaterally introduced exclusions for physical damage to aircraft hulls caused by dirty bombs, bio-hazardous materials, electromagnetic pulsing and similar causes of loss in addition to the existing exclusion for the detonation of a nuclear device. It is possible that the same exclusions may be introduced into liability policies, but there is no time frame as to implementation.

In addition to the coverage maintained by our lessees, we maintain contingent liability insurance and contingent hull insurance with respect to our aircraft. Such contingent insurance is intended to provide coverage in the event that the insurance maintained by any of our lessees should not be available for our benefit as required pursuant to the terms of the contract. Consistent with industry practice, our insurance policies are subject to commercially reasonable deductibles or self-retention amounts.

We cannot assure you that we have adequately insured against all risks, that lessees will at all times comply with their obligations to maintain insurance, that any particular claim will be paid, or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.

Government Regulation

The air transportation industry is highly regulated. Because we do not operate aircraft, we generally are not directly subject to most of these laws. However, our lessees are subject to extensive regulation under the laws of the jurisdiction in which they are registered or under which they operate. These laws govern, among other things, the registration, operation, maintenance and condition of our aircraft.

Most of our aircraft are registered in the jurisdictions in which the lessees of our aircraft are certified as air operators. As a result, our aircraft are subject to the airworthiness and other standards imposed by these jurisdictions. 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 may also issue their own recommendations.

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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). The amount required to be paid by the lessor generally increases for airworthiness directives issued closer to the end of the lease term. We estimate that our obligations to share in the cost of compliance with current airworthiness directives (or similar arrangements) under such leases will not total more than approximately $1.25 million. In addition, if an aircr aft is not subject to a lease, we may be forced to bear (or, to induce a prospective lessee to take the aircraft on lease, may have to agree to pay) the cost of compliance with airworthiness directives.

In addition to these direct cost 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 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 in 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.

Employees

We rely on the services of our Manager and our servicer. Pursuant to the management agreement, our Manager’s chief executive officer and chief financial officer will act as our chief executive officer and chief financial officer, respectively, and will be exclusively dedicated to our business. We will also receive non-exclusive services of other personnel employed by Babcock & Brown from our Manager.

Properties

We have no physical facilities. Our executive offices are located on our Manager’s premises in Dublin, Ireland, and we will reimburse our Manager for the cost of those facilities pursuant to the management agreement.

Legal Proceedings

As a newly formed company, we have not been involved in any legal proceedings that may have, or have had, a significant effect on our business, financial position, results of operations or liquidity, and we are not aware of any proceedings that are pending or threatened that may have a material effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally claims relating to incidents involving aircraft and claims involving the existence or breach of a lease, sale or purchase contract. We expect that claims related to incidents involving our aircraft would be covered by insurance, subject to customary deductions. However, these claims could result in the expenditure of significant financial and managerial resources, even if they lack merit and if determined adversely to us and not covered by insurance could result in significant u ninsured losses.

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ASSET PURCHASE AGREEMENT

General

B&B Air Funding will acquire the aircraft in our Initial Portfolio pursuant to the asset purchase agreement as described below. The purchases will take place through B&B Air Funding’s acquisition of beneficial interests in entities that own the aircraft in our Initial Portfolio or the acquisition by B&B Air Funding’s subsidiaries of aircraft in our Initial Portfolio.

The total purchase price for the aircraft in our Initial Portfolio will be equal to the aggregate net proceeds from the sale of 33,603,450 shares in this offering and our private placement of shares to Babcock & Brown and the other private investors and our $853.0 million securitization, less $24.6 million of such proceeds to be used to fund formation expenses, this offering and the securitization, and a cash balance of approximately $120.8 million that we will retain for general corporate purposes. 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 the purchase price for the aircraft in our Initial Portfolio will be approximately $1,451.0 million, subject to adjustments described below. See ‘‘Use of Proceeds’’ and ‘‘Risk Factors — Risks Relating to Our Aircraft Portfolio — 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.’’

Upon completion of this offering the purchase price for our Initial Portfolio allocable to our securitization debt and a portion of the proceeds from this offering will be held in separate accounts to be 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 B&B Air Funding had the aircraft been delivered upon completion of our offering). The purchase price will also be adjusted upwards by the amount of any investment earnings earned on the fun ds in the separate account pending delivery of the aircraft.

B&B Air Funding will enter into an asset purchase agreement with JET-i Leasing and certain of its subsidiaries (from whom B&B Air Funding will purchase 44 aircraft) and Duntington Limited, Snodell Limited and Halvana Limited (from each of whom B&B Air Funding will purchase one aircraft). Under the terms of the asset purchase agreement, B&B Air Funding will either acquire (directly or indirectly) the equity interests of certain aircraft-owning entities established by the Aircraft Sellers or B&B Air Funding’s subsidiaries will acquire ownership of the aircraft. Following transfer of the equity interests of each aircraft-owning entity under the asset purchase agreement, such entity will become a wholly owned entity of B&B Air Funding, and all the assets of such aircraft-owning entity, including the aircraft owned by such subsidiary, will become a part of our consolidated assets and the consolidated assets of B&B Air Funding.

Our chief executive officer and certain of our directors own indirect interests in the Aircraft Sellers. See ‘‘Certain Relationships and Related Party Transactions — Interests of Officers and Directors in Aircraft Sellers.’’

Purchase of the Aircraft

As a result of the purchase price adjustment described above, at the completion of this offering (1) all base rents under the leases for the 47 aircraft in our Initial Portfolio relating to any period after the completion of this offering, and all maintenance reserve payments received after the completion of this offering, will be for the benefit of B&B Air Funding and (2) B&B Air Funding 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

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of this offering. The Aircraft Sellers will have no obligation to contribute to B&B Air Funding’s maintenance contributions, airworthiness directive or similar obligations or other lessor obligations relating to any period after the completion of this offering or maintenance reserve payments received by the Aircraft Sellers prior to the completion of this offering. The aggregate purchase price allocable to our securitization debt and a portion of the proceeds from this offering will be held in a separate account to be established under the indenture for the securitization until withdrawn by us for payment to the Aircraft Sellers and any investment earnings on such amounts will be for the benefit of the Aircraft Sellers. 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 process of finalizing transfer documentation with lessees is well underway and we expect that on or shortly after the completion of this offering we will be in a position to commence taking delivery of beneficial interest in the aircraft or the related ownership interest in the aircraft-owning entities. In any event, all aircraft or the related ownership interest in aircraft owning entities are to be delivered within a period of 210 days following the completion of this offering, which we refer to as the delivery period. The sellers have agreed to use reasonable commercial efforts to deliver the remaining aircraft as soon as reasonably practicable after the completion of this offering.

On delivery of each aircraft, the respective seller will represent that it is transferring ownership of the aircraft or the equity interest in an aircraft-owning entity free of all encumbrances (other than certain permitted encumbrances), and that all indebtedness (other than the securitization) of any such aircraft-owning entity has been discharged. B&B Air Funding and the sellers will also be required to satisfy certain closing conditions.

Substitute Aircraft

If the 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 aircraft, then the 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 sellers may identify a substitute aircraft if they so choose.

A substitute aircraft, individually or in the aggregate with other substitute aircraft, must be reasonably acceptable to B&B Air Funding and the Aircraft Sellers. In assessing a substitute aircraft, we will consider whether the aircraft (1) is subject to an operating lease contract containing certain core lease provisions and providing for a similar rent profile and term as the undelivered aircraft, (2) has the same or greater aggregate appraised base value as the undelivered aircraft, (3) would result in a default relating to the concentration of types and locations of aircraft under the indenture governing the notes issued in the securitization, (4) has a similar remaining useful life as the undelivered aircraft and (5) is a freighter or a regional jet aircraft. The delivery of any substitute aircraft also is 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 and the consent of the policy provider.

On the delivery date of a substitute aircraft, adjustment payments may be made by B&B Air Funding to the sellers or vice versa. These adjustment payments would reflect differences in rent collected and maintenance expense contributions and other aircraft expenditures paid with respect to these aircraft, interest and other costs and expenses of B&B Air Funding.

If an aircraft is destroyed or subject to unrepaired damage with a cost of repair in excess of 25% of its depreciated purchase price and the sellers do not designate a substitute aircraft in its place, then they need not deliver, and B&B Air Funding need not accept delivery of, that aircraft. The seller of that aircraft will retain any insurance and other proceeds of that loss and make a payment to B&B Air Funding equal to the sum of the purchase price of that aircraft and the interest on the purchase price of that aircraft for the period from the completion of this offering to the date of payment, at a rate per annum equal to the rate on the securitization, plus the policy provider’s fee, in respect of the allocated debt portion of the purchase price of such aircraft and interest thereon at a rate per annum equal the quotient of $2.00 divided by the initial public offering price per share (expressed as a

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percentage) in respect of the allocated equity portion of the purchase price of such aircraft, plus or minus certain hedge breakage costs or gains in each case on the purchase price allocated to that aircraft and less the amount originally retained by us to pay the purchase price of that aircraft plus investment earnings thereon, both of which B&B Air Funding will retain, and the portion of the purchase price for that aircraft that we would have contributed to B&B Air Funding.

If any initial aircraft or required substitute aircraft is not delivered within the delivery period for any reason, the sellers will pay to B&B Air Funding, at the end of the delivery period, the refund amount described in the immediately preceding paragraph.

Certain Representations and Warranties

Pursuant to the asset purchase agreement, each seller will represent and warrant, as of the completion of this offering, with respect to an aircraft or the equity interest in an aircraft-owning subsidiary transferred by such seller that, to its knowledge, such aircraft has not been involved in any incident not disclosed to us before the completion of this offering that caused damage with a cost of repair in excess of the amount required to be disclosed to the relevant lessor under the relevant lease. In addition, in case of a transfer of the equity interests of an aircraft-owning subsidiary, Babcock & Brown International Pty Ltd, as guarantor, and the relevant seller will indemnify B&B Air Funding against any loss, liability or expense which we may incur in relation to the applicable aircraft to the extent it arises out of an event (excluding anything related to or connected with the design, manufacture, maintenance, repair, rebuilding, overhaul, refurbi shment or similar activity with respect to any aircraft) that occurred in the period prior to the delivery of the aircraft (or beneficial interest in the owner of the aircraft) and we will indemnify the guarantor and the relevant seller for the period thereafter. The asset purchase agreement also will contain other representations and warranties, including the following representations and warranties from the sellers:

	•	the applicable seller has beneficial ownership of each aircraft free of liens other than certain permitted liens;

	•	unless otherwise disclosed to the policy provider of the securitization and B&B Air Funding, that the lessee of each aircraft is not more than 30 days delinquent in the payment of basic rent; and

	•	unless otherwise disclosed to the policy provider of the securitization and B&B Air Funding, the absence of claims against the lessor asserted by the lessee.

In addition, the purchase of each aircraft is subject to certain conditions precedent, including the delivery of a copy of a valid certificate of registration for such aircraft and the delivery of legal opinions.

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OUR MANAGER

Babcock & Brown

Babcock & Brown is a global investment and advisory firm with longstanding capabilities in structured finance and the creation, syndication and management of asset and cash flow-based investments. Babcock & Brown was founded in San Francisco in 1977 and listed on the Australian Stock Exchange on October 6, 2004. It maintains a global operation of 29 offices across Australia, North America, Europe, Asia, the United Arab Emirates and Africa and has over 1,250 employees worldwide.

Babcock & Brown engages in business activities across a variety of industries such as operating leasing, real estate, infrastructure, corporate finance and structured finance. The scope of its activities includes principal investment, investment management and financial advisory activities. The diagram below outlines Babcock & Brown’s corporate structure.

Babcock & Brown’s operating leasing business began in 1986, when Babcock & Brown developed a relationship with the Nomura group to market and syndicate aircraft subject to operating leases into Japan.

Babcock & Brown’s aircraft operating lease group, BBAM, was formed in 1989 to leverage the demand from Japanese private equity investors for leased aircraft by providing management and remarketing services to aircraft operating lease investors around the world. Babcock & Brown maintains a dedicated in-house professional staff of marketers, attorneys, contract administrators, accountants and airframe and engine experts. Since 1990, BBAM has originated over 300 aircraft with a total purchase price of over $8 billion, and raised over $6 billion of non-recourse debt. Today, BBAM is the fifth largest aircraft leasing company in the world, as measured by the number of its owned and managed aircraft portfolio, and is the leading arranger of syndicated aircraft finance in the Japanese market. As of June 30, 2007, it managed over 240 aircraft valued at over $6 billion.

Babcock & Brown has established a specialized funds and asset management platform across its operating divisions, that has resulted in the creation of a number of listed and unlisted investment vehicles. These vehicles are managed by Babcock & Brown within a formally implemented corporate governance framework. As of June 30, 2007, total funds and assets under its management were approximately $41.8 billion.

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The following entities are managed by Babcock & Brown subsidiaries and are listed on various stock exchanges worldwide.

									Assets Under Management June 30, 2007
Fund			Exchange(1)			Description			(Dollarsinmillions)(2)
Babcock & Brown Infrastructure			ASX			Infrastructure fund with a diversified international portfolio of infrastructure assets including energy distribution, bulk terminal and power generation.			$7,048
Babcock & Brown Capital			ASX			Aims to take significant/controlling investments in a concentrated portfolio with a flexible investment horizon.			$5,266
Babcock & Brown Power			ASX			A specialist infrastructure entity which provides investors access to a ‘‘pure play’’ electricity generation portfolio.			$2,355
Babcock & Brown Public Partnerships			LSE			A limited liability, closed-ended investment company that invests in infrastructure assets, with a public or social character such as those developed by public bodies under private finance initiative or public private partnership procurements.			$2,263
Babcock & Brown Wind Partners			ASX			Globally diversified listed stapled entity investing in wind energy generation assets.			$1,987
Babcock & Brown Japan Property Trust			ASX			A listed property trust which invests in the Japanese real estate, with a portfolio comprising of office, retail and residential properties.			$1,117
Babcock & Brown Structured Finance Fund			SGX			A specialist listed entity which provides access to a diversified portfolio of assets across 3 target sectors: operating leasing assets; loan portfolio and securitization assets; and alternative assets.			$508
Babcock & Brown Residential Land Partners			ASX			A listed vehicle which invests in a diversified portfolio of residential land projects which are developed by a range of Australia’s leading private developers.			$277
Babcock & Brown Environmental Investments			ASX			Australia-listed investment vehicle focused on the renewables sector.			$147

(1) ASX – Australian Stock Exchange, LSE – London Stock Exchange, SGX – Singapore Stock Exchange Trading Limited.

(2) Translations from Australian dollars to U.S. dollars for purposes of this table and total assets under Babcock & Brown’s management were made at the noon buying rate in effect on June 29, 2007 in the City of New York for cable transfers in Australian dollars per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, which was AUS$1.00 to USD$0.8491. On September 11, 2007, the noon buying rate was AUS$1.00 to USD$0.8310.

The listed investment vehicles managed by Babcock & Brown have produced a market capitalization weighted average annualized total shareholder return of over 25% from their respective initial public offering dates to June 30, 2007, based on the change in stock price from the initial public offering until June 30, 2007, assuming that dividends are re-invested at the prevailing closing share price on the dividend payment date and using currency exchange rates as of June 29, 2007. Maintaining the successful investment performance and growth of its managed investment vehicles is the highest priority of Babcock & Brown’s management given the importance of its investment management activities as a revenue contributor and source of future growth.

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MANAGEMENT AGREEMENT

General

We intend to enter into a management agreement with our Manager, concurrently with the completion of this offering. In discharging its duties under the management agreement, our Manager will use the resources provided to it by Babcock & Brown. These resources will include the dedicated services of Mr. Colm Barrington and our Manager’s chief financial officer, who will serve as our chief executive officer and chief financial officer, respectively, but will also remain employees of Babcock & Brown, the dedicated services of other members of our Manager’s core management team, and the non-exclusive services of other personnel employed by Babcock & Brown.

Our Manager’s core management team will consist of the Manager’s chief executive officer, chief financial officer and that level of dedicated or shared support personnel, such as corporate counsel, company secretary, financial controller and other accounting staff and risk and compliance personnel, as our Manager reasonably determines is necessary to provide the management and administrative services described below as of the date of this prospectus.

Services

Our Manager’s duties and responsibilities under the management agreement will include the provision of the services described below. The management agreement requires our Manager to manage our business and affairs in conformity with the policies and investment guidelines that are approved and monitored by our board of directors. Our Manager may delegate the provision of all or any part of the services to any person affiliated or associated with Babcock & Brown.

Management and Administrative Services

Our Manager will provide us with the following management and administrative services:

	•	managing our portfolio of aircraft and other aviation assets and the administration of our cash balances;

	•	if requested by our board, making available a member of the core management team of our Manager as our nominee on the board of directors of any of our subsidiaries (provided that each such member must be agreed between us and our Manager);

	•	assisting with the implementation of our board’s decisions;

	•	providing us suitably qualified and experienced persons to perform the management and administrative services for us and our subsidiaries, including persons to be appointed by our board to serve as our dedicated chief executive and chief financial officers (who shall remain employees of, and be remunerated by, our Manager or an affiliate of our Manager while serving in such capacities);

	•	performing or procuring the performance of all reasonable accounting, tax, corporate secretarial, information technology, reporting and compliance services for us and our subsidiaries, including the preparation and maintenance of our accounts and such financial statements and other reports and filings as we are required to make with any governmental agency (including the SEC) or stock exchange;

	•	supervising financial audits of us by an external auditor as required;

	•	managing our relations with our investors and the public, including

	○	preparing our annual reports and any notices of meeting, papers, reports and agendas relating to meetings of our shareholders; and

	○	assisting in the resolution of any complaints by or disputes with our investors and any litigation involving us (other than litigation in which our interests are adverse to those of our Manager or Babcock & Brown); and

	•	using commercially reasonable efforts to cause us to comply with all applicable laws.

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Origination and Disposition Services

Our Manager will also provide us with the following origination and disposition services:

	•	sourcing opportunities relating to aircraft and other aviation assets, including using its commercially reasonable efforts to notify us of potential aviation asset investment opportunities that come to the attention of our Manager and which our Manager acting reasonably believes may be of interest to us as investments;

	•	in relation to identified potential opportunities to purchase or sell aircraft and other aviation assets, investigating, researching, evaluating, advising and making recommendations on or facilitating such opportunities;

	•	with respect to prospective purchases and sales of aircraft and other aviation assets, conducting negotiations with sellers and purchasers and their agents, representatives and financial advisors; and

	•	otherwise providing advice and assistance to us in relation to the evaluation or pursuit of aviation asset investment or disposition opportunities as we may reasonably request from time to time.

We will be under no obligation to invest in or to otherwise pursue any aviation asset investment or disposal opportunity identified to us by our Manager pursuant to the management agreement. Neither Babcock & Brown nor any of its affiliates or associates will be restricted from pursuing, or offering to a third party, including any party managed by, or otherwise affiliated or associated with, Babcock & Brown, or will be required to establish any aviation asset investment protocol in relation to prioritization of, any aviation asset investment or disposal opportunity identified to us by our Manager pursuant to the management agreement.

Ancillary Management and Administrative Services

Our Manager will also provide us with ancillary management and administrative services upon such terms as may be agreed from time to time between us and our Manager, which may include, among other things, if requested by our board of directors and agreed by our Manager:

	•	the expansion of our Manager’s core management team with additional personnel as may be required by developments or changes in the commercial aircraft leasing industry (whether regulatory, economic or otherwise) or the compliance or reporting environment for publicly listed companies in the United States (whether as a result of changes to securities laws or regulations, listing requirements or accounting principles or otherwise); and

	•	making available individuals (other than members of our Manager’s core management team) as our nominees on the boards of directors of any of our subsidiaries.

Servicing

For so long as our Manager’s appointment is not terminated, we will agree to engage BBAM as the exclusive servicer for any additional aircraft or other aviation assets that we acquire in the future on terms substantially similar to those set forth in the servicing agreement for our Initial Portfolio or on such other terms as we and BBAM may agree.

Competitors

In the management agreement, we will agree not to sell B&B Air Funding or any of its subsidiaries, or any of our other subsidiaries, receiving services from BBAM pursuant to a servicing agreement to a competitor of BBAM, or to any party that does not agree in a manner reasonably acceptable to BBAM to be bound by the provisions of the applicable servicing agreement, and we will agree not to permit competitively sensitive information obtained from BBAM to be provided to any such competitor even if such competitor is a shareholder or has the right to elect a member of our board of directors. We may also be required to screen certain of our directors and employees from competitively sensitive information provided by BBAM.

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Compliance With Our Strategy, Policy and Directions

In performing the services, our Manager will be required to comply with our written policies and directions provided to our Manager from time to time by our board of directors unless doing so would contravene any law or the express terms of the management agreement.

Notwithstanding the above, we may not make any decision, take any action or omit to take any action in relation to the acquisition, disposition or management of any aircraft or other aviation assets, unless:

	•	that matter has been the subject of a recommendation by our Manager; or

	•	the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law.

In addition, we may not direct our Manager (unless the direction is otherwise permitted under the management agreement) to make any decision, take any action or omit to take any action in relation to the acquisition, disposition or management of any aircraft or other aviation asset, and our manager will not be obliged to comply with any such direction if given by us, unless:

	•	that matter has been the subject of a recommendation by our Manager; or

	•	the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law.

Notwithstanding the foregoing, we may direct our Manager to review a proposed decision, action or omission to take an action in relation to the acquisition, disposition or management of any aircraft or other aviation asset and require that within a reasonable period of time our Manager either make or decline to make a recommendation with respect thereto.

Appointment of Our Chief Executive Officer and Chief Financial Officer

Although our chief executive officer and chief financial officer will also be employees of our Manager (or an affiliate of our Manager), they will serve for us in such corporate capacities by appointment by our board of directors. The management agreement acknowledges that our board may terminate our chief executive officer or chief financial officer without our Manager’s consent. The management agreement provides that if there is a vacancy in such position for any reason, then our Manager will recommend a candidate to serve as replacement chief executive officer or chief financial officer. If our board of directors does not appoint the initial candidate proposed by our Manager to fill such vacancy, then our Manager will be required to recommend one or more further candidates until our board appoints a candidate recommended by our Manager for such vacancy.

Restrictions and Duties

Our Manager will agree that it will use reasonable care and diligence and act honestly and in good faith at all times in the performance of the services under the management agreement. We refer to the foregoing standard as the ‘‘standard of care’’ required under the management agreement.

Under the management agreement, our Manager may not, without our board’s prior consent:

	(1)	carry out any transaction with an affiliate of our Manager on our behalf, it being understood that Babcock & Brown affiliates have been appointed as the exclusive servicer for our portfolio of aircraft, and that our Manager may delegate the provision of all or any part of the services under the management agreement to any person affiliated or associated with Babcock & Brown;

	(2)	carry out any aviation asset investment or disposition transaction, or sequence of related aviation asset investment or disposition transactions with the same person or group of persons under common control, for us if the aggregate purchase price to be paid or the gross proceeds to be received by us in connection therewith would exceed $200 million;

	(3)	carry out any aviation asset investment or disposition transaction if the sum of all the purchase prices to be paid or of all the gross proceeds to be received by us in connection with all such transactions during any quarter would exceed $500 million;

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	(4)	appoint or retain any third-party service provider to assist our Manager in providing management and administrative services if:

	○	the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or

	○	as a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $5 million;

	(5)	appoint or retain any third-party service provider to assist our Manager in providing ancillary management and administrative or the origination and disposition services if:

	○	the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or

	○	as a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $7.5 million; or

	(6)	hold any cash or other assets of ours, provided that our Manager may cause our cash and other assets to be held in our name or any custodian for us nominated or approved by us.

The thresholds discussed in clauses (4) and (5) above will be reviewed regularly and at least annually by us and our Manager and may be increased by our board of directors (but shall not be decreased) having regard to changes in the value of money, changes in our market capitalization and any other principles agreed between us and our Manager. The thresholds discussed in clauses (2) and (3) may be increased or decreased by our board of directors in its sole discretion at any time by notice to our Manager. Amounts relating to transactions and third-party service providers entered into, appointed or retained by Babcock & Brown on our behalf pursuant to our servicing agreements or administrative agency agreements will not be included in determining whether the thresholds discussed under this heading have been met or exceeded. Acquisitions of series of aircraft from nonaffiliated-persons will be deemed not to be related matters for purposes of this provision.

Relationship of Management Agreement and Servicing Agreements

To the extent that BBAM is entitled to exercise any authority, enter into any transaction or take any action on our behalf pursuant to any of our servicing agreements or administrative agency agreements, such servicing agreement or administrative agency agreement shall govern such exercise of authority, transaction or authority in the event of a conflict between the management agreement and such servicing agreement or administrative agency agreement.

Board Appointees

Pursuant to the management agreement and our bye-laws, for so long as Babcock & Brown holds any of our manager shares, our Manager has the right to appoint the whole number of directors on our board of directors that is nearest to but not more than 3/7ths of the number of directors on our board of directors at the time. Our Manager’s appointees on our board of directors will not be required to stand for election by our shareholders other than by our Manager.

Our Manager’s board appointees will not receive any compensation from us (other than out-of-pocket expenses) and will not have any special voting rights. The appointees of our Manager shall not participate in discussions regarding, or vote on, any related-party transaction in which any affiliate of our Manager has an interest. Our independent directors will be responsible for approving any such related-party transactions.

Fees and Expenses

Pursuant to the management agreement, we will pay our Manager the fees and pay or reimburse our Manager for the expenses described below.

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Management and Administrative Services

Base and Rent Fees.    In respect of the aircraft in our Initial Portfolio and any other aircraft we may acquire that will be held by B&B Air Funding or any of its subsidiaries or any other subsidiary we establish for the purpose of entering into an aircraft securitization financing, we will pay our Manager

	•	a base fee of $150,000 per month per subsidiary we establish for the purpose of entering into an aircraft securitization financing, which will increase by 0.01% of the maintenance-adjusted base value (at the time of acquisition) of each additional aircraft acquired beyond the Initial Portfolio, in the case of B&B Air Funding, or beyond the initial portfolio of aircraft financed with the proceeds of the applicable aircraft securitization financing, in the case of any other subsidiary we establish for the purpose of entering into an aircraft securitization financing (the amount of the base fee will be subject to adjustment as set forth below under ‘‘— Fees and Expenses — Adjusting the Base Fees and Administrative Agency Fees&rsq uo;’); and

	•	a rent fee equal to 1.0% of the aggregate amount of basic rent due for all or any part of a month for any of such aircraft plus 1.0% of the aggregate amount of basic rent actually paid for all or any part of a month for any of such aircraft.

The pro forma base and rent fees we would have paid to the Manager in 2006 had we owned the Initial Portfolio as of January 1, 2006 would have been approximately $4.8 million. However, this entire amount would have been offset by servicing fees paid to BBAM pursuant to our servicing agreements. See ‘‘— Fees and Expenses — Credit for Servicing Fees Paid.’’

In respect of any aircraft we acquire that will be held by B&B Air Acquisition or any of its subsidiaries we will pay our Manager a fee equal to 3.5% of the aggregate amount of basic rent actually paid for all or any part of a month for any such aircraft.

Incentive Fee.    The 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. For the purpose of calculating the amount of the incentive fee payable to our Manager, a ‘‘notional amount’’ will be utilized. The notional amount for any quarter will be equal to the aggregate dividend paid on all of our common shares for such quarter plus any incentive fee payable to our Manager for such quarter as calculated in the following manner:

	•	100% of the notional amount will be paid as a dividend on our common shares, without the payment of any incentive fee to our Manager, up to a dividend of $0.575 per common share;

	•	90% of the incremental notional amount in excess of $0.575 per common share will be paid as a dividend on our common shares and 10% of the incremental notional amount will be paid to our Manager as an incentive fee until each common share receives a dividend of $0.650;

	•	80% of the incremental notional amount in excess of $0.650 per common share will be paid as a dividend on our common shares and 20% of the incremental notional amount will be paid to our Manager as an incentive fee until each common share receives a dividend of $0.800; and

	•	75% of the incremental notional amount in excess of $0.800 per common share will be paid as a dividend on our common shares and 25% of the incremental notional amount will be paid to our Manager as an incentive fee.

No incentive fee will be paid in respect of the period from the completion of this offering until December 31, 2007. The thresholds described above will be adjusted upon stock splits and stock dividends.

The table below illustrates the allocation of our aggregate quarterly notional amount as a dividend to our common shares and as an incentive fee payable to our Manager. These amounts are intended to illustrate that the incentive fee payable to our Manager provides an incentive for our Manager to increase our distributable cash flow. This is not intended to represent a prediction of future performance.

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Quarterly Dividend Per Common Share			Portion of Notional Amount Paid as Dividend to Common Shares						Portion of Notional Amount Paid as Incentive Fee to Manager
up to $0.575					100.00	%					0.00	%
$0.650					98.73	%					1.27	%
$0.800					94.58	%					5.42	%
$0.900					91.91	%					8.09	%
$1.000					89.89	%					10.11	%

Our Manager may elect to receive incentive fee payments in the form of cash or shares or any combination thereof. If our Manager elects to receive an incentive fee payment (or any portion thereof) in the form of shares, the number of shares to be so delivered will be equal to:

	•	the amount of the incentive fee (or applicable portion thereof to be paid in the form of shares), divided by

	•	the average closing price of one common share for the 15 consecutive trading days following the announcement of the declaration of the applicable dividend on shares (minus the per share amount of the dividend for any trading day before the ex-dividend date for the dividend).

Origination and Disposition Fees and Change of Control Fees

We will pay our Manager a fee for each acquisition or sale of aircraft or other aviation assets equal to 1.5% of the gross acquisition cost in respect of acquisitions or the aggregate gross proceeds in respect of dispositions. We will also pay our Manager a fee of 1.5% of the aggregate gross consideration received in respect of any change of control of our company, which includes the acquisition of more than 50% of our common shares or the acquisition of all or substantially all of our assets.

Notwithstanding the foregoing, no origination fees will be payable in respect of our acquisition of the aircraft in our Initial Portfolio.

Administrative Agency Fees

We will pay to our Manager an administrative agency fee initially equal to $750,000 per annum for each aircraft securitization financing we establish (the amount of the administrative agency fee for each aircraft securitization financing we establish will be subject to adjustment as set forth below under ‘‘— Fees and Expenses — Adjusting the Base Fees and Administrative Agency Fees’’).

Adjusting the Base Fees and Administrative Agency Fees

The amount of the base fee payable and the amount of the administrative agency fee payable for each aircraft securitization financing we establish will be increased (but not decreased) annually by the percentage movement (if any) in the CPI index from June 30, 2007 to December 31, 2007, in the case of calendar year 2008, and January 1 to December 31 of the previous year in the case of each calendar year thereafter.

Ancillary Management and Administrative Services

We will pay to our Manager such additional fees for any ancillary management and administrative services provided by our Manager to us from time to time as we and our Manager agree to before the ancillary management and administrative services are provided.

Credit for Servicing Fees Paid

Base fees and rent fees paid to BBAM under our servicing agreements and administrative services fees paid to our Manager under the administrative services agreements will be credited toward (and will thereby reduce) the base and rent fees payable to our Manager as described above under

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‘‘— Fees and Expenses — Management and Administrative Services — Base and Fees’’ and ‘‘— Fees and Expenses — Administrative Agency Fees.’’ Similarly, sales fees paid to BBAM under our servicing agreements in respect of aircraft dispositions will be credited toward (and will thereby reduce) the fee payable to our Manager in connection with dispositions as described above under ‘‘— Fees and Expenses — Origination and Disposition Services.’’ See ‘‘Servicing Agreements — Servicing Fees.’’

Break Fees

Our Manager will be entitled to one-third of the value of any break, termination or other similar fees received by us (with such value to be reduced by any third-party costs incurred by or on behalf of us or by our Manager on behalf of us in the transaction to which the fee relates) in connection with any investment or proposed investment to be made by us in any aircraft or other aviation assets.

Expenses of the Manager

We will pay or reimburse our Manager:

	•	quarterly payments to our Manager to defray expenses as follows:

	○	for the period commencing with the date this offering is completed and ending on December 31, 2007, an aggregate of $6.0 million annually, prorated for the number of days in the period.

	○	for calendar year 2008 and each calendar year thereafter, an aggregate of $6.0 million increased (but not decreased) by the percentage movement (if any) in the consumer price index from June 30, 2007 to December 31, 2007, in the case of calendar year 2008, and January 1 to December 31 of the previous year in the case of each calendar year thereafter.

We refer to the foregoing amounts as the ‘‘management expense amount.’’ The management expense amount is subject to adjustment by notice from our Manager and the approval of the independent directors on our board of directors.

	•	for all costs of ours paid for us by our Manager (other than remuneration and certain expenses in relation to our Manager’s core management team and our Manager’s corporate overhead), including the following items which are not covered by the management expense amount:

	○	directors’ fees for the directors on our board of directors and our subsidiaries,

	○	directors’ and officers’ insurance for our and our subsidiaries’ directors and officers,

	○	travel expenses of the directors (including flights, accommodation, taxis, entertainment and meals while traveling) to attend any meeting of the board of our company,

	○	registration fees and listing fees in connection with listing on the NYSE and registering our shares under the Securities Act,

	○	fees and offering and other expenses relating to this offering, the securitization, our credit facility and any other equity or debt financings we enter into in the future,

	○	fees and expenses of the depositary for our ADSs,

	○	costs and expenses related to insuring our aircraft and other aviation assets, including all fees and expenses of insurance advisors and brokers,

	○	costs incurred in connection with organizing and hosting our annual meetings or other general meetings of our company,

	○	costs of production and distribution of any of our securityholder communications, including notices of meetings, annual and other reports, press releases, and any prospectus, disclosure statement, offering memorandum or other form of offering document,

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	○	website development and maintenance,

	○	travel expenses of the core management team and other personnel of Babcock & Brown (including flights, accommodation, taxis, entertainment and meals while traveling) related to sourcing, negotiating and conducting transactions on our behalf and attending any meeting of the board or our company,

	○	external legal counsel,

	○	fees of third party consultants, accounting firms and other professionals,

	○	external auditor’s fees, and

	○	internal auditor’s fees.

The above list of items is subject to the addition of further items by notice from our Manager and the approval of our board of directors (which approval shall not be unreasonably withheld or delayed).

	•	for all taxes, costs, charges and expenses properly incurred by our Manager in connection with

	○	the provision of ancillary management and administrative services,

	○	the engagement of professional advisors, attorneys, appraisers, specialist consultants and other experts as requested by us from time to time; or

which our Manager considers reasonably necessary in providing the services and discharging its duties and other functions under the management agreement, including, without limitation, the fees and expenses of professional advisors relating to the purchase and sale of aircraft and other aviation assets.

We will also be required to bear any costs associated with the provision of information and other assistance we or our Manager is required to provide any government agency.

In the management agreement we also will agree to pay or reimburse our manager (or pay or reimburse Babcock & Brown as directed by our manager) for expenses and costs incurred on our behalf by Babcock & Brown prior to the date of completion of this offering.

Term and Termination

The term of the management agreement commences on the date of the consummation of this offering and continues until the date that is 25 years thereafter, unless terminated earlier. We may terminate our Manager’s appointment immediately upon written notice if but only if:

	•	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;

	•	any license, permit or authorization held by our 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 our Manager from performing the services and the situation is not remedied within 90 days;

	•	Babcock & Brown in aggregate ceases to hold (directly or indirectly) more than 50% of the issued share capital of our Manager; or

	•	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;

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	•	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’), and termination of our management agreement requires the vote of holders of 75% of our outstanding common shares.

Our Manager may terminate the management agreement immediately upon written notice if;

	•	we are delisted from the NYSE;

	•	we fail to make any payment due under the management agreement to our Manager within 15 days after the same becomes due;

	•	we otherwise materially breach the management agreement and fail to remedy the breach within 90 days of receiving written notice from our Manager requiring us to do so;

	•	we or any of our significant subsidiaries become subject to bankruptcy or other insolvency proceedings;

	•	an order is made for the winding up of our company; or

	•	any person or group (as defined under the Exchange Act) acquires more than 15% of any class of our voting securities.

Upon the termination of the management agreement, we will redeem all of the manager shares for their nominal value and must promptly change our name and all of our subsidiaries’ names so that they don’t include the words ‘‘Babcock & Brown,’’ ‘‘Babcock’’ or ‘‘Brown.’’

Conflicts of Interest

Nothing in the management agreement restricts Babcock & Brown or any of its affiliate or associates from:

	•	dealing or conducting business with us, our Manager, any affiliate or associate of Babcock & Brown or any shareholder of ours;

	•	being interested in any contract or transaction with us, our Manager, any affiliate or associate of Babcock & Brown or any shareholder of ours;

	•	acting in the same or similar capacity in relation to any other corporation or enterprise;

	•	holding or dealing in any of our shares or other securities or interests therein; or

	•	co-investing with us.

Acting in Interests of Shareholders

Without limiting the clause set out above, in performing the services under the management agreement, our Manager shall act in the best interests of our shareholders. If there is a conflict between our shareholders’ interests and our Manager’s interests, our Manager shall give priority to our shareholders’ interests.

Indemnification and Limitation of Liability

We assume liability for, and have agreed to indemnify our Manager and any person to whom our Manager delegates its obligations in compliance with the management agreement, and their respective members, shareholders, managers, directors, officers, employees and agents, on an after-tax basis

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against, any losses and liabilities (collectively, ‘‘Losses’’) that arise out of or in connection with the doing or failing to do anything in connection with the management agreement or on account of any bona fide investment decision made by the indemnified person, except insofar as any such loss is finally adjudicated to have been caused directly by the indemnified person from gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care under the management agreement. Our Manager and each other indemnified person is not liable to us for any Losses suffered or incurred by us arising out of or in connection with the indemnified person doing or failing to do anything in connection with the management agreement or on account of any bona fide investment decision made by the indemnified person, except insofar as any such Loss is finally adjudicated to have been caused directly by the gross negligence, fraud or dishonesty of, or wil lful misconduct in respect of the obligation to apply the standard of care under the management agreement by the indemnified person.

Independent Advice

For the avoidance of doubt, nothing in the management agreement limits the right of the members of our board of directors to seek independent professional advice (including, but not limited to, legal, accounting and financial advice) at our expense on any matter connected with the discharge of their responsibilities, in accordance with the procedures and subject to the conditions set out in our corporate governance principles from time to time.

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SERVICING AGREEMENTS

B&B Air Funding will enter into a servicing agreement with BBAM specifically relating to the aircraft in our Initial Portfolio, which we refer to as the Initial Portfolio Servicing Agreement, and we or one or more of our subsidiaries may from time to time enter into other servicing agreements specifically relating to aircraft acquired by subsidiaries of ours after the completion of this offering. We expect that while these servicing agreements will contain certain terms and conditions that will be similar to the Initial Portfolio Servicing Agreement, certain terms and conditions may differ materially from those contained in the Initial Portfolio Servicing Agreement. The following is a description of the terms of our Initial Portfolio Servicing Agreement.

The principal services being provided by BBAM relate to:

	•	lease marketing and remarketing, including lease negotiation;

	•	collecting rental payments and other amounts due under leases, collecting maintenance reserves and maintenance payments where applicable, lease compliance and enforcement and delivery and accepting redelivery of aircraft under lease;

	•	implementing aircraft dispositions;

	•	monitoring the performance of maintenance obligations of lessees under the leases in a manner consistent with the practices employed from time to time by BBAM with respect to aircraft owned or managed by it;

	•	using commercially reasonable efforts to maintain compliance with certain of our obligations in our financing agreements;

	•	procuring legal and other professional services with respect to the lease, sale or financing of the aircraft, any amendment or modification of any lease, the enforcement of our rights under any lease, disputes that arise as to any aircraft or for any other purpose that BBAM reasonably determines is necessary in connection with the performance of its services;

	•	periodic reporting of operational information relating to the aircraft, including providing certain reports to the policy provider; and

	•	certain aviation insurance related services.

The Initial Portfolio Servicing Agreement provides that BBAM will act in accordance with laws applicable to it, in certain cases with directions given by us, a cash manager or an administrative agent on behalf of us, with the specified standard of care described below and with the specified conflicts standard described below. BBAM does not have any fiduciary or other implied duties or obligations to us, our shareholders or any other person. BBAM and their respective subsidiaries cannot be held responsible for any liabilities of ours, including any payment of any dividends to our shareholders or payments due in respect of any financing.

Operating Guidelines

Under the Initial Portfolio Servicing Agreement, BBAM is entitled to exercise such authority as is necessary to give it practical and working autonomy in performing its services. The agreement provides that BBAM will give us and our agents access to records related to the aircraft under specified circumstances to enable us to monitor the performance by BBAM, except for internal correspondence, approval materials, internal evaluations and similar documents or other records developed by BBAM and its affiliates for their own use. BBAM also will not commingle any funds of ours with its own funds.

The following transactions entered into by BBAM on our behalf require our prior written approval:

	•	sales of our aircraft (other than sales made in accordance with the terms of any lease and certain other exceptions);

	•	entering into or renewing leases or extending most leases if the resulting lease does not comply with any applicable operating covenants set forth under our financing agreements, permits the lessee to assign its obligations without the consent of the lessor, or if a new lease grants a purchase option in favor of the lessee;

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	•	terminating any lease or leases to any single lessee for aircraft (1) prior to the fifth anniversary of the completion of this offering, then having an aggregate depreciated net book value in excess of $100 million at a time and (2) thereafter, with respect to more than five aircraft, in either case unless such lease or leases are substituted or replaced by other substantially similar lease or leases or there is an event of default under such lease or unless the termination is related to exercising remedies following an event of default under the lease;

	•	unless provided for in our budget, entering into any contract for certain major modification or maintenance of aircraft costing in excess of specified amounts;

	•	issuing any guarantee on our behalf (other than with respect to our obligations as a lessor under a lease), or otherwise pledging our credit, with certain exceptions related to trade payables, bonds and similar instruments obtained to repossess an aircraft, removing a lien or similar actions not involving payments or cash collateral deposits on our behalf in excess of $3 million in any individual case, or $20 million in the aggregate, and issuing guarantees related to our other obligations except in instances in which BBAM is seeking to repossess or protect an aircraft asset after imminent default or event of default under a lease;

	•	except in limited circumstances, entering into, amending or granting a waiver with respect to, any transaction between us and Babcock & Brown or any of its affiliates not contemplated in the servicing agreement including for the acquisition, sale or lease of any aircraft assets from or to, or the obtaining of services by any such person (except for the acquisition, sale, exchange or lease of or services in respect of any engine, parts or components thereof, or aircraft spare parts or engine spare parts, components or ancillary equipment or devices furnished therewith);

	•	incurring any actual or contingent liability unless (1) contemplated in our budget, (2) incurred in entering into a lease or sale or performing any obligation under a lease or sale contract or (3) incurred in the ordinary course of business and so long as such individual liability at the time of its incurrence is not reasonably expected to result in a net out-of-pocket cash expenditure of more than $3 million in any individual case, or $20 million in the aggregate, except in instances in which BBAM is seeking to repossess or otherwise protect an aircraft; or asset after default under a lease in an amount equal to the adjusted appraised value of such aircraft; provided that, except with respect to repossession or protection of an aircraft asset, liabilities incurred after the fifth anniversary of the closing date cannot exceed $1 million per aircraft asset per year or $20 million in the aggregate for all aircraft assets;

	•	entering into any order or commitment to acquire, or acquiring, aircraft or, so long as no individual net (after credit for exchanges, replacements or similar items) out-of-pocket cash expenditures exceed $3 million in any individual case, or $20 million in the aggregate after the fifth anniversary of the closing date, aircraft engines unless, in the case of aircraft engines, provided for in a lease or as provided for in our budget.

The agreement requires all transactions entered into by BBAM on behalf of us other than intracompany transactions among us and our subsidiaries to be at arm’s length and on market terms unless otherwise agreed or directed by us.

Budgets

The agreement calls for us to prepare each year a single lease operating budget for our aircraft in our Initial Portfolio and a single budget for the aircraft expenses related to such aircraft.

Standard of Care

BBAM has agreed to perform the services required by the agreement with reasonable care and diligence at all times consistent with the customary commercial practice of major international aircraft lessors in the management, servicing and remarketing of commercial jet aircraft and related assets, and its practices (and with no less reasonable care and diligence) with respect to aircraft BBAM owns or manages, subject in all cases to the provisions of the servicing agreement and the indenture governing our securitization debt.

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Term and Termination

The Initial Portfolio Servicing Agreement expires on the later of (1) the maturity date of the notes issued in the securitization and (2) the date of repayment of all principal and other amounts due under the securitization (including any amounts owed to the policy provider).

We have the right to terminate the agreement (with the prior written consent of the policy provider) and the policy provider has the independent right to terminate the agreement (without our consent) if, among other things,

	•	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 fraud, deceit, gross negligence or willful misconduct 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 or fails to perform its services in a manner that directly results in an event of default under our securitization debt;

	•	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;

	•	BBAM or Babcock & Brown becomes subject to bankruptcy or insolvency proceedings;

	•	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;

	•	due to conflicts of interest, BBAM withdraws from servicing $250 million of our aircraft in any twelve consecutive months or $800 million of our aircraft in any sixty consecutive months, such amounts based on appraised values of our aircraft as of the closing date of the securitization; or

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

BBAM is entitled to terminate the agreement if, among other things, we default in our payment and other obligations thereunder or we fail to perform or observe any material term, covenant, condition or agreement thereunder in a manner reasonably likely to materially adversely affect BBAM or BBAM’s rights and obligations thereunder, any material representation or warranty made by us or our subsidiaries is false or misleading in a manner material to BBAM, we or any of our applicable subsidiaries no longer hold any aircraft, the indenture ceases to be in full force and effect and no policy provider obligations are outstanding, or if any competitor of BBAM controls or becomes the beneficial owner, directly or indirectly, of more than 50% of any class of our or B&B Funding’s securities or obtains director appointment rights. A competitor of BBAM is defined by reference to certain named aircraft leasing companies, their successors, any other compa ny that has consolidated annual aircraft leasing or aircraft or engine manufacturing revenues of in excess of $200 million, and any entity which beneficially owns 15% or more of the voting securities of any such company.

To mitigate the risk of these potential terminations by BBAM, we have included certain provisions in our bye-laws applicable to the acquisition by a competitor of BBAM of a beneficial interest in 15% or

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more of our voting securities. Our bye-laws provide that if a competitor of BBAM acquires beneficial ownership of 15% or more of our shares, then we have the option, but not the obligation, within 90 days of the acquisition of such threshold beneficial ownership, to require that shareholder to tender for all of our remaining common shares, or to sell such number of shares to us or to third parties at fair market value as would reduce its beneficial ownership to less than 15%. In addition, our bye-laws provide that the vote of each share held by a competitor of BBAM who beneficially holds 15% or more, but less than 50%, of our shares will be reduced to one-fifth of a vote per share on all matters upon which our shareholders may vote. See ‘‘Description of Share Capital — Anti-Takeover Provisions.’’

BBAM may also resign with respect to all aircraft serviced under the Initial Portfolio Servicing Agreement 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. Whether or not it resigns, BBAM is not required to take any action of the foregoing kind. BBAM may also resign in certain circumstances if it becomes subject to taxes for which we do not indemnify BBAM.

The Initial Portfolio Servicing Agreement provides that BBAM may not resign or be removed as servicer, and the agreement may not be terminated as provided above, unless a replacement servicer has been appointed and B&B Air Funding (or if an event of default has occurred and is continuing, the policy provider) has obtained a confirmation from the rating agencies rating its notes that they will not lower, qualify or withdraw any rating as a result, as well as the consent of the policy provider. If a replacement servicer has not been appointed within 90 days after notice of any termination, resignation or removal, BBAM, we and in certain instances the policy provider or the security trustee may petition any court of competent jurisdiction to appoint a replacement servicer. Notwithstanding the foregoing BBAM may terminate the servicing agreement immediately after a five-day cure period if B&B Air Funding fails to pay BBAM servicing fees due to BBAM or after a ten-day cure period if B&B Air Funding fails to pay other amounts payable under the servicing agreement or other documents.

Neither B&B Air Funding, nor BBAM may assign its rights and obligations under the Initial Portfolio Servicing Agreement without the other party’s prior consent. The servicer may, however, delegate some, but not all, of its duties to its affiliates.

Servicing Fees

The Initial Portfolio Servicing Agreement provides that we will pay to BBAM

	•	a base fee of $150,000 per month, which will increase by 0.01% of the maintenance-adjusted base value (at the time of acquisition) of each additional aircraft acquired into B&B Air Funding that is not an aircraft in our Initial Portfolio; and

	•	a rent fee equal to 1.0% of the aggregate amount of basic rent due for all or any part of a month for any of such aircraft plus 1.0% of the aggregate amount of basic rent actually paid for all or any part of a month for any of such aircraft.

The pro forma servicing fees we would have paid to BBAM in 2006 had we owned the Initial Portfolio as of January 1, 2006 would have been approximately $4.8 million.

BBAM is also entitled to additional servicing fees consisting of a sales fee for each sale of an aircraft equal to 1.5% of the aggregate gross proceeds in respect of dispositions of aircraft assets. Fees for additional services will be as mutually agreed. BBAM also will be reimbursed for, among other things, all aircraft-related maintenance costs and insurance, outside legal and professional advisory fees and other expenses incurred in connection with its services. The aggregate reimbursement expenses may be significant. We have also agreed to indemnify BBAM as described below. Our subsidiaries will, if requested by BBAM, guarantee our obligations to BBAM.

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We expect that pursuant to the servicing agreement we will enter into relating to aircraft to be acquired by B&B Air Acquisition we will pay to BBAM a fee equal to 3.5% of the aggregate amount of base rent actually paid for all or any part of a month.

Conflicts of Interest

In addition to servicing our aircraft, BBAM currently manages and remarkets for lease or sale other aircraft and will continue to market for sale or lease other aircraft for third parties (including other aircraft owned by Babcock & Brown and its affiliates). In the course of conducting such activities, BBAM will from time to time have conflicts of interest in performing its obligations on our behalf. See ‘‘Risk Factors — Risks Related to Our Relationships with Babcock & Brown — Babcock & Brown will have conflicts of interest with us, and their limited contractual or other duties may not restrict them from favoring their own business interests to our detriment.’’ If a conflict of interest arises as to one of our aircraft and other aircraft managed by BBAM, BBAM must perform the services in good faith, and, to the extent that our aircraft and 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.

If BBAM in good faith determines that circumstances as to a particular aircraft or lease require an arm’s-length negotiation between BBAM or any of its affiliates and us and BBAM believes it would not be appropriate for it to act on behalf of us, BBAM has agreed to notify us promptly and to withdraw from acting as the servicer with respect to the matter and BBAM will, at its expense, appoint an independent representative (which may be any person that engages in the business of an operating lessor or the manager or servicer of a portfolio of at least 75 aircraft) to act on our behalf. BBAM is entitled to act on its own or its affiliates’ behalf in those negotiations. Except in certain circumstances, the fees of such independent representative will be paid by BBAM.

Indemnification

B&B Air Funding assumes liability for, and has agreed to indemnify BBAM on an after-tax basis against, any losses that arise as a result of or in connection with the aircraft or BBAM’s or its director’s, officer’s or employee’s (or any BBAM delegate’s) performance of its obligations under the servicing agreement or from errors in judgment or omissions by BBAM under the servicing agreement, except for any loss that is finally adjudicated to have been caused directly by BBAM from gross negligence, fraud, deceit or willful misconduct in respect of its obligation to apply its standard of care or conflicts standard described above in the performance of its services. B&B Air Funding will likewise agree that BBAM and its affiliates will have no liability to B&B Air Funding or any other person for any losses in any way arising out of the services except as provided in the foregoing sentence (also referred to as BBAM’s &lsq uo;‘standard of liability’’). B&B Air Funding will also generally agree to indemnify BBAM and its affiliates as to losses arising out of this offering and the disclosure in this prospectus.

BBAM has agreed to indemnify B&B Air Funding on an after-tax basis for, any losses, directly or indirectly, arising out of, in connection with or related to BBAM’s, its directors’, officers’ or employees’ (or any delegate’s) finally adjudicated fraud, deceit, gross negligence or willful misconduct in respect of any of its obligations to apply the standard of care or the conflicts standard in respect of its performance of the services or any representation or warranty by BBAM in the servicing agreement having proven to be false on the date thereof.

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MANAGEMENT

Directors and Executive Officers of Our Company

The following table presents information about our directors and executive officers. The business address of each of our directors and executive officers listed below is West Pier, Dun Laoghaire, County Dublin, Ireland. Our telephone number at that address is +353 1 231-1900.

Name			Age						Position
Colm Barrington					61				Chief Executive Officer and Director
Steven Zissis					47				Chairman and Director
James Fantaci					60				Director
Erik G. Braathen					51				Director
Sean Donlon					66				Director
Joseph M. Donovan					52				Director
Susan M. Walton					47				Director

Colm Barrington has been our chief executive officer and a member of our board of directors since May 2007. Mr. Barrington is a 14-year veteran of Babcock & Brown and has nearly 40 years of global experience in the aviation industry. Prior to his appointment with our Manager, Mr. Barrington was the managing director of Babcock & Brown Limited in Ireland where he worked closely with the BBAM team in aircraft and lease management and in arranging cross-border lease financings of commercial aircraft. Mr. Barrington began his aviation career in 1967 at Ireland’s national airline, Aer Lingus, where he was a financial analyst before becoming a director of hotel acquisitions. When Aer Lingus acquired a U.S. hotel company (now Omni Hotels) in 1972, he became vice president of development and assistant to the president in that company, based in New Hampshir e. In 1979, Mr. Barrington joined GPA Group plc where he held various executive positions, including chief operating officer. As chief operating officer, he was responsible for all of GPA’s purchasing, leasing and selling of aircraft, including arrangement of specialized financings and aircraft operating leases. Upon GECAS’s agreement in 1993 to manage GPA’s assets, Mr. Barrington oversaw the successful integration of the two companies. Mr. Barrington is a director of IFG Group plc and Dublin Airports Authority plc. Mr. Barrington received a BA and an MA in Economics from University College Dublin. He also received a public administration degree from the Institute of Public Administration, also in Dublin.

Steven Zissis has been our chairman and a member of our board of directors since June 2007. Mr. Zissis is the President of BBAM. Prior to joining Babcock & Brown in 1990, Mr. Zissis was a vice president of Citibank, where he was also a founder and manager of the Portfolio Acquisition and Divestiture team. Mr. Zissis graduated from Rhodes College with a degree in Finance and International Studies.

James Fantaci has been a member of our board of directors since May 2007. Mr. Fantaci is an executive director of Babcock & Brown Limited, where he coordinates the group’s operating leasing activities worldwide. Prior to joining Babcock & Brown in 1982, Mr. Fantaci was senior vice president of the New York office of Matrix Leasing International and prior to that he served as assistant treasurer of the Bank of New York. Mr. Fantaci is a director of Babcock & Brown Structured Finance Fund. Mr. Fantaci attended the New School for Social Research and graduated from Brooklyn College with a degree in Economics.

Erik G. Braathen has been a member of our board of directors since June 2007. Mr. Braathen has been the chief executive of Ojada AS, a privately owned investment company, since 1999. Prior to joining Ojada AS, Mr. Braathen founded the airline Braathens ASA where he gained extensive experience in the airline industry from 1986 to 1999. Mr. Braathen is the chairman of the boards of Norwegian Air Shuttle ASA and Ipnett AS, and is a member of the boards of directors of Well Diagnostics AS, Sayonara AS, Ojada AS, Inventron AS, Sponsor Service ASA and Talos AS. Mr. Braathen has a Master of International Management from AGSIM, Phoenix Arizona, and a Bachelor of Arts & Economics from the University of Washington.

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Sean Donlon has been a member of our board of directors since June 2007. Mr. Donlon has served as the chancellor of the University of Limerick, Ireland since 2002. Mr. Donlon has previously worked with the GPA Group plc, as well as with GE Capital Aviation Services. Prior to entering the private sector, he had a long career in the Irish public service, having been Irish Ambassador to the United States of America and Secretary General of the Department of Foreign Affairs. Mr. Donlon is a director of Norwich Union International Ltd, Hibernian Group plc, Ark Life Insurance Ltd and Enba plc. Mr. Donlon is a graduate of the University College Dublin.

Joseph M. Donovan has been a member of our board of directors since June 2007. Prior to his retirement in January 2007, Mr. Donovan was chairman of Credit Suisse’s asset-backed securities and debt financing group, which he led for nearly seven years. Prior thereto, Mr. Donovan was a managing director and head of asset finance at Prudential Securities (1998-2000) and Smith Barney (1995-1997). Mr. Donovan began his banking career at The First Boston Corporation in 1983, ultimately becoming a managing director at CS First Boston, where he served as Chief Operating Officer of the Investment Banking Department from 1992 to 1995. Mr. Donovan received his MBA from The Wharton School and has a degree in Accountancy from the University of Notre Dame.

Susan M. Walton has been a member of our board of directors since June 2007. Ms. Walton is the chief executive of Hampshire & Isle of Wight Wildlife Trust (‘‘HWT’’), a leading wildlife conservation charity in England, where she is responsible for biodiversity projects in two counties and developing partnerships with key stakeholder groups. Prior to joining HWT in 2006, she served as general manager – structured finance and export credit, for Rolls-Royce Capital Limited I for over ten years. Ms. Walton was also a Principal at Babcock & Brown from 1989 to 1997 where she was responsible for producing and implementing Babcock & Brown’s annual European marketing plan. Ms. Walton is a trustee for Buglife – The Invertebrate Conservation Trust and a member of Chichester Harbour Conservancy. Ms. Walton holds a degree in Environ mental Conservation from Birkbeck College, University of London.

New Chief Financial Officer

Following completion of this offering we expect that Gary Dales will become our chief financial officer. Mr. Dales’s prior position was director of corporate development at PG&E Corporation, an energy based holding company with over $11 billion in revenue and over $34 billion in assets. Prior to assuming that position, Mr. Dales served in various other financial roles at PG&E since 1994, including director of corporate accounting and SEC reporting. Prior to joining PG&E, Mr. Dales was a staff accountant, and later a manager, in the accounting and audit division at Arthur Andersen & Co. for more than 10 years. Mr. Dales graduated from the University of California, Santa Barbara with a BA in Business Economics.

Board of Directors

Our board of directors currently consists of seven members. Our bye-laws provide that the board of directors is to consist of a minimum of two and a maximum of 15 directors as the board of directors may from time to time determine. Pursuant to our management agreement and our bye-laws, so long as Babcock & Brown holds any of our manager shares, our Manager has the right to appoint the whole number of directors on our board of directors that is nearest to but not more than 3/7ths of the number of directors on our board of directors at the time. These directors are not required to stand for election by shareholders other than our Manager. See ‘‘Description of Share Capital — Election and Removal of Directors.’’

A majority of our directors will be ‘‘independent’’ as defined under the applicable rules of the New York Stock Exchange. Our board of directors will elect one of such directors to serve as a lead independent director.

Committees of the Board

The standing committees of our board of directors consist of an audit committee, a compensation committee and a nominating and corporate governance committee. These committees are described below. Our board of directors may also establish various other committees to assist it in its responsibilities.

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Audit Committee

Our Audit Committee is concerned primarily with the accuracy and effectiveness of the audits of our financial statements by our independent auditors. Its duties include:

	•	selecting independent auditors for approval by our shareholders;

	•	reviewing the scope of the audit to be conducted by our independent auditors, as well as the results of their audit;

	•	approving audit and non-audit services provided to us by the independent auditors;

	•	reviewing the organization and scope of our internal system of audit, financial and disclosure controls;

	•	overseeing our financial reporting activities, including our annual report, and the accounting standards and principles followed;

	•	reviewing and approving related-party transactions and preparing reports for the board of directors on such related-party transactions; and

	•	conducting other reviews relating to compliance by our employees with our policies and applicable laws.

Each of the members of the Audit Committee is an ‘‘independent’’ director as defined under the applicable rules of the New York Stock Exchange. Mr. Donovan, Mr. Donlon and Mr. Braathen serve on the Audit Committee, and Mr. Donovan serves as chairperson.

Compensation Committee

Our Compensation Committee will be consulted by our Manager regarding the remuneration of our chief executive and chief financial officers and will be responsible for determining the compensation of our independent directors. Each of the members of the Compensation Committee is an ‘‘independent’’ director as defined under the applicable rules of the New York Stock Exchange. Mr. Braathen, Mr. Donlon and Ms. Walton serve on the Compensation Committee, and Mr. Braathen serves as chairperson.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee’s responsibilities include the selection of potential candidates for our board of directors and the development and annual review of our governance principles. This committee also annually reviews director compensation and benefits and makes recommendations to our board of directors concerning the structure and membership of the other board committees. Each of the members of the Nominating and Corporate Governance Committee is an ‘‘independent’’ director as defined under the applicable rules of the New York Stock Exchange. Mr. Donlon, Ms. Walton and Mr. Braathen serve on the Nominating and Corporate Governance Committee, and Mr. Donlon serves as chairperson.

Lead Independent Director

Mr. Donovan serves as the lead independent director on our board of directors.

Compensation of Directors

Following the completion of this offering, each independent member of our board of directors will receive an annual cash retainer of $100,000 payable in equal quarterly installments and pro rated for our initial quarter. Our lead independent director will receive an additional $25,000 per year. Each director who is a chairman of a committee of the board of directors will receive an additional $15,000 per year.

Executive Compensation

Pursuant to the management agreement, we will receive the dedicated services of our Manager’s chief executive officer and chief financial officer, who will serve as our chief executive officer and chief

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financial officer, respectively, by appointment of our board of directors but will also remain employees of Babcock & Brown. The services performed by our chief executive officer and chief financial officer are provided at the cost of our Manager or an affiliate of our Manager. Our Manager or an affiliate of our Manager, in consultation with the compensation committee of our board of directors, determines and pays the compensation of our chief executive officer and chief financial officer.

Our Management

Pursuant to the management agreement, our chief executive officer and chief financial officer will manage our day-to-day operations and affairs on a permanent and wholly dedicated basis. Our board of directors and our chief executive officer and chief financial officer will have responsibility for overall corporate strategy, acquisitions, financing and investor relations. Our chief executive officer and chief financial officer will call upon the resources of our Manager to run our business.

Management of Our Manager

Pursuant to our management agreement, we will appoint Babcock & Brown Air Management Co. Limited, a wholly owned subsidiary of Babcock & Brown, as our Manager to perform the management services discussed under ‘‘Management Agreement.’’ The board of directors of our Manager is responsible for the oversight of the management of our Manager.

The following table presents information about the directors and executive officers of our Manager, all of whom are employees of Babcock & Brown.

Name			Age						Position
Steven Zissis					47				Chairman of the Board of Directors
Colm Barrington					61				Director
James Fantaci					60				Director
Philip Mackey					50				Director
John Lynch					42				Alternate Director
Robert Tomczak					45				Alternate Director

Philip Mackey is the Chief Operating Officer of Specialized Funds for Babcock & Brown. Prior to joining Babcock & Brown, he was Company Secretary at Australand Holdings Limited, an Australian property developer, and held many senior executive roles at AMP Limited, an Australian financial services company. Prior to AMP Limited, Mr. Mackey was with Deloitte Touche Tohmatsu for 11 years. He is currently a Fellow of Chartered Secretaries Australia, an Associate of The Institute of Chartered Accountants in Australia, and a member of the Australian Institute of Company Directors. Mr. Mackey has a degree in Business from Charles Stuart University, Bathurst, and a graduate degree in Company Secretarial Practice from University of Technology, Sydney.

John Lynch leads the BBAM technical team and has over 18 years of experience in the aircraft leasing industry. Prior to joining Babcock & Brown in 1998, Mr. Lynch worked for Lufthansa Technik as a senior engineer in the engineering division. Mr. Lynch graduated from University College, Dublin with an MBA and has degrees in Mathematics and Engineering and a Graduate Diploma in Management from Trinity College, Dublin.

Robert Tomczak leads the BBAM accounting, finance and contract management team and has over 16 years of experience in the aircraft leasing industry. Prior to joining Babcock & Brown in 1987, Mr. Tomczak worked for Arthur Andersen & Co. and is currently a member of the California Society of Certified Public Accountants. He graduated from California State University at Hayward with a degree in Finance and Accounting.

Mr. Zissis’s, Mr. Barrington’s and Mr. Fantaci’s biographies are set forth above under ‘‘ — Directors and Executive Officers of Our Company.’’

Either Mr. Lynch or Mr. Tomczak, or both, will attend board meetings as alternate directors when any of Mr. Fantaci, Mr. Mackey or Mr. Zissis, or any two, are unable to attend.

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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

We will enter into various agreements with the Aircraft Sellers and Babcock & Brown that will effect the transactions relating to our formation, this offering, the securitization and our ongoing operations and business. Although the pricing and other terms of these agreements were reviewed by our management and our board of directors, they were determined by entities affiliated with 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 transactions among unaffiliated third parties.

Asset Purchase Agreement

B&B Air Funding will acquire the aircraft in our Initial Portfolio pursuant to the asset purchase agreement described under ‘‘Asset Purchase Agreement.’’

Management Agreement

Upon completion of this offering, we will enter into a management agreement with our Manager described under ‘‘Management Agreement.’’

Servicing Agreement

Upon completion of this offering, we will enter into a servicing agreement with BBAM described under ‘‘Servicing Agreement.’’ We also expect to enter into additional servicing agreements with BBAM in the future.

Administrative Services Agreements

Upon completion of this offering, B&B Air Funding will enter into an administrative services agreement with Babcock & Brown Air Management Co. Limited referred to under ‘‘Description of Indebtedness — Securitization — Administrative Services Agent.’’ In connection with our ‘‘warehouse’’ credit facility, we expect that B&B Air Acquisition will enter into an administrative services agreement with BBAM referred to under ‘‘Description of Indebtedness — Credit Facility.’’

Private Placement Agreements

Babcock & Brown and the other private investors have agreed to purchase from us, in a private placement concurrent with this offering, 14,907,800 shares at a price per share equal to the initial public offering price in this offering. In consideration of the issue and delivery of such shares, Babcock & Brown and most of the other private investors that are existing equity holders of JET-i will deliver to us a combination of cash and promissory notes. The amount paid in cash by each such private investor will be equal to the amount of cash that such private investor receives as a distribution from JET-i on the date of completion of this offering from the proceeds of the sale of the aircraft in our Initial Portfolio, after payment of indebtedness of JET-i related to such aircraft. The balance of the purchase price due from each such private investor will be delivered in the form of a promissory note secured by such private investors’ member ship interest in JET-i and its shares purchased in the private placement. The promissory notes will become due 210 days after the completion of this offering and must be prepaid with any proceeds received by such private investors from the exercise by the underwriters of their over-allotment option and distributions made by JET-i Leasing of proceeds of the sale of aircraft in our Initial Portfolio received as aircraft are delivered. The promissory notes will bear interest at a rate equal to 4%. In consideration of the arrangement of the transactions occurring in connection with this offering, certain of the private investors that are current equity holders of JET-i have also agreed to pay to us an aggregate amount of $3.0 million.

Registration Rights Agreement

Upon completion of the private placement, we will enter into a registration rights agreement with Babcock & Brown and the other private investors purchasing our shares in the private to register such shares. This agreement is described under ‘‘Shares Eligible for Future Sale — Registration Rights Agreement.’’

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Interests of Officers and Directors in Aircraft Sellers

Steven Zissis, chairman of our board of directors and of the board of directors of our Manager and the President of BBAM, owns a 20% interest in Double Black Diamond LLC, a Delaware limited liability company certain of whose subsidiaries (the Aircraft Sellers other than JET-i Leasing) own three aircraft in our Initial Portfolio representing 5.9% of the appraised value of our Initial Portfolio. 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 we will pay an aggregate purchase price for these aircraft of $85.0 million, before any adjustments following the completion of this offering as described under ‘‘Asset Purchase Agreement.’’ Mr. Zissis will receive 20% of the proceeds of the sale of these aircraft by Double Black Diamond LLC.

Mr. Zissis and James Fantaci, a member of our board of directors and the board of directors of our Manager, each has an investment interest of less than 1.0% in Babcock & Brown Structured Finance Fund Limited which indirectly holds 11.4% of the membership interests in JET-i Holdings LLC through B&B Aircraft Lessor No.1 Ltd. Mr. Fantaci is also a director of Babcock & Brown Structured Finance Fund Limited. Colm Barrington, our chief executive officer and a member of our board of directors, Mr. Zissis and Mr. Fantaci each has an investment interest of less than 0.5% in Babcock & Brown Global Partners which owns BBGP Aircraft Holdings Limited, a private investor which holds 32.8% of the membership interests in JET-i Holdings LLC.

Entities Associated with Babcock & Brown May Purchase Shares in this Offering

Entities associated with Babcock & Brown or managed by entities in which Babcock & Brown has an interest have in prior offerings purchased securities of investment vehicles managed by affiliates of Babcock & Brown. We expect that such types of entities may purchase shares in this offering.

Expense Reimbursements

We and JET-i will each pay half of the fees and expenses related to the delivery of the aircraft and the novations of the leases in our Initial Portfolio. We may also reimburse JET-i for a portion of the cost of entering into an option on an interest rate swap agreement intended to fix a portion of the floating rate interest payable on the securitization notes.

Our Predecessor’s Related-Party Transactions

JET-i Leasing has no employees and has outsourced to Babcock & Brown its daily operations through various agreements. A description of our predecessor’s related party transactions is contained in Note 10 to our predecessor’s audited historical financial statements included elsewhere in this prospectus.

Procedures for Approval of Related-Party Transactions

In connection with this offering, we will adopt a written policy relating to the approval of related-party transactions. Our Audit Committee will review all relationships and transactions in which we and affiliates of Babcock & Brown, our directors and executive officers or their immediate family members are participants with material interests. Our Manager will be primarily responsible for the development and implementation of processes and controls to obtain information from our directors and executive officers with respect to related-party transactions and for determining, based on the facts and circumstances, whether we or a related person have a direct or indirect material interest in the transaction.

As set forth in the Audit Committee’s charter, in the course of its review of a related-party transaction, the committee will consider:

	•	the nature of the related person’s interest in the transaction;

	•	the material terms of the transaction, including, without limitation, the amount and type of transaction;

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	•	the importance of the transaction to the related person;

	•	the importance of the transaction to us;

	•	whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the company; and

	•	any other matters the Audit Committee deems appropriate.

Any member of the Audit Committee who is a related person with respect to a transaction under review will not be permitted to participate in the deliberations or vote respecting approval or ratification of the transaction. However, such director may be counted in determining the presence of a quorum at a meeting of the committee that considers the transaction.

Babcock & Brown Managed Investment Vehicle Protocols

Babcock & Brown has adopted investment protocols that apply to all of its managed investment vehicles, including our company.

Our Manager has informed us that in determining whether an investment vehicle managed by Babcock & Brown is offered an investment opportunity, Babcock & Brown will consider the following principles:

	•	whether the investment opportunity is within such investment vehicle’s investment objectives and policy;

	•	whether such investment vehicle is able to finance the investment at that time and at what cost; and

	•	the capacity and interest of other investment vehicles managed by Babcock & Brown for that investment.

Where Babcock & Brown is offering an investment opportunity to one or more of its managed investment vehicles and that opportunity is of interest to and within the investment objectives and policy of our company and other investment vehicles managed by Babcock & Brown, Babcock & Brown will determine whether and to whom to offer the opportunity after taking into account each investment vehicle’s investment strategy, policy and objectives and each investment vehicle’s willingness to acquire less than all of the investment. Each investment vehicle, including our company, will decide whether or not to accept any investment opportunity offered to it by Babcock & Brown pursuant to the terms of its management agreement with Babcock & Brown.

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DESCRIPTION OF INDEBTEDNESS

Securitization

Concurrently with the completion of this offering our subsidiary B&B Air Funding will complete a securitization transaction that will generate net proceeds of approximately $846.3 million after deducting initial purchasers’ discounts and fees. B&B Air Funding is a special purpose exempted company that was organized under the laws of the Bermuda to purchase our Initial Portfolio. Although B&B Air Funding is organized under the laws of the Bermuda, it will be resident in Ireland for Irish tax purposes and thus subject to Irish corporation tax on its income in the same way, and to the same extent, as if it were organized under the laws of Ireland. The authorized business of B&B Air Funding is limited to acquiring, buying, leasing, maintaining, operating and selling aircraft and entering into hedge agreements and credit facilities related to such activities. We own 100% of the Class A Shares of B&B Air Funding, through which we are the bene ficiary of more than 99.99% of the equity interest in the property of B&B Air Funding. A charitable trust established for the benefit of identified charities, which we refer to as the Charitable Trust, indirectly owns 100% of the Class B Shares of B&B Air Funding entitling it to a nominal equity interest in the property of B&B Air Funding. Holders of the Class A Shares are entitled to vote on all matters on which shareholders of B&B Air Funding are entitled to vote. Holders of the Class B Shares are entitled to vote solely on matters relating to a winding-up, a dissolution, merger, consolidation, transfer of assets and certain limitations on the issuance, transfer and sale of ownership interests, and certain matters with respect to bankruptcy and corporate governance of B&B Air Funding. We refer to B&B Air Funding and its subsidiaries as B&B Air Funding.

Under the terms of the securitization, a single class of notes, to which we refer as the notes, initially will be issued by B&B Air Funding. The notes will be direct obligations of B&B Air Funding and are not obligations of, or guaranteed by, Babcock & Brown, any of its affiliates or us. The proceeds from the sale of the notes, together with the proceeds from this offering and the private placement of shares to Babcock & Brown, less certain expenses related to the securitization and this offering and a cash balance we will retain, will be used by B&B Air Funding to finance the acquisition of our Initial Portfolio under the asset purchase agreement. See ‘‘Asset Purchase Agreement.’’

The notes will have the benefit of a financial guaranty insurance policy issued by the policy provider identified below to support the payment of interest when due on the notes and the payment of the outstanding principal balance of the notes on the final maturity date of the notes and, under certain other circumstances, prior thereto.

The notes are to be initially rated Aaa, AAA and AAA by Moody’s Investors Service, Inc., or Moody’s, Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., and Fitch Ratings Inc., respectively.

The notes will be issued pursuant to the terms of a trust indenture to be dated the date of the completion of this offering, which we refer to as the indenture, among B&B Air Funding, a cash manager, a trustee, an operating bank, a liquidity facility provider and a policy provider, which is expected to be Ambac Assurance Corporation.

We will own all the aircraft in our Initial Portfolio through B&B Air Funding and its subsidiaries. As a result, our rights to these aircraft 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 will be paid from its assets before we would have any claims to those assets. The obligations of B&B Air Funding in connection with the securitization are without recourse to us or our other subsidiaries except to the extent provided in an acknowledgement and consent expected to be provided by us, under which we will agree to indemnity the policy provider for certain enforcement expenses and any losses arising from untrue statements made in connection with the securitization. The terms of the indenture impose restrictions on the ability to lease or sell the aircraft in the Initial Portfolio and require B&B Air Funding to apply its cash flow in accordance with the prioriti es established in the indenture as described below.

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Administration of B&B Air Funding

B&B Air Funding will be governed by a board of directors comprised of three directors, each of whom we initially will appoint. One of these directors is Colm Barrington, and the other two directors will be independent of us and Babcock & Brown and its affiliates. In the event that an independent director steps down, the remaining directors will jointly nominate five candidates for approval by the security trustee, acting reasonably, to fill the vacant position. The replacement director will be selected by the holders of the Class A Shares from such approved candidates. In the event that both of the independent director positions are vacant at the same time, the holders of the Class A Shares will nominate seven candidates for approval by the security trustee, acting reasonably, to fill the vacant independent director position. Upon receipt of approval by the security trustee, the holders of the Class A Shares may then elect two such candidates as independ ent directors. We refer to the director who is not independent (initially Colm Barrington) as the equity director. The board will be responsible for the management of the property and affairs of B&B Air Funding. The consent of the equity director will be required in order to, among other things, dispose of or acquire aircraft, incur additional indebtedness or cause a merger or consolidation of B&B Air Funding or any of its subsidiaries with third parties, us or our other affiliates that are not B&B Air Funding or any of its subsidiaries. Pursuant to an administrative services agreement, we will engage Babcock & Brown Air Management Co. Limited to act as administrative agent with respect to certain actions of B&B Air Funding with respect to the securitization, as described under ‘‘— Administrative Agent’’ below.

Interest Rate

The notes will bear interest at an adjustable interest rate equal to the then current one-month LIBOR plus 0.30%. Interest expense for the securitization also includes amounts payable to the policy provider and the liquidity facility provider thereunder. Upon the completion of this offering or shortly thereafter, B&B Air Funding will enter into interest rate hedging contracts intended to hedge the interest rate exposure associated with issuing the floating-rate obligations of the notes, to the extent backed by fixed rate lease assets.

Payment Terms

Principal payments between the 33rd month and the 58th month following the closing date of the securitization and interest on the notes are due and payable on a monthly basis. During the first 33 months, there will be no scheduled principal payments on the notes and for each month between the 33rd month and the 58th month following the closing date of securitization, there will be scheduled principal payments in fixed amounts, in each case subject to satisfying certain debt service coverage ratios and other covenants. Thereafter, cash flow generally will not be available to us for the payment of dividends since principal payments are not fixed in amount but rather are determined monthly based on revenues collected and costs and other liabilities incurred prior to the relevant payment date. Effectively, after the 57th month following the closing date of the securitization, all revenues collected during each monthly period will be applied to repay the outstan ding principal balance of the notes, after the payment of certain expenses and other liabilities, including the fees of the service providers, the liquidity facility provider and the policy provider, interest on the notes and interest rate swap payments, all in accordance with the priority of payments set forth in the indenture.

For each month between the 33rd month and the 58th month following the closing date of the securitization, subject to satisfying a debt service coverage ratio and other covenants, the minimum scheduled payments of principal will be approximately $1.0 million per month.

In connection with the offering of the notes we determined an expected final payment date of August 14, 2012, which will be approximately five years after the date of issuance of the notes and assumes the refinancing of the notes. Under the securitization, we also determined a final payment date of December 14, 2018, which was arrived at assuming no refinancing of the notes and based on assumptions with respect to possible revenue scenarios designed to illustrate some of the payment characteristics of the notes and were not intended to be projections, estimates, forecasts or forward-looking statements. The final maturity date of the notes will be November 14, 2033.

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In connection with the securitization, base value appraisals were obtained because average base values will be used for certain determinations of compliance with the indenture governing the terms of the notes. The average base value is the lesser of the mean and median of the base values in respect of each aircraft in our Initial Portfolio rendered by each of the three initial appraisers of the base value of the aircraft. Base value is the theoretical value of an aircraft assuming a hypothetical open, unrestricted, stable market environment with a reasonable balance of supply and demand and with full consideration of such aircraft’s ‘‘highest and best use’’, presuming an arm’s length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for remarketing, adjusted to account for the maintenance status of such aircraft. The bas e value appraisals were prepared by Aircraft Information Services, Inc., Airclaims Limited, and BK Associates, Inc. completed or dated as of December 15, 2006. The aggregate of the lesser of the mean and median of the base values of each aircraft in our Initial Portfolio as of December 15, 2006 was $1,470.4 million. This value was calculated solely for the purposes of the securitization and should not be relied upon as an indication of the value of our Initial Portfolio or of the stream of revenues under the leases of aircraft in our Initial Portfolio. The appraisals were prepared on a desk-top basis without physical inspection of the aircraft in our Initial Portfolio, but were adjusted for maintenance condition and take into account technical information with respect to each aircraft. Appraisals that are more current or based on other assumptions and methodologies may result in valuations that are materially different from the appraisals that B&B Air Funding received. In additio n, each of the appraisers assumed an open, unrestricted stable market environment with a balance of supply and demand, as well as other factors common for aircraft appraisals. The appraisals also were prepared without regard to rental revenue from existing leases relating to the aircraft in our Initial Portfolio. 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. The market value and the book value of our aircraft will usually differ from the average base value of our aircraft. See ‘‘Risk Factors — Risks Relating to Our Aircraft Portfolio — 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.’’

Available Cash

B&B Air Funding will be required to maintain as of each monthly payment date cash in an amount sufficient to cover its operating expenses for a period of one month or, in the case of maintenance expenditures, six months, following such payment date. All cash flows attributable to the underlying aircraft after the payment of amounts due and owing in respect of, among other things, maintenance and repair expenditures with respect to the aircraft, insurance costs and taxes and all repossession and remarketing costs, certain amounts due to any credit support providers, swap providers, the policy provider, trustees, directors and various service providers will be distributed in accordance with the priority of payments set forth in the indenture. B&B Air Funding, however, will be required to use the amount of excess securitization cash flows to repay principal under the notes instead of paying dividends upon the occurrence of certain events, including failure to maintain a specified debt service coverage ratio, certain events of bankruptcy or liquidation and any acceleration of the notes after the occurrence of other events of default.

Otherwise, we intend to use the excess securitization cash flow to pay dividends, to convert passenger aircraft in the Initial Portfolio to freighter aircraft and to purchase additional aircraft and other aviation assets.

We expect to refinance the notes on or prior to the fifth anniversary of the completion of this offering. In the event that the notes are not refinanced on or prior to that month, any excess securitization cash flow will be used to repay the principal amount of the notes and will not be available to us to pay dividends to our shareholders.

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Redemption

We may, on any payment date, redeem the notes by giving the required notices and depositing the necessary funds with the trustee. A redemption prior to acceleration of the notes may be of the whole or any part of the notes. A redemption after acceleration of the notes upon default may only be for the whole of the notes.

We may, on any payment date, redeem the notes in whole or from time to time in part, at the following redemption prices, expressed as percentages of principal amount, together with accrued and unpaid interest to, but excluding, the date fixed for redemption, if redeemed on the dates indicated below:

Redemption Date			Price
On or after the Closing Date, but before October 14, 2008			102.000%
On or after October 14, 2008, but before October 14, 2009			101.000%
On or after October 14, 2009, but before April 14, 2010			100.360%
On or after April 14, 2010, but before October 14, 2010			100.270%
On or after October 14, 2010, but before April 14, 2011			100.170%
On or after April 14, 2011, but before October 14, 2011			100.090%
On or after October 14, 2011			100.000%

Collateral

The notes are secured by first priority, perfected security interests in and pledges or assignments of equity ownership and beneficial interests in the subsidiaries of B&B Air Funding, their interests in the leases of the aircraft they own, cash held by or for them and by their rights under agreements with BBAM, the initial liquidity facility provider, hedge counterparties and the policy provider. Rentals paid under leases will be placed in the collections account and paid out according to a priority of payments set forth in the indenture. The notes will also be secured by a lien or similar interest in any of the aircraft in the Initial Portfolio that are registered in the United States or Ireland and in any additional aircraft of B&B Air Funding so registered at any time prior to the second anniversary of the closing date of the securitization. B&B Air Funding will agree not to encumber the aircraft in our Initial Portfolio with any other liens exce pt the leases and liens created or permitted thereunder, under the indenture or under the security trust agreement. B&B Air Funding also will agree not to incur any indebtedness, except as permitted under the indenture, other than the notes, any permitted credit and liquidity enhancement facilities and the obligations related to the policy.

Default and Remedies

B&B Air Funding will be in default under the transaction documents in the event that, among other things, interest on the notes is not paid on any payment date (after a grace period of five business days) or principal due on the final maturity date is not paid, certain other covenants are not complied with and such noncompliance materially adversely affects the noteholders, B&B Air Funding or any of its significant subsidiaries becomes the subject of insolvency proceedings or a judgment for the payment of money exceeding five percent of the depreciated base value of the Initial Portfolio is entered and remains unstayed for a period of time. Following any such default and acceleration of the notes by the controlling party (initially, the policy provider), the security trustee may, at the direction of the controlling party, exercise such remedies in relation to the collateral as may be available to it under applicable law, including the sale of any of the aircraft at public or private sale. After the occurrence of certain bankruptcy and insolvency related events of default, or any acceleration of the notes after the occurrence of any event of default, all cash generated by B&B Air Funding will be used to prepay the notes and will not be available to us to make distributions to our shareholders.

Certain Covenants

B&B Air Funding is subject to certain operating covenants including relating to the maintenance, registration and insurance of the aircraft as set forth in the indenture. The indenture also contains

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certain conditions and constraints which relate to the servicing and management of the Initial Portfolio including covenants relating to the disposition of aircraft, lease concentration limits, restrictions on the acquisition of additional aircraft and restrictions on the modification of aircraft and capital expenditures as described below. BBAM has agreed to use commercially reasonable efforts to perform its services pursuant to the Initial Portfolio Servicing Agreement, subject to certain provisions of the indenture as they relate to the services provided by BBAM thereunder.

Aircraft Dispositions.    The ability of B&B Air Funding to sell aircraft is limited under the securitization documentation. B&B Air Funding may sell up to ten aircraft without the consent of the policy provider and additional aircraft with the consent of the policy provider provided that such sales do not violate the concentration limits discussed below and the price is above 107% of the obligations of the notes allocable to such aircraft. B&B Air Funding may also sell aircraft provided that (1) sales in any one year do not exceed 10% of the initial average base value of all our aircraft as adjusted for depreciation as provided in the indenture, (2) such sales do not violate the concentration limits, (3) Moody’s confirms its rating on the notes and (4) the policy provider consents.

Concentration Limits.    B&B Air Funding may only enter into a future lease (other than a renewal, extension or restructuring of any lease) if, after entering into such future lease, B&B Air Funding is in compliance with certain criteria in respect of limits based on, among other things, the proportion of our portfolio leased to our largest lessees, the regional concentration of our lessees and the sovereign ratings of the countries in which our lessees are located. B&B Air Funding will be permitted to vary from these limits if B&B Air Funding receives a confirmation from Moody’s that it will not lower, qualify or withdraw its ratings on the notes as a result of such lease and the policy provider consents to such lease. These limits may place limits on B&B Air Funding’s ability (absent a third-party consent) to re-lease the aircraft in our Initial Portfolio to certain customers at certain times, even if to do so would provide the best risk-adjusted cash flow and would be within our risk policies then in effect.

From (and including) the monthly period beginning on the payment date immediately preceding the third anniversary of the closing date to (and including) the monthly period beginning on the payment date immediately preceding the fifth anniversary of the closing date, B&B Air Funding is required to maintain a debt service coverage ratio of 1.80 to 1. In the event that such debt service coverage ratio is not maintained for two consecutive months, all amounts on deposit in the collections account will be applied towards the outstanding principal balance of the notes after the payment of expenses, senior hedge payments and amounts due and owing to the policy provider and the liquidity facility provider.

Leases.    When re-leasing any aircraft, B&B Air Funding must do so in accordance with certain core lease provisions set forth in the indenture. The core lease provisions include, but are not limited to, maintenance, return conditions in respect of the aircraft, lease termination events and prohibitions on the assignments of the leases. These core lease provisions may not be amended without the consent of the policy provider.

Additional Aircraft.    B&B Air Funding will not be permitted to acquire any aircraft other than the aircraft in the Initial Portfolio unless certain conditions are satisfied, including that the acquisition does not result in an event of default under the transaction documents and does not result in a default under the applicable concentration limits. We have the right to contribute additional aircraft from time to time to B&B Air Funding. In the event that additional notes are issued to finance the acquisition of additional aircraft, B&B Air Funding must obtain the prior written consent of the policy provider and liquidity facility provider and a confirmation from the rating agencies rating the notes that they will not lower, qualify or withdraw their ratings on the notes as a result of the acquisition. Additional aircraft may include, amo ng other things, aircraft, engines and entities with an ownership or leasehold interest in aircraft or engines. Any additional notes issued will rank pari passu in right of payment of principal and interest with B&B Air Funding’s outstanding notes. The acquisition of additional aircraft will also require the approval of the directors (including the equity director) of B&B Air Funding.

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Modification of Aircraft and Capital Expenditures.    B&B Air Funding is generally not permitted to make capital expenditures in respect of any optional improvement or modification of an aircraft in the Initial Portfolio, including aircraft conversions from passenger to cargo aircraft, or for the purpose of purchasing or otherwise acquiring any engines or parts outside of the ordinary course of business, excluding any capital expenditures made in the ordinary course of business in connection with an existing or new lease or the sale of an aircraft, and excluding capital expenditures where: (1) conversions or modifications are funded by capital contributions from us, (2) modification payments are made the aggregate net cash cost of which do not exceed 5% of the aggregate initial average base value of the Initial Portfolio (other than modification pa yments funded, with capital contributions from us) or (3) modification payments are permitted under the servicing agreement without express prior written approval of B&B Air Funding. Subject to certain conditions set forth in the Indenture, B&B Air Funding will also be permitted to use funds available to make scheduled principal payments on the notes and amounts available for distributions to us for the purpose of converting passenger aircraft in the Initial Portfolio to freighter or mixed use configuration. These conditions include: (1) preparation of an information memorandum in connection with the applicable aircraft conversion certifying to the policy provider and the rating agencies that such conversion will not materially adversely affect the noteholders or the policy provider, (2) prior written notice to the policy provider and liquidity provider, (3) prior written consent of the policy provider if the estimated cost of conversion exceeds $6 million in the case of a narrow-body aircraft o r $10 million in the case of a wide-body aircraft, (4) such aircraft conversion not to result in a concentration default, (5) the prior written consent of the policy provider (and a rating agency confirmation that the conversion will not result in a reduction, qualification, or withdrawal of the ratings of the notes), if more than four aircraft conversions (or, if less than 47 aircraft are delivered within the 210-day period following the completion of this offering, 10% of the initial aircraft that have been delivered) with respect to narrow-body aircraft or more than one aircraft conversion with respect to a wide-body aircraft to occur, (6) compliance with a specified debt service coverage ratio and (7) no aircraft conversion to commence after the fifth anniversary of the closing date.

Other Covenants.    The indenture contains other covenants customary for a securitization, including covenants that restrict the investment and business activities of B&B Air Funding, maintain the special purpose and bankruptcy remoteness characteristics of B&B Air Funding, limit the amount and type of debt, guarantees or other indebtedness that can be assumed by B&B Air Funding entities, restrict B&B Air Funding’s ability to grant liens or other encumbrances, require the maintenance of certain airline hull, liability, war risk and repossession insurance and limit the ability of the members of B&B Air Funding to merge, amalgamate, consolidate or transfer assets.

Liquidity Facility

Upon the completion of the securitization, B&B Air Funding, the cash manager and BNP Paribas, will enter into a revolving credit facility, which we refer to as the liquidity facility. The aggregate amounts available under the liquidity facility will be at any date of determination, the lesser of (a) $60 million and (b) the greater of (i) the then outstanding aggregate principal amount of notes and (ii) $35 million. Advances may be drawn to cover certain expenses of B&B Air Funding, including maintenance expenses, interest rate swap payments and interest on the notes issued under the indenture. Prior to any drawing on the liquidity facility, the cash reserve will be drawn in full. Upon each drawing under the liquidity facility, B&B Air Funding will be required to reimburse the provider of the liquidity facility for the amount of such drawing plus accrued interest on such drawing in accordance with the order of priority sp ecified in the indenture. Upon the occurrence of certain events, including a downgrade of the provider of the liquidity facility below a certain ratings threshold, the liquidity facility will be drawn in full and the proceeds will be deposited in an account established under the indenture and will be available for the same purposes as drawings under the liquidity facility. Drawings under the initial liquidity facility bear interest at one-month LIBOR plus a spread of 120 basis points. B&B Air Funding also will be required to pay an upfront fee of $360,000 at closing and a commitment fee of 40 basis points on each payment date to the provider of the liquidity facility.

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Our obligations under the liquidity facility will be secured under the security trust agreement on the same basis as other indebtedness of B&B Air Funding. See ‘‘— Collateral.’’

Administrative Services Agent

Pursuant to an administrative services agreement, B&B Air Funding will engage Babcock & Brown Air Management Co Limited to act as its administrative agent and to perform various administrative services, including maintaining its books and records, procuring and supervising legal counsel, accounting, tax and other advisers, and informing the board of directors of BB Air Funding if the administrative agent believes that the net revenues generated by the leases of the aircraft will be insufficent to satisfy the payment obligations of the Issuer Group. B&B Air Funding will pay the administrative agent an annual fee of $750,000 for such services, subject to increases tied to a cost of living index, and will reimburse it for its expenses.

Credit Facility

In connection with this offering, an affiliate of Credit Suisse Securities (USA) LLC has committed to provide our subsidiary, B&B Air Acquisition, with a senior secured revolving ‘‘warehouse’’ credit facility. The commitment provides that the credit facility will provide for loans of up to $1.2 billion to finance the acquisition of aircraft, subject to customary conditions and the requirement that we provide B&B Air Acquisition an initial cash reserve of $16 million and a $96 million tranche of equity first.

Availability

The credit facility will be available for a period of two years following signing of the credit agreement. The $96 million tranche of equity must be drawn first, a $184 million tranche B of loans must be drawn next and a $920 million tranche A of loans becomes available thereafter. The availability of loans under tranche A and tranche B will be limited such that the outstanding amounts under such tranches combined will not exceed the sum of 85% of the appraised value of the aircraft financed under the credit facility and 50% of maintenance reserves paid with respect to such aircraft.

Commitment Fees

A commitment fee of 0.30% per annum will be payable monthly to the tranche A lenders on the undrawn amount of their tranche A commitment commencing on the date of signing the credit agreement. A commitment fee of 0.30% per annum will be payable monthly to the tranche B lenders on the undrawn amount of their tranche B commitment commencing six months after the date of signing the credit agreement.

Principal Payments

Commencing on the earlier of the date six months after 90% of the credit facility is utilized and the second anniversary of the signing the credit agreement, all available cash flow from the aircraft held by B&B Air Acquisition will be required to be applied to repay principal on the loans. Unless lenders of no less than two-thirds of the aggregate outstanding tranche A and tranche B loans agree to an extension, all amounts outstanding must be repaid in four quarterly installments commencing approximately five years after the date of signing the credit agreement.

B&B Air Acquisition may make voluntary prepayments under the credit facility. In addition, B&B Air Acquisition will be required to make partial prepayments with the proceeds of sales of aircraft financed under the credit facility and all insurance and other proceeds received with respect to any event of total loss of aircraft financed under the credit facility.

Interest

Borrowings and equity drawings under the credit facility will bear interest or earn a return at a rate of one-month LIBOR plus an applicable margin. Initially, the applicable margin for tranche A is 1.25%

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per annum, for tranche B is 3.75% per annum and for tranche of equity is a percentage determined monthly such that the margin for the entire drawn amount of loans and equity under the facility will be 2.5% per annum. After the first quarterly installment of principal is due approximately five years after the date of signing the credit agreement, the applicable margin for tranche A and tranche B increases by 0.25% per quarter up to a maximum margin of 3.75% for tranche A and 7.75% for tranche B.

Collateral

Borrowings will be secured by our equity interest in B&B Air Acquisition, the equity interest in each subsidiary of B&B Air Acquisition, the leases of the aircraft held by B&B Air Acquisition and its subsidiaries and certain cash collateral, maintenance reserves and other deposits. In order of security interest and priority of payment, tranche A ranks above tranche B and the tranche of equity, and both tranche A and B rank above the tranche of equity.

Covenants

The credit facility will contain the following covenants:

	•	delivery of financial and other reports;

	•	maintenance of a monthly interest coverage ratio of at least 1.1 to 1, and a rolling three month interest coverage ratio of at least 1.25 to 1;

	•	a requirement that the aircraft in B&B Air Acquisition’s portfolio comply with lessee, geographic and aircraft type and age concentration limits; and

	•	customary covenants for a senior secured credit facility of this nature.

Administrative Agent

Pursuant to an administrative services agreement, B&B Air Acquisition will engage BBAM to act as administrative agent with respect to certain actions of B&B Air Acquisition with respect to the credit facility. B&B Air Acquisition will pay BBAM an annual fee of $240,000 for such services.

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PRINCIPAL AND SELLING SHAREHOLDERS

The following table presents information regarding the beneficial ownership of our shares prior to and immediately after the completion of this offering by:

	•	each selling shareholder;

	•	each person or entity that we know beneficially owns or will beneficially own more than 5% of our outstanding shares;

	•	each director, director nominee or executive officer who beneficially owns or will beneficially own more than 1% of our outstanding shares; and

	•	all of our directors, director nominees and executive officers as a group.

Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. The percentage of beneficial ownership of our shares immediately after the completion of this offering is based on 33,603,450 shares that will be issued and outstanding.

			Shares beneficially owned prior to this offering and the private placement												Shares beneficially owned after this offering and the private placement (assuming no exercise of over-allotment option)												Shares sold pursuant to full excercise of over-allotment option												Shares beneficially owned after this offering and the private placement (assuming full exercise of the over-allotment option)
Name			Number						Percent						Number						Percent						Number						Percent						Number						Percent
Babcock & Brown Investment Holdings Pty Ltd(1)					10,000,000						100	%					—						—						—						—						—						—
Babcock & Brown JET-i Co., Ltd(2)					—						—						4,422,529						13.2	%					—						—						4,422,529						13.2	%
BBGP Aircraft Holdings Limited(3)					—						—						4,558,216						13.6	%					1,522,149						4.6	%					3,036,067						9.0	%
BBAM Co-Investor Limited(4)					—						—						683,774						2.0	%					228,337						0.6	%					455,437						1.4	%
Babcock & Brown Aircraft Lessor No.1 Ltd.(5)					—						—						1,577,941						4.7	%					526,931						1.6	%					1,051,010						3.1	%
Direct Investment Fund Equity Trust(6)					—						—						1,051,961						3.1	%					351,287						1.0	%					700,674						2.1	%
Direct Investment Fund Mezzanine Debt Trust(6)					—						—						525,980						1.6	%					175,644						0.6	%					350,336						1.0	%
Colm Barrington(7)					—						—						—						—						—						—						—						—
Steven Zissis(8)					—						—						—						—						—						—						—						—
James Fantaci(8)					—						—						—						—						—						—						—						—
Erik G. Braathen(7)					—						—						—						—						—						—						—						—
Sean Donlon(7)					—						—						—						—						—						—						—						—
Joseph M. Donovan(7)					—						—						—						—						—						—						—						—
Susan M. Walton(7)					—						—						—						—						—						—						—						—
All directors, director nominees and executive officers as a group (seven people)					—						—						—						—						—						—						—						—

(1) The address for Babcock & Brown Investment Holdings Pty Ltd is Level 23, The Chifley Tower, 2 Chifley Square, Sydney NSW 2000. Babcock & Brown Limited is the ultimate parent of Babcock & Brown Investment Holdings Pty Ltd. Babcock & Brown Limited has sole dispositive voting and investment control over Babcock & Brown Investment Holdings Pty Ltd. The individuals that exercise shared dispositive voting and investment control for Babcock & Brown Limited are its directors, James Babcock, Elizabeth Nosworthy, James Fantaci, Phillip Green, Ian Martin, Martin Rey, Michael Sharpe, Dieter Rampl and Joe L. Roby. Each of the foregoing individuals disclaims beneficial ownership of the securities held by Babcock & Brown Investment Holdings Pty Ltd.

(2) The address for Babcock & Brown JET-i Co., Ltd is P.O. Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands. Babcock & Brown Limited is the ultimate parent of Babcock & Brown JET-i Co., Ltd. Babcock & Brown Limited has sole dispositive voting and investment control over Babcock & Brown JET-i Co., Ltd. The individuals that exercise shared dispositive voting and investment control for Babcock & Brown Limited are its directors, James Babcock, Elizabeth Nosworthy, James Fantaci, Phillip Green, Ian Martin, Martin Rey, Michael Sharpe, Dieter Rampl and Joe L. Roby. Each of the foregoing individuals disclaims beneficial ownership of the securities held by Babcock & Brown JET-i Co., Ltd.

(3) The address for BBGP Aircraft Holdings Limited is c/o Maples Finance Limited, Queensgate House, P.O. Box 1093GT, South Church Street, Grand Cayman, Cayman Islands. BBGP Managing General Partner Limited is the general partner of BBGP Aircraft Holdings Limited’s parent company. BBGP Managing General Partner Limited has sole dispositive voting and investment control over BBGP Aircraft Holdings Limited. The individuals that exercise shared dispositive voting and investment control for BBGP Managing General Partner Limited are its directors, Edward Hanson, Dwight Dube and Carlos Farjallah. Edward Hanson is also a limited partner of BBGP Aircraft Holdings Limited’s parent company and may be deemed to have indirect shared beneficial ownership of the securities held by BBGP Aircraft Holdings Limited. BBGP Managing Genera l Partner Limited and each of the foregoing individuals, other than Edward Hanson, disclaims beneficial ownership of the securities held by BBGP Aircraft Holdings Limited.

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(4) The address for BBAM Co-Investor Limited is c/o Maples Finance Limited, Queensgate House, P.O. Box 1093GT, South Church Street, Grand Cayman, Cayman Islands.

(5) The address for Babcock & Brown Aircraft Lessor No. 1 Ltd. is c/o Walker House, P.O. Box 265GT, Mary Street, George Town, Grand Cayman, Cayman Islands.

(6) The address for Direct Investment Fund Equity Trust and Direct Investment Fund Mezzanine Debt Trust is Level 23, The Chifley Tower, 2 Chifley Square, Sydney NSW 2000.

(7) The address for Colm Barrington, Erik G. Braathen, Sean Donlon, Joseph M. Donovan and Susan M. Walton is c/o Babcock & Brown Air Limited, West Pier, Dun Laoghaire, County Dublin, Ireland.

(8) The address for Steven Zissis and James Fantaci is c/o Babcock & Brown, 1 Dag Hammarskjold Plaza, 885 Second Avenue, 49th Floor, New York, NY 10017.

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DESCRIPTION OF SHARE CAPITAL

The following description of our share capital reflects our memorandum of association and our bye-laws as these documents will be in effect upon the completion of this offering. Holders of ADSs will be able to exercise their rights with respect to the common shares underlying the ADSs only in accordance with the terms of the deposit agreement. See ‘‘Description of American Depositary Shares’’ for more information.

Share Capital

Our authorized share capital consists of US$500,000 divided into 499,999,900 common shares and 100 manager shares par value US$0.001 each. Pursuant to our bye-laws, subject to any resolution of the shareholders to the contrary, our board of directors is authorized to issue any of our authorized but unissued shares.

Common Shares

Holders of common shares have no pre-emptive, redemption, conversion or sinking fund rights. Holders of common shares are entitled to one vote per share on all matters submitted to a vote of holders of common shares. Unless a different majority is required by law or by our bye-laws, resolutions to be approved by holders of common shares require approval by a simple majority of votes cast at a meeting at which a quorum is present. There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our shares except as described herein.

In the event of our liquidation, dissolution or winding up, the holders of common shares are entitled to share equally and ratably in our assets, if any, remaining after the payment of all of our debts and liabilities, subject to any liquidation preference on any issued and outstanding preference shares.

Preference Shares

Pursuant to Bermuda law and our bye-laws, our board of directors by resolution may establish one or more series of preference shares having such number of shares, designations, dividend rates, relative voting rights, conversion or exchange rights, redemption rights, liquidation rights and other relative participation, optional or other special rights, qualifications, limitations or restrictions as may be fixed by the board without any further shareholder approval. The rights with respect to a series of preference shares may be greater than the rights attached to our common shares. It is not possible to state the actual effect of the issuance of any preference shares on the rights of holders of our common shares until our board of directors determines the specific rights attached to those preference shares. The effect of issuing preference shares could include one or more of the following:

	•	restricting dividends in respect of our common shares;

	•	diluting the voting power of our common shares or providing that holders of preference shares have the right to vote on matters as a class;

	•	impairing the liquidation rights of our common shares; or

	•	delaying or preventing a change of control of our company.

Manager Shares

Our Manager will own 100 manager shares that are entitled to director appointment rights and the right to vote on amendments to the provision of our bye-laws relating to termination of our management agreement described below. Manager shares will not convert into common shares. Upon a termination of our management agreement, the manager shares will cease to have any appointment and voting rights and, to the extent permitted under Section 42 of Companies Act 1981 (Bermuda), will be automatically redeemed for their par value. Manager shares are not entitled to receive any dividends and, other than with respect to director appointment rights, holder of manager shares have no voting rights.

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Dividend Rights

Pursuant to Bermuda law, we are restricted from declaring or paying a dividend if there are reasonable grounds for believing that (1) we are, or would after the payment be, unable to pay our liabilities as they become due, or (2) the realizable value of our assets would thereby be less than the aggregate of our liabilities, our issued share capital (the aggregate par value of our issued and outstanding common shares) and our share premium account (the aggregate amount paid for our common shares in excess of their par value). As a result, in future years, if the realizable value of our assets decreases, our ability to make or maintain dividend payments may depend on our shareholders’ approval of resolutions reducing our share premium account and transferring balances to our contributed surplus account (to which we can allocate shareholder contributions that are unrelated to any share subscription).

We cannot assure you that the realizable value of our assets will remain at a level sufficient to enable us to continue to pay dividends under Bermuda law without a reduction in our share premium account. Under Bermuda law, we are entitled to reduce our share premium account by allocating amounts from that account to our contributed surplus account upon meeting certain statutory requirements. We intend, shortly after completion of this offering, to transfer the balance of our share premium account (which will include substantially all the net proceeds of this offering) to our contributed surplus account.

There are no restrictions on our ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to U.S. residents who are holders of our common shares.

Variation of Rights

If at any time we have more than one class of shares, the rights attaching to any class, unless otherwise provided for by the terms of issue of the relevant class, may be varied either: (1) with the consent in writing of the holders of 50% of the issued shares of that class; or (2) with the sanction of a resolution passed by a majority of the votes cast at a general meeting of the relevant class of shareholders at which a quorum consisting of at least two persons holding or representing two-thirds of the issued shares of the relevant class is present. Our bye-laws specify that the creation or issue of shares ranking equally with existing shares will not, unless expressly provided by the terms of issue of existing shares, vary the rights attached to existing shares. In addition, the creation or issue of preference shares ranking prior to common shares will not be deemed to vary the rights attached to common shares or, subject to the terms of any other series of p reference shares, to vary the rights attached to any other series of preference shares.

Election and Removal of Directors

Our bye-laws provide that our board shall consist of not less than two and not more than 21 directors as the board may from time to time determine. Our board of directors currently consists of seven directors, each of whom serves a one-year term. Our bye-laws provide that persons standing for election as directors at a duly constituted and quorate annual general meeting are appointed by shareholders holding shares carrying a plurality of the votes cast on the resolution. Our bye-laws provide that, notwithstanding the foregoing, for so long as Babcock & Brown holds any of our manager shares, our Manager has the right to appoint the nearest whole number of directors on our board of directors that is not more than 3/7ths of the number of directors on our board of directors at the time. Our Manager’s appointees on our board of directors will not be required to stand for election by our shareholders other than by Babcock & Brown.

Any shareholder wishing to propose for election as a director someone who is not an existing director or is not proposed by our board must give notice of the intention to propose the person for election. Where a person is to be proposed for election as a director at an annual general meeting by a shareholder, that notice must be given not less than 90 days nor more than 120 days before the anniversary of the last annual general meeting prior to the giving of the notice or, in the event the

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annual general meeting is called for a date that is not 25 days before or after such anniversary the notice must be given not later than ten days following the earlier of the date on which notice of the annual general meeting was posted to shareholders or the date on which public disclosure of the date of the annual general meeting was made.

A director (other than a director appointed by our Manager pursuant to its appointment right described above) may be removed with or without cause by a resolution including the affirmative vote of shareholders holding shares carrying at least 80% of the votes of all shares then issued and entitled to vote on the resolution, provided that notice of the shareholders meeting convened to remove the director is given to the director. The notice must contain a statement of the intention to remove the director and must be served on the director not less than 14 days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal. A director appointed by our Manager pursuant to its appointment right described above may be removed with or without cause by our Manager upon notice from our Manager.

Anti-Takeover Provisions

The following is a summary of certain provisions of our bye-laws that may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider to be in its best interest, including those attempts that might result in a premium over the market price for the shares held by shareholders.

Pursuant to our bye-laws, our preference shares may be issued from time to time, and the board of directors is authorized to determine the rights, preferences, privileges, qualifications, limitations and restrictions. See ‘‘— Preference Shares.’’

The authorized but unissued common shares and our preference shares will be available for future issuance by the board of directors, subject to any resolutions of the shareholders. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued common shares and preference shares could render more difficult or discourage an attempt to obtain control over us by means of a proxy contest, tender offer, amalgamation or otherwise.

Our bye-laws provide that if a competitor of BBAM acquires beneficial ownership of 15% or more of our common shares, then we have the option, but not the obligation, within 90 days of the acquisition of such threshold beneficial ownership, to require that shareholder to tender for all of our remaining common shares, or to sell such number of common shares to us or to third parties at fair market value as would reduce its beneficial ownership to less than 15%. In addition, our bye-laws provide that 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 will be reduced to three-tenths of a vote per share on all matters upon which shareholder may vote.

Termination of Our Manager

Our bye-laws provide that we may not terminate our Manager’s appointment under our management agreement without a determination by at least 75% of our independent directors and holders of 75% or more of all of our outstanding common shares (measured by vote) by resolution that there has been unsatisfactory performance by our Manager that is materially detrimental to us.

Certain Provisions of Bermuda Law

We have been designated by the Bermuda Monetary Authority as a non-resident for Bermuda exchange control purposes. This designation allows us to engage in transactions in currencies other than the Bermuda dollar, and there are no restrictions on our ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to United States residents who are holders of our common shares.

The Bermuda Monetary Authority has given its consent for the issue and free transferability of all of the common shares that underlie the ADSs that are the subject of this offering to and between

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non-residents of Bermuda for exchange control purposes, provided our ADSs remain listed on an appointed stock exchange, which includes the NYSE. Approvals or permissions given by the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary Authority as to our performance or our creditworthiness. Accordingly, in giving such consent or permissions, the Bermuda Monetary Authority shall not be liable for the financial soundness, performance or default of our business or for the correctness of any opinions or statements expressed in this prospectus. Certain issues and transfers of common shares involving persons deemed resident in Bermuda for exchange control purposes may require the specific consent of the Bermuda Monetary Authority.

This prospectus will be filed with the Registrar of Companies in Bermuda pursuant to Part III of the Companies Act 1981 of Bermuda. In accepting this prospectus for filing, the Registrar of Companies in Bermuda shall not be liable for the financial soundness, performance or default of our business or for the correctness of any opinions or statements expressed in this prospectus.

In accordance with Bermuda law, share certificates are only issued in the names of companies, partnerships or individuals. In the case of a shareholder acting in a special capacity (for example as a trustee), certificates may, at the request of the shareholder, record the capacity in which the shareholder is acting. Notwithstanding such recording of any special capacity, we are not bound to investigate or see to the execution of any such trust. We will take no notice of any trust applicable to any of our shares, whether or not we have been notified of such trust.

Differences in Corporate Law

You should be aware that the Companies Act, which applies to us, differs in certain material respects from laws generally applicable to Delaware corporations and their shareholders. In order to highlight these differences, set forth below is a summary of certain significant provisions of the Companies Act (including modifications adopted pursuant to our bye-laws) and Bermuda common law applicable to us which differ in certain respects from provisions of the General Corporation Law of the State of Delaware. Because the following statements are summaries, they do not address all aspects of Bermuda law that may be relevant to us and our shareholders or all aspects of Delaware law which may differ from Bermuda law.

Duties of Directors

Our bye-laws provide that our business is to be managed and conducted by our board of directors. At common law, members of the board of directors of a Bermuda company owe a fiduciary duty to the company to act in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty includes the following essential elements:

	•	a duty to act in good faith in the best interests of the company;

	•	a duty not to make a personal profit from opportunities that arise from the office of director;

	•	a duty to avoid conflicts of interest; and

	•	a duty to exercise powers for the purpose for which such powers were intended.

The Companies Act imposes a duty on directors and officers of a Bermuda company:

	•	to act honestly and in good faith with a view to the best interests of the company; and

	•	to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

In addition, the Companies Act imposes various duties on directors and officers of a company with respect to certain matters of management and administration of the company.

Directors and officers generally owe fiduciary duties to the company, and not to the company’s individual shareholders. Our shareholders may not have a direct cause of action against our directors.

Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care

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to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders. The duty of care requires that directors act in an informed and deliberative manner and inform themselves, prior to making a business decision, of all material information reasonably available to them. The duty of care also requires that directors exercise care in overseeing and investigating the conduct of corporate employees. The duty of loyalty may be summarized as the duty to act in good faith, not out of self-interest, and in a manner which the director reasonably believes to be in the best interests of the shareholders.

Delaware law provides that a party challenging the propriety of a decision of a board of directors bears the burden of rebutting the applicability of the presumptions afforded to directors by the ‘‘business judgment rule.’’ The business judgment rule is a presumption that in making a business decision, directors acted on an informed basis and that the action taken was in the best interests of the company and its shareholders, and accordingly, unless the presumption is rebutted, a board’s decision will be upheld unless there can be no rational business purpose for the action or the action constitutes corporate waste. If the presumption is not rebutted, the business judgment rule attaches to protect the directors and their decisions, and their business judgments will not be second guessed. Where, however, the presumption is rebutted, the directors bear the burden of demonstrating the entire fairness of the relevant transaction. Notwit hstanding the foregoing, Delaware courts may subject directors’ conduct to enhanced scrutiny in respect of defensive actions taken in response to a threat to corporate control or the approval of a transaction resulting in a sale of control of the corporation.

Interested Directors

Bermuda law and our bye-laws provide that if a director has an interest in a material transaction or proposed material transaction with us or any of our subsidiaries or has a material interest in any person that is a party to such a transaction, the director must disclose the nature of that interest at the first opportunity either at a meeting of directors or in writing to the directors. Our bye-laws provide that, after a director has made such a declaration of interest, he is allowed to be counted for purposes of determining whether a quorum is present and to vote on a transaction in which he has an interest, unless disqualified from doing so by the chairman of the relevant board meeting.

Under Delaware law, such transaction would not be voidable if (1) the material facts as to such interested director’s relationship or interests are disclosed or are known to the board of directors and the board in good faith authorizes the transaction by the affirmative vote of a majority of the disinterested directors, (2) such material facts are disclosed or are known to the shareholders entitled to vote on such transaction and the transaction is specifically approved in good faith by vote of the majority of shares entitled to vote thereon or (3) the transaction is fair as to the company as of the time it is authorized, approved or ratified. Under Delaware law, such interested director could be held liable for a transaction in which such director derived an improper personal benefit.

Voting Rights and Quorum Requirements

Under Bermuda law, the voting rights of our shareholders are regulated by our bye-laws and, in certain circumstances, the Companies Act. Under our bye-laws, at any general meeting, two or more persons present in person at the start of the meeting and representing in person or by proxy shareholders holding shares carrying more than 25% of the votes of all shares entitled to vote on the resolution shall constitute a quorum for the transaction of business. Generally, except as otherwise provided in the bye-laws, or the Companies Act, any action or resolution requiring approval of the shareholders may be passed by a simple majority of votes cast except for the election of directors which requires only a plurality of the votes cast.

Any individual who is a shareholder of our company and who is present at a meeting may vote in person, as may any corporate shareholder that is represented by a duly authorized representative at a meeting of shareholders. Our bye-laws also permit attendance at general meetings by proxy, provided the instrument appointing the proxy is in the form specified in the bye-laws or such other form as the board may determine. Under our bye-laws, each holder of common shares is entitled to one vote per common share held.

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Under Delaware law, unless otherwise provided in a company’s certificate of incorporation, each stockholder is entitled to one vote for each share of stock held by the stockholder. Delaware law provides that unless otherwise provided in a company’s certificate of incorporation or bye-laws, a majority of the shares entitled to vote, present in person or represented by proxy, constitutes a quorum at a meeting of stockholders. In matters other than the election of directors, with the exception of special voting requirements related to extraordinary transactions, and unless otherwise provided in a company’s certificate of incorporation or bye-laws, the affirmative vote of a majority of shares present in person or represented by proxy at the meeting entitled to vote is required for stockholder action, and the affirmative vote of a plurality of shares is required for the election of directors.

Dividends

Pursuant to Bermuda law, a company is restricted from declaring or paying a dividend if there are reasonable grounds for believing that: (1) the company is, or would after the payment be, unable to pay its liabilities as they become due or (2) that the realizable value of its assets would thereby be less than the aggregate of its liabilities, its issued share capital and its share premium account. Under our bye-laws, each common share is entitled to dividends if, as and when dividends are declared by our board of directors, subject to any preferred dividend right of the holders of any preference shares. Issued share capital is the aggregate par value of the company’s issued and outstanding common shares, and share premium is the aggregate amount paid for issued shares in excess of their par value. Share premium accounts may be reduced in certain limited circumstances. See ‘‘— Dividend Rights.’’

Under Delaware law, subject to any restrictions contained in the company’s certificate of incorporation, a company may pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. Delaware law also provides that dividends may not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.

Amalgamations, Mergers and Similar Arrangements

The amalgamation of a Bermuda company with another company or corporation (other than certain affiliated companies) requires the amalgamation agreement to be approved by the company’s board of directors and by its shareholders. Unless the company’s bye-laws provide otherwise, the approval of 75% of the shareholders voting at such meeting is required to approve the amalgamation agreement, and the quorum for such meeting must be two persons holding or representing more than one-third of the issued shares of the company. Our bye-laws provide that a merger or an amalgamation (other than with a wholly owned subsidiary) that has been approved by the board must only be approved by a majority of the votes cast at a general meeting of the shareholders at which the quorum shall be two or more persons present in person and representing in person or by proxy shareholders holding shares carrying more than 25% of the votes of all shares entitled to vote on the res olution. Any merger or amalgamation not approved by our board must be approved by shareholders holding shares carrying not less than 66% of the votes of all shares entitled to vote on the resolution.

Under Bermuda law, in the event of an amalgamation of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who did not vote in favor of the amalgamation and is not satisfied that fair value has been offered for such shareholder’s shares may, within one month of notice of the shareholders meeting, apply to the Supreme Court of Bermuda to appraise the fair value of those shares.

Under Delaware law, with certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and a majority of the issued and outstanding shares entitled to vote thereon. Under Delaware law, a shareholder of a corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration such shareholder would otherwise receive in the transaction.

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Takeovers

An acquiring party is generally able to acquire compulsorily the common shares of minority holders of a company in the following ways:

	•	By a procedure under the Companies Act known as a ‘‘scheme of arrangement.’’ A scheme of arrangement could be effected by obtaining the agreement of the company and of holders of common shares, representing in the aggregate a majority in number and at least 75% in value of the common shareholders present and voting at a court ordered meeting held to consider the scheme of arrangement. The scheme of arrangement must then be sanctioned by the Bermuda Supreme Court. If a scheme of arrangement receives all necessary agreements and sanctions, upon the filing of the court order with the Registrar of Companies in Bermuda, all holders of common shares could be compelled to sell their shares under the terms of the scheme or arrangement.

	•	If the acquiring party is a company by acquiring pursuant to a tender offer 90% of the shares or class of shares not already owned by, or by a nominee for, the acquiring party (the offeror), or any of its subsidiaries. If an offeror has, within four months after the making of an offer for all the shares or class of shares not owned by, or by a nominee for, the offeror, or any of its subsidiaries, obtained the approval of the holders of 90% or more of all the shares to which the offer relates, the offeror may, at any time within two months beginning with the date on which the approval was obtained, require by notice any nontendering shareholder to transfer its shares on the same terms as the original offer. In those circumstances, nontendering shareholder s will be compelled to sell their shares unless the Supreme Court of Bermuda (on application made within a one-month period from the date of the offeror’s notice of its intention to acquire such shares) orders otherwise.

	•	Where the acquiring party or parties hold not less than 95% of the shares or a class of shares of the company, by acquiring, pursuant to a notice given to the remaining shareholders or class of shareholders, the shares of such remaining shareholders or class of shareholders. When this notice is given, the acquiring party is entitled and bound to acquire the shares of the remaining shareholders on the terms set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies to the Supreme Court of Bermuda for an appraisal of the value of their shares. This provision only applies where the acquiring party offers the same terms to all holders of shares whose shares are being acquired.

Delaware law provides that a parent corporation, by resolution of its board of directors and without any shareholder vote, may merge with any subsidiary of which it owns at least 90% of each class of its capital stock. Upon any such merger, dissenting shareholders of the subsidiary would have appraisal rights.

Shareholders’ Suits

Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.

When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.

Our bye-laws contain a provision by virtue of which our shareholders waive any claim or right of action that they have, both individually and on our behalf, against any director or officer in relation to

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any action or failure to take action by such director or officer, except in respect of any fraud or dishonesty of such director or officer. The operation of this provision as a waiver of the right to sue for violations of federal securities laws may be unenforceable in U.S. courts.

Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court generally has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action.

Indemnification of Directors and Officers

Section 98 of the Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies Act.

We have adopted provisions in our bye-laws that provide that we shall indemnify our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. We also have entered into directors’ service agreements with our directors, pursuant to which we have agreed to indemnify them against any liability brought against them by reason of their service as directors, except in cases where such liability arises from fraud, dishonesty, bad faith, gross negligence, willful default or willful misfeasance. Our bye-laws provide that the shareholders waive all claims or rights of action that they might have, individually or in right of the company, against any of the company’s directors or officers for any act or failure to act in the performance of such director’s or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies Act permits us to pu rchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such a purpose.

Under Delaware law, a corporation may indemnify a director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if (1) such director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and (2) with respect to any criminal action or proceeding, such director or officer had no reasonable cause to believe his conduct was unlawful.

Inspection of Corporate Records

Members of the general public have the right to inspect our public documents available at the office of the Registrar of Companies in Bermuda and our registered office in Bermuda, which will include our memorandum of association (including its objects and powers) and certain alterations to our memorandum of association. Our shareholders have the additional right to inspect our bye-laws, minutes of general meetings and audited financial statements, which must be presented to the annual general meeting of shareholders.

The register of members of a company is also open to inspection by shareholders without charge, and by members of the general public on payment of a fee. The register of members is required to be open for inspection for not less than two hours in any business day (subject to the ability of a company to close the register of members for not more than 30 days in a year). A company is required to maintain its share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside of Bermuda. A company is required to keep at its

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registered office a register of directors and officers that is open for inspection for not less than two hours in any business day by members of the public without charge. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records.

Delaware law permits any shareholder to inspect or obtain copies of a corporation’s shareholder list and its other books and records for any purpose reasonably related to such person’s interest as a shareholder.

Shareholder Proposals

Under Bermuda law, shareholders may, as set forth below and at their own expense (unless the company otherwise resolves), require the company to: (1) give notice to all shareholders entitled to receive notice of the annual general meeting of any resolution that the shareholders may properly move at the next annual general meeting; and/or (2) circulate to all shareholders entitled to receive notice of any general meeting a statement in respect of any matter referred to in the proposed resolution or any business to be conducted at such general meeting. The number of shareholders necessary for such a requisition is either: (1) any number of shareholders representing not less than 5% of the total voting rights of all shareholders entitled to vote at the meeting to which the requisition relates; or (2) not less than 100 shareholders.

Delaware law does not include a provision restricting the manner in which nominations for directors may be made by shareholders or the manner in which business may be brought before a meeting although restrictions may be included in a Delaware company’s certificate of incorporation or bye-laws.

Calling of Special Shareholders’ Meetings

Under our bye-laws, a special general meeting may be called by the President, the chairman of the board or the board of directors. Bermuda law also provides that a special general meeting must be called upon the request of shareholders holding not less than 10% of the paid-up capital of the company carrying the right to vote at general meetings.

Delaware law permits the board of directors or any person who is authorized under a corporation’s certificate of incorporation or bye-laws to call a special meeting of shareholders.

Amendment of Organizational Documents

Bermuda law provides that the memorandum of association of a company may be amended by a resolution passed at a general meeting of shareholders of which due notice has been given. Certain amendments to the memorandum of association may require approval of the Bermuda Minister of Finance, who may grant or withhold approval at his or her discretion.

Under Bermuda law, the holders of an aggregate of not less than 20% in par value of a company’s issued share capital have the right to apply to the Bermuda courts for an annulment of any amendment of the memorandum of association adopted by shareholders at any general meeting, other than an amendment which alters or reduces a company’s share capital as provided in the Companies Act. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Bermuda court. An application for an annulment of an amendment of the memorandum of association must be made within 21 days after the date on which the resolution altering the company’s memorandum of association is passed and may be made on behalf of persons entitled to make the application by one or more of their designees as such holders may appoint in writing for such purpose. No application may be made by the shareholders voting in favor of the amend ment.

Under Delaware law, amendment of the certificate of incorporation, which is the equivalent of a memorandum of association, of a company must be made by a resolution of the board of directors setting forth the amendment, declaring its advisability, and either calling a special meeting of the shareholders entitled to vote or directing that the proposed amendment be considered at the next

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annual meeting of the shareholders. Delaware law requires that, unless a different percentage is provided for in the certificate of incorporation, a majority of the voting power of the corporation is required to approve the amendment of the certificate of incorporation at the shareholders meeting. If the amendment would alter the number of authorized shares or par value or otherwise adversely affect the rights or preference of any class of a company’s stock, the holders of the issued and outstanding shares of such affected class, regardless of whether such holders are entitled to vote by the certificate of incorporation, are entitled to vote as a class upon the proposed amendment. However, the number of authorized shares of any class may be increased or decreased, to the extent not falling below the number of shares then issued and outstanding, by the affirmative vote of the holders of a majority of the stock entitled to vote, if so provided in the company’s certificate of incorporation that was authorized by the affirmative vote of the holders of a majority of such class or classes of stock.

Amendment of Bye-laws

Our bye-laws provide that the bye-laws may only be rescinded, altered or amended upon approval by a resolution of our board of directors and by a resolution of our shareholders, adopted by the affirmative votes of at least a majority of all shares entitled to vote on the resolution. Our bye-laws provide that, notwithstanding the foregoing, at any time that Babcock & Brown holds any of our manager shares, rescission, alteration or amendment of the bye-law relating to our ability to terminate our Manager’s appointment under our management agreement also requires the approval of the holder of our manager shares.

Under Delaware law, unless the certificate of incorporation or bye-laws provide for a different vote, holders of a majority of the voting power of a corporation and, if so provided in the certificate of incorporation, the directors of the corporation have the power to adopt, amend and repeal the bye-laws of a corporation. Those bye-laws dealing with the election of directors, classes of directors and the term of office of directors may only be rescinded, altered or amended upon approval by a resolution of the directors and by a resolution of shareholders carrying not less than 66% of all shares entitled to vote on the resolution.

Registrar and Transfer Agent

We expect all of our issued and outstanding common shares to be held by the depositary. Accordingly, Codan Services Limited, Hamilton, Bermuda, will act as the registrar and transfer agent for our common shares.

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DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Receipts

Deutsche Bank Trust Company Americas as depositary will issue the ADSs representing the common shares that we are offering. Each ADS will represent an ownership interest in one common share which we will deposit with the custodian under the deposit agreement among ourselves, the depositary and yourself as an ADS holder. In the future, each ADS also will represent any securities, cash or other property deposited with the depositary but which it has not distributed directly to you. Your ADSs will be evidenced by what are known as American Depositary Receipts, or ADRs, in the same way a share is evidenced by a share certificate. Your rights as a holder of ADSs will be governed by the deposit agreement and our bye-laws.

The following is a summary of the material terms of the deposit agreement. Because it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs. You can read a copy of the deposit agreement which is filed as an exhibit to the registration statement of which this prospectus forms a part. You may also obtain a copy of the deposit agreement at the SEC’s Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549, United States of America. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. Copies of the deposit agreement and the form of ADR are also available for inspection at the corporate trust office of Deutsche Bank Trust Company Americas, currently located at 60 Wall Street, New York, New York 10005. Deutsche Bank Trust Company Americas’ principal executive office is located at 60 Wall Street, New York, New York 10005, United States of America. The depositary will keep books at its corporate trust office for the registration of ADRs and transfer of ADRs which, at all reasonable times, shall be open for inspection by ADS holders, provided that inspection shall not be for the purposes of communicating with ADS holders in the interest of a business or object other than our business or a matter related to the deposit agreement or the ADSs.

For a description of our bye-laws, see ‘‘Description of Share Capital.’’

Holding the ADSs

Unless otherwise agreed among us and the depositary in accordance with the terms of the deposit agreement, the ADSs will be held electronically in book-entry form either directly (by having an ADR registered in your name) or indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADR holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

As an ADR holder, we will not treat you as one of our shareholders and you will not have shareholder rights. Bermuda law governs shareholder rights. The depositary will be the holder of the common shares underlying your ADSs. As a holder of ADRs, you will have ADR holder rights. A deposit agreement among us, the depositary and you, as an ADR holder, and the beneficial owners of ADRs sets out ADR holder rights, representations and warranties as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADRs.

Fees and Expenses

Except as described below, we will pay all fees, charges and expenses of the depositary and any agent of the depositary pursuant to agreements from time to time between us and the depositary, except that if you elect to withdraw the common shares underlying your ADRs from the depositary you will be required to pay the depositary a fee of up to US$5.00 per 100 ADSs surrendered or any portion thereof, together with expenses incurred by the depositary and any taxes or charges, such as stamp taxes or stock transfer taxes or fees, in connection with the withdrawal. We will not receive any portion of the fee payable to the depositary upon a withdrawal of shares from the depositary. The depositary will not make any payments to us, and we will not receive any portion of any fees collected by the depositary.

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Except as specified above in connection with a cancellation of ADSs and withdrawal of common shares from the depositary, we will be required to pay any taxes and other governmental charges incurred by the depositary or the custodian on any ADR or common share underlying an ADR, including any applicable interest and penalties thereon, any stock transfer or other taxes and other governmental charges in any applicable jurisdiction.

Dividends and Other Distributions

The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on common shares or other deposited securities, less any fees described below under ‘‘— Withholding Taxes, Duties and Other Governmental Charges.’’ You will receive these distributions in proportion to the number of common shares your ADSs represent as of the record date set by the depositary with respect to the ADSs.

	•	Withholding Taxes, Duties and Other Governmental Charges.    Before making a distribution, the depositary will deduct any withholding taxes, duties or other governmental charges that must be paid. Dividends on our shares will be subject to deduction of Irish withholding taxes, unless an exemption to withholding is available. U.S. holders of ADSs (including U.S. citizens or residents) are entitled to claim a refund of Irish withholding taxes on dividends. Unless a U.S. holder of ADSs otherwise specifies, a customary fee of $0.003 per ADS (0.6% of our initial quarterly dividend of $0.50 per ADS) will be deducted from each dividend paid to such ho lder so that such dividend may be paid gross of Irish withholding taxes. See ‘‘Taxation Considerations — Irish Tax Considerations — Irish Dividend Withholding Tax’’ for a discussion of Irish withholding taxes and exemptions from such tax available for U.S. resident and certain other holders.

	•	Shares.    The depositary may distribute additional ADSs representing any common shares we distribute as a dividend or free distribution to the extent permissible by law. If the depositary does not distribute additional ADRs, the outstanding ADSs will also represent the new common shares.

	•	Elective Distributions in Cash or Shares.    If we offer holders of our common shares the option to receive dividends in either cash or common shares, the depositary will, after consultation with us and to the extent permissible by law and reasonably practicable, offer holders of ADSs the option to receive dividends in either cash or ADSs to the extent permissible under applicable law and in accordance with the deposit agreement.

	•	Rights to receive additional shares.    If we offer holders of our common shares any rights to subscribe for additional common shares or any other rights, the depositary, after consultation with us and to the extent permissible by law and reasonably practicable, will make these rights available to you as a holder of ADSs. If the depositary makes rights available to you, it will exercise the rights and purchase the common shares on your behalf subject to your payment of applicable fees, taxes, charges and expenses. The depositary will then deposit the common shares and issue ADSs to you. It will only exercise rights if you pay it the exercise pr ice and any taxes and other governmental charges the rights require you to pay. U.S. securities laws or Bermuda law may restrict the sale, deposit, cancellation, and transfer of the ADSs issued after exercise of rights. Our intent is not to offer holders any rights to subscribe for additional common shares unless the holders of our ADSs would thereby be offered rights to receive ADSs in an offering registered under U.S. securities laws.

	•	Other Distributions.    Subject to receipt of timely notice from us with the request to make any such distribution available to you, and provided the depositary has determined that such distribution is lawful, practicable and feasible and in accordance with the terms of the deposit agreement, the depositary will send to you anything else we distribute on deposited securities by any means it deems practical in proportion to the number of ADSs held by you, net of any taxes and other governmental charges withheld.

The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders. We have no obligation to register ADSs, common shares, rights or

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other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADRs, common shares, rights or anything else to ADR holders. This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to you.

Deposit and Withdrawal

The depositary will deliver ADSs upon deposit of common shares with the custodian. The custodian will hold all deposited common shares, including those being deposited by us in connection with the offering to which this prospectus relates, for the account of the depositary. You thus have no direct ownership interest in the common shares and only have the rights as are set out in the deposit agreement. The custodian also will hold any additional securities, property and cash received on, or in substitution for, the deposited common shares. The deposited common shares and any such additional items are all referred to collectively as ‘‘deposited securities.’’

Upon each deposit of common shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, the depositary will issue an ADR or ADRs in the name of the person entitled thereto evidencing the number of ADSs to which that person is entitled. Alternatively, at your request, risk and expense, the depositary in its discretion will deliver certificated ADRs at the depositary’s principal New York office or any other location that it may designate as its transfer office.

You may surrender your ADRs at the depositary’s office or through instruction provided to your broker. Upon payment of its fees and charges of, and expenses incurred by, it and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the common shares and any other deposited securities underlying the ADR to you or a person you designate at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its principal New York office or any other location that it may designate as its transfer office, if feasible.

You have the right to cancel your ADSs and withdraw the underlying common shares at any time subject only to:

	•	temporary delays caused by closing of our or the depositary’s transfer books, or the deposit of common shares in connection with voting at a shareholders’ meeting, or the payment of dividends;

	•	the surrender of ADRs evidencing a number of ADSs representing other than a whole number of common shares;

	•	the payment of fees, charges, taxes and other governmental charges; or

	•	where deemed necessary or advisable by the depositary or us in good faith due to any requirement of any U.S. or foreign laws, government, governmental body or commission, any securities exchange on which the ADSs or common shares are listed or governmental regulations relating to the ADSs or the withdrawal of the underlying common shares.

U.S. securities laws provide that this right of withdrawal may not be limited by any other provision of the deposit agreement. However, we do not intend to list our common shares for trading on any exchange. Therefore, it may be more difficult to dispose of our common shares than it will be to dispose of our ADSs.

Transmission of Notices to Shareholders

We will promptly transmit to the depositary those communications that we make generally available to our shareholders together with annual and other reports prepared in accordance with applicable requirements of U.S. securities laws. Upon our request and at our expense, subject to the distribution of any such communications being lawful and not in contravention of any regulatory restrictions or requirements if so distributed and made available to holders, the depositary will arrange for the timely

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mailing of copies of such communications to all ADS holders and will make a copy of such communications available for inspection at the depositary’s Corporate Trust Office, the office of the custodian or any other designated transfer office of the depositary.

Voting Rights

As soon as practicable upon receipt of timely notice of any meeting at which the holders of our shares are entitled to vote, or of solicitation of consents or proxies from holders of our shares, the depositary will fix a record date in respect of such meeting or solicitation of consent or proxy. The depositary will, if requested by us in writing in a timely manner, mail by regular, ordinary mail delivery (or by electronic mail or as otherwise may be agreed between us and the depositary from time to time) or otherwise distribute to holders of ADSs as of the record date: (a) such information as is contained in such notice of meeting (or solicitation of consent or proxy) received by the depositary from us, (b) a statement that holders as of the record date will be entitled, insofar as practicable and permitted under applicable law, the terms of the deposit agreement, the terms and conditions of our common shares and of our bye-laws (and subject to such other requir ements as we shall notify the depositary), to instruct the depositary as to the exercise of the voting rights (or deemed exercise of voting rights), if any, pertaining to the amount of our common shares represented by their respective ADSs, and (c) a statement as to the manner in which such instructions may be given or may be deemed to have been given as described below if no validly-completed instructions are received by the depositary from a holder of ADSs by the ADS voting cut off date set by the depositary for such purpose. Upon the written request of a holder as of such record date, received on or before the ADS voting cut off date, the depositary will endeavor, insofar as practicable, to vote or cause to be voted the amount of our common shares represented by the ADSs in accordance with the instructions set forth in such request.

To the extent no such instructions are received by the depositary on or before the ADS voting cut off date from holders of a sufficient number of shares so as to enable the Company to meet its quorum requirements with respect to any such meeting of shareholders, the depositary will, upon our written request and at all times subject to applicable law, the terms of the deposit agreement, the terms and conditions of our common shares and our bye-laws, deem such holder to: (A) have instructed the depositary to take such action as is necessary to cause the number of underlying shares for which no voting instructions have been received from holders of ADSs so as to meet applicable quorum requirements (currently 25% of our common shares) to be counted for the purposes of satisfying applicable quorum requirements; and (B) have given a power of attorney to the depositary or the custodian, as its nominee, to cause such equal number of common shares so counted under (A) ab ove being counted for the purposes of establishing a quorum, with respect to any resolution proposed by the Board of Directors of the Company within the agenda set for such meeting, to be voted at any such meeting in proportion to the voting instructions duly-received by the depositary from holders of ADSs as of the record date by the ADS voting cut off date; provided, however that, except to the extent we have provided the depositary with at least 30 days’ written notice of any such meeting, the common shares shall not be so counted and shall not be so voted (proportionately to the voting instructions received by the depositary from holders of ADSs as of the record date by the ADS voting cut off date) with respect to any matter as to which the depositary informs us that the depositary reasonably believes that with respect to any such resolution: (i) substantial opposition exists or (ii) it materially affects the rights of holders of common shares. For the purposes of this provision of the deposit agre ement, by way of example and not limitation, it is agreed that routine matters, such as appointing auditors and directors (except where a competing director or slate of directors is proposed), and resolutions to approve the public offering or private placement of securities, would not materially affect the rights of holders of common shares.

There can be no assurance that holders generally or any holder in particular will receive the notice described above with sufficient time to enable such holder to return voting instructions to the depositary by the ADS voting cut off date. In the deposit agreement, we have agreed that we will endeavor to provide at least 30 days’ prior written notice to the depositary which will enable the timely notification of holders as to limitations on the ability of the depositary to vote a particular ADS according to the voting instructions received in regard to such ADS. Common shares which have

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been withdrawn from the depositary facility and transferred on our register of members to a person other than the depositary or its nominee may be voted by the holders thereof in accordance with applicable law and our bye-laws. However, holders or beneficial owners of ADSs may not receive sufficient advance notice of shareholder meetings to enable them to withdraw the common shares and vote at such meetings.

Payment of Taxes

You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities underlying your ADRs. The depositary may refuse to issue ADSs, deliver ADRs, register the transfer, split-up or combination of ADRs, or allow you to withdraw the deposited securities underlying your ADSs until such payment is made including any applicable interest and penalty thereon. We, the custodian or the depositary may withhold or deduct the amounts of taxes owed from any distributions to you or may sell deposited securities, by public or private sale, to pay any taxes and any applicable interest and penalties owed. You will remain liable if the proceeds of the sale are not enough to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any proceeds, or send to you any property remaining after it has paid the taxes.

Unless a U.S. holder of ADSs otherwise specifies, a customary fee of $0.003 per ADS (0.6% of our initial quarterly dividend of $0.50 per ADS) will be deducted from each dividend paid to such holder so that such dividend may be paid gross of Irish withholding taxes.

Reclassifications, Recapitalizations and Mergers

If we take actions that affect the deposited securities, including (1) any change in par value, split-up, cancellation, consolidation or other reclassification of deposited securities to the extent permitted by any applicable law, (2) any distribution on the common shares that is not distributed to you and (3) any recapitalization, reorganization, merger, consolidation, liquidation or sale of our assets affecting us or to which we are a party resulting in a distribution of cash or securities to our shareholders, then the cash, common shares or other securities received by the depositary in connection therewith will become deposited securities and be subject to the deposit agreement and any applicable law, evidence the right to receive such additional deposited securities, and the depositary may choose to:

	•	distribute additional ADSs;

	•	call for surrender of outstanding ADSs to be exchanged for new ADSs;

	•	distribute cash, securities or other property it has received in connection with such actions;

	•	sell any securities or property received at public or private sale on an averaged or other practicable basis without regard to any distinctions among holders and distribute the net proceeds as cash; or

	•	treat the cash, securities or other property it receives as part of the deposited securities, and each ADS will then represent a proportionate interest in that property.

Amendment and Termination

We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason deemed necessary or desirable. You will be given at least 30 days’ notice of any amendment that imposes or increases any fees or charges, except for taxes, governmental charges, delivery expenses or other charges specifically payable by ADS holders under the deposit agreement, or which otherwise materially prejudices any substantial existing right of holders or beneficial owners of ADSs. If an ADS holder continues to hold ADSs after being so notified of these changes, that ADS holder is deemed to agree to that amendment and be bound by the ADRs and the agreement as amended. An amendment can become effective before notice is given if necessary to ensure compliance with a new law, rule or regulation.

At any time we may instruct the depositary to terminate the deposit agreement, in which case the depositary will give notice to you at least 30 days prior to termination. The depositary may also

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terminate the deposit agreement if it has told us that it would like to resign or we have removed the depositary and we have not appointed a new depositary bank within 90 days, in such instances, the depositary will give notice to you at least 30 days prior to termination. After termination, the depositary’s only responsibility will be to deliver deposited securities to ADS holders who surrender their ADSs upon payment of any fees, charges, taxes or other governmental charges, and to hold or sell distributions received on deposited securities. After the expiration of six months from the termination date, the depositary may sell the deposited securities which remain and hold the net proceeds of such sales, uninvested and without liability for interest, for the pro rata benefit of ADS holders who have not yet surrendered their ADSs. After selling the deposited securities, the depositary has no obligations except to account for those net proceeds and other cash. Upon termination of the deposit agreem ent, we will be discharged from all obligations except for our obligations to the depositary.

We intend to maintain a depositary arrangement for so long as it facilitates U.S. holders in benefiting from an exemption to Irish withholding taxes on dividends on our common shares.

Limitations on Obligations and Liability

The deposit agreement expressly limits our and the depositary’s obligations and liability.

We and the depositary:

	•	are only obligated to take the actions specifically set forth in the deposit agreement without gross negligence or bad faith;

	•	are not liable if either of us by law or circumstances beyond our control is prevented from, or delayed in, performing any obligation under the agreement, including, without limitation, requirements of any present or future law, regulation, governmental or regulatory authority or stock exchange of any applicable jurisdiction, any present or future provision of our memorandum of association and bye-laws, on account of possible civil or criminal penalties or restraint, any provisions of or governing the deposited securities, any act of God, war or other circumstances beyond each of our control as set forth in the deposit agreement;

	•	are not liable if either of us exercises or fails to exercise the discretion permitted under the deposit agreement, the provisions of or governing the deposited securities or our memorandum of association and bye-laws;

	•	are not liable for any action/inaction on the advice or information of legal counsel, accountants, any person presenting common shares for deposit, holders and beneficial owners (or authorized representatives) of ADRs, or any person believed in good faith to be competent to give such advice or information;

	•	are not liable for the inability of any holder to benefit from any distribution, offering, right or other benefit if made in accordance with the provisions of the deposit agreement;

	•	have no obligation to become involved in a lawsuit or other proceeding related to any deposited securities or the ADSs or the deposit agreement on your behalf or on behalf of any other party;

	•	may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party; and

	•	shall not incur any liability for any indirect, special, punitive or consequential damages for any breach of the terms of the deposit agreement.

The depositary and its agents shall not incur any liability under the deposit agreement for the failure to carry out any instructions to vote, the manner in which any vote is cast or the effect of any vote or failure to determine that any distribution or action may be lawful or reasonably practicable or allowing any rights to lapse in accordance with the provisions of the deposit agreement, the failure or timeliness of any notice from us, the content of any information submitted to it by us for distribution to you, any investment risk associated with the acquisition of an interest in the deposited securities,

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the validity or worth of the deposited securities or for any tax consequences that may result from ownership of ADSs, common shares or deposited securities for the creditworthiness of any third party and for any indirect, special, punitive or consequential damage.

We have agreed to indemnify the depositary under certain circumstances. However, the deposit agreement does not limit our liability under federal securities laws. The depositary may own and deal in any class of our securities and in the ADSs.

Requirements for Depositary Actions

Before the depositary will issue, deliver or register a transfer of an ADS, make a distribution on an ADS, or permit withdrawal of common shares or other property, the depositary may require:

	•	payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any common shares or other deposited securities;

	•	production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

	•	compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

The depositary also may suspend the issuance of ADSs, the deposit of common shares, the registration, transfer, split-up or combination of ADSs or the withdrawal of deposited securities, unless the deposit agreement provides otherwise, if the register for ADSs is closed or if we or the depositary decide any such action is necessary or advisable.

Deutsche Bank Trust Company Americas will keep books for the registration and transfer of ADRs at its offices. You may reasonably inspect such books, except if you have a purpose other than our business or a matter related to the deposit agreement or the ADRs.

Disclosure of Interests

By purchasing ADSs, you agree to comply with our memorandum of association and bye-laws and the laws of Bermuda, the United States of America and any other relevant jurisdiction regarding any disclosure requirements regarding ownership of common shares, all as if the ADSs were, for this purpose, the common shares they represent.

The Depositary

The depositary is Deutsche Bank Trust Company Americas. The depositary is a state chartered New York banking corporation and a member of the United States Federal Reserve System, subject to regulation and supervision principally by the United States Federal Reserve Board and the New York State Banking Department. The depositary was incorporated as a limited liability bank on March 5, 1903 in the State of New York. The registered office of the depositary is located at 60 Wall Street, New York, NY 10005 and the registered number is BR1026. The principal executive office of the depositary is located at 60 Wall Street, New York NY 10005. The depositary operates under the laws and jurisdiction of the State of New York.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our ADSs or our common shares, and we cannot predict the effect, if any, that market sales of ADSs or availability of any ADSs for sale will have on the market price of ADSs prevailing from time to time. Sales of substantial amounts of ADSs or the perception that such sales could occur, could adversely affect the market price of our ADSs and our ability to raise additional capital through a future sale of securities.

Upon completion of this offering and the concurrent private placement to Babcock & Brown and the other private investors, a total of 33,603,450 ADSs will be issued and outstanding. All of the 18,695,650 ADSs sold in this offering will be freely tradable without restriction or further registration under the U.S. Securities Act of 1933, except for any ADSs purchased by our ‘‘affiliates,’’ as that term is defined in Rule 144 under the U.S. Securities Act of 1933. As defined in Rule 144, an affiliate of an issuer is a person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the issuer. The 14,907,800 ADSs sold in the private placement and any ADSs held by affiliates may not be resold in the absence of registration under the Securities Act of 1933 or pursuant to an exemption from registration, including, among others, the exemption provided by Rule 144 under the U.S. Securities Act of 1933.

Our ADSs have been approved for listing on the New York Stock Exchange under the symbol ‘‘FLY.’’ Our common shares will only be offered in the form of ADS.

Lock-up Agreements

We, our executive officers and directors, together with our Manager, our servicer, Babcock & Brown and certain of their executive officers and directors, and the other private investors have agreed with the underwriters that, subject to limited exceptions described in ‘‘Underwriting,’’ for a period of 360 days (in the case of Babcock & Brown) or 180 days (in the case of us and all others) from the date of this prospectus, we and they will not, without the prior written consent of Morgan Stanley & Co. Incorporated, offer, sell, contract to sell, transfer, pledge, dispose of or hedge directly or indirectly any of our common shares or ADSs or any securities convertible into or exchangeable for our common shares or ADSs. The lockup agreements are subject to certain exceptions, including in the case of certain of the lockup agreements to permit the pledge of shares to secure loans to finance the acquisition of shares (or, in the ca se of Babcock & Brown, to secure loans made as part of its general corporate borrowing program), and pledges to secure the promissory notes that some of the private investors will deliver to us in connection with the private placement. The securities subject to these lock-up agreements may be released at any time without notice upon the written consent of Morgan Stanley & Co. Incorporated. These ‘‘lock-up’’ restrictions are subject to extension such that, in the event that either (1) during the last 17 days of the applicable restricted period, we issue an earnings release or material news, or a material event relating to us occurs or (2) prior to the expiration of the applicable restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the applicable period, the ‘‘lock-up’’ restrictions will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnin gs release or the occurrence of the material news or material event.

Registration Rights Agreement

Upon completion of the private placement, we will enter into a registration rights agreement with Babcock & Brown and the other private investors purchasing our shares in the private placement pursuant to which we will agree that, upon the request of Babcock & Brown or any of the other private investors

	•	at any time beginning 180 days but prior to 360 days after the date of this prospectus, we will file one registration statement to register for resale under the Securities Act the shares that Babcock & Brown and the other private investors are purchasing from us, and

	•	at any time on and after 360 days after the date of this prospectus, we will file one or more registration statements to register for resale under the Securities Act the shares that Babcock & Brown and the other private investors are purchasing from us.

In the registration rights agreement we will also agree to register the shares that our Manager may receive in payment of the incentive fee under our management agreement. In the registration rights agreement we will agree to pay expenses in connection with such registration and sales and will indemnify the private investors and Babcock & Brown for material misstatements or omissions in the registration statement.

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TAXATION CONSIDERATIONS

The following discussion is a summary of certain of the tax implications of an investment in our shares. You should consult your tax advisor prior to investing regarding all Irish, U.S. federal, U.S. state, U.S. local, Bermuda and other country income and other tax consequences of an investment in our shares, with specific reference to your own particular tax situation and recent changes in applicable law.

Irish Tax Considerations

We will be tax resident in Ireland. The following discussion reflects the material Irish tax consequences applicable to both Irish and Non-Irish Holders (as defined below) of the acquisition, ownership and disposition of our shares. This discussion is based on Irish tax law, statutes, treaties, regulations, rulings and decisions all as of the date of this prospectus. Taxation laws are subject to change, from time to time, and no representation is or can be made as to whether such laws will change, to what impact, if any, such changes will have on the summary contained in this prospectus. Proposed amendments may not be enacted as proposed, and legislative or judicial changes, as well as changes in administrative practice, may modify or change statements expressed herein.

This summary is of a general nature only. It does not constitute legal or tax advice nor does it discuss all aspects of Irish taxation that may be relevant to any particular holder of our shares. The Irish tax treatment of a holder of our shares may vary depending upon such holder’s particular situation, and holders or prospective purchasers of our shares are advised to consult their own tax advisors as to the Irish or other tax consequences of the purchase, ownership and disposition of our shares.

For the purposes of this summary of Irish tax considerations:

	•	An ‘‘Irish Holder’’ is a holder of our shares that (1) beneficially owns our shares by virtue of holding the related ADSs evidenced by the relevant ADR; (2) in the case of individual holders, is resident or ordinarily resident in Ireland under Irish taxation laws; and (3) in the case of a holder that is a company, is resident in Ireland under Irish taxation laws and is not also a resident of any other country under any double taxation agreement entered into by Ireland.

	•	A ‘‘Non-Irish Holder’’ is a Holder of our shares that is not an Irish Holder and has never been an Irish Holder.

	•	A ‘‘US Holder’’ is a holder of our shares that: (1) beneficially owns our shares by virtue of holding the related ADSs evidenced by the relevant ADR; (2) is a resident of the United States for the purposes of the Ireland/United States Double Taxation Convention; (3) in the case of an individual holder, is not also resident or ordinarily resident in Ireland for Irish tax purposes; (4) in the case of a corporate holder, is not resident in Ireland for Irish tax purposes and is not ultimately controlled by persons resident in Ireland; and (5) is not engaged in any trade or business and does not perform independent personal services through a permanent establishment or fixed base in Ireland.

	•	‘‘Relevant Territory’’ is defined as a country with which Ireland has a double tax treaty, (which includes the United States), or a member state of the European Union other than Ireland.

Irish Dividend Withholding Tax

Dividends that we pay on our shares generally will be subject to a 20% dividend withholding tax, or DWT. DWT may not apply where an exemption is permitted by legislation or treaty and where we have received all necessary documentation prior to the payment of the dividend.

Irish Holders.    Individual Irish Holders will be subject to DWT on any dividend payments that we make. Corporate Irish Holders will generally be entitled to claim an exemption from DWT by delivering a declaration to us in the form prescribed by the Irish Revenue Commissioners.

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Non-Irish Holders.    Shareholders who are individuals resident in a Relevant Territory and who are not resident or ordinarily resident in Ireland may receive dividends free from DWT where the shareholder has provided us with the relevant declaration and residency certificate required by Irish legislation. Corporate shareholders that are not resident in Ireland and

	•	who are ultimately controlled by persons resident in a Relevant Territory and who are not ultimately controlled by persons not resident in a Relevant Territory; or

	•	who are resident in a Relevant Territory and not controlled by Irish residents; or

	•	whose principal class of shares or the principal class of shares of whose 75% or greater parents are substantially and regularly traded on a recognized stock exchange in a Relevant Territory; or

	•	which are wholly owned by two or more companies, each of whose principal class of shares are substantially and regularly traded on a recognized stock exchange in a Relevant Territory

may receive dividends free from DWT where they provide us with the relevant documentation required by Irish law.

U.S. Holders.    Qualifying American depositary banks that receive dividends from Irish companies and transmit those dividends to U.S. Holders of ADSs are permitted to transmit those dividends on a gross basis (without deduction of DWT) in the following circumstances:

	•	where the depositary bank’s ADS register shows that the direct beneficial owner has a U.S. address on the register; or

	•	if there is a further intermediary between the depositary bank and the beneficial shareholder, where the depositary bank received confirmation from the intermediary that the beneficial shareholder’s address in the intermediary’s records is in the United States.

Consequently, we expect that U.S. Holders of ADSs will receive dividends that we pay free of DWT.

U.S. Holders that do not comply with the documentation requirements or otherwise do not receive the dividend gross of Irish withholding taxes may be entitled to claim a refund of the 20% withholding tax from the Irish Revenue Commissioners.

Unless a U.S. holder of ADSs otherwise specifies, a customary fee of $0.003 per ADS (0.6% of our initial quarterly dividend of $0.50 per ADS) will be deducted from each dividend paid to such holder so that such dividend may be paid gross of Irish withholding taxes.

Income Tax

Irish and Non-Irish Holders

Irish Holders.    Individual Irish Holders will be subject to income tax on the gross amount of any dividend (i.e., the amount of the dividend received plus any DWT withheld), at their marginal rate of tax (currently either 20% or 41% depending on the individual’s circumstances). Individual Irish Holders will be able to claim a credit against their resulting income tax liability in respect of any DWT. Individual Irish Holders may, depending on their circumstances, also be subject to the Irish health levy of 2.5% and pay related social insurance contributions of up to 3% in respect of dividend income.

Corporate Irish Holders generally will not be subject to Irish tax in respect of dividends received.

Non-Irish Holders.    Non-Irish Holders will not have an Irish income tax liability on dividends from us if the shareholder is neither resident nor ordinarily resident in Ireland and is:

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	•	an individual resident in a Relevant Territory; or

	•	a corporation that is ultimately controlled by persons resident in a Relevant Territory; or

	•	a corporation whose principal class of shares (or whose 75% or greater parent’s principal class of shares) are substantially and regularly traded on a recognized stock exchange in a Relevant Territory; or

	•	a corporation that is wholly owned by two or more corporations each of whose principal class of shares is substantially and regularly traded on a recognized stock exchange in a Relevant Territory; or

	•	otherwise entitled to an exemption from DWT.

If a Non-Irish Holder is not so exempted, such shareholder will be liable for Irish income tax (currently 20%) on dividends received from us, but will be entitled to a credit for DWT withheld.

Taxation of Capital Gains

Irish Holders.    Irish Holders that acquire shares will generally be considered, for Irish tax purposes, to have acquired their shares at a base cost equal to the amount paid for shares. On subsequent dispositions, shares acquired at an earlier time will generally be deemed, for Irish tax purposes, to be disposed of on a ‘‘first in first out’’ basis before shares acquired at a later time. Irish Holders that dispose of their shares will be subject to Irish capital gains tax (CGT) to the extent that the proceeds realized from such disposition exceed the base cost of the common shares or ADSs disposed of and any incidental expenses. The current rate of CGT is 20%. Unutilized capital losses from other sources generally can be used to reduce gains realized on the disposal of our shares.

An annual exemption allows individuals to realize chargeable gains of up to €1,270 in each tax year without giving rise to CGT. This exemption is specific to the individual and cannot be transferred between spouses. Irish Holders are required, under Ireland’s self-assessment system, to file a tax return reporting any chargeable gains arising to them in a particular tax year. When disposal proceeds are received in a currency other than euro they must be translated into euro amounts to calculate the amount of any chargeable gain or loss. Similarly, acquisition costs denominated in a currency other than the euro must be translated at the date of acquisition to euro amounts. Irish Holders that realize a loss on the disposition of our shares generally will be entitled to offset such allowable losses against capital gains realized from other sources in determining their CGT liability in a year. Allowable losses which remain unrelieved in a year generally ma y be carried forward indefinitely for CGT purposes and applied against capital gains in future years. Transfers between spouses will not give rise to any chargeable gain or loss for CGT purposes.

Non-Irish Holders.    A person who is not resident or ordinarily resident in Ireland is not subject to Irish capital gains tax on the disposal of our shares.

Irish Capital Acquisitions Tax

A gift or inheritance of our shares will be within the charge to capital acquisitions tax (CAT) where the donor/deceased or the beneficiary is resident or ordinarily resident in Ireland at the date of the gift/inheritance or to the extent that the property of which the gift or inheritance consists is situated in Ireland at the relevant date. Special rules with regard to residence apply where an individual is not domiciled in Ireland. CAT is charged at a flat rate of 20%. Gifts and inheritances between spouses are not subject to capital acquisitions tax.

The Estate Tax Convention between Ireland and the United States generally provides for Irish CAT paid on inheritances in Ireland to be credited, in whole or in part, against tax payable in the United States, in the case where an inheritance of shares is subject to both Irish CAT and US federal estate tax. The Estate Tax Convention does not apply to Irish CAT paid on gifts.

Irish Stamp Duty

No Irish stamp or capital duty shall apply to the issuance of the common shares. Transfers of the common shares would not ordinarily be subject to Irish stamp duty, unless the transfer was related to

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Irish property or any matter or thing done or to be done in Ireland. Transfers of ADSs are exempt from Irish stamp duty when the ADSs are dealt in on the New York Stock Exchange, NASDAQ National Market or any recognized stock exchange in the United States or Canada and the transfer does not relate to Irish property or any matter or thing done or to be done in Ireland.

Taxation of the B&B Air Group

Corporation Tax

In general, Irish-resident companies pay corporation tax at the rate of 12.5 per cent on trading income and 25 per cent on non-trading income. B&B Air and its Irish-tax-resident subsidiaries intend to conduct their business so that they should be considered tax-resident in Ireland and to be carrying on a trade for Irish tax purposes. In calculating net trading income, B&B Air and its Irish-tax-resident subsidiary companies should be entitled to a deduction for trading expenses and tax depreciation on the aircraft.

Non-trading income, including certain categories of interest income, will be subject to corporation tax at the rate of 25%.

Irish Value-Added Tax (VAT)

Ireland generally imposes VAT on the supply of goods and services. Payments by a lessee to B&B Air will not be subject to Irish VAT in any case where the leased aircraft is used or to be used by a transport undertaking operating for reward chiefly on international routes or the aircraft is or is to be effectively used an enjoyed wholly outside the EU.

Any Irish VAT that may become payable by B&B Air in connection with any services performed by the servicer or our Manager will be eligible to be reclaimed on the assumption that invoices addressed to B&B Air relate to costs attributable to a business activity of that company which is considered to be a supply of goods or services by that company.

Irish VAT may also be payable on services provided to B&B Air by other service providers in Ireland or abroad (in the latter case on a reverse charge basis). On the assumption set out above such VAT should be eligible to be recovered where it is charged by Irish service providers or should not give rise to a cash outlay where the reverse charge applies.

Any VAT payable by B&B Air which is not referable to a taxable supply of goods or services by it will not be recoverable.

U.S. Federal Income Tax Considerations

The following is a general discussion of the U.S. federal income taxation of us and of certain U.S. federal income tax consequences of acquiring, holding or disposing of the shares by U.S. Holders (as defined below) and information reporting and backup withholding rules applicable to both U.S. and Non-U.S. Holders (as defined below). It is based upon the U.S. Internal Revenue Code, the U.S. Treasury regulations (‘‘Treasury Regulations’’) promulgated thereunder, published rulings, court decisions and other applicable authorities, all as in effect on the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect). This summary does not purport to address all of the U.S. federal income tax consequences applicable to us or to all categories of investors, some of whom may be subject to special rules including, without limitation, dealers in securities or currencies, financial institutions or ‘‘financial services entities,’’ life insurance companies, holders of shares held as part of a ‘‘straddle,’’ ‘‘hedge,’’ ‘‘constructive sale’’ or ‘‘conversion transaction’’ with other investments, U.S. persons whose ‘‘functional currency’’ is not the U.S. dollar, persons who have elected ‘‘mark-to-market’’ accounting, persons who have not acquired their shares upon their original issuance, or in exchange for consideration other than cash, persons who hold their share through a partnership or other entity which is a pass-through entity for U.S. federal income tax purposes, or persons for whom a share is not a capital asset, and persons holding, directly indirectly or

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constructively, 5% or more of our shares or underlying shares. The tax consequences of an investment in our shares will depend not only on the nature of our operations and the then-applicable U.S. federal tax principles, but also on certain factual determinations that cannot be made at this time, and upon a particular investor’s individual circumstances. No advance rulings have been or will be sought from the Internal Revenue Service (the ‘‘IRS’’) regarding any matter discussed herein.

For purposes of this discussion, a ‘‘U.S. Holder’’ is (1) a citizen or resident of the United States; (2) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust which (a) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. A ‘‘Non-U.S. Holder’’ is a beneficial owner of our shares that is not a U.S. Holder and who, in addition, is not (1) a partnership or other fiscally transparent entity; (2) an individual present in the United States for 183 d ays or more in a taxable year who meets certain other conditions; or (3) subject to rules applicable to certain expatriates or former long-term residents of the United States. This summary does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase the shares. This summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the United States. For U.S. tax purposes holders of our ADSs are treated as if they hold the underlying common shares represented by the ADSs.

Taxation of U.S. Holders of Shares

U.S. holders of shares will be subject to U.S. tax under either the passive foreign investment companies (‘‘PFIC’’) rules or the controlled foreign corporation (‘‘CFC’’) rules.

Tax Consequences of Passive Foreign Investment Company (PFIC) Status.    We will be deemed a PFIC if 75% or more of our gross income, including our pro rata share of the gross income of any company, U.S. or foreign, in which we are considered to own 25% or more of the shares by value, in a taxable year is passive income. Alternatively, we will be deemed to be a PFIC if at least 50% of our assets in a taxable year, averaged over the year and ordinarily determined based on fair market value and including our pro rata share of the assets of any company in which we are considered to own 25% or more of the shares by value, are held for the production of, or produce, passive income. Passive income may include, among other things, amounts derived by reason of the temporary investment of funds raised in offerings of our securities and rent paid pursuant to the existing leases of the aircraft in our Initial Portfolio. We will be a PFIC for 2007 and for the foreseeable future. Because we are 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. Holders. Thus dividends will be taxed at the normal rate applicable to ordinary income.

Because we will be a PFIC, U.S. Holders of our shares will be subject to different taxation rules with respect to an investment in our shares depending on whether they elect to treat us as a qualified electing fund, or a QEF, with respect to their investment in our shares. If a U.S. Holder makes a QEF election in the first taxable year in which the U.S. Holder owns our shares (and if we comply with certain reporting requirements, which we intend to do), then such U.S. Holder will be required for each taxable year to include in income a 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, subject to a separate voluntary election to defer payment of taxes, which deferral is subject to an interest charge. If a QEF election is made, U.S. Holders will not be taxed again on our distributions attributable to QEF inclusions. Distributions in excess of QEF inclusions will be applied against and will reduce the U.S. Holder’s basis in our shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of a capital asset.

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.

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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 projected 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. Distributions in excess of the amounts treated as income will be treated first as a non-taxable return of capital to the extent of your basis in the shares and thereafter as a capital gain. These estimates are based upon the assumption that cash flow from operations will be sufficient to pay the regular quarterly distributions on our shares during the referenced period and other assumptions with respect to the timing of the transfer of the aircraft in the Initial Portfolio to us, capital expenditures, cash flow and anticipated aircraft acq uisitions and dispositions. These estimates and assumptions are subject to, among other things, numerous business, economic, regulatory, competitive and political uncertainties beyond our control. Further, the estimates are based on current tax law and tax reporting positions that we will adopt and with which the IRS could disagree. Accordingly, there can be no assurance that your allocable U.S. federal taxable income will not be more or less than the estimated amounts. It is also possible that U.S. federal taxable income allocated to you in any period could exceed the amount of distributions paid to you with respect to such period.

Because we are a PFIC, if a U.S. Holder does not make a QEF election, then the following special rules will apply:

	•	Excess distributions by us to a U.S. Holder would be taxed in a special way. ‘‘Excess distributions’’ are amounts received by a U.S. Holder with respect to our shares in any taxable year that exceed 125% of the average distributions received by such U.S. Holder from us in the shorter of either the three previous years or such U.S. Holder’s holding period for shares before the present taxable year. Excess distributions must be allocated ratably to each day that a U.S. Holder has held our shares. A U.S. Holder must include amounts allocated to the current taxable year in its gross income as ordinary income for that year. A U.S. Holder must pay tax on amounts allocated to each prior taxable year in which we were a PFIC at the h ighest rate in effect for that year on ordinary income and the tax is subject to an interest charge at the rate applicable to deficiencies for income tax.

	•	The entire amount of gain realized by a U.S. Holder upon the sale or other disposition of shares will also be treated as an excess distribution and will be subject to tax as described above.

	•	The tax basis in shares that were acquired from a decedent who was a U.S. Holder would not receive a step-up to fair market value as of the date of the decedent’s death but would instead be equal to the decedent’s basis, if lower than fair market value.

The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the IRS. A shareholder makes a QEF election by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return or, if not required to file an income tax return, by filing such form with the IRS. Even if a QEF election is not made, a shareholder in a PFIC who is a U.S. Holder must file a completed IRS Form 8621 every year. We intend to provide U.S. Holders with all necessary information to enable them to make QEF elections as described above. If any subsidiary is not subject to an election to be treated as a disregarded entity or partnership for U.S. tax purposes then a QEF election would have to be made for each such subsidiary. We intend to make an election to treat each of our subsidiaries as a disregarded entity for U.S. tax purposes.

U.S. Holders may, instead of making a QEF election, elect to mark the shares to market annually, recognizing as ordinary income or loss each year an amount equal to the difference, as of the close of the taxable year, between the fair market value of the shares and the U.S. Holder’s adjusted tax basis in the shares. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable years. If the mark-to-market election were made, then the rules set forth above would not apply for periods covered by the election. A mark-to-market election is only available if our shares meet trading volume requirements on a qualifying exchange and will only be effective if we make an election to treat each of our subsidiaries

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that would be PFICs as disregarded entities or partnerships for U.S. tax purposes. We intend to make such elections for all of our subsidiaries.

U.S. Holders who hold shares during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to certain exceptions for U.S. Holders who made a QEF election.

You should consult your tax advisor about the PFIC rules, including the advisability of making a QEF election or mark-to-market election.

Tax Consequences of CFC Status.    It is possible that we will be a controlled foreign corporation, a ‘‘CFC’’ for U.S. federal income tax purposes. We will be a CFC for any year in which U.S. Holders that each owns (directly, indirectly or by attribution) at least 10% of our voting shares (each a ‘‘10% U.S. Holder’’), together own more than 50% of the total combined voting power of all classes of our voting shares or more than 50% of the total value of our shares. The classification as a CFC has many complex results, one of which is that if you are a 10% U.S. Holder on the last day of our taxable year, you will be required to recognize as ordinary income your pro rata share of our income (including both ordinary earnings and capital gains) for the taxable year, whether or not you receive any distributions on your shares during that taxable year. In addition, special foreign tax credit rules would apply. Your adjusted tax basis in your shares would be increased to reflect any taxed but undistributed earnings and profits. Any distribution of earnings and profits that previously had been taxed would result in a corresponding reduction in your adjusted tax basis in your shares and would not be taxed again when you receive such distribution. Subject to a special limitation in the case of individual 10% U.S. Holders that have held their shares for more than one year, if you are a 10% U.S. Holder, any gain from disposition of your shares will be treated as dividend income to the extent of accumulated earnings attributable to such shares during the time you held such shares.

For any year in which we are both a PFIC and a CFC, if you are a 10% U.S. Holder, you would be subject to the CFC rules and not the PFIC rules with respect to your investment in shares.

You should consult your tax advisor about the application of the CFC rules to your particular situation.

Taxation of the Disposition of Shares.    A U.S. Holder that has made a QEF election for the first year of its holding period will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s basis in the shares, which is usually the cost of such shares (as adjusted to take into account any QEF or subpart F inclusion and any distribution) and the amount realized on a sale or other taxable disposition of the shares. If, as anticipated, the shares are publicly traded, a disposition of shares will be considered to occur on the ‘‘trade date,’’ regardless of the holder’s method of accounting. If a QEF election has been made, capital gain from the sale, exchange or other disposition of shares held more than one year is long-term capital gain and is eligible for a maximum 15% rate of taxati on for non-corporate holders. The deductibility of a capital loss recognized on the sale, exchange or other disposition of shares is subject to limitations. Gain or loss recognized by a U.S. Holder on a sale, exchange or other disposition of shares generally will be treated as United States source income or loss for United States foreign tax credit purposes.

Information Reporting and Backup Withholding for U.S. Holders

Dividend payments made within the United States with respect to the shares, and proceeds from the sale, exchange or redemption of shares, may be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding. Generally, a U.S. Holder will provide such certification on IRS Form W-9 (Request for Taxpayer Identification Number and Certification).

Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s tax liability, and a U.S. Holder may obtain a refund of any excess amount withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS.

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Information Reporting and Backup Withholding for Non-U.S. Holders

Information reporting to the United States and backup withholding to the IRS generally would not be required for dividends paid on our shares or proceeds received upon the sale, exchange or redemption of our shares to Non-U.S. Holders who hold or sell our shares through the non-U.S. office of a non-U.S. related broker or financial institution. Information reporting and backup withholding may apply if shares are held by a Non-U.S. Holder through a U.S., or U.S.-related, broker or financial institution, or the U.S. office of a non-U.S. broker or financial institution and the Non-U.S. Holder fails to establish an exemption from information reporting and backup withholding by certifying such holder’s status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.

The IRS may make information reported to you and the IRS available under the provisions of an applicable income tax treaty to the tax authorities in the country in which you reside. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, if any, provided the required information is timely furnished by you to the IRS. You should consult your own tax advisors regarding the filing of a U.S. tax return for claiming a refund of any such backup withholding. Non-U.S. Holders should consult their tax advisors regarding the application of these rules.

Taxation of B&B Air and Our Subsidiaries

For U.S. federal income tax purposes, we will be treated as a non-U.S. corporation and each other member of our group will be treated as either a disregarded entity, a grantor trust or a partnership, in each case, a pass-through entity for U.S. tax purposes. Accordingly, it is anticipated that any U.S. federal income tax payable by reason of the activities of the members of our group will be payable by us. Unless otherwise exempted by an applicable income tax treaty, a non-U.S. corporation that is directly or through agents engaged in a trade or business in the U.S. is generally subject to U.S. federal income taxation, at the graduated tax rates applicable to U.S. corporations, on the portion of such non-U.S. corporation’s income that is ‘‘effectively connected’’ with such trade or business. In addition, such a non-U.S. corporation may be subject to the U.S. federal branch profits tax on the portion of its ‘‘effectively connected earnings and profits’’ constituting ‘‘dividend equivalent amounts’’ at a rate of 30%, or at such lower rate as may be specified by an applicable income tax treaty. In addition non-U.S. corporations that earn certain U.S. source income not connected with a U.S. trade or business can be subject to a 30% withholding tax on such gross income unless they are entitled to a reduction or elimination of such tax by an applicable treaty. Furthermore, even if a non-U.S. corporation is not engaged in business in the United States, certain U.S. source ‘‘gross transportation income’’ (which includes rental income from aircraft that fly to and from the United States) is subject to a 4% gross transportation tax in the United States unless a statutory or treaty exemption applies.

We expect that we and our Irish tax resident subsidiaries will be entitled to claim the benefits of the Irish Treaty. Accordingly, even if we earn income that otherwise would be treated as subject to tax in the United States, such income is expected to be exempt from U.S. tax under the Irish Treaty to the extent that it is (1) rental income attributable to aircraft used in international traffic; (2) gain from the sale of aircraft used in international traffic; or (3) U.S. source business profits (which includes rental income from, and gains attributable to, aircraft operated in U.S. domestic service) not connected with a U.S. permanent establishment. For this purpose, ‘‘international traffic’’ means transportation except where flights are solely between places within the United States. We also expect that we will not be treated as having a U.S. permanent establishment. Thus we do not believe that we will be subject to taxation in the Unit ed States on any of our aircraft rental income or gains from the sale of aircraft.

No assurances can be given, however, that we will continue to qualify each year for the benefits of the Irish Treaty or that we will not in the future be treated as maintaining a permanent establishment in the U.S. In order for us and our subsidiaries to be eligible for the benefits of the Irish Treaty for a particular fiscal year, we must each satisfy the requirements of Article 23 (Limitation on Benefits) of the Irish Treaty for that fiscal year. We will be eligible for the benefits of the Irish Treaty if the principal class of our shares are substantially and regularly traded on one or more recognized stock exchanges. Our shares will be substantially and regularly traded on one or more recognized stock

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exchanges in a fiscal year if: (1) trades in such shares are effected on such stock exchanges in more than de minimis quantities during every quarter; and (2) the aggregate number of shares traded on such stock exchanges during the previous fiscal year is at least 6% of the average number of shares outstanding during that taxable year. In particular, if our shares cease to be treated as regularly traded, then we may no longer be eligible for the benefits of the Irish Treaty. Our subsidiaries that are Irish tax-resident will be eligible for benefits under the Irish Treaty if we hold, directly or indirectly, 50% or more of the vote and value of the subsidiary and we meet the regularly traded test described above.

If we or any subsidiary were not entitled to the benefits of the Irish Treaty, any income that we or that subsidiary earns that is treated as effectively connected with a trade or business in the United States, either directly or through agents, would be subject to tax in the United States at a rate of 35%. In addition, we or that subsidiary would be subject to the U.S. federal branch profits tax on its effectively connected earnings and profits at a rate of 30%, considered distributed from the U.S. business.

In addition, if we did not qualify for Irish Treaty benefits, certain U.S. source rental income not connected with a U.S. trade or business could be subject to withholding tax of 30% and certain U.S. source gross transportation income could be subject to a 4% gross transportation tax. However even if we were not entitled to the benefits of the Irish Treaty, we would be exempt from the 4% gross transportation tax if we qualify for an exemption under section 883 of the Code. Section 883 provides an exemption from U.S. federal income taxation for income derived from aircraft used in international traffic by certain foreign corporations. To qualify for this exemption in respect of rental income derived from international traffic, the lessor of the aircraft must be organized in a country that grants a comparable exemption to U.S. lessors (Ireland and Bermuda each does), and the direct and indirect shareholders of the lessor must satisfy certain residency requirements . We and our majority-owned subsidiaries can satisfy these residency requirements in any year our shares are primarily and regularly traded on a recognized exchange for more than half the days of such year. Our shares will be considered to be primarily and regularly traded on a recognized exchange in any year if: (1) the number of trades in our shares effected on such recognized stock exchanges exceed the number of our shares (or direct interests in our shares) that are traded during the year on all securities markets; (2) trades in our shares are effected on such stock exchanges in more than de minimis quantities on at least 60 days during every calendar quarter in the year; and (3) the aggregate number of our shares traded on such stock exchanges during the previous year is at least 10% of the average number of our shares outstanding in that class during that year. In particular, if our shares cease to be treated as regularly traded, then we may no longer be eligible for the section 883 exemption.

Bermuda Tax Considerations

We are incorporated under the laws of Bermuda. At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by us or by our shareholders in respect of our shares. We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda.

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of ADSs indicated below:

Name			Number of ADSs
Morgan Stanley & Co. Incorporated
Citigroup Global Markets Inc.
Merrill Lynch, Pierce, Fenner & Smith                    Incorporated
Credit Suisse Securities (USA) LLC
Jefferies & Company, Inc.
J.P. Morgan Securities Inc.
Total					18,695,650

The underwriters are offering the ADSs subject to their acceptance of the ADSs from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the ADSs offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the ADSs offered by this prospectus if any such ADSs are taken. However, the underwriters are not required to take or pay for the ADSs covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the ADSs directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $           per ADS under the public offering price. After the initial offering of the ADSs, the offering price and other selling terms may from time to time be varied by the representatives.

The selling shareholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of 2,804,348 additional ADSs, at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the ADSs offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional ADSs as the number listed next to the underwriter’s name in the preceding table bears to the total number of ADSs listed next to the names of all underwriters in the preceding table. If the underwriters’ option is exercised in full, the total price to the public would be $     &nbs p;   million, the total underwriters’ discounts and commissions would be $                 million and total proceeds to the selling shareholders would be $             million. We will not receive any proceeds from the sale of shares pursuant to the exercise of the underwriters’ over-allotment option.

The underwriters have informed us that they do not intend to confirm sales to accounts over which they exercise discretionary authority without the prior written approval of the customer.

Our ADSs have been approved for listing on the New York Stock Exchange under the symbol ‘‘FLY.’’

We, our executive officers and directors, together with our Manager and Babcock & Brown and the other private investors, have agreed that, subject to certain permitted exceptions, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we and they will not, during the period ending 360 days (in the case of Babcock & Brown) or 180 days (in the case of us and all others) after the date of this prospectus:

•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of directly or indirectly, any ADSs or any securities convertible into or exercisable or exchangeable for ADSs;

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•	file any registration statement with the SEC relating to the offering of any ADSs or any securities convertible into or exercisable or exchangeable for ADSs; or

•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the ADSs;

whether any such transaction described above is to be settled by delivery of ADSs or such other securities, in cash or otherwise. The lockup agreements are subject to certain exceptions, including in the case of certain of the lockup agreements to permit the pledge of shares to secure loans to finance the acquisition of shares (or, in the case of Babcock & Brown, to secure loans made as part of its general corporate borrowing program), and pledges to secure the promissory notes that some of the private investors will deliver to us in connection with the private placement.

The 180-day or 360-day restricted period described above is subject to extension such that, in the event that either (1) during the last 17 days of the applicable restricted period, we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the applicable restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the applicable restricted period, the ‘‘lock-up’’ restrictions described above will, subject to limited exceptions, continue to apply until the expiration of the 18-day period beginning on the earnings release date or the occurrence of the material news or material event.

We have been advised by Morgan Stanley & Co. Incorporated that they have no present intent or arrangement to release any ADSs subject to a lock-up and will consider the release of any lock-up on a case-by-case basis. Upon a request to release any ADSs subject to a lock-up, Morgan Stanley & Co. Incorporated would consider the particular circumstances surrounding the request, including but not limited to, the length of time before the lock-up expires, the number of ADSs requested to be released, the reasons for the request, the possible impact on the market for our ADSs and whether the holder of ADSs requesting the release is an officer, director or other affiliate of our company.

The estimated offering expenses payable by us, in addition to the underwriting discounts and commissions, are approximately $5.9 million, which includes accounting and a portion of the legal and printing costs and various other fees associated with registering and listing our ADSs.

The following table shows the per-ADS and total underwriting discounts and commissions that we and the selling shareholders are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option to purchase additional ADSs from the selling shareholders.

Per ADS

Total

Without Over-allotment

With Over-allotment

Without Over-allotment

With Over-allotment

Underwriting discounts and commissions paid by us

$

$

$

$

Expenses payable by us

$

$

$

$

Underwriting discounts and commissions paid by the selling shareholders

$

$

$

$

Expenses payable by the selling shareholders

$

$

$

$

In order to facilitate the offering of the ADSs, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the ADSs. Specifically, the underwriters may sell more ADSs than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of ADSs available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing ADSs in the open market. In determining the source of ADSs to close out a covered short sale, the underwriters will consider, among other things, the open market price of ADSs compared to the price available under the

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over-allotment option. The underwriters may also sell ADSs in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering, the underwriters may bid for, and purchase, ADSs in the open market to stabilize the price of the ADSs. The underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing the ADSs in the offering, if the syndicate repurchases previously distributed ADSs to cover syndicate short positions or to stabilize the price of the ADSs. These activities may raise or maintain the market price of the ADSs above independent market levels or prevent or retard a decline in the market price of the ADSs. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

Under the asset purchase agreement JET-i will sell to us the aircraft in the Initial Portfolio. The existing equity holders of JET-i will receive a pro rata share of the proceeds of such sale as a distribution from JET-i after repayment of JET-i’s indebtedness. Certain of the equity holders of JET-i have agreed to pay us amounts to defray expenses of this offering (including underwriting discounts) as the proceeds of this offering will in part fund JET-i’s distribution payments to them.

A prospectus in electronic format may be made available on the websites maintained by one or more underwriters. The representatives may agree to allocate a number of ADSs to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.

Other than this prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as an underwriter and should not be relied upon by investors.

From time to time, certain of the underwriters and their respective affiliates have provided, and continue to provide, investment banking and other services to us, Babcock & Brown and its affiliates for which they receive customary fees and commissions.

Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC are acting as initial purchasers of the notes in our securitization. For a description of our securitization, see ‘‘Description of Indebtedness — Securitization.’’

Credit Suisse International, an affiliate of Credit Suisse Securities (USA) LLC, will act as a counterparty in certain interest-rate swap transactions with our securitization and warehouse subsidiaries.

Credit Suisse, Cayman Islands Branch, an affiliate of Credit Suisse Securities (USA) LLC, is a lender and agent under our predecessor’s warehouse credit facility which has an aggregate of approximately $1.1 billion of borrowings outstanding as of September 10, 2007. In addition, in connection with this offering, an affiliate of Credit Suisse Securities (USA) LLC has committed to provide our subsidiary, B&B Air Acquisition, with a $1.2 billion ‘‘warehouse’’ credit facility. The commitment provides that the credit facility will provide for loans of up to $1.2 billion to finance the acquisition of aircraft, subject to a requirement that we provide a $96 million equity tranche of the facility and certain other conditions. See ‘‘Description of Indebtedness – Credit Facility.’’

Jet-Investment Holdings LLC, whose sole member is Credit Suisse First Boston RAFT, LLC, an affiliate of Credit Suisse Securities (USA) LLC, owns approximately a 7.6% equity interest in JET-i Holdings LLC, a limited liability company whose subsidiary, JET-i Leasing LLC, owns 44 of the aircraft in our Initial Portfolio. Based on an assumed initial public offering price of $23.00 per ADS, which is the midpoint of the price range set forth on the cover of this prospectus, we estimate that we will pay an aggregate purchase price for these aircraft of $1,451.0 million, of which approximately

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$24.0 million will be paid to the affiliate of Credit Suisse Securities (USA) LLC in respect of its interest in JET-i Holdings LLC. Credit Suisse Securities (USA) LLC has also agreed to purchase from us in the private placement 747,613 ADSs at the initial public offering price and, in consideration of the arrangement of the transactions occurring in connection with this offering, to pay us an amount of $334,425. The shares purchased by Credit Suisse Securities (USA) LLC will be subject to a lock-up agreement as described in this ‘‘Underwriting’’ section.

Approximately $178.6 million of the net proceeds we receive from this offering, the concurrent private placement and the securitization will be used to repay the indebtedness owed to Credit Suisse, Cayman Islands Branch, under JET-i Leasing’s warehouse credit facility, and an affiliate of Credit Suisse Securities (USA) LLC will receive approximately $24.0 million in respect of its interest in JET-i Holdings LLC, as described in the preceding two paragraphs. This offering is being made in compliance with the requirements of Rule 2710(h) of the Conduct Rules of the National Association of Securities Dealers, Inc. This rule provides generally that if more than 10% of the net offering proceeds from the sale of equity securities, not including underwriting compensation, is paid to an underwriter of such equity securities or their affiliates, the public offering price of the securities can be no higher than that recommended by a ‘‘qualified independe nt underwriter’’ (as such term is defined in Rule 2720). In accordance with such requirements, Morgan Stanley & Co., Incorporated has agreed to serve as a ‘‘qualified independent underwriter’’ and has conducted due diligence and has recommended a maximum price for the ADSs.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make because of any of those liabilities.

Pricing of the Offering

Prior to this offering, there has been no public market for our ADSs. The initial public offering price will be determined by negotiations among us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be our future prospects and the prospects of our industry in general, sales, earnings and certain other financial operating information relating to us in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.

Directed Share Program

At our request, the underwriters have reserved up to 10% of the ADSs for sale by them at the initial public offering price to persons who are our directors or officers or directors, officers or employees of Babcock & Brown or any of its affiliates, or through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved ADSs, but any purchases they do make will reduce the number of ADSs available to the general public. These persons must commit to purchase no later than the close of business on the day following the date of this prospectus. Any persons purchasing such reserved ADSs will be prohibited from disposing of or hedging such ADSs for a period of at least 180 days after the date of this prospectus. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of these ADSs.

Selling Restrictions

No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the ADSs, or the possession, circulation or distribution of this prospectus or any other material relating to us or the ADSs in any jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the ADSs may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.

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European Economic Area

In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a ‘‘Relevant Member State’’), the ADSs are not, will not, and may not be offered to the public in that Relevant Member State except that, with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, ADSs may be offered to the public in that Relevant Member State at any time:

•

in the period beginning on the date of publication of a prospectus in relation to ADSs, which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive in that Relevant Member States and the expression ‘‘Prospectus Directive’’ means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member States;

•	to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

•	to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) total balance sheet assets of more than € 43,000,000 and (3) an annual net turnover of more than € 50,000,000, as shown in its last annual or consolidated accounts; or

•	in any other circumstances which do not require the publication by the Company of a prospectus pursuant to the Prospectus Directive.

For the purposes of this provision, the expression an ‘‘offer of ADSs to the public’’ in relation to any ADSs in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the ADSs to be offered so as to enable an investor to decide to purchase or subscribe for the ADSs, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member States and the expression ‘‘Prospectus Directive’’ means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member States.

United Kingdom

This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘‘Order’’) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (e) of the Order (all such persons together being referred to as ‘‘relevant persons’’). The ADSs are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such ADS will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

Each of the underwriters has represented and agreed that:

(a)

it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 or FSMA) received by it in connection with the issue or sale of the ADSs in circumstances in which Section 21(1) of the FSMA does not apply to us, and

(b)	it has complied with, and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the ADSs in, from or otherwise involving the United Kingdom.

The Netherlands

The ADSs may not be offered or sold, transferred or delivered, as part of their initial distribution or at any time thereafter, directly or indirectly, to any individual or legal entity in The Netherlands other

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than to individuals or legal entities domiciled or resident in The Netherlands who are professional parties within the meaning of section 1a, in Subsection 3 of The Netherlands Exemption Regulation to the Netherlands Act on the supervision of the Securities Trade 1995 (vrijstellingsregeling wet toezicht efecten-verkeer 1995), as amended from time to time, which includes banks, certain securities intermediaries, including dealers and brokers, insurance companies, pension funds, and certain other institutional investors and commercial enterprises which, as an ancillary activity, regularly trade or invest in securities.

Hong Kong

The ADSs may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to ‘‘professional investors’’ within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a ‘‘prospectus’’ within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the ADSs may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other t han with respect to the ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs may not be circulated or distributed, nor may the ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the ‘‘SFA’’), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the ADSs are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the ADSs under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 o f the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

Japan

The ADSs have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

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Ireland

Under the Irish Investment Intermediaries Acts 1995-2000, a person or persons acting in concert proposing to acquire a direct or indirect holding of our ADSs or other interest in us must give the Irish Financial Services Regulatory Authority prior written notice of such proposed acquisition if the acquisition would (i) represent 10% or more of our capital or voting rights; (ii) result in the proportion of capital or voting rights in us held by such person or persons reaching or exceeding 10%, 20%, 33% or 50% of the capital or voting rights in us; or (iii) in the opinion of the Financial Regulator of Ireland, make it possible for that person or those persons to control or exercise a significant influence over the management of either or both of our Irish regulated entities. Pursuant to the Irish Investment Intermediaries Acts 1995-2000, any such proposed acquisition shall not proceed until (a) the Irish Financial Services Regulatory Authority has informed us and such acquiring person or persons that it approves of such acquisition or (b) the period prescribed in section 40 of the Irish Investment Intermediaries Acts 1995-2000 has elapsed without the Irish Financial Regulator having refused to grant such approval. Corresponding provisions apply to the disposition of our ADSs except that, in such case, no approval is required, but notice of the disposition must be given.

Australia

This document is not a formal disclosure document and has not been lodged with the Australian Securities and Investments Commission. It does not purport to contain all information that an investor or their professional advisers would expect to find in a product disclosure statement for the purposes of Part 7.9 of the Corporations Act 2001 (Australia) in relation to the ADSs.

The ADSs are not being offered in Australia to ‘‘retail clients’’ as defined in section 761G of the Corporations Act 2001 (Australia). This offering is being made in Australia solely to ‘‘wholesale clients’’ as defined in section 761G of the Corporations Act 2001 (Australia) and as such no product disclosure statement in relation to the ADSs has been prepared.

This document does not constitute an offer in Australia other than to wholesale clients. By submitting an application for ADSs, you represent and warrant to us that you are a wholesale client. If any recipient is not a wholesale client, no applications for ADSs will be accepted from such recipient. Any offer to a recipient in Australia, and any agreement arising from acceptance of such offer, is personal and may only be accepted by the recipient. In addition, by applying for ADSs you undertake to us that, for a period of 12 months from the date of issue of the ADSs, you will not transfer any interest in ADSs to any person in Australia other than a wholesale client.

France

This Invitation has not been submitted to the registration procedures of the French Autorité des Marchés Financiers and, accordingly, the offer described therein shall not be made to the public in France. Offers may be made only to qualified investors (investisseurs qualifiés), acting for their own account, all as defined in, and in accordance with articles L.411-1, L.411-2 and D.411-1 to D.411-3 of the French Code monétaire et financier, but excluding individuals. This Invitation or any other offer ing materials relating to the transactions contained herein may not be distributed in France to any person other than qualified investors.

Italy

This prospectus has not been submitted to the clearance procedures of Commissione Nazionale per le Società e la Borsa (‘‘Consob’’) and has not been and will not be subject to the formal review or clearance procedures of Consob and accordingly may not be used in connection with any offering of ADSs in the Republic of Italy (‘‘Italy’’), and sales of ADSs in Italy shall be effected in accordance with all Italian securities, tax and exchange control and other applicable laws and regulations.

Any offer or issue of ADSs in Italy in relation to the offering is being made only to (i) professional investors (each a ‘‘Professional Investor’’), pursuant to Article 30, paragraph 2 and Article 100 a) of Legislative Decree No. 58 of 24 February 1998, as amended (‘‘Decree No. 58’’) and as defined in

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Articles 25 and 31, paragraph 2 of Consob Regulation No. 11522 of 1 July 1998, as amended (‘‘Regulation No. 11522’’), and excluding individuals as defined pursuant to the aforementioned Article 31, paragraph 2, who meet the requirements in order to exercise administrative, managerial or supervisory functions at a registered securities dealing firm (a società di intermediazione mobiliare, or ‘‘SIM’’), asset management companies authorised to manage individual portfolios on behalf of third parties (società di gestione del risparmio, or ‘‘SGR’’) and fiduciary companies (società fiduciarie) managing portfolio investments regulated by Article 60, paragraph 4 of Legislative Decree No. 415 of 23 July 1996; or (ii) in any other circumstances where an express exemption from compliance with the solicitation restrictions applies, as provided under Decree No. 58 or Consob Regulation No. 11971 of 14 May 1999, as amended. Any such offer or issue or any distribution of this prospectus within Italy and in connection with the offering must be conducted by banks, investment firms (as defined in Decree No. 58) or financial intermediaries enrolled in the special register provided for by Article 107 of Legislative Decree No. 385 of 1 September 1993, as amended, to the extent duly authorised to engage in the placement and/or underwriting of financial instruments in Italy in accordance with the relevant provisions of Decree No. 58.

Spain

The ADSs may not be offered, sold or distributed in Spain save in accordance with the requirements of Law 24/1988, of 28 July, on the Securities Market Law (Ley 24/1988, de 28 de julio, del Mercado de Valores), as amended and restated, and Royal Decree 1310/2005, of 4 November 2005, partially developing Law 24/1988, of 28 July, on the Securities Market in connection with listing of securities in secondary official markets, public offerings, rights issues and the prospectus required for such purposes (Real Decreto 1310/2005, de 4 de noviembre, por el que se dearrolla parcialmente la Ley 24/1 988, de 28 de Julio, del Mercado de Valores, en materia de admisión a negociación de valores en mercados secundarios oficiales, de ofertas públicas de venta o suscripción y del folleto exigible a tales efectos) and the decrees and regulations made thereunder. Accordingly, the ADSs may not be offered, sold or distributed in Spain except in circumstances which do not constitute a public offer of securities in Spain within the meaning of Spanish securities laws and regulations or without complying with all legal and regulatory requirements in relation thereto.

This prospectus has not been verified or registered with the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores), and therefore it is not intended for any public offer of the ADSs in Spain.

Austria

This prospectus has not been approved and/or published pursuant to the Austrian Capital Markets Act (Kapitalmarktgesetz) as amended. Neither this prospectus nor any other document connected therewith constitutes a prospectus according to the Austrian Capital Markets Act and neither this prospectus nor any other document connected therewith may be distributed, passed on or disclosed to any other person in Austria, save as specifically agreed with the underwriters. No steps may be taken that would constitute a public offering of the ADSs in Austria and the offering of the ADSs may not be advertised in Austria. The ADSs will be offered in Austria only in compliance with the provisions of the Austrian Capital Markets Act and all other laws and regulations in Austria applicable to the offer and sale of the ADSs in Austria .

Malaysia

No prospectus or other offering material or document in connection with the offer and sale of the ADSs has been or will be registered with the Securities Commission of Malaysia pursuant to the Securities Commission Act, 1993 as the offer for purchase of, or invitation to purchase the ADSs is meant to qualify as an ‘‘excluded offer or excluded invitation’’ within the meaning of Section 38 of the Securities Commission Act, 1993. Each underwriter has severally represented, warranted or agreed that ADSs will not be offered, sold, transferred or otherwise disposed, directly or indirectly, nor any document or other material in connection therewith distributed, in Malaysia, other than to persons

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falling within any one of the categories or person specified in Schedule 2 and/or Schedule 3 of the Securities Commission Act, 1993 who are also persons to whom any offer or invitation to purchase or sell would be an excluded offer or invitation within the meaning of Section 38 of the Securities Commission Act, 1993.

New Zealand

This prospectus has not been prepared or registered in accordance with the Securities Act 1978 of New Zealand. Accordingly, each underwriter has represented and agreed that it (i) has not offered or sold, and will not offer or sell, directly or indirectly, ADSs and (ii) has not distributed and will not distribute, directly or indirectly, any offer materials or advertisements in relation to any offer of ADSs, in each case in New Zealand other than (a) to persons whose principal business is the investment of money or who, in the course of and for the purpose of their business, habitually invest money or (b) in other circumstances where there is no contravention of the Securities Act 1978 of New Zealand (or any statutory modification or reenactment, or statutory substitution for, the securities legislation of New Zealand).

South Africa

Each of the underwriters has represented and agreed that it has not offered and will not offer the ADSs offered by this prospectus to the public in South Africa in terms of Chapter VI of the South African Companies Act, 1973 (as amended). Accordingly, such ADSs may not be handed on, surrendered to, renounced in favor of or assigned to any person in South Africa in any manner which could be construed as an offer to the public in terms of Chapter VI of the Companies Act, 1973 (as amended).

United Arab Emirates

The information contained in this document does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law (Federal Law No. 8 of 1984 of the UAE, as amended) or otherwise and is not intended to be a public offer. If you are in any doubt about the contents of this document, you should consult an authorized financial adviser.

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LEGAL MATTERS

The validity of the common shares and certain other legal matters with respect to the laws of Bermuda will be passed upon for us by Conyers Dill & Pearman, Hamilton, Bermuda. Certain matters of U.S. federal and New York law relating to this offering will be passed upon for us by Weil, Gotshal & Manges LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Clifford Chance US LLP, New York, New York.

EXPERTS

The predecessor consolidated financial statements of JET-i Leasing LLC and subsidiaries at December 31, 2005 and 2006, and for the period from November 22, 2005 (commencement of operations) to December 31, 2005 and the year ended December 31, 2006, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

The statement of financial position of Babcock & Brown Air Limited as of May 3, 2007 appearing in this Prospectus and Registration Statement has been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and is included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

The section in this prospectus entitled ‘‘The Commercial Aircraft Industry’’ is based upon, and summaries elsewhere in this prospectus of certain information contained in such section are based upon, information either compiled or produced by Simat, Helliesen & Eichner, Inc. and are included on reliance upon the authority of that firm as an expert, although Simat, Helliesen & Eichner, Inc. has not independently verified the material provided to it by the outside sources referenced in that section.

ENFORCEABILITY OF CIVIL LIABILITIES

We are 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 reside outside the United States, and a majority of our assets and some or all of the assets of such persons may be located in jurisdictions outside the United States. Although we have appointed Puglisi & Associates, 850 Library Ave., Suite 204, Newark, Delaware 19711 as our agent to receive service of process with respect to any actions against us arising out of violations of the U.S. federal securities laws in any federal or state court in the United States relating to the transactions covered by this prospectus, it may be difficult for investors to effect service of process within the United States on our directors and officers who reside outside the United States or to enforce against us or our directors and officers judgments of U.S. courts predicated upon civil liability provi sions of the U.S. federal securities laws.

There is no treaty in-force between the United States and Bermuda or Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. As a result, whether a U.S. judgment would be enforceable in Bermuda or Ireland against us or our directors and officers depends on whether the U.S. court that entered the judgment is recognized by a Bermuda or Irish court as having jurisdiction over us or our directors and officers, as determined by reference to Bermuda or Irish conflict of law rules. The courts of Bermuda or Ireland would recognize as a valid judgment, a final and conclusive judgment in personam obtained in a U.S. court pursuant to which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty). The courts of Bermuda or Ireland would give a judgment based on such a U.S. judgment as long as (1) the U.S. court had proper jurisdiction over the parties subject to the judgment; (2) the U.S. court did not contravene the rules of natural justice of Bermuda or Ireland; (3) the U.S. judgment was not obtained by fraud; (4) the enforcement of the U.S. judgment would not be contrary to the public policy of Bermuda or Ireland; (5) no new admissible evidence relevant to the action is submitted prior to the rendering of

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the judgment by the courts of Bermuda or Ireland; (6) there is due compliance with the correct procedures under the laws of Bermuda or Ireland; and (7) the U.S. judgment is not inconsistent with any judgment of the courts of Bermuda or Ireland in respect of the same matter.

In addition to and irrespective of jurisdictional issues, neither Bermuda nor Irish courts will enforce a provision of the U.S. federal securities law that is either penal in nature or contrary to public policy. It is the advice of our counsel that an action brought pursuant to a public or penal law, the purpose of which is the enforcement of a sanction, power or right at the instance of the state in its sovereign capacity, is unlikely to be entertained by Bermuda or Irish courts. Specified remedies available under the laws of U.S. jurisdictions, including specified remedies under U.S. federal securities laws, would not be available under Bermuda or Irish law or enforceable in a Bermuda or Irish court, as they are likely to be contrary to Bermuda or Irish public policy. Further, no claim may be brought in Bermuda or Ireland against us or our directors and officers in the first instance for a violation of U.S. federal securities laws because these laws have no ex traterritorial application under Bermuda or Irish law and do not have force of law in Bermuda or Ireland.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form F-1 under the Securities Act of 1933, as amended, with respect to the common shares that are being offered by this prospectus. This prospectus, which is a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. Please refer to the registration statement, exhibits and schedules for further information with respect to the common shares offered by this prospectus.

You may read and copy the registration statement, including the related exhibits and schedules, and any document we file with the SEC without charge at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of these documents are also available at the SEC’s website, http://www.sec.gov. Copies of the material may be obtained by mail from the public reference branch of the SEC at the address listed above at rates specified by the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

Upon completion of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers and will fulfill the obligations with respect to those requirements by filing reports with the SEC. Those reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we will be exempt from the rules under the Securities Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act relating to their purchases and sales of common shares.

In addition, we will not be required under the Securities Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Securities Exchange Act. However, we intend to file with the SEC, within 90 days after the end of each fiscal year, an annual report on Form 20-F containing financial statements audited by an independent public accounting firm. We also will furnish quarterly reports on Form 6-K containing unaudited interim financial information for each of the first three quarters of each fiscal year.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

			Page
Audited Consolidated Financial Statements of Babcock & Brown Air Limited (Predecessor):
Report of Independent Registered Public Accounting Firm					F-2
Predecessor Consolidated Balance Sheets as of December 31, 2005 and 2006					F-3
Predecessor Consolidated Statements of Operations for the period from November 22, 2005 (commencement of operations) to December 31, 2005 and for the year ended December 31, 2006					F-4
Predecessor Consolidated Statements of Member’s Capital for the period from November 22, 2005 (commencement of operations) to December 31, 2005 and for the year ended December 31, 2006					F-5
Predecessor Consolidated Statements of Cash Flows for the period from November 22, 2005 (commencement of operations) to December 31, 2005 and for the year ended December 31, 2006					F-6
Notes					F-7
Unaudited Consolidated Financial Statements of Babcock & Brown Air Limited (Predecessor):
Predecessor Consolidated Balance Sheets as of December 31, 2006 and June 30, 2007					F-21
Predecessor Consolidated Statements of Operations for the six months ended June 30, 2006 and 2007					F-22
Predecessor Consolidated Statements of Member’s Capital for the year ended December 31, 2006 and the six months ended June 30, 2007					F-23
Predecessor Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2007					F-24
Notes					F-25
Audited Statement of Financial Position of Babcock & Brown Air Limited:
Report of Independent Registered Public Accounting Firm					F-40
Statement of Financial Position as of May 3, 2007					F-41
Notes					F-42
Unaudited Consolidated Financial Statements of Babcock & Brown Air Limited:
Consolidated Balance Sheet as of June 30, 2007					F-43
Consolidated Statement of Operations for the period from May 3, 2007 (incorporation date) to June 30, 2007					F-44
Consolidated Statement of Shareholder’s Equity for the period from May 3, 2007 (incorporation date) to June 30, 2007					F-45
Consolidated Statement of Cash Flows for the period from May 3, 2007 (incorporation date) to June 30, 2007					F-46
Notes					F-47

F-1

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Report of Independent Registered Public Accounting Firm

To the Member of JET-i Leasing LLC
and
Board of Directors of
Babcock & Brown Air Limited

We have audited the accompanying predecessor consolidated balance sheets of JET-i Leasing LLC and subsidiaries (the ‘‘Predecessor Company’’), the predecessor to Babcock & Brown Air Limited, as of December 31, 2005 and 2006, and the related predecessor consolidated statements of operations, member’s capital and cash flows for the period from November 22, 2005 (commencement of operations) to December 31, 2005 and for the year ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Predecessor Company at December 31, 2005 and 2006 and the consolidated results of their operations and their cash flows for the period from November 22, 2005 (commencement of operations) to December 31, 2005 and for the year ended December 31, 2006, in conformity with U.S. generally accepting accounting principles.

/s/ Ernst & Young LLP
San Francisco, California
April 13, 2007,
except for Note 1, as to which the date is
May 3, 2007

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JET-i Leasing LLC
Predecessor Consolidated Balance Sheets

As of December 31, 2005 and 2006

			Note						2005						2006
									(Dollars in thousands)
Assets
Cash and cash equivalents									$—						$20
Rent receivables									—						740
Restricted cash and cash equivalents					2				18,130						101,194
Flight equipment under operating leases, net					3				52,306						822,234
Investment in direct finance leases, net					4				—						75,635
Other assets, net					5				13,060						11,052
Total assets									83,496						1,010,875
Liabilities
Accounts payable and accrued liabilities									791						7,394
Rentals received in advance									478						4,488
Payable to related parties									3,121						5,438
Security deposits and maintenance payment liabilities									1,397						51,476
Warehouse credit facility					6				—						820,626
Warehouse credit facility – related parties					6				51,828						80,519
Other liabilities					8				—						13,234
Total liabilities									57,615						983,175
Member’s capital
Member’s contributions									26,673						35,964
Accumulated deficit									(792)						(8,264)
Total member’s capital									25,881						27,700
Total liabilities and member’s capital									$83,496						$1,010,875

The accompanying notes are an integral part of these predecessor consolidated financial statements.

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JET-i Leasing LLC
Predecessor Consolidated Statements of Operations

For the period from November 22, 2005 (Commencement of Operations) to December 31, 2005 and for the year ended December 31, 2006

			Note						2005						2006
									(Dollars in thousands)
Revenues
Operating lease revenue					3				$550						$56,566
Finance lease income					4				—						1,668
Total revenues									550						58,234
Expenses
Depreciation									156						17,976
Interest expense, net									422						36,623
Interest expense – related party									288						6,390
Selling, general and administrative									331						3,321
Maintenance and other leasing costs									145						1,379
Total expenses									1,342						65,689
Net loss from continuing operations before provision for income taxes									(792)						(7,455)
Provision for income taxes			7						—						17
Net loss									$(792)						$(7,472)

The accompanying notes are an integral part of these predecessor consolidated financial statements

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JET-i Leasing LLC
Predecessor Consolidated Statements of Member’s Capital

For the period from November 22, 2005 (Commencement of Operations) to December 31, 2005 and for the year ended December 31, 2006

			Member’s Contributions						Accumulated Deficit						Total Member’s Capital
			(Dollars in thousands)
Balance at November 22, 2005 (commencement of operations)				$	—					$	—					$	—
Capital contributions					26,673						—						26,673
Net loss					—						(792	)					(792	)
Balance December 31, 2005				$	26,673					$	(792	)				$	25,881
Capital contributions					9,291						—						9,291
Net loss					—						(7,472	)					(7,472	)
Balance December 31, 2006				$	35,964					$	(8,264	)				$	27,700

The accompanying notes are an integral part of these predecessor consolidated financial statements

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JET-i Leasing LLC
Predecessor Consolidated Statements of Cash Flows

For the period from November 22, 2005 (Commencement of Operations) to December 31, 2005 and for the year ended December 31, 2006

			2005						2006
			(Dollars in thousands)
Cash Flows from Operating Activities
Net Loss				$	(792	)				$	(7,472	)
Adjustments to reconcile net loss to net cash flow provided by operating activities:
Depreciation					156						17,976
Amortization of debt issuance costs					166						2,030
Amortization of lease premiums and discounts and other related lease items					—						1,728
Mark-to-market of non-hedge derivatives					—						5,898
Direct finance lease income					—						(1,668	)
Changes in operating assets and liabilities:
Rent receivables					—						(740	)
Other assets					(398	)					(289	)
Accounts payable and accrued liabilities					791						6,603
Rentals received in advance					478						4,010
Security deposits and maintenance payment liabilities retained					—						(2,862	)
Accrued interest payable					165						2,978
Other liabilities					—						5,696
Net cash flows provided by operating activities				$	566					$	33,888
Cash Flows from Investing Activities
Purchases of flight equipment				$	(52,462	)				$	(864,078	)
Deposits on flight equipment purchases					(1,600	)					1,300
Proceeds from finance leases					—						2,208
Net cash flows used in investing activities				$	(54,062	)				$	(860,570	)
Cash Flows from Financing Activities
Movement in restricted cash				$	(18,130	)				$	(83,064	)
Proceeds from security deposits and maintenance payment liabilities					1,397						61,915
Security deposits and maintenance payment liabilities paid					—						(8,974	)
Proceeds from warehouse credit facility					—						826,325
Proceeds from warehouse credit facility – related party					51,663						28,337
Repayments of warehouse credit facility					—						(8,323	)
Loan issuance costs					(11,228	)					(1,122	)
Financing from affiliates					3,121						11,608
Capital contributions					26,673						—
Net cash flows provided by financing activities				$	53,496					$	826,702
Net increase in cash					—						20
Cash at beginning of period					—						—
Cash at end of period				$	—					$	20
Supplemental Disclosure of Non Cash Activity:
Interest paid					307						35,309
Taxes paid					—						100
Conversion of payable to related party to capital contribution					—						9,291

The accompanying notes are an integral part of these predecessor consolidated financial statements.

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

1.    Organization and Basis of Presentation

JET-i Leasing LLC (the ‘‘Company’’ or ‘‘JET-i’’ or ‘‘predecessor’’) was formed in Delaware on September 14, 2005 for the purpose, directly and indirectly through its subsidiaries, of engaging in the business of financing, acquiring, leasing and selling commercial jet aircraft to airlines throughout the world. The Company commenced operations on November 22, 2005 with the finalization of its warehouse credit facility as described in Note 6. JET-i is operated and managed as a single operating segment and is primarily engaged in the acquisition and leasing of commercial jet aircraft to airlines throughout the world.

The Company is a wholly-owned subsidiary of JET-i Holdings LLC (‘‘Holdings’’). Holdings serves as the manager of JET-i (the ‘‘Manager’’). Through various contracts, the Company has contracted with subsidiaries of Babcock & Brown Limited (collectively ‘‘B&B’’), a company listed on the Australian Stock Exchange, to: (i) arrange debt; (ii) arrange aircraft acquisitions and dispositions; and (iii) perform lease servicing, remarketing, debt compliance and other administrative functions. B&B owned, directly and indirectly, 53.5% and 3.7%, and 25.9% and 6.5% of Holdings at December 31, 2005 and 2006, respectively.

JET-i is the predecessor of Babcock & Brown Air Limited (‘‘B&B Air’’). B&B Air was incorporated in Bermuda on May 3, 2007 for the purposes of acquiring 44 commercial jet aircraft from JET-i and three aircraft from three other companies managed by B&B (the ‘‘Initial Portfolio’’). B&B Air will fund the purchase price of its Initial Portfolio with the net proceeds of an initial public offering of B&B Air’s common shares, a concurrent private placement of its shares to existing equity holders of JET-i, including B&B, and certain funds managed by a company in which B&B has an interest and an aircraft lease securitization.

2.    Summary of Significant Accounting Policies

Basis of Preparation and Principles of Consolidation

The predecessor consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America. The Company consolidates all companies it directly or indirectly controls. In instances where the Company is the primary beneficiary, JET-i would consolidate a Variable Interest Entity (‘‘VIE’’) in accordance with Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. 46, Consolidation of Variable Interest Entities (‘‘FIN 46’’). As the Company’s subsidiaries are wholly-owned, it consolidates all of its subsidiaries. All significant intercompany transactions and balances have been eliminated. The predecessor consolidated financial statements are stated in United States D ollars, which is the principal operating currency of the Company.

Certain amounts in the predecessor consolidated financial statements have been reclassified to conform to the current presentation.

RISKS and Uncertainties

In the normal course of business, JET-i encounters two significant types of economic risk: credit and market. Credit risk is the risk of a lessee’s inability or unwillingness to make contractually required payments. Market risk reflects the change in the value of derivatives and credit facilities due to changes in interest rate spreads or other market factors, including the value of collateral underlying the credit facilities. The Company believes that the carrying values of its investments and obligations are reasonable taking into consideration these risks along with estimated collateral values, payment histories and other relevant financial information.

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

In addition, the Company is dependent upon the viability of the commercial aviation industry, which affects the Company’s ability to service existing and future leases on its flight equipment. Overcapacity and high levels of competition in some geographical markets may create unscheduled lease returns and possible supply surpluses, which may create pressure on rentals and flight equipment values. The value of the Company’s flight equipment under operating leases and investment in direct finance leases is subject to fluctuations in the values of commercial aircraft worldwide. A material decrease in values could have a negative effect on lease rentals and residual values and may require recognition of an impairment in the carrying value of the flight equipment.

use of estimates

The preparation of predecessor consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the predecessor consolidated financial statements and accompanying notes. For the Company, the use of estimates is or could be a significant factor affecting the reported carrying values of flight equipment, deferred tax assets and accruals and reserves. To the extent available, the Company utilizes industry specific resources and other materials, to support estimates, particularly with respect to flight equipment. Despite management’s best efforts to accurately estimate such amounts, actual results could differ from those estimates.

Cash and Cash Equivalents

JET-i considers all highly liquid investments with maturities of three months or less to be cash equivalents.

Rent Receivables

Rent receivables represent unpaid, current lease obligations of lessees under existing lease contracts. The allowance for doubtful accounts is maintained at a level believed adequate by management to absorb probable losses inherent in rent receivables and is established on a specific identification basis. The assessment of default risk is primarily based on the extent to which amounts outstanding exceed the value of security held, the financial strength and condition of a debtor and the current economic conditions of the debtor’s operating environment and geographical areas, including regulatory guidance and general economic conditions. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows and consideration of current environmental factors and economic trends, all of which may be susceptible to significant change. Uncollectible rent receivables are charge d off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is recorded based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

Restricted CASH and Cash Equivalents

Pursuant to the Company’s warehouse credit facility agreement, certain payments received from lessees serve as collateral to the lenders and are thus subject to withdrawal restrictions. The Company’s restricted cash and cash equivalents consists primarily of (i) security deposits and maintenance payments received from lessees under the terms of various lease agreements, (ii) rent collections and (iii) other cash, all of which are subject to withdrawal restrictions pursuant to the order of priority governed by the Company’s warehouse credit facility which is further described in Note 6.

All restricted cash is held by a major financial institution.

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

Flight Equipment UNDer operating leases, net

Flight equipment under operating lease is recorded at cost and depreciated on a straight-line basis over its remaining useful life to estimated residual values. Useful life is based on 25 years from the date of manufacture for new assets and is adjusted based on the current age of used aircraft. Residual values are generally estimated to be 15% of original manufacturer’s estimated realized price for the flight equipment when new. Management may, at its discretion, make exceptions to this policy on a case by case basis when, in its judgement, the residual value calculated pursuant to this policy does not appear to reflect current expectations of residual values. Examples of situations include, but are not limited to:

	•	Flight equipment where original manufacturer’s prices are not relevant due to plane modifications and conversions.

	•	Flight equipment which is out of production and may have a shorter useful life or lower residual value due to obsolescence.

Estimated residual values and useful lives of flight equipment are reviewed and adjusted if appropriate, at each reporting period. As of December 31, 2005 and 2006, management’s estimates of residual values for flight equipment under operating leases ranged from 13.6% to 15.0% of the original manufacturer’s estimated realized price. The weighted average residual value percentage was 13.9% and 14.8% at December 31, 2005 and 2006, respectively.

Major improvements and modifications incurred in connection with the acquisition of aircraft that are required to get the aircraft ready for service are capitalized and depreciated over the remaining life of the flight equipment.

Lease acquisition costs related to reconfiguration of the aircraft cabin and other lessee specific modifications are capitalized and amortized into expense over the term of the lease and are included in other assets. Cash incentives paid to lessees are capitalized as prepaid lease incentive costs and are amortized into revenue over the initial term of the lease, assuming no lease renewals and are included in other assets.

Generally, lessees are required to provide for repairs, scheduled maintenance and overhauls during the lease term and to be compliant with return conditions of flight equipment at lease termination. Material costs paid by the company for scheduled maintenance and overhauls in excess of amounts paid by lessees are capitalized and depreciated over a period to the next scheduled maintenance or overhaul event. Miscellaneous repairs are expensed when incurred.

At the time of aircraft acquisition, the Company evaluates whether the lease acquired with the aircraft is at fair market value. A lease premium is recognized when it is determined that the acquired lease’s terms are above market value; lease discounts are recognized when it is determined that the acquired lease’s terms are below fair market value. Lease premiums are capitalized into other assets and lease discounts are recorded in other liabilities and both are amortized on a straight-line basis to rent revenue over the lease term.

The Company does not provide financial information for aircraft prior to its acquisition as these are considered to be asset acquisitions. Aircraft are typically subject to triple-net leases under which the lessee is responsible for maintenance, insurance and taxes.

Flight Equipment Held for Sale

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (‘‘SFAS No. 144’’), flight equipment is classified as held for sale when authorized members of management commit to and commence a plan of sale that is

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

reasonably expected to be completed within one year. Flight equipment held for sale is stated at the lower of carrying value or fair value less estimated costs to sell.

Flight equipment held for sale is not depreciated and related deferred costs are not amortized. Subsequent changes to the asset’s fair value, either increases or decreases are recorded as adjustments to the carrying value of the flight equipment; however, any such adjustment would not exceed the original carrying value of the flight equipment held for sale. The rent received from flight equipment held for sale and related interest expense, net of income taxes, are reported in income from discontinued operations. No flight equipment was held for sale as of December 31, 2005 or 2006.

Flight equipment intended for sale beyond one year of the latest reporting period remains classified as Flight Equipment Under Operating Leases and continues to be depreciated over its remaining useful life until such time the sale closing date is less than one year away.

Impairment of Flight Equipment

The Company applies SFAS No. 144 when addressing the financial accounting and reporting for impaired flight equipment and flight equipment that it intends to dispose of. In accordance with SFAS 144, the Company evaluates flight equipment for impairment where circumstances indicate that the carrying amounts of such assets may not be recoverable. The review for recoverability includes an assessment of the estimated future cash flows associated with the use of an asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the Company will assess whether the fair values of the flight equipment exceed the carrying value and an impairment loss is required. The impairment loss is measured as the excess of the carrying amount of the impaired asset over its fair value. Fair value reflects the present value of cash expected to be received from the aircraft in the future, including its expected residual value discounted at a rate commensurate with the associated risk. Future cash flows are assumed to occur under the current market conditions and assume adequate time for a sale between a willing buyer and a willing seller. Expected future lease rates are based on all relevant information available, including the existing lease, current contracted rates for similar aircraft, appraisal data and industry trends. Residual value assumptions generally reflect an aircraft’s booked residual, except where more recent industry information indicates a different value is appropriate.

The preparation of these impairment analyses requires the use of assumptions and estimates, including the level of future rents, the residual value of the flight equipment to be realized upon sale at some date in the future, estimated downtime between re-leasing events and the amount of re-leasing costs.

investment in direct finance leases

In accordance with SFAS No. 13, Accounting for Leases, the Company has recorded certain leases as Investment in Direct Finance Lease which consists of lease receivables, plus the estimated residual value of the equipment on lease termination date less unearned income. Lease receivables represent the total rent to be received over the term of the lease reduced by rent already collected. Initial unearned income is the amount by which the original sum of the lease receivable and the estimated residual value exceeds the original cost of the leased equipment. Unearned income is amortized to finance lease income over the lease term in a manner that produces a constant rate of return on the net investment in the lease.

derivative finaNcial instruments

The Company uses derivative financial instruments to manage its exposure to interest rate risks. Derivatives are accounted for in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (‘‘SFAS No. 133’’). All derivatives are recognized on the balance sheet at their

F-10

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

fair value. Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive income until earnings are affected by the variability of cash flows of the hedged transaction. Any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative exceeds the variability in the cash flows of the forecasted transaction) is recorded in income. Changes in the fair value of derivative financial instruments that do not qualify for hedge treatment under SFAS No. 133 are recorded in income. As of December 31, 2006, the Company had unrealized losses of $5.9 million from undesignated derivatives that were included in interest expense.

other assets, Net

Other assets consist primarily of loan issuance costs, unamortized lease premiums, intial direct lease costs and other receivables. The Company capitalizes costs incurred in arranging financing as debt issuance costs. Loan issuance costs are amortized to interest expense using the effective interest method for amortizing loans and on a straight line basis for revolving credit facilities over the lives of the related debt.

Security Deposits

In the normal course of leasing aircraft to third parties under its lease agreements, the Company receives cash or a letter of credit as security for contractual obligations. At December 31, 2005 and 2006, security deposits represent cash received from lessees that is held on deposit until termination of the lease.

Maintenance Payment Liability

JET-i’s flight equipment are typically subject to triple-net leases under which the lessee is responsible for maintenance, insurance and taxes. JET-i’s leases also obligate the lessees to maintain flight equipment and comply with all governmental requirements applicable to the flight equipment, including without limitation, operational, maintenance, registration requirements and airworthiness directives.

Cash collected from lessees under the terms of the lease agreements for future maintenance of the aircraft are recorded as maintenance payment liabilities. Upon occurrence of qualified maintenance events, the lessee submits a request for reimbursement and upon disbursement of the funds, the liability is relieved.

In some leases the Company may be obligated to contribute to maintenance related expenses on an aircraft during the term of the lease. In other instances, the lessee or the Company may be obligated to make a payment to the counterparty at the end of lease based on a computation stipulated in the lease agreement. The calculation is based on the utilization and condition of the airframe, engines and other major life-limited components as determined at lease termination.

The Company may also incur maintenance expenses on off-lease aircraft. Scheduled major maintenance or overhaul activities and costs for certain high-value components that are paid by the Company are capitalized and depreciated over the estimated useful life of such maintenance or component.

Amounts paid by the Company for maintenance, repairs and re-leasing of aircraft are expensed as incurred and included in Maintenance and Other Leasing Costs in the Consoliated Statement of Operations.

Maintenance payment liability balances at the end of a lease or any amount received as part of a redelivery adjustment are recorded as operating lease revenue at lease termination. When flight

F-11

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

equipment is sold, the maintenance payment liability balance which are not specifically assigned to the buyer are released from the balance sheet as part of the disposition gain or loss. In 2006, the Company recognized $2.9 million into lease revenue at lease termination. There were no lease terminations in 2005.

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized. Where revenue amounts do not meet these recognition criteria, they are deferred and recognized in the period in which the recognition criteria are met.

Lease Revenue

The Company receives lease revenues from flight equipment under operating leases. Rental income from aircraft rents is recognized on a straight-line basis over the initial term of the respective lease, which generally ranges from 13 months to 15 years. The operating lease agreements do not provide for purchase options, however, the leases may allow the lessee the option to extend the lease for an additional term. Contingent rents are recognised as revenue when they are due and payable. Revenue is not recognized when collection is not reasonably assured.

Finance Lease Income

Revenue from direct finance leases is recognized on the interest method to produce a level yield over the term of the finance lease. Expected unguaranteed residual values of leased assets at the expiration of lease terms are based on the Company’s assessment of residual values using industry specific resources and other materials.

Sale of Assets

Revenue from sales of assets is recognized at the time title is transferred and delivery has occurred, the price is fixed and determinable, and collectability is probable.

Taxes

The Company provides for income taxes, of its taxable subsidiaries, under the provisions of SFAS No. 109, Accounting for Income Taxes (‘‘SFAS No. 109’’). Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement and tax basis of existing assets and liabilities at the enacted tax rates expected to apply when the assets are recovered or liabilities are settled. A valuation allowance is used to reduce deferred tax assets to the amounts ultimately expected to be more-likely-than-not realized.

New Accounting PronouNcements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 (‘‘SFAS No. 154’’). SFAS No. 154 requires retroactive application to prior periods’ financial statements of a voluntary change in accounting principles unless it is impracticable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with earlier application permitted to accounting changes and corrections of errors made in fiscal years beginning after May 31, 2005. Adoption of SFAS No. 154 did not have a material impact on the Company’s financial position or results of operations.

F-12

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (‘‘FIN No. 48’’), which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109. FIN No. 48 prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact, if any, of applying the guidance provided by FIN No. 48.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (‘‘SFAS No. 157’’). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies in conjunction with other accounting pronouncements that require or permit fair value measurements. This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is in the process of analyzing the impact of SFAS No. 157, if any.

In September 2006, the FASB issued FASB Staff Position No. AUG AIR-1, Accounting for Planned Maintenance Activities (‘‘FSP’’). This FSP amends certain provisions in the AICPA Industry Guide, Audits of Airlines and eliminates the accrue-in-advance method of accounting for planned major maintenance activities. JET-i applies the deferral method which requires that the actual maintenance costs funded by the Company for major overhauls are capitalized and depreciated over the period until the next overhaul is required.

3.    Flight Equipment Under Operating Leases

Flight equipment under operating leases consists of the following as of December 31, 2005 and 2006:

			2005						2006
			(Dollars in thousands)
Cost				$	52,462					$	840,366
Accumulated depreciation					(156	)					(18,132	)
Net Flight Equipment Under Operating Lease				$	52,306					$	822,234

The Company capitalized $0 and $9.8 million of major maintenance activities and costs for the period from November 22, 2005 (commencement of operations) to December 31, 2005 and the year ended December 31, 2006, respectively. These amounts have been included in Flight Equipment Under Operating Leases.

The Company’s current lease arrangements expire between 2007 and 2018. The contracted future minimum rental payments due under non-cancellable operating leases at December 31, 2006 are as follows:

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

			(Dollars in thousands)
Year ending December 31,
2007				$	85,942
2008					63,784
2009					56,282
2010					49,735
2011					37,730
Thereafter					94,350
Future Minimum Rental Payments under Operating Leases				$	387,823

The Company leases aircraft to airlines throughout the world and accordingly lease receivables are due from lessees worldwide. The Company manages its credit risk exposure by obtaining either security deposits, letters of credit or guarantees from its lessees. The Company has two customers that accounted for 78% and 22% of lease revenue for the period from November 22, 2005 to December 31, 2005; and two customers that accounted for 12% and 11% of lease revenue in 2006. No other customer was responsible for lease revenue in excess of 10%.

The distribution of operating lease revenue by geographic region is as follows:

			For the period from November 22 (commencement of operations) to December 31, 2005												Year ended December 31, 2006
			(Dollars in thousands)
Europe – Developed:
United Kingdom				$	429						78	%				$	7,436						13	%
Sweden					121						22	%					4,065						7	%
France					—						—						6,256						11	%
Other					—						—						4,985						9	%
Europe – Developed					550						100	%					22,742						40	%
Asia Pacific:
India					—						—						10,826						19	%
Other					—						—						2,642						5	%
Asia Pacific					—						—						13,468						24	%
North America:
United States					—						—						7,942						14	%
Other					—						—						2,870						5	%
North America					—						—						10,812						19	%
Europe – Emerging					—						—						5,574						10	%
South and Central America					—						—						3,970						7	%
Total Lease Revenue				$	550						100	%				$	56,566						100	%

The amortization of acquired lease discounts included as a component of operating lease revenue was $1.6 million in 2006 and $0 in 2005.

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

The distribution of flight equipment by geographic region is as follows:

			December 31, 2005												December 31, 2006
			(Dollars in thousands)
Europe – Developed:
United Kingdom				$	39,791						76	%				$	68,923						8	%
Sweden					12,515						24	%					—				—
Other					—						—						139,770						17	%
Europe – Developed					52,306						100	%					208,693						25	%
Asia Pacific:
India					—						—						193,772						24	%
Other					—						—						42,146						5	%
Asia Pacific					—						—						235,918						29	%
North America:
United States					—						—						84,651						10	%
Other					—						—						43,484						5	%
North America					—						—						128,135						15	%
Europe – Emerging					—						—						64,046						8	%
South and Central America:
Mexico					—						—						134,004						16	%
Other					—						—						51,438						7	%
South and Central America					—						—						185,442						23	%
Total Flight Equipment				$	52,306						100	%				$	822,234						100	%

The classification of operating lease revenues and flight equipment assets by geographic region in the tables and discussion above is based on the principal operating location of the aircraft lessee.

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

4.    Net Investment in Direct Finance Lease

At December 31, 2006, the Company’s net investment in direct finance leases is attributable to four planes leased to a single North American lessee for terms of 15 years. The Company had no direct finance leases at December 31, 2005. For the year ended December 31, 2006, the Company recognized finance lease income of $1.7 million. The implicit interest rates in the finance leases range from 13% to 15%.

The Company’s net investment in direct finance leases consists of the following:

			2006
			(Dollars in thousands)
Total minimum lease payments receivable				$	153,000
Estimated unguaranteed residual value of leased assets					41,200
Unearned finance income					(118,565	)
Net Investment in Direct Finance Leases				$	75,635

The contracted future minimum lease receipts at December 31, 2006 are as follows:

			Dollars in thousands
Year ending December 31,
2007			$10,800
2008			10,800
2009			10,800
2010			10,800
2011			10,800
Thereafter			99,000
Future Minimum Rental Payments under Finance Leases			$153,000

5.    Other Assets, net

			2005			2006
			(Dollars in thousands)
Loan issuance costs, net			$11,062			$10,154
Deposits for aircraft acquisitions			1,600			300
Other			398			598
Total Other Assets			$13,060			$11,052

Amortization of loan issuance costs was $0.2 million and $2.0 million during the period from November 22, 2005 to December 31, 2005 and the year ended December 31, 2006, respectively.

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

6.    Warehouse Credit Facility

									As of December 31
Warehouse Credit Facility:			Facility Limit						2005						2006
			(Dollars in thousands)
Principal – Tranche A				$	960,000						—					$	658,002
Principal – Tranche B					160,000						—						160,000
Accrued Interest											—						2,624
Total Warehouse Credit Facility Provided by Third Parties				$	1,120,000						—					$	820,626
Principal – Tranche C					80,000						51,663						80,000
Accrued interest											165						519
Total Warehouse Credit Facility Provided by Related Party				$	80,000					$	51,828					$	80,519
Total Warehouse Credit Facility				$	1,200,000					$	51,828					$	901,145

In November 2005, the Company entered into a warehouse loan agreement (the ‘‘Facility’’) to finance up to $1.2 billion of aircraft assets. Tranches A and B are provided by a consortium of third party lenders; Tranche C is provided solely by Holdings. One of the investors in Holdings is also a member of the Tranches A and B consortium of third party lenders. Provided no default has occurred, and subject to lenders’ consent, the Facility amount may be increased to $1.5 billion. Funds are available for draw on a revolving basis for a period of two years after closing (the ‘‘Availability Period’’). Thirty-six months after the expiration of the Availability Period, the Company must repay 25% of the principal outstanding as of the end of the Availability Period. Another 25% is repaid in each subsequent quarter until the Facility is fully repaid. Borrowings are collateralized by the assets of the Comp any and its subsidiaries established to own the aircraft.

Borrowings are advanced in three separate tranches – Tranches A, B and C. Fundings are made in reverse order such that the Tranche C facility is utilized first, then Tranche B and then Tranche A. Tranche A borrowings accrue interest at one-month London Interbank Offered Rate (‘‘LIBOR’’) plus a margin of 1.25%. Tranche B borrowings accrue interest at one-month LIBOR plus 4.5%. Tranche C borrowings accrue interest at a rate such that the aggregate monthly interest of the entire Facility reflects an interest rate of one-month LIBOR plus 2.5%. The interest rate, which resets monthly, was 6.9% for Tranche C at December 31, 2005, and 6.6%, 9.85% and 13.75% for Tranche A, B and C, respectively, at December 31, 2006. Monthly payments of principal and interest are made based on available cash after certain expenses, in accordance with the order of priority governed by the Facility. Any unpaid amounts are carried forward a nd accrue interest at the applicable interest rates for each tranche. Unutilized amounts under Tranche A and B accrue commitment fees of 0.3% per annum of the daily average unutilized balance; however, Tranche B commitment fees start to accrue six months after the inception of the Facility. In order of security interest, Tranche A ranks above Tranche B, and both Tranche A and B rank above Tranche C.

The Facility contains affirmative covenants customary for secured financings, such as the provision of financial information and disclosure of material events affecting the Company, among others. Further, the company must maintain certain interest coverage ratios, a breach of which would cause an event of default under the Facility. Should that occur, all amounts under the Facility are due and payable immediately. To date, the Company has complied with all covenants under the Facility.

The Company uses interest rate swaps to manage exposure to interest rate risk. The derivatives allow the Company to pay fixed interest rates and receive variable interest rates with the swap counterparty

F-17

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

over the life of the contracts. The fixed interest rates under contract range from 5.11% to 5.71% per annum and have maturity dates through December 2014.

The changes in fair value of the derivatives are recorded into income from continuing operations before provision for income taxes. The Company recorded $0 and $5.9 million as an increase to interest expense with respect to these derivatives for the period from November 31, 2005 (commencement of operations) to December 31, 2005 and for the year ended December 31, 2006, respectively.

7.    Income Taxes

The Company has subsidiaries in a number of tax jurisdictions, principally, Ireland, Luxembourg and the United States of America. The Company is treated as a flow-through entity for U.S. federal and state income tax purposes. The Company’s member, Holdings, is also a flow-through entity. Accordingly, Holding’s members report their allocable share of the taxable income in their respective income tax returns.

Income tax expense by tax jurisdiction is summarized below for the periods indicated.

			2005						2006
			(Dollars in thousands)
Deferred Tax Expense
Ireland				$	—				$12
Luxembourg					—				—
Total Deferred Tax Expense					—				12
Current Tax Expense
Ireland					—				4
Luxembourg					—				1
Total Current Tax Expense					—				5
Total Income Tax Expense				$	—				$17

The following table describes the principal components of the Company’s deferred tax asset and liability by jurisdiction at December 31, 2005 and 2006:

			Ireland						Luxembourg
			(Dollars in thousands)
At December 31, 2005
Excess of tax depreciation over book depreciation				$	—					$	—
Net operating loss carryforwards					—						—
Net Deferred Tax Liability					—						—
At December 31, 2006
Excess of tax depreciation over book depreciation					145						—
Net operating loss carryforwards					(133	)					—
Net Deferred Tax Liability				$	12					$	—

F-18

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

8.    Other Liabilities

The following table describes the principal components of the Company’s other liabilities at December 31, 2005 and 2006:

			2005			2006
			(Dollars in thousands)
Derivative liabilities			$—			$5,898
Lease discounts			—			7,160
Other			—			176
Total Other Liabilities			$—			$13,234

9.    Commitments and Contingencies

As of December 31, 2006, the Company had outstanding purchase commitments for three aircraft estimated at $116.1 million. Two of the aircraft were purchased in the first quarter of 2007. Additionally, the company had a non-binding letter of intent to acquire an aircraft for an estimated purchase price of approximately $40.7 million. This plane was purchased in February 2007.

In November 2006, the Company entered into an agreement with an unrelated third party to sell one of the aircraft in its portfolio for approximately $11.8 million upon expiration of the current underlying operating lease. Delivery of the aircraft is scheduled for October 2010.

10.    Related Party Transactions

The Company has no employees and has outsourced to B&B the daily operations of the Company through various agreements.

In November 2005, the Company entered into a broker agreement with B&B to engage B&B to act as the exclusive arranger of JET-i’s acquisitions and dispositions of aircraft. In consideration for these services, B&B receives a fee equal to 1% of the purchase price of the aircraft on acquisition and 1% of the sales proceeds on aircraft disposition. In 2005 and 2006, the Company incurred and paid $0.5 million and $8.5 million, respectively, for services rendered by B&B under this agreement. The amounts paid have been capitalized into the cost of the flight equipment.

In November 2005, the Company also entered into a servicing agreement with B&B which authorizes B&B to perform lease servicing, remarketing, debt compliance and other administrative functions for JET-i. In consideration for these services, B&B receives a fee equal to 3.5% of lease revenues. In 2005 and 2006, the Company incurred expenses of $19,000 and $1.9 million under this agreement. At December 31, 2005 and 2006, the Company owed B&B $18,000 and $0.2 million, respectively for these expenses.

In the normal course of business, B&B, acting as servicer under this agreement, incurs costs for various expenses, primarily professional fees and administrative costs on behalf of the Company. At December 31, 2005 and 2006, the company owed B&B $1.7 million and $0.5 million, respectively for these reimbursable costs. Amounts have been included in payables to related parties on the accompanying predecessor consolidated balance sheets.

In November 2005, the Company incurred and paid B&B a debt arrangement fee of $1.2 million for arranging the Facility.

In May 2006, the Company purchased an aircraft from B&B for an aggregate purchase price of $39.5 million. The purchase price of the aircraft was less than the appraised value of the aircraft.

F-19

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Year Ended December 31, 2006

The debt under Tranche C of the Facility is provided by Holdings. For the period from November 22, 2005 to December 31, 2005 and the year ended December 31, 2006, JET-i has incurred interest expense of $0.3 million and $6.4 million, respectively on this debt. Additionally, Holdings, for its role as Manager of JET-i earns fees of $10,000 per month. In 2005 and 2006, the Company incurred $13,000 and $0.1 million for this service. This cost is recorded in selling, general and administrative expense. One of the investors in Holdings is also a member of the Tranches A and B consortium of third party lenders.

In the normal course of business, Holdings has paid for costs on behalf of the Company. At December 31, 2005 and 2006, the Company had liabilities outstanding to Holdings of $1.4 million and $5.0 million, respectively which have been included in payables to related parties on the accompanying predecessor consolidated balance sheets.

In September 2006, Holdings authorized a conversion of $9.3 million of its receivable from the Company to a capital contribution to JET-i.

11.    Fair Value Of Financial Instruments

The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash and cash equivalents, rent receivables, accounts payable and accrued liabilities, notes payable and cash flow hedges. The fair value of cash, cash equivalents, restricted cash and cash equivalents, rent receivables and accounts payable and accrued liabilities approximates the carrying value of these financial instruments because of their short term nature. Borrowings under the Facility bear floating rates of interest which reset monthly to a market benchmark rate plus a credit spread. The fair values of the Company’s notes payable are estimated based on the market prices available for similar issues or on the market interest rates currently available to the Company on notes with similar terms and average maturities. The estimated fair values of the Company’s notes receivable and notes payable approximate the carrying amounts reported in the pre decessor consolidated balance sheets.

12.    Subsequent Events

Subsequent to December 31, 2006, the Company purchased six aircraft financed by the Facility, for a total acquisition price of $220.8 million. The aircraft are on lease to six lessees with lease terms expiring between 2011 and 2017.

F-20

JET-i Leasing LLC
Predecessor Consolidated Balance Sheets

As of December 31, 2006 and JUne 30, 2007

			Note			2006						2007 (Unaudited)
						(Dollars in thousands)
Assets
Cash and cash equivalents							$	20				$21
Rent receivables								740				166
Restricted cash and cash equivalents			2					101,194				121,604
Flight equipment under operating leases, net			3					822,234				1,070,239
Investment in direct finance leases, net			4					75,635				75,014
Other assets, net			5					11,052				11,520
Total assets								1,010,875				1,278,564
Liabilities
Accounts payable and accrued liabilities								7,394				5,479
Rentals received in advance								4,488				7,076
Payable to related parties								5,438				10,740
Security deposits								21,335				24,144
Maintenance payment liability								30,141				38,939
Warehouse credit facility			6					820,626				1,066,960
Warehouse credit facility – related parties			6					80,519				80,638
Other liabilities			8					13,234				6,956
Total liabilities								983,175				1,240,932
Member’s capital
Member’s contributions								35,964				35,964
Accumulated (deficit) earnings								(8,264	)			1,668
Total member’s capital								27,700				37,632
Total liabilities and member’s capital							$	1,010,875				$1,278,564

The accompanying notes are an integral part of these predecessor consolidated financial statements.

F-21

JET-i Leasing LLC
Predecessor Consolidated Statements of Operations

For the six months ended June 30, 2006 and 2007
(unaudited)

			Note			2006						2007
						(Dollars in thousands)
Revenues
Operating lease revenue			3				$	15,226					$	61,662
Finance lease income			4					—						4,951
Other revenues								—						750
Total revenues								15,226						67,363
Expenses
Depreciation								4,723						19,877
Interest expense, net								5,804						26,125
Interest expense – related party								2,121						6,596
Selling, general and administrative								834						2,493
Maintenance and other leasing costs								373						1,628
Total expenses								13,855						56,719
Net income from continuing operations before provision for income taxes								1,371						10,644
Provision for income taxes			7					—						712
Net income							$	1,371					$	9,932

The accompanying notes are an integral part of these predecessor consolidated financial statements

F-22

JET-i Leasing LLC
Consolidated Statements of Member’s Capital

For the year ended December 31, 2006 and
six months ended june 30, 2007
(unaudited)

			Member’s Contributions						Accumulated (Deficit) Earnings						Total Member’s Capital
			(Dollars in thousands)
Balance December 31, 2005				$	26,673					$	(792	)				$	25,881
Capital contributions					9,291						—						9,291
Net loss					—						(7,472	)					(7,472	)
Balance December 31, 2006 (Audited)					35,964						(8,264	)					27,700
Net income					—						9,932						9,932
Balance June 30, 2007				$	35,964					$	1,668					$	37,632

The accompanying notes are an integral part of these predecessor consolidated financial statements

F-23

JET-i Leasing LLC
Consolidated Statements of Cash Flows

For the six months ended june 30, 2006 and 2007
(unaudited)

			2006						2007
			(Dollars in thousands)
Cash Flows from Operating Activities
Net Income				$	1,371					$	9,932
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation					4,723						19,877
Amortization of debt issuance costs					1,009						1,059
Amortization of lease discounts and other related lease items					416						1,304
Mark-to-market of non-hedge derivatives					(2,960	)					(6,993	)
Direct finance lease income					—						(4,951	)
Changes in operating assets and liabilities:
Rent receivables					—						574
Other assets					(162	)					(293	)
Accounts payable and accrued liabilities					1,850						(1,743	)
Rentals received in advance					2,171						2,588
Maintenance payment liability retained					—						(1,669	)
Accrued interest payable					1,363						759
Other liabilities					5,579						(1,606	)
Net cash flows provided by operating activities				$	15,360					$	18,838
Cash Flows from Investing Activities
Purchase of flight equipment				$	(443,614	)				$	(263,350	)
Lessor contributions to maintenance					(1,563	)					(4,532	)
Deposits on flight equipment purchases					(1,000	)					300
Proceeds from finance leases					—						5,400
Net cash flows used in investing activities				$	(446,177	)				$	(262,182	)
Cash Flows from Financing Activities
Movement in restricted cash				$	(42,444	)				$	(20,410	)
Proceeds from security deposits					19,507						6,213
Proceeds from maintenance payment liability					13,777						16,035
Security deposits paid					(2,222	)					(3,404	)
Maintenance payment liability paid					—						(5,568	)
Proceeds from warehouse credit facility					407,598						260,173
Proceeds from warehouse credit facility – related party					28,337						—
Repayments of warehouse credit facility					(812	)					(14,479	)
Loan issuance costs					(723	)					(517	)
Financing from affiliates					7,819						5,302
Net cash flows provided by financing activities				$	430,837					$	243,345
Net increase in cash				$	20					$	1
Cash at beginning of period					—						20
Cash at end of period				$	20					$	21
Supplemental Disclosure of Non Cash Activity:
Interest paid				$	9,425					$	40,723
Taxes paid					—						3

The accompanying notes are an integral part of these predecessor consolidated financial statements.

F-24

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

1.    Organization and Summary of Significant Accounting Policies

Organization

JET-i Leasing LLC (the ‘‘Company’’ or ‘‘JET-i’’ or ‘‘predecessor’’) was formed in Delaware on September 14, 2005 for the purpose, directly and indirectly through its subsidiaries, of engaging in the business of financing, acquiring, leasing and selling commercial jet aircraft to airlines throughout the world. The Company commenced operations on November 22, 2005 with the finalization of its warehouse credit facility as described in Note 6. JET-i is operated and managed as a single operating segment and is primarily engaged in the acquisition and leasing of commercial jet aircraft to airlines throughout the world.

The Company is a wholly-owned subsidiary of JET-i Holdings LLC (‘‘Holdings’’). Holdings serves as the Manager of JET-i (the ‘‘Manager’’). Through various contracts, the Company has contracted with subsidiaries of Babcock & Brown Limited (collectively ‘‘B&B’’), a company listed on the Australian Stock Exchange, to: (i) arrange debt; (ii) arrange aircraft acquisitions and dispositions; and (iii) perform lease servicing, remarketing, debt compliance and other administrative functions. B&B owns directly and indirectly, 25.9% and 6.5% of Holdings.

JET-i is the predecessor of Babcock & Brown Air Limited (‘‘B&B Air’’). B&B Air was incorporated in Bermuda on May 3, 2007 for the purposes of acquiring 44 commercial jet aircraft from JET-i and three other aircraft from three other companies in which B&B has an ownership interest (the ‘‘Initial Portfolio’’). B&B Air will fund the purchase price of its Initial Portfolio with the net proceeds of an initial offering of B&B Air’s common shares; a concurrent private placement of its shares to existing equity holders of JET-i, including B&B, and certain funds managed by a company in which Babcock & Brown has an interest; and an aircraft lease securitization.

2.    summary of significant accounting policies

Basis of Preparation and Principles of Consolidation

JET-i is a holding company that conducts its business through wholly-owned subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’), and all intercompany transactions and balances have been eliminated. The consolidated financial statements include the accounts of JET-i and all of its subsidiaries. In instances where the Company is the primary beneficiary, JET-i would consolidate a Variable Interest Entity (‘‘VIE’’) in accordance with Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. 46, Consolidation of Variable Interest Entities (‘‘FIN 46’’). As the Company’s subsidiaries are wholly-owned, it consolidates a ll of its subsidiaries. The predecessor consolidated financial statements are stated in United States Dollars, which is the principal operating currency of the Company.

Certain amounts in the predecessor consolidated financial statements have been reclassified to conform to the current presentation.

The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the ‘‘SEC’’) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in condensed financial statements prepared in

F-25

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC; however, we believe that the disclosures are adequate to make information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s financial statements for the year ended December 31, 2006.

RISK and Uncertainties

In the normal course of business, JET-i encounters two significant types of economic risk: credit and market. Credit risk is the risk of a lessee’s inability or unwillingness to make contractually required payments. Market risk reflects the change in the value of derivatives and credit facilities due to changes in interest rate spreads or other market factors, including the value of collateral underlying the credit facilities. The Company believes that the carrying values of its investments and obligations are reasonable taking into consideration these risks along with estimated collateral values, payment histories and other relevant financial information.

In addition, the Company is dependent upon the viability of the commercial aviation industry, which affects the Company’s ability to service existing and future leases on its flight equipment. Overcapacity and high levels of competition in some geographical markets may create unscheduled lease returns and possible supply surpluses, which may create pressure on rentals and flight equipment values. The value of the Company’s flight equipment under operating leases and investment in direct finance leases is subject to fluctuations in the values of commercial aircraft worldwide. A material decrease in values could have a negative effect on lease rentals and residual values and may require recognition of an impairment in the carrying value of the flight equipment.

use of estimates

The preparation of predecessor consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the predecessor consolidated financial statements and accompanying notes. For the Company, the use of estimates is or could be a significant factor affecting the reported carrying values of flight equipment, deferred tax assets and accruals and reserves. To the extent available, the Company utilizes industry specific resources and other materials, to support estimates, particularly with respect to flight equipment. Despite management’s best efforts to accurately estimate such amounts, actual results could differ from those estimates.

Cash and Cash Equivalents

JET-i considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Rent Receivables

Rent receivables represent unpaid, current lease obligations of lessees under existing lease contracts. The allowance for doubtful accounts is maintained at a level believed adequate by management to absorb probable losses inherent in rent receivables and is established on a specific identification basis. The assessment of default risk is primarily based on the extent to which amounts outstanding exceed the value of security held, the financial strength and condition of a debtor and the current economic conditions of the debtor’s operating environment and geographical areas, including regulatory guidance and general economic conditions. Determination of the allowance is inherently subjective as

F-26

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

it requires significant estimates, including the amounts and timing of expected future cash flows and consideration of current environmental factors and economic trends, all of which may be susceptible to significant change. Uncollectible rent receivables are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is recorded based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

Restricted CASH and Cash Equivalents

Pursuant to the Company’s warehouse credit facility agreement, certain payments received from lessees serve as collateral to the lenders and are thus subject to withdrawal restrictions. The Company’s restricted cash and cash equivalents consists primarily of (i) security deposits and maintenance payments received from lessees under the terms of various lease agreements, (ii) rent collections and (iii) other cash, all of which are subject to withdrawal restrictions pursuant to the order of priority governed by the Company’s warehouse credit facility which is further described in Note 6.

All restricted cash is held by a major financial institution.

Flight Equipment UNDer operating leases, net

Flight equipment under operating lease is recorded at cost and depreciated on a straight-line basis over its remaining useful life to estimated residual value. Useful life is based on 25 years from the date of manufacture for new assets and is adjusted based on the current age of used aircraft. Residual values are generally estimated to be 15% of original manufacturer’s estimated realized price for the flight equipment when new. Management may, at its discretion, make exceptions to this policy on a case by case basis when, in its judgement, the residual value calculated pursuant to this policy does not appear to reflect current expectations of residual values. Examples of situations include, but are not limited to:

	•	Flight equipment where original manufacturer’s prices are not relevant due to plane modifications and conversions.

	•	Flight equipment which is out of production and may have a shorter useful life or lower residual value due to obsolescence.

Estimated residual values and useful lives of flight equipment are reviewed and adjusted if appropriate, at each reporting period. As of December 31, 2006 and June 30, 2007, management’s estimates of residual values for flight equipment under operating leases averaged 14.8% of the original manufacturer’s estimated realized price.

Major improvements and modifications incurred in connection with the acquisition of aircraft that are required to get the aircraft ready for initial service are capitalized and depreciated over the remaining life of the flight equipment.

Lease acquisition costs related to reconfiguration of the aircraft cabin and other lessee specific modifications are capitalized and amortized into expense over the term of the lease, assuming no lease renewals and are included in other assets. Cash incentives paid to lessees are capitalized as prepaid lease incentive costs and are amortized into revenue over the term of the lease, assuming no lease renewals and are included in other assets.

Generally, lessees are required to provide for repairs, scheduled maintenance and overhauls during the lease term and to be compliant with return conditions of flight equipment at lease termination. Costs

F-27

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

paid by us for scheduled maintenance and overhauls in excess of amounts paid by lessees that materially increase long term value or useful life of the flight equipment are capitalized and depreciated over a period to the next scheduled maintenance or overhaul event. Miscellaneous repairs are expensed when incurred.

At the time of aircraft acquisition, the Company evaluates whether the lease acquired with the aircraft is at fair market value. A lease premium is recognized when it is determined that the acquired lease’s terms are above market value; lease discounts are recognized when it is determined that the acquired lease’s terms are below fair market value. Lease premiums are capitalized into other assets and lease discounts are recorded in other liabilities and both are amortized on a straight-line basis to rent revenue over the lease term.

The Company does not provide financial information for aircraft prior to its acquisition as these are considered to be asset acquisitions. Aircraft are typically subject to triple-net leases under which the lessee is responsible for maintenance, insurance and taxes.

Flight Equipment Held for Sale

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (‘‘SFAS No. 144’’), flight equipment is classified as held for sale when authorized members of management commit to and commence a plan of sale that is reasonably expected to be completed within one year. Flight equipment held for sale is stated at the lower of carrying value or fair value less estimated costs to sell.

Flight equipment held for sale is not depreciated and related deferred costs are not amortized. Subsequent changes to the asset’s fair value, either increases or decreases are recorded as adjustments to the carrying value of the flight equipment; however, any such adjustment would not exceed the original carrying value of the flight equipment held for sale. The rent received from flight equipment held for sale and related interest expense, net of income taxes, are reported in income from discontinued operations. No flight equipment was held for sale as of December 31, 2006 or June 30, 2007.

Flight equipment intended for sale beyond one year of the latest reporting period remains classified as Flight Equipment Under Operating Leases and continues to be depreciated over its remaining useful life until such time the sale closing date is less than one year away.

Impairment of Flight Equipment

The Company applies SFAS No. 144 when addressing the financial accounting and reporting for impaired flight equipment and flight equipment that it intends to dispose of. In accordance with SFAS 144, the Company evaluates flight equipment for impairment where circumstances indicate that the carrying amounts of such assets may not be recoverable. The review for recoverability includes an assessment of the estimated future cash flows associated with the use of an asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the Company will assess whether the fair values of the flight equipment exceed the carrying value and an impairment loss is required. The impairment loss is measured as the excess of the carrying amount of the impaired asset over its fair value. Fair value reflects the present value of cash expected to be received from the aircraft in the future, including its expected residual value discounted at a rate commensurate with the associated risk. Future cash flows are assumed to occur under the current market conditions and assume adequate time for a sale between a willing buyer and a willing seller. Expected future lease rates are based on all relevant

F-28

Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

information available, including the existing lease, current contracted rates for similar aircraft, appraisal data and industry trends. Residual value assumptions generally reflect an aircraft’s booked residual, except where more recent industry information indicates a different value is appropriate.

The preparation of these impairment analyses requires the use of assumptions and estimates, including the level of future rents, the residual value of the flight equipment to be realized upon sale at some date in the future, estimated downtime between re-leasing events and the amount of re-leasing costs.

investment in direct finance leases

In accordance with SFAS No. 13, Accounting for Leases, the Company has recorded certain leases as Investment in Direct Finance Lease which consists of lease receivables, plus the estimated residual value of the equipment on lease termination date less unearned income. Lease receivables represent the total rent to be received over the term of the lease reduced by rent already collected. Initial unearned income is the amount by which the original sum of the lease receivable and the estimated residual value exceeds the original cost of the leased equipment. Unearned income is amortized to finance lease income over the lease term in a manner that produces a constant rate of return on the net investment in the lease.

derivative finaNcial instruments

The Company uses derivative financial instruments to manage its exposure to interest rate risks. Derivatives are accounted for in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (‘‘SFAS No. 133’’). All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive income until earnings are affected by the variability of cash flows of the hedged transaction. Any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative exceeds the variability in the cash flows of the forecasted transaction) is recorded in income. Changes in the fair value of derivative financial instruments that do not qualify for hedge treatment under SFAS No. 133 are recorded in income. For the six months ended June 30, 2006 and 2007, the Company had unrealized gains of $3.0 million and 7.0 million, respectively, from undesignated derivative activities that were included in interest expense.

other assets, Net

Other assets consist primarily of debt issuance costs, derivate asset, unamortized lease premiums, initial direct lease costs and other receivables. The Company capitalizes costs incurred in arranging financing as debt issuance costs. Debt issuance costs are amortized to interest expense using the effective interest method for amortizing loans and on a straight-line basis for revolving credit facilities over the lives of the related debt.

Security Deposits

In the normal course of leasing aircraft to third parties under its lease agreements, the Company receives cash or a letter of credit as security for contractual obligations. At December 31, 2006 and June 30, 2007, security deposits represent cash received from the lessee that is held on deposit until termination of the lease.

Maintenance Payment Liability

JET-i’s flight equipment are typically subject to triple-net leases under which the lessee is responsible for maintenance, insurance and taxes. JET-i’s operating leases also obligate the lessees to maintain

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

flight equipment and comply with all governmental requirements applicable to the flight equipment, including without limitation, operational, maintenance, registration requirements and airworthiness directives.

Cash collected from lessees under the terms of the lease agreements for future maintenance of the aircraft are recorded as maintenance payment liabilities. Maintenance payment liabilities are attributable to specific aircraft. Upon occurrence of qualified maintenance events, the lessee submits a request for reimbursement and upon disbursement of the funds, the liability is relieved.

In some leases the lessor may be obligated to contribute to maintenance related expenses on an aircraft during the term of the lease. In other instances, the lessee or lessor may be obligated to make a payment to the counterparty at the end of lease based on a computation stipulated in the lease agreement. The calculation is based on the utilization and condition of the airframe, engines and other major life-limited components as determined at lease termination.

The Company may also incur maintenance expenses on off-lease aircraft. Scheduled major maintenance or overhaul activities and costs for certain high-value components that are paid by the Company are capitalized and depreciated over the estimated useful life of such maintenance or components.

Amounts paid by the Company for maintenance, repairs and re-leasing of aircraft that do no extend the useful life of flight equipment are expensed as incurred.

Maintenance payment liability balances at the end of a lease or any amount received as part of a redelivery adjustment are recorded as lease revenue at lease termination. When flight equipment is sold, the reserve amounts which are not specifically assigned to the buyer are released from the balance sheet as part of the disposition gain or loss. During the six months ended June 30, 2006 and 2007, the Company recognized as lease revenue at lease termination $0 and $1.5 million, respectively.

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Where revenue amounts do not meet these recognition criteria, they are deferred and recognized in the period in which the recognition criteria are met.

Operating Lease Revenue

The Company receives operating lease revenues from flight equipment under operating leases. Rental income from aircraft rents is recognized on a straight-line basis over the initial term of the respective lease, which generally ranges from 13 months to 15 years. The operating lease agreements generally do not provide for purchase options, however, the leases may allow the lessee the option to extend the lease for an additional term. Contingent rents are recognized as revenue when they are due and payable. Revenue is not recognized when collection is not reasonably assured.

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Table of Contents

JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

Finance Lease Income

Revenue from direct finance leases is recognized on the interest method to produce a level yield over the life of the finance lease. Expected unguaranteed residual values of leased assets at the expiration of the lease terms are based on the Company’s assessment of residual values using industry specific resources and other materials.

Sale of Assets

Revenue from sales of assets is recognized at the time title is transferred and delivery has occurred, the price is fixed and determinable, and collectability is probable.

Taxes

The Company provides for income taxes, of its taxable subsidiaries, under the provisions of SFAS No. 109, Accounting for Income Taxes (‘‘SFAS No. 109’’). Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement and tax basis of existing assets and liabilities at the enacted tax rates expected to apply when the assets are recovered or liabilities are settled. A valuation allowance is used to reduce deferred tax assets to the amounts ultimately expected to be more-likely-than-not realized.

New Accounting PronouNcements

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (‘‘FIN No. 48’’), which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109. FIN No. 48 prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Adoption of FIN No. 48 did not have a material impact on the Company’s financial position or results of operations. The Company has elected to classify interest on unpaid income taxe s and penalties as a component of the provision for income taxes.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (‘‘SFAS No. 157’’). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies in conjunction with other accounting pronouncements that require or permit fair value measurements. This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is in the process of analyzing the impact of SFAS No. 157, if any.

In September 2006, the FASB issued FASB Staff Position No. AUG AIR-1, Accounting for Planned Maintenance Activities (‘‘FSP’’). This FSP amends certain provisions in the AICPA Industry Guide, Audits of Airlines and eliminates the accrue-in-advance method of accounting for planned major maintenance activities. JET-i applies the deferral method which requires that the actual maintenance costs for major overhauls are capitalized and depreciated over the period until the next overhaul is required.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of SFAS No. 115 (‘‘SFAS No. 159’’) which permits entities the option to measure many financial instruments and certain other items at fair value. The

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JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

fair value option established by SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating whether to adopt the fair value option and the impact, if any, of applying the guidance provided by SFAS No. 159.

3.    Flight Equipment Under Operating Leases

Flight equipment under operating leases consists of the following as of December 31, 2006 and June 30, 2007:

			2006						2007
			(Dollars in thousands)
Cost			$840,366							$	1,108,248
Accumulated depreciation			(18,132)								(38,009	)
Net Flight Equipment Under Operating Lease			$822,234							$	1,070,239

The Company has capitalized $9.8 million and $3.5 million of major maintenance activities and costs for the year ended December 31, 2006 and for the six-month period ended June 30, 2007, respectively. These amounts have been included in Flight Equipment Under Operating Leases.

The Company’s current lease arrangements expire between 2007 and 2018. As of June 30, 2007, the contracted future minimum rental payments due under non-cancellable operating leases are as follows:

			(Dollars in thousands)
Period ending December 31, 2007				$	64,934
Year ending December 31,
2008					113,654
2009					106,153
2010					99,606
2011					82,547
2012					61,597
Thereafter					168,474
Future Minimum Rental Payments under Operating Leases				$	696,965

The Company leases aircraft to airlines throughout the world and accordingly lease receivables are due from lessees worldwide. The Company manages its credit risk exposure by obtaining either security deposits, letters of credit or guarantees from its lessees.

The Company had four customers that accounted for 17%, 16%, 13%, and 11% of operating lease revenue for the six months ended June 30, 2006. As the number of flight equipment under operating leases increased, JET-i had only one customer that accounted for 10% of operating lease revenue for the same period in 2007. No other customer was responsible for lease revenue of 10% or more.

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JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

The distribution of operating lease revenue by geographic region is as follows:

			Six months ended June 30,
			2006												2007
			(Dollars in thousands)
Europe – Developed:
United Kingdom				$	3,243						21	%				$	5,241						8	%
Sweden					1,453						10	%					—						—
Other					3,663						24	%					14,915						24	%
Europe – Developed					8,359						55	%				$	20,156						32	%
Asia Pacific:
India					3,598						24	%					10,579						17	%
Other					—						—						6,450						11	%
Asia Pacific					3,598						24	%					17,029						28	%
North America:
United States					2,873						19	%					5,067						8	%
Other					350						2	%					2,519						4	%
North America					3,223						21	%					7,586						12	%
Europe – Emerging					—						—						2,863						5	%
South and Central America
Mexico					46						0	%					10,415						17	%
Other					—						—						3,613						6	%
South and Central America					46						0	%					14,028						23	%
Total Operating Lease Revenue				$	15,226						100	%				$	61,662						100	%

The amortization of acquired lease discounts included as a component of operating lease revenue was $0.4 million and $1.2 million for the six month periods ended June 30, 2006 and 2007, respectively.

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JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

The distribution of the net book value of flight equipment by geographic region is as follows:

			At December 31, 2006												At June 30, 2007
			(Dollars in thousands)
Europe – Developed:
United Kingdom				$	68,923						8	%				$	111,676						10	%
Other					139,770						17	%					165,329						16	%
Europe – Developed					208,693						25	%					277,005						26	%
Asia Pacific:
India					193,772						24	%					190,420						18	%
China					42,146						5	%					156,575						15	%
Other					—						—						39,693						3	%
Asia Pacific					235,918						29	%					386,688						36	%
North America:
United States					84,651						10	%					83,256						8	%
Other					43,484						5	%					42,743						4	%
North America					128,135						15	%					125,999						12	%
Europe – Emerging					64,046						8	%					65,078						6	%
South and Central America:
Mexico					134,004						16	%					165,337						16	%
Other					51,438						7	%					50,132						4	%
South and Central America					185,442						23	%					215,469						20	%
Total Flight Equipment				$	822,234						100	%					1,070,239						100	%

The classification of operating lease revenues and flight equipment assets by geographic region in the tables and discussion above is based on the principal operating location of the aircraft lessee.

4.    Net Investment in Direct Finance Lease

At December 31, 2006 and June 30, 2007, the Company’s net investment in direct finance leases is attributable to four planes leased to a single North American lessee for terms of 15 years. The Company had no direct finance leases during the six months ended June 30, 2006. For the same period in 2007, the Company recognized finance lease income of $5.0 million. The implicit interest rates in the finance leases range from 13% to 15%.

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JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

The Company’s net investment in direct finance lease consist of the following:

			December 31, 2006						June 30, 2007
			(Dollars in thousands)
Total minimum lease payments receivable				$	153,000					$	147,600
Estimated unguaranteed residual value of leased assets					41,200						41,200
Unearned finance income					(118,565	)					(113,786	)
Net Investment in Direct Finance Leases				$	75,635					$	75,014

The contracted future minimum lease receipts at June 30, 2007 are as follows:

			Dollars in thousands
Period ending December 31, 2007				$	5,400
Year ending December 31,
2008					10,800
2009					10,800
2010					10,800
2011					10,800
2012					10,800
Thereafter					88,200
Future Minimum Rental Payments under Direct Finance Leases				$	147,600

5.    Other Assets, net

The following table describes the principal components of the Company’s other assets, net at December 31, 2006 and June 30, 2007:

			At December 31, 2006						At June 30, 2007
			(Dollars in thousands)
Loan issuance costs, net				$	10,154					$	9,612
Deposits for aircraft acquisitions					300						—
Derivative asset					—						1,095
Other					598						813
Total Other Assets				$	11,052					$	11,520

Amortization of loan issuance costs was $1.0 million and $1.1 million during the six month periods ended June 30, 2006 and 2007, respectively.

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JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

6.    Warehouse Credit Facility

Warehouse Credit Facility:			Facility Limit						At December 31, 2006						At June 30, 2007
			(Dollars in thousands)
Principal – Tranche A				$	960,000					$	658,002					$	903,696
Principal – Tranche B					160,000						160,000						160,000
Accrued Interest											2,624						3,264
Total Warehouse Credit Facility Provided by Third Parties					1,120,000						820,626						1,066,960
Principal – Tranche C					80,000						80,000						80,000
Accrued interest											519						638
Total Warehouse Credit Facility Provided by Related Party					80,000						80,519						80,638
Total Warehouse Credit Facility				$	1,200,000					$	901,145					$	1,147,598

In November 2005, the Company entered into a warehouse loan agreement (the ‘‘Facility’’) to finance up to $1.2 billion of aircraft assets. Tranches A and B are provided by a consortium of third party lenders; Tranche C is provided solely by Holdings. One of the investors in Holdings is also a member of the Tranches A and B consortium of third party lenders. Provided no default has occurred, and subject to lenders’ consent, the Facility amount may be increased to $1.5 billion. Funds are available for draw on a revolving basis for a period of two years after closing (the ‘‘Availability Period’’). Thirty-six months after the expiration of the Availability Period, the Company must repay 25% of the principal outstanding as of the end of the Availability Period. Another 25% is repaid in each subsequent quarter until the Facility is fully repaid. Borrowings are collateralized by the assets of the Comp any and its special purpose subsidiaries established to own the aircraft.

Borrowings are advanced in three separate tranches – Tranches A, B and C. Fundings are made in reverse order such that the Facility amount related to Tranche C is fully utilized first, then Tranche B and then Tranche A. Tranche A borrowings accrue interest at one-month London Interbank Offered Rate (‘‘LIBOR’’) plus a margin of 1.25%. Tranche B borrowings accrue interest at one-month LIBOR plus 4.5%. Tranche C borrowings accrue interest at a rate such that the aggregate monthly interest of the entire Facility reflects an interest rate of one-month LIBOR plus 2.5%. The interest rate, which resets monthly, was 6.60%, 9.85% and 13.75% for Tranche A, B and C, respectively at December 31, 2006; and 6.57%, 9.82% and 17.94%, respectively at June 30, 2007. Monthly payments of principal and interest are made based on available cash after certain expenses, in accordance with the order of priority governed by the Facility. Any unpaid amounts are carried forward and accrue interest at applicable interest rates for each tranche. Unutilized amounts under Tranche A and B accrue commitment fees of 0.3% per annum of the daily average unutilized balance; however, Tranche B commitment fee starts to accrue six months after the inception of the Facility. In order of security interest, Tranche A ranks above Tranche B, and both Tranche A and B rank above Tranche C.

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JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

The facility contains affirmative covenants customary for secured financings, such as the provision of financial information and disclosure of material events affecting the Company, among others. Further, the company must maintain certain interest coverage ratios, a breach of which would cause an event of default under the Facility. Should that occur, all amounts under the Facility are due and payable immediately. To date, the Company has complied with all covenants under the Facility.

The Company uses interest rate swaps to manage exposure to interest rate risk. The derivatives allow the company to pay fixed interest rates and receive variable interest rates with the swap counterparty over life of the contracts. The fixed interest rates under contract range from 5.11% to 5.71% per annum and have maturity dates through December 2014.

The changes in fair value of the derivatives are recorded into income from continuing operations before provision for income taxes. The Company recorded $3.0 million and $7.0 million as a decrease to interest expense with respect to these derivatives for the six month periods ended June 30, 2006 and 2007, respectively.

7.    Income Taxes

The Company has subsidiaries in a number of tax jurisdictions, principally, Ireland, Luxembourg and the United States of America. The Company is treated as a flow-through entity for U.S. federal and state income tax purposes. The Company’s member, Holdings, is also a flow-through entity. Accordingly, Holding’s members report their allocable share of the taxable income in their respective income tax returns.

Income tax expense by tax jurisdiction is summarized below for the periods indicated.

			Six months ended June 30,
			2006						2007
			(Dollars in thousand)
Deferred Tax Expense
Ireland				$	—					$	(14	)
Luxembourg					—						(2	)
Total Deferred Tax Expense					—						(16	)
Current Tax Expense
Ireland					—						728
Luxembourg					—						—
Total Current Tax Expense					—						728
Total Income Tax Expense				$	—					$	712

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JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

The following table describes the principal components of the Company’s deferred tax asset and liability by jurisdiction at December 31, 2006 and June 30, 2007:

			Ireland						Luxembourg
			(Dollars in thousands)
At December 31, 2006
Excess of tax depreciation over book depreciation				$	145					$	—
Net operating loss carryforwards					(133	)					—
Net Deferred Tax Liability					12						—
At June 30, 2007
Excess of tax depreciation over book depreciation					—						—
Net operating loss carryforwards					(2	)					(2	)
Net Deferred Tax Asset				$	(2	)				$	(2	)

8.    Other Liabilities

The following table describes the principal components of the Company’s other liabilities at December 31, 2006 and June 30, 2007:

			2006						2007
			(Dollars in thousands)
Derivative liabilities				$	5,898					$	—
Lease discounts					7,160						5,934
Straight-line rent adjustment					23						(70	)
Income taxes payable					128						852
Other					25						240
Total Other Liabilities				$	13,234					$	6,956

9.    Commitments and Contingencies

In November 2006, the Company entered into an agreement with an unrelated third party to sell one of the aircraft in its portfolio for approximately $11.8 million upon expiration of the current underlying operating lease. Delivery of the aircraft is scheduled for October 2010. The aircraft will be classified as held for sale at such time as the sale closing date falls within one year of the current reporting period.

10.    Related Party Transactions

The Company has no employees and has outsourced to B&B the daily operations of the Company through various agreements.

The Company has entered into a broker agreement with B&B to engage B&B to act as the exclusive arranger of JET-i’s acquisitions and dispositions of aircraft. In consideration for these services, B&B receives a fee equal to 1% of the purchase price of the aircraft on acquisition and 1% of the sales proceeds on aircraft disposition. During the six months ended June 30, 2006 and 2007, the Company incurred and paid $2.5 million and $2.6 million, respectively, for services rendered by B&B under this agreement. The amounts paid have been capitalized into the cost of the flight equipment.

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JET-i Leasing LLC
Notes to the Predecessor Consolidated Financial Statements
For the Six Months Ended June 30, 2007
(Unaudited)

The Company has also entered into a servicing agreement with B&B which authorizes B&B to perform lease servicing, remarketing, debt compliance and other administrative functions for JET-i. In consideration for these services, B&B receives a fee equal to 3.5% of lease revenues. During the six month periods ended June 30, 2006 and 2007, the Company incurred expenses of $0.5 million and $2.2 million under this agreement. At June 30, 2006 and 2007, the Company owed B&B $0.1 million and $0.2 million, respectively for these expenses.

In the normal course of business, B&B, acting as servicer under this agreement, incurs costs for various expenses, primarily professional fees and administrative costs on behalf of the Company. At December 31, 2006 and June 30, 2007, the company owed B&B $0.5 million and $1.5 million, respectively for these reimbursable expenses. Amounts have been included in payables to related parties on the accompanying consolidated balance sheets.

The debt under Tranche C of the Facility is provided by Holdings. For the six months ended June 30, 2006 and 2007, JET-i has incurred interest expense of $2.1 million and $6.6 million, respectively on this debt. Additionally, Holdings, for its role as Manager of JET-i earns fees of $10,000 per month. The Company incurred $60,000 for this service for each of the six month periods ended June 30, 2006 and 2007. This cost is recorded in selling, general and administrative expense. One of the investors in Holdings is also a member of the Tranches A and B consortium of third party lenders.

In the normal course of business, Holdings has paid for expenses on behalf of the company. At December 31, 2006 and June 30, 2007, the Company had liabilities outstanding to Holdings of $5.0 million and $9.2 million, respectively which have been included in payables to related parties on the accompanying consolidated balance sheets.

11.    Fair Value Of Financial Instruments

The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash and cash equivalents, rent receivables, accounts payable, accrued liabilities and notes payable. The fair value of cash, cash equivalents, restricted cash and cash equivalents, rent receivables and accounts payable and accrued liabilities approximates the carrying value of these financial instruments because of their short term nature. Borrowings under the Facility bear floating rates of interest which reset monthly to a market benchmark rate plus a credit spread. The fair values of the Company’s notes payable are estimated based on the market prices available for similar issues or on the market interest rates currently available to the Company on notes with similar terms and average maturities. The estimated fair values of the Company’s notes receivable and notes payable approximate the carrying amounts reported in the consolidated balance she ets.

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Report of Independent Registered Public Accounting Firm

To the Directors of Babcock & Brown Air Limited

We have audited the accompanying statement of financial position of Babcock & Brown Air Limited (the ‘‘Company’’) as of May 3, 2007. This statement of financial position is the responsibility of the Company’s management. Our responsibility is to express an opinion on this statement of financial position based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of financial position is free of material misstatement. An audit of a statement of financial position includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of financial position. An audit of a statement of financial position also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the statement of financial position referred to above presents fairly, in all material respects, the financial position of the Company as of May 3, 2007 in accordance with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP
San Francisco, California
June 13, 2007

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Babcock & Brown Air Limited
Statement of Financial Position

AS OF MAY 3, 2007

			Note						Dollars
Assets
Receivable from related party					1					$	10,000
Total assets											10,000
Shareholder’s equity
Common shares, $0.001 par value; 10,000,000 shares authorized; 1,000,000 shares issued and outstanding					2						1,000
Additional paid-in capital					2						9,000
Total shareholder’s equity										$	10,000

The accompanying notes are an integral part of this financial statement.

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Babcock & Brown Air Limited
Notes to the Statement of Financial Position

1.    ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Babcock & Brown Air Limited (the ‘‘Company’’ or ‘‘B&B Air’’) is a Bermuda exempted company incorporated on May 3, 2007 under the provisions of Section 14 of the Companies Act 1981 of Bermuda. The Company was formed by Babcock & Brown Limited, an Australian company (collectively including its subsidiaries, ‘‘B&B’’), to acquire and lease commercial jet aircraft and other aviation assets directly or indirectly through its subsidiaries.

Although the Company is organized under the laws of Bermuda, it will be a resident in Ireland for Irish tax purposes and will be thus subject to Irish corporation tax on its income in the same way, and to the same extent, as if the Company was organized under the laws of Ireland.

Upon the anticipated concurrent consummation of (i) the Company’s initial public offering of common shares in the form of American Depositary Shares; (ii) the private placement of American Depositary Shares with B&B, certain other equity investors of JET-i Holdings LLC, the parent company of JET-i Leasing LLC, the predecessor company of B&B Air, and certain funds managed by a company in which B&B has an interest; and (iii) the issuance of aircraft leased-back securitized notes, the Company will acquire its initial portfolio consisting of 47 commercial jet aircraft. Fourty-four of the aircraft will be acquired from JET-i Leasing LLC and its subsidiaries and three from companies managed by B&B.

BASIS OF PRESENTATION

The financial statement has been prepared in accordance with accounting principles generally accepted in the United States of America. The Company consolidates all companies it directly or indirectly controls.

RECEIVABLE FROM RELATED PARTY

The Company has a receivable from B&B representing its initial capital contribution into B&B Air. An allowance for doubtful accounts is maintained at a level believed adequate by management to absorb probable losses inherent in receivables and is established on a specific identification basis. The assessment of default risk is based, among other things, on the financial strength and condition of the debtor.

Subsequent to May 3, 2007, the Company received funds from B&B in full satisfaction of the amount outstanding.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

ORGANIZATION COSTS

Organization costs will be borne by B&B.

2.    SHAREHOLDER’S EQUITY

In connection with its formation, B&B Air issued 1,000,000 common shares for $10,000 to B&B. The Company’s common shares are non-convertible.

Other than in connection with the issuance of common shares representing its initial capital and the filing of a Registration Statement with the U.S. Securities and Exchange Commission with respect to the planned initial public offering of its common shares in the form of American Depositary Shares, the Company has not undertaken commercial activities.

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Babcock & Brown Air Limited
Consolidated Balance Sheet

AS OF JUNE 30, 2007 (Unaudited)

			Note						Dollars
Assets
Cash and cash equivalents					1					$	10,000
Total assets											10,000
Shareholder’s equity
Common shares, $0.001 par value; 500,000,000 shares authorized; 1,000,000 shares issued and outstanding					2						1,000
Additional paid-in capital					2						9,000
Retained earnings					2						—
Total shareholder’s equity										$	10,000

The accompanying notes are an integral part of this financial statement.

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Babcock & Brown Air Limited
Consolidated Statement of Operations

FOR THE PERIOD FROM MAY 3, 2007 (INCORPORATION DATE)
TO JUNE 30, 2007 (Unaudited)

			Note			Dollars
Revenues							$	—
Expenses								—
Net income							$	—

The accompanying notes are an integral part of this financial statement.

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Babcock & Brown Air Limited
Consolidated Statement of Shareholder’s Equity

FOR THE PERIOD FROM MAY 3, 2007 (INCORPORATION DATE)
TO JUNE 30, 2007 (Unaudited)

			Common Stock												Additional Paid-in Capital						Retained Earnings						Total Shareholder’s Equity
			Shares						Amount
Balance May 3, 2007 (incorporation date)					—					$	—					$	—					$	—					$	—
Issuance of common shares					10,000,000						1,000						9,000						—						10,000
Net Income					—						—						—						—						—
Balance June 30, 2007					10,000,000					$	1,000					$	9,000					$	—					$	10,000

The accompanying notes are an integral part of this financial statement.

F-45

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Babcock & Brown Air Limited
Consolidated Statement of Cash Flows

FOR THE PERIOD FROM MAY 3, 2007 (INCORPORATION DATE)
TO JUNE 30, 2007 (Unaudited)

			Dollars
Cash Flow for Operating Activities
Net income				$	—
Cash flow provided by operating activities					—
Cash Flows from Financing Activities
Issuance of common shares					10,000
Cash flow provided by financing activities					10,000
Net increase in cash				$	10,000
Cash at beginning of period					—
Cash at end of period				$	10,000

The accompanying notes are an integral part of this financial statement.

F-46

Table of Contents

Babcock & Brown Air Limited
Notes to the Consolidated Financial Statements
For the period from May 3, 2007 (incorporation date) to June 30, 2007

1.    ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Babcock & Brown Air Limited (the ‘‘Company’’ or ‘‘B&B Air’’) is a Bermuda exempted company incorporated on May 3, 2007 under the provisions of Section 14 of the Companies Act 1981 of Bermuda. The Company was formed by Babcock & Brown Limited, an Australian company (collectively including its subsidiaries, ‘‘B&B’’), to acquire and lease commercial jet aircraft and other aviation assets directly or indirectly through its subsidiaries.

Although the Company is organized under the laws of Bermuda, it will be a resident in Ireland for Irish tax purposes and will be thus subject to Irish corporation tax on its income in the same way, and to the same extent, as if the Company was organized under the laws of Ireland.

Upon the concurrent consummation of (i) the Company’s initial public offering of common shares in the form of American Depositary Shares; (ii) the private placement of American Depositary Shares with B&B certain other equity investors of JET-i Holdings LLC, the parent company of JET-i Leasing LLC, the predecessor company of B&B Air, and certain funds managed by a company in which B&B has an interest; and (iii) the issuance of aircraft leased-back securitized notes, the Company will acquire its initial portfolio consisting of 47 commercial jet aircraft. Fourty-four of the aircraft will be acquired from JET-i Leasing LLC and its subsidiaries and three from companies managed by B&B.

BASIS OF PRESENTATION

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company consolidates all companies it directly or indirectly controls.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

ORGANIZATION COSTS

Organization costs will be borne by B&B.

2.    SHAREHOLDER’S EQUITY

In connection with its formation, B&B Air issued 1,000,000 common shares for $10,000 to B&B. The Company’s common shares are non-convertible.

Other than in connection with the issuance of common shares representing its initial capital and the filing of a Registration Statement with the U.S. Securities and Exchange Commission with respect to the planned initial public offering of its common shares in the form of American Depositary Shares, the Company has not undertaken commercial activities.

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Appendix 1
Our Lessees

Lessee			Domicile			Formation			Service Type			Lessee Ownership			Aircraft In Service Fleet			No.			Aircraft On Firm Order			No.
Aeroflot-don			Russia			2000			Scheduled and Charter Passenger and Cargo			Aeroflot Russian Airlines (51%)			Antonov An-12			1			Antonov An-12			0
															Boeing 737-500			2			Boeing 737-500			0
															Tupolev Tu-134 A			6			Tupolev Tu-134 A			0
															Tupolev Tu-154 B			5			Tupolev Tu-154 B			0
															Tupolev Tu-154 M			4			Tupolev Tu-154 M			0
																		18						0
Aeromexico			Mexico			1934			Scheduled Passenger and Cargo			Consorcio Aeromexico (99.26%)			Boeing 737-700			30			Boeing 737-700			13
															Boeing 737-800			3			Boeing 737-800			3
															Boeing 757-200			2			Boeing 757-200			0
															Boeing 767-200ER			3			Boeing 767-200ER			0
															Boeing 767-300ER			1			Boeing 767-300ER			0
															Boeing 777-200ER			3			Boeing 777-200ER			0
															Boeing 787-8			0			Boeing 787-8			5
															MD-82			3			MD-82			0
															MD-83			3			MD-83			0
															MD-87			12			MD-87			0
															MD-88			10			MD-88			0
																		70						21
Aigle Azur			France			1970			Scheduled Passenger and Cargo			Go Fast Transport (100%)			Airbus A319-100			2						0
															Airbus A320-200			4						0
															Airbus A321-200			3						0
																		9						0
Air Berlin			Germany			1978			Scheduled Passenger and Cargo			Freefloat (61.86%)			Fokker 100			3			Fokker 100			0
												Other private and			Airbus A319-100			4			Airbus A319-100			15
												corporate (28.14%)			Airbus A320-200			16			Airbus A320-200			31
															Boeing B737-700			5			Boeing B737-700			25
															Boeing B737-800			35			Boeing B737-800			60
																		63						131
Air China			China			1988			Scheduled Passenger and Cargo			PRC (55.8%)			Airbus A319-100			29			Airbus A319-100			6
												Public Shares (24.2%)			Airbus A320-200			6			Airbus A320-200			0
												Cathay Pacific (20%)			Airbus A321-200			0			Airbus A321-200			24
															Airbus A330-200			7			Airbus A330-200			13

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Lessee			Domicile			Formation			Service Type			Lessee Ownership			Aircraft In Service Fleet			No.			Aircraft On Firm Order			No.
															Airbus A340-300			6			Airbus A340-300			0
															Boeing B737-300			38			Boeing B737-300			0
															Boeing B737-600			6			Boeing B737-600			0
															Boeing B737-700			20			Boeing B737-700			0
															Boeing B737-800			29			Boeing B737-800			28
															Boeing B747-400			12			Boeing B747-400			0
															Boeing B757-200			13			Boeing B757-200			0
															Boeing B767-200ER			5			Boeing B767-200ER			0
															Boeing B767-300			4			Boeing B767-300			0
															Boeing B767-300ER			5			Boeing B767-300ER			0
															Boeing B777-200			10			Boeing B777-200			0
															Boeing B787-8			0			Boeing B787-8			15
																		190						86
Air Europa			Spain			1984			Scheduled Passenger			Globalia (100%)			Airbus A330-200			3			Airbus A330-200			0
															Airbus A350-800			0			Airbus A350-800			10
															Boeing B737-800			30			Boeing B737-800			0
															Boeing B767-300ER			3			Boeing B767-300ER			0
																		36						10
ATA Airlines			United States			1981			Scheduled Passenger and Cargo			Public (100%)			Boeing B737-300			3			Boeing B737-300			0
															Boeing B737-800			12			Boeing B737-800			0
															Boeing B757-200			6			Boeing B757-200			0
															Boeing B757-300			4			Boeing B757-300			0
															Lockheed L-1011-500			4			Lockheed L-1011-500			0
																		29						0
CCM			France			1990			Scheduled, Charter, and			Collectivite de Corse (60.37%)			Airbus A319-100			2			Airbus A319-100			0
									Seasonal Passenger			Air France (11.95%)			Airbus A320-200			2			Airbus A320-200			0
															ATR 72-200			1			ATR 72-200			0
															ATR 72-500			4			ATR 72-500			2
																		9						2
Chang’an Airlines			China			1993			Scheduled Passenger and Cargo			Hainan Airlines (73.51%)			Boeing B737-700			1			Boeing B737-700			0
															Boeing B737-800			4			Boeing B737-800			0
															Airbus A319-100			4			Airbus A319-100			0
															Xian Y-7-100			4			Xian Y-7-100			0
															Xian Y-7-MA60			2			Xian Y-7-MA60			0
																		15						0

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Lessee			Domicile			Formation			Service Type			Lessee Ownership			Aircraft In Service Fleet			No.			Aircraft On Firm Order			No.
China Southern			China			1991			Scheduled Passenger			China Southern			Airbus A300-600			6			Airbus A300-600			0
												Air Holdings (50.3%)			Airbus A319-100			28			Airbus A319-100			21
															Airbus A320-200			49			Airbus A320-200			15
															Airbus A321-200			17			Airbus A321-200			29
															Airbus A330-200			4			Airbus A330-200			2
															Airbus A330-300			0			Airbus A330-340			8
															Airbus A380-840			0			Airbus A380-840			5
															ATR 72-500			5			ATR 72-500			0
															Boeing 737-300			17			Boeing 737-300			0
															Boeing 737-700			18			Boeing 737-700			7
															Boeing 737-800			18			Boeing 737-800			18
															Boeing 747-400F			2			Boeing 747-400F			0
															Boeing 757-200			24			Boeing 757-200			0
															Boeing 777-200			10			Boeing 777-200			0
															Boeing 787-8			0			Boeing 787-8			10
															Boeing MD-80-82			12			Boeing MD-80-82			0
															Boeing MD-90-30			13			Boeing MD-90-30			0
															Embraer ERJ145			6			Embraer ERJ145			0
																		229						115
easyJet			United Kingdom			1995			Scheduled Passenger			Public (100%)			Airbus A319-100			83			Airbus A319-100			98
															Boeing B737-700			30			Boeing B737-700			0
																		113						98
First Choice			United Kingdom			1987			Scheduled Passenger			First Choice Holidays PLC (100%)			Airbus A320-200			5			Boeing 787-8			8
															Airbus A321-200			4
															Boeing 757-200			9
															Boeing 767-300ER			5
																		23						8
Hainan			China			1993			Scheduled Passenger and Cargo			American Aviation LDC (14.80%)			Airbus A319-100			7			Airbus A319-100			20
												HNA Group Co., LTD. (11.85%)			Airbus A330-200			0			Airbus A330-200			2
												Hainan Qixing Industrial			Boeing B737-300			5			Boeing B737-300			0
												Investment Co Ltd (6.83%)			Boeing B737-400			7			Boeing B737-400			0
												Others (66.52%)			Boeing B737-800			19			Boeing B737-800			30
															Boeing B767-300ER			5			Boeing B767-300ER			0
															Boeing B787-8			0			Boeing B787-8			8

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Lessee			Domicile			Formation			Service Type			Lessee Ownership			Aircraft In Service Fleet			No.			Aircraft On Firm Order			No.
															Fairchild/ Dornier 328Jet			25			Fairchild/ Dornier 328Jet			0
																		68						60
Kingfisher			India			2005			Scheduled Passenger and Cargo			UB Holdings (100%)			Airbus A319-100			4			Airbus A319-100			0
															Airbus A320-200			10			Airbus A320-200			31
															Airbus A321-200			4			Airbus A321-200			3
															ATR 72-500			6			ATR 72-500			29
															Airbus A330-200			0			Airbus A330-200			5
															Airbus A340-500			0			Airbus A340-500			5
															Airbus A350-800			0			Airbus A350-800			5
															Airbus A380-800			0			Airbus A380-800			5
																		24						83
Mexicana			Mexico			1921			Scheduled Passenger and Cargo			Grupo Posada (100%)			Airbus A318-100			10			Airbus A318-100			0
															Airbus A319-100			16			Airbus A319-100			0
															Airbus A320-200			30			Airbus A320-200			5
															Boeing B757-200			3			Boeing B757-200			0
															Boeing B767-300ER			3			Boeing B767-300ER			0
																		62						5
Omni Air			United States			1983			Scheduled and Charter						Boeing 757-200			4			Boeing 757-200			0
									Passenger						Boeing MD DC-10-30			10			Boeing MD DC-10-30			0
																		14						0
SpiceJet			India			2005			Scheduled Passenger			Public (100%)			Boeing 737-800			11			Boeing 737-800			12
																		11			Boeing 737-900ER			5
																								17
Sunwing			Canada			2005			Charter Passenger			Colin Hunter			Boeing 737-800			6			Boeing 737-800			0
																		6						0
Swiss Int’l			Switzerland			1975			Scheduled Passenger and Cargo			Lufthansa (100%)			Airbus A319-100			7			Airbus A319-100			0
															Airbus A320-200			14			Airbus A320-200			0
															Airbus A321-100			4			Airbus A321-100			0
															Airbus A330-200			11			Airbus A330-200			0
															Airbus A340-300			9			Airbus A340-300			0
															Embraer 170-LR			0			Embraer 170-LR			15
															Embraer 195-LR			0			Embraer 195-LR			15
															Saab2000			1			Saab2000			0
																		46						30

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Lessee			Domicile			Formation			Service Type			Lessee Ownership			Aircraft In Service Fleet			No.			Aircraft On Firm Order			No.
TACA			El Salvador			1931			Scheduled Passenger and Cargo			Grupo TACA (100%)			Airbus A319-100			6			Airbus A319-100			4
															Airbus A320-200			18			Airbus A320-200			11
															Airbus A321-200			4			Airbus A321-200			1
																		28						16
THY			Turkey			1933			Scheduled Passenger and Cargo			Private Shareholders (53.57%)			Airbus A310-300			5			Airbus A310-300			0
												T.C. Privatization			Airbus A310-200			1			Airbus A310-200			0
												Administration (46.34%)			Airbus A310-300F			1			Airbus A310-300F			0
															Airbus A319-100			2			Airbus A319-100			0
															Airbus A320-200			16			Airbus A320-200			12
															Airbus A321-200			11			Airbus A321-200			8
															Airbus A330-200			5			Airbus A330-200			0
															Airbus A340-300			7			Airbus A340-300			0
															Boeing B737-400			15			Boeing B737-400			0
															Boeing B737-800			41			Boeing B737-800			8
															Embraer ERJ-100			0			Embraer ERJ-100			0
																		104						28
Tiger Airways			Singapore			2003			Scheduled Passenger			Singapore Airlines (49%)			Airbus A320-200			9						12
												Indigo Partners (24%)						9						12
												Irelandia Investments (16%)
												Temasek Holdings (11%)
Titan Airways			United Kingdom			1988			Charter Passenger and Cargo			Gene H. Wilson (63%)			Boeing B737-300			4						0
												3i PLC (37%)			Boeing B757-200			2						0
															BAE 146-200QC			3						0
															BAE 146-200QT			1						0
																		10						0

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Lessee			Domicile			Formation			Service Type			Lessee Ownership			Aircraft In Service Fleet			No.			Aircraft On Firm Order			No.
Transavia			Holland			1966			Scheduled and Charter			KLM (100%)			Boeing B737-700			10			Boeing 737-800			1
									Passenger						Boeing B737-800			9
																		19						1
Travel Service Airlines			Czech Republic			1997			Scheduled Passenger			Lerox and Unimex Groups (100%)			Boeing B737-800			4			Boeing B737-800			1
															Boeing B737-900ER			0			Boeing B737-900ER			2
																		4						3
TUI AG			Germany			2004			Scheduled Passenger			TUI AG (100%)			Boeing B737-800			3						0
															Boeing B757-200			2						0
																		5						0
Virgin America			United States			Exp. 2007			Scheduled Passenger			VAI Partners LLC (75%)			Airbus A319-200			1			Airbus A319-200			8
												Virgin Group (25%)			Airbus A320-200			8			Airbus 320-200			8
																		9						16
Volaris			Mexico			2006			Scheduled Passenger			Protego Discovery Fund (25%)			Airbus 319-130			8			Airbus 319-130			13
												Grupo Televisa (25%)						8						13
												Imbursa (25%)
												TACA (25%)
XL Airways			United Kingdom			1994			Charter Passenger			Avion Group (100%)			Airbus A330-200			0			Airbus A330-200			2
															Boeing B737-800			6			Boeing B737-800			3
															Boeing B737-900ER			0			Boeing B737-900ER			2
															Boeing B747-300			1			Boeing B747-300			0
															Boeing B757-200			2			Boeing B757-200			0
															Boeing B767-300ER			3			Boeing B767-300ER			0
															Boeing B767-200			2			Boeing B767-200			0
																		14						7

Source: Ascend CASE database

A-6

                            American Depositary Shares

P R O S P E C T U S
                                 , 2007

Morgan Stanley			Citi			Merrill Lynch & Co.			Credit Suisse

Jefferies & Company			JPMorgan

Table of Contents

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 6.    INDEMNIFICATION OF DIRECTORS AND OFFICERS

The bye-laws of Babcock & Brown Air Limited (the ‘‘Registrant’’) contain a broad waiver by its shareholders of any claim or right of action, both individually and on its behalf, against any of its officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. The waiver limits the right of shareholders to assert claims against the Registrant’s officers and directors unless the act or failure to act involves fraud or dishonesty. The Registrant’s bye-laws also provide that the Registrant will indemnify its officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. The indemnification provided in the bye-laws is not exclusive of other indem nification rights to which a director or officer may be entitled, provided these rights do not extend to his or her fraud or dishonesty. The Registrant also has entered into directors’ service agreements with its directors, pursuant to which the Registrant has agreed to indemnify them against any liability brought against them by reason of their service as directors, except in cases where such liability arises from fraud, dishonesty, bad faith, gross negligence, willful default or willful misfeasance.

Section 98 of the Companies Act 1981 of Bermuda (the ‘‘Companies Act’’) provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to Section 281 of the Companies Act.

The Registrant maintains standard policies of insurance under which coverage is provided (1) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (2) to the registrant with respect to payments which may be made by the registrant to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.

ITEM 7.    RECENT SALES OF UNREGISTERED SECURITIES.

The investors in JET-i Holdings LLC (including an affiliate of Babcock & Brown Limited) and a fund managed by a company in which Babcock & Brown Limited has an interest have agreed to purchase 14,907,800 American Depositary Shares (‘‘ADSs’’) from the Registrant at a price per ADS equal to the initial public offering price in a private placement pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933. This private placement will be consummated concurrently with the completion of the offering of ADSs being made pursuant to this registration statement. The private placement involved no public offering and was committed to prior to the filing of this registration statement.

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ITEM 8.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)    Exhibits

	1	.1*				Form of Underwriting Agreement.
	1	.2*				Form of Indemnity Agreement.
	3	.1				Memorandum of Association.
	3	.2				Bye-laws.
	4	.1				Form of Common Share Certificate.
	4	.2				Form of Deposit Agreement, between Deutsche Bank Trust Company Americas and Babcock & Brown Air Limited.
	4	.3				Form of American Depositary Receipt (included in Exhibit 4.2).
	5	.1*				Opinion of Conyers Dill & Pearman.
	10	.1				Form of Management Agreement, between Babcock & Brown Air Management Co. Limited and Babcock & Brown Air Limited.
	10	.2				Form of Asset Purchase Agreement, among JET-i Leasing LLC, the Aircraft Sellers named therein and Babcock & Brown Air Funding I Limited.
	10	.3				Form of Servicing Agreement, among Babcock & Brown Aircraft Management LLC, Babcock & Brown Aircraft Management (Europe) Limited, Babcock & Brown Air Funding I Limited and AMBAC Assurance Corporation.
	10	.4				Form of Administrative Services Agreement, among Deutsche Bank Trust Company Americas, AMBAC Assurance Corporation, Babcock & Brown Air Management Co. Limited and Babcock & Brown Air Funding I Limited.
	10	.5				Private Placement Agreement dated July 19, 2007, between Credit Suisse Securities (USA) LLC and Babcock & Brown Air Limited.
	10	.6				Private Placement Agreement dated July 19, 2007, among private investors listed therein and Babcock & Brown Air Limited.
	10	.7				Private Placement Agreement dated September 10, 2007, among private investors listed therein and Babcock & Brown Air Limited.
	10	.8				Form of Registration Rights Agreement, among private investors and Babcock & Brown Air Limited.
	10	.9				Form of Trust Indenture, among Deutsche Bank Trust Company Americas, BNP Paribas, AMBAC Assurance Corporation and Babcock & Brown Air Funding I Limited.
	10	.10				Form of Security Trust Agreement, between Deutsche Bank Trust Company Americas and Babcock & Brown Air Funding I Limited.
	10	.11				Form of Cash Management Agreement, between Deutsche Bank Trust Company Americas and Babcock & Brown Air Funding I Limited.
	10	.12				Form of Director Service Agreement, between Babcock & Brown Air Limited and each director thereof.
	10	.13				Aircraft Warehouse Facility Commitment Letter dated July 9, 2007, between Credit Suisse, New York Branch, and Babcock & Brown Air Limited.
	21	.1				List of Subsidiaries of the Registrant.
	23	.1				Consent of Ernst & Young LLP.
	23	.2				Consent of Ernst & Young LLP.
	23	.3				Consent of Simat, Helliesen & Eichner, Inc.
	23	.4				Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
	24	.1				Power of Attorney (included in signature page to this Registration Statement).

*    To be filed by amendment

(b)    Financial Statement Schedules

Not applicable.

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ITEM 9.    UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether suc h indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

	(1)	For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

	(2)	For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dublin, Ireland, on the 12th day of September, 2007

			Babcock & Brown Air Limited
			By:			/s/ Colm Barrington
			Name:			Colm Barrington
			Title:			Chief Executive Officer and Director

POWER OF ATTORNEY

We, the undersigned directors of Babcock & Brown Air Limited, hereby severally constitute and appoint Colm Barrington, with full powers of substitution and resubstitution, our true and lawful attorney, with full powers to sign for us, in our names and in the capacity indicated below, the Registration Statement on Form F-1 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933 in connection with the registration under the Securities Act of 1933 of equity securities of Babcock & Brown Air Limited, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney, his full power and authority to do and perform each and every act and thing requisite and ne cessary to be done in connection therewith, as fully to all intents and purposes he might or could do in person, and hereby ratifying and confirming all that said attorney, or his substitute, shall do or cause to be done by virtue of this Power of Attorney.

Pursuant to the requirements of the Securities Act of 1933 this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

SIGNATURE		TITLE		DATE
/s/ Colm Barrington		Chief Executive Officer and Director (Principal Executive, Financial and Accounting Officer)		September 12, 2007
Colm Barrington
/s/ Steven Zissis		Director		September 12, 2007
Steven Zississ
/s/ James Fantaci		Director		September 12, 2007
James Fantaci
/s/ Erik G. Braathen		Director		September 12, 2007
Erik G. Braathen
/s/ Sean Donlon		Director		September 12, 2007
Sean Donlon
/s/ Joseph M. Donovan		Director		September 12, 2007
Joseph M. Donovan

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SIGNATURE		TITLE		DATE
/s/ Susan M. Walton		Director		September 12, 2007
Susan M. Walton

Authorized Representative in the United States:

Puglisi & Associates

By:   /s/ Donald J. Puglisi
Name: Donald J. Puglisi
Title: Managing Director,
Puglisi & Associates

Date: September 12, 2007

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EX-3.1

Exhibit 3.1

FORM NO. 2

BERMUDA

THE COMPANIES ACT 1981

MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES

(Section 7(1) and (2))

MEMORANDUM OF ASSOCIATION
OF

Babcock & Brown Air Limited
(hereinafter referred to as ‘‘the Company’’)

1.	The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them.

2.	We, the undersigned, namely,

NAME

ADDRESS

BERMUDIAN STATUS (Yes/No)

NATIONALITY

NUMBER OF SHARES SUBSCRIBED

Christopher G. Garrod

Clarendon House

Yes

British

One

2 Church Street Hamilton HM 11 Bermuda

Graham B.R. Collis

—

Yes

British

One

Charles G. Collis

—

Yes

British

One

do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the directors, provisional directors or promoters of the Company in respect of the shares allotted to us respectively.

3.	The Company is to be an exempted company as defined by the Companies Act 1981.

4.	The Company, with the consent of the Minister of Finance, has power to hold land situate in Bermuda not exceeding        in all, including the following parcels: N/A

5.	The authorised share capital of the Company is US$10,000.00 divided into shares of US$0.001 each.

6.	The objects for which the Company is formed and incorporated are unrestricted.

7.	Subject to paragraph 4, the Company may do all such things as are incidental or conducive to the attainment of its objects and shall have the capacity, rights, powers and privileges of a natural person, and –

(i)	pursuant to Section 42 of the Act, the Company shall have the power to issue preference shares which are, at the option of the holder, liable to be redeemed;

(ii)	pursuant to Section 42A of the Act, the Company shall have the power to purchase its own shares for cancellation; and

(iii)	pursuant to Section 42B of the Act, the Company shall have the power to acquire its own shares to be held as treasury shares.

Signed by each subscriber in the presence of at least one witness attesting the signature thereof

(Subscribers)

SUBSCRIBED this 1^st day of May, 2007.

(Witnesses)

EX-3.2

Exhibit 3.2

BYE-LAWS OF

BABCOCK & BROWN AIR LIMITED

TABLE OF CONTENTS

	Interpretation
1.	Definitions
	Shares
2.	Power to Issue Shares
3.	Power of the Company to Purchase its Shares
4.	Rights Attaching to Shares
5.	Calls on Shares
6.	Prohibition on Financial Assistance
7.	Forfeiture of Shares
8.	Share Certificates
9.	Fractional Shares
	Registration of Shares
10.	Register of Members
11.	Registered Owner Absolute Owner
12.	Transfer of Registered Shares
13.	Transmission of Registered Shares
	Alteration of Share Capital
14.	Power to Alter Capital
15.	Variation of Rights Attaching to Shares
	Dividends and Capitalisation
16.	Dividends
17.	Power to Set Aside Profits
18.	Method of Payment
19.	Capitalisation
	Meetings of Members
20.	Annual General Meetings
21.	Special General Meetings
22.	Requisitioned General Meetings
23.	Notice
24.	Giving Notice
25.	Postponement or Cancellation of General Meeting
26.	Attendance and Security at General Meetings
27.	Quorum at General Meetings
28.	Chairman to Preside
29.	Voting on Resolutions
30.	Power to Demand Vote on Poll
31.	Voting by Joint Holders of Shares
32.	Instrument of Proxy
33.	Representation of Corporate Member
34.	Adjournment of General Meeting
35.	Directors’ Attendance at General Meetings

	Directors and Officers
36.	Election of Directors
37.	Term of Office of Directors
38.	Alternate Directors
39.	Removal of Directors
40.	Vacancy in the Office of Director
41.	Remuneration of Directors
42.	Defect in Appointment of Director
43.	Directors to Manage Business
44.	Powers of the Board of Directors
45.	Register of Directors and Officers
46.	Appointment of Officers
47.	Secretary
48.	Duties of Officers
49.	Remuneration of Officers
50.	Conflicts of Interest
51.	Indemnification and Exculpation of Directors and Officers
	Meetings of the Board of Directors
52.	Board Meetings
53.	Notice of Board Meetings
54.	Participation in Meetings by Telephone
55.	Quorum at Board Meetings
56.	Board to Continue in Event of Vacancy
57.	Chairman to Preside
58.	Written Resolutions
59.	Validity of Prior Acts of the Board
	Corporate Records
60.	Minutes
61.	Place Where Corporate Records Kept
62.	Form and Use of Seal
	Accounts
63.	Books of Account
64.	Financial Year End

2

	Audits
65.	Annual Audit
66.	Appointment of Auditors
67.	Remuneration of Auditors
68.	Duties of Auditors
69.	Access to Records
70.	Financial Statements
71.	Distribution of Auditors Report
72.	Vacancy in the Office of Auditor
	Business Combinations
73.	Amalgamations
	Voluntary Winding-Up and Dissolution
74.	Winding-Up
	Changes to Constitution
75.	Changes to Bye-laws
76.	Discontinuance
	Anti Takeover Provisions
77.	Adjustment of voting powers
78.	Requirement to provide information and notice

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INTERPRETATION

1. Definitions

1.1 In these Bye-laws, the following words and expressions shall, where not inconsistent with the context, have the following meanings, respectively:

Act	the Companies Act 1981 as amended from time to time;
Affiliate	a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified; provided, however, that the Company and its respective Subsidiaries, on the one part, and Babcock & Brown and its Subsidiaries, on the other part, shall not be considered to be Affiliates of each other;
Alternate Director	an alternate director appointed in accordance with these Bye-laws;
Auditor	includes an individual or partnership;
Babcock & Brown	Babcock & Brown Limited, an Australian company;
Board	the board of directors appointed or elected pursuant to these Bye-laws and acting by resolution in accordance with the Act and these Bye-laws or the directors present at a meeting of directors at which there is a quorum;
Company	the company for which these Bye-laws are approved and confirmed;
Company Group	means (1) the Company, (2) Subsidiaries of the Company and (3) Affiliates of the Company in which the Company or

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	any of its Subsidiaries has a direct or indirect ownership interest;
Competitor	means any of the following Persons:
	(a) any of the following Persons (or any of their respective Affiliates) and their respective successors and assigns:
	(1)      GE Commercial Aviation Services Limited;
	(2)      International Lease Finance Corporation;
	(3)       AerCap B.V.;
	(4)       Aircastle Advisor LLC;
	(5)       Allco Finance Group;
	(6)       Aviation Capital Group;
	(7)       AWAS;
	(8)      BCI Aircraft Leasing, Inc.;
	(9)      Boeing Capital Corporation;
	(10)    CIT Group Inc.;
	(11)    GATX Air;
	(12)    Genesis Lease Limited;
	(13)     Macquarie Bank Limited;
	(14)    ORIX Aviation Systems Limited;
	(15)    Pegasus Aviation;
	(16)    Pembroke Group Ltd.;
	(17)    RBS Aviation Capital;
	(18)    Singapore Aircraft Leasing Enterprise;
	(19)    Sumisho Aircraft Asset Management B.V.; and
	(20)     Tombo Aviation;
	(b) any other Person (or any Affiliate thereof) (other than Babcock & Brown and its Affiliates) that, together with its Affiliates, has consolidated aircraft leasing-related revenues or aircraft- or engine manufacturing-related

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	revenues of more than $200 million for its most recently completed fiscal year; or
	(c) any other Person which beneficially owns 15% or more of the voting securities of any Person identified in the foregoing clauses (a) or (b) (other than Babcock & Brown and its Affiliates);
Controlled Shares	has the meaning assigned in Bye-law 77.1;
Director	a director of the Company and shall include an Alternate Director;
Fair Market Value	means a price equal to no less than the lesser of:
	(a) the volume weighted average trading price of a Common Share of the Company (or an American Depositary Share or other beneficial interest representing a Common Share of the Company) on the principal exchange or over-the-counter market on which Common Shares of the Company (or American Depositary Shares or other beneficial interests representing Common Shares of the Company) are then listed or traded over the twenty consecutive trading days immediately preceding (but not including) the date on which the applicable Competitor acquired beneficial ownership or control, directly or indirectly, of 15% or more of the issued and outstanding Common Shares of the Company, or if such average price is not available, the Board’s reasonable determination of the fair market value of a Common Share of the Company (or an American Depositary Share or other beneficial interest representing a Common Share of the Company) on such date of acquisition; and

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	(b) the volume weighted average trading price of a Common Share of the Company (or an American Depositary Share or other beneficial interest representing a Common Share of the Company) on the principal exchange or over-the-counter market on which Common Shares of the Company (or American Depositary Shares or other beneficial interests representing Common Shares of the Company) are then listed or traded over the five consecutive trading days immediately preceding (but not including) the date on which the Competitor Notice is sent to the applicable Competitor pursuant to Bye-law 77, or if such average price is not available, the Board’s reasonable determination of the fair market value of a Common Share of the Company (or an American Depositary Share or other beneficial interest representing a Common Share of the Company) on such date that the Competitor Notice is sent;
Independent Director	a person that meets the definition of “independent director” under the Listing Rules of the New York Stock Exchange;
Management Agreement	the management agreement entered into between the Company and the Manager;
Manager	Babcock & Brown Air Management Co. Limited;
Member	the person registered in the Register of Members as the holder of shares in the Company and, when two or more persons are so registered as joint holders of shares, means the person whose name stands first in the Register of Members as one of such joint holders or all of such persons, as the context so requires;
notice	written notice as further provided in these Bye-laws unless otherwise specifically stated;

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Officer	any person appointed by the Board to hold an office in the Company;
Person	any individual, firm, corporation, limited liability company, partnership, trust, body of persons, joint venture, governmental authority or other entity, and shall include any successor (by merger or otherwise) of such entity;
Premium Price	a price per share equal to the sum of the price per share arrived at pursuant to clause (a) of the definition of “Fair Market Value” plus a premium representing the benefit of acquiring control of the Company;
Register of Directors and Officers	the register of directors and officers referred to in these Bye-laws;
Register of Members	the register of members referred to in these Bye-laws;
Resident Representative	any person appointed to act as resident representative and includes any deputy or assistant resident representative;
Secretary	the person appointed to perform any or all of the duties of secretary of the Company and includes any deputy or assistant secretary and any person appointed by the Board to perform any of the duties of the Secretary; and
Subsidiary	of any Person means a corporation, company, common law or statutory trust or other entity (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50% of whose ownership interest representing the right to

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	make decisions for such other entity is, now or hereafter owned or controlled, directly or indirectly, by such Person, but such corporation, company, common law or statutory trust or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists; and
Treasury Share	a share of the Company that was or is treated as having been acquired and held by the Company and has been held continuously by the Company since it was so acquired and has not been cancelled.

1.2 In these Bye-laws, where not inconsistent with the context:

(a) words denoting the plural number include the singular number and vice versa;

(b) words denoting the masculine gender include the feminine and neuter genders;

(c) words importing persons include companies, associations or bodies of persons whether corporate or not;

(d) the words:

(i) “may” shall be construed as permissive; and

(ii) “shall” shall be construed as imperative; and

(e) unless otherwise provided herein, words or expressions defined in the Act shall bear the same meaning in these Bye-laws.

1.3 In these Bye-laws expressions referring to writing or its cognates shall, unless the contrary intention appears, include facsimile, printing, lithography, photography, electronic mail and other modes of representing words in visible form.

1.4 Headings used in these Bye-laws are for convenience only and are not to be used or relied upon in the construction hereof.

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SHARES

2. Power to Issue Shares

2.1 Subject to these Bye-laws and to any resolution of the Members to the contrary, and without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, the Board shall have the power to issue any unissued shares of the Company on such terms and conditions as it may determine.

2.2 Without limitation to the provisions of Bye-law 4, subject to the provisions of the Act, any preference shares may be issued or converted into shares that (at a determinable date or at the option of the Company or the holder) are liable to be redeemed on such terms and in such manner as may be determined by the Board (before the issue or conversion).

3. Power of the Company to Purchase its Shares

3.1 The Company may purchase its own shares for cancellation or acquire them as Treasury Shares in accordance with the Act on such terms as the Board shall think fit.

3.2 The Board may exercise all the powers of the Company to purchase all or any part of its own shares in accordance with the Act.

4. Rights Attaching to Shares

4.1 At the date these Bye-laws are adopted, the share capital of the Company shall be divided into two classes of shares as follows:

(a) 499,999,900 common shares of par value US$0.001 each (the “Common Shares”); and

(b) 100 shares of par value US$0.001 each (the “Manager Shares”).

4.2 The holders of Common Shares shall, subject to the provisions of these Bye-laws (including, without limitation, the rights attaching to any Preference Shares from time to time):

(a) be entitled to one vote per share;

(b) be entitled to such dividends as the Board may from time to time declare;

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(c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and

(d) generally be entitled to enjoy all of the rights attaching to shares.

4.3 The Manager Shares shall, subject to the provisions of these Bye-laws and for so long as the Management Agreement has not been terminated, have the following rights:

(a) Have the right to appoint persons to serve as Directors as described in Bye-law 36.5; and

(b) Where the Manager is a holder of Manager Shares, be entitled to receive notice of and to attend general meetings of the Company if such general meeting is called for the purpose of considering an amendment to Bye-law 44.2 and at such a general meeting, to vote as a separate class of shares in respect of any such amendment.

For greater certainty, the holders of the Manager Shares shall have no other rights except as provided under the Act.

4.4 Upon the termination of the Management Agreement, the Company shall, subject to Section 42 of the Act, immediately redeem all of the Manager Shares for their par value and upon such redemption the Manager Shares shall be cancelled and shall not be re-issued.

4.5 The Board is authorised to divide and/or to sub-divide the share capital of the Company from time to time to provide for the issuance of one or more series of preference shares of a par value to be determined (the “Preference Shares”) in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations, or restrictions thereof (and, for the avoidance of doubt, such matters and the issuance of such Preference Shares shall not be deemed to vary the rights attached to the Common Shares or, subject to the terms of any other series of Preference Shares, to vary the rights attached to any other series of Preference Shares). The authority of the Board with respect to each series shall include, but not be limited to, determination of the following:

(a) the number of shares constituting that series and the distinctive designation of that series;

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(b) the dividend rate on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of the payment of dividends on shares of that series;

(c) whether that series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights;

(d) whether that series shall have conversion or exchange privileges (including, without limitation, conversion into Common Shares), and, if so, the terms and conditions of such conversion or exchange, including provision for adjustment of the conversion or exchange rate in such events as the Board shall determine;

(e) whether or not the shares of that series shall be redeemable or repurchaseable, and, if so, the terms and conditions of such redemption or repurchase, including the manner of selecting shares for redemption or repurchase if less than all shares are to be redeemed or repurchased, the date or dates upon or after which they shall be redeemable or repurchaseable, and the amount per share payable in case of redemption or repurchase, which amount may vary under different conditions and at different redemption or repurchase dates;

(f) whether that series shall have a sinking fund for the redemption or repurchase of shares of that series, and, if so, the terms and amount of such sinking fund;

(g) the right of the shares of that series to the benefit of conditions and restrictions upon the creation of indebtedness of the Company or any subsidiary, upon the issue of any additional shares (including additional shares of such series or any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Company or any subsidiary of any issued shares of the Company;

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(h) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, and the relative rights of priority, if any, of payment in respect of shares of that series; and

(i) any other relative participating, optional or other special rights, qualifications, limitations or restrictions of that series.

4.6 Any Preference Shares of any series which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of any other class or classes shall have the status of authorised and unissued Preference Shares of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preference Shares to be created by resolution or resolutions of the Board or as part of any other series of Preference Shares, all subject to the conditions and the restrictions on issuance set forth in the resolution or resolutions adopted by the Board providing for the issue of any series of Preference Shares.

4.7 At the discretion of the Board, whether or not in connection with the issuance and sale of any shares or other securities of the Company, the Company may issue securities, contracts, warrants or other instruments evidencing any shares, option rights, securities having conversion or option rights, or obligations on such terms, conditions and other provisions as are fixed by the Board, including, without limiting the generality of this authority, conditions that preclude or limit any person or persons owning or offering to acquire a specified number or percentage of the issued Common Shares, other shares, option rights, securities having conversion or option rights, or obligations of the Company or transferee of the person or persons from exercising, converting, transferring or receiving the shares, option rights, securities having conversion or option rights, or obligations.

4.8 All the rights attaching to a Treasury Share shall be suspended and shall not be exercised by the Company while it holds such Treasury Share and, except where required by the Act, all Treasury Shares shall be excluded from the calculation of any percentage or fraction of the share capital, or shares, of the Company.

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5. Calls on Shares

5.1 The Board may make such calls as it thinks fit upon the Members in respect of any monies (whether in respect of nominal value or premium) unpaid on the shares allotted to or held by such Members (and not made payable at fixed times by the terms and conditions of issue) and, if a call is not paid on or before the day appointed for payment thereof, the Member may at the discretion of the Board be liable to pay the Company interest on the amount of such call at such rate as the Board may determine, from the date when such call was payable up to the actual date of payment. The Board may differentiate between the holders as to the amount of calls to be paid and the times of payment of such calls.

5.2 Any sum which by the terms of allotment of a share becomes payable upon issue or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall for all the purposes of these Bye-laws be deemed to be a call duly made and payable, on the date on which, by the terms of issue, the same becomes payable, and in case of non-payment all the relevant provisions of these Bye-laws as to payment of interest, costs, charges and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.

5.3 The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

5.4 The Company may accept from any Member the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up.

6. Prohibition on Financial Assistance

The Company shall not give, whether directly or indirectly, whether by means of loan, guarantee, provision of security or otherwise, any financial assistance for the purpose of the acquisition or proposed acquisition by any person of any shares in the Company, but nothing in this Bye-law shall prohibit transactions permitted under the Act.

7. Forfeiture of Shares

7.1 If any Member fails to pay, on the day appointed for payment thereof, any call in respect of any share allotted to or held by such Member, the Board may, at any time thereafter during such time

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as the call remains unpaid, direct the Secretary to forward such Member a notice in writing in the form, or as near thereto as circumstances admit, of the following:

Notice of Liability to Forfeiture for Non-Payment of Call

Babcock & Brown Air Limited (the “Company”)

You have failed to pay the call of [amount of call] made on the [  ] day of [  ], 200[  ], in respect of the [number] share(s) [number in figures] standing in your name in the Register of Members of the Company, on the [  ] day of [  ], 200[  ], the day appointed for payment of such call. You are hereby notified that unless you pay such call together with interest thereon at the rate of [  ] per annum computed from the said [  ] day of [  ], 200[  ] at the registered office of the Company the share(s) will be liable to be forfeited.

Dated this [  ] day of [  ], 200[  ]

[Signature of Secretary] By Order of the Board

7.2 If the requirements of such notice are not complied with, any such share may at any time thereafter before the payment of such call and the interest due in respect thereof be forfeited by a resolution of the Board to that effect, and such share shall thereupon become the property of the Company and may be disposed of as the Board shall determine.

7.3 A Member whose share or shares have been forfeited as aforesaid shall, notwithstanding such forfeiture, be liable to pay to the Company all calls owing on such share or shares at the time of the forfeiture and all interest due thereon.

7.4 The Board may accept the surrender of any shares which it is in a position to forfeit on such terms and conditions as may be agreed. Subject to those terms and conditions, a surrendered share shall be treated as if it had been forfeited.

8. Share Certificates

8.1 Every Member shall be entitled to a certificate under the seal of the Company or bearing the signature (or a facsimile thereof) of a Director or Secretary or a person expressly authorized to sign specifying the number and, where appropriate, the class of shares held by such Member and whether the same are fully paid up and, if not, specifying the amount paid on such shares. The

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Board may by resolution determine, either generally or in a particular case, that any or all signatures on certificates may be printed thereon or affixed by mechanical means.

8.2 The Company shall be under no obligation to complete and deliver a share certificate unless specifically called upon to do so by the person to whom the shares have been allotted.

8.3 If any share certificate shall be proved to the satisfaction of the Board to have been worn out, lost, mislaid, or destroyed the Board may cause a new certificate to be issued and request an indemnity for the lost certificate if it sees fit.

8.4 Notwithstanding any provisions of these Bye-laws:

(a) the Directors shall, subject always to the Act and any other applicable laws and regulations and the facilities and requirements of any relevant system concerned, have power to implement any arrangements they may, in their absolute discretion, think fit in relation to the evidencing of title to and transfer of uncertificated shares and to the extent such arrangements are so implemented, no provision of these Bye-laws shall apply or have effect to the extent that it is in any respect inconsistent with the holding or transfer of shares in uncertificated form; and

(b) unless otherwise determined by the Directors and as permitted by the Act and any other applicable laws and regulations, no person shall be entitled to receive a certificate in respect of any share for so long as the title to that share is evidenced otherwise than by a certificate and for so long as transfers of that share may be made otherwise than by a written instrument.

9. Fractional Shares

The Company may issue its shares in fractional denominations and deal with such fractions to the same extent as its whole shares and shares in fractional denominations shall have in proportion to the respective fractions represented thereby all of the rights of whole shares including (but without limiting the generality of the foregoing) the right to vote, to receive dividends and distributions and to participate in a winding-up.

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REGISTRATION OF SHARES

10. Register of Members

10.1 The Board shall cause to be kept in one or more books a Register of Members and shall enter therein the particulars required by the Act.

10.2 The Register of Members shall be open to inspection without charge at the registered office of the Company on every business day, subject to such reasonable restrictions as the Board may impose, so that not less than two hours in each business day be allowed for inspection. The Register of Members may, after notice has been given in accordance with the Act, be closed for any time or times not exceeding in the whole thirty days in each year.

11. Registered Holder Absolute Owner

The Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not be bound to recognise any equitable claim or other claim to, or interest in, such share on the part of any other person.

12. Transfer of Registered Shares

12.1 An instrument of transfer shall be in writing in the form of the following, or as near thereto as circumstances admit, or in such other form as the Board may accept:

Transfer of a Share or Shares

Babcock & Brown Air Limited (the “Company”)

FOR VALUE RECEIVED....................[amount], I, [name of transferor] hereby sell, assign and transfer unto [transferee] of [address], [number] of shares of the Company.

DATED this [  ] day of [  ], 200[  ]
Signed by:	In the presence of:
Transferor	Witness
Transferee	Witness

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12.2 Such instrument of transfer shall be signed by or on behalf of the transferor and transferee, provided that, in the case of a fully paid share, the Board may accept the instrument signed by or on behalf of the transferor alone. The transferor shall be deemed to remain the holder of such share until the same has been transferred to the transferee in the Register of Members.

12.3 The Board may refuse to recognise any instrument of transfer unless it is accompanied by the certificate in respect of the shares to which it relates and by such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer.

12.4 The joint holders of any share may transfer such share to one or more of such joint holders, and the surviving holder or holders of any share previously held by them jointly with a deceased Member may transfer any such share to the executors or administrators of such deceased Member.

12.5 The Board may in its absolute discretion and without assigning any reason therefor refuse to register the transfer of a share which is not fully paid. The Board shall refuse to register a transfer unless all applicable consents, authorisations and permissions of any governmental body or agency in Bermuda have been obtained. If the Board refuses to register a transfer of any share the Secretary shall, within three months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.

12.6 Shares may be transferred without a written instrument if transferred by an appointed agent or otherwise in accordance with the Act.

13. Transmission of Registered Shares

13.1 In the case of the death of a Member, the survivor or survivors where the deceased Member was a joint holder, and the legal personal representatives of the deceased Member where the deceased Member was a sole holder, shall be the only persons recognised by the Company as having any title to the deceased Member’s interest in the shares. Nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by such deceased Member with other persons. Subject to the provisions of the Act, for the purpose of this Bye-law, legal personal representative means the executor or administrator of a

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deceased Member or such other person as the Board may, in its absolute discretion, decide as being properly authorised to deal with the shares of a deceased Member.

13.2 Any person becoming entitled to a share in consequence of the death or bankruptcy of any Member may be registered as a Member upon such evidence as the Board may deem sufficient or may elect to nominate some person to be registered as a transferee of such share, and in such case the person becoming entitled shall execute in favour of such nominee an instrument of transfer in writing in the form, or as near thereto as circumstances admit, of the following:

Transfer by a Person Becoming Entitled on Death/Bankruptcy of a Member

Babcock & Brown Air Limited (the “Company”)

I/We, having become entitled in consequence of the [death/bankruptcy] of [name and address of deceased/bankrupt Member] to [number] share(s) standing in the Register of Members of the Company in the name of the said [name of deceased/bankrupt Member] instead of being registered myself/ourselves, elect to have [name of transferee] (the “Transferee”) registered as a transferee of such share(s) and I/we do hereby accordingly transfer the said share(s) to the Transferee to hold the same unto the Transferee, his or her executors, administrators and assigns, subject to the conditions on which the same were held at the time of the execution hereof; and the Transferee does hereby agree to take the said share(s) subject to the same conditions.

DATED this [  ] day of [  ], 200[  ]
Signed by:	In the presence of:
Transferor	Witness
Transferee	Witness

13.3 On the presentation of the foregoing materials to the Board, accompanied by such evidence as the Board may require to prove the title of the transferor, the transferee shall be registered as a Member. Notwithstanding the foregoing, the Board shall, in any case, have the same right to decline or suspend registration as it would have had in the case of a transfer of the share by that Member before such Member’s death or bankruptcy, as the case may be.

13.4 Where two or more persons are registered as joint holders of a share or shares, then in the event of the death of any joint holder or holders the remaining joint holder or holders shall be

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absolutely entitled to the said share or shares and the Company shall recognise no claim in respect of the estate of any joint holder except in the case of the last survivor of such joint holders.

ALTERATION OF SHARE CAPITAL

14. Power to Alter Capital

14.1 The Company may if authorised by resolution of the Board increase, divide, consolidate, subdivide, change the currency denomination of, diminish or otherwise alter or reduce its share capital in any manner permitted by the Act.

14.2 Where, on any alteration or reduction of share capital, fractions of shares or some other difficulty would arise, the Board may deal with or resolve the same in such manner as it thinks fit.

15. Variation of Rights Attaching to Shares

If, at any time, the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up, be varied with the consent in writing of the holders of half of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of the class at which meeting the necessary quorum shall be two persons at least holding or representing by proxy two-thirds of the issued shares of the class. The rights conferred upon the holders of the shares of any class shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

DIVIDENDS AND CAPITALISATION

16. Dividends

16.1 The Board may, subject to these Bye-laws and in accordance with the Act, declare a dividend to be paid to the Members, in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in specie in which case the Board may fix the value for

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distribution in specie of any assets. No unpaid dividend shall bear interest as against the Company.

16.2 The Board may fix any date as the record date for determining the Members entitled to receive any dividend.

16.3 The Company may pay dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others.

16.4 The Board may declare and make such other distributions (in cash or in specie) to the Members as may be lawfully made out of the assets of the Company. No unpaid distribution shall bear interest as against the Company.

17. Power to Set Aside Profits

The Board may, before declaring a dividend, set aside out of the surplus or profits of the Company, such sum as it thinks proper as a reserve to be used to meet contingencies or for equalising dividends or for any other purpose.

18. Method of Payment

18.1 Any dividend or other monies payable in respect of a share may be paid by cheque or warrant sent through the post directed to the address of the Member in the Register of Members (in the case of joint Members, the senior joint holder, seniority being determined by the order in which the names stand in the Register of Members), or by direct transfer to such bank account as such Member may direct. Every such cheque shall be made payable to the order of the person to whom it is sent or to such persons as the Member may direct, and payment of the cheque or warrant shall be a good discharge to the Company. Every such cheque or warrant shall be sent at the risk of the person entitled to the money represented thereby. If two or more persons are registered as joint holders of any shares any one can give an effectual receipt for any dividend paid in respect of such shares.

18.2 The Board may deduct from the dividends or distributions payable to any Member all monies due from such Member to the Company on account of calls or otherwise.

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18.3 Any dividend and or other monies payable in respect of a share which has remained unclaimed for 6 years from the date when it became due for payment shall, if the Board so resolves, be forfeited and cease to remain owing by the Company, in which event the Company shall have the right to retain such dividend or other monies. The payment of any unclaimed dividend or other moneys payable in respect of a share may (but need not) be paid by the Company into an account separate from the Company’s own account. Such payment shall not constitute the Company a trustee in respect thereof.

18.4 The Company shall be entitled to cease sending dividend cheques and warrants by post or otherwise, or making electronic transfers, to a Member if those instruments have been returned undelivered to, or left uncashed by, or have not been accepted for electronic transfer by, that Member on at least two consecutive occasions, or, following one such occasion, reasonable enquiries have failed to establish the Member’s new address or account details. The entitlement conferred on the Company by this Bye-law 18.4 in respect of any Member shall cease if the Member claims a dividend or cashes a dividend cheque or warrant or electronic transfer to such Member is successful.

19. Capitalisation

19.1 The Board may resolve to capitalise any sum for the time being standing to the credit of any of the Company’s share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro-rata (except in connection with the conversion of shares of one class to shares of another class) to the Members.

19.2 The Board may resolve to capitalise any sum for the time being standing to the credit of a reserve account or sums otherwise available for dividend or distribution by applying such amounts in paying up in full partly paid or nil paid shares of those Members who would have been entitled to such sums if they were distributed by way of dividend or distribution.

MEETINGS OF MEMBERS

20. Annual General Meetings

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The annual general meeting of the Company shall be held in each year (other than the year of incorporation) at such time and place as the Chairman or the Board shall appoint.

21. Special General Meetings

The Chairman or the Board may convene a special general meeting of the Company whenever in their judgment such a meeting is necessary.

22. Requisitioned General Meetings

The Board shall, on the requisition of Members holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up share capital of the Company as at the date of the deposit carries the right to vote at general meetings of the Company, forthwith proceed to convene a special general meeting of the Company and the provisions of the Act shall apply.

23. Notice

23.1 At least 10 days’ notice of an annual general meeting shall be given to each Member entitled to attend and vote thereat, stating the date, place and time at which the meeting is to be held, that the election of Directors will take place thereat, and as far as practicable, the other business to be conducted at the meeting.

23.2 At least 10 days’ notice of a special general meeting shall be given to each Member entitled to attend and vote thereat, stating the date, time, place and the general nature of the business to be considered at the meeting.

23.3 The Board may fix any date as the record date for determining the Members entitled to receive notice of and to vote at any general meeting of the Company.

23.4 A general meeting of the Company shall, notwithstanding that it is called on shorter notice than that specified in these Bye-laws, be deemed to have been properly called if it is so agreed by (i) all the Members entitled to attend and vote thereat in the case of an annual general meeting; and (ii) by a majority in number of the Members having the right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving a right to attend and vote thereat in the case of a special general meeting.

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23.5 The accidental omission to give notice of a general meeting to, or the non-receipt of a notice of a general meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting.

24. Giving Notice

24.1 A notice may be given by the Company to any Member either by delivering it to such Member in person or by sending it to such Member’s address in the Register of Members or to such other address given for the purpose. For the purposes of this Bye-law, a notice may be sent by letter mail, courier service, cable, telex, telecopier, facsimile, electronic mail or other mode of representing words in a legible form.

24.2 Any notice required to be given to a Member shall, with respect to any shares held jointly by two or more persons, be given to whichever of such persons is named first in the Register of Members and notice so given shall be sufficient notice to all the holders of such shares.

24.3 Save as provided by Bye-law 24.4, any notice shall be deemed to have been served at the time when the same would be delivered in the ordinary course of transmission and, in proving such service, it shall be sufficient to prove that the notice was properly addressed and prepaid, if posted, at the time when it was posted, delivered to the courier or to the cable company or transmitted by telex, facsimile, electronic mail, or such other method as the case may be.

24.4 Mail notice shall be deemed to have been served seven days after the date on which it is deposited, with postage prepaid, in the mail of any member state of the European Union, the United States, or Bermuda.

24.5 The Company shall be under no obligation to send a notice or other document to the address shown for any particular Member in the Register of Members if the Board considers that the legal or practical problems under the laws of, or the requirements of any regulatory body or stock exchange in, the territory in which that address is situated are such that it is necessary or expedient not to send the notice or document concerned to such Member at such address and may require a Member with such an address to provide the Company with an alternative acceptable address for delivery of notices by the Company.

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25. Postponement or Cancellation of General Meeting

The Chairman may, and the Secretary on instruction from the Chairman shall, postpone or cancel any general meeting called in accordance with the provisions of these Bye-laws (other than a meeting requisitioned under these Bye-laws) provided that notice of postponement or cancellation is given to each Member before the time for such meeting. Fresh notice of the date, time and place for the postponed or cancelled meeting shall be given to the Members in accordance with the provisions of these Bye-laws.

26. Attendance and Security at General Meetings

26.1 Members may participate in any general meeting by means of such telephone, electronic or other communication facilities or means as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.

26.2 The Board may, and at any general meeting, the chairman of such meeting may make any arrangement and impose any requirement or restriction it or he considers appropriate to ensure the security of a general meeting including, without limitation, requirements for evidence of identity to be produced by those attending the meeting, the searching of their personal property and the restriction of items that may be taken into the meeting place. The Board and, at any general meeting, the chairman of such meeting are entitled to refuse entry to a person who refuses to comply with any such arrangements, requirements or restrictions.

27. Quorum at General Meetings

27.1 At any general meeting of the Company two or more persons present in person at the start of the meeting and representing in person or by proxy in excess of 25% of the total issued voting shares in the Company shall form a quorum for the transaction of business.

27.2 If within half an hour from the time appointed for the meeting a quorum is not present, then, in the case of a meeting convened on a requisition, the meeting shall be deemed cancelled and, in any other case, the meeting shall stand adjourned to the same day one week later, at the same time and place or to such other day, time or place as the Secretary may determine. If the meeting

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shall be adjourned to the same day one week later or the Secretary shall determine that the meeting is adjourned to a specific date, time and place, it is not necessary to give notice of the adjourned meeting other than by announcement at the meeting being adjourned. If the Secretary shall determine that the meeting be adjourned to an unspecified date, time or place, fresh notice of the resumption of the meeting shall be given to each Member entitled to attend and vote thereat in accordance with the provisions of these Bye-laws.

28. Chairman to Preside

Unless otherwise agreed by a majority of those attending and entitled to vote thereat, the Chairman, if there be one, shall act as chairman at all meetings of the Members at which such person is present. In the Chairman’s absence, the Deputy Chairman, if present, shall act as chairman and in the absence of all of them a chairman shall be appointed or elected by those present at the meeting and entitled to vote.

29. Voting on Resolutions

29.1 Subject to the provisions of the Act and these Bye-laws (including, without limitation, Bye-laws 4.3, 36.3 and 77), any question proposed for the consideration of the Members at any general meeting shall be decided by the affirmative votes of a majority of the votes cast in accordance with the provisions of these Bye-laws and in the case of an equality of votes the resolution shall fail.

29.2 No Member shall be entitled to vote at a general meeting unless such Member has paid all the calls on all shares held by such Member.

29.3 At any general meeting a resolution put to the vote of the meeting shall, in the first instance, be voted upon by a show of hands and, subject to any rights or restrictions for the time being lawfully attached to any class of shares and subject to the provisions of these Bye-laws (including, without limitation, Bye-laws 4.3, 36.3 and 77), every Member present in person and every person holding a valid proxy at such meeting shall be entitled to one vote and shall cast such vote by raising his or her hand.

29.4 In the event that a Member participates in a general meeting by telephone, electronic or other communications facilities or means, the chairman of the meeting shall direct the manner in which such Member may cast his vote on a show of hands.

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29.5 At any general meeting if an amendment shall be proposed to any resolution under consideration and the chairman of the meeting shall rule on whether the proposed amendment is out of order, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling.

29.6 At any general meeting a declaration by the chairman of the meeting that a question proposed for consideration has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in a book containing the minutes of the proceedings of the Company shall, subject to the provisions of these Bye-laws, be conclusive evidence of that fact.

30. Power to Demand a Vote on a Poll

30.1 Notwithstanding the foregoing, a poll may be demanded by any of the following persons:

(a) the chairman of such meeting; or

(b) at least three Members present in person or represented by proxy; or

(c) any Member or Members present in person or represented by proxy and holding between them not less than one-tenth of the total voting rights of all the Members having the right to vote at such meeting; or

(d) any Member or Members present in person or represented by proxy holding shares in the Company conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all such shares conferring such right.

30.2 Where a poll is demanded, subject to any rights or restrictions for the time being lawfully attached to any class of shares, every person present at such meeting shall have one vote for each share of which such person is the holder or for which such person holds a proxy and such vote shall be counted by ballot as described herein, or in the case of a general meeting at which one or more Members are present by telephone, electronic or other communications facilities or means, in such manner as the chairman of the meeting may direct and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded and shall replace any previous resolution upon the same matter which has been the subject of a show of hands. A

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person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

30.3 A poll demanded for the purpose of electing a chairman of the meeting or on a question of adjournment shall be taken forthwith and a poll demanded on any other question shall be taken in such manner and at such time and place at such meeting as the chairman (or acting chairman) of the meeting may direct and any business other than that upon which a poll has been demanded may be proceeded with pending the taking of the poll.

30.4 Where a vote is taken by poll, each person present and entitled to vote shall be furnished with a ballot paper on which such person shall record his vote in such manner as shall be determined at the meeting having regard to the nature of the question on which the vote is taken, and each ballot paper shall be signed or initialed or otherwise marked so as to identify the voter and the registered holder in the case of a proxy. Each person present by telephone, electronic or other communications facilities or means shall cast his vote in such manner as the chairman shall direct. At the conclusion of the poll, the ballot papers shall be examined and counted by one or more inspectors of votes appointed by the chairman of the Board for the purpose and the result of the poll shall be declared by the chairman.

31. Voting by Joint Holders of Shares

In the case of joint holders, the vote of the senior who tenders a vote (whether in person or by proxy) shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.

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32. Instrument of Proxy

32.1 A Member may appoint a proxy by (a) an instrument appointing a proxy in writing in substantially the following form or such other form as the Board may determine from time to time:

Proxy

Babcock & Brown Air Limited (the “Company”)

I/We, [insert names here], being a Member of the Company with [number] shares, HEREBY APPOINT [name] of [address] or failing him, [name] of [address] to be my/our proxy to vote for me/us at the meeting of the Members to be held on the [  ] day of [  ], 200[  ] and at any adjournment thereof. (Any restrictions on voting to be inserted here.)

Signed this [  ] day of [  ], 200[  ]

___________________________________________

Member(s)

or (b) such telephonic, electronic or other means as may be approved by the Board from time to time.

32.2 The appointment of a proxy must be received by the Company at the registered office or at such other place or in such manner as is specified in the notice convening the meeting or in any instrument of proxy sent out by the Company in relation to the meeting at which the person named in the appointment proposes to vote, and an appointment of proxy which is not received in the manner so permitted shall be invalid.

32.3 A Member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf.

32.4 The decision of the chairman of any general meeting as to the validity of any appointment of a proxy shall be final.

33. Representation of Corporate Member

33.1 A corporation which is a Member may, by written instrument, authorize such person or persons as it thinks fit to act as its representative at any meeting of the Members and any person so authorized shall be entitled to exercise the same powers on behalf of the corporation which such

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person represents as that corporation could exercise if it were an individual Member, and that Member shall be deemed to be present in person at any such meeting attended by its authorized representative or representatives.

33.2 Notwithstanding the foregoing, the chairman of the meeting may accept such assurances as he thinks fit as to the right of any person to attend and vote at general meetings on behalf of a corporation which is a Member.

34. Adjournment of General Meeting

34.1 The chairman of any general meeting at which a quorum is present may with the consent of Members holding a majority of the voting rights of those Members present in person or by proxy (and shall if so directed by Members holding a majority of the voting rights of those Members present in person or by proxy), adjourn the meeting.

34.2 In addition, the chairman may adjourn the meeting to another time and place without such consent or direction if it appears to him that:

(a) it is likely to be impracticable to hold or continue that meeting because of the number of Members wishing to attend who are not present; or

(b) the unruly conduct of persons attending the meeting prevents, or is likely to prevent, the orderly continuation of the business of the meeting; or

(c) an adjournment is otherwise necessary so that the business of the meeting may be properly conducted.

34.3 Unless the meeting is adjourned to a specific date, place and time announced at the meeting being adjourned, fresh notice of the date, place and time for the resumption of the adjourned meeting shall be given to each Member entitled to attend and vote thereat in accordance with the provisions of these Bye-laws.

35. Directors Attendance at General Meetings

The Directors of the Company shall be entitled to receive notice of, attend and be heard at any general meeting.

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DIRECTORS AND OFFICERS

36. Election of Directors

36.1 The Board shall consist of such number of Directors being not less than two Directors and not more than such maximum number of Directors, not exceeding fifteen Directors, as the Board may from time to time determine.

36.2 Only persons who are proposed or nominated in accordance with this Bye-law shall be eligible for election as Directors. Any Member or the Board may propose any person for election as a Director. Where any person, other than a Director retiring at the meeting or a person proposed for re-election or election as a Director by the Board, is to be proposed for election as a Director, notice must be given to the Company of the intention to propose him and of his willingness to serve as a Director. Where a Director is to be elected at an annual general meeting, that notice must be given not less than 90 days nor more than 120 days before the anniversary of the last annual general meeting prior to the giving of the notice or, in the event the annual general meeting is called for a date that is not 25 days before or after such anniversary the notice must be given not later than 10 days following the earlier of the date on which notice of the annual general meeting was posted to Members or the date on which public disclosure of the date of the annual general meeting was made. Where a Director is to be elected at a special general meeting, that notice must be given not later than 10 days following the earlier of the date on which notice of the special general meeting was posted to Members or the date on which public disclosure of the date of the special general meeting was made.

36.3 Where persons are validly proposed for re-election or election as a Director, the persons receiving the most votes (up to the number of Directors to be elected) shall be elected as Directors, and an absolute majority of the votes cast shall not be a prerequisite to the election of such Directors.

36.4 At any general meeting the Members may authorise the Board to fill any vacancy in their number left unfilled at a general meeting.

36.5 Notwithstanding the foregoing provisions of this Bye-law 36, for so long as the Manager holds any Manager Shares, the Manager may, by notice in writing to the Secretary, appoint the nearest

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whole number of the Directors which is not more than 3/7^ths of the number of Directors comprising the Board.

37. Term of Office of Directors

Directors shall hold office until the next annual general meeting or until their successors are elected or appointed or their office is otherwise vacated. Notwithstanding the foregoing, the term of office of a Director appointed pursuant to Bye-law 36.5 shall not expire until the redemption of the Manager Shares in full pursuant to Bye-law 4.3, or until such Director is removed pursuant to Bye-law 39.1 or 40.1.

38. Alternate Directors

38.1 Any Director may appoint a person or persons to act as a Director in the alternative to himself by notice in writing deposited with the Secretary. Any person so elected or appointed shall have all the rights and powers of the Director or Directors for whom such person is appointed in the alternative provided that such person shall not be counted more than once in determining whether or not a quorum is present.

38.2 An Alternate Director shall be entitled to receive notice of all meetings of the Board and to attend and vote at any such meeting at which a Director for whom such Alternate Director was appointed in the alternative is not personally present and generally to perform at such meeting all the functions of such Director for whom such Alternate Director was appointed.

38.3 An Alternate Director shall cease to be such if the Director for whom such Alternate Director was appointed ceases for any reason to be a Director but may be re-appointed by the Board as an alternate to the person appointed to fill the vacancy in accordance with these Bye-laws.

39. Removal of Directors

39.1 Subject to any provision to the contrary in these Bye-laws, the Members entitled to vote for the election of Directors may, by a resolution including the affirmative votes of at least 80% of all votes attaching to all shares in issue entitling the holder to attend and vote on such resolution at any special general meeting convened and held in accordance with these Bye-laws, remove a Director, with or without cause, provided that the notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention so to do and be served

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on such Director not less than 14 days before the meeting and at such meeting the Director shall be entitled to be heard on the motion for such Director’s removal. In the case of a Director appointed pursuant to Bye-law 36.5, for so long as the Manager continues to hold Manager Shares, only the Manager may remove such a Director, with or without cause, by notice in writing to the Secretary.

39.2 If a Director is removed from the Board under the provisions of this Bye-law the Members may fill the vacancy at the meeting at which such Director is removed. In the absence of such election or appointment, the Board may fill the vacancy. In the case of the removal of a Director appointed pursuant to Bye-law 36.5, for so long as the Manager continues to hold Manager Shares, only the Manager may fill the vacancy, by notice in writing to the Secretary.

40. Vacancy in the Office of Director

40.1 The office of Director shall be vacated if the Director:

(a) is removed from office pursuant to these Bye-laws or is prohibited from being a Director by law;

(b) is or becomes bankrupt, or makes any arrangement or composition with his creditors generally;

(c) is or becomes of unsound mind or dies; or

(d) resigns his office by notice in writing to the Company.

40.2 The Members in general meeting or the Board shall have the power to appoint any person as a Director to fill a vacancy on the Board occurring as a result of the death, disability, disqualification or resignation of any Director or as a result of an increase in the size of the Board and to appoint an Alternate Director to any Director so appointed. In the case of the a Director vacating office who was appointed pursuant to Bye-law 36.5, for so long as the Manager continues to hold Manager Shares, only the Manager may fill the vacancy, by notice in writing to the Secretary.

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41. Remuneration of Directors

The remuneration (if any) of the Directors shall be determined by the Board and shall be deemed to accrue from day to day. The Directors may also be paid all reasonable travel, hotel and other expenses properly incurred by them in attending and returning from the meetings of the Board, any committee appointed by the Board, general meetings of the Company, or in connection with the business of the Company or their duties as Directors generally.

42. Defect in Appointment of Director

All acts done in good faith by the Board or by a committee of the Board or by any person acting as a Director shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director.

43. Directors to Manage Business

The business of the Company shall be managed and conducted by the Board. In managing the business of the Company, the Board may exercise all such powers of the Company as are not, by statute or by these Bye-laws, required to be exercised by the Company in general meeting subject, nevertheless, to these Bye-laws and the provisions of any statute.

44. Powers of the Board of Directors

44.1 The Board may:

(a) appoint, suspend, or remove any manager, secretary, clerk, agent or employee of the Company and may fix their remuneration and determine their duties;

(b) exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and may issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or any third party;

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(c) appoint one or more Directors to the office of managing director or chief executive officer of the Company, who shall, subject to the control of the Board, supervise and administer all of the general business and affairs of the Company;

(d) appoint a person to act as manager of the Company’s day-to-day business and may entrust to and confer upon such manager such powers and duties as it deems appropriate for the transaction or conduct of such business;

(e) by power of attorney, appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Board, to be an attorney of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period and subject to such conditions as it may think fit and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions so vested in the attorney. Such attorney may, if so authorised under the seal of the Company, execute any deed or instrument under such attorney’s personal seal with the same effect as the affixation of the seal of the Company;

(f) procure that the Company pays all expenses incurred in promoting and incorporating the Company;

(g) delegate any of its powers (including the power to sub-delegate) to a committee appointed by the Board which may consist partly or entirely of non-Directors, provided that every such committee shall conform to such directions as the Board shall impose on them and provided further that the meetings and proceedings of any such committee shall be governed by the provisions of these Bye-laws regulating the meetings and proceedings of the Board, so far as the same are applicable and are not superseded by directions imposed by the Board;

(h) delegate any of its powers (including the power to sub-delegate) to any company, firm, person or body of persons on such terms and in such manner as the Board may see fit, provided that the Board shall not delegate its authority in a manner that would cause the Company to be tax resident outside Ireland;

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(i) present any petition and make any application in connection with the liquidation or reorganisation of the Company;

(j) in connection with the issue of any share, pay such commission and brokerage as may be permitted by law; and

(k) authorise any company, firm, person or body of persons to act on behalf of the Company for any specific purpose and in connection therewith to execute any agreement, document or instrument on behalf of the Company.

44.2 Notwithstanding the foregoing, the Board may not (a) for so long as the Management Agreement remains in effect, exercise the powers set out in Bye-law 44.1 in a manner inconsistent with the Management Agreement, or (b) terminate the appointment of the Manager under the Management Agreement, without the prior affirmative vote of at least 75% of the Independent Directors and of the holders of 75% or more of all of the issued and outstanding Common Shares, in each case on a resolution that provides there has been unsatisfactory performance by the Manager that is materially detrimental to the Company.

45. Register of Directors and Officers

The Board shall cause to be kept in one or more books at the registered office of the Company a Register of Directors and Officers and shall enter therein the particulars required by the Act.

46. Appointment of Officers

The Board may appoint Officers (who may or may not be Directors) as the Board may determine.

47. Secretary

The Secretary shall be appointed by the Board from time to time.

48. Duties of Officers

The Officers shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them by the Board from time to time.

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49. Remuneration of Officers

The Officers shall receive such remuneration as the Board may determine, other than those Officers who are employees of Babcock & Brown, in which case the Board may provide input and advice to the Manager regarding said remuneration.

50. Conflicts of Interest

50.1 Any Director, or any Director’s firm, partner or any company with whom any Director is associated, may act in any capacity for, be employed by or render services to the Company and such Director or such Director’s firm, partner or company shall be entitled to remuneration as if such Director were not a Director. Nothing herein contained shall authorise a Director or Director’s firm, partner or company to act as Auditor to the Company.

50.2 A Director who is directly or indirectly interested in a contract or proposed contract or arrangement with the Company shall declare the nature of such interest as required by the Act; provided that each Director appointed pursuant to Bye-law 36.5 shall be deemed to have an interest in any contract or arrangement involving the Company and any Affiliate of Babcock & Brown, including the Management Agreement, and no such Director shall be required to declare such interest to the Company in order to comply with these Bye-laws and the Act.

50.3 Following a declaration being made pursuant to this Bye-law, and unless disqualified by the chairman of the relevant Board meeting, a Director may vote in respect of any contract or proposed contract or arrangement in which such Director is interested and may be counted in the quorum for such meeting.

51. Indemnification and Exculpation of Directors and Officers

51.1 The Directors, Secretary and other Officers (such term to include any person appointed to any committee by the Board) for the time being acting in relation to any of the affairs of the Company, any subsidiary thereof and the liquidator or trustees (if any) for the time being acting in relation to any of the affairs of the Company or any subsidiary thereof and every one of them, and their heirs, executors and administrators, shall be indemnified and secured harmless out of the assets of the Company from and against all actions, costs, charges, losses, damages and

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expenses which they or any of them, their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts, and none of them shall be answerable for the acts, receipts, neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto, PROVIDED THAT this indemnity shall not extend to any matter in respect of any fraud or dishonesty which may attach to any of the said persons. Each Member agrees to waive any claim or right of action such Member might have, whether individually or by or in the right of the Company, against any Director or Officer on account of any action taken by such Director or Officer, or the failure of such Director or Officer to take any action in the performance of his duties with or for the Company or any subsidiary thereof, PROVIDED THAT such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such Director or Officer.

51.2 The Company may purchase and maintain insurance for the benefit of any Director or Officer of the Company against any liability incurred by him under the Act in his capacity as a Director or Officer of the Company or indemnifying such Director or Officer in respect of any loss arising or liability attaching to him by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which the Director or Officer may be guilty in relation to the Company or any subsidiary thereof.

MEETINGS OF THE BOARD OF DIRECTORS

52. Board Meetings

The Board may meet for the transaction of business, adjourn and otherwise regulate its meetings as it sees fit. Subject to the provisions of these Bye-laws, a resolution put to the vote at a meeting of the Board shall be carried by the affirmative votes of a majority of the votes cast and in the case of an equality of votes the resolution shall fail.

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53. Notice of Board Meetings

A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Board. Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to such Director verbally (in person or by telephone) or otherwise communicated or sent to such Director by post, cable, telex, telecopier, facsimile, electronic mail or other mode of representing words in a legible form at such Director’s last known address or any other address given by such Director to the Company for this purpose.

54. Participation in Meetings by Telephone

Directors may participate in any meeting of the Board by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting, provided that a majority of the directors participating in such meeting shall be located in Ireland; and provided further that the chairperson of the meeting shall be located in Ireland.

55. Quorum at Board Meetings

The quorum necessary for the transaction of business at a meeting of the Board shall be two Directors (excluding Alternate Directors) in office at that time.

56. Board to Continue in the Event of Vacancy

The Board may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by these Bye-laws as the quorum necessary for the transaction of business at meetings of the Board, the continuing Directors or Director may act for the purpose of (i) summoning a general meeting of the Company; or (ii) preserving the assets of the Company.

57. Chairman to Preside

Unless otherwise agreed by a majority of the Directors attending, the Chairman shall act as chairman at all meetings of the Board at which such person is present. In the Chairman’s absence, the Deputy Chairman, if present, shall act as chairman and in the absence of both of them a chairman shall be appointed or elected by the Directors present at the meeting.

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58. Written Resolutions

A resolution signed by all the Directors, which may be in counterparts, shall be as valid as if it had been passed at a meeting of the Board duly called and constituted, such resolution to be effective on the date on which the last Director signs the resolution. For the purposes of this Bye-law only, “Director” shall not include an Alternate Director.

59. Validity of Prior Acts of the Board

No regulation or alteration to these Bye-laws made by the Company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation or alteration had not been made.

CORPORATE RECORDS

60. Minutes

The Board shall cause minutes to be duly entered in books provided for the purpose:

(a) of all elections and appointments of Officers;

(b) of the names of the Directors present at each meeting of the Board and of any committee appointed by the Board; and

(c) of all resolutions and proceedings of general meetings of the Members, meetings of the Board, and meetings of committees appointed by the Board.

61. Place Where Corporate Records Kept

Minutes prepared in accordance with the Act and these Bye-laws shall be kept by the Secretary at the registered office of the Company, with copies of all such materials to be kept at the Company’s executive offices.

62. Form and Use of Seal

62.1 The Company may adopt a seal in such form as the Board may determine. The Board may adopt one or more duplicate seals for use in or outside Bermuda.

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62.2 A seal may, but need not be affixed to any deed, instrument, share certificate or document, and if the seal is to be affixed thereto, it shall be attested by the signature of (i) any Director; or (ii) any Officer; or (iii) the Secretary; or (iv) any person authorized by the Board for that purpose.

62.3 A Resident Representative may, but need not, affix the seal of the Company to certify the authenticity of any copies of documents.

ACCOUNTS

63. Books of Account

63.1 The Board shall cause to be kept proper records of account with respect to all transactions of the Company and in particular with respect to:

(a) all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure relates;

(b) all sales and purchases of goods by the Company; and

(c) all assets and liabilities of the Company.

63.2 Such records of account shall be kept at the registered office of the Company, or subject to the provisions of the Act, at such other place as the Board thinks fit and shall be available for inspection by the Directors during normal business hours. Copies of such records of account shall be kept at the Company’s executive offices.

64. Financial Year End

The financial year end of the Company may be determined by resolution of the Board and failing such resolution shall be 31^st December in each year.

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AUDITS

65. Annual Audit

Subject to any rights to waive laying of accounts or appointment of an Auditor pursuant to the Act, the accounts of the Company shall be audited at least once in every year.

66. Appointment of Auditors

66.1 Subject to the provisions of the Act, at the annual general meeting or at a subsequent special general meeting in each year, an independent representative of the Members shall be appointed by them as Auditor of the accounts of the Company.

66.2 The Auditor may be a Member but no Director, Officer or employee of the Company shall, during his continuance in office, be eligible to act as an Auditor of the Company.

67. Remuneration of Auditors

The remuneration of the Auditor shall be fixed by the Company in general meeting or in such manner as the Members may determine.

68. Duties of Auditors

68.1 The financial statements provided for by these Bye-laws shall be audited by the Auditor in accordance with generally accepted auditing standards. The Auditor shall make a written report thereon in accordance with generally accepted auditing standards.

68.2 The generally accepted auditing standards referred to in this Bye-law may be those of a country or jurisdiction other than Bermuda or such other generally accepted auditing standards as may be provided for in the Act. If so, the financial statements and the report of the Auditor shall identify the generally accepted auditing standards used.

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69. Access to Records

The Auditor shall at all reasonable times have access to all books kept by the Company and to all accounts and vouchers relating thereto, and the Auditor may call on the Directors or Officers of the Company for any information in their possession relating to the books or affairs of the Company.

70. Financial Statements

Subject to any rights to waive laying of accounts pursuant to the provisions of the Act, financial statements as required by the Act shall be laid before the Members in general meeting.

71. Distribution of Auditors report

The report of the Auditor shall be submitted to the Members in general meeting.

72. Vacancy in the Office of Auditor

If the office of Auditor becomes vacant by the resignation or death or the Auditor, or by the Auditor becoming incapable of acting by reason of illness or other disability at a time when the Auditor’s services are required, the vacancy thereby created shall be filled in accordance with the Act.

BUSINESS COMBINATIONS

73. Amalgamations

73.1 Subject to Bye-Law 73.2, the Company shall not engage in any amalgamation unless such amalgamation has been approved by a resolution of the Members including the affirmative votes of at least 66% of all votes attaching to all shares in issue entitling the holder to attend and vote on such resolution.

73.2 Bye-Law 73.1 shall not apply in respect of any amalgamation approved by the Board, and in respect of any amalgamation approved by the Board which the Act requires to be approved by the Members, the necessary general meeting quorums and Members’ approval shall be as set out in Bye-Laws 27 and 29.

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VOLUNTARY WINDING-UP AND DISSOLUTION

74. Winding-Up

If the Company shall be wound up the liquidator may, with the sanction of a resolution of the Members, divide amongst the Members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in the trustees upon such trusts for the benefit of the Members as the liquidator shall think fit, but so that no Member shall be compelled to accept any shares or other securities or assets whereon there is any liability.

CHANGES TO CONSTITUTION

75. Changes to Bye-laws

No Bye-law shall be rescinded, altered or amended and no new Bye-law shall be made until the same has been approved by a resolution of the Board and by a resolution of the Members including, in the case of any amendment to Bye-law 44.2 at a time when the Manager is the holder of any Manager Shares, the approval of the holders of the Manager Shares.

76. Discontinuance

The Board may exercise all the powers of the Company to discontinue the Company to a jurisdiction outside Bermuda pursuant to the Act.

ANTI TAKEOVER PROVISIONS

77. Adjustment of voting power

77.1 The voting power of all Common Shares held, beneficially owned or controlled, directly or indirectly by a Competitor shall be automatically adjusted to three-tenths of a vote per share on all matters upon which the Members may vote, whenever such Competitor holds, beneficially owns or controls, directly or indirectly, 15% or more, but less than 50%, of the issued and outstanding Common Shares of the Company. Common Shares held, beneficially owned or

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controlled, directly or indirectly, by a Competitor which are subject to such reduction in voting power are referred to in these Bye-laws as “Controlled Shares”.

77.2 Upon learning that a Competitor holds, beneficially owns or controls, directly or indirectly, 15% or more of the issued and outstanding Common Shares of the Company, the Company may, but it is not obligated to, send the Competitor a notice (a “Competitor Notice”) which:

(i) if applicable, shall specify in reasonable detail the number of Common Shares determined to be Controlled Shares and the consequent voting adjustment specified in Bye-law 77.1;

(ii) shall request an initial or further declaration from the Competitor of the number of Common Shares held, beneficially owned or controlled, directly or indirectly, by such Competitor; and

(iii) may require that, by the 90th day after the acquisition by the Competitor of beneficial ownership or control, directly or indirectly, of 15% or more of the issued and outstanding Common Shares of the Company (such 90th day, the “Offer or Disposal Date”), the Competitor shall either (X) make a tender offer at a Premium Price in accordance with applicable law to acquire beneficial ownership of all of the issued and outstanding Common Shares of the Company; or (Y) sell or dispose of such number of Common Shares (or beneficial interests therein) to third parties as will result in the Competitor reducing its beneficial ownership or control, directly or indirectly, of the issued and outstanding Common Shares of the Company to less than 15%.

77.3 In the event that the Company delivers a Competitor Notice requiring a Competitor to take the actions specified in clause 77.2 (iii) above, the Company will have a right (subject to Section 42A of the Act) to purchase the number of Common Shares (or beneficial interests therein) specified in clause 77.2 (iii)(Y) at a price per share equal to Fair Market Value if on the Offer or Disposal Date the Competitor has not made the tender offer specified in clause 77.2 (iii)(X) or disposed of the number of Common Shares (or beneficial interests therein) specified in clause 77.2 (iii)(Y) to third parties. The Company shall be entitled to assign this contingent right to a third party or parties with the consent of such assignee(s). If the Company (or its assignee(s))

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exercises this contingent right, payment of the purchase price by the Company or its assignee(s) to the applicable Competitor shall be by wire transfer made at a closing to be held on the Offer or Disposal Date. The Company may revoke a Competitor Notice requiring a Competitor to take actions under clause 77.2 (iii) above at any time before the Company (or its assignee(s)) pays for Common Shares (or beneficial interests therein) acquired from the Competitor pursuant to clause 77.2 (iii)(Y).

78. Requirement to Provide Information and Notice

78.1 For purposes of determining whether a Member holds Controlled Shares and of enforcing the provisions of Bye-law 77, the Board may require that any registered holder or beneficial owner, or any other person of whom it is, in the circumstances, reasonable to make such request, file with the Company or its registrar and transfer agent a completed Member’s declaration (a “Member’s declaration”). The Board shall determine from time to time written guidelines with respect to the nature of a Member’s declaration to be requested, the times at which Member’s declarations are to be requested and any other relevant matters relating to Member’s declarations.

78.2 A Member’s declaration shall be in the form from time to time determined by the Directors of the Company pursuant to Bye-law 78.1 and, without limiting the generality of the foregoing may be required to be in the form of a simple declaration in writing or a statutory declaration. In the absence of a determination by the Directors regarding the form of a Member’s declaration, the Member’s declaration shall contain information with respect to:

(a) the name and address of the Member (“Registered Shareholder”);

(b) the name and address of any person who beneficially owns or controls, directly or indirectly, the Registered Shareholder’s shares (“Beneficial Shareholder”);

(c) the number of shares of the Company held by the Registered Shareholder and each Beneficial Shareholder, including the dates such shares were acquired; and

(d) if the Registered Shareholder or any Beneficial Shareholder is a company, corporation, trust, partnership or unincorporated organization the name and address of each person who is a

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controlling shareholder, trustee, partner or member of the company, corporation, trust, partnership or unincorporated organization, as the case may be.

78.3 The Board shall have the sole right and authority to administer the provisions of this Bye-law 78 and to make any determination as to the holding, beneficial ownership or control, directly or indirectly, by a Competitor of Controlled Shares contemplated hereunder. In so acting, the Board shall enjoy, in addition to the powers set forth in this Bye-law, all of the powers necessary or desirable, in their opinion, to carry out the intent and purpose of Bye-laws 77 and 78, including, without limitation, to act as attorney of a Competitor to effect repurchases or transfers of shares pursuant to Bye-law 77.3 without further action on the part of a Competitor. The Board shall make on a timely basis all determinations necessary for the administration of the provisions of such Bye-laws and, without limiting the generality of the foregoing, if the Board considers that there are reasonable grounds for believing that a Competitor holds, beneficially owns or controls, directly or indirectly, Controlled Shares, the Directors shall make a determination with respect to the matter. Any such determination of the Board shall be conclusive, final and binding except to the extent modified by any subsequent Board determination.

78.4 In administering the provisions of this Bye-law 78, including, without limitation, in making any directors’ determination in accordance herewith, the Board may rely on any information on which the Board considers it reasonable to rely in the circumstances. Without limiting the generality of the foregoing, the Board may rely upon any written information from one or more Members, the Register of Members, the knowledge of any Director, officer or employee of the Company or any advisor to the Company, or an opinion of counsel to the Company.

78.5 In administering the provisions of this Bye-law 78, including, without limitation, in making any determination contemplated hereby, the Directors shall act honestly and in good faith. Provided that the Directors so act, in the absence of fraud or dishonesty on the part of the Directors, the Directors shall not be liable to the Company and neither the Directors nor the Company shall be liable to any holder or beneficial owner of Common Shares or any other person for, nor with respect to any matter arising from or related to, any act or omission to act in relation to this Bye-law 78.

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78.6 Any Board determination required or contemplated by this Bye-law shall be expressed and conclusively evidenced by a resolution duly adopted.

78.7 The Board may delegate any of their powers and duties under this Bye-law to any standing or special committee consisting of such members of the Board as the Directors may determine.

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EX-4.1

EX-4.2

Exhibit 4.2

______________

DEPOSIT AGREEMENT

______________

by and among

BABCOCK & BROWN AIR LIMITED

as Issuer

AND

DEUTSCHE BANK TRUST COMPANY AMERICAS

as Depositary,

AND

THE HOLDERS AND BENEFICIAL OWNERS

OF AMERICAN DEPOSITARY SHARES EVIDENCED BY

AMERICAN DEPOSITARY RECEIPTS ISSUED HEREUNDER

______________

Dated as of           , 2007

______________

DEPOSIT AGREEMENT

DEPOSIT AGREEMENT, dated as of            , 2007, by and among (i) Babcock & Brown Air Limited, a company incorporated under the laws of Bermuda, with its registered office address at           , Bermuda and principal executive office at            , and its successors (the “Company”), (ii) Deutsche Bank Trust Company Americas, an indirect wholly owned subsidiary of Deutsche Bank A.G., acting in its capacity as depositary, with its principal office at 60 Wall Street, New York, NY 10005, USA and any successor depositary hereunder (the “Depositary”), and (iii) all Holders and Beneficial Owners of American Depositary Shares evidenced by American Depositary Receipts issued hereunder (all such capitalized terms as hereinafter defined).

W I T N E S S E T H  T H A T:

WHEREAS, the Company desires to establish an ADR facility with the Depositary to provide for the deposit of the Shares and the creation of American Depositary Shares representing the Shares so deposited; and

WHEREAS, the Depositary is willing to act as the Depositary for such ADR facility upon the terms set forth in this Deposit Agreement; and

WHEREAS, the American Depositary Receipts evidencing the American Depositary Shares issued pursuant to the terms of this Deposit Agreement are to be substantially in the form of Exhibit A annexed hereto, with appropriate insertions, modifications and omissions, as hereinafter provided in this Deposit Agreement; and

WHEREAS, the American Depositary Shares to be issued pursuant to the terms of this Deposit Agreement [have been approved for listing] on the New York Stock Exchange; and

WHEREAS, the Board of Directors of the Company (or an authorized committee thereof) has [duly approved the establishment of an ADR facility upon the terms set forth in this Deposit Agreement,] the execution and delivery of this Deposit Agreement on behalf of the Company, and the actions of the Company and the transactions contemplated herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

All capitalized terms used, but not otherwise defined, herein shall have the meanings set forth below, unless otherwise clearly indicated:

SECTION 1.1 “Affiliate” shall have the meaning assigned to such term by the Commission under Regulation C promulgated under the Securities Act.

SECTION 1.2 “Agent” shall mean such entity or entities as the Depositary may appoint under Section 7.8, including the Custodian or any successor or addition thereto.

SECTION 1.3 “American Depositary Share(s)” and “ADS(s)” American Depositary Share(s) shall mean the securities represented by the rights and interests in the Deposited Securities

granted to the Holders and Beneficial Owners pursuant to the terms and conditions of this Deposit Agreement and evidenced by the American Depositary Receipts issued hereunder. Each American Depositary Share shall represent the right to receive one Share, until there shall occur a distribution upon Deposited Securities referred to in Section 4.2 or a change in Deposited Securities referred to in Section 4.9 with respect to which additional American Depositary Receipts are not executed and delivered, and thereafter each American Depositary Share shall represent the Shares or Deposited Securities specified in such Sections.

SECTION 1.4 “Article” shall refer to an article of the form of Receipt set out at Exhibit A hereto.

SECTION 1.5 “ADS Record Date” shall have the meaning given to such term in Section 4.7.

SECTION 1.6 “Beneficial Owner” shall mean as to any ADS, any person or entity having a beneficial interest in any ADSs. A Beneficial Owner need not be the Holder of the ADR evidencing such ADSs. A Beneficial Owner may exercise any rights or receive any benefits hereunder solely through the Holder of the ADR(s) evidencing the ADSs in which such Beneficial Owner has an interest.

SECTION 1.7 “Business Day” shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not (a) a day on which banking institutions in the Borough of Manhattan, The City of New York are authorized or obligated by law or executive order to close and (b) a day on which the market(s) in which Receipts are traded are closed.

SECTION 1.8 “Commission” shall mean the Securities and Exchange Commission of the United States or any successor governmental agency in the United States.

SECTION 1.9 “Company” shall mean Babcock & Brown Air Limited, a company incorporated and existing under the laws of Bermuda , and its successors.

SECTION 1.10 “Corporate Trust Office” when used with respect to the Depositary, shall mean the corporate trust office of the Depositary at which at any particular time its depositary receipts business shall be administered, which, at the date of this Deposit Agreement, is located at 60 Wall Street, New York, New York 10005, U.S.A.

SECTION 1.11 “Custodian” shall mean, as of the date hereof, The Governer and Company of the Bank of Ireland, having its principal office at New Century House, International Financial Services Center, Lower Mayor Street, Dublin 1, Ireland, as the custodian for the purposes of this Deposit Agreement, and any other firm or corporation which may hereinafter be appointed by the Depositary pursuant to the terms of Section 5.5 as a successor or an additional custodian or custodians hereunder, as the context shall require. The term “Custodian” shall mean all custodians, collectively.

SECTION 1.12 “Deliver” and “Delivery” shall mean, when used in respect of American Depositary Shares, Receipts, Deposited Securities and Shares, the physical delivery of the certificate representing such security, or the electronic delivery of such security by means of book-entry transfer (except with respect to the Shares), as appropriate, including, without limitation, through DRS/Profile. With respect to DRS/Profile ADRs, the terms “execute”, “issue”, “register”, “surrender”, “transfer” or “cancel” refer to applicable entries or movements to or within DRS/Profile.

2

SECTION 1.13 “Deposit Agreement” shall mean this Deposit Agreement and all exhibits hereto, as the same may from time to time be amended and supplemented in accordance with the terms hereof.

SECTION 1.14 “Depositary” shall mean Deutsche Bank Trust Company Americas, an indirect wholly owned subsidiary of Deutsche Bank A.G., in its capacity as depositary under the terms of this Deposit Agreement, and any successor depositary hereunder.

SECTION 1.15 “Deposited Securities” as of any time shall mean Shares at such time deposited or deemed to be deposited under this Deposit Agreement and any and all other securities, property and cash received or deemed to be received by the Depositary or the Custodian in respect thereof and held hereunder, subject, in the case of cash, to the provisions of Section 4.6. The collateral delivered in connection with Pre-Release Transactions described in Section 2.10 hereof shall not constitute Deposited Securities.

SECTION 1.16 “Dollars” and “$” shall refer to the lawful currency of the United States.

SECTION 1.17 “DRS/Profile” shall mean the system for the uncertificated registration of ownership of securities pursuant to which ownership of ADSs is maintained on the books of the Depositary without the issuance of a physical certificate and transfer instructions may be given to allow for the automated transfer of ownership between the books of DTC and the Depositary. Ownership of ADSs held in DRS/Profile are evidenced by periodic statements issued by the Depositary to the Holders entitled thereto.

SECTION 1.18 “DTC” shall mean The Depository Trust and Clearing Corporation, the central book-entry clearinghouse and settlement system for securities traded in the United States, and any successor thereto.

SECTION 1.19 “Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as from time to time amended.

SECTION 1.20 “Foreign Currency” shall mean any currency other than Dollars.

SECTION 1.21 “Foreign Registrar” shall mean the entity, if any, that carries out the duties of registrar for the Shares or any successor as registrar for the Shares and any other appointed agent of the Company for the transfer and registration of Shares, which shall initially be Codan Services Limited.

SECTION 1.22 “Holder” shall mean the person in whose name a Receipt is registered on the books of the Depositary (or the Registrar, if any) maintained for such purpose. A Holder may or may not be a Beneficial Owner. A Holder shall be deemed to have all requisite authority to act on behalf of those Beneficial Owners of the ADRs registered in such Holder’s name.

SECTION 1.23 “Indemnified Person” and “Indemnifying Person” shall have the meaning set forth in Section 5.8. hereof.

SECTION 1.24 “Pre-Release Transaction” shall have the meaning set forth in Section 2.10 hereof.

SECTION 1.25 “Receipt(s)”; “American Depositary Receipt(s)”; and “ADR(s)” shall mean the certificate(s) or statements issued by the Depositary evidencing the American Depositary Shares

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issued under the terms of this Deposit Agreement, as such Receipts may be amended from time to time in accordance with the provisions of this Deposit Agreement. References to Receipts shall include physical certificated Receipts as well as ADSs issued through DRS/Profile, unless the context otherwise requires.

SECTION 1.26 “Registrar” shall mean the Depositary or any bank or trust company having an office in the Borough of Manhattan, The City of New York, which shall be appointed by the Depositary to register ownership of Receipts and transfer of Receipts as herein provided, shall include any co-registrar appointed by the Depositary for such purposes. Registrars (other than the Depositary) may be removed and substitutes appointed by the Depositary.

SECTION 1.27 “Restricted ADRs”; “Restricted ADSs”; and “Restricted Shares”shall have the respective meanings set forth in Section 2.11.

SECTION 1.28 “Restricted Securities” shall mean Shares, or American Depositary Shares representing such Shares, which (i) have been acquired directly or indirectly from the Company or any of its Affiliates in a transaction or chain of transactions not involving any public offering and subject to resale limitations under the Securities Act or the rules issued thereunder, or (ii) are held by an officer or director (or persons performing similar functions) or other Affiliate of the Company, or (iii) are subject to other restrictions on sale or deposit under the laws of the United States, Bermuda, or under a shareholders’ agreement, shareholders’ lock-up agreement or the Company’s Bye-laws or under the regulations of an applicable securities exchange unless, in each case, such Shares are being sold to persons other than an Affiliate of the Company in a transaction (x) covered by an effective resale registration statement or (y) exempt from the registration requirements of the Securities Act (as hereinafter defined), and the Shares are not, when held by such person, Restricted Securities.

SECTION 1.29 “Securities Act” shall mean the United States Securities Act of 1933, as from time to time amended.

SECTION 1.30 “Shares” shall mean common shares in registered form of the Company, par value $0.001 each, heretofore or hereafter validly issued and outstanding and fully paid or hereafter validly issued and outstanding and fully paid. References to Shares shall include evidence of rights to receive Shares, whether or not stated in the particular instance; provided, however, that in no event shall Shares include evidence of rights to receive Shares with respect to which the full purchase price has not been paid or Shares as to which pre-emptive rights have theretofore not been validly waived or exercised; provided further, however, that, if there shall occur any change in par value, split-up, subdivision, consolidation, reclassification, conversion or any other event described in Section 4.9, in respect of the Shares of the Company, the term “Shares” shall thereafter, to the extent permitted by law, represent the successor securities resulting from such change in par value, split-up, subdivision, consolidation, exchange, conversion, reclassification or event.

SECTION 1.31 “United States” or “U.S.” shall mean the United States of America.

ARTICLE II.

APPOINTMENT OF DEPOSITARY; FORM OF RECEIPTS;

DEPOSIT OF SHARES; EXECUTION

AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS

SECTION 2.1 Appointment of Depositary. The Company hereby appoints the Depositary as exclusive depositary for the Deposited Securities and hereby authorizes and directs the Depositary to

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act in accordance with the terms set forth in this Deposit Agreement. Each Holder and each Beneficial Owner, upon acceptance of any ADSs (or any interest therein) issued inaccordance with the terms of this Deposit Agreement, shall be deemed for all purposes to (a) be a party to and bound by the terms of this Deposit Agreement and (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in this Deposit Agreement, to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of this Deposit Agreement (the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof).

SECTION 2.2 Form and Transferability of Receipts.

(a) Definitive Receipts shall be substantially in the form set forth in Exhibit A annexed to this Deposit Agreement, with appropriate insertions, modifications and omissions, as hereinafter provided. Receipts may be issued in denominations of any number of American Depositary Shares. No definitive Receipt shall be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose, unless such Receipt shall have been executed by the Depositary by the manual or facsimile signature of a duly authorized signatory of the Depositary. The Depositary shall maintain books on which each Receipt so executed and delivered, in the case of definitive Receipts, and each Receipt issued through DRS/Profile, in either case as hereinafter provided and the transfer of each such Receipt shall be registered. Receipts in certificated form bearing the manual or facsimile signature of a duly authorized signatory of the Depositary who was at any time a proper signatory of the Depositary shall bind the Depositary, notwithstanding that such signatory has ceased to hold such office prior to the execution and delivery of such Receipts by the Registrar or did not hold such office on the date of issuance of such Receipts.

Notwithstanding anything in this Deposit Agreement or in the form of Receipt to the contrary, the Depositary may, in its discretion, issue ADRs (including Restricted ADRs) in definitive form and Holders of ADRs (other than any Holders of Restricted ADRs who shall be required to hold ADRs in definitive form) shall only be entitled to receive definitive Receipts, except and to the extent the Depositary has made definitive Receipts available at the expense of the Company (i) in its sole discretion or (ii) (a) during a continuous period lasting at least 14 days during which DTC ceases to operate as a book-entry clearing house and settlement system (other than by reason of holidays, statutory or otherwise) or (b) DTC announces an intention permanently to cease and subsequently ceases business as a book-entry clearing house and settlement system and no alternative book-entry clearing house and settlement system satisfactory to the Depositary is available within 45 days. Holders and Beneficial Owners shall be bound by the terms and conditions of this Deposit Agreement and of the form of Receipt, regardless of whether their Receipts are certificated or issued throughbook-entry registration.

(b) Legends. The ADRs may be endorsed with, or have incorporated in the text thereof, such legends or recitals not inconsistent with the provisions of the Deposit Agreement as may be (i) necessary to enable the Depositary and the Company to perform their respective obligations hereunder, (ii) required to comply with any applicable laws or regulations, or with the rules and regulations of any securities exchange or market upon which ADSs may be traded, listed or quoted, or to conform with any usage with respect thereto, (iii) necessary to indicate any special limitations or restrictions to which any particular ADRs or ADSs are subject by reason of the date of issuance of the Deposited Securities or otherwise, or (iv) required by any book-entry system in which the ADSs are held. Holders and Beneficial Owners shall be deemed, for all purposes, to have notice of, and to be bound by, the terms and conditions of the legends set forth, in the case of Holders, on the ADR registered in the name of the applicable Holders or, in the case of Beneficial Owners, on the ADR representing the ADSs owned by such Beneficial Owners.

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(c) Subject to the limitations contained herein and in the form of Receipt, title to a Receipt (and to the ADSs evidenced thereby), when properly endorsed (in the case of certificated Receipts) or upon delivery to the Depositary of proper instruments of transfer, shall be transferable by delivery with the same effect as in the case of a negotiable instrument under the laws of the State of New York; provided, however, that the Depositary, notwithstanding any notice to the contrary, may treat the Holder thereof as the absolute owner thereof for the purpose of determining the person entitled to distribution of dividends or other distributions or to any notice provided for in this Deposit Agreement and for all other purposes and neither the Depositary nor the Company will have any obligation or be subject to any liability under the Deposit Agreement to any holder of a Receipt, unless such holder is the Holder thereof.

SECTION 2.3 Deposits. (a) Subject to the terms and conditions of this Deposit Agreement and applicable law, Shares or evidence of rights to receive Shares (including Restricted Securities provided that any such Restricted Securities shall be held fully segregated from Shares otherwise deposited hereunder) may be deposited by any person (including the Depositary in its individual capacity but subject, however, in the case of the Company or any Affiliate of the Company, to Section 5.7 and Section 2.11 hereof). Every deposit of Shares shall be accompanied by the following: (A) in the case of Shares issued in registered form, appropriate instruments of transfer or endorsement, in a form satisfactory to the Custodian, (B) such certifications and payments (including, without limitation, the Depositary’s fees and related charges) and evidence of such payments (including, without limitation, stamping or otherwise marking such Shares by way of receipt) as may be required by the Depositary or the Custodian in accordance with the provisions of this Deposit Agreement, (C) if the Depositary so requires, a written order directing the Depositary to execute and deliver to, or upon the written order of, the person or persons stated in such order a Receipt or Receipts for the number of American Depositary Shares representing the Shares so deposited, (D) evidence satisfactory to the Depositary (which may include an opinion of counsel reasonably satisfactory to the Depositary provided at the cost of the person seeking to deposit Shares) that all conditions to such deposit have been met and all necessary approvals have been granted by, and there has been compliance with the rules and regulations of, any applicable governmental agency in Bermuda, and (E) if the Depositary so requires, (i) an agreement, assignment or instrument satisfactory to the Depositary or the Custodian which provides for the prompt transfer by any person in whose name the Shares are or have been recorded to the Custodian of any distribution, or right to subscribe for additional Shares or to receive other property in respect of any such deposited Shares or, in lieu thereof, such indemnity or other agreement as shall be satisfactory to the Depositary or the Custodian and (ii) if the Shares are registered in the name of the person on whose behalf they are presented for deposit, a proxy or proxies entitling the Custodian to exercise voting rights in respect of the Shares for any and all purposes until the Shares so deposited are registered in the name of the Depositary, the Custodian or any nominee. No Share shall be accepted for deposit unless accompanied by confirmation or such additional evidence, if any is required by the Depositary, that is reasonably satisfactory to the Depositary or the Custodian that all conditions to such deposit have been satisfied by the person depositing such Shares under the laws and regulations of Bermuda and any necessary approval has been granted by any governmental body in Bermuda , if any, which is then performing the function of the regulator of currency exchange. The Depositary may issue Receipts against evidence of rights to receive Shares from the Company, any agent of the Company or any custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares. Without limitation of the foregoing and subject to Section 2.11 hereof, the Depositary shall not knowingly accept for deposit under this Deposit Agreement any Shares or other Deposited Securities required to be registered under the provisions of the Securities Act, unless a registration statement is in effect as to such Shares or other Deposited Securities, or any Shares or other Deposited Securities the deposit of which would violate any provisions of the Memorandum and Bye-laws of the Company. The Depositary shall use commercially reasonable efforts to comply with reasonable written instructions of the Company that

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the Depositary shall not accept for deposit hereunder any Shares specifically identified in such instructions at such times and under such circumstances as may reasonably be specified in such instructions in order to facilitate the Company’s compliance with the securities laws in the United States and other jurisdictions; provided that the Company shall indemnify the Depositary and the Custodian for any claims and losses arising from not accepting the deposit of any Shares identified in the Company’s instructions.

(b) As soon as practicable after receipt of any permitted deposit hereunder and compliance with the provisions of this Deposit Agreement, the Custodian shall present the Shares so deposited, together with the appropriate instrument or instruments of transfer or endorsement, duly stamped, to the Foreign Registrar for transfer and registration of the Shares (as soon as transfer and registration can be accomplished and at the expense of the person for whom the deposit is made) in the name of the Depositary, the Custodian or a nominee of either. Deposited Securities shall be held by the Depositary or by a Custodian for the account and to the order of the Depositary or a nominee, in each case for the account of the Holders and Beneficial Owners, at such place or places as the Depositary or the Custodian shall determine.

(c) In the event any Shares are deposited which entitle the holders thereof to receive a per-share distribution or other entitlement in an amount different from the Shares then on deposit, the Depositary is authorized to take any and all actions as may be necessary (including, without limitation, making the necessary notations on Receipts) to give effect to the issuance of such ADSs and to ensure that such ADSs are not fungible with other ADSs issued hereunder until such time as the entitlement of the Shares represented by such non-fungible ADSs equals that of the Shares represented by ADSs prior to the original such deposit. The Company agrees to give timely written notice to the Depositary if any Shares issued or to be issued contain rights different from those of any other Shares theretofore issued and shall assist the Depositary with the establishment of procedures enabling the identification of such non-fungible Shares upon Delivery to the Custodian.

SECTION 2.4 Execution and Delivery of Receipts. After the deposit of any Shares pursuant to Section 2.3, the Custodian shall notify the Depositary of such deposit and the person or persons to whom or upon whose written order a Receipt or Receipts are deliverable in respect thereof and the number of American Depositary Shares to be evidenced thereby. Such notification shall be made by letter, first class airmail postage prepaid, or, at the request, risk and expense of the person making the deposit, by cable, telex, SWIFT, facsimile or electronic transmission. After receiving such notice from the Custodian, the Depositary, subject to this Deposit Agreement (including, without limitation, the payment by the Company of the fees, expenses, taxes and other charges owing hereunder), shall issue the ADSs representing the Shares so deposited to or upon the order of the person or persons named in the notice delivered to the Depositary and shall execute and deliver a Receipt registered in the name or names requested by such person or persons evidencing in the aggregate the number of American Depositary Shares to which such person or persons are entitled. Nothing herein shall prohibit any Pre-Release Transaction upon the terms set forth in this Deposit Agreement.

SECTION 2.5 Transfer of Receipts; Combination and Split-up of Receipts.

(a) Transfer. The Depositary, or, if a Registrar (other than the Depositary) for the Receipts shall have been appointed, the Registrar, subject to the terms and conditions of this Deposit Agreement, shall register transfers of Receipts on its books, upon surrender at the Corporate Trust Office of the Depositary of a Receipt by the Holder thereof in person or by duly authorized attorney, properly endorsed in the case of a certificated Receipt or accompanied by, or in the case of DRS/Profile Receipts receipt by the Depositary of, proper instruments of transfer (including signature guarantees in accordance

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with standard industry practice) and duly stamped as may be required by the laws of the State of New York and of the United States and any other applicable law. Subject to the terms and conditions of this Deposit Agreement, including payment of the applicable fees and charges of the Depositary set forth in Section 5.9 and Article (9), the Depositary shall execute a new Receipt or Receipts and deliver the same to or upon the order of the person entitled thereto evidencing the same aggregate number of American Depositary Shares as those evidenced by the Receipts surrendered.

(b) Combination and Split Up. The Depositary, subject to the terms and conditions of this Deposit Agreement shall, upon surrender of a Receipt or Receipts for the purpose of effecting a split-up or combination of such Receipt or Receipts and upon payment to the Depositary of the applicable fees and charges set forth in Section 5.9 and Article (9), execute and deliver a new Receipt or Receipts for any authorized number of American Depositary Shares requested, evidencing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered.

(c) Co-Transfer Agents. The Depositary may appoint one or more co-transfer agents for the purpose of effecting transfers, combinations and split-ups of Receipts at designated transfer offices on behalf of the Depositary. In carrying out its functions, a co-transfer agent may require evidence of authority and compliance with applicable laws and other requirements by Holders or persons entitled to such Receipts and will be entitled to protection and indemnity, in each case to the same extent as the Depositary. Such co-transfer agents may be removed and substitutes appointed by the Depositary. Each co-transfer agent appointed under this Section 2.5 (other than the Depositary) shall give notice in writing to the Depositary accepting such appointment and agreeing to be bound by the applicable terms of this Deposit Agreement.

(d) At the request of a Holder, the Depositary shall, for the purpose of substituting a certificated Receipt with a Receipt issued through DRS/Profile, or vice versa, execute and deliver a certificated Receipt or DRS/Profile statement, as the case may be, for any authorized number of ADSs requested, evidencing the same aggregate number of ADSs as those evidenced by the certificated Receipt or DRS/Profile statement, as the case may be, substituted.

SECTION 2.6 Surrender of Receipts and Withdrawal of Deposited Securities. Upon surrender, at the Corporate Trust Office of the Depositary, of American Depositary Shares for the purpose of withdrawal of the Deposited Securities represented thereby, and upon payment of (i) the fees and charges of the Depositary for the making of withdrawals of Deposited Securities and cancellation of Receipts (as set forth in Section 5.9 and Article (9)) and (ii) all applicable taxes and governmental charges payable in connection with such surrender and withdrawal, and subject to the terms and conditions of this Deposit Agreement, the Company’s Bye-laws, Section 7.10 hereof and any other provisions of or governing the Deposited Securities and other applicable laws, the Holder of such American Depositary Shares shall be entitled to Delivery, to him or upon his order, of the Deposited Securities at the time represented by the American Depositary Shares so surrendered. American Depositary Shares may be surrendered for the purpose of withdrawing Deposited Securities by delivery of a Receipt evidencing such American Depositary Shares (if held in certificated form) or by book-entry delivery of such American Depositary Shares to the Depositary.

A Receipt surrendered for such purposes shall, if so required by the Depositary, be properly endorsed in blank or accompanied by proper instruments of transfer in blank, and if the Depositary so requires, the Holder thereof shall execute and deliver to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be Delivered to or upon the written order of a person or persons designated in such order. Thereupon, the Depositary shall direct the Custodian to Deliver (without unreasonable delay) at the designated office of the Custodian or through a

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book-entry delivery of the Shares (in either case, subject to Sections 2.7, 3.1, 3.2, 5.9, and to the other terms and conditions of this Deposit Agreement, to the Company’s Bye-laws, to the provisions of or governing the Deposited Securities and to applicable laws, now or hereafter in effect) to or upon the written order of the person or persons designated in the order delivered to the Depositary as provided above, the Deposited Securities represented by such American Depositary Shares, together with any certificate or other proper documents of or relating to title of the Deposited Securities as may be legally required, as the case may be, to or for the account of such person.

The Depositary may, in its discretion, refuse to accept for surrender a number of American Depositary Shares representing a number other than a whole number of Shares. In the case of surrender of a Receipt evidencing a number of American Depositary Shares representing other than a whole number of Shares, the Depositary shall cause ownership of the appropriate whole number of Shares to be Delivered in accordance with the terms hereof, and shall, at the discretion of the Depositary, either (i) issue and deliver to the person surrendering such Receipt a new Receipt evidencing American Depositary Shares representing any remaining fractional Share, or (ii) sell or cause to be sold the fractional Shares represented by the Receipt surrendered and remit the proceeds of such sale (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes withheld) to the person surrendering the Receipt.

At the request, risk and expense of any Holder so surrendering a Receipt, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any cash or other property (other than securities) held in respect of, and any certificate or certificates and other proper documents of or relating to title to, the Deposited Securities represented by such Receipt to the Depositary for delivery at the Corporate Trust Office of the Depositary, and for further delivery to such Holder. Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex or facsimile transmission. Upon receipt by the Depositary, the Depositary may make delivery to such person or persons entitled thereto at the Corporate Trust Office of the Depositary of any dividends or cash distributions with respect to the Deposited Securities represented by such American Depositary Shares, or of any proceeds of sale of any dividends, distributions or rights, which may at the time be held by the Depositary.

SECTION 2.7 Limitations on Execution and Delivery, Transfer, etc. of Receipts; Suspension of Delivery, Transfer, etc.

(a) Additional Requirements. As a condition precedent to the execution and delivery, registration, registration of transfer, split-up, subdivision, combination or surrender of any Receipt, the delivery of any distribution thereon or withdrawal of any Deposited Securities, the Depositary or the Custodian may require (i) payment from the Company on behalf of any depositor of Shares or presenter of the Receipt (or with respect to the surrender of any Receipt or withdrawal of any Deposited Securities, from the depositor of Shares or presenter of the Receipt) of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in Section 5.9 and Article (9), or as separately agreed from time to time between the Company and the Depositary, (ii) the production of proof satisfactory to it as to the identity and genuineness of any signature or any other matter contemplated by Section 3.1 hereof and (iii) compliance with (A) any laws or governmental regulations relating to the execution and delivery of Receipts or American Depositary Shares or to the withdrawal or delivery of Deposited Securities and (B) such reasonable regulations as the Depositary may establish consistent with the provisions of this Deposit Agreement and applicable law.

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(b) Additional Limitations. The issuance of ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the issuance of ADSs against the deposit of particular Shares may be withheld, or the registration of transfer of Receipts in particular instances may be refused, or the registration of transfers of Receipts generally may be suspended, during any period when the transfer books of the Depositary are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or from time to time because of any requirement of law, any government or governmental body or commission or any securities exchange on which the Receipts or Shares are listed, or under any provision of this Deposit Agreement or provisions of, or governing, the Deposited Securities, or any meeting of shareholders of the Company or for any other reason, subject, in all cases, to Section 7.10 hereof.

SECTION 2.8 Lost Receipts, etc. To the extent the Depositary has issued Receipts in physical certificated form, in case any Receipt shall be mutilated, destroyed, lost or stolen, unless the Depositary has notice that such ADR has been acquired by a bona fide purchaser, subject to Section 5.9 hereof, the Depositary shall execute and deliver a new Receipt (which, in the discretion of the Depositary may be issued through DRS/Profile unless specifically requested otherwise) in exchange and substitution for such mutilated Receipt upon cancellation thereof, or in lieu of and in substitution for such destroyed, lost or stolen Receipt. Before the Depositary shall execute and deliver a new Receipt in substitution for a destroyed, lost or stolen Receipt, the Holder thereof shall have (a) filed with the Depositary (i) a request for such execution and delivery before the Depositary has notice that the Receipt has been acquired by a bona fide purchaser and (ii) a sufficient indemnity bond in form and amount acceptable to the Depositary and (b) satisfied any other reasonable requirements imposed by the Depositary.

SECTION 2.9 Cancellation and Destruction of Surrendered Receipts; Maintenance of Records. All Receipts surrendered to the Depositary shall be cancelled by the Depositary. The Depositary is authorized to destroy Receipts so cancelled in accordance with its customary practices. Cancelled Receipts shall not be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose.

SECTION 2.10 Pre-Release. Subject to the further terms and provisions of this Section 2.10, the Depositary, its Affiliates and their agents, on their own behalf, may own and deal in any class of securities of the Company and its Affiliates and in ADSs. In its capacity as Depositary, the Depositary may (i) issue ADSs prior to the receipt of Shares (each such transaction a “Pre-Release Transaction”) as provided below and (ii) deliver Shares upon the receipt and cancellation of ADSs that were issued in a Pre-Release Transaction, but for which Shares may not yet have been received. The Depositary may receive ADSs in lieu of Shares under (i) above and receive shares in lieu of ADSs under (ii) above. Each such Pre-Release Transaction will be (a) subject to a written agreement whereby the person or entity (the “Applicant”) to whom ADSs or Shares are to be delivered (1) represents that at the time of the Pre-Release Transaction the Applicant or its customer owns the Shares or ADSs that are to be delivered by the Applicant under such Pre-Release Transaction, (2) agrees to indicate the Depositary as owner of such Shares or ADSs in its records and to hold such Shares or ADSs in trust for the Depositary until such Shares or ADSs are delivered to the Depositary or the Custodian, (3) unconditionally guarantees to deliver to the Depositary or the Custodian, as applicable, such Shares or ADSs, and (4) agrees to any additional restrictions or requirements that the Depositary deems appropriate, (b) at all times fully collateralized with cash, United States government securities or such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) business days’ notice (save for a prescribed termination event in which case any such Pre-Release Transaction may be immediately terminable by the Depositary) and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate. The Depositary will normally limit the number of ADSs involved in such Pre-Release Transactions at any one time to thirty percent (30%) of the ADSs outstanding (without giving

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effect to ADSs outstanding pursuant to any Pre-Release Transaction), provided, however, that the Depositary reserves the right to disregard such limit from time to time as it deems appropriate. The Depositary may also set limits with respect to the number of ADSs involved in Pre-Release Transactions with any one person on a case by case basis as it deems appropriate.

The Depositary may retain for its own account any compensation received by it in conjunction with the foregoing. Collateral provided pursuant to (b) above, but not the earnings thereon, shall be held for the benefit of the Holders (other than the Applicant).

SECTION 2.11 Restricted ADSs. The Depositary shall, at the request and expense of the Company, establish procedures enabling the deposit hereunder of Shares that are Restricted Securities in order to enable the holder of suchShares to hold its ownership interests in such restricted Shares in the form of ADSs issued under the terms hereof (such Shares, “Restricted Shares”).Restricted ADSs shall only be issued in physical form, registered in the nameof the Holder of Restricted ADSs. Upon receipt of a written request from theCompany to accept Restricted Shares for deposit hereunder, the Depositaryagrees to establish procedures permitting the deposit of such Restricted Sharesand the issuance of ADSs representing such deposited Restricted Shares (suchADSs, the “Restricted ADSs,” and the ADRs evidencing such Restricted ADSs, the“Restricted ADRs”). The Company shall assist the Depositary in theestablishment of such procedures and agrees that it shall take all stepsnecessary and reasonably satisfactory to the Depositary to insure that theestablishment of such procedures does not violate the provisions of theSecurities Act or any other applicable laws. The depositors of such RestrictedShares and the holders of the Restricted ADSs may be required prior to thedeposit of such Restricted Shares, the transfer of the Restricted ADRs and theRestricted ADSs evidenced thereby or the withdrawal of the Restricted Sharesrepresented by Restricted ADSs to provide such written certifications oragreements as the Depositary or the Company may require. The Company shallprovide to the Depositary in writing the legend(s) to be affixed to theRestricted ADRs, which legends shall (i) be in a form reasonably satisfactoryto the Depositary and (ii) contain the specific circumstances under which theRestricted ADRs and the Restricted ADSs represented thereby may be transferredor the Restricted Shares withdrawn. The Restricted ADSs issued upon the depositof Restricted Shares shall be separately identified on the books of theDepositary and the Restricted Shares so deposited shall be held separate anddistinct from the other Deposited Securities held hereunder. The RestrictedShares and the Restricted ADSs shall not be eligible for Pre-ReleaseTransactions. The Restricted ADSs shall not be eligible for inclusion in anybook-entry settlement system, including, without limitation, DTC, and shall notin any way be fungible with the ADSs issued under the terms hereof that are notRestricted ADSs. The Restricted ADRs and the Restricted ADSs evidenced therebyshall be transferable only by the Holder thereof upon delivery to theDepositary of (i) all documentation otherwise contemplated by this DepositAgreement and (ii) an opinion of counsel reasonably satisfactory to theDepositary setting forth, inter alia, the conditions upon which the RestrictedADR presented is, and the Restricted ADSs evidenced thereby are, transferableby the Holder thereof under applicable securities laws and the transferrestrictions contained in the legend set forth on the Restricted ADR presentedfor transfer. Except as set forth in this Section 2.11 and except as requiredby applicable law, the Restricted ADRs and the Restricted ADSs evidencedthereby shall be treated as ADRs and ADSs issued and outstanding under theterms of the Deposit Agreement. In the event that, in determining the rightsand obligations of parties hereto with respect to any Restricted ADSs, anyconflict arises between (a) the terms of this Deposit Agreement (other thanthis Section 2.11) and (b) the terms of (i) this Section 2.11 or (ii) theapplicable Restricted ADR, the terms and conditions set forth in this Section2.11 and of the Restricted ADR shall be controlling and shall govern the rightsand obligations of the parties to this Deposit Agreement pertaining to thedeposited Restricted Shares, the Restricted ADSs and Restricted ADRs.

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If any of the Restricted ADRs, the Restricted ADSs and the Restricted Shares are no longer Restricted Securities, the Depositary, upon receipt of (x) an opinion of counsel reasonably satisfactory to the Depositary setting forth, inter alia, that such Restricted ADRs, Restricted ADSs and Restricted Shares are not as of such time Restricted Securities, and (y) instructions from the Company to remove the restrictions applicable to such Restricted ADRs, Restricted ADSs and the Restricted Shares, shall (i) eliminate the distinctions and separations between such Restricted Shares held on deposit under this Section 2.11 and the other Shares held on deposit under the terms of the Deposit Agreement that are not Restricted Shares, (ii) treat such newly unrestricted ADRs and ADSs on the same terms as, and fully fungible with, the other ADRs and ADSs issued and outstanding under the terms of the Deposit Agreement that are not Restricted ADRs or Restricted ADSs, (iii) take all actions necessary to remove any distinctions, limitations and restrictions previously existing under this Section 2.11 between such Restricted ADRs and Restricted ADSs, respectively, on the one hand, and the other ADRs and ADSs that are not Restricted ADRs or Restricted ADSs, respectively, on the other hand, including, without limitation, by making the newly unrestricted ADSs eligible for Pre-Release Transactions and for inclusion in the applicable book-entry settlement systems.

ARTICLE III.

CERTAIN OBLIGATIONS OF HOLDERS

AND BENEFICIAL OWNERS OF RECEIPTS

SECTION 3.1 Proofs, Certificates and Other Information. Any person presenting Shares for deposit, any Holder and any Beneficial Owner may be required, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary or the Custodian such proof of citizenship or residence, taxpayer status, payment of all applicable taxes or other governmental charges, exchange control approval, legal or beneficial ownership of ADSs and Deposited Securities, compliance with applicable laws and the terms of this Deposit Agreement and the provisions of, or governing, the Deposited Securities or other information; to execute such certifications and to make such representations and warranties, and to provide such other information and documentation as the Depositary may deem necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations hereunder. The Depositary and the Registrar, as applicable, may withhold the execution or delivery or registration of transfer of any Receipt or the distribution or sale of any dividend or distribution of rights or of the proceeds thereof, or to the extent not limited by the terms of Section 7.10 hereof, the delivery of any Deposited Securities, until such proof or other information is filed or such certifications are executed, or such representations and warranties are made, or such other documentation or information provided, in each case to the Depositary’s and the Company’s satisfaction. The Depositary shall from time to time on the written request advise the Company of the availability of any such proofs, certificates or other information and shall, at the Company’s sole expense, provide or otherwise make available copies thereof to the Company upon written request thereof by the Company, unless such disclosure is prohibited by law. Each Holder and Beneficial Owner agrees to provide any information requested by the Company or the Depositary pursuant to this paragraph. Nothing herein shall obligate the Depositary to (i) obtain any information for the Company if not provided by the Holders or Beneficial Owners or (ii) verify or vouch for the accuracy of the information so provided by the Holders or Beneficial Owners.

SECTION 3.2 Liability for Taxes and Other Charges. If any present or future tax or other governmental charge shall become payable by the Depositary or the Custodian with respect to any ADR or any Deposited Securities or American Depositary Shares, such tax or other governmental charge shall be payable by the Holders and Beneficial Owners to the Depositary and such Holders and Beneficial Owners shall be deemed liable therefor. The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Securities and may sell for the

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account of a Holder and/or Beneficial Owner any or all of the Deposited Securities and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the Holder and the Beneficial Owner remaining fully liable for any deficiency. In addition to any other remedies available to it, the Depositary and the Custodian may refuse the deposit of Shares, and the Depositary may refuse to issue ADSs, to deliver ADRs, register the transfer, split-up or combination of ADRs and (subject to Section 7.10) the withdrawal of Deposited Securities, until payment in full of such tax, charge, penalty or interest is received. Every Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian, and each of their respective agents, officers, directors, employees and Affiliates for, and to hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from any tax benefit obtained for such Holder and/or Beneficial Owner. The obligations of Holders and Beneficial Owners of Receipts under this Section 3.2 shall survive any transfer of Receipts, any surrender of Receipts and withdrawal of Deposited Securities, or the termination of this Deposit Agreement.

SECTION 3.3 Representations and Warranties on Deposit of Shares. Each depositor depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares and the certificates therefor are duly authorized, validly issued, fully paid, non-assessable and were legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares have been validly waived or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the American Depositary Shares issuable upon such deposit will not be, Restricted Securities (except as contemplated by Section 2.11) and (v) the Shares presented for deposit have not been stripped of any rights or entitlements. Such representations and warranties shall survive the deposit and withdrawal of Shares, the issuance and cancellation of American Depositary Shares in respect thereof and the transfer of such American Depositary Shares. If any such representations or warranties are false in any way, the Company and the Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof.

SECTION 3.4 Compliance with Information Requests. Notwithstanding any other provision of this Deposit Agreement, the Bye-laws of the Company and applicable law, each Holder and Beneficial Owner agrees to (a) provide such information as the Company or the Depositary may request pursuant to law (including, without limitation, relevant Bermuda law, any applicable law of the United States, the Bye-laws of the Company, any resolutions of the Company’s Board of Directors adopted pursuant to such Bye-laws, the requirements of any markets or exchanges upon which the Shares, ADSs or Receipts are listed or traded, or to any requirements of any electronic book-entry system by which the ADSs or Receipts may be transferred, and (b) be bound by and subject to applicable provisions of the laws of Bermuda, the Bye-laws of the Company and the requirements of any markets or exchanges upon which the ADSs, Receipts or Shares are listed or traded, or pursuant to any requirements of any electronic book-entry system by which the ADSs, Receipts or Shares may be transferred, to the same extent as if such Holder and Beneficial Owner held Shares directly, in each case irrespective of whether or not they are Holders or Beneficial Owners at the time such request is made. The Depositary agrees to use its reasonable efforts to forward upon the request of the Company, and at the Company’s expense, any such request from the Company to the Holders and to forward to the Company any such responses to such requests received by the Depositary.

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ARTICLE IV.

THE DEPOSITED SECURITIES

SECTION 4.1 Cash Distributions. Whenever the Depositary receives confirmation from the Custodian of receipt of any cash dividend or other cash distribution on any Deposited Securities, or receives proceeds from the sale of any Shares, rights, securities or other entitlements under the terms hereof, received in Dollars, the Depositary will distribute promptly the amount thus received (net of taxes and governmental charges withheld) to the Holders of record as of the ADS Record Date in proportion to the number of American Depositary Shares held by such Holders respectively as of the ADS Record Date. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent. Any such fractional amounts shall be rounded to the nearest whole cent and so distributed to Holders entitled thereto. If at the time of receipt thereof any amounts received are received in a Foreign Currency and can, in the judgment of the Depositary (pursuant to Section 4.6 hereof) be converted on a practicable basis into Dollars transferable to the United States, the Depositary will promptly convert or cause to be converted such cash dividend, distribution or proceeds into Dollars (on the terms described in Section 4.6) and will distribute in accordance with the first two sentences of this Section 4.1. Holders and Beneficial Owners understand that in converting Foreign Currency, amounts received on conversion are calculated at a rate which exceeds three or four decimal places (the number of decimal places used by the Depositary to report distribution rates). The excess amount may be retained by the Depositary as an additional cost of conversion, irrespective of any other fees and expenses payable or owing hereunder and shall not be subject to escheatment.

If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders on the American Depositary Shares representing such Deposited Securities shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the Depositary to the relevant governmental authority. Evidence of payment thereof by the Company shall be forwarded by the Company to the Depositary upon request. The Depositary shall forward to the Company or its agent such information from its records as the Company may reasonably request to enable the Company or its agent to file necessary reports with governmental agencies, such reports necessary to obtain benefits under the applicable tax treaties for the Holders and Beneficial Owners of Receipts.

SECTION 4.2 Distribution in Shares. If any distribution upon any Deposited Securities consists of a dividend in, or free distribution of, Shares, the Company shall cause such Shares to be deposited with the Custodian and registered, as the case may be, in the name of the Depositary, the Custodian or any of their nominees. Upon receipt of confirmation of such deposit from the Custodian, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.7 and shall, subject to Section 5.9 hereof, either (i) distribute to the Holders as of the ADS Record Date in proportion to the number of American Depositary Shares held as of the ADS Record Date, additional American Depositary Shares, which represent in the aggregate the number of Shares received as such dividend, or free distribution, subject to the other terms of this Deposit Agreement (including, without limitation, taxes), or (ii) if additional American Depositary Shares are not so distributed, each American Depositary Share issued and outstanding after the ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interests in the additional Shares distributed upon the Deposited Securities represented thereby (net of taxes and governmental charges). In lieu of delivering fractional American Depositary Shares, the Depositary shall sell the number of Shares represented by the aggregate of such fractions and distribute the proceeds upon the terms described in Section 4.1. The Depositary may withhold any such distribution of Receipts if it has not received satisfactory assurances from the

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Company (including an opinion of counsel to the Company furnished at the expense of the Company) that such distribution does not require registration under the Securities Act or is exempt from registration under the provisions of the Securities Act. To the extent such distribution may be withheld, the Depositary may dispose of all or a portion of such distribution in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of applicable (a) taxes and (b) fees and charges of, and expenses incurred by, the Depositary) to Holders entitled thereto upon the terms described in Section 4.1.

SECTION 4.3 Elective Distributions in Cash or Shares. Whenever the Company intends to distribute a dividend payable at the election of the holders of Shares in cash or in additional Shares, the Company shall give notice thereof to the Depositary at least 30 days prior to the proposed distribution stating whether or not it wishes such elective distribution to be made available to Holders of ADSs. Upon receipt of notice indicating that the Company wishes such elective distribution to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such elective distribution available to the Holders of ADSs. The Depositary shall make such elective distribution available to Holders only if (i) the Company shall have timely requested that the elective distribution is available to Holders of ADRs, (ii) the Depositary shall have determined that such distribution is reasonably practicable and (iii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7. If the above conditions are not satisfied, the Depositary shall, to the extent permitted by law, distribute to the Holders, on the basis of the same determination as is made in the local market in respect of the Shares for which no election is made, either (x) cash upon the terms described in Section 4.1 or (y) additional ADSs representing such additional Shares upon the terms described in Section 4.2. If the above conditions are satisfied, the Depositary shall establish an ADS Record Date (on the terms described in Section 4.7) and establish procedures to enable Holders to elect the receipt of the proposed dividend in cash or in additional ADSs. The Company shall assist the Depositary in establishing such procedures to the extent necessary. Subject to Section 5.9 hereof, if a Holder elects to receive the proposed dividend (x) in cash, the dividend shall be distributed upon the terms described in Section 4.1, or (y) in ADSs, the dividend shall be distributed upon the terms described in Section 4.2. Nothing herein shall obligate the Depositary to make available to Holders a method to receive the elective dividend in Shares (rather than ADSs). There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares.

SECTION 4.4 Distribution of Rights to Purchase Shares.

(a) Distribution to ADS Holders. Whenever the Company intends to distribute to the holders of the Deposited Securities rights to subscribe for additional Shares, the Company shall give notice thereof to the Depositary at least 60 days prior to the proposed distribution stating whether or not it wishes such rights to be made available to Holders of ADSs. Upon receipt of a notice indicating that the Company wishes such rights to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall determine, whether it is lawful and reasonably practicable to make such rights available to the Holders. The Depositary shall make such rights available to Holders only if (i) the Company shall have timely requested that such rights be made available to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7, and (iii) the Depositary shall have determined that such distribution of rights is lawful and reasonably practicable. In the event any of the conditions set forth above are not satisfied, the Depositary shall proceed with the sale of the rights as contemplated in Section 4.4(b) below or, if timing or market conditions may not permit, do nothing thereby allowing such rights to lapse. In the event all conditions

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set forth above are satisfied, the Depositary shall establish an ADS Record Date (upon the terms described in Section 4.7) and establish procedures (x) to distribute such rights (by means of warrants or otherwise) and (y) to enable the Holders to exercise the rights (upon payment of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes and other governmental charges). Nothing herein shall obligate the Depositary to make available to the Holders a method to exercise such rights to subscribe for Shares (rather than ADSs).

(b) Sale of Rights. If (i) the Company does not timely request the Depositary to make the rights available to Holders or requests that the rights not be made available to Holders, (ii) the Depositary fails to receive satisfactory documentation within the terms of Section 5.7 or determines it is not lawful or reasonably practicable to make the rights available to Holders, or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine whether it is lawful and reasonably practicable to sell such rights, in a riskless principal capacity or otherwise, at such place and upon such terms (including public or private sale) as it may deem proper. The Company shall assist the Depositary to the extent necessary to determine such legality and practicability. The Depositary shall, upon such sale, convert and distribute proceeds of such sale (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) upon the terms set forth in Section 4.1.

(c) Lapse of Rights. If the Depositary is unable to make any rights available to Holders upon the terms described in Section 4.4(a) or to arrange for the sale of the rights upon the terms described in Section 4.4(b), the Depositary shall allow such rights to lapse.

The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or exercise, or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.

Notwithstanding anything to the contrary in this Section 4.4, if registration (under the Securities Act or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act covering such offering is in effect or (ii) unless the Company furnishes at its expense the Depositary with opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case satisfactory to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws. In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of property (including rights) an amount on account of taxes or other governmental charges, the amount distributed to the Holders shall be reduced accordingly. In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes or charges.

There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to exercise rights on the same terms and conditions as the holders of Shares or be

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able to exercise such rights. Nothing herein shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights.

SECTION 4.5 Distributions Other Than Cash, Shares or Rights to Purchase Shares.

(a) Whenever the Company intends to distribute to the holders of Deposited Securities property other than cash, Shares or rights to purchase additional Shares, the Company shall give notice thereof to the Depositary at least 30 days prior to the proposed distribution and shall indicate whether or not it wishes such distribution to be made to Holders of ADSs. Upon receipt of a notice indicating that the Company wishes such distribution be made to Holders of ADSs, the Depositary shall determine whether such distribution to Holders is lawful and practicable. The Depositary shall not make such distribution unless (i) the Company shall have timely requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7, and (iii) the Depositary shall have determined that such distribution is reasonably practicable.

(b) Upon receipt of satisfactory documentation and the request of the Company to distribute property to Holders of ADSs and after making the requisite determinations set forth in (a) above, the Depositary may distribute the property so received to the Holders of record as of the ADS Record Date, in proportion to the number of ADSs held by such Holders respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary, and (ii) net of any taxes and other governmental charges withheld. The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) or other governmental charges applicable to the distribution.

(c) If (i) the Company does not request the Depositary to make such distribution to Holders or requests not to make such distribution to Holders, (ii) the Depositary does not receive satisfactory documentation within the terms of Section 5.7, or (iii) the Depositary determines that all or a portion of such distribution is not reasonably practicable or feasible, the Depositary shall endeavor to sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem proper and shall distribute the net proceeds, if any, of such sale received by the Depositary (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) to the Holders as of the ADS Record Date upon the terms of Section 4.1. If the Depositary is unable to sell such property, the Depositary may dispose of such property in any way it deems reasonably practicable under the circumstances for nominal or no consideration and Holders and Beneficial Owners shall have no rights thereto or arising therefrom.

SECTION 4.6 Conversion of Foreign Currency. Whenever the Depositary or the Custodian shall receive Foreign Currency from time to time, by way of dividends or other distributions or the net proceeds from the sale of securities, property or rights, and in the judgment of the Depositary such Foreign Currency can at such time be converted on a practicable basis (by sale or in any other manner that it may determine in accordance with applicable law) into Dollars transferable to the United States and distributable to the Holders entitled thereto, the Depositary shall convert or cause to be converted, by sale or in any other manner that it may determine, such Foreign Currency into Dollars, and shall distribute such Dollars (net of any fees, expenses, taxes or other governmental charges incurred in the process of such conversion) in accordance with the terms of the applicable sections of this Deposit Agreement. If the Depositary shall have distributed warrants or other instruments that entitle the holders thereof to such Dollars, the Depositary shall distribute such Dollars to the holders of such warrants and/or instruments

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upon surrender thereof for cancellation, in either case without liability for interest thereon. Such distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Holders on account of exchange restrictions, the date of delivery of any Receipt or otherwise.

Holders understand that in converting Foreign Currency, amounts received on conversion are calculated at a rate which may exceed the number of decimal places used by the Depositary to report distribution rates (which in any case will not be less than two decimal places). Any excess amount may be retained by the Depositary as an additional cost of conversion, irrespective of any other fees and expenses payable or owing hereunder and shall not be subject to escheatment.

If such conversion or distribution can be effected only with the approval or license of any government or agency thereof, the Depositary may file such application for approval or license, if any, as it may deem necessary, practicable and at nominal cost and expense. Nothing herein shall obligate the Depositary to file or cause to be filed, or to seek effectiveness of any such application or license.

If at any time the Depositary shall determine that in its judgment the conversion of any Foreign Currency and the transfer and distribution of proceeds of such conversion received by the Depositary is not practical or lawful, or if any approval or license of any governmental authority or agency thereof that is required for such conversion, transfer and distribution is denied, or not obtainable at a reasonable cost, within a reasonable period or otherwise sought, the Depositary shall, in its sole discretion but subject to applicable laws and regulations, either (i) distribute the foreign currency (or an appropriate document evidencing the right to receive such foreign currency) received by the Depositary to the Holders entitled to receive such foreign currency, or (ii) hold such foreign currency uninvested and without liability for interest thereon for the respective accounts of the Holders entitled to receive the same.

SECTION 4.7 Fixing of Record Date. Whenever necessary in connection with any distribution (whether in cash, Shares, rights, or other distribution), or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each American Depositary Share, or whenever the Depositary shall receive notice of any meeting of or solicitation of holders of Shares or other Deposited Securities, or whenever the Depositary shall find it necessary or convenient, the Depositary shall fix a record date (the “ADS Record Date”), as close as practicable to the record date fixed by the Company with respect to the Shares, for the determination of the Holders who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, or to give or withhold such consent, or to receive such notice or solicitation or to otherwise take action, or to exercise the rights of Holders with respect to such changed number of Shares represented by each American Depositary Share. Subject to applicable law and the provisions of Sections 4.1 through 4.6 and to the other terms and conditions of this Deposit Agreement, only the Holders of record at the close of business in New York on such ADS Record Date shall be entitled to receive such distribution, to give such voting instructions, to receive such notice or solicitation, or otherwise take action.

SECTION 4.8 Voting of Deposited Securities. Subject to the next sentence, as soon as practicable after receipt of notice of any meeting at which the holders of Shares are entitled to vote, or of solicitation of consents or proxies from holders of Shares or other Deposited Securities, the Depositary shall fix the ADS Record Date in respect of such meeting or solicitation of consent or proxy. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least 30 days prior to the date of such vote or meeting) and at the Company’s expense and provided no U.S. legal prohibitions exist, mail by regular, ordinary mail delivery (or by electronic mail or as otherwise may be agreed between the Company and the Depositary in writing from time to time) or otherwise distribute

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to Holders as of the ADS Record Date: (a) such notice of meeting or solicitation of consent or proxy; (b) a statement that the Holders at the close of business on the ADS Record Date will be entitled, subject to any applicable law, the Company’s Memorandum of Association and Bye-laws and the provisions of or governing the Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Shares or other Deposited Securities represented by such Holder’s American Depositary Shares; and (c) a brief statement as to the manner in which such instructions may be given. Voting instructions may be given only in respect of a number of American Depositary Shares representing an integral number of Shares or other Deposited Securities. Upon the timely receipt of written instructions of a Holder of American Depositary Shares on the ADS Record Date of voting instructions in the manner specified by the Depositary, the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of this Deposit Agreement, the Company’s Bye-laws and the provisions of or governing the Deposited Securities, to vote or cause the Custodian to vote the Shares and/or other Deposited Securities (in person or by proxy) represented by American Depositary Shares evidenced by such Receipt in accordance with such voting instructions.

Neither the Depositary nor the Custodian shall, under any circumstances exercise any discretion as to voting, and neither the Depositary nor the Custodian shall vote, or attempt to exercise the right to vote, or in any way make use of for purposes of establishing a quorum or otherwise, the Shares or other Deposited Securities represented by ADSs except pursuant to and in accordance with such written instructions from Holders.

There can be no assurance that Holders or Beneficial Owners generally or any Holder or Beneficial Owner in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner.

Notwithstanding the above, save for applicable provisions of the law of Bermuda , and in accordance with the terms of Section 5.3, the Depositary shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities or the manner in which such vote is cast or the effect of any such vote.

SECTION 4.9 Changes Affecting Deposited Securities. Upon any change in par value, split-up, subdivision, cancellation, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, amalgamation, merger or consolidation or sale of assets affecting the Company or to which it is otherwise a party, any securities which shall be received by the Depositary or the Custodian in exchange for, or in conversion of or replacement or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Securities under this Deposit Agreement, and the Receipts shall, subject to the provisions of this Deposit Agreement and applicable law, evidence American Depositary Shares representing the right to receive such additional securities. Alternatively, the Depositary may, with the Company’s approval, and shall, if the Company shall so request, subject to the terms of the Deposit Agreement and receipt of an opinion of counsel to the Company furnished at the Company’s expense satisfactory to the Depositary that such distributions are not in violation of any applicable laws or regulations, execute and deliver additional Receipts as in the case of a stock dividend on the Shares, or call for the surrender of outstanding Receipts to be exchanged for new Receipts, in either case, as well as in the event of newly deposited Shares, with necessary modifications to the form of Receipt contained in Exhibit A hereto, specifically describing such new Deposited Securities and/or corporate change. The Company agrees to, jointly with the Depositary, amend the Registration Statement on Form F-6 as filed with the Commission to permit the issuance of such new form of Receipts. Notwithstanding the foregoing, in the event that any security so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and

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shall, if the Company requests, subject to receipt of an opinion of the Company’s counsel furnished at the Company’s expense satisfactory to the Depositary that such action is not in violation of any applicable laws or regulations, sell such securities at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) for the account of the Holders otherwise entitled to such securities upon an averaged or other practicable basis without regard to any distinctions among such Holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to Section 4.1. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or feasible to make such securities available to Holders in general or to any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such securities.

SECTION 4.10 Available Information. The Company is subject to the periodic reporting requirements of the Exchange Act and accordingly files certain information with the Commission. These reports and documents can be inspected and copied at the public reference facilities maintained by the Commission located at 100 F Street, N.E., Washington D.C. 20549, U.S.A.

SECTION 4.11 Reports. The Depositary shall make available during normal business hour on any Business Day for inspection by Holders at its Corporate Trust Office any reports and communications, including any proxy soliciting materials, received from the Company which are both (a) received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Company. The Company agrees to provide to the Depositary, at the Company’s expense, all documents that it provides to the Custodian. The Depositary shall, at the expense of the Company and in accordance with Section 5.6, also mail by regular, ordinary mail delivery or by electronic transmission (if agreed by the Company and the Depositary) and unless otherwise agreed in writing by the Company and the Depositary, to Holders copies of such reports when furnished by the Company pursuant to Section 5.6.

SECTION 4.12 List of Holders. Promptly upon written request by the Company, the Depositary shall, at the expense of the Company, furnish to it a list, as of a recent date, of the names, addresses and holdings of American Depositary Shares by all persons in whose names Receipts are registered on the books of the Depositary.

SECTION 4.13 Taxation; Withholding. The Depositary will, and will instruct the Custodian to, forward to the Company or its agents such information from its records as the Company may reasonably request to enable the Company or its agents to file necessary tax reports with governmental authorities or agencies. The Depositary, the Custodian or the Company and its agents may, but shall not be obligated to, file such reports as are necessary to reduce or eliminate applicable taxes on dividends and on other distributions in respect of Deposited Securities under applicable tax treaties or laws for the Holders and Beneficial Owners. Holders and Beneficial Owners of American Depositary Shares may be required from time to time, and in a timely manner, to file such proof of taxpayer status, residence and beneficial ownership (as applicable), to execute such certificates and to make such representations and warranties, or to provide any other information or documents, as the Depositary or the Custodian may deem necessary or proper to fulfill the Depositary’s or the Custodian’s obligations under applicable law. The Holders and Beneficial Owners shall indemnify the Depositary, the Company, the Custodian and any of their respective directors, employees, agents and Affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained.

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The Company shall remit to the appropriate governmental authority or agency any amounts required to be withheld by the Company and owing to such governmental authority or agency. Upon any such withholding, the Company shall remit to the Depositary information about such taxes or governmental charges withheld or paid, and, if so requested, the tax receipt (or other proof of payment to the applicable governmental authority) therefor, in each case, in a form satisfactory to the Depositary. The Depositary shall, to the extent required by U.S. law, report to Holders: (i) any taxes withheld by it; (ii) any taxes withheld by the Custodian, subject to information being provided to the Depositary by the Custodian; and (iii) any taxes withheld by the Company, subject to information being provided to the Depositary by the Company. The Depositary and the Custodian shall not be required to provide the Holders with any evidence of the remittance by the Company (or its agents) of any taxes withheld, or of the payment of taxes by the Company, except to the extent the evidence is provided by the Company to the Depositary. Neither the Depositary nor the Custodian shall be liable for the failure by any Holder or Beneficial Owner to obtain the benefits of credits on the basis of non-U.S. tax paid against such Holder’s or Beneficial Owner’s income tax liability.

In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charge which the Depositary is obligated to withhold, the Depositary shall withhold the amount required to be withheld and may by public or private sale dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner as the Depositary deems necessary and practicable to pay such taxes or charges and the Depositary shall distribute the net proceeds of any such sale after deduction of such taxes or charges to the Holders entitled thereto in proportion to the number of American Depositary Shares held by them respectively.

The Depositary is under no obligation to provide the Holders and Beneficial Owners with any information about the tax status of the Company. The Depositary shall not incur any liability for any tax consequences that may be incurred by Holders and Beneficial Owners on account of their ownership of the American Depositary Shares.

ARTICLE V.

THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY

SECTION 5.1 Maintenance of Office and Transfer Books by the Registrar. Until termination of this Deposit Agreement in accordance with its terms, the Depositary or if a Registrar for the Receipts shall have been appointed, the Registrar shall maintain in the Borough of Manhattan, the City of New York, an office and facilities for the execution and delivery, registration, registration of transfers, combination and split-up of Receipts, the surrender of Receipts and the delivery and withdrawal of Deposited Securities in accordance with the provisions of this Deposit Agreement.

The Depositary or the Registrar as applicable, shall keep books for the registration of Receipts and transfers of Receipts which at all reasonable times shall be open for inspection by the Company and by the Holders of such Receipts, provided that such inspection shall not be, to the Depositary’s or the Registrar’s knowledge, for the purpose of communicating with Holders of such Receipts in the interest of a business or object other than the business of the Company or other than a matter related to this Deposit Agreement or the Receipts.

The Depositary or the Registrar, as applicable, may close the transfer books with respect to the Receipts, at any time or from time to time, when deemed necessary or advisable by it in connection with the performance of its duties hereunder.

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If any Receipts or the American Depositary Shares evidenced thereby are listed on one or more stock exchanges or automated quotation systems in the United States, the Depositary shall act as Registrar or appoint a Registrar or one or more co-registrars for registration of Receipts and transfers, combinations and split-ups, and to countersign such Receipts in accordance with any requirements of such exchanges or systems. Such Registrar or co-registrars may be removed and a substitute or substitutes appointed by the Depositary.

If any Receipts or the American Depositary Shares evidenced thereby are listed on one or more securities exchanges, markets or automated quotation systems, (i) the Depositary shall be entitled to, and shall, take or refrain from taking such action(s) as it may deem necessary or appropriate to comply with the requirements of such securities exchange(s), market(s) or automated quotation system(s) applicable to it, notwithstanding any other provision of this Deposit Agreement; and (ii) upon the reasonable request of the Depositary, the Company shall provide the Depositary such information and assistance as may be reasonably necessary for the Depositary to comply with such requirements, to the extent that the Company may lawfully do so.

SECTION 5.2 Exoneration. Neither the Depositary, the Custodian or the Company shall be obligated to do or perform any act which is inconsistent with the provisions of this Deposit Agreement or shall incur any liability (i) if the Depositary, the Custodian or the Company or their respective controlling persons or agents shall be prevented or forbidden from, or delayed in, doing or performing any act or thing required by the terms of this Deposit Agreement, by reason of any provision of any present or future law or regulation of the United States or any state thereof, Bermuda, Ireland or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of the possible criminal or civil penalties or restraint, or by reason of any provision, present or future, of the Company’s Memorandum of Association or Bye-laws or any provision of or governing any Deposited Securities, or by reason of any act of God or war or other circumstances beyond its control (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, revolutions, rebellions, explosions and computer failure), (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement or in the Company’s Memorandum of Association or Bye-laws or provisions of or governing Deposited Securities, (iii) for any action or inaction of the Depositary, the Custodian or the Company or their respective controlling persons or agents in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, (iv) for the inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of this Deposit Agreement, made available to Holders of American Depositary Shares or (v) for any special, consequential, indirect or punitive damages for any breach of the terms of this Deposit Agreement or otherwise.

The Depositary, its controlling persons, its agents, the Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request, opinion or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.

No disclaimer of liability under the Securities Act is intended by any provision of this Deposit Agreement.

SECTION 5.3 Standard of Care. The Company and the Depositary and their respective agents assume no obligation and shall not be subject to any liability under this Deposit Agreement or any

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Receipts to any Holder(s) or Beneficial Owner(s) or other persons, except in accordance with Section 5.8 hereof, provided, that the Company and the Depositary and their respective agents agree to perform their respective obligations specifically set forth in this Deposit Agreement or the applicable ADRs without gross negligence or bad faith.

Without limitation of the foregoing, neither the Depositary, nor the Company, nor any of their respective controlling persons, or agents, shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or in respect of the Receipts, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expenses (including fees and disbursements of counsel) and liabilities be furnished as often as may be required (and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to the Depositary).

The Depositary and its agents shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any vote is cast or the effects of any vote. The Depositary shall not incur any liability for any failure to determine that any distribution or action may be lawful or reasonably practicable, for the content of any information submitted to it by the Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Securities, for the validity or worth of the Deposited Securities or for any tax consequences that may result from the ownership of ADSs, Shares or Deposited Securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of this Deposit Agreement or for the failure or timeliness of any notice from the Company, or for any action or non action by it in reliance upon the opinion, advice of or information from legal counsel, accountants, any person representing Shares for deposit, any Holder or any other person believed by it in good faith to be competent to give such advice or information. The Depositary and its agents shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without gross negligence or bad faith while it acted as Depositary.

SECTION 5.4 Resignation and Removal of the Depositary; Appointment of Successor Depositary. The Depositary may at any time resign as Depositary hereunder by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90th day after delivery thereof to the Company (whereupon the Depositary shall, in the event no successor depositary has been appointed by the Company, be entitled to take the actions contemplated in Section 6.2 hereof), or (ii) upon the appointment by the Company of a successor depositary and its acceptance of such appointment as hereinafter provided, save that, any amounts, fees, costs or expenses owed to the Depositary hereunder or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such resignation.

The Company shall use reasonable efforts to appoint such successor depositary, and give notice to the Depositary of such appointment, not more than 90 days after delivery by the Depositary of written notice of resignation as provided in this paragraph. In the event that notice of the appointment of a successor depositary is not provided by the Company in accordance with the preceding sentence, the Depositary shall be entitled to take the actions contemplated in Section 6.2 hereof.

The Depositary may at any time be removed by the Company by written notice of such removal, which removal shall be effective on the later of (i) the 90th day after delivery thereof to the

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Depositary (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2 hereof), or (ii) upon the appointment by the Company of a successor depositary and its acceptance of such appointment as hereinafter provided, save that, any amounts, fees, costs or expenses owed to the Depositary hereunder or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such removal.

In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York. Every successor depositary shall be required by the Company to execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed (except as required by applicable law), shall become fully vested with all the rights, powers, duties and obligations of its predecessor. The predecessor depositary, upon payment of all sums due to it and on the written request of the Company, shall (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other than as contemplated in Sections 5.8 and 5.9), (ii) duly assign, transfer and deliver all right, title and interest to the Deposited Securities to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding Receipts and such other information relating to Receipts and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly mail notice of its appointment to such Holders.

Any corporation into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act.

SECTION 5.5 The Custodian. The Custodian or its successors in acting hereunder shall be subject at all times and in all respects to the direction of the Depositary for the Deposited Securities for which the Custodian acts as custodian and shall be responsible solely to it. If any Custodian resigns or is discharged from its duties hereunder with respect to any Deposited Securities and no other Custodian has previously been appointed hereunder, the Depositary shall promptly appoint a substitute custodian. The Depositary shall require such resigning or discharged Custodian to deliver the Deposited Securities held by it, together with all such records maintained by it as Custodian with respect to such Deposited Securities as the Depositary may request, to the Custodian designated by the Depositary. Whenever the Depositary determines, in its discretion, that it is appropriate to do so, it may appoint an additional entity to act as Custodian with respect to any Deposited Securities, or discharge the Custodian with respect to any Deposited Securities and appoint a substitute custodian, which shall thereafter be Custodian hereunder with respect to the Deposited Securities. After any such change, the Depositary shall give notice thereof in writing to all Holders.

Upon the appointment of any successor depositary, any Custodian then acting hereunder shall, unless otherwise instructed by the Depositary, continue to be the Custodian of the Deposited Securities without any further act or writing and shall be subject to the direction of the successor depositary. The successor depositary so appointed shall, nevertheless, on the written request of any Custodian, execute and deliver to such Custodian all such instruments as may be proper to give to such Custodian full and complete power and authority to act on the direction of such successor depositary.

SECTION 5.6 Notices and Reports. On or before the first date on which the Company gives notice, by publication or otherwise, of any meeting of holders of Shares or other Deposited Securities, or of any adjourned meeting of such holders, or of the taking of any action by such holders other than at a meeting, or of the taking of any action in respect of any cash or other distributions or the offering of any rights in respect of Deposited Securities, the Company shall transmit to the Depositary

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and the Custodian a copy of the notice thereof in English but otherwise in the form given or to be given to holders of Shares or other Deposited Securities. The Company shall also furnish to the Custodian and the Depositary a summary, in English, of any applicable provisions or proposed provisions of the Company’s Bye-laws that may be relevant or pertain to such notice of meeting or be the subject of a vote thereat.

The Company will also transmit to the Depositary (a) English language versions of the other notices, reports and communications which are made generally available by the Company to holders of its Shares or other Deposited Securities and (b) English language versions of the Company’s annual and other reports prepared in accordance with the applicable requirements of the Commission. The Depositary shall arrange, at the request of the Company and at the Company’s expense, for the mailing of copies thereof to all Holders, or by any other means as agreed between the Company and the Depositary (at the Company’s expense) or make such notices, reports and other communications available for inspection by all Holders, provided, that, the Depositary shall have received evidence sufficiently satisfactory to it, including in the form of an opinion of local and/or U.S. counsel or counsel of other applicable jurisdiction, furnished at the expense of the Company, as the Depositary in its discretion so requests, that the distribution of such notices, reports and any such other communications to Holders from time to time is valid and does not or will not infringe any local, U.S. or other applicable jurisdiction regulatory restrictions or requirements if so distributed and made available to Holders. The Company will timely provide the Depositary with the quantity of such notices, reports, and communications, as requested by the Depositary from time to time, in order for the Depositary to effect such mailings. The Company has delivered to the Depositary and the Custodian a copy of the Company’s Bye-laws along with the provisions of or governing the Shares and any other Deposited Securities issued by the Company or any Affiliate of the Company, in connection with the Shares, and promptly upon any amendment thereto or change therein, the Company shall deliver to the Depositary and the Custodian a copy of such amendment thereto or change therein. The Depositary may rely upon such copy for all purposes of this Deposit Agreement.

The Depositary will make available a copy of any such notices, reports or communications issued by the Company and delivered to the Depositary for inspection by the Holders of the Receipts evidencing the American Depositary Shares representing such Shares governed by such provisions at the Depositary’s Corporate Trust Office, at the office of the Custodian and at any other designated transfer office.

SECTION 5.7 Issuance of Additional Shares, ADSs etc. The Company agrees that in the event it or any of its Affiliates proposes (i) an issuance, sale or distribution of additional Shares, (ii) an offering of rights to subscribe for Shares or other Deposited Securities, (iii) an issuance of securities convertible into or exchangeable for Shares, (iv) an issuance of rights to subscribe for securities convertible into or exchangeable for Shares, (v) an elective dividend of cash or Shares, (vi) a redemption of Deposited Securities, (vii) a meeting of holders of Deposited Securities, or solicitation of consents or proxies, relating to any reclassification of securities, merger, amalgamation or consolidation or transfer of assets or (viii) any reclassification, recapitalization, reorganization, merger, amalgamation, consolidation or sale of assets which affects the Deposited Securities, it will obtain U.S. legal advice and take all steps necessary to ensure that the application of the proposed transaction to Holders and Beneficial Owners does not violate the registration provisions of the Securities Act, or any other applicable laws (including, without limitation, the Investment Company Act of 1940, as amended, the Exchange Act or the securities laws of the states of the United States). In support of the foregoing, the Company will furnish to the Depositary, at its own expense, (a) a written opinion of U.S. counsel (satisfactory to the Depositary) stating whether or not application of such transaction to Holders and Beneficial Owners (1) requires a registration statement under the Securities Act to be in effect or (2) is exempt from the registration requirements of the Securities Act and (b) an opinion of Bermuda counsel (satisfactory to the Depositary)

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stating that (1) making the transaction available to Holders and Beneficial Owners does not violate the laws or regulations of Bermuda and (2) a written opinion of Bermuda counsel (satisfactory to the Depositary) stating that all requisite regulatory consents and approvals have been obtained in Bermuda. If the filing of a registration statement is required, the Depositary shall not have any obligation to proceed with the transaction unless it shall have received evidence reasonably satisfactory to it that such registration statement has been declared effective and that such distribution is in accordance with all applicable laws or regulations. If, being advised by counsel, the Company determines that a transaction is required to be registered under the Securities Act, the Company will either (i) register such transaction to the extent necessary, (ii) alter the terms of the transaction to avoid the registration requirements of the Securities Act or (iii) direct the Depositary to take specific measures, in each case as contemplated in this Deposit Agreement, to prevent such transaction from violating the registration requirements of the Securities Act.

The Company agrees with the Depositary that neither the Company nor any of its Affiliates will at any time (i) deposit any Shares or other Deposited Securities, either upon original issuance or upon a sale of Shares or other Deposited Securities previously issued and reacquired by the Company or by any such Affiliate, or (ii) issue additional Shares, rights to subscribe for such Shares, securities convertible into or exchangeable for Shares or rights to subscribe for such securities, unless such transaction and the securities issuable in such transaction are exempt from registration under the Securities Act or have been registered under the Securities Act (and such registration statement has been declared effective).

Notwithstanding anything else contained in this Deposit Agreement, nothing in this Deposit Agreement shall be deemed to obligate the Company to file any registration statement in respect of any proposed transaction.

SECTION 5.8 Indemnification. The Company agrees to indemnify the Depositary, any Custodian and each of their respective directors, officers, employees, agents and Affiliates against, and hold each of them harmless from, any direct losses, liabilities, taxes, costs, demands and any charges or expenses of any kind whatsoever (including, but not limited to, reasonable attorney’s fees and expenses and, in each case, fees and expenses of counsel, in each case, irrevocable value added tax and any similar tax charged or otherwise imposed in respect thereof) (collectively referred to as “Losses”) which the Depositary or any agent thereof may incur or which may be made against it as a result of or in connection with its appointment or the exercise of its powers and duties under this Agreement or that may arise (a) out of or in connection with any offer, issuance, sale, resale, transfer, deposit or withdrawal of Receipts, American Depositary Shares, the Shares, or other Deposited Securities, as the case may be, (b) out of or in connection with any offering documents in respect thereof or (c) out of or in connection with acts performed or omitted, including, but not limited to, any delivery by the Depositary on behalf of the Company of information regarding the Company in connection with this Deposit Agreement, the Receipts, the American Depositary Shares, the Shares, or any Deposited Securities, in any such case (i) by the Depositary, the Custodian or any of their respective directors, officers, employees, agents and Affiliates, except to the extent any such Losses are due to the gross negligence or bad faith of any of them, or (ii) by the Company or any of its directors, officers, employees, agents and Affiliates; provided, however, that the foregoing indemnity shall not apply or be of any effect to the extent any such Losses arise out of or are based upon any untrue statement or alleged untrue statement or omission or alleged omission of information in any document or other conveyance of information in connection with the offer, issuance, sale, resale, transfer, deposit or withdrawal of any Receipts, American Depositary Shares, Shares, or other Deposited Securities made in reliance upon and in conformity with information regarding the Depositary provided by the Depositary. The Depositary agrees to indemnify the Company and any of its respective directors, officers, employees, agents and Affiliates against and hold each of them harmless

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from any direct Losses which may arise out of acts performed or omitted to be performed by the Depositary due to the gross negligence or bad faith of the Depositary or any of their respective directors, officers or employees, agents and/or Affiliates. In no event shall the Depositary or any of its directors, officers, employees, agents and/or Affiliates be liable for any indirect, special, punitive or consequential damages to the Company, Holders, Beneficial Owners or any other person.

Any person seeking indemnification hereunder (an “Indemnified Person”) shall notify the person from whom it is seeking indemnification (the “Indemnifying Person”) of the commencement of any indemnifiable action or claim promptly after such Indemnified Person becomes aware of such commencement (provided that the failure to make such notification shall not affect such Indemnified Person’s rights to indemnification except to the extent the Indemnifying Person is materially prejudiced by such failure) and shall consult in good faith with the Indemnifying Person as to the conduct of the defense of such action or claim that may give rise to an indemnity hereunder, which defense shall be reasonable under the circumstances. No Indemnified Person shall compromise or settle any action or claim that may give rise to an indemnity hereunder without the consent of the Indemnifying Person, which consent shall not be unreasonably withheld.

The obligations set forth in this Section shall survive the termination of this Deposit Agreement and the succession or substitution of any party hereto.

SECTION 5.9 Fees and Charges of Depositary. The Company, the Holders, the Beneficial Owners, and persons surrendering ADSs for cancellation and withdrawal of Deposited Securities shall be required to pay to the Depositary the Depositary’s fees and related charges identified as payable by them respectively as provided for under Article (9). All fees and charges so payable may, at any time and from time to time, be changed by agreement between the Depositary and the Company, but, in the case of fees and charges payable by Holders and Beneficial Owners, only in the manner contemplated in Section 6.1.

The Depositary and the Company may reach separate agreement in relation to the payment of any additional remuneration to the Depositary in respect of any exceptional duties which the Depositary finds necessary or desirable and agreed by both parties in the performance of its obligations hereunder and in respect of the actual costs and expenses of the Depositary in respect of any notices required to be given to the Holders in accordance with Article (20).

In connection with any payment by the Company to the Depositary:

(i) all fees, taxes, duties, charges, costs and expenses which are payable by the Company shall be paid or be procured to be paid by the Company (and any such amounts which are paid by the Depositary shall be reimbursed to the Depositary by the Company upon demand therefor);

(ii) such payment shall be subject to all necessary applicable exchange control and other consents and approvals having been obtained. The Company undertakes to use its reasonable endeavours to obtain all necessary approvals that are required to be obtained by it in this connection; and

(iii) the Depositary may request, in its sole but reasonable discretion after reasonable consultation with the Company, an opinion of counsel regarding U.S. law, the laws of Bermuda or of any other relevant jurisdiction, to be furnished at the expense of the Company, if at any

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time it deems it necessary to seek such an opinion of counsel regarding the validity of any action to be taken or instructed to be taken under this Agreement.

The Company agrees to promptly pay to the Depositary such other fees, charges and expenses and to reimburse the Depositary for such properly documented out-of-pocket expenses as the Depositary and the Company may agree to in writing from time to time. Responsibility for payment of such charges may at any time and from time to time be changed by agreement between the Company and the Depositary.

All payments by the Company to the Depositary under this Clause 5.9 shall be paid without set-off or counterclaim, and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imports, duties, fees, assessments or other charges of whatever nature, imposed by Bermuda or by any department, agency or other political subdivision or taxing authority thereof or therein, and all interest, penalties or similar liabilities with respect thereto.

The right of the Depositary to receive payment of fees, charges and expenses as provided above shall survive the termination of this Deposit Agreement. As to any Depositary, upon the resignation or removal of such Depositary as described in Section 5.4 hereof, such right shall extend for those fees, charges and expenses incurred prior to the effectiveness of such resignation or removal.

SECTION 5.10 Restricted Securities Owners/Ownership Restrictions. From time to time or upon the reasonable request of the Depositary, the Company shall provide to the Depositary a list setting forth, to the actual knowledge of the Company, those persons or entities who beneficially own Restricted Securities and the Company shall update that list on a regular basis. The Depositary may rely on such a list or update but shall not be liable for any action or omission made in reliance thereon. The Company agrees to advise in writing each of the persons or entities who, to the knowledge of the Company, holds Restricted Securities that such Restricted Securities are ineligible for deposit hereunder (except under the circumstances contemplated in Section 2.11) and, to the extent practicable, shall require each of such persons to represent in writing that such person will not deposit Restricted Securities hereunder (except under the circumstances contemplated in Section 2.11). Each Holder and Beneficial Owner acknowledges and agrees that each Receipt, and the terms upon which it is held by such Holder or Beneficial Owner, are subject to the Company’s Memorandum of Association and Bye-laws, and that so long as the Company’s Memorandum of Association or Bye-laws provide a means by which the Company may require Holders or Beneficial Owners to take certain actions with respect to their holdings, beneficial ownership or control over the Company’s securities (including, without limitation, obligations imposed on Competitors (as defined in the Company’s Bye-laws)), such Holders or Beneficial Owners will be bound by such obligations. The Company and the Depositary may implement such other procedures as necessary in order to conform the rights and responsibilities of Holders or Beneficial Owners to ensure monitoring, compliance and enforcement of the Company’s Memorandum of Association or Bye-laws. The Company shall, in accordance with Article (24), inform Owners and Beneficial Owners and the Depositary of any other limitations on ownership of Shares that the Owners and Beneficial Owners may be subject to by reason of the number of American Depositary Shares held under the Memorandum of Association or Bye-laws of the Company or applicable Bermuda law, as such restrictions may be in force from time to time.

The Company may, in its sole discretion, but subject to applicable law, instruct the Depositary to take action with respect to the ownership interest of any Holder or Beneficial Owner pursuant to the Company’s Bye-laws, including but not limited to, the removal or limitation of voting rights or the mandatory sale or disposition on behalf of a Holder or Beneficial Owner of the Shares

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represented by the ADRs held by such Holder or Beneficial Owner in excess of such limitations, if and to the extent such disposition is permitted by applicable law and the Company’s Memorandum of Association and Bye-laws; provided that any such measures are practicable and can be undertaken without undue burden or expense. The Depositary shall have no liability for any actions taken in accordance with such instructions.

ARTICLE VI.

AMENDMENT AND TERMINATION

SECTION 6.1 Amendment/Supplement. Subject to the terms and conditions of this Section 6.1 and applicable law, the Receipts outstanding at any time, the provisions of this Deposit Agreement and the form of Receipt attached hereto and to be issued under the terms hereof may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable and not materially prejudicial to the Holders without the consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than charges in connection with foreign exchange control regulations, and taxes and other governmental charges, delivery and other such expenses payable by Holders or Beneficial Owners), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding Receipts until 30 days after notice of such amendment or supplement shall have been given to the Holders of outstanding Receipts. The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the American Depositary Shares to be registered on Form F-6 under the Securities Act or (b) the American Depositary Shares or the Shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such American Depositary Share or Shares, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement as amended and supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such Receipt and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require amendment or supplement of the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and the Receipt at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, rules or regulations.

SECTION 6.2 Termination. The Depositary shall, at any time at the written direction of the Company, terminate this Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 90 days prior to the date fixed in such notice for such termination, provided that, the Depositary shall be reimbursed by the Company for any amounts, fees, costs or expenses owed to it in accordance with the terms of this Deposit Agreement and in accordance with any other agreements as otherwise agreed in writing between the Company and the Depositary from time to time, prior to such termination shall take effect. If 90 days shall have expired after (i) the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and in either case a successor depositary shall not have been appointed and accepted its appointment as provided in Section

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5.4, the Depositary may terminate this Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 30 days prior to the date fixed for such termination. On and after the date of termination of this Deposit Agreement, the Holder will, upon surrender of such Receipt at the Corporate Trust Office of the Depositary, upon the payment of the charges of the Depositary for the surrender of Receipts referred to in Section 2.6 and subject to the conditions and restrictions therein set forth, and upon payment of any applicable taxes or governmental charges, be entitled to delivery, to him or upon his order, of the amount of Deposited Securities represented by such Receipt. If any Receipts shall remain outstanding after the date of termination of this Deposit Agreement, the Registrar thereafter shall discontinue the registration of transfers of Receipts, and the Depositary shall suspend the distribution of dividends to the Holders thereof, and shall not give any further notices or perform any further acts under this Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to Deposited Securities, shall sell rights or other property as provided in this Deposit Agreement, and shall continue to deliver Deposited Securities, subject to the conditions and restrictions set forth in Section 2.6, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for Receipts surrendered to the Depositary (after deducting, or charging, as the case may be, in each case, the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of this Deposit Agreement and any applicable taxes or governmental charges or assessments). At any time after the expiration of six months from the date of termination of this Deposit Agreement, the Depositary may sell the Deposited Securities then held hereunder and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, in an unsegregated account, without liability for interest for the pro rata benefit of the Holders of Receipts whose Receipts have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under this Deposit Agreement with respect to the Receipts and the Shares, Deposited Securities and American Depositary Shares, except to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case, the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of this Deposit Agreement and any applicable taxes or governmental charges or assessments). Upon the termination of this Deposit Agreement, the Company shall be discharged from all obligations under this Deposit Agreement except for its obligations to the Depositary hereunder.

ARTICLE VII.

MISCELLANEOUS

SECTION 7.1 Counterparts. This Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of such counterparts together shall constitute one and the same agreement. Copies of this Deposit Agreement shall be maintained with the Depositary and shall be open to inspection by any Holder during business hours.

SECTION 7.2 No Third-Party Beneficiaries. This Deposit Agreement is for the exclusive benefit of the parties hereto (and their successors) and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person, except to the extent specifically set forth in this Deposit Agreement. Nothing in this Deposit Agreement shall be deemed to give rise to a partnership or joint venture among the parties hereto nor establish a fiduciary or similar relationship among the parties. The parties hereto acknowledge and agree that (i) the Depositary and its Affiliates may at any time have multiple banking relationships with the Company and its Affiliates, (ii) the Depositary and its Affiliates may be engaged at any time in transactions in which parties adverse to the Company or the Holders or Beneficial Owners may have interests and (iii) nothing contained in this Agreement shall (a) preclude the

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Depositary or any of its Affiliates from engaging in such transactions or establishing or maintaining such relationships, or (b) obligate the Depositary or any of its Affiliates to disclose such transactions or relationships or to account for any profit made or payment received in such transactions or relationships.

SECTION 7.3 Severability. In case any one or more of the provisions contained in this Deposit Agreement or in the Receipts should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby.

SECTION 7.4 Holders and Beneficial Owners as Parties; Binding Effect. The Holders and Beneficial Owners from time to time of American Depositary Shares shall be parties to the Deposit Agreement and shall be bound by all of the terms and conditions hereof and of any Receipt by acceptance hereof or any beneficial interest therein.

SECTION 7.5 Notices. Any and all notices to be given to the Company shall be deemed to have been duly given if personally delivered or sent by mail, air courier or cable, telex, facsimile transmission or electronic transmission, confirmed by letter, addressed to Babcock & Brown Air Limited [•], Attention: [•], or to any other address which the Company may specify in writing to the Depositary.

Any and all notices to be given to the Depositary shall be deemed to have been duly given if personally delivered or sent by mail, air courier or cable, telex, facsimile transmission or by electronic transmission (if agreed by the Company and the Depositary), at the Company’s expense, unless otherwise agreed in writing between the Company and the Depositary, confirmed by letter, addressed to Deutsche Bank Trust Company Americas, 60 Wall Street, New York, New York 10005, USA, Attention: ADR Department, telephone: +1 212 250-9100, facsimile: +1 212 797 0327 or to any other address which the Depositary may specify in writing to the Company.

Any and all notices to be given to any Holder shall be deemed to have been duly given if personally delivered or sent by mail or cable, telex, facsimile transmission or by electronic transmission (if agreed by the Company and the Depositary), at the Company’s expense, unless otherwise agreed in writing between the Company and the Depositary, addressed to such Holder at the address of such Holder as it appears on the transfer books for Receipts of the Depositary, or, if such Holder shall have filed with the Depositary a written request that notices intended for such Holder be mailed to some other address, at the address specified in such request. Notice to Holders shall be deemed to be notice to Beneficial Owners for all purposes of this Deposit Agreement.

Delivery of a notice sent by mail, air courier or cable, telex, facsimile or electronic transmission shall be deemed to be effective at the time when a duly addressed letter containing the same (or a confirmation thereof in the case of a cable, telex, facsimile or electronic transmission) is deposited, postage prepaid, in a post-office letter box or delivered to an air courier service. The Depositary or the Company may, however, act upon any cable, telex, facsimile or electronic transmission received by it from the other or from any Holder, notwithstanding that such cable, telex, facsimile or electronic transmission shall not subsequently be confirmed by letter as aforesaid, as the case may be.

SECTION 7.6 Governing Law and Jurisdiction. This Deposit Agreement and the Receipts shall be interpreted in accordance with, and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by, the laws of the State of New York without reference to the principles of choice of law thereof. Except as set forth in the following paragraph of this Section 7.6, the Company and the Depositary agree that the federal or state courts in the City of New York shall have non-exclusive jurisdiction to hear and determine any suit, action or proceeding and to settle any dispute between them

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that may arise out of or in connection with this Deposit Agreement and, for such purposes, each irrevocably submits to the non-exclusive jurisdiction of such courts. The Company hereby irrevocably designates, appoints and empowers Puglisi & Associates (the “Process Agent”), now at 850 Library Avenue, Suite 204, Newark, DE 19711, United States of America, as its authorized agent to receive and accept for and on its behalf, and on behalf of its properties, assets and revenues, service by mail of any and all legal process, summons, notices and documents that may be served in any suit, action or proceeding brought against the Company in any federal or state court as described in the preceding sentence or in the next paragraph of this Section 7.6. If for any reason the Process Agent shall cease to be available to act as such, the Company agrees to designate a new agent in The City of New York on the terms and for the purposes of this Section 7.6 reasonably satisfactory to the Depositary. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any suit, action or proceeding against the Company, by service by mail of a copy thereof upon the Process Agent (whether or not the appointment of such Process Agent shall for any reason prove to be ineffective or such Process Agent shall fail to accept or acknowledge such service), with a copy mailed to the Company by registered or certified air mail, postage prepaid, to its address provided in Section 7.5 hereof. The Company agrees that the failure of the Process Agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon.

Notwithstanding the foregoing, the Depositary and the Company unconditionally agree that in the event that a Holder or Beneficial Owner brings a suit, action or proceeding against (a) the Company, (b) the Depositary in its capacity as Depositary under this Deposit Agreement or (c) against both the Company and the Depositary, in any state or federal court of the United States, and the Depositary or the Company have any claim, for indemnification or otherwise, against each other arising out of the subject matter of such suit, action or proceeding, then the Company and the Depositary may pursue such claim against each other in the state or federal court in the United States in which such suit, action, or proceeding is pending, and for such purposes, the Company and the Depositary irrevocably submit to the non-exclusive jurisdiction of such courts. The Company agrees that service of process upon the Process Agent in the manner set forth in the preceding paragraph shall be effective service upon it for any suit, action or proceeding brought against it as described in this paragraph.

The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any actions, suits or proceedings brought in any court as provided in this Section 7.6, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

The Company and the Depositary agree that, notwithstanding the foregoing, with regard to any claim or dispute or difference of whatever nature between the parties hereto arising directly or indirectly from the relationship created by this Deposit Agreement, the Depositary, in its sole discretion, shall be entitled to refer such dispute or difference for final settlement by arbitration (“Arbitration”) in accordance with the applicable rules of the American Arbitration Association (the “Rules”) then in force, by a sole arbitrator appointed in accordance with the Rules. The seat and place of any reference to Arbitration shall be New York, New York State. The procedural law of any Arbitration shall be New York law and the language to be used in the Arbitration shall be English. The fees of the arbitrator and other costs incurred by the parties in connection with such Arbitration shall be paid by the party that is unsuccessful in such Arbitration.

The provisions of this Section 7.6 shall survive any termination of this Deposit Agreement, in whole or in part.

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SECTION 7.7 Assignment. Subject to the provisions of Section 5.4 hereof, this Deposit Agreement may not be assigned by either the Company or the Depositary.

SECTION 7.8 Agents. The Depositary shall be entitled, in its sole but reasonable discretion, to appoint one or more agents (the “Agents”) of which it shall have control for the purpose, inter alia, of making distributions to the Holders or otherwise carrying out its obligations under this Agreement.

SECTION 7.9 Exclusivity. The Company agrees not to appoint any other depositary for the issuance or administration of depositary receipts evidencing any class of stock of the Company so long as Deutsche Bank Trust Company Americas is acting as Depositary hereunder.

SECTION 7.10 Compliance with U.S. Securities Laws. Notwithstanding anything in this Deposit Agreement to the contrary, the withdrawal or delivery of Deposited Securities will not be suspended by the Company or the Depositary except as would be permitted by Instruction I.A.(1) of the General Instructions to Form F-6 Registration Statement, as amended from time to time, under the Securities Act.

SECTION 7.11 Titles. All references in this Deposit Agreement to exhibits, Articles, sections, subsections, and other subdivisions refer to the exhibits, Articles, sections, subsections and other subdivisions of this Deposit Agreement unless expressly provided otherwise. The words “this Deposit Agreement”, “herein”, “hereof”, “hereby”, “hereunder”, and words of similar import refer to the Deposit Agreement as a whole as in effect between the Company, the Depositary and the Holders and Beneficial Owners of ADSs and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa unless the context otherwise requires. Titles to sections of this Deposit Agreement are included for convenience only and shall be disregarded in construing the language contained in this Deposit Agreement.

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IN WITNESS WHEREOF, BABCOCK & BROWN AIR LIMITED and DEUTSCHE BANK TRUST COMPANY AMERICAS have duly executed this Deposit Agreement as of the day and year first above set forth and all Holders and Beneficial Owners shall become parties hereto upon acceptance by them of American Depositary Shares evidenced by Receipts issued in accordance with the terms hereof.

BABCOCK & BROWN AIR LIMITED
By:
	Name:
	Title:

By:
	Name:
	Title:

DEUTSCHE BANK TRUST COMPANY AMERICAS
By:
	Name:
	Title:

By:
	Name:
	Title:

EXHIBIT A

[FORM OF FACE OF RECEIPT]

Number		CUSIP: 05614P101
		ISIN: US05614P1012
	American Depositary Shares (Each
	American Depositary Share
	representing one Fully Paid Common Share)

AMERICAN DEPOSITARY RECEIPT

for

AMERICAN DEPOSITARY SHARES

representing

DEPOSITED COMMON SHARES

of

BABCOCK & BROWN AIR LIMITED

(Incorporated under the laws of Bermuda)

DEUTSCHE BANK TRUST COMPANY AMERICAS, as depositary (herein called the “Depositary”), hereby certifies that ________________is the owner of ______________ American Depositary Shares (hereinafter “ADS”), representing deposited common shares, each of Par Value of $0.001 including evidence of rights to receive such common shares (the “Shares”) of Babcock & Brown Air Limited, a company incorporated under the laws of Bermuda (the “Company”). As of the date of the Deposit Agreement (hereinafter referred to), each ADS represents one Share deposited under the Deposit Agreement with the Custodian which at the date of execution of the Deposit Agreement is The Governer and Company of the Bank of Ireland (the “Custodian”). The ratio of Depositary Shares to the Shares is subject to subsequent amendment as provided in Article IV of the Deposit Agreement. The Depositary’s Corporate Trust Office is located at 60 Wall Street, New York, New York 10005, U.S.A.

(1) The Deposit Agreement. This American Depositary Receipt is one of an issue of American Depositary Receipts (“Receipts”), all issued and to be issued upon the terms and conditions set forth in the Deposit Agreement, dated as of [•] (as amended from time to time, the “Deposit Agreement”), by and among the Company, the Depositary, and all Holders and Beneficial Owners from time to time of Receipts issued thereunder, each of whom by accepting a Receipt agrees to become a party thereto and becomes bound by all the terms and conditions thereof. The Deposit Agreement sets forth the rights and obligations of Holders and Beneficial Owners of Receipts and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other securities, property and cash from time to time, received in respect of such Shares and held thereunder (such Shares, other securities, property and cash are herein called “Deposited Securities”). Copies of the Deposit Agreement are on file at the Corporate Trust Office of the Depositary and the Custodian.

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Each owner and each Beneficial Owner, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions of the Deposit Agreement, shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit Agreement and applicable ADR(s), and (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the Deposit Agreement and the applicable ADR(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the Deposit Agreement and the applicable ADR(s), the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof.

The statements made on the face and reverse of this Receipt are derived from the relevant provisions of the Deposit Agreement and the Company’s Bye-laws (as in effect on the date of the Deposit Agreement) and are qualified by and subject to the detailed provisions of the Deposit Agreement, to which reference is hereby made. All capitalized terms used herein which are not otherwise defined herein shall have the meanings ascribed thereto in the Deposit Agreement. The Depositary makes no representation or warranty as to the validity or worth of the Deposited Securities. The Depositary has made arrangements for the acceptance of the American Depositary Shares into DTC. Each Beneficial Owner of American Depositary Shares held through DTC must rely on the procedures of DTC and the DTC Participants to exercise and be entitled to any rights attributable to such American Depositary Shares. The Receipt evidencing the American Depositary Shares held through DTC will be registered in the name of a nominee of DTC. So long as the American Depositary Shares are held through DTC or unless otherwise required by law, ownership of beneficial interests in the Receipt registered in the name of DTC (or its nominee) will be shown on, and transfers of such ownership will be effected only through, records maintained by (i) DTC (or its nominee), or (ii) DTC Participants (or their nominees).

(2) Surrender of Receipts and Withdrawal of Deposited Securities. Upon surrender, at the Corporate Trust Office of the Depositary, of ADSs evidenced by this Receipt for the purpose of withdrawal of the Deposited Securities represented thereby, and upon payment of (i) the charges of the Depositary for the making of withdrawals and cancellation of Receipts (as set forth in Section 5.9 of the Deposit Agreement and Article (9) hereto) and (ii) all fees, taxes and governmental charges payable in connection with such surrender and withdrawal, and, subject to the terms and conditions of the Deposit Agreement, the Company’s Bye-laws, Section 7.10 of the Deposit Agreement, Article (22) of this Receipt and the provisions of or governing the Deposited Securities and other applicable laws, the Holder of the American Depositary Shares evidenced hereby is entitled to delivery, to him or upon his order, of the Deposited Securities represented by the ADS so surrendered. Subject to the last sentence of this paragraph, such Deposited Securities may be delivered in certificated form or, except for Shares, by electronic delivery. ADS may be surrendered for the purpose of withdrawing Deposited Securities by delivery of a Receipt evidencing such ADS (if held in registered form) or by book-entry delivery of such ADS to the Depositary.

A Receipt surrendered for such purposes shall, if so required by the Depositary, be properly endorsed in blank or accompanied by proper instruments of transfer in blank, and if the Depositary so requires, the Holder thereof shall execute and deliver to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be delivered to or upon the written order of a person or persons designated in such order. Thereupon, the Depositary shall direct the Custodian to Deliver (without unreasonable delay) at the designated office of the Custodian (subject to the terms and conditions of the Deposit Agreement, to the Company’s Bye-laws, and to the provisions of or governing the Deposited Securities and applicable laws, now or hereafter in effect), to or upon the written order of the person or persons designated in the order delivered to the Depositary as provided above, the Deposited Securities represented by such ADSs, together with any certificate or other proper

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documents of or relating to title for the Deposited Securities or evidence of the electronic transfer thereof (if available) as the case may be to or for the account of such person. The Depositary may make delivery to such person or persons at the Corporate Trust Office of the Depositary of any dividends or distributions with respect to the Deposited Securities represented by such Receipt, or of any proceeds of sale of any dividends, distributions or rights, which may at the time be held by the Depositary.

The Depositary may, in its discretion, refuse to accept for surrender a number of American Depositary Shares representing a number of Shares other than a whole number of Shares. In the case of surrender of a Receipt evidencing a number of ADSs representing other than a whole number of Shares, the Depositary shall cause ownership of the appropriate whole number of Shares to be delivered in accordance with the terms hereof, and shall, at the discretion of the Depositary, either (i) issue and deliver to the person surrendering such Receipt a new Receipt evidencing American Depositary Shares representing any remaining fractional Share, or (ii) sell or cause to be sold the fractional Shares represented by the Receipt so surrendered and remit the proceeds thereof (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes withheld) to the person surrendering the Receipt. At the request, risk and expense of any Holder so surrendering a Receipt, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any cash or other property (other than securities) held in respect of, and any certificate or certificates and other proper documents of or relating to title to, the Deposited Securities represented by such Receipt to the Depositary for delivery at the Corporate Trust Office of the Depositary, and for further delivery to such Holder. Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex or facsimile transmission.

(3) Transfers, Split-Ups and Combinations of Receipts. Subject to the terms and conditions of the Deposit Agreement, the Registrar shall register transfers of Receipts on its books, upon surrender at the Corporate Trust Office of the Depositary of a Receipt by the Holder thereof in person or by duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer (including signature guarantees in accordance with standard industry practice) and duly stamped as may be required by the laws of the State of New York and of the United States of America, of Bermuda and of any other applicable jurisdiction. Subject to the terms and conditions of the Deposit Agreement, including payment of the applicable fees and expenses incurred by, and charges of, the Depositary, the Depositary shall execute and deliver a new Receipt(s) (and if necessary, cause the Registrar to countersign such Receipt(s)) and deliver same to or upon the order of the person entitled to such Receipts evidencing the same aggregate number of ADSs as those evidenced by the Receipts surrendered. Upon surrender of a Receipt or Receipts for the purpose of effecting a split-up or combination of such Receipt or Receipts upon payment of the applicable fees and charges of the Depositary, and subject to the terms and conditions of the Deposit Agreement, the Depositary shall execute and deliver a new Receipt or Receipts for any authorized number of ADSs requested, evidencing the same aggregate number of ADSs as the Receipt or Receipts surrendered.

(4) Pre-Conditions to Registration, Transfer, Etc. As a condition precedent to the execution and delivery, registration of transfer, split-up, combination or surrender of any Receipt or withdrawal of any Deposited Securities, the Depositary or the Custodian may require (i) payment from the depositor of Shares or presenter of the Receipt of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in the Deposit Agreement and in this Receipt, (ii) the production of proof satisfactory to it as to the identity and genuineness of any signature or any other matters and (iii) compliance with (A) any laws or governmental regulations relating to the execution and

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delivery of Receipts and ADSs or to the withdrawal of Deposited Securities and (B) such reasonable regulations of the Depositary or the Company consistent with the Deposit Agreement and applicable law.

The issuance of ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the issuance of ADSs against the deposit of particular Shares may be withheld, or the registration of transfer of Receipts in particular instances may be refused, or the registration of transfer of Receipts generally may be suspended, during any period when the transfer books of the Depositary are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or from time to time because of any requirement of law, any government or governmental body or commission or any securities exchange upon which the Receipts or Share are listed, or under any provision of the Deposit Agreement or provisions of, or governing, the Deposited Securities or any meeting of shareholders of the Company or for any other reason, subject in all cases to Article (22) hereof. Notwithstanding any provision of the Deposit Agreement or this Receipt to the contrary, the Holders of Receipts are entitled to surrender outstanding ADSs to withdraw the Deposited Securities at any time subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the deposit of Shares in connection with voting at a shareholders’ meeting or the payment of dividends, (ii) the payment of fees, taxes and similar charges, (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the Receipts or to the withdrawal of the Deposited Securities, and (iv) other circumstances specifically contemplated by Section I.A.(l) of the General Instructions to Form F-6 (as such General Instructions may be amended from time to time). Without limitation of the foregoing, the Depositary shall not knowingly accept for deposit under the Deposit Agreement any Shares or other Deposited Securities required to be registered under the provisions of the Securities Act, unless a registration statement is in effect as to such Shares.

(5) Compliance With Information Requests. Notwithstanding any other provision of the Deposit Agreement or this Receipt, each Holder and Beneficial Owner of the ADSs represented hereby agrees to comply with requests from the Company pursuant to the laws of Bermuda, the rules and requirements of National Association of Securities Dealers and any other stock exchange on which the Shares are, or will be registered, traded or listed, the Company’s Bye-laws, which are made to provide information as to the capacity in which such Holder or Beneficial Owner owns ADSs and regarding the identity of any other person interested in such ADSs and the nature of such interest and various other matters whether or not they are Holders and/or Beneficial Owner at the time of such request. The Depositary agrees to use reasonable efforts to forward any such requests to the Holders and to forward to the Company any such responses to such requests received by the Depositary.

(6) Liability of Holder for Taxes, Duties and Other Charges. If any tax or other governmental charge shall become payable by the Depositary or the Custodian with respect to any Receipt or any Deposited Securities or ADSs, such tax, or other governmental charge shall be payable by the Holders and Beneficial Owners to the Depositary. The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Securities and may sell for the account of the Holder and/or Beneficial Owner any or all of the Deposited Securities and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the Holder and the Beneficial Owner hereof remaining fully liable for any deficiency. The Custodian may refuse the deposit of Shares, and the Depositary may refuse to issue ADSs, to deliver Receipts, register the transfer, split-up or combination of ADRs and (subject to Article (22) hereof) the withdrawal of Deposited Securities, until payment in full of such tax, charge, penalty or interest is received. Every Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian and each of their respective agents, directors, employees and Affiliates for, and hold each of

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them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from any tax benefit obtained for such Holder and/or Beneficial Owner.

Holders understand that in converting Foreign Currency, amounts received on conversion are calculated at a rate which may exceed the number of decimal places used by the Depositary to report distribution rates (which in any case will not be less than two decimal places). Any excess amount may be retained by the Depositary as an additional cost of conversion, irrespective of any other fees and expenses payable or owing hereunder and shall not be subject to escheatment.

(7) Representations and Warranties of Depositors. Each person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares (and the certificates therefor) are duly authorized, validly issued, fully paid, non-assessable and were legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares, have been validly waived or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the American Depositary Shares issuable upon such deposit will not be, Restricted Securities (except as contemplated by Section 2.11) and (v) the Shares presented for deposit have not been stripped of any rights or entitlements. Such representations and warranties shall survive the deposit and withdrawal of Shares and the issuance, cancellation and transfer of ADSs. If any such representations or warranties are false in any way, the Company and Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof.

(8) Filing Proofs, Certificates and Other Information. Any person presenting Shares for deposit, any Holder and any Beneficial Owner may be required, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary such proof of citizenship or residence, taxpayer status, payment of all applicable taxes or other governmental charges, exchange control approval, legal or beneficial ownership of ADSs and Deposited Securities, compliance with applicable laws and the terms of the Deposit Agreement and the provisions of, or governing, the Deposited Securities or other information as the Depositary deem necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations under the Deposit Agreement. Subject to Article (22) hereof and the terms of the Deposit Agreement, the Depositary and the Registrar, as applicable, may withhold the delivery or registration of transfer of any Receipt or the distribution or sale of any dividend or other distribution of rights or of the proceeds thereof or the delivery of any Deposited Securities until such proof or other information is filed, or such certifications are executed, or such representations and warranties made, or such information and documentation are provided.

(9) Charges of Depositary. The Depositary shall charge to any person surrendering ADSs for cancellation and withdrawal of Deposited Securities including, inter alia, cash distributions made pursuant to a cancellation or withdrawal, a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) so surrendered; provided, however, that in connection with a termination of the ADR facility the charge to holders of ADSs shall be no more than US $2.50 per 100 ADSs (or fraction thereof).

In addition, any depositor depositing Shares for deposit and any person surrendering ADSs for cancellation and withdrawal of Deposited Securities will be required to pay the following charges:

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(i) taxes (including applicable interest and penalties) and other governmental charges;

(ii) such registration fees as may from time to time be in effect for the registration of Shares or other Deposited Securities with the Foreign Registrar and applicable to transfers of Shares or other Deposited Securities to or from the name of the Custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively;

(iii) such cable, telex, facsimile and electronic transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the depositor depositing or person withdrawing Shares or Holders and Beneficial Owners of ADSs;

(iv) the expenses and charges incurred by the Depositary in the conversion of Foreign Currency, if any; and

(v) such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Shares, Deposited Securities, ADSs and ADRs.

Any other fees and charges of, and expenses incurred by, the Depositary shall be for the account of the Company unless otherwise agreed between the Company and the Depositary in writing from time to time. All fees and charges may, at any time and from time to time, be changed by agreement between the Depositary and Company but, in the case of fees and charges payable by Holders or Beneficial Owners, only in the manner contemplated by Article (20) of this Receipt.

(10) Title to Receipts. It is a condition of this Receipt, and every successive Holder of this Receipt by accepting or holding the same consents and agrees, that title to this Receipt (and to each ADS evidenced hereby) is transferable by delivery of the Receipt, provided it has been properly endorsed or accompanied by proper instruments of transfer, such Receipt being a certificated security under the laws of the State of New York. Notwithstanding any notice to the contrary, the Depositary may deem and treat the Holder of this Receipt (that is, the person in whose name this Receipt is registered on the books of the Depositary) as the absolute owner hereof for all purposes. The Depositary shall have no obligation or be subject to any liability under the Deposit Agreement or this Receipt to any holder of this Receipt or any Beneficial Owner unless such holder is the Holder of this Receipt registered on the books of the Depositary or, in the case of a Beneficial Owner, such Beneficial Owner or the Beneficial Owner’s representative is the Holder registered on the books of the Depositary.

(11) Validity of Receipt. This Receipt shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose, unless this Receipt has been (i) dated, (ii) signed by the manual or facsimile signature of a duly authorized signatory of the Depositary, (iii) if a Registrar for the Receipts shall have been appointed, countersigned by the manual or facsimile signature of a duly authorized signatory of the Registrar and (iv) registered in the books maintained by the Depositary or the Registrar, as applicable, for the issuance and transfer of Receipts. Receipts bearing the facsimile signature of a duly-authorized signatory of the Depositary or the Registrar, who at the time of signature was a duly-authorized signatory of the Depositary or the Registrar, as the case may be, shall bind the Depositary, notwithstanding the fact that such signatory has ceased to be so authorized prior to the execution and delivery of such Receipt by the Depositary or did not hold such office on the date of issuance of such Receipts.

(12) Available Information; Reports; Inspection of Transfer Books. The Company is subject to the periodic reporting requirements of the Exchange Act and accordingly files certain

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information with the Commission. These reports and documents can be inspected and copied at the public reference facilities maintained by the Commission located at 100 F Street, N.E., Washington D.C. 20549, U.S.A. The Depositary shall make available during normal business hours on any Business Day for inspection by Holders at its Corporate Trust Office any reports and communications, including any proxy soliciting materials, received from the Company which are both (a) received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Company.

The Depositary or the Registrar, as applicable, shall keep books for the registration of Receipts and transfers of Receipts which at all reasonable times shall be open for inspection by the Company and by the Holders of such Receipts, provided that such inspection shall not be, to the Depositary’s or the Registrar’s knowledge, for the purpose of communicating with Holders of such Receipts in the interest of a business or object other than the business of the Company or other than a matter related to the Deposit Agreement or the Receipts.

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The Depositary or the Registrar, as applicable, may close the transfer books with respect to the Receipts, at any time or from time to time, when deemed necessary or advisable by it in good faith in connection with the performance of its duties hereunder, or at the reasonable written request of the Company subject, in all cases, to Article (22) hereof.

Dated:	DEUTSCHE BANK TRUST COMPANY AMERICAS, as Depositary
	By:
	By:

The address of the Corporate Trust Office of the Depositary is 60 Wall Street, New York, New York 10005, U.S.A.

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[FORM OF REVERSE OF RECEIPT]

SUMMARY OF CERTAIN ADDITIONAL PROVISIONS

OF THE DEPOSIT AGREEMENT

(13) Dividends and Distributions in Cash, Shares, etc. Whenever the Depositary receives confirmation from the Custodian of receipt of any cash dividend or other cash distribution on any Deposited Securities, or receives proceeds from the sale of any Shares, rights securities or other entitlements under the Deposit Agreement, the Depositary will distribute promptly the amount thus received (net of applicable fees and charges of, and expenses incurred by, the Depositary and taxes withheld) to the Holders of record as of the ADS Record Date in proportion to the number of ADS representing such Deposited Securities held by such Holders respectively as of the ADS Record Date. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent. Any such fractional amounts shall be rounded to the nearest whole cent and so distributed to Holders entitled thereto. If at the time of receipt thereof any such amounts are received in a Foreign Currency and can, in the judgment of the Depositary (upon the terms of the Deposit Agreement), be converted on a practicable basis, into Dollars transferable to the United States, the Depositary will promptly convert or cause to be converted such dividend, distribution or proceeds into Dollars and will distribute in accordance with the Deposit Agreement. If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders on the ADSs representing such Deposited Securities shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the Depositary to the relevant governmental authority. Any Foreign Currency received by the Depositary shall be converted upon the terms and conditions set forth in the Deposit Agreement.

If any distribution upon any Deposited Securities consists of a dividend in, or free distribution of, Shares, the Company shall or cause such Shares to be deposited with the Custodian and registered, as the case may be, in the name of the Depositary, the Custodian or their nominees. Upon receipt of confirmation of such deposit, the Depositary shall, subject to and in accordance with the Deposit Agreement, establish the ADS Record Date and either (i) distribute to the Holders as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date, additional ADSs, which represent in aggregate the number of Shares received as such dividend, or free distribution, subject to the terms of the Deposit Agreement (including, without limitation, the applicable fees and charges of, and expenses incurred by, the Depositary, and taxes), or (ii) if additional ADSs are not so distributed, each ADS issued and outstanding after the ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interest in the additional Shares distributed upon the Deposited Securities represented thereby (net of the applicable fees and charges of, and the expenses incurred by, the Depositary, and taxes). In lieu of delivering fractional ADSs, the Depositary shall sell the number of Shares represented by the aggregate of such fractions and distribute the proceeds upon the terms set forth in the Deposit Agreement.

In the event that (x) the Depositary determines that any distribution in property (including Shares) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, or, (y) if the Company, in the fulfillment of its obligations under the Deposit Agreement, has either (a) furnished an opinion of U.S. counsel determining that Shares must be registered under the Securities Act or other laws in order to be distributed to Holders (and no such registration statement has been declared effective), or (b) fails to timely deliver the documentation contemplated in the Deposit Agreement, the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary

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deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of taxes and fees and charges of, and expenses incurred by, the Depositary) to Holders entitled thereto upon the terms of the Deposit Agreement. The Depositary shall hold and/or distribute any unsold balance of such property in accordance with the provisions of the Deposit Agreement.

Upon timely receipt of a notice indicating that the Company wishes an elective distribution to be made available to Holders upon the terms described in the Deposit Agreement, the Depositary shall, upon provision of all documentation required under the Deposit Agreement, (including, without limitation, any legal opinions of counsel the Depositary may request under the Deposit Agreement) determine whether such distribution is lawful and reasonably practicable. If so, the Depositary shall, subject to the terms and conditions of the Deposit Agreement, establish an ADS Record Date according to Article (14) hereof and establish procedures to enable the Holder hereof to elect to receive the proposed distribution in cash or in additional ADSs. If a Holder elects to receive the distribution in cash, the dividend shall be distributed as in the case of a distribution in cash. If the Holder hereof elects to receive the distribution in additional ADSs, the distribution shall be distributed as in the case of a distribution in Shares upon the terms described in the Deposit Agreement. If such elective distribution is not lawful or reasonably practicable or if the Depositary did not receive satisfactory documentation set forth in the Deposit Agreement, the Depositary shall, to the extent permitted by law, distribute to Holders, on the basis of the same determination as is made in Bermuda , in respect of the Shares for which no election is made, either (x) cash or (y) additional ADSs representing such additional Shares, in each case, upon the terms described in the Deposit Agreement. Nothing herein shall obligate the Depositary to make available to the Holder hereof a method to receive the elective distribution in Shares (rather than ADSs). There can be no assurance that the Holder hereof will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares.

Upon receipt by the Depositary of a notice indicating that the Company wishes rights to subscribe for additional Shares to be made available to Holders of ADSs, the Company shall determine whether it is lawful and reasonably practicable to make such rights available to the Holders. The Depositary shall make such rights available to any Holders only if the Company shall have timely requested that such rights be made available to Holders, the Depositary shall have received the documentation required by the Deposit Agreement, and the Depositary shall have determined that such distribution of rights is lawful and reasonably practicable. If such conditions are not satisfied, the Depositary shall sell the rights as described below. In the event all conditions set forth above are satisfied, the Depositary shall establish an ADS Record Date and establish procedures (x) to distribute such rights (by means of warrants or otherwise) and (y) to enable the Holders to exercise the rights (upon payment of the applicable fees and charges of, and expenses incurred by, the Depositary and taxes). Nothing herein or in the Deposit Agreement shall obligate the Depositary to make available to the Holders a method to exercise such rights to subscribe for Shares (rather than ADSs). If (i) the Company does not timely request the Depositary to make the rights available to Holders or if the Company requests that the rights not be made available to Holders, (ii) the Depositary fails to receive the documentation required by the Deposit Agreement or determines it is not lawful or reasonably practicable to make the rights available to Holders, or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine whether it is lawful and reasonably practicable to sell such rights, in a riskless principal capacity or otherwise, at such place and upon such terms (including public and private sale) as it may deem proper. The Depositary shall, upon such sale, convert (if applicable) and distribute proceeds of such sale (net of applicable fees and charges of, and expenses incurred by, the Depositary and taxes) upon the terms hereof and in the Deposit Agreement. If the Depositary is unable to make any rights available to Holders or to arrange for the sale of the rights upon the terms described above, the Depositary shall allow such rights to lapse. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or feasible to make such rights available to Holders in general or any

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Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or exercise, or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.

Notwithstanding anything herein to the contrary, if registration (under the Securities Act or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act covering such offering is in effect or (ii) unless the Company furnishes to the Depositary opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case satisfactorily to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws. In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of property (including rights) an amount on account of taxes or other governmental charges, the amount distributed to the Holders shall be reduced accordingly. In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes or charges.

There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to exercise rights on the same terms and conditions as the holders of Shares or to exercise such rights. Nothing herein shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights.

Upon receipt of a notice regarding property other than cash, Shares or rights to purchase additional Shares, to be made to Holders of ADSs, the Depositary shall determine, upon consultation with the Company, whether such distribution to Holders is lawful and reasonably practicable. The Depositary shall not make such distribution unless (i) the Company shall have timely requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received the documentation required by the Deposit Agreement, and (iii) the Depositary shall have determined that such distribution is lawful and reasonably practicable. Upon satisfaction of such conditions, the Depositary shall distribute the property so received to the Holders of record as of the ADS Record Date, in proportion to the number of ADSs held by such Holders respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary, and (ii) net of any taxes withheld. The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) or other governmental charges applicable to the distribution.

If the conditions above are not satisfied, the Depositary shall sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem proper and shall distribute the proceeds of such sale received by the Depositary (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes) to the Holders upon the terms hereof and of the Deposit Agreement. If the Depositary is unable to sell such property, the Depositary may dispose of such property in any way it deems reasonably practicable under the circumstances.

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(14) Fixing of Record Date. Whenever necessary in connection with any distribution (whether in cash, shares, rights or other distribution), or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each ADS, or whenever the Depositary shall receive notice of any meeting of or solicitation of holders of Shares or other Deposited Securities, or whenever the Depositary shall find it necessary or convenient, the Depositary shall fix a record date (“ADS Record Date”), as close as practicable to the record date fixed by the Company with respect to the Shares, for the determination of the Holders who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, or to give or withhold such consent, or to receive such notice or solicitation or to otherwise take action, or to exercise the rights of Holders with respect to such changed number of Shares represented by each ADS. Subject to applicable law and the terms and conditions of this Receipt and the Deposit Agreement, only the Holders of record at the close of business in New York on such ADS Record Date shall be entitled to receive such distributions, to give such voting instructions, to receive such notice or solicitation, or otherwise take action.

(15) Voting of Deposited Securities. As soon as practicable after receipt of notice of any meeting at which the holders of Shares are entitled to vote, or of solicitation of consents or proxies from holders of Shares or other Deposited Securities, the Depositary shall fix the ADS Record Date in respect of such meeting or solicitation of such consent or proxy. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least 30 days prior to the date of such vote or meeting), at the Company’s expense and provided no U.S. legal prohibitions exist, mail by ordinary, regular mail delivery or by electronic transmission (if agreed by the Company and the Depositary), unless otherwise agreed in writing by the Company and the Depositary, to Holders as of the ADS Record Date: (a) such notice of meeting or solicitation of consent or proxies; (b) a statement that the Holders as of the ADS Record Date will be entitled, subject to (i) any applicable law, the provisions of the Deposit Agreement, the Company’s Bye-laws and the provisions of or governing Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Shares or other Deposited Securities represented by such Holder’s American Depositary Shares; and (c) a brief statement as to the manner in which such instructions may be given. Voting instructions may be given only in respect of a number of American Depositary Shares representing an integral number of Shares or other Deposited Securities. Upon the timely receipt of written instructions of a Holder of American Depositary Shares on the ADS Record Date of voting instructions in the manner specified by the Depositary, the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement, the Company’s Bye-laws and the provisions of or governing the Deposited Securities, to vote or cause the Custodian to vote the Shares and/or other Deposited Securities (in person or by proxy) represented by American Depositary Shares evidenced by such Receipt in accordance with such voting instructions.

Neither the Depositary nor the Custodian shall, under any circumstances exercise any discretion as to voting, and neither the Depositary nor the Custodian shall vote, or attempt to exercise the right to vote, or in any way make use of for purposes of establishing a quorum or otherwise, the Shares or other Deposited Securities represented by ADSs except pursuant to and in accordance with such written instructions from Holders.

There can be no assurance that Holders or Beneficial Owners generally or any Holder or Beneficial Owner in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner.

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Notwithstanding the above, and in accordance with the terms of Section 5.3 of the Deposit Agreement, the Depositary shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities or for the manner in which such vote is cast or the effect of any such vote.

(16) Changes Affecting Deposited Securities. Upon any change in par value, split-up, subdivision, cancellation, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger , amalgamation or consolidation or sale of assets affecting the Company or to which it otherwise is a party, any securities which shall be received by the Depositary or a Custodian in exchange for, or in conversion of or replacement or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Securities under the Deposit Agreement, and the Receipts shall, subject to the provisions of the Deposit Agreement and applicable law, evidence ADSs representing the right to receive such additional securities. Alternatively, the Depositary may, with the Company’s approval, and shall, if the Company shall so request, subject to the terms of the Deposit Agreement and receipt of satisfactory documentation contemplated by the Deposit Agreement, execute and deliver additional Receipts as in the case of a stock dividend on the Shares, or call for the surrender of outstanding Receipts to be exchanged for new Receipts, in either case, as well as in the event of newly deposited Shares, with necessary modifications to this form of Receipt specifically describing such new Deposited Securities and/or corporate change. Notwithstanding the foregoing, in the event that any security so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall if the Company requests, subject to receipt of satisfactory legal documentation contemplated in the Deposit Agreement, sell such securities at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of fees and charges of, and expenses incurred by, the Depositary and taxes) for the account of the Holders otherwise entitled to such securities and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to the Deposit Agreement. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or feasible to make such securities available to Holders in general or any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such securities.

(17) Exoneration. Neither the Depositary, the Custodian or the Company shall be obligated to do or perform any act which is inconsistent with the provisions of the Deposit Agreement or shall incur any liability (i) if the Depositary, the Custodian or the Company or their respective controlling persons or agents shall be prevented or forbidden from, or subjected to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the Deposit Agreement and this Receipt, by reason of any provision of any present or future law or regulation of the United States, Bermuda or any other country, or of any other governmental authority or regulatory authority or stock exchange, or by reason of any provision, present or future of the Company’s Bye-laws or any provision of or governing any Deposited Securities, or by reason of any act of God or war or other circumstances beyond its control, (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, revolutions, rebellions, explosions and computer failure), (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement or in the Company’s Bye-laws or provisions of or governing Deposited Securities, (iii) for any action or inaction of the Depositary, the Custodian or the Company or their respective controlling persons or agents in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, (iv) for any inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other

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benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Holders of ADS or (v) for any consequential or punitive damages for any breach of the terms of the Deposit Agreement. The Depositary, its controlling persons, its agents, any Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request, opinion or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. No disclaimer of liability under the Securities Act is intended by any provision of the Deposit Agreement.

(18) Standard of Care. The Company and the Depositary and their respective agents assume no obligation and shall not be subject to any liability under the Deposit Agreement or the Receipts to Holders or Beneficial Owners or other persons, except in accordance with Section 5.8 of the Deposit Agreement, provided, that the Company and the Depositary and their respective agents agree to perform their respective obligations specifically set forth in the Deposit Agreement without gross negligence or bad faith. The Depositary and its agents shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any vote is cast or the effect of any vote, provided that any such action or omission is in good faith and in accordance with the terms of the Deposit Agreement. The Depositary shall not incur any liability for any failure to determine that any distribution or action may be lawful or reasonably practicable, for the content of any information submitted to it by the Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Securities, for the validity or worth of the Deposited Securities or for any tax consequences that may result from the ownership of ADSs, Shares or Deposited Securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the Deposit Agreement or for the failure or timeliness of any notice from the Company. In no event shall the Depositary or any of its Agents be liable for any indirect, special, punitive or consequential damage.

(19) Resignation and Removal of the Depositary; Appointment of Successor Depositary. The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90^th day after delivery thereof to the Company, or (ii) upon the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement, save that, any amounts, fees, costs or expenses owed to the Depositary under the Deposit Agreement or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such resignation. The Company shall use reasonable efforts to appoint such successor depositary, and give notice to the Depositary of such appointment, not more than 90 days after delivery by the Depositary of written notice of resignation as provided in the Deposit Agreement. The Depositary may at any time be removed by the Company by written notice of such removal which notice shall be effective on the later of (i) the 90^th day after delivery thereof to the Depositary, or (ii) upon the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement save that, any amounts, fees, costs or expenses owed to the Depositary under the Deposit Agreement or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such removal. In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York. Every successor depositary shall execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor. The predecessor depositary, upon payment of all sums due it and on the written request of the Company, shall (i) execute and deliver an instrument transferring to such successor all rights and powers of such

A-14

predecessor hereunder (other than as contemplated in the Deposit Agreement), (ii) duly assign, transfer and deliver all right, title and interest to the Deposited Securities to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding Receipts and such other information relating to Receipts and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly mail notice of its appointment to such Holders. Any corporation into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act.

(20) Amendment/Supplement. Subject to the terms and conditions of this Article (20), and applicable law, this Receipt and any provisions of the Deposit Agreement may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable without the consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than the charges of the Depositary in connection with foreign exchange control regulations, and taxes and other governmental charges, delivery and other such expenses), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding Receipts until 30 days after notice of such amendment or supplement shall have been given to the Holders of outstanding Receipts. The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act or (b) the ADSs or Shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to prejudice any substantial rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such ADS, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement as amended or supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such Receipt and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require amendment or supplement of the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and the Receipt at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, or rules or regulations.

(21) Termination. The Depositary shall, at any time at the written direction of the Company, terminate the Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 90 days prior to the date fixed in such notice for such termination provided that, the Depositary shall be reimbursed for any amounts, fees, costs or expenses owed to it in accordance with the terms of the Deposit Agreement and in accordance with any other agreements as otherwise agreed in writing between the Company and the Depositary from time to time, prior to such termination shall take effect. If 90 days shall have expired after (i) the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and in either case a successor depositary shall not have been appointed and accepted its appointment as provided herein and in the Deposit Agreement, the Depositary may terminate the Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 30 days prior to the date fixed for such termination. On and after the date of termination of the Deposit Agreement, the Holder will, upon surrender of such Holder’s Receipt at the Corporate Trust Office of the Depositary, upon the payment of the charges of the

A-15

Depositary for the surrender of Receipts referred to in Article (2) hereof and in the Deposit Agreement and subject to the conditions and restrictions therein set forth, and upon payment of any applicable taxes or governmental charges, be entitled to delivery, to him or upon his order, of the amount of Deposited Securities represented by such Receipt. If any Receipts shall remain outstanding after the date of termination of the Deposit Agreement, the Registrar thereafter shall discontinue the registration of transfers of Receipts, and the Depositary shall suspend the distribution of dividends to the Holders thereof, and shall not give any further notices or perform any further acts under the Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to Deposited Securities, shall sell rights as provided in the Deposit Agreement, and shall continue to deliver Deposited Securities, subject to the conditions and restrictions set forth in the Deposit Agreement, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for Receipts surrendered to the Depositary (after deducting, or charging, as the case may be, in each case the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of the Deposit Agreement and any applicable taxes or governmental charges or assessments). At any time after the expiration of six months from the date of termination of the Deposit Agreement, the Depositary may sell the Deposited Securities then held hereunder and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, in an unsegregated account, without liability for interest for the pro rata benefit of the Holders of Receipts whose Receipts have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement with respect to the Receipts and the Shares, Deposited Securities and ADSs, except to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of the Deposit Agreement and any applicable taxes or governmental charges or assessments). Upon the termination of the Deposit Agreement, the Company shall be discharged from all obligations under the Deposit Agreement except as set forth in the Deposit Agreement.

(22) Compliance with U.S. Securities Laws; Regulatory Compliance. Notwithstanding any provisions in this Receipt or the Deposit Agreement to the contrary, the withdrawal or delivery of Deposited Securities will not be suspended by the Company or the Depositary except as would be permitted by Section I.A.(1) of the General Instructions to the Form F-6 Registration Statement, as amended from time to time, under the Securities Act.

(23) Certain Rights of the Depositary; Limitations. Subject to the further terms and provisions of this Article (23), the Depositary, its Affiliates and their agents, on their own behalf, may own and deal in any class of securities of the Company and its affiliates and in ADSs. In its capacity as Depositary, the Depositary may (i) issue ADSs prior to the receipt of Shares (each such transaction a “Pre-Release Transaction”) as provided below and (ii) deliver Shares upon the receipt and cancellation of ADSs that were issued in a Pre-Release Transaction, but for which Shares may not yet have been received. The Depositary may receive ADSs in lieu of Shares under (i) above and receive shares in lieu of ADSs under (ii) above. Each such Pre-Release Transaction will be (a) subject to a written agreement whereby the person or entity (the “Applicant”) to whom ADSs or Shares are to be delivered (1) represents that at the time of the Pre-Release Transaction the Applicant or its customer owns the Shares or ADSs that are to be delivered by the Applicant under such Pre-Release Transaction, (2) agrees to indicate the Depositary as owner of such Shares or ADSs in its records and to hold such Shares or ADSs in trust for the Depositary until such Shares or ADSs are delivered to the Depositary or the Custodian, (3) unconditionally guarantees to deliver to the Depositary or the Custodian, as applicable, such Shares or ADSs, and (4) agrees to any additional restrictions or requirements that the Depositary deems appropriate, (b) at all times fully collateralized with cash, United States government securities or such other collateral

A-16

as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) business days’ notice (save for a prescribed termination event in which case any such Pre-Release Transaction may be immediately terminable by the Depositary) and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate. The Depositary will normally limit the number of ADSs involved in such Pre-Release Transactions at any one time to thirty percent (30%) of the ADSs outstanding (without giving effect to ADSs outstanding pursuant to any Pre-Release Transaction), provided, however, that the Depositary reserves the right to disregard such limit from time to time as it deems appropriate. The Depositary may also set limits with respect to the number of ADSs involved in Pre-Release Transactions with any one person on a case by case basis as it deems appropriate.

The Depositary may retain for its own account any compensation received by it in conjunction with the foregoing. Collateral provided pursuant to (b) above, but not the earnings thereon, shall be held for the benefit of the Holders (other than the Applicant).

(24) Ownership Restrictions. Owners and Beneficial Owners shall comply with any limitations on ownership of Shares under the Bye-laws of the Company or applicable Bermuda law as if they held the number of Shares their American Depositary Shares represent. The Company shall inform the Owners, Beneficial Owners and the Depositary of any such ownership restrictions in place from time to time. The Company may restrict transfers of the Shares where such transfer might result in ownership of Shares exceeding the limits applicable to the Shares under applicable law or the Company’s Memorandum of Association or Bye-laws. The Company may, in its sole discretion, but subject to applicable law, instruct the Depositary to take action with respect to the ownership interest of any Holder or Beneficial Owner pursuant to the Company’s Bye-laws, including but not limited to, the removal or limitation of voting rights or the mandatory sale or disposition on behalf of a Holder or Beneficial Owner of the Shares represented by the ADRs held by such Holder or Beneficial Owner in excess of such limitations, if and to the extent such disposition is permitted by applicable law and the Company’s Memorandum of Association and Bye-laws; provided that any such measures are practicable and can be undertaken without undue burden or expense. The Depositary shall have no liability for any actions taken in accordance with such instructions.

A-17

(ASSIGNMENT AND TRANSFER SIGNATURE LINES)

FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and transfer(s) unto whose taxpayer identification number is and whose address including postal zip code is , the within Receipt and all rights thereunder, hereby irrevocably constituting and appointing attorney-in-fact to transfer said Receipt on the books of the Depositary with full power of substitution in the premises.

Dated:	Name:
		By:
		Title:
	NOTICE: The signature of the Holder to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatsoever. If the endorsement be executed by an attorney, executor, administrator, trustee or guardian, the person executing the endorsement must give his/her full title in such capacity and proper evidence of authority to act in such capacity, if not on file with the Depositary, must be forwarded with this Receipt.

SIGNATURE GUARANTEED

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TABLE OF CONTENTS

		Page
ARTICLE I. DEFINITIONS		1
SECTION 1.1	“Affiliate”	1
SECTION 1.2	“Agent”	1
SECTION 1.3	“American Depositary Share(s)” and “ADS(s)”	1
SECTION 1.4	“Article” shall refer to an article of the form of Receipt set out at Exhibit A hereto	2
SECTION 1.5	“ADS Record Date”	2
SECTION 1.6	“Beneficial Owner”	2
SECTION 1.7	“Business Day”	2
SECTION 1.8	“Commission”	2
SECTION 1.9	“Company”	2
SECTION 1.10	“Corporate Trust Office”	2
SECTION 1.11	“Custodian”	2
SECTION 1.12	“Deliver” and “Delivery”	2
SECTION 1.13	“Deposit Agreement”	3
SECTION 1.14	“Depositary”	3
SECTION 1.15	“Deposited Securities”	3
SECTION 1.16	“Dollars” and “$”	3
SECTION 1.17	“DRS/Profile”	3
SECTION 1.18	“DTC”	3
SECTION 1.19	“Exchange Act”	3
SECTION 1.20	“Foreign Currency”	3
SECTION 1.21	“Foreign Registrar”	3
SECTION 1.22	“Holder”	3
SECTION 1.23	“Indemnified Person” and “Indemnifying Person”	3
SECTION 1.24	“Pre-Release Transaction”	3
SECTION 1.25	“Receipt(s)”; “American Depositary Receipt(s)”; and “ADR(s)”	3
SECTION 1.26	“Registrar”	4
SECTION 1.27	“Restricted ADRs”; “Restricted ADSs”; and “Restricted Shares”	4
SECTION 1.28	“Restricted Securities”	4
SECTION 1.29	“Securities Act”	4
SECTION 1.30	“Shares”	4
SECTION 1.31	“United States” or “U.S.”	4
ARTICLE II. APPOINTMENT OF DEPOSITARY; FORM OF RECEIPTS; DEPOSIT OF SHARES; EXECUTION AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS		4
SECTION 2.1	Appointment of Depositary	4
SECTION 2.2	Form and Transferability of Receipts	5

(i)

		Page
SECTION 2.3	Deposits	6
SECTION 2.4	Execution and Delivery of Receipts	7
SECTION 2.5	Transfer of Receipts; Combination and Split-up of Receipts	7
SECTION 2.6	Surrender of Receipts and Withdrawal of Deposited Securities	8
SECTION 2.7	Limitations on Execution and Delivery, Transfer, etc. of Receipts; Suspension of Delivery, Transfer, etc.	9
SECTION 2.8	Lost Receipts, etc.	10
SECTION 2.9	Cancellation and Destruction of Surrendered Receipts; Maintenance of Records	10
SECTION 2.10	Pre-Release	10
SECTION 2.11	Restricted ADSs	11
		11
ARTICLE III. CERTAIN OBLIGATIONS OF HOLDERS AND BENEFICIAL OWNERS OF RECEIPTS		12
SECTION 3.1	Proofs, Certificates and Other Information	12
SECTION 3.2	Liability for Taxes and Other Charges	12
SECTION 3.3	Representations and Warranties on Deposit of Shares	13
SECTION 3.4	Compliance with Information Requests	13
ARTICLE IV. THE DEPOSITED SECURITIES		14
SECTION 4.1	Cash Distributions	14
SECTION 4.2	Distribution in Shares	14
SECTION 4.3	Elective Distributions in Cash or Shares	15
SECTION 4.4	Distribution of Rights to Purchase Shares	15
SECTION 4.5	Distributions Other Than Cash, Shares or Rights to Purchase Shares	17
SECTION 4.6	Conversion of Foreign Currency	17
SECTION 4.7	Fixing of Record Date	18
SECTION 4.8	Voting of Deposited Securities	18
SECTION 4.9	Changes Affecting Deposited Securities	19
SECTION 4.10	Available Information	20
SECTION 4.11	Reports	20
SECTION 4.12	List of Holders	20
SECTION 4.13	Taxation; Withholding	20
ARTICLE V. THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY		21
SECTION 5.1	Maintenance of Office and Transfer Books by the Registrar	21
SECTION 5.2	Exoneration	22
SECTION 5.3	Standard of Care	22

(ii)

		Page
SECTION 5.4	Resignation and Removal of the Depositary; Appointment of Successor Depositary	23
SECTION 5.5	The Custodian	24
SECTION 5.6	Notices and Reports	24
SECTION 5.7	Issuance of Additional Shares, ADSs etc.	25
SECTION 5.8	Indemnification	26
SECTION 5.9	Fees and Charges of Depositary	27
SECTION 5.10	Restricted Securities Owners/Ownership Restrictions	28
ARTICLE VI. AMENDMENT AND TERMINATION		29
SECTION 6.1	Amendment/Supplement	29
SECTION 6.2	Termination	29
ARTICLE VII. MISCELLANEOUS		30
SECTION 7.1	Counterparts	30
SECTION 7.2	No Third-Party Beneficiaries	30
SECTION 7.3	Severability	31
SECTION 7.4	Holders and Beneficial Owners as Parties; Binding Effect	31
SECTION 7.5	Notices	31
SECTION 7.6	Governing Law and Jurisdiction	31
SECTION 7.7	Assignment	33
SECTION 7.8	Agents	33
SECTION 7.9	Exclusivity	33
SECTION 7.10	Compliance with U.S. Securities Laws	33
SECTION 7.11	Titles	33
EXHIBIT A Form of Face of Receipt		A-1

(iii)

EX-10.1

Exhibit 10.1

B&B Air Management Agreement

Babcock & Brown Air Limited

and

Babcock & Brown Air Management Co. Limited

Table of contents

Clause			Page
1	Definitions and interpretation		2
	1.1	Definitions	2
	1.2	Interpretation	15
2	Appointment		17
3	Obligations of the Manager		18
	3.1	Management and Administrative Services	18
	3.2	Origination and Disposition Services	21
	3.3	Ancillary Management and Administrative Services	23
	3.4	Compliance with Company’s strategy, policy and directions	24
	3.5	Restrictions and duties	26
	3.6	Amounts to be reviewed	30
	3.7	Assistance in providing Services	31
	3.8	Delegation	32
	3.9	Reports and information	32
	3.10	Insurance	34
	3.11	Relationship of this Agreement and other agreements	34
4	Obligations of the Company		34
5	Fees		35
	5.1	Manager fees	35
	5.2	Break Fees	44
	5.3	Ancillary Management and Administrative Fees	45
	5.4	Credit for Servicing Fees Paid	45
	5.5	Fees independent	46
	5.6	Other services performed by B&B Affiliates	46
6	Costs and expenses		46
	6.1	Company liable for certain costs and expenses	46
	6.2	Regulatory expenses	48
	6.3	Adjusting the Management Expense Amount	48
7	Management and Board of Directors		50
	7.1	Core Management Team	50
	7.2	Chief executive officer and chief financial officer	51
	7.3	Manager’s board appointees	51
8	Servicing and Competitors		52
	8.1	BBAM as exclusive servicer	52
	8.2	Competitors	53

9	Warranties, limitation of liability and indemnity		55
	9.1	Mutual warranties	55
	9.2	Warranties of Manager	55
	9.3	Inaccurate warranties	56
	9.4	Exclusion of warranties	56
	9.5	Manager may rely	57
	9.6	Acknowledgement	58
	9.7	Indemnity and limitation of liability	58
10	Term and termination		63
	10.1	Term	63
	10.2	Termination	63
	10.3	Effect of termination	69
11	Confidentiality		71
	11.1	Confidential Information	71
	11.2	Permitted disclosures	72
12	Notices		73
	12.1	Requirements	73
	12.2	Receipt	75
13	Independent contractor, conflicts of interest and restriction		76
	13.1	Independent contractor	76
	13.2	Conflicts of interest	76
	13.3	Acting in interess of shareholders	77
	13.4	Manager not accountable	77
	13.5	Contracts valid	78
14	Independent advice		78
15	Legal actions		79
	15.1	Third-party claims	79
	15.2	Litigation	79
16	General provisions		80
	16.1	Entire agreement	80
	16.2	Assignment	80
	16.3	Indemnities	80
	16.4	Invalid or unenforceable provisions	81
	16.5	Waiver and exercise of rights	81
	16.6	Amendment	82
	16.7	Counterparts	82
	16.8	Rights cumulative	82
	16.9	Successors and assigns	82
	16.10	Governing law	82
	16.11	Jurisdiction	82

Schedule 1	–	Expenses	84
Schedule 2	–	Illustration of Notional Amount Allocation	88

This Management Agreement

is made on ______ 2007 between the following parties:

1 Babcock & Brown Air Limited, a Bermuda limited liability company, with its principal executive offices at West Pier, Dun Laoghaire, County Dublin, Ireland (Company)

2 Babcock & Brown Air Management Co. Limited, a Bermuda limited liability company, with its principal executive offices at West Pier Dun Laoghaire, County Dublin, Ireland (Manager)

Recitals

A. The Company carries on a business of acquiring, owning and leasing commercial jet aircraft and other aviation assets.

B. The Company wishes to appoint the Manager to manage the Company’s portfolio of aircraft and other aviation assets and to provide the other services described herein.

This Agreement witnesses

that in consideration of, among other things, the mutual promises contained in this Agreement, the parties agree:

1          Definitions and interpretation

1.1 Definitions

In this Agreement, unless the context requires another meaning:

$means the lawful currency of the United States of America;

Administrative Agency Agreement means any administrative agency agreement entered into on or after the date hereof between any B&B Affiliate, on the one part, and the Company or any of its Subsidiaries, on the other part;

Administrative Agency Fee means the fee payable under clause 5.1(e);

ADSs means the American Depositary Shares representing the Shares;

ADS Registration Statement means the registration statement on Form F-6 filed under the Securities Act (No. 333-______) pursuant to which the offer and sale of ADSs has been registered.

Affiliate means a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified, including a trust of which the Person specified or any of its Affiliates is a beneficiary, except that for purposes of this Agreement the Company and its Subsidiaries, on the one part, and Babcock & Brown and B&B Affiliates (other than the Company and its Subsidiaries), on the other part, shall not be considered to be Affiliates of each other.

Agreement means this management agreement;

2

Ancillary Management and Administrative Services means the services to be procured or provided by the Manager under clause 3.3;

Available Liquidity means the sum of (i) cash available to be used by the Company on an unrestricted basis plus (ii) the Company’s and its Subsidiaries’ debt capacity under committed debt facilities available for aviation asset investment transactions.

B&B Affiliate means any Affiliate of Babcock & Brown and any entity in respect of which Babcock & Brown or an Affiliate of Babcock & Brown has been appointed a responsible entity or with whom Babcock & Brown or an Affiliate of Babcock & Brown has entered into a management, trustee or similar agreement;

Babcock & Brown means Babcock & Brown Limited ABN 53 108 614 955, an Australian company;

Base Value means the value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and with full consideration of the aircraft’s “highest and best use”, presuming an arm’s-length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing, adjusted to account for the maintenance status of such aircraft (with such assumptions as to use since the last reported status as may be reasonably stated in the appraisal setting forth such Base Value);

B&B Air Acquisition means Babcock & Brown Air Acquisition I Limited, a Bermuda limited liability company;

B&B Air Funding means Babcock & Brown Air Funding I Limited, a Bermuda limited liability company;

Base Fee means the monthly fee payable under clause 5.1(a)(1)(A);

BBAM means Babcock & Brown Aircraft Management LLC, a Delaware limited liability company, and Babcock & Brown Aircraft Management (Europe) Limited, an Irish corporation, individually or collectively;

Board means the board of directors of the Company as constituted from time to time;

Business Day means a day on which banks are open for business in New York, New York;

Calculation Date means the sixth Business Day immediately preceding each Payment Date;

Change of Control Fee means the fee calculated in accordance with clause 5.1(c)(2);

Competitor means any of the following Persons:

(a) any of the following Persons (or any of their respective Affiliates) and their respective successors and assigns:

(1) GE Commercial Aviation Services Limited;

3

(2) International Lease Finance Corporation;

(3) AerCap B.V.;

(4) Aircastle Advisor LLC;

(5) Allco Finance Group;

(6) Aviation Capital Group;

(7) AWAS;

(8) BCI Aircraft Leasing, Inc.;

(9) Boeing Capital Corporation;

(10) CIT Group Inc.;

(11) GATX Air;

(12) Macquarie Bank Limited;

(13) ORIX Aviation Systems Limited;

(14) Pegasus Aviation;

(15) Pembroke Group Ltd.;

(16) RBS Aviation Capital;

(17) Singapore Aircraft Leasing Enterprise;

(18) Sumisho Aircraft Asset Management B.V.;

(19) Genesis Lease Limited; and

(20) Tombo Aviation.

(b) any other Person (or any Affiliate thereof) (other than Babcock & Brown or any B&B Affiliate) that, together with its Affiliates, has consolidated aircraft leasing-related revenues or aircraft- or engine manufacturing-related revenues of more than $200 million for its most recently completed fiscal year; or

(c) any other Person which beneficially owns 15% or more of the voting securities of any Person identified in the foregoing clauses (a) or (b) (other than Babcock & Brown or any B&B Affiliate);

Confidential Information means all books, records, documents and information of or relating to the affairs of a party;

Core Management Team means the management team referred to in clause 7.1(a);

CPI means the headline consumer price index number as published on a monthly basis by the United States Department of Labor, or any substitute accepted by the Government of the United States from time to time provided that:

(a) if the CPI base adopted for CPI is at any time updated, the CPI is to be appropriately adjusted from time to time;

4

(b) if at any time the CPI is discontinued, there is to be substituted the alternative method of computing changes in the cost of living which is mutually agreed between the parties during the period of 20 Business Days after written notice given by either party to the other; and

(c) if any alternative index is determined in accordance with paragraph (b) and that index is at any time thereafter discontinued, the procedure in paragraph (b) is repeated to determine the new CPI;

Directors means the directors comprising the Board from time to time;

Exchange Act means the United States Securities Exchange Act of 1934, as amended;

Ex-Dividend Date means, with respect to any declared dividend, the first date on and after which which purchasers of ADSs will not be entitled to receive payment of the dividend;

Fee Period has the meaning given to that term in clause 5.1(a)(1)(B);

Government Agency means:

(a) a government, whether foreign, federal, state, territorial or local;

(b) a department, office, branch or minister of a government acting in that capacity; or

(c) a commission, delegate, instrumentality, agency, board, court, or other governmental, semi-governmental, judicial, administrative, monetary or fiscal authority, whether statutory or not;

Gross Acquisition Cost shall be an amount equal to the gross consideration (including the fair market value of any non-cash consideration) paid by the Company or any of its Subsidiaries in respect of the applicable acquisition;

Gross Proceeds shall be an amount equal to the gross proceeds (including the fair market value of any non-cash consideration, but excluding any cash added to the purchase price of the applicable aircraft or other aviation asset in respect of any utilization rent or deposit) received by the Company or any of its Subsidiaries in respect of any disposition of an aircraft or other aviation asset;

Gross Consideration shall be an amount equal to the gross consideration (including the fair market value of any non-cash consideration) received by the Company and its Subsidiaries or the holders of ADSs in respect of the applicable change of control transaction;

Incentive Fee means the fee calculated in accordance with clause 5.1(b);

Initial Portfolio means the initial portfolio of 47 aircraft acquired by B&B Air Funding acquired on and after the date of consummation of the Company’s initial public offering of its ADSs;

IPO Registration Statement means the registration statement on Form F-1 filed under the Securities Act (No. 333-______) pursuant to which the offer and sale of the Shares has been registered.

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Management and Administrative Services means the services to be procured or provided by the Manager under clause 3.1;

Management Expense Amount means the amount calculated in accordance with clause 6.3;

Management Expenses means those expenses which are agreed by the Company and the Manager from time to time to be included in the Management Expense Amount as detailed in Part 1 of Schedule 1;

Manager Shares means the manager shares, par value $0.001 per share, of the Company;

NYSE means the New York Stock Exchange;

NYSE Rules means the rules of the NYSE applicable to companies listed thereon;

Origination and Disposition Fees means the fees calculated in accordance with clause 5.1(c)(1);

Origination and Disposition Services means the services to be procured or provided by the Manager under clause 3.2;

Payment Date means the 19th day of each month, commencing on [            ] [     ], 2007; provided that, if any Payment Date would otherwise fall on a day that is not a Business Day, the relevant Payment Date shall be the first following day which is a Business Day;

Person means any individual, firm, corporation, limited liability company, partnership, trust, body of persons, joint venture, Government Agency or other entity, and shall include any successor (by merger or otherwise) of such entity;

Prospectus means the prospectus or prospectuses included in any of the Registration Statements, as amended or supplemented by any prospectus supplement and by all other amendments and supplements to any such prospectus, including post-effective amendments and all material incorporated by reference in such prospectus;

Quarter means a period of 3 consecutive months ending on 31 March, 30 June, 30 September or 31 December or, in the case of the period from the Trading Date to [     ] 2007, that period;

Registration Statements means the IPO Registration Statement and the ADS Registration Statement, including in each case the Prospectus related thereto, amendments and supplements to any such Registration Statement, including post-effective amendments, all exhibits and all materials incorporated by reference in any such Registration Statement and Prospectus.

Rent Fee means the fee payable under clause 5.1(a)(2);

The Rent Collected Fee in respect of any Fee Period shall equal 1.00% of the aggregate amount of the Rents actually paid by each lessee and, if any lessee fails to pay any Rents when due, amounts applied towards such payment during such Fee Period or portion of such Fee Period in which the relevant aircraft is held by B&B Air Funding or any of its Subsidiaries; provided that if

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any collateral security, including any security deposit, is applied to the payment of Rents, then, for purposes of calculating the Rent Collected Fee, the amounts so applied shall not be included as Rents at the time of such application but shall be so included at such time as any B&B Air Funding or any of its Subsidiaries shall receive substitute collateral security or a payment (whether in the form of Rents or otherwise) which restores, in whole or in part, such collateral security;

The Rent Payable Fee in respect of any Fee Period shall equal 1.00% of the aggregate amount of the Rents due from each lessee attributable to such Fee Period, or portion of such Fee Period in which the relevant aircraft is held by B&B Air Funding or any of its Subsidiaries; provided that, in the event of an early termination of a lease for any reason (other than by reason of the occurrence of an event of loss or exercise of a purchase option), the Rents which would have been payable pursuant to such lease but for such early termination will be included in this calculation of the Rent Payable Fee until the earlier of (a) the date on which Rents shall become payable in respect of such aircraft pursuant to another lease (the Rents of which shall be included in this calculation of the Rent Payable Fee) and (b) the day that numerically corresponds to the first date by which such aircraft and related aircraft documents shall have been physically repossessed by BBAM following such early termination in (or, if no such day exists, the last day of) the calendar month that is the third month after the month in which such date occurs;

Rents means the basic rent payable pursuant to a lease, and in the event that the agreement or arrangement pursuant to which possession of any aircraft asset is given is other than as a lease, amounts equivalent to any basic rent, and, in the event that there is a negotiated or non-consensual termination of a lease prior to the scheduled expiry date of the term thereof or the exercise of a termination right by the lessee under a lease, all amounts payable by the lessee in connection therewith other than amounts that the Manager allocates in good faith to damages for the applicable aircraft’s failure to comply with the return conditions specified in the lease for such aircraft (as compared with damages for failure to pay overdue or future rent);

SEC means the United States Securities and Exchange Commission;

Securities Act means the United States Securities Act of 1933, as amended;

Services means the Management and Administrative Services, the Origination and Disposition Services and the Ancillary Management and Administrative Services;

Servicing Agreement means any servicing agreement entered into on or after the date hereof between BBAM or any of its Affiliates, on the one part, and the Company or any of its Subsidiaries, on the other part;

Shares means the common shares, par value $0.001 per share, of the Company;

Similarly Constituted Entity has the meaning given to that term in clause 10.2(a)(5);

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Standard of Care has the meaning given to that term in clause 3.5(a)(1);

Subsidiary of any Person means a corporation, company, common law or statutory trust or other entity

(a) more than 50% of whose outstanding shares or securities representing the right to vote for the election of directors or other managing authority are, or

(b) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50% of whose ownership interest representing the right to make decisions for such other entity is,

now or hereafter owned or controlled, directly or indirectly, by such Person, but such corporation, company, common law or statutory trust or other entity shall be deemed to be a Subsidiary of such Person only so long as such ownership or control exists; provided that any corporation, company, common law or statutory trust or other entity established by the Company (or any Subsidiary of the Company) for the purpose of entering into a securitization or warehouse credit facility financing shall be deemed for the purposes of this Agreement to be a Subsidiary of the Company (and such Subsidiary, as the case may be) if the Company or such Subsidiary has the right to appoint at least one director or trustee of such entity and/or has the right to receive the cash flows from, and residual value of, the assets held by such entity after the obligations owing to third-party investors with respect to the financing have been satisfied;

Tax means a tax, levy, charge, impost, deduction, withholding or duty of any nature (including stamp and transaction duty) at any time imposed or levied by any government agency or required to be remitted to, or collected, withheld or assessed by, any government agency, and any related interest, expense, fine, penalty or other charge on those amounts;

Term means the term of this Agreement under clause 10.1;

Trading Date is the first day of trading in ADSs on the NYSE;

Trading Day means a day that is a trading day on the primary U.S. national or regional securities exchange on which the ADS is listed or admitted to trading.

1.2       Interpretation

In this Agreement:

(a) where a word or phrase is defined, its other grammatical forms have a corresponding meaning;

(b) headings are for convenience only and do not affect the interpretation of this Agreement;

(c) where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the next Business Day;

(d) if a period starts from, after or before a day or the day of an act or event, it excludes that day,

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and, unless the context otherwise requires:

(e) words importing the singular include the plural and vice versa;

(f) words importing a gender include all genders; and

(g) a reference to:

(1) any document (including this Agreement) is a reference to that document as amended, consolidated, supplemented, novated or replaced;

(2) an agreement includes any undertaking, representation, deed, agreement or legally enforceable arrangement or understanding whether written or not;

(3) a clause or annexure is a reference to a clause of or annexure to this Agreement and a reference to this Agreement includes any annexure;

(4) a person includes any individual, body corporate, association, partnership, joint venture, trust and Government Agency;

(5) a law includes any legislation, judgment, rule of common law or equity or rule of any applicable stock exchange, and is a reference to that law as amended, consolidated, supplemented or replaced, and includes a reference to any regulation, by-law or other subordinate legislation;

(6) the word “including” or “includes” means “including but not limited to” or “including without limitation”

(7) the Company taking any action includes a reference to the Company taking any action through any of its Subsidiaries; and

(8) time is a reference to time in Dublin, Ireland.

2          Appointment

(a) The Company appoints the Manager for the Term as an independent contractor of the Company to perform the Services on the terms of this Agreement and the Manager accepts the appointment.

(b) The appointment of the Manager under clause 2(a) is exclusive and:

(1) the Company may not appoint any other manager to provide any services similar to the Services; and

(2) the Company may not employ or otherwise engage any Person to provide any services similar to the Services,

during the Term.

(c) The Manager may perform any services similar to the Services for any other Person during the Term.

(d) The performance by the Manager of the Services pursuant to this Agreement is subject to the overall supervision of the Board. The

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Company may only provide directions to the Manager in accordance with this Agreement.

3          Obligations of the Manager

3.1        Management and Administrative Services

(a) The Manager shall, and is hereby authorized, subject to clauses 3.4 and 3.5, by the Company to:

(1) manage the Company’s portfolio of aircraft and other aviation assets and the administration of the Company’s cash balances;

(2) if requested by the Board, make available a member of the Core Management Team as the Company’s nominee on the board of directors or similar governing body of any of the Company’s Subsidiaries (provided that each such member must be agreed between the Company and the Manager);

(3) assist with the implementation of the Board’s decisions;

(4) provide the Company suitably qualified and experienced persons to perform the Management and Administrative Services for the Company and its Subsidiaries, including persons to be appointed by the Board to serve as the Company’s dedicated chief executive and chief financial officers (who shall remain employees of, and be remunerated by, the Manager or an Affiliate of the Manager while serving in such capacities);

(5) perform or procure the performance of all reasonable accounting, tax, corporate secretarial, information technology, reporting and compliance services for the Company and its Subsidiaries, including the preparation and maintenance of the Company’s accounts and such financial statements and other reports and filings as the Company is required to make with any Government Agency (including the SEC) or stock exchange;

(6) supervise financial audits of the Company by an external auditor as required; and

(7) manage the Company’s relations with its investors and the public, including

(A) preparing the Company’s annual reports and any notices of meeting, papers, reports and agendas relating to meetings of the Company’s shareholders; and

(B) assisting in the resolution of any complaints by or disputes with the Company’s investors and any litigation involving the Company (other than litigation in which the Company’s interests are adverse to those of the Manager or Babcock & Brown).

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(b) The Manager may delegate the provision of all or any part of the Management and Administrative Services to any B&B Affiliate.

(c) The Manager shall, in performing the Services under this Agreement, avoid taking any action that would reasonably be expected to directly result in the Company violating any material applicable laws.

3.2        Origination and Disposition Services

(a) The Manager shall, and is hereby authorized, subject to clauses 3.4 and 3.5, by the Company to:

(1) source opportunities for the Company relating to aircraft and other aviation assets, including using the Manager’s commercially reasonable efforts to notify the Company of potential aviation asset investment opportunities that come to the attention of the Manager and which the Manager acting reasonably believes may be of interest to the Company as investments;

(2) in relation to identified potential opportunities to purchase or sell aircraft or other aviation assets, investigate, research, evaluate, advise and make recommendations on or facilitating such opportunities;

(3) with respect to prospective purchases and sales of aircraft and other aviation assets, conduct negotiations with sellers and purchasers and their agents, representatives and financial advisors; and

(4) otherwise provide advice and assistance to the Company in relation to the evaluation or pursuit of aviation asset investment or disposition opportunities as the Company may reasonably request from time to time.

(b) The Manager acknowledges and agrees that it will facilitate the Company’s non-exclusive access to the worldwide resources and knowledge base of Babcock & Brown in relation to the Origination and Disposition Services.

(c) The Company and the Manager acknowledge and agree that:

(1) the Company will be under no obligation to invest in or to otherwise pursue any investment or disposal opportunities notified to it by the Manager pursuant to clause 3.2(a); and

(2) neither Babcock & Brown nor any B&B Affiliate will be restricted from pursuing, or offering to a third-party, including a party managed by, or otherwise associated with, a B&B Affiliate, or will be required to establish any investment allocation protocol in relation to prioritization of, any investment or disposal opportunities identified to the Company by the Manager pursuant to clause 3.2(a).

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(d) The Manager may delegate the provision of all or any part of the Origination and Disposition Services to any B&B Affiliate.

(e) The Company may elect to have all or any part of the Origination and Disposition Services provided to one or more of its Subsidiaries. In any case where Origination and Disposition Services are being provided by the Manager (or any B&B Affiliate) to the Company (or any one of its Subsidiaries), the Manager or the Company may require that a mandate letter be prepared which sets out the specific Origination and Disposition Services which are being provided and the fees payable for such Origination and Services (as determined in accordance with clause 5.1(c)).

3.3      Ancillary Management and Administrative Services

The Manager shall, and is hereby authorized, subject to clauses 3.4 and 3.5, by the Company to provide the Company with services that are ancillary to the Management and Administrative Services upon such terms as may be agreed from time to time between the Company and the Manager, which may include, among other things, if requested by the Board and agreed by the Manager:

(a) the expansion of the Core Management Team with additional personnel as may be required by developments or changes in the commercial aircraft leasing industry (whether regulatory, economic or otherwise) or the compliance or reporting environment for publicly listed companies in the United States (whether as a result of changes to securities laws or regulations, listing requirements or accounting principles or otherwise); and

(b) making available individuals (other than members of the Core Management Team) as the Company’s nominees on the boards of directors or similar governing bodies of any of the Company’s Subsidiaries.

3.4      Compliance with Company’s strategy, policy and directions

(a) In performing the Services, the Manager shall, subject to clauses 3.4(b) and 3.4(c), comply with the written policy and written directions of the Company provided to the Manager from time to time by the Board unless doing so would contravene any law or the express terms of this Agreement.

(b) The Company may not make any decision, take any action or omit to take any action in relation to the acquisition, disposition or management of any aircraft or other aviation asset, unless:

(1) that matter has been the subject of a recommendation by the Manager; or

(2) the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of the members of the Board or any law.

(c) The Company may not direct the Manager (unless the direction is otherwise permitted under this Agreement) to make any decision, take

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any action or omit to take any action in relation to the acquisition, disposition or management of any aircraft or other aviation asset, and the Manager is not obliged to comply with any such direction if given by the Company, unless:

(1) that matter has been the subject of a recommendation by the Manager; or

(2) the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of the members of the Board or any law.

(d) The Company may direct the Manager to review a proposed decision, action or omission to take an action in relation to the acquisition, disposition or management of any aircraft or other aviation asset and require that within a reasonable period of time the Manager either make or decline to make a recommendation with respect thereto.

(e) If, in the Manager’s opinion, any written direction of the Company is ambiguous or unclear in any respect, the Manager must promptly clarify the direction with the Company.

3.5       Restrictions and duties

(a) At all times in the performance of the Services the Manager shall:

(1) use reasonable care and diligence and act honestly and in good faith (Standard of Care);

(2) comply with all applicable laws, provided the Company acknowledges that the Manager may act on the written directions of the Company provided to the Manager from time to time without investigating whether the act will comply with all applicable laws, but must not comply with any direction which it is aware will contravene any law;

(3) promptly notify the Company of any directions provided to it by the Company which have not been complied with and the reason for the non-compliance; and

(4) comply with any reasonable requests from the Company’s auditor for information or assistance in relation to the Company’s business, assets, internal controls over financial reporting or financial statements.

(b) Without limiting clauses 3.2(b) or 3.5(a), the Manager may not, without the Board’s prior consent:

(1) carry out any transaction with an Affiliate of the Manager on the Company’s behalf, it being understood that B&B Affiliates have been appointed as the exclusive servicer for the Company’s portfolio of aircraft, and that the Manager may delegate the provision of all or any part of the Services to any B&B Affiliate;

(2) carry out any aviation asset investment or disposition transaction, or sequence of related aviation asset investment or

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disposition transactions with the same Person or group of Persons under common control, for the Company if the aggregate purchase price to be paid, or the Gross Proceeds to be received, by the Company and its Subsidiaries in connection therewith would exceed $200 million;

(3) carry out any aviation asset investment or disposition transaction if the sum of all the purchase prices to be paid, or of all the Gross Proceeds to be received, by the Company and its Subsidiaries in connection with all such transactions during any Quarter would exceed $500 million;

(4) appoint or retain any third-party service provider to assist the Manager in providing Management and Administrative Services if:

(A) the amount to be paid by the Manager and reimbursed by the Company or paid by the Company to the third-party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or

(B) as a result of the appointment or retention, the amount to be paid by the Manager and reimbursed by the Company or paid by the Company to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $5 million;

(5) appoint or retain any third-party service provider to assist the Manager in providing Ancillary Management and Administrative or Origination and Disposition Services if:

(A) the amount to be paid by the Manager and reimbursed by the Company or paid by the Company to the third-party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or

(B) as a result of the appointment or retention, the amount to be paid by the Manager and reimbursed by the Company or paid by the Company to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $7.5 million; or

(6) hold any cash or other assets of the Company, provided that the Manager may cause the Company’s cash and other assets to be held in the Company’s name or any custodian for the Company nominated or approved by the Company.

Acquisitions of series of aircraft from Persons who are not Affiliates of each other shall be deemed not to be related matters for purposes of this clause 3.5(b). Amounts relating to transactions and third-party service providers entered into, appointed or retained by B&B Affiliates on the Company’s behalf pursuant to any Servicing Agreement or Administrative Agency Agreement will not be included in determining whether the thresholds set forth in this clause 3.5(b) have been met or

14

exceeded. Amounts relating to any transactions or sequence of related transactions specifically consented to by the Board will not be included in determining whether the thresholds set forth in this clause 3.5(b) have been met or exceeded.

(c) In the performance of the Services, the Manager shall not commit the Company to carry out any aviation asset investment transaction, or sequence of related aviation asset investment transactions, if under or in connection with the transaction or sequence of related transactions the Company would be required to fund payments in excess of reasonably anticipated Available Liquidity at the time funding would be required.

3.6      Amounts to be reviewed

The thresholds set forth in clauses 3.5(b)(4) and 3.5(b)(5) shall be reviewed regularly and at least annually by the parties and may be increased by the Board (but shall not be decreased) having regard to changes in the value of money from the date of this Agreement, changes in the market capitalization of the Company and any other principles agreed between the Company and the Manager. The thresholds set forth in clauses 3.5(b)(2) and 3.5(b)(3) may be increased or decreased by the Board in its sole discretion at any time by notice to the Manager.

3.7      Assistance in providing Services

Subject to clauses 3.5(b) and 6.1(a)(3)(B):

(a) the Manager shall obtain assistance in providing the Services from professional advisors, attorneys, appraisers, specialist consultants and other experts, as requested by the Company from time to time; and

(b) the Manager may obtain assistance from time to time from professional advisors, attorneys, appraisers, tax advisors, specialist consultants and other experts, as the Manager considers reasonably necessary in providing the Services and discharging its duties and other functions under this Agreement.

The Manager shall be entitled to rely on the assistance and advice of any professional advisor, attorney, appraiser, tax advisor, specialist consultant or other expert engaged to provide assistance in the discharge of its duties and other functions under this Agreement. The Manager shall have fully discharged its obligations under this Agreement with respect to any matter if it has acted consistently with any such assistance or advice in respect of such matter.

For the avoidance of doubt, the fees and expenses charged by the parties engaged by the Manager to provide the assistance described in clauses 3.7(a) and (b) shall be paid for by the Company or reimbursed by the Company to the Manager and are not included in the Management Expense Amount.

3.8      Delegation

The Manager may not delegate the provision of all or any of the Services or any of its other powers or functions under this Agreement to any Person (other

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than a B&B Affiliate) without the Company’s prior written consent (which may be provided subject to conditions).

3.9      Reports and information

(a) The Manager shall use commercially reasonable efforts to cause the Company to comply with its reporting obligations under the Exchange Act and under the NYSE Rules.

(b) The Manager shall provide to the Company, within 30 calendar days after the Quarters ending 31 March, 30 June and 30 September of each year, and within 60 days after 31 December of each year, a report confirming that the Manager has complied in all material respects with its obligations under this Agreement or identifying any material non-compliance and the reasons for such non-compliance.

(c) The Manager shall also provide, upon request by the Company, any additional information and a copy of any records or documents in relation to the Company’s portfolio of aircraft and other aviation assets that a reasonable Person in the position of the Company as owner of such portfolio would expect to have, to enable the Company to:

(1) assess the performance of the Manager in providing the Services and carrying out its other functions and duties under this Agreement;

(2) complete returns and reports to any Government Agency; and

(3) otherwise comply with any law.

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3.10      Insurance

The Manager shall obtain at its own expense appropriate insurance in relation to the Services to be provided and the other functions and duties of the Manager to be discharged under this Agreement. The Manager shall give the Company any information it may reasonably request concerning the currency and/or scope of such insurance. Notwithstanding the foregoing, this clause 3.10 does not require the Manager to insure for Directors’ & Officers’ insurance coverage or for coverage in respect of the business of the Company at the Manager’s own expense.

3.11      Relationship of this Agreement and other agreements

To the extent that BBAM is entitled to exercise any authority, enter into any transaction or take any action on the Company’s or any of its Subsidiaries’ behalf pursuant to any Servicing Agreement or Administrative Agency Agreement such Servicing Agreement or Administrative Agency Agreement shall govern such exercise of authority, transaction or action in the event of a conflict between this Agreement and such Servicing Agreement or Administrative Agency Agreement.

4          Obligations of the Company

The Company shall:

(a) provide all information, access and support as is required to enable the Manager to provide the Services and discharge its other duties and functions under this Agreement; and

(b) grant a power of attorney in favor of the Manager to allow it to perform the Services.

5          Fees

5.1      Manager fees

During the Term and in consideration for the Manager agreeing to act as Manager, the parties agree that the Company shall pay to the Manager the following fees:

(a) Base Fee and Rent Fee

(1) In respect of the aircraft in the Initial Portfolio and any other aircraft that the Company acquires that will be held by B&B Air Funding or any of its Subsidiaries or any other Subsidiary established by the Company for the purpose of entering into an aircraft securitization financing, the Company shall pay to the Manager:

(A) a monthly Base Fee equal to $150,000 per Subsidiary established by the Company for the purpose of entering

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into an aircraft securitization financing, payable by the Company to the Manager in arrears on each Payment Date during the Term of this Agreement, which shall be increased by 0.01% of the Base Value of each additional aircraft acquired beyond the Initial Portfolio, in the case of B&B Air Funding, or beyond the initial portfolio of aircraft financed with the proceeds of the applicable aircraft securitization financing, in the case of any other Subsidiary established by the Company for the purpose of entering into an aircraft securitization financing (the amount of the Base Fee shall be subject to adjustment as set forth in clause 5.1(e)),

(B) a Rent Payable Fee, payable by the Company to the Manager in arrears for each period commencing on the Trading Date (or, thereafter, the fourth Business Day prior to the most recent Calculation Date) and ending on the fourth Business Day prior to the next succeeding Calculation Date during the term of this Agreement (each such period, a Fee Period), such payment to be made no later than the Payment Date immediately following the end of each such Fee Period, and

(C) a Rent Collected Fee, payable by the Company to the Manager in arrears for each Fee Period, such payment to be made no later than the Payment Date immediately following the end of each such Fee Period.

(2) In respect of any aircraft that the Company acquires that will be held by B&B Air Acquisition or any of its Subsidiaries, the Company shall pay to the Manager in arrears for each Fee Period (such payment to be made no later than the Payment Date immediately following the end of each such Fee Period) a Rent Fee equal to 3.5% of the aggregate amount of the Rents actually paid by each lessee and, if any lessee fails to pay any Rents when due, amounts applied towards such payment during such Fee Period or portion of such Fee Period in which the relevant aircraft is held by B&B Air Acquisition or any of its Subsidiaries; provided that if any collateral security, including any security deposit, is applied to the payment of Rent, then, for purposes of calculating the Rent Fee, the amounts so applied shall not be included as Rent at the time of such application but shall be so included at such time as B&B Air Acquisition or any of its Subsidiaries shall receive substitute collateral security or a payment (whether in the form of Rent or otherwise) which restores, in whole or in part, such collateral security.

(b) Incentive Fee

(1) The Company shall pay to the Manager an Incentive Fee based on a notional amount determined in connection with the declaration and payment of any dividend on the Shares. The

18

notional amount in respect of any Quarter shall be equal to the aggregate dividend paid by the Company on the Shares in respect of such Quarter plus an Incentive Fee payable to the Manager in respect of such Quarter as calculated in the following manner:

(A) 100% of the notional amount will be paid as a dividend on the Shares, without the payment of any Incentive Fee to the Manager, up to a dividend of $0.575 per Share;

(B) 90% of the incremental notional amount in excess of $0.575 per Share will be paid as a dividend on the Shares and 10% of the incremental notional amount will be paid to the Manager as an Incentive Fee until each Share receives a dividend of $0.650;

(C) 80% of the incremental notional amount in excess of $0.650 per Share will be paid as a dividend on the Shares and 20% of the incremental notional amount will be paid to the Manager as an Incentive Fee until each Share receives a dividend of $0.900; and

(D) 75% of the incremental notional amount in excess of $0.900 per Share will be paid as a dividend on the Shares and 25% of the incremental notional amount will be paid to the Manager as an Incentive Fee.

No Incentive Fee will be paid in respect of the period from the Trading Date until December 31, 2007. The thresholds in this clause 5.1(b)(1) will be adjusted upon stock splits and stock dividends. Schedule 2 sets forth an illustration of the allocation of the notional amount as a dividend on the Shares and as an Incentive Fee to the Manager.

(2) The Manager may elect to receive Incentive Fee payments in the form of cash or ADSs or any combination thereof. If the Manager elects to receive an Incentive Fee payment (or any portion thereof) in the form of ADSs, the number of ADSs to be so delivered will be equal to:

(A) the amount of the Incentive Fee (or applicable portion thereof to be paid in the form of ADSs), divided by

(B) the average of the closing price (minus the per share amount of the dividend declared in the case of any Trading Day before the Ex-Dividend Date for the dividend) on the NYSE (or other principal U.S. national or regional securities exchange on which the ADSs are then traded) of one ADS for the 15 consecutive Trading Days following the announcement of the declaration of the applicable dividend (or if the ADSs are not listed on a U.S. national or regional securities exchange, the average market value (minus the per share amount of the

19

dividend declared in the case of any Trading Day before the Ex-Dividend Date for the dividend) of one ADS over the 15 consecutive Trading Days following the announcement of the declaration of the applicable dividend as determined by a majority of the independent directors on the Board).

(3) The parties acknowledge that any ADSs issued pursuant to clause 5.1(b)(2) will be restricted securities within the meaning of Rule 144 under the Securities Act, will bear restrictive legends and will be subject to transfer restrictions under the Securities Act. If the Manager elects to receive ADSs pursuant to clause 5.1(b)(2), it shall hold such ADSs for its own account for investment and without a view to the public distribution thereof.

(4) The amount of any Incentive Fee shall be calculated concurrently with the declaration by the Board of any dividend on the Shares and will become due and payable (in cash and/or ADSs as elected by the Manager pursuant to clause 5.1(b)(2)) on the date of payment of such dividend.

(c) Origination and Disposition Fees and Change of Control Fees

(1) The Company shall pay to the Manager an Origination and Disposition Fee for each acquisition or sale of aircraft or other aviation assets equal to 1.5% of the Gross Acquisition Cost in respect of acquisitions or the aggregate Gross Proceeds in respect of dispositions.

(2) The Company shall also pay the Manager a Change of Control Fee equal to 1.5% of the aggregate Gross Consideration received in respect of any change of control of the Company, including the acquisition of more than 50% of the Shares or ADSs or the acquisition of all or substantially all of the Company’s assets.

The amount of any Origination and Disposition Fee or Change of Control Fee in respect of any transaction shall become due and payable (i) if a purchase price or similar adjustment payment with respect to such transaction is to be made after the 90th day following consummation of such transaction, upon the consummation of such transaction (with any increase or reduction of the Origination and Disposition Fee or Change of Control Fee for such transaction as a result of a purchase price or similar adjustment payment becoming due and payable upon the payment of such purchase price or similar adjustment payment) or (ii) if a purchase price or similar adjustment payment with respect to such transaction is to be made within 90 days of consummation of such transaction, upon payment of such purchase price or similar adjustment payment.

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It is understood that no Origination and Disposition Fee shall be payable by the Company to the Manager in respect of the acquisition of the Initial Portfolio.

(d) Administrative Agency Fees

The Company shall pay to the Manager an Administrative Agency Fee initially equal to $750,000 per annum for each aircraft securitization financing established by the Company. Administrative Agency Fees shall be payable in arrears on [           ]. The amount of the Administrative Agency Fee payable for each aircraft securitization financing established by the Company shall be subject to adjustment as set forth in clause 5.1(e).

(e) Adjusting the Base Fees and Administrative Agency Fees

The amount of the Base Fee payable under clause 5.1(a)(1)(A) and the amount of the Administrative Agency Fee payable for each aircraft securitization financing established by the Company under clause 5.1(d) shall be increased (but not decreased) annually by the percentage movement (if any) in the CPI index from June 30, 2007 to December 31, 2007, in the case of calendar year 2008, and January 1 to December 31 of the previous year in the case of each calendar year thereafter.

5.2      Break Fees

The Manager shall be entitled to one-third of the value of any break, termination or other similar fee received by the Company (with such value to be reduced by any third-party costs incurred by or on behalf of the Company or by the Manager on behalf of the Company in the transaction to which the fee relates) in connection with any investment or proposed investment to be made by the Company. Such portion of any break, termination or other similar fee received by the Company shall become due and payable to the Manager upon receipt of such fee by the Company.

5.3      Ancillary Management and Administrative Fees

The Company shall pay to the Manager such additional fees for any Ancillary Management and Administrative Services provided by the Manager to the Company from time to time as the Company and the Manager agree to before the Ancillary Management and Administrative Services are provided.

5.4      Credit for Servicing Fees Paid

Base fees, rent payable fees, rent collected fees, rent fees and administrative agency fees paid to BBAM under any Servicing Agreement or Administrative Agency Agreement shall be credited toward (and thereby reduce) the amount of Base Fees, Rent Payable Fees, Rent Collected Fees, Rent Fees and Administrative Agency Fees due and payable by the Company to the Manager pursuant to clauses 5.1(a) and 5.1(d). Sales fees paid to BBAM under any Servicing Agreement shall be credited toward (and thereby reduce) the amount of Origination and Disposition Fees due and payable by the Company to the Manager pursuant to clause 5.1(c).

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5.5      Fees independent

Except as set forth in clause 5.4, each fee referred to in a provision of this clause 5 is independent from, and not creditable, rebateable or deductible against, any other fee referred to in this clause 5.

5.6      Other services performed by B&B Affiliates

The Company acknowledges that B&B Affiliates may from time to time perform financial advisory, investment banking or other services for the Company and its Subsidiaries which are outside the scope of this Agreement and for which such B&B Affiliates will be separately remunerated in accordance with terms to be agreed between the Company and any such B&B Affiliate.

6         Costs and expenses

6.1       Company liable for certain costs and expenses

(a) Subject to clause 6.1(b), the Company shall, each Quarter in arrears, pay or reimburse the Manager for:

(1) all costs of the Company paid for the Company by the Manager other than those listed in Part 1 of Schedule 1 (but including the costs listed in Part 2 of Schedule 1);

(2) the proportion of the Management Expense Amount that applies to that Quarter;

(3) the amount of all Taxes, costs, charges and expenses properly incurred by the Manager in connection with

(A) the provision of Ancillary Management and Administrative Services; and

(B) the engagement of professional advisors, attorneys, appraisers, specialist consultants and other experts as requested by the Company from time to time or which the Manager considers reasonably necessary in providing the Services and discharging its duties and other functions under this Agreement, including the fees and expenses of professional advisors relating to the purchase and sale of aircraft and other aviation assets.

(b) The Manager shall, upon request of the Company, provide a copy of any invoices or assessments for any Taxes, costs, charges and expenses to be paid by the Company under clause 6.1(a).

(c) The Company acknowledges that prior to the date hereof B&B Affiliates have incurred expenses and cost on behalf of the Company. The Company agrees that upon the consummation of the Company’s initial public offering it shall pay or reimburse the Manager (or pay or reimburse B&B Affiliates as directed by the Manager) for such expenses and costs.

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6.2      Regulatory expenses

The Company shall bear any costs associated with the provision of information and other assistance it or the Manager is required to provide to any Government Agency, including without limitation any costs associated with the preparation and filing of financial statements, reports and other information with the SEC.

6.3      Adjusting the Management Expense Amount

(a) Without limiting clauses 6.3(b) and 6.3(c), no later than 90 days before the start of any calendar year, the Manager may notify the Company that it wishes to amend the list of activities and items that are Management Expenses (Adjusted Schedule 1) or increase the Management Expense Amount to reflect the actual amount estimated to be expended during such calendar year by the Manager on Management Expenses (Adjusted Amount), having regard to the then-actual business of the Company and the growth of the Company projected over the relevant calendar year. The Manager shall provide a reasonably detailed explanation of the basis for the Adjusted Schedule 1 and the Adjusted Amount to the Company when it notifies the Company that it intends to exercise its rights under this clause 6.3(a). Subject to the approval of, and any terms imposed by, the independent directors on the Board, the Adjusted Schedule 1 and the Adjusted Amount for a calendar year pursuant to this clause 6.3(a) shall take effect from January 1 of the relevant calendar year.

(b) The Management Expense Amount for the period commencing with the Trading Date and ending on December 31, 2007 shall be an aggregate of $6.0 million annually, prorated for the number of days in the period.

(c) The Management Expense Amount for calendar year 2008 and each calendar year thereafter, shall be an aggregate of $6.0 million increased (but not decreased) by the percentage movement (if any) in the CPI index from June 30, 2007 to December 31, 2007, in the case of calendar year 2008, and January 1 to December 31 of the previous year in the case of each calendar year thereafter.

(d) If an Adjusted Amount is to be used for the Management Expense Amount in respect of a calendar year in accordance with clause 6.3(a), the provisions of clause 6.3(c) will continue to apply except that, for the purposes of applying clause 6.3(c) “$6.0 million” will be replaced by the Adjusted Amount as so determined.

7         Management and Board of Directors

7.1       Core Management Team

(a) During the Term, the Manager’s Core Management Team shall comprise individuals performing the following functions:

(1) chief executive officer;

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(2) chief financial officer; and

(3) that level of dedicated or shared support personnel, such as corporate counsel, company secretary, financial controller and other accounting staff and risk and compliance personnel, as the Manager reasonably determines is necessary to provide the Management and Administrative Services as of the date of this Agreement.

7.2      Chief executive officer and chief financial officer

(a) The Manager shall recommend candidates to serve as chief executive officer and chief financial officer of the Company. Upon appointment of any such candidates to such roles by the Board, such individuals shall become officers of the Company but shall also remain employees of the Manager (or an Affiliate of the Manager) and shall be remunerated by the Manager (or such Affiliate).

(b) The Manager and the Company acknowledge and agree that the Board may terminate the Company’s chief executive officer or chief financial officer without the Manager’s consent. If there is a vacancy in the position of chief executive officer or chief financial officer for any reason, the Manager will recommend a candidate to serve as replacement chief executive officer or chief financial officer. If the Board does not appoint the initial candidate proposed by the Manager to fill any such vacancy, then the Manager shall recommend one or more further candidates until the Board appoints a candidate recommended by the Manager to fill such vacancy.

7.3      Manager’s board appointees

(a) For so long as Babcock & Brown or any B&B Affiliate holds any Manager Shares, the Manager shall have the right to appoint the whole number of directors on the Board that is nearest to but not more than 3/7ths of the number of directors on the Board at the time. The Manager’s appointees on the Board shall not be required to stand for election by the Company’s shareholders other than by the Manager.

(b) The Manager’s appointees on the Board shall not receive any compensation from the Company (other than out-of-pocket expenses) and shall not have any special voting rights. The appointees of the Manager shall not participate in discussions regarding, or vote on, any related-party transaction in which any B&B Affiliate shall have an interest. The independent directors on the Board shall be responsible for approving any such related-party transactions.

8         Servicing and Competitors

8.1       BBAM as exclusive servicer

(a) For so long as the Manager’s appointment is not terminated pursuant to clause 10.2(a), the Company shall engage BBAM as the exclusive

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servicer for any additional aircraft or other aviation assets that the Company or any of its Subsidiaries acquires in the future

(1) in the case of aircraft, on rates and terms substantially similar to (and no less advantageous to BBAM than) those set forth in the Servicing Agreement in respect of the Initial Portfolio or on such other rates and terms as the Company and BBAM may agree in the case of aircraft; and

(2) in the case of aviation assets other than aircraft, on rates and terms reasonably within the range of market rates and terms received by third parties for like services.

8.2      Competitors

(a) The Company shall not, and shall not permit any of its Subsidiaries to,

(1) transfer any interest in B&B Air Funding, B&B Air Acquisition, or any of their Subsidiaries, or any other of the Company’s Subsidiaries receiving services from BBAM pursuant to a Servicing Agreement, to any Person that is a Competitor or that does not agree in a manner reasonably acceptable to BBAM to be bound by the provisions of the Servicing Agreement applicable thereto; or

(2) take any action, including the voting of shares, or fail to take any action, so as to cause or permit an officer, director or employee of a Competitor to be an officer, director or employee of the Company or any of its Subsidiaries.

(b) Without limiting any other right or remedy of the Manager for breach of the foregoing provisions of this clause 8.2 or of any other provision hereof, the Company agrees that the Manager cannot be adequately compensated by damages for a breach of the provisions of this clause 8.2 and that the Manager shall be entitled to a court order of specific performance requiring the Company to comply with each and every provision in this clause 8.2 and/or an injunction prohibiting the Company from violating any provision of this clause 8.2, as the case may be, in addition to any and all other remedies, at law or in equity, to which the Manager may be entitled in connection with a breach of any provision of this clause 8.2.

9          Warranties, limitation of liability and indemnity

9.1      Mutual warranties

Each party represents and warrants to the other parties that it has the power and authority to enter into and perform this Agreement.

9.2      Warranties of Manager

The Manager represents and warrants to the Company that:

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(a) it has and will at all times during the term of this Agreement have the skill, facilities, capacity and staff necessary to perform its duties and obligations under this Agreement; and

(b) it will, at all times during the term of this Agreement, hold such licences, permits and authorizations as are necessary for it to perform the Services and its other duties and functions under this Agreement, or will delegate to an appropriate B&B Affiliate the Services and other duties and functions under this Agreement which require the holding of licences, permits and authorizations it does not itself hold.

9.3      Inaccurate warranties

If a warranty given by a party to this Agreement ceases to be accurate, that party must immediately advise the other party in writing.

9.4      Exclusion of warranties

To the fullest extent permitted by applicable law, except as expressly provided to the contrary in this Agreement, all terms, conditions, warranties, undertakings, inducements or representations whether expressed, implied, statutory or otherwise relating in any way to this Agreement or the Services are excluded.

Where any law, rule or regulation implies in this Agreement any term, condition or warranty, and that law, rule or regulation avoids or prohibits provisions in a contract excluding or modifying the application of, or exercise of, or liability under such term, condition or warranty, such term, condition or warranty shall be deemed to be included in this Agreement, however the liability of the Manager for any breach of such a term, condition or warranty shall be limited, at the option of the Manager, to any one or more of the following:

(a) the supplying of the services again; or

(b) the payment of the cost of having the services supplied again.

9.5      Manager may rely

Without limiting clause 3.7, the Manager may take and may act upon:

(a) the opinion or advice of counsel or solicitors, whether or not instructed by the Manager, in relation to the interpretation of this Agreement or any other document (whether statutory or otherwise) or generally in connection with the Company;

(b) advice, opinions, statements or information from bankers, accountants, auditors, appraisers, valuers and other persons consulted by the Manager who are in each case believed by the Manager in good faith to be expert in relation to the matters upon which they are consulted;

(c) a document which the Manager believes in good faith to be the original or a copy of an appointment by a shareholder or the holder of an option

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in respect of a Share of a person to act as their agent for any purpose connected with the Company; and

(d) any other document provided to the Manager in connection with the Company upon which it is reasonable for the Manager to rely,

and the Manager will not be liable for anything done, suffered or omitted by it in good faith in reliance upon such opinion, advice, statement, information or document.

9.6      Acknowledgement

The Company acknowledges that:

(a) neither the Manager nor any Affiliate of the Manager guarantees the performance of the Company’s business or its assets nor makes any representation regarding any of these matters; and

(b) the Manager may assume that all documents which it receives in connection with the Company’s business and assets are complete, accurate and correct and that all signatures, seals, and markings on all such documents are authentic and duly authorized.

9.7      Indemnity and limitation of liability

(a) The Company assumes liability for, and indemnifies the Manager, all B&B Affiliates and any Person to whom the Manager delegates its obligations in compliance with this Agreement, and their respective members, shareholders, managers, directors, officers, employees and agents (collectively, Indemnified Persons), on an after-tax basis against any losses and liabilities (collectively, Losses) that arise out of or in connection with the doing or failing to do anything in connection with this Agreement or on account of any bona fide investment decision made by the Indemnified Person, except insofar as any such Loss is finally adjudicated to have been caused directly by the Indemnified Person from gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the Standard of Care under this Agreement.

(b) The Manager and each other Indemnified Person shall not be liable to the Company or any of its Subsidiaries for any Losses suffered or incurred by the Company or any of its Subsidiaries arising out of or in connection with the Indemnified Person doing or failing to do anything in connection with this Agreement or on account of any bona fide investment decision made by the Indemnified Person, except insofar as any such Loss is finally adjudicated to have been caused directly by the gross negligence, fraud or dishonesty of, or willful misconduct in respect of the obligation to apply the Standard of Care under this Agreement by the Indemnified Person.

(c) The Company agrees to indemnify and hold harmless on an after-tax basis the Indemnified Persons and each Person, if any, who controls any Indemnified Person within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the Registration

27

Indemnified Parties) from and against any and all Losses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such Losses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with (i) the information set forth in the IPO Registration Statement under the headings “[to come]” (the B&B Information), and (ii) information relating to any underwriter furnished in writing to the Company by or on behalf of such underwriter expressly for use in the Registration Statement or Prospectus.

(d) Each Registration Indemnified Party agrees, severally and not jointly, to indemnify and hold harmless on an after-tax basis the Company and its Subsidiaries and any of their respective directors or officers who sign any Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Registration Indemnified Party, but only with respect to the B&B Information. For purposes of this clause 9.7(d), any information relating to any underwriter that is contained in a Registration Statement or Prospectus shall not be deemed to be information relating to a Registration Indemnified Party.

(e) Contribution

(1) If the indemnification provided for in this clause 9.7 is unavailable to, or insufficient to hold harmless on an after-tax basis, any indemnified party under this clause 9.7 in respect of any Losses referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such Losses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

(2) The parties hereto agree that it would not be just and equitable if contribution pursuant to this clause 9.7(e) were determined by a pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in

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paragraph (1) above. The amount paid or payable by an indemnified party as a result of the Losses referred to in paragraph (1) above, shall be deemed to include, subject to the limitations set forth above, any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any action. Notwithstanding the provisions of this clause 9.7(e), a Registration Indemnified Party shall not be required to contribute any amount in excess of the amount by which the proceeds to such Registration Indemnified Party exceeds the amount of any damages which such Registration Indemnified Party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation

(f) The obligations contained in this clause 9.7 shall continue after the termination of this Agreement.

(g) The provisions of this clause 9.7 are held by the Manager for its own benefit and for the benefit of the other Indemnified Persons and may be enforced by the Manager on behalf of, and for the benefit of, the Indemnified Persons.

10        Term and termination

10.1      Term

This Agreement commences on the Trading Date and continues until the date that is 25 years after the Trading Date, unless terminated earlier in accordance with clause 10.2.

10.2      Termination

(a) By the Company

The Company may terminate this Agreement immediately upon written notice if but only if:

(1) at least 75% of the independent directors on the Board and holders of 75% or more of all of the outstanding Shares (measured by vote) determine by resolution that there has been unsatisfactory performance by the Manager that is materially detrimental to the Company;

(2) the Manager materially breaches this Agreement and fails to remedy such breach within 90 days of receiving written notice from the Company requiring it to do so, or such breach results in liability to the Company and is attributable to the Manager’s gross negligence, fraud or dishonesty, or willful misconduct in

29

respect of the obligation to apply the Standard of Care under this Agreement;

(3) any license, permit or authorization held by the Manager which is necessary for it to perform the services and duties under this Agreement is materially breached, suspended or revoked, or otherwise made subject to conditions which, in the reasonable opinion of the Board, would prevent the Manager from performing the Services and the situation is not remedied within 90 days;

(4) Babcock & Brown ceases to hold (directly or indirectly) more than 50% of the voting equity of, and economic interest in, the Manager;

(5) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking relief in respect of the Manager or of a substantial part of the property or assets of the Manager, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other U.S. Federal or state or non-U.S. bankruptcy, insolvency, receivership or similar law, and such proceeding or petition shall continue undismissed for 75 days or an order or decree approving or ordering any of the foregoing shall be entered or the Manager shall go into liquidation, suffer a receiver or mortgagee to take possession of all or substantially all of its assets or have an examiner appointed over it or if a petition or proceeding is presented for any of the foregoing and not discharged within 75 days, unless in the case of the commencement of any such proceeding or the filing of any such petition the Manager is withdrawn and replaced by the Manager within 90 days of the commencement of such proceeding or the date of such filing with a B&B Affiliate that is able to give correctly the warranties set out in clause 9.2 of this Agreement (Similarly Constituted Entity); or

(6) the Manager shall:

(A) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other U.S. Federal or state or non-U.S. bankruptcy, insolvency, receivership or similar law;

(B) consent to the institution of, or fail to contest the filing of, any petition described in clause (5) above;

(C) file an answer admitting the material allegations of a petition filed against it in any such proceeding; or

(D) make a general assignment for the benefit of its creditors, unless the Manager is withdrawn and replaced within 15

30

days by the Manager with a Similarly Constituted Entity; or

(7) an order is made for the winding up of the Manager, unless the Manager is withdrawn and replaced within 15 days by the Manager with a Similarly Constituted Entity.

(b) By the Manager

The Manager may terminate this Agreement immediately upon written notice if:

(1) the Company’s ADSs cease to be listed for trading on the NYSE;

(2) the Company fails to make any payment due under this Agreement to the Manager within 15 days after the same becomes due;

(3) the Company otherwise materially breaches this Agreement and fails to remedy the breach within 90 days of receiving written notice from the Manager requiring it to do so;

(4) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking relief in respect to the Company or any Significant Subsidiary of the Company or of a substantial part of the property or assets of any of such Persons, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other U.S. Federal or state or non-U.S. bankruptcy, insolvency, receivership or similar law, and such proceeding or petition shall continue undismissed for 75 days or an order or decree approving or ordering any of the foregoing shall be entered or any such Persons within the Company Group shall go into liquidation, suffer a receiver or mortgagee to take possession of all or substantially all of it assets or have an examiner appointed over it or if a petition or proceeding is presented for any of the foregoing and not discharged within 75 days; or

(5) the Company or any significant subsidiary (as defined in Rule 1-02(w) of Regulation S-X under the Securities Act) of the Company shall:

(A) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other U.S. Federal or state or non-U.S. bankruptcy, insolvency, receivership or similar law;

(B) consent to the institution of, or fail to contest the filing of, any petition described in clause (4) above;

(C) file an answer admitting the material allegations of a petition filed against it in any such proceeding; or

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(D) make a general assignment for the benefit of its creditors; or

(6) an order is made for the winding up of the Company; or

(7) any Person or group (as such term is defined under the Exchange Act and the rules promulgated thereunder) acquires more than 15% of any class of the Company’s voting securities.

 

10.3 Effect of termination

(a) If this Agreement is terminated under clauses 10.1 or 10.2, this Agreement and the parties’ obligations under it shall cease, other than the obligations under this clause 10 and clauses 9, 11, 13 (other than 13.3 and 13.4), 15 and 16.

(b) The termination of this Agreement does not prejudice any:

(1) transaction properly entered into prior to termination;

(2) claim by the Manager in respect of accrued Base Fees, Rent Payable Fees, Rent Collected Fees, Rent Fees, Incentive Fees, Origination and Disposition Fees, Change of Control Fees and Administrative Agency Fees in respect of the period to termination and the Company shall pay to the Manager any such accrued Base Fees, Rent Payable Fees, Rent Collected Fees, Rent Fees, Incentive Fees, Origination and Disposition Fees, Change of Control Fees or Administrative Agency Fees (it being agreed that (i) if a dividend is declared and paid on the Shares with respect to the Quarter during which this Agreement is terminated, the Manager shall be entitled to the full amount of any Incentive Fee payable in connection with such dividend pursuant to clause 5.1(b) and (ii) the amount of the Base Fees, Rent Payable Fees, Rent Collected Fees and Rent Fees payable to the Manager with respect to the Fee Period during which this Agreement is terminated shall be calculated to the end of such Fee Period);

(3) claim by the Manager in respect of accrued costs and expenses incurred in respect of the period to termination and the Company must pay or reimburse the Manager for any such accrued costs and expenses in accordance with clause 6; or

(4) any accrued rights of a party to take action in respect of a breach of this Agreement occurring prior to such termination.

(c) If this Agreement is terminated, the Company must promptly change its name, and procure that its Subsidiaries and Affiliates promptly change their names, so that they do not include the words “Babcock & Brown”, “Babcock” or “Brown”.

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11 Confidentiality

 

11.1 Confidential Information

(a) Subject to clauses 11.2, the parties must not, and must ensure that their respective officers, employees and agents do not, without the prior written consent of a party, disclose any Confidential Information of that party.

(b) In addition, to the extent that any officer, director, employee, agent, advisor or consultant of the Company or any of its Subsidiaries is involved in any other business activities that are competitive with BBAM or any B&B Affiliate, the Company shall screen such person from receipt of competitively sensitive information. Without limiting the foregoing, the Company shall, and shall cause each of its Subsidiaries to, ensure that no competitively sensitive information is provided to a Competitor, even a Competitor that is a shareholder of the Company.

 

11.2 Permitted disclosures

(a) The parties may make disclosures:

(1) to B&B Affiliates but only on a strictly confidential basis; and

(2) to those of their or any B&B Affiliate’s employees, officers, professional or financial advisers and bankers as the party reasonably thinks necessary to give effect to this Agreement but only on a strictly confidential basis.

(b) The obligations of this clause do not apply to any information which a party can reasonably demonstrate:

(1) is in the public domain through no fault of its own;

(2) is already known to that party (as evidenced by its written records) at the date of disclosure and was not acquired directly or indirectly from the other party; or

(3) is required to be disclosed by law or the listing rules of an applicable stock exchange, provided where practical, the form and terms of the relevant disclosure have been notified to the other party and the other party has had a reasonable opportunity to comment on the form and terms.

(c) Notwithstanding any provision of this Agreement to the contrary, the legal obligations of confidentiality hereunder do not extend to the U.S. federal or state tax structure or the U.S. federal or state tax treatment of any transaction pursuant to this Agreement. If any U.S. federal or state tax analyses or materials are provided to any party, such party is free to disclose any such analyses or materials without limitation.

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12 Notices

 

12.1 Requirements

All notices must be:

(a) in legible writing;

(b) addressed to the recipient at the address or facsimile number set out below or to any other address or facsimile number that a party may notify to the other:

to the Company:

Address:	West Pier, Dun Laoghaire, County Dublin, Ireland
Attention:	Chief Executive Officer
Facsimile no:	+353-1-______________

with a copy to Weil, Gotshal & Manges LLP:

Address:	767 Fifth Avenue, New York, NY 10001
Attention:	Boris Dolgonos
Facsimile no:	+1-212-310-8007

to the Manager:

Address:	West Pier, Dun Laoghaire, County Dublin, Ireland
Attention:	Chief Executive Officer
Facsimile no:	+353-1-______________

with a copy to Weil, Gotshal & Manges LLP:

Address:	767 Fifth Avenue, New York, NY 10001
Attention:	Boris Dolgonos
Facsimile no:	+1-212-310-8007

(c) signed by the party; and

(d) sent to the recipient by hand, prepaid post or facsimile.

 

12.2 Receipt

Without limiting any other means by which a party may be able to prove that a notice has been received by the other parties, a notice will be considered to have been received:

(a) if sent by hand, when left at the address of the recipient;

(b) if sent by pre-paid post, 2 days (if posted within Ireland to an address in Ireland) or 7 days (if posted from one country to another) after the date of posting; or

34

(c) if sent by facsimile, on receipt by the sender of an acknowledgment or transmission report generated by the sender’s machine indicating that the whole facsimile was sent to the recipient’s facsimile number;

but if a notice is served by hand, or is received by the recipient’s facsimile, on a day that is not a Business Day, or after 5:00 pm (recipient’s local time) on a Business Day, the notice will be considered to have been received by the recipient at 9:00 am on the next Business Day.

 

13 Independent contractor, conflicts of interest and restriction

 

13.1 Independent contractor

The relationship between the Company and the Manager is in the nature of an independent contractor relationship only and the parties do not intend to create, and this Agreement does not constitute, a partnership, trust or other arrangement and this Agreement must not be construed as creating anything other than an independent contractor relationship. The Company acknowledges that the Manager has been appointed by the Company solely in its capacity as Manager and not in any other capacity including as an advisor or a fiduciary.

 

13.2 Conflicts of interest

Nothing in this Agreement restricts the Manager (or any of Affiliate of the Manager) from:

(a) dealing or conducting business with the Company, any of the Company’s Subsidiaries, the Manager, any B&B Affiliate or any shareholder of the Company;

(b) being interested in any contract or transaction with the Company, any of the Company’s Subsidiaries, any B&B Affiliate or any shareholder of the Company;

(c) acting in the same or similar capacity in relation to any other corporation or enterprise; or

(d) holding or dealing in the Company’s or its Subsidiaries’ equity or other securities or interests therein; or

(e) co-investing with the Company or any of its Subsidiaries.

 

13.3 Acting in interests of shareholders

Without limiting clauses 13.1 or 13.2, in performing the Services under this Agreement, the Manager shall act in the best interest of the Company’s shareholders. If there is a conflict between the Company’s shareholders’ interests and the Manager’s interests, the Manager shall give priority to the Company’s shareholders’ interests.

 

13.4 Manager not accountable

The Manager or any Affiliate of the Manager may be or become interested in any business promoted by the Company or in which the Company may be interested as a shareholder or otherwise and is not accountable to the Company

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for any remuneration, commission or other benefits received from its interest in that business as long as the Manager discloses the nature of its interest to the Company.

 

13.5 Contracts valid

No contract or transaction referred to in clause 13.2 which the Manager or any Affiliate of the Manager is interested in any way, whether directly or indirectly, will be avoided and the Manager and any Affiliate of the Manager is not liable, by reason of the Manager’s appointment as Manager under this Agreement, to account to the Company or any other person for any profit or benefits arising from such contracts or transactions and it may retain such profits or benefits. Any fees paid or payable in relation to such contracts or transactions are to be retained by the person to whom those fees are paid or payable.

 

14 Independent advice

For the avoidance of doubt, nothing in this Agreement limits the right of the members of the Board to seek independent professional advice (including legal, accounting and financial advice) at the expense of the Company on any matter connected with the discharge of their responsibilities, in accordance with the procedures and subject to the conditions set out in the Company’s corporate governance principles from time to time.

 

15 Legal actions

 

15.1 Third-party claims

 

(a) The Manager will notify the Company promptly of any claim made by any third-party against the Company or any of its Subsidiaries of which it is aware or has notice and will send to the Company any notice, claim, summons or writ served on the Manager concerning the Company or its Subsidiaries.

(b) The Manager will not without the express written consent of the Board purport to accept or admit any claims or liabilities of which it receives notification pursuant to clause 15.1(a) on behalf of the Company or make any settlement or compromise with any third-party in respect of the Company.

 

15.2 Litigation

If legal action is initiated against the Manager by any third-party in respect of any matter connected with this Agreement and in respect of which the Manager has the benefit of an indemnity from the Company under this Agreement, the Company shall be entitled at its election to take over from the Manager the conduct and the defence of any such action and to prosecute any claim for indemnity or damages or other entitlement against any third-party in the name of the Manager.

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16 General provisions

 

16.1 Entire agreement

This Agreement is the entire agreement of the parties about the subject matter of this Agreement and supersedes all other representations, negotiations, arrangements, understandings, agreements and/or other communications. No party has entered into this Agreement relying on any representations made by or on behalf of the any other party, other than those expressly made in this Agreement.

 

16.2 Assignment

A party must not assign, create an interest in, or deal in any other way with any of its rights under this Agreement without the prior written consent of the other parties.

 

16.3 Indemnities

(a) The indemnities in this Agreement are:

(1) continuing obligations of the parties, separate and independent from their other obligations and survive the termination of this Agreement; and

(2) absolute and unconditional and unaffected by anything that might have the effect of prejudicing, releasing, discharging or affecting in any other way the liability of the party giving the indemnity.

(b) It is not necessary for a party to incur expense or make payment before enforcing a right of indemnity under this Agreement.

 

16.4 Invalid or unenforceable provisions

If a provision of this Agreement is invalid or unenforceable in a jurisdiction:

(a) it is to be read down or severed in that jurisdiction to the extent of the invalidity or unenforceability; and

(b) that fact does not affect the validity or enforceability of that provision in another jurisdiction or the remaining provisions.

 

16.5 Waiver and exercise of rights

(a) A waiver by a party of a provision of, or of a right under, this Agreement is binding on the party granting the waiver only if it is given in writing and is signed by the party or an authorized representative of the party granting the waiver.

(b) A waiver is effective only in the specific instance and for the specific purpose for which it is given.

(c) A single or partial exercise of a right by a party does not preclude another exercise of that right or the exercise of another right.

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(d) Failure by a party to exercise or delay in exercising a right does not prevent its exercise or operate as a waiver.

 

16.6 Amendment

This Agreement may be amended only by a document signed by all parties.

 

16.7 Counterparts

This Agreement may be signed in counterparts and all counterparts taken together constitute one document.

 

16.8 Rights cumulative

The rights, remedies and powers of the parties under this Agreement are cumulative and do not exclude any other rights, remedies or powers.

 

16.9 Successors and assigns

This Agreement is binding on, and has effect for the benefit of, the parties and their respective successors and permitted assigns.

 

16.10 Governing law

This Agreement is governed by the laws of the State of New York.

 

16.11 Jurisdiction

Each party irrevocably and unconditionally:

(a) submits to the non-exclusive jurisdiction of the courts of the State of New York; and

(b) waives, without limitation, any claim or objection based on absence of jurisdiction or inconvenient forum.

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Schedule 1 – Expenses

Part 1

The expenses that are covered by the Management Expense Amount and which are therefore not separately recoverable by the Manager from the Company under clause 6.1(a) are:

Employee Remuneration

Base salaries, all “on costs”, superannuation and bonuses for members of the Core Management Team including any payments or benefits “packaged” for a member of the Core Management Team.

Direct expenses of the Manager’s own in-house resources including legal, accounting, internal audit, treasury, investor relations, risk and compliance, company secretarial and internal taxation support.

The following expenses in relation to the Core Management Team:

• Car parking

• Recruitment expenses

• Relocation expenses

• Work cover insurance

• Staff training and seminars

• Conference attendance

The Manager’s Corporate Overheads

The Manager’s corporate overheads on a pro rata basis having regard to the number of employees of Babcock & Brown, the number of those employees providing Services to the Company and the proportion of time spent by those employees providing such Services (e.g., 4 employees spending half their time providing Services are treated as 2 employees providing full time Services), including:

• Office rental

• Telephone, fax & internet rental, connections and associated hardware

• Travel costs of the Core Management Team (including flights, accommodation, taxis, entertainment and meals while traveling) in relation to the provision of the Services under this Agreement (other than travel related to sourcing, negotiating and conducting transactions on behalf of the Company and attending any meeting of the Board or Company)

• Printing

• Postage and stationery

• Temporary staff

• Computer hardware and software and all IT maintenance and support (excluding website development and maintenance)

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• Couriers

• Gifts and donations

• Subscriptions to any organisation, industry body, publication or equivalent

• Sundry expenses (including a portion of the Manager’s costs for office maintenance and utilities)

Part 2

Expenses associated with the Company that are not covered by the Management Expense Amount and which are therefore recoverable by the Manager from the Company under clause 6.1(a) if paid by the Manager include but shall not be limited to:

• Directors’ fees for the directors on the Company’s and its Subsidiaries’ boards of directors

• Directors’ and officers’ insurance for the Company’s and its Subsidiaries’ directors and officers

• Travel expenses of the directors (including flights, accommodation, taxis, entertainment and meals while travelling) to attend any meeting of the Board or Company

• Registration fees and listing fees in connection with listing the Shares on the NYSE and registering the Shares under the Securities Act

• Fees and offering and other expenses relating to the Company’s initial public offering, the securitization of the Initial Portfolio, the Company’s credit facility and any other equity or debt financings the Company enters into in the future

• Fees and expenses of the depositary for the Company’s ADSs

• Costs and expenses related to insuring the Company’s aircraft and other aviation assets, including all fees and expenses of insurance advisors and brokers

• Costs incurred in connection with organizing and hosting the Company’s annual meetings or other general meetings of the Company

• Costs of production and distribution of any of the Company’s securityholder communications, including notices of meetings, annual and other reports, press releases, and any prospectus, disclosure statement, offering memorandum or other form of offering document

• Website development and maintenance

• Travel expenses of the Core Management Team and other personnel of any B&B Affiliate (including flights, accommodation, taxis, entertainment and meals while traveling) related to sourcing, negotiating and conducting transactions on behalf of the Company and attending any meeting of the Board or Company

• External legal counsel

• Fees of third-party consultants, accounting firms and other professionals

• External auditor’s fees

• Internal auditor’s fees

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Schedule 2 – Illustration of Notional Amount Allocation

The table below illustrates the allocation of the Company’s aggregate quarterly notional amount as a dividend on the Shares and as an Incentive Fee payable to the Manager.

Quarterly Dividend Per Share	Portion of Notional Amount Paid as Dividend on Shares	Portion of Notional Amount Paid as Incentive Fee to Manager
Up to $0.575	100.00 %	0.00 %
$0.650	98.73 %	1.27 %
$0.800	94.58 %	5.42 %
$0.900	91.91 %	8.09 %
$1.000	89.89 %	10.11 %

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IN WITNESS WHEREOF, this Agreement has been duly executed on the date first written above.

BABCOCK & BROWN AIR LIMITED

by:

Name

BABCOCK & BROWN AIR MANAGEMENT CO. LIMITED

by:

Name

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EX-10.2

Exhibit 10.2

ASSET PURCHASE AGREEMENT

dated as of [               ] [     ], 2007

among

JET-i LEASING LLC,

THE OTHER SELLERS LISTED ON SCHEDULE 1 HERETO

and

BABCOCK & BROWN AIR FUNDING I LIMITED,

THE OTHER PURCHASERS LISTED ON SCHEDULE 1 HERETO

TABLE OF CONTENTS

		Page
1.	INTERPRETATION	1
2.	SALE AND PURCHASE	13
3.	DELIVERY AND ACCEPTANCE	15
4.	SUBSTITUTE AND UNDELIVERED AIRCRAFT	18
5.	PAYMENTS	20
6.	CONDITIONS PRECEDENT - SELLER	23
7.	CONDITIONS PRECEDENT - PURCHASER	26
8.	REPRESENTATIONS AND WARRANTIES OF EACH SELLER	36
9.	REPRESENTATIONS AND WARRANTIES OF THE PURCHASER	51
10.	INDEMNITY	53
11.	TAXES	54
12.	WARRANTIES AND DISCLAIMERS	58
13.	ASSIGNMENT	59
14.	MISCELLANEOUS	59
15.	SUBROGATION	62
16.	LIMITED RECOURSE	62

LIST OF ATTACHMENTS:

EXHIBIT A-1	-	Form of Assignment of Beneficial Interest
EXHIBIT A-2	-	Form of Trust Assignment and Assumption Agreement
EXHIBIT A-3	-	Form of Irish Law Share Transfer Form
EXHIBIT B	-	Form of Bill of Sale
EXHIBIT C	-	Form of Acknowledgement of Delivery
EXHIBIT D	-	Form of Guaranty
EXHIBIT E-1	-	Conditions Precedent - Aircraft Delivery (BI Aircraft)
EXHIBIT E-2	-	Conditions Precedent - Aircraft Delivery (Independent Aircraft)
EXHIBIT F	-	Form of Servicing Agreement
EXHIBIT G	-	Form of Administrative Agency Agreement
SCHEDULE 1	-	Sellers and Related Aircraft
SCHEDULE 2	-	Aircraft Information
SCHEDULE 3	-	Documents and Conditions - Delivery
SCHEDULE 4	-	Documents and Conditions - Post-Delivery
SCHEDULE 5	-	Jurisdiction of Incorporation or Organization
SCHEDULE 6	-	Purchaser Entities
SCHEDULE 7	-	Debt Allocation Amounts and Equity Allocation Amounts

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This ASSET PURCHASE AGREEMENT (this “Agreement”) is dated as of [              ] [     ], 2007 among: (i) JET-i LEASING LLC, a Delaware limited liability company; (ii) THE OTHER SELLERS LISTED ON SCHEDULE 1 HERETO; (iii) BABCOCK & BROWN AIR FUNDING I LIMITED, a Bermuda exempted company and having its principal place of business at West Pier, Dun Loaghaire, County Dublin, Ireland, and (iv) THE OTHER PURCHASERS LISTED ON SCHEDULE 1 HERETO. [Note: The Sellers on Schedule I will include the Irish sellers.]

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. INTERPRETATION

1.1 For all purposes of this Agreement, the following terms shall have the following meanings:

“Additional Rent” means rent (whether called additional rent, supplemental rent, utilization rent, maintenance reserve or any similar term) that is in addition to a base rent for the Aircraft (regardless of how such base rent is calculated) payable under a Lease in respect of the airframe, engines, life-limited engine parts, landing gear and/or auxiliary power unit of an Aircraft based on hours or cycles of operation or passage of time, with respect to maintenance of which the lessor under the Lease customarily has a maintenance contribution obligation measured in part by or with reference to such additional rent.

“Additional Rent Adjustment” means, with respect to any Aircraft (whether transferred as an Independent Aircraft or a BI Aircraft, but excluding any Substitute Aircraft), any Additional Rent under the Lease for such Aircraft received (and any amounts debited from the Security Deposit relating to such Aircraft due to the nonpayment of such Additional Rent) received by or on behalf of the Seller or an Existing Lessor of that Aircraft after the AP Closing Date through the Delivery Date or the BI Transfer Date, as applicable.

“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified; provided that the Company and its Subsidiaries, on the one part, and JET-I, the other Sellers and their respective Subsidiaries, on the other part, shall not be considered to be Affiliates of each other.

“Agreed Form” means, when used in relation to any draft certificate, document, agreement or opinion referred to in this Agreement, (a) substantially in the form agreed between a Seller and a Purchaser on or before the AP Closing Date with such changes thereto as may subsequently be agreed between such Seller and such Purchaser and (b) in the case of any opinion, such form as each of the Rating Agencies and the Policy Provider shall approve.

“Air Authority” means each Person who is vested with the control and supervision of, or has jurisdiction over, the registration, airworthiness and operation of aircraft and other matters relating to civil aviation in the State of Registration of the relevant Aircraft.

“Aircraft” means each aircraft listed on Schedule 1 and described in further detail in Schedule 2 or, where any such aircraft has become a Remaining Aircraft pursuant to Section 4.1(a), and unless the context otherwise requires, any Substitute Aircraft designated in lieu thereof pursuant to Sections 4.1(b) and (c) and described in the applicable Substitute Aircraft Supplement, together with the Engines, and includes where the context admits, a separate reference to the Engines, Parts and Aircraft Documents and excludes Lessee Furnished Equipment.

“Aircraft Documents” means, for any Aircraft, all records, logs, technical data, manuals and any other documents defined as “Aircraft Documents” or any similar term under the relevant Lease therefore, title to which is vested in the owner of such Aircraft at Delivery.

“Aircraft No.” means, for any Aircraft, the reference number assigned to such Aircraft in Schedule 2 or the Substitute Aircraft Supplement, as applicable.

“Aircraft Refund Amount” means, in respect of any Aircraft, an amount equal to (a) the sum of (i) the Debt Allocation Amount for such Aircraft, together with interest thereon at a rate per annum equal to the Debt Rate from the AP Closing Date through the date the Aircraft Refund Amount is paid to the Purchaser plus (ii) the Equity Allocation Amount for such Aircraft, together with the related yield amount at a rate per annum of [initial dividend yield]% from the AP Closing Date through the date the Aircraft Refund Amount is paid to the Purchaser, plus (b) Negative Hedge Breakage Costs, if any, for such Aircraft, minus (c) Positive Hedge Breakage Costs, if any, for such Aircraft.

“Aircraft Value” means, in respect of any Aircraft, the product of (i) the Aircraft Purchase Price of such Aircraft and (ii) the quotient obtained by dividing (A) the Depreciation Factor applicable to such Aircraft as of the Delivery Date for such Aircraft or in the case of any Aircraft to which the payment provisions of Section 4.2 applies, the Delivery Expiry Date by (B) the Depreciation Factor applicable to such Aircraft on the AP Closing Date.

“AP Closing Date” means [   ] [   ], 2007.

“Appraisers” means Aircraft Information Services, Inc., Ascend, a division of Airclaims Limited and BK Associates, Inc. or such other appraisers as are reasonably acceptable to the Company.

“Asset” means any Independent Aircraft or Beneficial Interest purchased, or to be purchased, by a Purchaser pursuant to this Agreement.

“Assigned Lease” means, for any Lease the subject of an Assignment of Lease, such Lease as assigned to the relevant Purchaser or relevant Purchaser Entity (“New Lessor”), and as amended by the applicable Assignment of Lease.

2

“Assigned Property” has the meaning specified in Section 2.1.

“Assignment of Beneficial Interest” means an assignment of ownership interest in a Purchaser Entity from a BI Seller to a Purchaser substantially in the form of Exhibit A-1, A-2 or A-3, as applicable, hereto or in the Agreed Form.

“Assignment of Lease” means, for any Aircraft, a lease assignment and assumption agreement in the Agreed Form to be entered into among the Seller thereof or an Affiliate of such Seller (“Existing Lessor”), the Purchaser and/or New Lessor thereof and the relevant Lessee, under which the relevant Lease will be assigned, assumed and/or amended so that such Purchaser or New Lessor (as appropriate) will be substituted as lessor of such Aircraft in place of Existing Lessor.

“Assignment of Warranties” means, for any Aircraft, an assignment in the Agreed Form between the Seller thereof or an Affiliate of such Seller and the Purchaser, Purchaser Entity or New Lessor thereof, and consented to by the Manufacturer, of such Seller’s right, title and interest in the Manufacturer’s warranties in respect of such Aircraft, subject to the interests of the relevant Lessee.

“Average Base Value” means, for any Aircraft, the lesser of the mean and median of the “Base Values” in respect of such Aircraft rendered by each of the Appraisers; provided that, for any Substitute Aircraft, such appraisals shall be dated less than six months prior to the expected Delivery Date for such Substitute Aircraft.

“Base Aircraft Purchase Price” means, with respect to (i) any Aircraft (whether transferred as an Independent Aircraft or a BI Aircraft, but excluding any Substitute Aircraft), the “Aircraft Purchase Price” as set forth in Schedule 2 and (ii) any Substitute Aircraft, as may be mutually agreed between the Purchaser of that Substitute Aircraft and the Seller therof, subject always to receipt of a Rating Agency Confirmation and the prior written consent of the Policy Provider.

“Basic Rent” means, for any Lease, any scheduled rent thereunder, whether denominated as “Basic Rent”, “Rent” or otherwise, including any rent based on hours or cycles of operation of an Aircraft or Engine such as “power-by-the-hour amounts” and any payments for “excess hour or cycle amounts”, whether or not in addition to a base rent (which, for the avoidance of doubt, shall not include any Additional Rent).

“Basic Rent Adjustment” means, with respect to any Aircraft (whether transferred as an Independent Aircraft or a BI Aircraft, but excluding any Substitute Aircraft), the aggregate portion of any Basic Rent under the Lease for such Aircraft received (and any amounts debited from the Security Deposit relating to such Aircraft due to the nonpayment of such Basic Rent) by or on behalf of the Seller or an Existing Lessor of that Aircraft related to the period subsequent to the AP Closing Date through the Delivery Date or the BI Transfer Date, as applicable.

“Beneficial Interest” means, for any Purchaser Entity, 100% of the equity interest, both beneficial and of record, in such Purchaser Entity whether such be in the form of shares

3

of a corporation, membership in a limited liability company or beneficial interest in a trust.

“BI Aircraft” means any Aircraft, title to which is held by any Purchaser Entity on the AP Closing Date (subject to Section 3.1).

“BI Seller” means either JET-i, or any other entity designated as a “BI Seller” on Schedule 1 hereof, as a Seller of the Beneficial Interest in a Purchaser Entity.

“BI Transfer Date” has the meaning specified in Section 2.1.

“Bill of Sale” means, for any Aircraft, an executed bill of sale from the Seller thereof to the Purchaser or relevant Purchaser Entity substantially in the form of Exhibit B (with such modifications as counsel to any Seller in any Delivery Location may advise as necessary or desirable) and, as necessary, any FAA Bill of Sale executed by the Seller thereof.

“Cape Town Convention” means the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment, concluded in Cape Town on 16 November 2001.

“Code” mean the Internal Revenue Code of 1986, as amended from time to time.

“Company” means Babcock & Brown Air Funding I Limited, a Bermuda exempted company.

“Contracts” has the meaning specified in Section 8.3(x).

“Debt Allocation Amount” means, in respect of an Aircraft, the amount set forth for such Aircraft under the heading “Debt Allocation Amount” on Schedule 7.

“Debt Rate” means the rate per annum equal to sum of (a) the Applicable Rate of Interest with respect to the Class G-1 Notes and (b) the Policy Percentage (as defined in the Policy Fee Letter).

“Delivery” means, (a) for any Independent Aircraft, transfer of title to such Aircraft from the Seller thereof to the Company or any other Subsidiary of the Company, in accordance with Section 3.4(b) and the other provisions of this Agreement, and (b) for any BI Aircraft, Transfer of the Beneficial Interest of the Purchaser Entity that has title, or holds the Beneficial Interest in another Purchaser Entity that has title, to such BI Aircraft in accordance with Section 3.4(a) and the other provisions of this Agreement.

“Delivery Date” means, for any Asset, the date on which Delivery therefore occurs in accordance with this Agreement.

“Delivery Expiry Date” means the date that is 210 days after the AP Closing Date.

4

“Delivery Location” means, for any Aircraft, the location of such Aircraft at the time of Delivery as the Seller of that Aircraft shall designate, subject to Section 3.

“Designated Jurisdiction” means, subject to Section 3.2(a), a jurisdiction in which there is no adverse Tax consequence from a delivery or transfer of an Aircraft or a beneficial interest therein as a result of the Aircraft being located in such jurisdiction at the time of such delivery or transfer.

“Disclosure Letter” means the First Disclosure Letter or a Supplemental Disclosure Letter.

“Dollars” and “$” mean the lawful currency for the time being of the United States of America.

“Engine” means, in respect of any Aircraft, each engine for such Aircraft as described in Schedule 2 or the Substitute Aircraft Supplement, as applicable, concerning such Aircraft or, where any such engine has been replaced under the terms of the relevant Lease and title to the replacement engine has passed to the owner of such replaced Engine, such replacement engine as described in the relevant Bill of Sale or Assignment of Beneficial Interest, as the case may be, together with all Parts belonging to, installed in or appurtenant to such engine and includes, where the context permits, a separate reference to the Aircraft Documents concerning such engine.

“Equity Allocation Amount” means, in respect of an Aircraft, the amount set forth for such Aircraft under the heading “Equity Allocation Amount” on Schedule 7.

“Event” has the meaning specified in Section 11(e).

“Event of Default” means, for any Aircraft, any event defined as such or as “Termination Event” or the like in the relevant Lease for that Aircraft.

“Event of Loss” means, for any Aircraft, any event defined as such or as “Casualty Occurrence” or “Total Loss” or the like in the Lease of that Aircraft.

“Existing Lessor” has the meaning ascribed thereto in the definition of “Assignment of Lease” herein.

“FAA Bill of Sale” means, with respect to any Aircraft the State of Registration of which is the United States of America, a Federal Aviation Administration Bill of Sale (AC Form 8050-2) to be executed by the Seller of that Aircraft in favor of the Purchaser or Purchaser Entity of that Aircraft, and upon Delivery, filed with the Air Authority of the United States of America.

“Final Determination” means (i)(A) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all appeals allowable by law by any party to the action have been exhausted or the time for filing such appeals has expired or (B) in any case involving United States federal income taxes where judicial review shall at the time be unavailable

5

because the proposed adjustment involves a decrease in net operating loss carry forwards or business credit carry forwards, a decision, judgment, decree or other order of an administrative official or agency of competent jurisdiction, which decision, judgment, decree or other order has become final (i.e., where all administrative appeals have been exhausted by all parties thereto), (ii) a closing agreement entered into (x) under Section 7121 of the Code or any other settlement agreement entered into in connection with an administrative or judicial proceeding and (y) with the consent of any Seller affected thereby, (iii) the expiration of the time for instituting suit with respect to the claimed deficiency or (iv) the expiration of the time for instituting a claim for refund or, if such a claim was filed, the expiration of the time for instituting suit with respect thereto.

“First Disclosure Letter” means a letter from JET-i or the applicable Seller to the Purchaser dated the date hereof setting out certain information as at the date hereof.

“Formation Agreement” means, for each Purchaser Entity and as of any date of determination, the formation document or trust agreement pursuant to which such Purchaser Entity was created, as amended or supplemented to such date.

“Government Entity” means:

(1) any national government, political sub-division thereof, or local jurisdiction therein;

(2) any instrumentality, board, commission, department, division, organ, court, exchange control authority, or agency of any thereof, however constituted; or

(3) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any thereof is a participant.

“Guaranty” means the Guaranty of Babcock & Brown International Pty Ltd in respect of the transactions contemplated hereby in substantially the forms of Exhibit D hereto.

“Indenture” means the Trust Indenture dated as of [                  ] [      ], 2007, among the Company, the Initial Liquidity Facility Provider, the Policy Provider, the Cash Manager and the Indenture Trustee.

“Indenture Trustee” means Deutsche Bank Trust Company Americas, as the trustee and operating bank under the Indenture.

“Independent Aircraft” means each Aircraft listed on Schedule 1 (other than any BI Aircraft but subject to Section 3.1) and, in each case, any Substitute Aircraft substituted therefore pursuant to Section 4.1.

“Independent Seller” means each Independent Seller listed on Schedule 1.

6

“Intercompany Lease” means, for any Aircraft, any lease therefore in the Agreed Form between the applicable Purchaser Entities.

“International Interest” has the meaning given to such term in the Cape Town Convention.

“International Registry” means the registry established pursuant to the Cape Town Convention.

“Investment Proceeds Adjustment” means, with respect to any Aircraft (whether transferred as an Independent Aircraft or a BI Aircraft, but excluding any Substitute Aircraft), an amount equal to the investment proceeds with respect to the Base Aircraft Purchase Price and after giving effect to any release of funds from the Aircraft Purchase Account as a result of the Basic Rent Adjustment for such Aircraft as provided in Section 3.04(j) of the Indenture) For purposes of this Agreement, investment proceeds shall be deemed to accrue at the rate of 4% per annum.

“JET-i” means JET-i Leasing LLC, a Delaware limited liability company.

“Lease” means, for any Aircraft, the aircraft lease agreement (as amended, supplemented, novated or assigned by any relevant Lease Document) between an Existing Lessor thereof and a Lessee of that Aircraft identified as such in Schedule 2 or the Substitute Aircraft Supplement, as applicable, concerning such Aircraft.

“Lease Assignment Documents” has the meaning ascribed thereto in the Security Trust Agreement.

“Lease Documents” means, for any Aircraft, all agreements identified as such in Schedule 2 or the Substitute Aircraft Supplement, as applicable, concerning such Aircraft, including any Lease Novation or Assignment of Lease in respect of that Aircraft, as such may be amended by any Disclosure Letter the contents of which have been agreed to by the Purchaser, and any Intercompany Lease with respect to that Aircraft.

“Lease Novation” means, for any Independent Aircraft, a lease novation and amendment agreement therefore in the Agreed Form, to be entered into among the Purchaser thereof and/or the New Lessor, the Existing Lessor thereof as lessor and the relevant Lessee, under which the relevant Lease will be novated and amended so that such Purchaser or New Lessor (as appropriate) will be substituted as lessor of such Aircraft in place of such Existing Lessor.

“Lessee” means, for any Aircraft, the lessee of such Aircraft as identified in Schedule 2 or the Substitute Aircraft Supplement for that Aircraft, as applicable, and includes where the context permits a separate reference to the lessee under an Intercompany Lease.

“Lessee Encumbrance” means, for any Aircraft, any Encumbrance which is (i) created by or is attributable to the acts, omissions, debts or liabilities of the Lessee of that Aircraft or

7

its Affiliates or (ii) attributable to any claim payable by or indemnified against the Lessee of that Aircraft.

“Lessee Furnished Equipment” means, for any Aircraft, those appliances, parts, accessories, instruments, navigational and communications equipment, furnishings modules, components and other items of equipment installed in or furnished with such Aircraft at Delivery and ownership of which is not required pursuant to the relevant Lease to vest in or be transferred to the lessor or owner of such Aircraft, as the case may be.

“Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Applicable Law (including, without limitation, any environmental law), and those arising under any contract, agreement, arrangement, commitment or undertaking.

“Losses” has the meaning specified in Section 10.1.

“Maintenance Adjustment” means, with respect to any Aircraft (whether transferred as an Independent Aircraft or a BI Aircraft, but excluding any Substitute Aircraft), the amount of any maintenance contribution obligations, airworthiness directive cost sharing obligations and similar obligations of a lessor in respect of such Aircraft in respect of any claim therefore under a Lease made and paid by the Seller or Existing Lessor of that Aircraft after the AP Closing Date and through the Delivery Date of that Aircraft.

“Manufacturer” means, for any Aircraft, the manufacturer thereof as identified in Schedule 2 or the Substitute Aircraft Supplement for that Aircraft, as applicable, and includes where the context permits a separate reference to the manufacturer of each Engine as identified in Schedule 2 or the Substitute Aircraft Supplement for that Aircraft, as applicable.

“Material Damage” means, for any Aircraft, damage to such Aircraft in excess of 25% of the applicable Aircraft Value.

“Material Default” means, for any Lease, an event of default as provided under that Lease:

(1) consisting of failure to pay Rent or Additional Rent when due if such delinquency is in excess of thirty days from the due date (a “Payment Default”) or any non-payment Event of Default;

(2) consisting of the failure to maintain any insurance under such Lease, which failure is known to JET-i or the Seller of the Aircraft subject to such Lease or of the Beneficial Interest of the Purchaser Entity holding title to such Aircraft; or

(3) due to the bankruptcy, insolvency or similar event with respect to the Lessee

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unless, in any such case, such Event of Default, Payment Default, insurance or bankruptcy default has been disclosed to each Rating Agency and the Policy Provider prior to the AP Closing Date.

“Negative Hedge Breakage Costs” means, in respect of any Aircraft, an amount equal to the amount allocable to such Aircraft that is payable by any Issuer Group Member to a Hedge Provider due to an early termination of any Hedge Agreement resulting from the non-delivery of, or deemed rescission of the transfer in respect of, such Aircraft.

“New Lessor” has the meaning ascribed thereto in the definition of “Assigned Lease” herein.

“Novated Lease” means, for any Lease subject to a Lease Novation, such Lease as novated to the New Lessor of the Aircraft the subject of such Lease, and as amended by such Lease Novation.

“Operative Documents” means, for any Aircraft, (a) this Agreement, (b) the Guaranty, (c) the Bill of Sale, (d) either any Lease Novation or Assignment of Lease therefore, and (e) in the case of any BI Aircraft, the Assignment of Beneficial Interest together with, in case of Beneficial Interests consisting of capital stock or equity interest, certificates representing such Beneficial Interest duly issued and registered in the name of the Purchaser.

“Order” means any writ, judgment, decree, injunction or similar order of any governmental or regulatory authority (in each case whether preliminary or final).

“Parts” shall mean for any Aircraft any part, component, appliance, accessory, instrument or other item of equipment (other than any of the Engines) installed in or furnished with or attached to that Aircraft at its Delivery title to which immediately prior to the sale pursuant to this Agreement is vested in Seller of that Aircraft (or, the case of a Delivery by Transfer of a Beneficial Interest, the Purchaser Entity holding title to that Aircraft) except Lessee Furnished Equipment.

“Paying Party” has the meaning specified in Section 5.7.

“Payment Default” has the meaning ascribed thereto in the definition of “Material Default” herein.

“Permits” has the meaning specified in Section 8.3.

“Permitted Encumbrance” means:

(1) any Purchaser Encumbrance;

(2) the rights conferred by the Lease Documents; and

(3) any Lessee Encumbrances that are permitted under the Lease Documents.

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“Policy Provider” means Ambac Assurance Corporation.

“Positive Hedge Breakage Costs” means, in respect of any Aircraft, an amount equal to the amount allocable to such Aircraft that is payable to any Issuer Group Member by a Hedge Provider due to an early termination of any Hedge Agreement resulting from the non-delivery of, or deemed rescission of the transfer in respect of, such Aircraft.

“Pre-Closing Taxes” has the meaning specified in Section 11(d)(iv).

“Pre-Closing Tax Returns” has the meaning specified in Section 11(d)(iii).

“Priority Search Certificate” shall have the meaning set forth in the regulations adopted pursuant to the Cape Town Convention.

“Purchaser” means, for any Asset, the purchaser of such Asset pursuant to this Agreement, which shall be the Company or, in the case of any Independent Aircraft, a Subsidiary of the Company as designated in writing by the Company at least three Business Days (or such shorter period as may be agreed) prior to the relevant Delivery Date.

“Purchaser Corporate Entity” means any Purchaser Entity designated as a Purchaser Corporate Entity in Schedule 6 hereto.

“Purchaser Encumbrance” means any Encumbrance which is created by or results from debts or liabilities or actions or omissions of any Purchaser of an Asset or its Affiliates.

“Purchaser Entity” means any of the entities listed in Schedule 6 hereto.

“Purchaser Indemnitees” means the Company, any Subsidiary of the Company, each other Purchaser, the Security Trustee, the Trustee, the Directors, the holders of the Class A Shares, the Policy Provider and any of their respective successors and assigns, shareholders (except in the case of the shareholders of the holders of the Class A Shares), subsidiaries, Affiliates, directors, trustees, servants, agents and employees.

“Purchaser Non-Corporate Entity” means any Purchaser Entity designated as a Purchaser Non-Corporate Entity Partnership in Schedule 6 hereto.

“Purchaser State Corporate Entity” has the meaning set forth in Section 8.6.

“Receiving Party” has the meaning specified in Section 5.7.

“Remaining Aircraft” has the meaning specified in Section 4.1(a).

“Retained Rights” has the meaning specified in Section 2.1.

“Security Deposit” means, for any Aircraft, the amount (whether in the form of cash, a letter of credit, guarantee, promissory note or otherwise) set forth opposite the term “Security Deposit” in respect of such Aircraft on Schedule 2 (updated by the Seller of

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that Aircraft (or, in the case of a BI Aircraft, the Seller of the Beneficial Interest in the Purchaser Entity holding title to that Aircraft) for any additions to or applications or repayments in respect of such Security Deposits made on or after the AP Closing Date and prior to the Delivery Date for that Aircraft) or the Substitute Aircraft Supplement for that Aircraft, as applicable, in each case paid to the applicable lessor and not applied or repaid as of the Delivery Date for that Aircraft, together with any interest thereon required under the terms of the applicable Lease to be paid to or to accrue in favor of the Lessee thereunder to such Delivery Date.

“Seller” means with respect to any Asset, the BI Seller or the Independent Seller, as the case may be, selling such Asset. For the avoidance of doubt, Seller shall not mean any seller of aircraft or any other asset to any of the Purchasers other than pursuant to this Agreement.

“Seller Group” has the meaning specified in Section 11(c).

“Seller Indemnitees” means the Sellers, JET-i and any of their respective successors, assigns, shareholders, subsidiaries, Affiliates, directors, trustees, servants, agents, and employees.

“Servicer” means Babcock & Brown Aircraft Management LLC, a Delaware limited liability company, and Babcock & Brown Aircraft Management (Europe) Limited, an Irish corporation.

“State of Registration” means, for any Aircraft, the country identified in Schedule 2 for that Aircraft or the Substitute Aircraft Supplement for that Aircraft, as applicable, concerning such Aircraft.

“Subsidiary” of any Person means a corporation, company or other entity: (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are now or hereafter owned or controlled, directly or indirectly, by such Person, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50% of whose ownership interest representing the right to make decisions for such other entity is, now or hereafter owned or controlled, directly or indirectly, by such Person; provided that in each case, such corporation, company or other entity shall be deemed to be a Subsidiary only so long as such ownership or controls exists.

“Substitute Aircraft” has the meaning specified in Section 4.1(b).

“Substitute Aircraft Adjustment Amount” means, with respect to a Substitute Aircraft and the related Remaining Aircraft, the sum of (a) the difference (whether positive or negative) obtained by subtracting (i) the amount obtained by subtracting (u) the amount of maintenance contributions, airworthiness directive cost sharing payments and other similar payments made by or on behalf of the Seller or an Existing Lessor of that Substitute Aircraft under a Lease for such Substitute Aircraft after the AP Closing Date from (v) the amount of Additional Rent received by or on behalf of the Seller or an

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Existing Lessor of that Substitute Aircraft under the Lease for such Substitute Aircraft after the AP Closing Date, from (ii) the amount obtained by subtracting (x) the amount of maintenance contributions, airworthiness directive cost sharing payments and other similar payments made by or on behalf of the Seller or an Existing Lessor of that Remaining Aircraft for such Remaining Aircraft after the AP Closing Date from (y) the amount of Additional Rent received by the Seller or an Existing Lessor of that Remaining Aircraft for such Remaining Aircraft after the AP Closing Date and (b) the difference (whether positive or negative) obtained by subtracting (i) the sum of the portions of any Basic Rent under the Lease for such Substitute Aircraft received (and any amounts debited from the Security Deposit relating to such Substitute Aircraft due to the nonpayment of such Basic Rent) by or on behalf of the Seller or an Existing Lessor of that Remaining Aircraft related to the period subsequent to the AP Closing Date from (ii) the sum of the portions of any Basic Rent under the Lease for such Remaining Aircraft received (and any amounts debited from the Security Deposit relating to such Remaining Aircraft due to the nonpayment of such Basic Rent) by or on behalf of the Seller or an Existing Lessor of that Remaining Aircraft related to the period subsequent to the AP Closing Date.

“Substitute Aircraft Supplement” means, for any Substitute Aircraft, a supplement to this Agreement in the Agreed Form which, among other things, sets forth such matters as the seller and the Purchaser shall agree apply specifically to such Substitute Aircraft, as provided in Section 4.1(c).

“Supplemental Disclosure Letter” means, (a) for any Independent Aircraft, a letter from JET-i or the Seller of that Independent Aircraft to the Purchaser thereof setting out certain information as of the Delivery Date for such Aircraft and (b) for any BI Aircraft, a letter from JET-i or the Seller of that BI Aircraft to the Purchaser thereof setting out certain information as of the relevant BI Transfer Date.

“Taxes” means any and all present and future sales, use, personal property, customs, ad valorem, value added, turnover, franchise, windfall or other profits, payroll, capital stock, employment, social security, workers’ compensation, unemployment compensation, stamp, transfer, excise, interest equalization, income, gross receipts, limited liability company minimum, limited partnership minimum or other taxes, fees, withholdings, imposts, duties, deductions, levies, or other charges of any nature, together with any penalties, fines, or interest thereon, imposed, levied, or assessed by, or otherwise payable to, any Government Entity.

“Tax Return” with respect to any entity means a report, return or other information (including any amendments) required to be supplied to a Government Entity with respect to Taxes of such entity including, information returns and, where permitted or required, combined or consolidated returns for any group of entities that include the entity.

“Tax Sharing Agreement” has the meaning specified in Section 11(d)(i).

“Transfer” means the sale, conveyance and transfer of any Beneficial Interest.

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“Transfer Tax Jurisdiction” has the meaning specified in Section 11(a).

“Treasury Regulations” means proposed, temporary or final regulations promulgated under the Code by the United States Treasury Department.

1.2 In addition to the terms defined in Section 1.1, and for all purposes of this Agreement, all capitalized terms used but not otherwise defined herein shall have the respective meanings assigned to such terms in the Indenture.

1.3 (a) In this Agreement, unless the contrary intention is stated, a reference to:

(i) each of “JET-i”, any “Seller”, the “Company”, any “Purchaser” or any other Person includes without prejudice to the provisions of this Agreement any successor in title to it or any permitted assignee;

(ii) words in the plural include the singular and vice versa;

(iii) any document includes that document as amended, novated or supplemented, in each case in accordance with its terms;

(iv) a law (1) includes any statute, decree, constitution, regulation, order, judgment or directive of any Government Entity; (2) includes any treaty, convention, pact, compact or other agreement to which any Government Entity is a signatory or party; (3) includes any judicial or administrative interpretation or application thereof; and (4) is a reference to that provision as amended, substituted or re-enacted; and

(v) a Section, an Exhibit or a Schedule is a reference to a section of or an exhibit or a schedule to this Agreement.

(b) The headings in this Agreement are to be ignored in construing this Agreement.

2. SALE AND PURCHASE

2.1 On the AP Closing Date, or as promptly thereafter as practical (but no later than the Delivery Expiry Date), and upon the satisfaction of all of the conditions precedent in Sections 6 and 7 with respect to all of the BI Aircraft then owned by a Purchaser Entity (each such date, the “BI Transfer Date” for such Purchaser Entity), the Purchaser of the Beneficial Interest in that Purchaser Entity will purchase from the BI Seller thereof and concurrently therewith, that BI Seller will sell to that Purchaser, such Beneficial Interest by delivery to the Purchaser of an Assignment of Beneficial Interest in the form of Exhibit A-1, A-2 or A-3, as applicable, hereto, dated such BI Transfer Date, and in the case of a Beneficial Interest consisting of capital stock or equity interest certificates, certificates (with all required stock transfer tax having been paid) evidencing such Beneficial Interest, conveying to the Purchaser outright and unconditionally all of the BI Seller’s right, title and interest in, to and under such Beneficial Interest of such Purchaser Entity, including, without limitation, all of the BI Seller’s rights as shareholder, member or beneficiary, as the case may be, of such Purchaser Entity, any rights to any applicable

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Security Deposit or Additional Rent but excluding any Additional Rent paid on or prior to the AP Closing Date, together with all other agreements, contracts, documents and instruments evidencing any of such right, title and interest as well as the proceeds of all thereof, in each case free from any Encumbrances other than Permitted Encumbrances (individually or collectively, the “Assigned Property” for such Purchaser Entity) on, and subject to, the terms and conditions contained in this Agreement; reserving to such Seller all claims for indemnities payable to such Seller (or the applicable Purchaser Entity) under the related Lease(s) in respect of any act or omission or events occurring prior to the AP Closing Date for such Purchaser Entity (the “Retained Rights” for the Aircraft relating to or for such Purchaser Entity). For the avoidance of doubt, except in the case of a Substitute Aircraft or an undelivered Aircraft as provided in Section 4, all Basic Rent paid in respect ofthe period prior to, and Additional Rent paid on or prior to, the AP Closing Date shall be retained by or paid over to, as the case may be, the applicable BI Seller and all Basic Rent paid in respect ofthe period on or after, and Additional Rent paid after, the AP Closing Date shall be credited to or retained by or paid over to, as the case may be, the applicable Purchaser. Effective as of the BI Transfer Date for each Purchaser Entity, on, and subject to, the terms and conditions contained in this Agreement, the Purchaser agrees to accept the assignment of the Assigned Property for such Purchaser Entity from the BI Seller and, subject to Section 3.5, assume and undertake all of the duties, obligations and liabilities of the BI Seller with respect to such Assigned Property arising and to be performed on or after such BI Transfer Date and agrees to be bound by all the terms of and to undertake all of the duties, obligations and liabilities arising after such BI Transfer Date of the BI Seller with respect to the Assigned Property for such Purchaser Entity. Each Purchaser with respect to a Retained Right shall take such actions or pursue such claims as reasonably requested to by the Seller; provided that (i) all costs incurred by the Purchaser shall be for the Seller’s account, (ii) the Seller agrees to indemnify the Purchaser for any costs or liabilities incurred in connection with such action or pursuit of claim, (iii) such action or pursuit of claim shall not be inconsistent with a Purchaser’s obligations under any of the Operative Documents and (iv) such Purchaser shall not be required to take any action, or refrain from taking any action, to the extent that taking such action, or refraining from taking such action, would violate or contravene any applicable law, ordinance, rule, regulation or court order.

2.2 With respect to each Independent Aircraft, on or after the AP Closing Date (but no later than the Delivery Expiry Date), and upon the satisfaction of all of the conditions precedent in Sections 6 and 7 with respect to that Independent Aircraft, the Purchaser of that Independent Aircraft will purchase from such Independent Seller and concurrently therewith, such Independent Seller will sell to such Purchaser, such Independent Aircraft, including, without limitation, the Aircraft Documents and any applicable Security Deposit or Additional Rent, but excluding any Additional Rent paid on or prior to the AP Closing Date and Retained Rights, on and subject to the terms and conditions contained in this Agreement (including, without limitation, the execution of a Lease Novation or Assignment of Lease (as the case may be) in respect of such Independent Aircraft and delivery of the Lease Documents therefore), each in its “AS IS” and “WHERE IS” condition at the relevant Delivery Location, free from any Encumbrances other than Permitted Encumbrances. For the avoidance of doubt, except in the case of a Substitute Aircraft or an undelivered Aircraft as provided in Section 4, all Basic Rent paid in respect

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ofthe period prior to, and all Additional Rent paid on or prior to, the AP Closing Date shall be retained by the applicable Seller and all Basic Rent paid in respect ofthe period on and after, and Additional Rent paid after, the AP Closing Date shall be credited to or paid over to, as the case may be, the applicable Purchaser. Each Purchaser with respect to a Retained Right shall take such actions or pursue such claims as reasonably requested to by the Seller; provided that (i) all costs incurred by the Purchaser shall be for the Seller’s account, (ii) the Seller agrees to indemnify the Purchaser for any costs or liabilities incurred in connection with such action or pursuit of claim, (iii) such action or pursuit of claim shall not be inconsistent with a Purchaser’s obligations under any of the Operative Documents, and (iv) such Purchaser shall not be required to take any action, or refrain from taking any action, to the extent that taking such action, or refraining from taking such action, would violate or contravene any applicable law, ordinance, rule, regulation or court order.

2.3 The parties hereto acknowledge, consent and agree that from and after the AP Closing Date to the Delivery Date of an Aircraft, that Aircraft shall be subject to the Administrative Services Agreement as attached as Exhibit G hereto and the Servicing Agreement as attached as Exhibit F hereto on the terms and conditions provided herein and therein; provided that (without prejudice to the terms of the Administrative Services Agreement or the Servicing Agreement) from and after the Delivery Expiry Date an Aircraft shall cease to be subject to the Administrative Services Agreement and the Servicing Agreement upon payment by the Seller of that Aircraft of the amount specified in Section 4.2 in respect of that Aircraft. Each party hereto further agrees that, from and after the AP Closing Date, it shall reasonably cooperate with, and take such action as may be reasonably requested by, the Servicer under the Servicing Agreement to allow it to perform the servicing of the Aircraft in accordance with the Servicing Agreement.

3. DELIVERY AND ACCEPTANCE

3.1 Each BI Seller of a Beneficial Interest in a Purchaser Entity and the Purchaser of that Beneficial Interest shall use commercially reasonable efforts to cause the Transfer of that Beneficial Interest to occur on or as soon as reasonably practicable after the AP Closing Date, and each of the Independent Sellers of an Aircraft and the Purchaser of that Aircraft shall use commercially reasonable efforts to cause Delivery of that Independent Aircraft to occur on or as soon as reasonably practicable after the AP Closing Date, in each case subject to the other terms and conditions of this Agreement but in no event later than the Delivery Expiry Date. Delivery of the Independent Aircraft need not take place concurrently or in the order set out in Schedule 2.

3.2 The Seller of any Independent Aircraft shall use its commercially reasonable efforts to arrange for the Delivery Location for such Aircraft to be in a jurisdiction:

(a) where such Seller has determined, in its sole discretion, that there are no Taxes that would be imposed upon such Seller, the Purchaser thereof or the Aircraft as a result of the transfer of title to the applicable Aircraft to such Purchaser as a result of the Aircraft or any part thereof being located in that jurisdiction; provided that such Seller may (but shall not be obligated to) complete any sale where such

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Taxes would be imposed on such Seller and, with the prior written consent of the Purchaser thereof and subject to Section 11, such Seller may (but shall not be obligated to) complete any sale where such Taxes would be imposed on such Purchaser (in which case, the “Designated Jurisdiction” for such Aircraft shall be deemed to be the jurisdiction in which such Aircraft is located when such sale is completed); and

(b) where the security, if any, contemplated by the applicable Assignment of Lease, Lease Novation or any related Lease Document to be granted to the Purchaser or New Lessor thereof would be effective relative to such Aircraft; and

(c) where the security contemplated by the Security Trust Agreement with respect to the applicable Lease, and, in the case of Aircraft registered in the United States or Ireland, the Aircraft, would be effective under the governing law of the Security Trust Agreement.

In the case of any BI Aircraft, the relevant BI Seller shall use commercially reasonable efforts to cause the Delivery Location for such Aircraft to be in a jurisdiction where such BI Seller has determined, in its sole discretion, that there are no Taxes that would be imposed upon such Seller, the Purchaser thereof, the Purchaser Entity or such Aircraft as a result of the Transfer of Beneficial Interest relating to such BI Aircraft to such Purchaser, subject in all cases to the proviso set forth in Section 3.2(a) above.

3.3 The Seller of an Aircraft shall use reasonable efforts to keep the Company advised as to any information of which such Seller becomes aware as to the intended whereabouts of each Independent Aircraft on the expected Delivery Date therefore and of each BI Aircraft on the expected BI Transfer Date relating to such BI Aircraft. Each Purchaser shall, subject to the terms and conditions of this Agreement and using reasonable efforts, cooperate with the Seller of each Aircraft (at such Seller’s cost) so as to allow the Delivery relating to such Independent Aircraft, as the case may be, to occur when such Aircraft is at the Delivery Location therefore. In the event that the Seller of an Aircraft reasonably believes that the jurisdiction of the Delivery Location is a jurisdiction where there may be Taxes imposed upon any Seller Indemnitee or any Purchaser Indemnitee as a result of the transfer of the Seller’s interest in the applicable Aircraft or Purchaser Entity to the Purchaser or for which the Seller would otherwise be liable under Section 11 hereof, the Seller may, to the extent a favorable Delivery Location cannot be arranged, elect to treat such Aircraft as a Remaining Aircraft.

3.4 (a) For each BI Aircraft, on the Delivery Date therefore, subject to the satisfaction of the conditions precedent set out in Section 7.1 and Exhibit E-1 applicable thereto, the Seller thereof shall be deemed to have tendered such BI Aircraft for Delivery. On each BI Transfer Date, subject to the satisfaction of the conditions precedent set out in Sections 6 and 7 applicable thereto, the BI Seller shall execute an Assignment of Beneficial Interest in the form of Exhibit A-1, A-2 or A-3, as applicable, attached hereto, and in the case of a Beneficial Interest consisting of capital stock or equity interest certificates cause the certificates representing the Beneficial Interest to be duly registered in the name of the Purchaser of the related

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Purchaser Entity and subject to Section 3.2, the Transfer of the Beneficial Interest effected thereby shall take place while the Aircraft owned or leased by the related Purchaser Entity is at the Delivery Location therefore.

(b) For each Independent Aircraft, on the Delivery Date therefore, subject to satisfaction of the conditions precedent set out in Sections 6 and 7 applicable thereto, the Seller thereof shall tender such Independent Aircraft for Delivery. Delivery and acceptance of each Independent Aircraft hereunder shall take place while such Independent Aircraft is located at the Delivery Location therefore, by such Seller executing and delivering to such Purchaser a Bill of Sale. Thereupon, full legal and beneficial title to such Independent Aircraft, free from Encumbrances other than Permitted Encumbrances, shall pass from the Seller thereof to the Purchaser thereof. Simultaneously with delivery to the Purchaser of the Bill of Sale, title to the Aircraft Documents therefore shall pass to such Purchaser and, as provided in the Lease Novation or the Assignment of Lease for such Independent Aircraft, as applicable, the Lease related thereto shall be novated or assigned (as the case may be) upon the Delivery of such Independent Aircraft.

3.5 The risk of the existence of any unrepaired Material Damage or the occurrence of an Event of Loss with respect to an Aircraft shall be retained by the applicable Seller thereof until the delivery of the related Assignment of Beneficial Interest on the applicable BI Transfer Date in the case of any BI Aircraft or the delivery of the related Bill of Sale on the applicable Delivery Date in the case of any Independent Aircraft. Effective upon such deliveries on the Delivery Date of an Independent Aircraft or the BI Transfer Date of a BI Aircraft, all risk of loss of, or damage to, each Aircraft (other than a Substitute Aircraft) and the Aircraft Documents relating thereto shall pass from the Seller thereof to the Purchaser thereof, and the risk of loss of, or damage to, each Substitute Aircraft and the Aircraft Documents related thereto shall pass from the Seller thereof to the Purchaser thereof upon delivery of the Bill of Sale for such Aircraft to such Purchaser by such Seller or upon delivery of the Assignment of Beneficial Interest in respect thereof, as the case may be, pursuant to Section 3.4(a) or (b).

3.6 Each Aircraft to be sold hereunder shall be delivered to the Purchaser (or in the case of the BI Aircraft, deemed delivered on the applicable BI Transfer Date to the Company) “AS IS” and “WHERE IS”, at the Delivery Location and SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET OUT IN SECTION 12 but without limiting any representation, warranty or covenant of JET-i or any other Seller expressly set forth herein and/or in the Bill of Sale and/or Assignment of Beneficial Interest for, or in respect of, such Aircraft (together with, in the case of any Beneficial Interest consisting of capital stock or equity interest, the certificate representing the same) delivered pursuant to this Agreement. Subject to receipt or satisfaction or waiver of the conditions precedent referred to in Section 7 applicable thereto and the other provisions of this Agreement, each Purchaser of an Aircraft or of the related Beneficial Interest shall unconditionally accept such Aircraft or Beneficial Interest for all purposes hereunder upon tender of a Bill of Sale or of an Assignment of Beneficial Interest (together with, in the case of any Beneficial Interest consisting of capital stock or

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equity interest certificates representing the same), as the case may be, in accordance with Section 3.4 and the other provisions of this Agreement in the condition in which such Aircraft exists on the Delivery Date (or in the case of any BI Aircraft, on the applicable BI Transfer Date). Acceptance by any Purchaser of a Bill of Sale in respect of any Aircraft or of an Assignment of Beneficial Interest in respect of any Aircraft then owned by any Purchaser Entity pursuant to such Assignment of Beneficial Interest thereof shall constitute an acknowledgement by such Purchaser for the purposes of this Agreement that such Aircraft is in every respect satisfactory to such Purchaser; provided that the foregoing is not intended nor shall the same be construed as a waiver by such Purchaser of any claim that it may have against the Guarantor or any other Seller for breach of any representation, warranty or covenant expressly contained in this Agreement.

3.7 Prior to the Delivery of any Aircraft, the Purchaser of that Aircraft and/or its agents, representatives and designees shall have the right, on reasonable prior notice and at such Purchaser’s cost and expense, to inspect such Aircraft on and subject to the terms of the applicable Lease.

4. SUBSTITUTE AND UNDELIVERED AIRCRAFT

4.1 (a) If any Seller is unable to effect Delivery of, or Transfer with respect to, any Aircraft at any time prior to the 30^th day before the Delivery Expiry Date for any reason (including, without limitation, the failure of one or more of the conditions set forth in Exhibit E-1 or E-2 or Sections 6 or 7, but excluding an Event of Loss or Material Damage in respect of such Aircraft), then, in each such case, such Aircraft shall become a “Remaining Aircraft” and the provisions of Section 4.1(b) and (c) and Section 4.2 shall apply.

(b) If an Aircraft becomes a Remaining Aircraft, then the Seller of that Aircraft shall (x) promptly inform the Purchaser thereof and the Policy Provider of such event and specifying the reason therefore and (y) use reasonable commercial efforts to designate in lieu thereof one or more substitute aircraft that is reasonably acceptable to the Company to be delivered on or before the Delivery Expiry Date. Any such designated substitute aircraft shall (i) be subject to an operating lease contract containing the Core Lease Provisions, (ii) have the same or greater Average Base Value as of the date of Delivery thereof as such undelivered Remaining Aircraft as of the Delivery of the Substituted Aircraft, (iii) upon Delivery, not result in a Concentration Default under the Indenture, (iv) be subject to an operating lease contract or contracts providing for a similar rent profile and term as such undelivered Remaining Aircraft, (v) have a similar remaining useful life as such undelivered Remaining Aircraft, (vi) not be a cargo or regional jet aircraft or, if such Substitute Aircraft is a cargo or regional jet aircraft, it is being substituted for an Aircraft of the same category and (vii) be a substitute aircraft in respect of which the Seller shall have obtained a Rating Agency Confirmation and the prior written consent of the Policy Provider with respect to the substitution of such Remaining Aircraft (each, a “Substitute Aircraft”).

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(c) At least three Business Days but not more than five Business Days prior to the Delivery Date of a Substitute Aircraft, (i) the Seller thereof shall provide the Company, the Indenture Trustee, the Policy Provider and the Administrative Agent a certification of (x) the amount of maintenance contributions made and Additional Rent received by the relevant lessor for such Substitute Aircraft after the AP Closing Date, and (y) the amount of maintenance contributions made by or on behalf of the Seller thereof and Additional Rent received for the related Remaining Aircraft after the AP Closing Date, and on such Delivery Date, each of the Seller and the Company shall confirm such amounts to the Indenture Trustee, the Policy Provider and the Administrative Agent. Upon the Delivery of a Substitute Aircraft, the Remaining Aircraft which was replaced by such Substitute Aircraft shall cease to be subject to this Agreement and all rights and obligations of the parties hereunder concerning such Remaining Aircraft shall cease, and such Substitute Aircraft shall become and thereafter be subject to the terms and conditions of this Agreement to the same extent as such Remaining Aircraft, except as to any matters (other than the matters referred to in Section 4.1(b)) which may be agreed as to such Substitute Aircraft, which shall be set forth in a Substitute Aircraft Supplement, except that the substitution of any Aircraft shall not effect the Seller’s obligations under Section 4.2 (provided always that, for the avoidance of doubt, until a Substitute Aircraft is so delivered for a Remaining Aircraft, such Remaining Aircraft shall continue to be subject to this Agreement). On the Delivery Date of a Substitute Aircraft, the Purchaser of that Substitute Aircraft shall pay the Seller thereof an amount equal to the amount that would have been paid with respect to the Remaining Aircraft pursuant to Section 5.1 on such Delivery Date, plus, if such amount is a negative number, the Substitute Aircraft Adjustment Amount for such Aircraft or less, if such amount is a positive number, the Substitute Aircraft Adjustment Amount for such Aircraft and, in any event transfer any Security Deposits for such Substitute Aircraft in the ,manner set forth in Section 5.1(a).

(d) If an Aircraft (including a BI Aircraft) shall have suffered an Event of Loss or Material Damage, the Seller of that Aircraft may, but shall not be obligated to, designate a Substitute Aircraft in respect of such Aircraft, and, if no Substitute Aircraft shall have been designated therefore as provided above, then the Seller of that Aircraft shall have no obligation to deliver and the Purchaser thereof shall have no obligation to accept delivery of such Aircraft hereunder.

4.2 If any Aircraft shall not have been delivered on or prior to the Delivery Expiry Date for any reason (whether as a result of an Event of Loss or otherwise), or if the Beneficial Interest of any Purchaser Entity is not transferred on or prior to the Delivery Expiry Date for any reason, and provided no Substitute Aircraft shall have been delivered in substitution therefore on or prior to the Delivery Expiry Date then on such date JET-i irrevocably and unconditionally agrees to pay, and, without duplication thereof, the Seller thereof irrevocably and unconditionally agrees to pay, to the Purchaser of that Aircraft an amount equal to the Aircraft Refund Amount with respect to such Aircraft, less the Base Aircraft Purchase Price for such Aircraft, less any Investment Proceeds Adjustment for such Aircraft.

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4.3 Except as otherwise expressly provided in Sections 4.1, 4.2 and 5.3, if Delivery of an Aircraft (or Beneficial Interest pertaining thereto) under this Agreement is delayed or does not occur for any reason outside the control of the Seller of such Aircraft, including by reason of the lack of cooperation of any Lessee or other person (other than such Seller or any of its Affiliates), the Seller thereof will not be responsible for any damages, losses, including loss of profit, costs, expenses, liabilities, demands, payments, claims or action arising from or in connection with the delay or failure suffered or incurred by the Purchaser.

5. PAYMENTS

5.1 Subject to the satisfaction or waiver by the Purchaser of the conditions precedent in Section 7, the Purchaser of an Aircraft shall pay to the Seller of that Aircraft, on the Delivery Date if an Independent Aircraft or on the BI Transfer Date if a BI Aircraft, the Base Aircraft Purchase Price for the Independent Aircraft or BI Aircraft delivered on such date, plus any Investment Proceeds Adjustment for such Aircraft, less any Basic Rent Adjustment for such Aircraft, less any Additional Rent Adjustment for such Aircraft, plus any Maintenance Adjustment for such Aircraft, subject to receipt by such Purchaser of the following:

(a) an amount equal to the Security Deposits held by or on behalf of each Existing Lessor in cash (if any) for such Aircraft;

(b) an opinion of in house counsel to the Guarantor in the Agreed Form as to the due execution and delivery of the Guaranty and as to such other matters relating thereto as such Purchaser may reasonably request;

(c) the Guaranty duly executed and delivered by Babcock & Brown International Pty Ltd on the AP Closing Date;

(d) a certification in the Agreed Form from a duly authorized officer of the Seller of that Aircraft to the effect that the representations and warranties of each Seller set forth herein are true and correct as of the AP Closing Date and as of the Delivery Date for that Aircraft;

(e) a copy, certified by a duly authorized officer or representative of the Seller of that Aircraft to be a true, complete and up-to-date, of the certificate of incorporation and by-laws or other organizational documents of such Seller and, on the AP Closing Date only, a copy, certified by a duly authorized officer or representative of the Guarantor to be a true, complete and up-to-date, of the certificate of incorporation and by-laws or other organizational documents of the Guarantor;

(f) a copy, certified by a duly authorized officer or representative of the Seller of that Aircraft to be a true, complete and up-to-date, of the resolutions of the Board of Directors (or duly authorized committee thereof) or other governing board or body of the Seller or an Affiliate of the Seller, (i) approving the transactions contemplated by this Agreement, the Guaranty and the other Operative Documents to which such Seller is a party, and (ii) authorizing a Person or

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Persons to sign and deliver on behalf of such Seller, this Agreement, the Guaranty and the other Operative Documents to which such Seller is a party and any notices or other documents to be given pursuant hereto or thereto and, on the AP Closing Date only, a copy, certified by a duly authorized officer or representative of the Guarantor to be a true, complete and up-to-date, of the resolutions of the Board of Directors (or duly authorized committee thereof) or other governing board or body of the Guarantor, (i) approving the transactions contemplated by this Agreement and the Guaranty, and (ii) authorizing a Person or Persons to sign and deliver on behalf of such Seller, the Guaranty and any notices or other documents to be given pursuant thereto;

(g) with respect to the transfer of a BI Aircraft, certified copies of organizational documents (including certificates or articles of incorporation, by-laws, limited liability company agreements, Formation Agreements and documents of a similar nature) of the related Purchaser Entity (if then in existence); and

(h) the First Disclosure Letter.

5.2 The payment of the Base Aircraft Purchase Price for an Asset pursuant to Section 5.1 in an amount up to the Equity Allocation Amount for the related Aircraft may be made by delivery and endorsement, in form and substance reasonably acceptable to the Seller of that Asset, by the Company to such Seller of a promissory note of such Seller or its Affiliates in principal amount equal to the portion of the Base Aircraft Purchase Price so paid; provided that such promissory note was issued to the Company in the private placement of shares of the Company to the Sellers and their Affiliates on the AP Closing Date.

5.3 From and after the AP Closing Date and to and including the earlier to occur of the Delivery Expiry Date and the Delivery Date for any Aircraft (if other than the AP Closing Date), the Seller of that Aircraft shall cause the Servicer under the Servicing Agreement to perform rent collection services under the Servicing Agreement and shall cause the Servicer to deliver to the Company notice of any and all rent and other sums paid by the Lessees under the Leases (except loss proceeds in respect of Material Damage or an Event of Loss in respect of an Aircraft) and received by or on behalf of the relevant Existing Lessor under the related Lease in respect of any period from and after the AP Closing Date, and with respect to amounts received in payment of rent under such Lease, in respect of any period from and after the AP Closing Date, identifying the Lease under which such payment was received and the nature of the payment whether constituting Basic Rent, Additional Rent or otherwise. From and after the AP Closing Date and until the Delivery Date of an Aircraft, all maintenance contribution obligations, airworthiness directive cost sharing obligations and similar obligations of a lessor in respect of the Aircraft in respect of any claim therefore under a Lease made after the AP Closing Date shall be the obligation of the Seller of that Aircraft, subject to reimbursement therefore by the Purchaser of that Aircraft on its Delivery Date by way of an upwards adjustment to the Aircraft Purchase Price for such Aircraft as provided in Section 5.2. Notwithstanding the foregoing, in respect of any Aircraft which suffers an Event of Loss or unrepaired Material Damage after the AP Closing Date but prior to the Delivery Expiry Date and in

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respect of which no Substitute Aircraft has been designated pursuant to the terms of this Agreement, on the Delivery Expiry Date, the Seller of that Aircraft shall pay to the Purchaser thereof the Aircraft Refund Amount with respect to such Aircraft, less the Base Aircraft Purchase Price for such Aircraft and less any Investment Proceeds Adjustment for such Aircraft.

5.4 [Reserved]

5.5 Each Seller of an Aircraft shall (a) on the AP Closing Date, on the BI Transfer Date for each BI Aircraft and the Delivery Date for each Independent Aircraft, deliver to the Purchaser thereof a certification in the Agreed Form from a duly authorized officer of such Seller setting forth in reasonable detail (i) the amounts of Basic Rent in respect of such Aircraft (and, if such Aircraft is a Substitute Aircraft, the corresponding amounts relating to the related Remaining Aircraft) received (and any amounts applied from the Security Deposit relating to such Aircraft due to non-payments of amounts owing by the Lessee) by or on behalf of the Seller or Existing Lessor, as applicable, of that Aircraft which relates in each case to the period subsequent to the AP Closing Date , (ii) the amount of the maximum maintenance contribution obligation calculated with reference to Additional Rent with respect to such Aircraft which could be payable by the Seller or Existing Lessor, as applicable, of that Aircraft, (iii) the amount (the “SR Transfer Amount”) of any Additional Rent with respect to such Aircraft paid to the Seller or Existing Lessor, as applicable, of that Aircraft after the AP Closing Date to (and including) such BI Transfer Date (in the case of a BI Aircraft) or such Delivery Date (in the case of an Independent Aircraft), and (iv) a description of any Security Deposit (separately setting forth the amount of any thereof in cash) for such Aircraft deemed held by or on behalf of the Seller or Existing Lessor, as applicable, of that Aircraft as of the AP Closing Date (in the case of all Aircraft) and as of such BI Transfer Date (in the case of a BI Aircraft) or Delivery Date (in the case of an Independent Aircraft) and (b) during the period from the AP Closing Date to the relevant BI Transfer Date (in the case of a BI Aircraft) or the relevant Delivery Date (in the case of an Independent Aircraft), promptly notify the Purchaser of that Aircraft, the Indenture Trustee and the Administrative Agent of the receipt by the Seller or Existing Lessor, as applicable, of that Aircraft of any Basic Rent payment in respect of such Aircraft (including any Substitute Aircraft therefore and if it is a Remaining Aircraft) relating to the period subsequent to the AP Closing Date and the amount thereof (or if such payment has not been made as scheduled, the amount, if any, applied from the related Security Deposit due to such non-payment and whether such applied amount has been replenished to the Security Deposit).

5.6 All amounts payable under this Agreement will be made for value on the due date in Dollars in immediately available funds (and to the extent not expressly provided herein) to such account as the Seller of an Aircraft or as the Purchaser thereof may notify to the corresponding such Purchaser or Seller, as the case may be, from time to time (upon three Business Days’ prior written notice). In furtherance of the foregoing, each Purchaser of an Aircraft hereby instructs each Seller thereof to make each payment due to such Purchaser hereunder to the Collections Account with advice of credit to the Administrative Agent and in sufficient detail to enable the Administrative Agent to

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determine the Lease under or in respect of which such payment is being made and the nature thereof.

5.7 If the party making payment (the “Paying Party”) fails to pay any amount payable under this Agreement on the due date, the Paying Party will pay on demand from time to time to the other party (the “Receiving Party”) interest (both before and after judgment) on that amount, from the due date to the date of payment in full by the Paying Party to the Receiving Party, at the rate of LIBOR. All such interest will be compounded monthly and calculated on the basis of the actual number of days elapsed and a 360 day year.

5.8 The Company hereby agrees to make such capital or other contributions to (or to provide or arrange for the provision of other financing or funding for) each Purchaser so that such Purchaser can timely fulfill its payment and other obligations hereunder to the Sellers and authorizes each Seller (in its sole discretion by notice to the Company) from time to time to set off, apply or combine all or any amounts for the time being due from any Seller to any Purchaser towards the repayment or discharge of any amount for the time being due to a Seller from a Purchaser hereunder.

5.9 Each Seller authorizes any Purchaser (in its sole discretion by notice to such Seller) from time to time to set off, apply or combine all or any amounts for the time being due from any Purchaser to any Seller towards the repayment or discharge of any and all amounts for the time being due to any Purchaser from any Seller hereunder or under the Guaranty.

6. CONDITIONS PRECEDENT - SELLER

6.1 The obligations of any Seller to sell, transfer or deliver any Aircraft or Beneficial Interest of any Purchaser Entity hereunder are subject to the satisfaction of the following express conditions precedent on or prior to the applicable BI Transfer Date in the case of any Beneficial Interest or the applicable Delivery Date in the case of any Independent Aircraft, as the case may be:

(a) the relevant Operative Documents for such Aircraft have been entered into by the parties thereto (other than the Seller);

(b) the Servicing Agreement shall have been entered into by the parties thereto;

(c) the Seller thereof shall be satisfied that the Delivery Location does not give rise to any Taxes; and

(d) the Seller thereof shall have received payment of all amounts due by the Purchaser of such Aircraft.

6.2 The obligation of the BI Seller to sell, transfer or deliver any Beneficial Interest hereunder is further subject to the condition that such BI Seller has received on or prior to the AP Closing Date or, in the case of subsections (c) through (h) below, the applicable BI Transfer Date:

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(a) a copy of the constitutional documents of the Purchaser and any other Affiliate of such Purchaser which is a party to any Operative Document in respect of such Aircraft, certified, or subject to a certificate confirming no change thereto, such certification to be dated not more than ten days prior to the expected Delivery Date for such Aircraft to be a true, complete and up-to-date copy;

(b) a copy of resolutions of the directors or other applicable governing body of such Purchaser and any other Affiliate of such Purchaser which is a party to any Operative Document in respect of the related Aircraft certified, or subject to a certificate confirming no change to such resolutions, such certification to be dated not more than ten days prior to the expected BI Transfer Date for such Beneficial Interest to be a true, complete and up-to-date copy:

(i) approving the transactions contemplated by this Agreement and the other Operative Documents to which such Purchaser and any other Affiliate of such Purchaser is or is to be a party; and

(ii) authorizing a Person or Persons to execute and deliver on behalf of such Purchaser and any other Affiliate of such Purchaser this Agreement and the other Operative Documents to which it is or is to be a party and any notices or other documents to be given pursuant hereto or thereto;

(c) evidence that all governmental and other licenses, approvals, certificates, exemptions, consents, registrations and filings necessary in the relevant State of Registration and any other relevant jurisdiction (including the domicile of the Lessee of the related Aircraft) for any matter or thing contemplated by this Agreement and the other applicable Operative Documents for the related Aircraft, and any notices or other documents to be given pursuant hereto or thereto and for the legality, validity, enforceability, admissibility in evidence and effectiveness hereof and thereof have been obtained or effected on an unconditional basis and remain in full force and effect (or in the case of effecting any licenses, approvals, consents, certificates, exemptions, registrations and filings, that arrangements reasonably satisfactory to such Seller have been made for the effectiveness of the same within any applicable time limit);

(d) a favorable opinion of independent counsel to such Purchaser dated as of such BI Transfer Date reasonably acceptable to such Seller in the Agreed Form as to (1) certain of the matters set out in Section 9 and (2) such other matters as such Seller may reasonably request with regard to the subject matter contemplated herein or in each case such Aircraft;

(e) a quiet enjoyment letter with respect to the related Aircraft and the Lease thereof from the Security Trustee, and, if requested by the Seller, from the Purchaser addressed to the relevant Lessee (and, if applicable, the relevant sublessee) in substantially the form attached to the relevant Operative Document;

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(f) a certification from the Purchaser that its representations and warranties in Section 9.1 are true and correct as of such BI Transfer Date;

(g) if requested by the Seller, a guaranty from the Company to the Lessee of the Aircraft owned or leased by the Purchaser Entity; and

(h) the insurance certificate described in Section 7.1(g)(xi).

6.3 The obligations of any Independent Seller to deliver any Independent Aircraft hereunder are further subject to the condition that on or prior to the AP Closing Date or, in the case of subsections (c) through (h) below, the Delivery Date for any Independent Aircraft, such Seller has received:

(a) a copy of the constitutional documents of the Purchaser and any other Affiliate of such Purchaser which is a party to any Operative Document in respect of such Aircraft, certified, or subject to a certificate confirming no change thereto, such certification to be dated not more than ten days prior to the expected Delivery Date for such Aircraft to be a true, complete and up-to-date copy;

(b) a copy of resolutions of the directors or other applicable governing body of such Purchaser and any other Affiliate of such Purchaser which is a party to any Operative Document in respect of such Aircraft certified, or subject to a certificate confirming no change to such resolutions, such certification to be dated not more than ten days prior to the expected Delivery Date for such Aircraft to be a true, complete and up-to-date copy:

(i) approving the transactions contemplated by this Agreement and the other Operative Documents to which such Purchaser is or is to be a party; and

(ii) authorizing a Person or Persons to execute and deliver on behalf of such Purchaser this Agreement and the other Operative Documents to which it is or is to be a party and any notices or other documents to be given pursuant hereto or thereto;

(c) evidence that all governmental and other licenses, approvals, certificates, exemptions, consents, registrations and filings necessary in the relevant State of Registration and any other relevant jurisdiction (including the domicile of the Lessee of such Aircraft) for any matter or thing contemplated by this Agreement and the other applicable Operative Documents for such Aircraft, and any notices or other documents to be given pursuant hereto or thereto and for the legality, validity, enforceability, admissibility in evidence and effectiveness hereof and thereof have been obtained or effected on an unconditional basis and remain in full force and effect (or in the case of effecting any licenses, approvals, consents, certificates, exemptions, registrations and filings, that arrangements reasonably satisfactory to such Seller have been made for the effectiveness of the same within any applicable time limit);

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(d) a favorable opinion of independent counsel to such Purchaser dated as of such Delivery Date reasonably acceptable to such Seller in the Agreed Form as to (1) certain of the matters set out in Section 9 and (2) such other matters as such Seller may reasonably request with regard to the subject matter contemplated herein or in each case such Aircraft;

(e) a quiet enjoyment letter with respect to such Aircraft and the Lease thereof from the Security Trustee, and, if requested by the Seller, from the Purchaser addressed to the relevant Lessee (and, if applicable, the relevant sublessee) in substantially the form attached to the relevant Operative Document;

(f) a certification from the Purchaser that its representations and warranties in Section 9.1 are true and correct as of the Delivery Date;

(g) if requested by the Seller, a guaranty from the Company to a Lessee of such Independent Aircraft; and

(h) the insurance certificate described in Section 7.1(g)(xi).

7. CONDITIONS PRECEDENT - PURCHASER

7.1 The obligation of the Purchaser to purchase the Beneficial Interest of any Purchaser Entity on the applicable BI Transfer Date is subject to satisfaction of the following express conditions precedent on such BI Transfer Date, subject to the right of the Purchaser to waive any condition pursuant to Section 7.3:

(a) Except in respect of transfers on the AP Closing Date, the Purchaser shall have received notice of the expected BI Transfer Date at least two Business Days prior thereto;

(b) the Purchaser shall have received (i) the documents referred to in Section 2.1 and the documents referred to in Exhibit E-1 in connection with the Deliveries of the related BI Aircraft (other than as listed on Schedule 4) and (ii) a certificate from a duly authorized officer of the Seller dated such BI Transfer Date stating that (A) the conditions set forth in Exhibit E-1 with respect to the Delivery of such BI Aircraft have been satisfied or otherwise disclosed in the First Disclosure Letter and such documents are unchanged and are in full force and effect as of such BI Transfer Date (except for amendments and terminations permitted under the Servicing Agreement), (B) any representations and warranties of the Seller (or its Affiliate) of such BI Aircraft and of such Purchaser Entity contained in the Assignment of Beneficial Interest for such BI Aircraft were true and correct as of the date of such Assignment of Beneficial Interest and (C) the Assignment of Beneficial Interest for such BI Aircraft was effective to convey irrevocably full legal and, subject to any Formation Agreement, beneficial title in the Beneficial Interest in such Purchaser Entity to the Purchaser thereof on the BI Transfer Date therefore;

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(c) no Material Default shall have occurred and be continuing as of the AP Closing Date with respect to such BI Aircraft;

(d) the Purchaser shall have received payment of all amounts due by the Seller thereof and its Affiliates in respect of such BI Aircraft;

(e) the Purchaser shall have received a certification from the BI Seller dated such BI Transfer Date to the effect that (i) the representations and warranties of such BI Seller hereunder are true and correct as of the AP Closing Date or such BI Transfer Date, as the case may be, and (ii) such Purchaser Entity has full legal and, subject to any Formation Agreement, beneficial title to such BI Aircraft, free and clear of Encumbrances other than Permitted Encumbrances;

(f) unless and to the extent the Purchaser shall otherwise agree, or a Rating Agency Confirmation and the prior written consent of the Policy Provider shall have been obtained with respect thereto, all the conditions precedent to the effectiveness of the Assignment of Beneficial Interest for such BI Aircraft shall have been satisfied and the Purchaser shall have received a certification from the BI Seller to such effect;

(g) receipt of the following documents by the Purchaser:

(i) the identification by the Seller of the BI Aircraft then owned by such Purchaser Entity;

(ii) a certificate of solvency dated as of such BI Transfer Date in the Agreed Form relating to the BI Seller issued by a director or authorized officer or representative thereof;

(iii) a favorable opinion of independent counsel to the BI Seller, dated as of the AP Closing Date, reasonably acceptable to such Purchaser in the Agreed Form, that the sale of such Beneficial Interest constitutes, or will constitute, a “true-sale” and a valid transfer of title to such Beneficial Interest and that after the Transfer of such Beneficial Interest such Seller retains, or will retain, no interest in such Beneficial Interest and as to such other matters as the Purchaser may reasonably request with regard to the subject matter contemplated herein;

(iv) to the extent applicable, opinions dated as of such BI Transfer Date in the Agreed Form from independent counsel to the BI Seller in each Delivery Location, covering, without limitation, that, except if the Delivery Location is in the United States or international airspace, the Transfer of such Beneficial Interest will not result in the imposition of any Tax in such jurisdiction on the Purchaser, any Subsidiary of the Purchaser, such BI Aircraft, the related Leases or otherwise in respect of such Transfer;

(v) for such BI Aircraft, an opinion dated as of such BI Transfer Date in the Agreed Form from counsel to the relevant Seller in the relevant State of

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Registration or, if applicable, the relevant jurisdiction of the Lessee to the effect that (A) except if the State of Registration is the United States, the terms of the relevant Lease or Novated Lease or Assigned Lease and the relevant Operative Documents and the other Lease Documents are legal, valid, binding and enforceable under the laws of such country to the extent necessary to enable the applicable Purchaser Entity to receive the practical benefits of its rights thereunder, (B) such Purchaser Entity is the sole owner of record of such Aircraft in the registry or otherwise shall be recognized as the sole legal owner of such Aircraft under the applicable laws of such jurisdiction, (C) except if the State of Registration is the United States, it is not necessary for such Purchaser Entity as a result of its ownership of such Aircraft to qualify to do business in such jurisdiction as a result of its ownership of such Aircraft and it is not necessary for such Purchaser Entity to qualify to do business in such jurisdiction, for the purpose of exercising any remedies under any Lease Document relating to such Aircraft or otherwise, (D) except if the State of Registration is the United States, payments of rent under the Lease are not subject to withholding under the applicable laws of such jurisdiction or, if subject to withholding, the gross up provisions of such Lease will be enforceable, (E) the interest of such Purchaser Entity in such BI Aircraft has been properly registered in the relevant State of Registration (to the extent applicable), (F) the Security Trust Agreement, to the extent required, has been or is in the process of being duly recorded in any relevant registry and, if such opinion is reasonably practicable to obtain, that the lien created thereunder will be recognized as constituting a first priority perfected security interest in and to the related Leases in favor of the Security Trustee, (G) if provided for by the Cape Town Convention, if as of such BI Transfer Date the International Registry reflects the registration of the transfer of such BI Aircraft and related Engines to such Purchaser Entity, then the International Registry does not reflect the registration of any subsequent transfer of such BI Aircraft or any related Engine or the registration of any other International Interest in such BI Aircraft or any related Engine (other than those in respect of Permitted Encumbrances), which opinion shall be supported in each case by a Priority Search Certificate and (H) if the relevant jurisdiction of the Lessee or the relevant State of Registration has ratified the Cape Town Convention, but not otherwise, the International Registry does not reflect the registration of any International Interest in such BI Aircraft or any related Engine other than (w) the registration in the name of the Security Trustee of the International Interest provided for under the Security Trust Agreement, (x) the registration in the name of such Purchaser Entity of the International Interest provided for under the relevant Lease, Assigned Lease or Novated Lease (y) the registration of the assignment of such International Interest in favor of the Security Trustee (it being understood that such registrations shall not be conditions precedent to the transfer of such Beneficial

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Interest) and (z) other Permitted Encumbrances, which opinion shall be supported in each case by a Priority Search Certificate;

(vi) evidence that all governmental and other licenses, approvals, consents, certificates, exemptions, registrations and filings necessary in the jurisdiction of incorporation or organization of any Seller of a BI Aircraft or such Purchaser Entity and any other relevant jurisdiction (including the domicile of the Lessee) and the relevant State of Registration of such BI Aircraft for any matter or thing contemplated by this Agreement and the other applicable Operative Documents for such BI Aircraft, the bank accounts provided for under the Cash Management Agreement, the Servicing Agreement, the Security Trust Agreement and the Indenture and any notices or other documents to be given pursuant hereto or thereto and for the legality, validity, enforceability, admissibility in evidence and effectiveness hereof and thereof (including, to the extent reasonably practicable in such jurisdiction, the establishment of a first priority perfected security interest in and to the related Leases in favor of the Security Trustee) have been obtained or effected on an unconditional basis and remain in full force and effect (or in the case of effecting any certificates, exemptions, registrations and filings, that arrangements satisfactory to the Company have been made for the effectiveness of the same within any time limit provided therefore under applicable law and a Rating Agency Confirmation and the prior written consent of the Policy Provider have been received with respect thereto);

(vii) a draft of the certificate required to be delivered pursuant to Section 5.5 shall have been provided at least three Business Days but not more than five Business Days prior to such BI Transfer Date;

(viii) a certificate of the applicable Seller confirming that so far as is known to it, no Event of Loss has occurred and no unrepaired Material Damage is in existence with respect to such BI Aircraft;

(ix) each of the documents required to be delivered on or prior thereto pursuant to Section 5;

(x) a copy of the currently valid certificate of airworthiness for such Aircraft issued by the appropriate Air Authority or other reasonably satisfactory evidence thereof;

(xi) for such BI Aircraft, originals, or certified copies, of certificates evidencing the insurance required to be maintained pursuant to the relevant Assigned Lease or the Novated Lease, as appropriate, for such Aircraft together, if applicable, with a letter or report from an independent firm of insurance brokers; and

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(xii) the report of such Purchaser’s insurance advisor in substantially the Agreed Form;

(h) the matters disclosed in the First Disclosure Letter, if any, and any Supplemental Disclosure Letter delivered on or prior to such BI Transfer Date shall be in substance satisfactory to the Purchaser and the Policy Provider;

(i) on such BI Transfer Date, if the Security Deposit held under a Lease for any such BI Aircraft is in the form of a letter of credit, guarantee, promissory note or other instrument, and not already issued in the name of the Servicer, as servicer or manager, the Seller shall cause such letter of credit, guarantee or other instrument to be duly endorsed, amended or reissued in favor of such Purchaser Entity (or the relevant Affiliate of such Purchaser Entity) or the Seller shall have taken such other actions as may be necessary to effectuate the assignment of all right, title and interest of the Existing Lessor in and to such letter of credit, guarantee, promissory note or instrument to such Purchaser Entity (or the relevant Affiliate of the Purchaser Entity);

(j) the Seller shall have provided to the Purchaser a confirmation from the Servicer that such BI Aircraft has, as of the Delivery Date, become an “Aircraft Asset” under and as defined in the Servicing Agreement;

(k) the tangible chattel paper original of the Lease (or if an original was never so designated or such original has been lost, a certificate from the Seller to such effect) and the Assignment of Beneficial Interest for such BI Aircraft shall have been delivered to the Security Trustee on such BI Transfer Date;

(l) for such BI Aircraft, (A) an original of the applicable Lease and (B) an original of each other Lease Document (or otherwise a copy certified to be true and correct) shall be delivered to the Security Trustee on or prior to the BI Transfer Date (except that with respect to Substitute Aircraft, such originals shall be delivered on the Delivery Date therefore); provided that, if any such Lease Document contains a material right for the benefit of the lessor thereunder and the Purchaser Entity and/or the Seller thereof does not have an original of such Lease Document in its possession, each such Seller shall provide such other assurances as to the enforceability and admissibility of such Lease Document in any court in the State of New York or the United Kingdom as the Purchaser may reasonably request;

(m) the Formation Agreement for such Purchaser Entity shall be in form and substance satisfactory to the Purchaser and the Policy Provider;

(n) the Purchaser shall have received a certificate of good standing for each Purchaser Entity which is the subject of a Transfer; provided that such certificate is reasonably available in such Purchaser Entity’s jurisdiction of organization for entities of the same type as such Purchaser Entity;

(o) there shall not be in effect on the BI Transfer Date any Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of

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the transactions contemplated by this Agreement, the other applicable Operative Agreements, the Servicing Agreement, the Security Trust Agreement and the Indenture, or which could reasonably be expected to otherwise result in a material diminution of the benefits of the transactions contemplated by this Agreement, the other applicable Operative Agreements, the Servicing Agreement, the Security Trust Agreement and the Indenture to Purchaser, and there shall not be pending or threatened on the BI Transfer Date any action or proceeding in, before or by any governmental or regulatory authority which could reasonably be expected to result in the issuance of any such Order; and

(p) no proceeding shall have been commenced nor any petition shall have been filed in a court of competent jurisdiction seeking relief in respect of the Guarantor or the Servicer under the United States Code, as now constituted or hereafter amended, or any other U.S. Federal or state or non-U.S. bankruptcy, insolvency, receivership or similar law; no order or decree approving or ordering any of the foregoing shall be entered into; neither the Guarantor nor the Servicer has gone into liquidation, suffered a receivership or a mortgage to take possession of all or substantially all of their assets and no examiner has been appointed over the Guarantor or the Servicer.

7.2 The obligation of any Purchaser to purchase any Independent Aircraft on any Delivery Date hereunder is subject to satisfaction of the following express conditions precedent on the Delivery Date for such Independent Aircraft, subject to the right of the relevant Purchaser to waive any condition pursuant to Section 7.3:

(a) Except in respect of transfers on the AP Closing Date, the Purchaser shall have received notice of the expected Delivery Date at least two Business Days prior thereto;

(b) the Purchaser shall have received (i) the documents referred to in Exhibit E-2 in connection with the Delivery of such Independent Aircraft (other than as listed on Schedule 4) and (ii) a certificate from a duly authorized officer of the Seller of such Independent Aircraft dated such Delivery Date stating that (A) the conditions set forth in Exhibit E-2 with respect to the Delivery of such Independent Aircraft have been satisfied or otherwise disclosed in the First Disclosure Letter and such documents are unchanged and are in full force and effect as of such Delivery Date (except for amendments and terminations permitted under the Servicing Agreement), (B) the representations and warranties of the Seller (or its Affiliate) of such Independent Aircraft contained in the Assignment of Lease or Lease Novation, as applicable, for such Independent Aircraft are true and correct as of such Delivery Date, and (C) the bill of sale for, or physical delivery of (as acknowledged in the acknowledgement of delivery pertaining thereto), as applicable, such Independent Aircraft is effective to convey irrevocably full legal and, subject to any Formation Agreement, beneficial title to the Purchaser thereof on such Delivery Date;

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(c) no Material Default shall have occurred and be continuing as of the AP Closing Date with respect to such Independent Aircraft;

(d) the Purchaser shall have received payment of all amounts due by the Seller thereof and its Affiliates in respect of such Independent Aircraft;

(e) the Purchaser shall have received a certification from the Seller of such Independent Aircraft dated such Delivery Date to the effect that the representations and warranties of such Seller hereunder are true and correct as of the AP Closing Date or such Delivery Date, as the case may be;

(f) unless and to the extent the Purchaser shall otherwise agree, or a Rating Agency Confirmation and the prior written consent of the Policy Provider shall have been obtained with respect thereto, all the conditions precedent to the effectiveness of the Assignment of Lease or Lease Novation, as applicable, for such Independent Aircraft shall have been satisfied and the Purchaser shall have received a certification from the Seller to such effect;

(g) receipt of the following documents by the Purchaser:

(i) to the extent applicable, an opinion dated as of such Delivery Date in the Agreed Form from independent counsel to the Seller in the Delivery Location, covering, without limitation, that, except if the Delivery Location is in the United States or international airspace, the transfer of title to such Independent Aircraft will be effective under the laws of such jurisdiction and the Delivery of such Independent Aircraft will not result in the imposition of any Tax in such jurisdiction on the Purchaser, any Subsidiary of Purchaser, such Independent Aircraft, the related Lease or otherwise in respect of such Transfer;

(ii) for such Independent Aircraft, an opinion dated as of such Delivery Date in the Agreed Form from counsel to the relevant Seller in the relevant State of Registration or, if applicable, the relevant jurisdiction of the Lessee to the effect that (A) except if the State of Registration is the United States, the terms of the relevant Lease or Novated Lease or Assigned Lease and the relevant Operative Documents and the other Lease Documents are legal, valid, binding and enforceable under the laws of such country to the extent necessary to enable the Purchaser to receive the practical benefits of its rights thereunder, (B) following the Delivery of such Independent Aircraft, the Purchaser shall be the owner of record of such Independent Aircraft in the registry or otherwise shall be recognized as the legal owner of such Independent Aircraft under the applicable laws of such jurisdiction, (C) except if the State of Registration is the United States, it is not necessary for such Purchaser as a result of its ownership of such Independent Aircraft to qualify to do business in such jurisdiction as a result of its ownership of such Independent Aircraft and it is not necessary for such Purchaser to qualify to do business in such jurisdiction,

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for the purpose of exercising any remedies under any Lease Document relating to such Independent Aircraft or otherwise, (D) except if the State of Registration is the United States, payments of rent under the Lease are not subject to withholding under the applicable laws of such jurisdiction or, if subject to withholding, the gross up provisions of such Lease will be enforceable, (E) the interest of such Purchaser in such Independent Aircraft has been properly registered in the relevant State of Registration (to the extent applicable), (F) the Security Trust Agreement, to the extent required, has been or is in the process of being duly recorded in any relevant registry and, if such opinion is reasonably practicable to obtain, that the lien created thereunder will be recognized as constituting a first priority perfected security interest in and to the related Leases in favor of the Security Trustee and (G) if provided for by the Cape Town Convention, if as of such Delivery Date the International Registry reflects the registration of the transfer of such Independent Aircraft and related Engines to such Purchaser, then the International Registry does not reflect the registration of any subsequent transfer of such Independent Aircraft or any related Engine or the registration of any other International Interest in such Independent Aircraft or any related Engine (other than those in respect of Permitted Encumbrances), which opinion shall be supported in each case by a Priority Search Certificate and (H) if the relevant jurisdiction of the Lessee or the relevant State of Registration has ratified the Cape Town Convention, but not otherwise, the International Registry does not reflect the registration of any International Interest in such Independent Aircraft or any related Engine other than (w) the registration in the name of the Security Trustee of the International Interest provided for under the Security Trust Agreement, (x) the registration in the name of such Purchaser of the International Interest provided for under the relevant Lease, Assigned Lease or Novated Lease (y) the registration of the assignment of such International Interest in favor of the Security Trustee (it being understood that such registrations shall not be conditions precedent to the Delivery of such Aircraft) and (z) other Permitted Encumbrances, which opinion shall be supported in each case by a Priority Search Certificate;

(iii) evidence that all governmental and other licenses, approvals, consents, certificates, exemptions, registrations and filings necessary in the jurisdiction of incorporation or organization of the Seller of such Independent Aircraft or such Purchaser and any other relevant jurisdiction (including the domicile of the Lessee) and the relevant State of Registration of such Aircraft for any matter or thing contemplated by this Agreement and the other applicable Operative Documents for such Independent Aircraft, the bank accounts provided for under the Cash Management Agreement, the Servicing Agreement, the Security Trust Agreement and the Indenture and any notices or other documents to be given pursuant hereto or thereto and for the legality, validity, enforceability, admissibility in evidence and effectiveness hereof and

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thereof (including, to the extent reasonably practicable in such jurisdiction, the establishment of a first priority perfected security interest in and to the related Leases in favor of the Security Trustee) have been obtained or effected on an unconditional basis and remain in full force and effect (or in the case of effecting any certificates, exemptions, registrations and filings, that arrangements satisfactory to the Purchaser have been made for the effectiveness of the same within any time limit provided therefore under applicable law and a Rating Agency Confirmation and the prior written consent of the Policy Provider have been received with respect thereto);

(iv) a certificate of the applicable Seller confirming that so far as is known to it, no Event of Loss has occurred and no unrepaired Material Damage is in existence with respect to such Independent Aircraft;

(v) each of the documents required to be delivered on or prior thereto pursuant to Section 5;

(vi) a copy of the currently valid certificate of airworthiness for such Aircraft issued by the appropriate Air Authority or other reasonably satisfactory evidence thereof;

(vii) for such Independent Aircraft, originals, or certified copies, of certificates evidencing the insurance required to be maintained pursuant to the relevant Assigned Lease or the Novated Lease, as appropriate, for such Independent Aircraft together, if applicable, with a letter or report from an independent firm of insurance brokers; and

(viii) the report of the Purchaser’s insurance advisor in substantially the Agreed Form;

(h) the matters disclosed in the First Disclosure Letter, if any, and any Supplemental Disclosure Letter delivered on or prior to such Delivery Date shall be in substance satisfactory to the Purchaser and the Policy Provider;

(i) on such Delivery Date, if the Security Deposit held under the Lease for such Independent Aircraft is in the form of a letter of credit, guarantee, promissory note or other instrument, and not already issued in the name of the Servicer, as servicer or manager, the Seller shall cause such letter of credit, guarantee or other instrument to be duly endorsed, amended or reissued in favor of such Purchaser (or the relevant Affiliate of the Purchaser) or the Seller shall have taken such other actions as may be necessary to effectuate the assignment of all right, title and interest of the Existing Lessor in and to such letter of credit, guarantee, promissory note or instrument to such Purchaser (or the relevant Affiliates of the Purchaser);

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(j) the Seller shall have provided to the Company a confirmation from the Servicer that such Independent Aircraft has, as of the AP Closing Date, become an “Aircraft Asset” under and as defined in the Servicing Agreement;

(k) the tangible chattel paper original of the Lease (or if an original was never so designated or such original has been lost, a certificate from the Seller to such effect) and the Assignment of Lease or Lease Novation, as applicable, for such Independent Aircraft shall have been delivered to the Security Trustee on such Delivery Date;

(l) for such Independent Aircraft, (A) an original of the applicable Lease (together with the related Lease Assignment Documents) and (B) an original of each other Lease Document (or otherwise a copy certified to be true and correct) shall be delivered to the Security Trustee on or prior to the AP Closing Date (except that with respect to Substitute Aircraft, such originals shall be delivered on the Delivery Date therefore); provided that if any such Lease Document contains a material right for the benefit of the lessor thereunder and the Purchaser Entity and/or the Seller thereof does not have an original of such Lease Document in its possession, each such Seller shall provide such other assurances as to the enforceability and admissibility of such Lease Document in any court in the State of New York as the Purchaser may reasonably request;

(m) there shall not be in effect on the Delivery Date any Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement, the other applicable Operative Agreements, the Servicing Agreement, the Security Trust Agreement and the Indenture, or which could reasonably be expected to otherwise result in a material diminution of the benefits of the transactions contemplated by this Agreement, the other applicable Operative Agreements, the Servicing Agreement, the Security Trust Agreement and the Indenture to Purchaser, and there shall not be pending or threatened on the Delivery Date any action or proceeding in, before or by any governmental or regulatory authority which could reasonably be expected to result in the issuance of any such Order; and

(n) no proceeding shall have been commenced nor any petition shall have been filed in a court of competent jurisdiction seeking relief in respect of the Guarantor or the Servicer under the United States Code, as now constituted or hereafter amended, or any other U.S. Federal or state or non-U.S. bankruptcy, insolvency, receivership or similar law; no order or decree approving or ordering any of the foregoing shall be entered into; neither the Guarantor nor the Servicer has gone into liquidation, suffered a receivership or a mortgage to take possession of all or substantially all of their assets and no examiner has been appointed over the Guarantor or the Servicer.

7.3 Any Purchaser of an Asset or Aircraft, as the case may be, may, at the request of the Seller thereof, in its absolute discretion agree to waive satisfaction of one or more conditions precedent set out in this Section 7 (and in the event of any such waiver such

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Purchaser may impose such conditions as are reasonably acceptable to the Seller to such waiver as it reasonably thinks fit); provided that (i) such waiver is disclosed in reasonable detail in the First Disclosure Letter, or (ii) such waiver is disclosed in reasonable detail in the Supplemental Disclosure Letter with respect to such Aircraft and a Rating Agency Confirmation and the prior written consent of the Policy Provider have been obtained with respect thereto on or prior to the Delivery Date for, or BI Transfer Date in respect of, such Aircraft.

7.4 Each Seller of the relevant Aircraft or Asset hereby agrees to use its reasonable commercial efforts to satisfy each of the conditions, if any, set forth in Schedule 4 with respect to the Delivery or Transfer of such Aircraft or Asset within the period therein specified therefore.

8. REPRESENTATIONS AND WARRANTIES OF EACH SELLER

8.1 Each Seller (in respect of itself only) of an Asset represents and warrants to the Purchaser of that Asset as of the date of this Agreement, and on the BI Transfer Date or on Delivery Date, as the case may be, of that Asset as follows:

(a) such Seller is a corporation, a company, a limited liability company or trust duly established and validly existing under the laws of its jurisdiction of formation and has the corporate or other power to own its assets and carry on its business as it is contemplated herein;

(b) such Seller has the corporate or limited liability company power to enter into and perform, and has taken all necessary corporate or other action to authorize the entry into, performance and delivery of, this Agreement and each other Operative Document to which it is a party;

(c) the relevant Operative Documents to which such Seller is a party have been, or when executed and delivered will have been, duly entered into by such Seller party thereto and delivered by such Seller party thereto and constitute or, in the case of any Operative Document to be executed on or about the applicable Delivery Date, will constitute on such Delivery Date, the legal, valid and binding obligation of such Seller party thereto, enforceable in accordance with their terms (subject to customary qualifications in any relevant legal opinion);

(d) the entry into and performance by such Seller of, and the transactions contemplated by, the relevant Operative Documents to which it is a party do not and will not:

(i) breach any laws binding on such Seller or any of its assets to be transferred to such Purchaser hereunder; or

(ii) result in any breach of, or constitute a default under the constitutional documents of such Seller; or

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(iii) result in any breach of, or constitute a default under any agreement, instrument or other document which is binding upon such Seller or any of its assets nor result in the creation of any Encumbrance (other than the Operative Documents) over any of its assets to be transferred to the relevant Purchaser hereunder;

(e) the provisions of Section 14 concerning applicable law, service of process and jurisdiction are valid and binding on such Seller under the laws of its jurisdiction of organization, and no provision purporting to be binding on such Seller of this Agreement or any of the other applicable Operative Documents is prohibited, unlawful or unenforceable under the laws of its jurisdiction of organization;

(f) no liquidator, provisional liquidator, examiner or analogous or similar officer has been appointed in respect of all or any material part of the assets of such Seller (or, to its knowledge, any non-material part of the assets of such Seller which would, if it were subject to a liquidator, provisional liquidator, examiner or analogous or similar officer, have a material adverse effect on such Seller’s financial condition or its ability to perform its obligations hereunder) nor has any application been made to a court which is still pending for an order for, or any act, matter or thing been done which with the giving of notice, lapse of time or satisfaction of some other condition (or any combination thereof) will lead to, the appointment of any such officers or equivalent in any jurisdiction; and it is not entering into this Agreement with the intent to hinder, defraud or delay any creditor;

(g) except if and as advised by such Seller to such Purchaser in a Disclosure Letter, no litigation, arbitration or claim before any court, arbitrator, governmental or administrative agency or authority which would have a material adverse effect on the ability of such Seller to observe or perform its obligations under this Agreement or any other applicable Operative Documents to which such Seller is a party is in progress, or to the knowledge of such Seller, threatened against such Seller;

(h) if applicable, its jurisdiction of incorporation or organization is as specified on Schedule 5;

(i) to such Seller’s knowledge, the Appraisals of the Appraisers of its Aircraft delivered to such Purchaser on the AP Closing Date were true and complete copies thereof; and

(j) each of the Seller and the Purchaser Entity intends for the sale of any Asset contemplated hereby to constitute a valid transfer of such Asset to the relevant Purchaser and intends that after the Delivery Date of the Asset the Seller thereof shall retain no right, title or interest in such Asset.

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8.2 Each Seller (in respect of itself only) of an Independent Aircraft further represents and warrants to the Purchaser of such Independent Aircraft on the Delivery Date with respect to such Independent Aircraft as follows:

(a) except if and as advised by such Seller to such Purchaser in a Disclosure Letter, so far as concerns the obligations of such Seller (and except for the registration of particulars of the relevant Lease Novation or Assignment of Lease with the appropriate Air Authority or other actions referred to therein or herein, if applicable) all authorizations, consents, registrations and notifications required in connection with the entry into, performance, validity and enforceability of, this Agreement, the transactions contemplated by this Agreement and the other applicable Operative Documents to which it is a party, have been (or will on or before the Delivery Date of such Aircraft have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect;

(b) except if and as advised by such Seller to such Purchaser in a Disclosure Letter, the Lease Documents listed in Schedule 2 or the Substitute Aircraft Supplement, as applicable, constitute the whole agreement between the relevant lessor and the relevant Lessee as of Delivery (and pertaining to the period on and after Delivery) relating to such Aircraft and includes a complete list (other than the Operative Documents) of all amendments, supplements, novations, and written consents, approvals and waivers relevant to the Lease with respect to the period on and after Delivery, and there are no oral waivers in effect that would modify or amend the terms thereof in any material respect with respect to the period on and after Delivery;

(c) except if and as advised by such Seller to such Purchaser thereof in the First Disclosure Letter, to such Seller’s knowledge no Material Default has occurred and is continuing under the relevant Lease on and as of the AP Closing Date;

(d) except if and as advised by such Seller to such Purchaser thereof in the First Disclosure Letter, there are no outstanding claims which have been asserted by the Lessee against such Seller arising out of the relevant Lease (other than claims constituting Permitted Encumbrances and other than claims for maintenance contribution payments that will be the responsibility of the Seller or for other payments that will be the responsibility of the Seller) on and as of the AP Closing Date;

(e) such Seller has, or at Delivery will have, full legal and, subject to a Formation Agreement, beneficial title to such Aircraft, free from Encumbrances other than Permitted Encumbrances and the Bill of Sale (together, in the case of any Aircraft registered in Germany, with a transfer agreement) is effective to convey irrevocably title to such Purchaser and the transfer of such Aircraft is not avoidable or otherwise subject to rescission by reason of any lawful claim of any other Person by or through such Seller (including any prior transferor thereof or any Person acting on behalf of or claiming through any such transferor);

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(f) to such Seller’s knowledge, and except if and as advised by such Seller to such Purchaser in the First Disclosure Letter, there are no Lessee Encumbrances on and as of the AP Closing Date which are not permitted pursuant to the terms of the relevant Lease Document;

(g) (i) to such Seller’s knowledge, such Aircraft has not, except if and as advised by such Seller to such Purchaser in the First Disclosure Letter, been involved in any incident on or before the AP Closing Date which caused damage in excess of the amount required to be disclosed to the relevant lessor under the relevant Lease, and (ii) the summary technical information provided by the Seller and its representatives to the Appraisers with respect to such Aircraft and on which the Appraisers relied in making their Appraisals is true and correct in all material respects and there are no facts or circumstances known to such Seller as of the AP Closing Date which would render any of the technical specifications with respect to such Aircraft assumptions contained in the Appraisals for such Aircraft to be materially inaccurate (and for the avoidance of doubt, such Seller does not make any representation or warranty concerning, and has not investigated in any respect, the valuations or financial adjustments contained in the Appraisals or of any industry data, aircraft or Aircraft data (except solely the summary technical data provided by such Seller), methodologies, assumptions or conclusions contained in the Appraisals);

(h) to such Seller’s knowledge, except if and as disclosed by such Seller to such Purchaser in the First Disclosure Letter, (i) in the case of each Seller that is not JET-i or an Affiliate of JET-i, no compulsory airworthiness directives are outstanding on and as of the AP Closing Date against such Aircraft which will require, as of the AP Closing Date based on the estimated cost of such work as of the AP Closing Date, such Seller or such Purchaser to make contributions to the cost of compliance therewith as required under the provisions of the Leases as in effect on the AP Closing Date and (ii) in the case of each Seller that is an Affiliate of JET-i, no compulsory airworthiness directives are outstanding on and as of the AP Closing Date against such Aircraft which will require, as of the AP Closing Date based on the estimated cost of such work as of the AP Closing Date, such Seller or such Purchaser to make contributions to the cost of compliance therewith as required under the provisions of the Leases as in effect on the AP Closing Date in excess of an amount, when taken together with similar amounts for all Sellers that are Affiliates of JET-i and their respective Purchasers of Aircraft (whether or not Independent Aircraft), that would exceed $1,250,000 during the terms of the Leases (excluding any extension or renewal thereof) for all Aircraft as in effect on the AP Closing Date;

(i) to such Seller’s knowledge, except if and as disclosed by such Seller to such Purchaser in the First Disclosure Letter, no options to purchase such Aircraft, extend or terminate the relevant Lease have been exercised on or before the AP Closing Date by the relevant Lessee under the relevant Lease Documents;

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(j) the information set forth in each of the Disclosure Letters with respect to such Seller’s Aircraft is or will be when issued true and accurate in all material respects as of its date;

(k) except if and as advised by such Seller to such Purchaser in the First Disclosure Letter, to such Seller’s knowledge, as of the AP Closing Date, the provisions of each Lease relating to the granting of any Security Deposit thereunder remain in full force and effect;

(l) to such Seller’s knowledge and except if and as advised by such Seller to such Purchaser in the First Disclosure Letter, as of the AP Closing Date, no event has occurred or act or thing done or omitted to be done by such Seller (excluding however from this representation and warranty acts or things done or omitted to be done after the AP Closing Date on the instructions of the Purchaser) pursuant to which or as a result of which the relevant Lease can be terminated by the applicable Lessee in accordance with the terms of the relevant Lease or the obligations of any such party thereunder would be rendered invalid or unenforceable;

(m) to such Seller’s knowledge, except if and as advised by such Seller to such Purchaser in the First Disclosure Letter or set forth in Schedule 2, such Seller’s Aircraft is not as of the AP Closing Date subject to any sub-lease (exclusive of “wet-leases”) from the relevant Lessee;

(n) to such Seller’s knowledge, the information provided by such Seller to such Purchaser prior to the Delivery Date as to the identities of all of such Seller’s predecessors in title to such Aircraft thereof is complete and accurate in all material respects;

(o) to such Seller’s knowledge, except if and as advised by such Seller to such Purchaser in a Disclosure Letter, such Aircraft has been accepted by the relevant Lessee under the Lease thereof without qualification or exception or to the extent that any such acceptance was given subject to any qualification or exception or subject to any liability on the part of such Seller or relevant Affiliate of such Seller to pay or reimburse any costs or expenses or to undertake any repairs or modifications at the expense of such Seller, such qualifications and exceptions have been discharged or waived by the Lessee and have ceased to apply and no such costs or expenses remain to be reimbursed and all defects referred to therein have been duly rectified or waived by such Lessee, or such Seller or lessor Affiliate of such Seller has retained the rectification or payment obligations associated therewith;

(p) except for documents or provisions that will be inapplicable to the relevant Purchaser Entity on and after the Delivery Date therefore, the information and statements with respect to such Seller’s Aircraft as to and relating to the relevant Lease and the Lease Documents set forth in Schedule 2 as of the AP Closing Date

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or the Substitute Aircraft Supplement, as applicable, are true and complete in all material respects;

(q) the sale of such Aircraft contemplated hereby constitutes a valid and irrevocable transfer of all of the Seller’s right, title and interest in and to such Aircraft to such Purchaser and after Delivery of such Aircraft such Seller shall retain no right, title or interest in such Aircraft;

(r) on and as of the AP Closing Date the lessor under the relevant Lease pertaining to such Aircraft shall have paid to the relevant Lessee all amounts then due and payable on and as of the AP Closing Date by such lessor to such Lessee in respect of maintenance theretofore performed on such Aircraft as required by the Lease Documents; and

(s) each of the Seller and the Purchaser intends for the sale of any Asset contemplated hereby to constitute a valid transfer of such Asset to the Purchaser and intends that after the Delivery Date of the Asset the Seller thereof shall retain no right, title or interest in such Asset.

8.3 Each BI Seller of a Beneficial Interest in a Purchaser Entity further represents and warrants to the Purchaser of that Beneficial Interest on the BI Transfer Date with respect to the Transfer of such Beneficial Interest as follows:

(a) except if and as advised by such BI Seller to such Purchaser in a Disclosure Letter, so far as concerns the obligations of such BI Seller (and except for the registration of particulars of the relevant Assignment of Beneficial Interest with the appropriate Air Authority or other actions referred to therein or herein, if applicable) all authorizations, consents, registrations and notifications required in connection with such Seller’s entry into, performance, validity and enforceability of, this Agreement, the transactions contemplated by this Agreement and the other applicable Operative Documents to which it is a party, have been (or will on or before the BI Transfer Date of such Aircraft have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect;

(b) except if and as advised by such BI Seller to such Purchaser in a Disclosure Letter, the Lease Documents listed in Schedule 2 is respect of such Aircraft or the Substitute Aircraft Supplement, as applicable, constitute the whole agreement between the relevant lessor and the relevant Lessee as of Delivery (and pertaining to the period on and after Delivery) relating to such Aircraft and includes a complete list (other than the Operative Documents) of all amendments, supplements, novations, and written consents, approvals and waivers relevant to the Lease with respect to the period on and after the BI Transfer Date, and there are no oral waivers in effect that would modify or amend the terms thereof in any material respect with respect to the period on and after BI Transfer Date;

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(c) except if and as advised by such BI Seller to such Purchaser in the First Disclosure Letter, to such BI Seller’s knowledge no Material Default has occurred and is continuing under the Lease for such Aircraft on and as of the AP Closing Date;

(d) except if and as advised by such BI Seller to such Purchaser in the First Disclosure Letter, there are no outstanding claims which have been asserted by the Lessee against such BI Seller arising out of the relevant Lease (other than claims constituting Permitted Encumbrances and other than claims for maintenance contribution payments that will be the responsibility of such BI Seller or for other payments that will be the responsibility of such BI Seller) on and as of the AP Closing Date;

(e) such BI Seller has, or at the time of Transfer of such Beneficial Interest will have, full legal and beneficial title to such Beneficial Interest, free from Encumbrances other than Permitted Encumbrances, and such Purchaser Entity will at such date have full legal and beneficial title to such Aircraft, free from Encumbrances other than Permitted Encumbrances and the transfer of such Beneficial Interest is not avoidable or otherwise subject to rescission by reason of a lawful claim of any other Person by or through such BI Seller (including a prior transferor thereof or of the related Aircraft acting on behalf of or claiming through such BI Seller);

(f) to such BI Seller’s knowledge, and except if and as advised by such BI Seller to such Purchaser in the First Disclosure Letter, there are no Lessee Encumbrances on and as of the AP Closing Date which are not permitted pursuant to the terms of the relevant Lease Document in respect of such Aircraft;

(g) to such BI Seller’s knowledge, (i) such Aircraft has not, except if and as advised by such BI Seller to such Purchaser in the First Disclosure Letter, been involved in any incident on or before the AP Closing Date which caused damage in excess of the amount required to be disclosed to the relevant lessor under the relevant Lease, and (ii) the summary technical information provided by such BI Seller and its representatives to the Appraisers with respect to such Aircraft and on which the Appraisers relied in making their Appraisals is true and correct in all material respects and there are no facts or circumstances known to such BI Seller as of the AP Closing Date which would render any of the technical specifications with respect to such Aircraft assumptions contained in the Appraisals for such Aircraft to be materially inaccurate (and for the avoidance of doubt, such BI Seller does not make any representation or warranty concerning, and has not investigated in any respect, the valuations or financial adjustments contained in the Appraisals or of any industry data, aircraft or Aircraft data (except solely the summary technical data provided by such BI Seller), methodologies, assumptions or conclusions contained in the Appraisals);

(h) to such BI Seller’s knowledge, except if and as advised by such BI Seller to such Purchaser in the First Disclosure Letter, no compulsory airworthiness directives are outstanding on and as of the AP Closing Date against such Aircraft which will

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require, as of the AP Closing Date based on the estimated cost of such work as of the AP Closing Date, such Seller or such Purchaser to make contributions to the cost of compliance therewith as required under the provisions of the Leases as in effect on the AP Closing Date in excess of an amount, when taken together with similar amounts for all Sellers that are Affiliates of JET-i and their respective Purchasers of Aircraft (whether or not Independent Aircraft), that would exceed $1,250,000 during the terms of the Leases (excluding any extension or renewal thereof) for all Aircraft as in effect on the AP Closing Date;

(i) to such BI Seller’s knowledge, except if and as disclosed by such BI Seller to such Purchaser in the First Disclosure Letter, no options to purchase such Aircraft, extend or terminate the Lease of such Aircraft have been exercised on or before the AP Closing Date by the Lessee under such Lease or the related Lease Documents;

(j) the information set forth in each of the Disclosure Letters with respect to such Aircraft is or will be when issued true and accurate in all material respects as of its date;

(k) except if and as advised by such BI Seller to such Purchaser in the First Disclosure Letter, to such BI Seller’s knowledge, as of the AP Closing Date, the provisions of each Lease relating to the granting of any Security Deposit thereunder remain in full force and effect;

(l) to such BI Seller’s knowledge and except if and as advised by such BI Seller to such Purchaser in the First Disclosure Letter, as of the AP Closing Date, no event has occurred or act or thing done or omitted to be done by such BI Seller (excluding however from this representation and warranty acts or things done or omitted to be done after the AP Closing Date on the instructions of such Purchaser) pursuant to which or as a result of which the relevant Lease can be terminated by the applicable Lessee in accordance with the terms of the Lease for such Aircraft or the obligations of any such party thereunder would be rendered invalid or unenforceable;

(m) to such BI Seller’s knowledge, except if and as advised by such BI Seller to such Purchaser in the First Disclosure Letter or set forth in Schedule 2, such Aircraft is not as of the AP Closing Date subject to any sub-lease (exclusive of “wet-leases”) from the relevant Lessee;

(n) to such BI Seller’s knowledge, the information provided by such BI Seller to such Purchaser prior to the Delivery Date as to the identities of all of such Purchaser Entity’s predecessors in title to such Aircraft thereof is complete and accurate in all material respects;

(o) to such BI Seller’s knowledge, except if and as advised by such BI Seller to such Purchaser in a Disclosure Letter, such Aircraft has been accepted by the relevant Lessee under the Lease thereof without qualification or exception or to the extent

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that any such acceptance was given subject to any qualification or exception or subject to any liability on the part of such BI Seller or relevant Affiliate of the BI Seller to pay or reimburse any costs or expenses or to undertake any repairs or modifications at the expense of such BI Seller, such qualifications and exceptions have been discharged or waived by the Lessee and have ceased to apply and no such costs or expenses remain to be reimbursed and all defects referred to therein have been duly rectified or waived by such Lessee, or such BI Seller or lessor Affiliate of such BI Seller has retained the rectification or payment obligations associated therewith;

(p) except for documents or provisions that will be inapplicable to the relevant Purchaser Entity on and after the BI Transfer Date therefore, the information and statements as to and relating to the relevant Lease and the Lease Documents in respect of such Aircraft set forth in Schedule 2 as of the AP Closing Date or the Substitute Aircraft Supplement, as applicable, are true and complete in all material respects;

(q) on and as of the AP Closing Date the lessor under the relevant Lease pertaining to such BI Aircraft shall have paid to the relevant Lessee all amounts then due and payable on and as of the AP Closing Date by such lessor to such Lessee in respect of maintenance theretofore performed on such BI Aircraft as required by the Lease Documents;

(r) the sale of such Beneficial Interest contemplated hereby constitutes a valid and irrevocable transfer of such Beneficial Interest and such BI Seller shall retain no right, title or interest in such Beneficial Interest;

(s) neither the BI Seller nor anyone acting on its behalf has offered such Beneficial Interest or any similar securities for sale to, or solicited any offer to buy any of the same from, any person in a manner which would violate the Securities Act, and neither the BI Seller nor anyone acting on their behalf have taken, or will take, any action that would subject the issuance or sale of such Beneficial Interest to the registration requirements of Section 5 of the Securities Act or other applicable securities laws;

(t) with respect to each Purchaser Entity, except as set forth in the Formation Agreements, there are no voting trusts, membership agreements, proxies or other agreements or understandings in effect with respect to (i) the voting of the Beneficial Interest or (ii) other than those contained in the Operative Documents, the Lease Documents or the Formation Agreement, the Transfer of the Beneficial Interest and, that no Formation Agreement contains any provision that would prohibit or impair the Transfer of the applicable Beneficial Interest in accordance with this Agreement;

(u) complete and accurate copies of any membership register, minute book or stock register with respect to such Purchaser Entity have been provided to such Purchaser;

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(v) to the extent such exist, the books of account and other financial records of such Purchaser Entity accurately reflect all items of income and expense and all assets and liabilities required to be reflected therein in accordance with and applied on a basis consistent with the past practices of such Purchaser Entity;

(w) except to the extent that same is the responsibility of the Lessee under a Lease, the relevant Purchaser Entity has obtained and is maintaining all permits, licenses, authorizations, certifications, exemptions and approvals necessary to enable it to carry on its business as presently conducted (collectively, the “Permits”), and all such Permits are in full force and effect; and

(x) full and accurate particulars of all material contracts or agreements (collectively, the “Contracts”) to which the relevant Purchaser Entity is a party at the AP Closing Date that do not consist of the Formation Agreements, the Lease Documents, the Operative Documents or other documents described herein and that do not pertain to the Purchaser Entities’ ordinary course of business and that will continue in effect after the Delivery Date have been disclosed to such Purchaser in the First Disclosure Letter and each Contract including the Formation Agreement, the Lease Documents and the Operative Documents (i) is legal, valid and binding on the relevant Purchaser Entity and is in full force and effect in accordance with its terms with respect to such Purchaser Entity and (ii) upon completion of the transactions contemplated by the Operative Documents, shall continue in full force and effect with respect to such Purchaser Entity, without penalty or adverse consequence. To the knowledge of such BI Seller after due inquiry, neither such BI Seller nor the relevant Purchaser Entity is in breach of, or default under, any Contract to which it is a party.

8.4 Each BI Seller with respect to each Purchaser Entity the Beneficial Interests of which such BI Seller will Transfer, further represents and warrants to the Purchaser thereof on the BI Transfer Date for such Beneficial Interest as follows:

(a) such Purchaser Entity is duly organized, validly existing and, to the extent applicable, in good standing under the laws of the jurisdiction of its organization and has full corporate, company, trust or other power and authority to conduct its business as and to the extent now conducted and to own, use and lease its assets. Such Purchaser Entity is duly qualified, licensed or admitted to do business and is in good standing in those jurisdictions in which the ownership, use or leasing of its assets, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for those jurisdictions in which the adverse effects of all such failures by such Purchaser Entity to be qualified, licensed or admitted and in good standing can in the aggregate be eliminated without material cost or expense by such Purchaser Entity, as the case may be, becoming qualified or admitted and in good standing. Such BI Seller has, prior to the execution of this Agreement, delivered to such Purchaser true and complete copies of such Purchaser Entity’s organizational documents (including any limited liability company agreements, limited partnership agreements or Formation Agreements) as in effect on the date hereof;

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(b) the Beneficial Interests of such Purchaser Entity are duly authorized, validly issued, outstanding and, in the case of Beneficial Interests consisting of stock or shares, fully paid and nonassessable. Such BI Seller owns the Beneficial Interests, beneficially and of record, free and clear of all Encumbrances (other than Permitted Encumbrances), and there are no other Beneficial Interests of such Purchaser Entity issued and outstanding. Except for this Agreement, there are no outstanding options to acquire the Beneficial Interests or any other equity interest with respect to such Purchaser Entity. Such Beneficial Interests are or will be represented by certificates, and the delivery of a certificate or certificates at the Closing representing the Beneficial Interests in the manner provided in Section 2.1 together with the Assignment of Beneficial Interest contemplated hereunder and any recording thereof in the books and records of such Person will transfer to such Purchaser full legal and beneficial title to the Beneficial Interests, free and clear of all Encumbrances (other than Permitted Encumbrances). In the case of Beneficial Interests not represented by certificates, delivery of the Assignment of Beneficial Interest and recording of such Purchaser’s ownership of such Beneficial Interests in the books and records of the Purchaser Entity will transfer to such Purchaser full legal and beneficial title to the Beneficial Interests, free and clear of all Encumbrances (other than Permitted Encumbrances);

(c) such Purchaser Entity has no Subsidiaries except as disclosed in the First Disclosure Letter;

(d) on or prior to the BI Transfer Date, the Assignment of Beneficial Interest has been duly executed and delivered by all parties thereto;

(e) except for (i) the Aircraft listed on Schedule 1 for such Purchaser Entity, (ii) cash or other property held for the account of any Lessee as Security Deposit, (iii) any rights arising under the Operative Documents to which it is a party and the Lease, other Lease Documents and any Intercompany Lease, (iv) any Subsidiary disclosed in the First Disclosure Letter and (v) any receivables disclosed in the First Disclosure Letter, such Purchaser Entity has no other Assets;

(f) except for the Formation Agreement, the Lease, the Lease Documents and the Assignment of Beneficial Interest there are no Encumbrances (other than Permitted Encumbrances) on any of the assets or properties of such Purchaser Entity and the Transfer of the Beneficial Interests in the manner contemplated by this Agreement will not create any Encumbrances (other than Permitted Encumbrances referenced in clause (1) or (2) of the definition of such term) on the assets or properties of such Purchaser Entity;

(g) such Purchaser Entity has no employees, except as may be required by Applicable Law;

(h) to such BI Seller’s knowledge, there are no Orders outstanding against such Purchaser Entity;

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(i) such Purchaser Entity is not and has not at any time since its organization as an entity been, or has received any notice that it is or has at any time since its organization as an entity been, in violation of or in default under, in any material respect, Applicable Law or Order applicable to such Purchaser Entity or any of its assets or properties;

(j) no liquidator, provisional liquidator, examiner or analogous or similar officer has been appointed in respect of all or any part of the assets of such Purchaser Entity nor has any application been made to a court which is still pending for an Order for, or any act, matter or thing been done which with the giving of notice, lapse of time or satisfaction of some other condition (or any combination thereof) will lead to, the appointment of any such officers or equivalent in any jurisdiction;

(k) as of such BI Transfer Date, the entry into and performance by such Purchaser Entity of, and the transactions contemplated by, the relevant Operative Documents to which it is a party, on such BI Transfer Date while such Beneficial Interest is owned by the BI Seller thereof, do not and will not:

(i) breach any laws, rules, regulations, orders, judgments or decrees binding on such Purchaser Entity or any of their respective assets on such BI Transfer Date while such Beneficial Interest is owned by the BI Seller thereof; or

(ii) result in any breach of, or constitute a default under the constitutional documents of such Purchaser Entity on such BI Transfer Date while such Beneficial Interest is owned by the BI Seller thereof; or

(iii) result in any breach of, or constitute a default under any agreement, document or instrument which is binding upon such Purchaser Entity or any of its respective assets on such BI Transfer Date while such Beneficial Interest is owned by the BI Seller thereof or result thereunder in the creation of any Encumbrance (other than any Permitted Encumbrance) over any of its respective assets to be transferred to the relevant Purchaser hereunder;

(l) except if and as advised by such BI Seller, to such Purchaser in a Disclosure Letter, no litigation, arbitration or claim before any court, arbitrator, governmental or administrative agency or authority to which such Purchaser Entity is a party which would have a material adverse effect on the ability of such Purchaser Entity to observe or perform its respective obligations under any applicable Operative Documents to which such Purchaser Entity is a party on such BI Transfer Date while such Beneficial Interest is owned by the BI Seller thereof is in progress, or to the knowledge of such BI Seller, as applicable, threatened against such Purchaser Entity;

(m) since such Purchaser Entity’s acquisition of its interest in such Aircraft such Purchaser Entity has been covered by aviation liability insurance policies in such types and amounts and covering such risks and with such insurers as are substantially consistent with such BI Seller’s customary practices and such

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aviation liability insurance remains in effect as to such Purchaser Entity on such BI Transfer Date; and

(n) there are no Liabilities of the relevant Purchaser Entity other than Liabilities arising under the Lease Documents, the Formation Agreements or the Operative Documents, Liabilities incurred in the ordinary course of business or Liabilities disclosed in a Disclosure Letter or contemplated hereby.

8.5 Except if and as advised to the Purchaser thereof in a Disclosure Letter, each BI Seller of a Purchaser Non-Corporate Entity further represents and warrants on the AP Closing Date with respect to the Transfer of the Beneficial Interest of the relevant Purchaser Non-Corporate Entity as follows:

(a) such Purchaser Non-Corporate Entity is and has been at all time from its organization an entity treated either as a disregarded entity, a grantor trust or a partnership, in each case, a pass-through entity for U.S. tax purposes and the relevant BI Seller has made an election, where it is required, to treat the Purchaser Non-Corporate Entity at all time from its organization as an entity taxable either as a disregarded entity, a grantor trust or a partnership, in each case, a pass-through entity for U.S. tax purposes;

(b) such Purchaser Non-Corporate Entity has paid all material Taxes that are due or claimed or asserted by any taxing authority to be due from such Purchaser Non-Corporate Entity on or prior to the AP Closing Date and there are no Tax liens upon the assets of the Purchaser Non-Corporate Entity except liens for Taxes not yet due; and

(c) such Purchaser Non-Corporate Entity has materially complied with all applicable laws, rules, and regulations relating to the payment and withholding of Taxes (including withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3406, 6041 and 6049 and similar provisions under any other applicable laws) and has, to the extent material, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all required amounts.

8.6 Except if and as advised to the Purchaser thereof in a Disclosure Letter, each BI Seller of (i) a Purchaser Corporate Entity and (ii) of a Purchaser Non-Corporate Entity to the extent such Purchaser Non-Corporate Entity is not treated as a disregarded entity, a grantor trust or a partnership, in each case, a pass-through entity for U.S. tax purposes (a “Purchaser State Corporate Entity”) further represents and warrants to the Purchaser thereof on the AP Closing Date with respect to the Transfer of the Beneficial Interest of such Purchaser Corporate Entity or Purchaser State Corporate Entity as follows:

(a) such Purchaser Corporate Entity or such Purchaser State Corporate Entity has filed (or has had filed on its behalf) all income and other material Tax Returns required to be filed by applicable law prior to the date hereof and all Tax Returns

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were materially true, complete and, to the extent material, correct and filed on a timely basis;

(b) such Purchaser Corporate Entity or such Purchaser State Corporate Entity has paid all material Taxes that are due, or claimed or asserted by any taxing authority to be due, from the Purchaser Corporate Entity or such Purchaser State Corporate Entity on or prior to the AP Closing Date and there are no Tax liens upon such assets of the Purchaser Corporate Entity or such Purchaser State Corporate Entity except liens for Taxes not yet due;

(c) such Purchaser Corporate Entity or such Purchaser State Corporate Entity has materially complied with all applicable laws, rules, and regulations relating to the payment and withholding of Taxes (including withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3406, 6041 and 6049 and similar provisions under any other applicable laws) and has, to the extent material, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all required amounts;

(d) such Purchaser Corporate Entity or such Purchaser State Corporate Entity has not requested (and no request has been made on its behalf) any extension of time within which to file any Tax Return;

(e) such Purchaser Corporate Entity or such Purchaser State Corporate Entity has not executed any outstanding waivers or comparable consents regarding the application of the statute of limitations for any Taxes or Tax Returns (and no extensions have been executed on its behalf);

(f) no audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of such Purchaser Corporate Entity or such Purchaser State Corporate Entity;

(g) such Purchaser Corporate Entity or such Purchaser State Corporate Entity has not received any written ruling of a taxing authority relating to Taxes, or any other written and legally binding agreement with a taxing authority relating to Taxes;

(h) such Purchaser Corporate Entity has not filed (and will not file prior to the AP Closing Date) a consent pursuant to Code Section 341(f) or any analogous state or local Tax provision or agreed to have Code Section 341(f)(2) apply to any disposition of a subsection (f) asset, as defined in Code Section 341(f)(4);

(i) such Purchaser Corporate Entity is not required to include in income any adjustment pursuant to Code Section 481(a) by reason of a voluntary change in accounting method initiated by the Purchaser Corporate Entity and the Internal Revenue Service has not proposed an adjustment or change in accounting method;

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(j) such Purchaser Corporate Entity is not a party to any agreement, contract, or arrangement that would result, separately or in the aggregate, in the payment of any “excess parachute payments” within the meaning of Code Section 280G;

(k) on or before the AP Closing Date, such Purchaser Corporate Entity or such Purchaser State Corporate Entity had no United States state or local, or foreign Tax Return filing obligations in respect of income, franchise, doing business or similar Taxes; and

(l) such BI Seller has paid or will pay all Taxes with respect to the operations of the Purchaser Corporate Entity or Purchaser State Corporate Entity, for all such taxable periods ending on or before the AP Closing Date and that portion of such taxable period that includes the AP Closing Date (calculated as if the AP Closing Date were the end of a taxable period).

8.7 Each Seller of an Asset represents, warrants and covenants to the Purchaser of that Asset as follows:

(a) following the Delivery Date for that Asset and unless as a result of a Final Determination, neither it nor any of its Affiliates will claim for United States federal, state or local or for foreign tax purposes to be the owner of such Asset; and

(b) prior to the AP Closing Date, it or its Affiliates treated itself as the owners of the Asset for United States federal, state and local income tax purposes.

(c) The Relevant Aircraft and Lease Information with respect to that Asset and the Initial Leases relating to that Asset that was furnished to the Policy Provider, Credit Suisse Securities (USA) LLC, the Appraisers and the Rating Agencies by Babcock & Brown Aircraft Management LLC or any of its Affiliates that provided or supported the assumptions underlying (i) the financial models prepared by Credit Suisse Securities (USA) LLC for the use by such parties for their evaluation of the cash flows in connection with the transactions contemplated by the Related Documents, (ii) the Appraisers’ appraisal of the Aircraft and (iii) the rating of the Class G-1 Notes (without regard to the Policy), as of the respective dates of such information, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. For purposes hereof, “Relevant Aircraft and Lease Information” shall mean, with respect to the Aircraft and Initial Leases, the information described on Annex A relating to such Asset and Initial Lease.

8.8 As used herein “to the Seller’s knowledge” means the awareness of facts or other information by any person at such Seller actively involved in the transactions contemplated by this Agreement or (in respect of any Aircraft or any Beneficial Interest

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related thereto), the leasing of such Aircraft and something being “known to the Seller” shall be construed accordingly.

8.9 Each Seller acknowledges that each Purchaser is entering into this Agreement and the other Operative Documents in reliance upon the accuracy of each of the representations and warranties, which representations and warranties have been given by such Seller so as to induce each Purchaser to enter into this Agreement and the other Operative Documents.

8.10 The representations and warranties may at the sole discretion of the relevant Purchaser be waived by such Purchaser with or without conditions acceptable to the Sellers, subject to in each case, the relevant Purchaser first obtaining the prior written consent of the Policy Provider to any such waiver.

8.11 Subject to Section 8.12, the benefit of the representations and warranties shall run to the Security Trustee.

8.12 The representations and warranties in respect of any Aircraft in Sections 8.2 and 8.3 shall continue and survive in full force and effect after the Delivery Date therefore for a period ending on the date of the payment in full of the Class G-1 Notes and all obligations owing to the Policy Provider.

8.13 Each of the representations and warranties shall be construed as a separate and independent representation and warranty and shall not be limited or restricted by reference to the terms of any other provision of this Agreement, the other Operative Documents or any other representation or warranty.

9. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

9.1 Each Purchaser hereby represents and warrants to JET-i and each Seller as of the date of this Agreement and on each subsequent Delivery Date that:

(a) Such Purchaser is a company or trust duly established and validly existing under the laws of its jurisdiction of organization, and each has the trust or corporate power (as the case may be) to own its assets and carry on its business as it is being conducted;

(b) Such Purchaser has the trust or corporate power (as the case may be) to enter into and perform, and has taken all necessary action to authorize the entry into, performance and delivery of, this Agreement and the other applicable Operative Documents to which it is a party;

(c) this Agreement and the other applicable Operative Documents to which it is a party have been, or when executed and delivered will have been, duly entered into and delivered by such Purchaser of any Asset and constitute or, in the case of any Operative Document to be executed on or about the applicable Delivery Date, will constitute on such Delivery Date, each such Person’s legal, valid and binding obligations;

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(d) the entry into and performance by such Purchaser of any Asset of, and the transactions contemplated by, this Agreement and the other applicable Operative Documents to which it is a party do not and will not:

(i) conflict with any laws binding on such Purchaser; or

(ii) result in any breach of, or constitute a default under the constitutional documents of such Purchaser; or

(iii) result in any breach of, or constitute a default under or result in default under any document which is binding upon such Purchaser or any of its assets;

(e) so far as concerns the obligations of such Purchaser, all authorizations, consents, registrations and notifications required in connection with the entry into, performance, validity and enforceability of, this Agreement and the other applicable Operative Documents to which any such Person is a party and the Servicing Agreement and the transactions contemplated by this Agreement and the other applicable Operative Documents to which any such Person is a party, have been obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect;

(f) the provisions of Section 14 concerning applicable law, service of process and jurisdiction are valid and binding on such Purchaser under the laws of the State of New York, and no provision purporting to be binding on such Purchaser, this Agreement or any of the other applicable Operative Documents is prohibited, unlawful or unenforceable under the laws of the State of New York;

(g) no liquidator, provisional liquidator, official manager, trustee, Irish law examiner, receiver or receiver and manager or similar officer has been appointed in respect of all or any part of the assets of such Purchaser nor has any application been made to a court which is still pending for an order for, or any act, matter or thing been done which with the giving of notice, lapse of time or satisfaction of some other condition (or any combination thereof) will lead to the appointment of any such officers;

(h) no litigation, arbitration or claim before any court, arbitrator, governmental or administrative agency or authority which would have a material adverse effect on the ability of such Purchaser to observe or perform its obligations under this Agreement is in progress, or to the knowledge of any such Person, threatened against any such Person;

(i) such Purchaser intends for the sale of any Aircraft contemplated hereby to constitute a valid transfer of such Aircraft to the relevant Purchaser and intends that after Delivery of such Aircraft the Seller thereof shall retain no right, title or interest in such Aircraft; and

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(j) such Purchaser represents and warrants that the Beneficial Interest of any Purchaser Entity purchased by it is being acquired for investment for its own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that it has no intent of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act.

10. INDEMNITY

10.1 Each Purchaser of an Asset or Aircraft agrees to indemnify the Seller thereof and each other Seller Indemnitee from and against any claims, damages, losses, costs, expenses, fees, payments, demands, liabilities, actions, proceedings, penalties or fines (“Losses”) (other than, in each case, on account of any Taxes resulting from any Delivery) which any Seller Indemnitee may incur in relation to such Asset or Aircraft for which Delivery has been completed to the extent it arises out of an event that occurs on or after the AP Closing Date.

10.2 Without derogation to the disclaimer in Section 12, each Seller of an Asset or Aircraft agrees to indemnify the Purchaser thereof and each Purchaser Indemnitee from and against any Losses which any Purchaser Indemnitee may incur in relation to such Asset or Aircraft to the extent it arises out of (i) an event (which term shall exclude when used in this Section 10.2 anything related to or connected with the design, manufacture, maintenance, repair, rebuilding, overhaul, refurbishment or similar activity with respect to any Aircraft (including any engine or part)) that occurred prior to the AP Closing Date or (ii) the failure of the representation in Section 8.7(c) insofar as it relates to Item 31 on Annex A hereto to be true and correct.

10.3 If a written claim is made against a Person that is indemnified under Section 10.1 or 10.2 (the “first party”) for any sum which is the subject of an indemnity from a Person under Section 10.1 or 10.2 (the “indemnifying party”) under this Section 10, the first party will promptly notify the indemnifying party. If reasonably requested by the indemnifying party in writing within 30 days following receipt by the indemnifying party of such notice, and provided the first party is indemnified by the indemnifying party against costs and expenses, the first party will in good faith contest in its name (or, at the indemnifying party’s election if such contest may be undertaken by the indemnifying party in its own name or on behalf of the indemnifying party, permit the indemnifying party to contest) the validity, applicability and amount of such claim in appropriate administrative and judicial proceedings; provided that the first party shall have no such obligation if any such contest would expose the first party itself to an indemnifiable liability claim.

10.4 The relevant Seller shall pay, within 45 days after receipt of an approved invoice therefore, costs and expenses, including reasonable legal fees and disbursements, which the relevant Purchaser incurs as a result of (but subject to the provisions of Section 4.3 in the case of clauses (ii) and (iii) below):

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(i) the application of Section 4.1 (including, without limitation, costs incurred in arranging or taking steps to arrange the preparation, execution and delivery of any documents in anticipation of Delivery of a Substitute Aircraft); or

(ii) any of the documents or conditions referred to in Schedule 3 not being satisfied (or waived) on or before Delivery of the relevant Aircraft or Transfer of the Beneficial Interest of the relevant Aircraft or any of the documents or conditions referred to in Schedule 4 not being satisfied (or waived) within the period specified therein; or

(iii) any condition referred to in Section 7.2(a) or (b) not being satisfied (or waived) on or before Delivery of the relevant Aircraft or Beneficial Interest.

10.5 If and to the extent that any sums constituting (directly or indirectly) an indemnity to the first party but paid by the indemnifying party pursuant to this Agreement are treated as taxable in the hands of the first party, the indemnifying party will pay to the first party such sums as will after the tax liability has been fully satisfied indemnify the first party to the same extent as it would have been indemnified in the absence of such liability together with interest on the amount payable by the indemnifying party under this sub-clause at the rate of interest stated in Section 5.7 in respect of the period commencing on the date on which the payment of taxation is finally due until payment by the indemnifying party (both before and after judgment), but the indemnifying party will be under no liability to make any payment under this Section 10.5 to the first party to the extent the first party would be in a better position than if no payment by way of indemnity had needed to have been made.

11. TAXES

(a) Each Seller of an Independent Aircraft or Beneficial Interest hereby covenants to pay all Taxes imposed on the Company or the Purchaser of that Independent Aircraft or Beneficial Interest (or any assignee or successor thereto) or on such Independent Aircraft or the related BI Aircraft, as the case may be, or on such Beneficial Interest, and, in each case, the related Lease Documents and Operative Documents as a result of (i) the execution of, delivery of or performance under this Agreement, (ii) the Delivery of such Aircraft or Transfer of the Beneficial Interest in a Purchaser Entity that holds title to such Aircraft, (iii) any required re-registration of title to or the lease of such Aircraft with any Government Entity that is necessary or advisable to reflect or record such Operative Documents or the events occurring pursuant to such Operative Documents, (iv) the purchase by such Purchaser of such Aircraft or Beneficial Interest hereunder, (v) such Purchaser’s entering into of such Lease Documents and Operative Documents, (vi) without regard to clause (y) of this Section 11(a), the inaccuracy of such Seller’s representation or warranty or the breach by such Seller of any covenant, or (vii) such Aircraft being located in an Transfer Tax Jurisdiction at any time whether before or after the moment of Delivery on the Delivery Date for such Aircraft or on the AP Closing Date, other than (v) Taxes in respect of events occurring after, but not on, the Delivery Date unless arising as a result of events

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described in clause (iii) or (vi) above, (w) in the case of clause (vii), Taxes imposed by a Jurisdiction other than the Transfer Tax Jurisdiction, (x) Taxes that the relevant Lessee is liable to pay or reimburse under the relevant Lease and/or the Operative Documents other than such Lessee liabilities that are Retained Rights, (y) any Taxes (other than sales, use and similar Taxes and Taxes which are imposed as a result of an event described in clause (vii) of this Section 11(a)) imposed on the Purchaser of such Aircraft or beneficial Interest or any other Purchaser that are based on or measured by gross or net income or receipts (including, without limitation, withholding and Taxes on tax preference items) of such Purchaser or any other Purchaser or that are capital, doing business, accumulated earnings, personal holding company, excess profits, successor, estate or net worth Taxes of such Purchaser, in each case to the extent imposed on the Purchaser or any other Purchaser by reason of such Purchaser or an Affiliate thereof being organized in the jurisdiction imposing such Taxes or conducting activities in such jurisdiction unrelated to the transactions contemplated by the Operative Documents or (z) Taxes resulting from the gross negligence or willful misconduct of such Purchaser.

As used herein, “Transfer Tax Jurisdiction” means a jurisdiction that imposes Tax on an Asset or any Person directly or indirectly holding an interest in the Asset by reason of a transfer of the Asset or a beneficial interest in the Asset as a result of the applicable Aircraft being located in that jurisdiction.

(b) [Reserved]

(c) Each BI Seller of each Purchaser Entity hereby covenants to pay and to indemnify and hold harmless such Purchaser Entity and its Affiliates (and their direct and indirect beneficial interest holders) from any and all claims, actions, causes of action, liabilities, losses, damages, and reasonable out-of-pocket expenses and costs resulting from, arising out of or relating to (i) all Taxes imposed on the Purchaser Entity or the Purchaser thereof related to the activity of the Purchaser Entity for all taxable periods ending on or before the AP Closing Date, (ii) all Taxes imposed on the Purchaser Entity or Purchaser thereof for such portion of any taxable period including the AP Closing Date as ends on the AP Closing Date, (calculated as if the AP Closing Date had been the last day of a taxable period and the books of the Purchaser Entity had been closed on such day (it being understood that Taxes other than income Taxes for which the last day of a taxable period is not the AP Closing Date are to be allocated in a manner that fairly reflects (and is no less favorable to the Purchaser than pro rata per day) the period ending on the AP Closing Date and the period commencing after the AP Closing Date)) and (iii) any Tax liability that arises solely by reason of the Purchaser Entity being severally liable for any Tax of the consolidated group (or combined group pursuant to Treasury Regulation Section 1.1502-6 or any analogous state or local Tax provisions) of which a BI Seller is or was a member (the “Seller Group”) other than, in the case of clauses (i), (ii) and (iii), Taxes that the relevant Lessee is liable to pay or reimburse under the relevant Lease and/or

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the Operative Documents other than any such Lessee liabilities that are Retained Rights; provided in the case of clauses (i) and (ii) above, Taxes imposed with respect to the activities of a Purchaser Entity or the Purchaser after the time the sale contemplated by this Agreement is effective shall be subject to indemnification only to the extent (A) (I) set forth in Section 11(a)(vi) or (vii) or (II) such Taxes arise in connection with the sale on the AP Closing Date of any direct or indirect beneficial interest in the Purchaser Entities, and (B) such Taxes do not arise as a result of an election under Section 338 of the Code or similar election under Tax laws of any jurisdiction outside of the United States provided, further, that the BI Seller shall not be responsible for Taxes measured by net income attributable to any Rent received by any Purchaser solely allocable to the period on and after the AP Closing Date or for Taxes fully provided for as set forth in the First Disclosure Letter. In the case of Taxes payable by a BI Seller pursuant to clause (ii), the amount of such Taxes, as reasonably computed by the Purchaser, will be remitted to the Purchaser at least three business days prior to the due date of the relevant Tax Return (with interest being imposed at a rate equal to Purchaser’s or its Affiliate’s cost of funds (as documented by the Purchaser or its Affiliate in a reasonable manner) for any late payment).

(d) Each BI Seller of a Purchaser Corporate Entity or a Purchaser State Corporate Entity hereby covenants:

(i) any tax sharing agreements, tax settlement agreements, arrangements, policies or guidelines, formal or informal, express or implied that may exist between such Purchaser Corporate Entity or Purchaser State Corporate Entity and such Seller or any Affiliate of such Seller (other than the Purchaser Corporate Entity or Purchaser State Corporate Entity) (a “Tax Sharing Agreement”) shall terminate as of the AP Closing Date and, except as specifically provided herein, any obligation to make payments under any Tax Sharing Agreement shall be cancelled as of the AP Closing Date;

(ii) if such Purchaser Corporate Entity or Purchaser State Corporate Entity has been a member of a United States consolidated federal income tax return or any foreign, state or local consolidated or combined income or franchise tax returns, such BI Seller shall cause such Purchaser Corporate Entity, to the extent permitted by law, to continue to join in such returns through the AP Closing Date;

(iii) the Seller Group of which such BI Seller is a part shall timely prepare and file (or cause to be so prepared and filed) all Tax Returns required by law, covering such Purchaser Corporate Entity or Purchaser State Corporate Entity for all taxable periods ending on or before the AP Closing Date (“Pre-Closing Tax Returns”);

(iv) the Seller Group of which such BI Seller is a part shall timely pay or cause to be paid or fully provide for as set forth in the First Disclosure Letter all

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Taxes related to Pre-Closing Tax Returns (“Pre-Closing Taxes”) of such Purchaser Corporate Entity or Purchaser State Corporate Entity;

(v) such Seller will, to the extent permitted by applicable law, elect, or assist such Purchaser to elect, with the relevant U. S. federal, state and local and any non-U.S. taxing authorities to close the taxable period of such Purchaser Corporate Entity or Purchaser State Corporate Entity on the AP Closing Date, provided that in any case, where applicable law does not permit such Purchaser Corporate Entity or such Purchaser State Corporate Entity to close its taxable year on the AP Closing Date, such Purchaser will be responsible for and will cause to be prepared and duly filed all Tax Returns relating to Taxes of such Purchaser Corporate Entity and Purchaser State Corporate Entity for any taxable period which includes and ends after the AP Closing Date; and

(vi) after the AP Closing Date, such Seller in respect of such Purchaser Corporate Entity and Purchaser State Corporate Entity will cooperate in the preparation of all Tax Returns of such Purchaser Corporate Entity and Purchaser State Corporate Entity and will provide (or cause to be provided) any records and other information the Purchaser thereof requests that are reasonably necessary for the preparation of such Tax Returns and such Seller will cooperate with such Purchaser in connection with any Tax investigation, audit or other proceeding related to such Purchaser Corporate Entity or Purchaser State Corporate Entity; provided that if any of the information requested is contained in tax returns or other documents involving matters unrelated to such Purchaser Corporate Entity or Purchaser State Corporate Entity or is otherwise confidential information, then such Seller will be required to provide such information only to a nationally recognized firm of independent accounts selected by such Purchaser and reasonably satisfactory to such Seller, which independent accounting firm will prepare such Tax Returns without disclosure of the confidential information to such Purchaser Corporate Entity or Purchaser State Corporate Entity; provided, further, that nothing in the preceding proviso will prevent such Purchaser Corporate Entity or Purchaser State Corporate Entity from reviewing its Tax Returns.

(e) each Seller of a Purchaser Corporate Entity and Purchaser State Corporate Entity shall have the right to control any audit or examination relating to Taxes by any taxing authority, initiate any claim for refund, file any amended return, contest, resolve and defend against any assessment, notice of deficiency or other adjustment or proposed adjustment relating or with respect to any Taxes of such Purchaser Corporate Entity or Purchaser State Corporate Entity for all taxable periods ending prior to or on the AP Closing Date and for that portion of any taxable period that includes the AP Closing Date that ends on the AP Closing Date (an “Event”), and shall be entitled to all refunds with respect to such taxable periods or portions thereof; provided that to the extent that an Event could result in liability for the Purchaser pursuant to this Agreement or otherwise, the Seller

57

shall notify the Purchaser of such Event, and shall consult with the Purchaser with respect to the resolution of any issue relating to Taxes arising as a result of or in connection with such Event.

(f) In the event that there are or may be Taxes that a Seller is or will be obligated to pay under this Section 11, the Purchasers and their respective Subsidiaries will take such steps as may be reasonable and appropriate or requested by such Seller and at the expense of such Seller to mitigate such Taxes or to recover such Taxes or to obtain a refund or credit of such Taxes but only to the extent that Purchasers or their respective Subsidiary can lawfully do so and without material prejudice to its tax position or otherwise to it.

12. WARRANTIES AND DISCLAIMERS

12.1 WITHOUT PREJUDICE TO THE EXPRESS TERMS AND CONDITIONS STATED HEREIN AND IN THE OTHER OPERATIVE DOCUMENTS, EACH AIRCRAFT WILL BE DELIVERED AND SOLD (OR IN THE CASE OF THE BI AIRCRAFT, DEEMED DELIVERED AND SOLD ON THE RELEVANT BI TRANSFER DATE TO THE COMPANY ) IN ITS “AS IS, WHERE IS” CONDITION, AND EXCEPT AS EXPRESSLY STATED IN SECTION 8 OF THIS AGREEMENT AND AS OTHERWISE REPRESENTED AND WARRANTED HEREIN, IN THE OTHER OPERATIVE DOCUMENTS AND/OR IN THE BILL OF SALE AND/OR ASSIGNMENT OF BENEFICIAL INTEREST (AS THE CASE MAY BE) FOR OR IN RESPECT OF SUCH AIRCRAFT OR ANY CERTIFICATE DELIVERED PURSUANT TO THIS AGREEMENT, THE SELLER (AND THE APPLICABLE PURCHASER ENTITY) MAKES NO WARRANTIES, GUARANTEES OR REPRESENTATIONS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY OF THE AIRCRAFT OR ANY PURCHASER ENTITY.

12.2 EACH PURCHASER WAIVES, RELEASES AND RENOUNCES ALL WARRANTIES (EXCEPT AS OTHERWISE EXPRESSLY REPRESENTED AND WARRANTED BY ANY SELLER IN THIS AGREEMENT, ANY BILL OF SALE OR ACKNOWLEDGMENT OF DELIVERY, ANY ASSIGNMENT OF BENEFICIAL INTEREST OR IN ANY OTHER OPERATIVE DOCUMENT OR CERTIFICATE DELIVERED HEREUNDER), OBLIGATIONS AND LIABILITIES OF ANY SELLER (OR PURCHASER ENTITY) INCLUDING BUT NOT LIMITED TO (1) ANY IMPLIED WARRANTY AS TO THE DESCRIPTION, AIRWORTHINESS, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, VALUE, CONDITION, DESIGN, DATA PROCESSING, USE OR OPERATION OF THE AIRCRAFT OR ANY PAST PERFORMANCE, COURSE OF DEALING, USAGE OR TRADE OR OTHERWISE, (2) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT (INCLUDING STRICT LIABILITY), AND (3) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO THE AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE AIRCRAFT, FOR ANY LIABILITY OF ANY LESSEE TO ANY THIRD PARTY, FOR ANY LIABILITY OF THE PURCHASER TO ANY THIRD PARTY, OR FOR

58

ANY OTHER DIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES; AND ALL SUCH WARRANTIES, GUARANTEES, REPRESENTATIONS, OBLIGATIONS, LIABILITIES, RIGHTS, CLAIMS OR REMEDIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, ARE EXPRESSLY EXCLUDED.

12.3 THIS SECTION 12 SHALL NOT BE MODIFIED EXCEPT BY A WRITTEN AGREEMENT SIGNED ON BEHALF OF EACH SELLER AND EACH PURCHASER BY THEIR RESPECTIVE DULY AUTHORIZED REPRESENTATIVES.

13. ASSIGNMENT

13.1 No Purchaser of an Asset or Aircraft shall assign, transfer or otherwise convey this Agreement or all or any part of its rights hereunder to any Person without the prior written consent of the Seller of such Asset or Aircraft other than in favor of the Security Trustee under the Security Trust Agreement, to which the Seller hereby consents.

13.2 No Seller of an Asset or Aircraft shall assign, transfer or otherwise convey this Agreement or all or any part of its rights hereunder to any Person without the prior written consent of the Purchaser of such Asset or Aircraft other than so far as concerns assignments to existing owners or financiers or Affiliates of such Seller of amounts or its rights to receive amounts payable to such Seller hereunder on terms and conditions which do not increase any obligation of such Purchaser hereunder or otherwise expose such Purchaser to any increased liability, cost or expense.

14. MISCELLANEOUS

14.1 Subject to Sections 8.12 and 12.2, each Seller of an Asset shall indemnify, hold harmless and defend the Purchaser of that Asset and in connection with Section 8.7 hereof only any holders of shares in such Purchaser and Affiliates thereof and their respective successors and assigns from and against all liabilities, obligations, claims, demands, judgments, causes of action, damages, costs, losses and expenses (including reasonable legal fees, costs) resulting from or arising out of or pertaining to any claim which results from any breach by such Seller of any of its obligations, representations, warranties or covenants under this Agreement, any Assignment of Beneficial Interest or any Bill of Sale and solely in respect of any claim that arises with respect to any holders of shares or beneficial interest in such Purchaser and Affiliates thereof, such Seller shall have the rights set forth in Sections 10.3 and 11(e) in respect of such claim.

14.2 No Seller shall take any steps for the purpose of procuring the appointment of any administrative receiver or the making of any administrative order or for instituting any bankruptcy, reorganization, arrangement, insolvency, winding up, liquidation, composition or any like proceedings under the laws of any jurisdiction in respect of any Purchaser or in respect of any of their respective liabilities, including, without limitation, as a result of any claim or interest of any of any Seller.

14.3 No amendment or waiver of any provision of this Agreement, and no consent to any departure herefrom by any party hereto, shall in any event be effective unless the same

59

shall be in writing and signed by each party hereto and the Policy Provider, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of any party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.

14.4 In the event that any provision of this Agreement or the application thereof to any party hereto or to any circumstance or in any jurisdiction governing this Agreement shall, to any extent, be invalid or unenforceable under any applicable statute, regulation or rule of law, then such provision shall be deemed inoperative to the extent that it is invalid or unenforceable and the remainder of this Agreement, and the application of any such invalid or unenforceable provision to the parties, jurisdictions or circumstances other than to whom or to which it is held invalid or unenforceable, shall not be affected thereby nor shall the same affect the validity or enforceability of this Agreement.

14.5 All notices and other communications provided for hereunder shall be in writing (including telecopier) and mailed, telecopied or delivered to the intended recipient at its address specified in Section 12.05 of the Indenture or, in the case of any Seller, as follows:

[Guarantor]

[Address]

Attention:

Facsimile:

with a copy to:

Attention:

Facsimile:

and, in the case of any Purchaser, as follows:

Babcock & Brown Air Funding I Limited

c/o [Administrative Agent]

[Address]

Dublin 1, Ireland 

Attention:

Facsimile:

with a copy to:

Attention:

Facsimile:

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or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section 14.5. Each such notice shall be effective (a) upon receipt when sent through the mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return receipt, or (b) one Business Day after delivery to an overnight courier, or (c) on the date personally delivered to an authorized officer of the party to which sent, or (d) on the date transmitted by legible telecopier transmission with a confirmation of receipt.

14.6 (a)  THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BUT WITHOUT REGARD TO ANY CONFLICTS OF LAW PROVISION THEREOF (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).

(b) Each party hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York County for the purposes of all legal proceedings arising out of or relating to this agreement and each other operative document or the transactions contemplated hereby or thereby. Each party irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Each party hereby irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies to it as set forth in Section 14.5 or in any other manner permitted by Applicable Law.

(c) To the extent permitted by Applicable Law, each of the parties hereto hereby irrevocably waives the right to demand a trial by jury, in any such suit, action or other proceeding arising out of this Agreement, the other Operative Documents, or the subject matter hereof or thereof or the overall transaction brought by any of the parties hereto or their successors or assigns.

14.7 Nothing in Section 14.6 limits the right of any party to bring proceedings against any other party in connection with this Agreement:

(i) in any other court of competent jurisdiction; or

(ii) concurrently in more than one jurisdiction.

14.8 Each party hereto will promptly and duly execute and deliver such further documents to make such further assurances for and take such further action reasonably requested by any party to whom such first party is obligated, all as may be reasonably necessary to

61

carry out more effectively the intent and purpose of this Agreement and the other Operative Documents.

14.9 This Agreement may be executed in any number of counterparts and by any party hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which, when taken together, shall constitute one and the same agreement.

14.10 Each Seller and each Purchaser of an Asset agrees to treat the sale of that Asset hereunder as occurring on the Delivery Date for U.S. and Irish tax purposes.

14.11 Each Purchaser of an Asset shall pay on the Delivery Date to Seller of that Asset one half of the out-of-pocket costs and expenses (including legal fees and expenses) incurred by that Seller in connection with the transfer of that Asset and any related Leases to such Purchaser as contemplated by this Agreement.

15. SUBROGATION

15.1 Upon any claim being made against any Seller for breach of any representation or warranty (other than a representation or warranty contained in Section 8.1), such Seller, as the case may be, shall be subrogated to all rights, remedies and claims of each Purchaser against the Lessee or any Affiliate of the Lessee under the applicable Lease, Novated Lease or Assigned Lease, the Operative Documents, the Lease Documents and otherwise, with respect to such claim, and each Purchaser shall cooperate, in taking such action as such Seller may reasonably request in connection with exercising any such right, remedy or claim (and the reasonable costs and expenses thereof shall be paid by such Seller).

16. LIMITED RECOURSE

16.1 In the event that the direct or indirect assets of any Purchaser and its Subsidiaries are insufficient, after payment of all other claims, if any, ranking in priority to the claims of any Seller hereunder pursuant to the Indenture, to pay in full such claims of such Seller, then such Seller shall have no further claim against such Purchaser and its Subsidiaries in respect of any such unpaid amounts.

16.2 To the extent permitted by applicable law, no recourse under any obligation, covenant or agreement of any party contained in this Agreement shall be had against any shareholder (not including the Company as a shareholder of any other Purchaser hereunder), officer or director of the relevant party as such, by the enforcement of any assessment or by any proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is a corporate obligation of the relevant party and no personal liability shall attach to or be incurred by the shareholders (not including the Company as a shareholder of any other Purchaser hereunder), officers or directors of the relevant party as such, or any of them under or by reason of any of the obligations, covenants or agreements of such relevant party contained in this Agreement, or implied

62

therefrom, and that any and all personal liability for breaches by such party of any of such obligations, covenants or agreements, either at law or by statute or constitution, of every such shareholder (not including the Company as a shareholder of any other Purchaser hereunder), officer or director is hereby expressly waived by the other parties as a condition of and consideration for the execution of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have entered into this Asset Purchase Agreement the day and year first above written.

[                                                             ]
By
	Name:
	Title:

BABCOCK & BROWN AIR FUNDING I LIMITED
By
	Name:
	Title:

[OTHER SELLERS]
By
	Name:
	Title:

[OTHER PURCHASERS]
By
	Name:
	Title:

EXHIBIT A-1

FORM OF ASSIGNMENT OF BENEFICIAL INTEREST¹

The undersigned, [BI SELLER] (the “Seller”), as record and beneficial owner of the beneficial interest (the “Beneficial Interest”) in [Name] (the “Entity”), hereby sells, assigns, conveys, transfers and sets over to Babcock & Brown Air Funding I Limited, a Bermuda exempted company (the “Purchaser”), all of the Seller’s right, title and interest in and to the Beneficial Interest, other than the Retained Rights (as such term is defined in that certain Asset Purchase Agreement dated as of [            ] [      ], 2007 (the “Purchase Agreement”) among the parties hereto and others). The Seller hereby warrants to the Purchaser, its successors and assigns, that [(i)]* there is hereby irrevocably conveyed to the Purchaser full legal and beneficial title to the Beneficial Interest, free and clear of all Encumbrances (other than Permitted Encumbrances) and (ii) the Entity holds full legal and beneficial title to the Aircraft listed in Schedule I hereto exclusive of Lessee Furnished Equipment (the “BI Aircraft”) free and clear of all Encumbrances (other than Permitted Encumbrances). The Seller agrees with the Purchaser, and its successors and assigns, that the Seller will warrant and defend such title to the Entity [and such title of the Entity in each BI Aircraft]* forever against all such claims and demands whatsoever (other than Permitted Encumbrances). This Assignment of Beneficial Interest is being made and entered into pursuant to the Purchase Agreement and shall be governed by and construed in accordance with the laws of the State of New York. Except as otherwise provided in the Purchase Agreement, the Beneficial Interest [(and the Entity’s interest in each BI Aircraft)]* is sold “AS IS” and “WHERE IS”. Capitalized terms used herein and not otherwise defined shall have the meanings attributed thereto in the Purchase Agreement.

[BENEFICIAL INTEREST SELLER]
By:
	Name:
	Title:

The above and foregoing Assignment of Beneficial Interest is hereby accepted and agreed to this ___ day of [________], 2007.

BABCOCK & BROWN AIR FUNDING I LIMITED
By:
	Name:
	Title:

______________

¹ To be used for all entities other than Owner Trusts and Irish companies.

EXHIBIT A-2

FORM OF TRUST ASSIGNMENT AND ASSUMPTION AGREEMENT (MSN[     ])²

THIS TRUST ASSIGNMENT AND ASSUMPTION AGREEMENT (MSN [_]) (this “Assignment”) is dated as of [__________] by and between [BI SELLER] (“Assignor”), and BABCOCK & BROWN AIR FUNDING I LIMITED, a [Bermuda exempted company] (“Assignee”).

W I T N E S S E T H :

WHEREAS, Assignor and [Wells Fargo Bank Northwest, National Association], in its individual capacity has entered into the trust agreement, dated as of [__________] (as assigned, amended and restated to date, the “Trust Agreement”) Except as otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Trust Agreement;

WHEREAS, Assignor desires to assign all of its rights, obligations and ownership in and to the Trust to Assignee; and

WHEREAS, Assignee desires to accepts all of Assignor’s rights, obligations and ownership in and to the Trust.

NOW, THEREFORE, the undersigned, in consideration of the premises, the payment of Ten Dollars ($10.00) and the covenants and agreements contained herein, do hereby agree as follows:

1. Assignment. Assignor does hereby sell, convey, assign, transfer and set over unto Assignee, as of the date hereof, all of its present and future right, title and interest in, to and under the following (collectively, the “Assigned Rights”): (i) the Trust, (ii) the Trust Estate, and (iii) the Trust Agreement and the Trust Documents described in the Trust Agreement, as “Owner Participant” thereunder (together with the Trust Documents collectively, the “Assigned Agreements”), and any proceeds therefrom. Assignor hereby transfers and delegates to Assignee all of Assignor’s obligations and liabilities as “Owner Participant” under the Assigned Agreements occurring from and after the date hereof (collectively, the “Assumed Obligations”).

2. Assumption. Assignee hereby: (a) accepts the assignment, transfer, conveyance and delegation set forth in Section 1 hereof; (b) from and after the date hereof, assumes and undertakes all of the Assumed Obligations; and (c) confirms that it shall be deemed a party to the Trust Agreement and each other Assigned Agreement, and shall be bound by all of the terms of each Assigned Agreement as if named therein.

______________

² To be used for Owner Trusts, except where a different form is called for by the Lease Documents or has otherwise been proposed by the Lessee.

3. Release of Assignor. From and after the date hereof, Assignor shall be released from all of its duties, obligations and liabilities under the Trust Agreement and the other Assigned Documents.

4. [Intentionally omitted.]/[Other Actions. The parties acknowledge that Assignee is concurrently entering into an amended and restated Trust Agreement.]³

5. Amendment. The Trust Agreement is hereby amended to reflect the foregoing, and all references in the Trust Agreement to Assignor are hereby amended to refer to Assignee.

6. Further Assurances. Assignor and Assignee each agree to execute and deliver such further documents, and to do such further things, as the other party may reasonably request, in order to more fully effect the transfer of the Assigned Rights pursuant to this Assignment.

7. Binding Effect. This Assignment shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

8. Execution in Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

9. Agreement in Effect. Except as hereby amended, the Trust Agreement shall remain in full force and effect.

10. Governing Law. THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF [NEW YORK].

11. Owner Trustee Authorization and Direction. Assignor and Assignee each authorizes and directs the Owner Trustee to execute and deliver this Assignment as provided below.

SIGNATURE PAGE FOLLOWS

______________

³ Will not be included where Trust Agreement is already in the Agreed Form.

2

IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be duly executed as of the day and year first above written.

BABCOCK & BROWN AIR FUNDING I LIMITED
By
	Name:
	Title:

[BI SELLER]
By:
	Name:
	Title:

3

THE UNDERSIGNED, [WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION], hereby confirms receipt of a copy of, and hereby acknowledges and consents to the assignment and assumption pursuant to, the foregoing Trust Assignment and Assumption Agreement:
[WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION], in its individual capacity and, with respect to the Trust Agreement, as Owner Trustee under the Trust Agreement
By:
	Name:
	Title:

EXHIBIT A-3

FORM OF IRISH LAW SHARE TRANSFER FORM⁴

______________

⁴ To be used for Irish companies.

STOCK
TRANSFER
FORM	(Above this line for Registrar’s use only)
SCHEDULE 1				Certificate lodged with the Register
	Consideration			(For completion by the Registrar/Stock Exchange)
	Name of Undertaking
	Description of Security	Ordinary Shares
	Number or amount of Shares, Stock or other security and, in figures column only, number and denomination of units, if any.	Words				Figures
	Name(s) of registered holder(s) should be given in full; the address should be given where there is only one holder. If the transfer is not made by the registered holder(s) insert also the name(s) and capacity (e.g., Executor(s) of the person(s) making the transfer.	In the name(s) of
	I/We hereby transfer the above security out of the name(s) aforesaid to the person(s) named below or to the several persona named in Parts 2 of Brokers Transfer Forms relating to the above security:				Stamp of Selling Broker(s) or, for transactions which are not stock exchange transactions of Agent(s), if any, acting for the Transferor(s).
	Delete words in italics except for stock exchange transactions.
	Signature(s) of transferor(s)
	1. ____________________________________________________________
	2. ____________________________________________________________
	3. ____________________________________________________________
	4. ____________________________________________________________
	A body corporate should execute this Transfer under its common seal or otherwise in accordance with applicable statutory requirements.				Date _____________
	Full name(s) and full postal address(es) (including County or, if applicable, Postal District number) of the person(s) to whom the security is transferred.
	Please state title, if any, or whether Mr., Mrs., or Miss.
	Please complete in type or in Block Capitals.
	I/We request that such entries be made in the register as are necessary to give effect to this transfer.
	Stamp of Buying Broker(s) (if any)		Stamp or name and address of person lodging this form (if other than the Buying Broker(s))

(Endorsement for use only in Stock Exchange Transactions)

The security represented by the transfer overleaf has been sold as follows:-

__________________________________	Shares/Stock	____________________________________	Shares/Stock
__________________________________	Shares/Stock	____________________________________	Shares/Stock
__________________________________	Shares/Stock	____________________________________	Shares/Stock
__________________________________	Shares/Stock	____________________________________	Shares/Stock
Balance (if any) due to Selling Broker(s)		______________________________________
		______________________________________
Amount of Certificate(s)
Brokers Transfer Forms for above amounts certified
Stamp of Certifying Stock Exchange		Stamp of Selling Broker(s)

FORM OF CERTIFICATE REQUIRED WHERE TRANSFER IS NOT LIABLE TO AD VALOREM STAMP DUTY

I/We hereby certify that the transaction in respect of which this transfer is made, and under which the fixed Duty of ten punts is payable, falls within the following description:-

(a) Vesting the property in trustees on the appointment of a new Trustee of a pre-existing Trust, or on the retirement of a Trustee;

(*) (b) A transfer, where no beneficial interest in the property passes, (i) to a mere nominee of the Transferor, (ii) from a mere nominee of the Transferee, (iii) from one nominee to another nominee of the same beneficial owner.

(*) (c) A transfer by way of security for a loan; or re-transfer to the original Transferor on repayment of a loan.

(d) A transfer to a residuary legatee of Shares, etc., which forms part of the residue divisible under a Will.

(e) A transfer to a beneficiary under a Will of a specific legacy of Shares, etc.

(f) A transfer of Shares, etc., being the property of a person dying intestate, to the person or persons entitled thereto.

(g) A transfer to a beneficiary under a settlement on distribution of the trust funds, of Shares, etc., forming the share, or part of the share of those funds to which the beneficiary is entitled in accordance with the terms of the settlement.

(h) A transfer on the occasion of a marriage to trustees of the shares, etc., to be held on the terms of a settlement made in consideration of marriage.

(i) A transfer by the liquidator of a Company of Shares, etc., forming part of the assets of the Company, to which the Transferee is entitled in satisfaction or part satisfaction of his rights as a Shareholder of the Company.

Here set out concisely the facts, explaining the transaction in cases falling within (b) and (c) or in any case which does not clearly fall within any one of the clauses (a) to (g). Adjudication in any case may be required. ______________________________________________________________________________________________________ ______________________________________________________________________________________________________ ______________________________________________________________________________________________________ ______________________________________________________________________________________________________ to ____________________________________________________________________________________________________ Date _______________________________________________

*Transferors	{	*Transferees	{
				Signature ________________________
				Description ______________________

* Note:- The above Certificate must be signed in the case of (b) and (c), either by (1) all the transferors and the transferees, or (2) a member of a Stock Exchange or a Solicitor acting for one or other of the parties, or (3) an accredited representative of a Bank. Where the Bank or its official nominee is a party to the transfer, the Certificate may be to the effect that “the transfer is excepted from Section 74 of the Finance (1909-10) Act, 1910.” The above Certificate in other cases should be signed by a Solicitor or other person (e.g. a Bank acting as Trustee or Executor) having a full knowledge of the facts.

2

EXHIBIT B

FORM OF BILL OF SALE

For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, [_______________], a corporation organized and existing under the laws of [_______________] and having its registered office at [_______________] (the “Seller”), owner of the full legal and beneficial title (subject to the Aircraft Lease Agreement referred to below) to the aircraft, engines, equipment and documents described below (hereinafter referred to as the “Aircraft”):

1. one (1) [_______________] aircraft bearing manufacturer’s serial no. [_______________] and registration mark [_______________]; and

2. [_______________] [_______________] engines bearing the following manufacturer’s serial nos.: [_______________], [_______________], [_______________];

3. all equipment, accessories and parts belonging to, installed in or appurtenant to such Aircraft or Engines to the extent title thereto has been vested in the Seller under the Aircraft Lease Agreement referred to below; and

4. all Aircraft Documents relating to the Aircraft and such Engines;

but for the avoidance of doubt excluding Lessee Furnished Equipment;

does hereby sell, grant, transfer and deliver all its right, title and interest in and to the Aircraft (subject to the Aircraft Lease Agreement dated as of [_______________], between [_______________] and [______________]) unto [_______________] (the “Purchaser”) and its successors and assigns, to have and to hold the Aircraft forever.

The Seller hereby warrants to the Purchaser, its successors and assigns, that there is hereby conveyed the full legal and, subject to the Formation Agreement, beneficial title to the Aircraft, free and clear of all Encumbrances (other than Permitted Encumbrances). The Seller agrees with the Purchaser, and its successors and assigns, that the Seller will warrant and defend such title forever against all claims and demands (other than Permitted Encumbrances) whatsoever. Except as otherwise provided herein or in the Asset Purchase Agreement, the Aircraft is sold “AS IS” and “WHERE IS.”

This Bill of Sale shall be governed by and construed in accordance with the laws of the State of New York. Capitalized terms used but not otherwise defined herein shall have the same meanings as used in the Asset Purchase Agreement.

IN WITNESS WHEREOF, the Seller has caused this Bill of Sale to be duly executed as of this [__] day of [__________], 2007.

By:
	Name: Title:

The representation, warranties, and covenants of the above named Seller under this Bill of Sale are hereby irrevocably and unconditionally guaranteed and confirmed:
BABCOCK & BROWN INTERNATIONAL PTY LTD.
By
	Name: Title:

2

EXHIBIT D

FORM OF GUARANTY – JET-i Entities

GUARANTY (the “Guaranty”) dated as of _________, 2007 of Babcock & Brown International Pty Ltd., an Australian corporation (the “Guarantor”) in favor of Babcock & Brown Air Funding I Limited (the “Company”), the other purchasers under the Asset Purchase Agreement referred to below, Deutsche Bank Americas Trust Company. as trustee (in such capacity, the “Trustee”) pursuant to the “Indenture” as such term is defined in the Asset Purchase Agreement referred to below and as the Security Trustee and the Operating Bank under the Security Trust Agreement (as defined in the Indenture) (the Company, such other purchasers, the Trustee, the Security Trustee and the Operating Bank being, collectively, the “Beneficiaries”).

Reference is made to that certain Asset Purchase Agreement, dated as of [                       ], 2007 (the “Asset Purchase Agreement”), among JET-i Leasing LLC, certain entities listed on Schedule 1 thereto, as “Sellers” (together with JET-i Leasing LLC, the “Selling Entities”), the Company and certain other purchasers listed on Schedule I thereto (together with the Company the “Purchasers”). All capitalized terms used but not otherwise defined herein shall have the respective meanings assigned to such terms in the Asset Purchase Agreement.

To induce the Purchasers to acquire the Aircraft and the other Assets under the Asset Purchase Agreement and to pay the purchase price therefore and otherwise to perform their respective obligations thereunder and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Guarantor is willing to execute and deliver this Guaranty to the Beneficiaries and accordingly the Guarantor does hereby agree as follows:

1. Guaranty.

(a) From and after the date hereof, the Guarantor hereby irrevocably and unconditionally guarantees to the applicable Beneficiaries the payment and performance in full when due of each of the obligations of, and the accuracy of each of the representations and warranties of JET-i Leasing LLC and each of the other Sellers other than Duntington Limited, Halvana Limited and Snodell Limited (collectively, the “Guaranteed Entities”) under (i) the Asset Purchase Agreement and (ii) each Assignment of Equity Interest, Bill of Sale, Lease Novation and/or Assignment of Lease executed and delivered by such Guaranteed Entity pursuant to the Asset Purchase Agreement (such obligations being the “Guaranteed Obligations”, and such documents being collectively the “Operative Documents”). This Guaranty is a guaranty of payment and not collection.

(b) The Guarantor hereby agrees that its obligations hereunder shall be absolute and unconditional, not subject to any reduction, limitation, impairment, termination, defense, offset, counterclaim or recoupment whatsoever (all of which, subject to the proviso to this sentence set froth below, are hereby expressly waived by the Guarantor) whether by reason of any claim of any character whatsoever, including,

without limitation, any claim of waiver, release, surrender, alteration or compromise, or by reason of any liability at any time to the Guarantor or otherwise, whether based upon any obligations or any other agreement or otherwise, and howsoever arising, whether out of action or inaction or otherwise and whether resulting from default willful misconduct, negligence or otherwise, irrespective of: (i) the validity, regularity or enforceability of any Operative Document or any other agreement or instrument referred to herein or therein; (ii) any change to any Operative Document or amendment to any Operative Document; (iii) the absence of or delay in any action or notice to enforce any Operative Document or this Guaranty; (iv) any waiver or consent by any Beneficiary with respect to any provision of the Operative Documents; (v) any modification or non-perfection of any lien on or security interest in any collateral granted pursuant to any Operative Document; (vi) the recovery of any judgment against any of the Selling Entities or any action to enforce the same; (vii) any offset, counterclaim or recoupment which might become available to the Guarantor relating to a Selling Entity; (viii) any insolvency, bankruptcy, reorganization or dissolution or any proceeding of the Selling Entities or the Guarantor, including, without limitation, rejection of the Guaranteed Obligations in such bankruptcy; (ix) any other circumstances which may otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, (x) any difference between the law selected as the governing law of the Operative Documents and the law selected as the governing law of this Guaranty; (xi) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Guaranteed Entity in respect of the Guaranteed Obligations or the Guarantor in respect hereof; or (xii) the absence of any action on the part of the Trustee to obtain payment of the Guaranteed Obligations in such bankruptcy; provided that, notwithstanding the foregoing, the Guarantor may assert as a defense to any claim by any Beneficiary for payment performance hereunder (a “Beneficiary Claim”) any defense, claim, set off or deduction which a Guaranteed Entity could have asserted in respect of such Beneficiary Claim other than such defense, claim, set off or deduction available to such Guaranteed Entity only under a bankruptcy, reorganization, insolvency, readjustment of debt, suspension of payments, dissolution, liquidation or other similar law in proceedings against such Guaranteed Entity under any such law. The Guarantor covenants that this Guaranty will not be discharged except by complete and final performance of the Guaranteed Obligations.

(c) The Guarantor shall be subrogated to all rights of the Beneficiaries in respect of any amounts paid by the Guarantor pursuant to the provisions of this Guaranty; provided, that the Guarantor shall be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation only after all of the Guaranteed Obligations and any other obligations that the Guaranteed Entities owe to the Beneficiaries that the Guaranties have been finally paid in full.

(d) Notwithstanding the above, if any amount shall be paid to the Guarantor at any time when any Guaranteed Obligation shall not have been finally paid in full, such amount shall be held by the Guarantor in trust for the Company or the relevant Beneficiary, segregated from other funds of the Guarantor and turned over to the Company or the relevant Beneficiary (duly endorsed by the Guarantor, if required), to be applied

3

against such Guaranteed Obligation, whether matured or unmatured, in accordance with this Guaranty or any other relevant Operative Document.

(e) The Guarantor hereby waives any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject to any Operative Document or exhaust any right or take any action against any person or any collateral (including any rights relating to the marshaling of assets).

(f) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by any Beneficiary upon the insolvency, bankruptcy or reorganization of any Selling Entity or otherwise, all as though such payment had not been made.

2. Assignment of Rights and Claims. The Company agrees that, if Guarantor shall make any payment or render any performance under this Guaranty on account of any breach of any representation or warranty and if, by reason of the act, omission, event, occurrence, non-occurrence or condition that renders the representation or warranty untrue or inaccurate, a Purchaser Entity or any Affiliate thereof holds or may assert rights or claims against one or more third parties (other than a Selling Entity), such as a claim for breach of a representation or warranty made by a third party to a Purchasing Entity or its predecessor in interest, the Company shall cause the Purchasing Entity or the Affiliate, as the case may be, to assign to the Guarantor such rights and claims (and, if necessary to effectively convey such rights and claims, the agreement giving rise to such rights or claims) and shall cause the Purchasing Entity or the Affiliate, as the case may be, to reasonably cooperate with Guarantor in Guarantor’s prosecution of such rights or claims.

3. Miscellaneous.

a. Notices. All notices to the Guarantor under this Guaranty and copies of all notices to the Guaranteed Entities under the Operative Documents shall, until Guarantor furnishes written notice to the contrary, be in writing and mailed, faxed or delivered to the Guarantor as follows:

b. Governing Law. This Guaranty shall be construed and enforced in accordance with, and governed by, the laws of the State of New York, United States of America.

c. Interpretation. The headings of the sections and other subdivisions of this Guaranty are inserted for convenience only and shall not be deemed to constitute a part hereof.

d. Attorney’s Cost. The Guarantor agrees to pay all reasonable attorney’s fees and disbursements and all other reasonable and actual costs and expenses, which may be incurred by the Beneficiaries in the enforcement of this Guaranty.

e. Currency of Payment. Any payment to be made by the Guarantor shall be made in the same currency as designated for payment in the Asset Purchase Agreement and such designation of the currency of payment is of the essence.

4

IN WITNESS WHEREOF, the Guarantor has caused its duly authorized representatives to execute this Guaranty as of the date first written above.

By: 

Name:
Title:

By: 

Name:
Title:

ACKNOWLEDGMENT AND AGREEMENT:
does hereby acknowledge and consent to the provisions of the foregoing Guaranty for itself and the other Beneficiaries.
	for itself and the other Beneficiaries
By:
	not in its individual capacity but solely as [                       ]
	By:
	Name:
	Title:

FORM OF GUARANTY – Non-JET-i Entities

GUARANTY (the “Guaranty”) dated as of _________, 2007 of Babcock & Brown International Pty Ltd., an Australian corporation (the “Guarantor”) in favor of Babcock & Brown Air Funding I Limited (the “Company”), the other purchasers under the Asset Purchase Agreement referred to below, Deutsche Bank Americas Trust Company. as trustee (in such capacity, the “Trustee”) pursuant to the “Indenture” as such term is defined in the Asset Purchase Agreement referred to below and as the Security Trustee and the Operating Bank under the Security Trust Agreement (as defined in the Indenture) (the Company, such other purchasers, the Trustee, the Security Trustee and the Operating Bank being, collectively, the “Beneficiaries”).

Reference is made to that certain Asset Purchase Agreement, dated as of [                       ], 2007 (the “Asset Purchase Agreement”), among JET-i Leasing LLC, certain entities listed on Schedule 1 thereto, as “Sellers” (together with JET-i Leasing LLC, the “Selling Entities”), the Company and certain other purchasers listed on Schedule I thereto (together with the Company the “Purchasers”). All capitalized terms used but not otherwise defined herein shall have the respective meanings assigned to such terms in the Asset Purchase Agreement.

To induce the Purchasers to acquire the Aircraft and the other Assets under the Asset Purchase Agreement and to pay the purchase price therefore and otherwise to perform their respective obligations thereunder and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Guarantor is willing to execute and deliver this Guaranty to the Beneficiaries and accordingly the Guarantor does hereby agree as follows:

1. Guaranty.

f. From and after the date hereof, the Guarantor hereby irrevocably and unconditionally guarantees to the applicable Beneficiaries the payment and performance in full when due of each of the obligations of, and the accuracy of each of the representations and warranties of each of Duntington Limited, Halvana Limited and Snodell Limited (collectively, the “Guaranteed Entities”) under (i) the Asset Purchase Agreement and (ii) each Assignment of Equity Interest, Bill of Sale, Lease Novation and/or Assignment of Lease executed and delivered by such Guaranteed Entity pursuant to the Asset Purchase Agreement (such obligations being the “Guaranteed Obligations”, and such documents being collectively the “Operative Documents”). This Guaranty is a guaranty of payment and not collection.

g. The Guarantor hereby agrees that its obligations hereunder shall be absolute and unconditional, not subject to any reduction, limitation, impairment, termination, defense, offset, counterclaim or recoupment whatsoever (all of which, subject to the proviso to this sentence set froth below, are hereby expressly waived by the Guarantor) whether by reason of any claim of any character whatsoever, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, or by reason of any liability at any time to the Guarantor or otherwise, whether based

7

upon any obligations or any other agreement or otherwise, and howsoever arising, whether out of action or inaction or otherwise and whether resulting from default willful misconduct, negligence or otherwise, irrespective of: (i) the validity, regularity or enforceability of any Operative Document or any other agreement or instrument referred to herein or therein; (ii) any change to any Operative Document or amendment to any Operative Document; (iii) the absence of or delay in any action or notice to enforce any Operative Document or this Guaranty; (iv) any waiver or consent by any Beneficiary with respect to any provision of the Operative Documents; (v) any modification or non-perfection of any lien on or security interest in any collateral granted pursuant to any Operative Document; (vi) the recovery of any judgment against any of the Selling Entities or any action to enforce the same; (vii) any offset, counterclaim or recoupment which might become available to the Guarantor relating to a Selling Entity; (viii) any insolvency, bankruptcy, reorganization or dissolution or any proceeding of the Selling Entities or the Guarantor, including, without limitation, rejection of the Guaranteed Obligations in such bankruptcy; (ix) any other circumstances which may otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, (x) any difference between the law selected as the governing law of the Operative Documents and the law selected as the governing law of this Guaranty; (xi) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Guaranteed Entity in respect of the Guaranteed Obligations or the Guarantor in respect hereof; or (xii) the absence of any action on the part of the Trustee to obtain payment of the Guaranteed Obligations in such bankruptcy; provided that, notwithstanding the foregoing, the Guarantor may assert as a defense to any claim by any Beneficiary for payment performance hereunder (a “Beneficiary Claim”) any defense, claim, set off or deduction which a Guaranteed Entity could have asserted in respect of such Beneficiary Claim other than such defense, claim, set off or deduction available to such Guaranteed Entity only under a bankruptcy, reorganization, insolvency, readjustment of debt, suspension of payments, dissolution, liquidation or other similar law in proceedings against such Guaranteed Entity under any such law. The Guarantor covenants that this Guaranty will not be discharged except by complete and final performance of the Guaranteed Obligations.

h. The Guarantor shall be subrogated to all rights of the Beneficiaries in respect of any amounts paid by the Guarantor pursuant to the provisions of this Guaranty; provided, that the Guarantor shall be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation only after all of the Guaranteed Obligations and any other obligations that the Guaranteed Entities owe to the Beneficiaries that the Guaranties have been finally paid in full.

i. Notwithstanding the above, if any amount shall be paid to the Guarantor at any time when any Guaranteed Obligation shall not have been finally paid in full, such amount shall be held by the Guarantor in trust for the Company or the relevant Beneficiary, segregated from other funds of the Guarantor and turned over to the Company or the relevant Beneficiary (duly endorsed by the Guarantor, if required), to be applied against such Guaranteed Obligation, whether matured or unmatured, in accordance with this Guaranty or any other relevant Operative Document.

8

j. The Guarantor hereby waives any requirement that                                             or any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject to any Operative Document or exhaust any right or take any action against any person or any collateral (including any rights relating to the marshaling of assets).

k. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by any Beneficiary upon the insolvency, bankruptcy or reorganization of any Selling Entity or otherwise, all as though such payment had not been made.

2. Assignment of Rights and Claims. The Company agrees that, if Guarantor shall make any payment or render any performance under this Guaranty on account of any breach of any representation or warranty and if, by reason of the act, omission, event, occurrence, non-occurrence or condition that renders the representation or warranty untrue or inaccurate, a Purchaser Entity or any Affiliate thereof holds or may assert rights or claims against one or more third parties (other than a Selling Entity), such as a claim for breach of a representation or warranty made by a third party to a Purchasing Entity or its predecessor in interest, the Company shall cause the Purchasing Entity or the Affiliate, as the case may be, to assign to the Guarantor such rights and claims (and, if necessary to effectively convey such rights and claims, the agreement giving rise to such rights or claims) and shall cause the Purchasing Entity or the Affiliate, as the case may be, to reasonably cooperate with Guarantor in Guarantor’s prosecution of such rights or claims.

3. Miscellaneous.

l. Notices. All notices to the Guarantor under this Guaranty and copies of all notices to the Guaranteed Entities under the Operative Documents shall, until Guarantor furnishes written notice to the contrary, be in writing and mailed, faxed or delivered to the Guarantor as follows:

m. Governing Law. This Guaranty shall be construed and enforced in accordance with, and governed by, the laws of the State of New York, United States of America.

n. Interpretation. The headings of the sections and other subdivisions of this Guaranty are inserted for convenience only and shall not be deemed to constitute a part hereof.

o. Attorney’s Cost. The Guarantor agrees to pay all reasonable attorney’s fees and disbursements and all other reasonable and actual costs and expenses, which may be incurred by the Beneficiaries in the enforcement of this Guaranty.

p. Currency of Payment. Any payment to be made by the Guarantor shall be made in the same currency as designated for payment in the Asset Purchase Agreement and such designation of the currency of payment is of the essence.

9

IN WITNESS WHEREOF, the Guarantor has caused its duly authorized representatives to execute this Guaranty as of the date first written above.

By: 

Name:

Title:

By: 

Name:

Title:

ACKNOWLEDGMENT AND AGREEMENT:

does hereby acknowledge and consent to the

provisions of the foregoing Guaranty for itself

and the other Beneficiaries.

	for itself and the other Beneficiaries
By:
	not in its individual capacity but solely as [     ]

By:

Name:

Title:

EXHIBIT E-1

CONDITIONS PRECEDENT – AIRCRAFT DELIVERY (BI AIRCRAFT)

With respect to the Delivery of each BI Aircraft to the Purchaser on the relevant Delivery Date:

(a) the relevant Operative Documents for such Aircraft, as the case may be, have been entered into by the parties thereto;

(b) the Purchaser shall have received payment in full of any Security Deposit and the relevant amount of Basic and Additional Rent with respect to such Aircraft;

(c) receipt of the following documents by such Purchaser:

(i) a copy of the constitutional documents of such Seller and any other Affiliate of such Seller which is a party to any Operative Document in respect of such Aircraft, certified as of such Delivery Date to be a true, complete and up-to-date copy of the constitutional documents of such Seller or Affiliate, or if a certified copy of such documents has previously been delivered to such Purchaser hereunder, a certificate dated such Delivery Date confirming no changes to such documents; and

(ii) a copy of resolutions of the Board of Directors (or duly authorized committee thereof) of such Seller or an Affiliate of Seller:

(A) approving the transactions contemplated by the Operative Documents to which such Seller is a party; and

(B) authorizing a Person or Persons to sign and deliver on behalf of such Seller or, as the case may be, authorizing the execution by the relevant Person of the Operative Documents to which it is a party and any notices or other documents to be given pursuant hereto or thereto,

certified as of such Delivery Date to be a true copy of such resolutions and as being in full force in effect and not amended or rescinded or, if a certified copy of such resolutions has previously been delivered to such Purchaser hereunder, a certificate dated such Delivery Date confirming no changes to such resolutions;

(d) no Event of Loss shall have occurred or unrepaired Material Damage shall be in existence with respect to such Aircraft; and

2

(e) delivery of the following documents:

(i) copies of all notices, consents or acknowledgements of such Seller or the applicable Lessee as are required under the terms of the Operative Documents;

(ii) the documents or satisfaction of the conditions listed in Schedule 3 relevant to such Aircraft;

(iii) a copy of the currently valid Certificate of Registration for such Aircraft, issued by the appropriate Air Authority; and

(iv) if applicable, a copy of the Assignment of Warranties with respect to such Aircraft executed by each of the parties thereto (provided that such Assignment of Warranties may be delivered as soon as reasonably practicable after the relevant BI Transfer Date).

3

EXHIBIT E-2

CONDITIONS PRECEDENT – AIRCRAFT DELIVERY (INDEPENDENT AIRCRAFT)

With respect to the Delivery of each Independent Aircraft to the Purchaser or a Subsidiary of the Purchaser:

(a) the relevant Operative Documents for such Aircraft, as the case may be, have been entered into by the parties thereto (other than the Purchaser or any Affiliate thereof);

(b) the Purchaser shall have received payment in full of any Security Deposit and the relevant amount of Basic and Additional Rent with respect to such Aircraft;

(c) the relevant Purchaser shall have received a certification dated such Delivery Date from such Seller to the effect that (i) the representations and warranties of such Seller set forth herein are true and correct as of such Delivery Date and (ii) the Seller has full legal title to such Aircraft, free from Encumbrances other than Permitted Encumbrances;

(d) unless and to the extent the Purchaser shall otherwise agree, or a Rating Agency Confirmation and the prior written consent of the Policy Provider shall have been obtained with respect thereto, all the conditions precedent to the effectiveness of the Assignment of Lease or Lease Novation, as applicable, for such Aircraft shall have been satisfied and the Purchaser shall have received a certification from such Seller to such effect;

(e) receipt of the following documents by such Purchaser:

(i) a copy of the constitutional documents of such Seller and any other Affiliate of such Seller which is a party to any Operative Document in respect of such Aircraft, certified as of such Delivery Date to be a true, complete and up-to-date copy of the constitutional documents of such Seller or Affiliate, or if a certified copy of such documents has previously been delivered to such Purchaser hereunder, a certificate dated such Delivery Date confirming no changes to such documents; and

(ii) a copy of resolutions of the Board of Directors (or duly authorized committee thereof) of such Seller or an Affiliate of Seller:

(A) approving the transactions contemplated by this Agreement and the other Operative Documents to which such Seller is a party; and

(B) authorizing a Person or Persons to sign and deliver on behalf of such Seller or, as the case may be, authorizing the execution by the relevant Person of this Agreement and the other Operative

Documents to which it is a party and any notices or other documents to be given pursuant hereto or thereto,

certified as of such Delivery Date to be a true copy of such resolutions and as being in full force in effect and not amended or rescinded or, if a certified copy of such resolutions has previously been delivered to such Purchaser hereunder, a certificate dated such Delivery Date confirming no changes to such resolutions;

(f) no Event of Loss shall have occurred or unrepaired Material Damage shall be in existence with respect to such Aircraft;

(g) delivery of the following documents:

(i) a certificate of solvency dated as of such Delivery Date in the Agreed Form relating to such Seller issued by a director or authorized officer thereof and a certificate of solvency dated as of such Delivery Date in the Agreed Form relating to the Seller issued by a director or authorized officer of such Seller;

(ii) a favorable opinion of counsel to such Seller, dated as of the AP Closing Date, reasonably acceptable to the Purchaser in the Agreed Form, that the sale of such Aircraft constitutes, or will constitute, a “true-sale” and a valid transfer of title to such Aircraft and that after the Delivery of such Aircraft such Seller retains, or will retain, no interest in such Aircraft and as to such other matters as such Purchaser may reasonably request with regard to the subject matter contemplated herein and a letter from counsel to such Seller, dated as of such Delivery Date, confirming such opinion;

(iii) copies of all notices, consents or acknowledgements of such Seller or the applicable Lessee as are required under the terms of the Operative Documents;

(iv) the documents or satisfaction of the conditions listed in Schedule 3 relevant to such Aircraft;

(vi) a copy of the currently valid Certificate of Registration for such Aircraft, issued by the appropriate Air Authority; and

(vi) if applicable, a copy of the Assignment of Warranties with respect to such Aircraft executed by each of the parties thereto (other than the Purchaser or any Affiliate of such Purchaser) (provided that such Assignment of Warranties may be delivered as soon as reasonably practicable after the relevant Delivery Date);

(h) originals, or certified copies, of certificates evidencing the insurance required to be maintained pursuant to the relevant Assigned Lease or the Novated Lease, as appropriate, for such Aircraft together, if applicable, with a letter or report from

an independent firm of insurance brokers in a form reasonably acceptable to the Purchaser; and

(i) the report of such Purchaser’s insurance advisor in substantially the Agreed Form.

EXHIBIT F

FORM OF SERVICING AGREEMENT

EXHIBIT G

FORM OF ADMINISTRATIVE AGENCY AGREEMENT

ANNEX A

Relevant Aircraft and Lease Information

1. Aircraft Serial No. (S/N)

2. Aircraft Type (Manufacturer, Model and Series)

3. Date of Manufacture

4. Engine manufacturer, model and series

5. Lessee

6. Country of Incorporation of Lessee

7. Sub- Lessee

8. Lease Start Date

9. Lease End Date

10. Rental Fixed/Floating

11. Monthly Rental (if fixed)

12. Floating Rental

13. Floating Rental Reset Period

14. Date Current Lease Will Reset

15. Contractual Rent Payment Due

16. Supplemental Rent Payable (Yes/No)

17. Lessor required to make contribution towards maintenance charges from maintenance reserves (Yes/No)

18. Lessee/ Lessor required to make adjustment payments on redelivery based on Maintenance conditions (Lessee/Lessor/ Limited obligations)

19. Currency of Payment

20. Either Letter of Credit or Security Deposit

21. Early Termination Option (including First Exercise Date/Last Exercise Date/Termination fees) (Yes/No)

22. Extension Option (including original expiry date/extension option period/ extension option rent)

23. Purchase Option (including Purchase Option Amount and Purchase Option Termination Date)

24. Base Rent

25. Adjustment Factor

26. LIBOR (for floating rate leases; i.e., six-month Libor)

27. Assumed Interest Rate

28. Escalation Factors

29. Rental credit/debit (for MSN 1595)

30. Aircraft specifications with maintenance conditions

31. Lease Revenue Schedule for the Initial Leases attached hereto as Appendix I

Appendix I

[CS Aircraft Lease Revenue Schedule]

EX-10.3

Exhibit 10.3

SERVICING AGREEMENT

among

BABCOCK & BROWN AIRCRAFT MANAGEMENT LLC,

BABCOCK & BROWN AIRCRAFT MANAGEMENT (EUROPE) LIMITED,

BABCOCK & BROWN AIR FUNDING I LIMITED

and

AMBAC ASSURANCE CORPORATION

TABLE OF CONTENTS

			Page
ARTICLE I	Definitions		1
Section 1.01.		Definitions	1
Section 1.02.		Construction and Usage	1
ARTICLE II	Appointment; Services		1
Section 2.01.		Appointment	1
Section 2.02.		Aircraft Asset Services	4
Section 2.04.		Compliance with Applicable Laws	6
Section 2.05.		Limitations	6
ARTICLE III	Standard of Care; Conflicts of Interest; Standard of Liability		8
Section 3.01.		Standard of Care	8
Section 3.02.		Conflicts of Interest	8
Section 3.03.		Standard of Liability; Servicer Indemnification	10
Section 3.04.		Waiver of Implied Standard	11
ARTICLE IV	Representations and Warranties		12
Section 4.01.		Aircraft Assets	12
Section 4.02.		Aircraft Assets Related Documents	12
Section 4.03.		Accounts and Cash Flow	13
Section 4.04		Organization and Standing	13
Section 4.05.		Authority	13
Section 4.06.		No Conflicts	14
Section 4.07.		Compliance with Applicable Laws	14
Section 4.08.		Litigation; Decrees	14
Section 4.09.		Appointments	15
Section 4.10.		Authority	15
Section 4.11.		No Conflicts	16

i

TABLE OF CONTENTS

(continued)

			Page
Section 4.12.		Compliance with Applicable Laws of Ireland	16
Section 4.13		Litigation; Decrees	16
ARTICLE V	Servicer Undertakings		16
Section 5.01.		Access	16
Section 5.02.		Compliance with Law	18
Section 5.03.		Commingling	18
Section 5.04.		Restrictions on Exercise of Certain Rights	18
Section 5.05.		Coordination with NSL Group	19
Section 5.06.		Corporate Formalities	19
ARTICLE VI	Undertakings of the Company		19
Section 6.01.		Cooperation	19
Section 6.02.		No Representation with Respect to Third Parties	20
Section 6.03.		Related Document Amendments	20
Section 6.04.		Exclusivity	20
Section 6.05.		Communications	20
Section 6.06.		Ratification	20
Section 6.07.		Additional Aircraft Assets	21
Section 6.08.		Execution, Amendment, Modification or Termination of Aircraft Assets Related Documents	21
Section 6.09.		Access to the Company Group Information	22
Section 6.10.		Company Group Accounts and Cash Arrangements	22
Section 6.11.		[Reserved]	22
Section 6.12.		Further Assurances	22
Section 6.13.		Guarantees	22
Section 6.14.		Transfers of Funds	23

ii

TABLE OF CONTENTS

(continued)

			Page
ARTICLE VII	Group Responsibility		23
Section 7.01.		Group Responsibility	23
Section 7.02.		Performance with Respect to Aircraft Assets	24
Section 7.03.		Lease Operating Budget; Aircraft Asset Expenses Budget	25
Section 7.04.		Transaction Approval Requirements	26
Section 7.05.		Approved Budgets and Transaction Approval Requirements	29
ARTICLE VIII	Effectiveness		30
Section 8.01.		Effectiveness	30
ARTICLE IX	Servicing Fees; Expenses; Taxes; Priority of Servicing Fees		30
Section 9.01.		Servicing Fees	30
Section 9.02.		Monthly Base Fee	30
Section 9.03.		Rent Fees	30
Section 9.04.		Sales Fee	31
Section 9.05.		Fees in Bankruptcy	32
Section 9.06.		Expenses	32
Section 9.07.		Taxes	33
Section 9.08.		Priority of Payments to Servicer	36
ARTICLE X	Term; Right to Terminate; Resignation; Consequences of Expiration, Termination, Resignation or Removal; Certain Tax Matters; Survival		36
Section 10.01.		Term	36
Section 10.02.		Right to Terminate	37
Section 10.03.		Resignation or Removal	41
Section 10.04.		Consequences of Expiration, Termination, Resignation or Removal	42
Section 10.05.		Survival	44
ARTICLE XI	Indemnification		44

iii

TABLE OF CONTENTS

(continued)

			Page
Section 11.01.		Indemnity	44
Section 11.02.		Procedures for Defense of Claims	45
Section 11.03.		Reimbursement of Costs	46
Section 11.04.		Waiver of Certain Claims; Special Indemnity	46
Section 11.06.		Continuing Liability under Other Agreements	47
ARTICLE XII	Assignment and Delegation		47
Section 12.01.		Assignment and Delegation	47
ARTICLE XIII	Miscellaneous		48
Section 13.01.		Documentary Conventions	48
Section 13.02.		Power of Attorney	48
Section 13.03.		Reliance	48
Section 13.04.		Certain Information	49
Section 13.05.		Original Aircraft	49
Section 13.07.		Limited Recourse	49
Section 13.08.		The Company Group Members	50

iv

TABLE OF CONTENTS

Schedules		Page
Schedule 2.02(a)	Aircraft Assets Services
Schedule 2.02(a)(i)	Applicable Indenture Covenants
Schedule 2.02(a)(ii)	Form of Officer’s Certificate
Schedule 4.01	Aircraft Assets
Schedule 4.02	Aircraft Assets Related Documents
Schedule 4.03	Bank Accounts
Schedule 4.04(a)	List of Persons within the Company Group and Jurisdictions
Schedule 7.01	Responsibilities of the Company Group
Schedule 7.04	Liabilities Incurred in Ordinary Course of Business
Schedule 8.01	Conditions to Execution
Schedule 9.06(a)	Overhead Expenses
Schedule 9.06(b)	Categories of Aircraft Asset Expenses
Schedule 13.02	Management Services Power of Attorney of [Grantor]
Annexes
Annex 1	Insurance Guidelines
Annex 2	Concentration Limits
Appendices
Appendix A	Construction and Usage; Definitions
Appendix B	Form of Guarantee
Appendix C	Notices
Exhibits
Exhibit A	Monthly Report Form for the Company
Exhibit B	Quarterly Report Form for the Company

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SERVICING AGREEMENT dated as of [           ] [   ], 2007, among BABCOCK & BROWN AIRCRAFT MANAGEMENT LLC, , a Delaware limited liability company (“BBAM(US)”), BABCOCK & BROWN AIRCRAFT MANAGEMENT (EUROPE) LIMITED, a company incorporated under the laws of Ireland (“BBAM(Ireland)” and, together with BBAM(US), the “Servicer”), BABCOCK & BROWN AIR FUNDING I LIMITED, a limited liability company incorporated under the laws of Bermuda and having its principal place of business at West Pier, Dun Loaghaire, County Dublin, Ireland (the “Company”), and AMBAC ASSURANCE CORPORATION, a Wisconsin stock insurance company (the “Policy Provider”). For the consideration set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the Servicer, the Company and the Policy Provider agree as follows:

ARTICLE I

Definitions

Section 1.01.Definitions. Unless otherwise defined herein, all capitalized terms used but not defined herein have the meanings assigned to such terms in Appendix A.

Section 1.02.Construction and Usage. The conventions of construction and usage set forth in Appendix A are incorporated by reference herein.

ARTICLE II

Appointment; Services

Section 2.01.Appointment. (a) The Company appoints the Servicer as the exclusive provider of the Services (as defined in Section 2.02(a)) to (1) the Company, (2) Subsidiaries of the Company and (3) Affiliates of the Company in which the Company or any of its Subsidiaries has a direct or indirect ownership interest (collectively, the “Company Group”, and which term, for purposes of clarification, does not include Affiliates of the Company which are not direct or indirect Subsidiaries of the Company) in respect of the Aircraft Assets on the terms and subject to the conditions set forth in this Agreement. In furtherance of the foregoing, the parties hereto acknowledge and agree that, notwithstanding any other provision of this Agreement, without the consent of the Servicer, the Company shall not, and shall not permit any Person within the Company Group or any agent of any thereof, including the Administrative Agent (if not a Servicer) or the Cash Manager, to, contact directly or otherwise have any direct dealings with any Lessee or any relevant third party with respect to any Aircraft Asset (which, as provided in the definition of “Aircraft Assets”, the parties understand shall not include any Aircraft Asset (x) that shall have ceased to be an Aircraft Asset in accordance with the provisions of Sections 2.04(b) or 3.02(d), but shall include any former Aircraft Asset that shall have become an Aircraft Asset pursuant to Section 6.07 of the Servicing Agreement or (y) in respect of which the obligation of the Servicer to provide Services shall have been terminated in accordance with Article X) (such contact or other direct dealing, a “Lessee Contact”) to the extent that such Lessee Contact constitutes, or involves taking any action that constitutes, the provision or performance of any Services (to such extent, a “Restricted Lessee Contact”). Notwithstanding the foregoing, in the event that the Company or any other member of the Company Group or, in the case of clause (iv) or (v) below only, Babcock & Brown Air Limited, reasonably believes that it shall be necessary or, in the case of clause (iv) or (v) below only, desirable, for there to be a Restricted Lessee Contact under circumstances in which one of the following clauses is applicable:

(i) during the period (x) commencing on the occurrence of an Event of Default under Section 4.01 of the Indenture in respect of the payment of interest on any Note (as defined in the Indenture) due to an insufficiency of funds in the Collection Account on the relevant date, which Event of Default (1) shall have occurred on a date on which no amount is

available for drawing under any Eligible Credit Facility (as defined in the Indenture) in respect thereof and (2) shall have continued unremedied for 60 days after the date of the occurrence of such Event of Default and (y) ending after such date upon the remedying of such Event of Default;

(ii) following the occurrence and during the continuance of an Event of Default (other than one referred to in clause (i) of this Section 2.01(a)) under the Indenture and, other than in respect of an Event of Default under Sections 4.01(e) or 4.01(f) of the Indenture, the issuance of a Default Notice (pursuant to which the Outstanding Principal Balance of the Notes and all accrued and unpaid interest thereon shall become due and payable) in accordance with the terms of the Indenture, and provided that at the time of such Event of Default at least 15% of the number of Aircraft Assets shall not be subject to Leases and each such Aircraft Asset shall have been off-lease and reasonably available for re-lease (which, for purposes of clarification, shall mean that such Aircraft Asset shall be in the possession or under the unfettered control of the Servicer, together with the related Aircraft Documents, shall be free of any legal prohibition on the re-leasing thereof, shall be free of Liens which would economically restrict such re-leasing (other than Liens, if any, created pursuant to the “Related Documents” as defined in the Indenture or created by or at the instruction of the Servicer) and shall be in a condition which should be reasonably acceptable to a potential lessee) during the three-month period ending on the date of such Event of Default;

(iii) in respect of any claim for indemnification made by the Servicer under this Agreement in respect of a Loss incurred by the Servicer related to a Lessee;

(iv) to discharge the Company’s, or Babcock & Brown Air Limited’s, or any of their officer’s or director’s as the case may be, obligations under Applicable Law (including under United States’ securities laws and under United States and European “know your customer” laws) including any requirement to obtain information, to file any report with any governmental authority, to fulfill their fiduciary duties or other obligations under Applicable Laws or to respond to any court order or to prosecute or defend any suit;

(v) to respond to requests from the Company’s or Babcock & Brown Air Limited’s , as the case may be, auditors reasonably related to the filing of any tax return or the conduct of any audit of the Company or Babcock & Brown Air Limited and/or their Subsidiaries;

(vi) to enable the Company to discharge its obligations under Article VII;

(vii) to enable the Cash Manager to monitor the Servicer’s performance under this Agreement in accordance with the express terms of the Cash Management Agreement;

(viii) to enable the Company to perform its express obligations under the Indenture and Security Trust Agreement including, without limitation, the Company’s obligations under Sections 5.02 and 5.03 of the Indenture and Sections 2.06 and 3.01 of the Security Trust Agreement; or

(ix) the Servicer’s material failure to perform a Service which involves a Lessee and necessitates a Lessee Contact, which material failure continues unremedied for 30 days after the Servicer’s receipt of written notice of such material failure from the Company (a copy of which shall be provided by the Company to the Policy Provider) or the Policy Provider (a copy of which shall be provided by the Servicer to the Company) and which if left unremedied would have a Material Adverse Effect on the Company Group taken as a whole;

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then the Company or another Person within the Company Group, or in the case of clause (iv) or (v) above, Babcock & Brown Air Limited, shall deliver a written notice to the Servicer setting forth in reasonable detail the reasons for such Restricted Lessee Contact (including which of the foregoing clauses (i) through (ix) is applicable thereto) and the specifics of such Restricted Lessee Contact. In the case of clauses (i) and (ii) and (iv) through (viii) above, after receipt of such notice, the Servicer shall promptly notify the Company whether the Servicer will itself make such Restricted Lessee Contact, or whether a Person within the Company Group or agent of any thereof, including the Administrative Agent or the Cash Manager, should make such Restricted Lessee Contact. In the case of clauses (iii) and (ix) above, after delivering such notice to the Servicer, any Person within the Company Group shall be permitted to make such Restricted Lessee Contact directly itself or through any agent, including the Administrative Agent or the Cash Manager. In making any Restricted Lessee Contact, the Company shall not, and shall not permit any Person within the Company Group or any agent of any thereof, including the Administrative Agent or the Cash Manager, to interfere with the Servicer’s performance of any Services. For purposes of clarification, the parties agree that the Company or any agent thereof, including the Administrative Agent or the Cash Manager, may contact a Lessee for the purpose of purchasing from such Lessee Aircraft that are not Aircraft Assets hereunder, and such contact shall not be considered a Restricted Lessee Contact, so long as in no event shall the Company or any agent thereof, including the Administrative Agent or the Cash Manager, interfere with the Servicer’s performance of any Services.

(b) The Servicer hereby accepts its appointment pursuant to the first sentence of Section 2.01(a) and agrees to perform the Services on the terms and subject to the conditions set forth in this Agreement.

Section 2.02.Aircraft Asset Services. (a) The Services to be provided by the Servicer in respect of the Aircraft Assets are as set forth in Schedule 2.02(a) (the “Services”), the provisions of which Schedule 2.02(a) are hereby incorporated herein by reference.

(b) The Company has advised the Servicer that each Person within the Company Group has appointed the Company to act as its representative with respect to any matter in respect of which the Company or any other Person within the Company Group is required or permitted to take any action pursuant to the terms of this Agreement. Accordingly, in connection with the performance of the Services, the Servicer shall in all cases be entitled to rely on the instructions (or other actions) of the Company as representative of each Person within the Company Group. The Servicer shall not be liable to any Person within the Company Group or any other Person for any act taken or omission to act in accordance with such instructions (or other actions), except to the extent otherwise provided in Section 3.03 and Article XI. The Servicer shall in all cases be entitled to rely upon the instructions (or other actions) of the Company and upon notices, reports or other communications (whether written or oral) made by any Lessee or any other Person (other than any Affiliate of the Servicer) in or concerning any Aircraft Assets, Aircraft Assets Related Document or any document in connection therewith and shall not be responsible for the accuracy or completeness of any such notices, reports or other communications.

(c) The Company has advised the Servicer that it has appointed the Administrative Agent and the Cash Manager, on a revocable basis, to, among other things, act on its behalf in connection with any actions required or permitted to be taken by the Company on its own behalf or on behalf of any other Person within the Company Group (including as provided in Section 2.02(b)) pursuant to the terms of this Agreement. Accordingly, in connection with the performance of the Services, unless earlier notified in writing by the Company that the Administrative Agent’s or Cash Manager’s appointment to act on behalf of the Company has been revoked or terminated, or by the Security Trustee that all of the Company Group’s rights hereunder shall be exercisable by the Security Trustee as provided in Section 12.01, the Servicer shall in all cases be entitled to rely on the instructions (or other actions) of the Administrative Agent and of the Cash Manager. The Servicer hereby acknowledges and consents to the appointment of Babcock & Brown Air Management Co Limited as the initial Administrative Agent and to

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Deutsche Bank Trust Company Americas as initial Cash Manager. The appointment of the Administrative Agent and of the Cash Manager to act on behalf of the Company shall in no way limit or otherwise derogate from the Servicer’s right to rely on the instructions (or other actions) of the Company as set forth in Section 2.02(b). Without limiting the foregoing, until such time as the Servicer has been notified in writing by the Company acting through its Board of Directors that the Administrative Agent’s or the Cash Manager’s, as the case may be, appointment has been revoked or terminated, or by the Security Trustee that all of the Company Group’s rights hereunder shall be exercisable by the Security Trustee as provided in Section 12.01, in all circumstances requiring the direction, consent or approval of, or the delivery of any notices or other communications to, the Company hereunder, the Servicer shall only be required to seek the direction, consent or approval of, or deliver any such notices or other communications to, the Administrative Agent or the Cash Manager, as the case may be, unless otherwise notified by the Board of Directors of the Company. The Servicer shall not be liable to any Person within the Company Group or any other Person for any act taken or omission to act in accordance with the instructions (or other actions) of the Administrative Agent or the Cash Manager, as the case may be, except to the extent otherwise provided in Section 3.03 and Article XI. The Company agrees with the Servicer that the Administrative Agency Agreement and the Cash Management Agreement shall not be amended by the parties thereto in any manner that may, directly or indirectly, affect the Servicer’s rights, obligations or liabilities (or potential liabilities) under this Agreement or with respect to the Administrative Agency Agreement or the Cash Management Agreement or otherwise without the Servicer’s prior written consent.

(d) Except as otherwise provided in Sections 2.04(b), 3.02(c), 3.02(d) and 10.04, the Company agrees not to (and not to permit any other Person within the Company Group to) appoint any third party service provider (whether an Affiliate or otherwise) with respect to any Aircraft Asset without the prior written consent of the Servicer; provided that the Servicer’s prior written consent is not required with respect to the appointment by any Person within the Company Group of any legal, accounting, insurance, valuation or other similar service providers to perform services not included within the Services.

(e) The Servicer shall in all cases be entitled to rely on the instructions (or other actions) of any Person that the Servicer reasonably believes to be authorized to act on behalf of the Company (or any other Person within the Company Group) or, unless otherwise notified in writing by the Board of Directors of the Company, the Administrative Agent or the Cash Manager and shall not be liable to any Person within the Company Group for any act taken or omission to act in accordance with such instructions (or other actions), except to the extent otherwise provided in Section 3.03 and Article XI.

(f) Notwithstanding anything contained in this Agreement to the contrary, the Servicer shall not be required to perform any Service (or any other service) with respect to any Aircraft Asset unless and until a true and complete copy of all Aircraft Assets Related Documents has been delivered to the Servicer or other written notice thereof has been provided to the Servicer. Without limiting the foregoing, the Servicer acknowledges that, in connection with its provision of services with respect to the Original Aircraft, it is in possession of various Aircraft Assets Related Documents that were received by the Servicer prior to the date hereof.

(g) The Company agrees not to (and not to permit any other Person within the Company Group to) enter into any agency, finders’ or brokerage agreements (whether with an Affiliate or otherwise) relating to the procurement of lessees or purchasers for the Aircraft Assets (or agreements similar thereto) without the prior written consent of the Servicer.

Section 2.03. [Reserved]

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Section 2.04.Compliance with Applicable Laws . (a) Notwithstanding anything to the contrary in this Agreement, the Servicer shall not be obligated to take or refrain from taking any action at any time that the Servicer believes, in good faith, is reasonably likely to (i) violate any Applicable Law with respect to the Servicer or its Affiliates or (ii) lead to an investigation by any Governmental Authority, directly or indirectly, of or relating to the Servicer, any of its Affiliates or the Services.

(b) If pursuant to paragraph (a) above, the Servicer shall have determined not to take any action with respect to any transaction or potential transaction (whether or not any such transaction or a similar transaction has previously been entered into) relating to any Aircraft Asset and as a consequence thereof any Person within the Company Group shall be denied the opportunity to participate in any transaction or potential transaction in which it would otherwise be able to participate in accordance with Applicable Law, then, notwithstanding the provisions of Section 2.01, the Servicer, on behalf of any such Person within the Company Group and at the Servicer’s expense, may enter into, or engage an Independent Representative to arrange on behalf of such Person within the Company Group, such transaction or potential transaction with respect to such Aircraft Asset; provided that such Person within the Company Group may not enter into any such transaction or potential transaction if at or about the same time a substantially similar transaction (with at least as favorable or the same economic terms) could be arranged by the Servicer with respect to such Aircraft Asset in a manner that is not reasonably likely to lead to an investigation by any Governmental Authority, directly or indirectly, of or relating to the Servicer, any of its Affiliates or the Services.

(c) Notwithstanding anything to the contrary set forth in paragraph (b) above, no Person within the Company Group shall be entitled to enter into, or engage any other Person to arrange on its behalf, any transaction or potential transaction with respect to any Aircraft Asset if the Servicer shall have made a determination regarding that transaction or potential transaction pursuant to paragraph (a) above because it reasonably believed that a party to such transaction or potential transaction is an OFAC Designated Person or that such transaction or potential transaction was reasonably likely to violate the United States Foreign Corrupt Practices Act (or any similar or successor statute), any of the Anti-Terrorism laws or any similar or successor statutes or orders applicable to entities organized under the laws of the United States (or any state or political subdivision thereof) or applicable to any Person within the Company Group or otherwise applicable to such transaction or potential transaction.

Section 2.05.Limitations. (a) Notwithstanding any other provision of this Agreement which could be construed to the contrary, neither the Servicer nor any of its Affiliates shall assume any Indebtedness of any Person within the Company Group or of Babcock & Brown Air Limited or any of its other Affiliates (whether consisting of the Notes, under the Indenture or otherwise) nor shall any provision of this Agreement or any other Operative Agreement be construed so as to imply that the parties intended any such assumption.

(b) In addition to Section 2.04, the Servicer shall not, and shall not be obligated to, act in a manner inconsistent with the rights, obligations or undertakings of the “Lessor” under any Lease, the “seller” under a sale contract or any other Person party to any other contract for the benefit of any Person in the Company Group or otherwise in any manner that is illegal or prohibited by Applicable Law or any applicable contract.

(c) Notwithstanding any other provision of this Agreement, the Servicer shall not be obligated either initially or on a continuing basis to provide any Person within the Company Group or any of its Representatives or Babcock & Brown Air Limited or any of its other Affiliates any confidential or proprietary information regarding the Servicer’s or any of its Affiliates’ business or the business or finances of any Person, other than information regarding any Person within the Company Group, whose assets it manages from time to time.

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(d) The Servicer shall not be liable or accountable for (i) the failure by a Lessee, any buyer or any other Person to perform any of its obligations under any Lease, sale contract or any other contract including the payment of amounts payable under any Lease or any other contract or (ii) the accuracy or completeness of any notices, reports or other communications (whether written or oral) made by any Lessee, any buyer or any Person other than the Servicer in or concerning any Lease or any other contract or any document in connection therewith and shall be entitled to rely upon all such notices, reports and communications except to the extent that the Servicer has actual notice of any matter to the contrary or to the extent that such notice, report or communication contains a manifest error.

(e) The Servicer may rely on any Adviser, Broker, law firm or other professional adviser appointed by the Servicer or the Company and shall not be liable for any claim by any Person within the Company Group or any other Person to the extent that it was acting in good faith upon the advice of such Adviser, Broker, law firm or other professional adviser.

(f) The relationship between the Servicer and the Company is an independent agency relationship, however, except in relation to any money erroneously received by the Servicer or any of its Affiliates into any of the Servicer’s or any of its Affiliates’ bank accounts on behalf of any Person within the Company Group, which the Servicer will hold in trust for such Person and deposit into the Collection Account as soon as reasonably practicable, neither the Servicer nor any of its Representatives shall be under any fiduciary duty or other implied obligation or duty to any Person within the Company Group or to Babcock & Brown Air Limited or any Affiliate of any such Person or any holder of any equity or debt security issued by or lender to any Person within the Company Group or by Babcock & Brown Air Limited or any of its Affiliates, or to any Lessee, the Administrative Agent, Cash Manager, the Policy Provider, or any other Person arising out of this Agreement; it being agreed that the rights and obligations of the parties hereto shall only be those expressly provided for in this Agreement.

(g) Without prejudice to the Standard of Care, the Servicer shall not be imputed with the knowledge of any of its employees other than its managers, directors, officers and those employees involved in the performance of the Services relevant to such knowledge responsible for the day-to-day administration of this Agreement. The Servicer shall be deemed to have actual notice of any matter only upon the receipt of written notice describing any such matter in reasonable detail or to the extent that one of the foregoing Persons has actual knowledge of any such matter or which one of such Persons ought to have known if the Servicer had acted in accordance with the Standard of Care.

(h) The Servicer shall not be obligated to assume, or engage in activities which could reasonably be expected to subject the Servicer to, any liability as a related company or shadow director of any Person within the Company Group or under any similar legal concept. The Company and each other party hereto understands, acknowledges and agrees that the intent of the parties hereunder is that the Servicer will not be subject to any obligations or liabilities whatsoever other than as and to the extent that any obligations or liabilities arise pursuant to the express terms of this Agreement.

ARTICLE III

Standard of Care; Conflicts of Interest; Standard of Liability

Section 3.01.Standard of Care. Subject to the provisions of this Agreement and the Indenture, the Servicer shall use reasonable care and diligence at all times in the performance of the Services consistent with (i) the customary commercial practice of major international aircraft lessors in the management, servicing and marketing of commercial jet aircraft and related assets and (ii) no less reasonable care and diligence as the Servicer would use in providing the Services with respect to other aircraft that are owned or managed by the Servicer (the “Standard of Care”).

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Section 3.02.Conflicts of Interest. (a) The Company, Policy Provider and each other party hereto acknowledges and agrees that (i) in addition to managing the Aircraft Assets under this Agreement, the Servicer may manage, and shall be entitled to manage, from time to time the separate assets and businesses of (r) the U.S. and oversees investors or vehicles for which they manage aircraft as of the date hereof , (s) Babcock & Brown Air Limited and its Affiliates, (t) the Servicer and its Affiliates, and (u) other third parties (the assets of the parties described in clauses (r), (s), (t) and (u) are collectively hereinafter referred to as the “Other Assets”); (ii) in the course of conducting such activities, the Servicer may from time to time have conflicts of interest in performing its duties on behalf of the various entities to whom it provides management services and with respect to the various assets in respect of which it provides management services; and (iii) Policy Provider, Babcock & Brown Air Limited and the board of directors of the Company have approved the transactions contemplated by this Agreement and the other Operative Agreements and desire that such transactions be consummated and in giving such approval Policy Provider, Babcock & Brown Air Limited and the board of directors of the Company have expressly recognized that such conflicts of interest may arise and that when such conflicts of interest arise the Servicer shall perform the Services hereunder in accordance with the Standard of Care and, to the extent applicable, the Conflicts Standard.

(b) If conflicts of interest arise regarding the management of any Aircraft Asset, on the one hand, and any Other Asset, on the other hand, the Servicer shall perform the Services in good faith and, without prejudice to the generality of the foregoing, to the extent such Aircraft Asset and such Other Asset are substantially similar in terms of objectively identifiable characteristics relevant for purposes of the particular Services to be performed, the Servicer shall not discriminate between such Aircraft Asset and such Other Asset, respectively, on an unreasonable basis (the standard set forth in this Section 3.02(b) shall be referred to collectively as the “Conflicts Standard”). The Servicer shall provide notice to the Company and the Policy Provider of any actual material conflict of interest known to it regarding the management of any Aircraft, on the one hand, and any Other Asset, on the other hand.

(c) Notwithstanding any provision herein to the contrary, if, in connection with the provision of Services with respect to an Aircraft Asset or Lease, a conflict of interest shall exist that, in the good faith opinion of the Servicer, requires an arm’s-length negotiation between the Servicer or an Affiliate of the Servicer, on the one hand, and any Person within the Company Group, on the other hand, and the Servicer believes it would not be appropriate for the Servicer to act on behalf of such Person within the Company Group in connection with such negotiation (whether or not the Servicer shall propose to act on behalf of itself or one of its Affiliates in connection with such negotiation), then the Servicer shall withdraw from acting as Servicer with respect to such Aircraft Asset or Lease in connection with the negotiation of the issue giving rise to such conflict of interest. The Servicer shall provide written notice to the Company not more than ten Business Days after it has made a determination that an arm’s-length negotiation is necessary with respect to such conflict of interest and it would not be appropriate for the Servicer to act on behalf of such Person within the Company Group in connection with such negotiation. Not more than seven Business Days after receipt of such notice from the Servicer, the Servicer shall appoint an Independent Representative to act on behalf of such Person within the Company Group to which such Aircraft Asset or Lease and conflict of interest relates. “Independent Representative” shall mean any Person that engages in the business of an operating lessor or the manger or servicer of a portfolio of at least 75 commercial jet aircraft. Any such Independent Representative so appointed shall act on behalf of the relevant Person within the Company Group for purposes of such negotiation relating to such Aircraft Asset or Lease and the Servicer shall have no responsibility or liability to any Person within the Company Group with respect to such negotiation relating to such Aircraft Asset or Lease. In any event, if an Independent Representative is acting on behalf on any Person within the Company Group, the Servicer shall be entitled to act on behalf of itself or its Affiliate with respect to such negotiation. During the period of such Independent Representative’s appointment, the Servicer shall continue to perform its ordinary functions as Servicer with respect to such Aircraft Asset or Lease to the extent that the performance of the Servicer does not directly or indirectly affect the negotiation of the issue giving

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rise to such conflict of interest. To the extent, if any, the Servicer cannot continue to perform any Services with respect to such Aircraft Asset or Lease during such negotiation, such Services shall be performed by the Independent Representative or any other designee of such Person within the Company Group. Except as provided in Section 3.02(d) below, any such Aircraft Asset or any Aircraft Assets subject to any such Lease shall continue to be included as an Aircraft Asset for purposes of calculating the Servicing Fees pursuant to Article IX during the appointment of an Independent Representative and the fees, if any, of any such Independent Representative shall be paid by the Servicer.

(d) If (i) the Servicer reasonably determines that directions given by any Person to the Servicer in accordance with this Agreement or Services required to be performed under this Agreement (other than any Service involving an arm’s-length negotiation between the Servicer or an Affiliate of the Servicer, on the one hand, and any Person within the Company Group, on the other hand) would, in either case, if carried out, place the Servicer in a conflict of interest with respect to which, in the Servicer’s good faith opinion, the Servicer cannot continue to perform its obligations hereunder within the requirements set forth in Section 3.02 with respect to all Aircraft Assets or any affected Aircraft Assets, as the case may be, or (ii) there is a conflict of interest of the type described in Section 3.02(c) above which results in the Independent Representative being required to perform substantially all of the Services described in Sections 1 through 3 of Schedule 2.02(a) of this Agreement on a long-term basis in respect of an affected Aircraft Asset, the Servicer shall give the Company (and the Company shall thereupon give the Policy Provider) prompt written notice thereof and thereafter the Servicer may resign as Servicer with respect to the affected Aircraft Assets or Aircraft Asset, or the Company or the Policy Provider may elect to remove the Servicer with regard to the affected Aircraft Assets or Aircraft Asset, as provided in Article X, with the result that each affected Aircraft Asset shall cease to be an Aircraft Asset hereunder.

Section 3.03.Standard of Liability; Servicer Indemnification.

(a) Notwithstanding any other provision of this Agreement which could be construed to the contrary, the Servicer shall not be liable or accountable to any Person including, without limitation, the Company or any Subsidiary or Affiliate of the Company (other than the Company to the extent set forth in the next following sentence), Policy Provider or Babcock & Brown Air Limited or any Affiliate thereof or any other Person, under any circumstances for any Losses directly or indirectly arising out of, in connection with or related to, the management by the Servicer of Aircraft Assets or Other Assets. The Servicer shall not be liable or accountable to the Company or any other Person in the Company Group, Babcock & Brown Air Limited or any Affiliate thereof, Policy Provider or any other Person under any circumstances for, and the Company shall indemnify the Servicer on an After-Tax Basis in accordance with the provisions of Article XI for, any Losses, directly or indirectly, arising out of, in connection with or related to, the management by the Servicer of Aircraft Assets or Other Assets, unless such Losses are finally adjudicated to have resulted directly from (x) the Servicer’s or its director’s, officer’s or employee’s (or any Servicer Delegate’s) fraud, deceit, gross negligence or willful misconduct in respect of its obligation to apply the Standard of Care or the Conflicts Standard in respect of its performance of the Services or (y) any representation or warranty by the Servicer to such Person set forth in Sections 4.10 or 4.11 having proven to be false on the date hereof (the liability standards set forth in this Section 3.03, the “Standard of Liability”). For the avoidance of doubt, but without limiting the provisions of Section 9.07, the provisions of this Section 3.03 shall not give rise to any obligation on the part of the Servicer to indemnify the Company for any Taxes. Subject only to the Standard of Liability, the Servicer shall not be directly or indirectly liable or accountable to the Company or any Person in the Company Group or Babcock & Brown Air Limited or any of its other Affiliates or the Policy Provider under any circumstances for any Losses directly or indirectly arising out of, in connection with or related to, (i) the direct or indirect transfer of any Aircraft Assets or Leases related thereto or any other assets to any Person within or outside the Company Group, (ii) the adequacy of the terms of any Lease or other contract relating to any Aircraft Assets, (iii) the reliability or creditworthiness of any Lessee or other party to a contract with respect to its obligations under any Lease or any other contract relating to the Aircraft

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Assets, (iv) the adequacy of the lease payments derived from the Leases related to any Aircraft Assets to support various obligations of the Persons within the Company Group or of Babcock & Brown Air Limited, (v) the adequacy of any utilization, supplemental or additional rents or other payments or security deposits relating to the Aircraft Assets, (vi) the terms and conditions of the Notes or other securities or instruments being offered and sold by the Company or any of its Affiliates as of the Closing Date (or thereafter) or pursuant to any Offering, (vii) the ability of the Company or any other Person to comply with the terms and conditions of such Notes or such securities or other instruments and (viii) the structuring and implementation of any aspect of the various transactions contemplated by any Offering, including the Final Prospectus.

(b) The Servicer shall indemnify the Company on an After-Tax Basis for, any Losses of the Company, directly or indirectly, arising out of, in connection with or related to the Servicer’s or its director’s, officer’s or employee’s (or any Servicer Delegate’s) finally adjudicated fraud, deceit, gross negligence or willful misconduct in respect of its obligation to apply the Standard of Care or the Conflicts Standard in respect of its performance of the Services or any representation or warranty by the Servicer to such Person set forth in Sections 4.10 or 4.11 having proven to be false on the date hereof. The parties agree that under no circumstances shall the foregoing provisions provide for or permit any duplicative payment to or recovery by the Company.

Section 3.04.Waiver of Implied Standard. Except as expressly stated above in this Article III, ALL OTHER WARRANTIES, CONDITIONS AND REPRESENTATIONS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, ARISING UNDER U.S. FEDERAL, DELAWARE, IRISH, AUSTRALIAN, BERMUDAN OR OTHER LAW IN RELATION TO THE SKILL, CARE, DILIGENCE OR OTHERWISE IN RESPECT OF ANY SERVICE TO BE PERFORMED HEREUNDER OR TO THE QUALITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR MERCHANTABILITY OF ANY GOODS ARE HEREBY EXCLUDED AND WAIVED BY THE COMPANY AND EACH OTHER PERSON IN THE COMPANY GROUP, THE POLICY PROVIDER, BABCOCK & BROWN AIR LIMITED, THE ADMINISTRATIVE AGENT, THE CASH MANAGER AND THE SERVICER SHALL NOT BE LIABLE TO THE COMPANY OR ANY OTHER PERSON WITHIN THE COMPANY GROUP, THE POLICY PROVIDER, BABCOCK & BROWN AIR LIMITED, THE ADMINISTRATIVE AGENT, THE CASH MANAGER OR ANY OTHER PERSON IN CONTRACT, TORT OR OTHERWISE UNDER U.S. FEDERAL, DELAWARE, IRISH, AUSTRALIAN, BERMUDAN OR OTHER LAW FOR ANY LOSS, DAMAGE, EXPENSE OR INJURY OF ANY KIND WHATSOEVER, CONSEQUENTIAL OR OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH EITHER THE SERVICES TO BE SUPPLIED PURSUANT TO THIS AGREEMENT OR ANY GOODS TO BE PROVIDED OR SOLD IN CONJUNCTION WITH SUCH SERVICES OR ANY DEFECT IN EITHER SUCH GOODS OR FROM ANY OTHER CAUSE. Nothing in this Article III should be taken as in any way limiting or excluding any liability which the Servicer may have to the Company under Section 2 of the Irish Liability for Defective Products Act, 1991.

THE CONTRACTUAL RIGHTS, IF ANY, WHICH THE COMPANY GROUP ENJOYS BY VIRTUE OF SECTIONS 12, 13, 14 AND 15 OF THE SALE OF GOODS ACT, 1893 (AS AMENDED) AND SECTION 39 OF THE SALE OF GOODS AND SUPPLY OF SERVICES ACT, 1980 ARE IN NO WAY PREJUDICED BY ANYTHING CONTAINED IN THIS AGREEMENT SAVE TO THE EXTENT PERMITTED BY LAW.

ARTICLE IV

Representations and Warranties

The Company represents and warrants to, and agrees with, the Servicer as follows:

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Section 4.01.Aircraft Assets. Schedule 4.01 contains a true and complete list of all Aircraft Assets constituting Aircraft Assets as of the Closing Date and each Person within the Company Group, if any, that owns such Aircraft Assets as of the Closing Date. Except as otherwise set forth therein, on the Delivery of each Aircraft Asset listed in Schedule 4.01, each Person within the Company Group listed as an owner of an Aircraft Asset on such Schedule will have such title to such Aircraft Asset as was conveyed to such Person on its Delivery, free and clear of all Liens created by or through such Person.

Section 4.02.Aircraft Assets Related Documents. (a) The Servicer shall not be required to perform any service provided for in or in connection with any Aircraft Assets Related Documents not in its possession (all such Aircraft Assets Related Documents listed in Schedule 4.02 being in its possession) or delivered to it.

(b) Each Aircraft Assets Related Document is a legal, valid and binding agreement of the Person within the Company Group that is a party thereto (including by way of assignment or novation) and is enforceable against such Person within the Company Group that is a party thereto in accordance with its terms. No Person within the Company Group has modified, amended or waived any provision of or terminated any Aircraft Assets Related Document referred to in Schedule 4.02 except as disclosed therein.

Section 4.03.Accounts and Cash Flow. Schedule 4.03 sets forth a true and complete list of all bank or other similar accounts and any other accounts relating to the Aircraft Assets, including wire transfer instructions, with respect to which any Person within the Company Group, the Security Trustee, the Administrative Agent, the Cash Manager or any other agent of any of the foregoing has authority, and Article III of the Indenture as in effect as of the date of this Agreement sets forth in reasonable detail a written description of all material arrangements and procedures relating to the flow of cash related to the Aircraft Assets.

Section 4.04.Organization and Standing.

(a) The Company is a limited liability company duly created under the laws of Bermuda, and each other Person within the Company Group is a corporation duly incorporated, a trust duly created or a limited liability company duly formed and validly existing and, if relevant, in good standing under the laws of the jurisdiction in which it is legally incorporated, created or formed, respectively, and possesses all franchises, licenses, permits, authorizations and approvals necessary to enable it to use its corporate or trust name and to own, lease or otherwise hold its properties and assets and to carry on its business as presently conducted and as proposed to be conducted except for such franchises, licenses, permits, authorizations and approvals the failure of which to obtain could not, individually or in the aggregate, have a Material Adverse Effect on the Persons within the Company Group, taken as a whole, or on the Servicer. Each of the Company and each other Person within the Company Group is in compliance in all material respects with all terms and conditions of such franchises, licenses, permits, authorizations and approvals. Schedule 4.04(a) sets forth a true and complete list of each Person within the Company Group and the jurisdiction in which each such Person within the Company Group is legally organized.

(b) Each of the Company and each other Person within the Company Group is duly qualified to do business as a foreign corporation in each jurisdiction in which the nature of its business or the ownership, leasing or holding of its properties or assets requires qualification except for such jurisdictions where the failure to be so qualified could not, individually or in the aggregate, have a Material Adverse Effect on the Persons within the Company Group, taken as a whole, or on the Servicer.

Section 4.05.Authority. (a)  Each of the Company and each other Person within the Company Group which is a party to an Operative Agreement has all requisite power and authority to execute each

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Operative Agreement to which it is or will be a party and to consummate the transactions and to perform its obligations contemplated thereby. All corporate acts and other proceedings required to be taken by each Person within the Company Group to authorize the execution, delivery and performance of each Operative Agreement to which it is or will be a party and the consummation of the transactions and the performance of its obligations contemplated thereby have been or on or before the date of entering into the relevant Operative Agreements will have been duly and properly taken.

(b) Each of the Operative Agreements to which any Person within the Company Group is or will be a party has been or will be duly and validly executed and delivered by such Person, as applicable, and each such Operative Agreement is or upon such execution and delivery will be a legal, valid and binding obligation of such Person, as applicable, enforceable against it in accordance with its terms.

Section 4.06.No Conflicts. Neither the execution and delivery of any Operative Agreement to which any Person within the Company Group is a party nor the consummation of the transactions contemplated thereby nor performance by any Person within the Company Group of any of its obligations thereunder will (i) violate any provision of the constituent documents of any such Person within the Company Group, (ii) violate any order, writ, injunction, judgment or decree applicable to any Person within the Company Group or any of their respective properties or assets, (iii) violate in any material respect any Applicable Law or (iv) result in any conflict with, breach of or default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, warrant or other similar instrument or any license, permit, material agreement or other material obligation to which any Person within the Company Group is a party or by which any Person within the Company Group or any of their respective properties or assets may be bound. No action, consent or approval by, or filing with, any Governmental Authority or any other regulatory or self regulatory body, or any other Person, is required in connection with the execution, delivery or performance by any Person within the Company Group of the Operative Agreements to which it is a party or the consummation by any Person within the Company Group of the transactions contemplated thereby.

Section 4.07.Compliance with Applicable Laws. Each of the Company and each other Person within the Company Group is in compliance in all material respects with all Applicable Laws and any filing requirements relating thereto.

Section 4.08.Litigation; Decrees. (a) Other than in the case of subclause (i) as may exist with respect to the Original Aircraft on the Closing Date, or other Aircraft Assets which in good faith are believed by the Company to be fully covered by insurance, there are no claims, actions, suits, arbitrations or other proceedings or investigations (i) pending or, to the best knowledge of each of the Company and each other Person within the Company Group, threatened, by or against or affecting the Company or any other Person within the Company Group, which in any case involves a potential loss exceeding $1,000,000 and (ii) pending, or to the best knowledge of each of the Company and each other Person within the Company Group, threatened, by or against or affecting the Company or any other Person within the Company Group, related to the transactions contemplated by the Operative Agreements.

(b) Each of the Company and each other Person within the Company Group is in compliance in all material respects with each outstanding judgment, order or decree (other than as may exist with respect to the Aircraft Assets) of any Governmental Authority or arbitrator applicable to the Company or any other Person within the Company Group, as the case may be, and no such judgment, order or decree has or could have a Material Adverse Effect on the Company or any other Person within the Company Group, or on the Servicer.

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Section 4.09.Appointments. (a) Each Person within the Company Group has appointed the Company, and the Company has accepted such appointment, to act as representative of each such Person with respect to any matter in respect of which the Company or any other Person within the Company Group is required or permitted to take any action pursuant to the terms of this Agreement.

(b) The Company has appointed the Administrative Agent to act on its behalf and on behalf of each Person within the Company Group pursuant to the terms of the Administrative Agency Agreement, and, in addition to any action directed by the Board of Directors of the Company, the Company has appointed the Administrative Agent, on a revocable basis, to act on its behalf in connection with any action required or permitted to be taken by the Company on its own behalf or on behalf of any other Person within the Company Group pursuant to the terms of this Agreement.

Each of BBAM(US) and BBAM(Ireland) represents and warrants to the Company as follows:

Section 4.10.Authority. (a) Such Servicer is, in the case of BBAM(US) a Delaware limited liability company, and, in the case of BBAM(Ireland), a company duly created under the laws of Ireland, and, to the extent applicable in such jurisdiction, in good standing under the laws of its jurisdiction of organization, and possesses all franchises, licenses, permits, authorizations and approvals necessary under the laws of its jurisdiction of organization to enable it to use its corporate name and to own, lease or otherwise hold its properties and assets and to carry on its business as presently conducted and as proposed to be conducted except for such franchises, licenses, permits, authorizations and approvals the failure of which to obtain could not, individually or in the aggregate, have a Material Adverse Effect on the Persons within the Company Group, taken as a whole, or on such Servicer. Such Servicer has all requisite power and authority to execute each Operative Agreement to which it is or will be a party and to consummate the transactions and to perform its obligations contemplated thereby. All corporate acts and other proceedings required to be taken by such Servicer to authorize the execution, delivery and performance of each Operative Agreement to which it is or will be a party and the consummation of the transactions and the performance of its obligations contemplated thereby have been or on or before the date of entering into the relevant Operative Agreements will have been duly and properly taken.

(b) Each of the Operative Agreements to which such Servicer is or will be a party has been or will be duly and validly executed and delivered by such Servicer, as applicable, and each such Operative Agreement is or upon such execution and delivery will be a legal, valid and binding obligation of such Servicer, enforceable against it in accordance with its terms.

Section 4.11.No Conflicts. Neither the execution and delivery of any Operative Agreement to which such Servicer is a party nor the consummation of the transactions contemplated thereby nor performance by such Servicer of any of its obligations thereunder will (i) violate any provision of the constituent documents of such Servicer, (ii) violate any order, writ, injunction, judgment or decree applicable to such Servicer or any of its properties or assets, (iii) violate in any material respect any Applicable Law or (iv) result in any conflict with, breach of or default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, warrant or other similar instrument or any license, permit, material agreement or other material obligation to which the Servicer is a party or by which such Servicer or any of its properties or assets may be bound. No action, consent or approval by, or filing with, any Governmental Authority or any other regulatory or self-regulatory body, or any other Person, is required in connection with the execution, delivery or performance by such Servicer of the Operative Agreements to which it is a party or the consummation by the Servicer of the transactions contemplated thereby.

Section 4.12.Compliance with Applicable Laws of Its Jurisdiction of Organization . Such Servicer is in compliance in all material respects with all Applicable Laws of its jurisdiction of

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organization and any filing requirements in such jurisdiction relating thereto necessary to perform its obligations under this Agreement.

Section 4.13.Litigation; Decrees. (a) There are no claims, actions, suits, arbitrations or other proceedings or investigations pending, or to the best knowledge of such Servicer, threatened, by or against or affecting such Servicer related to the transactions contemplated by this Agreement.

(b) Such Servicer is in compliance in all material respects with each judgment, order or decree (other than may exist with respect to the Aircraft Assets) of any Governmental Authority or arbitrator applicable to such Servicer, and no such judgment, order or decree has or could reasonably be expected to have a Material Adverse Effect on the Company or any Person within the Company Group, or on such Servicer.

ARTICLE V

Servicer Undertakings

Section 5.01.Access.

(a) The Servicer at such times as the Company may reasonably request shall grant, and shall cause any Servicer Delegate to grant, to the Persons within the Company Group and their agents (including the Administrative Agent and auditors), to the extent party to confidentiality agreements acceptable to the Servicer, access to the documents and other records generated by the Servicer (and in its possession) as part of its performance of the Services (exclusive of internal correspondence, approval materials, internal evaluations and similar documents or other records developed by the Servicer or any of its Affiliates for their own use) or by a Lessee and delivered to the Servicer, and related to the Aircraft Assets (copies of which the Company shall (at its expense) be entitled to take), to enable the Persons within the Company Group and Babcock & Brown Air Limited to monitor the performance by the Servicer under this Agreement or to otherwise discharge their respective obligations under Applicable Law (including applicable securities laws). Upon reasonable prior written notice and at reasonable times (in any event not more than an aggregate, with respect to the Company Group and Babcock & Brown Air Limited taken as a whole, of four (4) times per Year), the Servicer shall make one or more (such number to be determined by the Servicer in good faith but sole discretion) members of its staff available to attend (including by telephone) meetings of the board of directors of the Company. In addition, the Servicer will make one or more members of its management available to participate in additional meetings of such board of directors either, in the Servicer’s sole discretion, by participating in person or by teleconference. Any out-of-pocket expenses incurred by the Servicer in connection with any such attendance shall be reimbursed by the Company. In addition to the foregoing, the Servicer shall provide, subject to Section 13.04, to the Policy Provider the reports described in Section 9 of Schedule 2.02(a) as to be provided to the Policy Provider.

(b) The Servicer at such times as the Policy Provider may reasonably request (in any event not more than an aggregate of one (1) time per Year prior to an Event of Default, and four (4) times per Year after and during the continuance of an Event of Default) shall grant, and shall cause any Servicer Delegate to grant, to the Policy Provider and its agents to the extent party to confidentiality agreements reasonably acceptable to the Servicer, access to the documents and other records generated by the Servicer (and in its possession) as part of its performance of the Services (exclusive of internal correspondence, approval materials, internal evaluations and similar documents or other records developed by the Servicer or any of its Affiliates for their own use) or by a Lessee and delivered to the Servicer, and related to the Aircraft Assets (copies of which the Policy Provider shall (at its expense) be entitled to take), to enable the Policy Provider and its agents to monitor the performance by the Servicer under this Agreement or to otherwise discharge the Policy Provider’s obligations under Applicable Law.

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Prior to the occurrence of an Event of Default, the Policy Provider shall pay its own costs and expenses incurred pursuant to this Section 5.01(b). After the occurrence and during the continuance of an Event of Default, the Company shall promptly pay the Policy Provider’s out-of-pocket costs and expenses incurred pursuant to this Section 5.01(b) upon receipt of a written invoice therefore from the Policy Provider. In addition to the foregoing, the Servicer shall provide, subject to Section 13.04, to the Policy Provider the reports described in Section 9 of Schedule 2.02(a) as to be provided to the Policy Provider. Upon reasonable prior written notice and at reasonable times (in any event not more than an aggregate of one (1) time per Year prior to an Event of Default, and four (4) times per Year after and during the continuance of an Event of Default), the Servicer shall make one or more (such number to be determined by the Servicer in good faith but sole discretion) members of its staff (including one or more members of its senior management) available to attend (including by telephone) meetings with representatives of the Policy Provider.

(c) In addition to the rights of the Policy Provider under Section 5.01(b), the Policy Provider shall have the right to conduct an operational review and inspection by an independent third party (the “Auditor”) of the reports, documents and other records relating to the Aircraft Assets (including any Aircraft Related Documents) and to meet with members of its staff (including one or more members of its senior management) and shall have access to the documents and other records generated by the Servicer (and in its possession) as part of its performance of the Services (exclusive of internal correspondence, approval materials, internal evaluations and similar documents or other records developed by the Servicer or any of its Affiliates for their own use) or by a Lessee and delivered to the Servicer, and related to the Aircraft Assets (copies of which the Policy Provider shall be entitled to take) to enable the Policy Provider and its agents to monitor the performance by the Servicer under this Agreement. The right of the Policy Provider set forth in the immediately preceding sentence is referred to herein as a “Reimbursable Audit.” The Company shall pay the out-of-pocket costs and expenses of the Policy Provider and the Auditor incurred pursuant to this Section 5.01(c) promptly upon receipt of a written invoice therefore from the Policy Provider; provided that the amount reimbursed by the Company to the Policy Provider shall not exceed $40,000 for each Reimbursable Audit conducted on or prior to the fifth anniversary of the Closing Date and $65,000 for each Reimbursable Audit conducted thereafter. The Policy Provider shall have the right to conduct the first Reimbursable Audit no earlier than the end of the eighteen-month period commencing on the Closing Date. Thereafter, until the fifth anniversary of the Closing Date, Reimbursable Audits shall occur no more frequently than 24 months after the previous Reimbursable Audit. After the fifth anniversary of the Closing Date, Reimbursable Audits shall occur no more frequently than 12 months following the previous Reimbursable Audit. Notwithstanding the foregoing, the Policy Provider shall have the right to conduct a Reimbursable Audit (i) at any time after the occurrence and during continuance of an Event of Default under the Indenture or (ii) annually during the five-year period immediately following the Closing Date if the Outstanding Principal Balance of the Class G-1 Notes has exceeded the Minimum Target Principal Balance thereof for six consecutive Payment Dates.

Section 5.02.Compliance with Law. The Servicer shall, in connection with the performance of the Services, comply in all material respects with all laws, rules and regulations applicable to the Servicer.

Section 5.03.Commingling. The Servicer shall not commingle, with its own funds, or the funds of other Persons for which it acts as lease servicer or manager, any funds of any Person within the Company Group from time to time in its possession.

Section 5.04.Restrictions on Exercise of Certain Rights. Without limiting the Servicer’s rights under the Security Trust Agreement, the Servicer shall not take any steps for the purpose of procuring the appointment of an administrative receiver or the making of any administrative order or for instituting any bankruptcy, reorganization, arrangement, insolvency, winding up, liquidation, composition or any similar

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proceeding under the laws of any jurisdiction with respect to any Person within the Company Group or any of the Aircraft Assets.

Section 5.05.Coordination with the Company Group. The Servicer shall designate an individual who shall be an employee of the Servicer and who shall be primarily responsible for coordinating with the Company and any other Person within the Company Group regarding the Services, and the Servicer may from time to time change such designation by providing written notice to the Company of such change.

Section 5.06.Corporate Formalities. The Servicer will observe all corporate formalities necessary to remain a legal entity separate and distinct from, and independent of, each member of the Company Group and will maintain its assets, liabilities, funds, records, books and accounts separate and distinct from those of each member of the Company Group.

Section 5.07.Separateness Covenants. In connection with providing the Services hereunder, the Servicer shall; (i) pay its obligations in the ordinary course of its business as a legal entity separate from each Company Group Member; (ii) keep its funds separate and distinct from the funds of each Company Group Member; (iii) conduct its business in its own name and not in the name of any Company Group Member; (iv) not pay or agree to pay or become liable for any debt of any Company Group Member; (v) not hold itself out as a division of any Company Group Member or as any Company Group Member being a division of it; (vi) not induce any third party to rely on the creditworthiness of any Company Group Member in order that such third party will be induced into contract with the Servicer; and (vii) not enter into any agreement between the Servicer and any Company Group Member that is materially more favorable to either party than agreements the parties would have been able to enter into at such time on an arm’s-length basis with a non-affiliated third party (it being understood that the parties hereto do not intend this covenant to ratify any self-dealing transactions).

Section 5.08.Funds Held in Trust. If the Servicer receives any money that belongs to any Company Group Member, the Cash Manager or the Security Trustee or is to be paid to any Company Group Member, the Cash Manager or the Security Trustee or into any account pursuant to the Indenture or this Agreement, the Servicer shall hold such money in trust for such Company Group Member, the Cash Manager or the Security Trustee, as the case may be, and shall within five Business Days after identification of the owner of such money pay the same into the relevant account in accordance with the terms of the Indenture or this Agreement without exercising any right of set-off.

ARTICLE VI

Undertakings of the Company

Section 6.01.Cooperation. The Company shall, and shall cause each other Person within the Company Group and their respective agents (including the Administrative Agent and the Cash Manager) to, at all times cooperate with the Servicer to enable the Servicer to provide the Services, including providing the Servicer with all powers of attorney as may be reasonably necessary or appropriate for the Servicer to perform the Services.

Section 6.02.No Representation with Respect to Third Parties. The Company agrees that as between the Servicer, on the one hand, and each of the Company and the other Persons within the Company Group and Babcock & Brown Air Limited and its Affiliates, on the other hand, no representation is made as to the financial condition and affairs of any Lessee of, or purchaser of, any Aircraft Asset or any vendor or supplier utilized by or any other Person party to a contract with the Servicer or any Person within the Company Group in connection with Servicer’s performance of the Services.

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Section 6.03.Related Document Amendments. The Company shall not take, and shall not permit any other Person within the Company Group or Babcock & Brown Air Limited or any of its Affiliates to take, any action that would increase in any respect the scope, nature or level of the Services to be provided under this Agreement without the Servicer’s express prior written consent, including by entering into, amending, modifying or supplementing any Aircraft Assets Related Document (it being understood that (i) the Servicer shall have no liability to any Person directly or indirectly arising out of, in connection with or related to, the Servicer’s failure to perform such increased Service prior to any such amendment, modification or supplement being consented to in writing by the Servicer and (ii) no Person within the Company Group or Babcock & Brown Air Limited or any of its Affiliates shall be permitted to engage another Person to perform the affected Service without the prior written consent of the Servicer).

Section 6.04.Exclusivity. Except as otherwise expressly provided in Sections 2.04(b), 3.02(c) and 10.04 of this Agreement, the Company shall not, and shall not permit any other Person within the Company Group or any agent of any Person thereof (including the Administrative Agent or the Cash Manager) or Babcock & Brown Air Limited or any of its Affiliates to, enter into, or cause or permit any Person (other than the Servicer or any Person acting for or on its behalf) to enter into on its behalf, (a) any transaction for the lease or sale of any Aircraft Asset in respect of which the Servicer is at such time performing Services or (b) any agreement for the performance by any Person other than the Servicer of some or all of the Services, in the case of (a) and (b) without the prior written consent of the Servicer.

Section 6.05.Communications. The Company shall, and shall cause each other Person within the Company Group and the Administrative Agent and the Cash Manager to, forward promptly to the Servicer a copy (or, if such communication is oral and from a Lessee in respect of an Aircraft Asset or Aircraft Asset purchaser, notify the Servicer by prompt oral or written notice and, if oral notice, confirmed in writing upon request) of any written communication received from any Person (including any Person under any Aircraft Assets Related Document) in relation to any Aircraft Asset or oral communication received from a Lessee in respect of an Aircraft Asset or Aircraft Asset purchaser in relation to any Aircraft Asset.

Section 6.06.Ratification. The Company hereby ratifies and confirms and agrees to ratify and confirm (and shall cause each other Person within the Company Group to do the same) (and shall furnish written evidence thereof upon request of the Servicer) whatever the Servicer does in accordance and compliance with this Agreement in the exercise of any of the powers or authorities conferred upon the Servicer under the terms of this Agreement.

Section 6.07.Additional Aircraft Assets. If any Aircraft Asset shall become a Former Aircraft Asset pursuant to the provisions of Section 2.04 and thereafter the condition which caused such Former Aircraft Asset to cease to be an Aircraft Asset shall no longer exist or the transaction entered into as contemplated by Section 2.04(b) shall terminate, then the Company shall, and shall require each other Person within the Company Group, as appropriate, to, cause, as and to the extent commercially feasible, such Former Aircraft Asset to become an Aircraft Asset and the Servicer shall accept such Aircraft Asset as an Aircraft Asset, such action to be confirmed by an exchange of correspondence to such effect.

Section 6.08.Execution, Amendment, Modification or Termination of Aircraft Assets Related Documents. (a) In connection with the acquisition of any Aircraft (other than any Former Aircraft Asset) which becomes an Aircraft Asset other than pursuant to the Asset Purchase Agreement, no later than ten Business Days prior to such Aircraft becoming an Aircraft Asset, the Company shall deliver a written notice thereof to the Servicer setting forth the model type and manufacturer’s serial number of such Aircraft and the Person within the Company Group which will become the owner of such Aircraft upon its acquisition, together with (x) a true and complete list all documents related to such Aircraft which will become Aircraft Assets Related Documents upon the acquisition of such Aircraft and (y) a true and complete copy of each document which will become an Aircraft Assets Related Document upon the

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acquisition of such Aircraft or, to the extent it has yet to be executed, the most current draft of such document (with a final executed copy to be delivered as promptly as practicable thereafter). The Company will be deemed to represent and warrant to, and agree with, the Servicer on the date such Aircraft becomes an Aircraft Asset that (i) the Person within the Company Group listed as the owner of such Aircraft in the written notice provided by the Company will have such title to such Aircraft as was conveyed to such Person on its acquisition free and clear of all Liens created by or through such Person, (ii) each Aircraft Assets Related Document related to such Aircraft is a legal, valid and binding agreement of the Person within the Company Group that is a party thereto (including by way of assignment or novation) and is enforceable against such Person within the Company Group that is a party thereto in accordance with its terms and (iii) no Person within the Company Group has modified, amended or waived any provision of or terminated any Aircraft Assets Related Document referred to in such written notice provided by the Company except as disclosed therein. The Servicer shall not be required to perform any services provided for in or in connection with any Aircraft Assets Related Documents not delivered to it, and, to the extent that the failure to provide such service results in any Losses to the Servicer, the Company shall indemnify the Servicer for such Losses on an After-Tax Basis, in accordance with the provisions of Article XI.

(b) No later than five Business Days after the date that (i) any agreement, instrument or other document becomes an Aircraft Assets Related Document (other than as contemplated in Section 6.08(a)) or (ii) any Aircraft Assets Related Document shall have been amended, modified or terminated, the Company shall deliver written notice thereof to the Servicer together with (x) in the case of any newly executed Aircraft Assets Related Document, a true and complete copy of such Aircraft Assets Related Document, a list of all Aircraft Assets to which it relates and a description, in reasonable detail, of the relevance of such Aircraft Assets Related Document to such assets or (y) in the case of any amendment, modification or termination, a true and complete copy of any related agreement, instrument or other document; provided that such notice or such document shall not be required to be delivered, but shall be delivered if the Servicer does not have possession of such notice or document, delivery is so requested by the Servicer and the Company has possession of such notice or document, if the Servicer was substantially involved in the preparation and execution of such new, amended, modified or terminated agreement, instrument or other document.

Section 6.09.Access to the Company Group Information. At all such times as the Servicer may reasonably request, the Company shall cause each other Person within the Company Group and the Administrative Agent to grant, access to the Servicer and its agents to the books of account, documents and other records of such Person (including “read only” and reporting access to the management information systems used by such Persons), and to officers, directors (or trustees, as applicable) and employees of each Person within the Company Group, Babcock & Brown Air Limited or any such agent for the purposes of the Servicer’s performance of its obligations in respect of Aircraft Assets under this Agreement; provided that Babcock & Brown Air Limited and its Affiliates that are not Persons within the Company Group shall have no obligation to provide information that does not relate to an Aircraft Asset and is confidential or proprietary. The Company will provide the Servicer with copies of the minutes of the board of directors of the Company and any written materials presented to the board by any Person, including the Administrative Agent.

Section 6.10.The Company Group Accounts and Cash Arrangements. (a) The Company shall not, and shall not permit any other Person within the Company Group or any agent thereof to, establish any new bank or similar account relating to the Aircraft Assets or close any bank or similar account relating to the Aircraft Assets other than in accordance with the terms of the Indenture, the Security Trust Agreement or the Cash Management Agreement.

(b) No Person within the Company Group shall modify any arrangement with respect to any bank or similar account or the flow of cash in connection with the Aircraft Assets other than in

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accordance with the terms of the Indenture, the Security Trust Agreement or the Cash Management Agreement.

Section 6.11.[Reserved].

Section 6.12. Further Assurances. The Company agrees and shall cause each other Person within the Company Group and their respective agents (including the Administrative Agent and the Cash Manager) to agree, that, at any time and from time to time, upon the written request of the Servicer, it will execute and deliver such further documents and do such further acts and things, after a reasonable period for review thereof, as the Servicer may reasonably request in order to effect the purposes of this Agreement.

Section 6.13. Guarantees. The Company represents, warrants and agrees that it has full power and authority to bind each of the Persons within the Company Group to this Agreement and that each of such Persons is bound by this Agreement and will perform its obligations hereunder. In furtherance of the foregoing, but not in limitation thereof, the Company agrees that it shall cause each other Person within the Company Group with respect to which the Servicer so request to execute and deliver an accession agreement, in form or substance reasonably acceptable to the parties hereto, pursuant to which such Person becomes a party hereto or to execute and deliver a Company Group Guarantee in favor of the Servicer in the form attached hereto as Appendix B.

Section 6.14. Transfers of Funds. The Company agrees and shall cause each other Person within the Company Group and their respective agents (including the Administrative Agent and the Cash Manager), to cooperate with the Servicer to the extent necessary to cause funds to be transferred into or out of the various Bank Accounts in order for the various payments from Lessees to be applied, or to Lessees to be made, on a basis consistent with the instructions of such Lessees, subject in each case to the terms of the Leases and the rights and obligations of the lessors thereunder.

ARTICLE VII

The Company Group Responsibility

Section 7.01.The Company Group Responsibility. Notwithstanding the appointment of the Servicer to perform the Services and the related delegation of authority and responsibility to the Servicer pursuant to this Agreement, each of the Company and each other Person within the Company Group shall continue to have and exercise through its board of directors or trustees, as the case may be, as applicable, real and effective central control and management of all matters related to its ongoing business, operations, assets and liabilities, subject to matters that are expressly the responsibility of the Servicer in accordance with the terms of this Agreement, and each of the Company and each other Person within the Company Group shall at all times conduct its separate ongoing business in such a manner that the same shall at all times be readily identifiable from the separate business of the Servicer. Matters with respect to which responsibility is not being delegated to the Servicer shall include but are not limited to the matters set forth in Schedule 7.01. Without limiting the generality of the foregoing, each of the Company and each other Person within the Company Group agrees as follows:

(a) it will observe all corporate formalities necessary to remain a legal entity separate and distinct from, and independent of, the Servicer, and any of its Affiliates;

(b) it will maintain its assets and liabilities separate and distinct from those of the Servicer;

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(c) it will maintain records, books, accounts, and minutes separate from those of the Servicer;

(d) it will pay its obligations in the ordinary course of business as a legal entity separate from the Servicer;

(e) it will keep its funds separate and distinct from any funds of the Servicer, and it will receive, deposit, withdraw and disburse such funds separately from any funds of the Servicer;

(f) it will conduct its business in its own name, and not in the name of the Servicer;

(g) it will not agree to pay or become liable for any debt of the Servicer, other than to make payments in the form of indemnity as required by the express terms of this Agreement;

(h) it will not hold out that it is a division of the Servicer, or that the Servicer is a division of it;

(i) it will not induce any third party to rely on the creditworthiness of the Servicer in order that such third party will be induced to contract with it;

(j) it will not enter into any transactions between it and the Servicer that are more favorable to either party than transactions that the parties would have been able to enter into at such time on an arm’s-length basis with a non-affiliated third party, other than any agreements in effect on the date hereof (it being understood that the parties hereto do not intend by this covenant to ratify any self-dealing transactions);

(k) it will observe all corporate or other procedures required under Applicable Law and under its constitutive documents; and

(l) it will observe all corporate formalities necessary to keep its business separate and readily identifiable from, and independent of, each other Person within the Company Group, including keeping the funds, assets and liabilities of each such Person separate and distinct from those of each other Person within the Company Group and by maintaining separate records, books, accounts and minutes for each Person within the Company Group.

Section 7.02.Performance with Respect to Aircraft Assets. The Company has directed the Servicer to, and the Servicer will, perform the Services in a manner that is intended to be consistent with maximizing the cash flows derived from the leases relating to the Aircraft Assets over time, subject to the constraints imposed by the Indenture and this Agreement and by seeking to achieve a balanced and diversified portfolio (including with respect to lessees, geography and lease term lengths), in all cases taking into account the then-existing and anticipated market conditions affecting the operating lease of used aircraft and the commercial aviation industry generally. The Company understands and acknowledges the inherent uncertainty in determining market conditions at any point in time as well as the inherent limitations in anticipating market conditions from time to time. It is expressly understood that this Section 7.02 does not impose any higher or different standard of care or liability than is set forth in Article III.

Section 7.03.Lease Operating Budget; Aircraft Asset Expenses Budget. (a) The Company shall adopt with respect to each year during the term of this Agreement, in accordance with Sections 7.03(b), (c) and (d), (i) a single lease operating budget with respect to all Aircraft Assets (the “Lease Operating Budget”) and (ii) a single budget with respect to the Aircraft Asset expenses related to all Aircraft Assets (the “Aircraft Asset Expenses Budget”); provided that, with respect to the Year

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commencing January 1, 2007, the Company shall have adopted the Lease Operating Budget and the Aircraft Asset Expenses Budget for such Year that are attached to a certificate delivered by the Company to the Servicer on the Closing Date.

(b) In respect of each Year during the term of this Agreement, it is understood that the Administrative Agent shall prepare on behalf of the Company Group, and not later than the [November 30] immediately preceding the commencement of such Year deliver to the Servicer (other than with respect to the fiscal year commencing January 1, 2007), a proposed Lease Operating Budget and a proposed Aircraft Asset Expenses Budget for such Year together with reasonably detailed information regarding the assumptions underlying such proposed budgets.

(c) In connection with the preparation of such proposed Lease Operating Budget and Aircraft Asset Expenses Budget, the Servicer shall provide the Manager, not later than the September 30 immediately preceding the commencement of such Year (other than with respect to the fiscal year commencing January 1, 2007), information in a form to be agreed from time to time relating to (i) Aircraft Assets lease rates, Utilization Rent, Aircraft redelivery payments, and Deposits (including interest, if any, thereon), (ii) Aircraft Assets being off lease, (iii) direct technical expenditures (including any costs to be capitalized) relating to the Aircraft Assets, (iv) indirect costs relating to insurance, legal, consulting and other similar expenses and (v) such other Aircraft Assets expense related information as may be reasonably required to prepare such budgets, in each case including the assumptions relating thereto. The Servicer shall only be obligated to provide expense-related information to the Administrative Agent pursuant to this Section 7.03(c) to the extent that such information relates to the Services performed by the Servicer hereunder. The Company shall ensure that the Administrative Agent is instructed to prepare each such proposed Lease Operating Budget and proposed Aircraft Asset Expenses Budget on a timely basis and that the Administrative Agent cooperates therewith.

(d) After the delivery of such proposed Lease Operating Budget and Aircraft Asset Expenses Budget as described in Sections 7.03(b) and (c), the Servicer and the Administrative Agent shall review and discuss such proposed Lease Operating Budget and Aircraft Asset Expenses Budget and shall make such adjustments thereto as they shall deem appropriate, and the revised proposed Lease Operating Budget and proposed Aircraft Asset Expenses Budget in respect of any Year shall then be submitted no later than the December 15 (or, if such day is not a Business Day, the first following Business Day) preceding such Year to the Company for its consideration and approval (other than with respect to the fiscal year commencing January 1, 2007). The approved Lease Operating Budget and Aircraft Asset Expenses Budget for any Year, as each may be amended or modified from time to time, shall hereinafter be referred to as the “Approved Budget”. Each Approved Budget shall be consistent with, and not in any manner reduce, limit or circumscribe, the delegation to the Servicer pursuant to this Agreement (including pursuant to Section 7.04) of a practical and workable level of autonomy, authority and responsibility with respect to the performance of the Services.

(e) If the Company does not adopt any Approved Budget for any Year as contemplated by Section 7.03(d) or if, after an Approved Budget is adopted, the Company shall determine that any Changed Circumstances have occurred and are continuing, then the Company shall instruct the Servicer and the Administrative Agent, on behalf of the Company Group, to review and, to the extent possible, revise the Lease Operating Budget and Aircraft Asset Expenses Budget in such a manner as to adequately address the concerns of the Company and/or such Changed Circumstances (it being understood that, subject to the last sentence of Section 7.03(d), the Company may instruct the Servicer not to proceed with a Lease Operating Budget and an Aircraft Asset Expenses Budget approved by the Company if the Company determines that any proposed revisions do not adequately address the concerns of the Company and/or such Changed Circumstances).

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(f) Notwithstanding any other provision hereof, the Servicer shall have no liability for the failure of the Approved Budget for any Year to be achieved.

Section 7.04.Transaction Approval Requirements. (a) The Servicer shall not do any of the following without the express prior written approval of the Board of Directors of the Company (which approval shall not be given or made by the Company to the extent such approval would breach any covenant or agreement of the Company in the Indenture) and, in the case of clauses (vii) and (viii) of this Section 7.04(a), the Company shall have given the Servicer written copies of any required Policy Provider consent as provided in the Indenture:

(i) Except as otherwise required in accordance with the terms of any Lease or the Asset Purchase Agreement, sell (or enter into any agreement to sell) or otherwise dispose of any Aircraft (excluding any sale or exchange of any Engine, parts or components thereof or aircraft or engine spare parts or ancillary equipment or devices furnished therewith) forming part of the Aircraft Assets.

(ii) Enter into any new Lease (or any renewal or extension of an existing Lease, unless any such Lease being renewed or extended had previously been approved pursuant to this Section 7.04(a) or if any such Lease contains an extension option and such option is being exercised in accordance with the terms of such Lease) of Aircraft Assets if (A) the Lease shall not comply with all the applicable provisions of Sections 5.02 and 5.03 of the Indenture expressly applicable to the leasing of such Aircraft Assets as set forth in Section 2.1 of Schedule 2.02(a), (B) the Lease grants a purchase option in favor of the Lessee (it being agreed that a right of first refusal or right of first offer is not a purchase option for purposes hereof) or (C) the Lease permits the Lessee to assign its obligations without the consent of the Lessor.

(iii) Terminate any Lease or Leases to any single Lessee with respect to any Aircraft Assets (A) on or prior to the fifth anniversary of the Closing Date, then having an aggregate depreciated net book value on the books of the applicable Person(s) within the Company Group in excess of $100,000,000 and (B) after the fifth anniversary of the Closing Date, with respect to more than five Aircraft Assets per year, and, in either case, unless such Lease or Leases is substituted or replaced by another substantially similar Lease or Leases with respect to such Aircraft Assets or unless such termination is related to the exercise of remedies following an event of default under the applicable Lease.

(iv) Unless provided for in the then current Approved Budget (including the provisions of Section 7.03(e)), (A) enter into any contract to make any capital expenditure for the purpose of effecting any optional improvement or modification of any Aircraft Asset, including any optional conversion thereof from passenger to a freighter or mixed use aircraft, except for capital expenditures made in the ordinary course of business in connection with the sale or lease of an Aircraft Asset, or (B) enter into any contract for maintenance of any Aircraft Asset, in either event, if the costs to be incurred thereunder by the applicable Person within the Company Group exceed the greater of (1) the estimated aggregate cost of the heaviest or most extensive maintenance check for the airframe and a total refurbishment and full restoration shop visit of the engines for Aircraft Assets of the type in question (and including the replacement of life limited parts) , in each case, based on then prevailing industry rates in the United States or Europe, and (2) the amount of the available Utilization Rent or other payments or other collateral under the applicable Lease and, in the case of conversions, the amount in the applicable Conversion Account.

(v) Issue any Guarantee on behalf of, or otherwise pledge the credit of (other than with respect to trade payables in the ordinary course of the Company Group’s business), any

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Person within the Company Group, except (A) for guarantees by the Company or any other Person within the Company Group of the obligations of any other Person within the Company Group (including in connection with a Lease or the sale of an Aircraft Asset), (B) so long as the out-of-pocket cash payment or cash collateral deposit in respect thereof does not exceed $3,000,000 in any individual case (and not in excess of $20,000,000 in the aggregate at any time outstanding), any Lien or indebtedness created in favor of the issuer of a surety bond, letter of credit or similar instrument to be obtained by or for the benefit of any Person within the Company Group in connection with the detention or repossession of an Aircraft or enforcement action under a Lease or removal of a Lien and (C) with respect to instances in which the Servicer is seeking to repossess or otherwise protect an Aircraft Asset after an imminent default or an event of default under a Lease, (x) on or prior to the fifth anniversary of the Closing Date, in a notional amount or face value of bond or guaranty in excess of the Assumed Base Value (as defined in the Indenture) of such Aircraft Asset and, (y) thereafter, in a notional amount or face value of bond or guaranty in excess of the most recent appraised value of such Aircraft Asset as provided in Section 5.03(i) of the Indenture.

(vi) Except as specifically contemplated by Schedule 2.02(a), on behalf of any Person within the Company Group, enter into, amend or grant a waiver with respect to, any transaction with the Servicer or any of its Affiliates, including for the acquisition, sale or lease of any Aircraft Assets from or to, or the obtaining or provision of services by, any such Person (except for the acquisition, sale, exchange or lease of or services in respect of any Engine, parts or components thereof or aircraft or engine spare parts, components or ancillary equipment or devices furnished therewith).

(vii) Incur on behalf of any Person within the Company Group any liability (actual or contingent) or cause any such liability to be incurred, except for a liability (A) contemplated in the then current Approved Budget, (B) arising out of, in connection with or related to a transaction of a type which is otherwise subject to approval under this Section 7.04 and is, in fact, so approved or, due to the existence of an exception, limitation or other carve out contained therein or in any definition therein, is not subject to approval under the relevant provision of this Section 7.04, (C) incurred in the ordinary course of the Company Group’s business, including, but not limited to, liabilities related to such matters specified in Schedule 7.04, (D) incurred pursuant to a Lease or sale of an Aircraft Asset, in entering into the Lease or sale contract or performing any obligations as lessor or seller thereunder or (E) with respect to instances in which the Servicer is seeking to repossess or otherwise protect an Aircraft Asset after an imminent default or an event of default under a Lease, (x) on or prior to the fifth anniversary of the Closing Date, liabilities with maximum exposure (by way of notional amount, face value or otherwise) not to exceed the Assumed Base Value of such Aircraft Asset and, (y) thereafter, liabilities with a maximum exposure (by way of notional amount, face value or otherwise) not to exceed the most recent appraised value of such Aircraft Asset as provided in Section 5.03(i) of the Indenture; provided that the exception contained in clause (C) above is not intended to override any other restriction contained in this Agreement (other than this clause (vii)) relating to the incurrence of any liability referred to in such clause (C); and provided, further, that liabilities incurred pursuant to this clause (vii) (other than subclause (E) which shall not be subject to the following caps) after the fifth anniversary of the Closing Date shall not, without Company approval, exceed $1,000,000 per Aircraft Asset per year or $20,000,000 in the aggregate for all Aircraft Assets after the fifth anniversary of the Closing Date.

(viii) Enter into on behalf of the Company or any Person within the Company Group, any order or commitment to acquire, or acquire on behalf of the Company Group, (A) aircraft or (B) except as otherwise provided in Section 4(e) of Schedule 2.02(a), so long as no individual (and not aggregate) net (after credit for any exchanges, replacements or similar items)

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out-of-pocket cash expenditures exceeds $3,000,000, aircraft engines, except, in the case of aircraft engines (X) in accordance with any Lease or for the benefit of a Lessee pursuant to a Lease or (Y) to acquire a replacement engine for an Aircraft so long as the same is provided for in the then current Approved Budget; provided that no orders or commitment for engines shall, without Company approval, require net out-of-pocket cash expenditures in excess of $20,000,000 in the aggregate for all Aircraft Assets after the fifth anniversary of the Closing Date.

(b) Any transaction entered into by the Servicer on behalf of any Person within the Company Group (other than with other Persons within the Company Group), including with the Servicer or any of its Affiliates, shall be on an arm’s-length basis and on fair market value terms, unless otherwise agreed by the Board of Directors of the Company on behalf of any such Person within the Company Group and, in the case of transactions with the Servicer or any of its Affiliates, the Policy Provider.

(c) The transaction approval requirements (the “Transaction Approval Requirements”) set forth in this Section 7.04 may only be amended by mutual agreement of the parties, and shall not in any event be amended to reduce, or circumscribe the delegation to the Servicer of, the level of autonomy, authority and responsibility contemplated by the Transaction Approval Requirements with respect to the performance of the Services. Any rejection by the Company of any proposed transaction submitted to it by the Servicer pursuant to the Transaction Approval Requirements shall only be applicable to such portions of any such proposed transaction as are specifically required to be approved as set forth in Section 7.04(a).

(d) The Company shall provide the Servicer with a response confirming its approval or rejection of any proposed transaction submitted to it by the Servicer as promptly as practicable following its receipt of a proposal from the Servicer and in any event not more than [five] Business Days after receipt of such a proposal. In the event that the board of directors of the Company, a duly authorized committee thereof or the Administrative Agent fails to approve of any transaction with respect to which an approval is required pursuant to the Transaction Approval Requirements and in respect of which the Servicer has submitted a reasonably detailed written proposal, the Company shall provide a reasonably detailed written explanation for any such rejection to the Servicer simultaneously with notifying the Servicer of such rejection. The Servicer is not required to take any action with respect to any transaction for which approval was sought pending receipt of such explanation.

Section 7.05.Approved Budgets and Transaction Approval Requirements. Except as set forth in Section 7.04(a), no transaction entered into by the Servicer on behalf of any Person within the Company Group in connection with the performance by the Servicer of the Services shall require the approval of any Person within the Company Group or its board of directors or trustees, as applicable, or any committees thereof, or the Administrative Agent or the Cash Manager; provided that nothing set forth in this Article VII shall prohibit the Servicer from seeking any approval or direction from the Company with respect to any matter related to the Services or the Aircraft Assets to the extent that the Servicer believes to be appropriate and, pending the Servicer’s receipt of any such approval or direction, the Servicer may refrain from taking any action with respect to the matter for which the Servicer has sought approval or direction.

ARTICLE VIII

Effectiveness

Section 8.01.Effectiveness. The effectiveness of this Agreement and all obligations of the parties hereunder shall be conditioned upon satisfaction (or waiver by the appropriate party) of the conditions set forth in Schedule 8.01.

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ARTICLE IX

Servicing Fees; Expenses; Taxes;

Priority of Servicing Fees

Section 9.01.Servicing Fees. (a) In consideration of the Servicer’s performance of the Services, the Company agrees to pay to the Servicer servicing fees consisting of (i) the monthly base fee set forth in Section 9.02 (“Monthly Base Fee”), (ii) the rent fees set forth in Section 9.03 (“Rent Fees”), and (iii) the sales fee set forth in Section 9.04 (“Sales Fee”).

(b) The Company agrees to provide the Servicer (with a copy to the Administrative Agent) with any information in a timely manner that the Servicer may reasonably request to enable the Servicer to determine the timing and amount of any payment that the Servicer is entitled to receive pursuant to this Agreement.

Section 9.02.Monthly Base Fee. A Monthly Base Fee equal to $150,000 shall be payable by the Company to the Servicer in arrears on each Payment Date during the Term of this Agreement; provided that in the event that any Aircraft (other than any Former Aircraft Asset) shall become an Aircraft Asset after the Closing Date other than pursuant to the Asset Purchase Agreement, then the Monthly Base Fee will be increased by an additional amount equal to 0.01% of the Base Value of such additional Aircraft Asset on the date it becomes an Aircraft Asset to reflect the addition of such Aircraft.

Section 9.03.Rent Fees. (a) Rent Fees shall consist of the Rent Payable Fee and the Rent Collected Fee. The Rent Fees shall be calculated by the Servicer and payable by the Company as follows:

(i) A Rent Payable Fee shall be payable by the Company to the Servicer in arrears for each period commencing on the Closing Date (or, thereafter, the fourth Business Day prior to the most recent Calculation Date) and ending on the fourth Business Day prior to the next succeeding Calculation Date during the term of this Agreement (each such period, a “Fee Period”), such payment to be made no later than the Payment Date immediately following the end of each such Fee Period.

The “Rent Payable Fee” in respect of any Fee Period shall equal one percent (1.00%) of the aggregate amount of the Rents due from each Lessee attributable to such Fee Period, or portion of such Fee Period in which the relevant Aircraft constitutes an Aircraft Asset; provided that, in the event of an early termination of a Lease relating to any Aircraft Asset for any reason (other than by reason of the occurrence of an event of loss or exercise of a purchase option), the Rents which would have been payable pursuant to such Lease but for such early termination will be included in this calculation of the Rent Payable Fee until the earlier of (a) the date on which Rents shall become payable in respect of such Aircraft Asset pursuant to another Lease (the Rents of which shall be included in this calculation of the Rent Payable Fee) and (b) the day that numerically corresponds to the first date by which such Aircraft Asset and related Aircraft Documents shall have been physically repossessed by the Servicer following such early termination in (or, if no such day exists, the last day of) the calendar month that is the third month after the month in which such date occurs.

(ii) A Rent Collected Fee shall be payable by the Company to the Servicer in arrears for each Fee Period, such payment to be made no later than the Payment Date immediately following the end of each such Fee Period.

The “Rent Collected Fee” in respect of any Fee Period shall equal one percent (1.00%) of the aggregate amount of the Rents actually paid by each Lessee and, if any Lessee fails to pay any

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Rent when due, amounts applied towards such payment during such Fee Period or portion of such Fee Period in which the relevant Aircraft constitutes an Aircraft Asset; provided that if any collateral security, including any security deposit, is applied to the payment of Rent, then, for purposes of calculating the Rent Collected Fee, the amounts so applied shall not be included as Rent at the time of such application but shall be so included at such time as any Person within the Company Group shall receive substitute collateral security or a payment (whether in the form of Rent or otherwise) which restores, in whole or in part, such collateral security.

(b) Not less than four Business Days prior to each Payment Date immediately following the end of each Fee Period, the Servicer shall deliver a written notice to the Company specifying the amount of the Rent Payable Fee and the amount of the Rent Collected Fee payable in respect of such Fee Period.

Section 9.04.Sales Fee. (a) A Sales Fee shall be payable with respect to each Fee Period by the Company to the Servicer, such payment to be made not later than the Payment Date immediately following the end of each such Fee Period.

(b) The “Sales Fee” in respect of any Fee Period shall equal one and one-half percent (1.50%) of the Aggregate Gross Proceeds in respect of Dispositions of Aircraft Assets during such Fee Period. “Aggregate Gross Proceeds” for any Fee Period means the sum of the Gross Proceeds for each Disposition of an Aircraft Asset that is an Aircraft Asset during such Fee Period. “Disposition” means, with respect to any Aircraft Asset, the sale (including pursuant to the exercise of a purchase option), total loss or other event or circumstances under which such Aircraft Asset ceases to be an Aircraft Asset. “Gross Proceeds” shall be an amount equal to the gross proceeds (including the fair market value of any non-cash consideration, but excluding any cash added to the purchase price of the applicable Aircraft Asset in respect of any Utilization Rent or Deposit) received by any Person within the Company Group in respect of any Disposition of an Aircraft Asset.

(c) Not less than four Business Days prior to each Payment Date immediately following the end of each Fee Period, the Servicer shall deliver a written notice to the Company specifying the amount of the Sales Fee payable in respect of such Fee Period.

Section 9.05.Fees in Bankruptcy. In the event that this Agreement is not terminated due to an event described in Section 10.02(a)(i)(D) or (E), the fees payable to the Servicer after the occurrence and during the continuance of such an event shall be 115% of the fees otherwise payable under Sections 9.02, 9.03 and 9.04 above.

Section 9.06.Expenses. (a) The Servicer shall be responsible for, and shall not be entitled to reimbursement for, the Servicer’s overhead expenses set forth in Schedule 9.06(a) (“Overhead Expenses”).

(b) (i) The Company shall be responsible for all costs and expenses relating to or associated with the Aircraft Assets other than Overhead Expenses, including those costs and expenses set forth in Schedule 9.06(b) (“Aircraft Asset Expenses”). Nothing contained in this Section 9.06 shall be deemed to impose on the Servicer any obligation to advance any of its own funds for any Aircraft Asset Expenses.

(ii) If, in connection with the performance of Services, and without limiting the Company Group’s liability to pay for any goods and services as and when invoiced by the Servicer that are not required to be so paid in advance by the Servicer, the Servicer, on behalf of any Person within the Company Group, proposes to provide goods and services, or arrange for the provision of goods or services, from any vendor, supplier, service provider or other Person (A) for a purchase price in excess of

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U.S. $1,000,000 (or the equivalent thereof in the currency in which such obligation is payable) or (B) at any time when a default in respect of the payment of any amount due under this Agreement shall have occurred and be continuing, the Servicer may require the Company to pay for such goods or services in advance or otherwise make the funds for payment of such goods or services available to the satisfaction of the Servicer. If such advance payment is not made or such funds are not otherwise made available, notwithstanding any other provision in this Agreement, the Servicer shall be relieved of its obligation to provide or arrange for the provision of such goods or services in respect of the Aircraft Assets for which such goods or services were to be provided but shall otherwise continue to manage such Aircraft Assets as provided in this Agreement and shall continue to be entitled to receive the fees specified in Sections 9.01, 9.02, 9.03 and 9.04 in respect of such Aircraft Assets. In such case, the Company may provide or arrange for the provision of such goods or services in respect of such Aircraft Assets.

Section 9.07.Taxes. (a) The Company agrees to pay and to indemnify and hold harmless the Indemnified Parties on an After-Tax Basis from and against (i) all liability for Taxes of or imposed on the Taxpayers that are imposed on, or asserted to be payable by, any Indemnified Party as a result of the structuring and implementation of any aspect of the various transactions contemplated by the Final Prospectus, regardless of whether such Taxes are attributable to a taxable period ending before, on or after the Closing Date, other than (A) any such Taxes imposed on or payable by a Taxpayer in its capacity as a withholding agent in respect of amounts payable pursuant to this Agreement to an Indemnified Party (B) and any Taxes imposed on or payable by a Taxpayor that, prior to the Closing Date, was an Affiliate of the Servicer to the extent attributable to the period on or prior to the Closing Date, and (ii) any liability for out-of-pocket fees, costs and expenses (including reasonable attorneys’ fees) arising out of or incident to any Tax indemnified hereunder. If any Taxes for which the Company is to indemnify any Indemnified Party pursuant to the immediately preceding sentence are payable after the Closing Date, the Company shall pay or cause to be paid to such Indemnified Party an amount calculated on an After-Tax Basis equal to the amount of such Taxes no later than the later of (x) five Business Days after such Indemnified Party gives notice to the Company that such amount is due, a reasonably detailed explanation of such indemnity obligation and specifying the date such Taxes are due and payable (the “Due Date”) and (y) one Business Day before the Due Date. Amounts described in clause (ii) shall be reimbursed on an After-Tax Basis not less frequently than quarterly. Any payment required to be made hereunder and not made at the time specified in the preceding two sentences shall bear interest at the Stipulated Interest Rate or such higher rate actually payable by such Indemnified Party on the delayed payment of the Taxes being indemnified, calculated from the date such payment was required to be made hereunder to the date such payment is actually received by the Indemnified Party.

(b) All amounts payable by or on behalf of the Company pursuant to this Agreement shall be payable exclusive of any applicable value added tax, which value added tax, if payable, shall also be payable, upon production of a valid value added tax invoice by the Servicer. All amounts payable to the Company by an Indemnified Party pursuant to this Agreement shall be inclusive of value added tax save to the extent such Indemnified Party is entitled to recover (by way of repayment, credit or set off) the whole or any part of such value added tax. Where it is so entitled, at the request of the Company, value added tax shall be payable in addition thereto on production of a valid value added tax invoice but payment of the value added tax element shall not fall due until the latest possible date before the date on which such Indemnified Party shall receive such repayment, credit or set off (and such Indemnified Party shall be obligated to use reasonable endeavors (taking into account its overall tax position) to obtain such repayment, credit or set off as soon as possible); provided that, to the extent such payment of the value added tax element shall fall due prior to such date of receipt pursuant to Applicable Law, the Company shall compensate such Indemnified Party at the Prime Rate for any resulting loss of the time value of funds. The Servicer shall act on the Company’s behalf in processing any refund of value added tax and the Servicer and the Company shall cooperate in good faith to file an application for relief from value added taxes on VAT form 60A as soon as practicable after the date of this Agreement.

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(c) The Company shall pay and indemnify and hold the Indemnified Parties harmless, on an After-Tax Basis, from all Taxes imposed, levied or assessed against or upon the Person in the Company Group or any Indemnified Parties by any Governmental Authority upon or with respect to any of the Operative Agreements or any payment pursuant thereto or resulting from the matters or activities described therein, other than (except to the extent required to make any payment on an After-Tax Basis) (i) payroll, social security and employment Taxes of such Indemnified Party and any Taxes that are based on or measured by the net income, net receipts, net profits, net worth, franchise, capital or conduct of business of such Indemnified Party, (ii) any Taxes payable by such Indemnified Party pursuant to the controlled foreign corporation provisions or the passive foreign investment company provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), or any successor provision, (iii) any Taxes payable by an Indemnified Party (other than stamp, documentary or other similar taxes), which Taxes are imposed by Ireland or the United States of America or any political subdivision of either, or any other jurisdiction, to the extent such Taxes would not have been imposed but for any connection of the Indemnified Party or any Affiliate thereof with the jurisdiction imposing such Taxes (other than any such connection that results from activities of such Indemnified Party or any Affiliate which activities are located in such jurisdiction by reason of the location of (x) a specific lessee or sublessee of any Person within the Company Group (or, if applicable, with respect to any Original Aircraft, the owner), (y) an Aircraft or any part thereof or (z) any other Person (other than any Indemnified Party) with whom any Person within the Company Group (or, if applicable, with respect to any Original Aircraft, the owner) may be engaging, or contemplating engaging, in a commercial relationship), (iv) Taxes attributable to events or conditions arising after the termination or expiration of this Agreement, (v) Taxes imposed as a result of the gross negligence or willful misconduct of any Indemnified Party, (vi) Taxes imposed on any Indemnified Party to the extent resulting from an unreasonable failure of such Indemnified Party to provide any certificate, documentation or other evidence reasonably requested by the Company and required under Applicable Law as a condition of allowance of a reduction or exemption in such Taxes; provided that such Indemnified Party is legally eligible to provide such certificate, documentation or other evidence without, in such Indemnified Party’s good faith judgment, any adverse consequence (other than de minimus costs and expenses) to it or any of its Affiliates, and (vii) Taxes imposed on or arising from fees or other similar amounts paid by the Company to any Indemnified Party. All Taxes with respect to which the Company has an indemnification responsibility under this Section 9.07 shall be paid not later than the date such Taxes shall be due unless and to the extent, in the case of Taxes that do not burden any of the assets or property of any Indemnified Party and are assessed solely upon a Person or Persons within the Company Group, such Person or Persons within the Company Group shall be contesting such Taxes in good faith by appropriate proceedings, in which case such Taxes, or so much thereof as are being contested and are unpaid, shall be paid promptly upon a final determination that such Taxes, are due and payable. In the event any Taxes with respect to which the Company has an indemnification responsibility under this Section 9.07 are levied on any Indemnified Party, or any Indemnified Party is required by law or otherwise to pay any such Taxes in the first instance or as a result of a Person or Persons within the Company Group’s failure to comply with, or nonperformance in relation to, any Applicable Law or regulations governing the payment thereof by such Person or Persons within the Company Group, the Company shall pay to such Indemnified Party the full amount thereof on an After-Tax Basis within five Business Days after receipt from such Indemnified Party of any written request for such payment but not later than the due date for such Taxes. Any payment required to be made hereunder and not made at the time specified under this Section 9.07 shall bear interest at the Stipulated Interest Rate or such higher rate actually paid by such Indemnified Party on the delayed payment of the Taxes being indemnified, calculated from the date such payment was required to be made hereunder to the date such payment is actually received by such Indemnified Party.

(d) If any claim or demand is asserted in writing with respect to a Tax indemnified hereunder, such Indemnified Party shall in good faith notify the Company of such claim or demand within 10 days of receipt thereof; provided that failure to give such notification shall not affect such Indemnified

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Party’s entitlement to indemnification hereunder unless such failure shall materially and adversely prejudice the ability of the Company to defend itself or any Indemnified Party against any such action, claim, demand, proceeding or suit. If the Company shall so request within 30 days after receipt of such notice, such Indemnified Party shall in good faith at the Company’s expense contest the imposition of such Tax; provided that such Indemnified Party may in its sole discretion select any applicable forum for such contest and determine whether any such contest shall be by (i) resisting payment of such Tax, (ii) paying such Tax under protest or (iii) paying such Tax and seeking a refund thereof; providedfurther, that at such Indemnified Party’s option such contest shall be conducted by the Company in the name of such Indemnified Party (subject to the preceding proviso) (it being understood that the Company shall not be permitted to contest the imposition of such Tax in the name of such Indemnified Party without the prior written consent of such Indemnified Party). In no event shall such Indemnified Party be required or the Company be permitted by such Indemnified Party to contest the imposition of any Tax for which the Company is obligated to indemnify pursuant to this Section 9.07 unless (i) such Indemnified Party shall have received from the Company (A) an indemnity reasonably satisfactory to such Indemnified Party for any liability, expense or loss arising out of or relating to such contest and (B) an opinion of tax counsel to the Company furnished at the expense of the Company to the effect that a reasonable basis exists for contesting such claim; (ii) the Company shall have agreed to pay, on an After-Tax Basis, such Indemnified Party on demand all reasonable costs and expenses that such Indemnified Party may incur in connection with contesting such claim (including all costs, expenses, losses, reasonable legal and accounting fees, disbursements, penalties, interest and additions to tax); (iii) the Company shall be in compliance with all of its payment obligations under this Agreement and shall have acknowledged, in a manner reasonably satisfactory to the Servicer, its liability hereunder to indemnify the Indemnified Parties in respect of such Tax; (iv) such Indemnified Party shall have determined that the action to be taken will not result in a material risk of sale, forfeiture or loss of, or the creation of any Lien (except if the Company shall have adequately bonded such Lien or otherwise made provision to protect the interests of such Indemnified Party in a manner reasonably satisfactory to such Indemnified Party) on any property or rights of such Indemnified Party, or any portion thereof or any interest therein; and (v) if such contest shall be conducted in a manner requiring the payment of the claim, shall have paid the amount required. Notwithstanding anything contained in this Section 9.07, an Indemnified Party shall not be required nor shall the Company be permitted by such Indemnified Party to contest or continue to contest in the name of an Indemnified Party the imposition of any Tax for which the Company is obligated to indemnify pursuant to this Section 9.07 if such an Indemnified Party shall waive in writing its rights to indemnification under this Section 9.07 with respect to such Tax.

(e) If any Indemnified Party shall obtain a refund of all or any part of any Tax paid by the Company such Indemnified Party shall, provided no Event of Default, or default by the Company in the payment of any amount due hereunder, has occurred and is continuing, pay the Company an amount equal to the amount of such refund or credit, including interest received or credited and attributable thereto, plus any net Tax benefit (or minus any net Tax detriment) realized by such Indemnified Party as a result of a payment made pursuant to this sentence or as a result of the receipt or accrual of such refund, or credit including interest received or credited and attributable thereto; provided that an Indemnified Party will only be treated as receiving as credit for this purpose to the extent that the credit is utilized in the taxable year that the Tax arises. If any Indemnified Party shall have paid the Company any refund of all or part of any Tax paid by the Company and it is subsequently determined that such Indemnified Party was not entitled to the refund or credit, such determination shall be treated as the imposition of a Tax for which the Company is obligated to indemnify such Indemnified Party pursuant to the provisions of Section 9.07 hereof.

Section 9.08.Priority of Payments to Servicer. Any and all amounts due and owing to the Servicer or any of its Affiliates (including any amounts due and owing to the Servicer or any of its Affiliates with respect to indemnification) pursuant to this Agreement shall be entitled to the priority

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established therefore in the Indenture, which priority the Company agrees not to amend without the consent of the Servicer.

ARTICLE X

Term; Right to Terminate; Resignation;

Consequences of Expiration, Termination,

Resignation or Removal; Certain Tax Matters; Survival

Section 10.01.Term. (a) This Agreement shall have a non-cancelable term commencing on the Closing Date and expiring on the later of (i) the first date on which there shall have been paid in full all amounts outstanding to be paid under the Notes and any similar obligations of the Company issued pursuant to any other indenture or similar agreement, including all obligations then due and payable under the Indenture and under the Policy Provider Documents (as defined in the Indenture) (i.e., there shall be no Notes or similar obligations outstanding under the Indenture and under the Policy Provider Documents (as defined in the Indenture)) and (ii) [                   ] [        ], 2034.

During the term, this Agreement shall not be terminable by either party except as expressly provided in this Article X.

Section 10.02.Right to Terminate. (a) (i) At any time during the term of this Agreement, the Servicer shall in accordance with Section 10.02(c) be entitled to terminate this Agreement if:

(A) The Company shall fail to pay in full when due (1) any Servicing Fees within five days after the receipt of written notice from the Servicer of such failure or (2) any other amount payable by the Company hereunder or under any other Operative Agreement within ten days after the effectiveness of written notice from the Servicer of such failure to the extent that such failure materially impairs the ability of the Servicer to perform the Services on the terms set forth herein; or

(B) any Person within the Company Group shall fail to perform or observe or shall violate in any material respect any material term, covenant, condition or agreement to be performed or observed by it in respect of this Agreement or any other Operative Agreement (other than with respect to payment obligations of the Company referred to in clause (a)(i)(A) of this Section 10.02) and such violation is reasonably likely to have a Material Adverse Effect on the Servicer or a material adverse effect on the rights and obligations of the Servicer under this Agreement (including the Servicer’s compensation hereunder); or

(C) any material representation or warranty by any Person within the Company Group made in this Agreement or any other Operative Agreement or in any report, certificate, financial statement or other agreement, instrument or document at any time furnished by or on behalf of any Person within the Company Group in connection therewith shall prove to have been false or misleading in any material respect when made or furnished and such representation or warranty shall remain false and misleading in any material respect and such misrepresentation or breach of warranty is reasonably likely to have a Material Adverse Effect on the Servicer or a material adverse effect on the rights and obligations of the Servicer under this Agreement (including the Servicer’s compensation hereunder); or

(D) there shall cease to be any Aircraft Assets owned by any Company Group Member; or

(E) the Indenture shall cease to be in full force and effect and no obligations of the Company to the Policy Provider or Policy Provider Obligations are outstanding; or

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(F) there shall exist Competitor Control of the Company or Babcock & Brown Air Limited.

(ii) Upon the occurrence of an event set forth in clause (i) of this Section 10.02(a), in addition to the right of the Servicer to terminate this Agreement in whole pursuant to Section 10.02(a)(i), the Servicer shall be entitled to terminate its obligations to provide the Services with respect to one or more specific Aircraft Assets (but less than all the Aircraft Assets) (any termination with respect to less than all the Aircraft Assets being a “Partial Termination”). If, upon any such Partial Termination, the Servicer shall elect to continue to provide Services with respect to any Aircraft Asset, the Servicer shall specify the Aircraft Assets in respect of which it intends to continue to provide Services in the Termination Notice with respect to the Partial Termination. All references to the expiration or termination of this Agreement shall mean the expiration or termination of this Agreement in whole and not to a Partial Termination unless expressly otherwise stated.

(b) At any time during the term of this Agreement, the Company (with the prior written consent of the Policy Provider) or the Controlling Party shall be entitled to terminate this Agreement if (each of the following events, conditions or acts, a “Servicer Termination Event”):

(i) Babcock & Brown International Pty Ltd shall cease to own, directly or indirectly, at least 50.01% of the voting equity of, and economic interest in, BBAM(Ireland) or BBAM(US) ; or

(ii) the Servicer shall (A) fail in any material respect to perform any material Services in accordance with the Standard of Care or the Conflicts Standard and such failure shall have a Material Adverse Effect on the Company Group taken as a whole or a Material Adverse Effect on the rights and obligations of the Company Group taken as a whole under this Agreement; (B) fail in any material respect to perform any material Services which failure results in liability of the Servicer under its Standard of Liability and such failure shall have a Material Adverse Effect on the Company Group taken as a whole or a Material Adverse Effect on the rights and obligations of the Company Group taken as a whole under this Agreement or (C) perform the Services hereunder, or fail to perform such Services, in such a manner as to directly result in a Default Notice (pursuant to which the Outstanding Principal Balance of the Notes and all accrued and unpaid interest thereon shall become due and payable) having been issued in accordance with the terms of the Indenture with respect to breach of an Applicable Indenture Covenant set forth in Annex [    ] hereto; or

(iii) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking relief in respect of Babcock & Brown International Pty Ltd or the Servicer, or of a substantial part of the property or assets of the Servicer, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other U.S. Federal or state or non-U.S. bankruptcy, insolvency, receivership or similar law, and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered or the Servicer shall go into liquidation, suffer a receiver or mortgagee to take possession of all or substantially all of its assets or have an examiner appointed over it or if a petition or proceeding is presented for any of the foregoing and not discharged within 60 days; or

(iv) Babcock & Brown International Pty Ltd or the Servicer shall (A) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other U.S. Federal or state or non-U.S. bankruptcy, insolvency, receivership or similar law, (B) consent to the institution of, or fail to contest the filing of, any petition described in clause (iii) above, (C) file an answer

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admitting the material allegations of a petition filed against it in any such proceeding, or (D) make a general assignment for the benefit of its creditors; or

(v) there shall have occurred and be continuing an Event of Default under Section 4.01(a) of the Indenture in respect of the payment of interest on any Note (as defined in the Indenture) due to an insufficiency of funds in the Collection Account on the relevant date, which Event of Default (x) shall have occurred on a date on which no amount is available for drawing under any Eligible Credit Facility (as defined in the Indenture) in respect thereof and (y) shall have continued unremedied for 60 days; provided that, for the avoidance of doubt, payments by the Policy Provider under the Policy shall not be deemed to cure any such Event of Default for purposes of this clause (v); or

(vi) an Event of Default (other than one referred to in clause (v) of this Section 10.02(b)) under the Indenture shall have occurred and, other than in respect of an Event of Default under Sections 4.01(e) or 4.01(f) of the Indenture, a Default Notice (pursuant to which the Outstanding Principal Balance of the Notes and all accrued and unpaid interest thereon shall become due and payable) shall have been issued in accordance with the terms of the Indenture, and at the time of such Event of Default at least 15% of the number of Aircraft Assets shall not be subject to Leases and each such Aircraft Asset shall have been off-lease and reasonably available for re-lease (which, for purposes of clarification, shall mean that such Aircraft Asset shall be in the possession or under the unfettered control of the Servicer, together with the related Aircraft Documents, shall be free of any legal prohibition on the re-leasing thereof, shall be free of Liens (other than Liens, if any, created pursuant to the “Related Documents” as defined in the Indenture or created by or at the instruction of the Servicer) and shall be in a condition reasonably acceptable to a potential lessee) during the three-month period ending on the date of such Event of Default; or

(vii) the Servicer shall breach Section 5.04 hereof; or

(viii) there shall cease to be any Aircraft Assets owned by any Company Group Member; or

(ix) an Independent Representative shall have been appointed due to a conflict of interest under Section 3.02 or Section 2.04 hereof or the Servicer shall have elected a Partial Termination under Section 10.2(a)(ii) hereof, in the aggregate (A) in any twelve consecutive months, with respect to Aircraft Assets with aggregate Base Values as of the Closing Date in excess of $250 million or (B) in any sixty consecutive months, with respect to Aircraft Assets with aggregate Base Values as of the Closing Date in excess of $800 million (such limits shall be proportionately adjusted, pro rata based on such Base Values, to the extent that Aircraft Assets are not delivered prior to the Delivery Expiry Date (as defined in the Asset Purchase Agreement)); or

(x) the Servicer ceases to be actively involved in the aircraft leasing business (whether for aircraft owned by it or its Affiliates or owned by others, and without taking into account the Aircraft Assets).

(c) (i) Each party to this Agreement (the “Terminating Party”) may, at any time during the term of this Agreement, by written notice (the “Termination Notice”) to the other (the “Nonterminating Party”), set forth its determination to terminate this Agreement pursuant to clause (a) of this Section 10.02 (in the case of the Servicer) or Section 10.01 or clause (b) of this Section 10.02 (in the case of the Company or the Policy Provider) or to provide for a Partial Termination of this Agreement pursuant to clause (a)(ii) of this Section 10.02 (in the case of the Servicer); provided that this Agreement

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shall not terminate until and unless a Replacement Servicer shall have been appointed and shall have accepted such appointment in accordance with and if required by Section 10.04(c); provided,further, that failure by the Terminating Party to provide such Termination Notice shall not affect such party’s rights under Section 10.02(a) or Section 10.01 or Section 10.02(b), as the case may be. Any Termination Notice shall set forth in reasonable detail the basis for such termination.

(ii) Unless the Termination Notice is provided by the Company or the Policy Provider pursuant to Section 10.02(b)(i), (b)(iii), (b)(iv), (b)(v), (b)(vi), (b)(vii) or (b)(viii), or by the Servicer pursuant to Section 10.02 (a)(i)(D), (a)(i)(E), (a)(i)(F) or (a)(i)(G) (each a “Non-Curable Termination Event”), no later than the fifth day following the effectiveness of the Termination Notice (the “Effectiveness Date”), the Nonterminating Party shall advise the Terminating Party in writing whether the Nonterminating Party (A) intends to cure the basis for such termination and, if so, the action it intends to take to effectuate such cure or (B) does not intend to cure the basis for such termination; provided that the failure of the Nonterminating Party to deliver such notice by such day shall be deemed to constitute notice that it does not intend to cure the basis for termination. In the event that the Termination Notice is provided for a Non-Curable Termination Event or the Nonterminating Party notifies (or is deemed to have notified) the Terminating Party that the Nonterminating Party does not intend to cure the basis for such termination, then this Agreement shall terminate or the Partial Termination shall take effect, as the case may be, immediately or on such later date as the Terminating Party shall have indicated in the Termination Notice to the Nonterminating Party. In the event that the Nonterminating Party notifies the Terminating Party by such fifth day that it intends to cure the basis for such termination, then the Nonterminating Party or, in the event that the Nonterminating Party is the Company, each of the Company and the Policy Provider, shall (A) have 15 days from the Effectiveness Date to effectuate such cure to the reasonable satisfaction of the Terminating Party or (B) if such cure cannot reasonably be expected to be effectuated within such 15-day period and it is not a payment default, (1) demonstrate to the reasonable satisfaction of the Terminating Party that substantial progress is being made toward the effectuation of such cure and (2) effectuate such cure to the reasonable satisfaction of the Terminating Party no later than the thirtieth day following the Effectiveness Date. Upon the failure of the Nonterminating Party to effectuate a cure in accordance with the immediately preceding sentence, this Agreement shall terminate or the Partial Termination shall take effect, as the case may be, on the latest of (A) the day immediately following the expiration of such 15- or 30-day period, (B) such later date as shall be indicated in the Termination Notice or (C) the date as of which a Replacement Servicer has been engaged to perform the Services with respect to the Aircraft Assets and has accepted such appointment in accordance with and to the extent required of the provision of Section 10.04(c).

Section 10.03.Resignation or Removal. (a) If the Servicer reasonably determines that directions given by any Person to the Servicer in accordance with this Agreement are or would be if carried out, or Services required to be performed under this Agreement are or would be if carried out, (i) unlawful under Applicable Law, (ii) likely to lead to an investigation by any Governmental Authority, directly or indirectly, of or relating to the Servicer, any of its Affiliates or the Services, (iii) directions or Services that would expose the Servicer to any liabilities for which adequate bond or indemnity has not, in the Servicer’s good faith opinion, been provided or (iv) directions or Services that would place the Servicer in a conflict of interest with respect to which, in the Servicer’s good faith opinion, the Servicer cannot continue to perform its obligations hereunder within the requirements set forth in Article III with respect to all Aircraft Assets or any affected Aircraft Assets, as the case may be, it may resign as the Servicer for all purposes under this Agreement in relation to all the Aircraft Assets or, at its election, any affected Aircraft Assets (but with respect to clause (iv) above the Servicer may resign only with respect to the affected Aircraft) for the duration of this Agreement, such resignation to become effective upon the selection by the Company of a Replacement Servicer that has been engaged to perform the Services with respect to all the Aircraft Assets or any affected Aircraft Assets, as the case may be, and that has accepted

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such appointment in accordance with the provisions of Section 10.04(c) (it being understood that, notwithstanding any other provision herein to the contrary, the Servicer shall be under no obligation to follow such directions or perform such Services, or to provide any such Services, pending the selection of and acceptance by a Replacement Servicer).

(b) If the Company shall have received a notice from the Servicer pursuant to Section 3.02(d) hereof to the effect that the Servicer cannot continue to perform its obligations hereunder within the requirements set forth in Section 3.02 with respect to all Aircraft Assets or any affected Aircraft Assets, the Company may remove the Servicer for all purposes under this Agreement in relation to the affected Aircraft Assets or, in the event that the Servicer has notified the Company that the Servicer cannot continue to perform its obligations with respect to all Aircraft Assets, all the Aircraft Assets for the duration of this Agreement, such removal to become effective upon the selection by the Company (or, if an Event of Default has occurred and is continuing, the Policy Provider) of a Replacement Servicer that has been engaged to perform the Services with respect to any affected Aircraft Assets or all the Aircraft Assets, as the case may be, and that has accepted such appointment in accordance with the provisions of Section 10.04(c) (it being understood that, notwithstanding any other provision herein to the contrary, the Servicer shall be under no obligation to perform Services with respect to the affected Aircraft Assets pending the selection of and acceptance by a Replacement Servicer).

(c) If any Taxes that are based on or measured by all or a portion of the revenues, rental income or assets of any Person within the Company Group (other than (i) any Taxes payable by any such Person pursuant to the controlled foreign corporation provisions or the passive foreign investment company provisions of the Code or (ii) Taxes imposed as a result of the gross negligence or willful misconduct of any such Person) shall be imposed on or with respect to the Servicer or any Affiliate thereof, and if such Taxes are not indemnified by the Company then, provided that the Servicer shall have undertaken reasonable efforts (that do not involve any material cost to the Servicer or any Affiliate thereof) to otherwise avoid the imposition of such Taxes, the Servicer may resign as the Servicer for all purposes under this Agreement in relation to all the Aircraft Assets or, at its election, any Aircraft Assets the resignation with respect to which would reduce or eliminate such Taxes for the duration of this Agreement, such resignation to become effective upon the selection by the Company of a Replacement Servicer to perform the Services with respect to all the Aircraft Assets or such Aircraft Assets as the case may be, that has accepted such appointment in accordance with the provisions of Section 10.04(c); provided that pending the effectiveness of such resignation, the Company shall be required to post a bond, irrevocable letter of credit or other form of security reasonably acceptable to the Servicer to be drawn upon by the Servicer in the event that any such additional Taxes continue to be imposed on or with respect to the Servicer or any Affiliate thereof during such pendency.

Section 10.04.Consequences of Expiration, Termination, Resignation or Removal.

(a) Notices. (i) Upon the expiration or termination of this Agreement in accordance with this Article X, or upon the resignation by or removal of the Servicer with respect to the performance of the Services for any or all of the Aircraft Assets, the Servicer will promptly forward to the Company any notices, reports and communications received by it from any relevant Lessee during the one year immediately after expiration, termination, resignation or removal.

(ii) The Company will notify promptly each relevant Lessee and any relevant third party (with a copy to each Rating Agency and the Policy Provider) of the termination, resignation or removal of the Servicer under this Agreement in relation to any of the Aircraft Assets and will request that all such notices, reports and communications thereafter be made or given directly to the Replacement Servicer and the Company.

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(b) Accrued Rights. A termination, resignation or removal in relation to any or all the Aircraft Assets shall not affect the respective rights (including as to fees) and liabilities of either party accrued prior to such termination in respect of any prior breaches hereof or otherwise.

(c) Replacement Servicer. (i) Upon the expiration or termination of this Agreement in accordance with this Article X, or upon the resignation by or removal of the Servicer with respect to the performance of the Services for any or all of the Aircraft Assets, the Servicer will cooperate with any Replacement Servicer, including providing such Replacement Servicer with all information and documents reasonably requested.

(ii) Other than at the expiration of the term as set forth in Section 10.01 or pursuant to a termination of the Agreement by the Servicer in accordance with Section 10.02(a)(i)(A) due to nonpayment of amounts owed to the Servicer, the Servicer may not resign or be removed from its obligations and duties as Servicer hereunder, nor may this Agreement be terminated with respect to the Servicer, in either case in whole or in part, unless a Replacement Servicer has been appointed by the Company or, if an Event of Default has occurred and is continuing, the Policy Provider, and has accepted such appointment, and the Company has received both a written confirmation from each of the Rating Agencies that no lowering or withdrawal of the then current Ratings of any class or subclass of Notes will result from such appointment and the prior written consent of the Policy Provider; provided that, in the event that a Replacement Servicer shall not have been appointed within 90 days after any termination of this Agreement with respect to the Servicer or any resignation by or removal of the Servicer, the Servicer or the Company (and, following the giving of a Default Notice under the Indenture, the Policy Provider or the Security Trustee) may petition any court of competent jurisdiction for the appointment of a Replacement Servicer.

(d) Payment of Fees and Expenses. (i) Upon the expiration or termination of this Agreement in accordance with this Article X, or upon the resignation or removal of the Servicer with respect to the performance of the Services for any Aircraft Asset, so long as the Servicer is continuing to perform any of the Services, the company shall continue to pay Servicing Fees and reimbursable Aircraft Asset Expenses to the Servicer until a Replacement Servicer shall have been appointed and shall have accepted such appointment in accordance with the provisions of Section 10.04(c).

(ii) If a Replacement Servicer is appointed with respect to any Aircraft Asset in accordance with Section 10.04(c) and such Aircraft Asset is sold by any Person within the Company Group to a customer to whom the Servicer had been actively engaged in marketing such Aircraft Asset and with whom the Servicer had been engaged in substantive discussions at any time during the three-month period prior to the appointment and acceptance of such Replacement Servicer, the Servicer shall be paid Sales Fees in respect of such Aircraft Asset as if the Servicer had arranged for the sale of such Aircraft Asset. Following any such appointment of a Replacement Servicer, the Servicer will, upon the request of the Company, provide the Company with a list of customers with respect to which the Servicer had been actively engaged in marketing such Aircraft Asset and with which the Servicer had been engaged in substantive discussions at any time during such three-month period. Such list shall be treated as confidential by the Company and shall not be disclosed to any Person other than the Company or the Administrative Agent (including officers, directors, employees and agents), or used for any purpose other than as a basis for determining any Sales Fees payable to the Servicer pursuant to the first sentence of this Section 10.04(d)(ii).

(e) Transition. Upon the expiration or termination of this Agreement in accordance with this Article X, or upon the resignation or removal of the Servicer with respect to the performance of the Services for any Aircraft Asset, the Servicer shall promptly return the originals (and, if there are no originals, copies) within its possession of all Aircraft Assets Related Documents to the Company and shall provide the Company with such access to other nonconfidential, nonproprietary documentation and

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information (exclusive of internal correspondence, approval materials, internal evaluations or similar documentation or information) generated as part of the performance of the Services to any Person within the Company Group (and, upon the request by the Company and to the extent practicable, copies thereof) within its possession as is reasonably necessary to the conduct of the business of any Person within the Company Group and the services to be performed by a Replacement Servicer in connection therewith.

Section 10.05.Survival. Notwithstanding any termination or the expiration of this Agreement, (a) the obligations of the Company, the Policy Provider and the Security Trustee under Sections 2.03(g), 2.03(i), 2.03(j), 2.04, 2.05(a), 2.05(c), 2.05(d), 2.05(f), 2.05(g), 2.05(h), 3.03, 3.04, 6.06 and 7.03(f), Article IX, Sections 10.04 and 10.05, Article XI and Sections 13.01 and 13.03 of this Agreement and Section 2.2(b) of Schedule 2.02(a) to this Agreement and the Servicer’s obligations under Section 10.04 and Article XI shall survive such termination or expiration, as the case may be, and (b) the representations and warranties contained in Article IV and in Section 2.02(g) shall survive and remain in full force and effect until the third anniversary of the date on which this Agreement shall have expired or terminated.

ARTICLE XI

Indemnification

Section 11.01.Indemnity. (a) Notwithstanding anything to the contrary set forth herein (other than Section 2.03(m)) or in any other Operative Agreement, the Company does hereby assume liability for, and does hereby agree to indemnify and hold harmless on an After-Tax Basis each of the Indemnified Parties from, any and all Losses that may be imposed on, incurred by or asserted against any Indemnified Party, directly or indirectly, arising out of, in connection with or related to (i) the Servicer’s performance under this Agreement or from errors in judgment or omissions by the Servicer under this Agreement; provided that such indemnity shall not apply to the extent that such Losses are finally adjudicated to have been directly caused by (x) the fraud, deceit, willful misconduct or gross negligence of the Servicer or its directors, officers or employees (or a Servicer Delegate) in respect of its obligation to apply the Standard of Care or the Conflicts Standard in respect of its performance of the Services or (y) any representation or warranty by the Servicer set forth in Section 4.10 or 4.11 having proven to be false on the date hereof; (ii) any Indemnified Parties’ involvement (or alleged involvement) in connection with the structuring or implementation of any aspect of the transactions contemplated by the Final Prospectus; (iii) without limiting, and subject to, the provisions of clause (y) above, any Aircraft Assets and (iv) except as expressly provided to be the obligation of the Servicer in Section 2.03(m), the offering or sale of the Notes, the securities of Babcock & Brown Air Limited or any other debt or equity securities or the obtaining of any loans by the Company or any of its Affiliates, or any other Offerings, including any Losses to which any Indemnified Party may become subject, under the Securities Act of 1933, the Securities Exchange Act of 1934 or other Federal or state or non-U.S. statutory law or regulation, at common law or otherwise, including any Loss that arises out of or is based upon: (A) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus or in any amendment thereof or supplement thereto or in any other document filed with the United States Securities and Exchange Commission, or (B) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading.

(b) Each Indemnified Party agrees to give the Company prompt notice of any action, claim, demand, discovery of fact, proceeding or suit for which the applicable Indemnified Party intends to assert a right to indemnification under this Agreement; provided that failure to give such notification shall not affect such Indemnified Party’s entitlement to indemnification under this Section 11.01 unless and only to the extent such failure results in actual material prejudice to the Company or any other Person within the Company Group.

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Section 11.02.Procedures for Defense of Claims.

(a) If a Third Party Claim is made against any Indemnified Party, the applicable Indemnified Party shall promptly notify the Company in writing of such claim (which notice shall include all relevant information reasonably necessary for the Company to understand such claim which is in the possession or under the control of, or which can with reasonable commercial efforts be obtained by, such Indemnified Party at the time of such notice, subject to Applicable Laws and confidentiality obligations), and the Servicer or the Company (if so directed by the applicable Indemnified Party and if so accepted by the Company) will undertake the defense thereof. The failure to notify the Company promptly shall not relieve the Company of its obligations under this Article XI unless and only to the extent that such failure results in actual material prejudice to the Company or any other Person within the Company Group.

(b) If so directed by the applicable Indemnified Party and if accepted by the Company, the Company shall within 30 days, undertake the conduct and control, through counsel of its own choosing (subject to the consent of the applicable Indemnified Party, such consent not to be unreasonably withheld or delayed) and at the Company’s risk and expense, the good faith settlement or defense of such claim, and the applicable Indemnified Party shall cooperate fully with the Company in connection therewith; provided that (i) at all times the applicable Indemnified Party shall be entitled to participate in such settlement or defense through counsel chosen by it, and the fees and expenses of such counsel shall be borne by the applicable Indemnified Party, and (ii) the Company shall not be entitled to settle such claims unless it shall have confirmed in writing its obligation to indemnify the applicable Indemnified Party for the liability asserted in such claim. The Company shall obtain the written consent of the applicable Indemnified Party prior to ceasing to defend, settling or otherwise disposing of such claim if as a result thereof such Indemnified Party would become subject to injunctive, declaratory or other equitable relief or the business of such Indemnified Party would be materially adversely affected in any manner.

(c) So long as the Company is reasonably contesting any such claim in good faith, the applicable Indemnified Party shall fully cooperate with the Company in the defense of such claim as is reasonably required by the Company. Such cooperation shall include the retention and the provision of records and information, which are reasonably relevant to such Third Party Claim and making directors, officers and employees available on a mutually convenient basis to provide additional information. Neither the Servicer nor any Indemnified Party shall settle or compromise any claim without the written consent of the Company unless the Servicer or the applicable Indemnified Party agrees in writing to forego any and all claims for indemnification from the Company with respect to such claims.

(d) If the Company, within 10 days after notice of any such claim, does not agree to defend such Third Party Claim as directed by the applicable Indemnified Party, such Indemnified Party will have the right to undertake the defense, compromise or settlement of such Third Party Claim.

Section 11.03.Reimbursement of Costs. The costs and expenses, including fees and disbursements of counsel (except as provided in clause (i) of the proviso to the first sentence of Section 11.02(b)) and expenses of investigation, incurred by any Indemnified Party in connection with any Third Party Claim, shall be reimbursed on a monthly basis by the Company upon the submission of evidence reasonably satisfactory to the Company that such expenses have been incurred, without prejudice to the Company’s right to contest the Indemnified Party’s right to indemnification and subject to refund in the event that the Company is ultimately held not to be obligated to indemnify the Indemnified Party.

Section 11.04.Waiver of Certain Claims; Special Indemnity. The Company does hereby (a) assume liability for and agree to indemnify and hold harmless on an After-Tax-Basis, in accordance with the provisions of this Article XI, each of the Indemnified Parties from any and all Losses that may be imposed on, incurred by or asserted against any Indemnified Party directly or indirectly arising out of, in connection with or related to any claims of shareholders or creditors of any Person within the Company Group or of Babcock & Brown Air Limited and any claims (“Shadow Director/Related Company Claims”) that may be made by or on behalf of any Person against any Indemnified Party which are based

36

on any Indemnified Party being a shadow director of, or a related company to, any Person within the Company Group under applicable Irish law or which are based on any similar concept under any other Applicable Law; (b) waive, and shall cause each other Person within the Company Group and Babcock & Brown Air Limited to waive, any and all Shadow Director/Related Company Claims that may be made by or on behalf of any Person within the Company Group against any Indemnified Party, (c) agree not to sue, and to cause each other Person within the Company Group and Babcock & Brown Air Limited not to sue, upon any such Shadow Director/Related Company Claims, and (d) agree that any amounts awarded to or received by any Person within the Company Group or of Babcock & Brown Air Limited arising out of or related to any such Shadow Director/Related Company Claims (whether such claims were made by or on behalf of any Person within the Company Group or of International Pty Ltd or by a third party (including any liquidator)) shall be paid over to the applicable Indemnified Party.

Section 11.05.Continuing Liability under Other Agreements. The Servicer understands, acknowledges and agrees that the intent of the parties hereunder is that any limitation on the liability of the Servicer under this Agreement, whether under this Article XI, Article III or otherwise, is not intended to and shall not be construed to limit the liability of any Person selling any Aircraft Assets under the Asset Purchase Agreement or the liability, if any, of any seller or other party to the initial purchasers under a separate indemnification agreement, and that any such liability under such agreement shall not give rise to any claim for indemnification in favor of the Servicer or any of its Affiliates under this Agreement.

ARTICLE XII

Assignment and Delegation

Section 12.01.Assignment and Delegation. (a) No party to this Agreement shall assign or delegate this Agreement or all or any part of its rights or obligations hereunder to any Person without the prior written consent of all other parties hereto; provided that (i) the Servicer may delegate, subject to the terms hereof, any portion of but not all its obligations to any Affiliate of the Servicer (a “Servicer Delegate”); (ii) the foregoing provisions on assignment and delegation shall not limit the ability of the Servicer to contract with any Person, including any of its Affiliates, for services in respect of Aircraft Assets subject to the terms hereof; and (iii) the Company may assign its rights hereunder to the Security Trustee under the Security Trust Agreement and, without in any way releasing the Company from any of its duties or obligations hereunder, the Servicer consents to such assignment, it being understood that neither the Company’s assignment nor the Servicer’s consent to such assignment will affect the Servicer’s rights and obligations hereunder, subject the Servicer to any liability to which it would not otherwise be subject to hereunder nor modify in any respect the contract rights of the Servicer hereunder. Subject to the Security Trustee’s compliance with the provisions of this Agreement in exercising any such rights, the Servicer and each member of the Company Group agrees that all of the Company Group’s rights, including the right of the Company or any agent on its behalf to give notices or instructions to the Servicer under this Agreement, hereunder may be exercised by the Security Trustee to the exclusion of any member of the Company Group following notice to the Servicer by the Trustee or the Policy Provider of the occurrence and continuance of an Event of Default (whether or not other remedial action, such as the giving of a Default Notice, has been taken). Any assignment or delegation pursuant to this Section 12.01(a) shall not require any approval pursuant to Section 7.04 and no delegation or contract pursuant to clause (i) or (ii) above shall release the Servicer from any of its obligations hereunder.

(b) Without limiting the foregoing, any Person who shall become a successor by assignment or otherwise of the Company or the Servicer (or any of their respective successors) in accordance with this Section 12.01 shall be required as a condition to the effectiveness of any such assignment or other arrangement to become a party to this Agreement; provided that the Security Trustee

37

shall not be required to become a party to this Agreement solely by reason of the execution and delivery of the Security Trust Agreement.

(c) BBAM(US) and BBAM(Ireland) shall be co-servicers under this Agreement. Any action required or permitted to be taken hereunder by the Servicer may be taken by either BBAM(US) or BBAM(Ireland), as they shall agree from time to time; provided that BBAM(US) and BBAM(Ireland) shall be jointly and severally liable for any and all obligations required to be performed by, and each shall have all rights of, the Servicer hereunder and all representations and warranties of the Servicer are made jointly and severally; and provided, further, that all information required to be provided by the Servicer to the Company, the Administrative Agent, the Cash Manager, the Policy Provider and the Security Trustee, and any consent of, approval from or notice to the Servicer shall be delivered, given or made on behalf of the Servicer by and through BBAM(Ireland) and BBAM(US) agrees to be bound by any acts or omissions to act of BBAM(Ireland).

ARTICLE XIII

Miscellaneous

Section 13.01.Documentary Conventions. The Documentary Conventions shall govern this Agreement.

Section 13.02.Power of Attorney. The Company shall and shall cause each other Person within the Company Group, to appoint the Servicer and its successors, and its permitted designees and assigns, as their true and lawful attorney-in-fact pursuant to the form of Power of Attorney attached as Schedule 13.02 to this Agreement (with such modifications as are necessary under the laws of the jurisdictions in which such Persons are organized). All services to be performed and actions to be taken by the Servicer pursuant to this Agreement shall be performed for and on behalf of the Company. The Servicer shall be entitled to seek and obtain from the Company (and/or any other Person within the Company Group as appropriate) a power of attorney in respect of the execution of any specific action as the Servicer deems appropriate.

Section 13.03.Reliance. The Servicer shall be entitled to rely on the provisions of this Agreement, including Schedule 2.02(a), any Approved Budget, any direction of, or certification by, the Company or its board of directors (or any duly appointed committee thereof), the Administrative Agent or the Cash Manager, to the extent set forth in Section 2.02(c), the Security Trustee and the Transaction Approval Requirements, in carrying out its obligations hereunder, and the Company hereby waives any rights to challenge any action taken by the Servicer that is consistent with the provisions of this Agreement (including the Standard of Care and the Conflicts Standard), including Schedule 2.02(a), any Approved Budget, any such direction or certification or the Transaction Approval Requirements or which has been approved by the board of directors of the Company or a duly appointed committee thereof.

Section 13.04.Certain Information. The parties hereto agree (a) not to provide to each other competitively sensitive information, other than information required to be provided by the Servicer or the Company, as the case may be, under contractual arrangements existing on the date hereof (or successor arrangements thereto), (b) that any party receiving such information shall take such action as shall be necessary to maintain the confidentiality thereof and (c) to establish appropriate procedures and protocols to ensure compliance with the agreements in clauses (a) and (b). Similarly, the Company’s board of directors and Babcock & Brown Air Limited’s board of directors and Babcock & Brown Air Limited itself on behalf of itself and its employees shall agree (x) not to provide competitively sensitive information which it may receive from the Servicer pursuant to this Agreement to any third party and (y) not to use any such competitively sensitive information for any purpose other than its duties and responsibilities as a director or shareholder of the Company or director or employee of Babcock & Brown

38

Air Limited. In addition, to the extent that any director of the Company or Babcock & Brown Air Limited or employee of Babcock & Brown Air Limited is involved in any other business activities that are competitive with the Servicer or any Affiliate thereof, the Company must screen such Person from receipt of competitively sensitive information.

Section 13.05.Original Aircraft. In the event that in the Servicer’s reasonable judgment the application of the terms of any provision hereunder in respect of any Aircraft Asset would not be appropriate prior to the title to such Aircraft Asset being transferred to a Person within the Company Group, then the Servicer shall take such action in respect of such Aircraft Asset as is commercially reasonable or appropriate in such context or circumstances. The Servicer shall make a good faith effort to consult with the Company prior to taking any action in reliance upon this Section 13.05, taking into account timing and other relevant considerations; provided that any failure to so consult with the Company will not constitute a default under or violation of this Agreement.

Section 13.06.Limited Recourse. (a) In the event that the assets of the Persons in the Company Group are insufficient, after payment of all other claims, if any, ranking in priority to the claims of the Servicer hereunder (it being agreed that there are no claims ranking in priority to those of the Servicer), to pay in full such claims of the Servicer in accordance with the Indenture and the Security Trust Agreement, then the Servicer shall have no further claim against the Persons in the Company Group in respect of any such unpaid amounts.

(b) To the extent permitted by Applicable Law, no recourse under any obligation, covenant or agreement of any party contained in this Agreement shall be had against any shareholder, officer or director of the relevant party as such, by the enforcement of any assessment or by any proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is a corporate obligation of the relevant party and no personal liability shall attach to or be incurred by the shareholders, officers, agents or directors of the relevant party as such, or any of them under or by reason of any of the obligations, covenants or agreements of such relevant party contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by such party of any of such obligations, covenants or agreements, either at law or by statute or constitution, of every such shareholder, officer, agent or director is hereby expressly waived by the other parties as a condition of and consideration for the execution of this Agreement. For purposes of clarification, the foregoing applies only to Persons acting in their capacity as such shareholder, officer, agent or director and not in any other capacity and does not extend to the benefit of the Person for which such Person serves as shareholder, officer, agent or officer.

Section 13.07.The Company Group Members. Each Person in the Company Group that joins as a party to this Agreement hereby agrees to be bound by and perform the obligations hereunder of a Person in the Company Group, and if any such Person is a trust of which the Company or another Person in the Company Group is the beneficiary, The Company hereby instructs and authorizes such trust to execute this Agreement, and perform such obligations (and the Policy Provider, and the Security Trustee by its acceptance of the assignment provided above, consent thereto to the extent applicable).

[Remainder of page intentionally left blank.]

39

IN WITNESS WHEREOF, this Agreement has been duly executed on the date first written above.

BABCOCK & BROWN AIRCRAFT MANAGEMENT LLC
By:
	Name: Title:

BABCOCK & BROWN AIRCRAFT MANAGEMENT (EUROPE) LTD
By:
	Name: Title:

BABCOCK & BROWN AIR FUNDING I LIMITED
By:
	Name: Title: Chairman of Board of Directors

AMBAC ASSURANCE CORPORATION
By:
	Name: Title:

Aircraft Assets Services

The provision of the Services set forth in this Schedule 2.02(a) will be subject in all cases to such approval as may be required or such limitations as may be imposed pursuant to Section 7.04(a) of the Servicing Agreement and the provisions of this Schedule 2.02(a) shall be deemed to be so qualified. All Services set forth in this Schedule 2.02(a) shall be performed in accordance with and subject to the Standard of Care, the Conflicts Standard and the Standard of Liability.

Unless otherwise defined herein, all capitalized terms used in this Schedule 2.02(a) have the meanings assigned to such terms in Appendix A to the Servicing Agreement or, in the case of certain defined terms used in Annex 1 or 2 to the Servicing Agreement or Schedule 2.02(a)(i) to the Servicing Agreement, in the copy of the Indenture delivered to the Servicer pursuant to Section 2.1. The Company shall provide to the Servicer any instructions the Servicer may require in the interpretation of Annexes 1 and 2 to the Servicing Agreement on which instructions the Servicer shall be entitled to rely in all respects.

SECTION 1. Lease Services. Subject to the availability of adequate funding to comply with the obligations under this Schedule 2.02(a) and the Servicing Agreement with respect to Services that require such funding:

SECTION 1.1. Collections and Disbursements. In connection with each Lease of an Aircraft Asset under which any Person within the Company Group is the lessor, the Servicer will:

(a) invoice the Lessee or otherwise arrange, as the Servicer deems reasonably appropriate, on behalf of such Person within the Company Group, for all payments due from the Lessee, including Rents, Deposits, Utilization Rent, Aircraft redelivery payments, late payment charges and any payments in respect of Taxes and other payments (including technical, engineering, insurance and other recharges) due under the relevant Lease, direct the Lessee, subject to the terms of the Lease, to make such payments to such account designated as the “Rental Account” in Schedule 4.03 to the Servicing Agreement (the relevant details of such Rental Account being set forth in such Schedule) or to such other accounts as specified in writing by the Cash Manager and enforce the rights and remedies of the Lessor under applicable Lease with respect to payment thereof in the event of a nonpayment by the relevant due date;

(b) review from time to time, as deemed necessary by the Servicer, the level of Rents, Deposits, Utilization Rent and other amounts that may be adjusted under a Lease (and to the extent they are provided to be adjusted pursuant to the provisions of such Lease) and shall propose to the relevant Lessee and/or make such adjustments to the Rents, Deposits, Utilization Rent and other amounts as are required or that the Servicer otherwise deems reasonably appropriate considering, among other things, the terms of the relevant Lease and practices that the Servicer believes are prevalent in the operating lease market;

(c) subject to the timely receipt by the Servicer from the Cash Manager of the information related to the receipt of all payments made pursuant to any Lease into any Bank Account, maintain appropriate records regarding payments under the Leases;

(d) subject to the terms of any applicable Aircraft Assets Related Document, take such actions as are necessary to apply any payments of any type received from any Lessee, or to make any payments payable to a Lessee, on a basis consistent with the directions of such Lessee and, to the extent that any such payments are made to an account other than the account to which such payment should have been directed pursuant to such Lessee’s direction, to take such further

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

actions as are necessary to give effect to such directions; provided that, in the event a Lessee is in default under a Lease or a Lessee is subject to a voluntary or involuntary bankruptcy, liquidation, receivership or other similar proceeding, the Servicer will advise the Company of how funds received from such Lessee were applied to the extent that such funds were applied to leases relating to both Aircraft Assets and Other Assets; and

(e) provide for the safekeeping and recording of any letters of credit, guarantees or other credit support (other than cash and cash equivalents) held as part of Deposits or Utilization Rent and the timely renewal or drawing on or disbursement thereof as provided under the applicable Lease or other Aircraft Assets Related Document or otherwise in accordance with Section 1.5 of this Schedule 2.02(a).

SECTION 1.2. Maintenance. The Servicer will perform the following technical services relating to the maintenance of the Aircraft Assets:

(a) monitor the performance of maintenance obligations by Lessees under all Leases relating to the Aircraft Assets by including the Aircraft Assets in the Servicer’s technical audit program, which program entails, to the extent feasible in a reasonable commercial manner in the ordinary course of business under the terms of the applicable Lease, the review of a Lessee’s technical recordkeeping procedures, the collection of summary maintenance data on each Aircraft Asset and, to the extent the Servicer deems reasonably necessary or appropriate, physical inspection of the Aircraft Assets on a sampling basis consistent with procedures employed from time to time by the Servicer and its Affiliates with respect to their own or other serviced Aircraft;

(b) confirm the air authority approval status of a Lessee’s proposed maintenance program and proposed maintenance performer under any new Lease of any Aircraft Assets under which any Person within the Company Group is, or following the Delivery of the related Aircraft Asset will be, the lessor;

(c) in connection with a termination or expiration of a Lease under which any Person within the Company Group is, or following the Delivery of the related Aircraft Asset will be, the lessor:

(i) arrange for the appropriate technical inspection of the Aircraft Asset for the purpose of determining if the re-delivery conditions under the Lease have been satisfied;

(ii) maintain a record of all material reports and other written materials (including any relevant reconciliation statements) received or generated by the Servicer in connection with such inspection and provide reasonable access to such reports and written materials to the relevant Persons within the Company Group;

(iii) on the basis of the final inspection and available records, determine whether the Lessee has complied with all required airworthiness directives and mandatory modifications, and establish the status of compliance with Airframe and Engine manufacturer service bulletins and Lessee-originated modifications undertaken, in each case with respect to the Aircraft Asset and as required by the Lease;

(iv) (A) determine whether the Lessee has satisfied the re-delivery conditions applicable to the Aircraft Asset specified in the Lease and negotiate any modifications, repairs, refurbishments, inspections or overhauls to or compromises of such conditions

SCHED 2.02(a)-2

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

that the Servicer deems reasonably necessary or appropriate, (B) determine the application of any available Deposits, Utilization Rent or other payments under the Lease and (C) maintain a record of the satisfaction of such conditions and accept re-delivery of the Aircraft Asset; and

(v) determine the need for, procure and monitor (as provided in clause (a) above) the performance of any maintenance and refurbishment of the Aircraft Asset upon re-delivery, including compliance with applicable airworthiness directives, service bulletins and other modifications which the Servicer may deem reasonably necessary or appropriate for the marketing of the Aircraft Asset;

(d) consider and, to the extent the Servicer deems reasonably necessary or appropriate, approve any Lessee-originated modifications to any Aircraft Asset submitted by any Lessee for approval:

(i) to the extent authorized by the terms of the relevant Lease; or

(ii) which the Servicer reasonably determines would not result in a material diminution in value of the Aircraft Asset or the interests of any Person within the Company Group; or

(iii) which are approved by the Company;

(e) determine the amount (if any) that the relevant Person within the Company Group is obliged to contribute pursuant to the provisions of a Lease (taking into account where applicable the amount of Utilization Rent paid with respect to such Lease and the receivables position of the related Lessee) to the cost of complying with any modification requirements, maintenance contribution requirements, redelivery condition payment requirements, airworthiness directives and similar requirements; and

(f) arrange and supervise appropriate storage and any required on-going maintenance of any Aircraft Asset, at the expense of the relevant Person within the Company Group, following termination of a Lease for any reason and re-delivery of the Aircraft Asset thereunder and prior to delivery of such Aircraft Asset to a new lessee or purchaser, on the most economic basis reasonably available and appropriate under the circumstances.

The Servicer shall generally provide the technical/maintenance services set forth in this Section 1.2 through the use of its own staff where it shall deem appropriate and shall utilize third parties to provide such technical/maintenance services where it shall deem appropriate.

SECTION 1.3. Insurance.

(a) The Servicer will provide the following insurance services:

(i) negotiate the insurance provisions of any proposed lease or other agreement affecting any of the Aircraft Assets, with such provisions to include such minimum coverage amounts with respect to hull and liability insurance as are set forth on Annex 1 to the Servicing Agreement; provided that, if an agreement with respect to hull or liability insurance, if any, cannot be reached with any particular Lessee pursuant to which such Lessee will procure and pay the premiums for such insurance in amounts consistent with the foregoing, the Servicer may still cause the applicable Person in the

SCHED 2.02(a)-3

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

Company Group to enter into such proposed lease or other agreement, but in which case the Servicer shall arrange for any shortfall in the required amount of insurance to be covered, at the expense of the Company, pursuant to arrangements entered into pursuant to clauses (iii) and (v) of this Section 1.3(a);

(ii) monitor the performance of the obligations of Lessees relating to insurance under Leases of any Aircraft Assets and, where practicable, ensuring that appropriate evidence of insurance exists with respect to any Aircraft Assets maintenance providers;

(iii) source and arrange an aviation insurance program covering the Aircraft Assets (it being understood that such program may be arranged pursuant to a group policy covering both Aircraft Assets and Other Assets the premiums in respect of which are shared equitably based on the amount of insurance obtained and premium paid thereunder with respect to the covered Aircraft Assets, on the one hand, and the Other Assets, on the other hand), with such minimum coverage amounts with respect to hull and liability insurance as are set forth on Annex 1 to the Servicing Agreement;

(iv) procure such repossession insurance for Aircraft Assets registered, habitually based in, or subject to a Lease with a Lessee domiciled in, one of those countries listed on Annex 1 to the Servicing Agreement and with such minimum coverage amounts with respect to hull insurance as are set forth on Annex 1 to the Servicing Agreement; provided that, if an agreement with respect to repossession insurance, if any, cannot be reached with any particular Lessee pursuant to which such Lessee will pay the premiums for such insurance in amounts consistent with the foregoing, the Servicer may still cause the applicable Person in the Company Group to enter into such proposed lease or other agreement, but in which case the Servicer shall pay any premiums to the extent unpaid by the Lessee, at the expense of the Company; and

(v) if at any time the Servicer becomes aware that any Aircraft Asset ceases to be insured or any Person within the Company Group requires insurance coverage relating to an Aircraft Asset for any reason, including default by the Lessee or an Aircraft Asset not being leased upon termination of a Lease, the Servicer will procure, at the expense of the relevant Person within the Company Group, alternative insurance coverage, with such minimum coverage amounts with respect to hull and liability insurance as are set forth on Annex 1 to the Servicing Agreement;

provided that, in each case where insurance is to be obtained by the Servicer, such insurance is reasonably available in the relevant insurance market and the Servicer shall have used reasonable sourcing techniques prior to obtaining such insurance; and, provided, further, that the Servicer shall not obtain or shall terminate, as the case may be, any such insurance (except liability insurance and war risk liability insurance in favor of the Servicer and its Affiliates) with respect to which the Servicer has been so instructed by the Company (and the Company has delivered to the Servicer a copy of the related Policy Provider consent as required by the Indenture) because the Company has determined that the rates for such insurance are not commercially reasonable. The foregoing provisions shall apply, mutatismutandis, to any arrangements in which Persons other than Lessees have possession of, or insurance responsibility for, an Aircraft Asset (including in the event that an Aircraft Asset has been sold pursuant to a mortgage, deferred payment agreement or any similar arrangement).

SCHED 2.02(a)-4

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

(b) The Servicer may engage, on behalf of, and for the benefit and at the expense of, any Person within the Company Group, one or more Advisers and Brokers with respect to insurance matters, each of whom:

(i) may also act in the same or similar capacities for the Servicer and its Affiliates;

(ii) shall take directions from the Servicer (as authorized by the Servicing Agreement) in respect of the Aircraft Assets; and

(iii) may act on behalf of any Person within the Company Group in respect of any of their other insurance requirements, if requested to do so by any such Person within the Company Group.

The Servicer shall be entitled to rely reasonably on the actions taken by or recommendations of any such Adviser and Broker, subject to the terms of the relevant Lease and the requirements of the Servicing Agreement. The Servicer will obtain such advice from the relevant Adviser or Broker or both, as it deems appropriate, as to the reasonableness of any insurance arrangements proposed by a Lessee, and as to the levels and types of insurance to be provided by a Lessee or to be arranged by the Servicer, for any of the Aircraft Assets. Except to the extent the Servicer can effect more cost efficient coverage under fleet or group policies, the Servicer will use reasonable commercial efforts to maintain separate and distinct customer relationships with such Advisers or Brokers when acting on behalf of any Person within the Company Group, on the one hand, and when acting on its own behalf or on behalf of other Persons not within the Company Group whose Aircraft Assets it manages, on the other hand. Any such insurance obtained by the Servicer shall include as the named insured thereunder, such Persons as are required to be designated as named insureds pursuant to paragraph 6 of Annex 1 to the Servicing Agreement.

SECTION 1.4. Administration. The Servicer shall administer each Lease in accordance with its terms and as otherwise specifically addressed herein. In connection with any Person within the Company Group entering into a Future Lease, the Servicer shall, on behalf of such person, timely make the necessary filings and obtain the necessary opinions as required under Section [    ]of the Security Trust Agreement and Section 5.03(f) of the Indenture, respectively.

SECTION 1.5. Enforcement. The Servicer shall take steps to enforce the obligations to the relevant Person within the Company Group of the Lessee and any other parties under each Lease and under any ancillary agreements thereto delivered by the Company to the Servicer (including any guarantees of the obligations of the Lessee). Following any default by a Lessee under the applicable Lease, the Servicer will take all such steps as it deems reasonably necessary or appropriate to preserve and enforce the rights of the relevant Person within the Company Group (or, if applicable, with respect to any Original Aircraft, the owner) under the applicable Lease, including entering into negotiations with such Lessee with respect to the restructuring of such Lease or declaration of an event of default under the applicable Lease, drawing on or making disbursement of any Deposits, Utilization Rent or any letters of credit, guarantees or other credit support thereunder, voluntary or involuntary termination of the Lease and repossession of the Aircraft Asset that is the subject of the Lease, and pursuing such legal action with respect thereto as the Servicer deems reasonably necessary or appropriate.

SECTION 1.6. Lease Modifications. (a) The Servicer shall be authorized to make such amendments and modifications to any Lease as it shall deem reasonably necessary or appropriate; provided that such amendment or modification shall require the approval of the Company pursuant to Section 7.04(a) of the Servicing Agreement if the provisions of such amendment or modification, were they to be included in a new Lease to be entered into after the date hereof, would, on their own, cause the

SCHED 2.02(a)-5

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

entering into of such new Lease to require the approval of the Company pursuant to Section 7.04(a)(ii) of the Servicing Agreement. Such amendments or modifications may be made without regard to whether there is a default by the Lessee or other party under or with respect to any such Lease.

(b) The Servicer may waive, in good faith but sole discretion, overdue interest due from any Lessee under any Lease on any default in payment of rent, Utilization Rent or other amount thereunder.

SECTION 1.7. Options and Other Rights. The Servicer shall be authorized to take such action as it shall deem reasonably necessary or appropriate with respect to:

(a) the exercise by any Lessee or other party of any option or right affecting the applicable Aircraft Asset or the applicable Lease, consistent with the terms of any such option or right; and

(b) the exercise on behalf of any Person within the Company Group of any right or option that such Person may have with respect to any of the Aircraft Assets or the Leases.

SECTION 2. Compliance with Covenants; Security Interests.

SECTION 2.1. Compliance Generally. Subject to the availability to the Servicer of adequate funding to comply with its obligations under this Schedule 2.02(a) and the Servicing Agreement with respect to Services that require such funding, the Servicer shall take such commercially reasonable actions as it shall deem reasonably necessary or appropriate to keep the Company in compliance with its obligations and covenants under Sections 5.02 and 5.03 of the Indenture, as and to the extent set forth on Schedule 2.02(a)(i) and solely to the extent that such obligations and covenants specifically and directly relate to the Services, excluding, in any case, (i) any reporting obligations in respect of any of the foregoing and (ii) any rental, any Note obligations or any payment or monetary obligations under the Indenture; provided that the foregoing shall only apply to (A) any Indenture covenants that are set forth (or, in certain cases, appear as extracts) on Schedule 2.02(a)(i) to the Servicing Agreement, to the extent that each provision set forth (or extracted) on such Schedule includes the relevant section references for each such provision from the Indenture, and which (together with the definitions for any capitalized terms used therein) are set forth in full in a copy of the Indenture delivered by the Company to the Servicer, certified by the Company as a true and complete copy thereof (and the Company shall promptly provide the Servicer with all amendments, supplements and waivers thereto, so certified), and the Company shall provide to the Servicer any instructions the Servicer may require in the interpretation of the Indenture, on which instructions the Servicer shall be entitled to rely in all respects, and (B) such Indenture covenants (excluding, in any case, any such covenants relating to the limitations on Lessee concentrations, which are treated in Section 2.2 of this Schedule 2.02(a)) first coming into effect (including through amendments or modifications) after the date of the Servicing Agreement that are reasonably acceptable to the Servicer, or which the Company shall from time to time notify the Servicer in writing, in reasonably specific detail by amendment to such Schedule 2.02(a)(i) and that are reasonably acceptable to the Servicer.

Nothing in this Schedule 2.02(a) or elsewhere in the Servicing Agreement shall be deemed to constitute or be construed as (i) a delegation or other transfer to, or an assumption by, the Servicer or any of its Affiliates of any obligations of any Person within the Company Group (or, if applicable, with respect to any Original Aircraft, the owner) to make any payment to any Lessee or other Person, or to comply with any other monetary obligation, under any Lease or (ii) a transfer to the Servicer or any of its Affiliates of any right, title or interest in any Lease or related agreement or any Aircraft Asset covered thereby.

SCHED 2.02(a)-6

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

SECTION 2.2. Certain Matters Relating to Concentration Thresholds.

(a) Concentration Thresholds Generally. The Servicer shall comply with any covenants specifically relating to limitations on Lessee concentration set forth in the Indenture (“Concentration Limits”) and shall promptly inform the Company of any proposed transaction that it reasonably determines may result in such Concentration Limits being exceeded, and the Company shall promptly provide to the Servicer any information that the Servicer may reasonably require in connection with such Concentration Limits in order to comply with the provisions of this Section 2.2. The Servicer shall not enter into any such transaction other than pursuant to the terms of Section 2.2(c) below.

(b) Present Concentration Limits. The Company hereby represents and warrants to the Servicer that set forth in Annex 2 to the Servicing Agreement are the Concentration Limits (including, following each provision set forth in such Annex, the relevant section references for each such provision from the Indenture) presently imposed under the Indenture, which Concentration Limits (together with the definitions for any capitalized terms used therein) are set forth in a full copy of the Indenture delivered by the Company to the Servicer, certified by the Company as a true and complete copy thereof (and the Company shall promptly provide the Servicer with all amendments, supplements and waivers thereto, so certified) and the Company shall provide to the Servicer any instructions the Servicer may require in the interpretation of such Concentration Limits, on which instructions the Servicer shall be entitled to rely in all respects.

(c) Directions to Servicer. The Servicer shall not enter into any transaction with respect to which it has provided notice pursuant to Section 2.2(a) until the Company has provided a written certification to the Servicer to the effect that such transaction will not result in any violation of the Concentration Limits and the Servicer shall be entitled to rely upon such certification for all purposes of the Servicing Agreement and this Schedule 2.02(a).

SECTION 2.3. Security Interests and International Interests. (a) Security Interests. In connection with the obligation of any Person within the Company Group under the Security Trust Agreement to perfect any security interest granted by it in its right, title and interest in and to any Assigned Lease, the Servicer’s sole responsibility in respect thereof shall be to take the following actions with respect to each Assigned Lease: (1) seek advice from local counsel in the jurisdiction where the related Aircraft Asset is registered as to what actions would be customarily taken in such jurisdiction to perfect the security interest created in such Assigned Lease pursuant to the Security Trust Agreement and to use commercially reasonable efforts to implement such advice, (2) create an original chattel paper copy of such Assigned Lease by adding the following language to the cover of such Assigned Lease: “To the extent, if any, that this [Lease Agreement] or any [Lease Supplement] hereunder constitutes tangible chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no security interest in this [Lease Agreement] or such [Lease Supplement] may be created through the transfer or possession of any counterpart other than the original executed counterpart, which shall be identified as the counterpart containing the receipt therefore executed by the Security Trustee under and as defined in the Security Trust Agreement dated as of [               ] [        ], 2007 between the Company, Deutsche Bank Trust Company Americas, as Security Trustee, and the various other parties identified on the signature pages thereof”, and (3) no later than ten days after the execution of such Assigned Lease by all the parties thereto, deliver such original tangible chattel paper copy (which, by way of clarification, shall not include the signature or the receipt therefore of the Security Trustee) to a courier service for delivery to the Security Trustee at Deutsche Bank Trust Company Americas, Attention: Structured Finance Services / Trust & Agency Services, 60 Wall Street, New York, New York 10005, (4) notify the Lessee in writing of the security assignment of such Assigned Lease to the Security Trustee

SCHED 2.02(a)-7

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

pursuant to the Security Trust Agreement (which notice may be contained in such Assigned Lease), (5) obtain from the Lessee a written acknowledgment addressed to, or for the benefit of, the Security Trustee (A) acknowledging receipt of notification of such security assignment and (B) containing the agreement of the Lessee to continue to make all payments required to be made to the lessor under such Assigned Lease to the account specified in such Assigned Lease unless and until the Security Trustee otherwise directs (it being understood that the account specified in such Assigned Lease will be the account specified by the Administrative Agent to the Servicer as contemplated by Section 1.1(a) of this Schedule 2.02(a)) and (6) take such other action as the Company shall have reasonably requested and described in reasonable detail in a written notice to the Servicer. Notwithstanding the foregoing, the Servicer shall have no obligation to take any action specified in the prior sentence of this Section 2.3(a) with respect to any Assigned Lease or any supplement or amendment thereto that was executed before the related Aircraft became an Aircraft Asset. In connection with any Assigned Lease, the Company will cooperate with the Servicer in obtaining a letter of quiet enjoyment with respect to such Assigned Lease referred to in the final sentence of Section 2.08(a) of the Security Trust Agreement.

(b) International Interests. In connection with the obligation of any Person within the Company Group under the Security Trust Agreement to register at the International Registry any International Interest constituted by any Assigned Lease, the Servicer’s sole responsibility in respect thereof shall be to direct the International Registry administrator of the Person within the Company Group that is lessor under such Assigned Lease to register such International Interest with the International Registry and seek the consent of the Lessee to such registration. In connection with the obligation of any Person within the Company Group under the Security Trust Agreement to register the assignment to the Security Trustee of any International Interest constituted by any Assigned Lease of an Aircraft, the Servicer’s sole responsibility in respect thereof shall be to, upon request by the Security Trustee, direct the International Registry administrator of the Person within the Company Group that is lessor under such Lease to consent to the registration of the assignment in favor of the Security Trustee of any International Interest that has been registered with the International Registry in respect of such Assigned Lease and is then held by a Person with the Company Group, and request the consent of the lessee under such Assigned Lease to such assignment (which consent may be set forth in the Assigned Lease). In connection with the obligation of any Person within the Company Group under the Security Trust Agreement to register any interest created under any contract of sale with respect to an Aircraft Asset, the Servicer’s sole responsibility in respect thereof shall be to direct the International Registry administrator of the Person within the Company Group that is a party to such contract of sale to register such interest with the International Registry and seek the consent of the other party to such contract of sale to such registration. In connection with the obligation of any Person within the Company Group under the Security Trust Agreement to register any contract of sale with respect to an Aircraft Asset, the Servicer’s sole responsibility in respect thereof shall be to, upon request by the Security Trustee, direct the International Registry administrator of the Person within the Company Group that is owner of such Aircraft Asset to consent to the registration in favor of the Security Trustee of such interest with the International Registry.

SECTION 3. Lease Marketing.

(a) The Servicer shall provide and perform lease marketing services with respect to the Aircraft Assets and in connection therewith is authorized:

(i) to negotiate and enter into any commitment for a lease of an Aircraft Asset in the name of the relevant Person within the Company Group (or, if applicable, with respect to any Original Aircraft, the owner); and

SCHED 2.02(a)-8

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

(ii) to include within any commitment for a Lease of an Aircraft Asset and/or effect any intermediate Lease or Leases through any Person within the Company Group that the Servicer deems reasonably necessary or appropriate.

(b) The Servicer shall commence the negotiation of any commitment for a Lease or Leases of Aircraft Assets in a manner consistent with the practices employed by the Servicer with respect to its aircraft operating leasing services business generally and shall commence the drafting of, and negotiation with respect to, any Leases for Aircraft Assets on the following basis:

(i) in the case of any proposed Lessee that is not and has not been a lessee of an aircraft managed or serviced by the Servicer, the Servicer shall commence the drafting of, and negotiation with respect to, a Lease for Aircraft Assets based on the form of lease agreement or agreements then used by the Servicer in connection with its aircraft operating leasing services business generally but reflecting any changes thereto required under clause (c)(ii) below (as such form of lease shall be amended from time to time by the Servicer, the “Company Pro Forma Lease”); and

(ii) in the case of any proposed Lessee that is or was a lessee of an aircraft managed or serviced by the Servicer, the Servicer may commence the drafting of, and negotiation with respect to, a Lease for Aircraft Assets based on a form of lease substantially similar to the lease previously used with respect to such Lessee (the “Precedent Lease”).

Provided that the Servicer commences the negotiation of a Lease of any Aircraft Asset in accordance with clauses (b)(i) and (b)(ii) above, the terms of any executed Lease may vary from the terms of the Company Pro Forma Lease or the Precedent Lease employed by the Servicer in accordance with such clauses. Section 3(b) shall not be applicable to the negotiation with respect to, or execution of, any Lease for Aircraft Assets in which negotiations commenced on or prior to the Closing Date. The Servicer is authorized to execute and deliver binding leases and related agreements on behalf of the relevant Person within the Company Group based on the foregoing procedures. All Leases shall contain the Core Lease Provisions, unless otherwise approved by the Company and the Policy Provider

(c) (i) Upon ten Business Days’ prior written notice from the Company or the Policy Provider (x) requesting a copy of the then current Company Pro Forma Lease and (y) specifying that such Company Pro Forma Lease is to be used for purposes of the annual review required pursuant to the terms of Section 5.03(f) of the Indenture (the “Annual Review”), the Servicer shall provide the Company or the Policy Provider, as the case may be, with a copy of its then current Company Pro Forma Lease, together with a copy thereof marked to reflect changes from the version of the Company Pro Forma Lease that was produced by the Servicer following the immediately preceding Annual Review to give effect to the terms of Section 3(c)(ii) below (or from the Company Pro Forma Lease utilized as of the Closing Date (a copy of which shall have been delivered to the Company on or before the Closing Date) in the case of the first such Annual Review).

(ii) On or prior to each anniversary of the Closing Date and following the Annual Review, the Company shall advise the Servicer in writing whether any provisions in the then current The Company Pro Forma Lease that correspond to the Core Lease Provisions are required in accordance with the terms of Section 5.03(e) of the Indenture to be deleted from such The Company Pro Forma Lease and replaced with the provision corresponding thereto in the most recent The Company Pro Forma Lease in which such provision was determined to be acceptable in accordance with the terms of Section

SCHED 2.02(a)-9

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

5.03(e) of the Indenture. Following any such written advice from the Company, the Servicer shall amend the Company Pro Forma Lease accordingly and shall commence the negotiation of any Lease thereafter with the Company Pro Forma Lease as so amended in respect of any such provision.

(d) The Servicer shall take such actions as shall be reasonably necessary or appropriate to deliver any Aircraft Asset pursuant to the terms of the documentation of the Lease or Leases of such Aircraft Asset, including upon an extension of such Leases.

(e) The Servicer shall generally provide the marketing services set forth in this Section 3 through the use of its own marketing staff where it shall deem appropriate and shall utilize third parties to provide such marketing services where it shall deem appropriate; provided that no such utilization shall release the Servicer from any of its obligations under the Servicing Agreement.

SECTION 4. Sales of Aircraft and Engines.

(a) The Servicer shall provide and perform sales services with respect to the Aircraft Assets at, and on a basis consistent with, the direction from time to time of the Company, and, in connection therewith, is authorized:

(i) to enter into any commitment for a sale of an Aircraft Asset on behalf and (through a power of attorney) in the name of the relevant Person within the Company Group; and

(ii) to include within any sale and effect any intermediate Lease or Leases through any Person within the Company Group that the Servicer deems reasonably necessary or appropriate;

provided that, except as otherwise required in accordance with the terms of a Lease, the Servicer shall not enter into any sale of any Aircraft Asset or agreement to sell any Aircraft Assets without obtaining the approval of the Company pursuant to Section 7.04(a) of the Servicing Agreement.

(b) The Servicer shall negotiate documentation of any sale and, subject to Section 4(a) of this Schedule 2.02(a), is authorized to execute and deliver binding agreements on behalf and (through a power of attorney) in the name of the relevant Person within the Company Group.

(c) The Servicer shall take such reasonable commercial actions as shall be reasonably necessary or appropriate to deliver any Aircraft Asset pursuant to the terms of the documentation of the sale.

(d) In the event that the Company directs the Servicer to sell or arrange for the sale of any Aircraft Asset, the Servicer will not be required to take any such action until the Company shall provide the Servicer with an Officer’s Certificate, substantially in the form attached as Schedule 2.02(a)(ii) to the Servicing Agreement, certifying that such sale complies with the terms of the Indenture and that the Servicer is entitled to rely upon such certification for all purposes of the Servicing Agreement and this Schedule 2.02(a).

(e) Notwithstanding any other provision in Section 7.04 of the Servicing Agreement to the contrary, the Servicer shall be permitted to purchase, sell or exchange any Engine relating

SCHED 2.02(a)-10

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

to an Aircraft or any part or components thereof or spare parts or ancillary equipment or devices furnished with an Aircraft at such times and on such terms and conditions as the Servicer deems reasonably necessary or appropriate in connection with its performance of the Services; provided that the Servicer shall not be permitted to purchase, or enter any order to purchase, Engines or spare parts (y) in a quantity in excess of that quantity deemed by the Servicer as appropriate in connection with the operation, leasing or sale of such the Aircraft Assets without obtaining the prior written consent of the Company, or (z) if the net (after credit for any exchanges, replacements or similar items) cash out-of-pocket purchase price of such Engine exceeds $3,000,000.

SECTION 5. Aircraft Acquisitions.

SECTION 5.1. Limitation on Acquisitions. The Company shall not, and shall not permit any other Person within the Company Group to, purchase or otherwise acquire, directly or indirectly, (x) Aircraft Assets from any Person other than the Servicer or any of its Affiliates, or (y) without the consent of the Servicer, any Aircraft as to which Servicer has no obligation to provide Services under the Servicing Agreement and other than as provided herein (including, without limitation, with respect to any Engine, in Section 4(e) of Schedule 2.02(a) and, in respect of any Aircraft Assets, pursuant to the terms of the Asset Purchase Agreement). For purposes of clarification, the Servicer shall have no obligations under this Agreement with respect to the acquisition of any Aircraft except to the extent expressly set forth in this Section 5.1 and subject to the conditions in Section 2.03(g) of the Servicing Agreement.

SECTION 5.2. Other Acquisitions. Except as otherwise provided in Section 2.03(g) of the Servicing Agreement, the Servicer shall not be required to assist in the solicitation of, or otherwise take any action to obtain, any acquisition of any aircraft, engine or other property or any lessee consents and/or novations in connection with the acquisition of any Aircraft Assets or the issuance of Additional Notes or any other additional equity or debt capital (it being the expectation of the parties hereto that the obtaining of any lessee consents and/or novations with respect to any Aircraft Asset shall be the responsibility of the seller of such Aircraft Asset to any Person within the Company Group). The parties hereto acknowledge that Section 2.03 of the Servicing Agreement deals with, among other things, the Servicer’s involvement in the issuance of Additional Notes.

SECTION 6. [Reserved]

SECTION 7. Aircraft Asset Cash Services.

SECTION 7.1. Accounts and Account Information.

(a) Existing Accounts. In the event that the Cash Manager desires to modify any of the arrangements relating to any of the bank accounts set forth on Schedule 4.03 to the Servicing Agreement (the “Existing Accounts”) in accordance with Section 2.04 of the Cash Management Agreement, the Company shall cause the Cash Manager to (i) deliver a certificate to the Servicer specifying in reasonable detail the modifications to be made with respect to any such Existing Accounts and certifying that any such modifications are in accordance with the applicable provisions of the Indenture and the Cash Management Agreement and (ii) transmit instructions to the relevant banking institution to effect such modifications and shall take such other actions as are incidental thereto in order to give effect to the foregoing.

(b) New Accounts. The Servicer shall notify the Cash Manager in the event that any new bank accounts need to be established on behalf of any Person within the Company Group in connection with a Lease and shall set forth in reasonable detail the (i) identity of the Lessee, (ii)

SCHED 2.02(a)-11

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

Aircraft Assets subject to such Lease and (iii) jurisdiction of the Lessee and in which such Aircraft Assets are to be registered. Following receipt of such notice from the Servicer, the Company shall cause the Cash Manager promptly to (i) deliver a certificate to the Servicer specifying (v) the name and location of the bank at which such account will be established, (w) the name(s) in which such account will be established, (x) the names of the beneficiaries of such account, (y) the names of the Persons authorized to make withdrawals from such account and (z) such other information (including with respect to any security arrangements) as the Cash Manager deems appropriate and certifying that the establishment of such account is in accordance with the applicable provisions of the Indenture and the Cash Management Agreement and (ii) transmit instructions to the relevant banking institution to effect the establishment of such account and shall take such other actions as are incidental thereto in order to give effect to the foregoing (the “New Accounts”; and, together with the Existing Accounts, the “Bank Accounts”).

SECTION 7.2. Cash Transfers. (a) In the event that funds are required to be transferred from any Bank Account to the account of another Person (other than any Person within the Company Group) in order to give effect to the directions of any Lessee in accordance with Section 1.1(d) of this Schedule 2.02(a), the Servicer shall provide the Cash Manager and the Administrative Agent with written notice setting forth the (i) name of the transferor, (ii) name of the transferee, (iii) accounts from and to which funds are to be transferred, (iv) amounts to be transferred, (v) amount of the initial payment from or to the Lessee and (vi) anticipated date of transfer. No later than the next following Business Day, the Company shall cause the Cash Manager to notify the Servicer in writing whether the proposed transfer will be made on such anticipated date of transfer or on another stated date. The Company shall instruct the Cash Manager to cause such transfer to be made on such date in accordance with the terms of the written notice provided by the Servicer.

(b) It is understood and agreed that (i) all decisions as to any transfers contemplated by Section 7.2(a) shall be the decisions and responsibility of the Cash Manager or the Administrative Agent, as the case may be, and not the decisions and responsibility of the Servicer (and the Servicer shall not be subject to any other responsibilities not specified in this Section 7 or any liability whatsoever for any such transfers or any decisions of the Cash Manager or the Administrative Agent, as the case may be, related thereto) and (ii) the Servicer shall have no responsibility as to the actions taken (or omitted) by any banking institution upon receipt of any payment instruction from the Cash Manager or the Administrative Agent, as the case may be, in accordance with the procedures set forth in this Section 7.

SECTION 7.3 Payments.

(a) Anticipated Payments. For purposes of the calculation of the Required Expense Amount by the [Cash Manager pursuant to Section 2.03 of the Cash Management Agreement], not less than one Business Day prior to each Calculation Date, the Servicer shall deliver to the [Cash Manager and] the Administrative Agent a written projection of payment obligations (including projected expenditures (including maintenance contribution payments, airworthiness directive payments and redelivery condition payments), or return to Lessees of security deposits in accordance with the terms of any Lease) reasonably anticipated by the Servicer to be necessary to be paid in connection with the Servicer’s performance of the Services under the Servicing Agreement during the period extending from the Payment Date immediately following such Calculation Date through to the next succeeding Payment Date (the “Monthly Payment Period”). Not later than two Business Days prior to the date of each cash payment, the Servicer shall deliver to [the Cash Manager and] the Administrative Agent a written notice of such payment (whether or not such cash payment was reflected in the projection referred to in this Section

SCHED 2.02(a)-12

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

7.3(a)), and shall state (i) the anticipated date of such payment, (ii) the payee, (iii) the amount of such payment and (iv) the obligation in respect of which such payment is to be made (the “Stated Services Obligation”), with an appropriate notation if, and to what extent, such payment should be made from the Lessee Funded Account. No later than the Business Day prior to such anticipated date of payment, the Company shall instruct the Cash Manager to notify the Servicer in writing whether the proposed payment will be made on such anticipated date or on another stated date. The Company shall instruct the Cash Manager to pay or cause such payment to be made on such date to the payee for the Stated Services Obligation from the funds then available in the Expense Account and/or the Lessee Funded Account, as the case may be.

(b) Unanticipated Payments. During any Monthly Payment Period, the Servicer may request in writing the Cash Manager’s approval for the Cash Manager to pay or cause to be paid expenses that had not been reasonably anticipated by the Servicer at the time the projection required to be provided to the Cash Manager pursuant to Section 7.3(a) with respect to such Monthly Payment Period was delivered to the Cash Manager. Any such request shall specify for each such payment obligation (i) the anticipated date of such payment, (ii) the payee, (iii) the amount of such payment and (iv) the Stated Services Obligation, with an appropriate notation if, and to what extent, such payment should be made from the Lessee Funded Account. No later than the Business Day next following such request by the Servicer, the Company shall instruct the Cash manager to notify the Servicer in writing whether such payment will be made on such anticipated date of payment or on another stated date. The Company shall instruct the Cash Manager to pay or cause such payment to be made on such date to the payee for the Stated Services Obligation from the funds then available in the Expense Account or the Lessee Funded Account, as the case may be. In the event that the funds then available in the Expense Account or the Lessee Funded Account are insufficient to make any such payment, pursuant to Section 2.03 of the Cash Management Agreement, the Company shall cause the Cash Manager to take such actions as are necessary to cause funds sufficient to make any such payments to be transferred as soon as practicable from the Collection Account to the Expense Account and/or the Lessee Funded Account, as the case may be. Following the transfer of such funds from the Collection Account, the Company shall cause the Cash Manager to pay or cause such payments to made in accordance with the foregoing provisions.

(c) Limitation on Payments. It is understood and agreed that (i) all decisions as to the payment of funds from any Bank Account (including the timing, amount and payee thereof) shall be the decisions and responsibility of the Cash Manager and not the decisions or responsibility of the Servicer (and the Servicer shall not be subject to any other responsibilities not specified in this Section 7 or any liability whatsoever for any such payments or any decisions of the Cash Manager related thereto) and (ii) the Servicer shall have no responsibility as to the action taken (or omitted) by any banking institution upon receipt of any payment instructions from the Cash Manager in accordance with the procedures set forth in this Section 7 or as to the application by any payee of any amounts paid to it from any Bank Account in accordance with the procedures set forth in this Section 7, including no responsibility as to whether such payee applies such payment toward the Stated Services Obligation for which such payment was made.

SECTION 8. Professional and Other Services.

SECTION 8.1. Legal Services. The Servicer shall provide or procure legal services, in all relevant jurisdictions, on behalf of the relevant Persons within the Company Group with respect to the lease, sale or financing of the Aircraft Assets, any amendment or modification of any Lease, the enforcement of the rights of any Person within the Company Group under any Lease, any disputes that arise with respect to the Aircraft Assets or for any other purpose that the Servicer reasonably determines

SCHED 2.02(a)-13

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

is necessary in connection with the performance of the Services. The Servicer shall provide such legal services (which services shall not, in any case, be deemed to include (i) services or transactions relating to taxation matters, the laws of foreign jurisdictions, capital markets transactions or novel or unique transactions or (ii) a high level of services at fiscal year end or other times of peak activity relative to the level of services at other times) by using its in-house legal staff where it shall deem appropriate and shall authorize outside counsel to provide such legal services where it shall deem appropriate. The Company recognizes, and shall cause each other Person within the Company Group to recognize, that from time to time the Servicer will retain legal counsel to provide legal services on behalf of Persons within the Company Group and, in the event that a dispute arises between any Person within the Company Group and the Servicer, the Company agrees, and shall cause each other Person within the Company Group, to waive any conflict of interest any such counsel may have with respect to any such dispute or otherwise to enable the Servicer to retain such counsel on its own behalf (it being understood that notwithstanding any such waiver of a conflict of interest, any such Persons within the Company Group do not waive any rights to retain any such counsel on its own behalf if such counsel is so agreeable).

SECTION 8.2. Tax Services. The Servicer shall arrange for such tax services and advice (which may be provided by the Servicer’s internal staff, to the extent available) as shall be reasonably necessary or appropriate in connection with the structuring of lease or sale with respect to the Aircraft Assets or for any other purpose that the Servicer reasonably determines is necessary in connection with the performance of the Services; provided that the Servicer shall not be responsible for arranging for any tax services with respect to the preparation of tax returns or the acquisition of any Additional Aircraft or in connection with any Offering or other financing.

SECTION 9. Reports; Custody.

SECTION 9.1. Monthly Reports. On the fifth Business Day iafter each Calculation Date (or, to the extent impracticable, promptly thereafter), the Servicer shall provide to the Company, the Administrative Agent and the Cash Manager a written report substantially in the form attached as Exhibit A covering the period from the last Calculation Date preceding the last such report, if any, through such Calculation Date. The Servicer acknowledges that the Company, the Administrative Agent and the Cash Manager will provide the information in such reports, together with the additional monthly information set forth on Exhibit B, to the Policy Provider.

SECTION 9.2. Quarterly Reports. The Servicer shall provide written reports to the Company (a copy of which the Company shall promptly provide the Policy Provider) within forty-five days after the end of each calendar quarter substantially in the form of Exhibit B with respect to such calendar quarter. The Servicer shall provide to the Company (a copy of which the Company shall promptly provide, together with the additional quarterly information set forth on Exhibit B, to the Policy Provider) a quarterly certificate from a responsible member of its staff as to its compliance with its obligations under the Servicing Agreement.

SECTION 9.3. Other Information.

(a) To the extent the Servicer is in possession of the relevant information, the Servicer shall prepare and submit to the Company the following information with respect to each Person within the Company Group:

(i) upon request by the Company, information with respect to transactions relating to Aircraft Assets necessary for each Person within the Company Group or Babcock & Brown Air Limited or any other holder of a Beneficial Interest to prepare value added tax and other tax returns;

SCHED 2.02(a)-14

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

(ii) promptly after the occurrence thereof, notification to the Company of any accident or incident of which the Servicer has notice involving any Aircraft Asset where (A) the potential loss in connection therewith exceeds the higher of the damage notification threshold under the relevant Lease, if any, and $2,000,000 or (B) the potential liability in connection therewith exceeds $2,000,000; and

(iii) advise the Company of any settlement offers received by the Servicer with respect to any claim of damage or loss in excess of $10,000,000 with respect to an Aircraft Asset, and, upon request by the Company, provide the Company with copies of all relevant documentation related thereto and such other additional information and advice as the Company may reasonably request and, upon direction from the Company that any such settlement offer related thereto is acceptable, prepare the appropriate documentation, including releases and any indemnities required in connection with such releases, to give effect to such settlement offer and procure the execution of such documentation by the Company (it being understood that settlement offers with respect to any such claims up to and including $10,000,000 may be settled by the Servicer independently).

(b) Upon request by the Company, the Servicer shall provide to the Company copies of any financial statements received by the Servicer from any Lessee under and in accordance with the provisions of its Lease of an Aircraft Asset.

(c) Upon request by the Company, the Servicer shall provide to the Company such factual non-proprietary and non-confidential information and data about the Aircraft Assets that the Servicer has created to provide the Services (exclusive of internal correspondence, approval materials, internal evaluations and similar information and data) or obtained from Lessees which may reasonably be requested by the Company; provided that the Servicer shall not be required to provide any valuations, interpretations, comparisons, evaluations, opinions, forecasts, predictions or analytical analysis.

SECTION 9.4. Ratings Information. Upon request by the Company, and subject to the rating agency’s handling of such information and data pursuant to its confidentiality policies, the Servicer shall provide to the Company such information and data about the Aircraft Assets that the Servicer has created to provide the Services or obtained from Lessees and other commercially reasonable assistance relating to the Aircraft Assets as the Company shall deem reasonably necessary or appropriate in connection with providing information to the ratings agencies for the Company’s debt ratings.

SECTION 9.5. Custody of Documents. The Servicer agrees to hold all original documents of any Person within the Company Group that relate to the Aircraft Assets in the possession of the Servicer in safe custody and according to the commercially reasonable instructions of the Company.

SECTION 9.6. Reporting Obligations Generally. Notwithstanding anything herein to the contrary, the Company acknowledges and agrees that it shall be responsible for, and the Servicer shall not have any responsibility for, (a) any obligations under securities laws or otherwise to any holders of outstanding Notes, any holders of any other securities issued by any Person within the Company Group or by Babcock & Brown Air Limited or any of its Affiliates or any Governmental Authorities, (b) any instructions, discretion, judgments and assumptions related to such obligations, and the Company agrees to indemnify the Servicer and its Affiliates in respect of the foregoing as further provided in the Servicing Agreement, and (c) the completeness or accuracy of any information or data provided by the Servicer hereunder to the extent based upon, reflecting or otherwise incorporating any information or data

SCHED 2.02(a)-15

SCHEDULE 2.02(a) TO
SERVICING AGREEMENT

prepared by any Lessee, other party to an Asset Related Document, any other party to any Operative Agreement.

SECTION 9.7. Aircraft Assets Related Documents. The Servicer shall provide to the Security Trustee a copy of each fully executed Aircraft Assets Related Document received by the Servicer no later than ten Business Days after the receipt thereof by the Servicer. For purposes of this Section 9.7, the term “Aircraft Assets Related Documents” does not include letters of intent, memoranda of understanding or similar documents.

SECTION 9.8. Quarterly Meeting Directions. At each quarterly meeting contemplated by Section 5.01 of the Servicing Agreement, the Servicer will be advised by the Company if there are Aircraft Assets which the Company instructs the Servicer to sell pursuant to Section 4 of this Schedule 2.02(a) of the Servicing Agreement, and, with respect to any Aircraft Asset subject to a Lease expiring within the next twelve (12) months of the end of the preceding calendar quarter, if such Aircraft Asset is not to be remarketed for lease or an extension of a Lease because such Aircraft Asset is to be converted to a freighter aircraft (and is to be remarketed for lease after giving effect to such conversion) or is to be sold free and clear of a Lease (it being agreed that in the absence of an instruction not to remarket an Aircraft Asset for lease, such Aircraft Asset shall be remarketed for lease and in any event an Aircraft Asset shall continue to be remarketed for lease (or an extension of an existing Lease), and notwithstanding any contrary instruction, may be leased if the Servicer has entered into any preliminary agreement (such as a letter of intent) with respect thereto or has entered into a lease or lease extension with respect thereto).

SECTION 9.9. Public Filing Information. The Servicer shall provide to the Company such information and data about the Aircraft Assets that the Servicer has created to provide the Services or obtained from Lessees, as the Company may reasonably request to comply with its public statutory and filing obligations.

SCHED 2.02(a)-16

Applicable Indenture Covenants

Attached are applicable extracts of the following sections of the Indenture:

1. 5.02(b) Limitation on Encumbrances;

2. 5.02(g);

3. 5.03(a) Concentration Limits;

4. 5.03(b) Compliance with Law, Maintenance of Permits;

5. 5.03(c) Maintenance of Assets;

6. 5.03(e) Leases;

7. 5.03(f) Opinions;

8. 5.03(g) Insurance;

9. 5.03(h)(ii)(C) and (E); and

10. 5.03(i) Indemnity.

Form of Officer’s Certificate for Babcock & Brown Air Limited

The undersigned, representing Babcock & Brown Air Funding I Limited, a Bermuda limited liability company, in accordance with Section 4(d) of Schedule 2.02(a) to the Servicing Agreement dated as of [            ] [     ], 2007 (the “Servicing Agreement”) among Babcock & Brown Air Funding I Limited (the “Company”), Babcock & Brown Aircraft Management LLC and Babcock & Brown Aircraft Management (Europe) Limited (collectively, the “Servicer”), hereby certifies as follows:

(a) the sale of the [insert description of asset(s) to be sold], which the Company has directed the Servicer to arrange pursuant to Section 4 of Schedule 2.02(a) to the Servicing Agreement (the “Sale”), complies in all respects with the terms of the Trust Indenture dated as of ________, between the Company, Babcock & Brown Air Limited, _______, and Deutsche Bank Trust Company Americas (including, if required, has been consented to by the Policy Provider);

(b) the Sale has been approved by the board of directors of the Company in accordance with Section 7.04(a) of the Servicing Agreement;

(b) in connection with such Sale, the Servicer is entitled to rely upon this certification for all purposes of the Servicing Agreement and Schedule 2.02(a) thereto; and

(c) the undersigned is a duly appointed, qualified and acting officer of the Company and the signature appearing below after his/her name is a genuine signature.

IN WITNESS WHEREOF, I have hereunto set my hand on and as of this [____] day of [____ ], [_____].

By:
	Name:
	Title:

Aircraft Assets*

SERIAL #	MODEL	OWNER**
34896	Boeing 737-800
34898	Boeing 737-800
34899	Boeing 767-800
2522	Airbus 320-200
2670	Airbus 320-200
29945	Boeing 757-200
29946	Boeing 757-200
35089	Boeing 737-800
35211	Boeing 737-800
	Airbus 319-100
2728	Airbus 320-200
29944	Boeing 757-200
29942	Boeing 757-200
29052	Boeing 737-800
25402	Boeing 737-300QC
28040	Boeing 767-300ER
28608	Boeing 737-800
0533	Airbus 320-200
0548	Airbus 320-200
0888	Airbus 320-200
0545	Airbus 320-200
0562	Airbus 320-200
30785	Boeing 737-800
30784	Boeing 737-700
0553	Airbus 320-200
0559	Airbus 320-200
0574	Airbus 320-200
25232	Boeing 737-500
25233	Boeing 737-500
28595	Boeing 737-800
27974	Boeing 757-200
27975	Boeing 757-200
27976	Boeing 757-200
29330	Boeing 757-200
2616	Airbus 320-200
2740	Airbus 320-200
24528	Boeing 757-200
34704	Boeing 737-800
1140	Airbus 319-100
1159	Airbus 319-100
2979	Airbus 320-100
34293	Boeing 737-700
34295	Boeing 737-700
0566	Airbus 320-200

Aircraft Assets Related Documents*

Bank Accounts

ACCOUNT NAME	ACCOUNT NUMBER
FUNDING LIMITED COLLECTION AC
FUNDING LIMITED LESSEE FUNDED AC
FUNDING LIMITED SECURITY DEP AC
FUNDING LIMITED EXPENSE AC
FUNDING LIMITED CLASS G1 NOTE AC
FUNDING LIMITED CAPITAL AC
FUNDING LIMITED LIQ FACILITY AC
FUNDING LIMITED CLASS B SHARE AC
FUNDING LIMITED CONVERSION AC
FUNDING LIMITED INTIAL LIQ PT AC
FUNDING LIMITED RENTAL AC
FUNDING LIMITED AIRCRAFT CON AC
FUNDING LIMITED REDEMPTION AC
FUNDING LIMITED REFINANCING AC
FUNDING CASH COLLATERAL AC
THE COMPANY [OWNER TRUSTEE] ACCT

* Deutsche Bank Trust Company Americas – NY

ABA #: 021-001-033

Account #:

Account Name: [Deutsche Bank Trust Company Americas as Security Trustee for [THE COMPANY-THE COMPANY] Rental    Account]

Reference: [   ] Funding

Attn:

List of Persons within the Company

Group and Jurisdictions

Babcock & Brown Air Funding I Limited Non-Corporate Entities

Babcock & Brown Air Funding I Limited Corporate Entities

SCHEDULE 4.04(a) TO

THE SERVICING AGREEMENT 

______________

* These Persons will be within the Company Group as of the Closing Date. All other Persons will be within the Company Group as of the date of each such Persons’ applicable BI Transfer Date (as defined in the Asset Purchase Agreement).

SCHED 4.04(a) -2

Responsibilities of the Company Group

A. With respect to Aircraft Assets, each Person within the Company Group shall retain such responsibilities as are expressly set forth in Article VII of the Servicing Agreement.

B. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, assets which do not constitute Aircraft Assets and for any or all the Company Group Liabilities.

C. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, all finance functions which are not expressly the responsibility of the Servicer under the Servicing Agreement. Such responsibilities of the Company Group shall include:

(i) all matters relating to the arrangement and procurement of any financings of any type or nature for the Company Group;

(ii) all matters relating to the management of borrowings and payments under such financings and the management of the respective borrowers’ or issuers’, as the case may be, compliance with the terms of such financings, including compliance with the reporting requirements thereunder and any computations required in connection with such reporting;

(iii) all matters relating to the arrangement and procurement of refinancings of any type or nature of any outstanding indebtedness of the Company Group;

(iv) all matters relating to the restructuring of any type or nature of any indebtedness of the Company Group; and

(v) all communications with creditors (other than trade creditors and Lessees) of any type or nature of the Company Group.

It is expressly understood by the parties that while the Servicer will, to the extent expressly provided in Schedule 2.02(a) to the Servicing Agreement, provide the Company with assistance and information required to assist in its compliance with its obligations and covenants under the Indenture to the extent such compliance specifically relates to the Services, the Servicer shall not deal directly with any creditors of any Person within the Company Group, except to the extent such dealings with trade creditors are incidental to the Servicer’s provision of the Services under the Servicing Agreement.

D. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, all treasury functions of the Company Group that are not expressly the responsibility of the Servicer under the Servicing Agreement, including:

(i) cash management;

(ii) currency and interest rate risk management (including the establishment of related policies and the arrangement and procurement of appropriate swap programs); and

(iii) reconciliation of all Bank Account-related information.

SCHEDULE 7.01 TO

SERVICING AGREEMENT

E. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, all accounting functions not expressly the responsibility of the Servicer under the Servicing Agreement, including:

(i) the monitoring of cash receipts and disbursements and accounts payable and accounts receivable of the Company Group;

(ii) the promulgation, maintenance, interpretation, amending and supplementing of accounting policies for the Company Group, and the review and approval of any potential exceptions to the accounting policies established by the Company Group;

(iii) maintaining the accounting ledgers, preparing balance sheets, statements of changes in shareholders’ equity and statements of income and cash flows and arranging for financial audits, as required, and for the preparation of audited financial reports for the Company Group;

(iv) the provision of overhead services to the Company Group; and

(v) preparing annual Lease Operating Budgets and Aircraft Asset Expenses Budgets, preparing and analyzing actual results to budget and performing profitability analysis.

F. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, all corporate secretarial activities and other matters related to the existence of any Person within the Company Group.

G. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, all matters relating to the holders of the share capital, beneficial interests or membership interests of any Person within the Company Group.

H. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, all legal and regulatory matters which are not expressly the responsibility of the Servicer under the Servicing Agreement, including:

(i) the preparation and filing of reports required to be filed with the U.S. Securities and Exchange Commission, any securities exchange or any other Governmental Authority;

(ii) all legal services (including the negotiation of documents) not constituting the provision of Services relating to all matters described herein for which any Person within the Company Group has responsibility;

(iii) the preparation and filing of corporate and tax returns of each Person within the Company Group with any Governmental Authority; and

(iv) the preparation of business plans, forecasts or other similar activities.

I. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, any and all litigation or other legal proceedings against or brought by any Person within the Company Group, other than enforcement actions relating to any Aircraft Assets (including any counterclaim arising from any such action

SCHED 7.01 - 2

SCHEDULE 7.01 TO

SERVICING AGREEMENT

to the extent any such counterclaim relates to the Aircraft Assets) brought by the Company or any other Person within the Company Group commencing after the date of the Servicing Agreement.

J. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, the arrangement and procurement of all insurance, other than insurance related to the Aircraft Assets which the Servicer is to arrange and procure (at the expense of the Company Group) under the Servicing Agreement.

K. Each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, employees of any Person within the Company Group.

L. Each of the Company and each other Person within the Company Group, shall be responsible for, and the Servicer shall have no responsibilities in respect of purchases, purchase orders and options to purchase Aircraft, except to the extent the same constitute the provision of Services, or in respect of the decision to sell an Aircraft Asset.

M. Except to the extent expressly provided for in Section 2.3 of Schedule 2.02(a) to the Servicing Agreement, each of the Company and each other Person within the Company Group shall be responsible for, and the Servicer shall have no responsibilities in respect of, keeping the Company in compliance with their obligations and covenants under the Security Trust Agreement.

Notwithstanding anything contained herein to the contrary, the Company acknowledges and agrees that it shall be responsible for, and the Servicer shall not have any responsibility for, (a) any securities law or other obligations to any holders of outstanding Notes or to Babcock & Brown Air Limited, any holders of any other securities issued by any Person within the Company Group or any Governmental Authorities and (b) all instructions, discretion, judgments and assumptions related to such obligations, and the Company agrees to indemnify the Servicer and its Affiliates in respect of the foregoing as further provided in Section 11.05 of the Servicing Agreement.

SCHED 7.01 - 3

Liabilities Incurred in Ordinary Course of Business

1. Acquisitions, dispositions or replacements of Aircraft, Engines or Parts (including BFE and IFE) including, without limitation, by leasing in.

2. Modifications, maintenance, overhauls, repairs, upgrades or other technical expenditures.

3. Dry Leases and wet Leases (including extensions, renewals, amendments and terminations thereof).

4. Repossessions.

5. Registrations and Deregistrations.

6. Governmental approvals, certifications, permits, licenses, consents, filings and authorizations.

7. Third party professional services including, without limitation, legal, tax advisory and insurance.

8. Taxes.

9. Aircraft operator transition costs (including, without limitation, flight operations, storage and maintenance, technical consultants costs, and purchase, storage and scrapping of spare Parts).

10. Lessee Liens.

11. Insurance.

Conditions to Execution

1. Each Person within the Company Group (other than the Company) as to which a request therefore has been made shall have executed and delivered a Company Group Guarantee in favor of the Servicer substantially in the form attached to the Servicing Agreement as Appendix B.

2. Each appendix, annex, exhibit or schedule to the Servicing Agreement and each Company Group Guarantee shall have been completed to the reasonable satisfaction of the Servicer and delivered with the Servicing Agreement and the Company Group Guarantees on the Closing Date.

3. The Aircraft Assets Related Documents shall have been delivered to the Servicer, pursuant to Sections 2.02(f) and 4.02 of the Servicing Agreement, at the Servicer’s offices in Shannon, Ireland, on or prior to the Closing Date.

4. Each person within the Company Group shall have executed and delivered to the Servicer the acknowledged power of attorney contemplated by Section 13.02 of the Servicing Agreement.

5. The Company shall have delivered to the Servicer a copy of the Indenture, certified by the Company as a true and complete copy thereof.

6. The Company and each other Person within the Company Group shall have delivered to the Servicer satisfactory evidence, in the reasonable judgment of the Servicer, as to the appointment of agents for service of process as required by the Documentary Conventions set forth in Appendix A to the Servicing Agreement.

7. The Company and each other Person within the Company Group shall have delivered to the Servicer, in form and substance reasonably satisfactory to the Servicer:

(A) a certificate dated the Closing Date of the secretary, any assistant secretary or other appropriate officer of each such Person certifying as to:

(1) the attached corporate charter, by-laws and other constituent documents of such Person, recently certified, in the case of any such document filed with the secretary of state or similar Governmental Authority of the jurisdiction in which such Person is organized by such Governmental Authority;

(2) the absence of amendments to any constituent document since the date of the last amendment (a) shown on the official evidence as to filed constituent documents furnished pursuant to (B) below if such official evidence is available and (b) in any event reflected in the constituent documents furnished pursuant to (1) above;

(3) resolutions or other written evidence of corporate action of the board of directors (or appropriate committee thereof) and, if applicable, the shareholders of such Person duly authorizing or ratifying the execution, delivery and performance by such Person of the Servicing Agreement and the Company Group Guarantee, as applicable, to which it is or is to be party and the absence of any modification, amendment or revocation thereof or any other resolutions relating thereto;

(4) the absence of proceedings for the dissolution, liquidation, receivership or similar proceedings with respect to such Person;

SCHEDULE 8.01 TO
THE SERVICING AGREEMENT

(5) if applicable, its corporate seal; and

(6) the incumbency and signatures of the individuals authorized to execute and deliver documents on such Person’s behalf; and

(B) to the extent available from appropriate Governmental Authorities, recent official evidence from appropriate Governmental Authorities of appropriate jurisdictions as to constituent documents on file, good standing, payment of franchise taxes and qualification to do business in the jurisdiction in which such Person is organized.

8. The Company and each other Person within the Company Group shall have delivered to the Servicer an Officer’s Certificate dated the Closing Date, in form and substance reasonably satisfactory to the Servicer, stating that:

(A) each representation and warranty of such Person contained in the Servicing Agreement and the Company Group Guarantee, as applicable, is true and correct as of the Closing Date;

(B) such Person has duly performed and complied in all material respects with all covenants, agreements and conditions contained in the Servicing Agreement and the Company Group Guarantee, as applicable, required to be performed or complied with by it on or before the Closing Date;

(C) no event has occurred and is continuing or condition exists or would result from the consummation of any transaction contemplated by the Servicing Agreement or the Company Group Guarantee, as applicable, to which such Person is a party that constitutes, or with the giving of notice or lapse of time or both would constitute, a default in any material respect under such Servicing Agreement or the Company Group Guarantee, as applicable, or a breach thereof or would give any party thereto the right to terminate, or not to perform any material obligation under, any thereof; and

(D) the Servicing Agreement and the Company Group Guarantee, as applicable, to which it is a party is in full force and effect with respect to it, has not been amended, modified or terminated and constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms (subject to bankruptcy and similar laws applicable to creditors’ rights generally and to general equitable principles).

9. The Servicer (and such Affiliates of the Servicer that the Servicer designates as addressees) shall have received legal opinions dated as of the Closing Date, which shall cover the following matters and shall also cover such other matters as the Servicer and its counsel may reasonably request:

(A) Each of the Company and each other Person within the Company Group has been duly organized and is validly existing as a trust, a corporation or a limited liability company in good standing under the laws of its jurisdiction or organization, incorporation or formation, respectively.

(B) Neither the execution and delivery of the Servicing Agreement and the Company Group Guarantee, as applicable, nor the consummation of the transactions contemplated thereby nor the performance by the Company or any other Person within the Company Group of any of their obligations thereunder in accordance with the terms thereof will (i) violate any order, writ, injunction, judgment or decree in effect as of the date hereof of any [insert appropriate courts] to

SCHED 8.01 - 2

SCHEDULE 8.01 TO
THE SERVICING AGREEMENT

which the Company or any other Person within the Company Group, or any of their respective Affiliates, is a party or by which any of their respective properties or assets are bound, (ii) violate in any material respect any applicable law of [insert applicable law] in effect as of the date hereof or (iii) result in any conflict with, breach of or default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, warrant or other similar instrument or any license, permit material agreement or other material obligation to which any such Person is a party or by which any such Person’s properties or assets may be bound.

(C) Upon execution and delivery thereof, the Servicing Agreement and the Company Group Guarantee, as applicable, to which the Company and each other Person within the Company Group is a party shall be valid and legally binding on and enforceable against such party in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, fraudulent transfer, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general equity principles regardless of whether such enforceability is considered in a proceeding in equity or at law.

(D) No action, consent or approval by, or filing with, any [insert appropriate Governmental Authorities] or other third party is required in connection with the execution, delivery or performance by the Company or any other Person within the Company Group of the Servicing Agreement and the Company Group Guarantee, as applicable, to which it is a party or the consummation by the Company or any other Person within the Company Group of the transactions contemplated thereby.

10. The Servicer shall have delivered to the Company, in form and substance reasonably satisfactory to the Company:

(A) a certificate dated the Closing Date of the secretary, any assistant secretary or other appropriate officer of the Servicer certifying as to:

(1) the attached corporate charter, by-laws and other constituent documents of the Servicer, recently certified, in the case of any such document filed with the secretary of state or similar Governmental Authority of the jurisdiction in which the Servicer is organized by such Governmental Authority;

(2) the absence of amendments to any constituent document since the date of the last amendment (a) shown on the official evidence as to filed constituent documents furnished pursuant to (B) below if such official evidence is available and (b) in any event reflected in the constituent documents furnished pursuant to (1) above;

(3) resolutions or other written evidence of corporate action of the board of directors (or appropriate committee thereof) and, if applicable, the shareholders of the Servicer duly authorizing or ratifying the execution, delivery and performance by the Servicer of the Servicing Agreement and the absence of any modification, amendment or revocation thereof or any other resolutions relating thereto;

(4) the absence of proceedings for the dissolution, liquidation, receivership or similar proceedings with respect to the Servicer;

(5) if applicable, its corporate seal; and

SCHED 8.01 - 3

SCHEDULE 8.01 TO
THE SERVICING AGREEMENT

(6) the incumbency and signatures of the individuals authorized to execute and deliver documents on the Servicer’s behalf; and

(B) to the extent available from appropriate Governmental Authorities, recent official evidence from appropriate Governmental Authorities of appropriate jurisdictions as to constituent documents on file, payment of franchise taxes and qualification to do business in the jurisdiction in which the Servicer is organized.

11. The Servicer shall have delivered to the Company an Officer’s Certificate dated the Closing Date, in form and substance reasonably satisfactory to the Company, stating that:

(A) each representation and warranty of the Servicer contained in the Servicing Agreement is true and correct as of the Closing Date;

(B) the Servicer has duly performed and complied in all material respects with all covenants, agreements and conditions contained in the Servicing Agreement required to be performed or complied with by it on or before the Closing Date;

(C) no event has occurred and is continuing or condition exists or would result from the consummation of any transaction contemplated by the Servicing Agreement that constitutes, or with the giving of notice or lapse of time or both would constitute, a default in any material respect under the Servicing Agreement or a breach thereof or would give any party thereto the right to terminate, or not to perform any material obligation under, the Servicing Agreement; and

(D) the Servicing Agreement is in full force and effect with respect to it, has not been amended, modified or terminated and constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms (subject to bankruptcy and similar laws applicable to creditors’ rights generally and to general equitable principles).

12. The Company shall have received legal opinions dated as of the Closing Date, covering matters comparable to those set forth in Section 9 above, with respect to the Servicer.

SCHED 8.01 - 4

Overhead Expenses

1. Salary, bonuses, company cars and benefits of Servicer’s employees.

2. Entertainment expenses of Servicer’s employees.

3. Office, office equipment and rental expenses of the Servicer.

4. Telecommunications expenses of the Servicer.

5. Advertising and promotional expenses of the Servicer.

6. Taxes on the income, receipts, profits, gains, net worth or franchise of the Servicer and payroll, employment and social security Taxes for employees of the Servicer.

Categories of Aircraft Asset Expenses

1. Storage, maintenance, repossession (whether or not successful), reconfiguration, refurbishment, delivery, redelivery, and repair expenses relating to Aircraft Assets, including all expenses incurred by the Servicer relating to compliance with airworthiness directives and service bulletins, which include the fees and expenses of independent technicians and other experts retained for any of the foregoing purposes.

2. Insurance expense related to Aircraft Assets, including all fees and expenses of insurance advisors and brokers.

3. Expenses incurred in connection with the effectuation or acceptance of delivery of any Aircraft Asset, whether being sold or leased by any Person within the Company Group.

4. Special studies expenses related to Aircraft Assets authorized by any Person within the Company Group and fees and expenses of independent advisors retained for providing valuation and appraisal services and general financial advice such as structuring leases and sales and financing transactions.

5. Outside legal counsel, advisory fees and expenses and other professional fees and expenses related to Aircraft Assets (including in connection with the purchase, sale, delivery, redelivery, lease, re-lease, lease extension or repossession of Aircraft Assets or any enforcement actions relating to any lease).

6. Subject to Section 7.04 of the Servicing Agreement, extraordinary fees and expenses not incurred in the ordinary course of business, which the Servicer reasonably determines appropriate in rendering the Services.

7. Taxes reimbursable to Servicer pursuant to Section 9.07.

8. Any other expenses relating to or associated with Aircraft Assets other than Overhead Expenses of the Servicer and such Overhead Expenses of the Company Group as are expressly the responsibility of the Servicer under Section 9.06(a) of the Servicing Agreement and other than expenses specifically prohibited to be incurred by the Servicer under Section 7.04 of the Servicing Agreement.

MANAGEMENT SERVICES

POWER OF ATTORNEY

OF

[GRANTOR]

WHEREAS [GRANTOR], having its [registered] office at [insert address] desires to appoint Babcock & Brown Aircraft Management (Europe) Limited having its registered office at West Pier Dun Loaghaire, County Dublin , Ireland (“the Attorney”) as the true and lawful attorney of the Grantor for and in the name of and on behalf of the Grantor in such Attorney’s absolute discretion to execute each and every Requisite Document and Requisite Act as defined below and do all or any of the acts or things hereinafter mentioned.

KNOW ALL MEN BY THESE PRESENTS that in consideration for the mutual promises and benefits set forth in the Servicing Agreement (defined below) the Grantor does hereby make, constitute and irrevocably and unconditionally appoint for the period (the “Term”) as and from the date hereof until termination or expiry of the Servicing Agreement between ________________ and [Babcock & Brown] Aviation Services Limited dated as of ________ (“the Servicing Agreement”), in accordance with its terms, the Attorney as a true and lawful attorney of the Grantor for and in the name of and on behalf of the Grantor with absolute discretion to exercise, do, execute and/or deliver all or any of the acts, documents and things hereinafter mentioned, that is to say:

1. To negotiate, approve, settle the terms of, agree, make, sign, execute (whether under hand or seal) and deliver all deeds, agreements, documents, commitments, arrangements, instruments, applications, oaths, affidavits, declarations, notices, confirmations, certificates, approvals, acceptances, deliveries and to do all other acts, matters and things whatsoever which are in each case necessary or desirable for the Attorney to do for and on behalf of the Grantor in respect of the provision of the Services (as defined in and contemplated by the Servicing Agreement) (each such document a “Requisite Document” and each such act a “Requisite Act”).

2. To make such amendments, modifications and variations to the Requisite Documents and to enter into ancillary documentation in respect thereof, all on such terms as any such Attorney may, in its sole discretion, determine from time to time for and on behalf of the Grantor; and to make, give, sign, execute and do all things including, without limitation, any material acts which may be necessary in order to effect the terms of such Requisite Documents or in connection with the making, signature, executions and delivery of the Requisite Documents or any other documents required to be executed by the Grantor in connection therewith or the performance of any acts, matters and things contemplated thereby or by the Requisite Acts as may be necessary in accordance with the provision of the Services.

3. To nominate and appoint one or more substitutes as attorney or attorneys under it for all and any of the purposes aforesaid and the appointment of same with liberty to revoke.

4. To acknowledge this Power of Attorney as the act and deed of the Grantor and generally to do all other acts which may be necessary and desirable for carrying the purpose of this Power of Attorney into effect.

SCHEDULE 13.02 TO THE
SERVICING AGREEMENT

IT IS HEREBY DECLARED THAT:-

(A) The Grantor hereby ratifies and confirms and agrees to ratify and confirm whatsoever any Attorney shall do or cause to be done in, or by virtue of this Power of Attorney as long as such act is not inconsistent with the terms of the Servicing Agreement or this Power of Attorney or in violation of Applicable Law.

(B) This Power of Attorney shall be irrevocable for the Term and at all times both before and after the Term shall be conclusive and binding upon the Grantor and no person or corporation having dealings with any Attorney under this Power of Attorney shall be under any obligation to make any inquiries as to whether or not this Power of Attorney has been revoked and all acts hereunder shall be valid and binding on the Grantor unless express notice of its revocation shall have been received by such person or corporation.

(C) Subject to the provisions of the Servicing Agreement the Grantor unconditionally undertakes to indemnify and keep indemnified each Attorney and his agents, and their respective successors and estates, against all actions, proceedings, claims, costs, expenses and liabilities of whatsoever nature arising from the exercise or purported exercise in good faith of any of the powers conferred on each Attorney by this Power of Attorney.

(D) Subject to the provisions of the Servicing Agreement any Attorney or other person, making or doing any payment or act, in good faith, in pursuance of this Power of Attorney shall not be liable in respect of the payment or act by reason that before the payment or act the Grantor was insolvent or had revoked this power if the fact of such insolvency or revocation was not at the time of payment or act known to the Attorney or other person making or doing same.

(E) The particular powers enumerated above shall be given the widest interpretation.

(F) THIS POWER OF ATTORNEY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF [THE STATE OF NEW YORK] [IRELAND].

IN WITNESS WHEREOF the Grantor has caused this Power of Attorney duly executed by the Grantor this day of [    ], [    ].

SIGNED BY: 

For and on behalf of
[GRANTOR]
in the presence of:

SCHED 13.02 - 2

INSURANCE GUIDELINES

1. Hull and Repossession Insurance: With respect to any Aircraft Asset, hull and, when applicable, repossession insurance shall be maintained in an amount equal to the greatest of (a) the Note Target Price for such Aircraft (as such Note Target Price is set forth on Schedule 1(a) attached hereto, as the same shall be calculated in writing from time to time by the Company in accordance with the Indenture, which calculation the Company shall provide to Servicer promptly after any change in any such Note Target Price), (b) the appraised value for such Aircraft (as such appraised value is set forth on Schedule 1(b) attached hereto, as the same shall be updated in writing from time to time by the Company in accordance with the Indenture, which update the Company shall provide to Servicer promptly after any change in any such appraised value), (c) 110% of the net book value of such Aircraft (as such net book value is set forth on Schedule 1(c) attached hereto, as the same shall be determined in writing from time to time by the Company in accordance with its financial statements prepared as provided in the Indenture, which determination the Company shall provide to Servicer promptly after any change in such net book value), and (d) such other amounts as may be directed in writing by the Company from time to time. Spare engines and parts, if any, shall be insured on the basis of their “replacement cost”.

2. Liability Insurance: Liability insurance shall be maintained for each Aircraft Asset and occurrence in an amount not less than the amount set forth on Schedule 2 attached hereto. Liability insurance shall be maintained for each non-passenger Aircraft Asset and occurrence in an amount not less than 75% of the amounts set forth on Schedule 2. With respect to each Aircraft Asset acquired pursuant to the Asset Purchase Agreement, liability insurance shall include, without limitation, cover, to the extent generally available in the leading insurance markets, for the indemnity of each Purchaser (as defined in the Asset Purchase Agreement) contained in Section 10.1 of the Asset Purchase Agreement, with the relevant Seller Indemnitees (as defined in the Asset Purchase Agreement) as additional insureds, during the period commencing on the date of Delivery of the relevant Aircraft Asset and ending on the earlier of (i) the second anniversary of the date of such Delivery and (ii) the date of completion of the next major check in respect of the relevant Aircraft Asset. The amounts of liability insurance applicable to an Aircraft Asset that is in storage or otherwise grounded may be reduced in a manner consistent this Schedule 2.

3. Insurance Deductibles:

(a) Deductibles and self-insurance for Aircraft Assets subject to a Lease may be maintained in an amount determined by the Servicer consistent with the customary practices of major international aircraft operating lessors regarding similar aircraft.

(b) Deductibles for Aircraft Assets off-lease shall be maintained in respect of any one occurrence in respect of such Aircraft Assets in an amount not to exceed $1,000,000, but in no event greater than the deductibles generally used for other aircraft owned or, to the extent that the Servicer has the discretion to decide the levels of deductibles for such aircraft, managed by the Servicer.

4. Repossession Insurance: Subject to prior confirmation from the Company on a case by case basis, repossession insurance shall be maintained for Aircraft Assets subject to a Lease that are or will be registered in any jurisdiction listed on Schedule 4 attached hereto.

5. Other Insurance Matters: Apart from the matters set forth above, the coverage and terms of any insurance with respect to any Aircraft Assets (a) subject to a Lease, shall be negotiated on a basis

ANNEX 1 TO THE
SERVICING AGREEMENT

consistent with Sections 3(b) and (c) of Schedule 2.02(a) to the Servicing Agreement and (b) not subject to a Lease, shall be substantially consistent with customary practices of the Servicer regarding similar equipment.

6. Named Insureds: Any insurance arrangements entered into with respect to any Aircraft Assets shall include as named insureds such Persons as are set forth on Schedule 6 attached hereto. The Servicer shall use commercially reasonable efforts to cause Lessees to include the Persons set forth in such clauses as named insureds in connection with liability insurance; provided that to the extent that a Lessee is not willing to include such Persons, the Servicer will, subject to the provisions of the Servicing Agreement and at the expense of the Company, arrange for alternative liability insurance coverage with respect to such Persons. The Servicer shall, and such of its Affiliates as it determines appropriate may, in the Servicer’s sole discretion, be named as additional insureds in connection with any such liability insurance arrangements.

7. Currencies: Any insurance requirement stated in U.S. dollar terms shall be interpreted to include the foreign currency equivalent thereto from time to time if any such insurance related thereto is denominated in a currency other than U.S. dollars that is freely convertible into U.S. dollars.

8. Availability: The insurance guidelines set forth herein are subject in all cases to such insurance being generally available in the relevant insurance market, or under applicable governmental programs, from time to time.

9. Revisions to Required Amounts of Insurance: The Company shall use commercially reasonable efforts to provide to the Servicer recalculations of the amount set forth in Schedules 1(a) and 1(c) attached hereto, on an annual basis, and Schedule 1(b) attached hereto, on an annual basis, promptly following receipt or calculation by the Company of the relevant information that would form the basis of any such recalculation. With respect to each proposed recalculation or determination to any schedule to this Annex 1, the Company shall provide the Servicer with a copy thereof. The Servicer shall not be required to implement any change in the amount of insurance required to be maintained with respect to any Aircraft Asset pursuant to Section 1.3 of Schedule 2.02(a) to the Servicing Agreement and this Annex 1 as a result of the receipt by the Servicer from the Company of any written notice, direction, recalculation, determination or similar communication pursuant to this Annex 1 until the seventh Business Day following receipt thereof (including, with respect to the immediately preceding sentence, receipt of the items listed therein).

10. War Risk Insurance. War risk hull and liability insurance in respect of the Aircraft Assets shall be maintained by the Servicer in accordance with Section 5.03(g) of the Indenture.

ANNEX 1 - 2

Note Target Price

	Serial Number	Type	Outstanding Principal Balance Allocable to Aircraft ($)	Note Target Price ($)
1		Airbus A330-200
2		Airbus A320-200
3		Airbus A319-100
4		Airbus A319-100
5		Airbus A320-200
6		Airbus A320-200
7		Airbus A320-200
8		Airbus A320-200
9		Airbus A320-200
10		Airbus A320-200
11		Airbus A320-200
12		Airbus A320-200
13		Airbus A320-200
14		Airbus A319-100
15		Airbus A320-200
16		Boeing 767-200PC
17		Boeing 767-200PC
18		Boeing 737-500
19		Boeing 737-400
20		Boeing 747-400SF
21		Boeing 747-400SF
22		Boeing 737-800
23		Boeing 737-800
24		Boeing 737-800
25		Boeing 737-800
26		Boeing 737-800
27		Boeing 737-800
28		Boeing 737-400
29		Boeing 737-800
30		Boeing 737-700
31		Boeing 737-800
32		Boeing 737-800
33		Boeing 737-800
34		Boeing 737-800
35		Boeing 737-800
36		Boeing 737-800
37		Boeing 737-800
38		Boeing 737-800
39		Boeing 737-800
40		Embraer ERJ 170-100
41		Embraer ERJ 170-100
42
43
44

SCHEDULE 1(a) TO ANNEX 1
TO THE SERVICING AGREEMENT

	Serial Number	Type	Outstanding Principal Balance Allocable to Aircraft ($)	Note Target Price ($)
Total

SCHEDULE 1(a) - 2

Appraised Values

	Type	Serial Number	Appraised Value ($)
1	Airbus A330-200
2	Airbus A320-200
3	Airbus A319-100
4	Airbus A319-100
5	Airbus A320-200
6	Airbus A320-200
7	Airbus A320-200
8	Airbus A320-200
9	Airbus A320-200
10	Airbus A320-200
11	Airbus A320-200
12	Airbus A320-200
13	Airbus A320-200
14	Airbus A319-100
15	Airbus A320-200
16	Boeing 767-200PC
17	Boeing 767-200PC
18	Boeing 737-500
19	Boeing 737-400
20	Boeing 747-400SF
21	Boeing 747-400SF
22	Boeing 737-800
23	Boeing 737-800
24	Boeing 737-800
25	Boeing 737-800
26	Boeing 737-800
27	Boeing 737-800
28	Boeing 737-400
29	Boeing 737-800
30	Boeing 737-700
31	Boeing 737-800
32	Boeing 737-800
33	Boeing 737-800
34	Boeing 737-800
35	Boeing 737-800
36	Boeing 737-800
37	Boeing 737-800
38	Boeing 737-800
39	Boeing 737-800
40	Embraer ERJ 170-100
41	Embraer ERJ 170-100
	Total

Net Book Value

	Type	Serial Number	Net Book Value ($)	[110]% of Net Book Value ($)
1	Boeing 737-800	34896
2	Boeing 737-800	34898
3	Boeing 737-800	34899
4	Airbus 320-200	2522
5	Airbus 320-200	2670
6	Boeing 757-200	29945
7	Boeing 757-200	29946
8	Boeing 737-800	35089
9	Boeing 737-800	35211
10	Airbus 319-100
11	Airbus 320-200	2728
12	Boeing 757-200	29944
13	Boeing 757-200	29942
14	Boeing 737-800	29052
15	Boeing 737-300QC	25402
16	Boeing 767-300ER	28040
17	Boeing 737-800	28608
18	Airbus 320-200	0533
19	Airbus 320-200	0548
20	Airbus 320-200	0888
21	Airbus 320-200	0545
22	Airbus 320-200	0562
23	Boeing 737-800	30785
24	Boeing 737-700	30784
25	Airbus 320-200	0553
26	Airbus 320-200	0559
27	Airbus 320-200	0574
28	Boeing 737-500	25232
29	Boeing 737-500	25233
30	Boeing 737-800	28595
31	Boeing 735-200	27974
32	Boeing 757-200	27975
33	Boeing 757-200	27976
34	Boeing 757-200	29330
35	Airbus 320-200	2616
36	Airbus 320-200	2740
37	Boeing 757-200	24528
38	Boeing 737-800	34704
39	Airbus 319-100	1140
40	Airbus 319-100	1159
41	Airbus 320-100	2979
42	Boeing 737-700	34293
43	Boeing 737-700	34295
44	Airbus 320-200	0566
	Total

SCHEDULE 1(c) TO ANNEX 1
TO THE SERVICING AGREEMENT

SCHEDULE 1(c)-2

Liability Insurance

Model	Minimum Limit
B737/A320/A319/B757 and other Narrow-Body Aircraft	US $500 million
B767 and other Wide-Body Aircraft	US $750 million

Notwithstanding the foregoing, with respect to any liability insurance maintained by any Person within the Company Group for the benefit of the Persons listed in clause 2(h) of Schedule 6 to Annex 1, such amount of insurance shall be not less than US$750 million for wide-body Aircraft and US$500 million for narrow-body Aircraft and liability insurance with respect to any Aircraft in storage shall be not less than US$300 million, but need not exceed $300 million.

Repossession Insurance

Country

Belarus

Bhutan

Kazakhstan

Mongolia

Named Insureds

1. Hull and Repossession Insurance

with respect to each Aircraft Asset, owner (and head lessor, if applicable) and/or lessor and intermediate lessor(s), if any, of Aircraft and Security Trustee

2. Liability Insurance

(a) owner (and head lessor, if applicable) of Aircraft (Person within the Company Group)

(b) intermediate lessor(s), if any, of Aircraft (Person(s) within the Company Group)

(c) the Servicer

(d) the Administrative Agent

(e) the Trustee and Security Trustee

(f) the Company

(g) with respect to each Aircraft Asset acquired pursuant to the Asset Purchase Agreement, the relevant Seller Indemnitees (as defined in the Asset Purchase Agreement) during the period commencing on the date of Delivery of such Aircraft Asset and ending on the earlier of (i) the second anniversary of such date of Delivery and (ii) the date of completion of the next major check in respect of such Aircraft Asset

(h) the Policy Provider.

Concentration Limits

The following chart sets forth the Concentration Limits that are applicable during periods when the weighted Portfolio age (weighted by Assumed Base Value of each Aircraft in the Portfolio) is (1) below ten years and (2) at or above ten years. The percentages in the following chart are obtained by dividing the Assumed Base Value of all Aircraft leased to lessees habitually based or domiciled in the applicable country or category by the Assumed Portfolio Value.

	Limits Below 10 Years		Limits At or Above 10 Years
Lessee Concentration Limits
Single lessee	15.0	%	15.0	%
Any other single lessee habitually based or domiciled in an Undesignated Region	10.0	%	10.0	%
Three largest lessees	30.0	%	30.0	%

	Limits Below 10 Years		Limits At or Above 10 Years
Country Concentration Limits
Single country rated BBB/Baa2 (or equivalent) or better1	25.0	%	25.0	%
Single country rated below BBB/Baa2 (or equivalent)2	17.5	%	17.5	%
Single country (Undesignated Region)	5.0	%	5.0	%

______________

¹ The applicable rating is the sovereign foreign currency debt rating assigned by the Rating Agencies to the country in which a Lessee is habitually based or domiciled at the time the relevant Lease is executed.

² The applicable rating is the sovereign foreign currency debt rating assigned by the Rating Agencies to the country in which a Lessee is habitually based or domiciled at the time the relevant Lease is executed.

ANNEX 2 TO THE

SERVICING AGREEMENT

Region Concentration Limits3
Developed Europe	45.0	%	45.0	%
Developed Asia/Pacific	35.0	%	40.0	%
North America	30.0	%	30.0	%
Emerging Europe and Africa/Middle East	35.0	%	45.0	%
Latin America/Caribbean	25.0	%	35.0	%
Emerging Asia/Pacific	40.0	%	43.0	%
Indian Subcontinent	20.0	%	30.0	%
Undesignated	10.0	%	10.0	%

The Concentration Limits for the Initial Aircraft will be determined based on the Leases to which such Initial Aircraft are subject to, regardless of the time or order of acquisition. Without limiting Section 5.03 of the Indenture, any failure to meet the Concentration Limits arising solely by reason of the non-acquisition of an Initial Aircraft will be deemed not to result in a Concentration Default.

Region	Countries
Developed Markets:
Europe	European Union (excluding Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal and Slovakia), Iceland, Norway and Switzerland
North America	Canada and United States
Asia/Pacific	Australia, Hong Kong, Japan, New Zealand and Singapore
Emerging Markets:
Europe	Bulgaria, Channel Islands, Croatia, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Northern Cyprus, Poland, Portugal, Russia, Slovakia and Turkey
Asia/Pacific	China, Guam, Indonesia, Macau, Malaysia, Philippines,

______________

³ The designation of regions is set out below.

ANNEX 2 - 2

ANNEX 2 TO THE

SERVICING AGREEMENT

Region	Countries
	South Korea, Taiwan, Thailand and Vietnam
Indian Subcontinent	India
Latin America/Caribbean	Argentina, Bermuda, Brazil, Cayman Islands, Chile, Colombia, Costa Rica, El Salvador, Guatemala, Mexico, Panama and Peru
Africa/Middle East	Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar, South Africa and United Arab Emirates
Undesignated	Algeria, Aruba, Bahamas, Barbados, Bangladesh, Belarus, Belize, Bhutan, Bolivia, Botswana, Brunei Darussalam, Dominican Republic, Ecuador, Ethiopia, Falkland Islands, Faroe Islands, Fiji, French Guiana, French Polynesia, Greenland, Guadeloupe, Guinea, Honduras, Isle of Man, Israel, Jamaica, Kazakhstan, Kenya, Lebanon, Libya, Luxembourg, Macedonia, Mauritius, Mongolia, Mozambique, Nepal, Netherlands Antilles, Nicaragua, Pakistan, Papua New Guinea, Paraguay, Puerto Rico, Romania, Samoa, Saudi Arabia, Seychelles, Sri Lanka, Suriname, Tanzania, Tonga, Trinidad & Tobago, Tunisia, Turkmenistan, Ukraine, Uruguay, Uzbekistan, Vanuatu and Venezuela

Prohibited

All other countries not listed above; provided that, unless otherwise approved by the Policy Provider, Belize, Bolivia, Ecuador, Ethiopia, Kazakhstan, Libya, Pakistan, Turkmenistan and Uzbekistan shall also be Prohibited Countries (notwithstanding that any such country is also listed as “Undesignated” above).

ANNEX 2 - 3

CONSTRUCTION AND USAGE; DEFINITIONS

Construction and Usage

The terms defined below have the meanings set forth below for all purposes. “Include”, “includes” and “including” shall be deemed to be followed by “without limitation” whether or not they are in fact followed by such words or words of like import. “Writing”, “written” and comparable terms refer to printing, typing, lithography or other means of reproducing words in a visible form (including electronic mail). Any agreement or instrument or any law, rule or regulation of any Governmental Authority defined or referred to below means such agreement or instrument or such law, rule or regulation as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of such law, rule or regulation) by succession of any comparable successor law, rule or regulation and includes (in the case of agreements or instruments) references to all attachments, annexes, schedules and exhibits thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns. Any term defined below by reference to any agreement or instrument or any law, rule or regulation of any Governmental Authority has such meaning whether or not such agreement, instrument or law, rule or regulation is in effect. “Agreement”, “hereof”, “herein”, “hereunder” and comparable terms refer to the agreement in which such term appears (including all annexes, exhibits and schedules hereto) and not to any particular article, section, clause or other subdivision thereof or attachment thereto. References to any gender include, unless the context otherwise requires, references to all genders, and references to the singular include, unless the context otherwise requires, references to the plural and vice versa. “Shall” and “will” have equal force and effect. References to “Article”, “Section”, “Clause” or another subdivision or to an attachment are, unless the context otherwise requires, to an article, section, clause or subdivision of or attachment to such agreement.

Definitions

“Additional Aircraft” means any Aircraft that is not then an Aircraft Asset proposed to be acquired by a Person in the Company Group in accordance with the provisions of Section 5 of Schedule 2.02(a).

“Additional Notes” means any class or subclass of Notes issued pursuant to the Indenture (or pursuant to supplements thereto) at any time after the Closing Date, the proceeds of which are used, in substantial part, to acquire Aircraft.

“Administrative Agent” means Babcock & Brown Aircraft Management Co. Limited, acting under the Administrative Agency Agreement.

“Administrative Services Agreement” means the Administrative Services Agreement dated as of [    ] [    ], 2007 between the Administrative Agent and the Company.

“Adviser” means an insurance adviser engaged by the Servicer in accordance with Section 1.3(b) of Schedule 2.02(a) to the Servicing Agreement.

“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified; provided that the Company and its respective Subsidiaries, on the one part, and the Servicer and its Subsidiaries and Affiliates, on the other part, shall not be considered to be Affiliates of each other .

APPENDIX A TO THE

SERVICING AGREEMENT

“After-Tax Basis” means on a basis such that any payment received, deemed to have been received or receivable by any Person shall, if necessary, be supplemented by a further payment to that Person so that the sum of the two payments shall, after deduction of Taxes resulting from the receipt (actual or constructive) or accrual of such payments (after taking into account any current deduction to which such Person shall be entitled with respect to the amount that gave rise to the underlying payment), be equal to the payment received, deemed to have been received or receivable.

“Aggregate Gross Proceeds” has the meaning assigned to such term in Section 9.04(b) of the Servicing Agreement.

“Aircraft” means any airframe together with (i) any Engine installed on such airframe (or any Engine substituted therefore), (ii) parts or components thereof, (iii) spare parts or ancillary equipment or devices furnished therewith and (iv) the Aircraft Documents with respect thereto.

“Aircraft Asset Expenses” has the meaning assigned to such term in Section 9.06(b)(i) of the Servicing Agreement.

“Aircraft Asset Expenses Budget” has the meaning assigned to such term in Section 7.03(a) of the Servicing Agreement.

“Aircraft Assets” means (a) all Aircraft owned or leased-in by any Person within the Company Group as of the Closing Date or at any time or from time to time thereafter (taking into account any acquisitions or dispositions made in accordance with this Agreement) and (b) all Original Aircraft; provided that Aircraft Assets shall not include (x) any Aircraft Asset that shall have ceased to be an Aircraft Asset in accordance with the provisions of Sections 2.04(b) or 3.02(d) of the Servicing Agreement, but shall include any Former Aircraft Asset that shall have become an Aircraft Asset pursuant to Section 6.07 of the Servicing Agreement or (y) any Aircraft Asset in respect of which the obligation of the Servicer to provide Services shall have been terminated in accordance with Article X of the Servicing Agreement.

“Aircraft Assets Related Documents” means all Leases and other contracts and agreements of Persons within the Company Group the terms of which relate to or affect any of the Aircraft Assets.

“Aircraft Documents” means, in relation to an Aircraft, all records, logs, technical data, manuals and other documents relating to the maintenance and operation of such Aircraft.

“Annex 1” means Annex 1 to the Servicing Agreement, which annex sets forth the Insurance Guidelines.

“Annex 2” means Annex 2 to the Servicing Agreement, which annex sets forth the Concentration Limits contained in Section 5.03(a) of the Indenture.

“Annual Review” has the meaning assigned to such term in Section 3(c)(i) of Schedule 2.02(a) to the Servicing Agreement.

“Anti-Terrorism Laws” means the USA Patriot Act and the Executive Order [Bermuda additions?].

“Applicable Law” with respect to any Person means any law, statute, ordinance, rule or regulation or code of conduct or practice of any U.S. Federal, state or local Governmental Authority, the

APPENDIX A - 2

APPENDIX A TO THE

SERVICING AGREEMENT

EU or any Irish or other foreign or international Governmental Authority that applies to such Person or any of its properties or assets.

“Appraised Value” means with respect to any Aircraft, the average of the most recent appraisals by each of the Appraisers of the Base Value of such Aircraft.

“Appraiser” means at least three independent appraisers that are members of the International Society of Transport Aircraft Trading or any similar organization.

“Approved Budget” has the meaning assigned to such term in Section 7.03(d) of the Servicing Agreement.

“Asset Purchase Agreement” means the Asset Purchase Agreement dated as of [               ] [       ], 2007, among [JEDI], the Company and the other parties thereto.

“Assigned Leases” has the meaning assigned to such term in Section 1.01 of the Security Trust Agreement.

“Auditor” has the meaning assigned to such term in Section 5.01 of the Servicing Agreement.

“Babcock & Brown Air Limited” means Babcock & Brown Air Limited, a limited liability company organized under the laws of Bermuda.

“Bank Accounts” has the meaning assigned to such term in Section 7.1(b) of Schedule 2.02(a) to the Servicing Agreement.

“Base Value” has the meaning assigned to such term in Section 1.01 of the Indenture.

“Beneficial Interest” means [voting] shares issued by the Company.

“Broker” means an insurance broker engaged by Servicer in accordance with Section 1.3(b) of Schedule 2.02(a) to the Servicing Agreement.

“Business Day” means a day on which U.S. dollar deposits may be traded on the London inter-bank market and commercial banks and foreign exchange markets are open in New York, New York and London, England. [tie to Indenture.}

“Calculation Date” means the sixth Business Day immediately preceding each Payment Date.

“Cape Town Convention” means the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment, concluded in Cape Town on 16 November 2001.

“Cash Manager” means Deutsche Bank Trust Company Americas, and its successors and assigns.

“Cash Management Agreement” means the Cash Management Agreement dated as of [          ] [    ], 2007 between the Cash Manager and the Company.

“Changed Circumstance” means the occurrence and continuation of any material event, circumstance or condition that is reasonably likely to result in the current cash flow projections in any

APPENDIX A - 3

APPENDIX A TO THE

SERVICING AGREEMENT

Year being materially less favorable than the forecast which is the most current at the time that the Approved Budget is finalized for that Year in accordance with Section 7.03 of the Servicing Agreement.

“Closing” means the closing of the offering and sale of the Notes by the Company and the consummation of the Acquisition and the other transactions described in the Final Prospectus.

“Closing Date” means [                ] [        ], 2007.

“Code” has the meaning assigned to such term in Section 9.07(c) of the Servicing Agreement.

“Collection Account” has the meaning assigned to such term in Section 3.01(a) of the Indenture.

“Company” means Babcock & Brown Air Funding I Limited, a limited liability company incorporated under the laws of Bermuda.

“Company Group” has the meaning assigned to such term in Section 2.01(a) of the Servicing Agreement.

“Company Group Guarantees” means each Guarantee, in the form set forth as Appendix B to the Servicing Agreement, issued by each Person within the Company Group (other than the Company) pursuant to Section 6.13 of the Servicing Agreement.

“Company Group Liabilities” means any obligations or liabilities of any Person within the Company Group (whether accrued, absolute, contingent, unasserted, known or unknown or otherwise).

“Company Pro Forma Lease” has the meaning assigned to such term in Section 3(b)(ii) of Schedule 2.02(a) to the Servicing Agreement.

“Competitor” means any of the following Persons:

(i) any Person (other than Babcock & Brown International Pty Ltd and its Affiliates) engaged in, or which has an Affiliate engaged in, the business of manufacturing aircraft or aircraft engines, which business had consolidated revenues attributable to such business for such Person’s and/or its Affiliates’, as the case may be, most recently completed fiscal year in excess of $200 million; or

(ii) any of the following Persons (or any of their respective Affiliates) and their respective successors and assigns:

(a)GE Commercial Aviation Services Limited

(b)International Lease Finance Corporation;

(c)Aviation Capital Group;

(d)AWAS;

(e)ORIX;

(f)CIT Group Inc.;

(g)Macquarie;

APPENDIX A - 4

APPENDIX A TO THE

SERVICING AGREEMENT

(h)AerCap B.V.;

(i)RBS Aviation Capital;

(j)Fortress Investments/Aircastle Advisor LLC;

(k)Cerberus Capital Management;

(l)Terra Firma Capital Partners;

(m)Singapore Aircraft Leasing Enterprise;

(n)Boeing Capital;

(o)BCI;

(p)Pembroke;

(q)Aircastle Advisor;

(r)Allco;

(s)Sumisho;

(t)Tombo Aviation;

(u)Guggenheim Aviation Partners;

(v)GATX Air;

(w)Genesis Lease Limited; and

(x)Pegasus Aviation; or

(iii) any other Person (or any Affiliate thereof) (other than Babcock & Brown International Pty Ltd and its Affiliates) which engages in a business as an operating lessor of Aircraft Assets in competition with any Person within the Company Group either (x) in succession to any of the Persons specified in clause (ii) above or (y) which has consolidated aircraft leasing-related revenues (excluding revenues from sales of aircraft) attributable to such business for its most recently completed fiscal year in excess of $200 million.

“Competitor Control” means, with respect to any Person, a Competitor’s control or beneficial ownership, directly or indirectly, of 50% or more of any class of securities (other than promissory notes or loan certificates or pass-through certificates in respect of promissory notes or loan certificates), directly or indirectly, of such Person, or the appointment or ability to appoint a director, member, trustee or similar Person of such Person.

“Concentration Limits” has the meaning assigned to such term in Section 2.2(a) of Schedule 2.02(a) to the Servicing Agreement.

“Conflicts Standard” has the meaning assigned to such term in Section 3.02(b) of the Servicing Agreement.

APPENDIX A - 5

APPENDIX A TO THE

SERVICING AGREEMENT

“control” (including, with its correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).

“Core Lease Provisions” means the core lease provisions included as Exhibit F to the Indenture, as the same may be amended from time to time.

“Default Notice” has the meaning assigned to such term in Section 1.01 of the Indenture.

“Delivery” has the meaning assigned to such term in Section 1.1 of the Asset Purchase Agreement.

“Deposits” means the deposits required under a Lease.

“Disposition” has the meaning assigned to such term in Section 9.04(b) of the Servicing Agreement.

“Documentary Conventions” with respect to any agreement, instrument or other document that states it is governed thereby, means that, except as otherwise expressly provided therein:

(a) No Partnership. The parties thereto expressly recognize and acknowledge that such agreement, instrument or other document is not intended to create a partnership, joint venture or other similar arrangement between or among any of the parties thereto or their respective Affiliates.

(b) Notices. Subject to paragraph (d) below, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by such agreement, instrument or other document to be given to any Person shall be in writing, and any such notice shall become effective five Business Days after being deposited in the mails, certified or registered, return receipt requested, with appropriate postage prepaid for first class mail or, if delivered by hand or courier service or in the form of a facsimile, when received (and, in the case of a facsimile, receipt of such facsimile is electronically or otherwise confirmed to the sender), and shall be directed to the address or facsimile number of such Person set forth in Appendix C to the Servicing Agreement. From time to time any party to such agreement, instrument or other document may designate a new address or number for purposes of notice thereunder by notice to each of the other parties thereto.

(c) Governing Law. SUCH AGREEMENT, INSTRUMENT OR OTHER DOCUMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

(d) Jurisdiction; Court Proceedings; Waiver of Jury Trial. Any suit, action or proceeding against any party to such agreement, instrument or other document arising out of or relating to such agreement, instrument or other document, any transaction contemplated thereby or any judgment entered by any court in respect of any thereof may be brought in any New York State court located in the County of New York or Federal court sitting in the Second Circuit, and each such party hereby submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action or proceeding. To the extent that service of process by mail is permitted by applicable law, each party thereto irrevocably consents to the service of process in any such suit, action or proceeding in such courts by the mailing of such process by registered or certified mail,

APPENDIX A - 6

APPENDIX A TO THE

SERVICING AGREEMENT

postage prepaid, at its address for notices provided for above. Each party to such agreement, instrument or other document irrevocably agrees not to assert any objection which it may ever have to the laying of venue of any such suit, action or proceeding in any New York State court located in the County of New York or Federal court sitting in the Second Circuit, and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. To the fullest extent permitted by Applicable Law, each party to such agreement, instrument or other document waives any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with such agreement, instrument or other document. The Company agrees, and it shall cause each other Person within the Company Group, not to bring any action, suit or proceeding against the Servicer or any of its Affiliates or any of the Servicer’s or its Affiliates’ Representatives arising out of, in connection with or related to any such agreement, instrument or other document or any transaction contemplated thereby except in a New York State court located in the County of New York or Federal court sitting in the Second Circuit.

(e) Agent. The Company and each other Person within the Company Group hereby appoints CT Corporation System (the “Agent”), 111 Eighth Avenue, New York, New York, U.S.A. 10011, as its nonexclusive agent for service of process in connection with each Operative Agreement. The parties may use any other legally available means of service of process. The Company will promptly notify the Servicer and the Policy Provider of any change in the address of the Agent; provided that the Company will at all times maintain an agent located within New York State for service of process in connection with each Operative Agreement.

The Servicer hereby appoints [               ] (the “Servicer’s Agent”), [address], New York, N.Y. [10xxx], U.S.A., as its nonexclusive agent for service of process in connection with each Operative Agreement. The parties may use any other legally available means of service of process. The Servicer will promptly notify the Company and the Policy Provider of any change in the address of the Servicer’s Agent; provided that the Servicer will at all times maintain an agent located within New York State for service of process in connection with each Operative Agreement.

(f) Consequential Damages. In no event will any party to such agreement, instrument or other document be liable to any other for lost profits, income tax consequences, lost savings or any other consequential damages, even if such party has been advised of the possibility of such damages, or for punitive damages, resulting from the breach of any obligation under such agreement, instrument or other document.

(g) Counterparts. Each such agreement, instrument or other document may be executed by the parties thereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same agreement, instrument or other document. All signatures need not be on the same counterpart.

(h) Entire Agreement; Amendment and Waiver. Such agreement, instrument or other document, together with the other Operative Agreements, shall constitute the entire agreement of the parties thereto with respect to the subject matter thereof and supersedes all prior written and oral agreements and understandings with respect to such subject matter. Neither any such agreement, instrument or other document nor any of the Appendix A to the Servicing Agreement terms thereof may be terminated, amended, supplemented, waived or modified, except by an instrument in writing signed by the Company, the Policy Provider and the Servicer. No failure or delay of any party to any such agreement, instrument or other document, in exercising any power or right thereunder shall operate as a waiver thereof, nor shall any single or

APPENDIX A - 7

APPENDIX A TO THE

SERVICING AGREEMENT

partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.

(i) Table of Contents; Headings. The table of contents and headings of the various articles, sections and other subdivisions of such agreement, instrument or other document are for convenience of reference only and shall not modify, define or limit any of the terms or provisions of such agreement, instrument or other document.

(j) Parties in Interest; Limitation on Rights of Others. The terms of such agreement, instrument or other document shall be binding upon, and inure to the benefit of, the parties thereto and their permitted successors and assigns and, to the extent applicable, their respective Affiliates and Representatives. Except as expressly set forth in any such agreement, instrument or other document with respect to Affiliates and Representatives of the parties thereto, nothing in such agreement, instrument or other document, whether express or implied, shall be construed to give any Person (including any past, present or future employee of any Person within the Company Group) (other than the parties thereto and their permitted successors and assigns (including, in the case of the Company, the Security Trustee, the extent provided in Section 12.01 of the Servicing Agreement) and, with respect to Section 2.01(a) of the Servicing Agreement and Section 9.3 of Schedule 2.02 to the Servicing Agreement, Genesis) any legal or equitable right, remedy or claim under or in respect of such agreement, instrument or other document or any covenants, conditions or provisions contained therein. References in the Servicing Agreement to the Policy Provider shall terminate without further action upon the occurrence and during the continuance of a Policy Non-Consent Event as defined in the Indenture.

(k) Method of Payment. Except as otherwise agreed, all amounts required to be paid by any party to such agreement, instrument or other document to any other party thereunder (including in respect of any judgment or settlement entered in respect of such agreement, instrument or other document) shall be paid in dollars, by wire transfer, or other acceptable method of payment, of same day funds to a dollar account located in the United States as such party may specify by notice to the other party.

(l) Payment on Business Days. If any payment under such agreement, instrument or other document is required to be made on a day other than a Business Day, the date of payment shall be extended to the next Business Day.

(m) Past Due Payments. Any amount payable to any party or any of its Representatives under any such agreement, instrument or other document shall be paid on the date therein specified for payment of such amounts. To the extent that all or a portion of such amount is not paid on such date, such amount (or the unpaid portion thereof) shall bear interest at the Stipulated Interest Rate from such date until and through the date that such amount has been paid in full.

(n) Severability. Any provision of such agreement, instrument or other document that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions thereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, each of the Company and the Servicer waives any provision of law that renders any provision of any agreement, instrument or other document prohibited or unenforceable in any respect.

APPENDIX A - 8

APPENDIX A TO THE

SERVICING AGREEMENT

“Dollar” or “$” means the lawful money of the United States of America.

“Due Date” has the meaning assigned to such term in Section 9.07(a) of the Servicing Agreement.

“Effectiveness Date” has the meaning assigned to such term in Section 10.02(c)(ii) of the Servicing Agreement.

“Engine” means owned or leased-in aircraft engines or, with respect to any Original Aircraft, any aircraft engine required to be delivered together with such Original Aircraft pursuant to the terms of the Asset Purchase Agreement.

“EU” means the European Union.

“Event of Default” has the meaning assigned to such term in Section 1.01 of the Indenture.

“Executive Order” means US Executive Order No. 13224 on Blocking Property and Prohibiting Transaction with Persons who Commit, Threaten to Commit, or Support Terrorism, which came into effect on September 23, 2001.

“Existing Accounts” has the meaning assigned to such term in Section 7.1(a) of Schedule 2.02(a) to the Servicing Agreement.

“Expense Account” has the meaning assigned to such term in Section 3.01(a) of the Indenture.

“Fee Period” has the meaning assigned to such term in Section 9.03(a)(i) of the Servicing Agreement.

“Governmental Authority” means any court, administrative agency or commission or other governmental agency or instrumentality (or any officer or representative thereof) domestic, foreign or international, of competent jurisdiction including the EU.

“Gross Proceeds” has the meaning assigned to such term in Section 9.04(b) of the Servicing Agreement.

“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term Guarantee shall not include (x) endorsements for collection or deposit, in either case in the ordinary course of business, (y) any guarantee by any Person within the Company Group of the obligations of another Person within the Company Group in respect of such Person’s obligations in connection with any Aircraft Assets, whether as lessor, seller or otherwise, or (z) the delivery of a bond or similar instrument by or on behalf of any Person within the Company Group in connection with the detention or repossession of any Aircraft Assets or enforcement of a Lease or removal of an encumbrance.

“Indebtedness” means, with respect to any Person at any date of determination (without duplication), (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person

APPENDIX A - 9

APPENDIX A TO THE

SERVICING AGREEMENT

evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (d) all the obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of purchasing such property or service or taking delivery and title thereto or the completion of such services, and payment deferrals arranged primarily as a method of raising finance or financing the acquisition of such property or service, (e) all obligations of such Person under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under U.S. GAAP, (f) all Indebtedness of other Persons secured by a lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, and (g) all Indebtedness of other Persons Guaranteed by such Person.

“Indemnified Parties” means the Servicer and its respective Affiliates and each of the Servicer’s and its respective Affiliates’ Representatives.

“Indenture” means the Trust Indenture dated as of [                ] [        ], 2007, among the Company, the Administrative Agent, the Policy Provider and Deutsche Bank Trust Company Americas, as trustee.

“Independent Representative” has the meaning assigned to such term in Section 3.02(c) of the Servicing Agreement.

“Independent Director” means the independent directors of the Company.

“International Interest” has the meaning given such term in the Cape Town Convention.

“International Registry” has the meaning given such term in the Cape Town Convention.

“Initial Offer” means the offer by the Company of its Class G-1 Floating Rate Asset-Backed Notes Series 2006-1 as described in that certain Offering Memorandum dated [                ] [        ], 2007.

“Lease” means any lease or other agreement or arrangement pursuant to which any Person (other than a Person within the Company Group) has the right to possession and use of any Aircraft Asset.

“Lease Operating Budget” has the meaning assigned to such term in Section 7.03(a) of the Servicing Agreement.

“Lessee” means the lessee (or equivalent Person) in respect of a Lease.

“Lessee Contact” has the meaning assigned to such term in Section 2.01(a) of the Servicing Agreement.

“Lessee Funded Account” has the meaning assigned to such term in Section 3.01(a) of the Indenture.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge, International Interest, Prospective International Interest or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

APPENDIX A - 10

APPENDIX A TO THE

SERVICING AGREEMENT

“Losses” means any and all liabilities (including liabilities arising out of the doctrine of strict liability), obligations, losses, damages, penalties, actions, suits, judgments, costs, fees, expenses (including reasonable legal fees, expenses and related charges and costs of investigation, including in connection with enforcement of any indemnity) and disbursements, of whatsoever kind and nature; provided, however, the term “Losses” shall not include Taxes or any Indemnified Party’s management time or overhead expenses.

“Material Adverse Effect” means an event, condition, matter, change or effect that impacts or, insofar as reasonably can be foreseen, in the future is likely to impact, in a material adverse manner, (a) with respect to any Person other than the Servicer, the condition (financial or otherwise), properties, assets, liabilities, earnings, capitalization, shareholders’ equity, licenses or franchises, businesses, operation or prospects of such Person or the ability of such Person to perform fully any of its obligations under any of the Operative Agreements, and (b) with respect to the Servicer, the Servicer’s liabilities, obligations, rights or benefits under the Servicing Agreement or the Servicer’s ability to perform fully any of the Services.

“Monthly Base Fee” has the meaning assigned to such term in Section 9.01(a) of the Servicing Agreement.

“Monthly Payment Period” has the meaning assigned to such term in Section 7.3(a) of Schedule 2.02(a) to the Servicing Agreement.

“Net Proceeds” has the meaning assigned to such term in Section 2.03(g) of the Servicing Agreement.

“New Accounts” has the meaning assigned to such term in Section 7.1(b) of Schedule 2.02(a) to the Servicing Agreement.

“Non-Curable Termination Event” has the meaning assigned to such term in Section 10.02(c)(ii) of the Servicing Agreement.

“Nonterminating Party” has the meaning assigned to such term in Section 10.02(c)(i) of the Servicing Agreement.

“Note Target Price” has the meaning assigned to such term in the Indenture.

“Notes” means any class or subclass of Notes issued pursuant to the Indenture on the Closing Date, any Additional Notes and any Refinancing Notes, in each case issued pursuant to the Indenture (or pursuant to any supplements thereto).

“Notice of Termination” means a Termination Notice.

“OFAC Designated Person” means a Person: (a) listed in the annex to, or otherwise subject to the provisions of, the Executive Order; (b) named as a specially designated national and blocked Person” on the most current list published by the Office of Foreign Asset Control of the United States Department of the Treasury; or (c) owned or controlled by, or acting for on behalf of, any Person referred to in clause (a) or (b) above.

“Officer’s Certificate” means, as to any Person, a certificate of the President, any Vice President or Assistant Vice President, the Treasurer or any Assistant Treasurer, the Secretary or any Assistant Secretary, or any Director.

APPENDIX A - 11

APPENDIX A TO THE

SERVICING AGREEMENT

“Operative Agreements” means the Servicing Agreement, the Company Group Guarantees and all other agreements, instruments or other documents, which are required by the terms of any thereof to be delivered in connection with any of the foregoing documents.

“Original Aircraft” means any “Aircraft” (as defined in the Asset Purchase Agreement); provided that Original Aircraft shall not include any “Aircraft” (x) which shall have suffered an “Event of Loss” (as defined in the Asset Purchase Agreement) or (y) with respect to which a payment of the Aircraft Refund Amount has been made pursuant to Section 4.2 or 5.3 of the Asset Purchase Agreement.

“Other Assets” has the meaning assigned to such term in Section 3.02(a) of the Servicing Agreement.

“Outstanding Principal Balance” has the meaning assigned to such term in Section 1.01 of the Indenture.

“Overhead Expenses” has the meaning assigned to such term in

Section 9.06(a) of the Servicing Agreement.

“Partial Termination” has the meaning assigned to such term in Section 10.02(a)(ii) of the Servicing Agreement.

“Payment Date” means the 19th day of each month, commencing on [                ] [        ], 2007; provided that, if any Payment Date would otherwise fall on a day that is not a Business Day, the relevant Payment Date shall be the first following day which is a Business Day.

“Permitted Account Investments” has the meaning assigned to such term in Section 1.01 of the Indenture.

“Person” means any individual, firm, corporation, limited liability company, partnership, trust, body of persons, joint venture, governmental authority or other entity, and shall include any successor (by merger or otherwise) of such entity.

“Policy Provider” means Ambac Assurance Corporation, a Wisconsin stock insurance company.

“Precedent Lease” has the meaning assigned to such term in Section 3(b) of Schedule 2.02(a) to the Servicing Agreement.

“Prime Rate” means the rate of interest per annum publicly announced from time to time by Deutsche Bank Trust Company Americas as its prime rate in effect at its principal office in New York City; each change in the “Prime Rate” shall be effective on the date such change is announced.

“Prospective International Interest” has the meaning given to such term in the Cape Town Convention.

“Rating Agencies” means each of Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies, Inc. and Moody’s Investors Service, Inc. and any successors to either of the foregoing.

“Ratings” means the then current rating assigned by a Rating Agency in respect of the Notes.

APPENDIX A - 12

APPENDIX A TO THE

SERVICING AGREEMENT

“Refinancing Notes” means any class or subclass of Notes issued pursuant to the Indenture (or pursuant to supplements thereto) at any time after the Closing Date, the proceeds of which are used to repay all or any part of the then outstanding Notes.

“Reimbursable Audit” has the meaning assigned to such term in Section 5.01 of the Servicing Agreement.

“Rent Collected Fee” has the meaning assigned to such term in Section 9.03(a)(ii) of the Servicing Agreement.

“Rent Fees” has the meaning assigned to such term in Section 9.01 of the Servicing Agreement.

“Rent Payable Fee” has the meaning assigned to such term in Section 9.03(a)(i) of the Servicing Agreement.

“Rents” means the basic rent payable pursuant to a Lease, and in the event that the agreement or arrangement pursuant to which possession of any Aircraft Asset is given is other than as a lease, amounts equivalent to any basic rent, and, in the event that there is a negotiated or non-consensual termination of a Lease prior to the scheduled expiry date of the term thereof or the exercise of a termination right by the Lessee under a Lease, all amounts payable by the Lessee in connection therewith other than amounts that the Servicer allocates in good faith to damages for the applicable Aircraft’s failure to comply with the return conditions specified in the Lease for such Aircraft (as compared with damages for failure to pay overdue or future rent).

“Replacement Servicer” means a replacement servicer to perform some or all of the Services under the Servicing Agreement formerly performed by the Servicer, Appendix A to the Servicing Agreement appointed in accordance with Section 10.04(c) of the Servicing Agreement.

“Representatives” with respect to any Person means the officers, directors, employees, advisors and agents of such Person.

“Required Expense Amount” has the meaning assigned to such term in Section 1.01 of the Indenture.

“Restricted Lessee Contact” has the meaning assigned to such term in Section 2.01 of the Servicing Agreement.

“Sales Fee” has the meaning assigned to such term in Section 9.01 of the Servicing Agreement.

“Security Trust Agreement” means the Security Trust Agreement dated as of the Closing Date among the Company, Deutsche Bank Trust Company Americas, as Security Trustee and the operating bank, and the other parties thereto.

“Security Trustee” means Deutsche Bank Trust Company Americas, a New York banking corporation, in its capacity as security trustee pursuant to the Security Trust Agreement.

“Servicer” means each of Babcock & Brown Aircraft Management LLC and Babcock & Brown Aircraft Management (Europe) Limited.

“Servicer Delegate” has the meaning assigned to such term in Section 12.01 of the Servicing Agreement.

APPENDIX A - 13

APPENDIX A TO THE

SERVICING AGREEMENT

“Servicer Termination Event” has the meaning assigned to such term in Section 10.02(b) of the Servicing Agreement.

“Services” has the meaning assigned to such term in Section 2.02(a) of the Servicing Agreement.

“Servicing Agreement” or “Agreement” means the Servicing Agreement dated as of [                ] [        ], 2007, between the Company and the Servicer.

“Servicing Fees” means the Monthly Base Fee, the Sales Fee, the Rent Fees and any other fees payable to the Servicer under the Servicing Agreement.

“Shadow Director/Related Company Claims” has the meaning assigned to such term in Section 11.04 of the Servicing Agreement.

“Significant Subsidiary” means any Person within the Company Group that has title to, or any other indicia of ownership in, any Aircraft Assets.

“Standard of Care” has the meaning assigned to such term in Section 3.01 of the Servicing Agreement.

“Standard of Liability” has the meaning assigned to such term in Section 3.03 of the Servicing Agreement.

“Stated Services Obligation” has the meaning assigned to such term in Section 7.3(a) of Schedule 2.02(a) to the Servicing Agreement.

“Stipulated Interest Rate” means, for any period, a rate per annum equal to the Prime Rate in effect during such period plus 2 percent per annum.

“Subsidiary” of any Person means a corporation, company, common law or statutory trust or other entity (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50% of whose ownership interest representing the right to make decisions for such other entity is, now or hereafter owned or controlled, directly or indirectly, by such Person, but such corporation, company, common law or statutory trust or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists.

“Tax” or “Taxes” means all fees (including documentation, license and registration fees), taxes, assessments, levies, impositions, duties, withholdings and other charges of any nature whatsoever (including taxes based upon or measured by gross receipts, income, profits, sales, use or occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, social security, employment, excise, documentary, stamp, corporation, corporation profits, advance corporation, capital duty, capital gains, capital acquisitions, wealth, vehicle registration, social insurance, and property taxes) asserted or imposed by any Governmental Authority, together with all interest, fines, penalties and additions imposed with respect to such amounts.

“Taxpayer” means any Person within the Company Group or any predecessor of any Person within the Company Group, or any successor to any Person within the Company Group or Babcock & Brown Air Limited and its Subsidiaries (but not including the Servicer or any of its Affiliates).

APPENDIX A - 14

APPENDIX A TO THE

SERVICING AGREEMENT

“Terminating Party” has the meaning assigned to such term in Section 10.02(c)(i) of the Servicing Agreement.

“Termination Notice” has the meaning assigned to such term in Section 10.02(c)(i) of the Servicing Agreement.

“Third Party Claim” means a claim by a third party arising out of a matter for which an Indemnified Party is entitled to be indemnified pursuant to the indemnity provisions of the Servicing Agreement.

“Transaction Approval Requirements” has the meaning assigned to such term in Section 7.04(c) of the Servicing Agreement.

“Trustee” has the meaning assigned to such term in the Indenture.

“U.S.” means the United States of America.

“U.S. GAAP” means generally accepted accounting principles in the United States.

“Utilization Rent” means the utilization rent, supplemental rent, and other similar payments (including payments analogous to or consisting of maintenance reserves) under each of the Leases.

“Year” means each fiscal year ending December 31.

APPENDIX A - 15

GUARANTEE dated as of [insert date],

made by [insert name] (“Guarantor”) in favor of Babcock & Brown Aircraft Management (Europe) Limited and Babcock & Brown Aircraft Management LLC (collectively, the “Servicer”) and its Affiliates relating to the Servicing Agreement dated as of _________ __, 2007 (the “Agreement”), between the Servicer and _________________(the “Company”).

WHEREAS pursuant to the Agreement, the Servicer has agreed to provide Services to each Person within the Company Group in accordance with and to the extent set forth in the Agreement;

WHEREAS the Obligor is a party to the Agreement and is liable for any and all amounts due and owing to the Servicer and any of its Affiliates under the Agreement; and

WHEREAS each Person within the Company Group is a direct or indirect beneficiary of the Services performed by the Servicer pursuant to the Agreement.

NOW, THEREFORE, in consideration of the premises and to induce the Servicer to enter in the Agreement and to perform the Services thereunder, Guarantor hereby agrees, for the benefit of the Servicer and its Affiliates, as follows:

1. Guarantor unconditionally and irrevocably guarantees to the Servicer and its Affiliates (a) the due and punctual payment of all amounts due to the Servicer and its Affiliates from the Obligor under the Agreement, whether now existing or hereafter incurred, and (b) the due and punctual performance of all other obligations of the Obligor to the Servicer and its Affiliates under the Agreement (all the foregoing being hereinafter collectively called the “Obligations”) and any and all fees and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred by the Servicer and its Affiliates in enforcing any rights under this Guarantee, all without regard to any counterclaim, set-off, deduction or defense of any kind which the Obligor or Guarantor may have or assert, and without abatement, suspension, deferment or diminution on account of any event or condition whatsoever. In case of failure of the Obligor punctually to pay any of the amounts referred to in clause (a) above, Guarantor hereby agrees to cause such amounts to be paid punctually when and as the same shall become due and payable as if such payment were made by the Obligor. Guarantor further agrees that this Guarantee constitutes a guarantee of payment when due and not of collection.

2. The liability of the undersigned under this Guarantee shall, to the fullest extent permitted by Applicable Law, be unconditional irrespective of (i) any lack of enforceability against the Obligor of any Obligation, (ii) any change of the time, manner or place of payment, or any other term, of any Obligation, (iii) any exchange, release or nonperfection of any collateral securing payment of any Obligation or any other guarantee in respect thereof, (iv) any law, regulation or order of any jurisdiction affecting any term of any Obligation or the Servicer’s or any of its Affiliates’ rights with respect thereto and (v) any other circumstance which might vary the risk of or otherwise constitute a defense available to, or a discharge of, the Obligor, Guarantor or any surety. The Guarantor waives, to the fullest extent permitted by Applicable Law, promptness, diligence and notices with respect to any Obligation and this Guarantee and any requirement that the Servicer or any of its Affiliates exhaust any right or take any action against the Obligor, any collateral security or any other guarantor.

3. In the event that the Guarantor is required by any applicable law to make any deduction or withholding for or on account of Taxes from any payment to be made by it hereunder, then it shall

APPENDIX B TO THE

SERVICING AGREEMENT

(i) pay over to the government or taxing authority imposing such Tax the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from the additional amounts required to be paid pursuant to clause (ii) below), (ii) pay to the Servicer or its Affiliates, as the case may be, together with such payment such additional amounts as may be necessary in order that the net amount received by the Servicer or its Affiliates, as the case may be, will be not less than the full amount of such payment which would otherwise have been receivable had no such deduction or withholding been required and (iii) forward to the Servicer as soon as possible such tax receipts or other official documentation with respect to the payment of the Taxes so deducted or withheld as may be issued from time to time by such government or taxing authority.

4. Guarantor further agrees that this Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation or interest thereon is rescinded or must otherwise be restored by the Servicer upon the bankruptcy or reorganization of the Obligor, Guarantor or otherwise.

5. Upon payment by Guarantor of any sums to the Servicer or its Affiliates under this Guarantee, all rights of Guarantor against the Obligor arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of all the obligations of the Obligor under the Agreement.

6. The Guarantor represents and warrants as of the date hereof to the Servicer and its Affiliates that:

(a) the Guarantor is a [corporation or business trust duly organized and validly existing and, if relevant, in good standing under the laws of the jurisdiction in which it is legally organized] [national banking association duly organized and validly existing in good standing under the laws of the United States], and has full power, authority and legal right to execute and deliver, and to perform its obligations under, this Guarantee;

(b) the Guarantor has taken all necessary corporate and legal action to authorize the guarantee hereunder on the terms and conditions of this Guarantee and to authorize its execution, delivery and performance;

(c) this Guarantee has been duly executed and delivered by a duly authorized officer or Representative of the Guarantor, and constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms;

(d) the execution, delivery and performance of this Guarantee will not constitute a default under or violate any provision of any law or regulation, or any judgment or order of any court, arbitrator or governmental authority, in each case applicable to the Guarantor, constituent documents of the Guarantor, or any agreement to which the Guarantor is a party; and

(e) no consent of any other Person, and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any Governmental Authority, is required in connection with the execution delivery, performance, validity or enforceability with respect to the Guarantor of this Guarantee.

7. This Guarantee shall remain in full force and effect and be binding in accordance with its terms upon the Guarantor and shall inure to the benefit of the Servicer and its Affiliates until all the Obligations and the obligations of the Guarantor under this Guarantee shall have been satisfied by indefeasible payment in full.

APPENDIX B - 17

APPENDIX B TO THE

SERVICING AGREEMENT

8. The obligations of Guarantor under this Guarantee may not be assigned or delegated without the prior written consent of the Servicer.

9. The liability of the Guarantor under this Guarantee is limited to the maximum amount that will result in the obligations of the Guarantor not constituting a fraudulent conveyance or fraudulent transfer under Applicable Law.

10. This Guarantee shall be governed by the Documentary Conventions, and all capitalized terms used but not defined herein have the meanings assigned to such terms in Appendix A to the Agreement. The construction and usage set forth in such Appendix A are incorporated herein by reference.

11. All of the statements, representations, covenants and agreements made by Guarantor contained in this Guarantee are made and intended only for the purpose of binding the Trust Estate (as such expression is defined in the Trust Agreement) and establishing the existence of rights and remedies which can be exercised and enforced against the Trust Estate. Therefore, anything contained in this Guarantee to the contrary notwithstanding, no recourse shall be had with respect to this Guarantee against Guarantor in its individual capacity or against any institution or person which becomes a successor trustee or co-trustee or any officer, director, trustee, servant or direct or indirect parent or controlling person or persons of any of them; provided, however, that this Section 11 shall not be construed to prohibit any action or proceeding against any party hereto for its own willful misconduct or grossly negligent conduct for which it would otherwise be liable; and provided, further, that nothing contained in this Section 11 shall be construed to limit the exercise and enforcement in accordance with the terms of this Guarantee or such other agreements of rights and remedies against the Trust Estate.

IN WITNESS WHEREOF, Guarantor has executed this Guarantee as of the date first above written.

[Insert Name of Guarantor]
By:
	Name: Title:

APPENDIX B - 18

Notices

If to the Servicer:

Babcock & Brown Aircraft Management (Europe) Limited

West Pier

Dun Loaghaire

, County Dublin

Ireland

Attention: Company Secretary

Fax: (353) 1-231-1901

Telephone: (353) 1-231-1900

and to:

Babcock & Brown Aircraft Management LLC

6th Floor

2 Harrison Street

San Francisco, California 74106

Attention: General Counsel

Fax: (415) 512-1515

Telephone: (415) 267-1500

If to the Company:

Babcock & Brown Air Funding I Limited

c/o Babcock & Brown Aircraft Management (Europe) Limited

West Pier

Dun Loaghaire

, County Dublin

Ireland

Attention: Company Secretary

Fax: (353) 1-231-1901

Telephone: (353) 1-231-1900

If to the Administrative Agent:

Babcock & Brown Aircraft Management (Europe) Limited

West Pier

Dun Loaghaire

, County Dublin

Ireland

Attention: Company Secretary

Fax: (353) 1-231-1901

Telephone: (353) 1-231-1900

If to the Cash Manager:

Deutsche Bank Trust Company Americas

Attention: Structured Finance Services/Trust & Securities Services

60 Wall Street

New York, NY 10005

APPENDIX C TO THE
SERVICING AGREEMENT

Telephone: (212) 250-4109

APPENDIX C

MONTHLY REPORT TO THE COMPANY

Babcock & Brown Air Funding I Limited

Servicer’s Report for the Period

[_____________________]

EXHIBIT A TO
THE SERVICING AGREEMENT

Summary of commercial activity

All of the Company’s [ # ] aircraft are currently on lease, to [ # ] customers in [ # ] countries.

• On [____________] an LOI was signed with [ ________ ] for the lease of MSN [ # ], a _______________, for [ # ] months at [ $ _____ ] per month. This aircraft will be redelivering from [___________].

Cash disbursements expected [___________ to _____________].

Serial Number Description of Cost Amount

Material cash disbursements anticipated from [______________ not included in the _____ Budget].

Events of Loss

No Event of Loss was reported during the Reporting Period.

Notices of Default

No event of default was issued in the previous month.

Lease Receivables and Arrears

The total outstanding is [ $ ______ ] compared to [ $ ______ ] at the end of [ previous reporting period ].

EXHIBIT A

EXHIBIT A TO
THE SERVICING AGREEMENT

Appendix – 1

Babcock & Brown Air

Funding I Limited

Cash Receipts during the Reporting Period – [___________________]

Lessee	Serial No.	Total	Rent	Maintenance	Interest	Other
		0	0	0	0	0

EXHIBIT A

EXHIBIT A TO
THE SERVICING AGREEMENT

Appendix 2 Arrears as at [_______________]

Lessee	Serial No.	Rent	Maintenance	Interest	Other	Total
		0	0	0	0	0

EXHIBIT A

QUARTERLY REPORT TO THE COMPANY

Babcock & Brown Air Funding I Limited

Servicer’s Quarterly Report
[Month] 1^st – [Month] [__]^th, [____]

SECTION {9.2}:

(a) Portfolio Information.

EXHIBIT B TO
THE SERVICING AGREEMENT

A. See Appendix 1 for details.

(b) Concentration of Aircraft (based on [_____________] Appraised Values)

Lessee Concentration Limits	Limits Below 10 Years	Limits Above 10 Years	New Rating Limit	Current
Single lessee (Developed or Emerging Region)	15.0%	15.0%
Single lessee (Undesignated Region)	10.0%	10.0%
Three largest lessees	35.0%	35.0%
Country Concentration Limits	Limit	Limit
Single country rated the equivalent of BBB/Baa2 or better	25.0%	25.0%
Single country rated the equivalent of BBB/Baa2 or below	17.50%	17.5%
Single country (Undesignated Region)	5.0%	5.0%
Region Concentration Limits	Limit	Limit	NewRating Limit	Current
Developed Europe	50.0%	55.0%
Developed Asia/Pacific	35.0%	40.0%
North America	30.0%	35.0%
Emerging Europe & Africa / Middle East	35.0%	45.0%
Latin America / Caribbean	25.0%	35.0%
Emerging Asia / Pacific	40.0%	50.0%
Indian Subcontinent	20.0%	30.0%
Undesignated	10.0%	10.0%

The applicable rating is the sovereign foreign currency debt rating assigned by the Rating Agencies to the country in which a Lessee is habitually based or domiciled at the time the relevant is executed.

The Concentration Limits for the Initial Aircraft will be determined based on the Leases to which such Initial Aircraft are subject to, regardless of the time or order of acquisition. Without limiting Section 5.03 of the Indenture, any failure to meet the Concentration Limits arising solely by reason of the non-acquisition of an Initial Aircraft will be deemed not to result in a Concentration Default.

(c) Pending and potential litigation involving any Aircraft Assets or Leases of which the Servicer has written notice.

(d) Claims being made with respect of any of the Aircraft Assets, of which the Servicer is aware, with an actual or potential liability in excess of $10,000,000.

EXHIBIT B

EXHIBIT B TO
THE SERVICING AGREEMENT

(e) Option Information

(f) Leases expiring during the following two quarters ending [                  ] [ ] 20 [ ]

EXHIBIT B

QUARTERLY REPORT TO THE COMPANY

The Babcock & Brown Air Funding I Limited Group

Cash Receipts - Reporting Period - ____________________

				Analysis Of Receipt
Lessee	Receipt Date	Serial No.	Total	Lease Rent	Supplemental Rents	Security Deposit	Late Payment Interest	Other Receipts	Commentary
			$	$	$	$	$	$
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00
			0.00	0.00	0.00	0.00	0.00	0.00

EXHIBIT B TO
THE SERVICING AGREEMENT

0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00	0.00	0.00	0.00	0.00	0.00
0.00

EXHIBIT B

EXHIBIT B TO
THE SERVICING AGREEMENT

ADDITIONAL INFORMATION TO BE PROVIDED TO THE POLICY PROVIDER

I. Monthly

STATUS OF ALL AIRCRAFT NOT ON LEASE

if any, please list and fully describe

LEASING ACTIVITY SINCE LAST REPORT

MSN

Aircraft Type

Lessee

Country

Region

Lease Inception Date

Lease Expiry Date

Lease Rate

Payment Frequency

Floating or Fixed Lease

Maint. Reserves/Additional Rent (Yes/No)

Security Deposit Amount

Purchase Option (Yes/No)

Lease Renewal/Extension (Yes/No)

Lessee Termination (Yes/No)

SALES ACTIVITY SINCE LAST REPORT

MSN

Aircraft Type

Sales Price

Seller

Purchaser

Disposition Date

Debt Allocated to such Aircraft

EXHIBIT B

EXHIBIT B TO
THE SERVICING AGREEMENT

TOTAL CASUALTY LOSS SINCE LAST REPORT

Description of event and all relevant available information

Stipulated Loss Value per the lease contract

Insurance Proceeds

Debt Allocated to such Aircraft

DEFAULT NOTICES ISSUED TO LESSEES SINCE LAST REPORT

MSN

Lessee

Description of default notice

NOTICE OF FAILURE TO PERFORM UNDER SECTION 2.01(A)(IX) OF SERVICING AGREEMENT

[insert description of failure to perform]

II. Quarterly

OPTION INFORMATION

MSN Aircraft Type Year of Manufacture Exercise
Price Exercise
Date

EXHIBIT B

EXHIBIT B TO
THE SERVICING AGREEMENT

LIST OF ALL LEASES/LESSEES THAT ARE OVER 30 DAYS PAST DUE

if any, please list and fully describe

CONFLICT EVENTS (NOT PREVIOUSLY REPORTED)

if any, please list and describe in reasonable detail (including identity of the lessee, aircraft and Independent Representative involved and date of inception based on the date the Independent Representative was appointed)

ADDITIONAL EXPENSES

Amount and nature of expenses incurred outside of the ordinary course of business per Section 7.04(vii) of the Servicing Agreement for (1) the period and (ii) cumulative, inception to date)

PORTFOLIO REPORT

MSN

Aircraft Type

Engine Type

Year of Manufacturer

Lessee

Country

Region

Lease Inception Date

Lease Expiry Date

EXHIBIT B

EXHIBIT B TO
THE SERVICING AGREEMENT

Lease Rate

Payment Frequency

Floating Rate or Fixed Lease

Maint. Reserves/Additional Rent (Yes/No)

Security Deposit Amount

Purchase Option (Yes/No)

Lease Renewal/Extension Option (Yes/No)

Lease Termination Option (Yes/No)

DAMAGE NOTIFICATION

Description of known damage, estimated in excess of $500,000.

III. Annually

UPDATED APPRAISAL VALUES (TO THE EXTENT REQUIRED BY THE INDENTURE)

Aircraft-by aircraft updated appraised values, to the extent updates are required under the Indenture.

EXHIBIT B

EX-10.4

Exhibit 10.4

ADMINISTRATIVE SERVICES AGREEMENT

among

BABCOCK & BROWN AIR FUNDING I LIMITED,

as the Issuer

THE ISSUER SUBSIDIARIES IDENTIFIED HEREIN,

DEUTSCHE BANK TRUST COMPANY AMERICAS

in its capacity as the Trustee and the Security Trustee,

AMBAC ASSURANCE CORPORATION

as the Policy Provider,

and

BABCOCK & BROWN AIR MANAGEMENT CO LIMITED

as the Administrative Agent

Dated as of _________________, 2007

TABLE OF CONTENTS

		Page
ARTICLE I     DEFINITIONS		1
Section 1.01	Definitions	1
ARTICLE II      APPOINTMENT; ADMINISTRATIVE SERVICES		4
Section 2.01	Appointment	4
Section 2.02	Limitations	5
Section 2.03	Issuer Group Services	6
Section 2.04	Accounting Services	11
Section 2.05	Additional Services	13
Section 2.06	Additional Aircraft	13
Section 2.07	New Subsidiaries	14
Section 2.08	The Issuer Group Responsibility	14
Section 2.09	Treaty Benefits	14
ARTICLE III      STANDARD OF PERFORMANCE; LIABILITY AND INDEMNITY		15
Section 3.01	Standard of Performance	15
Section 3.02	Liability and Indemnity	15
ARTICLE IV      ADMINISTRATOR UNDERTAKINGS		18
Section 4.01	Administrative Agent Undertakings	18
Section 4.02	Representations of the Administrative Agent	20
Section 4.03	Certain Information	21
Section 4.04	Access	21
ARTICLE V      UNDERTAKINGS OF THE ISSUER GROUP		22
Section 5.01	Cooperation	22
Section 5.02	Information	22
Section 5.03	Scope of Services	22
Section 5.04	Ratification	23
Section 5.05	Covenants	23
Section 5.06	Ratification by Subsidiaries	24
Section 5.07	Organization and Standing	24
ARTICLE VI      ADMINISTRATION FEES AND EXPENSES		25
Section 6.01	Administration Fees	25
Section 6.02	Expenses	25
Section 6.03	Payment of Expenses	26
ARTICLE VII      TERM; REPLACEMENT OF OR RESIGNATION BY THE ADMINISTRATOR		26
Section 7.01	Term	26

i

TABLE OF CONTENTS

(continued)

		Page
Section 7.02	Replacement or Resignation	26
Section 7.03	Consequences of Replacement or Resignation	27
Section 7.04	Survival	29
ARTICLE VIII      ASSIGNMENT AND DELEGATION		29
Section 8.01	Assignment and Delegation	29
ARTICLE IX     MISCELLANEOUS		30
Section 9.01	Notices	30
Section 9.02	Governing Law	33
Section 9.03	Jurisdiction	33
Section 9.04	WAIVER OF JURY TRIAL	33
Section 9.05	Counterparts; Third Party Beneficiaries	33
Section 9.06	Entire Agreement	33
Section 9.07	Table of Contents; Headings	33
Section 9.08	Amendments	34
Section 9.09	No Partnership	34
Section 9.10	Concerning the Security Trustee and the Trustee	34
Section 9.11	Restrictions on Disclosure	34
Section 9.12	Power of Attorney	35
Section 9.13	No Petition	35

ii

THIS ADMINISTRATIVE SERVICES AGREEMENT (this “Agreement”) dated as of ________________, 2007 is made among BABCOCK & BROWN AIR FUNDING I LIMITED (the “Issuer”), a Bermuda exempted company, each ISSUER SUBSIDIARY signatory to this Agreement or that becomes a party under Section 5.06 hereof (collectively with the Issuer, the “Issuer Group”), DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as the trustee under the Indenture (the “Trustee”) and as the security trustee under the Security Trust Agreement (the “Security Trustee”), AMBAC ASSURANCE CORPORATION, as the policy provider (the “Policy Provider”) and BABCOCK & BROWN AIR MANAGEMENT CO LIMITED, in its capacity as Administrative Agent (the “Administrative Agent”).

For the consideration set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the Administrative Agent, the Trustee, the Security Trustee, the Policy Provider, the Issuer and the other Issuer Group Members agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Definitions. For purposes of this Agreement, the following terms have the following meanings. Unless otherwise defined herein, all capitalized terms used but not defined herein have the meanings assigned to such terms in the Indenture.

“Administrative Agent” has the meaning set forth in the preamble to this Agreement.

“Administration Fee” has the meaning assigned to such term in Section 6.01 hereof.

“Administrative Agent Delegate” has the meaning assigned to such term in Section 8.01(a) hereof.

“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified; provided, however, that the Issuer, the other Issuer Group Members, on the one hand, and the Trustee, the Security Trustee and the Administrative Agent, on the other hand, shall not be considered to be Affiliates of each other.

“After-Tax Basis” means on a basis such that any payment received, deemed to have been received or receivable by any Person shall, if necessary, be supplemented by a further payment to that Person so that the sum of the two payments shall, after deduction of all U.S. federal, state, local and foreign Taxes, penalties, fines, interest, additions to Tax and other charges resulting from the receipt (actual or constructive) or accrual of such payments imposed by or under any U.S. federal, state,

local or foreign law or Governmental Authority (after taking into account any current deduction to which such Person shall be entitled with respect to the amount that gave rise to the underlying payment) be equal to the payment received, deemed to have been received or receivable.

“Aircraft Asset Expenses Budget” has the meaning assigned to such term in Section 7.03(a)(ii) of the Servicing Agreement.

“Aircraft Assets” has the meaning assigned to such term in Appendix A to the Servicing Agreement.

“Approved Budget” has the meaning assigned to such term in Section 7.03(d) of the Servicing Agreement.

“Concentration Limits” has the meaning assigned to such term in Section 2.2(a) of Schedule 2.02(a) of the Servicing Agreement.

“Competitor Control” has the meaning assigned to such term in the Servicing Agreement.

“Conflicts Standard” has the meaning assigned to such term in Section 3.02(b) of the Servicing Agreement.

“Consolidated Quarterly Draft Accounts” has the meaning assigned to such term in Section 2.04(b)(ii) hereof.

“Consolidating Quarterly Draft Accounts” has the meaning assigned to such term in Section 2.04(b)(iii) hereof.

“Dollars” or “$” means the lawful currency of the United States of America.

“Draft Accounts” has the meaning assigned to such term in Section 2.04(b)(iii) hereof.

“EU” means the European Union.

“FAA” means the Federal Aviation Administration or any Governmental Authority or other Person, agency or other authority succeeding to the functions of the Federal Aviation Administration.

“Fee Period” has the meaning assigned to such term in Section 6.01 hereof.

“Governmental Authority” means any court, administrative agency or commission or other governmental agency or instrumentality (or any Responsible Officer

2

thereof), domestic, foreign or international, of competent jurisdiction including, without limitation, the EU.

“Indenture” means the Trust Indenture dated as of ______________, 2007, among the Issuer, the Cash Manager, the Initial Liquidity Facility Provider, the Policy Provider, the Operating Bank and the Trustee.

“Issuer Group Services” has the meaning assigned to such term in Section 2.01(a) hereof.

“Lease” means any lease or other agreement or arrangement pursuant to which any Person (other than an Issuer Group Member) has the right to possession and use of any Aircraft.

“Lease Operating Budget” has the meaning assigned to such term in Section 7.03(a)(i) of the Servicing Agreement.

“Ledgers” has the meaning assigned to such term in Section 2.04(b)(i) hereof.

“Loss” means any and all liabilities (including liabilities arising out of the doctrine of strict liability), obligations, losses, damages, penalties, actions, suits, judgments, costs, fees, expenses (including reasonable legal fees, expenses and related charges and costs of investigation, including in connection with enforcement of any indemnity) and disbursements, of whatsoever kind and nature; provided, however, that the term “Loss” shall not include any indemnified party’s management time or overhead expenses except for non-ordinary course management time or overhead expenses relating to such damage, loss, liability or expense.

“Policy Provider Replacement Event” has the meaning assigned to such term in Section 7.02(d) hereof.

“Quarter” means the fiscal quarter of each Issuer Group Member, as applicable.

“Ratings” means the ratings assigned to the Securities by the Rating Agencies.

“Reimbursable Expenses” has the meaning assigned to such term in Section 6.02(b) hereof.

“Schedule 2.02(a)” has the meaning assigned to such term in Section 2.03(h)(viii) hereof.

“Securities Act” means the U.S. Securities Act of 1933, as amended.

3

“Service Providers” means the Persons providing services to the Issuer Group, including, without limitation, where the context admits, the Servicer and other Persons performing similar services or advising the Issuer Group.

“Servicer Termination Event” means the occurrence of any of the events set forth in Section 10.02(b) of the Servicing Agreement subject to the cure periods set forth therein.

“Standard of Care” has the meaning assigned to such term in Section 3.01 of the Servicing Agreement.

“Standard of Performance” has the meaning assigned to such term in Section 3.01 hereof.

“Subsidiary” means, with respect to any Person, a corporation, company or other entity (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50% of whose ownership interest representing the right to make decisions for such other entity is, now or hereafter owned or controlled, directly or indirectly, by such Person, but such corporation, company or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists.

“U.S. Bankruptcy Code” has the meaning assigned to such term in Section 7.02(b)(iii) hereof.

“Year” has the meaning assigned to such term in the Servicing Agreement.

ARTICLE II

APPOINTMENT; ADMINISTRATIVE SERVICES

Section 2.01 Appointment. (a) Each Issuer Group Member hereby appoints the Administrative Agent as the provider of the administrative and related services set forth in Section 2.03 hereof, the accounting services set forth in Section 2.04 hereof and the additional administrative services set forth in Sections 2.04, 2.05 and 2.06 hereof (collectively, the “Issuer Group Services”) to each Issuer Group Member on the terms and subject to the conditions set forth in this Agreement. In the event the Trustee or the Security Trustee receives any notice or instruction from the Administrative Agent with regard to any Issuer Group Services, the Trustee or the Security Trustee, as applicable, may regard such notice or instruction as given by the Issuer or any other Issuer Group Member unless previously notified otherwise in writing by the Issuer.

(b) The Administrative Agent hereby accepts such appointments and agrees to perform the Issuer Group Services on behalf of the Issuer Group Members

4

identified to the Administrative Agent by the Issuer Group on the terms and subject to the conditions set forth in this Agreement.

(c) The Issuer Group Services do not include any service or matter that is the responsibility of the Servicer under the Servicing Agreement, the Reference Agent under the Reference Agency Agreement, the Cash Manager under the Cash Management Agreement (except as otherwise provided in the Cash Management Agreement or the Indenture) or the company secretaries of any Issuer Group Member.

(d) The Issuer Group Services do not include any service or matter that falls under the categories of “investment business services” or “investment advice” under the Investment Intermediaries Act, 1995 or any other applicable provision of Irish law that would require such services to be performed by an entity that has obtained prior authorization from the Central Bank of Ireland.

Section 2.02 Limitations. (a) The Administrative Agent agrees (with respect to the Issuer Group Services) to comply with the terms of the articles of incorporation, by-laws, trust agreements, operating agreements or similar constituting documents of each Issuer Group Member and all agreements to which any Issuer Group Member is a party (including all Related Documents); provided that copies of such documents and agreements are in the possession of, or can reasonably be obtained by, the Administrative Agent and, without prejudice to the foregoing, not to enter into, on behalf of any Issuer Group Member, any commitments, loans or obligations or charge, mortgage, pledge, encumber or otherwise restrict or dispose of the property or assets or expend any funds of any Issuer Group Member save, subject to the Indenture, (i) as expressly permitted by the terms of this Agreement or (ii) upon a Board Resolution.

(b) In connection with the performance of the Issuer Group Services (i) the Administrative Agent shall (A) have no responsibility for the failure of any other Person (other than any Person, other than the Trustee or Security Trustee, acting as a delegate of the Administrative Agent under this Agreement pursuant to Section 8.01 hereof) providing services directly to the Issuer Group to perform its obligations to the Issuer Group and (B) in all cases be entitled to rely upon the instructions of the Issuer Group with respect to any Issuer Group Services and upon notices, reports or other communications made by any Person providing services to the Issuer Group (other than any Affiliate of the Administrative Agent, except solely for this purpose Babcock & Brown Aircraft Management (Europe) Limited shall not be an Affiliate of the Administrative Agent) and shall not be responsible for the accuracy or completeness of any such notices, reports or other communications except to the extent that the Administrative Agent has actual notice of any matter to the contrary and (ii) the Administrative Agent shall not be obligated to act in any manner that the Administrative Agent, acting reasonably, determines might (A) violate any Applicable Law or (B) expose the Administrative Agent to any liabilities for which, in the Administrative Agent’s good faith opinion, adequate bond or indemnity has not been provided.

5

(c) Subject to the limitations set forth in Section 2.02(a), in connection with the performance of the Issuer Group Services, the Administrative Agent is expressly authorized by the Issuer and each other Issuer Group Member, (i) to engage in and conclude commercial negotiations with the Persons providing services to the Issuer Group, including, without limitation, where the context admits, the Servicer, the Cash Manager, the Reference Agent and other Persons performing similar services or advising the Issuer Group (the “Service Providers”) and with their Responsible Officers, and (ii) after such consultation, if any, as the Administrative Agent deems necessary under the circumstances, to act on such Issuer Group Member’s behalf with regard to any and all matters requiring any action on the part of the Administrative Agent under the Servicing Agreement. The Issuer agrees that it will give the Administrative Agent and the Servicer 60 day’s prior Written Notice of any limitation or modification of the authority set forth in this Section 2.02(c).

(d) The Administrative Agent may rely on the advice of any law firm, accounting firm, risk management adviser, tax adviser, insurance adviser, technical adviser, aircraft appraiser or other professional adviser appointed by the Issuer and any Person appointed in good faith by the Administrative Agent and shall not be liable for any claim by any Issuer Group Member to the extent that the Administrative Agent was acting in good faith upon the advice of any such persons.

(e) Notwithstanding the appointment of, and the delegation of authority and responsibility to, the Administrative Agent with respect to the Issuer Group Services, the Issuer and each other Issuer Group Member shall continue to have and exercise through its respective controlling trustees or board real and effective central control and management of all matters related to its ongoing business, operations, assets and liabilities, subject to matters that are expressly the responsibility of the Administrative Agent in accordance with the terms of this Agreement, and each Issuer Group Member shall at all times conduct its separate ongoing business in such a manner as the same shall at all times be readily identifiable from the separate business of the Administrative Agent, and none of the Issuer Group Members is merely lending its name to decisions taken by others.

(f) Each Issuer Group Member hereby appoints the Issuer to act as its representative and, having been duly authorized to do so by each of its Subsidiaries, as the representative of each of its Subsidiaries with respect to any matter in respect of which any Issuer Group Member, or the Issuer Group as a whole, is required to or permitted to take any action pursuant to the terms of this Agreement. Accordingly, in connection with the performance of the Issuer Group Services, the Administrative Agent shall in all cases be entitled to rely on the instructions (or other actions) of the Issuer as representative of each Issuer Group Member.

Section 2.03 Issuer Group Services. The Administrative Agent hereby agrees to perform and provide the following services for each Issuer Group Member and its respective governing bodies:

6

(a) administrative services:

(i) except in such instances in which such preparation and distribution is required to be done by another party by Applicable Law or by another Service Provider under the Indenture or the Related Documents, preparation and distribution, at such time as shall be agreed with the Administrative Agent, of draft trustees, members or board meeting agendas and any other papers required in connection with such meetings;

(ii) maintaining, or monitoring the maintenance of, the books, records, registers and associated filings of each Issuer Group Member, other than those required under Applicable Law to be maintained by the officers, members, directors or trustees of the Issuer;

(iii) providing any administrative assistance reasonably necessary to assist any Issuer Group Member in carrying out its obligations under the Indenture or the Related Documents, including providing timely notice of decisions to be made, or actions to be taken, under any of the Related Documents; provided that if the obligations of any Issuer Group Member under any of the Related Documents are only required upon receipt of notice to such Issuer Group Member or the Administrative Agent, then the Administrative Agent shall provide such administrative assistance only to the extent it has received such notice or is otherwise aware of such obligations and shall provide a copy of such notice to the Policy Provider;

(iv) assisting the Issuer in arranging for directors and officers liability insurance for and on behalf of the Issuer and, where appropriate, each other Issuer Group Member;

(v) (A) procuring, at the direction of the Board, and coordinating the advice of, legal counsel, accounting, tax and other professional advisers at the expense of the relevant Issuer Group Member, to assist such Issuer Group Member in carrying out its obligations and (B) supervising, in accordance with instructions from such Issuer Group Member, such legal counsel, accounting, tax and other advisers; and

(vi) providing assistance to the Servicer with respect to matters for which such assistance is contemplated by the Servicing Agreement or is reasonably necessary in order for the Servicer to perform its duties in accordance with the Servicing Agreement;

(b) to the extent that (i) the following services are not provided by the other Service Providers, and (ii) the relevant information is in the possession of, or can be reasonably obtained by, the Administrative Agent to act as liaison with each of the Rating Agencies and the Policy Provider with respect to any decisions on behalf of the Issuer Group requiring a Rating Agency Confirmation or the consent of the Policy Provider, including, without limitation, informing each of the Rating Agencies and the Policy Provider from time to time of any material changes in the Portfolio, coordinating with the

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Issuer Group and the Service Providers and providing each of the Rating Agencies and the Policy Provider with such statistical and other information as they may from time to time reasonably request and to provide any notice to each of the Rating Agencies and the Policy Provider that the Issuer is required to provide pursuant to the Servicing Agreement or the Indenture (such information to be provided at the Issuer Group’s expense to the extent that providing such information requires services that are materially greater in scope than those being provided pursuant to the express terms of this Agreement);

(c) providing assistance to the Issuer Group in procuring Lessee consents, novations and other documentation and in taking all other actions necessary in connection with the reissue or amendment of letters of credit;

(d) providing assistance to the Issuer Group in the execution of (1) the acquisition of Pledged Shares, Pledged Beneficial Interests, Pledged Membership Interests and/or Aircraft under the Asset Purchase Agreement, (2) the re-lease and/or sale of the Aircraft, (3) the acquisition of Additional Aircraft, (4) Aircraft Conversions permitted under the Indenture, (5) Refinancing Notes and (6) financing transactions relating to the Issuer Group after the Initial Closing Date, including:

(i) coordinating with the Service Providers, legal and other professional advisers to monitor the protection of the Issuer Group’s interests and rights and coordinating the execution of documentation required at closings;

(ii) providing qualified personnel to provide administrative support (including the preparation of any certificates required pursuant to the Servicing Agreement and the Indenture) at the closings in connection with the acquisition of Pledged Shares, Pledged Beneficial Interests, Pledged Membership Interests and/or Aircraft under the Asset Purchase Agreement, sales or re-leases of the Aircraft and the acquisition of any Additional Aircraft, if required (it being understood that the Administrative Agent will not be obligated to provide legal counsel or legal or technical services to the Issuer Group);

(iii) coordinating with the Issuer Group and the Service Providers and assisting in the management of the closing process with the goal of having closings occur on a timely basis;

(iv) providing all necessary administrative support to complete any documentation and other related matters; and

(v) appointing counsel and other professional advisers to represent the Issuer Group in connection with any such closings;

(e) based on information produced or provided to it, preparing, filing and/or distributing, with the assistance of outside counsel and auditors or other professional advisors, if appropriate, all reports to be prepared, filed and/or distributed by any Issuer Group Member or its governing bodies, subject to the approval of the Board in

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the case of any annual information statement or quarterly information statement, including:

(i) filings (including, without limitation, Uniform Commercial Code filings, filings with the FAA and filings pursuant to the Cape Town Convention) that, to the knowledge of the Administrative Agent, any Issuer Group Member is required to make in various jurisdictions and preparing such filings or monitoring counsel and advisers in connection with the preparation and filing of such materials;

(ii) reports required or recommended by the Board to be distributed to investors (including press releases), and managing investor relations on behalf of the Issuer Group, and preparing or arranging for the preparation and distribution of such reports at the Issuer Group’s expense; and

(iii) reports, that, to the knowledge of the Administrative Agent after reasonable inquiry, are required to be filed with any Governmental Authorities, and preparing on behalf of any Issuer Group Member, or arranging for the preparation of, and arranging for the filing of any reports that, to the knowledge of the Administrative Agent, are required to be prepared for, and/or filed with, any other entity in order for such Issuer Group Member not to be in violation of Applicable Law or any applicable covenants;

(f) with respect to amendments:

(i) reporting to the Board on the substance of any proposed amendments to any Related Documents known to the Administrative Agent; and

(ii) subject to approval by the appropriate controlling trustees or board, coordinating with the Issuer Group’s legal counsel, the other parties thereto and their counsel the preparation and execution of any amendments to the Related Documents (other than amendments relating to the Aircraft or the Lease Documents);

(g) to the extent reasonably requested by the Servicer, coordinating and providing assistance on behalf of the Issuer Group with the Servicer in the performance of the Servicer’s obligations under the Servicing Agreement;

(h) providing assistance to the Issuer with respect to matters for which action by the Issuer is required under the Servicing Agreement or the Indenture, including such assistance that may be necessary for the Issuer to:

(i) comply with Sections 6.08, 7.03(a)(i) and 7.04 of the Servicing Agreement;

(ii) comply with Sections 5.02, 5.03 and 6.11 of the Indenture;

(iii) provide such instructions to the Servicer as the Servicer may require in interpreting the Indenture, the Concentration Limits and Annex 2 to the Servicing Agreement;

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(iv) direct the Servicer to amend the minimum hull and liability insurance coverage amounts in accordance with Annex l to the Servicing Agreement;

(v) direct the Servicer as to whether settlement offers received by the Servicer with respect to claims for damage or loss in excess of $2,000,000 with respect to an Aircraft Asset are acceptable;

(vi) review and request such periodic and other reports as the Servicer is obligated to provide under the Servicing Agreement;

(vii) provide the Servicer with such information as the Servicer may reasonably request in connection with the Concentration Limits and certify to the Servicer whenever the proposed Aircraft-related transactions will result in the violation of such Concentration Limits; and;

(viii) advise the Servicer as required by Section 3(c) of Schedule 2.02(a) of the Servicing Agreement (“Schedule 2.02(a)”).

(i) informing the Board and the Policy Provider as soon as is reasonably practicable if the Administrative Agent believes that (i) net revenues generated by the Leases will be insufficient to satisfy the payment obligations of the Issuer Group and (ii) an Event of Default will result from such insufficiency, and to advise the Board as to any appropriate action to be taken (subject to the provisions of the Related Documents) with respect to such insufficiency to avoid an Event of Default, if it is possible to do so, and informing the Policy Provider of any action proposed to be taken;

(j) determining whether it is necessary or appropriate at any time that the Issuer make a drawing under any back-up letter of credit of which the Issuer is the beneficiary and, if so, to administer such drawing on the Issuer’s behalf;

(k) assisting in compliance by each Issuer Group Member with its obligations under Section 2.07 of the Security Trust Agreement with respect to the Non-Trustee Accounts, including notifying and instructing each Obligor (as defined in the Security Trust Agreement) to make payments directly to a Non-Trustee Account and seeking to procure bank consent letters in respect of such Non-Trustee Account;

(l) providing all necessary assistance and information reasonably available to the Administrative Agent to legal and other professional advisers to the Issuer Group in connection with any claim, action, proceeding or petition brought against any Issuer Group Member;

(m) establishing and maintaining on behalf of the Issuer a website and arrange for the publication thereon of all reports and other documents required or recommended by the Board to be distributed to investors;

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(n) preparing, in a timely manner, the reports required by Section 2.14 of the Indenture based upon information supplied to the Administrative Agent by the Service Providers, where applicable, and providing such reports to the Trustee and the other Persons indicated in that section;

(o) preparing and providing to Moody’s and Fitch on the fifth Business Day immediately following each Payment Date (or to the extent impracticable, promptly thereafter) a written report substantially in the form of Exhibit A attached hereto covering the period from the end of the last such report (or, with respect to the initial report, the Closing Date) to such Payment Date, based upon information supplied to the Administrative Agent by the Servicer under the Servicing Agreement; and

(p) preparing and providing to the Policy Provider written reports on a monthly basis, covering the period from the last Calculation Date preceding the last such report, if any, through such Calculation Date, setting forth (i) the debt service coverage ratio computation (applicable to months 37 through 60) and (ii) the amount of monies being held for aircraft conversions and the portion related to debt contribution and the amount related to equity contribution, as well as written reports on a quarterly basis, within forty-five days after the end of each calendar quarter with respect to such calendar quarter, setting forth swap details, including the relevant notional amounts, start dates, expiry dates, and swap rates. So long as the Administrative Agent is an affiliate of the Servicer, the obligation of the Administrative Agent under this item (p) can be satisfied by inclusion of this information in a report by the Servicer.

Section 2.04 Accounting Services. The Administrative Agent hereby agrees to perform and provide the following accounting services:

(a) Budgeting Process. The Administrative Agent shall, in accordance with the procedures, policies and guidelines described below and on the basis of information generated by the Administrative Agent and information provided by the Service Providers and the Issuer Group and subject to the review and direction of the relevant Issuer Group Member:

(i) in respect of each Year during the term of the Servicing Agreement (other than with respect to the fiscal year commencing on the Initial Closing Date), and on behalf of the Issuer Group, prepare and deliver to the Issuer and the Servicer, no later than the November 30th immediately preceding the commencement of such Year a proposed Lease Operating Budget and a proposed Aircraft Asset Expenses Budget for such Year together with reasonably detailed supporting information and the assumptions underlying such proposed Lease Operating Budget and Aircraft Asset Expenses Budget, such proposed Lease Operating Budget and Aircraft Asset Expenses Budget to be based, in part, on the information provided by the Servicer pursuant to Section 7.03(c) of the Servicing Agreement;

(ii) on behalf of the Issuer Group, review, discuss and negotiate with the Servicer such proposed Lease Operating Budgets and Aircraft Asset Expenses

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Budgets, and make such adjustments proposed by the Servicer as the Administrative Agent, in consultation with the Board and with due regard for current market conditions, may deem appropriate; and

(iii) submit to the Servicer promptly following approval by the Issuer the Approved Budgets together with reasonably detailed information regarding the Issuer’s underlying assumptions and provide a copy of such Approved Budgets to the Policy Provider.

(b) Management Accounts and Financial Statements. The Administrative Agent shall, in accordance with the procedures, policies and guidelines described below and on the basis of information generated by the Administrative Agent and information provided by the Service Providers and the Issuer Group:

(i) establish an accounting system and maintain the accounting ledgers of and for each Issuer Group Member in accordance with GAAP unless otherwise required by Applicable Law and specified by the Board (collectively, the “Ledgers”);

(ii) prepare and deliver to the Issuer, Policy Provider and the Initial Liquidity Facility Provider (within 40 days after the end of the relevant Quarter or, if the end of such Quarter coincides with the end of a Year, within 90 days after the end of such Year), with respect to the Issuer Group, on a consolidated basis, a draft balance sheet and draft statement of changes in shareholders’ equity or residual trust interest as of the end of each Quarter and Year, as applicable, and draft statements of income and cash flows for each Quarter and Year, as applicable (the “Consolidated Quarterly Draft Accounts”);

(iii) prepare and deliver to the Issuer, Policy Provider and the Initial Liquidity Facility Provider (within 40 days after the end of the relevant Quarter or, if the end of such Quarter coincides with the end of a Year, within 90 days after the end of such Year), with respect to the Issuer Group on a combined basis and such of the Issuer Group Members as specified by the Board in a written schedule provided to the Administrative Agent (which schedule may be updated by the Board to the Administrative Agent delivered at least 30 days prior to the commencement of the relevant Quarter) a draft balance sheet and statement of changes in shareholders’ equity or residual trust interest as of the end of each Quarter and Year, as applicable, with respect to such Issuer Group Member and draft statements of income and cash flows for such Quarter and Year, as applicable (the “Consolidating Quarterly Draft Accounts” and, together with the Consolidated Quarterly Draft Accounts the “Draft Accounts”). The Board shall specify the applicable legal requirements mandating the preparation of such Consolidating Quarterly Draft Accounts in the written schedule provided to the Administrative Agent pursuant to this section;

(iv) as required by the Board, arrange and manage the quarterly review of the Draft Accounts by the Issuer Group’s auditors;

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(v) arrange for, coordinate with and assist the Issuer Group’s auditors in preparing annual audits;

(vi) arrange for the preparation of and arrange for the filing of the Issuer Group’s tax returns in conjunction with the Issuer Group’s tax advisers after submission to the Board to the extent required by the Board or Applicable Law;

(vii) liaise with the Servicer for the purpose of preparing the monthly and quarterly reports in accordance with Section 9 of Schedule 2.02(a) to the Servicing Agreement;

(viii) compare the expected cash flows of the Issuer Group and the budgets to actual results; and

(ix) review and approve all disbursements requested by the Servicer under Section 7.3 of Schedule 2.02(a) of the Servicing Agreement.

(c) Other Reports. The Administrative Agent shall prepare the Draft Accounts in accordance with GAAP unless otherwise required by Applicable Law and specified by the Board. In connection with the preparation of the Consolidated Quarterly Draft Accounts, the Administrative Agent will, provide to the Board, at such times as the Board may require, a review report (as defined by the Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants) of the Issuer Group’s independent public accountants with respect to the financial statements of such Issuer Group Members for, or as of the end of, such Quarter, including in such report such accountants’ statement that, based on its review of such financial statements, it is not aware of any material modifications that should be made to such financial statements in order for them to be in conformity with GAAP or other applicable accounting principles; [provided that, with respect to such financial statements for, or as of the end of, any Quarter (other than the last Quarter of any Year), in the event that the Issuer Group does not include (or cause to be included) any material disclosure required by GAAP or other applicable accounting principles to be included within footnotes to such financial statements, such review report may be qualified solely by stating that the only modification that should be made to such financial statements in order for them to be in conformity with GAAP or other applicable accounting principles is the inclusion of such disclosure.]

(d) Instructions. The Administrative Agent shall be entitled to request instructions from the Board as to general guidelines or principles to be followed in preparing Draft Accounts and as to amending or supplementing any such guidelines or principles.

Section 2.05 Additional Services. The Administrative Agent will provide additional Issuer Group Services reasonably requested by the Board, including (a) providing assistance to the Hedge Provider as reasonably requested and (b) undertaking efforts to avoid any adverse change in the tax status of any Issuer Group

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Member. In addition, upon a request by any Issuer Group Member, the Administrative Agent will take such other actions as may be appropriate to facilitate such Issuer Group Member’s business operations and assist the relevant board of directors or controlling trustees in carrying out their obligations; provided that the Administrative Agent will not be obligated or permitted to take any action that might reasonably be expected to result in the business of such Issuer Group Member ceasing to be separate and readily identifiable from, and independent of, the Administrative Agent, and any of its Affiliates. The obligation to provide such additional services shall be subject to reaching an agreement on compensation therefor and to the consent of the Policy Provider.

Section 2.06 Additional Aircraft. In the event that the Issuer Group shall acquire any Additional Aircraft, the Board may request that the Administrative Agent provide the same Issuer Group Services with respect to all such Additional Aircraft.

Section 2.07 New Subsidiaries. The Administrative Agent shall be responsible for coordinating with outside legal counsel, auditors, tax advisers and other professional advisers with respect to all company and administrative matters relating to the formation, operation, company affairs and related matters with respect to all Subsidiaries which are or may become members of the Issuer Group, including identifying such outside advisers, a potential company secretary and candidates for director or trustee to the extent necessary, and shall be permitted to incur expenses in respect of such Subsidiaries without the Issuer Group’s consent up to such aggregate amount as shall be authorized by the Board from time to time. To the extent that the Administrative Agent shall deem it necessary or desirable (or shall have been instructed by the Servicer that it is necessary or advisable) in order for the Issuer Group to carry on its business, the Administrative Agent shall have the authority to assist in the formation of new Subsidiaries of the Issuer. The Administrative Agent and its personnel may act as company secretary for any Subsidiary of the Issuer.

Section 2.08 The Issuer Group Responsibility. (a) The obligations of the Administrative Agent hereunder are limited to those matters that are expressly the responsibility of the Administrative Agent in accordance with the terms of this Agreement. Notwithstanding the appointment of the Administrative Agent to perform the Issuer Group Services, each Issuer Group Member shall remain responsible for all matters and decisions related to its business, operations, assets and liabilities.

(b) Without derogating from the authority and responsibility of the Administrative Agent with respect to the performance of certain of the Issuer Group Services as set forth in this Agreement, it is hereby expressly agreed and acknowledged that the Administrative Agent is not authorized or empowered to make or enter into any agreement, contract or other legally binding arrangement, in respect of or relating to the business or affairs of any Issuer Group Member, or pledge the credit of, incur any indebtedness on behalf of or expend any funds of any Issuer Group Member other than as expressly permitted in accordance with the terms of this Agreement, all such authority and power being reserved to the appropriate Issuer Group Member or the Security Trustee, as the case may be.

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Section 2.09 Treaty Benefits. The Administrative Agent hereby agrees that in the event that as of [October 31] of each year, the aggregate number of Babcock & Brown Air Limited’s (“B&B Air”) common shares (including ADSs) traded (the “Trading Activity”) during that year on one or more recognized stock exchanges (within the meaning of Article 23 (the “LOB Article”) of the income tax treaty between the United States and Ireland (the “Treaty”)) is reasonably expected to be less than [7]% of the average number of common shares outstanding during that year, the Administrative Agent shall, to the extent feasible and to the extent such action does not cause a breach under the Indenture or any Related Document, take all commercially reasonable efforts on behalf of the Issuer (in its capacity as Administrative Agent) necessary to cause the Issuer and its subsidiaries to be entitled to the benefit of the Treaty with respect to rental income from U.S. sources; provided that if B&B Air or the Issuer or other applicable subsidiary of B&B Air has received a determination by the U.S. competent authority (within the meaning of the LOB Article) to the effect that the Issuer and its subsidiaries are entitled to the benefit of the Treaty with respect to rental income from U.S. sources ( a “Determination”), the Administrative Agent shall not be required to take any such efforts. The Administrative Agent shall monitor, or cause to be monitored, the Trading Activity as of the end of each calendar quarter and reflect the results of such monitoring in the quarterly reports of the Issuer prepared under Section 2.14 of the Indenture. It is expected such efforts shall include, without limitation, the following: (i) BBAM transfers or seconds to B&B Air a sufficient number of employees to perform the following functions with respect to aircraft of the Issuer or its subsidiaries that are on lease for use within the United States as well as, potentially, other aircraft of the Issuer and its subsidiaries: (A) sales, marketing and lease management; (B) technical, maintenance and inspection services; and (C) financial and valuation services; and (ii) BBAM makes available administrative personnel for recordkeeping and other ministerial functions, to B&B Air, in each case, for arm’s length consideration and otherwise on arm’s length terms. Following the implementation of the efforts outlined above, the Administrative Agent shall deliver to the Issuer, the Rating Agencies and the Policy Provider, an opinion of recognized U.S. federal income tax counsel that the Issuer and its subsidiaries should be treated as entitled to the benefit of the Treaty with respect to rental income from U.S. sources. Any action taken by the Administrative Agent pursuant to this Section 2.09 to cause the Issuer to be entitled to the benefits of the Treaty shall be subject to Rating Agency Confirmation (as defined in the Indenture). This section shall apply to any successor Administrative Agent appointed under Article VII hereunder.

ARTICLE III

STANDARD OF PERFORMANCE; LIABILITY AND INDEMNITY

Section 3.01 Standard of Performance. The Administrative Agent will devote the same amount of time and attention to, and will be required to exercise the same level of skill, care and diligence in the performance of, its services as it would if it were administering such services on its own behalf and perform the services required hereunder consistent with customary practices of an administrative agent that provides

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comparable services for a securitization of commercial jet aircraft and related assets (the “Standard of Performance”).

Section 3.02 Liability and Indemnity. (a) The Administrative Agent shall not be liable for any Losses or Taxes to or of, or payable by any Issuer Group Member at any time from any cause whatsoever or any Losses or Taxes directly or indirectly arising out of or in connection with or related to the performance by the Administrative Agent of this Agreement unless (i) such Losses or Taxes are the result of the Administrative Agent’s (or any Administrative Agent Delegate’s) own gross negligence, recklessness, willful misconduct, deceit or fraud or that of any of its directors, officers or employees, as the case may be or (ii) such Losses are directly caused by any representation or warranty by the Administrative Agent set forth in Section 4.02 having proven to be false on the date hereof or a breach by the Administrative Agent of the express terms of this Agreement.

(b) Notwithstanding anything to the contrary set forth in any other agreement to which any Issuer Group Member is a party, the Issuer and the other Issuer Group Members do hereby assume liability for and do hereby jointly and severally agree to indemnify, reimburse and hold harmless on an After-Tax Basis the Administrative Agent and each Administrative Agent Delegate and their respective directors, officers, employees and agents and each of them from any and all Losses or Taxes that may be imposed on, incurred by or asserted against any of them arising out of, in connection with or related to the Administrative Agent’s performance under this Agreement (including any Losses or Taxes incurred by any of them as a result of indemnifying any Person to whom it shall have delegated its obligations hereunder in accordance with Section 8.01 hereof, but only to the extent the Administrative Agent would have been indemnified had it performed such obligations), except as a result of the gross negligence, recklessness, willful misconduct, deceit or fraud of the Administrative Agent (or any Administrative Agent Delegate) or any of its directors, officers or employees or as a result of any representation or warranty by the Administrative Agent set forth in Section 4.02 having proven to be false on the date hereof or a breach by the Administrative Agent of the express terms of this Agreement. This indemnity shall expressly inure to the benefit of any director, officer, agent or employee of the Administrative Agent now existing or in the future and to the benefit of any successor of the Administrative Agent and shall survive the expiration of this Agreement. This indemnity shall not apply to:

(i) Taxes imposed on net income by the revenue authorities of Ireland or Bermuda in respect of any payment by any Issuer Group Member to the Administrative Agent due to the performance of the Issuer Group Services; and

(ii) Taxes imposed on net income of the Administrative Agent by any Government Authority other than the revenue authorities of Bermuda or Ireland to the extent such Taxes would not have been imposed in the absence of any connection of the Administrative Agent with such jurisdiction imposing such Taxes other than any connection that results from the performance by the Administrative Agent of its obligations under this Agreement.

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(c) The Administrative Agent agrees to indemnify, reimburse and hold harmless on an After-Tax Basis the Policy Provider and the Holders of the Notes for any Losses whatsoever which they or any of them may incur or be subject to in consequence of (x) the performance of the Issuer Group Services to the extent such Losses arise due to the willful misconduct, recklessness, gross negligence, deceit or fraud of the Administrative Agent (or any Administrative Agent Delegate) or any of its directors, officers or employees, as the case may be, (y) a breach by the Administrative Agent (or any Administrative Agent Delegate) of the express terms of this Agreement (other than the performance of the Issuer Group Services but including the undertakings in Section 4.01 hereof) and (z) any representation or warranty by the Administrative Agent set forth in Section 4.02 hereof having proven to be false on the date hereof; provided that this indemnity shall not apply and the Administrative Agent shall have no liability in respect of Losses to the extent that they arise from (i) the gross negligence, willful misconduct, deceit or fraud of any Issuer Group Members or their respective directors, trustees or agents, (ii) any breach by the Administrative Agent of its obligations under this Agreement to the extent such breach is a result of a Service Provider’s failure to perform its obligations to the Issuer Group or a failure by the Issuer Group to comply with its obligations under this Agreement, (iii) any action that the Issuer Group requires the Administrative Agent to take pursuant to a direction but only to the extent that the Administrative Agent takes such action in accordance with such direction and in accordance with the provisions hereof, (iv) a refusal by the Issuer Group to take action upon a recommendation made in good faith by the Administrative Agent in accordance with the terms hereof or (v) in the case of Losses incurred by the Holders of the Notes, this indemnity shall be only for Losses that adversely affect the timing or amount of payments on the Notes.

(d) The Administrative Agent agrees to indemnify, reimburse and hold harmless on an After-Tax Basis each of the Trustee, the Security Trustee and the Operating Bank and their respective trustees, directors, officers and agents for any Losses whatsoever which they or any of them may incur or be subject to in consequence of any breach of the terms of this Agreement by the Administrative Agent (or any Administrative Agent Delegate), the failure of any representation or warranty of the Administrative Agent set forth in Section 4.02 hereof to be true and correct on the date hereof or the willful misconduct, recklessness, gross negligence, deceit or fraud of the Administrative Agent (or any Administrative Agent Delegate) or any of its directors, officers or employees, as the case may be; provided, however, that this indemnity shall not apply and the Administrative Agent shall have no liability in respect of Losses to the extent that they arise from (i) the gross negligence, willful misconduct, deceit or fraud of the Trustee or Security Trustee, or their respective directors, trustees or agents, (ii) any breach by the Administrative Agent of its obligations under this Agreement to the extent such breach is solely a result of a Service Provider’s failure to perform its obligations to the Issuer Group or a failure solely by the Issuer Group to comply with its obligations under this Agreement, (iii) any action that the Trustee or the Security Trustee requires the Administrative Agent to take pursuant to a direction but only to the extent that the Administrative Agent takes such action in accordance with such direction and in

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accordance with the provisions hereof or (iv) a refusal by the Trustee or the Security Trustee to take action upon a recommendation made in good faith and consistent with the provisions relating to the Trustee or the Security Trustee under the Related Documents by the Administrative Agent in accordance with the terms hereof.

(e) The Administrative Agent, the Issuer and the other Issuer Group Members, the Trustee and the Security Trustee acknowledge and agree that the terms of this Agreement contemplate that the Administrative Agent shall receive the Relevant Information in order for the Administrative Agent to make required credit and debit entries and to make the calculations and supply the information and reports required herein, and that the Administrative Agent will do the foregoing if and to the extent such information is so provided by such relevant parties and on the basis of such information, without undertaking any independent verification or recalculation of such information.

ARTICLE IV

ADMINISTRATOR UNDERTAKINGS

Section 4.01 Administrative Agent Undertakings. The Administrative Agent hereby covenants with the Issuer Group that during the term of this Agreement it will conduct its business such that it is a separate and readily identifiable business from, and independent of, each Issuer Group Member and further covenants as follows:

(a) if the Administrative Agent receives any money whatsoever, which money belongs to any Issuer Group Member, the Trustee or the Security Trustee or is to be paid to any Issuer Group Member, the Trustee or the Security Trustee or into any account pursuant to any Related Document or otherwise, it will hold such money in trust for such Issuer Group Member, the Trustee or the Security Trustee, as the case may be, and shall keep such money separate from all other money belonging to the Administrative Agent and shall as promptly as practicable thereafter pay the same into the relevant account in accordance with the terms thereof without exercising any right of setoff it may have;

(b) it will comply with any proper directions, orders and instructions which any Issuer Group Member may from time to time give to it in accordance with the provisions of this Agreement and the Indenture; provided that during the continuance of any Event of Default of which the Administrative Agent has received written notice from any party to a Related Document or of which the Administrative Agent is otherwise aware, the Administrative Agent shall comply only with the instructions of the Security Trustee as to all Issuer Group Services;

(c) it will not knowingly fail to comply with any legal requirements in any material respect in the performance of the Issuer Group Services;

(d) it will make all payments required to be made by it at any time and from time to time pursuant to this Agreement on the required date for payment thereof

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and shall turn over any amounts owed to the Security Trustee, the Issuer, any other Issuer Group Member or the Trustee without set-off or counterclaim;

(e) it will not take any steps for the purpose of procuring the appointment of any administrative receiver or the making of an administrative order or for instituting any bankruptcy, reorganization, arrangement, insolvency, winding up, liquidation, composition or any like proceedings under the laws of any jurisdiction in respect of any Issuer Group Member or in respect of any of their respective liabilities, including, without limitation, as a result of any claim or interest of the Administrative Agent;

(f) it will cooperate with each Issuer Group Member and its respective trustees, directors, officers and agents (with respect to the Issuer Group Services when no Event of Default, of which the Administrative Agent has received written notice from any party to a Related Document or of which the Administrative Agent is otherwise aware, has occurred and is continuing) and the Policy Provider, the Security Trustee and the Trustee (with respect to the Issuer Group Services during the continuance of an Event of Default of which the Administrative Agent has received written notice from any party to a Related Document or of which the Administrative Agent is otherwise aware), including by providing such information as may reasonably be requested, to permit such Persons to monitor the Administrative Agent’s compliance with its obligations under this Agreement;

(g) it will observe all corporate formalities necessary to remain a legal entity separate and distinct from, and independent of, each Issuer Group Member;

(h) it will maintain its assets and liabilities separate and distinct from each Issuer Group Member in such a manner that is not difficult to segregate, identify or ascertain such assets and liabilities;

(i) it will maintain records, books, accounts and minutes separate from those of each Issuer Group Member;

(j) it will pay its obligations in the ordinary course of its business as a legal entity separate from each Issuer Group Member, except as otherwise required or permitted under the Indenture and the Security Trust Agreement;

(k) it will keep its funds separate and distinct from the funds of each Issuer Group Member, and it will receive, deposit, withdraw and disburse such funds separately from the funds of each Issuer Group Member;

(l) it will conduct its business in its own name, and not in the name of any Issuer Group Member;

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(m) it will not pay, assume, guarantee or become liable for any debt of, or otherwise pledge its assets for the benefit of, any Issuer Group Member, except as otherwise permitted under the Related Documents;

(n) it will not hold out that it is a division of any Issuer Group Member or that any Issuer Group Member is a division of it;

(o) it will not induce any third party to rely on the creditworthiness of any Issuer Group Member in order that such third party will be induced to contract with the Administrative Agent;

(p) it will correct any misunderstanding known to it regarding its separate identity;

(q) it will maintain adequate capital in light of its contemplated business purpose, transactions and liabilities;

(r) except with respect to any grantor trust, it will cause its board of directors or managers or its members, as applicable, to meet at least annually or act pursuant to written consent and keep minutes of such meetings and actions;

(s) it will not enter into any agreements between it and any Issuer Group Member that are more favorable to either party than agreements that the parties would have been able to enter into at such time on an arm’s-length basis with a non-affiliated third party, other than any Related Documents in effect on the date hereof;

(t) it will (i) forward promptly to the Servicer a copy of any material communication received from any Person in relation to any Lease or Aircraft; (ii) grant such access to the Servicer to its books of account, documents and other records and to its employees as may be reasonably necessary for the Servicer to perform its obligations in respect of any Lease or Aircraft under the Servicing Agreement; provided that the Servicer shall not have access to the minutes of the Administrative Agent’s board meetings and other confidential business information; and (iii) execute and deliver such documents and do such acts and things as the Servicer may reasonably request in order for the Servicer to perform its obligations under the Servicing Agreement;

(u) it shall perform all services in respect of the Aircraft Assets subject to, and in compliance with, the constraints and restrictions set forth in Sections 5.02 and 5.03 of the Indenture; provided that, for the avoidance of doubt, the Administrative Agent shall not be required to meet any of the financial obligations of the Issuer under the Indenture; and

(v) in the case of Babcock & Brown Aircraft Management LLC, it shall cause each of its Affiliates to comply with the covenants contained in clauses (g) through (p), (q), (r) and (s) above fully and with the same force and effect as if such Affiliate were the party making such covenants.

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Section 4.02 Representations of the Administrative Agent. The Administrative Agent represents and warrants to the Issuer as follows:

(a) Authority. The Administrative Agent is duly organized and is validly existing and has all requisite power and authority to execute this Agreement and to consummate the transactions contemplated by this Agreement and to perform its obligations under this Agreement. All corporate acts and other proceedings required to be taken by the Administrative Agent to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement and the performance of its obligations contemplated under this Agreement have been or on or before the date of entering into this Agreement will have been duly and properly taken.

(b) Due Execution and Delivery. This Agreement has been duly and validly executed and delivered by the Administrative Agent and constitutes a legal, valid and binding obligation of the Administrative Agent, enforceable against it in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(c) No Conflict. None of the execution and delivery of this Agreement by the Administrative Agent or the consummation of the transactions contemplated by this Agreement or performance by the Administrative Agent of any of its obligations under this Agreement, except in each case where such execution, consummation or performance could not reasonably be expected to result in a material adverse effect on the ability of the Administrative Agent to perform its obligations hereunder will (i) violate any provisions of the constituent documents of the Administrative Agent, (ii) violate any order, writ, injunction, judgment or decree applicable to the Administrative Agent or any of its properties or assets, (iii) violate in any material respect any Applicable Law or (iv) result in any conflict with, breach of or default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, warrant or other similar instrument or any license, permit, material agreement or other material obligation to which the Administrative Agent is a party or by which the Administrative Agent or any of its properties or assets may be bound.

(d) No Necessary Approval. No action, consent or approval by, or filing with, any Governmental Authority or any other regulatory or self-regulatory body, or any other Person, is required in connection with the execution, delivery or performance by the Administrative Agent of this Agreement or the consummation by the Administrative Agent of the transactions contemplated by this Agreement.

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Section 4.03 Certain Information. The Administrative Agent agrees to be bound by and perform the obligations of the Administrative Agent set forth in Section 13.04 of the Servicing Agreement.

Section 4.04 Access. The Administrative Agent, at such times as the Policy Provider may reasonably request (in any event not more than an aggregate of one (1) time per Year prior to an Event of Default, and four (4) times per Year after and during the continuance of an Event of Default) shall grant, and shall cause any Administrative Agent delegate to grant, to the Policy Provider and its agents to the extent party to confidentiality agreements reasonably acceptable to the Administrative Agent, access to the documents and other records generated by the Administrative Agent (and in its possession) as part of its services hereunder (exclusive of internal correspondence, approval materials, internal evaluations and similar documents or other records developed by the Administrative Agent or any of its Affiliates for their own use) or by a Lessee and delivered to the Administrative Agent, and related to the Aircraft Assets (copies of which the Policy Provider shall (at its expense) be entitled to take), to enable the Policy Provider and its agents to monitor the performance by the Administrative Agent under this Agreement or to otherwise discharge the Policy Provider’s obligations under Applicable Law. Prior to the occurrence of an Event of Default, the Policy Provider shall pay its own costs and expenses incurred pursuant to this Section 4.04. After the occurrence and during the continuance of an Event of Default, the Administrative Agent shall promptly pay the Policy Provider’s out-of-pocket costs and expenses incurred pursuant to this Section 4.04 upon receipt of a written invoice therefor from the Policy Provider. Upon reasonable prior written notice and at reasonable times (in any event not more than an aggregate of one (1) time per Year prior to an Event of Default, and four (4) times per Year after and during the continuance of an Event of Default), the Administrative Agent shall make one or more (such number to be determined by the Administrative Agent in good faith but sole discretion) members of its staff (including one or more members of its senior management) available to attend (including by telephone) meetings with representatives of the Policy Provider.

ARTICLE V

UNDERTAKINGS OF THE ISSUER GROUP

Section 5.01 Cooperation. The Issuer and the other Issuer Group Members shall use commercially reasonable efforts to cause any Service Provider to at all times cooperate with the Administrative Agent to enable the Administrative Agent to provide the Issuer Group Services, including providing the Administrative Agent with all powers of attorney as may be reasonably necessary or appropriate for the Administrative Agent to perform the Issuer Group Services in accordance with this Agreement.

Section 5.02 Information. The Issuer will provide the Administrative Agent with the following information in respect of itself and each other Issuer Group Member:

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(a) copies of all Related Documents, including the articles of incorporation, operating agreement, by-laws, trust agreement (or equivalent documents) of each Issuer Group Member, and copies of all books and records maintained on behalf of each such Issuer Group Member;

(b) details of all bank accounts and bank mandates maintained by any Issuer Group Member;

(c) names of and contact information with respect to the Board or board for each Issuer Group Member;

(d) such other information as is necessary to the Administrative Agent’s performance of the Issuer Group Services; and

(e) a copy of any information provided to the Issuer Group pursuant to the Servicing Agreement.

Section 5.03 Scope of Services. (a) In the event that any Issuer Group Member shall enter into any agreement, amendment or other modification of any Lease or any Related Document or shall take any other action that has the effect of increasing in any material respect the scope, nature or level of the Issuer Group Services to be provided under this Agreement (including pursuant to Section 2.05 hereof) without the Administrative Agent’s express prior written consent, the Issuer Group shall so notify the Administrative Agent and the Administrative Agent shall not be obligated to perform the affected Issuer Group Service to the extent of such increase unless and until the Administrative Agent and the Issuer Group shall agree on the terms of such increased Issuer Group Service and the compensation therefor (it being understood that (i) the Administrative Agent shall have no liability to any Issuer Group Member directly or indirectly arising out of, in connection with or related to the Administrative Agent’s failure to perform such increased Issuer Group Service prior to any such agreement and (ii) the Issuer Group shall not be permitted to engage another Person to perform the affected Issuer Group Service without the prior written consent of the Administrative Agent unless the Administrative Agent has indicated it is unable or unwilling to act in respect of the affected Issuer Group Service on the terms offered.

(b) In the event that the Issuer Group shall acquire Additional Aircraft, the Issuer Group shall so notify the Administrative Agent and the Administrative Agent shall be obligated to provide the Issuer Group Services with respect to such Additional Aircraft in accordance with Section 2.06 hereof subject to reaching agreement on additional compensation therefor.

Section 5.04 Ratification. The Issuer and the other Issuer Group Members hereby ratify and confirm and agree to ratify and confirm (and shall furnish written evidence thereof upon request of the Administrative Agent) any act or omission by the Administrative Agent with respect to any Issuer Group Services in accordance with this Agreement in the exercise of any of the powers or authorities conferred upon

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the Administrative Agent under the terms of this Agreement, it being expressly understood and agreed that none of the foregoing shall have any obligation to ratify and confirm, and expressly does not ratify and confirm, any act or omission of the Administrative Agent in violation of this Agreement, the Standard of Performance or for which the Administrative Agent is obligated (or would be obligated had any Issuer Group Member incurred any Losses) to indemnify any Issuer Group Member under Article III hereof.

Section 5.05 Covenants. Each of the Issuer and the other Issuer Group Members covenants with the Administrative Agent that, during the term of this Agreement, it will conduct its business such that it is a separate and readily identifiable business from, and independent of, the Administrative Agent and any of its Affiliates and further covenants as follows (it being understood that these covenants shall not prevent the Issuer Group from publishing financial statements that are consolidated with those of BABCOCK & BROWN Air Funding I Limited, if to do so is required by Applicable Law or accounting principles from time to time in effect):

(a) it will observe all corporate formalities necessary to remain legal entities separate and distinct from, and independent of, the Administrative Agent, and any of its Affiliates;

(b) it will maintain its assets and liabilities separate and distinct from those of the Administrative Agent in such a manner that is not difficult to segregate, identify or ascertain such assets and liabilities

(c) it will maintain records, books, accounts and minutes separate from those of the Administrative Agent;

(d) it will pay its obligations in the ordinary course of business as a legal entity separate from the Administrative Agent;

(e) it will keep its funds separate and distinct from any funds of the Administrative Agent, and will receive, deposit, withdraw and disburse such funds separately from any funds of the Administrative Agent;

(f) it will conduct its business in its own name, and not in the name of the Administrative Agent;

(g) it will not agree to pay or become liable for any debt of the Administrative Agent, other than to make payments in the form of indemnity as required by the express terms of this Agreement;

(h) it will not hold out that it is a division of the Administrative Agent, or that the Administrative Agent is a division of it;

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(i) it will not induce any third party to rely on the creditworthiness of the Administrative Agent in order that such third party will be induced to contract with it;

(j) it will not enter into any transaction between it and the Administrative Agent that are more favorable to either party than transactions that the parties would have been able to enter into at such time on an arm’s-length basis with a non-affiliated third party, other than any agreements in effect on the date hereof (it being understood that the parties hereto do not intend by this covenant to ratify any self-dealing transactions);

(k) it will correct any misunderstanding known to it regarding its separate identity;

(l) it will maintain adequate capital in light of its contemplated business purpose, transactions and liabilities;

(m) it will observe all material corporate or other procedures required under Applicable Law and under its constitutive documents;

(n) except with respect to any grantor trust, cause its board of directors or managers, as applicable, to meet at least annually or act pursuant to written consent and keep minutes of such meetings and actions; and

(o) it will observe all material corporate or other formalities necessary to keep its business separate and readily identifiable from, and independent of, each other Issuer Group Member, including keeping the funds, assets and liabilities of each Issuer Group Member separate and distinct from those of each other Issuer Group Member and by maintaining separate records, books, accounts and minutes for each Issuer Group Member.

Section 5.06 Ratification by Subsidiaries. The Issuer hereby undertakes to procure that, if so requested by the Administrative Agent, any subsidiary of the Issuer formed or acquired after the date hereof, shall execute an agreement with the Administrative Agent adopting and confirming, as regards such subsidiary, the terms of this Agreement, and agreeing to ratify anything done by the Administrative Agent in connection herewith on the terms of Section 5.04.

Section 5.07 Organization and Standing. The Issuer is duly incorporated under the laws of Bermuda, and each other Issuer Group Member is duly formed and validly existing and, if relevant, in good standing under the laws of the jurisdiction in which it is legally created or formed. Each of the Issuer and each other Issuer Group Member is in compliance in all material respects with all terms of such Person’s constituent documents.

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ARTICLE VI

ADMINISTRATION FEES AND EXPENSES

Section 6.01 Administration Fees. In consideration of the Administrative Agent’s performance of the Issuer Group Services, the Issuer agrees to pay to the Administrative Agent a per annum amount equal to $750,000 (the “Administration Fee”) payable in arrears in equal monthly installments on each Payment Date (until the resignation or removal of the Administrative Agent) for each period commencing on and including the Initial Closing Date (or, thereafter, the last of day of the immediately preceding period) and ending on but excluding the Calculation Date immediately preceding such Payment Date (each such period, a “Fee Period”). If on the Delivery Expiry Date the Sellers have delivered to the Issuer Group fewer than 42 Aircraft, then the Administration Fee for Fee Periods commencing after the Delivery Expiry Date will be a per annum amount equal to the greater of (a) the product of $750,000 and a fraction the numerator of which is the number of Aircraft delivered to the Issuer Group and the denominator of which is 47, and (b) $400,000. The Administration Fee shall be adjusted on each anniversary of the Initial Closing Date for annual cost of living adjustments (based on the consumer price index for the home office of the Administrative Agent) not to exceed 5% in any given year.

Section 6.02 Expenses. (a) The Administrative Agent shall be responsible for all telephone, facsimile and communications costs and expenses directly relating to or associated with the Administrative Agent’s performance of its duties as set forth in this Agreement.

(b) Subject to the provisions of Section 6.02(a), the Issuer Group shall be responsible for the following expenses incurred by the Administrative Agent in the performance of its obligations hereunder (“Reimbursable Expenses”):

(i) reasonable out-of-pocket expenses, including travel, accommodation and subsistence and approved expenditures in respect of insurance coverage for the Administrative Agent;

(ii) expenses expressly authorized by (i) the Board or (ii) any Person to whom such authority has been delegated, other than the Administrative Agent or its Affiliates; and

(iii) expenses expressly authorized pursuant to other provisions of this Agreement including Section 2.04(iv), (v) and (vi).

Section 6.03 Payment of Expenses. No later than each Calculation Date, the Administrative Agent shall deliver a notice to the Issuer Group, setting forth the amounts of Reimbursable Expenses owed to the Administrative Agent pursuant to Section 6.02 of this Agreement through and including such Calculation Date (it being

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understood that if there are no such expenses the Administrative Agent will be under no obligation to provide such notice).

All fees, expenses (including Reimbursable Expenses) and indemnity payments shall be paid in accordance with the priority of payments set forth in the Indenture. The parties hereto agree that they will have no recourse or claims against the assets of the Issuer Group to the extent that collections and other available funds are insufficient.

ARTICLE VII

TERM; REPLACEMENT OF OR RESIGNATION BY THE ADMINISTRATOR

Section 7.01 Term. This Agreement shall have a term commencing on the Initial Closing Date and expiring on the later of (y) the first date on which there shall have been paid in full all amounts outstanding to be paid under the Notes and any similar obligations of the Issuer issued pursuant to any other indenture or similar agreement, including all obligations then due and payable under the Indenture and all Policy Provider Obligations and (z) the Final Maturity Date.

Section 7.02 Replacement or Resignation. (a) At any time during the term of this Agreement, the Issuer by a Board Resolution, the Security Trustee or the Policy Provider shall be entitled to replace the then existing Administrative Agent, if any of the following events occur:

(i) the termination of the Servicing Agreement pursuant to Section 10.01(b) thereof;

(ii) the Administrative Agent shall fail in any material respect to perform any material Issuer Group Services in accordance with the Standard of Performance or otherwise materially breach any of its obligations under this Agreement and such failure or breach shall have a material adverse effect on the party seeking to replace the Administrative Agent or the Issuer;

(iii) any representation or warranty made by the Administrative Agent under this Agreement or any Related Document to which it is a party shall prove to have been false or misleading in any material respect when made and such misrepresentation shall have a material adverse effect on the party seeking to replace the Administrative Agent or the Issuer or a material adverse effect on the ability of the Administrative Agent to perform its obligations under this Agreement;

(iv) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking relief in respect of the Administrative Agent or in respect of a substantial part of the property or assets of the Administrative Agent, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other U.S. federal or state or foreign bankruptcy,

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insolvency, receivership or similar law, and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered or the Administrative Agent shall go into liquidation, suffer a receiver or mortgagee to take possession of all or substantially all of its assets or have an examiner appointed over it or if a petition or proceeding is presented for any of the foregoing and not discharged within 60 days;

(v) the Administrative Agent shall (A) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other U.S. federal or state or foreign bankruptcy, insolvency, receivership or similar law, (B) consent to the institution of, or fail within 60 days to contest the filing of, any petition described in clause (iv) of this definition, (C) file an answer admitting the material allegations of a petition filed against it in any such proceeding or (D) make a general assignment for the benefit of its creditors; or

(vi) the Administrative Agent ceases, or the Administrative Agent gives notice that it intends to cease, to be actively involved in the aircraft, advisory and management business (whether for aircraft owned by it or its Affiliates or owned by others).

(b) At any time during the term of this Agreement, the Administrative Agent shall be entitled to resign as the Administrative Agent performing the Issuer Group Services on 120 days’ Written Notice to the Issuer, the Security Trustee, the Policy Provider and the Trustee if:

(i) any Issuer Group Member shall fail to pay in full when due (A) any Administration Fee or any Reimbursable Expenses and such failure continues for a period of 30 days, in either case, after the effectiveness of Written Notice from the Administrative Agent of such failure or (B) any other amount payable to the Administrative Agent hereunder, and such failure continues for a period of 60 days after Written Notice from the Administrative Agent of such failure; provided that, in the event the Policy Provider shall timely pay in full the amounts set forth in clauses (A) and (B) hereof (in which case it shall be subrogated to the rights of the Administrative Agent thereto), the Administrative Agent shall not resign pursuant to this clause (i);

(ii) any Issuer Group Member shall fail to perform or observe or shall violate in any material respect any material term, covenant, condition or agreement to be performed or observed by it in this Agreement and such failure continues for a period of 30 days after the Issuer Group and the Policy Provider shall have received notice of such failure (other than with respect to payment obligations referred to in clause (b)(i) of this Section 7.02) and such failure is reasonably likely to have a material adverse effect on the Administrative Agent; or

(iii) the Issuer shall become subject to Competitor Control.

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(c) No replacement of the Administrative Agent pursuant to Section 7.02(a) and no resignation by the Administrative Agent pursuant to Section 7.02(b) shall become effective prior to the date on which a successor Administrative Agent, that is not subject to Competitor Control and has otherwise been appointed in accordance with the provisions of this Agreement and the Servicing Agreement, shall have become a party to this Agreement and accepted appointment with respect to all the rights and obligations of the Administrative Agent hereunder as such successor Administrative Agent; provided that in the event that a successor Administrative Agent shall not have been appointed within 90 days after such resignation, the Administrative Agent may petition any court of competent jurisdiction for the appointment of a successor Administrative Agent that is not subject to Competitor Control and has otherwise been appointed in accordance with the provisions of this Agreement and the Servicing Agreement. Upon any such replacement or resignation, the Administrative Agent shall be entitled to the payment of any compensation owed to it hereunder and to the reimbursement of all Reimbursable Expenses incurred in connection with all services rendered by it hereunder, as provided in Section 6 hereof, and for so long as the Administrative Agent is continuing to perform any of the Issuer Group Services, the Administrative Agent shall be entitled to continue to be paid all amounts due to it hereunder, net of any amounts that shall have been finally adjudicated by a court of competent jurisdiction to be owed by the Administrative Agent to the Issuer Group or not to be due to the Administrative Agent, until a successor Administrative Agent shall have been appointed and shall have accepted such appointment.

Section 7.03 Consequences of Replacement or Resignation. (a) Notices. (i) Following the replacement or resignation of the Administrative Agent pursuant to Section 7.01 or 7.02, the Administrative Agent will promptly forward to the Issuer Group any notices in respect of the Issuer Group Services received by it during the year immediately following the replacement and resignation of the Administrative Agent pursuant to this Agreement.

(ii) The Issuer Group will notify promptly any relevant third party, including each Rating Agency, the Policy Provider, the Security Trustee, the Trustee, the Cash Manager and the Servicer, of the replacement and resignation of the Administrative Agent pursuant to this Agreement and will request that any such notices and accounting reports and communications thereafter be made or given directly to the entity engaged to serve as Administrative Agent, and to the other parties hereto.

(b) Accrued Rights. The replacement and resignation of the Administrative Agent pursuant to this Agreement shall not affect the respective rights and liabilities of any party accrued prior to such termination in respect of any prior breaches hereof or otherwise.

(c) Replacement. If the Administrative Agent is replaced or resigns, the Administrative Agent will cooperate with any person appointed to perform the relevant Issuer Group Services, including providing such person with all information and documents reasonably requested.

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Section 7.04 Survival. Notwithstanding any replacement or resignation of the Administrative Agent or the expiration of this Agreement, the obligations of the Issuer Group and the Administrative Agent under Section 3.02, of the Administrative Agent under Section 4.01(e) (so long as the Notes are outstanding or any amounts owed to the Policy Provider remain outstanding), 4.01(a), (g) through (s) and the first paragraph of such section, 7.03 and 9.11, and of the Issuer Group Members under Section 5.05 shall survive such replacement or resignation of the Administrative Agent or expiration, as the case may be.

ARTICLE VIII

ASSIGNMENT AND DELEGATION

Section 8.01 Assignment and Delegation. (a) Except as provided in subsection (b) below, no party to this Agreement shall assign or delegate or otherwise subcontract this Agreement or all or any part of its rights or obligations hereunder to any Person without the prior written consent of the other parties hereto (such consent not to be unreasonably withheld) and, in the case of an assignment or delegation by the Administrative Agent, the consent of the Servicer (which consent shall not be unreasonably withheld); provided that the Issuer Group Members may assign their rights hereunder to the Security Trustee for the benefit of the Secured Parties under the terms of the Security Trust Agreement. Notwithstanding the foregoing, the Administrative Agent is entitled to delegate or subcontract all or a portion of the Issuer Group Services to any entity (a “Administrative Agent Delegate”); provided that the Administrative Agent shall remain primarily liable hereunder. The Servicer and the Policy Provider shall be notified of any delegation or subcontracting to a Administrative Agent Delegate, and shall be entitled to deal with and rely upon such Administrative Agent Delegate as the Administrative Agent in respect of the portion of the Issuer Group Services so delegated to such Administrative Agent Delegate.

(b) The Administrative Agent may assign its right to receive compensation for the performance of all or any part of the Issuer Group Services.

(c) Without limiting the foregoing, any Person who shall become a successor by assignment or otherwise of any party hereto shall be required as a condition to the effectiveness of any such assignment or other arrangement to become a party to this Agreement.

(d) The Administrative Agent hereby acknowledges that the Issuer and the other Issuer Group Members have granted a security interest to the Security Trustee under the Security Trust Agreement in all of the Issuer Group’s rights, title and interest in, to and under this Agreement, and agrees that all of the Issuer Group’s rights may be exercised by the Security Trustee at the direction of the Controlling Party, to the exclusion of the Issuer and any other person in the Issuer Group following written notice to the Administrative Agent by the Trustee or the Policy Provider of the occurrence and continuance of an Event of Default (whether or not any other remedial action is or has

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been taken, including, but not limited to, the delivery of a Default Notice under the Indenture) and such right shall continue so long as such Event of Default shall continue. The Administrative Agent hereby consents to such grant of a security interest.

ARTICLE IX

MISCELLANEOUS

Section 9.01 Notices. All notices, consents, directions, approvals, instructions, requests and other communications required or permitted by this Agreement to be given to any Person shall be in writing, and any such notice shall become effective ten (10) days after being deposited in the mails, certified or registered, return receipt requested, with appropriate postage prepaid for first class mail, or if delivered by hand or courier service or in the form of a facsimile, when received (and, in the case of a facsimile, receipt of such facsimile is confirmed to the sender), and shall be directed to the address or facsimile number of such Person set forth below:

If to the Issuer and the other Issuer Group Members, to:

Babcock & Brown Air Funding I Limited  

c/o Babcock & Brown Aircraft Management (Europe) Limited

West Pier

Dun Laoghaire

County Dublin

Ireland

Attention: Company Secretary

Fax: (353) 1-231-1901

Telephone: (353) 1-231-1900

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if to the Administrative Agent, to:

Babcock & Brown Air Management Co Limited

West Pier, Dun Laoghaire

County Dublin

Ireland

Fax: (353) 1-231-1901

Telephone: (353) 1-231-1900

if to the Trustee or the Security Trustee, to:

Deutsche Bank Trust Company Americas

60 Wall Street, 26th Floor

MSNYC60-2606

New York, NY 10005

Attention: Lou Bodi

Fax: 212-797-8606

if to the Policy Provider, to:

[AMBAC Assurance Corporation

One State Street Plaza

New York, NY 10004

Attention: Surveillance

Fax: (212) 208-3527

and if to the Servicer, to:                               ]

Babcock & Brown Aircraft Management (Europe) Limited

West Pier

Dun Laoghaire

County Dublin

Ireland

Attention: Company Secretary

Fax: (353) 1-231-1901

Telephone: (353) 1-231-1900

and to:

Babcock & Brown Aircraft Management LLC

6th Floor

2 Harrison Street

San Francisco, California 74106

Attention: General Counsel

Fax: (415) 512-1515

Telephone: (415) 267-1500

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From time to time any party to such agreement may designate a new address or number for purposes of notice thereunder by notice to each of the other parties thereto. In connection with the performance of their respective duties under the Related Documents, the Administrative Agent, the Cash Manager and the Servicer may give notices, consents, directions, approvals, instructions and requests to, and otherwise communicate with, each other using electronic means, including email transmission to such email addresses as each such party shall designate to the other parties, and, if necessary or if requested by the other party or parties, with an “electronic signature” or other “electronic record” (as such terms are defined in the New York State Electronic Signatures and Records Act).

Section 9.02 Governing Law. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.

Section 9.03 Jurisdiction. Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York City, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 9.01 shall be deemed effective service of process on such party.

Section 9.04 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.05 Counterparts; Third Party Beneficiaries. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. No provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. The Servicer is an express third party beneficiary of this Agreement and may enforce the provisions hereof directly for its benefit.

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Section 9.06 Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement.

Section 9.07 Table of Contents; Headings. The table of contents and headings of the various articles, sections and other subdivisions of such agreement are for convenience of reference only and shall not modify, define or limit any of the terms or provisions of such agreement.

Section 9.08 Amendments. This Agreement may not be amended, supplemented or otherwise modified except in a writing executed by all parties hereto. To the extent that so doing would, directly or indirectly, affect the Servicer’s rights, obligations or liabilities (or potential liabilities) under this Agreement or the Servicing Agreement, this Agreement may not be amended without the consent of the Servicer. Prior to the execution of any such amendment, supplement or modification, the Security Trustee, the Policy Provider and the Trustee shall be entitled to receive an Officer’s Certificate to the effect that all conditions precedent to such amendment, modification or supplement, if any, have been satisfied.

Section 9.09 No Partnership. (a) It is expressly recognized and acknowledged that this Agreement is not intended to create a partnership, joint venture or other similar arrangement between any Issuer Group Member or Members on the one part and the Administrative Agent on the other part. It is also expressly understood that any actions taken on behalf of any Issuer Group Member by the Administrative Agent shall be taken as agent for such Issuer Group Member, either naming the relevant Issuer Group Member, or naming the Administrative Agent as agent for an undisclosed principal. No Issuer Group Member shall hold itself out as a partner of the Administrative Agent, and the Administrative Agent will not hold itself out as a partner of any Issuer Group Member.

(b) The Administrative Agent shall not have any fiduciary duty or other implied obligations or duties to any Issuer Group Member, any Lessee or any other Person arising out of this Agreement.

Section 9.10 Concerning the Security Trustee and the Trustee. It is expressly understood and agreed that neither the Security Trustee nor the Trustee shall have any liability in respect of the appointment, performance or nonperformance of the Administrative Agent, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under such parties.

Section 9.11 Restrictions on Disclosure. The Administrative Agent agrees that it shall not, prior to the termination or expiration of this Agreement or within the three (3) years after such termination or expiration, disclose to any Person any information stated in writing by an Issuer Group Member or the Servicer to be confidential or proprietary, whether of a technical, financial, commercial or other nature,

34

received directly or indirectly from the Issuer Group or the Servicer regarding the Issuer Group or the Servicer or their respective businesses or the Aircraft.

Notwithstanding anything herein to the contrary, the foregoing shall not be construed to prohibit (i) disclosure of any and all information that is or becomes publicly known, or information obtained by the Administrative Agent from sources other than an Issuer Group Member or the Servicer, (ii) disclosure of any and all information (A) if required to do so by any Applicable Law, (B) to any government agency or regulatory body having or claiming authority to regulate or oversee any respects of the Administrative Agent’s business or that of its affiliates, (C) pursuant to any subpoena, civil investigative demand or similar demand or request of any court, regulatory authority, arbitrator or arbitration to which the Administrative Agent or an affiliate or an officer, director, employer or shareholder thereof is a party, (D) in any preliminary or final offering circular, registration statement (including, for the avoidance of doubt, the Form F-1 Registration Statement under the Securities Act of 1933 on behalf of Babcock & Brown Air Limited No. 333-[               ] filed on June 15, 2007 as amended) or contract or other document pertaining to the transactions contemplated by this Agreement approved in advance by any Issuer Group Member or (E) to any affiliate, independent or internal auditor, agent, employee or attorney of the Administrative Agent having a need to know the same, provided that the Administrative Agent advises such recipient of the confidential nature of the information being disclosed, or (iii) any other disclosure authorized by any Issuer Group Member or the Servicer.

Section 9.12 Power of Attorney. The Issuer shall, on its behalf and on behalf of each of the Issuer Group Members, appoint the Administrative Agent and its successors, and its permitted designees and assigns, as its and each of the relevant Issuer Subsidiaries’ true and lawful attorney-in-fact pursuant to the form of Power of Attorney attached as Schedule 2 to this Agreement (with such modifications as are necessary under the laws of the jurisdictions in which such Persons are organized). The Administrative Agent shall be entitled to seek and obtain from the Issuer (and/or any other Issuer Group Member as appropriate) a power of attorney in respect of the execution of any specific action as the Administrative Agent requests which is required in connection with the Issuer Group Services.

Section 9.13 No Petition. The Administrative Agent shall not take any steps for the purposes of procuring the appointment of any administrative receiver or the making of any administrative insolvency order or for instituting any bankruptcy, organization, arrangement, insolvency, winding up, liquidation, composition or any like proceeding under the insolvency laws of any jurisdiction in respect of the Issuer or any other Issuer Group Member.

35

IN WITNESS WHEREOF, this Agreement has been duly executed on the date first written above.

BABCOCK & BROWN AIR FUNDING I LIMITED, as the Issuer
By:
	Name: Title:

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as the Security Trustee and the Trustee
By:
	Name: Eileen M. Hughes Title: Vice President

By:
	Name: Louis Bodi Title: Vice President

BABCOCK & BROWN AIR MANAGEMENT CO LIMITED, as the Administrative Agent
By:
	Name: Title:

AMBAC ASSURANCE CORPORATION, as the Policy Provider
By:
	Name: Title:

[Name of Issuer Subsidiary] By: WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION not in its individual capacity but solely as Owner Trustee
By:
	Name: Title:

SCHEDULE I

ACCOUNTS

ACCOUNT NAME	ACCOUNT NUMBER
BABCOCK & BROWN AIR FUNDING I LIMITED COLLECTION ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED LESSEE FUNDED ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED SECURITY DEPOSIT ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED EXPENSE ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED CLASS G1 NOTE ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED AIRCRAFT PURCHASE ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED CAPITAL ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED LIQUIDITY FACILITY ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED CLASS B SHARE ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED LIMITED BUDGETED CASH ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED INITIAL LIQUIDITY PAYMENT ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED LIMITED RENTAL ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED AIRCRAFT CONVERSION ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED REDEMPTION ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED REFINANCING ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED BUDGETED CASH ACCOUNT
BABCOCK & BROWN AIR FUNDING I LIMITED CASH COLLATERAL ACCOUNT
IRISH VAT REFUND ACCOUNT

SCHEDULE 2

ISSUER GROUP SERVICES

POWER OF ATTORNEY

OF

[GRANTOR]

WHEREAS [GRANTOR], having its [registered] office at [insert address] (hereinafter called the “Grantor”) desires to appoint BABCOCK & BROWN AIRCRAFT MANAGEMENT LLC having its office at ___________ (the “Attorney”) as the true and lawful attorney of the Grantor for and in the name of and on behalf of the Grantor in such Attorney’s absolute discretion to execute each and every Requisite Document and Requisite Act as defined below and do all or any of the acts or things hereinafter mentioned.

KNOW ALL MEN BY THESE PRESENTS that in consideration for the mutual promises and benefits set forth in the Management Agreement (defined below) the Grantor does hereby make, constitute and irrevocably and unconditionally appoint for the period (the “Term”) as and from the date hereof until termination or expiry of the Administrative Services Agreement among the Grantor, other Issuer Group Members, Deutsche Bank Trust Company Americas, AMBAC Assurance Corporation, as the policy provider and the Attorney, dated as of _____________, 2007 (the “Administrative Services Agreement”) in accordance with its terms the Attorney as a true and lawful attorney of the Grantor for and in the name of and on behalf of the Grantor with absolute discretion to exercise, do, execute and/or deliver all or any of the acts, documents and things hereinafter mentioned that in to say:

1. To negotiate, approve, settle the terms of, agree, make, sign, execute (whether under hand or seal) and deliver all deeds, agreements, documents, commitments, arrangements, instruments, applications, oaths, affidavits, declarations, notices, confirmations, certificates, approvals, acceptances, deliveries and to do all other acts, matters and things whatsoever which are in each case necessary or desirable for the Attorney to do for and on behalf of the Grantor in respect of the provision of the Issuer Group Services (as defined in and contemplated by the Administrative Services Agreement) (each such document a “Requisite Document” and each such act a “Requisite Act”).

2. To make such amendments, modifications and variations to the Requisite Documents and to enter into ancillary documentation in respect thereof, all on such terms as any such Attorney may, in its sole discretion, determine from time to time for and on behalf of the Grantor; and to make, give, sign, execute and do all things including, without limitation, any material

acts which may be necessary in order to effect the terms of such Requisite Documents or in connection with the making, signature, executions and delivery of the Requisite Documents or any other documents required to be executed by the Grantor in connection therewith or the performance of any acts, matters and things contemplated thereby or by the Requisite Acts as may be necessary in accordance with the provision of the Issuer Group Services.

3. To nominate and appoint one or more substitutes as attorney or attorneys under it for all and any of the purposes aforesaid and the appointment of same with liberty to revoke.

4. To acknowledge this Power of Attorney as the act and deed of the Grantor and generally to do all other acts which may be necessary and desirable for carrying the purpose of this Power of Attorney into effect.

IT IS HEREBY DECLARED THAT:

(A) The Grantor hereby ratifies and confirms and agrees to ratify and confirm whatsoever any Attorney shall do or cause to be done in, or by virtue of this Power of Attorney as long an such act is not inconsistent with the terms of the Administrative Services Agreement or this Power of Attorney or in violation of Applicable Law.

(B) This Power of Attorney shall be irrevocable for the Term and at all times both before and after the Term shall be conclusive and binding upon the Grantor and no person or corporation having dealings with any Attorney under this Power of Attorney shall be under any obligation to make any inquiries as to whether or not this Power of Attorney has been revoked and all acts hereunder shall be valid and binding on the Grantor unless express notice of its revocation shall have been received by such person or corporation.

(C) Subject to the provisions of the Administrative Services Agreement the Grantor unconditionally undertakes to indemnify and keep indemnified each Attorney and his agents, and their respective successors and estates, against all actions, proceedings, claims, costs, expenses and liabilities of whatsoever nature arising from the exercise or purported exercise in good faith of any of the powers conferred on each Attorney by this Power of Attorney.

(D) The particular powers enumerated above shall be given the widest interpretation.

(E) THIS POWER OF ATTORNEY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF the Grantor has caused this Power of Attorney duly executed by the Grantor this ____ day of ______, 200_.

SIGNED BY: _______________________

For and on behalf of

[GRANTOR]

in the presence of:

EXHIBIT A

FORM OF MONTHLY REPORT TO

MOODY’S INVESTORS SERVICES, INC.

	XXX 2007-1
No.	Lessee Name	Aircraft Type	Manufact- ured Year	Reg. No.	MSN (Serial Number)	Payment Date	Amount Due	Amount Received	Lease Start	Lease Expiration	Note
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37

Deal	Payment Date	Lessee Name	Aircraft Type	MSN (Serial Number)	1-30	31-60	61-90	90-120	120+	Total	Note
XXX 2007-1
					0.00	0.00	0.00	0.00	0.00	0.00

EX-10.5

Exhibit 10.5

PRIVATE PLACEMENT AGREEMENT

PRIVATE PLACEMENT AGREEMENT dated as of July 19, 2007, by and among Babcock & Brown Air Limited, a Bermuda exempted company (the “Company”), and Credit Suisse Securities (USA) LLC (“Credit Suisse”).

WHEREAS, the Company intends to offer American Depositary Shares (“ADSs”) representing its common shares, par value $0.001 per share (“Common Shares”), in an initial public offering of the Company (the “IPO”); and

WHEREAS, the Company proposes to issue and sell to Credit Suisse the number of ADSs (the “Shares”) set forth on Schedule I hereto at a price per Share equal to the price per ADS to be paid by public investors in the IPO (the “IPO Price”), and Credit Suisse desires, subject to the terms and conditions set forth herein, to subscribe for the Shares at a price per Share equal to the IPO Price;

WHEREAS, the Company proposes to agree to provide Credit Suisse and certain other investors with registration rights as set forth in the form of registration rights agreement attached hereto as Exhibit A (the “Registration Rights Agreement”); and

WHEREAS, Credit Suisse proposes to agree to be bound by lock-up restrictions as set forth herein with respect to the Shares to be purchased by it hereby, together with any securities issued with respect to such Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed:

ARTICLE 1

ISSUANCE, SALE AND PURCHASE OF SHARES

SECTION 1.01. Issuance, Sale and Purchase of Shares.On the basis of the representations, warranties and covenants contained in this Private Placement Agreement, and subject to the terms and conditions contained herein, the Company agrees to issue and sell to Credit Suisse, and Credit Suisse agrees to subscribe for, the number of Shares set forth in Schedule I hereto at a price per Share equal to the IPO Price.

Credit Suisse and transferees of the Shares and certain other investors shall have the registration rights set forth in the Registration Rights Agreement to be executed on and dated as of the Closing (as defined below).

SECTION 1.02. Closing.Subject to the terms and conditions contained in this Private Placement Agreement, the closing of the subscription for the Shares (the “Closing”) shall take

place at the time and on the date that the IPO is consummated. Delivery of the Shares shall be made to Credit Suisse against payment to the Company by wire transfer of immediately available funds of the aggregate subscription price for the Shares to be subscribed for by Credit Suisse, together with the additional payment to be made to the Company pursuant to Section 1.03.

SECTION 1.03. Additional Payment Obligation.In consideration of the arrangement of the transactions occurring in connection with the IPO, Credit Suisse agrees to pay to the Company $334,425.08 upon the Closing by wire transfer of immediately available funds.

SECTION 1.04. Conditions.The obligations of Credit Suisse to subscribe for the Shares and to pay the subscription price at the Closing shall be subject to the satisfaction of each of the following conditions as of the Closing:

a) the representations and warranties contained in Section 2 hereof being true and correct at and as of the Closing as though then made, and the Company having performed all of the covenants to be performed by it hereunder prior to the Closing;

b) the Company having executed the Registration Rights Agreement and Credit Suisse having received an original copy thereof, duly executed by the Company; and

c) the closing of the IPO occurring simultaneously with the Closing.

ARTICLE 2

REPRESENTATIONS BY THE COMPANY

The Company represents and warrants to, and agrees with, Credit Suisse as follows:

SECTION 2.01. Corporate Existence and Power.The Company has been duly incorporated and is an exempted company in good standing under the laws of Bermuda with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct is business.

SECTION 2.02. Authority, Approval and Enforceability.This Private Placement Agreement has been duly authorized, executed and delivered by the Company and constitutes its valid and binding agreement, enforceable against it in accordance with its terms. The Common Shares represented by the Shares have been duly and validly authorized for issue.

ARTICLE 3

REPRESENTATIONS OF CREDIT SUISSE

Credit Suisse represents and warrants to, and agrees with, the Company as follows:

SECTION 3.01. Corporate Power. Credit Suisse has the corporate power and authority to enter into this Private Placement Agreement.

SECTION 3.02. Authority, Approval and Enforceability. This Private Placement Agreement has been duly authorized, executed and delivered by Credit Suisse and constitutes its valid and binding agreement, enforceable against it in accordance with its terms.

SECTION 3.03. Private Placement.

a) Credit Suisse understands that the offering and sale of the Shares to it as contemplated hereby are intended to be exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”), pursuant to Section 4(2) thereunder.

b) The Shares to be acquired by Credit Suisse pursuant to this Private Placement Agreement are being acquired for its own account for investment and without a view to the public distribution of such Shares or any interest therein; provided that nothing contained herein shall prevent Credit Suisse and subsequent holders of the Restricted Securities, as defined in Section 4.06 below, from transferring such securities in compliance with the provisions of Article 4 hereof.

c) Credit Suisse has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares, and Credit Suisse is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Shares.

d) Credit Suisse has been given the opportunity to ask questions of and receive answers from the Company concerning the Company, the Shares and other related matters. Credit Suisse further represents and warrants to the Company that it has been furnished with all information it deems necessary or desirable to evaluate the merits and risks of the acquisition of the Shares and that the Company has made available to Credit Suisse or its agents all documents and information relating to an investment in the Shares requested by or on behalf of Credit Suisse. In evaluating the suitability of an investment in the Shares, Credit Suisse has not relied upon any other representations or other information (other than as contemplated by the preceding sentences), whether oral or written, made by or on behalf of the Company.

e) Credit Suisse is an “Accredited Investor” as such term is defined in Regulation D under the 1933 Act.

ARTICLE 4

LOCK-UP PERIOD; TRANSFER OF RESTRICTED SECURITIES

SECTION 4.01. Lock-Up Period.If the IPO closes, Credit Suisse will not, without the prior consent of the Company, offer, sell, contract to sell, pledge, or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by Credit Suisse or any affiliate of Credit Suisse or any person in privity with Credit Suisse or any affiliate of Credit Suisse), directly, or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, with respect to, the Shares to be purchased by Credit Suisse or any securities convertible into, or exercisable or exchangeable for, such Shares, for a period of 180 days after the date of the final prospectus for the IPO, other than (i) transfers to affiliates of Credit Suisse, provided that the affiliate transferee agrees to be bound by the terms of the restrictions contained in this Section 4.01 for the remaining portion of such period, and (ii) pledges of Shares to a financial institution that extends a “margin” loan to finance the undersigned’s acquisition of such Shares, provided that the agrees to be bound by the terms of the restrictions contained in this Section 4.01 for the remaining portion of such period.

SECTION 4.02. General Provisions.Restricted Securities are transferable only pursuant to (i) public offerings registered under the 1933 Act, (ii) Rule 144 under the 1933 Act (or any similar rule or rules then in force) if such rule is available, or (iii) subject to the conditions specified in Section 4.02 below, any other applicable exemption from registration legally available under the 1933 Act; and only to the extent set forth in this Article 4.

SECTION 4.03. Opinion Delivery.In connection with the transfer of any Restricted Securities pursuant to Section 4.02(iii), the holder thereof shall deliver written notice to the Company describing in reasonable detail the transfer or proposed transfer, together with an opinion of Weil, Gotshal & Manges LLP or other counsel that, to the Company’s reasonable satisfaction, is knowledgeable in securities law matters to the effect that such transfer of Restricted Securities may be effected without registration of such Restricted Securities under the 1933 Act.

In addition, if the holder of the Restricted Securities delivers to the Company an opinion of Weil, Gotshal & Manges LLP or other counsel that no subsequent transfer of such Restricted Securities shall require registration under the 1933 Act, the Company shall, promptly upon such contemplated transfer, deliver new certificates for such Restricted Securities that do not bear the 1933 Act legend set forth below in Section 4.04. If the Company is not required to deliver new certificates for such Restricted Securities bearing such legend, the holder thereof shall not transfer the same until the prospective transferee has confirmed to the Company in writing its agreement to be bound by the conditions contained in this Section 4.03. Notwithstanding anything to the contrary herein, transfers to or among affiliates of Credit Suisse shall not require delivery of the opinion required in this Section 4.03.

SECTION 4.04. Legend.Each certificate or instrument representing Restricted Securities shall be imprinted with a legend in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), THE SECURITIES LAWS OF ANY STATE OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, BY ANY STATE SECURITIES COMMISSION OR BY ANY OTHER REGULATORY AUTHORITY OF ANY OTHER JURISDICTION. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.”

SECTION 4.05. Legend Removal.If any Restricted Securities become eligible for sale pursuant to Rule 144(k), the Company shall, upon the request of the holder of such Restricted Securities, remove the legend set forth in Section 4.04 from the certificates for such Restricted Securities.

SECTION 4.06. Definition of Restricted Securities.For the purposes of this Private Placement Agreement, “Restricted Securities” means (i) the Shares issued hereunder and (ii) any securities issued with respect to the Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have (a) been effectively registered for sale under the 1933 Act and disposed of in accordance with the registration statement covering them, (b) been distributed to the public through a broker, dealer or market maker pursuant to Rule 144 (or any similar provision then in force) under the 1933 Act or become eligible for sale pursuant to Rule 144(k) (or any similar provision then in force) under the 1933 Act or (c) been otherwise transferred and new stock certificates not bearing the 1933 Act legend set forth in Section 4.04 have been delivered by the Company in accordance with Section 4.03. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense, new certificates representing securities of like tenor not bearing a 1933 Act legend of the character set forth in Section 4.04.

ARTICLE 5

MISCELLANEOUS

SECTION 5.01. Notices. All notices and other communications required or permitted under this Private Placement Agreement shall be deemed to have been duly given and made if in writing and if served by personal delivery to the party for whom intended, by facsimile transmission, by telegram or telex or by registered or certified mail (postage prepaid, return receipt requested), sent to the following addresses (or such other address for a party as shall be specified by like notice):

If to the Company:

Babcock & Brown Air Limited

West Pier

Dun Laoghaire

County Dublin, Ireland

Facsimile: +353 1 231-1900

Attention: Chief Executive Officer

with a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

Facsimile: +1 (212) 310-8007

Attention: Boris Dolgonos, Esq.

If to Credit Suisse:

Facsimile:

Attention:

SECTION 5.02. Amendments and Waivers.Any provision of this Private Placement Agreement may be amended, modified, supplemented or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Private Placement Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

SECTION 5.03. Successors and Assigns.The provisions of this Private Placement Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Private Placement Agreement without the consent of each other party hereto, and provided further that, notwithstanding the foregoing, Credit Suisse may assign, delegate or otherwise transfer any of its rights or obligations under this Private Placement Agreement to any of its affiliates (as such term is defined in Rule 144 under the 1933 Act). Notwithstanding the foregoing, it is understood that subsequent transferees of Shares shall be entitled to the registration rights set forth in the Registration Rights Agreement.

SECTION 5.04. Severability.Any provision of this Private Placement Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Private Placement Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

SECTION 5.05. Counterparts; Effectiveness; Third-Party Beneficiaries.This Private Placement Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Private Placement Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto. No provision of this Private Placement Agreement is intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

SECTION 5.06. Entire Agreement.This Private Placement Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Private Placement Agreement and supersedes and preempts all prior agreements and understandings, both oral and written, among the parties with respect to the subject matter of this Private Placement Agreement in any way.

SECTION 5.07. Captions.The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

SECTION 5.08. Governing Law.This Private Placement Agreement shall be governed by and construed in accordance with laws of the State of New York.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this Private Placement Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BABCOCK & BROWN AIR LIMITED

By: 

Name:
Title:

CREDIT SUISSE SECURITIES (USA) LLC

By: 

Name:
Title:

SCHEDULE I

Number of Shares: 747,613

EXHIBIT A

Form of Registration Rights Agreement

EX-10.6

Exhibit 10.6

PRIVATE PLACEMENT AGREEMENT

PRIVATE PLACEMENT AGREEMENT dated as of July 19, 2007, by and among Babcock & Brown Air Limited, a Bermuda exempted company (the “Company”), and each of the persons named in the signature pages hereof (each, a “Principal Investor”).

WHEREAS, the Company intends to offer American Depositary Shares (“ADSs”) representing its common shares, par value $0.001 per share (“Common Shares”), in an initial public offering of the Company (the “IPO”); and

WHEREAS, the Company proposes to issue and sell to the Principal Investors an aggregate of 13,855,839 ADSs (the “Shares”) at a price per Share equal to the price per ADS to be paid by public investors in the IPO (the “IPO Price”), and the each of the Principal Investors desires, subject to the terms and conditions set forth herein, to subscribe for the Shares at a price per Share equal to the IPO Price;

WHEREAS, the Company proposes to agree to provide each of the Principal Investors and certain other investors with registration rights as set forth in the form of registration rights agreement attached hereto as Exhibit A (the “Registration Rights Agreement”); and

WHEREAS, the Principal Investors propose to agree to be bound by lock-up restrictions as set forth herein with respect to the Shares to be purchased by them hereby, together with any securities issued with respect to such Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed:

ARTICLE 1

ISSUANCE, SALE AND PURCHASE OF SHARES

SECTION 1.01. Issuance, Sale and Purchase of Shares. On the basis of the representations, warranties and covenants contained in this Private Placement Agreement, and subject to the terms and conditions contained herein, the Company agrees to issue and sell to the several Principal Investors, and each Principal Investor, severally and not jointly, agrees to subscribe for, the respective number of Shares set forth in Schedule I hereto opposite its name at a price per Share equal to the IPO Price.

Each of the Principal Investors and transferees of the Shares and certain other investors shall have the registration rights set forth in the Registration Rights Agreement to be executed on and dated as of the Closing (as defined below).

SECTION 1.02. Closing. Subject to the terms and conditions contained in this Private Placement Agreement, the closing of the subscription for the Shares (the “Closing”) shall take

place at the time and on the date that the IPO is consummated. Delivery of the Shares shall be made to each of the several Principal Investors against (i) payment to the Company by wire transfer of immediately available funds of the aggregate subscription price for the Shares to be subscribed for by such Principal Investor, or (ii) a combination of (A) payment to the Company by wire transfer of immediately available funds in an amount no less than the aggregate par value of the Shares to be subscribed for by such Principal Investor and (B) delivery to the Company of a note in the form of Exhibit B with a principal amount equal to the aggregate subscription price for the Shares to be subscribed for by such Principal Investor (plus, in the case of BBGP Aircraft Holdings Limited (“BBGP”), BBAM Co-Investor Limited (“BBAM Co-Investor”), Babcock & Brown Aircraft Lessor No. 1 Ltd. (“BBALN1”), Direct Investment Fund Equity Trust (“DIF Equity”) or Direct Investment Fund Mezzanine Debt Trust (“DIF Mezzanine Debt”), the additional payment to be made by such Principal Investor to the Company pursuant to Section 1.03), less the amount of immediately available funds paid by such Principal Investor pursuant to clause (ii)(A), together with legal opinions satisfactory to the Company with respect to the due authorization and enforceability of any such note, the enforceability of the security agreement referred to in Section 8 of such note and the creation and perfection of the security interest in the collateral securing such note.

SECTION 1.03. Additional Payment Obligation. In consideration of the arrangement of the transactions occurring in connection with the IPO, BBGP agrees to pay to the Company $1,449,086.12, BBAM Co-Investor agrees to pay to the Company $217,376.30, BBALN1 agrees to pay the Company $501,637.62, DIF Equity agrees to pay to the Company $334,425.08, and DIF Mezzanine Debt agrees to pay to the Company $167,212.54, in each case upon the Closing by (i) wire transfer of immediately available funds, (ii) adding such amount to the principal of any note delivered by such Principal Investor pursuant to clause (ii)(B) of Section 1.02, or (iii) a combination of wire transfer of immediately available funds and the addition of the balance of such amount to the principal of the applicable note delivered by such Principal Investor pursuant to clause (ii)(B) of Section 1.02.

SECTION 1.03. Conditions. The obligations of the Principal Investors to subscribe for the Shares and to pay the subscription price at the Closing shall be subject to the satisfaction of each of the following conditions as of the Closing:

a) the representations and warranties contained in Section 2 hereof being true and correct at and as of the Closing as though then made, and the Company having performed all of the covenants to be performed by it hereunder prior to the Closing;

b) the Company having executed the Registration Rights Agreement and the Principal Investors having received an original copy thereof, duly executed by the Company; and

c) the closing of the IPO occurring simultaneously with the Closing.

ARTICLE 2

REPRESENTATIONS BY THE COMPANY

The Company represents and warrants to, and agrees with, each of the Principal Investors as follows:

SECTION 2.01. Corporate Existence and Power. The Company has been duly incorporated and is an exempted company in good standing under the laws of Bermuda with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct is business.

SECTION 2.02. Authority, Approval and Enforceability. This Private Placement Agreement has been duly authorized, executed and delivered by the Company and constitutes its valid and binding agreement, enforceable against it in accordance with its terms. The Common Shares represented by the Shares have been duly and validly authorized for issue.

ARTICLE 3

REPRESENTATIONS OF THE PRINCIPAL INVESTORS

Each Principal Investor, severally and not jointly, represents and warrants to, and agrees with, the Company as follows:

SECTION 3.01. Corporate Power. Such Principal Investor has the corporate power and authority to enter into this Private Placement Agreement.

SECTION 3.02. Authority, Approval and Enforceability. This Private Placement Agreement has been duly authorized, executed and delivered by such Principal Investor and constitutes its valid and binding agreement, enforceable against it in accordance with its terms.

SECTION 3.03. Private Placement.

a) Such Principal Investor understands that the offering and sale of the Shares to it as contemplated hereby are intended to be exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”), pursuant to Section 4(2) thereunder.

b) The Shares to be acquired by such Principal Investor pursuant to this Private Placement Agreement are being acquired for its own account for investment and without a view to the public distribution of such Shares or any interest therein; provided that nothing contained herein shall prevent such Principal Investor and subsequent holders of the Restricted Securities, as defined in Section 4.06 below, from transferring such securities in compliance with the provisions of Article 4 hereof.

c) Such Principal Investor has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares, and such Principal Investor is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Shares.

d) Such Principal Investor has been given the opportunity to ask questions of and receive answers from the Company concerning the Company, the Shares and other related matters. Such Principal Investor further represents and warrants to the Company that it has been furnished with all information it deems necessary or desirable to evaluate the merits and risks of the acquisition of the Shares and that the Company has made available to such Principal Investor or its agents all documents and information relating to an investment in the Shares requested by or on behalf of such Principal Investor. In evaluating the suitability of an investment in the Shares, such Principal Investor has not relied upon any other representations or other information (other than as contemplated by the preceding sentences), whether oral or written, made by or on behalf of the Company.

e) Such Principal Investor is an “Accredited Investor” as such term is defined in Regulation D under the 1933 Act.

ARTICLE 4

LOCK-UP PERIOD; TRANSFER OF RESTRICTED SECURITIES

SECTION 4.01. Lock-Up Period. If the IPO closes, each of the Principal Investors will not, without the prior consent of the Company, offer, sell, contract to sell, pledge, or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by such Principal Investor or any affiliate of such Principal Investor or any person in privity with such Principal Investor or any affiliate of such Principal Investor), directly, or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, with respect to, the Shares to be purchased by such Principal Investor or any securities convertible into, or exercisable or exchangeable for, such Shares, for a period of 360 days (in the case of Babcock & Brown JET-i Co., Ltd.) or 180 days (in the case of all other Principal Investors) after the date of the final prospectus for the IPO, other than (i) transfers to affiliates of such Principal Investor, provided that the affiliate transferee agrees to be bound by the terms of the restrictions contained in this Section 4.01 for the remaining portion of such period, (ii) pledges of Shares to a financial institution that extends a “margin” loan to finance any Principal Investor’s acquisition of its Shares, provided that the pledgee agrees to be bound by the terms of the restrictions contained in this Section 4.01 for the remaining portion of such period, or (iii) sales of Shares by any Principal Investor in the IPO pursuant to the underwriting agreement with the underwriters for the IPO.

SECTION 4.02. General Provisions. Restricted Securities are transferable only pursuant to (i) public offerings registered under the 1933 Act, (ii) Rule 144 under the 1933 Act (or any similar rule or rules then in force) if such rule is available, or (iii) subject to the conditions specified in Section 4.02 below, any other applicable exemption from registration legally available under the 1933 Act; and only to the extent set forth in this Article 4.

SECTION 4.03. Opinion Delivery. In connection with the transfer of any Restricted Securities pursuant to Section 4.02(iii), the holder thereof shall deliver written notice to the Company describing in reasonable detail the transfer or proposed transfer, together with an opinion of Weil, Gotshal & Manges LLP or other counsel that, to the Company’s reasonable satisfaction, is knowledgeable in securities law matters to the effect that such transfer of Restricted Securities may be effected without registration of such Restricted Securities under the 1933 Act.

In addition, if the holder of the Restricted Securities delivers to the Company an opinion of Weil, Gotshal & Manges LLP or other counsel that no subsequent transfer of such Restricted Securities shall require registration under the 1933 Act, the Company shall, promptly upon such contemplated transfer, deliver new certificates for such Restricted Securities that do not bear the 1933 Act legend set forth below in Section 4.04. If the Company is not required to deliver new certificates for such Restricted Securities bearing such legend, the holder thereof shall not transfer the same until the prospective transferee has confirmed to the Company in writing its agreement to be bound by the conditions contained in this Section 4.03. Notwithstanding anything to the contrary herein, transfers to or among affiliates of any Principal Investor shall not require delivery of the opinion required in this Section 4.03.

SECTION 4.04. Legend. Each certificate or instrument representing Restricted Securities shall be imprinted with a legend in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), THE SECURITIES LAWS OF ANY STATE OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, BY ANY STATE SECURITIES COMMISSION OR BY ANY OTHER REGULATORY AUTHORITY OF ANY OTHER JURISDICTION. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.”

SECTION 4.05. Legend Removal. If any Restricted Securities become eligible for sale pursuant to Rule 144(k), the Company shall, upon the request of the holder of such Restricted Securities, remove the legend set forth in Section 4.04 from the certificates for such Restricted Securities.

SECTION 4.06. Definition of Restricted Securities. For the purposes of this Private Placement Agreement, “Restricted Securities” means (i) the Shares issued hereunder and (ii) any securities issued with respect to the Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have (a) been effectively registered for sale under the 1933 Act

and disposed of in accordance with the registration statement covering them, (b) been distributed to the public through a broker, dealer or market maker pursuant to Rule 144 (or any similar provision then in force) under the 1933 Act or become eligible for sale pursuant to Rule 144(k) (or any similar provision then in force) under the 1933 Act or (c) been otherwise transferred and new stock certificates not bearing the 1933 Act legend set forth in Section 4.04 have been delivered by the Company in accordance with Section 4.03. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense, new certificates representing securities of like tenor not bearing a 1933 Act legend of the character set forth in Section 4.04.

ARTICLE 5

MISCELLANEOUS

SECTION 5.01. Notices. All notices and other communications required or permitted under this Private Placement Agreement shall be deemed to have been duly given and made if in writing and if served by personal delivery to the party for whom intended, by facsimile transmission, by telegram or telex or by registered or certified mail (postage prepaid, return receipt requested), sent to the following addresses (or such other address for a party as shall be specified by like notice):

If to the Company:

Babcock & Brown Air Limited

West Pier

Dun Laoghaire

County Dublin, Ireland

Facsimile: +353 1 231-1900

Attention: Chief Executive Officer

with a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

Facsimile: +1 (212) 310-8007

Attention: Boris Dolgonos, Esq.

If to any of the Principal Investors:

c/o Babcock & Brown Aircraft Management LLC

2 Harrison Street

6th Floor

San Francisco CA 94105

Facsimile: +1 (415) 267-1500

Attention: Greg Azzara

and, in the case of DIF Equity and DIF Mezzanine Debt, as provided on Schedule II.

SECTION 5.02. Amendments and Waivers. Any provision of this Private Placement Agreement may be amended, modified, supplemented or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Private Placement Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

SECTION 5.03. Successors and Assigns. The provisions of this Private Placement Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Private Placement Agreement without the consent of each other party hereto, and provided further that, notwithstanding the foregoing, each Principal Investor may assign, delegate or otherwise transfer any of its rights or obligations under this Private Placement Agreement to any of its affiliates (as such term is defined in Rule 144 under the 1933 Act). Notwithstanding the foregoing, it is understood that subsequent transferees of Shares shall be entitled to the registration rights set forth in the Registration Rights Agreement.

SECTION 5.04. Severability. Any provision of this Private Placement Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Private Placement Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

SECTION 5.05. Counterparts; Effectiveness; Third-Party Beneficiaries. This Private Placement Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Private Placement Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto. No provision of this Private Placement Agreement is intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

SECTION 5.06. Entire Agreement. This Private Placement Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Private Placement Agreement and supersedes and preempts all prior agreements and understandings, both oral and written, among the parties with respect to the subject matter of this Private Placement Agreement in any way.

SECTION 5.07. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

SECTION 5.08. Governing Law. This Private Placement Agreement shall be governed by and construed in accordance with laws of the State of New York.

SECTION 5.09. Provisions Relating to DIF Mezzanine Debt and DIF Equity. The provisions of Schedule II hereto are incorporated herein by reference and constitute a part of this Private Placement Agreement.

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Private Placement Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BABCOCK & BROWN AIR LIMITED

By: 

Name:
Title:

BABCOCK & BROWN JET-I CO., LTD

By: 

Name:
Title:

BBGP AIRCRAFT HOLDINGS LIMITED

By: 

Name:
Title:

BBAM CO-INVESTOR LIMITED

By: 

Name:
Title:

NOMURA BABCOCK & BROWN CO., LTD

By: 

Name:
Title:

Signed for Babcock & Brown Direct Investment Fund Limited as responsible entity for the Direct Investment Fund Equity Trust (ARSN 103 310 407) by its attorney in the presence of:
Witness Signature	Attorney Signature
Print Name	Print Name

Signed for Babcock & Brown Direct Investment Fund Limited as responsible entity for the Direct Investment Fund Mezzanine Debt Trust (ARSN 103 309 780) by its attorney in the presence of:
Witness Signature	Attorney Signature
Print Name	Print Name

BABCOCK & BROWN AIRCRAFT LESSOR
NO. 1 LTD.

By: 

Name:
Title:

SCHEDULE I

Name of Principal Investor	Number of Shares
Babcock & Brown JET-I Co. Ltd.	4,422,529
BBGP Aircraft Holdings Limited	4,558,216
BBAM Co-Investor Limited	683,774
J.P. Morgan Nominees Australia Limited as nominee for
JPMorgan Chase Bank, N.A. (ACN 074 112 011)
as custodian for the Direct Investment Fund Equity Trust	1,051,961
J.P. Morgan Nominees Australia Limited as nominee for JPMorgan Chase Bank, N.A. (ACN 074 112 011) as custodian for the Direct Investment Fund Mezzanine Debt Trust	525,980
Nomura Babcock & Brown Co., Ltd	1,035,438
Babcock & Brown Aircraft Lessor No. 1 Ltd.	1,577,941
Total	13,855,839

SCHEDULE II

Provisions relating to DIF Mezzanine Debt:

References to DIF Mezzanine Debt are to BABCOCK & BROWN DIRECT INVESTMENT FUND LIMITED, a company incorporated under the laws of Australia having its registered office at Level 37, The Chifley Tower, 2 Chifley Square, Sydney (ABN 15 101 611 438) as responsible entity and trustee of the Direct Investment Fund Mezzanine Debt Trust (ARSN 103 309 780).

(a) Where this Agreement confers any right on Babcock & Brown Direct Investment Fund Limited (“DIF”) in its capacity as responsible entity of the Direct Investment Fund Mezzanine Debt Trust (ARSN 103 309 780) (the “DIF Trust”), this Agreement is to be read as conferring those rights upon J.P. Morgan Nominees Australia Limited as nominee for JPMorgan Chase Bank, N.A. (ACN 074 112 011) as custodian for the DIF Trust, to be exercised on behalf of, and at the direction of, the DIF Trust.

(b) DIF enters into this Agreement only in its capacity as responsible entity of the DIF Trust and in no other capacity.

(c) Except to the extent expressly provided by clause (e) below: (i) a liability or obligation of DIF arising under or in connection with this Agreement is limited to and can be enforced against DIF only to the extent to which it can be satisfied out of assets of the DIF Trust out of which DIF is actually indemnified for the liability; (ii) DIF will have no personal liability to any other party to this Agreement and the other parties waive their rights and release DIF from any personal liability; and (iii) this limitation of DIF’s liability applies despite any other provision of this Agreement and extends to all liabilities and obligations of, undertaken or incurred by, or devolving on, DIF arising from, or in any way connected with, any conduct, omission, representation, warranty, agreement, transaction or other matter or thing under or related to this Agreement.

(d) The parties other than DIF may not: (i) sue DIF in any capacity other than as responsible entity of the DIF Trust, including seeking the appointment of a receiver, or a liquidator, an administrator or any similar person to DIF; or (ii) prove in any liquidation, administration or arrangements of or affecting DIF.

(e) The provisions of clause (c) will not apply to any liability or obligation of DIF to the extent that it is not satisfied because under this Agreement, the constitution of the DIF Trust or by operation of law there is a reduction in the extent of DIF’s indemnification out of the assets of the DIF Trust, as a result of DIF’s fraud, negligence or breach of trust.

Provisions Relating to DIF Equity:

References to DIF Equity are to BABCOCK & BROWN DIRECT INVESTMENT FUND LIMITED, a company incorporated under the laws of Australia having its registered office at Level 37, The Chifley Tower, 2 Chifley Square, Sydney (ABN 15 101 611 438) as responsible entity and trustee of the Direct Investment Fund Equity Trust (ARSN 103 310 407).

(a)Where this Agreement confers any right on Babcock & Brown Direct Investment Fund Limited (“DIF”) in its capacity as responsible entity of the Direct Investment Fund Equity Trust (ARSN 103 310 407) (the “DIF Trust”), this Agreement is to be read as conferring those rights upon J.P. Morgan Nominees Australia Limited as nominee for JPMorgan Chase Bank, N.A. (ACN 074 112 011) as custodian for the DIF Trust, to be exercised on behalf of, and at the direction of, the DIF Trust.

(b) DIF enters into this Agreement only in its capacity as responsible entity of the DIF Trust and in no other capacity.

(c) Except to the extent expressly provided by clause (e) below: (i) a liability or obligation of DIF arising under or in connection with this Agreement is limited to and can be enforced against DIF only to the extent to which it can be satisfied out of assets of the DIF Trust out of which DIF is actually indemnified for the liability; (ii) DIF will have no personal liability to any other party to this Agreement and the other parties waive their rights and release DIF from any personal liability; and (iii) this limitation of DIF’s liability applies despite any other provision of this Agreement and extends to all liabilities and obligations of, undertaken or incurred by, or devolving on, DIF arising from, or in any way connected with, any conduct, omission, representation, warranty, agreement, transaction or other matter or thing under or related to this Agreement.

(d) The parties other than DIF may not: (i) sue DIF in any capacity other than as responsible entity of the DIF Trust, including seeking the appointment of a receiver, or a liquidator, an administrator or any similar person to DIF; or (ii) prove in any liquidation, administration or arrangements of or affecting DIF.

(e) The provisions of clause (c) will not apply to any liability or obligation of DIF to the extent that it is not satisfied because under this Agreement, the constitution of the DIF Trust or by operation of law there is a reduction in the extent of DIF’s indemnification out of the assets of the DIF Trust, as a result of DIF’s fraud, negligence or breach of trust.

Notices for DIF Equity and DIF Mezzanine Debt shall be sent to:

Babcock & Brown Direct Investment Fund Limited

Level 32

The Chifley Tower

2 Chifley Square

Sydney NSW 2000

Tel: +61 2 9229 1800

Fax: +61 2 9235 3496

Attn: Chief Investment Officer

EXHIBIT A

Form of Registration Rights Agreement

EXHIBIT B

Form of Note

EX-10.7

Exhibit 10.7

PRIVATE PLACEMENT AGREEMENT

PRIVATE PLACEMENT AGREEMENT dated as of September 10, 2007, by and among Babcock & Brown Air Limited, a Bermuda exempted company (the “Company”), and Everest Babcock & Brown Opportunities Fund (the “Fund”).

WHEREAS, the Company intends to offer American Depositary Shares (“ADSs”) representing its common shares, par value $0.001 per share (“Common Shares”), in an initial public offering of the Company (the “IPO”);

WHEREAS, the Company proposes to issue and sell to the Fund 304,348 ADSs (the “Shares”) at a price per Share equal to the price per ADS to be paid by public investors in the IPO (the “IPO Price”), and the Fund desires, subject to the terms and conditions set forth herein, to subscribe for the Shares at a price per Share equal to the IPO Price;

WHEREAS, the Company proposes to agree to provide the Fund and certain other investors with registration rights as set forth in the form of registration rights agreement attached hereto as Exhibit A (the “Registration Rights Agreement”);

WHEREAS, Everest Capital Limited (“Everest Capital”) acts as the trustee of the Fund; and

WHEREAS, the Fund proposes to agree to be bound by lock-up restrictions as set forth herein with respect to the Shares to be purchased by them hereby, together with any securities issued with respect to such Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed:

ARTICLE 1

ISSUANCE, SALE AND PURCHASE OF SHARES

SECTION 1.01. Issuance, Sale and Purchase of Shares. On the basis of the representations, warranties and covenants contained in this Private Placement Agreement, and subject to the terms and conditions contained herein, the Company agrees to issue and sell to the Fund, and the Fund, agrees to subscribe for, the number of Shares set forth in Schedule I hereto opposite its name at a price per Share equal to the IPO Price.

The Fund and transferees of the Shares and certain other investors shall have the registration rights set forth in the Registration Rights Agreement to be executed on and dated as of the Closing (as defined below).

SECTION 1.02. Closing. Subject to the terms and conditions contained in this Private Placement Agreement, the closing of the subscription for the Shares (the “Closing”) shall take place at the time and on the date that the IPO is consummated. Delivery of the Shares shall be made to the Fund against payment to the Company by wire transfer of immediately available funds of the subscription price for the Shares to be subscribed for by the Fund.

SECTION 1.03. Conditions. The obligations of the Fund to subscribe for the Shares and to pay the subscription price at the Closing shall be subject to the satisfaction of each of the following conditions as of the Closing:

a) the representations and warranties contained in Section 2 hereof being true and correct at and as of the Closing as though then made, and the Company having performed all of the covenants to be performed by it hereunder prior to the Closing;

b) the Company having executed the Registration Rights Agreement and the Fund having received an original copy thereof, duly executed by the Company; and

c) the closing of the IPO occurring simultaneously with the Closing.

ARTICLE 2

REPRESENTATIONS BY THE COMPANY

The Company represents and warrants to, and agrees with, the Fund as follows:

SECTION 2.01. Corporate Existence and Power. The Company has been duly incorporated and is an exempted company in good standing under the laws of Bermuda with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct is business.

SECTION 2.02. Authority, Approval and Enforceability. This Private Placement Agreement has been duly authorized, executed and delivered by the Company and constitutes its valid and binding agreement, enforceable against it in accordance with its terms. The Common Shares represented by the Shares have been duly and validly authorized for issue.

ARTICLE 3

REPRESENTATIONS OF THE FUND

The Fund represents and warrants to, and agrees with, the Company as follows:

SECTION 3.01. Corporate Power. The Fund has the corporate power and authority to enter into this Private Placement Agreement.

SECTION 3.02. Authority, Approval and Enforceability. This Private Placement Agreement has been duly authorized, executed and delivered by Everest Capital as trustee for the Fund and constitutes the Fund’s valid and binding agreement, enforceable against it in accordance with its terms.

2

SECTION 3.03. Private Placement.

a) The Fund understands that the offering and sale of the Shares to it as contemplated hereby are intended to be exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”), pursuant to Section 4(2) thereunder.

b) The Shares to be acquired by Everest Capital as trustee for the investors in the Fund pursuant to this Private Placement Agreement are being acquired for the benefit of investors in the Fund for investment and without a view to the public distribution of such Shares or any interest therein; provided that nothing contained herein shall prevent the Fund and subsequent holders of the Restricted Securities, as defined in Section 4.06 below, from transferring such securities in compliance with the provisions of Article 4 hereof.

c) The Fund has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares, and the Fund is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Shares.

d) The Fund has been given the opportunity to ask questions of and receive answers from the Company concerning the Company, the Shares and other related matters. The Fund further represents and warrants to the Company that it has been furnished with all information it deems necessary or desirable to evaluate the merits and risks of the acquisition of the Shares and that the Company has made available to the Fund or its agents all documents and information relating to an investment in the Shares requested by or on behalf of the Fund. In evaluating the suitability of an investment in the Shares, the Fund has not relied upon any other representations or other information (other than as contemplated by the preceding sentences), whether oral or written, made by or on behalf of the Company.

e) The Fund is an “Accredited Investor” as such term is defined in Regulation D under the 1933 Act.

ARTICLE 4

LOCK-UP PERIOD; TRANSFER OF RESTRICTED SECURITIES

SECTION 4.01. Lock-Up Period. If the IPO closes, the Fund will not, without the prior consent of the Company, offer, sell, contract to sell, pledge, or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Fund or any affiliate of the Fund or any person in privity with the Fund or any affiliate of the Fund), directly, or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, with respect to, the Shares to be purchased by the Fund or

3

any securities convertible into, or exercisable or exchangeable for, such Shares, for a period of 180 days after the date of the final prospectus for the IPO, other than (i) transfers to affiliates of the Fund, provided that the affiliate transferee agrees to be bound by the terms of the restrictions contained in this Section 4.01 for the remaining portion of such period, and (ii) pledges of Shares to a financial institution that extends a loan to finance the Fund’s acquisition of its Shares, provided that the pledgee agrees to be bound by the terms of the restrictions contained in this Section 4.01 for the remaining portion of such period.

SECTION 4.02. General Provisions. Restricted Securities are transferable only pursuant to (i) public offerings registered under the 1933 Act, (ii) Rule 144 under the 1933 Act (or any similar rule or rules then in force) if such rule is available, or (iii) subject to the conditions specified in Section 4.03 below, any other applicable exemption from registration legally available under the 1933 Act; and only to the extent set forth in this Article 4.

SECTION 4.03. Opinion Delivery. In connection with the transfer of any Restricted Securities pursuant to Section 4.02(iii), the holder thereof shall deliver written notice to the Company describing in reasonable detail the transfer or proposed transfer, together with an opinion of Weil, Gotshal & Manges LLP or other counsel that, to the Company’s reasonable satisfaction, is knowledgeable in securities law matters to the effect that such transfer of Restricted Securities may be effected without registration of such Restricted Securities under the 1933 Act.

In addition, if the holder of the Restricted Securities delivers to the Company an opinion of Weil, Gotshal & Manges LLP or other counsel that no subsequent transfer of such Restricted Securities shall require registration under the 1933 Act, the Company shall, promptly upon such contemplated transfer, deliver new certificates for such Restricted Securities that do not bear the 1933 Act legend set forth below in Section 4.04. If the Company is not required to deliver new certificates for such Restricted Securities bearing such legend, the holder thereof shall not transfer the same until the prospective transferee has confirmed to the Company in writing its agreement to be bound by the conditions contained in this Section 4.03. Notwithstanding anything to the contrary herein, transfers to or among affiliates of any Fund shall not require delivery of the opinion required in this Section 4.03.

SECTION 4.04. Legend. Each certificate or instrument representing Restricted Securities shall be imprinted with a legend in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), THE SECURITIES LAWS OF ANY STATE OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, BY ANY STATE SECURITIES COMMISSION OR BY ANY OTHER REGULATORY AUTHORITY OF ANY

4

OTHER JURISDICTION. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.”

SECTION 4.05. Legend Removal. If any Restricted Securities become eligible for sale pursuant to Rule 144(k), the Company shall, upon the request of the holder of such Restricted Securities, remove the legend set forth in Section 4.04 from the certificates for such Restricted Securities.

SECTION 4.06. Definition of Restricted Securities. For the purposes of this Private Placement Agreement, “Restricted Securities” means (i) the Shares issued hereunder and (ii) any securities issued with respect to the Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have (a) been effectively registered for sale under the 1933 Act and disposed of in accordance with the registration statement covering them, (b) been distributed to the public through a broker, dealer or market maker pursuant to Rule 144 (or any similar provision then in force) under the 1933 Act or become eligible for sale pursuant to Rule 144(k) (or any similar provision then in force) under the 1933 Act or (c) been otherwise transferred and new stock certificates not bearing the 1933 Act legend set forth in Section 4.04 have been delivered by the Company in accordance with Section 4.03. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense, new certificates representing securities of like tenor not bearing a 1933 Act legend of the character set forth in Section 4.04.

ARTICLE 5

MISCELLANEOUS

SECTION 5.01. Notices. All notices and other communications required or permitted under this Private Placement Agreement shall be deemed to have been duly given and made if in writing and if served by personal delivery to the party for whom intended, by facsimile transmission, by telegram or telex or by registered or certified mail (postage prepaid, return receipt requested), sent to the following addresses (or such other address for a party as shall be specified by like notice):

If to the Company:

Babcock & Brown Air Limited

West Pier

Dun Laoghaire

County Dublin, Ireland

Facsimile: +353 1 231-1900

Attention: Chief Executive Officer

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with a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

Facsimile: +1 (212) 310-8007

Attention: Boris Dolgonos, Esq.

If to the Fund:

c/o Everest Capital Limited

Level 35, 50 Bridge Street

Sydney NSW 2000 Australia

Facsimile: +612-8001-9200

Attention: Will Peterson

SECTION 5.02. Amendments and Waivers. Any provision of this Private Placement Agreement may be amended, modified, supplemented or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Private Placement Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

SECTION 5.03. Successors and Assigns. The provisions of this Private Placement Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Private Placement Agreement without the consent of each other party hereto, and provided further that, notwithstanding the foregoing, each Fund may assign, delegate or otherwise transfer any of its rights or obligations under this Private Placement Agreement to any of its affiliates (as such term is defined in Rule 144 under the 1933 Act). Notwithstanding the foregoing, it is understood that subsequent transferees of Shares shall be entitled to the registration rights set forth in the Registration Rights Agreement.

SECTION 5.04. Severability. Any provision of this Private Placement Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Private Placement Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

SECTION 5.05. Counterparts; Effectiveness; Third-Party Beneficiaries. This Private Placement Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Private Placement Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto. No provision of this Private Placement Agreement is intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

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SECTION 5.06. Entire Agreement. This Private Placement Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Private Placement Agreement and supersedes and preempts all prior agreements and understandings, both oral and written, among the parties with respect to the subject matter of this Private Placement Agreement in any way.

SECTION 5.07. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

SECTION 5.08. Governing Law. This Private Placement Agreement shall be governed by and construed in accordance with laws of the State of New York.

SECTION 5.09. Limitation of Liability. The Company and the Fund agree that:

a) Everest Capital has entered into this agreement in its capacity as the trustee of the Fund.

b) Any liability arising under or in connection with this agreement may be enforced against the Fund only to the extent to which it can be satisfied out of the property of the Fund. Except as expressly provided by this clause, the limitation of liability applies despite any other provision of this agreement and extends to all liabilities and obligations of the Fund in any way connected with any representation, warranty, conduct, omission, agreement or transaction related to this agreement.

c) No party to this agreement or any other document connected with the transaction contemplated by this agreement (nor any of their affiliates, directors, officers, employees) may take any action to seek recourse to any assets held by Everest Capital in any capacity other than as trustee of the Fund, including seeking the appointment of a receiver (except in relation to the property of the Fund), a liquidator, an administrator or any similar person to Everest Capital or prove in any liquidation, administration or arrangement of or affecting Everest Capital (except in relation to property of the Fund).

d) Everest Capital is not obliged to enter into any commitment or obligation under this agreement unless its liability is limited in the same manner as in this clause.

e) The provisions of this clause do not apply to any obligation or liability of Everest Capital to the extent that it is not satisfied because:

a. under the trust deed of the Fund or by operation of law there is a reduction in the extent of Everest Capital’s indemnification out of the assets of the Fund as a result of Everest Capital’s wilful default, fraud, negligence or breach of trust; or

b. Everest Capital failed to exercise any right of indemnity it has under the trust deed of the Fund in respect of that obligation or liability.

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f) No act or omission of Everest Capital (including any related failure to satisfy its obligations under this agreement) will be considered wilful default, fraud, negligence or breach of trust of Everest Capital to the extent to which the act or omission was caused or materially contributed to by any failure by any other person.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Private Placement Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BABCOCK & BROWN AIR LIMITED,

By: 

Name:

Title:

EVEREST CAPITAL LIMITED, as trustee for
EVEREST BABCOCK & BROWN
OPPORTUNITIES FUND

By: 

Name:

Title:

SIGNATURE PAGE PRIVATE PLACEMENT AGREEMENT

SCHEDULE I

Name of Fund	Number of Shares
Everest Babcock & Brown Opportunities Fund	304,348
Total	304,348

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EXHIBIT A

Form of Registration Rights Agreement

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EX-10.8

Exhibit 10.8

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of ___________ __, 2007, is entered into by and among Babcock & Brown Air Limited, a Bermuda exempted company (including its successors, the “Company”), and each of the shareholders of the Company that is listed in the signature pages hereof (each, a “Principal Investor”).

RECITALS

WHEREAS, the Company has filed a Registration Statement (File No. 333-__________) with the Securities and Exchange Commission on Form F-1 (the “IPO Registration Statement”) in connection with the initial public offering (the “IPO”) of American Depositary Shares (“ADSs”) representing its common shares (“Common Shares”);

WHEREAS, the Company and the Principal Investors have entered into a Private Placement Agreement, dated as of _________ __, 2007 (the “Private Placement Agreement”);

WHEREAS, pursuant to the Private Placement Agreement, upon the closing of the transactions contemplated by the Private Placement Agreement, each Principal Investor will subscribe for Common Shares in the form of ADSs (the “Shares”) at a price per Share equal to the public offering price in the IPO;

WHEREAS, the Company has agreed to provide the Principal Investors with the registration rights specified in this Agreement with respect to the Shares held by them or any of their permitted transferees, on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

1.1 Definitions. The following terms shall have the meanings set forth in this Section 1.1:

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations promulgated by the SEC thereunder.

“Excluded Registration” means a registration under the Securities Act of (i) securities pursuant to one or more Demand Registrations pursuant to Section 2 hereof,

(ii) securities registered on Form S-8 or any similar successor form, and (iii) securities registered to effect the acquisition of, or combination with, another Person.

“Holder” means (i) each Principal Investor and (ii) any direct or indirect transferee of any Principal Investor who shall become a party to this Agreement in accordance with Section 2.9 and has agreed in writing to be bound by the terms of this Agreement.

“Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof.

“register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.

“Registrable Shares” means the Shares owned by Holders, together with any securities owned by Holders issued with respect to such Shares by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, amalgamation or other reorganization; provided, however, that Shares that, pursuant to Section 3.1, no longer have registration rights hereunder shall not be considered Registrable Shares.

“Requesting Holders” shall mean any Holder(s) requesting to have its (their) Registrable Shares included in any Demand Registration or Shelf Registration.

“SEC” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations promulgated by the SEC thereunder.

1.2 Other Terms. For purposes of this Agreement, the following terms have the meanings set forth in the section or agreement indicated.

Term	Section
ADSs	Recitals
Adverse Effect	Section 2.1.5
Advice	Section 2.6
Agreement	Introductory Paragraph
Common Shares	Recitals
Company	Introductory Paragraph
Demand Registration	Section 2.1.1(a)
Demanding Shareholders	Section 2.1.1(a)
Demand Request	Section 2.1.1(a)
Inspectors	Section 2.5(xiii)
IPO	Recitals

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IPO Registration Statement	Recitals
NASD	Section 2.7
Piggyback Registration	Section 2.2.1
Principal Investors	Introductory Paragraph
Private Placement Agreement	Recitals
Records	Section 2.5(xiii)
Registration Statement	Recitals
Required Filing Date	Section 2.1.1(b)
Seller Affiliates	Section 2.8.1
Shares	Recitals
Shelf Registration	Section 2.1.2
Suspension Notice	Section 2.6

1.3 Rules of Construction. Unless the context otherwise requires

(1) a term has the meaning assigned to it;

(2) “or” is not exclusive;

(3) words in the singular include the plural, and words in the plural include the singular;

(4) provisions apply to successive events and transactions; and

(5) “herein,” “hereof” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision.

ARTICLE 2

REGISTRATION RIGHTS

2.1 Demand Registration.

2.1.1 Request for Registration.

(a) Commencing on the date hereof, any Holder or Holders of Registrable Shares shall have the right to require the Company to file a registration statement on Form F-1 or F-3 or any similar or successor to such forms under the Securities Act for a public offering of all (but not part) of its or their Registrable Shares (a “Demand Registration”), by delivering to the Company written notice stating that such right is being exercised, naming, if applicable, the Holders whose Registrable Shares are to be included in such registration (collectively, the “Demanding Shareholders”), specifying the number of each such Demanding Shareholder’s Registrable Shares to be included in such registration and, subject to Section 2.1.3 hereof, describing the intended method of distribution thereof (a “Demand Request”). The IPO Registration Statement shall not constitute a Demand Registration for any purpose under this Agreement.

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(b) Subject to Section 2.1.6, the Company shall file the registration statement in respect of a Demand Registration as soon as practicable following the expiration of the period within which Holders electing to include their Registrable Shares in such Demand Registration are required to provide notice to such effect pursuant to Section 2.1.4 (the date on which it first becomes so practicable make such filing following the expiration of such period, the “Required Filing Date”) and shall use reasonable best efforts to cause the same to be declared effective by the SEC as promptly as practicable after such filing; provided, however, that the Company shall not be obligated to file a registration statement in respect of a Demand Registration pursuant to Section 2.1.1(a) unless the Registrable Shares subject to such Demand Request, plus any Registrable Shares elected by Holders to be included in such Demand Registration pursuant to Section 2.1.4, have an aggregate market value that is equal to at least $50 million as of the date of the expiration of the period within which Holders are required to elect to include their Registrable Shares in such Demand Registration pursuant to Section 2.1.4. The Company shall have the right to include Shares to be offered and sold by it in a primary offering in any Demand Registration.

2.1.2 Shelf Registration. With respect to any Demand Registration, the Requesting Holders may request the Company to effect a registration of the Registrable Shares under a registration statement pursuant to Rule 415 under the Securities Act (or any successor rule) (a “Shelf Registration”).

2.1.3 Selection of Underwriters. At the request of a majority of the Requesting Holders, the offering of Registrable Shares pursuant to a Demand Registration shall be in the form of an underwritten offering. The Company shall select the investment banking firm or firms to manage the underwritten offering. No Holder may participate in any registration pursuant to Section 2.1.1 unless such Holder (x) agrees to sell such Holder’s Registrable Shares on the basis provided in any underwriting arrangements described above and (y) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided, however, that no such Holder shall be required to make any representations or warranties in connection with any such registration other than representations and warranties as to (i) such Holder’s ownership of his or its Registrable Shares to be transferred free and clear of all liens, claims, and encumbrances, (ii) such Holder’s power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities laws as may be reasonably requested; provided, further, however, that the obligation of such Holder to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such Holders selling Registrable Shares, and the liability of each such Holder will be in proportion thereto, and provided, further, that such liability will be limited to the net amount received by such Holder from the sale of his or its Registrable Shares pursuant to such registration.

2.1.4 Rights of Nonrequesting Holders. Upon receipt of any Demand Request, the Company shall promptly (but in any event within ten (10) days) give written notice of such proposed Demand Registration to all other Holders, who shall have the right, exercisable by written notice to the Company within twenty (20) days of their

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receipt of the Company’s notice, to elect to include their Registrable Shares in such Demand Registration. All Holders requesting to have their Registrable Shares included in a Demand Registration in accordance with the preceding sentence shall be deemed to be “Requesting Holders” for purposes of this Section 2.1.

2.1.5 Priority on Demand Registrations. No securities to be sold for the account of any Person other than a Requesting Holder or the Company shall be included in a Demand Registration unless the managing underwriter or underwriters shall advise the Requesting Holders and the Company in writing that the inclusion of such securities will not adversely affect the price, timing or distribution of the offering or otherwise adversely affect its success (an “Adverse Effect”). Furthermore, if the managing underwriter or underwriters shall advise the Requesting Holders and the Company that, even after exclusion of all securities of other Persons pursuant to the immediately preceding sentence, the amount of Registrable Shares proposed to be included in such Demand Registration by Requesting Holders and any securities to be included by the Company is sufficiently large to cause an Adverse Effect, the Company shall include in such registration statement (i) first, the securities the Company proposes to sell, and (ii) second, the Registrable Shares of the Requesting Holders requested to be included in such Demand Registration, equal the number of shares which the Requesting Holders and the Company are so advised can be sold in such offering without an Adverse Effect and such shares shall be allocated pro rata among the Requesting Holders on the basis of the number of Registrable Shares requested to be included in such registration by each such Requesting Holder.

2.1.6 Deferral of Filing. The Company may defer the filing (but not the preparation) of a registration statement required by Section 2.1 until a date not later than ninety (90) days after the Required Filing Date if (i) at the time the Company receives the Demand Request, the Company is engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board of Directors of the Company or a committee of the Board of Directors of the Company determines in good faith that such disclosure would be materially detrimental to the Company and its shareholders, or (ii) prior to receiving the Demand Request, the Company had determined to effect a registered underwritten public offering of the Company’s securities for the Company’s account and the Company had taken substantial steps (including, but not limited to, selecting a managing underwriter for such offering) and is proceeding with reasonable diligence to effect such offering. A deferral of the filing of a registration statement pursuant to this Section 2.1.6 shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) of the preceding sentence, the proposed registration for the Company’s account is abandoned. In order to defer the filing of a registration statement pursuant to this Section 2.1.6, the Company shall promptly (but in any event within ten (10) days), upon determining to seek such deferral, deliver to each Requesting Holder a certificate signed by an executive officer of the Company stating that the Company is deferring such filing pursuant to this Section 2.1.6 and a general statement of the reason for such deferral and

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an approximation of the anticipated delay. Within twenty (20) days after receiving such certificate, the holders of a majority of the Registrable Shares held by the Requesting Holders and for which registration was previously requested may withdraw such Demand Request by giving notice to the Company; if withdrawn, the Demand Request shall be deemed not to have been made for all purposes of this Agreement.

2.1.7 Limitation on Demand Registrations. The Company shall not be obligated (i) to file a registration statement in respect of a Demand Registration pursuant to Section 2.1.1(a) within one hundred and eighty (180) days after the effective date of the IPO Registration Statement or (ii) to effect more than one Demand Registration in the period commencing one hundred and eighty (180) days after the effective date of the IPO Registration Statement and ending three hundred and sixty (360) days after the effective date of the IPO Registration Statement. Following three hundred and sixty (360) days after the effective date of the IPO Registration Statement, each Holder will be entitled to initiate no more than one Demand Registration, and the Company shall not be obligated to effect more than one Demand Registration, provided that a request for registration will not count for the purposes of this limitation if (i) all Requesting Holders determine in good faith to withdraw (prior to the initial filing of the Registration Statement relating to such request) the proposed registration due to marketing or regulatory reasons, (ii) the Registration Statement relating to such request is not declared effective within 180 days of the date such Registration Statement is first filed with the SEC (other than solely by reason of the requesting Holder having refused to proceed) and such Requesting Holder withdraws its Demand Request prior to such Registration Statement being declared effective, (iii) prior to the sale of at least 90% of the Registrable Shares included in the applicable registration relating to such request, such registration is adversely affected by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason and the Company fails to have such stop order, injunction or other order or requirement removed, withdrawn or resolved to the Requesting Holder’s reasonable satisfaction within 30 days of the date of such order, (iv) any of the Registrable Shares requested by the Holder to be included in the registration are not so included pursuant to Section 2.1.5 and such Holder does not make another request for registration for at least six months following such initial request, (v) the Company is not obligated to file a registration statement pursuant to Section 2.1.1 (a) as a result of such request because the Registrable Shares to be included in the registration statement do not have a market value of at least $50 million as required by the proviso to Section 2.1.1(b), or (v) the conditions to closing specified in the underwriting agreement or purchase agreement entered into in connection with the registration relating to such request are not satisfied (other than as a result of a material default or breach thereunder by any member of the requesting Holders). Notwithstanding the foregoing, the Company will pay all registration expenses in connection with any request for registration pursuant to Section 2.1.1 regardless of whether or not such request counts toward the limitation set forth above.

2.2 Piggyback Registrations.

2.2.1 Right to Piggyback. Each time the Company proposes to register any of its equity securities (other than pursuant to an Excluded Registration) under the

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Securities Act for sale to the public (whether for the account of the Company or the account of any securityholder of the Company) (a “Piggyback Registration”), the Company shall give prompt written notice to each Holder of Registrable Shares (which notice shall be given not less than twenty (20) days prior to the anticipated filing date of the Company’s registration statement), which notice shall offer each such Holder the opportunity to include any or all of its Registrable Shares in such registration statement, subject to the limitations contained in Section 2.2.2 hereof. Each Holder that desires to have its Registrable Shares included in such registration statement shall so advise the Company in writing (stating the number of shares desired to be registered) within ten (10) days after the date of such notice from the Company. Any Holder shall have the right to withdraw such Holder’s request for inclusion of such Holder’s Registrable Shares in any registration statement pursuant to this Section 2.2.1 by giving written notice to the Company of such withdrawal prior to the date of filing of the registration statement. Subject to Section 2.2.2 below, the Company shall include in such registration statement all such Registrable Shares so requested to be included therein; provided, however, that the Company may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered.

2.2.2 Priority on Piggyback Registrations.

(a) If a Piggyback Registration is an underwritten offering and was initiated by the Company, and if the managing underwriter advises the Company that the inclusion of Registrable Shares requested to be included in the Registration Statement would cause an Adverse Effect, the Company shall include in such registration statement (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Shares requested to be included in such registration, pro rata among the Holders of such Registrable Shares on the basis of the number of Registrable Shares owned by each such Holder, and (iii) third, any other securities requested to be included in such registration. If as a result of the provisions of this Section 2.2.2(a) any Holder shall not be entitled to include all Registrable Shares in a registration that such Holder has requested to be so included, such Holder may withdraw such Holder’s request to include Registrable Shares in such registration statement.

(b) If a Piggyback Registration is an underwritten offering and was initiated by a security holder of the Company, and if the managing underwriter advises the Company that the inclusion of Registrable Shares requested to be included in the Registration Statement would cause an Adverse Effect, the Company shall include in such registration statement (i) first, the securities requested to be included therein by the security holders requesting such registration and the Registrable Shares requested to be included in such registration, pro rata among the holders of such securities on the basis of the number of securities owned by each such holder, and (ii) second, any other securities requested to be included in such registration (including securities to be sold for the account of the Company). If as a result of the provisions of this Section 2.2.2(b) any Holder shall not be entitled to include all Registrable Shares in a registration that such Holder has requested to be so included, such Holder may withdraw such Holder’s request to include Registrable Shares in such registration statement.

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(c) No Holder may participate in any registration statement in respect of a Piggyback Registration hereunder unless such Holder (x) agrees to sell such Holder’s Registrable Shares on the basis provided in any underwriting arrangements approved by the Company and (y) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents, each in customary form, reasonably required under the terms of such underwriting arrangements; provided, however, that no such Holder shall be required to make any representations or warranties in connection with any such registration other than representations and warranties as to (i) such Holder’s ownership of his or its Registrable Shares to be sold or transferred free and clear of all liens, claims, and encumbrances, (ii) such Holder’s power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities laws as may be reasonably requested; provided, further, however, that the obligation of such Holder to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such Holders selling Registrable Shares, and the liability of each such Holder will be in proportion to, and provided, further, that such liability will be limited to, the net amount received by such Holder from the sale of his or its Registrable Shares pursuant to such registration.

2.3 SEC Form F-3. The Company shall use its reasonable best efforts to cause Demand Registrations to be registered on Form F-3 (or any successor form) once the Company becomes eligible to use Form F-3, and if the Company is not then eligible under the Securities Act to use Form F-3, Demand Registrations shall be registered on the form for which the Company then qualifies. The Company shall use its reasonable best efforts to become eligible to use Form F-3 and, after becoming eligible to use Form F-3, shall use its reasonable best efforts to remain so eligible.

2.4 Holdback Agreements.

(a) The Company shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven (7) days prior to and during the ninety (90)-day period beginning on the effective date of any registration statement in connection with a Demand Registration (other than a Shelf Registration) or a Piggyback Registration, except pursuant to registrations on Form F-4 or Form S-8 or any successor form or unless the underwriters managing any such public offering otherwise agree.

(b) If any Holders of Registrable Shares notify the Company in writing that they intend to effect an underwritten sale of Shares registered pursuant to a Shelf Registration pursuant to Article 2 hereof, the Company shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for its equity securities, during the ninety (90)-day period beginning on the date such notice is received, except pursuant to registrations on Form F-4 or Form S-8 or any successor form or unless the underwriters managing any such public offering otherwise agree.

(c) Each Holder agrees, in the event of an underwritten offering by the Company (whether for the account of the Company or otherwise), not to offer, sell,

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contract to sell or otherwise dispose of any Registrable Shares, or any securities convertible into or exchangeable or exercisable for such securities, including any sale pursuant to Rule 144 under the Securities Act (except as part of such underwritten offering), during the ninety (90)-day period (or such lesser period as the lead or managing underwriters may require) beginning on, the effective date of the registration statement for such underwritten offering (or, in the case of an offering pursuant to an effective shelf registration statement pursuant to Rule 415, the pricing date for such underwritten offering).

2.5 Registration Procedures. Whenever any Holder has requested that any Registrable Shares be registered pursuant to this Agreement, the Company will use its reasonable best efforts to effect the registration and the sale of such Registrable Shares in accordance with the intended method of disposition thereof as promptly as is practicable, and pursuant thereto the Company will as expeditiously as possible:

(i) prepare and file with the SEC, pursuant to Section 2.1.1(b) with respect to any Demand Registration, a registration statement on any appropriate form under the Securities Act with respect to such Registrable Shares and use its reasonable best efforts to cause such registration statement to become effective, provided that as far in advance as practicable before filing such registration statement or any amendment thereto, the Company will furnish to the selling Holders copies of reasonably complete drafts of all such documents prepared to be filed (including exhibits), and any such Holder shall have the opportunity to object to any information contained therein and the Company will make corrections reasonably requested by such Holder with respect to such information prior to filing any such registration statement or amendment;

(ii) except in the case of a Shelf Registration, prepare and file with the SEC such amendments, post-effective amendments, and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than one hundred eighty (180) days (or such lesser period as is necessary for the underwriters in an underwritten offering to sell unsold allotments) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement;

(iii) in the case of a Shelf Registration, prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Shares subject thereto for a period ending on the earlier of (x) twenty four (24) months after the effective date of such registration statement and (y) the

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date on which all the Registrable Shares subject thereto have been sold pursuant to such registration statement;

(iv) furnish to each seller of Registrable Shares and the underwriters of the securities being registered such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), any documents incorporated by reference therein and such other documents as such seller or underwriters may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such seller or the sale of such securities by such underwriters (it being understood that, subject to Section 2.6 and the requirements of the Securities Act and applicable state securities laws, the Company consents to the use of the prospectus and any amendment or supplement thereto by each seller and the underwriters in connection with the offering and sale of the Registrable Shares covered by the registration statement of which such prospectus, amendment or supplement is a part);

(v) use its reasonable best efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests (or, in the event the registration statement does not relate to an underwritten offering, as the holders of a majority of such Registrable Shares may reasonably request); use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable each seller to consummate the disposition of the Registrable Shares owned by such seller in such jurisdictions (provided, however, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction);

(vi) promptly notify each seller and each underwriter and (if requested by any such Person) confirm such notice in writing (A) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (B) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Shares under state securities or “blue sky” laws or the initiation of any proceedings for that purpose, and (C) of the happening of any event which makes any statement made in a registration statement or related prospectus untrue or which requires the making of any changes in such registration statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any

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material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as practicable thereafter, prepare and file with the SEC and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Shares, such prospectus will not contain any untrue statement of a material fact or omit a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(vii) make reasonably available members of management of the Company, as selected by the Holders of a majority of the Registrable Shares included in such registration, for assistance in the selling effort relating to the Registrable Shares covered by such registration, including, but not limited to, the participation of such members of the Company’s management in road show presentations;

(viii) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, including the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder, and make generally available to the Company’s securityholders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than thirty (30) days after the end of the twelve (12) month period beginning with the first day of the Company’s first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said twelve (12) month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 20-F and 6-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act;

(ix) if requested by the managing underwriter or any seller promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any seller reasonably requests to be included therein, including, without limitation, with respect to the Registrable Shares being sold by such seller, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Shares to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment;

(x) cooperate with the sellers and the managing underwriter to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing securities sold under any registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or such sellers may request and keep

11

available and make available to the Company’s transfer agent prior to the effectiveness of such registration statement a supply of such certificates;

(xi) promptly make available for inspection by any seller, any underwriter participating in any disposition pursuant to any registration statement, and any attorney, accountant or other agent or representative retained by any such seller or underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information requested by any such Inspector in connection with such registration statement; provided, however, that, unless the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, the Company shall not be required to provide any information under this subparagraph (x) if (A) the Company believes, after consultation with counsel for the Company, that to do so would cause the Company to forfeit an attorney-client privilege that was applicable to such information or (B) if either (1) the Company has requested and been granted from the SEC confidential treatment of such information contained in any filing with the SEC or documents provided supplementally or otherwise or (2) the Company reasonably determines in good faith that such Records are confidential and so notifies the Inspectors in writing, unless prior to furnishing any such information with respect to clause (B) such Holder of Registrable Shares requesting such information agrees to enter into a confidentiality agreement in customary form and subject to customary exceptions; and provided, further, that each Holder of Registrable Shares agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential;

(xii) furnish to each seller and underwriter a signed counterpart of (A) an opinion or opinions of counsel to the Company, and (B) a comfort letter or comfort letters from the Company’s independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the sellers or managing underwriter reasonably requests;

(xiii) cause the Registrable Shares included in any registration statement to be (A) listed on each securities exchange, if any, on which similar securities issued by the Company are then listed, or (B) quoted on the National Association of Securities Dealers, Inc. Automated Quotation System or the Nasdaq National Market if similar securities issued by the Company are quoted thereon;

12

(xiv) provide a transfer agent and registrar for all Registrable Shares registered hereunder;

(xv) cooperate with each seller and each underwriter participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.;

(xvi) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act;

(xvii) notify each seller of Registrable Shares promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information;

(xviii) enter into such agreements (including underwriting agreements in the managing underwriter’s customary form) as are customary in connection with an underwritten registration; and

(xix) advise each seller of such Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued.

2.6 Suspension of Dispositions. Each Holder agrees by acquisition of any Registrable Shares that, upon receipt of any notice (a “Suspension Notice”) from the Company of the happening of any event of the kind described in Section 2.5(vi)(C) such Holder will forthwith discontinue disposition of Registrable Shares until such Holder’s receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the “Advice”) by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Company, such Holder will deliver to the Company all copies, other than permanent file copies then in such Holder’s possession, of the prospectus covering such Registrable Shares current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Sections 2.5(ii) and 2.5(iii) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each seller of Registrable Shares covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Company shall use its reasonable best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable.

13

2.7 Registration Expenses. All fees and expenses incident to any registration including, without limitation, the Company’s performance of or compliance with this Article 2, all registration and filing fees, all fees and expenses associated with filings required to be made with the National Association of Securities Dealers, Inc. (“NASD”) (including, if applicable, the reasonable fees and expenses of any “qualified independent underwriter” as such term is defined in Schedule E of the By-Laws of the NASD, and of its counsel), as may be required by the rules and regulations of the NASD, fees and expenses of compliance with securities or “blue sky” laws (including reasonable fees and disbursements of counsel in connection with “blue sky” qualifications of the Registrable Shares), rating agency fees, printing expenses (including expenses of printing certificates for the Registrable Shares in a form eligible for deposit with Depository Trust Company and of printing prospectuses), messenger and delivery expenses, the fees and expenses incurred in connection with any listing or quotation of the Registrable Shares, fees and expenses of counsel for the Company and its independent certified public accountants (including the expenses of any special audit or “cold comfort” letters required by or incident to such performance), the fees and expenses of any special experts retained by the Company in connection with such registration, and the fees and expenses of other persons retained by the Company, will be borne by the Company (unless paid by a security holder that is not a Holder for whose account the registration is being effected) whether or not any registration statement becomes effective; provided, however, that any underwriting discounts, commissions, or fees attributable to the sale of the Registrable Shares will be borne by the Holders pro rata on the basis of the number of shares so registered and the fees and expenses of any counsel, accountants, or other persons retained or employed by any Holder will be borne by such Holder.

2.8 Indemnification.

2.8.1 The Company agrees to indemnify and reimburse, to the fullest extent permitted by law, each seller of Registrable Shares, and each of its employees, advisors, agents, representatives, partners, officers, and directors and each Person who controls such seller (within the meaning of the Securities Act or the Exchange Act) and any agent or investment advisor thereof (collectively, the “Seller Affiliates”) (A) against any and all losses, claims, damages, liabilities, and expenses, joint or several (including, without limitation, attorneys’ fees and disbursements except as limited by Section 2.8.3) based upon, arising out of, related to or resulting from any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus, preliminary prospectus, issuer free writing prospectus (as such term is defined in Rule 433 of the Securities Act) or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) against any and all loss, liability, claim, damage, and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, and (C) against any and all costs and expenses (including reasonable fees and disbursements of counsel) as may be reasonably incurred in investigating, preparing, or defending against any litigation, or investigation

14

or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, or such violation of the Securities Act or Exchange Act, to the extent that any such expense or cost is not paid under subparagraph (A) or (B) above; except insofar as any such statements are made in reliance upon and in strict conformity with information furnished in writing to the Company by such seller or any Seller Affiliate for use therein or arise from such seller’s or any Seller Affiliate’s failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such seller or Seller Affiliate with a sufficient number of copies of the same. The reimbursements required by this Section 2.8.1 will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred.

2.8.2 In connection with any registration statement in which a seller of Registrable Shares is participating, each such seller will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent permitted by law, each such seller will indemnify the Company and each of its employees, advisors, agents, representatives, partners, officers and directors and each Person who controls the Company (within the meaning of the Securities Act or the Exchange Act) and any agent or investment advisor thereof against any and all losses, claims, damages, liabilities, and expenses (including, without limitation, reasonable attorneys’ fees and disbursements except as limited by Section 2.8.3) resulting from any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, or any preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission is contained in any information or affidavit so furnished in writing by such seller or any of its Seller Affiliates specifically for inclusion in the registration statement; provided that the obligation to indemnify will be several, not joint and several, among such sellers of Registrable Shares, and the liability of each such seller of Registrable Shares will be in proportion to, and will be limited to, the net amount received by such seller from the sale of Registrable Shares pursuant to such registration statement; provided, however, that such seller of Registrable Shares shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such seller has furnished in writing to the Company information expressly for use in such registration statement or prospectus or any amendment thereof or supplement thereto which corrected or made not misleading information previously furnished to the Company.

2.8.3 Any Person entitled to indemnification hereunder will (A) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person) and (B) unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with

15

respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (X) the indemnifying party has agreed to pay such fees or expenses, or (Y) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (1) such settlement or compromise contains a full and unconditional release of the indemnified party or (2) the indemnified party otherwise consents in writing. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and disbursements of such additional counsel or counsels.

2.8.4 Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 2.8.1 or Section 2.8.2 are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, liabilities, or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in the losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.8.4 were determined by pro rata allocation (even if the Holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 2.8.4. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 2.8.3, defending any such action or claim. Notwithstanding the provisions of this Section

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2.8.4, no Holder shall be required to contribute an amount greater than the dollar amount by which the net proceeds received by such Holder with respect to the sale of any Registrable Shares exceeds the amount of damages which such Holder has otherwise been required to pay by reason of any and all untrue or alleged untrue statements of material fact or omissions or alleged omissions of material fact made in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto related to such sale of Registrable Shares. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations in this Section 2.8.4 to contribute shall be several in proportion to the amount of Registrable Shares registered by them and not joint.

If indemnification is available under this Section 2.8, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 2.8.1 and Section 2.8.2 without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 2.8.4 subject, in the case of the Holders, to the limited dollar amounts set forth in Section 2.8.2.

2.8.5 The indemnification and contribution provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director, or controlling Person of such indemnified party and will survive the transfer of securities.

2.9 Transfer of Registration Rights. The rights of each Holder under this Agreement may be assigned to any direct or indirect transferee of a Holder who agrees in writing to be subject to and bound by all the terms and conditions of this Agreement.

2.10 Rule 144. The Company will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, will, upon the request of the Holders, make publicly available other information) and will take such further action as the Holders may reasonably request, all to the extent required from time to time to enable the Holders to sell Shares without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the reasonable request of any Holder, the Company will deliver to such parties a written statement as to whether it has complied with such requirements and will, at its expense, forthwith upon the request of any such Holder, deliver to such Holder a certificate, signed by the Company’s principal financial officer, stating (a) the Company’s name, address and telephone number (including area code), (b) the Company’s Internal Revenue Service identification number, (c) the Company’s SEC file number, (d) the number of shares of each class of capital stock outstanding as shown by the most recent report or statement published by the Company, and (e) whether the Company has filed the reports required to be filed under the Exchange Act for a period of at least ninety (90) days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder.

17

2.11 Preservation of Rights. The Company will not (i) grant any registration rights to third parties which are more favorable than or inconsistent with the rights granted hereunder or (ii) enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the Holders in this Agreement.

ARTICLE 3

TERMINATION

3.1 Termination. The Holders may exercise the registration rights granted hereunder in such manner and proportions as they shall agree among themselves. The registration rights hereunder shall cease to apply to any particular Registrable Share when: (a) a registration statement with respect to the sale of such Shares (or other securities) shall have become effective under the Securities Act and such Shares shall have been disposed of in accordance with such registration statement; (b) such Shares (or other securities) shall have been sold to the public pursuant to Rule 144 under the Securities Act (or any successor provision); (c) such Shares (or other securities) shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force; (d) such Shares (or other securities) shall have ceased to be outstanding or (e) the Holder of such Shares holds less than three percent (3%) of the then outstanding Registrable Shares and such Registrable Shares are eligible for sale pursuant to Rule 144(k) under the Securities Act (or any successor provision). The Company shall promptly upon the request of any Holder furnish to such Holder evidence of the number of Registrable Shares then outstanding.

ARTICLE 4

MISCELLANEOUS

4.1 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 4.1):

If to the Company:

Babcock & Brown Air Limited

West Pier

Dun Laoghaire

County Dublin, Ireland

Facsimile: +353 1 _____________

Attention: Chief Executive Officer

18

with a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

Facsimile: +1 (212) 310-8007

Attention: Boris Dolgonos, Esq.

If to any of the Principal Investors:

c/o Babcock & Brown Aircraft Management LLC

2 Harrison Street

6th Floor

San Francisco CA 94105

Facsimile: +1 (415) 267-1500

Attention: Greg Azzara

If to any other Holder, the address indicated for such Holder in the Company’s stock transfer records with copies, so long as Principal Investor owns any Registrable Shares, to the Principal Investors as provided above.

Any notice or communication hereunder shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee).

Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it.

4.2 Authority. Each of the parties hereto represents to the other that (i) it has the corporate power and authority to execute, deliver and perform this Agreement, (ii) the execution, delivery and performance of this Agreement by it has been duly authorized by all necessary corporate action and no such further action is required, (iii) it has duly and validly executed and delivered this Agreement, and (iv) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.

4.3 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York irrespective of the choice of laws principles of the State of New York other than Section 5-1401 of the General Obligations Law of the State of New York.

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4.4 Successors and Assigns. Except as otherwise expressly provided herein, this Agreement shall be binding upon and benefit the Company, each Holder, and their respective successors and assigns.

4.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced under any Law or as a matter of public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties to this Agreement shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the greatest extent possible.

4.6 Remedies. Any dispute, controversy or claim arising out of, or relating to, the transactions contemplated by this Agreement, or the validity, interpretation, breach or termination of any provision of this Agreement shall be resolved in accordance with Article VII of the Master Agreement.

4.7 Waivers. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term, but such waiver shall be effective only if it is in a writing signed by the party against whom the existence of such waiver is asserted. Unless otherwise expressly provided in this Agreement, no delay or omission on the part of any party in exercising any right or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right or privilege under this Agreement operate as a waiver of any other right or privilege under this Agreement nor shall any single or partial exercise of any right or privilege preclude any other or further exercise thereof or the exercise of any other right or privilege under this Agreement. No failure by either party to take any action or assert any right or privilege hereunder shall be deemed to be a waiver of such right or privilege in the event of the continuation or repetition of the circumstances giving rise to such right unless expressly waived in writing by the party against whom the existence of such waiver is asserted.

4.8 Amendment. This Agreement may not be amended or modified in any respect except by a written agreement signed by the Company and the Holders of a majority of the then outstanding Registrable Shares.

4.9 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties to each such agreement in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be as effective as delivery of a manually executed counterpart of any such Agreement.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above.

BABCOCK & BROWN AIR LIMITED

By: 

Name:

Title:

BABCOCK & BROWN INVESTMENT HOLDINGS PTY LTD

By: 

Name:

Title:

BABCOCK & BROWN JET-I CO., LTD

By: 

Name:

Title:

BBGP AIRCRAFT HOLDINGS LIMITED

By: 

Name:

Title:

BBAM CO-INVESTOR LIMITED

By: 

Name:

Title:

BABCOCK & BROWN AIRCRAFT LESSOR NO. 1 LTD

By: 

Name:

Title:

21

DIRECT INVESTMENT FUND EQUITY TRUST

By: 

Name:

Title:

DIRECT INVESTMENT FUND MEZZANINE DEBT TRUST

By: 

Name:

Title:

JET-INVESTMENT HOLDINGS LLC

By: 

Name:

Title:

NOMURA BABCOCK & BROWN CO., LTD

By: 

Name:

Title:

22

EX-10.9

Exhibit 10.9

TRUST INDENTURE

dated as of [                             ], 2007

among

BABCOCK & BROWN AIR FUNDING I LIMITED,

as the Issuer

DEUTSCHE BANK TRUST COMPANY AMERICAS,

as the Operating Bank and Trustee

DEUTSCHE BANK TRUST COMPANY AMERICAS,

as the Cash Manager

BNP PARIBAS,

as the Initial Liquidity Facility Provider

and

AMBAC ASSURANCE CORPORATION

as the Policy Provider

TABLE OF CONTENTS

ARTICLE I    DEFINITIONS		1
Section 1.01	Definitions	1
Section 1.02	Rules of Construction	33
Section 1.03	Compliance Certificates and Opinions	34
Section 1.04	Acts of Holders	34
ARTICLE II    THE NOTES		35
Section 2.01	Authorized Amount; Terms; Form; Execution and Delivery	35
Section 2.02	Restrictive Legends	38
Section 2.03	Registrar and Paying Agent	40
Section 2.04	Paying Agent to Hold Money in Trust	41
Section 2.05	Method of Payment	42
Section 2.06	Minimum Denomination	42
Section 2.07	Transfer and Exchange; Cancellation	42
Section 2.08	Mutilated, Destroyed, Lost or Stolen Notes	44
Section 2.09	Payments of Transfer Taxes	44
Section 2.10	Refinancing of Initial Notes	44
Section 2.11	Additional Notes	47
Section 2.12	Special Transfer Provisions	49
Section 2.13	[Reserved]	50
Section 2.14	Statements to Holders	50
Section 2.15	CUSIP, CCN and ISIN Numbers	52
Section 2.16	Holder Representations and Covenants	53
ARTICLE III    ACCOUNTS; PRIORITY OF PAYMENTS		53
Section 3.01	Accounts	53
Section 3.02	Investments of Cash	58
Section 3.03	Closing Date Deposits, Withdrawals and Transfers	59
Section 3.04	Interim Deposits, Transfers and Withdrawals	61
Section 3.06	Interim Deposits and Withdrawals for Aircraft Sales	63
Section 3.07	Calculation Date Calculations	63
Section 3.08	Payment Date First Step Withdrawals and Transfers	68
Section 3.09	Payment Date Second Step Withdrawals	70
Section 3.10	Allocations of Principal Payments Among Subclasses of the Notes	74
Section 3.11	Certain Redemptions; Certain Premiums	74

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Section 3.12	Adjustment of Certain Percentages, Factors and Balances	76
Section 3.13	Eligible Credit Facilities	77
Section 3.14	Initial Liquidity Facility	77
Section 3.15	The Policy	81
Section 3.16	Class A Share Cure Rights	85
Section 3.17	DSCR Failure	85
ARTICLE IV    DEFAULT AND REMEDIES		85
Section 4.01	Events of Default	85
Section 4.02	Acceleration, Rescission and Annulment	86
Section 4.03	Other Remedies	87
Section 4.04	Limitation on Suits	87
Section 4.05	Waiver of Existing Defaults	88
Section 4.06	Restoration of Rights and Remedies	88
Section 4.07	Remedies Cumulative	88
Section 4.08	Authority of Courts Not Required	89
Section 4.09	Rights of Holders to Receive Payment	89
Section 4.10	Trustee May File Proofs of Claim	89
Section 4.11	Undertaking for Costs	89
Section 4.12	Remedies; Rights of Controlling Party	89
ARTICLE V    REPRESENTATIONS, WARRANTIES AND COVENANTS		89
Section 5.01	Representations and Warranties	90
Section 5.02	General Covenants	92
Section 5.03	Operating Covenants	105
Section 5.04	Compliance Through Agents	109
ARTICLE VI    THE TRUSTEE		110
Section 6.01	Acceptance of Trusts and Duties	110
Section 6.02	Absence of Duties	110
Section 6.03	Representations or Warranties	110
Section 6.04	Reliance; Agents; Advice of Counsel	110
Section 6.05	No Compensation from Holders	112
Section 6.06	Notice of Defaults	112
Section 6.07	May Hold Securities	112
Section 6.08	Corporate Trustee Required; Eligibility	112
Section 6.09	Disqualification of Trustee	112
Section 6.10	Preferential Collection of Claims Against Issuer	112

ii

Section 6.11	Reports by the Issuer	113
Section 6.12	Holder Lists	113
Section 6.13	Preservation of Information; Communications to Holders	113
ARTICLE VII    SUCCESSOR TRUSTEES		114
Section 7.01	Resignation and Removal of Trustee	114
Section 7.02	Appointment of Successor	114
ARTICLE VIII    INDEMNITY		115
Section 8.01	Indemnity	115
Section 8.02	Holders’ Indemnity	115
ARTICLE IX    MODIFICATION		116
Section 9.01	Modification with Consent of Holders, the Policy Provider and the Initial Liquidity Facility Provider	116
Section 9.02	Modification Without Consent of Holders, Providers of Eligible Credit Facilities and the Policy Provider	116
Section 9.03	Subordination and Priority of Payments	117
Section 9.04	Execution of Amendments by Trustee	117
ARTICLE X    SUBORDINATION		117
Section 10.01	Subordination of the Securities and Other Subordinated Obligations	117
Section 10.02	Rights of Subrogation	118
Section 10.03	Further Assurances of Junior Representatives	118
Section 10.04	Enforcement	118
Section 10.05	Continued Effectiveness	119
Section 10.06	Senior Claims and Junior Claims Unimpaired	119
ARTICLE XI    DISCHARGE OF INDENTURE; DEFEASANCE		119
Section 11.01	Discharge of Liability on the Notes; Defeasance	119
Section 11.02	Conditions to Defeasance	120
Section 11.03	Application of Trust Money	121
Section 11.04	Repayment to Issuer	121
Section 11.05	Indemnity for Government Obligations and Corporate Obligations	121
Section 11.06	Reinstatement	121
ARTICLE XII    MISCELLANEOUS		121
Section 12.01	Right of Trustee to Perform	121
Section 12.02	Waiver	122
Section 12.03	Severability	122
Section 12.04	Restrictions on Exercise of Certain Rights; Limited Recourse	122

iii

Section 12.05	Notices	123
Section 12.06	Assignments; Third Party Beneficiary	124
Section 12.07	Currency Conversion	125
Section 12.08	Application to Court	125
Section 12.09	Governing Law	126
Section 12.10	Jurisdiction	126
Section 12.11	Counterparts	126
Section 12.12	Table of Contents, Headings, Etc	126
Section 12.13	Compliance with Applicable Anti-Terrorism and Anti-Money Laundering Regulations	126

Schedules

Schedule 1	–	Initial Aircraft
Schedule 2	–	Issuer Subsidiaries
Schedule 3	–	Pool Factors
Schedule 4	–	Extended Pool Factors
Schedule 5	–	Minimum Target Principal Balance
Schedule 6	–	Amortization Percentages
Schedule 7	–	Initial Leases - Current War Risk Coverage Amounts
Schedule 8	–	Allocable Rent Amounts

Exhibits

Exhibit A-1	–	Form of Note for any subclass of Notes that are Floating Rate Notes
Exhibit A-2	–	Form of Note for any subclass of Notes that are Fixed Rate Notes
Exhibit B	–	Concentration Limits
Exhibit C	–	Insurance Provisions
Exhibit D	–	Form of Monthly Report to Each Noteholder
Exhibit E	–	Form of Certificate of Transfer
Exhibit F	–	Core Lease Provisions
Exhibit G	–	Form of Policy
Exhibit H	–	Form of Compliance Certificate
Exhibit I	–	Form of Accredited Investor Letter

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This TRUST INDENTURE, dated as of [          ], 2007 (this “Indenture”), is made among BABCOCK & BROWN AIR FUNDING I LIMITED, a Bermuda exempted company (the “Issuer”), DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation (the “Trustee” and “Operating Bank”), DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Cash Manager (the “Cash Manager”), BNP PARIBAS, a société anonyme under French law, acting through its New York branch (together with its successors and permitted assigns, the “Initial Liquidity Facility Provider”) and AMBAC ASSURANCE CORPORATION, a Wisconsin stock insurance company (the “Policy Provider”).

The parties to this Indenture hereby agree as follows.

ARTICLE I

DEFINITIONS

Section 1.01 Definitions. For purposes of this Indenture, the following terms have the meanings indicated below:

“Acceleration” means, with respect to the principal, interest and other amounts payable in respect of the Notes, such amounts becoming immediately due and payable by declaration or otherwise. “Accelerate,” “Accelerated” and “Accelerating” have meanings correlative to the foregoing.

“Acceleration Default” means any Event of Default of the type described in Section 4.01(e) or 4.01(f).

“Account” means any or, in its plural form, all of the accounts established pursuant to Section 3.01(a) and any ledger accounts and ledger subaccounts maintained therein in accordance with this Indenture.

“Accrued Class G Interest” means, as of any date of determination, all amounts due and owing in respect of accrued and unpaid interest on the Outstanding Principal Balance of the Class G-1 Notes (less any Policy Drawing previously paid in respect of principal of the Class G-1 Notes) at the Applicable Rate of Interest for such subclass of Notes.

“Acquisition Agreement” means the Asset Purchase Agreement and any agreements pursuant to which Additional Aircraft (or related Aircraft Interest) are acquired.

“Acquisition Date” means, with respect to any Aircraft Interest (and the Aircraft subject to that Aircraft Interest), the “AP Closing Date” as defined in the Asset Purchase Agreement or “Closing Date” or any comparable term in any other Acquisition Agreement.

“Act” has, with respect to any Holder, the meaning given to such term in Section 1.04(a).

“Additional Aircraft” means any aircraft and any related engine acquired by any Issuer Group Member from a Seller or an Affiliate of a Seller or from any other Person after the Initial Closing Date (other than any Initial Aircraft, Remaining Aircraft or Substitute Aircraft) in accordance with the provisions hereof (including, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, after obtaining the consent of the Policy Provider and the Initial Liquidity Facility Provider and a Rating Agency Confirmation), including any Aircraft acquired by way of a contribution but excluding any such Aircraft after it has been sold or disposed of by way of a completed Aircraft Sale.

“Additional Issuance” has the meaning given to such term in Section 2.11(a).

“Additional Lease” means, with respect to each Additional Aircraft, each aircraft lease agreement, conditional sale agreement, hire purchase agreement or other similar arrangement with respect to such Additional Aircraft on the Closing Date therefor.

“Additional Notes” means any Notes of any subclass of Notes issued pursuant to this Indenture, the proceeds of which are used, in substantial part, to acquire Additional Aircraft or corresponding Aircraft Interest or to make Conversion Payments.

“Additional Rent” means rent (whether called additional rent, supplemental rent, utilization rent, maintenance reserve or any similar term) that is in addition to a base rent for the Aircraft (regardless of how such base rent is calculated) payable under a Lease based on hours or cycles of operation of the airframe, engines, life-limited engine parts, landing gear and/or auxiliary power unit of an Aircraft based on hours or cycles of operation or passage of time, with respect to maintenance of which the lessor under the Lease customarily has a maintenance contribution obligation measured in part by or with reference to such additional rent.

“Additional Rent Adjustment” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Administrative Agent” means the person acting, at the time of determination, in the capacity as the administrative agent of the Issuer Group Members under the Administrative Services Agreement or any replacement agreement therefor. The initial Administrative Agent is Babcock & Brown Air Management Co Limited.

“Administrative Services Agreement” means the Administrative Services Agreement dated as of the Initial Closing Date among the Administrative Agent, the Issuer, the Issuer Subsidiaries party thereto, the Policy Provider, the Trustee and the Security Trustee.

“Affiliate” has the meaning given to such term in Section 5.02(b).

“Aggregate Minimum Principal Payment Amount” means, for any Payment Date, the sum of (a) the aggregate unpaid Minimum Principal Payment Amount, if any, with respect to the previous Payment Dates (less any Principal Conversion Amounts transferred to the Aircraft Conversion Account in connection with one or more Conversion Elections) plus (b) the Minimum Principal Payment Amount for such Payment Date (less any Principal Conversion Amounts transferred to the Aircraft Conversion Account in connection with one or more Conversion Elections).

“Agreed Currency” has the meaning given to such term in Section 12.07(a).

“Agreed Value Payment” means a payment to be made by or on behalf of a Lessee under a Lease upon or following a Total Loss of an Aircraft with respect to such Total Loss.

“Aircraft” means the Initial Aircraft (or related Aircraft Interest) and the Additional Aircraft (or related Aircraft Interest).

“Aircraft Agreement” means any lease, sublease, conditional sale agreement, finance lease, hire purchase agreement or other agreement (other than an agreement relating to maintenance, modification or repairs) or any purchase option granted to a Person (other than a Purchase Option granted to an Issuer

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Group Member) to purchase an Aircraft, in each case pursuant to which any Person acquires or is entitled to acquire legal title to, or the economic benefits of ownership of, such Aircraft.

“Aircraft Assets Related Documents” means all Issuer Group Leases and related documents and other contracts and agreements including any side letters, assignments of warranties or option agreements of Issuer Group Members the terms of which affect the rights or obligations of any Issuer Group Member in respect of any of the Aircraft.

“Aircraft Conversion” has the meaning given to such term in Section 5.02(i) hereof.

“Aircraft Conversion Account” has the meaning given to such term in Section 3.01(a) hereof.

“Aircraft Interest” means (a) the Ownership Interest in any Person, including without limitation a trust, that owns an Aircraft or (b) the Person that holds, directly or indirectly, the interest referred to in clause (a) above. The acquisition or disposition of all of the Aircraft Interest with respect to an Aircraft constitutes, respectively, the acquisition or disposition of that Aircraft.

“Aircraft Prior Rent Payment” means, with respect to (a) any Initial Aircraft, an amount equal to that portion of the aggregate Basic Rent Adjustment in fact received by or on behalf of the related Seller as to that Aircraft prior to the Closing Date that is attributable to any period commencing on or after that Closing Date and (b) any Additional Aircraft not acquired by an Issuer Group Member as provided in Section 3.05(c) hereof, the definition given to that or any comparable term in any indenture supplemental hereto.

“Aircraft Purchase Account” has the meaning given to such term in Section 3.01(a).

“Aircraft Purchase Price” means, with respect to each Initial Aircraft, the Base Aircraft Purchase Price for such Aircraft, plus any Investment Proceeds Adjustment for such Aircraft, less any Basic Rent Adjustment for such Aircraft, less any Additional Rent Adjustment for such Aircraft, plus any Maintenance Adjustment for such Aircraft, plus, in the case of Substitute Aircraft only, the Substitute Aircraft Adjustment Amount (which may be a negative number).

“Aircraft Refund Amount” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Aircraft Sale” means any sale or other disposition of any Aircraft, including by reason of such Aircraft suffering a Total Loss.

“Aircraft Subsequent Rent Payment” means, with respect to (a) any Initial Aircraft, an amount equal to that portion of the aggregate Basic Rent Adjustment in fact received by or on behalf of the related Seller as to that Aircraft on or after the Closing Date that is attributable to any period commencing on or after that Closing Date and (b) any Additional Aircraft not acquired by an Issuer Group Member as provided in Section 3.05(c) hereof, the definition given to that or any comparable term in any indenture supplemental hereto.

“Allocable Rent Amount” means the amount set forth directly opposite the applicable Aircraft on Schedule 8.

“Allowed Restructuring” has the meaning given to such term in Section 5.02(e).

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“Amortization Percentage” means, with respect to the Notes on any Payment Date occurring on or after the Initial Amortization Date, the percentage set forth directly opposite such Payment Date on Schedule 6 to this Indenture.

“Annual Report” has the meaning given to such term in Section 2.14(a).

“Applicable Aviation Authority” means, in relation to any Aircraft, each governmental or regulatory authority that has responsibility for the supervision of civil aviation and/or the registration and operations of civil aircraft in the State of Registration of such Aircraft.

“Applicable Law” means, with respect to any Person, all laws, rules, regulations and orders of governmental or regulatory authorities applicable to such Person, including, without limitation, the regulations of each Applicable Aviation Authority applicable to such Person or the Aircraft owned or operated by it or as to which it has a contractual responsibility.

“Applicable Procedures” means, with respect to any transfer or exchange of Beneficial Interests, the rules and procedures of the Depositary, Euroclear or Clearstream and any of their Participants and Indirect Participants that apply to such transfer or exchange.

“Applicable Rate of Interest” means, with respect to each subclass of Notes, as of any date of determination thereof, the interest rate set forth in or determined in accordance with the terms of such subclass of Notes.

“Applicable Regulations” has the meaning given to such term in Section 12.13.

“Appraisers” means Aircraft Information Services, Inc., Ascend, a division of Airclaims Limited, and BK Associates, Inc and such other appraiser appointed pursuant to Section 5.03(i).

“Asset Purchase Agreement” means the Asset Purchase Agreement dated as of [            ], 2007 between the Sellers and the Issuer.

“Assumed Base Value” means with respect to any Payment Date, for any Aircraft the product of (a) the Average Base Value of such Aircraft (or, in the case of any Aircraft with respect to which an Aircraft Conversion has been completed, the sum of the Average Base Value for such Aircraft as of the Payment Date immediately succeeding such completion and the aggregate Conversion Payments in respect of such Aircraft) and (b) the quotient obtained by dividing the Depreciation Factor applicable to such Aircraft on the Calculation Date related to such Payment Date by the Depreciation Factor applicable to such Aircraft on the Closing Date on which Notes were issued to finance the acquisition of such Aircraft.

“Assumed Portfolio Value” means, in respect of any Payment Date and for all Aircraft in the Portfolio (not including any Aircraft acquired by way of a contribution), the sum of the product, with respect to each Aircraft in the Portfolio on the Calculation Date preceding such Payment Date, of (a) the Average Base Value of such Aircraft and (b) the quotient obtained by dividing the Depreciation Factor applicable to such Aircraft on such Calculation Date by the Depreciation Factor applicable to such Aircraft on the Closing Date on which Notes were issued to finance the acquisition of such Aircraft.

“Authorized Agent” means, with respect to the Notes of any subclass, any authorized Paying Agent or Registrar for the Notes of such subclass.

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“Available Amount” means, subject to the proviso contained in Section 3.14(g), at any date of determination, (a) the Maximum Facility Commitment at such time less (b) the aggregate amount of each Facility Drawing under the Initial Liquidity Facility outstanding at such time; provided that following a Downgrade Drawing, a Final Drawing or a Non-Extension Drawing, the Available Amount shall be zero.

“Available Collections” means, as of the close of business on any Calculation Date, amounts on deposit in the Collections Account. The Available Collections with respect to any payment to be made therefrom shall be determined after giving effect to all payments, if any, having priority to such payment under Section 3.09.

“Available Holder Amount” has the meaning given to such term in Section 3.07(j).

“Available Minimum Principal Amount” has the meaning given to such term in Section 3.07(i).

“Average Base Value” means (a) in the case of each Initial Aircraft (other than a Substitute Aircraft), the lesser of the mean and median of the Base Values in respect of such Aircraft rendered by each of the Appraisers as of December 15, 2006, (b) in the case of any Substitute Aircraft, the lesser of the mean and median of the Base Values in respect of such Aircraft rendered by each of the Appraisers as of a date not more than six months prior to the date of the acquisition of such Aircraft and (c) in the case of any Additional Aircraft, the lesser of the mean and median of the Base Values in respect of such Aircraft rendered by each of the Appraisers as of a date not more than six months prior to the Closing Date for the issuance of the relevant Additional Notes.

“Avoidance Drawing” has the meaning given to such term in Section 3.15(e).

“Avoided Payment” means any amount paid or required to be paid in respect of the Class G-1 Notes to a Holder of such Class G-1 Notes which is avoided under any applicable bankruptcy, insolvency, receivership or similar law in an insolvency proceeding by or against the Issuer, any Issuer Subsidiary, the Initial Liquidity Facility Provider or any other provider of an Eligible Credit Facility and, as a result of such an avoidance event, the Trustee or any holder of any such Class G-1 Notes is required to return all or any portion of such avoided payment made or to be made in respect of such Class G-1 Notes (including any disgorgement from the Holders of the Class G-1 Notes resulting from any insolvency proceeding, whether such disgorgement is determined on a theory of preferential conveyance or otherwise).

“Base Aircraft Purchase Price” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Base Value” means the value of an Aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and with full consideration of the Aircraft’s “highest and best use”, presuming an arm’s-length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing, adjusted to account for the maintenance status of such Aircraft (with such assumptions as to use since the last reported status as may be reasonably stated in the appraisal setting forth such Base Value).

“Basic Rent Adjustment” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Basic Terms Modification” has the meaning given to such term in Section 9.01.

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“BBAM” means BBAM Ireland and BBAM US, collectively.

“BBAM Ireland” means Babcock & Brown Aircraft Management (Europe) Limited, a company incorporated under the laws of Ireland

“BBAM US” means Babcock & Brown Aircraft Management LLC, a limited liability company organized under the laws of Delaware.

“Beneficial Interest” means an indirect beneficial interest in a Global Note held through a corresponding Depositary Interest and shown on, and transferred only through, records maintained in book-entry form by the Depositary (with respect to the Participants) and its Participants. References to Beneficial Interests in a Global Note should be understood to mean Beneficial Interests in the Depositary Interest issued with respect to such Global Note.

“Board” means the Board of Directors of the Issuer.

“Board Resolution” means a copy of a resolution certified as having been duly adopted by the Board of the Issuer and being in full force and effect on the date of such certification.

“Business Day” means (a) any date other than a Saturday, a Sunday or a day on which commercial banks and foreign exchange markets are open in New York, New York and, with respect to the payment of interest on any Floating Rate Note, a day on which U.S. dollar deposits may be dealt in on the London inter-bank market and, with respect to payments to or withdrawals from the Non-Trustee Accounts, a day on which the financial institution at which such account is located is open for business or (b) solely with respect to drawings under the Policy, any date other than a Saturday, a Sunday or a day on which (i) the fiscal agent under such Policy, at its office specified in the Policy, (ii) the Policy Provider, at its office specified in such Policy, (iii) commercial banking institutions in the cities in which the corporate trust office of the Trustee or (iv) insurance companies in New York, New York are, in any such case, required or authorized by law or executive order to close or (c) with respect to the determination of the rate of interest on any Floating Rate Note, a day on which U.S. dollar deposits may be dealt in on the London inter-bank market.

“Calculation Date” means, with respect to each Payment Date, the last day of the calendar month immediately preceding the month in which such Payment Date occurs, provided that if any Calculation Date would otherwise fall on a day that is not a Business Day, such Calculation Date will be the first preceding day that is a Business Day.

“Cape Town Convention” means the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment, concluded in Cape Town on 16 November 2001.

“Capital Account” has the meaning given to such term in Section 3.01(a).

“Capital Markets Advisor” means the Person acting, at the time of determination, as the Capital Markets Advisor under the Capital Markets Advisory Agreement. The initial Capital Markets Advisor is Credit Suisse Securities (USA) LLC.

“Capital Markets Advisory Agreement” means the Capital Markets Advisory Agreement dated as of the Initial Closing Date between the Capital Markets Advisor and the Issuer.

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“Cash Collateral Account” means the Senior Cash Collateral Account and each other Eligible Credit Facility established as an Account pursuant to Section 3.01(q).

“Cash Management Agreement” means the Cash Management Agreement dated as of the Initial Closing Date among the Cash Manager, the Trustee, the Security Trustee and the Issuer.

“Cash Manager” means the Person acting, at the time of determination, in the capacity of the cash manager under the Cash Management Agreement or any replacement agreement therefor. The initial Cash Manager is Deutsche Bank Trust Company Americas.

“Charitable Trust” means the charitable trust established under the laws of Bermuda, which owns 100% of the Class B Shares.

“Class A Shareholder” means a holder of the Class A Shares.

“Class A Shareholder Conversion Amount” means, with respect to any Aircraft (a) the Conversion Amount for such Aircraft divided by (b) the sum of the Initial Leverage Ratio and 1.

“Class A Shareholder Conversion Deposits” means, as of any date of determination, for any Aircraft Conversion, the amount of distributions available to be made by the Holders of Class A Shares and Contribution Amounts, if any, for such Aircraft Conversion.

“Class A Shares” means the shares issued by the Issuer and designated as such in accordance with its constitutional documents.

“Class B Share Payment” means, with respect to each Payment Date, $[            ].

“Class B Shares” means the shares issued by the Issuer and designated as such in accordance with its constitutional documents.

“Class B Shareholder Account” has the meaning given to such term in Section 3.01(a).

“Class G Cash Collateral Event” has the meaning given to such term in Section 3.01(m).

“Class G-1 Note Target Price” means, as of any date of determination thereof and with respect to any Aircraft (not including any Aircraft acquired by way of a contribution, the Class G-1 Note Target Price for which shall be zero), an amount equal to the product of the Designated Percentage with respect to such Aircraft and the then (determined after the intended application of Available Collections (but without taking into account any Net Sale Proceeds or Total Loss Proceeds from the sale, disposition or total loss of such Aircraft) as of the next succeeding Payment Date) aggregate Outstanding Principal Balance of the Class G-1 Notes (less any Policy Drawings previously paid in respect of principal of the Class G-1 Notes).

“Class G-1 Notes” means the Initial Notes that are designated Class G-1 Notes with an initial Outstanding Principal Balance not to exceed $853,000,000 and all Notes, if any, issued in replacement or substitution therefor.

“Clearstream” means Clearstream Banking, société anonyme, Luxembourg.

“Closing Date” means in the case of (a) the Initial Notes and the Initial Aircraft, the Initial Closing Date, (b) any Refinancing Notes or Additional Notes, the relevant date of issuance of such

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Securities and (c) any Additional Aircraft or Aircraft Conversion, the date of issuance of the Additional Notes issued to finance the acquisition of such Additional Aircraft or such Aircraft Conversion.

“Code” means the Internal Revenue Code of 1986 as amended.

“Collateral” has the meaning given to such term in the Security Trust Agreement.

“Collections” means without duplication (a) Rental Payments and all other amounts received by any Issuer Group Member pursuant to any Lease or Related Collateral Document, (b) amounts transferred from any Cash Collateral Account (other than the Senior Cash Collateral Account, if established) to the Collections Account pursuant to Section 3.01(q), (c) amounts received in respect of claims for damages or in respect of any breach of contract for nonpayment of any of the foregoing, (d) amounts received by an Issuer Group Member in connection with any Aircraft Sale or otherwise received under any Aircraft Agreement, including sale proceeds, Total Loss Proceeds, Agreed Value Payments, proceeds of Repossession Insurance, Requisition Compensation and all Partial Loss Proceeds, less, in each case, any expenses payable by such Issuer Group Member to any Person that is not an Issuer Group Member in connection therewith, (e) amounts received by any Issuer Group Member from insurance with respect to any Aircraft, (f) any amounts transferred from a Lessee Funded Account or from the Security Deposit Account into the Collections Account in accordance with Section 3.08, (g) any Hedge Payments, (h) the proceeds of any Investments of the funds in the Accounts (except (i) to the extent that any such proceeds are required to be paid over to any Lessee under a Lease or (ii) the proceeds of any Investments of the funds in the Liquidity Facility Reserve Account), (i) any amounts transferred from any Aircraft Purchase Account into the Collections Account in accordance with Section 3.03, 3.04 or 3.05 hereof, (j) any amounts transferred from the Aircraft Conversion Account into the Collections Account in accordance with Section 3.08(l), (k) any amounts received by an Issuer Group Member under an Acquisition Agreement, including any Non-Delivery Make-Whole Amount, and (l) any other amounts received by any Issuer Group Member (including any amounts received from any other Issuer Group Member, whether by way of distribution, dividend, repayment of a loan or otherwise, and any proceeds received in connection with any Allowed Restructuring); provided that Collections shall not include (i) payments under the Policy, (ii) Segregated Funds transferred to a Lessee Funded Account, (iii) security deposits under any Lease that are not Segregated Funds transferred to the Security Deposit Account, (iv) amounts deposited in the Defeasance/Redemption Account or the Refinancing Account in connection with a Redemption (except any amounts that are amounts under clauses (a) through (l) above), (v) amounts received in connection with a Refinancing, (vi) amounts in the Capital Account and, except as provided above with respect to any amounts transferred therefrom to the Collections Account, amounts in any Cash Collateral Account, the Aircraft Purchase Account and the Aircraft Conversion Account, (vii) amounts not payable to an Issuer Group Member, expenses incurred in connection with the receipt of any Collections or amounts otherwise not to be included as Collections pursuant to any Related Document and (viii) payments under the Initial Liquidity Facility, in each case subject to the restrictions set forth in this Indenture.

“Collections Account” has the meaning given to such term in Section 3.01(a).

“Commission” means the U.S. Securities and Exchange Commission.

“Concentration Default” means an Event of Default under Section 4.01(d) as a result of a breach of the agreements under Section 5.03(a) which would arise if effect were given to any sale, transfer or other disposition or any purchase or other acquisition (other than in respect of any Aircraft acquired by way of contribution) pursuant to an Aircraft Agreement as of the date of such Aircraft Agreement regardless of whether such sale, transfer or other disposition or purchase or other acquisition is scheduled or expected to occur after the date of such Aircraft Agreement.

8

“Concentration Limits” has the meaning given to such term in Section 5.03(a).

“Contribution Amounts” has the meaning given to such term in Section 3.16.

“Control” has the meaning given to such term in Section 5.02(b). “Controlled” and “Controlling” have meanings correlative to the foregoing.

“Controlling Party” means, at any time of determination, the Policy Provider until such time as the Class G-1 Notes and the Policy Provider Obligations have been paid or repaid in full except that if a Policy Provider Default has occurred and is continuing, the Controlling Party shall be the Trustee; provided that in the case of the Initial Liquidity Facility Provider or, for any other Eligible Credit Facility, if and only if so provided in the Board Resolution providing for such Eligible Credit Facility, at any time from and including the date that is no earlier than 30 months from the earlier to occur of (a) the date on which the entire amount available under such Eligible Credit Facility (other than any Eligible Credit Facility in the form of a Cash Collateral Account) shall have been drawn (except as a result of (i) a Downgrade Drawing or (ii) a Non-Extension Drawing, in each case not applied to pay any Required Expenses Shortfalls, Senior Hedge Payments Shortfalls or Liquidity Facility Interest Class G Shortfalls) and remain unreimbursed and (b) the date on which the Notes shall have been Accelerated, the provider of such Eligible Credit Facility shall have the right to elect, by at least 15 Business Days’ prior Written Notice to the Trustee and the Policy Provider, to become the Controlling Party (in place of the Policy Provider or the Trustee, as applicable) thereafter (subject to the next succeeding proviso) but only for so long as any Credit Facility Obligations due to such provider remain unpaid; providedfurther, that if, notwithstanding the foregoing, within 15 Business Days after its receipt of any such Written Notice from such provider of such Eligible Credit Facility (which notice may be given on or after the fifteenth Business Day prior to the end of such 30-month period) the Policy Provider pays to such provider of such Eligible Credit Facility all outstanding Credit Facility Obligations owing to such provider of such Eligible Credit Facility in respect of its Eligible Credit Facility, and interest accrued thereon to such date, the Policy Provider (if it otherwise would have been the Controlling Party) shall remain the Controlling Party so long as no Policy Provider Default has occurred and is continuing. At any time after such 30-month period, if a Policy Provider Default has occurred and is continuing and the provider of such Eligible Credit Facility does not elect to be the Controlling Party or if no Credit Facility Obligations remain outstanding, then the Trustee shall continue to be the Controlling Party.

“Conversion Agreement” means any agreement entered into from time to time between the Issuer (or its agents) and any maintenance facility with respect to the conversion of an Aircraft to a freighter or mixed-use aircraft.

“Conversion Amount” for any Aircraft will be equal to the estimated cost (as adjusted from time to time) to convert an Aircraft from a passenger to freighter or mixed-use configuration.

“Conversion Election” has the meaning given to such term in Section 3.07(j).

“Conversion Payment” has the meaning given to such term in Section 5.02(i).

“Core Lease Provisions” has the meaning given to such term in Section 5.03(e).

“Corporate Obligations” has the meaning given to such term in Section 11.02(a).

“Corporate Trust Office” means, with respect to the Trustee for each subclass of Notes, the office of such Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of the execution of this Agreement is [60 Wall Street, MS NYC60-

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2606, New York, NY 10005, Attention: Corporate Trust & Agency Services – Structured Finance Services], or at such other address as the Trustee may designate from time to time.

“Costs” means liabilities, obligations, damages, judgments, settlements, penalties, claims, actions, suits, costs, expenses and disbursements (including, without limitation, reasonable fees and disbursements of legal counsel and costs of investigation).

“Covenant Defeasance” has the meaning given to such term in Section 11.01(b).

“Credit Facility Advance Obligations” means all Credit Facility Obligations other than (a) Credit Facility Expenses and (b) Special Indemnity Payments.

“Credit Facility Expenses” means all Credit Facility Obligations other than (a) the principal amounts under, or the principal amount of any drawings under, any Eligible Credit Facility, (b) interest accrued on Credit Facility Obligations and (c) Special Indemnity Payments.

“Credit Facility Obligations” means all principal, interest, fees, expenses, indemnities, costs and other amounts owing to or incurred by the providers of Eligible Credit Facilities.

“Debt Allocation Amount” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Default” means a condition, event or act that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Default Notice” means a notice given pursuant to Section 4.02, declaring all outstanding principal of and accrued and unpaid interest on the Notes to be immediately due and payable.

“Defeasance/Redemption Account” has the meaning given to such term in Section 3.01(a).

“Deficiency Class G Shortfall” has the meaning given to such term in Section 3.07(h)(ii).

“Deficiency Drawing” has the meaning given to such term in Section 3.15(b).

“Definitive Notes” has the meaning given to such term in Section 2.07(a).

“Delivery” of an Aircraft has the meaning given to that term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement. The term “Deliver” or “Delivered” used as a verb has a correlative meaning.

“Delivery Expiry Date” means, with respect to the Initial Aircraft, the meaning given to such term in the Asset Purchase Agreement or, as to any Additional Aircraft, the meaning given to any comparable term in any other Acquisition Agreement.

“Depositary” means The Depository Trust Company, its nominees and its and their respective successors, as registered holder of Beneficial Interests representing Global Notes.

“Depositary Interest” means a certificateless depositary interest created under this Indenture representing a 100% beneficial interest in a Global Note.

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“Depreciation Factor” means, with respect to each Aircraft on any date of determination, the product of [1 – ((1-R)/L)×A)] and (1+I)^A, where “R” equals 0.15 for all airframe types, “L” equals the Expected Useful Life of such Aircraft expressed in months, “A” equals the current age of such Aircraft in years from the date of its manufacture (as provided in Schedule 1 hereto or, with respect to any Substitute Aircraft or Additional Aircraft, as reasonably determined by the Administrative Agent (subject to the approval of the Policy Provider)) and I equals 0.02; provided that, with respect to each Additional Aircraft (not including any Additional Aircraft acquired solely by way of an Equity Contribution), in which case the Depreciation Factor shall be determined by the Administrative Agent with consent from the Policy Provider (such consent not to be unreasonably withheld), the Depreciation Factor shall be determined by the Board (subject to the consent of the Policy Provider) in connection with the issuance of the Additional Notes funding the acquisition of such Additional Aircraft.

“Designated Percentage” means, as of any date of determination thereof and with respect to any Aircraft, the percentage obtained by dividing the then most recent Assumed Base Value of such Aircraft by the then most recent Assumed Portfolio Value.

“Developed Markets” has the meaning determined, from time to time, in accordance with Exhibit B.

“Direction” has the meaning given to such term in Section 1.04(c).

“Director” means a member of board of directors of the Issuer.

“Downgrade Drawing” has the meaning given to such term in Section 3.14(c).

“Downgrade Event” has the meaning given to such term in the Initial Liquidity Facility.

“DSCR” means, as of any Calculation Date, the amount obtained by dividing (a) the amount of DSCR Available Cash as of such Calculation Date by (b) the sum of (i) the DSCR Aggregate Interest Amount for the related Payment Date and (ii) the DSCR Aggregate Minimum Principal Amount for such Payment Date.

“DSCR Aggregate Interest Amount” means, with respect to the 35^th Payment Date and any Payment Date thereafter, the sum of (a) the Interest Amount on the Notes for such Payment Date plus the net amounts payable (or minus the net amounts receivable) under any Hedge Agreement on such Payment Date (whether or not actually paid or received on such Payment Date) and (b) (without duplication) the aggregate Interest Amount on the Notes for the previous five Payment Dates plus the net amounts payable (or minus the net amounts receivable) under any Hedge Agreement on the related Payment Date (whether or not actually paid or received on such Payment Date).

“DSCR Aggregate Minimum Principal Amount” means, with respect to the 35^th Payment Date and any Payment Date thereafter, the sum of (a) the Minimum Principal Payment Amount for such Payment Date and (b) (without duplication) the aggregate Minimum Principal Payment Amount for the previous five Payment Dates.

“DSCR Available Cash” means, as of any Calculation Date, an amount equal to the difference between (a) the sum of the aggregate Rental Payments (excluding Additional Rent payments) actually received by the Issuer Group during the six-month period ending on such Calculation Date and (b) the sum of the aggregate Re-leasing Expenses incurred by the Issuer Group during the six-month period ending on such Calculation Date.

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“DSCR Failure” means the occurrence on two consecutive Payment Dates, each occurring on or after the 35^th Payment Date and through the 59^th Payment Date, of the amount of DSCR for each such Payment Date equaling less than 1.80.

“DTC” means the Depositary.

“Eligibility Requirements” has the meaning given to such term in Section 2.03(b).

“Eligible Account” means (a) a segregated trust account maintained on the books and records of an Eligible Institution in the name of the Security Trustee as a Securities Account under, and as defined in, the Security Trust Agreement; provided that no Cash Collateral Account may be maintained with a liquidity provider at any time at which the Issuer holds any participation in the liquidity facility unless written confirmation shall have been received from each Rating Agency prior to such time to the effect that such maintenance of the Cash Collateral Account with the liquidity provider will not result in a withdrawal or downgrading of the ratings of the Notes, (b) an account maintained on the books and records of an Eligible Institution (so long as such Eligible Institution has a long-term unsecured debt rating of at least AA– by Standard & Poor’s, Aa3 by Moody’s and AA– by Fitch) in the name of an Issuer Group Member as a Non-Trustee Account in compliance with the terms of the Security Trust Agreement and (c) the Irish VAT Refund Account.

“Eligible Credit Facility” means (a) the Initial Liquidity Facility provided by the Initial Liquidity Facility Provider, (b) any credit agreement, letter of credit, guarantee, financial guarantee insurance policy, credit or liquidity enhancement facility, term loan facility or other credit facility provided by, or supported by a further such credit facility provided by, an Eligible Provider in favor of any Issuer Group Member and subjected to the lien of the Security Trust Agreement and designated by the Board as an Eligible Credit Facility and (c) any Eligible Account established for the purpose of providing like credit or liquidity support and designated by the Board as an Eligible Credit Facility.

“Eligible Institution” means (a) Deutsche Bank Trust Company Americas in its capacity as the Operating Bank and as Trustee in respect of any Eligible Account, so long as it (i) has either (A) a long-term unsecured debt rating of A (or the equivalent) or better by each Rating Agency (in the case of Fitch, to the extent rated by such Rating Agency) or (B) a short-term unsecured debt rating of A-1 by Standard & Poor’s and P-1 by Moody’s and, if rated by Fitch, F1 by Fitch and (ii) can act as a securities intermediary under the New York Uniform Commercial Code; (b) any bank not organized under the laws of the United States of America so long as it has either (i) a long-term unsecured debt rating of A or better by Standard & Poor’s or A2 or better by Moody’s (in the case of Fitch, to the extent rated by such Rating Agency) or (ii) a short-term unsecured debt rating of A-1+ by Standard & Poor’s or P-1 or better by Moody’s and, if rated by Fitch, F1 by Fitch and (c) any bank organized under the laws of the United States of America or any state thereof, or the District of Columbia (or any branch of a foreign bank licensed under any such laws) appointed as the Operating Bank in respect of any Eligible Account, so long as it (i) has either (A) a long-term unsecured debt rating of AA (or the equivalent) or better by each Rating Agency (in the case of Fitch, to the extent rated by such Rating Agency) or (B) a short-term unsecured debt rating of A-l+ by Standard & Poor’s and P-1 by Moody’s and, if rated by Fitch, F1 by Fitch, and (ii) can act as a securities intermediary under the New York Uniform Commercial Code, including a Person providing an Eligible Credit Facility so long as such Person shall otherwise so qualify and shall have waived all rights of set-off and counterclaim with respect to the account to be maintained as an Eligible Account.

“Eligible Provider” means a Person (other than any Issuer Group Member or any Affiliate thereof) whose short-term or long-term (as the case may be) unsecured debt rating or short-term or long-term (as the case may be) unsecured issuer credit rating, as the case may be, issued by each of the Rating

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Agencies or the financial strength rating, as the case may be, are equal to or higher than the Threshold Rating, or whose obligations under the Initial Liquidity Facility or any other Eligible Credit Facility are guaranteed by an Affiliate whose short-term or long-term (as the case may be) unsecured debt rating or short-term or long-term (as the case may be) unsecured issuer credit rating, as the case may be, issued by each of the Rating Agencies or the financial strength rating, as the case may be, are equal to or higher than the Threshold Rating, or is otherwise designated as an Eligible Provider by the Board subject to the prior written consent of the Policy Provider and receipt of a Rating Agency Confirmation.

“Encumbrance” has the meaning given to such term in Section 5.02(b).

“Engine” means each engine installed (or constituting a spare for an engine installed) on any Aircraft, including any engine replacing a previously installed engine under the relevant Lease, and any and all Parts incorporated in, installed on or attached to any such engine.

“Equity Allocation Amount” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Equity Contribution” means any amounts paid by Babcock & Brown Air to fund the Issuer’s Capital Account, or, as the context may require, a contribution of assets.

“Euroclear” means Euroclear Bank, S.A./N.V., as operator of the Euroclear System.

“Event of Default” has the meaning, with respect to a subclass of Notes, given to such term in Section 4.01.

“Excess Policy Rate” has the meaning given to such term in the Policy Provider Agreement.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“Expected Final Payment Date” means with respect to (a) the Class G-1 Notes, [August 14], 2012 and (b) any Refinancing Notes or Additional Notes, the Expected Final Payment Date, if any, established by or pursuant to a Board Resolution or in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes.

“Expected Useful Life” means, with respect to each Initial Aircraft, 25 years from the date of manufacture and, with respect to any Additional Aircraft (not including any Additional Aircraft acquired solely by way of an Equity Contribution) or an Aircraft subject to an Aircraft Conversion, the “Useful Life” established by or pursuant to a Board Resolution or in any indenture supplemental hereto providing for the issuance of Additional Notes to fund the acquisition of such Additional Aircraft or such Aircraft Conversion (in any such case, subject to the consent of the Policy Provider and the receipt of a Rating Agency Confirmation).

“Expense Account” has the meaning given to such term in Section 3.01(a).

“Expenses” means, collectively, any fees, costs or expenses Incurred or other amounts payable by an Issuer Group Member in the course of the business activities permitted under Section 5.02(e), including, without limitation, (i) any fees, expenses and indemnification amounts (including, without limitation, any and all claims, expenses, obligations, liabilities, losses, damages and penalties) of, or owing to, the Trustee, the Board, any officer of any Issuer Group Member, the Security Trustee, the Operating Bank, any Authorized Agent, the Administrative Agent, the Cash Manager, the Servicer, the

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Sellers and any other Service Provider, provided, that such indemnification amounts shall not exceed $25,000,000 in the aggregate; provided, further, that the foregoing limitation shall not apply following the delivery of a Default Notice or during the continuance of an Acceleration Default, (ii) any premiums on the liability insurance required to be maintained for the benefit of the Board, (iii) all Taxes payable by the Issuer Group Members by reason of the business activities permitted under Section 5.02(e) and the other activities described in and permitted under the Related Documents, (iv) any Credit Facility Expenses, (v) any Policy Expenses, (vi) any amounts payable to Lessees in accordance with the Leases (to the extent not otherwise provided for by Segregated Funds), including without limitation, payments relating to maintenance reserves, security deposits, guaranties of obligations of any Issuer Group Member or otherwise (without any duplication of any funds on deposit in any Lessee Funded Account), (vii) subject to a limit of 2% of the average monthly head lease rent with respect to the relevant Aircraft (or other amount approved by a Board Resolution with a Rating Agency Confirmation and the prior written consent of the Policy Provider with respect thereto) with respect to each Issuer Subsidiary entitled thereto, the shortfall between Rental Payments received by or on behalf of such Issuer Subsidiary in respect of a Lease of such Aircraft and the amount payable by such Issuer Subsidiary, as head lease rent with respect to such Aircraft, to another Issuer Group Member that is the owner of such Issuer Subsidiary and (viii) any up-front payments payable on the Initial Closing Date in connection with the entering into of the Initial Hedge Agreements, and subject to an aggregate limit of [$ ], any up-front payments payable by an Issuer Group Member in connection with any future hedge arrangements permitted under Section 5.02(e)(iv); provided, however, that, except as expressly provided herein, Expenses shall not include (i) any amount payable on the Securities or under any Hedge Agreement, any Policy Premium or Policy Redemption Premium or any interest accrued on any Policy Premium or Policy Redemption Premium, any Special Indemnity Payment or any Credit Facility Advance Obligations or (ii) to the extent there would otherwise be a deduction for an Expense of an amount already deducted in the determination of “Collections”, any expense referred to in clause (d) of the definition of “Collections”.

“Extended Pool Factor” means, with respect to each subclass of Notes, the “Extended Pool Factor” set forth in Schedule 4 hereto or in the appendix to such Notes, as the same may be adjusted in accordance with Section 3.12.

“Extension Amount” has the meaning given to such term in Section 3.10.

“Facility Drawing” has the meaning given to such term in Section 3.14(a).

“Final Drawing” has the meaning given to such term in Section 3.14(i).

“Final Maturity Date” means with respect to (a) the Initial Notes, [August 14], 2033 and (b) any Refinancing Notes or Additional Notes, the date specified in the form of such Notes.

“Final Order” means in respect of an Avoided Payment, a final, nonappealable order of a court exercising jurisdiction in an insolvency proceeding by or against the Issuer, any Issuer Group Member, the Initial Liquidity Facility Provider or any other provider of an Eligible Credit Facility.

“Final Policy Election” has the meaning given to such term in Section 3.15(c).

“Fitch” means Fitch, Inc.

“Fixed Rate Notes” means any Refinancing Notes or Additional Notes issued with a fixed rate of interest.

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“Floating Rate Notes” means the Class G-1 Notes and any Refinancing Notes or Additional Notes issued with a floating or variable rate of interest.

“Future Lease” means, with respect to each Aircraft, any aircraft lease agreement as may be in effect at any time after the Closing Date on which Notes were issued to finance the acquisition of such Aircraft between an Issuer Group Member (as lessor) and a Person not an Issuer Group Member (as lessee), in each case other than any Initial Lease or Additional Lease; provided that if, under any sub-leasing arrangement with respect to an Aircraft, the lessor thereof agrees to receive payments or collateral directly from, or is to make payments directly to, the sub-lessee, in any such case to the exclusion of the related Lessee, then the relevant sub-lease shall constitute the “Lease”, and the sub-lessee shall constitute the related “Lessee” with respect to such Aircraft, but only to the extent of the provisions of such sub-lease agreement relevant to such payments and collateral and to the extent agreed by the relevant lessor.

“GAAP” means generally accepted accounting principles in the United States of America.

“Global Notes” means any Rule 144A Global Notes and Regulation S Global Notes.

“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The term “Guarantee” when used as a verb has a corresponding meaning.

“Guaranty” means the Guaranty dated as of the Initial Closing Date issued by Babcock & Brown International Pty Ltd in accordance with the terms of the Asset Purchase Agreement.

“Hedge Agreement” means any interest rate or currency swap, cap, floor, Swaption, or other interest rate or currency hedging agreement between the Issuer and any Hedge Provider existing on the Initial Closing Date (including the Initial Hedge Agreements) or entered into in accordance with Section 5.02(e)(iv).

“Hedge Breakage Costs” means any amounts payable by the Issuer to a Hedge Provider as a result of any early termination (however described or defined therein) of any Hedge Agreement.

“Hedge Payment” means a net payment to be made by a Hedge Provider into the Collections Account under a Hedge Agreement and includes any such payment made by a guarantor under any related guarantee or any termination payment received from any counterparty to a Hedge Agreement.

“Hedge Provider” means the counterparty to the Issuer under any Hedge Agreement.

“Holder” or “Noteholder” means (a) in the case of any global note, the owner of the securities entitlement thereof and (b) in the case of any definitive note, the Person in whose name such Note is registered from time to time.

“Holder Conversion Election” has the meaning given to such term in Section 3.07(j)

“Incur” has the meaning given to such term in Section 5.02(f).

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“Indebtedness” means, with respect to any Person at any date of determination (without duplication), (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (d) all the obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of purchasing such property or service or taking delivery and title thereto or the completion of such services, and payment deferrals arranged primarily as a method of raising finance or financing the acquisition of such property or service, (e) all obligations of such Person under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, (f) all Indebtedness of other Persons secured by a lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, and (g) all Indebtedness of other Persons Guaranteed by such Person.

“Indenture” has the meaning given to such term in the preamble hereof.

“Independent Director” means a Person that (A) is not at the time of its appointment or at any time when such Person is serving as an Independent Director and has not been for the five years prior to its appointment as an Independent Director (i) an employee, officer, director, consultant, customer or supplier, or the beneficial holder (directly or indirectly) of more than 5% of any Ownership Interest, of the initial Servicer, the initial Administrative Agent, the Issuer, the Seller or any Affiliate of any such Person (collectively, the “Independent Parties”), (ii) a supplier to any of the Independent Parties, (iii) a person controlling or under common control with any directors, members, partners, shareholder or supplier of any of the Independent Parties or (iv) a spouse of, or Person related to (but not more remote than first cousins), a Person referred to at (i) and (ii) above and (B) has at least ten years of employment experience in general corporate finance or in the areas of accounting or corporate law.

“Indirect Participant” means a Person who holds an interest through a Participant.

“Initial Aircraft” means each of the aircraft identified in Schedule 1 hereto (including any related Engines and Parts and any Remaining Aircraft) and any Substitute Aircraft, excluding any such aircraft (or related Aircraft Interest) sold or disposed of (directly or indirectly) by way of a completed Aircraft Sale and any Remaining Aircraft for which a Substitute Aircraft is acquired pursuant to the Asset Purchase Agreement.

“Initial Amortization Date” means the 36th Payment Date following the Initial Closing Date.

“Initial Closing Date” means [ ], 2007.

“Initial Equity Amount” means the amount specified therefor on Schedule 2 to the Asset Purchase Agreement.

“Initial Expenses” means Expenses related to the issuance of the Initial Notes and the acquisition of the Initial Aircraft on the Initial Closing Date, except that the foregoing shall not include any Expenses related to the acquisition of the Remaining Aircraft incurred after the Initial Closing Date.

“Initial Hedge Agreements” means the ISDA Master Agreement (together with the schedule, credit support annex and confirmation thereto) dated as of the Initial Closing Date between the Issuer and [                         ].

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“Initial Lease” means, with respect to each Initial Aircraft, each aircraft lease agreement, conditional sale agreement, hire purchase agreement or other similar arrangement with respect to such Initial Aircraft in existence at the date of this Agreement and specified in Schedule 2 to the Asset Purchase Agreement or with respect to any Substitute Aircraft described therein, as such agreement may be amended, modified, extended, supplemented, assigned or novated from time to time.

“Initial Leverage Ratio” means, as of any Payment Date, (a) the Initial Outstanding Principal Balance of the Class G-1 Notes divided by (b) the excess of (i) the aggregate initial Average Base Value for all Initial Aircraft over (ii) the Initial Outstanding Principal Balance of the Class G-1 Notes.

“Initial Liquidity Facility” means the Revolving Credit Agreement dated as of the Initial Closing Date among the Initial Liquidity Facility Provider, the Issuer and the Cash Manager, as amended from time to time in accordance with its terms and as replaced and so designated pursuant to Section 3.14(e)(iii).

“Initial Liquidity Facility Non-Consent Event” means the occurrence of (i) the payment of the Notes in full (other than any Refinancing Notes that are Notes so long as the Notes covered by the Initial Liquidity Facility have been paid in full with the proceeds of the issuance of such Refinancing Notes, such Refinancing Notes are not covered by the Initial Liquidity Facility and the Initial Liquidity Facility has been terminated in connection with such Refinancing), (ii) the termination of the Initial Liquidity Facility, and (iii) the payment of all Credit Facility Obligations owed to the Initial Liquidity Facility Provider in full.

“Initial Liquidity Facility Provider” means BNP Paribas, a société anonyme under French law, and its successors and permitted assigns, or any provider of an Eligible Credit Facility so designated by a Board Resolution.

“Initial Liquidity Payment Account” has the meaning given to such term in Section 3.01(a).

“Initial Notes” means the Class G-1 Notes issued on the Initial Closing Date.

“Initial Outstanding Balance” means, with respect to any subclass of Notes, the initial Outstanding Principal Balance thereof on the date of issuance of such Notes.

“Initial Purchasers” means Credit Suisse Securities (USA) LLC, Citigroup Global Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated.

“Initial Reserved Cash” means with respect to the Liquidity Facility Reserve Account and the Senior Cash Collateral Account, zero.

“Insolvency Proceeding” means any proceeding of the type referred to in Section 4.01(e) or (f) in respect of the Issuer.

“Insured Minimum Principal Payment Amount” means, with respect to the Payment Date following each Calculation Date occurring on or after 24 months after the issuance of a Default Notice or an Acceleration of the Notes, the excess, if any, of (a) the Outstanding Principal Balance of the Notes as of such Payment Date (less any Policy Drawings previously paid in respect of principal of the Class G-1 Notes) over (b) the Minimum Target Principal Balance of the Class G-1 Notes on the Payment Date that preceded such Payment Date by 24 months.

“Intercompany Loan” has the meaning given to such term in Section 5.02(f).

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“Interest Accrual Period” means, as to each subclass of Notes, each of the following periods: the period commencing on (and including) the relevant Closing Date and ending on (but excluding) the first Payment Date thereafter and each successive period beginning on (and including) a Payment Date and ending on (but excluding) the next succeeding Payment Date; provided that the final Interest Accrual Period with respect to any subclass of Notes shall end on but exclude the date such subclass of Notes is repaid in full. Account balances with respect to each Interest Accrual Period shall be determined by reference to the balances of funds on deposit in the Accounts as of the close of business on the Calculation Date immediately preceding the Payment Date at the end of such Interest Accrual Period.

“Interest Amount” means, with respect to each subclass of Notes, on any Payment Date, (a) the amount of interest accrued and unpaid to such Payment Date at the Applicable Rate of Interest with respect to such subclass of Notes for the Interest Accrual Period ending on such Payment Date, determined in accordance with the terms of such subclass of Notes, plus (b) interest at the rate specified in clause (a) above on any Interest Amount due but not paid on any prior Payment Date.

“Interest Class G Drawing” means a Policy Drawing made pursuant to Section 3.15(a).

“Interest Class G Shortfall” has the meaning given to such term in Section 3.07(h)(i).

“Investment” has the meaning given to such term in Section 5.02(c).

“Investment Earnings” means investment earnings on funds on deposit in any Account net of losses and investment expenses of the Cash Manager in making such investments.

“Investment Proceeds Adjustment” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Irish Account Charge” has the meaning given to such term in Section 3.01(a).

“Irish Paying Agent” has the meaning given to such term in Section 2.03(a). The initial Irish Paying Agent shall be Deutsche International Corporate Services (Ireland) Limited.

“Irish VAT Refund Account” has the meaning given to such term in Section 3.01(a).

“Issuer” has the meaning set forth in the preamble hereof.

“Issuer Group” means the Issuer and each Issuer Subsidiary.

“Issuer Group Member” means the Issuer or an Issuer Subsidiary.

“Issuer Subsidiary” means each direct or indirect subsidiary of the Issuer (including each trust of which the Issuer or a subsidiary thereof is the holder of the beneficial interest) existing on the Initial Closing Date and listed on Schedule 2 to this Indenture and any other direct or indirect subsidiary (including any such trust) of the Issuer.

“Junior Claim” means (a) with respect to Expenses, all other Obligations and (b) with respect to any other Obligations, all Obligations, in each case, as to which the payment of such other Obligations constitute a Prior Ranking Amount.

“Junior Claimant” means the holder of a Junior Claim.

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“Junior Representative” means, as applicable, the Trustee with respect to any Junior Claim consisting of any subclass of Notes of which it is the Trustee and any other Person acting as the representative of one or more Junior Claimants.

“Leases” means the Initial Leases, the Future Leases and the Additional Leases.

“Legal Defeasance” has the meaning given to such term in Section 11.01(b).

“Lessee” means each Person who is the lessee of an Aircraft from time to time leased from an Issuer Group Member pursuant to a Lease.

“Lessee Funded Account” has the meaning given to such term in Section 3.01(a).

“LIBOR” means the London interbank offered rate for one month U.S. dollar deposits, determined pursuant to the Reference Agency Agreement, or such other interest rate so denominated, with respect to any Additional Notes or Refinancing Notes, in an indenture supplemental hereto for any such Notes or in the form thereof.

“Liquidity Facility Event of Default” has the meaning assigned to such term in the Initial Liquidity Facility.

“Liquidity Facility Interest Class G Shortfall” has the meaning given to such term in Section 3.07(g).

“Liquidity Facility Reserve Account” has the meaning given to such term in Section 3.01(a).

“Listing Agent” means McCann FitzGerald Listing Services Limited.

“Maintenance Adjustment” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Material Hedge Agreement Terms” means events of default, termination events, additional termination events, subordinated hedge payment provisions, Policy Provider step-in rights, Policy Provider consent rights to amendments, assignments and transfers, provisions relating to the obligation of the Hedge Provider to any Issuer Group Member to post collateral, find a replacement counterparty or take other remedial action upon a downgrade in its credit rating (together with the associated ratings thresholds) and a provision stating that the Policy Provider is an intended third party beneficiary; provided that this definition shall not include any hedge rate, notional schedule, pricing or similar terms.

“Maximum Commitment” has the meaning assigned to such term in the Initial Liquidity Facility.

“Maximum Facility Commitment” has the meaning assigned to such term in the Initial Liquidity Facility.

“Minimum Class G Principal Shortfall” has the meaning given to such term in Section 3.07(h)(iii).

“Minimum Principal Payment Amount” means, with respect to any subclass of Notes, as of any Payment Date, the product of (i) the Amortization Percentage for such Payment Date (which, prior to the Initial Amortization Date, shall be zero) and (ii) the Initial Outstanding Balance of such subclass of Notes,

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except that, if an Aircraft Sale occurs with respect to any Aircraft (not including any Aircraft acquired by way of contribution) prior to the Expected Final Payment Date, any Aircraft is not acquired by an Issuer Group Member prior to the Delivery Expiry Date or if there is a total loss of an Aircraft, the Minimum Principal Payment Amount shall also include, with respect to the Payment Date next occurring after such event (and each subsequent Payment Date until paid), an amount equal to the Class G-1 Note Target Price for such Aircraft with each remaining installment of scheduled Minimum Principal Payment Amount being ratably reduced by the ratio equal to (i) the Assumed Base Value of such Aircraft divided by (ii) the Assumed Portfolio Value as of such Payment Date (it being agreed that such a payment of Minimum Principal Payment Amount in the amount of the Class G-1 Note Target Price shall not be treated as a redemption for any purpose herein and no Policy Redemption Premium shall be payable in connection therewith).

“Minimum Target Principal Balance” means, with respect to the Notes on any Payment Date, the amount set forth in Schedule 5 to this Indenture for such Payment Date, subject to adjustments set forth therein.

“Modification Payment” has the meaning given to such term in Section 5.02(i).

“Monthly Report” has the meaning given to such term in Section 2.14(a).

“Moody’s” means Moody’s Investors Service, Inc.

“Net Sale Proceeds” means, with respect to any sale or other disposition of any assets, the aggregate amount of cash received or to be received from time to time (whether as initial or deferred consideration) by or on behalf of the seller in connection with such transaction after deducting therefrom (without duplication) (a) reasonable and customary brokerage commissions and other similar fees and commissions (including fees received by the Servicer under the Servicing Agreement), (b) the amount of taxes payable in connection with or as a result of such transaction and (c) the cost of any modifications to the asset made in connection with its sale or other disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of the seller and are properly attributable to such transaction or to the asset that is the subject thereof.

“No Proceeds Drawing” has the meaning given to such term in Section 3.15(c).

“Non-Delivery Make-Whole Amount” means, as to any Initial Aircraft not delivered prior to the Delivery Expiry Date, an amount equal to the Aircraft Refund Amount, less the Base Aircraft Purchase Price, less any Investment Proceeds Adjustment for such Initial Aircraft.

“Non-Extension Drawing” has the meaning given to such term in Section 3.14(d).

“Non-Performance Period” has the meaning given to such term in Section 3.15(c).

“Non-Significant Subsidiary” means a direct or indirect subsidiary of the Issuer with respect to which an order or decree described in 4.01(e) has been entered or an event described in 4.01(f) has occurred if, as of the date of the entry of such order or decree or of such event, as the case may be, such subsidiary, together with all of the subsidiaries of the Issuer that have been and continue to be subject to such an order or decree or event, as the case may be, since the Initial Closing Date, own or lease Aircraft having an aggregate Assumed Base Value of less than 10% of the then Assumed Portfolio Value as of such applicable date of such order or decree or event.

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“Non-Trustee Accounts” has the meaning given to such term in Section 3.01(g).

“Non-U.S. Person” means a person who is not a U.S. person, as defined in Regulation S.

“Note Account” has the meaning given to such term in Section 3.01(a).

“Note Purchase Agreement” means the Purchase Agreement dated as of [              ], 2007 among the Issuer, Babcock & Brown Air Limited and Credit Suisse Securities (USA) LLC, on behalf of the Initial Purchasers.

“Note Target Price” means, as of any date of determination thereof and with respect to any Aircraft (not including any Aircraft acquired by way of a contribution, the Note Target Price for which shall be zero), an amount equal to 107% of the aggregate Outstanding Principal Balance of the Initial Notes, together with any accrued but unpaid interest thereon, the accrued but unpaid Hedge Payment and any related Hedge Breakage Costs and any Policy Premium or Policy Expenses then due and payable to the Policy Provider, allocable in each case to such Aircraft on the date of the sale agreement or Purchase Option exercise date, as the case may be. On any date, the Outstanding Principal Balance of the Initial Notes and Policy Premium (each an “Allocable Amount”) allocable to an Aircraft shall equal the product of (i) (A) the Assumed Base Value of such Aircraft divided by (B) the Assumed Portfolio Value and (ii) such Allocable Amount, in each case on the most recent Payment Date.

“Notes” means the Initial Notes, all Additional Notes, if any, all Refinancing Notes, if any, and all Notes, if any, issued in replacement or substitution of a Note.

“Notice of Avoided Payment” has the meaning given to such term in the Policy.

“Notice of Nonpayment” has the meaning given to such term in the Policy.

“Notices” has the meaning given to such term in Section 12.05.

“Obligations” means the Secured Obligations and the payments made to the Issuer, any Shareholder or any other party pursuant to Section 3.09.

“Offering Memorandum” means the offering memorandum dated [            ], 2007 issued by the Issuer in respect of the offering of the Initial Notes.

“Officer’s Certificate” means a certificate signed by, with respect to the Issuer, any Director and, with respect to any other Person, any authorized officer, director, trustee or equivalent representative of such Person.

“Operating Bank” means the Person acting, at the time of determination, as the Operating Bank under the Security Trust Agreement. The initial Operating Bank is Deutsche Bank Trust Company Americas.

“Opinion of Counsel” means a written opinion signed by legal counsel, who may be an employee of or counsel to the Issuer, that meets the requirements of Section 1.03.

“Optional Redemption” means a Redemption of Notes pursuant to Section 3.11(a).

“Outstanding” means (a) with respect to the Notes of any class or subclass at any time, all Notes of such class or subclass theretofore authenticated and delivered by the Trustee except (i) any such Notes

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cancelled by, or delivered for cancellation to, the Trustee; (ii) any such Notes, or portions thereof, for the payment of principal of and accrued and unpaid interest on which moneys have been deposited in the applicable Note Account or distributed to Holders by the Trustee and any such Notes, or portions thereof, for the payment or redemption of which moneys in the necessary amount have been deposited in the Defeasance/Redemption Account; provided that if such Notes are to be redeemed prior to the maturity thereof in accordance with the requirements of Section 3.11(a) or 3.11(b), notice of such redemption shall have been given as provided in Section 3.11(c), or provision satisfactory to the Trustee shall have been made for giving such notice; and (iii) any such Notes in exchange or substitution for which other Notes have been authenticated and delivered, or which have been paid pursuant to the terms of this Indenture (unless proof satisfactory to the Trustee is presented that any of such Note is held by a Person in whose hands such Note is a legal, valid and binding obligation of the Issuer); and (b) when used with respect to any evidence of indebtedness other than any Notes means, at any time, any principal amount thereof then unpaid and outstanding (whether or not due or payable).

“Outstanding Amount” has the meaning given to such term in Section 3.07(h)(iv).

“Outstanding Balance” has the meaning given to such term in Section 3.15(c).

“Outstanding Principal Balance” means, with respect to any Notes Outstanding, the total principal amount evidenced by such Outstanding Notes unpaid at any time.

“Ownership Interest” has the meaning given to such term in Section 5.02(b).

“Partial Loss” means, with respect to any Aircraft, any event or occurrence of loss, damage, destruction or the like which is not a Total Loss.

“Partial Loss Proceeds” means, with respect to any Aircraft, the total proceeds of the insurance or reinsurance (other than in respect of liability insurance) paid in respect of any Partial Loss to any Issuer Group Member.

“Participant” means, with respect to DTC, Euroclear or Clearstream, a Person who has an account with DTC, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream).

“Parts” means any part, component, appliance, accessory, instrument or other item of equipment (other than any Engine) installed in or attached to (or constituting a spare for any such item installed in or attached to) any Aircraft (other than any Engine).

“Paying Agent” has the meaning given to such term in Section 2.03(a).

“Payment Date” means the 14^th day of each month, commencing on September, 2007, provided that if any Payment Date would otherwise fall on a day that is not a Business Day, such Payment Date will be the first following day that is a Business Day.

“Periodic Principal Conversion Limit” means, as of any Payment Date, for any Aircraft Conversion, the product of the (a) Class A Shareholder Conversion Deposits made for such Aircraft Conversion on or prior to such Payment Date and (b) Initial Leverage Ratio for such Payment Date.

“Permitted Account Investments” means, in each case (except with regard to clause (f)), book-entry securities, negotiable instruments or securities in registered form that evidence:

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(a) direct obligations of, and obligations fully Guaranteed as to timely payment by, the United States of America (having original maturities of no more than 365 days, or such lesser time as is required for the distribution of funds);

(b) demand deposits, time deposits or certificates of deposit of the Operating Bank or of depositary institutions or trust companies organized under the laws of the United States of America or any state thereof, or the District of Columbia (or any domestic branch of a foreign bank) (i) having original maturities of no more than 365 days, or such lesser time as is required for the distribution of funds; provided that at the time of Investment or contractual commitment to invest therein, the short-term debt rating of such depositary institution or trust company shall be at least A-1 by Standard & Poor’s and P-1 by Moody’s and, if rated by Fitch, F1 by Fitch , or (ii) having maturities of more than 365 days and, at the time of the Investment or contractual commitment to invest therein, a rating of AA by Standard & Poor’s and Aa2 by Moody’s and, if rated by Fitch, AA by Fitch; provided that, during any applicable period, not more than 20% of the Issuer’s aggregate Permitted Account Investments may be made in investments described under this clause (b);

(c) corporate or municipal debt obligations (including, without limitation, open market commercial paper) (i) having remaining maturities of no more than 365 days, or such lesser time as is required for the distribution of funds, having, at the time of the Investment or contractual commitment to invest therein, a rating of at least A-1+ or AA by Standard & Poor’s and P-1 or Aa2 by Moody’s and, if rated by Fitch, F1+ or AA by Fitch; or (ii) having maturities of more than 365 days and, at the time of the Investment or contractual commitment to invest therein, a rating of AA by Standard & Poor’s and Aa2 by Moody’s and, if rated by Fitch, AA by Fitch;

(d) Investments in money market funds (including funds in respect of which the Trustee or any of its Affiliates is investment manager or advisor) having a rating of at least AA by Standard & Poor’s and Aa2 by Moody’s and, if rated by Fitch, AA by Fitch;

(e) notes or bankers’ acceptances (having original maturities of no more than 365 days, or such lesser time as is required for the distribution of funds) issued by any depositary institution or trust company referred to in (b) above; or

(f) any other Investments approved pursuant to a Rating Agency Confirmation;

provided, however, that no Investment shall be made in any obligations of any depositary institution or trust company which has a contractual right to set off and apply any deposits held, and other indebtedness owing, by any Issuer Group Member to or for the credit or the account of such depositary institution or trust company; provided further that if, at any time, the rating of any of the foregoing investments falls below “Baa2” by Moody’s, such downgraded investment will no longer constitute a “Permitted Account Investment”.

“Permitted Accruals” has the meaning given to such term in Section 3.09(a)(viii).

“Permitted Additional Aircraft Acquisition” has the meaning given to such term in Section 5.02(h).

“Permitted Encumbrance” has the meaning given to such term in Section 5.02(b).

“Person” means any natural person, firm, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any political subdivision thereof or any other legal entity, including public bodies.

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“Pledged Beneficial Interest” has the meaning given to such term in the Security Trust Agreement.

“Pledged Debt” has the meaning given to such term in the Security Trust Agreement.

“Pledged Membership Interest” has the meaning given to such term in the Security Trust Agreement.

“Pledged Shares” has the meaning given to such term in the Security Trust Agreement.

“Policy” means the Ambac Assurance Corporation Policy No. [            ] issued as of the Initial Closing Date by the Policy Provider, together with all endorsements thereto, in favor of the Trustee for the benefit of the Holders of the Class G-1 Notes.

“Policy Drawing” means, with respect to the Policy, any payment of a claim under the Policy.

“Policy Expenses” means all amounts (including, but not limited to, all amounts in respect of fees, indemnities or costs and expenses incurred by the Policy Provider, including, without limitation, in connection with the enforcement, defense or preservation of any rights in respect of any of the Related Documents) due to the Policy Provider under the Policy Provider Agreement or any other Policy Provider Document other than (i) reimbursement of any Policy Drawing, (ii) any Policy Premium or Policy Redemption Premium, if any, (iii) any interest accrued on any Policy Drawings or any Policy Premium or Policy Redemption Premium, and (iv) reimbursement of and interest on any Credit Facility Advance Obligations in respect of any Eligible Credit Facility paid by the Policy Provider to any provider of an Eligible Credit Facility.

“Policy Fee Letter” means the fee letter, dated as of [            ], 2007 from the Policy Provider to the Issuer and the Trustee setting forth the Policy Premium and certain other amounts payable in respect of the Policy.

“Policy Non-Consent Event” means the occurrence of (i) the payment of the Notes in full (other than any Refinancing Notes that are Notes so long as the Notes covered by the Policy have been paid in full with the proceeds of the issuance of such Refinancing Notes, such Refinancing Notes are not covered by the Policy and the Policy has been terminated and surrendered to the Policy Provider for cancellation in connection with such Refinancing), (ii) the termination and surrender of the Policy to the Policy Provider for cancellation and (iii) the payment of all Policy Provider Obligations in full.

“Policy Premium” has the meaning given to such term in the Policy Fee Letter.

“Policy Provider” means Ambac Assurance Corporation, a Wisconsin stock insurance company, or any successor thereto, as issuer of the Policy.

“Policy Provider Agreement” means the Insurance and Indemnity Agreement, dated as of the date of issuance of the Initial Notes, among the Trustee, the Issuer and the Policy Provider.

“Policy Provider Default” means the occurrence of any of the following events: (a) the Policy Provider fails to make a payment required under the Policy in accordance with its terms and such failure remains unremedied for two Business Days following the receipt of Written Notice of such failure from the Trustee, the Cash Manager or the Operating Bank by the Policy Provider, or (b) the Policy Provider (i) files any petition or commences any case or proceeding under any provisions of any federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) makes a general

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assignment for the benefit of its creditors or (iii) has an order for relief entered against it under any federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization that is final and nonappealable, or (c) a court of competent jurisdiction, the New York Insurance Department or another competent judicial or regulatory authority enters a final and nonappealable order, judgment or decree (i) appointing a custodian, trustee, agent or receiver for the Policy Provider or for all or any material portion of its property or (ii) authorizing the taking of possession by a custodian, trustee, agent or receiver of the Policy Provider (or taking of possession of all or any material portion of the Policy Provider’s property).

“Policy Provider Documents” means the Policy, the Policy Fee Letter, the Policy Provider Agreement and the Policy Provider Indemnification Agreement.

“Policy Provider Indemnification Agreement” means the Indemnification Agreement dated as of the date of issuance of the Initial Notes entered into between the Policy Provider, the Issuer and the Initial Purchasers.

“Policy Provider Obligations” means all reimbursements and other amounts, including without limitation, fees, expenses, interest and indemnities, due to the Policy Provider hereunder, or under the Policy Provider Documents, all such amounts to be paid only as expressly provided hereunder and without duplication whether by reason of any rights of subrogation or otherwise.

“Policy Redemption Premium” has the meaning given to such term in the Policy Fee Letter.

“Pool Factor” means, with respect to each subclass of Notes on any Payment Date, the “Pool Factor” for such Payment Date set forth in Schedule 3 hereto or in the appendix to such Notes, as the same may be adjusted in accordance with Section 3.12.

“Portfolio” means, at any time, all Aircraft owned by the Issuer Group.

“Precedent Lease” has the meaning given to such term in Section 5.03(e).

“Primary Expenses” means all Expenses other than Modification Payments and Refinancing Expenses.

“Principal Conversion Amount” means, with respect to any Aircraft, as of any Calculation Date, the lesser of (a) $1,000,000, (b) the Minimum Principal Payment Amounts for the applicable Payment Date and (c) an amount, which when added to the previous Principal Conversion Amounts deposited into the Aircraft Conversion Account on prior Payment Dates with respect to such Aircraft will not exceed the Periodic Principal Conversion Limit.

“Principal Conversion Election” has the meaning given to such term in Section 3.07(i).

“Prior Ranking Amounts” means, with respect to any amount to be paid (or retained in the Collections Account) in accordance with Section 3.09(a) or 3.09(b) (as applicable), all amounts, if any, to be paid (or retained in the Collections Account) prior to the payment (or retention) of such amount in accordance with Section 3.09(a) or 3.09(b) (as applicable).

“Prohibited Countries” has the meaning determined, from time to time, in accordance with Section 5.03(a).

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“Purchase Option” means a contractual option granted by the lessor or owner under an Aircraft Agreement (including pursuant to a conditional sale agreement) as to the purchase of the applicable Aircraft.

“QIB” means a “qualified institutional buyer” as defined in Rule 144A.

“Quarterly Report” has the meaning given to such term in Section 2.14(a).

“Rating Agency” means each of Moody’s, Standard & Poor’s, Fitch and any other nationally recognized rating agency designated by the Issuer; provided that such organizations shall only be deemed to be a Rating Agency for purposes of this Indenture with respect to the Notes they are then rating.

“Rating Agency Confirmation” means a written confirmation in advance of certain actions or transactions contemplated by the Issuer Group from each of the Rating Agencies then rating the Notes, that such action or transaction will not result in the lowering, qualification or withdrawal by such Rating Agency of its then current credit rating, if any, of any subclass of Notes (such rating, in the case of the Class G-1 Notes, as determined without regard to the Policy).

“Received Currency” has the meaning given to such term in Section 12.07(a).

“Receiver” means any Person or Persons appointed as (and any additional Person or Persons appointed or substituted as) administrative receiver, receiver, manager or receiver and manager.

“Record Date” means, with respect to each Payment Date, the close of business on the day that is 15 days prior to such Payment Date or, if 15 days has not passed since the Initial Closing Date, the Initial Closing Date, in any event whether or not such day is a Business Day.

“Redemption” has the meaning given to such term in Section 3.11(c).

“Redemption Date” means the date, which shall in each case be a Payment Date, on which Notes of any subclass are to be redeemed pursuant to Section 3.11.

“Redemption Premium” means (a) with respect to any Initial Note being redeemed in an Optional Redemption on any Redemption Date, the Redemption Premium indicated for such Initial Note with respect to such date in the table below:

Redemption Date	Price
On or after the Initial Closing Date but before August 14, 2008	102.0%
On or after August 14, 2008, but before August 14, 2009	101.0%
On or after August 14, 2009	100.0%

and (b) with respect to any Additional Note or Refinancing Note, the Redemption Premium specified therefore by the terms of such Note.

“Redemption Price” means an amount (determined as of the Calculation Date for the Redemption Date for any Redemption pursuant to Section 3.11(a)) equal to:

(a) with respect to any Initial Notes being redeemed and except as otherwise provided in clause (b) below, the product of the applicable Redemption Premium times the portion of the Outstanding Principal Balance being redeemed;

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(b) with respect to any Initial Notes being redeemed under Section 3.11(a) after the giving of a Default Notice or the Acceleration of any of the Notes, the then Outstanding Principal Balance thereof without Redemption Premium; and

(c) with respect to any Notes other than the Initial Notes, as provided in the Board Resolution or indenture supplemental hereto providing for the issuance of such Notes.

“Reference Agency Agreement” means the Reference Agency Agreement dated as of the Initial Closing Date, between the Issuer, the Reference Agent and the Cash Manager pursuant to which LIBOR is determined from time to time.

“Reference Agent” means the Person acting, at the time of determination, in the capacity of the Reference Agent under the Reference Agency Agreement. The initial Reference Agent is Deutsche Bank Trust Company Americas.

“Reference Date” means, with respect to each Interest Accrual Period, the day that is two Business Days prior to the commencement of such Interest Accrual Period.

“Refinancing” has the meaning given to such term in Section 2.10(a).

“Refinancing Account” has the meaning given to such term in Section 3.01(a).

“Refinancing Expenses” means all out-of-pocket costs and expenses Incurred in connection with an offering and issuance of Refinancing Notes.

“Refinancing Notes” means any subclass of Notes issued by the Issuer under this Indenture at any time and from time to time after the date hereof, in a Refinancing in accordance with Section 2.10.

“Register” has the meaning given to such term in Section 2.03.

“Registrar” has the meaning given to such term in Section 2.03.

“Regulation S” means Regulation S under the Securities Act.

“Regulation S Global Note” has the meaning given to such term in Section 2.01(b).

“Related Collateral Document” means any letter of credit, third party or bank guarantee or cash collateral provided by or on behalf of a Lessee to secure such Lessee’s obligations under a Lease.

“Related Documents” means the Administrative Services Agreement, the Cash Management Agreement, each Eligible Credit Facility, this Indenture, the Notes, the Reference Agency Agreement, the Security Documents, the Policy Provider Documents, the Servicing Agreement, the Capital Markets Advisory Agreement, the Asset Purchase Agreement, the Guaranty and any other Acquisition Agreement, any Hedge Agreements and the constitutional documents (including trust documents) of the Issuer Group Members. References to “Related Documents” will also include, where the context requires, any Refinancing Notes and any Additional Notes and any guarantees, asset or stock purchase agreements, swap or other interest rate, currency or other hedging agreements or any other agreement entered into or security offered by any Issuer Group Member in connection with any acquisition of Additional Aircraft or Aircraft Conversion and issuance of Additional Notes.

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“Re-leasing Expenses” means, with respect to any period, all out-of-pocket costs and expenses incurred by the Issuer Group in connection with the re-leasing of Aircraft during such period, including but not limited to the following:

(a) storage, maintenance, test flight, navigation, landing, ferry flights, shipping, fuel, reconfiguration, modification, refurbishment and repair expenses incurred in connection with the re-leasing of such Aircraft during such period;

(b) insurance premiums, fees and expenses incurred by or on behalf of the Issuer Group for possessed hull and liability insurance while such Aircraft is off-lease during such period;

(c) expenses incurred in connection with the acceptance of delivery, and in connection with the transition of such Aircraft, to such re-lease during such period; and

(d) outside legal counsel and technical consultant fees and expenses and other professional fees and expenses, and all court costs, filing fees, bonding costs and other expenses, and other governmental fees and costs related to any re-lease of such Aircraft during such period.

“Relevant Information” means any information provided to the Cash Manager by the Trustee, the Security Trustee, the Operating Bank, any Authorized Agent, the Issuer, the Board or any Service Provider.

“Remaining Aircraft” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Renewal Lease” has the meaning given to such term in Section 5.03(e).

“Rental Account” has the meaning given to such term in Section 3.01(a).

“Rental Payments” means all rental payments and other amounts equivalent to a rental payment payable by or on behalf of a Lessee under a Lease including, including Purchase Option payments and Additional Rent payments that are not Segregated Funds.

“Replacement Liquidity Facility” means, for the Initial Liquidity Facility, an irrevocable revolving credit agreement (or agreements), complying with all of the requirements of Section 3.14(e), in substantially the form of the Initial Liquidity Facility, including reinstatement provisions, or in such other form or forms (which may include a letter of credit, surety bond, swap, financial insurance policy or guaranty) as shall permit the Rating Agencies to confirm in writing their respective ratings then in effect for the Notes (before downgrading of such ratings, if any, as a result of the downgrading of the ratings of the replaced Initial Liquidity Facility Provider; such rating as determined without regard to the Policy) and, if not in form and substance substantially the same as the Initial Liquidity Facility as reasonably determined by the Policy Provider, that has been approved in writing by the Policy Provider, in a face amount (or in an aggregate face amount) equal to the then Maximum Commitment under the replaced Initial Liquidity Facility and issued by an Eligible Provider or Eligible Providers having, or whose obligations thereunder are guaranteed by an Affiliate having, a short-term or long-term (as the case may be) unsecured debt rating or a short-term or long-term (as the case may be) unsecured issuer credit rating, as the case may be, issued by each of the Rating Agencies which are equal to or higher than the Threshold Rating (and consented to in writing by the Policy Provider if any such rating which is equal to the Threshold Rating shall not have a stable or positive outlook according to each Rating Agency) or, with the written consent of the Policy Provider, such other ratings and qualifications as shall permit the Rating

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Agencies to confirm in writing their respective ratings then in effect for the Notes (before the downgrading of such ratings, if any, as a result of the downgrading of the ratings of the replaced Initial Liquidity Facility Provider; such rating as determined without regard to the Policy). Without limitation of the form that a Replacement Liquidity Facility otherwise may have pursuant to the preceding sentence, a Replacement Liquidity Facility may have a stated expiration date earlier than 15 days after the Final Maturity Date of the Notes so long as such Replacement Liquidity Facility provides for a Non-Extension Drawing as contemplated by Section 3.14(d).

“Replacement Liquidity Facility Provider” means a Person (or Persons) who issues a Replacement Liquidity Facility.

“Repossession Insurance” has the meaning given to such term in Section 5.03(g).

“Required Amount” means (a) initially (i) with respect to the Liquidity Facility Reserve Account, zero; provided that, if a Downgrade Drawing or a Non-Extension Drawing shall have occurred, the Required Amount shall be an amount equal to the Maximum Facility Commitment and (ii) with respect to the Senior Cash Collateral Account, an amount equal to the Initial Reserved Cash therefor, and (b) thereafter, on any Payment Date, with respect to the Senior Cash Collateral Account and any other Eligible Credit Facility, such amounts as the Board has unanimously determined (and for which a Rating Agency Confirmation and prior written consent of the Policy Provider and the Initial Liquidity Facility Provider have been received), plus the increase, if any, in the Required Amount for the applicable Cash Collateral Account or Eligible Credit Facility provided for by the terms of any Additional Notes or Refinancing Notes.

“Required Expense Amount” means, with respect to each Payment Date, the amount of Expenses of the Issuer Group due and payable on the Calculation Date relating to such Payment Date or reasonably anticipated by the Cash Manager (after consultation with the Administrative Agent) to become due and payable before the next succeeding Payment Date (and with respect to any maintenance expenditures, if so elected by the Administrative Agent, in light of future expectation of disbursements, before the sixth succeeding Payment Date), the accrual of which would be prudent in light of the size and timing of such Expenses, to the extent such Expenses consist of (a) Primary Expenses and (b) any Modification Payments or Refinancing Expenses in respect of which a Permitted Accrual was previously effected by a deposit in the Expense Account (whether or not any such deposit has been previously used to pay any other Primary Expense but excluding any portion of such deposit previously used to pay any Modification Payments or Refinancing Expenses) in each case after giving effect to any withdrawal from any Lessee Funded Account, Security Deposit Account or any drawing upon a Related Collateral Document that is then available for the payment of any such Expense; provided, however, that the Required Expense Amount shall not include any Initial Expenses. Notwithstanding the foregoing, between the 54^th Payment Date and the 60^th Payment Date, the Administrative Agent, unless otherwise instructed by the Policy Provider, shall accrue in full any Expense that is expected to be incurred prior to the 60^th Payment Date.

“Required Expenses Shortfall” has the meaning given to such term in Section 3.07(g).

“Requisition Compensation” means all monies or other compensation receivable by any Issuer Group Member from any government, whether civil, military or de facto, or public or local authority in relation to an Aircraft in the event of its requisition for title, confiscation, restraint, detention, forfeiture or compulsory acquisition or seizure or requisition for hire by or under the order of any government or public or local authority.

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“Reserved Cash” means the Initial Reserved Cash and any additional amounts designated as such by a Board Resolution with the prior written consent of the Policy Provider, the Initial Liquidity Facility Provider and the Holder of the Class A Shares.

“Responsible Officer” means (a) with respect to the Trustee, any officer within the Corporate Trust Office, including any Vice President, Managing Director, Director, Associate, Assistant Vice President, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer’s knowledge and familiarity with the particular subject, (b) with respect to the Issuer, any Director and (c) with respect to any Person providing an Eligible Credit Facility and the Cash Manager, any authorized officer of such Person.

“Restricted Period” has the meaning given to such term in Section 2.12(c)(i).

“Restrictive Legend” means the legend in the form set forth in Section 2.02(a).

“Rule 144A” means Rule 144A under the Securities Act.

“Rule 144A Global Note” has the meaning given to such term in Section 2.01(b).

“Secured Obligations” has the meaning given to such term in the Security Trust Agreement.

“Secured Parties” has the meaning given to such term in the Security Trust Agreement.

“Securities” means the Initial Notes, all Additional Notes, if any, and all Refinancing Notes, if any.

“Securities Act” means the U.S. Securities Act of 1933, as amended.

“Security Deposit Account” has the meaning given to such term in Section 3.01(a).

“Security Documents” means the Security Trust Agreement and any document executed pursuant thereto, or otherwise, for the purpose of granting a security interest in any Collateral to the Security Trustee for the benefit of the Secured Parties or for the purpose of perfecting such security interest.

“Security Interests” means the security interests granted or expressed to be granted in the Collateral pursuant to the Security Trust Agreement.

“Security Trust Agreement” means the Security Trust Agreement dated as of the Initial Closing Date, between the Issuer, each other party thereto and the Security Trustee.

“Security Trustee” means the Person appointed, at the time of determination, as the trustee for the benefit of the Secured Parties pursuant to Section 5.01 of the Security Trust Agreement. The initial Security Trustee is Deutsche Bank Trust Company Americas.

“Segregated Funds” means, with respect to each Lease, (a) all security deposits provided for under such Lease that have been received from the relevant Lessee or pursuant to the relevant Acquisition Agreement with respect to such Lease, (b) any security deposit pledged to the relevant Lessee by an Issuer Group Member and (c) all other funds, including any Additional Rent payments, received from the relevant Lessee or pursuant to the relevant Acquisition Agreement with respect to such Lease and in each

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case of clause (a), (b) and (c) not permitted, pursuant to the terms of such Lease, to be commingled with the funds of the Issuer Group.

“Seller” means any of (i) JET-i Leasing LLC, a Delaware limited liability company, (ii) Snodell Limited, a company incorporated under the laws of Ireland, (iii) Halvana Limited, a company incorporated under the laws of Ireland, (iv) Duntington Limited, a company incorporated under the laws of Ireland, and (v) any Affiliates thereof that are sellers of either Aircraft or entities that own an Aircraft, in each case to an Issuer Group Member on or after the Initial Closing Date.

“Senior Cash Collateral Account” has the meaning given to such term in Section 3.01(a).

“Senior Claim” means, with respect to any Obligations (other than Expenses), all other Obligations the payment of which constitutes a Prior Ranking Amount with respect thereto.

“Senior Claimant” means the holder of a Senior Claim.

“Senior Hedge Payment” means, on any Payment Date, a net payment (if any due) to a Hedge Provider by the Issuer and any related Hedge Breakage Costs but excluding any Subordinated Hedge Payment.

“Senior Hedge Payments Shortfall” has the meaning given to such term in Section 3.07(g).

“Service Provider” means each of the Trustee, the Servicer, the Administrative Agent, the Cash Manager, the Operating Bank, the Reference Agent and any other service provider retained from time to time by an Issuer Group Member pursuant to the Related Documents.

“Servicer” means the Person acting, at the time of determination, in the capacity of the Servicer under the Servicing Agreement. The initial Servicer is BBAM.

“Servicer’s Pro Forma Lease” has the meaning given to such term in Section 5.03(e).

“Servicing Agreement” means the Servicing Agreement dated as of the Initial Closing Date among the Servicer, the Issuer Subsidiaries party thereto, the Policy Provider and the Issuer.

“Shares” means, collectively, the Class A Shares and the Class B Shares.

“Special Distribution Date” means a distribution date established by the Trustee for the distribution of the proceeds of an Avoidance Drawing.

“Special Indemnity Payments” means (a) any indemnity amounts owing at any time and from time to time by the Issuer to the Initial Purchasers under the Note Purchase Agreement or to the Policy Provider under the Policy Provider Indemnification Agreement, (b) any other indemnity amounts owing at any time and from time to time to any other Person party to a Related Document (other than the Servicer under the Servicing Agreement) which arise from violations of the Securities Act, the U.S. Securities Exchange Act of 1934, as amended or any other securities law and (c) any indemnification amounts (including without limitation, any and all claims, expenses, obligations, liabilities, losses, damages and penalties) of, or owing to the Trustee, the Board, any officer of any Issuer Group Member, the Security Trustee, the Operating Bank, any Authorized Agent, the Administrative Agent, the Cash Manager, the Servicer, the Sellers and any other Service Provider that are not payable as expenses.

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“Standard & Poor’s” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc.

“State of Registration” means, in relation to an Aircraft at any time, the country or state on whose national register such Aircraft is registered at that time under the laws of such country or state in accordance with the applicable provisions of any Lease relating to such Aircraft or, in the absence of any such provisions, Applicable Law.

“Stated Expiration Date” has the meaning given to such term in Section 3.14(d).

“Subordinated Hedge Payments” means any amounts payable by any Issuer Group Member to a Hedge Provider that are subordinated in accordance with the relevant Hedge Agreement (including, but not limited to, any Hedge Breakage Costs payable by any Issuer Group Member to a Hedge Provider if such Hedge Breakage Costs result from an early termination of the related Hedge Agreement with respect to which such Hedge Provider is the “Defaulting Party” or a sole “Affected Party” (as such terms are defined in the related Hedge Agreement)).

“Substitute Aircraft” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement and that has been approved by the Policy Provider.

“Substitute Aircraft Adjustment Amount” has the meaning given to such term in the Asset Purchase Agreement or, in the case of any Additional Aircraft acquired through the issuance of Additional Notes, to any comparable term in any other Acquisition Agreement.

“Swaption” means any option agreement with respect to a Hedge Agreement.

“Taxes” mean any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, loss, damage, liability, expense, additions to tax and additional amounts or costs Incurred or imposed with respect thereto) imposed or otherwise assessed by the United States of America or by any state, local or foreign government (or any subdivision or agency thereof) or other taxing authority, including, without limitation: taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers’ compensation, unemployment compensation, or net worth and similar charges; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, taxes on goods and services, gains taxes, license, registration and documentation fees, customs duties, tariffs, and similar charges.

“Termination Notice” has the meaning assigned to such term in the Initial Liquidity Facility.

“Third Party Event” has the meaning given to such term in Section 5.03(b).

“Threshold Rating” means (i) the short-term issuer credit rating of A-1 by Standard & Poor’s (or, in the absence of a short-term issuer credit rating by Standard & Poor’s, a long-term issuer credit rating of AA- by Standard & Poor’s), a short-term unsecured debt rating of P-1 by Moody’s (or, in the absence of a short-term unsecured debt rating by Moody’s, a long-term unsecured debt rating of A1 by Moody’s) and, if rated by Fitch, a long-term unsecured debt rating of AA- by Fitch, or (ii) with respect to a monoline insurance company, a financial strength rating of AAA.

“TIA” means the U.S. Trust Indenture Act of 1939, as amended.

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“Total Loss” means, with respect to any Aircraft (a) if the same is subject to a Lease, a Casualty Occurrence, Total Loss or Event of Loss (each as defined in such Lease) or the like (however so defined); or (b) if the same is not subject to a Lease, (i) its actual, constructive, compromised, arranged or agreed total loss, (ii) its destruction, damage beyond repair or being rendered permanently unfit for normal use for any reason whatsoever, (iii) its requisition for title, confiscation, restraint, detention, forfeiture or any compulsory acquisition or seizure or requisition for hire (other than a requisition for hire for a temporary period not exceeding 180 days) by or under the order of any government (whether civil, military or de facto) or public or local authority or (iv) its hijacking, theft or disappearance, resulting in loss of possession by the owner or operator thereof for a period of 30 consecutive days or longer. A Total Loss with respect to any Aircraft shall be deemed to occur on the date on which such Total Loss is deemed pursuant to the relevant Lease to have occurred or, if such Lease does not so deem or the relevant Aircraft is not subject to a Lease, (A) in the case of an actual total loss or destruction, damage beyond repair or being rendered permanently unfit, the date on which such loss, destruction, damage or rendering occurs (or, if the date of loss or destruction is not known, the date on which the relevant Aircraft was last heard of); (B) in the case of a constructive, compromised, arranged or agreed total loss, the earlier of (1) the date 30 days after the date on which notice claiming such total loss is issued to the insurers or brokers and (2) the date on which such loss is agreed or compromised by the insurers; (C) in the case of requisition for title, confiscation, restraint, detention, forfeiture, compulsory acquisition or seizure, the date on which the same takes effect; (D) in the case of a requisition for hire, the expiration of a period of 180 days from the date on which such requisition commenced (or, if earlier, the date upon which insurers make payment on the basis of a Total Loss); or (E) in the case of clause (iv) above, the final day of the period of 30 consecutive days referred to therein.

“Total Loss Proceeds” means, in relation to an Aircraft, the total net proceeds of the insurance and reinsurance paid in respect of a Total Loss thereof and includes, in the case of a Total Loss of an airframe which does not involve the Total Loss of all Engines or Parts installed thereon at the time when such Total Loss occurred, the net sale proceeds of any such surviving Engines or Parts.

“Trustee” means, with respect to each subclass of Notes, the Person appointed, at the time of determination, as the trustee of such subclass of Notes in accordance with this Indenture. The initial Trustee for each subclass of Notes is Deutsche Bank Trust Company Americas.

“U.S. Government Obligations” has the meaning given to such term in Section 11.02(a).

“War Risk Coverage” has the meaning given to that term in Exhibit C.

“Written Notice” means, with reference to the Issuer, the Trustee, the Operating Bank, the Cash Manager or the provider of any Eligible Credit Facility, a written instrument executed by a Responsible Officer of such Person.

Section 1.02 Rules of Construction. Unless the context otherwise requires:

(a) A term has the meaning assigned to it and an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.

(b) The terms “herein”, “hereof” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

(c) Unless otherwise indicated in context, all references to Articles, Sections, Schedules or Exhibits refer to an Article or Section of, or a Schedule or Exhibit to, this Indenture.

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(d) Words of the masculine, feminine or neuter gender shall mean and include the correlative words of other genders, and words in the singular shall include the plural, and vice versa.

(e) The terms “include”, “including” and similar terms shall be construed as if followed by the phrase “without limitation”.

(f) Unless otherwise indicated, references to a subclass of Notes shall be to the Class G-1 Notes or to another subclass of Refinancing Notes or Additional Notes, as applicable; and references to a class of Notes shall be to the Initial Notes or to a class of Refinancing Notes or Additional Notes, as applicable.

(g) References in this Indenture to an agreement or other document (including this Indenture) include references to such agreement or document as amended, replaced or otherwise modified (without, however, limiting the effect of the provisions of this Indenture with regard to any such amendment, replacement or modification), and the provisions of this Indenture apply to successive events and transactions. References to any Person shall include such Person’s successors in interest and permitted assigns.

(h) References in this Indenture to any statute or other legislative provision shall include any statutory or legislative modification or re-enactment thereof, or any substitution therefor, and references to any governmental Person shall include reference to any governmental Person succeeding to the relevant functions of such Person.

(i) References in this Indenture to the Notes of any class or subclass include the conditions applicable to the Notes of such class or subclass; and any reference to any amount of money due or payable by reference to the Notes of any class or subclass shall include any sum covenanted to be paid by the Issuer under this Indenture.

(j) References in this Indenture to any action, remedy or method of judicial proceeding for the enforcement of the rights of creditors or of security shall be deemed to include, in respect of any jurisdiction other than the state of New York, references to such action, remedy or method of judicial proceeding for the enforcement of the rights of creditors or of security available or appropriate in such jurisdiction as shall most nearly approximate such action, remedy or method of judicial proceeding described or referred to in this Indenture.

(k) Where any payment is to be made, funds applied or any calculation is to be made hereunder on a day which is not a Business Day, unless any Related Document otherwise provides, such payment shall be made, funds applied and calculation made on the next succeeding Business Day, and payments (unless otherwise provided for in respect of the Notes) shall be adjusted accordingly. Where any calculation is to be made hereunder on a Calculation Date or any amount hereunder is in respect of a Calculation Date, such calculation shall be made as of the close of business on such Calculation Date and such amount shall be in respect of the close of business on such Calculation Date.

Section 1.03 Compliance Certificates and Opinions. Upon any application or request by the Issuer to the Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Trustee an Officer’s Certificate stating that, in the opinion of the signers thereof, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the

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furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture or any indenture supplemental hereto shall include:

(a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions in this Indenture relating thereto;

(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.

Section 1.04 Acts of Holders. (a) Any direction, consent, waiver or other action provided by this Indenture in respect of the Notes of any subclass to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent or proxy duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, to each Rating Agency where it is hereby expressly required pursuant to this Indenture and to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose under this Indenture and conclusive in favor of the Trustee or the Issuer, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction authorized to take acknowledgments of deeds or administer oaths that the Person executing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or such other officer and where such execution is by an officer of a corporation or association, trustee of a trust or member of a partnership, on behalf of such corporation, association, trust or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other reasonable manner which the Trustee deems sufficient.

(c) In determining whether the Holders have given any direction, consent, request, demand, authorization, notice, waiver or other Act (a “Direction”), under this Indenture, Notes owned by the Issuer or any Affiliate of the Issuer shall be disregarded and deemed not to be Outstanding for purposes of any such determination. In determining whether the Trustee shall be protected in relying upon any such Direction, only Notes which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Notwithstanding the foregoing, (i) if any such Person owns 100% of the Notes of any subclass Outstanding, such Notes shall not be so disregarded as aforesaid, and (ii) if any amount of Notes of such subclass so owned by any such Person have been pledged in good faith, such Notes shall not be disregarded as aforesaid if

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the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Notes and that the pledgee is not the Issuer or any Affiliate of the Issuer.

(d) The Issuer may at its option, by delivery of Officers’ Certificates to the Trustee, set a record date other than the Record Date to determine the Holders in respect of the Notes of any subclass entitled to give any Direction in respect of such Notes. Such record date shall be the record date specified in such Officer’s Certificate which shall be a date not more than 30 days prior to the first solicitation of Holders in connection therewith. If such a record date is fixed, such Direction may be given before or after such record date, but only the Holders of record of the applicable subclass at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Notes of such subclass have authorized or agreed or consented to such Direction, and for that purpose the Outstanding Notes of such subclass shall be computed as of such record date; provided that no such Direction by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than one year after the record date.

(e) Any Direction or other action by the Holder of any Note shall bind the Holder of every Note issued upon the transfer thereof or in exchange therefor or in lieu thereof, whether or not notation of such action is made upon such Note.

ARTICLE II
 

THE NOTES

Section 2.01 Authorized Amount; Terms; Form; Execution and Delivery. (a) The Outstanding Principal Balance of any subclass of Notes which may be authenticated and delivered from time to time under this Indenture shall not exceed the initial Outstanding Principal Balance set forth for such subclass of Notes in the definition thereof or, with respect to any subclass of Refinancing Notes or Additional Notes, authorized in a Board Resolution; provided that at no time may the Outstanding Principal Balance of any subclass of Refinancing Notes exceed the Redemption Price of the subclass of Notes being refinanced thereby plus Refinancing Expenses relating thereto, any Policy Premium and any Policy Redemption Premium, if any, due and payable to the Policy Provider and any amount to be deposited in any Cash Collateral Account for such Refinancing Notes; and provided, further, that any Additional Notes shall be issued in accordance with Section 2.11. All Notes of any class need not be issued at the same time and any class of Notes may be reopened, without the consent of any Holder, for issuances of Additional Notes or Refinancing Notes of such class, subject in all cases to Sections 2.10, 2.11, 3.10, 3.12 and 5.02 and any other applicable provision of this Indenture.

The Initial Notes issuable hereunder on the Initial Closing Date shall be issued in a single subclass. The Initial Notes shall be designated the Class G-1 Notes.

Interest at the Applicable Rate of Interest shall accrue on any subclass of the Floating Rate Notes from the relevant Closing Date and shall be computed for each Interest Accrual Period on the basis of a 360-day year and the actual number of days elapsed in such Interest Accrual Period on the Outstanding Principal Balance of such Notes on the first day of such Interest Accrual Period. Interest at the Applicable Rate of Interest shall accrue on any subclass of the Fixed Rate Notes from the relevant Closing Date and shall be computed for each Interest Accrual Period on the basis of a 360-day year consisting of twelve 30-day months.

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Any amount of interest on any subclass of Notes not paid when due shall, to the fullest extent permitted by applicable law, bear interest at an interest rate per annum equal to the Applicable Rate of Interest for such Notes from the date when due until such amount is paid or duly provided for, payable on the next succeeding Payment Date, subject to the availability of the Available Collections therefor in accordance with the priority of payments under Section 3.09.

(b) There shall be issued and delivered and authenticated on the relevant Closing Date, to each of the Holders, Notes in the principal amounts and maturities and bearing the interest rates, in each case substantially in the form set forth in the applicable exhibit to this Indenture or in any indenture supplemental hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements printed, lithographed or engraved thereon, as may be required to comply with the rules of any securities exchange on which such Notes may be listed or to conform to any usage in respect thereof, or as may, consistently herewith, be prescribed by the Director executing such Notes, such determination by the Director to be evidenced by his or her execution of the Notes.

Definitive Notes of each subclass shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the Director or other authorized officer executing such Notes, as evidenced by his or her execution of such Notes.

Each subclass of Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Notes in registered form without interest coupons and with such applicable legends as are provided for in Section 2.02, substantially in the form set forth in the applicable exhibit to this Indenture or in any indenture supplemental hereto (each, a “Rule 144A Global Note”), deposited with the Depositary and registered in the name of Cede & Co., as nominee of DTC, in accordance with this Indenture and duly executed by the Issuer and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of each Rule 144A Global Note may from time to time be increased or decreased by adjustments made by the Trustee on the applicable Global Note or on the records of the Trustee as hereinafter provided.

Each subclass of Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued initially in the form of one or more permanent global Notes in registered form without interest coupons and with such applicable legends as are provided for in Section 2.02, substantially in the form set forth in the applicable exhibit to this Indenture or in any indenture supplemental hereto (each, a “Regulation S Global Note”), deposited with the Depositary and registered in the name of Cede & Co., as nominee of DTC, in accordance with this Indenture and duly executed by the Issuer and authenticated by the Trustee as hereinafter provided. Until the 40th day after the later of the commencement of the offer of any subclass of Notes initially issued in the form of a Regulation S Global Note and the Closing Date of the offering of such Notes, interests in such Regulation S Global Note may be held only through Participants acting for and on behalf of Euroclear and Clearstream. The aggregate principal amount of each Regulation S Global Note may from time to time be increased or decreased by adjustments made by the Trustee on the applicable Global Note or on the records of the Trustee as hereinafter provided.

(c) On the date of any Refinancing, the Issuer shall issue and deliver as provided in Section 2.10 an aggregate principal amount of Refinancing Notes having the maturities and bearing the interest rates and such other terms authorized by one or more Board Resolutions or in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes, in each case in accordance with Section 2.10.

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(d) On the date of the issuance, if any, of any Additional Notes, the Issuer shall issue and deliver, as provided in Sections 2.11 and 5.02(f), an aggregate principal amount of Additional Notes having the maturities and bearing the interest rates and such other terms authorized by one or more Board Resolutions or in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes, in each case in accordance with Section 2.11.

(e) The Notes shall be executed on behalf of the Issuer by the manual or facsimile signature of a Director or other authorized officer.

(f) Each Note bearing the manual or facsimile signatures of any individual who was at the time such Note was executed a Director shall bind the Issuer, notwithstanding that any such individual has ceased to hold such office prior to the authentication and delivery of such Notes or any payment thereon.

(g) At any time and from time to time after the execution of any Notes, the Issuer may deliver such Notes to the Trustee for authentication and, subject to the provisions of clause (h) below, the Trustee shall authenticate such Notes by manual or facsimile signature upon receipt by it of written orders of the Issuer. The Notes shall be authenticated on behalf of the Trustee by any Responsible Officer of the Trustee.

(h) No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless it shall have been executed on behalf of the Issuer as provided in clause (e) above and authenticated by or on behalf of the Trustee as provided in clause (g) above. Such signatures shall be conclusive evidence that such Note has been duly executed and authenticated under this Indenture. Each Note shall be dated the date of its authentication.

(i) The Issuer shall execute and the Trustee shall, in accordance with this Section 2.01 and at the written direction of the Issuer, authenticate the Global Notes and deliver the Global Notes to the Depositary. Upon receipt by the Depositary or a custodian therefor of each Global Note authenticated and delivered by the Trustee, the Issuer shall, in accordance with the terms of this Indenture, cause the Depositary, acting as agent for the Issuer, to issue to the Depositary a Depositary Interest in such Global Note by recording such Depositary Interest in the register of the Depositary in the name of Cede & Co., as nominee of the Depositary, or such other nominee as the Depositary shall specify. The Depositary will credit, on its internal system, the respective principal amounts of individual Beneficial Interests to the accounts of persons who have accounts with the Depositary. Ownership of Beneficial Interests will be limited to Participants or persons who hold Beneficial Interests through Participants. Ownership of Beneficial Interests will be shown on, and the transfer of that ownership will be effected only through, records maintained by the Depositary (with respect to interests of Participants) and the records of Participants (with respect to interests of persons other than Participants).

Neither the Depositary nor its Participants shall have any rights either under this Indenture or under any Global Note held on their behalf by the Depositary. The Holder of any Global Note may be treated by the Issuer, the Trustee and any agent of the Issuer or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the Trustee or any agent of the Issuer or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary, as a Holder, or impair, as between the Depositary, as a Holder and the Depositary and its Participants, the operation of customary practices of such Depositary governing the exercise of the rights of an owner of a Beneficial Interest in any Global Note. The Depositary, as a Holder, may grant proxies and otherwise authorize any person, including the

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Depositary and the Participants and persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Notes.

Section 2.02 Restrictive Legends. (a) Each Global Note and, except as provided in Section 2.12(f), each Definitive Note (and all Notes issued in exchange therefor or upon registration of transfer or substitution thereof), except as provided in Section 2.12(f), shall bear the following legends (in addition to any other applicable legends or restrictions) on the face thereof:

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORY AUTHORITY IN ANY JURISDICTION AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (i) REPRESENTS THAT (A) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (A “QUALIFIED INSTITUTIONAL BUYER”) AS DEFINED IN RULE 144A (“RULE 144A”) UNDER THE SECURITIES ACT AND HAS ACQUIRED THIS NOTE IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IT IS AN INSTITUTIONAL “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D (“REGULATION D”) UNDER THE SECURITIES ACT (COLLECTIVELY, AN “INSTITUTIONAL ACCREDITED INVESTOR”) WHO, PRIOR TO ITS PURCHASE OF THIS NOTE, SHALL HAVE SIGNED AN AGREEMENT IN THE FORM OF EXHIBIT I TO THE TRUST INDENTURE (THE “INDENTURE”) DATED AS OF [            ], 2007 AMONG BABCOCK & BROWN AIR FUNDING I LIMITED (THE “ISSUER”), DEUTSCHE BANK TRUST COMPANY AMERICAS, BNP PARIBAS AND AMBAC ASSURANCE CORPORATION, OR, (C) IT IS NOT A U.S. PERSON (WITHIN THE MEANING OF THE SECURITIES ACT) AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S (“REGULATION S”) UNDER THE SECURITIES ACT; (ii) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ITS AFFILIATE (AS DEFINED IN RULE 501(b) OF REGULATION D), (B) TO AN INSTITUTIONAL ACCREDITED INVESTOR WHO, PRIOR TO ITS PURCHASE OF THIS NOTE, SHALL HAVE SIGNED AN AGREEMENT IN THE FORM OF EXHIBIT I TO THE INDENTURE, (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A, (D) IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S, (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND, IN EACH OF THE CASES (A) THROUGH (F) ABOVE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE IN THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION; AND (iii) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT OR PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S UNDER THE SECURITIES ACT, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION”, “UNITED STATES” AND “U.S. PERSONS”

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HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE REGISTRAR TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.

THE CLASS G-1 NOTES MAY NOT BE OFFERED OR SOLD (A) TO THE EXTENT APPLICABLE, OTHERWISE THAN IN CONFORMITY WITH THE PROVISIONS OF THE INVESTMENT INTERMEDIARIES ACT 1995 OF IRELAND, AS AMENDED, INCLUDING, WITHOUT LIMITATION, SECTIONS 9 AND 23 (INCLUDING ADVERTISING RESTRICTIONS MADE THEREUNDER) THEREOF AND THE CODES OF CONDUCT MADE UNDER SECTION 37 THEREOF OR, IN THE CASE OF A CREDIT INSTITUTION EXERCISING ITS RIGHTS UNDER THE DIRECTIVE 2006/48/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 14 JUNE 2006 (AS AMENDED OR EXTENDED)) IN CONFORMITY WITH THE CODES OF CONDUCT OR PRACTICE MADE UNDER SECTION 117(1) OF THE CENTRAL BANK ACT 1989 OF IRELAND, AS AMENDED AND (B) OTHERWISE THAN IN CIRCUMSTANCES WHICH WOULD REQUIRE THE PUBLICATION OF A PROSPECTUS IN RESPECT OF THE OFFER IN ACCORDANCE WITH REGULATION 12 OF THE PROSPECTUS (DIRECTIVE 2003/71/EC) REGULATIONS 2005 OF IRELAND.

THE CLASS G-1 NOTES MAY NOT BE OFFERED OR SOLD TO ANY PERSON RESIDENT OR INCORPORATED IN IRELAND OR ANY PERSON WHICH WILL HOLD THE CLASS G-1 NOTES THROUGH A BRANCH, AGENCY OR OTHER PLACE OF BUSINESS ESTABLISHED IN IRELAND.

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE IS REGISTERED IN THE NAME OF CEDE & CO., OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH ON THE REVERSE HEREOF.

BY ITS ACQUISITION OR ACCEPTANCE OF THIS NOTE OR ANY INTEREST HEREIN, THE HOLDER WILL BE DEEMED TO HAVE REPRESENTED, WARRANTED AND AGREED (OR IN THE CASE OF A DEFINITIVE NOTE WILL BE REQUIRED TO REPRESENT, WARRANT AND AGREE) THAT EITHER: (A) NO ASSETS OF (I) AN EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), (III) A PLAN, ACCOUNT OR ARRANGEMENT (SUCH AS

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A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN) THAT IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR OTHER U.S. LAW THAT IS SUBSTANTIALLY SIMILAR TO SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (“SIMILAR LAW”) OR (IV) AN ENTITY WHOSE UNDERLYING ASSETS ARE DEEMED TO INCLUDE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN, PLAN, ACCOUNT OR ARRANGEMENT, HAVE BEEN USED TO ACQUIRE OR HOLD THIS NOTE OR ANY INTEREST HEREIN; OR (B) THE ACQUISITION AND HOLDING OF THIS NOTE OR ANY INTEREST HEREIN BY THE HOLDER DO NOT AND WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR A VIOLATION OF ANY SIMILAR LAW, AS APPLICABLE.

(b) Each Regulation S Global Note (except as provided in Section 2.12(f)) shall, in addition to the legends specified in Section 2.02(a), bear the following legend on the face thereof:

PRIOR TO THE EXPIRATION OF A RESTRICTED PERIOD ENDING ON THE EXPIRATION OF THE “40-DAY DISTRIBUTION COMPLIANCE PERIOD” (AS DEFINED IN RULE 903(B)(2) OF REGULATION S) OR SUCH LATER DATE AS THE ISSUER MAY NOTIFY TO THE TRUSTEE, THIS NOTE, OR ANY BENEFICIAL INTEREST HEREIN, MAY NOT BE RESOLD OR OTHERWISE TRANSFERRED EXCEPT (A) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S, (B) TO AN INSTITUTIONAL ACCREDITED INVESTOR WHO, PRIOR TO ITS PURCHASE OF THIS NOTE, SHALL HAVE SIGNED AN AGREEMENT IN THE FORM OF EXHIBIT I TO THE INDENTURE OR (C) TO A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A AND (D) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION.

(c) Each Definitive Note (except as provided in Section 2.12(f)) shall also bear the following legend on the face thereof:

IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR SUCH CERTIFICATES AND OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS AND THE OTHER RESTRICTIONS CONTAINED IN THE INDENTURE.

Section 2.03 Registrar and Paying Agent. (a) With respect to each subclass of Notes, there shall at all times be maintained (i) an office or agency in the location set forth in Section 12.05 where Definitive Notes of such subclass may be presented or surrendered for registration of transfer or for exchange (the “Registrar”), (ii) an office or agency in the location set forth in Section 12.05 (other than Ireland), where Notes of any subclass may, to the extent required hereunder, be presented for payment (each, a “Paying Agent”) and (iii) an office or agency where notices and demands in respect of the payment of such Notes may be served. For so long as any Securities are listed on the Irish Stock Exchange, the Issuer shall appoint and maintain a Paying Agent in Ireland (the “Irish Paying Agent”). The Issuer shall cause the Registrar (acting as agent of the Issuer, solely for U.S. federal income tax purposes) to keep a register of each subclass of Definitive Notes and of their transfer and exchange (the “Register”). Written notice of any change of location of such office or agency shall be given by the Trustee to the Issuer and the Holders of such subclass. In the event that no such office or agency shall be maintained or no such notice of location or of change of location shall be given, presentations and demands may be made and notices may be served at the Corporate Trust Office of the Trustee, who shall act as the Registrar.

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(b) Each Authorized Agent shall be a bank or trust company, shall be a corporation organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia, with a combined capital and surplus of at least $75,000,000 (or having a combined capital and surplus in excess of $5,000,000 and the obligations of which, whether now in existence or hereafter incurred, are fully and unconditionally Guaranteed by a corporation organized and doing business under the laws of the United States of America, any state or territory thereof or of the District of Columbia and having a combined capital and surplus of at least $75,000,000) and shall be authorized under the laws of the United States of America or any state or territory thereof to exercise corporate trust powers, subject to supervision by federal or state authorities (such requirements, the “Eligibility Requirements”). The Trustee shall initially be a Paying Agent and Registrar hereunder with respect to the Notes of each subclass.

(c) Any corporation into which any Authorized Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authorized Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authorized Agent, shall be the successor of such Authorized Agent hereunder, if such successor corporation is otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the parties hereto or such Authorized Agent or such successor corporation.

(d) Any Authorized Agent may at any time resign by giving Written Notice of resignation to the Trustee and the Issuer. The Issuer may, and at the request of the Trustee shall, at any time terminate the agency of any Authorized Agent by giving Written Notice of termination to such Authorized Agent and to the Trustee. Upon the resignation or termination of an Authorized Agent or if at any time any such Authorized Agent shall cease to be eligible under this Section (when, in either case, no other Authorized Agent performing the functions of such Authorized Agent shall have been appointed by the Trustee), the Issuer shall promptly appoint one or more qualified successor Authorized Agents, reasonably satisfactory to the Trustee, to perform the functions of the Authorized Agent which has resigned or whose agency has been terminated or who shall have ceased to be eligible under this Section. The Issuer shall give Written Notice of any such appointment made by it to the Trustee; and in each case the Trustee shall mail notice of such appointment to all Holders of the related subclass as their names and addresses appear on the Register for such subclass.

(e) The Issuer agrees to pay, or cause to be paid, from time to time to each Authorized Agent reasonable compensation for its services and to reimburse it for its reasonable expenses to be agreed to pursuant to separate agreements with each such Authorized Agent.

Section 2.04 Paying Agent to Hold Money in Trust. The Trustee shall require each Paying Agent other than the Trustee to agree in writing that all moneys deposited with any Paying Agent for the purpose of any payment on the Notes or to the Policy Provider shall be deposited and held in trust for the benefit of the Holders (with regard to payments on the Notes) or the Policy Provider, as the case may be, subject to the provisions of this Section. Moneys so deposited and held in trust shall constitute a separate trust fund for the benefit of the Holders with respect to which such money was deposited.

The Trustee may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, direct any Paying Agent to pay to the Trustee all sums held in trust by such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

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Section 2.05 Method of Payment. (a) On each Payment Date, the Trustee shall, or shall instruct a Paying Agent (other than the Irish Paying Agent) to, pay, to the extent of the Available Collections therefor transferred to a Note Account, to the Holders all principal, Redemption Price or Outstanding Principal Balance of, and interest on, the Notes of each subclass (other than payments received following an Event of Default in respect of any subclass of Notes and payments on Notes issued in the form of Definitive Notes); provided, that in the event and to the extent receipt of any payment is not confirmed by the Trustee or Paying Agent (other than the Irish Paying Agent) by 1:00 p.m. (New York City time) on such Payment Date or any Business Day thereafter, distribution thereof shall be made on the Business Day following the Business Day such payment is received.

(b) Payments on a Payment Date with respect to (i) any Notes in the form of Global Notes shall be made by wire transfer to or as instructed by the Depositary at least five Business Days before the applicable Payment Date so long as it is the Holder thereof and (ii) Notes in the form of Definitive Notes shall be made by check mailed to each Holder of a Definitive Note determined on the applicable Record Date, at its address appearing in the applicable Register; alternatively, Holders of Definitive Notes having an aggregate principal amount of not less than $1,000,000, upon application in writing to the Trustee, not later than the applicable Record Date, may have such payment made by wire transfer to an account designated by such Holder at a financial institution in New York, New York. The final payment with respect to any Global Note or Definitive Note, however, shall be made only upon presentation and surrender of such Note by the Holder or its agent at the Corporate Trust Office or agency of the Trustee or Paying Agent (other than the Irish Paying Agent) specified in the notice given by the Trustee or Paying Agent with respect to such final payment. The Trustee or Paying Agent (other than the Irish Paying Agent) shall mail such notice of the final payment of each Note to the Holder thereof, specifying the date and amount of such final payment, no later than five Business Days prior to such final payment and such notice shall also be published by such publication as the Irish Stock Exchange may require and in such other publication as the Irish Paying Agent may determine to comply with its obligations hereunder.

Section 2.06 Minimum Denomination. Each subclass of Notes shall be issued in minimum denominations of $200,000 and integral multiples of $1,000 in excess thereof.

Section 2.07 Transfer and Exchange; Cancellation. (ai) Certain Transfers and Exchanges. Transfer of any Global Note shall be by delivery. The Issuer represents that it has agreed with the Depositary that a Global Note and the corresponding Depositary Interests therein shall only be transferred in the circumstances described in this Indenture. All Global Notes will be exchanged by the Issuer for Notes in definitive registered form substantially as set forth in the applicable exhibit to this Indenture (each, a “Definitive Note”) if (i) the Depositary notifies the Issuer in writing that it is no longer willing or able to properly discharge its responsibilities as depositary with respect to the Depositary Interests and a successor depositary is not appointed in accordance with the terms of this Indenture by the Depositary at the request of the Issuer within 90 days of such notice, (ii) the Issuer or the Depositary advises the Trustee in writing that the Depositary is no longer willing or able to properly discharge its responsibilities as depositary and the Issuer is unable to appoint a successor depositary acceptable to the Trustee within 90 days of such notice or (iii) after the occurrence of an Event of Default with respect to any subclass of Notes, owners of Beneficial Interests of such subclass representing an aggregate of not less than 51% of the aggregate Outstanding Principal Balance of Notes of such subclass advise the Issuer, the Trustee, and the Depositary through the Participants in writing that the continuation of a book-entry system through the Depositary (or a successor thereto) is no longer in the best interests of such owners. Upon surrender to the Trustee of the Global Notes of any subclass, accompanied by registration instructions from the Holder of such Global Note as provided in this Indenture, the Issuer shall issue and the Trustee shall authenticate and deliver the Definitive Notes of such subclass to the owners thereof.

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None of the Issuer, the Paying Agent or the Trustee shall be liable for any delay in delivery of such registration instructions and may conclusively rely on, and shall be fully protected in relying on, such instructions as provided in accordance with the terms of this Indenture. Upon the issuance of Definitive Notes of any subclass, the Trustee shall recognize the Persons in whose name the Definitive Notes are registered in the Register as Holders of such subclass hereunder. Neither the Issuer nor the Trustee shall be liable if the Trustee or the Issuer is unable to appoint a successor Depositary.

The transfer and exchange of Beneficial Interests shall be effected through the Depositary, in accordance with this Indenture and the Applicable Procedures of the Depositary therefor. Beneficial Interests corresponding to Global Notes shall be subject to restrictions on transfer comparable to those set forth in Section 2.12 and elsewhere herein. The Trustee shall have no obligation to ascertain the Depositary’s compliance with any such restrictions on transfer.

Any Beneficial Interest corresponding to one of the Global Notes of any subclass that is transferred to a Person who will hold such Beneficial Interest in the form of an interest in the other Global Note of such subclass will, upon transfer, cease to be an interest in such first Global Note and become an interest in such other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Beneficial Interests in such other Global Note for as long as it remains such an interest.

Global Notes may also be exchanged or replaced, in whole or in part, as provided in Section 2.08. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof pursuant to Section 2.08 shall be authenticated and delivered in the form of, and shall be, a Global Note in registered form. A Global Note may not be exchanged for another Note other than as provided in Sections 2.07(a) and 2.08.

(b) Transfer and Exchange of Definitive Notes. A Holder may transfer a Definitive Note only by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Register.

Prior to the due presentment for registration of transfer of a Definitive Note, the Issuer and the Trustee may deem and treat the applicable registered Holder as the absolute owner and Holder of such Definitive Note for the purpose of receiving payment of all amounts payable with respect to such Definitive Note and for all other purposes and shall not be affected by any Written Notice to the contrary. The Registrar (if different from the Trustee) shall promptly notify the Trustee and the Trustee shall promptly notify the Issuer of each request for a registration of transfer of a Definitive Note.

When Definitive Notes are presented to the Registrar with a request to register their transfer or to exchange them for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met (including, in the case of a transfer, that such Definitive Notes are duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Trustee and Registrar duly executed by the Holder thereof or by an attorney who is authorized in writing to act on behalf of the Holder). To permit registrations of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate Definitive Notes. Except as set forth in Sections 2.08 and 2.09, no service charge shall be made for any registration of transfer or exchange of any Definitive Notes.

The Issuer shall not be required to exchange or register the transfer of any Definitive Notes as above provided during the 15-day period preceding the Final Maturity Date of any such Notes or during

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the period after the first mailing of any notice of Redemption of Notes to be redeemed. The Issuer shall not be required to exchange or register the transfer of any Definitive Notes that have been selected, called or are being called for Redemption except, in the case of any Definitive Notes where notice has been given that such Definitive Notes are to be redeemed in part, the portion thereof not so to be redeemed.

(c) Cancellation. The Issuer at any time may deliver Notes to the Trustee for cancellation. Each Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange, payment or purchase. The Trustee and no one else shall cancel and destroy in accordance with its customary practices in effect from time to time any such Notes, together with any other Notes surrendered to it for registration of transfer, exchange or payment. The Issuer may not issue new Notes (other than Refinancing Notes issued in connection with any Refinancing) to replace Notes it has redeemed, paid or delivered to the Trustee for cancellation.

Section 2.08 Mutilated, Destroyed, Lost or Stolen Notes. If any Definitive Note or Global Note shall become mutilated, destroyed, lost or stolen, the Issuer shall, upon the written request of the Holder thereof and presentation of such Note or satisfactory evidence of destruction, loss or theft thereof to the Trustee or Registrar (including, in the case of Definitive Notes or Global Notes listed on the Irish Stock Exchange, at the offices of the co-registrar in Ireland, if any), issue, and the Trustee shall authenticate and the Trustee or Registrar shall deliver in exchange therefor or in replacement thereof, a new Definitive Note or Global Note of the same subclass, payable to such Holder in the same principal amount, of the same maturity, with the same payment schedule, bearing the same interest rate and dated the date of its authentication. If the Definitive Note or Global Note being replaced has become mutilated, such Note shall be surrendered to the Trustee or the Registrar and forwarded to the Issuer by the Trustee or the Registrar. If the Definitive Note or Global Note being replaced has been destroyed, lost or stolen, the Holder thereof shall furnish to the Issuer, the Trustee or the Registrar (a) such security or indemnity as may be required by them to save the Issuer, the Trustee and the Registrar harmless and (b) evidence satisfactory to the Issuer, the Trustee and the Registrar of the destruction, loss or theft of such Definitive Note or Global Note and of the ownership thereof. The Holder(s) will be required to pay any tax or other governmental charge imposed in connection with such exchange or replacement and any other expenses (including the fees and expenses of the Trustee and the Registrar) connected therewith.

Section 2.09 Payments of Transfer Taxes. Upon the transfer of any Note or Notes pursuant to Section 2.07, the Issuer or the Trustee may require from the party requesting such new Note or Notes payment of a sum to reimburse the Issuer or the Trustee for, or to provide funds for the payment of, any transfer tax or similar governmental charge payable in connection therewith.

Section 2.10 Refinancing of Initial Notes. (a) Subject to Section 2.01(a), the next succeeding two sentences, paragraphs (b), (c) and (d) below and Section 5.02(f)(ii), the Issuer may issue Refinancing Notes pursuant to this Indenture for the purpose of refinancing the Outstanding Principal Balance of the Initial Notes (including refinancings of Refinancing Notes). Each refinancing of the Initial Notes with the proceeds of an offering of Refinancing Notes (a “Refinancing”) shall be authorized pursuant to one or more Board Resolutions and shall be effected only following a Rating Agency Confirmation and upon obtaining the prior written consent of the Policy Provider (unless the Policy Non-Consent Event has occurred or will occur in connection with such Refinancing) and the Initial Liquidity Facility Provider (unless the Initial Liquidity Facility Non-Consent Event has occurred or will occur in connection with such Refinancing). Each Refinancing Note shall constitute a “Note” for all purposes under this Indenture, and shall have the class or subclass designation and such further designations added or incorporated in such title as specified in the related Board Resolutions, in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes, as the case may be.

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(b) A Refinancing of the Initial Notes in whole or in part may occur on any Payment Date after the Initial Closing Date and shall be effected as an Optional Redemption pursuant to Section 3.11. On the date of any Refinancing, the Issuer shall issue and sell an aggregate principal amount of Refinancing Notes not to exceed the Redemption Price of the Notes being refinanced thereby and any accrued and unpaid interest plus the Refinancing Expenses relating thereto, any Policy Premium plus Policy Redemption Premium, if any, due and payable to the Policy Provider and any amount to be deposited in any Cash Collateral Account for such Refinancing Notes. The proceeds of each sale of Refinancing Notes shall be used to make the deposit required by Section 3.11(d), to pay such Refinancing Expenses, any Policy Premium plus Policy Redemption Premium, if any, due and payable to the Policy Provider and to fund such Cash Collateral Account.

(c) Each Refinancing Note shall contain such terms as may be established in or pursuant to the related Board Resolution (subject to Section 2.01), in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes to the extent permitted below, and shall have the same ranking pursuant to Section 3.09 with respect to all other Obligations as the Notes of the class to which such Refinancing Notes belong (and, with respect to other subclasses of such class, as provided in Section 3.10). Prior to any Refinancing, any or all of the following, as applicable, with respect to the related issue of each subclass of Refinancing Notes shall have been determined by the Issuer and set forth in one or more Board Resolutions, in any indenture supplemental hereto or specified in the form of such Notes, as the case may be:

(i) the Initial Notes to be refinanced by such Refinancing Notes;

(ii) the aggregate principal amount of such Refinancing Notes that may be issued;

(iii) the proposed date of such Refinancing;

(iv) the Expected Final Payment Date and the Final Maturity Date of such Refinancing Notes;

(v) whether such Refinancing Notes are to have the benefit of any Eligible Credit Facility and, if so, the amount and other terms thereof and/or any increase in the Required Amount for any Cash Collateral Account;

(vi) the rate at which such Refinancing Notes shall bear interest or the method by which such rate shall be determined;

(vii) if other than denominations of $200,000 or higher integral multiples of $1,000 (with respect to Notes), the denomination or denominations in which such Refinancing Notes shall be issuable;

(viii) whether beneficial owners of interests in any such permanent global Refinancing Note may exchange such interests for Refinancing Notes of the same class or subclass and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section 2.07, and the circumstances under which and the place or places where any such exchanges may be made and the identity of any initial depositary therefor if not the Depositary;

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(ix) any adjustments to be made, consistent with Sections 3.10 and 3.12, to the applicable Pool Factors or Extended Pool Factors as a result of the issuance of such Refinancing Notes;

(x) the class and subclass of Notes to which such Refinancing Notes belong;

(xi) whether such Refinancing Notes are to have the benefit of the Policy as provided in clause (d) below; and

(xii) any other terms, conditions, rights and preferences (or limitations on such rights and preferences) relating to such Refinancing Notes (which terms shall comply with Applicable Law and not be inconsistent with the requirements or restrictions of this Indenture, including Section 5.02(f)(ii)).

If any of the terms of any issue of Refinancing Notes are established by action taken pursuant to one or more Board Resolutions, such Board Resolutions shall be delivered to the Trustee setting forth the terms of such Refinancing Notes.

(d) In connection with any Refinancing of any subclass of Notes that has occurred with the prior written consent of the Policy Provider, each of the Policy and the Policy Provider Agreement shall be amended to cover such subclass of Notes and the Policy Provider shall deliver a new Policy or amended Policy, as applicable, to the Trustee; provided, however, that notwithstanding anything to the contrary herein, only subclasses of Notes that are covered by the Policy may be issued while the Policy remains outstanding. In connection with the amendment of the Policy to cover the Refinancing Notes, the Policy Provider agrees to deliver to the Issuer, on or prior to the date of Refinancing, legal opinions and corporate documents in respect of the amended Policy, substantially similar in form, scope and substance to the legal opinions and corporate documents delivered by the Policy Provider on the Initial Closing Date. The Policy Provider agrees that its rights of reimbursement in respect of the Policy Drawings under the amended Policy will be the same as its rights of reimbursement set forth in Section 3.09, and premium payable in respect of the amended Policy shall be on the same basis and terms as the Policy Premium and Policy Redemption Premium paid in respect of the Policy issued on the Initial Closing Date (unless otherwise agreed to by the Issuer and the Policy Provider).

(e) In connection with any Refinancing of any subclass of Notes that has occurred with the prior written consent of the Initial Liquidity Facility Provider, the Initial Liquidity Facility if so required by the terms of such Refinancing shall be amended to cover such subclass of Notes and the Initial Liquidity Facility Provider shall deliver a new Eligible Credit Facility or amended Initial Liquidity Facility, as applicable, to the Trustee. In connection with the amendment of the Initial Liquidity Facility to cover the Refinancing Notes, the Initial Liquidity Facility Provider agrees to deliver to the Issuer, on or prior to the date of Refinancing, legal opinions and corporate documents in respect of the amended Initial Liquidity Facility, substantially similar in form, scope and substance to the legal opinions and corporate documents delivered by the Initial Liquidity Facility Provider on the Initial Closing Date. The Initial Liquidity Facility Provider agrees that its rights of reimbursement in respect of the drawings under the amended Initial Liquidity Facility will be the same as its rights of reimbursement set forth in Section 3.09, and fees payable in respect of the amended Initial Liquidity Facility shall be on the same basis and terms as the fees paid in respect of the Initial Liquidity Facility entered into on the Initial Closing Date.

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(f) In connection with any Refinancing of a subclass of Notes, the Issuer shall pay to all parties to the Related Documents all reasonable costs and expenses related thereto.

(g) Notwithstanding anything to the contrary herein, if the Initial Notes are refinanced in whole with any subclass of Notes that are not covered by the Policy, the issuance of such new uninsured subclass of Notes shall be subject to the following conditions precedent:

(i) the payment in full of all outstanding Policy Provider Obligations to the Policy Provider; and

(ii) the return of the Policy to the Policy Provider for cancellation and termination.

Section 2.11 Additional Notes. (a) Subject to the next succeeding two sentences and paragraphs (b) and (c) below and Section 5.02(f)(iv), the Issuer may issue Additional Notes pursuant to this Indenture, the proceeds of which in each case shall be used to acquire Additional Aircraft or make Conversion Payments, as the case may be, or to make payments into a Cash Collateral Account or to pay expenses related thereto (each, an “Additional Issuance”). Each issuance of Additional Notes shall be authorized pursuant to one or more Board Resolutions and shall be effected only following a Rating Agency Confirmation and upon obtaining the prior written consent of the Policy Provider (unless the Policy Non-Consent Event has occurred) and the Initial Liquidity Facility Provider (unless the Initial Liquidity Facility Non-Consent Event has occurred) and upon obtaining a legal opinion that such Additional Notes are debt for U.S. federal income tax purposes. Each Additional Note shall constitute a “Security” for all purposes under this Indenture and shall have such subclass and such further designations added or incorporated in such title as specified in the related Board Resolutions, in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes, as the case may be.

(b) Each Additional Note shall contain such terms as may be established in or pursuant to the related Board Resolutions (subject to Section 2.01), in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes to the extent permitted below, and shall have the same ranking pursuant to Section 3.09 with respect to all other Obligations as the Notes of the class to which such Additional Notes belong (and, with respect to other subclasses of such class, as provided in Section 3.10). Prior to any issuance, any or all of the following, as applicable, with respect to the related Additional Issuance shall have been determined by the Issuer and set forth in such Board Resolutions, in any indenture supplemental hereto or specified in the form of such Securities, as the case may be:

(i) the subclass of Additional Notes to be issued;

(ii) with respect to each such subclass of Additional Notes:

(A) the aggregate principal amount of any such Additional Notes which may be issued;

(B) the proposed date of such Additional Issuance;

(C) the Expected Final Payment Date and the Final Maturity Date of any such Additional Notes;

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(D) whether any such Additional Notes are to have the benefit of any Eligible Credit Facility and/or any increase in Required Amount for any Cash Collateral Account for the related class or classes of Notes and, if so, the amount and terms thereof;

(E) the rate at which any such Additional Notes shall bear interest or the method by which such rate shall be determined;

(F) if other than denominations of $200,000 or higher integral multiples of $1,000 (with respect to Notes), the denomination or denominations in which any such Additional Notes shall be issuable;

(G) any adjustments to be made, consistent with Sections 3.10 and 3.12, to the applicable Pool Factors or Extended Pool Factors as result of the issuance of any such Additional Notes;

(H) any other terms, conditions, rights and preferences (or limitations on such rights and preferences) relating to any such Additional Notes (which terms shall comply with Applicable Law and not be inconsistent with the requirements or restrictions of this Indenture, including Section 5.02(f)(iv)); and

(iii) to what extent the proceeds of such Additional Notes are to be used to acquire Additional Aircraft or to make Conversion Payments, or both, and

(A) in the case of Additional Aircraft, a description of such Additional Aircraft and the Expected Useful Life of such Additional Aircraft; and;

(B) in the case of Conversion Payments, a description of the Aircraft to be modified and the Expected Useful Life of such Aircraft.

If any of the terms of any issue of any such Additional Notes are established by action taken pursuant to one or more Board Resolutions, such Board Resolutions shall be delivered to the Trustee setting forth the terms of such Additional Notes.

(c) In the event Additional Notes are issued with the prior consent of the Policy Provider, each of the Policy and the Policy Provider Agreement shall be amended to cover such Additional Notes and the Policy Provider shall deliver a new Policy or amended Policy, as applicable, to the Trustee; provided, however, that, notwithstanding anything to the contrary herein, only subclasses of Notes that are covered by the Policy may be issued while the Policy remains outstanding. In connection with any such issuance of Additional Notes as a subclass of Notes and amendment of the Policy, the Policy Provider agrees to deliver to the Issuer, on or prior to the date of issuance, legal opinions and corporate documents in respect of the amended Policy, substantially similar in form, scope and substance to the legal opinions and corporate documents delivered by the Policy Provider on the Initial Closing Date. The Policy Provider agrees that its rights of reimbursement in respect of any Policy Drawings under the amended Policy will be the same as its rights of reimbursement set forth in Section 3.09, and premium payable in respect of the amended Policy shall be on the same basis and terms as the Policy Premium and the Policy Redemption Premium, if any, paid in respect of the Policy issued on the Initial Closing Date (unless otherwise agreed to by the Issuer and the Policy Provider).

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(d) In connection with any issuance of Additional Notes, the Issuer shall pay to all parties to the Related Documents all reasonable costs and expenses related thereto.

Section 2.12 Special Transfer Provisions. (a) Certain Transfers and Exchanges of Beneficial Interests. In connection with all transfers and exchanges of a Beneficial Interest in a Global Note for a Beneficial Interest in a Definitive Note, the transferor of such Beneficial Interest must deliver to the Depositary either (i) (A) instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to credit or cause to be credited a Beneficial Interest corresponding to the specified Global Note in an amount equal to the Beneficial Interest to be transferred or exchanged, (B) a written order given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase in connection with such transfer or exchange and (C) instructions given by the Depositary to effect the transfer referred to in (A) and (B) above or (ii) (A) instructions given in accordance with Applicable Procedures from a Participant directing the Depositary to cause to be issued a Definitive Note by means of the process set forth in Section 2.07(a) (if permitted pursuant to Section 2.07) in an amount equal to the Beneficial Interest to be transferred or exchanged and (B) instructions given by the Holder of the Global Note to effect the transfer referred to in (A) above.

(b) Transfer of Beneficial Interests in the Same Global Note. Beneficial Interests in a Global Note may be transferred to Persons who will hold such Beneficial Interest in a form corresponding to the same Global Note in accordance with the transfer restrictions set forth in the Restrictive Legend.

(c) Transfer of Beneficial Interests to Another Global Note. Beneficial Interests corresponding to one of the Global Notes of any subclass may be transferred to Persons who will hold such Beneficial Interest in the form of a Beneficial Interest corresponding to the other Global Note of such subclass if the Depositary receives the following:

(i) if prior to or on the 40th day after the later of the commencement of the offering of the Notes and the relevant Closing Date (the “Restricted Period”), and if the transferee will hold such interests in the form of a Beneficial Interest corresponding to a Rule 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit E hereto, including the certifications in item (1) thereof. After the expiration of the Restricted Period the certification requirements of this clause (i) will no longer apply to such transfers; and

(ii) if the transferee will hold such interests in the form of a Beneficial Interest corresponding to a Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit E hereto, including the certifications in item (2) thereof.

(d) Notation by the Trustee of Transfer of Beneficial Interests Among Global Notes. Upon satisfaction of the requirements for transfer of Beneficial Interests pursuant to paragraphs (a) and (c) above, the Depositary shall present to the Trustee the relevant Global Note from which the Beneficial Interests are being transferred to reduce the principal amount of such Global Note and the relevant Global Note to which the Beneficial Interests are being transferred to increase the principal amount of such Global Note, in each case, by the principal amount of such Beneficial Interests being transferred (and an appropriate notation shall be made thereon by the Trustee). The Trustee shall then promptly deliver appropriate instructions to the Depositary to reduce or reflect on its records a reduction of the Beneficial Interests in the Global Note from which the Beneficial Interests are being transferred by the principal amount of such Beneficial Interests, and the Trustee shall promptly deliver appropriate instructions to the Depositary

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concurrently with such reduction, to increase or reflect on its records an increase of the Beneficial Interests in the Global Note to which Beneficial Interests are being transferred by the principal amount of such Beneficial Interests, and to credit or cause to be credited to the account of the Participant specified in the instructions delivered by the transferor of such Beneficial Interests pursuant to paragraph (a) of this Section 2.12 the Beneficial Interests being transferred.

(e) Exchange of Beneficial Interests for Definitive Notes. Any Definitive Note delivered in exchange for a Beneficial Interest corresponding to a Rule 144A Global Note or Regulation S Global Note, as the case may be, pursuant to this Indenture and Section 2.07(a) shall, except as otherwise provided by paragraph (f) of this Section 2.12, bear the Restrictive Legend set forth in Section 2.02.

(f) Restrictive Legend. Upon the transfer, exchange or replacement of Definitive Notes not bearing the Restrictive Legend, the Registrar shall deliver Definitive Notes that do not bear the Restrictive Legend. Upon the transfer, exchange or replacement of Definitive Notes bearing the Restrictive Legend, the Registrar shall deliver only Definitive Notes that bear the Restrictive Legend unless, in the case of Initial Notes, there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Issuer and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act.

(g) General. By its acceptance of any Note bearing the Restrictive Legend, each Holder of such Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Restrictive Legend and agrees that it will transfer such Note only as provided in this Indenture. By its acceptance of a Depositary Interest or Beneficial Interest corresponding to any Global Note, each such owner acknowledges the restrictions on transfer of such Depositary Interest or Beneficial Interest set forth in this Indenture and agrees that it will transfer such Depositary Interest or Beneficial Interest only as set forth in this Indenture. The Registrar shall not register a transfer of any Definitive Note unless such transfer complies with the restrictions on transfer of such Definitive Note set forth in this Indenture. In connection with any transfer of Notes or Beneficial Interests corresponding thereto, each Holder or owner thereof agrees by its acceptance of such Notes or such Beneficial Interests to furnish the Trustee or the Depositary, as the case may be, the certifications and legal opinions described herein to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Trustee or Depositary, as the case may be, shall not be required to determine (but may rely on a determination made by the Issuer with respect to) the sufficiency of any such legal opinions.

The Trustee shall retain copies of all letters, notices and other written communications received pursuant to this Section 2.12 in accordance with its customary procedures. The Issuer shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable Written Notice to the Trustee.

Section 2.13 [Reserved]

Section 2.14 Statements to Holders. (a) The Issuer shall cause the Administrative Agent to deliver to the Trustee, the Cash Manager and the Board, and the Trustee shall (or shall instruct any Paying Agent to) distribute or make available to each Holder (including any beneficial holders with respect to the owners of Beneficial Interests by delivery to the Depositary), the Policy Provider, the Initial Liquidity Facility Provider and each Rating Agency (any such distribution, a “Trustee Report Distribution”), on the second Business Day before each

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Payment Date and on any other date for distribution of any payments with respect to each subclass of Notes then outstanding, a monthly report, substantially in the form attached as Exhibit D hereto prepared by the Administrative Agent (after consultation with the Cash Manager) and setting forth the information described therein after giving effect to such payment (each, a “Monthly Report”). Each Monthly Report provided for each March, June, September and December shall be accompanied by a report prepared by the Administrative Agent including (i) a statement setting forth an analysis of the Collections Account activity for the preceding fiscal quarter ended December, March, June and September, respectively, (ii) a discussion and analysis of such activity and of any significant developments affecting the Issuer Group in such quarter and (iii) an updated description of the Aircraft then in the Portfolio and the related Lessees (each, a “Quarterly Report”). Each Monthly Report provided for each June shall be accompanied by a report including (A) a statement setting forth an analysis of the Collections Account activity for the preceding fiscal year ended December 31, (B) a discussion and analysis of such activity and of any significant developments affecting the Issuer Group in such year and (C) updated information with respect to the Aircraft then in the Portfolio (each, an “Annual Report”). Each Annual Report shall include audited consolidated financial statements of the Issuer Group (which may be in the form of consolidating statements included as part of the audited consolidated financial statements of Babcock & Brown Air Limited) and shall contain a comparison to the Issuer’s performance to the assumptions in the Offering Memorandum. Each Quarterly Report and Annual Report shall also contain a quarterly or annual, as the case may be, statement of the Aircraft on ground distinguishing between those on ground due to any repossessions and those subject to re-marketing for re-leasing. The Trustee shall deliver a copy of, or make available via a website, each Quarterly Report and Annual Report to any Holder or other Secured Party who requests a copy thereof.

(b) The Issuer shall cause the Administrative Agent to deliver, after the end of each calendar year but not later than the latest date permitted by law, to the Trustee, the Policy Provider, the Initial Liquidity Facility Provider and the Board, and the Trustee shall (or shall instruct any Paying Agent to) furnish to each Person who at any time during such calendar year was a Holder of any subclass of Notes during such calendar year, a statement prepared by the Cash Manager (after consultation with the Administrative Agent) containing the sum of the amounts determined pursuant to Exhibit D hereto with respect to the subclass of Notes for such calendar year or, in the event such Person was a Holder of any subclass during only a portion of such calendar year, for the applicable portion of such calendar year, and such other items as are readily available to the Cash Manager (after consultation with the Administrative Agent) and which a Holder shall reasonably request as necessary for the purpose of such Holder’s preparation of its U.S. federal income or other tax returns. So long as any of the Notes are Global Notes held by the Depositary, such report and such other items will be prepared on the basis of such information supplied to the Cash Manager by the Depositary, and will be delivered by the Trustee, when received from the Cash Manager, to the Depositary and the applicable beneficial owners in the manner described above. In the event that any such information has been provided by any Paying Agent directly to such Person through other tax-related reports or otherwise, the Trustee in its capacity as Paying Agent shall not be obligated to comply with such request for information.

(c) The Issuer shall cause a copy of each statement, report or document described in Section 2.14(a) and Section 6.11 to be concurrently delivered by the Cash Manager to each Rating Agency and the Administrative Agent.

(d) At such time, if any, as the Notes of any subclass are issued in the form of Definitive Notes, the Trustee shall prepare and deliver the information described in Section 2.14(b) to each Holder of a Definitive Note of such subclass for the relevant period of ownership of such Definitive Note as appears on the records of the Registrar.

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(e) Following each Payment Date and any other date specified herein for distribution of any payments with respect to the Notes and prior to a Refinancing or Redemption, the Trustee shall cause notice thereof to be given (i) by either of (A) publication by the Irish Paying Agent in the Irish Times or, if such newspaper shall cease to be published or timely publication therein shall not be practicable, in such English language newspaper or newspapers as the Trustee shall approve having a general circulation in Europe or (B) by way of announcement by the Irish Listing Agent at the Companies Announcement office at the Irish Stock Exchange, (ii) by either of (A) the information contained in such notice appearing on the relevant page of the Reuters Screen or such other medium for the electronic display of data as may be approved by the Trustee and notified to Holders or (B) publication in the Financial Times (European Edition) and The Wall Street Journal (National Edition) or, if either newspaper shall cease to be published or timely publication therein shall not be practicable, in such English language newspaper or newspapers as the Trustee shall approve having a general circulation in Europe and the United States of America and (iii) so long as such Notes are registered with the Depositary, Euroclear and/or Clearstream, and so long as such Notes are listed on the Irish Stock Exchange and traded on the Irish Stock Exchange and the rules of such exchange so permit as advised by the Listing Agent, delivery of the relevant notice to the Depositary, Euroclear and/or Clearstream for communication by them to Holders of such subclass.

Notwithstanding the above, any notice to the Holders of any class or subclass of Floating Rate Notes specifying an interest rate for such Notes, any Payment Date, any principal payment or any payment of premium, if any, shall be validly given by delivery of the relevant notice to the Depositary, Euroclear and/or Clearstream for communication by them to such Holders, without the need for publication in the Irish Times, and shall be promptly delivered to the Listing Agent and made available at the offices of the Irish Paying Agent and the Irish Stock Exchange (other than notices required to be delivered by the Cash Manager under the Related Documents). Any such notice shall be deemed to have been given on the first day on which any of such conditions shall have been met.

(f) The Trustee shall be at liberty to sanction some other method of giving notice to the Holders of any subclass if, in its opinion, such other method is reasonable, having regard to the number and identity of the Holders of such subclass and/or to market practice then prevailing, is in the best interests of the Holders of such subclass and will comply with the rules of the Irish Stock Exchange for so long as such Notes are listed on the Irish Stock Exchange and traded on the Irish Stock Exchange or such other stock exchange (if any) on which the Notes of such subclass are then listed, and any such notice shall be deemed to have been given on such date as the Trustee may approve; provided that notice of such method is given to the Holders of such subclass in such manner as the Trustee shall require.

Section 2.15 CUSIP, CCN and ISIN Numbers. The Issuer in issuing the Notes may use “CUSIP”, “CCN”, “ISIN” or other identification numbers (if then generally in use), and if so, the Trustee shall use CUSIP numbers, CCN numbers, ISIN numbers or other identification numbers, as the case may be, in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Notes; providedfurther, that failure to use “CUSIP”, “CCN”, “ISIN” or other identification numbers in any notice of redemption or exchange shall not affect the validity or sufficiency of such notice.

Section 2.16 Holder Representations and Covenants. Each Holder and beneficial owner of a Note, by the purchase of such Note or beneficial interest therein, covenants and agrees that it will treat

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such Note as indebtedness for all purposes and will not take any action contrary to such characterization, including, without limitation, filing any tax returns or financial statements inconsistent therewith.

ARTICLE III
 

ACCOUNTS; PRIORITY OF PAYMENTS

Section 3.01 Accounts. (a) Establishment of Accounts. The Cash Manager, acting on behalf of the Security Trustee, shall direct the Operating Bank in writing to establish and maintain on its books and records in the name of the Security Trustee (i) a collections account (the “Collections Account”), one or more lessee funded accounts as provided in the Cash Management Agreement (each, a “Lessee Funded Account”), a security deposit account (the “Security Deposit Account”), an expense account (the “Expense Account”), one note account for the Initial Notes (the “Note Account”), one aircraft purchase account for each Initial Aircraft not acquired on the Initial Closing Date (each, an “Aircraft Purchase Account”), a capital surplus account (the “Capital Account”), an account for the holders of the Class B Shares (the “Class B Shareholder Account”), a liquidity reserve account for the Notes (the “Liquidity Facility Reserve Account”), and a payment account for the Initial Liquidity Facility (the “Initial Liquidity Payment Account”), in each case on or before the Initial Closing Date and (ii) thereafter one or more rental accounts (each, a “Rental Account”) and any additional Lessee Funded Accounts, in each case provided for in the Cash Management Agreement, any additional Note Accounts, an additional Aircraft Purchase Account for each Additional Aircraft not acquired on the Closing Date for the related Additional Notes, an aircraft conversion account (the “Aircraft Conversion Account”), a cash reserve account for the Class G-1 Notes (the “Senior Cash Collateral Account”), a defeasance/redemption account (the “Defeasance/Redemption Account”), a refinancing account (the “Refinancing Account”), and any other Account (including, any Cash Collateral Account) the establishment of which is set forth in a Board Resolution delivered to the Trustee, the Security Trustee and the Cash Manager, in each case at such time as is set forth in this Section 3.01 or in such Board Resolution. The Cash Manager shall establish an Irish collections account (the “Irish VAT Refund Account”) in the name of the Issuer at an Eligible Institution. Each Account shall be established and maintained as an Eligible Account in accordance with the terms of, and be subject to, the Security Trust Agreement (or, in the case of the Irish VAT Refund Account, a charge over bank account governed by Irish law with respect thereto (the “Irish Account Charge”)) so as to create, perfect and establish the priority of the security interest of the Security Trustee in such Account and all cash, Investments and other property therein under the Security Trust Agreement (or, in the case of the Irish VAT Refund Account, the Irish Account Charge) and otherwise to effectuate the Security Trust Agreement (or, in the case of the Irish VAT Refund Account, the Irish Account Charge). Each new Account established pursuant to Section 2.03(a)(i) of the Cash Management Agreement shall, when so established, be the Account of such name and purposes for all purposes of this Indenture.

(b) Withdrawals and Transfers Generally. Any provision of this Indenture relating to any deposit, withdrawal or any transfer to or from, any Account shall be effected by the Cash Manager directing the Operating Bank by a Written Notice of the Cash Manager (such Written Notice to be provided to the Operating Bank by 1:00 p.m. (New York City time) on the date of such deposit, withdrawal or transfer) given in accordance with the terms of this Indenture, the Cash Management Agreement and the Security Trust Agreement. Each such Written Notice to the Operating Bank shall be also communicated in computer file format or in such other form as the Cash Manager, the Operating Bank, the Trustee and the Security Trustee agree; provided that, in the case of communication in computer file format or any other form other than a written tangible form, a written tangible form thereof shall promptly thereafter be sent to the Operating Bank. No deposit, withdrawal or transfer to or from any Account shall be made except in accordance with the terms of this Indenture, the Security Trust Agreement and the Cash Management Agreement or by any Person other than the Operating Bank (only upon the Written

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Notice of the Cash Manager) or, in the case of the Note Accounts, the Trustee (in which respect the Trustee agrees it is acting as the agent of the Security Trustee). Each of the parties to this Agreement acknowledges that the terms of this Indenture contemplate that the Cash Manager will receive certain information from other parties to this Indenture and the Related Documents in order for the Cash Manager to be able to perform all or any part of its obligations hereunder, that the Cash Manager will be able to perform its obligations hereunder only to the extent such information is provided to the Cash Manager by the relevant parties and that the Cash Manager may conclusively rely, absent manifest error, on such information as it receives without undertaking any independent verification of that information. The Cash Manager agrees that if it does not receive any such information it will promptly notify the party who was to provide such information of such failure.

(c) Collections Account. All Collections (including amounts transferred from the Rental Accounts) shall be, when received, deposited in the Collections Account, and all cash, Investments and other property in the Collections Account shall be transferred from or retained as Reserved Cash in the Collections Account in accordance with the terms of this Indenture.

(d) Lessee Funded Account. Any Segregated Funds received from time to time from any Lessee or pursuant to any Acquisition Agreement shall be transferred by the Operating Bank at the written direction of the Cash Manager from the Collections Account into the related Lessee Funded Account. The Cash Manager shall not make any withdrawal from, or transfer from or to, any Lessee Funded Account in respect of (i) any portion of the Segregated Funds therein consisting of a security deposit except, upon the termination of the related Lease, as provided in such Lease or (ii) any Segregated Funds that is contrary to the requirements of the respective Leases as to Segregated Funds and the requirements of the Security Trust Agreement (including the agreement of the Security Trustee that it designate on its account records that it holds its interest in each Lessee Funded Account for the benefit of the respective Lessee in respect of whom such Segregated Funds are held). Without limiting the foregoing, no cash, Investment and other property in a Lessee Funded Account may be used to make payments, other than as permitted under Section 3.08, in respect of the Notes at any time, including after the delivery of a Default Notice. Any Segregated Funds relating to an expired or terminated Lease that remain in a Lessee Funded Account after expiration or termination of such Lease and that are not due and owing to the relevant Lessee under such expired or terminated Lease shall, if so required under the terms of a subsequent Lease, if any, relating to such Aircraft, be credited in a Lessee Funded Account for the benefit of the next Lessee of the relevant Aircraft to the extent required under the terms of such subsequent Lease and, to the extent not so required, transferred to the Collections Account. When and as provided in the Cash Management Agreement the Cash Manager shall cause to be established such additional Lessee Funded Accounts.

(e) Security Deposit Account. Any cash security deposits received from time to time from any Lessee or pursuant to any Acquisition Agreement (other than any cash security deposit required to be Segregated Funds, which shall be deposited in the related Lessee Funded Account) shall be transferred by the Operating Bank at the written direction of the Cash Manager from the Collections Account into the Security Deposit Account. Any security deposits relating to an expired Lease that remain in the Security Deposit Account after expiration or termination of such Lease and that are not due and owing to the relevant Lessee under such expired or terminated Lease (and not owing to the Issuer Group Member) and accordingly not required to be transferred to the Expense Account under Section 3.08(c)(ii) shall, if so required under the terms of a subsequent Lease, if any, relating to such Aircraft, be credited in the Security Deposit Account or a Lessee Funded Account for the benefit of the next Lessee of the relevant Aircraft and, to the extent not so required, transferred to the Collections Account. No cash, Investment or other

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property in the Security Deposit Account may be used to make payments, other than as permitted under Section 3.08 hereof, in respect of the Notes at any time, except that on the earlier of the delivery of a Default Notice and the occurrence of an Acceleration Default, the Cash Manager shall direct the Trustee to, and the Trustee shall withdraw the collected credit balance of the Security Deposit Account and apply such amount in accordance with the payment priorities set forth in Section 3.09(b).

(f) Expense Account. On each Payment Date, such amounts as are provided in Section 3.09 in respect of the Required Expense Amount and Permitted Accruals shall be deposited into the Expense Account from the Collections Account. Expenses shall be paid from the Expense Account as provided in Section 3.04.

(g) Rental Accounts. All Rental Payments, Additional Rent and other amounts received pursuant to any Related Collateral Document shall be deposited into the applicable Rental Account (including any Non-Trustee Account). Except with respect to amounts, if any, that for local tax or other regulatory or legal reasons must be retained on deposit or as to the transfer of which the Cash Manager determines there is any substantial uncertainty, all amounts so deposited shall, within one Business Day of their receipt (or with respect to any Non-Trustee Account, within three Business Days of their receipt), be transferred by the Cash Manager to the Collections Account. If the Cash Manager determines that, for any tax or other regulatory or legal reason, any such Collections may not be deposited into an account in the name of the Security Trustee, then, notwithstanding the requirements of Section 3.01(a), the relevant Issuer Group Member may establish one or more Rental Accounts (each, a “Non-Trustee Account”) for such Collections in its own name (but subject to the direction and control of the Cash Manager on behalf of the Security Trustee) at any Eligible Institution; provided that the Issuer Group member that is the lessor under the relevant Lease is or becomes a party to a Security Document with respect to such Account.

(h) Refinancing Account. Upon Written Notice of the Issuer to it of, or a Board Resolution provided to it authorizing, a Refinancing, the Cash Manager shall cause the Operating Bank to establish and maintain a Refinancing Account pursuant to Section 3.01(a) in the name of the Security Trustee for the benefit of the Holders of the Initial Notes or Additional Notes, if any, to be refinanced. All net cash proceeds of such Refinancing shall be deposited in the Refinancing Account and shall be held in such Account until such proceeds are applied to pay the Redemption Price of and all accrued and unpaid interest on such Initial Notes and Additional Notes, as applicable, until such Notes are cancelled by the Trustee and Refinancing Expenses (and any Policy Premium and/or Policy Redemption Premium due and payable to the Policy Provider) with respect thereto (except to the extent the Board have determined, as evidenced by a Board Resolution, to pay the same from funds available therefor as Permitted Accruals in the Expense Account) and as otherwise provided in Section 5.02(f)(ii)(C).

(i) Defeasance/Redemption Account. Upon Written Notice of the Issuer to it, or a Board Resolution provided to it authorizing that any subclass of Notes is to be redeemed pursuant to Section 3.11 (other than in a Refinancing) or defeased under Article XI, the Cash Manager shall cause the Operating Bank to establish and maintain a Defeasance/Redemption Account pursuant to Section 3.01(a) in the name of the Security Trustee for the benefit of the Holders of such subclass. All amounts received for the purpose of any such redemption or defeasance shall be deposited in the Defeasance/Redemption Account.

(j) Aircraft Purchase Accounts. As and to the extent provided in Section 3.03(a) (or, in the case of any Additional Aircraft, in the terms of any indenture supplemental hereto or a Board

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Resolution with respect to the related Additional Notes), (a) an amount equal to the Debt Allocation Amount for each Aircraft not acquired on the Initial Closing Date or, in the case of an Additional Aircraft, on the Closing Date for the related Additional Notes, will be transferred from the Collections Account out of the proceeds of the Initial Notes or Additional Notes (as the case may be, including capital contributions in respect of the Class A Shares, after any other deposits or transfer out of such proceeds (including in respect of the Initial Expenses)) to the Aircraft Purchase Account for that Aircraft. The amount so deposited shall be held in such Account and invested in Permitted Account Investments until applied as provided in Section 3.04 or Section 3.05, as applicable. The Issuer shall give Written Notice to the Security Trustee and the Cash Manager of the satisfaction or waiver (specifying which) of all conditions for the payment of the Aircraft Purchase Price of any Additional Aircraft, and no amounts may be withdrawn or transferred from the Aircraft Purchase Account with respect to the Aircraft Purchase Price of such Additional Aircraft until receipt of such notice as to such Additional Aircraft.

(k) Aircraft Conversion Account. As and to the extent provided in Section 3.04 and Section 5.02(i) (or in the terms of any indenture supplemental hereto or a Board Resolution with respect to the related Additional Notes), an amount equal to any expected Conversion Payment (or in the case of a Conversion Election, a portion thereof) will be transferred from the Collections Account (i) in the event of a Conversion Election for any Payment Date, in an amount equal to the sum of (A) the Available Minimum Principal Amount (or a portion thereof) to fund all or a portion of the Principal Conversion Amount and (B) the Available Holder Amount (or a portion thereof), together with Contribution Amounts, if any, to fund the Class A Shareholder Conversion Amount for such Payment Date, or (ii) out of the proceeds of the Additional Notes, in each case to the Aircraft Conversion Account. The Available Holder Amounts shall constitute property of the Issuer until applied towards the payment of the applicable Conversion Amount. The amount so deposited will be held in the Aircraft Conversion Account and invested in Permitted Account Investments until applied as provided in Section 3.04 or 3.09 and upon payment of all Conversion Payments required for such Aircraft Conversion, any remaining amounts in the Aircraft Conversion Account shall be promptly transferred to the Collections Account. The Issuer shall notify the Security Trustee and the Cash Manager of the satisfaction or waiver (specifying which) of all conditions for the payment of any Conversion Payment, and no amounts may be withdrawn or transferred from the Aircraft Conversion Account until receipt of such notice as to such Conversion Payment. For the avoidance of doubt, Class A Shareholders may fund the entire amount of a Conversion Payment or some or all of the Class A Shareholder Conversion Amount with respect to an Aircraft Conversion. In the event of such funding by the Class A Shareholders, upon payment of all Conversion Payments required for such Aircraft Conversion, any remaining amounts in the Aircraft Conversion Account for such Aircraft Conversion may be transferred to an Aircraft Conversion Account with respect to another Aircraft Conversion.

(l) Note Account. Upon the issuance of Notes of any subclass for which a Note Account was not previously established, the Cash Manager shall cause the Operating Bank to establish and maintain a Note Account for such subclass in accordance with Section 3.01(a) in the name of the Security Trustee for the benefit of the Holders of the Notes of such subclass. Upon the transfer of any amounts to the Note Account for any subclass of Notes in accordance with Section 3.09 or Section 3.14, the Trustee on the same day shall pay all such amounts to the Holders of such subclass of Notes as of the related Record Date in accordance with the terms of this Indenture.

(m) Senior Cash Collateral Account. A Senior Cash Collateral Account will not be established on the Closing Date. The Issuer will have the right, following the Closing Date, to establish a Senior Cash Collateral Account, with the consent of the Policy Provider. Following

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the establishment of a Senior Cash Collateral Account, in the event that the Cash Manager determines that on the fourth Business Day prior to any Payment Date after making all withdrawals and transfers to be made with respect to such Payment Date (for the avoidance of doubt, prior to any drawings under the Initial Liquidity Facility, any withdrawals from the Liquidity Facility Reserve Account and any drawings under any Policy), there will be insufficient funds in the Collections Account (i) to transfer to the Expense Account an amount such that the amount on deposit therein is equal to the Required Expense Amount for such Payment Date, (ii) to pay the Interest Amount for the Class G-1 Notes, (iii) to pay Senior Hedge Payments to each applicable Hedge Provider, in each case as provided in Section 3.09 and (iv) if such Payment Date is the Final Maturity Date for the Class G-1 Notes, to pay the Outstanding Principal Balance of the Class G-1 Notes on the Final Maturity Date therefor, the Cash Manager shall direct the Operating Bank in writing on such Payment Date to withdraw from the Senior Cash Collateral Account the lesser of an amount equal to the shortfall in making the payments set forth in clauses (i), (ii), (iii) and (iv) above and the amount on deposit therein. The amount so withdrawn shall be applied in the following manner: first, to the Expense Account an amount such that the amount on deposit therein is at least equal to the Required Expense Amount for such Payment Date and second, in no order of priority inter se, but pro rata, (A) to the Note Accounts for the Class G-1 Notes, the Interest Amount on the Class G-1 Notes, in no order of priority inter se, but pro rata according to the amount of accrued and unpaid interest on the Class G-1 Notes; and (B) pro rata, to any Hedge Provider, an amount equal to any Senior Hedge Payment due from any Issuer Group Member pursuant to any Hedge Agreement, and third, if such Payment Date is the Final Maturity Date for the Class G-1 Notes, to the Note Accounts for the Class G-1 Notes, pro rata according to the amount of outstanding principal of such subclass. If the Cash Manager determines that the amount that will be on deposit in the Senior Cash Collateral Account on any Payment Date, after making any withdrawals therefrom to be made on such Payment Date, will exceed the aggregate Outstanding Principal Balance of the Notes, the Cash Manager shall so notify the Trustee in writing and direct the Operating Bank in writing to withdraw the amount on deposit in the Senior Cash Collateral Account on such Payment Date and apply such amount: first, to the Note Accounts for the Class G-1 Notes, in the order of priority by subclass set forth in Section 3.10, an amount equal to the Outstanding Principal Balance of each such subclass and second, to the Collections Account, for application on such Payment Date in accordance with Section 3.09 (any such application, a “Class G Cash Collateral Event”). Unless applied in connection with a Class G Cash Collateral Event or on the Final Maturity Date for the Class G-1 Notes, amounts on deposit in the Senior Cash Collateral Account shall not be available for any shortfall in the payment of principal of the Class G-1 Notes. Amounts in the Senior Cash Collateral Account are not subject to the payment priorities set forth in Section 3.09.

(n) Liquidity Facility Reserve Account. Following the funding of the Liquidity Facility Reserve Account with a Downgrade Drawing, a Final Drawing or a Non-Extension Drawing, if the Cash Manager determines that on any Payment Date after making all withdrawals and transfers to be made with respect to such Payment Date, there will be insufficient funds in the Collections Account (i) to transfer to the Expense Account an amount such that the amount on deposit therein is equal to the Required Expense Amount for such Payment Date, (ii) to pay Senior Hedge Payments to each applicable Hedge Provider, in each case as provided in Section 3.09 and (iii) to pay the Interest Amount for the Class G-1 Notes, in each case as provided in Section 3.09, the Cash Manager shall so notify the Trustee in writing under Section 3.07 and shall direct the Operating Bank in writing on such Payment Date to withdraw from the Liquidity Facility Reserve Account the lesser of (A) the amount equal to the shortfall in making the payments set forth in clauses (i), (ii) and (iii) above and (B) the amount on deposit therein. The Trustee shall, as set out in the Written Notice from the Cash Manager, apply the amount so withdrawn, first, to the Expense Account an amount such that the amount on deposit therein is at

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least equal to the Required Expense Amount for such Payment Date and second, in no order of priority inter se, but pro rata, (x) to the Note Accounts for the Class G-1 Notes, in respect of the Interest Amount on such subclass of Notes; and (y) pro rata, to any Hedge Provider, in respect of any Senior Hedge Payment due from any Issuer Group Member pursuant to any Hedge Agreement.

(o) Capital Account. Upon the transfer of any amounts to the Capital Account in accordance with Section 3.09 hereof, such amounts shall be available for distribution to the holders of the Class A Shares to the extent that the Board has declared a dividend or other distribution in respect of such amount.

(p) Class B Shareholder Account. Upon the transfer of any amounts to the Class B Shareholder Account for the holders of the Class B Shares in accordance with Section 3.09, the Trustee on the same day shall pay such amounts to the holders of the Class B Shares to the extent that the Board has declared a dividend in respect of such amount.

(q) Additional Cash Collateral Accounts. Upon receipt by the Cash Manager and the Trustee of a Board Resolution providing for the establishment of any additional Cash Collateral Account as an Eligible Credit Facility for one or more subclasses of Notes or in respect of any other Obligation, the Cash Manager shall, by Written Notice, cause the Operating Bank to establish (within three Business Days of the giving of such Written Notice) and maintain such Cash Collateral Account pursuant to Section 3.01(a) in the name of the Security Trustee for the benefit of the Holders of the Notes of each such subclass and/or the Secured Parties holding such other Obligation. All amounts provided in connection with any such Board Resolution for deposit in such Account and all amounts to be deposited in such Account under Section 3.09 as an Eligible Credit Facility shall be held in such Cash Collateral Account for application, and all replenishment shall be made, in accordance with the terms of the Board Resolution relating to such Eligible Credit Facility, which Board Resolution shall include the basis of any replenishment of the Cash Collateral Account.

(r) Irish VAT Refund Account. All payments of refunds with respect to Irish value-added Tax and any similar amounts related to Irish Tax payments payable to the Issuer or any Issuer Subsidiary shall be, when received, deposited in the Irish VAT Refund Account. Funds held in the Irish VAT Refund Account shall, at the direction of the Administrative Agent, be converted into U.S. dollars with a recognized foreign exchange dealer or foreign commercial bank (which may be the bank where the Irish VAT Refund Account is located or the Cash Manager or an affiliate). The conversion of currency into U.S. dollars shall be pursuant to the conversion procedures set forth in Section 12.07. Upon conversion and receipt of U.S. dollars, the Cash Manager shall cause such amounts to be transferred from the Irish VAT Refund Account to the Collections Account as soon as administratively practicable. The cost and expense of any such conversion shall be added to and reflected in the rate obtained for conversion and in no event shall the Cash Manager or any of its affiliates be liable in respect of the exchange rate obtained for any such conversion or any related cost or expense.

All amounts held in the Irish VAT Refund Account from time to time shall be invested in Permitted Account Investments (at the direction of the Administrative Agent) pending conversion to U.S. dollars and transfer to the Collections Account.

Section 3.02 Investments of Cash. (a) For so long as any Notes remain Outstanding, the Cash Manager, on behalf of the Security Trustee, shall, or shall direct the Operating Bank in writing to, invest and reinvest, at the written direction of the Cash Manager acting on the Issuer’s instructions, the funds on

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deposit in the Accounts in Permitted Account Investments; provided, however, that the Initial Liquidity Facility Provider shall be entitled to direct the Cash Manager to invest the amounts on deposit (if any) in the Liquidity Facility Reserve Account in Permitted Account Investments; providedfurther, however, that following the giving of a Default Notice or during the continuance of an Acceleration Default, the Cash Manager shall, or shall direct the Operating Bank in writing to, invest such funds on deposit or such amounts at the written direction of the Security Trustee in Permitted Account Investments described in clause (d) of the definition thereof (but in the case of a Lessee Funded Account only to the extent any such investment credited to such Lessee Funded Account or the Security Deposit Account is permitted by the Leases pursuant to which such funds were received) from the time of receipt thereof until such time as such amounts are required to be distributed pursuant to the terms of this Indenture. The Cash Manager shall make such investments and reinvestments and the Issuer (or the Cash Manager acting on the Issuer’s instructions), the Initial Liquidity Facility Provider and/or the Security Trustee as specified in the immediately preceding sentence shall provide such direction, all in accordance with the terms of the following provisions:

(i) the Permitted Account Investments shall have maturities and other terms such that sufficient funds shall be available to make required payments pursuant to this Indenture (A) before the next Payment Date after which such investment is made, in the case of investments of funds on deposit in the Collections Account and the Expense Account, or (B) in accordance with a Written Notice provided by the Cash Manager (after consultation with the Servicer), the requirements of the relevant Leases or Aircraft Agreements, in the case of investments of funds on deposit in the Lessee Funded Accounts; provided that an investment maturing within one year of the date of investment shall nevertheless be a Permitted Account Investment if it has been acquired with funds which are not reasonably anticipated, at the discretion of the Administrative Agent, to be required to be paid to any other Person or otherwise transferred from the applicable Account prior to such maturity;

(ii) if any funds to be invested are not received in the Accounts by 1:00 p.m., New York City time, on any Business Day, such funds shall, if possible, be invested in overnight Permitted Account Investments described in clause (d) of the definition thereof; provided that none of the Cash Manager, the Trustee, the Security Trustee or the Initial Liquidity Facility Provider shall be liable for any losses incurred in respect of the failure to invest funds not thereby received; and

(iii) if required by the terms of a Lease, any investments of Segregated Funds on deposit in a Lessee Funded Account or funds on deposit in the Security Deposit Account shall be made on behalf of the relevant Lessee in such investments as may be required thereunder.

(b) The Trustee or its Affiliates is permitted to receive additional compensation (which compensation should be decided on an arm’s length basis) that could be deemed to be in their respective economic self interest for (i) serving as an investment advisor, administrator, shareholder servicing agent, custodian or sub-custodian with respect to certain Permitted Account Investments, (ii) using Affiliates to effect transactions in certain Permitted Account Investments and (iii) effecting transactions in certain Permitted Account Investments.

(c) Except as expressly provided hereunder, neither the Cash Manager nor the Operating Bank shall have any obligation to invest and reinvest any cash held in the Accounts in the absence of timely and specific written investment direction from the Issuer, the Initial Liquidity Facility Provider or the Security Trustee, as the case may be. In no event shall the Cash Manager

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or the Operating Bank be liable for the selection of investments or for investment losses incurred thereon. Neither the Cash Manager nor the Operating Bank shall have any liability in respect of losses incurred as a result of the liquidation of any investment prior to its stated maturity or the failure of the Issuer, the Initial Liquidity Facility Provider or the Security Trustee, as the case may be, to provide timely written investment direction. Neither the Cash Manager nor the Trustee guarantees the performance of any Permitted Account Investment.

Section 3.03 Closing Date Deposits, Withdrawals and Transfers. The Cash Manager shall, on each Closing Date at the written direction of the Issuer, upon the Operating Bank’s receipt thereof, make, or direct the Operating Bank to make, the following deposits and transfers to and from the Accounts in each case as specified in a prior Written Notice of the Cash Manager to the Trustee, the Security Trustee and the Operating Bank:

(a) on the Initial Closing Date,

(i) (A) deposit in the Collections Account the proceeds of the issuance of the Initial Notes, (B) deposit in the relevant Aircraft Purchase Account, the Allocable Rent Amount for the related Aircraft, (C) deposit in the Collections Account the Initial Equity Amount, (D) deposit in the Security Deposit Account the amount of the initial security deposits that are not Segregated Funds received pursuant to the terms of the Asset Purchase Agreement and (E) deposit in any Lessee Funded Account an amount equal to any Segregated Funds for each Lease related to any Aircraft being acquired from a Seller on the Initial Closing Date;

(ii) after making the deposits required by clause (i) above and in the following order (A) transfer from the Collections Account to the Expense Account, such amount as is necessary so that the amount on deposit in the Expense Account is an amount equal to the Required Expense Amount for the initial Interest Accrual Period and the Initial Expenses, as specified in a Written Notice of the Cash Manager to the Trustee, (B) pay from the Collections Account to each respective Seller the Aircraft Purchase Price for each Aircraft, if any, being acquired from that Seller on the Initial Closing Date (in which case the Written Notice of the Issuer shall, as a condition to such payment, state that the conditions to the acquisition of each such Aircraft specified in the relevant Acquisition Agreement have been fulfilled), (C) transfer from the Collections Account the Debt Allocation Amount for each Aircraft not acquired on the Initial Closing Date to the related Aircraft Purchase Account, (D) deposit in the Collections Account the amounts received by the Issuer from the Sellers, pursuant to the Asset Purchase Agreement (except to the extent any such amounts constitute (i) initial security deposits that are not Segregated Funds, which amounts shall have been deposited into the Security Deposit Account as provided in subclause (i)(C) above, and (ii) Segregated Funds for each Lease, which amounts shall have been deposited into the applicable Lessee Funded Account as provided in subclause (i)(D) above), and (F) retain in the Collections Account the balance, if any, remaining after making the foregoing transfers;

(iii) transfer to the Collections Account any Aircraft Prior Rent Payment as to the Aircraft in respect of which an Aircraft Purchase Account has been established; and

(iv) withdraw from the Expense Account such amount as is needed to discharge any portion of the Initial Expenses then due and payable on the Initial Closing Date and pay such amount to the appropriate payees thereof as specified in the Written Notice of the Cash Manager.

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(b) on any Closing Dates in respect of the issuance of any Additional Notes,

(i) (A) deposit in the Collections Account the proceeds of the issuance of such Additional Notes, (B) deposit in the Security Deposit Account the amount of the initial security deposits that are not Segregated Funds received pursuant to the terms of the relevant Acquisition Agreements and (C) deposit in any Lessee Funded Account any Segregated Funds received pursuant to any Acquisition Agreement;

(ii) after making the deposits required by clause (i) above and in the following order (A) transfer from the Collections Account to the Expense Account, such amount as is necessary so that the amount on deposit in the Expense Account is an amount equal to the Required Expense Amount for the next succeeding Payment Date, (B) transfer from the Collections Account to any Cash Collateral Account then to be established an amount equal to the Required Amount for such Account, (C) pay from the Collections Account to each respective Seller the Aircraft Purchase Price for each Additional Aircraft being acquired from that Seller on the relevant Closing Date (in which case the Written Notice of the Cash Manager shall, as a condition to such payment, state that the conditions to the acquisition of each such Aircraft specified in the relevant Acquisition Agreement have been fulfilled), (D) transfer from the Collections Account the Debt Allocation Amount for each Additional Aircraft, if any, not being acquired on that Closing Date to the Aircraft Purchase Account for that Aircraft, (E) in the case of a Closing Date for any Additional Notes issued to finance any Aircraft Conversion, transfer from the Collections Account to the Aircraft Conversion Account such amount (to the extent not funded by a capital contribution made by the holders of the Class A Shares) as the relevant Conversion Agreement requires to be paid on or before that Closing Date and (F) retain in the Collections Account the balance, if any, remaining after making the foregoing transfers; and

(iii) transfer from each applicable Aircraft Purchase Account to the Collections Account any Aircraft Prior Rent Payment as to the Aircraft in respect of which that Account has been established; and

(c) on any Closing Date involving the issuance of Refinancing Notes, deposit the proceeds of such Refinancing into the Refinancing Account for application in accordance with Section 3.08(a).

Section 3.04 Interim Deposits, Transfers and Withdrawals. On any Business Day, the Cash Manager upon the Operating Bank’s receipt thereof, may make, or direct the Operating Bank to make, without duplication, the following deposits, transfers and withdrawals to and from the Accounts, in each case as specified in a prior Written Notice of the Cash Manager to the Trustee, the Security Trustee and the Operating Bank:

(a) withdraw from a Lessee Funded Account or the Security Deposit Account to the extent that funds on deposit therein or available thereunder may be withdrawn or drawn pursuant to the terms of the related Lease for payment thereof, to discharge any Expense then due and payable and pay such amount to the appropriate payees thereof;

(b) withdraw from the Expense Account (to the extent of funds on deposit therein) such amount as is needed to discharge (i) any Primary Expenses and (ii) any Modification Payments or Refinancing Expenses in respect of which a Permitted Accrual was previously effected by a deposit in the Expense Account (whether or not any such deposit has been previously used to pay

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any other Primary Expense but excluding any portion of such deposit previously used to pay any Modification Payments or Refinancing Expenses) then due and payable and pay such amount to the appropriate payees thereof;

(c) transfer from the Collections Account from time to time (but in no event on less than one Business Day’s prior Written Notice to the Trustee (unless such one Business Day’s notice requirement is waived by the Trustee)) other amounts to the Expense Account, in each case only to the extent that such funds are to be applied to Primary Expenses that become due and payable during such Interest Accrual Period and for the payment of which there are insufficient funds in the Expense Account; provided that no such transfer from the Collections Account in respect of Primary Expenses shall be made prior to the next succeeding Payment Date if, in the reasonable judgment of the Cash Manager, such transfer would have a material adverse effect on the ability of the Issuer to make payments of accrued and unpaid interest on the Class G-1 Notes then Outstanding on the next Payment Date therefor in accordance with Section 3.09;

(d) withdraw Segregated Funds from a Lessee Funded Account or security deposit from the Security Deposit Account or draw under or cause to be drawn under any applicable Related Collateral Document, in any case to the extent required by or necessary in connection with a Lease or any documents related thereto and the Related Collateral Documents, for deposit in the Collections Account to satisfy any default in Rental Payments under any related Lease;

(e) transfer any Segregated Funds from the Collections Account to a Lessee Funded Account in accordance with the terms of any Lease;

(f) transfer any security deposits that are not Segregated Funds from the Collections Account to the Security Deposit Account;

(g) transfer to the Collections Account, or any other applicable Account, any Contribution Amounts;

(h) deposit into the Aircraft Conversion Account any capital contributions in respect of an Aircraft Conversion received from the holders of the Class A Shares;

(i) subject to Section 5.02(i), withdraw from the Aircraft Conversion Account an amount equal to all or a portion of the Conversion Payment for any Aircraft Conversion, to the extent the relevant Conversion Agreement requires payment on that or the next Business Day; and

(j) upon written direction to the Cash Manager from any Seller that such Seller or a Person on its behalf has in fact received any Basic Rent under the Lease of any Aircraft not delivered to an Issuer Group Member on a Closing Date, transfer from the Aircraft Purchase Account for that Aircraft to the Collections Account the resulting Aircraft Subsequent Rent Payment.

Section 3.05 Withdrawals and Transfers Relating to the Acquisition of Aircraft.

(a) Acquisition. On the Acquisition Date (other than a Closing Date) with respect to an Aircraft, the Cash Manager may make, or direct the Operating Bank to make, the following deposits, withdrawals and transfers to and from the Accounts, in each case as specified in a Written Notice of the Cash Manager to the Trustee, the Security Trustee and the Operating Bank (which Written Notice of the Cash Manager shall, as a condition to any such deposit, withdrawal and transfer be accompanied by a Written Notice of the Administrative Agent stating that the

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conditions to payment for an Aircraft specified in the applicable Acquisition Agreement have been fulfilled):

(i) deposit into the relevant Lessee Funded Account, the amount of any Segregated Funds received in respect of such Aircraft under the applicable Acquisition Agreement;

(ii) deposit into the relevant Aircraft Purchase Account the Equity Allocation Amount (less any portion of the Allocable Rent Amount previously deposited in respect of such Aircraft) for such Aircraft under the applicable Acquisition Agreement;

(iii) to the extent the amount in the Aircraft Purchase Account (after making the transfer, if any, contemplated by Section 3.04(j)) for such Aircraft is less than the Aircraft Purchase Price for such Aircraft, transfer from the Collections Account to such Aircraft Purchase Account the amount of such shortfall, if any;

(iv) pay out of the Aircraft Purchase Account for such Aircraft to the applicable Seller or sellers the Aircraft Purchase Price for such Aircraft (after making the transfer, if any, contemplated by Sections 3.04(j) and 3.05(a)(ii)); and

(v) after making the transfers provided in clause (i) through (iv) above, transfer the balance remaining in the related Aircraft Purchase Account to the Collections Account (for application in accordance with Section 3.09).

(b) Aircraft Payments. The payments of the Aircraft Purchase Price for any Aircraft (other than Additional Aircraft) to be made pursuant to Section 3.05(a)(iv) to any Seller shall, subject to the delivery as to such Aircraft of the Written Notice referred to in Section 3.05(a), be made as so provided notwithstanding the giving of any Default Notice or any other exercise of remedies hereunder.

(c) Delivery Expiry Date. Upon Written Notice of the Administrative Agent to the Cash Manager, the Trustee, the Security Trustee and the Operating Bank that the Issuer is no longer required, pursuant to the terms of the applicable Acquisition Agreement, to purchase any Initial Aircraft or Additional Aircraft (whether by reason of the passing of the Delivery Expiry Date, the exercise by the Issuer of any termination right under that Acquisition Agreement or otherwise), the Cash Manager shall direct the Operating Bank to (i) transfer from the Aircraft Purchase Account for each Aircraft so affected to the Collections Account (for application in accordance with Section 3.09) the balance in the Aircraft Purchase Account for such Aircraft and (ii) deposit to the Collections Account (for application in accordance with Section 3.09) any Non-Delivery Make-Whole Amount received from such Seller.

Section 3.06 Interim Deposits and Withdrawals for Aircraft Sales. The Cash Manager shall direct the Operating Bank to deposit any and all proceeds received in respect of any Aircraft Sale by or on behalf of any Issuer Group Member in the Collections Account (other than in connection with any sale of all or substantially all of the assets of the Issuer Group, in which case the Cash Manager shall direct the Operating Bank to deposit any and all proceeds thereof into the Defeasance/Redemption Account in connection with the redemption of each subclass of the Notes) in each case as specified in a Written Notice by the Cash Manager to the Trustee, the Security Trustee and the Operating Bank. Any funds then on deposit in a Lessee Funded Account or the Security Deposit Account related to the Aircraft subject to such sale or other disposition shall be applied on a basis consistent with the terms of the Lease related to

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such Aircraft, if any, or as otherwise provided by the relevant agreements related to such sale or other disposition.

Section 3.07 Calculation Date Calculations. (a) Calculation of Required Amounts. The Cash Manager shall determine, as soon as practicable after each Calculation Date, but in no event later than four Business Days preceding the immediately succeeding Payment Date, based on information known to the Cash Manager or Relevant Information (and, without limitation, in the case of clauses (i) (as it relates to the Required Amount with respect to the Senior Cash Collateral Account (if established)), (ii), (iii) (as it relates to clauses (ii)(B), (iii)(B) and (xi) of Section 3.09(a) and clauses (iv)(B) and (ix) of Section 3.09(b)), (iv), (vi) and (vii) below, a Written Notice from the Administrative Agent received by the Cash Manager no later than 10:00 a.m. New York City time on the day after such Calculation Date setting forth the amounts required for the calculations in such clauses) provided to the Cash Manager, the Collections received during the period commencing on the close of business on the preceding Calculation Date and ending on the close of business on such Calculation Date and calculate the following amounts:

(i) the balance of funds on deposit in the Accounts on the Calculation Date, the Required Amount with respect to the Senior Cash Collateral Account (if established) and the amount available under all Eligible Credit Facilities on such Calculation Date;

(ii) the Required Expense Amount for such Payment Date and any amount to be deposited in respect of Permitted Accruals as of such Calculation Date;

(iii) the Available Collections on such Calculation Date (separately listing any Senior Hedge Payments, Subordinated Hedge Payments and Hedge Breakage Costs); provided that, in making such determination, the Cash Manager may assume that any amount from a Hedge Provider to be paid on such Payment Date pursuant to any Hedge Agreement will be paid on such Payment Date;

(iv) the net Segregated Funds, if any, and any amounts on deposit in the Security Deposit Account available to be transferred into the Collections Account on such Calculation Date as and to the extent expressly provided herein;

(v) any amount to be transferred from any Aircraft Purchase Account and the Aircraft Conversion Account to the Collections Account as provided, respectively, in Section 3.05(c) or in Section 3.04(g);

(vi) the Required Amount for any Cash Collateral Account and any amounts to be transferred in respect of Eligible Credit Facilities under Section 3.09(a)(iv) or Section 3.09(b)(ii); and

(vii) the Contribution Amounts, if any, made prior to such Calculation Date.

(b) Calculation of Interest and Other Amounts. The Cash Manager shall, not later than four Business Days prior to each Payment Date, make the following calculations or determinations with respect to Interest Amounts, Policy Premiums and fees of the Initial Liquidity Provider due on such Payment Date:

(i) based on Relevant Information provided to it by the Reference Agent, the applicable interest rate on each subclass of Floating Rate Notes based on LIBOR determined on the Reference Date for the relevant Interest Accrual Period;

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(ii) the Interest Amount in respect of each class or subclass of Floating Rate Notes on such Payment Date;

(iii) the Interest Amount in respect of each class or subclass of Fixed Rate Notes on such Payment Date;

(iv) the DSCR Aggregate Interest Amount for such Payment Date;

(v) the Policy Premium due and owing to the Policy Provider on such Payment Date;

(vi) any interest and fees due and owing to the Initial Liquidity Facility Provider on such Payment Date; and

(vii) any interest due and owing to the Policy Provider on, or interest amounts that constitute, Policy Provider Obligations.

(c) Calculation of Principal Payment Amounts. The Cash Manager shall, not later than four Business Days prior to each Payment Date, calculate or determine the following with respect to principal payments due on such Payment Date and certain other amounts in respect of such Payment Date:

(i) the Outstanding Principal Balance of each class and subclass of the Notes on such Payment Date immediately prior to any principal payment on such date;

(ii) the Assumed Base Value for each Aircraft and the Assumed Portfolio Value on such Payment Date;

(iii) the DSCR Available Cash on such Payment Date (with the amount of Re-leasing Expenses with respect to such Payment Date to be certified by the Cash Manager based on information provided to it by the Servicer in accordance with the Servicing Agreement on or prior to the fifth Business Day prior to each Payment Date);

(iv) the Minimum Principal Payment Amount on such Payment Date with respect to each subclass of the Notes;

(v) the Aggregate Minimum Principal Payment Amount on such Payment Date with respect to each subclass of the Notes;

(vi) the DSCR Aggregate Minimum Principal Payment Amount with respect to such Payment Date;

(vii) the DSCR on such Payment Date;

(viii) the Outstanding Principal Balance, if any, to be paid with respect to each subclass of the Notes; and

(ix) the Principal Conversion Amount, the Class A Shareholder Conversion Deposits and the Class A Shareholder Amounts.

(d) Calculation of Refinancing Amounts. The Cash Manager shall, not later than four Business Days prior to each Payment Date on which a Refinancing or Redemption of any class or

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subclass of Notes is scheduled to occur, perform the calculations necessary to determine the Redemption Price of and the accrued and unpaid interest on such Notes.

(e) Application of the Available Collections. The Cash Manager shall, not later than 1:00 p.m. New York City time on the third Business Day prior to each Payment Date, determine the amounts to be applied on such Payment Date to make each of the payments contemplated by Section 3.09(a) or 3.09(b), as applicable, setting forth separately, the amount to be applied on such Payment Date pursuant to each clause of Section 3.09(a) or 3.09(b), as applicable, including, where applicable, the allocation of principal of the Notes in accordance with Section 3.10.

(f) Aircraft Acquisitions. No later than one Business Day prior to the anticipated Acquisition Date for each Aircraft, the Administrative Agent shall determine, and give the Trustee and Security Trustee a Written Notice setting out the amounts to be paid under Section 3.03 or Section 3.05 in respect of the applicable Aircraft (as applicable), the Acquisition Date and certifying that the conditions to the purchase of such Aircraft set forth in each relevant Acquisition Agreement have been fulfilled.

(g) Calculations in respect of Facility Drawings. As soon as practicable after each Calculation Date, but in no event later than 12:00 p.m. New York City time on the date which is the fourth Business Day prior to each Payment Date, the Cash Manager shall determine (after giving effect to any withdrawal from the Senior Cash Collateral Account (if established) and to the application of Available Collections in accordance with the applicable payment priorities set forth in Section 3.09(a)), whether a shortfall exists as of such Calculation Date in the Available Collections (i) to pay on the next succeeding Payment Date the Required Expense Amount due on such Payment Date (any such shortfall in respect of the Required Expense Amount on any Payment Date, a “Required Expenses Shortfall”), (ii) to pay the Senior Hedge Payments due on such Payment Date (any such shortfall of Senior Hedge Payments, the “Senior Hedge Payments Shortfall”), and (iii) to pay the accrued and unpaid interest due on the Class G-1 Notes on such Payment Date (any such shortfall in respect of the Interest Amount due with respect to the Class G-1 Notes, a “Liquidity Facility Interest Class G Shortfall”).

(h) Calculations in respect of Policy Drawings. The Cash Manager shall make the following calculations or determinations in respect of the Policy and the Class G-1 Notes:

(i) as soon as practicable after each Calculation Date, but in no event later than 12:00 p.m. New York City time on the date which is the third Business Day prior to each Payment Date, determine (after giving effect to all payments and transfers to be made with respect to such Payment Date and the application of Available Collections in accordance with the applicable payment priorities set forth in Section 3.09, the application of Facility Drawings to be made pursuant to the Initial Liquidity Facility (or drawings under any Replacement Liquidity Facility), any withdrawals from the Liquidity Facility Reserve Account or the Senior Cash Collateral Account (if established) and any withdrawals from the Cash Collateral Account, if any, pursuant to Section 3.01(q)), whether a shortfall will exist as of the next succeeding Payment Date in the Available Collections and such other amounts to make payment on such Payment Date of Accrued Class G Interest due on the Class G-1 Notes on such Payment Date (any such shortfall in respect of the Class G-1 Notes on any Payment Date, an “Interest Class G Shortfall” therefor);

(ii) as soon as practicable after the Calculation Date next succeeding the date of a sale or other disposition of an Aircraft (not including any Aircraft acquired by way of

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contribution) or of an Issuer Subsidiary which owns an Aircraft (not including any Aircraft acquired by way of contribution), in each case by or on behalf of, or at the direction of the Controlling Party after an Acceleration of the Notes, but in no event later than 12:00 p.m. New York City time on the date which is the third Business Day prior to the next succeeding Payment Date, determine the shortfall, if any, between the Class G-1 Note Target Price (determined as of the date of such sale or other disposition) of the disposed Aircraft (or of the Aircraft owned by the disposed Issuer Subsidiary) and the Net Sale Proceeds from the sale or other disposition of the relevant Aircraft (or of the Issuer Subsidiary owning such Aircraft) (the “Deficiency Class G Shortfall” with respect to the next succeeding Payment Date);

(iii) as soon as practicable after each Calculation Date on or following the date that is twenty-four months after the date (as determined by the Trustee and notified to the Policy Provider in writing) of the issuance of a Default Notice or an Acceleration of the Notes, but in no event later than 12:00 p.m. New York City time on the date which is the third Business Day prior to the immediately succeeding Payment Date, determine (after giving effect to all payments and transfers to be made with respect to such Payment Date and the application of Available Collections in accordance with the applicable payment priorities set forth in Section 3.09 and the application of any Facility Drawings (or drawings under any Replacement Liquidity Facility) and the application of any withdrawals from the Liquidity Facility Reserve Account or the Senior Cash Collateral Account (if established) and any withdrawals from the Cash Collateral Account, if any, in accordance with the terms hereof) the shortfall (determined as of such Calculation Date), if any, of Available Collections and such other amounts for the payment on the next succeeding Payment Date of the Insured Minimum Principal Payment Amount, if any, of the Class G-1 Notes for such Payment Date (with respect to any such Payment Date, a “Minimum Class G Principal Shortfall”);

(iv) as soon as practicable after the Calculation Date immediately preceding the Final Maturity Date for the Class G-1 Notes, but in no event later than 12:00 p.m. New York City time on the date which is the third Business Day prior to the applicable Final Maturity Date, determine (after giving effect to all payments and transfers to be made hereunder and the application of Available Collections in accordance with the applicable payment priorities set forth in Section 3.09 on or prior to the Final Maturity Date and the application of any Facility Drawings (or drawings under any Replacement Liquidity Facility), any withdrawals from the Liquidity Facility Reserve Account or the Senior Cash Collateral Account (if established) and any withdrawals from the Cash Collateral Account, if any, as set forth in Section 3.01(q), in each case, on such Final Maturity Date) (determined as of such Calculation Date) whether any shortfall will exist in the amount necessary for the payment in full of the Outstanding Principal Balance of the Class G-1 Notes on the Final Maturity Date therefor (less any Policy Drawings previously paid in respect of principal of the Class G-1 Notes) together with accrued and unpaid interest thereon (at the Applicable Rate of Interest for the Class G-1 Notes) (calculated as of such Final Maturity Date but excluding any accrued and unpaid premium in respect of the Class G-1 Notes on such Final Maturity Date) (any such shortfall of principal and interest in respect of the Class G-1 Notes on the Final Maturity Date, the “Outstanding Amount” therefor); and

(v) as promptly as practicable after the date of any Avoided Payment, calculate the amount of such Avoided Payment.

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(i) Notification of Calculations in respect of Available Minimum Principal Amounts. So long as a Default Notice has not been issued, an Acceleration Default has not occurred or a DSCR Failure has not occurred, as soon as practicable after each Calculation Date, but in no event later than 12:00 p.m. (New York City time) on the date which is the third Business Day prior to the related Payment Date, the Cash Manager shall provide notice to the Issuer of its calculations of (i) the amount (the “Available Minimum Principal Amount”) available (after giving effect to all Prior Ranking Amounts) to pay the Minimum Principal Payment Amount for the Class G Notes (for application in accordance with Section 3.09(a)) for such Payment Date and (ii) the Principal Conversion Amount with respect to any proposed Aircraft Conversion and whether the Available Minimum Principal Amount (after giving effect to any prior transfer to the Aircraft Conversion Account of any Available Minimum Principal Amounts in respect of a particular Aircraft Conversion) is sufficient to fund such Principal Conversion Amount in full. As soon as practicable after receipt of such calculations, but in no event later than 12:00 p.m. (New York City time) on the date which is the second Business Day prior to the related Payment Date, the Issuer shall notify the Cash Manager in writing as to whether the Available Minimum Principal Amount should be applied in accordance with Section 3.09(a) towards the Minimum Principal Payment Amount payable for such Payment Date or should be transferred to the Aircraft Conversion Account (such election to transfer the Available Minimum Principal Amount (or such lesser amount as may be necessary to fund the Principal Conversion Amount for such Aircraft Conversion) to the Aircraft Conversion Account, a “Principal Conversion Election”). For the avoidance of doubt, the sum of the Available Minimum Principal Amounts transferred to the Aircraft Conversion Account in respect of any proposed Aircraft Conversion may not exceed the Periodic Principal Conversion Limit for such Aircraft Conversion. In the absence of a Principal Conversion Election, the Available Minimum Principal Amount shall be applied in accordance with the payment priorities set forth in Section 3.09(a) hereof. A Principal Conversion Election with respect to any Aircraft Conversion in relation to any Payment Date will be only permitted if a Holder Conversion Election with respect to such Aircraft Conversion or a Class A Shareholder contribution to the capital of the Issuer (or a combination thereof) in relation to such Payment Date is also made.

(j) Notification of Calculations in respect of Available Holder Amounts. So long as a Default Notice has not been issued, an Acceleration Default has not occurred or a DSCR Failure has not occurred, as soon as practicable after each Calculation Date, but in no event later than 12:00 p.m. (New York City time) on the date which is the third Business Day prior to the related Payment Date, the Cash Manager shall provide notice to the Issuer of its calculations of (i) the amount (the “Available Holder Amount”) available (after giving effect to all Prior Ranking Amounts) to pay the holders of the Class A Shares in accordance with Section 3.09(a) for such Payment Date and (ii) the Class A Shareholder Conversion Amount with respect to any proposed Aircraft Conversion and whether such Available Holder Amount (after giving effect to any prior transfers to the Aircraft Conversion Account of Available Holder Amounts in respect of a particular Aircraft Conversion and any Contribution Amounts) is sufficient to fund such Class A Shareholder Conversion Amount in full. As soon as practicable after receipt of such calculations, but in no event later than 12:00 p.m. (New York City time) on the date which is the second Business Day prior to the related Payment Date, the Issuer (without the consent of the Class A Shareholders) shall notify the Cash Manager in writing as to whether the Available Holder Amount should be transferred to the Capital Account or should, in lieu of such transfer, be transferred in whole or in part to the Aircraft Conversion Account to fund the Class A Shareholder Conversion Amount (such election to transfer the Available Holder Amount (or such lesser amount as may be necessary to fund the Conversion Amount for such Aircraft Conversion) to the Aircraft Conversion Account, a “Holder Conversion Election” and, together with a Principal Conversion Election, a “Conversion Election”). The Available Holder Amounts shall

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constitute property of the Issuer until applied towards the payment of the applicable Conversion Amount. For the avoidance of doubt, the sum of the Available Holder Amounts transferred to the Aircraft Conversion Account in respect of any proposed Aircraft Conversion may not exceed the Class A Shareholder Conversion Amount for such Aircraft Conversion. In the absence of a Holder Conversion Election, the Available Holder Amount shall be deposited in the Capital Account and applied in accordance with the payment priorities set forth in Section 3.09(a) hereof.

Section 3.08 Payment Date First Step Withdrawals and Transfers. Two Business Days prior to each Payment Date, the Cash Manager shall direct the Operating Bank to make, on such Payment Date, the following withdrawals from and transfers to the Accounts in each case as specified in a Written Notice of the Cash Manager to the Trustee, the Security Trustee and the Operating Bank:

(a) transfer the net proceeds of any Refinancing of any Notes from the Refinancing Account to any Cash Collateral Account established for the related Refinancing Notes (up to the Required Amount therefor in accordance with Section 3.03) and the balance to the applicable Note Accounts, in each case in accordance with Sections 2.10(b) and 5.02(f);

(b) transfer any amounts on deposit in the Defeasance/Redemption Account in respect of any Redemption that is not a Refinancing to the applicable Note Accounts;

(c) (i) transfer from each Lessee Funded Account to the Security Deposit Account or the Collections Account any available Segregated Funds that are no longer required to be maintained (including by way of the termination of the applicable Leases) in a segregated account under the applicable Leases, and to the Expense Account amounts from the applicable Lessee Funded Account that are being repaid to the applicable Lessees, and (ii) transfer from the Security Deposit Account to the Expense Account amounts constituting security deposits relating to expired or terminated Leases that are due and owing to the relevant Lessees under such expired or terminated Leases;

(d) transfer from the Security Deposit Account to the Collections Account any security deposits relating to an expired or terminated Lease that are not required under the terms of a subsequent Lease to be retained in the Security Deposit Account as provided in Section 3.01(e);

(e) transfer from the Collections Account to the relevant Lessee Funded Accounts the amount of any Segregated Funds then on deposit in the Collections Account;

(f) transfer from the Collections Account to the Security Deposit Account the amount of any security deposits that are not Segregated Funds then on deposit in the Collections Account;

(g) transfer from any Account (other than the Collections Account, the Aircraft Conversion Account, the Initial Liquidity Payment Account, the Liquidity Facility Reserve Account, the Senior Cash Collateral Account (if established) and the Aircraft Purchase Accounts) to the Collections Account the amount of Investment Earnings (net of losses and investment expenses), if any, on investments of funds on deposit therein during the preceding Interest Accrual Period, except that (i) earnings on any portion of the funds on deposit in any Account required under the terms of the related Lease to be repaid to the related Lessee shall be retained therein and (ii) in the case of the Aircraft Purchase Account, any earnings on any portion of the purchase price funds in respect of an Aircraft on deposit in the Aircraft Purchase Account shall be retained therein for application in accordance with Section 3.05 or Section 3.08;

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(h) transfer from each Aircraft Purchase Account to the Collections Account the amount of Aircraft Subsequent Rent Payment, if any, for the related Aircraft;

(i) transfer to the Expense Account, as directed by the Cash Manager, such amounts as are required to pay any fees, expenses or other amounts (including Taxes) required to maintain the Issuer in good standing under the laws of Bermuda and maintain its tax-exempt status;

(j) after the giving of a Default Notice, during the continuation of an Acceleration Default or following the Interest Accrual Period in which an Aircraft Sale occurs with respect to the last remaining Aircraft, transfer any amounts remaining in the relevant Lessee Funded Account (other than amounts required to be maintained in such account pursuant to the terms of the related Lease or Aircraft Agreement) into the Collections Account;

(k) transfer from the Collections Account to the Aircraft Conversion Account an amount equal to the Available Minimum Principal Amount (or a portion thereof) to fund the Principal Conversion Amount (or portion thereof) pursuant to Section 3.07(i) and the Available Holder Amount (or a portion thereof) pursuant to Section 3.07(i) to fund the Class A Shareholder Conversion Amount (or a portion thereof) in connection with a Conversion Election;

(l) after payment in full of all Conversion Payments to be made for any Aircraft Conversion, transfer any balance of the amount originally deposited in the Aircraft Conversion Account in respect of such Aircraft Conversion from the Aircraft Conversion Account to the Collections Account for application in accordance with Section 3.09; and

(m) after the giving of a Default Notice, the occurrence of an Acceleration Default, or the occurrence of a DSCR Failure, transfer any amounts on deposit in the Aircraft Conversion Account (other than amounts budgeted for an Aircraft Conversion in progress) into the Collections Account for application in accordance with Section 3.09.

Section 3.09 Payment Date Second Step Withdrawals. (a) On each Payment Date, after the withdrawals and transfers provided for in Section 3.08 have been made, the Cash Manager shall direct the Operating Bank to distribute from the Collections Account (or retain in the Collections Account, if so indicated in the relevant clause below) in each case as specified in a Written Notice of the Cash Manager to the Trustee, the Security Trustee and the Operating Bank at least two Business Days prior to such Payment Date, the amounts set forth below in the order of priority set forth below but, in each case, only to the extent that all Prior Ranking Amounts then required to be paid (or retained in the Collections Account, as applicable) have been paid (or retained in the Collections Account, as applicable); provided that the amount to be paid shall be reduced in inverse order of priority by the amount of any payment by a Hedge Provider under a Hedge Agreement that was assumed pursuant to Section 3.07(a)(iii) to be, but has not in fact been, paid on such Payment Date. All payments of Available Collections to be made to or for the account of Holders of any subclass of Notes pursuant to this Section 3.09 shall be made through a direct transfer of funds to the applicable Note Account with respect to such subclass of Notes.

(i) to the Expense Account, an amount such that the amount on deposit therein is at least equal to the Required Expense Amount for such Payment Date (including Expenses due and payable to the Servicer, the Administrative Agent or the Cash Manager, Expenses due and payable to Lessees, Credit Facility Expenses due and payable to the Initial Liquidity Facility Provider and Policy Expenses due and payable to the Policy Provider);

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(ii) in no order of priority inter se, but pro rata as to the amounts described below in clauses (A), (B) and (C) as follows: (A) to the Note Accounts for each subclass of Notes, the Interest Amount on such subclass of Notes (other than any portion thereof constituting any interest described in clause (b) of the definition of Interest Amount to the extent the Policy Provider has made timely payment in respect of any unpaid Interest Class G Shortfall due on the related Payment Date on such subclass of Notes) in no order of priority inter se but pro rata according to the amount of accrued and unpaid interest on each such subclass of Notes less the sum of (1) the amount of any Interest Class G Drawing, if any, relating to such subclass of Notes paid on or before such Payment Date by the Policy Provider under the Policy prior to such Payment Date to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date and (2) the amount of any Facility Drawing, if any, in respect of the Interest Amount due on such subclass of Notes paid on or before such Payment Date by the Initial Liquidity Facility Provider under the Initial Liquidity Facility to the extent not theretofore reimbursed to the Initial Liquidity Facility Provider as of such Payment Date; (B) pro rata, to any Hedge Provider, an amount equal to any Senior Hedge Payment due (and not paid by or on behalf of the Issuer) from any Issuer Group Member pursuant to any Hedge Agreement; and (C) to the Policy Provider, an amount equal to accrued interest (at the Applicable Rate of Interest with respect to the related Notes) on the amount of a Policy Drawing paid by the Policy Provider under the Policy in respect of such subclass of Notes prior to such Payment Date to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date;

(iii) to the Policy Provider, (A) the amounts so paid by the Policy Provider in respect of any such Interest Class G Drawings referred to in clause (ii) above and (B) an amount equal to any Senior Hedge Payment made by the Policy Provider on behalf of an Issuer Group Member, in each case to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date;

(iv) first, in no order of priority inter se, but pro rata as to the amounts described in clauses (A), (B) and (C) as follows: (A) to the Liquidity Facility Reserve Account (following a Downgrade Drawing, a Final Drawing or a Non-Extension Drawing), such amount so that the amount on deposit in such Account is equal to the applicable Required Amount therefor, (B) to any Persons providing any Eligible Credit Facilities, any Credit Facility Advance Obligations payable to such Persons under the terms of their respective Eligible Credit Facilities (after giving effect to any payments made by the Policy Provider to the Persons providing such Eligible Credit Facilities as provided in the definition of “Controlling Party”) and, to the extent any such Eligible Credit Facility consists of a Cash Collateral Account (other than the Liquidity Facility Reserve Account and the Senior Cash Collateral Account (if established)), such amount so that the amount on deposit in each such Account is equal to the applicable Required Amount therefor and (C) if the Policy Provider has paid any such Credit Facility Obligations, as so provided, to the Policy Provider, the amount of such payments to the extent not theretofore reimbursed to the Policy Provider (plus interest accrued thereon at the applicable rate under such Eligible Credit Facility that would have otherwise been payable to the Persons providing such Eligible Credit Facility from the date of such payment) and second to the Senior Cash Collateral Account (if established), such amount so that the amount on deposit in such Account is equal to the applicable Required Amount therefor;

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(v) to the Policy Provider, any Policy Premium due and owing to the Policy Provider and any accrued and unpaid interest on any Policy Premium and all other Policy Provider Obligations owed to the Policy Provider (excluding any Policy Redemption Premium or amounts payable pursuant to clause (vii), (ix) and (x) below);

(vi) to the Note Accounts for each subclass of the Notes, in the order of priority by subclass set forth in Section 3.10, an amount equal to the Aggregate Minimum Principal Payment Amount of the Notes for such Payment Date less the amounts of Policy Drawings in respect of the principal (such amount in the aggregate not to exceed such Aggregate Minimum Principal Payment Amount for such date) of the Notes, if any, paid by the Policy Provider under the Policy for periods prior to such Payment Date to the extent not theretofore reimbursed to the Policy Provider;

(vii) to the Policy Provider, an amount, not to exceed the Aggregate Minimum Principal Payment Amount of the Notes for such Payment Date, equal to the amount of any such Policy Drawings referred to in clause (vi) above in respect of such principal so paid by the Policy Provider under the Policy prior to such Payment Date to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date;

(viii) to the Expense Account, such amount as an accrual (the “Permitted Accruals”) in respect of any Modification Payments or Refinancing Expenses as the Cash Manager (after consultation with the Administrative Agent) shall determine;

(ix) to pay Special Indemnity Payments to the applicable party pro rata;

(x) to the Policy Provider, an amount equal to accrued interest (at the Excess Policy Rate) on any amounts paid by the Policy Provider under the Policy prior to such Payment Date and to the extent not theretofore reimbursed by the Policy Provider as of such Payment Date;

(xi) payments to Hedge Providers, pro ratainter se, that are Subordinated Hedge Payments;

(xii) to the Class B Shareholder Account, in an amount equal to the Class B Share Payment, if any; and

(xiii) to the Capital Account, which amounts therein, to the extent determined by the Board, shall be available to be paid as a dividend or distribution to the holders of the Class A Shares.

(b) Anything to the contrary contained in Section 3.09(a) notwithstanding, following the earliest of (i) delivery to the Issuer and the Cash Manager of a Default Notice or during the continuance of an Acceleration Default, (ii) the Expected Final Payment Date and (iii) during the continuance of a DSCR Failure, the allocation of payments described in Section 3.09(a) shall not apply and the Cash Manager shall direct the Operating Bank in writing to cause all amounts on deposit in the Collections Account to be applied on each Payment Date in the following order of priority:

(i) to the Expense Account, an amount such that the amount on deposit therein is equal to the Required Expense Amount for such Payment Date (including Expenses due and payable to the Servicer or the Administrative Agent, Expenses due and payable to the Lessees, Credit Facility Expenses due and

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payable to the Initial Liquidity Facility Provider and Policy Expenses due and payable to the Policy Provider);

(ii) in no order of priority inter se, but pro rata as to the amounts described in clauses (A) and (B) as follows: (A) to any Persons providing any Eligible Credit Facilities, pro ratainter se, any Credit Facility Advance Obligations payable to such Persons under the terms of their respective Eligible Credit Facilities (after giving effect to any payments made by the Policy Provider to the Persons providing such Eligible Credit Facilities as provided in the definition of “Controlling Party”) and (B) if the Policy Provider has paid any such Credit Facility Advance Obligations, as so provided, to the Policy Provider, the amount of such payments to the extent not theretofore reimbursed to the Policy Provider (plus interest accrued thereon at the applicable rate under such Eligible Credit Facility that would have otherwise been payable to the Persons providing such Eligible Credit Facility from the date of such payment);

(iii) to the Policy Provider, any Policy Premium due and payable to the Policy Provider and any accrued and unpaid interest on any Policy Premium;

(iv) in no order of priority inter se, but pro rata as to the amounts described below in clauses (A), (B) and (C) as follows: (A) first, to the Note Accounts for each subclass of Notes, the Interest Amount on such subclass of the Notes (other than any portion thereof constituting any interest described in clause (b) of the definition of Interest Amount to the extent the Policy Provider has made timely payment in respect of any unpaid Interest Class G Shortfall due on the related Payment Date on such subclass of Notes) in no order of priority inter se but pro rata according to the amount of accrued and unpaid interest on such subclass of the Notes less the sum of (1) the amount of any Interest Class G Drawing, if any, relating to such subclass of the Notes paid on or before such Payment Date by the Policy Provider under the Policy to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date and (2) the amount of any Facility Drawing, if any, in respect of the Interest Amount due on such subclass of the Notes paid on or before such Payment Date by the Initial Liquidity Facility Provider under the Initial Liquidity Facility to the extent not theretofore reimbursed to the Initial Liquidity Facility Provider as of such Payment Date and second, to the Policy Provider, the amounts so paid by the Policy Provider in respect of such Interest Class G Drawings to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date, (B) pro rata, to any Hedge Provider, such amounts required to make any Senior Hedge Payments due (and not paid by or on behalf of the Issuer) to such Hedge Provider pursuant to any Hedge Agreement, (C) to the Policy Provider, an amount equal to the accrued interest (at the Applicable Rate of Interest with respect to the relevant subclass of Notes) on any amounts paid by the Policy Provider under the Policy in respect of a subclass of Notes prior to such Payment Date to the extent not theretofore reimbursed to the Policy Provider and (D) to the Policy Provider, an amount equal to any Senior Hedge Payments made by the Policy Provider made by the Policy Provider on behalf of an Issuer Group Member to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date;

(v) first, to the Note Accounts for each subclass of Notes, an amount equal to the Aggregate Minimum Principal Payment Amount of the Notes for such Payment Date less the amounts of Policy Drawings (such amount in the aggregate not to exceed such Aggregate Minimum Principal Payment Amount for such date) in respect of the principal of the Notes, if any, paid by the Policy Provider under the Policy for periods

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prior to the related Payment Date to the extent not theretofore reimbursed to the Policy Provider and second, to the Policy Provider, an amount, not to exceed in the Aggregate Minimum Principal Payment Amount of the Notes for such Payment Date, equal to the amount of such Policy Drawings in respect of such principal so paid by the Policy Provider under the Policy prior to such Payment Date to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date;

(vi) first, to the Note Accounts for each subclass of Notes, in the order of priority by subclass set forth in Section 3.10, an amount equal to the Outstanding Principal Balance of such subclass of Notes in no order of priority inter se but pro rata according to the amount of the principal of such subclass of Notes less the amounts of Policy Drawings in respect of the principal of such subclass of Notes, if any, paid by the Policy Provider under the Policy for periods prior to such Payment Date to the extent not theretofore reimbursed to the Policy Provider and second, to the Policy Provider, an amount equal to the amount of Policy Drawings in respect of principal of the Notes paid by the Policy Provider under the Policy prior to such Payment Date to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date;

(vii) an amount equal to accrued interest (at the Excess Policy Rate) on any amounts paid by the Policy Provider under the Policy prior to the related Payment Date and to the extent not theretofore reimbursed to the Policy Provider as of such Payment Date, Special Indemnity Payments owed to the Policy Provider and all other Policy Provider Obligations;

(viii) to pay Special Indemnity Payments to the applicable party pro rata (except for such payments made to the Policy Provider pursuant to clause (vii) above);

(ix) payments to Hedge Providers, pro ratainter se, that are Subordinated Hedge Payments;

(x) to the Class B Shareholder Account, in an amount equal to the Class B Share Payment, if any; and

(xi) to the Capital Account, which amounts therein, to the extent determined by the Board, shall be available to be paid as a dividend or distribution to the holders of the Class A Shares.

Section 3.10 Allocations of Principal Payments Among Subclasses of the Notes. To the extent that any payment of principal pursuant to Section 3.09(a) is allocable to any class of Notes on any Payment Date, such payment will be applied to repay all Notes in such class in the following order of priority: (i) first, to each subclass of such class of Notes, in order of the earliest issued subclass, the excess, if any, of the Outstanding Principal Balance of each such subclass over the product of the applicable Extended Pool Factor on such Payment Date and the initial principal balance of each such subclass (any such difference, the “Extension Amount”); provided that in the case of two or more subclasses issued on the same date, the Available Collections will be applied to each such subclass pro rata according to the amount of, but not to exceed, the Extension Amount of such subclass, (ii) second, to each such subclass, in no order of priority inter se, but pro rata according to the amount of, but not to exceed, the excess, if any, of the Outstanding Principal Balance of each such subclass (after giving effect to any payment under clause (i) above) over the product of the applicable Pool Factor on such Payment Date and the initial principal balance of each such subclass, (iii) third, to each such subclass with an Expected Final Payment Date that falls on or before such Payment Date, in order of the earliest issued

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subclass; provided that in the case of two or more subclasses issued on the same date, the Available Collections will be applied to such subclasses in order of the subclass with the earliest Expected Final Payment Date and, with respect to any two or more subclasses having the same Expected Final Payment Date, the Available Collections will be applied to such subclasses pro rata according to the Outstanding Principal Balance of each such subclass (after giving effect to any payment under clauses (i) and (ii) above) on such Payment Date and (iv) fourth, to each such subclass in order of the earliest Expected Final Payment Date, provided, in the case of two or more subclasses having the same Expected Final Payment Date, in no order of priority inter se, but pro rata, according to the Outstanding Principal Balance of each such subclass (after giving effect to any payment under clauses (i), (ii), (iii) and (iv) above) on such Payment Date.

Section 3.11 Certain Redemptions; Certain Premiums. (a) Optional Redemption. Subject to the provisions of Section 3.11(c), on any Payment Date the Issuer may elect to redeem (including in connection with any Refinancing) any subclass of the Notes in whole or in part, out of amounts available in the Defeasance/Redemption Account or, in the case of a Refinancing, the Refinancing Account, for such purpose, if any, other than, in either such case, any funds constituting part of the Available Collections, at the Redemption Price plus any accrued and unpaid interest (after giving effect to any payment thereof on such Redemption Date under Section 3.09) on the Notes to be redeemed on the Redemption Date plus the Policy Redemption Premium, if any; provided that such a redemption may only occur upon the prior written consent of the Policy Provider (except that a redemption in full of the Initial Notes shall not require any such consent if a Policy Non-Consent Event occurs in connection with such redemption) and after the giving of a Default Notice or the Acceleration of any Notes, the Notes may be redeemed only in whole but not in part pursuant to this Section 3.11(a); and providedfurther that Written Notice of any such Redemption shall be given by the Issuer (or the Cash Manager on its behalf) to the Trustee and, for so long as any Notes are listed on the Irish Stock Exchange, to the Listing Agent and the Irish Stock Exchange not less than thirty days and not more than forty-five days prior to such Redemption Date.

(b) Redemption for Taxation Reasons. Subject to the provisions of Section 3.11(c), if, at any time,

(i) the Issuer is, or on the next succeeding Payment Date will be, required to make any withholding or deduction under the laws or regulations of any applicable tax authority with respect to any payment on any subclass of Notes; or

(ii) the Issuer is or will be subject to any circumstance (whether by reason of any law, regulation, regulatory requirement or double-taxation convention, or the interpretation or application thereof, or otherwise) that has resulted or will result in the imposition of a tax (whether by direct assessment or by withholding at source) or other similar imposition by any jurisdiction that would (A) materially increase the cost to the Issuer of making payments in respect of any subclass of Notes or of complying with its obligations under or in connection with the Notes; or (B) otherwise obligate the Issuer or any of its subsidiaries to make any material payment on, or calculated by reference to, the amount of any sum received or receivable by the Issuer, or by the Cash Manager on behalf of the Issuer Group as contemplated by the Cash Management Agreement;

then the Issuer shall inform the Trustee in writing at such time of any such requirement or imposition and shall use commercially reasonable efforts to avoid the effect of the same; provided that no actions shall be taken by the Issuer to avoid such effects without a Rating Agency Confirmation and the prior written consent of the Policy Provider (except that a redemption in full of the Initial Notes shall not require the consent of the Policy Provider if a Policy Non-Consent Event occurs in connection with such

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redemption). If, after using its commercially reasonable efforts to avoid the adverse effects described above, any Issuer Group Member has not avoided such effects, the Issuer may, at its election, redeem the affected subclass of Notes on any Payment Date, in whole, at the Outstanding Principal Balance thereof plus accrued and unpaid interest (after giving effect to any payment thereof on such Redemption Date under Section 3.09) thereon, but without premium, after paying the Required Expense Amount and all unpaid Policy Provider Obligations, Credit Facility Obligations and any amounts payable to any such Hedge Provider as of the Redemption Date to such Payment Date and plus the Policy Redemption Premium, if any; provided, however, that any such Redemptions may not occur more than 30 days prior to such time as the requirement or imposition described in (i) or (ii) above is to become effective and each of the Trustee and the Policy Provider shall have received a certification from the Issuer certifying that the applicable Issuer Group Member has been unable, after using such commercially reasonable efforts, to avoid the adverse effects described above; providedfurther that Written Notice of any such Redemption shall be given by the Issuer (or the Cash Manager on its behalf) to the Trustee, the Policy Provider not less than 30 days and not more than 45 days before such Redemption and, for so long as any Notes are listed on the Irish Stock Exchange and traded on the Irish Stock Exchange, to the Listing Agent and the Irish Stock Exchange not less than thirty days and not more than forty-five business days prior to the Redemption Date for such Redemption.

(c) Method of Redemption. Upon receipt of notice from the Issuer or the Cash Manager under Section 3.11(a) or 3.11(b), the Trustee shall give Written Notice in respect of any such redemption of any subclass of Notes under Section 3.11(a) or 3.11(b) (a “Redemption”) to the Depositary, the Initial Liquidity Facility Provider and the Policy Provider, at least ten days before the Redemption Date for such Redemption. The Depositary shall forward such Notice of Redemption to DTC or its nominee with any additional instructions applicable to owners of Beneficial Interests. If a Redemption is of less than all of the Notes of any subclass, Notes of such subclass to be redeemed will be repaid pro rata according to the Outstanding Principal Balance of each such subclass, to the extent moneys are available. Except in the case of a Refinancing, the Trustee shall not deliver any notice under this Section 3.11(c) unless and until the Trustee shall have received certification that all conditions precedent to such Redemption have been satisfied and evidence satisfactory to it that the amounts required to be deposited pursuant to Section 3.11(d) are, or will on or before the Redemption Date be, deposited in the Defeasance/Redemption Account. Each notice in respect of a Redemption given pursuant to this Section 3.11(c) shall state (i) the applicable Redemption Date, (ii) the Trustee’s arrangements for making payments in respect of such Redemption, (iii) the Redemption Price or the Outstanding Principal Balance of each subclass of Notes to be redeemed, (iv) in the case of a Redemption of the Notes of any subclass in whole, the Notes of such subclass to be redeemed in whole must be surrendered to the Trustee to collect the Redemption Price plus accrued and unpaid interest on such Notes and (v) in the case of a Redemption of the Notes of any subclass in whole, that, unless the Issuer defaults in the payment of the Redemption Price and any accrued and unpaid interest thereon, interest on the subclass of Notes called for Redemption shall cease to accrue on and after the Redemption Date.

(d) Deposit of Redemption Amount. On or before 10:00 a.m. (New York City time) on the Redemption Date in respect of a Redemption under Section 3.11(a), the Issuer shall, to the extent an amount equal to the Redemption Price of Initial Notes to be redeemed and all accrued and unpaid interest (after giving effect to any payment thereof on such Redemption Date under Section 3.09) thereon, all unpaid Policy Provider Obligations and Credit Facility Obligations (only in respect of any amounts drawn from the Liquidity Facility Reserve Account or Facility Drawings, as the case may be, in respect of Liquidity Facility Interest Class G Shortfalls) as of the Redemption Date is not then held on deposit therein, deposit or cause to be deposited in the Defeasance/Redemption Account or, in the case of a Refinancing, the Refinancing Account, other

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than, in either case, any funds constituting part of the Available Collections, an amount in immediately available funds equal to such amount. On or before 10:00 a.m. (New York City time) on the fifth day preceding any Redemption Date in respect of a Redemption under Section 3.11(b), the Issuer shall, to the extent an amount equal to the Outstanding Principal Balance of Initial Notes to be redeemed and all accrued and unpaid interest (after giving effect to any payment thereof on such Redemption Date under Section 3.09) thereon, all unpaid Policy Provider Obligations (including any Policy Premium and any Policy Redemption Premium, if any) and Credit Facility Obligations (only in respect of any amounts drawn from the Liquidity Facility Reserve Account or Facility Drawings, as the case may be, in respect of Liquidity Facility Interest Class G Shortfalls) as of the Redemption Date is not then held on deposit therein, deposit or cause to be deposited in the Defeasance/Redemption Account or, in case of a Refinancing, the Refinancing Account, other than, in either case, any funds constituting part of Available Collections, an amount in immediately available funds equal to such amount. In the event the Initial Notes are redeemed in full, the Policy shall be surrendered to the Policy Provider for cancellation.

(e) Notes Payable on Redemption Date. After notice has been given under Section 3.11(c), the Outstanding Principal Balance of the Initial Notes to be redeemed on such Redemption Date shall become due and payable at the Corporate Trust Office of the Trustee, and from and after such Redemption Date (unless there shall be a default in the payment of the applicable amount to be redeemed) such principal amount shall cease to bear interest. Upon surrender of any Note for redemption in accordance with such notice, the Redemption Price or the Outstanding Principal Balance (as applicable) of such Note, together with accrued and unpaid interest on such Note shall be paid as provided for in this Section 3.11. If any Note to be redeemed shall not be so paid upon surrender thereof for redemption, the amount in respect thereof shall continue to bear interest until paid from the Redemption Date at the interest rate applicable to such Note.

Section 3.12 Adjustment of Certain Percentages, Factors and Balances. Upon each acquisition of any Additional Aircraft (other than any Additional Aircraft acquired by way of a contribution) or the issuance of any Refinancing Notes, subject to Sections 5.02(f) and 5.02(h) (as applicable), the Pool Factors and Extended Pool Factors for any subclass of Notes may be adjusted to take into account such Permitted Additional Aircraft Acquisition or the issuance of such Refinancing Notes in the manner specified in the Board Resolution providing for such action subject to the prior written consent of the Policy Provider and the Initial Liquidity Facility Provider; provided that no Pool Factor or Extended Pool Factor for any subclass of Notes may be adjusted so as to change the original average life of the affected subclass of Notes. The Cash Manager shall include such adjusted Pool Factors, Extended Pool Factors and Minimum Target Principal Balances in each Quarterly Report and Annual Report.

Section 3.13 Eligible Credit Facilities. Notwithstanding Section 3.09, Article X, or anything else to the contrary contained in this Indenture or the Security Trust Agreement, all amounts available in any Cash Collateral Account or drawn against any other Eligible Credit Facility shall be paid to Holders of the subclass of Notes (and holders of other obligations) for whose benefit such Eligible Credit Facility is stated to be established except to the extent otherwise provided in the Board Resolutions providing for such Eligible Credit Facility.

Section 3.14 Initial Liquidity Facility. (a) Facility Drawings. If the Cash Manager determines in accordance with Section 3.07(g) hereof that after making all withdrawals (prior to any drawings under the Policy but after giving effect to any withdrawals from the Liquidity Facility Reserve Account and the Senior Cash Collateral Account (if established)) and transfers to be made with respect to the applicable Payment Date, there is (i) a Required Expenses Shortfall, (ii) a Senior Hedge Payments

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Shortfall and/or (iii) a Liquidity Facility Interest Class G Shortfall, in each case as calculated in Section 3.07(g), the Cash Manager shall so notify the Trustee in writing and shall, no later than 5:00 p.m. (New York City time) four Business Days prior to such Payment Date, request a drawing (each such drawing, a “Facility Drawing”) under the Initial Liquidity Facility, to be paid on or prior to such Payment Date, in an amount equal to the lesser of (A) the aggregate amount of the shortfall from clauses (i), (ii) and (iii) above and (B) the Available Amount under the Initial Liquidity Facility.

(b) Application of Facility Drawings. The proceeds of any Facility Drawing shall be deposited into the Initial Liquidity Payment Account and withdrawn by the Operating Bank, upon Written Notice from the Cash Manager, for application on the applicable Payment Date in the following manner: first, to the Expense Account an amount such that the amount on deposit therein is at least equal to the Required Expense Amount for such Payment Date and second, in no order of priority inter se, but pro rata, (1) to the Note Account for the Class G-1 Notes, the amount of accrued and unpaid interest on the Class G-1 Notes with respect to the applicable Payment Date in no order of priority inter se, but pro rata; and (2) pro rata, to any Hedge Provider, an amount equal to any Senior Hedge Payment due from any Issuer Group Member pursuant to any Hedge Agreement.

(c) Downgrade Drawings. The Initial Liquidity Facility Provider shall notify the Issuer, the Cash Manager and the Policy Provider promptly upon the occurrence of a Downgrade Event. If at any time a Downgrade Event has occurred and within 10 days after notice of such Downgrade Event (but not later than the expiration date of the Initial Liquidity Facility) (i) the Initial Liquidity Facility Provider or the Issuer does not arrange to replace the Initial Liquidity Facility with a Replacement Liquidity Facility, (ii) the Initial Liquidity Facility Provider shall not have received a Rating Agency Confirmation for the Class G-1 Notes with respect to the Downgrade Event or (iii) the Policy Provider shall not have confirmed in writing that such downgrading will not constitute a Downgrade Event, on such 10th day (or if such 10th day is not a Business Day, on the next succeeding Business Day) (or, if earlier, the expiration date of the Initial Liquidity Facility), then the Cash Manager shall, upon the occurrence of a Downgrade Event with respect to the Initial Liquidity Facility, request a drawing in accordance with and to the extent permitted by the Initial Liquidity Facility (such drawing, a “Downgrade Drawing”) of the Available Amount. Amounts drawn pursuant to a Downgrade Drawing shall be deposited into the Liquidity Facility Reserve Account to the extent of the Available Amount.

(d) Non-Extension Drawings. If the Initial Liquidity Facility is to expire on a date (the “Stated Expiration Date”) prior to the date that is 15 days after the Final Maturity Date with respect to the Class G-1 Notes, then, no earlier than the 60th day and no later than the 30th day prior to the applicable Stated Expiration Date then in effect, the Cash Manager shall request that the Initial Liquidity Facility Provider extend the Stated Expiration Date until the earlier of (i) the date which is 15 days after the Final Maturity Date with respect to the Class G-1 Notes and (ii) the date that is the 364th day following the Stated Expiration Date then in effect (unless the obligations of the Initial Liquidity Facility Provider are earlier terminated in accordance with the Initial Liquidity Facility). If on or before the date which is 10 days prior to the Stated Expiration Date, (A) the Initial Liquidity Facility shall not have been replaced in accordance with Section 3.14(e) and (B) the Initial Liquidity Facility Provider fails irrevocably and unconditionally to advise the Cash Manager that such Stated Expiration Date then in effect shall be so extended (whether or not the Cash Manager has in fact requested an extension), the Cash Manager shall immediately, in accordance with the terms of the Initial Liquidity Facility (a “Non-Extended Facility”), request a drawing (such drawing, a “Non-Extension Drawing”) for the Available Amount. Amounts drawn pursuant to a Non-Extension Drawing shall be deposited into the Liquidity Facility Reserve Account to the extent of the Available Amount.

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(e) Issuance of Replacement Liquidity Facility. (1) If the Initial Liquidity Facility Provider shall determine not to extend the Stated Expiration Date in accordance with Section 3.14(d), then either the Initial Liquidity Facility Provider or the Issuer may, at their respective options, arrange for a Replacement Liquidity Facility to replace the Initial Liquidity Facility during the period no earlier than 35 days and no later than 10 days prior to the then effective Stated Expiration Date.

(ii) If a Downgrade Event shall have occurred with respect to the Initial Liquidity Facility in accordance with Section 3.14(c), then either the Initial Liquidity Facility Provider or the Issuer may, at their respective options, arrange for a Replacement Liquidity Facility to replace the Initial Liquidity Facility within 10 days after receiving notice of such Downgrade Event (but not later than the expiration date of the Initial Liquidity Facility); provided, however, that the Initial Liquidity Facility Provider may, at its option, arrange for a Replacement Liquidity Facility at any time following a Downgrade Drawing so long as the Issuer has not already arranged for a Replacement Liquidity Facility.

(iii) (a) At any time after the Initial Closing Date, the Initial Liquidity Facility Provider may, at its option, arrange for a Replacement Liquidity Facility to replace the Initial Liquidity Facility.

(B) No Replacement Liquidity Facility arranged by the Initial Liquidity Facility Provider or the Issuer in accordance with clauses (i), (ii) and (iii)(A) above shall become effective and no such Replacement Liquidity Facility shall be deemed an “Eligible Credit Facility” under this Indenture, unless and until (x) each of the conditions referred to in subclause (C) below shall have been satisfied, and (y) in the case of a Replacement Liquidity Facility arranged by the Initial Liquidity Facility Provider, such Replacement Liquidity Facility is acceptable to the Issuer.

(C) In connection with the issuance of each Replacement Liquidity Facility, (x) the Cash Manager shall, prior to the issuance of such Replacement Liquidity Facility, have received a Rating Agency Confirmation with respect to the Class G-1 Notes (without regard to any downgrading of any rating of the Initial Liquidity Facility Provider being replaced pursuant to Section 3.14(c) hereof and without regard to the Policy), (y) all Credit Facility Obligations then owing to the replaced Initial Liquidity Facility Provider (which payment shall be made first from available funds in the Liquidity Facility Reserve Account and thereafter from any other available source, including, without limitation, a drawing under the Replacement Liquidity Facility) shall be paid by the Operating Bank upon receipt of a Written Notice of the Cash Manager setting forth the amount of the Credit Facility Obligations then owing to the replaced Initial Liquidity Facility Provider and (z) the issuer of the Replacement Liquidity Facility shall deliver the Replacement Liquidity Facility to the Cash Manager, together with a legal opinion opining that such Replacement Liquidity Facility has been duly authorized, executed and delivered by, and is an enforceable obligation of, such Replacement Liquidity Facility Provider, such legal opinion to be reasonably satisfactory to the Policy Provider unless the legal opinion of counsel to the Replacement Liquidity Facility Provider is in form and substance substantially the same as the legal opinion of counsel to the Initial Liquidity Facility Provider delivered on the Initial Closing Date.

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(D) Upon satisfaction of the conditions set forth in clauses (B) and (C) of this Section 3.14(e)(iii) with respect to a Replacement Liquidity Facility, (w) the replaced Initial Liquidity Facility shall terminate, (x) the Cash Manager shall, if and to the extent so requested by the Issuer or the Initial Liquidity Facility Provider being replaced, execute and deliver any certificate or other instrument required in order to terminate the replaced Initial Liquidity Facility, shall surrender the replaced Initial Liquidity Facility to the Initial Liquidity Facility Provider being replaced and shall execute and deliver the Replacement Liquidity Facility, (y) each of the parties hereto shall enter into any amendments to this Indenture and any other Related Documents necessary to give effect to (1) the replacement of the applicable Initial Liquidity Facility Provider with the applicable Replacement Liquidity Facility Provider and (2) the replacement of the applicable Initial Liquidity Facility with the applicable Replacement Liquidity Facility and (z) such Replacement Liquidity Facility Provider shall be deemed to be a provider of an Eligible Credit Facility with the rights and obligations of the Initial Liquidity Facility Provider hereunder and under the other Related Documents and such Replacement Liquidity Facility shall be deemed to be an Eligible Credit Facility (and, if so designated by the Board, the “Initial Liquidity Facility”) hereunder and under the other Related Documents.

For purposes of clarification, an assignment to an Eligible Provider as permitted thereunder by the provider of the Initial Liquidity Facility or any other Eligible Credit Facility shall not be considered a Replacement Liquidity Facility; provided, that written notification of such assignment shall have been provided to the Rating Agencies and the Policy Provider, and the assignee has delivered to the Cash Manager legal opinions with respect to due authorization, execution, delivery and enforceability substantially similar in scope and substance to the legal opinions delivered by counsel to the Initial Liquidity Facility Provider on the Initial Closing Date. Following any assignment in accordance with the provisions thereof and in the foregoing proviso, the assignee shall be deemed to be the “Initial Liquidity Facility Provider” for all purposes of the Related Documents.

(f) Liquidity Facility Reserve Account; Withdrawals; Investments. All amounts drawn under the Initial Liquidity Facility by the Cash Manager pursuant to Section 3.14(c), 3.14(d) or 3.14(i) hereof shall be deposited by the Cash Manager into the Liquidity Facility Reserve Account. All amounts on deposit in the Liquidity Facility Reserve Account, including any amount deposited in accordance with clause (iv) of Section 3.09(a), shall be invested and reinvested in accordance with Section 3.02. Upon a request by the Initial Liquidity Facility Provider, the Cash Manager shall provide the Initial Liquidity Facility Provider with the amount of Investment Earnings held in the Liquidity Facility Reserve Account as of the Calculation Date. On each Payment Date, the Cash Manager shall direct the Operating Bank to pay to the Initial Liquidity Facility Provider all Investment Earnings on amounts on deposit in the Liquidity Facility Reserve Account. Amounts on deposit in the Liquidity Facility Reserve Account shall be withdrawn by or at the direction of the Cash Manager under the following circumstances:

(i) in accordance with Section 3.01(n);

(ii) on any Payment Date, if the amount in the Liquidity Facility Reserve Account exceeds the Maximum Facility Commitment, then the Cash Manager shall direct the Operating Bank to withdraw, upon Written Notice from the Cash Manager, from such Account such excess and pay such amount to the Initial Liquidity Facility Provider until all Credit Facility Obligations owed to such Person shall have been paid in full, and shall deposit any remaining amount in the Collections Account;

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(iii) if a Replacement Liquidity Facility is established following the date on which funds have been deposited into the Liquidity Facility Reserve Account, the Cash Manager shall direct the Operating Bank to withdraw, upon Written Notice from the Cash Manager, all amounts on deposit in the Liquidity Facility Reserve Account and shall pay such amounts to the replaced Initial Liquidity Facility Provider until all Credit Facility Obligations owed to such Person shall have been paid in full, and shall deposit any remaining amount in the Collections Account;

(iv) in the event that (x) the Outstanding Principal Balance of, and accrued and unpaid interest on, the Notes have been paid in full, (y) this Indenture has been terminated with respect to all of the Class G-1 Notes issued hereunder or (z) the Class G-1 Notes are no longer entitled to the benefits of the Liquidity Facility, the Cash Manager shall direct the Operating Bank to withdraw, upon Written Notice from the Cash Manager, all amounts from the Liquidity Facility Reserve Account and pay such amounts to the Initial Liquidity Facility Provider until all Credit Facility Obligations owed to the Initial Liquidity Facility Provider shall have been paid in full, and shall deposit any remaining amount in the Collections Account; and

(v) 15 days after the Final Maturity Date with respect to the Class G-1 Notes, the Operating Bank shall withdraw, upon Written Notice from the Cash Manager, all amounts on deposit in the Liquidity Facility Reserve Account and shall pay such amounts to the Initial Liquidity Facility Provider until all Credit Facility Obligations owed to such Person shall have been paid in full, and shall deposit any remaining amount in the Collections Account.

(g) Reinstatement. With respect to any Facility Drawing under the Initial Liquidity Facility, upon the reimbursement to the Initial Liquidity Facility Provider in full or in part of the amount of such Facility Drawing, together with any accrued interest thereon, the Available Amount of the Initial Liquidity Facility shall be reinstated by an amount equal to the amount of such Facility Drawing so reimbursed to the Initial Liquidity Facility Provider but not to exceed the Maximum Commitment; provided, however, that the Available Amount shall not be so reinstated in part or in full at any time (i) if a Liquidity Facility Event of Default shall have occurred and be continuing or (ii) if a Downgrade Drawing, Non-Extension Drawing or Final Drawing shall have been made.

(h) Reimbursement. The amount of each Facility Drawing under the Initial Liquidity Facility and any amounts withdrawn from the Liquidity Facility Reserve Account following a Downgrade Drawing, Non-Extension Drawing or a Final Drawing shall be due and payable, together with interest thereon, on the dates and at the rates, respectively, provided in the Initial Liquidity Facility but only to the extent that Available Collections are sufficient to pay such amounts in the order of priority set forth in Section 3.09.

(i) Final Drawing. Upon (A) receipt from the Initial Liquidity Facility Provider of a Termination Notice with respect to the Initial Liquidity Facility, the Cash Manager shall, not later than the date specified in such Termination Notice, in accordance with the terms of the Initial Liquidity Facility, or (B) the occurrence of an Insolvency Proceeding, the Cash Manager shall promptly, request a drawing under the Initial Liquidity Facility of the Available Amount (a “Final Drawing”). Proceeds of a Final Drawing shall be deposited into the Liquidity Facility Reserve Account to the extent of the Available Amount, in accordance with clause (f) above.

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(j) Initial Liquidity Facility Provider Consent. To the extent that the Initial Liquidity Facility Provider’s consent or approval is required under this Indenture or any other Related Document, such consent is not required in the event that (i) no Notes are Outstanding and (ii) no Credit Facility Advance Obligations are due and owing to the Initial Liquidity Facility Provider (and, in the case of any issuance of the Additional Notes, if any, an Initial Liquidity Facility Non-Consent Event has occurred).

Section 3.15 The Policy. The Policy Provider shall issue a Policy in favor of the Trustee for the benefit of the Holders of the Class G-1 Notes, and the following shall apply to the Policy and to the Class G-1 Notes subject thereto:

(a) Interest Drawings. If the Cash Manager determines that there is an Interest Class G Shortfall for any Payment Date (other than the Final Maturity Date of the Class G1 Notes and the date of the Final Policy Election) in respect of the Class G-1 Notes (calculated as provided in Section 3.07(h)(i)), the Cash Manager shall, prior to 12:00 p.m. (New York City time) on the third Business Day prior to such Payment Date, instruct the Trustee to request and the Trustee shall, no later than 12:00 p.m. (New York City time) on the second Business Day prior to such Payment Date, request a Policy Drawing (each, an “Interest Class G Drawing”) under the Policy in respect of the Class G-1 Notes (for payment into the related Note Account) in an amount equal to the Interest Class G Shortfall for the Class G-1 Notes with respect to such Payment Date. Any request received after 12:00 p.m. (New York City time) on any Business Day or on any day that is not a Business Day shall be deemed to have been received by the Policy Provider on the next Business Day. Upon receipt of any such request for a Policy Drawing, the Policy Provider or its fiscal agent shall pay, no later than 12:00 p.m. (New York City time) on the later of (i) the applicable Payment Date and (ii) the second Business Day following the Business Day on which the Policy Provider received the Trustee’s request referred to above, into the Note Account for the Class G-1 Notes the amount of the Interest Class G Shortfall for each the Class G-1 Notes with respect to such Payment Date. Upon receipt, the Trustee shall direct the payment of the amount in the applicable Note Account to the Holders of the Class G-1 Notes in payment of the Interest Class G Shortfall therefor.

(b) Proceeds Deficiency Drawing. If at any time after an Acceleration of the Notes, there is a sale or other disposition of an Aircraft (not including any Aircraft acquired by way of contribution) or of an Issuer Subsidiary that owns an Aircraft (not including any Aircraft acquired by way of contribution), in each case, by, on behalf of or at the direction of the Controlling Party, and there is a Deficiency Class G Shortfall resulting therefrom (calculated as provided in Section 3.07(h)(ii)), the Cash Manager shall, prior to 12:00 p.m. (New York City time) on the third Business Day prior to the next succeeding Payment Date (other than the Final Maturity Date of the Class G1 Notes and the date of the Final Policy Election), instruct the Trustee to request and the Trustee, no later than 12:00 p.m. (New York City time) on the second Business Day prior to such Payment Date, shall request a Policy Drawing (each, a “Deficiency Drawing”) under the Policy in respect of the Class G-1 Notes in an amount equal to the Deficiency Class G Shortfall with respect to such Payment Date (for payment into the related Note Account) on such Payment Date. Any request received after 12:00 p.m. (New York City time) on any Business Day or on any day that is not a Business Day shall be deemed to have been received by the Policy Provider on the next Business Day. Upon receipt of any such request, the Policy Provider or its fiscal agent shall, no later than 12:00 p.m. (New York City time) on the later of (i) the applicable Payment Date and (ii) the second Business Day following the Business Day on which the Policy Provider received the Trustee’s request referred to above, pay under the Policy an amount equal to the Deficiency Class G Shortfall for the Class G-1 Notes with respect to such Payment Date.

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Upon receipt, the Trustee shall direct the payment of the amount in the applicable Note Account to the holders of the Class G-1 Notes in payment of the Deficiency Class G Shortfall therefor.

(c) No Proceeds Drawing. If, on any Payment Date (other than the Final Maturity Date of the Class G-1 Notes and the date of the Final Policy Election) falling on or after the date that is 24 months after the date of the issuance of a Default Notice or an Acceleration of the Notes that is continuing as of the Calculation Date immediately preceding such Payment Date or an Acceleration of the Notes (the “Non-Performance Period”), there is a Minimum Class G Principal Shortfall in respect of the Notes for the then next succeeding Payment Date (calculated as provided in Section 3.07(h)(iii) hereof), the Cash Manager shall, no later than 12:00 p.m. (New York City time) on the third Business Day prior to such Payment Date, instruct the Trustee to request and the Trustee shall, no later than 12:00 p.m. (New York City time) on the second Business Day prior to such Payment Date, request, a Policy Drawing (each, a “No Proceeds Drawing”) under the Policy (for payment into the applicable Note Account) in an amount equal to the Minimum Class G Principal Shortfall with respect to such Payment Date. Any request received after 12:00 p.m. (New York City time) on any Business Day or on any day that is not a Business Day shall be deemed to have been received by the Policy Provider on the next Business Day. Upon receipt of such request, the Policy Provider or its fiscal agent shall, no later than 12:00 p.m. (New York City time) on the later of (i) the applicable Payment Date and (ii) the second Business Day following the Business Day on which the Policy Provider receives the Trustee’s request referred to above, pay under the Policy an amount equal to the Minimum Class G Principal Shortfall with respect to such Payment Date. Upon receipt, the Trustee shall direct the payment of the amount in the related Note Account to the holders of the Class G-1 Notes in payment of the Minimum Class G Principal Shortfall therefor.

Notwithstanding the preceding paragraph, with respect to any Payment Date occurring on or after the date of the occurrence of an Event of Default with respect to the Class G-1 Notes that is continuing on the date of the Final Policy Election, and the occurrence of the earlier of (i) the date of a Policy Drawing and (ii) the 60th Payment Date, the Policy Provider may, so long as a Policy Provider Default shall not have occurred and be continuing and the Policy has not been surrendered for cancellation in accordance with Section 3.15(k) hereof, elect (a “Final Policy Election”), upon at least four Business Days’ prior Written Notice to the Trustee (with a copy to the Cash Manager), to pay on such Payment Date, an amount sufficient (after giving effect to the application of Available Collections in accordance with the applicable payment priorities set forth in Section 3.09, the application of any Facility Drawings (or drawings under any Replacement Liquidity Facility) and the application of any withdrawals from the Liquidity Facility Reserve Account or the Senior Cash Collateral Account (if established) and any withdrawals from the Cash Collateral Account, if any, in accordance with the terms hereof) to pay the then Outstanding Principal Balance of the Class G-1 Notes (less any Policy Drawings previously paid in respect of the principal of the Class G Notes), plus accrued and unpaid interest thereon (at the Applicable Rate of Interest for the Class G-1 Notes), for the period from the immediately preceding Payment Date to the date of such payment (any such amount to be paid by such Policy Provider, the “Outstanding Balance”). Upon receipt of any such notice, the Cash Manager shall (A) calculate the then Outstanding Balance of the Class G-1 Notes and (B) prior to 12:00 p.m. (New York City time) on the third Business Day prior to such Payment Date, instruct the Trustee to request, and the Trustee shall request no later than 12:00 p.m. (New York City time) on the second Business Day prior to such Payment Date, a Policy Drawing in respect of the Class G-1 Notes in the amount of the then Outstanding Balance of the Class G-1 Notes. Upon receipt of any such request, the Policy Provider or its fiscal agent shall, no later than 12:00 p.m. (New York City time) on the later of (x) the applicable Payment Date and (y) the second Business Day following the Business Day on which the Policy Provider receives the Trustee’s request referred to above, pay under the Policy, in respect of the Class G-1 Notes, an amount equal to the Outstanding Balance for the Class G-1 Notes. Upon receipt, the Trustee shall pay the amount in the

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applicable Note Account to the holders of the Class G-1 Notes in payment of the Outstanding Balance therefor.

(d) Final Policy Drawing. If the Cash Manager determines (calculated as provided in Section 3.07(h)(iv)) that on the Final Maturity Date of the Class G-1 Notes there will be insufficient funds available for the payment in full of the Outstanding Amount in respect of the Class G-1 Notes as of such date, the Cash Manager shall, prior to 12:00 p.m. (New York City time) on the third Business Day prior to such Final Maturity Date, instruct the Trustee in writing to request, and the Trustee shall, no later than 12:00 p.m. (New York City time) on the second Business Day prior to such Final Maturity Date, request a Policy Drawing under the Policy (for payment into the related Note Account) in an amount sufficient to pay the Outstanding Amount for the Class G-1 Notes. Upon receipt of such request for a Policy Drawing, the Policy Provider or its fiscal agent shall, no later than 12:00 p.m. (New York City time) on the later of (i) such Final Maturity Date and (ii) the second Business Day following the Business Day on which the Policy Provider receives the Trustee’s request referred to above, pay under and in accordance with the terms of the Policy, in respect of the Class G-1 Notes an amount sufficient to pay the Outstanding Amount for the Class G-1 Notes. Any request received by the Policy Provider after 12:00 p.m. (New York City time) on any Business Day or on any day that is not a Business Day shall be deemed to have been received by the Policy Provider on the next Business Day. Upon receipt, the Trustee shall direct the payment of the amount in the applicable Note Account to the holders of the Class G-1 Notes in payment of the Outstanding Amount therefor.

(e) Avoidance Drawings. If at any time a Responsible Officer of the Trustee shall have actual knowledge of the issuance of any Final Order, the Trustee shall promptly give notice thereof to the Policy Provider and the Cash Manager. The Cash Manager shall thereupon determine the Avoided Payments in respect of the Class G-1 Notes resulting therefrom and shall promptly: (i) send to the Holders of the Notes a Written Notice of such amounts and (ii) prior to the expiration of the Policy, deliver to the Trustee a Written Notice instructing the Trustee to, and the Trustee shall immediately, deliver to the Policy Provider or its fiscal agent a Notice of Avoided Payment under the Policy, together with a copy of the documentation required by the Policy with respect thereto, requesting a Policy Drawing (each, an “Avoidance Drawing”) thereunder (for payment to the receiver, conservator, debtor-in-possession, trustee in bankruptcy, and/or the Trustee for deposit into the related Note Account, as applicable) in an amount equal to the amount of the relevant Avoided Payment. To the extent that any portion of such Avoidance Drawing is to be paid to the Trustee in respect of the Class G-1 Notes, such Written Notice shall also set the date for the distribution of such portion of the proceeds of such Policy Drawing which date shall constitute a Special Distribution Date and shall be the third Business Day following the date the Policy Provider has received the documentation referred to in clause (ii) above. Upon receipt, the Cash Manager shall pay the proceeds of the specified Policy Drawing under the Policy to the Trustee for payment to the Holders of the Class G-1 Notes.

(f) Application of Policy Drawings. Notwithstanding anything to the contrary contained in this Indenture, all payments received by the Trustee in respect of a Policy Drawing (including, without limitation, that portion, if any, of the proceeds of a Policy Drawing for any Avoided Payment that is to be paid to the Trustee and not to any receiver, conservator, debtor-in-possession or trustee in bankruptcy as provided in the Policy) shall be promptly paid to the Holders of the Class G-1 Notes.

(g) Resubmission of a Notice of Payment. If the Policy Provider at any time informs the Trustee in accordance with the Policy that a Notice of Nonpayment or Notice of Avoided Payment submitted by the Trustee does not satisfy the requirements of the Policy, the Trustee

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shall, as promptly as possible after being so informed, submit to the Policy Provider an amended and revised Notice of Nonpayment or Notice of Avoided Payment, as the case may be, and shall transfer to the Note Account the amount received pursuant to such amended or revised Notice of Nonpayment or Notice of Avoided Payment, as the case may be, when received.

(h) No Discharge of the Issuer’s Obligations. Except to the extent reimbursed to the Policy Provider, the payment of principal of or interest on the Class G-1 Notes with funds drawn under the Policy shall not reduce the Outstanding Principal Balance of, or interest due, on the Class G-1 Notes, or be deemed to discharge the Issuer’s obligation to repay such funds drawn under the Policy to the Policy Provider, which obligation shall continue in full force and effect. Following the payment in full by the Policy Provider of the Class G-1 Notes, the Policy Provider shall be deemed to be the Holder of such Class G-1 Notes and the Trustee shall take any action necessary to effectuate such status of the Policy Provider.

(i) Interest Coverage. The interest payable by the Policy Provider under the Policy shall include interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding. The interest payable by the Policy Provider under the Policy shall not include any Redemption Premium on the Notes.

(j) Policy Provider Consent. The Policy Provider agrees that to the extent its consent or approval is required under this Indenture or any other Related Document, such consent is not required in the event that (i) a Policy Non-Consent Event has occurred and is continuing or, in the case of any issuance of any Additional Notes or Refinancing Notes, a Policy Non-Consent Event will occur in connection therewith, or (ii) a Policy Provider Default has occurred and is continuing. If the consent of the Policy Provider is required pursuant to any provision of Sections 5.02 or 5.03 of this Indenture or Section 7.04 of the Servicing Agreement, (A) the Policy Provider shall provide the Issuer with a written response confirming its consent or rejection of any proposed action submitted to it by the Issuer or the Servicer as promptly as practicable following its receipt of a proposal from the Issuer or the Servicer and in any event within the time period indicated by the Issuer in its proposal, acting reasonably, which time period shall in any event not be less than fifteen calendar days after receipt of such a proposal by the Policy Provider and (B) such consent, in each case, may not be unreasonably withheld. If the Policy Provider fails to provide any party hereto with a written response within the time indicated by the Issuer or the Servicer in its proposal, the Policy Provider shall be deemed to have not approved such proposal. If a response to such proposal is required, the Policy Provider will use reasonable efforts to provide its written response within the indicated time period, provided that failure to provide such response shall not constitute a breach under this Indenture by the Policy Provider.

(k) Release of Policy Provider. Notwithstanding anything to the contrary herein, and for the avoidance of doubt, if the Policy is terminated and surrendered to the Policy Provider for cancellation and all Policy Provider Obligations are paid in full, all rights and obligations of the Policy Provider under this Indenture (including, but not limited to, all obligations set forth in this Section 3.15) shall be terminated and released.

Section 3.16 Class A Share Cure Rights. In the event that the amounts available for distribution under Section 3.09 and from any Eligible Credit Facility are insufficient to pay in full any of the Secured Obligations or any other Obligations, the Cash Manager shall promptly notify the Issuer and the Issuer may, out of funds provided to it by any holder of the Class A Shares by way of shareholder contributed surplus (without the issuance of additional Class A Shares) (and not out of any amounts in the Collections Account or any other Account or any other Collateral), pay such shortfall with respect to such

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Obligations on the applicable Payment Date by giving Written Notice of its intention to do so (specifying the amount thereof) to the Cash Manager at least two Business Days prior to such Payment Date and by transferring funds in such amount (the “Contribution Amounts”) to the Trustee one Business Day prior to such Payment Date for deposit into the Collections Account. All Contribution Amounts so deposited shall (a) be paid out of such Account to the applicable Person or transferred to the applicable Account, in each case as specified by the Class A Shareholder, notwithstanding Section 3.09, Article X hereof or anything else to the contrary contained in this Indenture or the Security Trust Agreement and (b) not constitute an obligation or debt of the Issuer.

Section 3.17 DSCR Failure. In the event that the Cash Manager determines, in accordance with Section 3.07(c) hereof, that a DSCR Failure for the related Payment Date will occur, it shall provide Written Notice thereof (not later than two Business Days prior to such Payment Date) to the Issuer, the Trustee and the Policy Provider. In the event that a DSCR Failure has occurred and is continuing, all proceeds on deposit in the Collections Account shall be applied in accordance with Section 3.09(b) hereof.

ARTICLE IV
 

DEFAULT AND REMEDIES

Section 4.01 Events of Default. Each of the following events shall constitute an “Event of Default” hereunder with respect to any subclass of Notes, and each such Event of Default shall be deemed to exist and continue so long as, but only so long as, it shall not have been remedied:

(a) failure by the Issuer to pay when due interest on any Note of such subclass, and the continuance of such default unremedied for a period of five Business Days after the same shall have become due and payable;

(b) failure by the Issuer to pay when due principal of any Note of such subclass no later than the applicable Final Maturity Date;

(c) failure by the Issuer to pay any amount (other than interest) when due and payable in connection with any Note of such subclass to the extent that there are, on any Payment Date, amounts available for such payment in the Collections Account or the Cash Collateral Account with respect to the Notes of such subclass, and the continuance of such default for a period of five or more Business Days after such Payment Date;

(d) failure of any of the representations or warranties of the Issuer under this Indenture to be true and correct or failure by the Issuer to comply with any of the covenants, obligations, conditions or provisions binding on it under this Indenture or any of the Notes (other than a payment default for which provision is made in clause (a), (b) or (c) of this Section 4.01), if in any such case such failure or breach materially adversely affects the Holders of such subclass of Notes and continues for a period of 30 days or more (or, if such failure or breach is capable of remedy within 90 days (or in the case of a breach with respect to a covenant contained in Section 5.03, 180 days) of the date of the written notice referred to below and the Cash Manager has promptly provided the Trustee with a certificate stating that the Issuer has commenced, or will promptly commence, and diligently pursue all reasonable efforts to remedy such failure or breach, 90 days (or 180 days, as applicable) so long as the Issuer or any Issuer Subsidiary is diligently pursuing such remedy but in any event no longer than 90 days (or 180 days, as applicable)) after written notice thereof has been given to the Issuer by the Controlling Party or by the Holders of at least a majority of the aggregate Outstanding Principal Balance of the Notes);

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(e) a court having jurisdiction in the premises enters a decree or order for (i) relief in respect of the Issuer or any direct or indirect subsidiary thereof (other than a Non-Significant Subsidiary), under any Applicable Law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, examination, relief of debtors or other similar law now or hereafter in effect; (ii) appointment of a receiver, liquidator, examiner, assignee, custodian, trustee, sequestrator or similar official of the Issuer or any direct or indirect subsidiary thereof (other than a Non-Significant Subsidiary); or (iii) the winding up or liquidation of the affairs of the Issuer or any direct or indirect subsidiary thereof (other than a Non-Significant Subsidiary) and, in each case, such decree or order shall remain unstayed or such writ or other process shall not have been stayed or dismissed within 90 days from entry thereof;

(f) the Issuer or any direct or indirect subsidiary thereof (other than a Non-Significant Subsidiary) (i) commences a voluntary case under any Applicable Law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, examination, relief of debtors or other similar law now or hereafter in effect, or consents to the entry of an order for relief in any involuntary case under any such law; (ii) consents to the appointment of or taking possession by a receiver, liquidator, examiner, assignee, custodian, trustee, sequestrator or similar official of the Issuer or any direct or indirect subsidiary thereof (other than a Non-Significant Subsidiary) or for all or substantially all of the property and assets of the Issuer or any direct or indirect subsidiary thereof (other than a Non-Significant Subsidiary); or (iii) effects any general assignment for the benefit of creditors;

(g) one or more judgments or orders for the payment of money that are in the aggregate in excess of 5% of the Assumed Portfolio Value shall be rendered against the Issuer or any Issuer Subsidiary or any other member of the Issuer Group and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not be an Event of Default under this Section 4.01(g) if and for so long as (i) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (ii) such insurer, which shall be rated at least “A” by A.M. Best Company or any similar successor entity, has been notified of, and has not disputed the claim made for payment of, the amount of such judgment or order; or

(h) the constitutional documents creating the Issuer cease to be in full force and effect without replacement documents having the same terms being in full force and effect.

Section 4.02 Acceleration, Rescission and Annulment. (a) If an Event of Default with respect to any subclass of Notes (other than an Event of Default under clause (e) or (f) of Section 4.01 hereof) occurs and is continuing, the Controlling Party may, and (if the Controlling Party is the Trustee) upon the written direction of Holders of a majority of the aggregate Outstanding Principal Balance of the Notes, shall, give a Default Notice to the Issuer, the Cash Manager, the Security Trustee and the Trustee (if the Trustee is not the Controlling Party) declaring the Outstanding Principal Balance of the Notes and all accrued and unpaid interest thereon to be due and payable. If the Controlling Party is the Policy Provider or the Initial Liquidity Facility Provider, only it may give a Default Notice. Subject to Section 3.16, upon delivery of a Default Notice, such Outstanding Principal Balance and all accrued and unpaid interest thereon shall be due and payable. At any time after the Controlling Party has declared the Outstanding Principal Balance of the Notes to be due and payable and prior to the exercise of any other remedies pursuant to this Article IV, the Controlling Party may (and if the Controlling Party is the Trustee, upon the written direction of Holders of a majority of the aggregate Outstanding Principal Balance of the Notes, shall) by Written Notice to the Issuer, the Trustee (if not the Controlling Party), the Cash Manager

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and the Security Trustee, subject to Section 4.05(a), rescind and annul such declaration and thereby annul its consequences if: (i) there has been paid to or deposited with the Trustee an amount sufficient to pay all overdue installments of interest on the Notes, and the principal or Redemption Price of the Notes that would have become due otherwise than by such declaration of acceleration, (ii) the rescission or annulment would not conflict with any judgment or decree and (iii) all other Defaults and Events of Default, other than nonpayment of interest and principal on the Notes that have become due solely because of such acceleration (including any Hedge Payments owed to any Hedge Provider) have been cured or waived. If the Controlling Party is the Policy Provider or the Initial Liquidity Facility Provider, only it may give a notice of annulment. If an Event of Default under clause (e) or (f) of Section 4.01 occurs, the Outstanding Principal Balance of the Notes and all accrued and unpaid interest thereon shall automatically become due and payable without any further action by any party.

(b) No Person other than the Controlling Party may give a Default Notice or exercise any such remedy.

(c) The Trustee shall provide each Rating Agency with a copy of any Default Notice it receives pursuant to this Indenture.

Section 4.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee (at the written direction of the Controlling Party if the Trustee is not the Controlling Party and at the written direction of Holders of a majority of the aggregate Outstanding Principal Balance of the Notes if the Controlling Party is the Trustee) may pursue any available remedy by proceeding at law or in equity to collect the payment of principal or Redemption Price of, or interest on, the Notes or to enforce the performance of any provision of the Notes or this Indenture.

The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding.

Section 4.04 Limitation on Suits. Without limiting the provisions of Section 4.09 and the final sentence of Section 12.04(a), no Holder shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, the Security Trust Agreement or the Notes, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

(a) the Trustee is the Controlling Party;

(b) such Holder holds Class G-1 Notes and has previously given written notice to the Trustee of a continuing Event of Default;

(c) the Holders of a majority of the aggregate Outstanding Principal Balance of the Notes make a written request to the Trustee to pursue a remedy hereunder;

(d) such Holder or Holders offer to the Trustee an indemnity reasonably satisfactory to the Trustee against any costs, expenses and liabilities to be incurred in complying with such request;

(e) the Trustee does not comply with such request within 60 days after receipt of the request and the offer of indemnity; and

(f) during such 60-day period, Holders of a majority of the Outstanding Principal Balance of the Notes do not give the Trustee a revocation or direction inconsistent with such request.

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No one or more Holders may use this Indenture to affect, disturb or prejudice the rights of another Holder or to obtain or seek to obtain any preference or priority not otherwise created by this Indenture and the terms of the Notes over any other Holder or to enforce any right under this Indenture, except in the manner herein provided.

Section 4.05 Waiver of Existing Defaults. (a) The Controlling Party or (if the Controlling Party is the Trustee) the Holders of a majority of the Outstanding Principal Balance of the Notes by notice to the Trustee and the Issuer may waive any existing Default hereunder and its consequences, except no waiver may be given with respect to a Default: (i) in the deposit or distribution of any payment required to be made on any Notes, (ii) in the payment of the interest on, principal of or premium, if any, with respect to any Note or (iii) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Note affected thereby. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Each such notice of waiver shall also be given to each Rating Agency.

(b) Any written waiver of a Default or an Event of Default given by the Controlling Party or the Holders to the Trustee and the Issuer in accordance with the terms of this Indenture shall be binding upon the Trustee and the other parties hereto. Unless such writing expressly provides to the contrary, any waiver so granted shall extend only to the specific event or occurrence which gave rise to the Default or Event of Default so waived and not to any other similar event or occurrence which occurs subsequent to the date of such waiver.

Section 4.06 Restoration of Rights and Remedies. If the Trustee or any Holder of Notes has instituted any proceeding to enforce any right or remedy under this Indenture, and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or such Holder, then in every such case the Issuer, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding has been instituted.

Section 4.07 Remedies Cumulative. Each and every right, power and remedy herein given to the Trustee (or the Controlling Party) specifically or otherwise in this Indenture shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Trustee (or the Controlling Party), and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Trustee (or the Controlling Party) in the exercise of any right, remedy or power or in the pursuance of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any Default on the part of the Issuer or to be an acquiescence therein.

Section 4.08 Authority of Courts Not Required. The parties hereto agree that, to the greatest extent permitted by law, the Trustee shall not be obliged or required to seek or obtain the authority of, or any judgment or order of, the courts of any jurisdiction in order to exercise any of its rights, powers and remedies under this Indenture, and the parties hereby waive any such requirement to the greatest extent permitted by law.

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Section 4.09 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal or Redemption Price of, or interest, on its Note on or after the respective due dates therefor expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.

Section 4.10 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of any Holder allowed in any judicial proceedings relating to any obligor on the Notes, its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and otherwise in accordance with the terms of this Indenture, and any custodian in any such judicial proceeding is hereby authorized by each obligee to make such payments to the Trustee, as administrative expenses associated with any such proceeding, and, in the event that the Trustee shall consent to the making of such payments directly to the obligee to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due to the Trustee under Section 8.01 and otherwise in accordance with the terms of this Indenture.

Section 4.11 Undertaking for Costs. All parties to this Indenture agree, and each Holder by its acceptance thereof shall be deemed to have agreed, that in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defense made by the party litigant. This Section 4.11 does not apply to a suit instituted by the Trustee, a suit instituted by any Holder for the enforcement of the payment of principal or Redemption Price of, or interest, on its Note on or after the respective due dates expressed in such Note, or a suit by a Holder or Holders of more than 10% of the Outstanding Principal Balance of any class or subclass of the Notes.

Section 4.12 Remedies; Rights of Controlling Party. Subject always to the provisions of this Article IV, the Controlling Party shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee; provided that (a) such direction shall not be in conflict with any rule of law or other applicable provisions of this Indenture and other Related Documents and would not involve the Trustee in personal liability or expense; and (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

ARTICLE V
 

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 5.01 Representations and Warranties. The Issuer represents and warrants to the parties hereto on each Closing Date as follows:

(a) Due Organization. The Issuer is an exempted company duly organized and validly existing under the laws of Bermuda and has the corporate power and authority to own or hold its properties and to enter into and perform its obligations under the Related Documents to which it is or will be a party, and each Issuer Subsidiary is a corporation, trust or limited liability company duly organized in its respective jurisdiction of organization, in each case with full power and

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authority to conduct its business; and none of the Issuer or any Issuer Subsidiary is in liquidation, bankruptcy or suspension of payments.

(b) Special Purpose Status. The Issuer has not engaged in any activities since its incorporation (other than those incidental to its incorporation and other appropriate corporate steps including the issue of shares and arrangements for the payment of fees to, and director’s and officer’s insurance for, the members of its Board, the authorization and the issuance of the Initial Notes, the execution of the Related Documents and the activities referred to in or contemplated by such agreements), and the Issuer has not paid any dividends or other distributions since its incorporation.

(c) Non-Contravention. The acquisition of the Initial Aircraft and interests in the Initial Leases either directly or through the purchase of the Issuer Subsidiaries pursuant to the Asset Purchase Agreement, the creation of the Initial Notes, the issuance, execution and delivery by the Issuer of, and the compliance by the Issuer with the terms of the Initial Notes, and the execution and delivery by each Issuer Group Member of, and compliance by it with the terms of each of the Related Documents to which it is a party:

(i) do not and will not at the Initial Closing Date or any Payment Date conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, the memorandum of association of the Issuer or the constituent documents of any Issuer Subsidiary or with any existing law, rule or regulation applying to or affecting the Issuer or any Issuer Subsidiary or any judgment, order or decree of any government, governmental body or court having jurisdiction over the Issuer or any Issuer Subsidiary; and

(ii) do not and will not at the Initial Closing Date or any Payment Date constitute a default under, any deed, indenture, agreement or other instrument or obligation to which the Issuer or any Issuer Subsidiary is a party or by which any of them or any part of their undertaking, assets, property or revenues are bound.

(d) Due Authorization. The acquisition of the Initial Aircraft and interests in the Initial Leases, the creation, execution and issuance of the Initial Notes, the execution and issue or delivery by the Issuer and each Issuer Subsidiary of the Related Documents executed by it and the performance by each of them of their obligations hereunder and thereunder and the arrangements contemplated hereby and thereby to be performed by each of them have been duly authorized by each of them.

(e) Validity and Enforceability. This Indenture constitutes, and the Related Documents to which it is a party, when executed and delivered and, in the case of the Initial Notes, when issued and authenticated, will constitute valid, legally binding and (subject to general equitable principles, insolvency, liquidation, reorganization and other laws of general application relating to creditors’ rights or claims or the concepts of materiality, reasonableness, good faith and fair dealing) enforceable obligations of each of the Issuer and each Issuer Subsidiary executing the same.

(f) No Defaults. There exists no Default, Event of Default nor any event which, had the Initial Notes already been issued, would constitute a Default or an Event of Default.

(g) No Encumbrances. Subject to the Security Interests created in favor of the Security Trustee and except for Permitted Encumbrances, there exists no Encumbrance over the assets or

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undertaking of (i) the Issuer which ranks prior to or pari passu with the obligation to make payments on the Initial Notes or (ii) any Issuer Subsidiary.

(h) No Consents. All consents, approvals, authorizations or other orders of all regulatory authorities required (excluding any required by the other parties to the Related Documents) for or in connection with the execution and performance of the Related Documents by the Issuer and each Issuer Subsidiary and the issue and performance of the Initial Notes and the offering of the Initial Notes by the Issuer have been obtained and are in full force and effect and not contingent upon fulfillment of any condition.

(i) No Litigation. There is no action, suit, investigation or proceeding pending against, or to the knowledge of the Issuer, threatened against or affecting, the Issuer or any Issuer Subsidiary before any court or arbitrator or any governmental body, agency or official which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Indenture (including the Exhibits and Schedules attached hereto) and the Related Documents or which could reasonably be expected to have a material adverse effect on the ability of the Issuer or any Issuer Subsidiary to perform its obligations under the Related Documents.

(j) Employees, Subsidiaries. The Issuer and each Issuer Subsidiary have no employees. Set forth in Schedule 2 is a true and complete list, as of the date hereof, of all Issuer Subsidiaries existing on the Initial Closing Date, together with their jurisdictions of incorporation.

(k) Ownership. The Issuer or an Issuer Subsidiary is the beneficial owner of the Pledged Shares, the Pledged Debt, the Pledged Beneficial Interest and the Non-Trustee Accounts, free from all Encumbrances and claims whatsoever other than Permitted Encumbrances.

(l) No Filings. Under the laws of Bermuda, the State of New York, the Federal laws of the United States of America or the laws of the jurisdiction of organization of any Issuer Subsidiary, it is not necessary or desirable that this Indenture or any Related Document to which the Issuer or an Issuer Subsidiary is a party (other than evidences of the Security Interests) be filed, recorded or enrolled (other than the filing of the Memorandum of Association of the Issuer in Bermuda which filing has been made and this Indenture in Bermuda which filing will have been made within five Business Days after the Initial Closing Date) with any court or other authority in any such jurisdictions or that any stamp, registration or similar tax be paid on or in relation to this Indenture or any of the other Related Documents.

(m) Aircraft Assets. Schedule 1 contains a true and complete list of all Aircraft constituting Initial Aircraft as of the Initial Closing Date and each Person within the Issuer Group that is, as of the Initial Closing Date, expected to own such Initial Aircraft as of the Acquisition Date for such Aircraft under the Asset Purchase Agreement. Except as otherwise set forth therein, after each Initial Aircraft listed on Schedule 1 has been delivered under the Asset Purchase Agreement on the Acquisition Date therefor, as such Schedule may be amended by notice to the parties hereto by the Issuer, each Person within the Issuer Group listed as an owner of an Aircraft on such Schedule will have such title to such Aircraft as was conveyed to such Person, free and clear of all Liens created by or through such Person.

(n) Aircraft Assets Related Documents. Each Aircraft Assets Related Document is a legal, valid and binding agreement of the Person within the Issuer Group that is a party thereto (including by way of assignment or novation) and is enforceable against such Person within the Issuer Group that is a party thereto in accordance with its terms except where enforceability may

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be limited by general equitable principles, insolvency, liquidation, reorganization and other laws of general application relating to creditors’ rights or claims or the concepts of materiality, reasonableness, good faith and fair dealing. No Person within the Issuer Group has modified, amended or waived any provision of or terminated any Aircraft Assets Related Document referred to in Schedule 4.02 to the Servicing Agreement except as disclosed therein.

(o) Other Representations. The representations and warranties made by the Issuer and each Issuer Subsidiary in any of the other Related Documents are true and accurate.

(p) Insurance. Each Lessee under an Initial Lease carries War Risk Coverage in an amount at least equal to the Current War Risk Coverage Amount set forth in Schedule 7 hereto with respect to such Lessee.

(q) ERISA. Neither the Issuer, nor any Issuer Group Member is, or will be, a Plan and no portion of the assets of the Issuer or any Issuer Group Member constitute, or will constitute, assets of any Plan.

Section 5.02 General Covenants. The Issuer hereby covenants as follows:

(a) No Release of Obligations. The Issuer shall not take, or knowingly permit any Issuer Subsidiary to take, any action which would amend, terminate (other than any termination in connection with the replacement of such agreement with an agreement on terms substantially no less favorable to the Issuer Group than the agreement being terminated) or discharge or prejudice the validity or effectiveness of this Indenture (other than as permitted herein), the Security Trust Agreement, any Acquisition Agreement, the Administrative Services Agreement, the Cash Management Agreement, any organizational document of the Issuer or any Issuer Subsidiary, the Policy (other than as expressly permitted hereunder), the Initial Liquidity Facility (other than as expressly permitted hereunder), the Reference Agency Agreement, the Servicing Agreement, the Capital Markets Advisory Agreement or any other Related Document to which the Issuer or any Issuer Subsidiary is a party or permit any party (other than an Issuer Group Member) to any such document to be released from such obligations, except, in each case, as permitted or contemplated by the terms of such document and except that in no event shall the Policy be so terminated (other than as expressly permitted hereunder), and provided that such actions may be taken or permitted, and such releases may be permitted (other than with respect to the termination of the Policy), if the Issuer shall have (i) obtained an authorizing resolution of the Board determining that such action, permitted action or release does not materially adversely affect the interests of the Holders or the Policy Provider (ii) given prior notice thereof to the Rating Agencies and (iii) obtained the prior written consent of the Policy Provider; and providedfurther that, in any case (i) the Issuer shall not amend or modify the conflicts standard or duty of care in the Servicing Agreements, (ii) except in the circumstances expressly contemplated in this Indenture, the Issuer may not amend the Policy without the unanimous consent of the Holders of Notes and without obtaining a Rating Agency Confirmation and (iii) there must be at all times an administrative agent with respect to the Issuer Group Services (as defined in the Administrative Services Agreement) and a servicer (provided that, if the Servicer terminates the Servicing Agreement pursuant to Section 10.02(a) thereof, or the Policy Provider terminates the Servicing Agreement pursuant to Section 10.02(b) thereof, this Section 5.02(a) shall not be violated if the Issuer uses its best efforts to obtain a successor servicer) with respect to all Aircraft in the Portfolio.

(b) Limitation on Encumbrances. The Issuer shall not, and shall not permit any Issuer Subsidiary to, create, Incur, assume or suffer to exist any mortgage, pledge, lien, encumbrance,

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charge or security interest (in each case, an “Encumbrance”), including, without limitation, any conditional sale, any sale with recourse against the Issuer or any Issuer Subsidiary (it being agreed that for this purpose customary representations, warranties and other undertakings with respect to assets sold shall not be considered recourse), or any agreement to give any security interest over or with respect to, any of the Issuer’s or any Issuer Subsidiary’s assets (other than the segregation of the Segregated Funds) including, without limitation, all shares of capital stock, all beneficial interests in trusts, all ordinary shares and preferred shares and any options, warrants and other rights to acquire such shares or interests (“Ownership Interest”) and any Indebtedness of any Issuer Subsidiary held by the Issuer or any Issuer Subsidiary.

Notwithstanding the foregoing, the Issuer may create, Incur, assume or suffer to exist (i) any Permitted Encumbrance, (ii) any security interest created or required to be created under the Security Documents, (iii) Encumbrances over rights in or derived from Leases, upon prior written consent of the Policy Provider and receipt of a Rating Agency Confirmation (provided that any transaction or series of transactions resulting in such Encumbrance, taken as a whole, does not materially adversely affect the amount of Collections that would have been received by the Issuer and any other Issuer Group Member from such Lease had such Encumbrance not been created), (iv) any other Encumbrance the validity or applicability of which is being contested in good faith in appropriate proceedings by the Issuer or any Issuer Subsidiary, (v) any Encumbrance in connection with any transfer of title to or Lease of an Aircraft (A) to or in favor of a trust or an entity for the purpose of registering the Aircraft under the laws of an applicable jurisdiction, or for tax or other regulatory purposes, so long as, however, the Issuer or any Issuer Subsidiary retains the beneficial and economic ownership of the Aircraft or (B) from such trust or entity to the Issuer or an Issuer Subsidiary (subject in the case of subclause (A) of this subclause (v) to the limitations set forth in subclause (F) of Section 5.02(g) below) and (vi) any lien created in favor of the issuer of a surety bond, letter of credit or similar instrument to be obtained by the Issuer or any Issuer Subsidiary in connection with the repossession of an Aircraft or other enforcement action under a Lease.

For the purposes of this Indenture, “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with, such Person or is a director or officer of such Person; “Control” of a Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting Ownership Interest, by contract or otherwise. For the avoidance of doubt, each Issuer Group Member shall be an “Affiliate” of each other Issuer Group Member. For the purposes of this Indenture, “Permitted Encumbrance” means (i) any lien for taxes, assessments and governmental charges or levies not yet due and payable or which are being contested in good faith by appropriate proceedings; (ii) in respect of any Aircraft, any lien of a repairer (including for modifications, refurbishment, repairs or maintenance), carrier or hangar keeper arising in the ordinary course of business by operation of law or any engine or parts-pooling arrangements or other similar lien; (iii) any permitted lien or encumbrances on any Aircraft, Engines or Parts as defined under any Lease thereof (other than liens or encumbrances created by the relevant lessor); (iv) any lien created by or through or arising from debt or liabilities or any act or omission of any Lessee in each case either in contravention of the relevant Lease (whether or not such Lease has been terminated) or without the consent of the relevant lessor (provided that if such lessor becomes aware of any such lien, it shall use commercially reasonable efforts to have any such lien lifted); (v) any head lease, lease, conditional sale agreement or Purchase Option under or in respect of the Initial Lease of any Initial Aircraft existing on the Acquisition Date of such Aircraft or otherwise existing on the relevant Closing Date or thereafter existing under any other Aircraft Agreement meeting the requirements of clause (ii)(C) or (ii)(E) of the second paragraph of Section 5.02(g) hereof; (vi) any lien of an insurer for salvage, (vii) any lien for air navigation authority, airport authority, airport tending, gate or handling (or similar) charges or levies; (viii) any lien created in favor of the Issuer, any Issuer Subsidiary or the Security Trustee securing the Secured Obligations; (ix) any Encumbrance arising under an Eligible Credit Facility or a Conversion Agreement and (x) any other lien

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not referred to in clauses (i) through (ix) of this paragraph which would not adversely affect the owner’s rights and does not exceed, individually, $250,000 per Aircraft or, in the aggregate, 0.25% of the Assumed Portfolio Value.

(c) Limitation on Restricted Payments. The Issuer shall not, and shall not permit any Issuer Subsidiary to:

(i) declare or pay any dividend or make any distribution on its Ownership Interest held by Persons other than the Issuer or any Issuer Subsidiary; provided that the Issuer may, subject always to the provisions of Article III hereof, make payments in respect of the Class A Shares and the Class B Shares;

(ii) purchase, redeem, retire or otherwise acquire for value any shares of Ownership Interest in the Issuer or any Issuer Subsidiary held by or on behalf of Persons other than the Issuer or any Issuer Subsidiary or other Issuer Group Member other than as provided in Sections 2.11 and 5.02(l)(ii)(C);

(iii) make any payment of principal, interest or premium, if any, on the Notes or make any voluntary or optional repurchase, defeasance or other acquisition or retirement for value of Indebtedness of the Issuer or such Issuer Subsidiary that is not owed to the Issuer or such Issuer Subsidiary other than in accordance with Articles II, III and XI hereof, the Policy Provider Documents and otherwise provided for in the Related Documents; provided that the Issuer or any of its Affiliates may repurchase, defease or otherwise acquire or retire any of the Notes other than from the Available Collections so long as any new notes of the Issuer issued in connection with such transaction rank pari passu with the Notes being repurchased, defeased, acquired or retired and the Board shall determine that such action does not materially adversely affect the Holders and shall have obtained prior written consent of the Policy Provider and a Rating Agency Confirmation (other than in accordance with Articles II, III and XI hereof); or

(iv) make any Investments (other than Permitted Account Investments, Allowed Restructurings, Investments permitted under Section 5.02(e) or 5.02(i) and Investments in any Issuer Group Member pursuant to any Acquisition Agreement or a Permitted Additional Aircraft Acquisition.

The term “Investment” for purposes of the above restriction means any loan or advance to a Person, any purchase or other acquisition of any beneficial interest, capital stock, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other Investment in such Person. For the avoidance of doubt, “Investment” shall not include any obligation of a purchaser of an Aircraft to make deferred or installment payments pursuant to any Aircraft Agreement specified in (ii)(C) or (ii)(E) of the second paragraph of Section 5.02(g) so long as the Issuer Group retains a security interest in the relevant Aircraft until all such obligations are discharged or any payment owing to a Lessee.

(d) Limitation on Dividends and Other Payment Restrictions. The Issuer shall not, and shall not permit any Issuer Subsidiary to, create or otherwise suffer to exist any consensual encumbrance or restriction of any kind on the ability of any Issuer Subsidiary to (i) declare or pay dividends or make any other distributions permitted by Applicable Law, or purchase, redeem or otherwise acquire for value, the Ownership Interest of the Issuer or such Issuer Subsidiary, as the case may be; (ii) pay any Indebtedness owed to the Issuer or such Issuer Subsidiary; (iii) make

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loans or advances to the Issuer or such Issuer Subsidiary; or (iv) transfer any of its property or assets to the Issuer or any other Issuer Subsidiary.

The foregoing provisions shall not restrict any consensual encumbrances or other restrictions, including (i) Permitted Encumbrances, (ii) existing on the Initial Closing Date or, in the case of any Aircraft, the Acquisition Date of such Aircraft, under any Related Document, and any amendments, extensions, refinancings, renewals or replacements of such documents; provided that such consensual encumbrances and restrictions in any such amendments, extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those previously in effect and being amended, extended, refinanced, renewed or replaced; or (iii) in the case of clause (iv) of the preceding paragraph, that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is an aircraft, engine, part, lease, license, conveyance or contract or similar property or asset, or existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or consensual encumbrance on, any property or assets of the Issuer or any Issuer Subsidiary not otherwise prohibited by this Indenture.

(e) Limitation on Engaging in Business Activities. The Issuer shall not, and shall not permit any Issuer Subsidiary to, engage in any business or activity other than:

(i) acquiring, purchasing, owning, holding, converting, maintaining, modifying, managing, operating, leasing, re-leasing and selling or otherwise disposing of the Aircraft and entering into all contracts and engaging in all related activities incidental thereto, including from time to time accepting, exchanging, holding or permitting any Issuer Subsidiary to accept, exchange or hold promissory notes, contingent payment obligations or equity interests, of Lessees or their Affiliates issued in connection with the bankruptcy, reorganization or other similar process, or in settlement of delinquent obligations or obligations anticipated to be delinquent, of such Lessees or their respective Affiliates in the ordinary course of business (an “Allowed Restructuring”);

(ii) providing loans to, guaranteeing or otherwise supporting the obligations and liabilities of any Issuer Group Member, in each case on such terms and in such manner as the Board sees fit and (whether or not the Issuer or any Issuer Subsidiary derives a benefit therefrom) so long as such loans, guarantees or other supports are provided in connection with the purposes set forth in clause (i) of this Section 5.02(e); provided that written notification shall have been given to each Rating Agency, the Policy Provider and the Initial Liquidity Facility Provider of such loan, guarantee or other support, provided that, no such notice shall be required for any guarantee provided by an Issuer Group Member with respect to any obligations of another Issuer Group Member in respect of the lease, purchase, maintenance, modification, refurbishment, repair or sale of any Aircraft or otherwise in the ordinary course of the aircraft operating lease business;

(iii) financing or refinancing the business activities described in clause (i) of this Section 5.02(e) through the offer, sale and issuance of any securities of the Issuer upon such terms and conditions as the Board sees fit, for cash or in payment or in partial payment for any property purchased or otherwise acquired by any Issuer Group Member;

(iv) engaging in currency and interest rate exchange transactions for the purposes of avoiding, reducing, minimizing, hedging against or otherwise managing the risk of any loss, cost, expense or liability arising, or which may arise, directly or indirectly, from any change or changes in any interest rate or currency exchange rate or in the price or value of any of the Issuer’s or any Issuer Subsidiary’s property or assets,

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within limits and with providers specified by the Board Resolution providing therefor from time to time and submitted to the Rating Agencies, the Policy Provider and the Initial Liquidity Facility Provider, including dealings, whether involving purchases, sales or otherwise, in foreign currency, spot and forward interest rate exchange contracts, forward interest rate agreements, caps, floors and collars, futures, options, hedges and any other currency, interest rate and other similar hedging arrangements and such other instruments as are similar to, or derivatives of, any of the foregoing; provided, that the Issuer shall not, and shall not permit any Issuer Subsidiary to, enter into any such hedging arrangements or other instruments that (A) are not entered into solely for hedging interest rate or currency risks associated with the Notes and/or the Leases or (B) are not U.S. dollar-denominated interest rate hedges, hedges, currency hedges, Swaptions, caps or floors (except in instances where the hedging instrument is entered into substantially to hedge risks associated with non-U.S. dollar-denominated Leases) without the prior written consent of the Policy Provider; providedfurther that the Issuer shall not, and shall not permit any Issuer Subsidiary to (unless with respect to any action permitted under Section 5.02(g) and Section 5.02(j) with respect to disposition or transfer to another Issuer Group Member), (x) terminate or transfer (except as expressly contemplated by the applicable Hedge Agreements) such hedging arrangements without the prior written consent of the Policy Provider and (y) enter into any Hedge Agreement after the Initial Closing Date without the prior written consent of the Policy Provider unless such Hedge Agreement contains the Material Hedge Agreement Terms that are no less favorable to the Issuer, any applicable Issuer Subsidiary and the Policy Provider than those contained in the Initial Hedge Agreements;

(v) (A) establishing, promoting and aiding in promoting, constituting, forming or organizing companies, trusts, syndicates, partnerships or other entities of all kinds in any part of the world for the purposes set forth in clauses (i) through (iv) above; provided that written notification shall have been given to each Rating Agency, the Policy Provider and the Initial Liquidity Facility Provider that such company, trust, syndicate, partnership or other entity is set up in compliance with this Indenture, (B) acquiring, holding and disposing of shares, securities and other interests in any such company, trust, syndicate, partnership or other entity and (C) disposing of shares, securities and other interests in, or causing the dissolution of, any existing subsidiary; provided that any such disposition which results in the disposition of an Aircraft meets the requirements set forth in Section 5.02(g);

(vi) taking out, acquiring, surrendering and assigning policies of insurance and assurances with any insurance company or companies which the Issuer or any Issuer Subsidiary may think fit and to pay the premiums thereon; and

(vii) engaging in the transactions contemplated by the Policy Provider Documents and the Initial Liquidity Facility.

(f) Limitation on Indebtedness. The Issuer shall not, and shall not permit any Issuer Subsidiary to, incur, create, issue, assume, guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, whether present or future (in any such case, to “Incur”), Indebtedness.

Notwithstanding the foregoing, the Issuer and any Issuer Subsidiary may Incur each and all of the following:

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(i) Indebtedness in respect of any Initial Notes issued on the Initial Closing Date;

(ii) Indebtedness in respect of any Refinancing Notes or other Indebtedness described in the proviso to Section 5.02(c)(iii); provided that (A) such Refinancing Notes or other Indebtedness receive ratings from the Rating Agencies at the close of such Refinancing or repurchase equal to or higher than those of the subclass being refinanced (determined at the date of Incurrence), (B) taking into account such Refinancing or repurchase, a Rating Agency Confirmation is obtained prior to such Refinancing or repurchase with respect to each subclass of Notes Outstanding at such time, (C) the prior written consent of each of the Policy Provider and the Initial Liquidity Facility Provider has been obtained with respect to such Refinancing or other Indebtedness and (D) the net proceeds of any such Refinancing or the Indebtedness shall be applied only (x) to repay the Redemption Price plus the Refinancing Expenses of the subclass of Notes being so refinanced or repurchased and pay any Policy Premium, Policy Redemption Premium, Policy Expenses, Policy Drawings and Policy Provider Obligations, if any, due and unpaid to the Policy Provider, (y) to fund any Cash Collateral Account established for the related Refinancing Notes (up to the Required Amount therefor) and (z) for deposit into any Cash Collateral Account (including in connection with an increase in any Required Amount effected under this Indenture in connection with the issuance of such Refinancing Notes);

(iii) Indebtedness in respect of guarantees by any Issuer Group Member that are in the ordinary course of the aircraft operating leasing business and that are in respect of the obligations of any Issuer Group Member;

(iv) Indebtedness in respect of any Additional Notes the net proceeds of which are applied (A) to finance a Permitted Additional Aircraft Acquisition or to make Conversion Payments, (B) to fund any Cash Collateral Account established for such Additional Notes (up to the Required Amount therefor), (C) for deposit into any Cash Collateral Account (including in connection with an increase in any Required Amount effected under this Indenture in connection with the issuance of such Additional Notes) and (D) to fund expenses related thereto; provided that (w) a Rating Agency Confirmation is obtained prior to the Incurrence of such Indebtedness with respect to all of the Notes Outstanding at such time, (x) the net proceeds of such Indebtedness shall be applied only for the purposes specified above in this clause (iv), (y) the prior written consent of the Policy Provider (unless the Policy Non-Consent Event has occurred) and the Initial Liquidity Facility Provider (unless a Initial Liquidity Facility Non-Consent Event has occurred) is obtained prior to the Incurrence of such Indebtedness and (z) such Additional Notes will be cross-collateralized with all Secured Obligations by the Collateral under the Security Trust Agreement;

(v) obligations to each Seller under each Acquisition Agreement and any related lease assignment and assumption agreements and obligations to Lessees and others under the documents related thereto, including any Indebtedness owed to any Lessee under any such agreement or the Lease with respect to maintenance contributions, redelivery condition adjustment payments or “Airworthiness Directive Sharing”;

(vi) Indebtedness under any agreements between the Issuer or any Issuer Subsidiary and any other Issuer Group Members (each, an “Intercompany Loan”);

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provided that the agreements or promissory notes evidencing such Indebtedness shall be pledged to the Security Trustee;

(vii) Indebtedness of the Issuer under any Eligible Credit Facility, provided that a Rating Agency Confirmation and the prior written consent of each of the Policy Provider and the Initial Liquidity Facility Provider is obtained prior to entering into such new Eligible Credit Facility;

(viii) Indebtedness of the Issuer under the Policy Provider Documents;

(ix) Indebtedness required in connection with repossession or detention of or other enforcement action with respect to an Aircraft or any Engine;

(x) Indebtedness in favor of the issuer of a surety, letter of credit or similar instrument to be obtained by the Issuer or any Issuer Subsidiary in connection with the repossession or detention of an Aircraft or other enforcement action under a Lease; and

(xi) Obligations (including without limitation, payments relating to the purchase price and any security deposits, maintenance reserves, and indemnity obligations) to any purchaser of Aircraft pursuant to any Aircraft Agreement (including leases or subleases).

(g) Limitation on Aircraft Dispositions. The Issuer shall not, and shall not permit any Issuer Subsidiary to, sell, transfer or otherwise dispose of any Aircraft or any interest therein other than as provided in Section 4(e) of Schedule 2.02(a) of the Servicing Agreement.

Notwithstanding the foregoing, the Issuer and any Issuer Subsidiary shall only be permitted to sell, transfer or otherwise dispose of, directly or indirectly:

(i) any Engine or Part purchased on the date such Aircraft is acquired or any Engine or Part in connection with the replacement or exchange of such Engine or Part in accordance with a Lease or any Part that the Servicer has determined is surplus to the Issuer Group’s operations or is obsolete, or

(ii) one or more Aircraft or an interest therein:

(A) with respect to any Substitute Aircraft or Additional Aircraft, on the Closing Date therefor as agreed to by the Policy Provider,

(B) within or among the Issuer and the Issuer Subsidiaries without limitation and among the Issuer and/or any Issuer Subsidiary and any other Issuer Group Member; provided that no such sale, transfer or other disposition shall be made unless the Issuer or the Administrative Agent has determined that such sale, transfer or other disposition would not materially adversely affect the Holders or the Policy Provider,

(C) pursuant to any Aircraft Agreement (including any entered into with holders of the Class A Shares or their Affiliates), provided that such sale (a) must be for cash only, (b) does not result in a Concentration Default, (c) the Net Sale Proceeds thereof are not less than the Note Target Price with respect to such Aircraft; (d) such Aircraft Agreement is not with any Affiliate of BBAM unless

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an Independent Representative (as defined in the Servicing Agreement) has been appointed to represent the relevant Issuer Group Member in connection with such sale or BBAM is no longer the Servicer; and (e) not more than ten Aircraft (or, if less than 47 Aircraft are Delivered by the Delivery Expiry Date, 20% of the Initial Aircraft that have been Delivered) may be sold (including by way of Purchase Option), transferred or otherwise disposed of without the prior written consent of the Policy Provider; provided, however,that with respect to any Aircraft for which 25 years or more have elapsed since the date of manufacture or delivery, the limit of ten aircraft shall not apply for purposes of this subclause (e),

(D) pursuant to receipt of insurance, requisition or condemnation proceeds in connection with a Total Loss,

(E) pursuant to an Aircraft Agreement (including pursuant to a Purchase Option) the Net Sale Proceeds of which is less than the Note Target Price, provided that (a) such sales must be for cash only; (b) in any one calendar year such sales do not exceed 10% of the then Assumed Portfolio Value, (c) a Rating Agency Confirmation from Moody’s alone is obtained or each such sale does not result in a Concentration Default; (c) prior written notice has been provided to Standard & Poor’s and Fitch and (d) the prior written consent of the Policy Provider shall have been obtained, or

(F) in connection with a transfer of title or another interest in an Aircraft (1) to or in favor of a trust or entity that is not an Issuer Subsidiary for the purposes of registering the Aircraft under the laws of an applicable jurisdiction, or for tax or other regulatory purposes, where the Issuer or an Issuer Subsidiary retains the beneficial and economic ownership of the Aircraft or (2) from such trust or entity to the Issuer or an Issuer Subsidiary.

Notwithstanding the foregoing, no sale, transfer or other disposition of any Aircraft contributed by the holders of the Class A Shares shall be permitted if a Default or an Event of Default would arise after giving effect to such sale, transfer or other disposition.

(h) Limitation on Aircraft Acquisitions. The Issuer shall not, and shall not permit any Issuer Subsidiary to, purchase or otherwise acquire, directly or indirectly, any Aircraft other than the Initial Aircraft or any interest therein.

Notwithstanding the foregoing, the Issuer may, and may permit any Issuer Subsidiary to (A) purchase or acquire, directly or indirectly, Additional Aircraft from time to time (a “Permitted Additional Aircraft Acquisition”); provided that, (i) no Event of Default shall have occurred and be continuing, (ii) the acquisition does not result in a Concentration Default, (iii) in the case of any Additional Aircraft acquired by means of the issuance of Additional Notes, the prior written consent of each of the Policy Provider and the Initial Liquidity Facility Provider has been obtained and a Rating Agency Confirmation has been received, and (B) purchase or otherwise acquire, directly or indirectly, (x) Remaining Aircraft pursuant to the Asset Purchase Agreement or (y) Substitute Aircraft, provided that, with respect to Substitute Aircraft, each of a Rating Agency Confirmation and the prior written consent of the Policy Provider has been received, except that that the consent of the Policy Provider shall not be required for such substitution if (i) such Substitute Aircraft is not a cargo or regional jet aircraft or, if such Substitute Aircraft is a cargo or regional jet aircraft, such Substitute Aircraft is being substituted

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for an Aircraft of the same category and (ii) the Rating Agencies have confirmed that such substitution will not result in an adverse change to the Policy Provider’s capital charge associated with the Class G-1 Notes or the ratings assigned to the Class G-1 Notes by each Rating Agency (as determined without regard to the Policy), and (C) acquire, by way of a contribution from the holders of the Class A Shares, any Additional Aircraft. All Additional Aircraft shall hold or are capable of holding a noise reduction certificate issued under Chapter 3 of Volume I, Part II of annex 16 of the Chicago Convention or comply with the Stage 3 noise levels set out in Section 36.3 of Appendix C of Part 36 of the United States Federal Aviation Regulations (in each case without the use of noise reduction kits).

(i) Limitation on Modification Payments and Capital Expenditures. The Issuer shall not, and shall not permit any Issuer Subsidiary to, make any capital expenditures for the purpose of effecting any optional improvement or modification of any Aircraft, including without limitation the optional conversion (an “Aircraft Conversion”) of any Aircraft from a passenger aircraft to a cargo or mixed use aircraft, or for the purpose of purchasing or otherwise acquiring any Engines or Parts outside of the ordinary course of business, excluding any capital expenditure made in the ordinary course of business in connection with a lease or sale of such Aircraft (each such non-excluded expenditure, a “Modification Payment”, and each Modification Payment in respect of an Aircraft Conversion, a “Conversion Payment”).

Notwithstanding the foregoing, the Issuer may, and may permit any Issuer Subsidiary to (x) make Conversion Payments from any amounts on deposit in the Aircraft Conversion Account as a result of one or more Conversion Elections; provided that (i) the full amount of the cost of such Aircraft Conversion is on deposit in the Aircraft Conversion Account prior to any Conversion Payments for such Aircraft Conversion being made; (ii)(a) the Issuer has provided an information memorandum containing information and analysis with respect to the related Aircraft Conversion to the Policy Provider and the Rating Agencies, together with a certification by the Issuer that such Aircraft Conversion will not materially adversely affect the Holders or the Policy Provider, (b) the Issuer has provided written notification to the Initial Liquidity Facility Provider at least five Business Days prior to making a Conversion Election, and (c) with respect to any narrowbody aircraft, if the estimated aggregate Conversion Payments with respect to any Aircraft Conversion is expected to exceed $6,000,000 or with respect to any widebody aircraft if the estimated aggregate Conversion Payments with respect to any Aircraft Conversion is expected to exceed $10,000,000, in each case as determined by a quote from the maintenance facility where such Aircraft Conversion is to take place, the prior written consent of the Policy Provider and a Rating Agency Confirmation has been obtained with respect to any such Aircraft Conversion; (iii) the Aircraft Conversion will not result in a Concentration Default; (iv) without derogation of the limits set forth in clause (c) above, not more than four Aircraft Conversions (or, if less than 47 Aircraft are Delivered by the Delivery Expiry Date, 10% of the Initial Aircraft that have been Delivered) in the aggregate with respect to any narrowbody aircraft and one Aircraft Conversion with respect to widebody aircraft for all of the Issuer Group Members may be made without obtaining a Rating Agency Confirmation and the prior written consent of the Policy Provider; (v) after the fifth anniversary of the Initial Closing Date, or in the event that a Default Notice has been issued, an Acceleration Default has occurred or a DSCR Failure has occurred, no Aircraft Conversions may be made (which begin after the fifth anniversary of the Initial Closing Date or the occurrence of a DSCR Failure) without obtaining a Rating Agency Confirmation and the prior written consent of the Policy Provider; and (vi) a scheduled conversion slot has been obtained by the relevant Issuer Group Member and (y) make Modification Payments (other than Conversion Payments) the aggregate net cash cost of all of which Modification Payments made by the Issuer Group, taken as a whole, pursuant to this Section 5.02(i) after the after the Initial Closing Date, including such Modification Payment, shall not exceed (as of the date of such Modification Payment) 5% of the aggregate initial Average Base Value of all Aircraft in the Portfolio; provided, however, that, if such Modification Payment shall be financed through capital contributions from the holders of the Class A Shares, the foregoing restrictions shall not apply. For the avoidance of

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doubt, but subject to the foregoing, any Modification Payments permitted to be made without the express prior written approval of the Issuer under Section 7.04 of the Servicing Agreement shall be expressly permitted under this Indenture, provided that the references therein to modifications permitted in the then current “Approved Budget” shall not be deemed to permit thereunder any Modification Payments that are not permitted under this section.

(j) Limitation on Consolidation, Merger and Transfer of Assets. The Issuer shall not, and shall not permit any Issuer Subsidiary to, consolidate with, amalgamate, merge with or into, or sell, convey, transfer, lease or otherwise dispose of its property and assets (as an entirety or substantially an entirety in one transaction or in a series of related transactions) to, any other Person, or permit any other Person to consolidate with, amalgamate or merge with or into the Issuer or any Issuer Subsidiary, unless:

(i) the resulting entity is a special purpose entity, the charter of which is substantially similar to the charter documents of the Issuer or the equivalent charter document of such Issuer Subsidiary, as the case may be, and, after such consolidation, amalgamation, merger, sale, conveyance, transfer, lease or other disposition (A) payments from such resulting entity to the Holders do not give rise to any withholding tax payments less favorable to the Holders than the amount of any withholding tax payments which would have been required had such event not occurred and (B) such entity is not subject to taxation in the United States as a corporation or an association or a publicly traded partnership taxable as a corporation,

(ii) in the case of any consolidation, amalgamation, merger or transfer by the Issuer, the surviving successor or transferee entity shall expressly assume all of the obligations of the Issuer under this Indenture, the Notes and each other Related Document to which the Issuer is then a party (with, in the case of a transfer only, the Issuer thereupon being released) and in the case of any consolidation, amalgamation, merger or transfer by any other Issuer Group Member, the surviving successor or transferee entity shall expressly assume all of the obligations of such Issuer Group Member under each Related Document to which it is then a party (with, in the case of a transfer only, the Issuer Group Member thereupon being released),

(iii) each of a Rating Agency Confirmation and the prior written consent of each of the Policy Provider (unless the Policy Non-Consent Event has occurred) and the Initial Liquidity Facility Provider (unless the Initial Liquidity Facility Non-Consent Event has occurred) is obtained with respect to such merger, sale, conveyance, transfer, lease or disposition,

(iv) immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing, and

(v) the Issuer delivers to the Trustee an Officer’s Certificate and an Opinion of Counsel, in each case stating that such consolidation, amalgamation, merger or transfer and such supplemental indenture comply with the above criteria and, if applicable, Section 5.02(g) and that all conditions precedent provided for herein relating to such transaction have been complied with;

provided that this covenant shall not apply to any such consolidation, amalgamation, merger, sale, conveyance, transfer, lease or disposition (a) within and among the Issuer Group if the Administrative Agent or the Issuer shall have determined that such consolidation, amalgamation, merger, sale,

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conveyance, transfer, lease or disposition, as the case may be, (x) would not materially adversely affect the Holders or the Policy Provider, and (y) is otherwise consistent with Sections 5.02(p) and (q), (b) complying with the terms of Section 5.02(g) hereof or (c) effected as part of a single transaction providing for the redemption or defeasance of Notes in accordance with Section 3.11 or Article XI, respectively.

(k) Limitation on Transactions with Affiliates. The Issuer shall not, and shall not permit any Issuer Subsidiary, directly or indirectly, to enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any Affiliate of the Issuer or any Issuer Subsidiary, except upon fair and reasonable terms no less favorable to the Issuer or such Issuer Subsidiary than could be obtained, at the time of such transaction or at the time of the execution of the agreement providing therefor, in a comparable arm’s-length transaction with a Person that is not such an Affiliate and pursuant to enforceable agreements.

The foregoing limitation does not limit, and shall not apply to: (i) any transaction in connection with the establishment of the Issuer Group, its acquisition of the Initial Aircraft or pursuant to the terms of the Related Documents; (ii) any transaction permitted hereunder within and among the Issuer or any Issuer Subsidiary and any other Issuer Group Member; (iii) the payment of reasonable and customary fees to, and the provision of reasonable and customary liability insurance in respect of the Directors; (iv) any payments on or with respect to the Notes or Shares in accordance with this Indenture; (v) any Contribution Amounts or contributions in the form of Additional Aircraft made by the holders of the Class A Shares and (vi) any capital contribution to any Issuer Group Member.

(l) Limitation on the Issuance, Transfer and Sale of Ownership Interests. The Issuer shall not (i) issue, deliver or sell any shares, interests, participations or other equivalents in equity (however designated, whether voting or non-voting), including, without limitation, all ordinary shares of the Issuer (other than the issuance of shares, beneficial interests, participations or other equivalents existing on the Initial Closing Date), or (ii) sell, or permit any Issuer Subsidiary, directly or indirectly, to issue, deliver or sell, any shares, beneficial interests, participations or other equivalents in equity (however designated, whether voting or non-voting, other than such shares, interests, participations or other equivalents existing on the Initial Closing Date), except (A) the issuance, sale, delivery, transfer or pledge of Ownership Interest in any Issuer Group Member to or for the benefit of any other Issuer Group Member, (B) issuances or sales of any Additional Notes the proceeds of which are applied to finance a Permitted Additional Aircraft Acquisition or make Conversion Payments, as the case may be, provided that (x) a Rating Agency Confirmation is obtained prior to such issuance with respect to all of the Notes Outstanding at such time and the prior written consent of the Policy Provider is obtained in connection therewith, (y) the net proceeds of such issuance shall be used only to finance such Permitted Additional Aircraft Acquisition and/or the purpose to which the proceeds of Additional Notes may be applied in accordance with the provisions of Section 2.11 hereof and such issuance otherwise complies with Section 2.11 and (z) the issuance, delivery and sale of such Additional Notes takes place only as permitted by the organizational documents, (C) subject to the overall limitation thereon in clause (ii)(F)(1) of Section 5.02(g), issuances or sales of Ownership Interests of foreign Issuer Subsidiaries to nationals in the jurisdiction of incorporation or organization of such Issuer Subsidiary, as the case may be, to the extent required by applicable law or necessary in the determination of the Board to avoid adverse tax consequences or to facilitate the registration or leasing of Aircraft, (D) the pledge of the Pledged Shares, Pledged Membership Interests and Pledged Beneficial Interests pursuant to the Security Documents, (E) the issuance, sale, delivery, transfer or pledge of any Ownership Interests of an Issuer Subsidiary in order to effect the sale of all Aircraft owned by such Issuer Subsidiary in compliance with Section 5.02(g)

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hereof, (F) the issuance of Additional Notes to the Holders to the extent such Holder provides funds to the Issuer with which to effect a Redemption or discharge the Notes upon their Acceleration, (G) the issuance, sale, delivery, transfer or pledge of the Class A Shares or the Class B Shares and (H) in connection with any sale, conveyance, transfer or other disposition permitted under Section 5.02(j).

(m) Bankruptcy and Insolvency; Corporate Governance. The Issuer (i) shall promptly provide the Trustee, the Policy Provider, the Initial Liquidity Facility Provider and the Rating Agencies with Written Notice of the institution of any proceeding by or against the Issuer or any Issuer Subsidiary, as the case may be, seeking to adjudicate any of them bankrupt or insolvent, or seeking liquidation, Irish law examinership, winding up, reorganization, arrangement, adjustment, protection, relief or composition of their debts under any law relating to bankruptcy, insolvency or reorganization, Irish law examinership or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, Irish law examiner or other similar official for either all or for any substantial part of its property; (ii) shall not take any action to waive, repeal, amend, vary, supplement or otherwise modify its constitutional documents (including trust documents), or those of any Issuer Subsidiary in a manner that would adversely affect the rights, privileges or preferences of any Holder of the Notes or the Policy Provider, as determined by the Board, and (iii) shall not, without an affirmative unanimous written resolution of the Board and the consent of the Policy Provider (if materially affected thereby), take any action to waive, repeal, amend, vary, supplement or otherwise modify the provisions of its constitutional documents or those of any Issuer Subsidiary and shall not permit any Issuer Subsidiary to take any such action without an affirmative unanimous written resolution of the board of directors of such Issuer Subsidiary. The Issuer shall have at least two Independent Directors.

(n) Payment of Principal, Redemption Premium, if any, and Interest. The Issuer shall duly and punctually pay or provide for payment of the principal, premium, if any, interest on the Notes in accordance with the terms of this Indenture and the Notes.

(o) Limitation on Employees. The Issuer shall not, and shall not permit any Issuer Subsidiary to, employ or maintain any employees other than as required by any provisions of local law; provided that trustees and directors shall not be deemed to be employees for purposes of this Section 5.02.

(p) Compliance and Agreement. The Issuer shall comply, and shall cause each Issuer Subsidiary to comply, with the provisions of the Related Documents. The Issuer shall ensure that title to each Aircraft shall be held in a separate special purpose bankruptcy remote entity (including a trust) (but not the Issuer) whose constitutional documents contain restrictions similar to the restrictions (including, but not limited to, the provisions regarding limited purpose, maintaining separateness from other entities and bankruptcy remoteness) contained in the constitutional documents of the Issuer Subsidiaries existing on the Initial Closing Date. The constitutional documents of the Issuer Subsidiaries shall contain provisions requiring the Issuer Subsidiaries to comply with the provisions of the Related Documents and any amendment to such provision shall be subject to the prior written consent of the Policy Provider.

(q) Maintenance of Separate Existence. Except to the extent provided in this Indenture or the other Related Documents, the Issuer shall, and shall cause each Issuer Subsidiary to, maintain certain policies and procedures relating to its existence as a separate corporation, company or other legal entity as follows:

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(i) the Issuer acknowledges its receipt of a copy of that certain opinion letter issued by Conyers Dill & Pearman, dated as of the Initial Closing Date addressed to, among others, the Policy Provider, the Initial Liquidity Facility Provider and the Rating Agencies and addressing the issue of substantive consolidation as it may relate to the Issuer, on the one hand, and the Servicer or the Administrative Agent, on the other hand. The Issuer hereby agrees to maintain, and to cause each Issuer Subsidiary to maintain, in place all policies and procedures, and take and continue to take all actions, relating to the Issuer or such Issuer Subsidiaries, as applicable; provided, however, that the Issuer or any such Issuer Subsidiary may cease to maintain any policy or procedure if and to the extent that the Issuer or such Issuer Subsidiary delivers to the Trustee, the Initial Liquidity Facility Provider and the Policy Provider an Opinion of Counsel reasonably acceptable to the Initial Liquidity Facility Provider and the Policy Provider providing that such policy or procedure is no longer necessary, due to a change in law or otherwise, for the rendering of such earlier opinion relating to the issue of substantive consolidation and a Rating Agency Confirmation is obtained with respect to ceasing to maintain such policy or procedure.

(ii) the Issuer shall, and shall cause each Issuer Subsidiary to:

(A) maintain its own books and records and bank accounts separate from those of the Servicer, the Administrative Agent and any other Person except as otherwise contemplated by the constitutional documents of the Issuer Group Members or the Related Documents;

(B) maintain its assets in such a manner that it is not difficult to segregate, identify or ascertain such assets;

(C) except with respect to any Issuer Group Member that is a grantor trust, have a board of directors separate from that of the Servicer, the Administrative Agent and any other Person; provided that the individuals serving as directors of each board of directors may be the same individuals on each board of directors;

(D) except with respect to any Issuer Group Member that is a grantor trust, cause its board of directors to meet at least quarterly and keep minutes of such meetings and actions and observe all other corporate and other legal formalities;

(E) hold itself out to creditors and the public as a legal entity separate and distinct from the Servicer, the Administrative Agent and any other Person;

(F) except as expressly set forth herein, prepare separate financial statements and separate tax returns, and if separate returns for the Issuer and the Administrative Agent are required under applicable tax law, or if part of a consolidated group, then it will be shown as a separate member of such group, and pay any taxes required to be paid under applicable tax law;

(G) allocate and charge fairly and reasonably any common overhead shared with Affiliates;

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(H) conduct business in its own name, use separate invoices, stationery and checks and strictly comply with all organizational formalities to maintain its separate existence;

(I) not commingle its assets or funds with those of any other Person (including the Servicer or the Administrative Agent);

(J) not hold out its credit or assets as being available to satisfy the obligations of others;

(K) not assume, guarantee or pay the debts or obligations of any other Person or otherwise pledge its assets for the benefit of any other Person;

(L) correct any known misunderstanding regarding its separate identity;

(M) other than as expressly contemplated by this Indenture, pay its own liabilities only out of its own funds;

(N) maintain adequate capital in light of its contemplated business purpose, transactions and liabilities;

(O) not acquire the securities of the Servicer or the Administrative Agent;

(P) cause its Board and any officers, managers, agents and other representatives of the Issuer or such Issuer Subsidiary, as applicable, to act at all times with respect to the Issuer or such Issuer Subsidiary, as the case may be, consistently and in furtherance of the foregoing and in compliance with Applicable Law; and

(Q) transact all business with Affiliates on an arm’s length basis and pursuant to enforceable agreements.

(iii) Subject to requirements of applicable Bermuda law, the Company shall do all things necessary to maintain itself in existence as an “exempted company” under the laws of Bermuda.

(r) Independent Director. The Issuer shall cause each of its Subsidiaries (except any trust of which the Issuer or a Subsidiary is the holder of the beneficial interest) to have at least one Independent Director, who may be an Independent Director serving on the board of directors of the Issuer or any other of its Subsidiaries.

Section 5.03 Operating Covenants. The Issuer covenants with the parties as follows:

(a) Concentration Limits. Without prior written notification to Standard & Poor’s and Fitch, receipt of a Rating Agency Confirmation from Moody’s alone and the prior written consent of the Policy Provider, the Issuer shall not permit any Issuer Subsidiary to lease or re-lease any Aircraft if entering into such proposed Lease would cause the Portfolio (including after giving effect to the acquisition of any Substitute Aircraft) to exceed any of the Concentration Limits set forth in Exhibit B hereto (excluding from such limits renewals or extensions of a Lease to an existing Lessee under a Lease entered into in compliance with the Concentration Limits and as

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such limits may be adjusted or changed by the Issuer from time to time, subject to a Rating Agency Confirmation from Moody’s alone, the delivery of prior written notice to Standard & Poor’s and Fitch and the prior written consent of the Policy Provider, the “Concentration Limits”); provided that the Issuer or any Issuer Subsidiary shall be entitled to renew or extend any Lease to the existing Lessee thereunder irrespective of the effect of such renewal or extension on the Concentration Limits (and if the Concentration Limits absent such exception would be exceeded as a result of any such renewal or extension, the Issuer shall give written notification thereof to the Rating Agencies and the Policy Provider); and provided that, unless otherwise elected by the Administrative Agent, the Concentration Limits shall be determined without giving effect to any Aircraft contributed (by way of Equity Contributions) to the Issuer Group. The Issuer shall not permit any Issuer Group Member to (i) lease (including any renewal or extension of any existing Lease) any Aircraft to any Lessee habitually based or domiciled in any of the jurisdictions set forth as “Prohibited” in the last section of the Concentration Limits as set forth on Exhibit B hereto as amended from time to time upon the receipt of a Rating Agency Confirmation from Moody’s alone, the delivery of prior written notice to Standard & Poor’s and Fitch and the prior written consent of the Policy Provider (each such jurisdiction, a “Prohibited Country”), (ii) enter into any Lease (including any renewal or extension of any existing Lease) that expressly permits the Lessee to sublease an Aircraft to a sublessee habitually based or domiciled in a Prohibited Country, or (iii) consent to a sublease of an Aircraft to a sublessee habitually based or domiciled in a Prohibited Country.

(b) Compliance with Law, Maintenance of Permits. The Issuer shall (i) comply, and cause each Issuer Subsidiary to comply, in all material respects with all Applicable Laws (including environmental laws, rules, regulations and orders of Bermuda), (ii) obtain, and cause each Issuer Subsidiary to obtain, all material governmental (including regulatory) registrations, certificates, licenses, permits and authorizations required for the use and operation of the Aircraft owned by it, including, without limitation, a current certificate of airworthiness for each such Aircraft (issued by the Applicable Aviation Authority and in the appropriate category for the nature of the operations of such Aircraft), except that (A) no certificate of airworthiness shall be required for any Aircraft (x) during any period when such Aircraft is undergoing maintenance, modification or repair, or (y) following the withdrawal or suspension by such Applicable Aviation Authority of certificates of airworthiness in respect of all aircraft of the same model or period of manufacture as such Aircraft (in which case the Issuer shall comply, and cause each Issuer Subsidiary to comply, with all directions of such Applicable Aviation Authority in connection with such withdrawal or suspension), (B) no registrations, certificates, licenses, permits or authorizations required for the use or operation of any Aircraft need be obtained with respect to any period when such Aircraft is not being operated and (C) no such registrations, certificates, licenses, permits or authorizations shall be required to be maintained for any Aircraft that is not the subject of a Lease, except to the extent required under Applicable Laws, (iii) not cause or knowingly permit, directly or indirectly, through any Issuer Subsidiary, any Lessee to operate any Aircraft under any Lease in any material respect contrary to any Applicable Law and (iv) not knowingly permit, directly or indirectly, through any Issuer Subsidiary, any Lessee not to obtain all material governmental (including regulatory) registrations, certificates, licenses, permits and authorizations required for such Lessee’s use and operation of any Aircraft under any operating Lease except as provided, mutatismutandis, in clauses (ii)(A) and (ii)(B) above.

Notwithstanding the foregoing, no breach of this Section 5.03(b) shall be deemed to have occurred by virtue of any act or omission of a Lessee or sub-lessee, or of any Person which has possession of the Aircraft or any Engine for the purpose of repairs, maintenance, modification or storage, or by virtue of any requisition, seizure, or confiscation of the Aircraft (other than seizure or confiscation arising from a breach by the Issuer or an Issuer Subsidiary of this Section 5.03(b)) (each, a “Third Party Event”);

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provided that (i) neither the Issuer nor any Issuer Subsidiary consents or has consented to such Third Party Event; and (ii) the Issuer or Issuer Subsidiary which is the lessor or owner of such Aircraft promptly and diligently takes such actions as a leading international aircraft operating lessor would customarily take in respect of such Third Party Event, including, as deemed appropriate (taking into account, inter alia, the laws of the jurisdictions in which the Aircraft are located), seeking to compel such Lessee or other relevant Person to remedy such Third Party Event or seeking to repossess the relevant Aircraft or Engine.

(c) Maintenance of Assets. The Issuer shall (i) with respect to each Aircraft and Engine that is subject to a Lease, cause, directly or indirectly, through any Issuer Subsidiary, such Aircraft and Engine to be maintained in a state of repair and condition substantially consistent with the customary commercial practice of any leading international aircraft operating lessor with respect to similar aircraft under lease, taking into consideration, among other things, the identity of the relevant Lessee (including operating experience thereof), the age and condition of the Aircraft and the jurisdiction in which such Aircraft will be operated or registered under such Lease and (ii) with respect to each Aircraft that is not subject to a Lease, maintain, and cause each Issuer Subsidiary to maintain, such Aircraft in a state of repair and condition substantially consistent with the customary commercial practice of any leading international aircraft operating lessor with respect to aircraft not under lease. Notwithstanding the foregoing, no breach of this Section 5.03(c) shall be deemed to have occurred by virtue of any Third Party Event; provided that (i) neither the Issuer nor any Issuer Subsidiary consents or has consented to such Third Party Event; and (ii) the Issuer or such Issuer Subsidiary which is the lessor or owner of such Aircraft promptly and diligently takes such customary actions as any leading international aircraft operating lessor would take in respect of such Third Party Event, including as deemed appropriate, seeking to compel such Lessee or other relevant Person to remedy such Third Party Event or seeking to repossess the relevant Aircraft or Engine.

(d) Notification of Trustee, Policy Provider, Initial Liquidity Facility Provider and Cash Manager. The Issuer shall notify the Trustee, the Policy Provider, the Cash Manager and the Initial Liquidity Facility Provider in writing as soon as the Issuer or any Issuer Subsidiary becomes aware of any loss, theft, confiscation, requisition, damage or destruction to any Initial Aircraft, Additional Aircraft or Engine if the potential cost of repair or replacement of such asset (without regard to any insurance claim related thereto) may exceed the greater of $2,000,000 and the damage notification threshold contained in the applicable Lease.

(e) Leases. (i) The Issuer shall adopt and shall cause the Servicer to utilize the pro forma lease in the form provided to the Issuer on the Initial Closing Date as such pro forma lease agreement or agreements may be revised for purposes of the Issuer Group specifically or generally from time to time by the Servicer (the “Servicer’s Pro Forma Lease” in a manner consistent with the Servicer’s “Standard of Care” and the Servicer’s “Conflicts Standard” (as each term is defined in the Servicing Agreement”), for use by the Servicer on behalf of the Issuer or any Issuer Subsidiary as a starting point in the negotiation of Future Leases with Persons who are not Issuer Group Members; provided, however, that with respect to any Future Lease entered into in connection with (x) the renewal or extension of an Initial Lease, (y) the leasing of an Aircraft to a Person that is or was a Lessee under an Initial Lease or (z) the leasing of an Aircraft to a Person that is or was the lessee under an operating lease of an aircraft that is being managed or serviced by the Servicer (such Future Lease, a “Renewal Lease”), a form of lease substantially similar to such Initial Lease or operating lease (a “Precedent Lease”), as the case may be, may be used by the Servicer in lieu of the Servicer’s Pro Forma Lease on behalf of the Issuer or any Issuer Subsidiary as a starting point in the negotiation of such Future Lease with Persons who are not Issuer Group Members; and providedfurther, however, that if the Board determines, in an

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annual review of the Servicer’s Pro Forma Lease on or before each anniversary of the relevant Closing Date, that any revision to the Servicer’s Pro Forma Lease made from time to time since the preceding review by the Board (or, with respect to the first anniversary of the Initial Closing Date, since the Initial Closing Date) is substantially inconsistent with the core lease provisions of the Issuer set forth in Exhibit F to this Indenture (as such provisions may be amended from time to time, the “Core Lease Provisions”) in a manner and to such a degree as to have a material adverse effect on the Holders, taking into consideration, inter alia, such revision and any risk that the Aircraft might not be able to be leased on terms substantially consistent with the provisions of the Servicer’s Pro Forma Lease without such revisions, then the Board shall direct the Servicer not to include such revision in the Servicer’s Pro Forma Lease to be used thereafter as the starting point in the negotiation of any Future Lease with respect to the Aircraft. If the Board determines that any such revision to the Servicer’s Pro Forma Lease will not have a material adverse effect on the Holders, then the Board shall (i) amend the applicable Core Lease Provisions to incorporate such revision and (ii) notify the Rating Agencies and the Policy Provider of any Future Lease entered into the terms of which are materially less favorable from the point of view of the lessor than any of the Leases then in effect, including without limitation, such changes to the Core Lease Provisions; provided that the Core Lease Provisions may not be amended without the prior written consent of the Policy Provider. The Issuer shall not enter into, and shall not permit any Issuer Subsidiary to enter into, any Future Lease the rental payments under which are denominated in a currency other than U.S. dollars without a Rating Agency Confirmation, provided that the Issuer may enter any Future Lease the Rental Payments under which are denominated in euros if (a) the sum of the Assumed Base Values as of the Payment Date immediately preceding any date of determination of each Aircraft subject to leases the Rental Payments under which are denominated in euros does not exceed 5% of the sum of the Assumed Base Values as of such Payment Date of all Aircraft and (b) the currency exposure is hedged in accordance with the Issuer’s hedging policy.

(f) Opinions. The Issuer shall not enter into, and shall not permit any Issuer Subsidiary to enter into, any Future Lease with any Person that is not an Issuer Group Member or change the jurisdiction of registration of any Aircraft that is subject to a Lease to a jurisdiction other than Ireland, the United States of America or Bermuda, unless, upon entering into such Future Lease or changing the jurisdiction of registration of such Aircraft (or within a commercially reasonable period thereafter), the Servicer obtains such legal opinions, if any, with regard to compliance with the registration requirements of the relevant jurisdiction, enforceability of the Future Lease, matters relating to the Cape Town Convention and such other matters customary for such transactions to the extent that receiving such legal opinions is substantially consistent under the circumstances with the customary practice of any leading international aircraft operating lessor.

(g) Insurance. The Issuer shall maintain or cause, directly or indirectly through the Issuer Subsidiaries, to be maintained with reputable and responsible insurers, provided that the applicable reinsurance policy contains a cut-through clause requiring the reinsurers to pay the insured directly (other than in any instances where local law requirements mandate otherwise), with reputable and responsible insurers that maintain relevant reinsurance with reputable and responsible reinsurers (i) airline hull insurance for each Aircraft in an amount at least equal to the Note Target Price for such Aircraft (or the equivalent thereof from time to time if such insurance is denominated in a currency other than U.S. dollars that is freely convertible into U.S. dollars) and (ii) airline liability insurance for each Aircraft and occurrence in an amount at least equal to the relevant amount set forth on Exhibit C hereto for each model of aircraft and as amended from time to time only pursuant to the prior written consent of the Policy Provider and (iii) airline repossession insurance (“Repossession Insurance”) for each Aircraft registered in, habitually based in or subject to a Lease with a Lessee domiciled in, a jurisdiction set forth under the

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“Repossession Guidelines” set forth in Exhibit B hereto, which may be amended from time to time only with a Rating Agency Confirmation and the prior written consent of the Policy Provider, in an amount at least equal to the Note Target Price (or the equivalent thereof from time to time if such insurance is denominated in a currency other than U.S. dollars that is freely convertible into U.S. dollars) for such Aircraft; provided that with respect to any such insurance for any Aircraft subject to a Lease, such insurance may be subject to such deductible and self-insurance arrangements as are substantially consistent with the customary practices of major aircraft operating lessors and taking into account, inter alia, the type of aircraft, the creditworthiness and experience of the Lessee. The coverage and terms (including endorsements, deductibles and self-insurance arrangements) of any insurance maintained with respect to any Aircraft not subject to a Lease shall be substantially consistent with the customary practices of major international aircraft operating lessors regarding similar aircraft.

The Issuer shall cause, or shall cause the applicable Issuer Subsidiary to cause, each Lessee to be obligated under its respective Lease to maintain War Risk Coverage as part of the insurance requirements in such Lease. The Issuer shall cause, or shall cause the applicable Issuer Subsidiary to cause, each Lessee to maintain War Risk Coverage (as defined in Exhibit C hereto). In the event that a Lessee does not maintain such requisite level of War Risk Coverage or allows such War Risk Coverage to lapse, the Issuer shall cause the applicable Issuer Subsidiary lessor to immediately bring enforcement proceedings against the applicable Lessee under the terms of the applicable Lease to repossess the applicable Aircraft and use commercially reasonable efforts (substantially consistent with the customary practices of major international aircraft operating lessors) to ensure that such Aircraft does not operate without War Risk Coverage at such required levels; provided, however, that so long as the Issuer is in compliance with the requirements set forth in the next succeeding sentence and the applicable Lessee is not otherwise in default under the related Lease, the Issuer shall have 180 days to cause, or to cause the applicable Issuer Subsidiary lessor to cause, the Lessee to comply with the insurance requirements set forth herein and under the Lease prior to bringing any such enforcement proceedings; provided further, that if, for any reason, neither the Issuer nor the applicable Issuer Subsidiary lessor has a right under the applicable Lease to require a Lessee to maintain War Risk Coverage at the requisite levels, the Issuer shall nevertheless be obligated to cause such Lessee to maintain War Risk Coverage at the requisite levels described in Exhibit C hereto (by negotiating in good faith with such Lessee or otherwise), subject only to the additional time provided in the immediately preceding proviso if the Issuer is in compliance with requirements set forth in the next succeeding sentence and the applicable Lessee is not otherwise in default under the related Lease. The Issuer shall carry contingent and excess War Risk Coverage in accordance with the requirements set forth in Exhibit C hereto.

The obligations set forth in the foregoing paragraph may only be waived upon receipt of the prior written consent of the Policy Provider.

In determining the amount of insurance required to be maintained by this Section 5.03(g), the Issuer may take into account any indemnification from, or insurance provided by, any governmental, supranational or inter-governmental authority or agency (other than, with respect to Repossession Insurance, any governmental authority or agency of any jurisdiction for which Repossession Insurance must be obtained), the sovereign foreign currency debt rating of which is rated at least A-, or the equivalent, by at least one of the Rating Agencies (provided that such credit rating requirement shall not apply in the case of any war risk insurance maintained through any governmental, supranational or inter-governmental authority or agency), against any risk with respect to an Aircraft at least in an amount which, when added to the amount of insurance against

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such risk maintained by the Issuer (or which the Issuer has caused to be maintained), shall be at least equal to the amount of insurance against such risk otherwise required by this Section 5.03(g) (taking into account self-insurance permitted by this Section 5.03(g)). Any such indemnification or insurance provided by such government shall provide substantially similar protection as the insurance required by this Section 5.03(g).

The Issuer shall not be required to maintain (or to cause to be maintained) any insurance otherwise required hereunder to the extent that such insurance is not generally available in the relevant insurance market at commercially reasonable rates from time to time; provided that if, in any case, the Issuer determines that it shall not maintain insurance because it believes the applicable rates are not commercially reasonable, the Issuer shall provide written notification to the Rating Agencies and shall obtain the prior written consent of the Policy Provider before such decision is implemented and, if the Policy Provider does not consent, such insurance shall be procured.

(h) Indemnity. The Issuer shall, and shall cause each Issuer Subsidiary to, include in each Lease between the Issuer or such Issuer Subsidiary and a Person who is not an Issuer Group Member an indemnity from such Person in respect of any losses or liabilities arising from the use or operation of the Aircraft during the term of such Lease, subject to such exceptions, limitations and qualifications as are substantially consistent with the customary practice of any leading international aircraft operating lessor.

(i) Appraisal of Aircraft. Unless the Class G-1 Notes have been theretofore refinanced, the Issuer shall, on each anniversary of the Initial Closing Date occurring after the Expected Final Payment Date of the Class G-1 Notes, deliver to the Trustee, the Policy Provider and the Rating Agencies three appraisals of the Base Value of each of the Aircraft from each of the Appraisers or, if any of the Appraisers is unable to provide an appraisal, from the remaining Appraisers and such other independent appraiser that is a member of the International Society of Transport Aircraft Trading or any similar organization selected by the Issuer and approved by the Policy Provider (such approval not to be unreasonably delayed or withheld), each such appraisal to be dated within 30 days prior to its delivery to the Trustee, the Policy Provider and the Rating Agencies.

(j) Consents. Unless otherwise expressly permitted herein, the Issuer shall not grant its consent to a consent requested of the Issuer under Section 7.04 (a)(v), (vii) or (ix) of the Servicing Agreement without first obtaining the Policy Provider’s prior written consent thereto. The Issuer shall provide the Servicer with written notice of such Policy Provider consent upon its receipt thereof.

Section 5.04 Compliance Through Agents. The Issuer shall be entitled to delegate the performance of any of its covenants hereunder to one or more Service Providers pursuant to one or more Related Documents entered into in accordance with the terms of this Indenture so long as each such Related Document is subject to the Lien of the Security Trust Agreement. Nothing in this Section 5.04 is intended to, or shall, relieve the Issuer from any liability or consequences hereunder arising from the failure of the Issuer or any such Service Provider to perform any such covenant strictly in accordance with the terms of this Indenture.

ARTICLE VI
 

THE TRUSTEE

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Section 6.01 Acceptance of Trusts and Duties. The duties and responsibilities of the Trustee shall be as provided by the TIA and as set forth herein. The Trustee accepts the trusts hereby created and applicable to it and agrees to perform the same but only upon the terms of this Indenture and the TIA and agrees to receive and disburse all moneys received by it in accordance with the terms hereof. The Trustee in its individual capacity shall not be answerable or accountable under any circumstances, except for its own willful misconduct or negligence or breach of any of its representations or warranties set forth herein and the Trustee shall not be liable for any action or inaction of the Issuer or any other parties to any of the Related Documents. The fees and out-of-pocket expenses of the Trustee shall be Expenses of the Issuer.

Section 6.02 Absence of Duties. Except in accordance with written instructions or requests furnished hereunder, the Trustee shall have no duty to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of any Lessee.

Section 6.03 Representations or Warranties. The Trustee does not make and shall not be deemed to have made any representation or warranty as to the validity, legality or enforceability of this Indenture, the Notes or any other document or instrument or as to the correctness of any statement contained in any thereof, except that the Trustee in its individual capacity hereby represents and warrants (i) that each such specified document to which it is a party has been or will be duly executed and delivered by one of its officers who is and will be duly authorized to execute and deliver such document on its behalf, and (ii) this Indenture is the legal, valid and binding obligation of Deutsche Bank Trust Company Americas, enforceable against Deutsche Bank Trust Company Americas in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally.

Section 6.04 Reliance; Agents; Advice of Counsel. The Trustee may conclusively rely and shall be fully protected and incur no liability to anyone in acting or refraining from acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it to be genuine and believed by it to be signed by the proper party or parties. The Trustee shall have no obligation to confirm the veracity of the content of any such item provided to it (absent manifest error). The Trustee may accept a copy of a resolution of, in the case of the Issuer, the Board and, in the case of any other party to any Related Document, the governing body of such Person, certified in an accompanying Officer’s Certificate as duly adopted and in full force and effect, as conclusive evidence that such resolution has been duly adopted and that the same is in full force and effect. As to any fact or matter the manner of ascertainment of which is not specifically described herein, the Trustee shall be entitled to receive and may for all purposes hereof conclusively rely on a certificate, signed by an officer of any duly authorized Person, as to such fact or matter, and such certificate shall constitute full protection to the Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. The Trustee shall furnish to the Cash Manager upon written request such information and copies of such documents as the Trustee may have and as are necessary for the Cash Manager to perform its duties under Articles II and III hereof. The Trustee shall assume, and shall be fully protected in assuming, that the Issuer is authorized by its constitutional documents to enter into this Indenture and to take all action permitted to be taken by it pursuant to the provisions hereof, and shall not inquire into the authorization of the Issuer with respect thereto.

The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Controlling Party, in accordance with Section 4.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture.

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The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent, attorney, custodian or nominee appointed with due care by it hereunder.

The Trustee may consult with counsel as to any matter relating to this Indenture and any Opinion of Counsel or any advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel.

The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which may be Incurred therein or thereby (the basis of such costs, expense or liability, if in respect of any third party liability, shall be supported by an Opinion of Counsel).

The Trustee shall not be required to expend or risk its own funds or otherwise Incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Indenture shall in any event require the Trustee to perform, or be responsible or liable for the manner of performance of, any obligations of the Issuer or the Cash Manager under this Indenture or any of the Related Documents.

The Trustee shall not be liable for any Costs or Taxes (except for Taxes relating to any compensation, fees or commissions of any entity acting in its capacity as Trustee hereunder) or in connection with the selection of Permitted Account Investments or for any investment losses resulting from Permitted Account Investments or for the failure of the Issuer or Cash Manager to provide timely written direction.

When the Trustee Incurs expenses or renders services in connection with an Event of Default specified in Section 4.01(e) or 4.01(f), such expenses (including the fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law or law relating to creditors’ rights generally.

The Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Trustee obtains actual knowledge of such event, including receiving Written Notice of such event from the Issuer, the Policy Provider, the Cash Manager or any Holder.

The Trustee shall have no duty to monitor the performance of the Issuer, the Cash Manager or any other party to the Related Documents, nor shall it have any liability in connection with the malfeasance or nonfeasance by such parties. The Trustee shall have no liability in connection with the appointment of the Cash Manager or compliance by the Issuer and the Cash Manager or any lessee under a Lease with statutory or regulatory requirements related to any Aircraft or any Lease. The Trustee shall have no obligation, or liability in respect thereto, to verify or recalculate any of the determinations made by the Cash Manager pursuant to the Related Documents. The Trustee shall not make or be deemed to have made any representations or warranties with respect to any Aircraft or any Lease or the validity or sufficiency of any assignment or other disposition of any Aircraft or any Lease.

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Section 6.05 No Compensation from Holders. The Trustee agrees that it shall have no right against the Holders, the Policy Provider or, except as provided in Article III hereof, the property of the Issuer, for any fee as compensation for its services hereunder.

Section 6.06 Notice of Defaults. As promptly as practicable after, and in any event within 30 days after, the occurrence of any Default or Event of Default of which a Responsible Officer of the Trustee has actual knowledge, the Trustee shall transmit by mail to the Issuer, any Paying Agent, the Policy Provider, the Initial Liquidity Facility Provider and the Holders holding Notes of the related subclass, notice of such Default or Event of Default actually known to a Responsible Officer of the Trustee, unless such Default or Event of Default shall have been cured or waived; provided, however, that, except in the case of a Default or Event of Default on the payment of the interest on or principal or Redemption Price of any Note, the Trustee shall be fully protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the best interests of the Holders of the related class; providedfurther that the Trustee shall in any event notify the Policy Provider and the Initial Liquidity Facility Provider of any such Default or Event of Default.

Section 6.07 May Hold Securities. The Trustee, any Paying Agent, the Registrar or any of their Affiliates or any other agent in their respective individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 310(b) and 311of the TIA, may otherwise deal with the Issuer with the same rights it would have if it were not Trustee, Paying Agent, Registrar or such other agent.

Section 6.08 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee which shall be eligible to act as a trustee under Section 310(a) of the TIA and shall meet the Eligibility Requirements. If such corporation publishes reports of conditions at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 6.08, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of conditions so published.

In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.08 to act as Trustee, the Trustee shall resign immediately as Trustee in the manner and with the effect specified in Section 7.01.

Section 6.09 Disqualification of Trustee. If this Indenture is qualified under the TIA, the Trustee shall be subject to the provisions of Section 310(b) of the TIA during the period of time provided for therein. If this Indenture has been qualified under the TIA and the Trustee has or shall acquire a conflicting interest within the meaning of the TIA, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the TIA.

Section 6.10 Preferential Collection of Claims Against Issuer. The Trustee shall comply with Section 311(a) of the TIA as if this Indenture were required to be qualified under the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent applicable and to the extent indicated therein.

Section 6.11 Reports by the Issuer. (a) The Issuer shall furnish to the Trustee, within 120 days after the end of each fiscal year ending December 31, a brief certificate from a Director as to his or her knowledge of the Issuer’s compliance with all conditions and covenants under this Indenture (it

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being understood that for purposes of this Section 6.11, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture).

(b) The Issuer shall furnish to the Trustee, the Policy Provider and the Initial Liquidity Facility Provider within 45 days after the end of each calendar quarter a certification as to the matters set forth in Exhibit H hereto.

Section 6.12 Holder Lists. The Issuer will furnish or cause to be furnished to the Trustee with respect to the Notes of each class:

(a) semi-annually, not later than 15 days after such semi-annual dates as may be specified by the Trustee, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such semi-annual date, as the case may be, and

(b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by the Trustee in its capacity as Registrar.

Section 6.13 Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 6.12 and the names and addresses of Holders received by the Trustee in its capacity as Registrar. The Trustee may destroy any list furnished to it as provided in Section 6.12 upon receipt of a new list so furnished.

(b) If three or more Holders of Notes of any subclass (hereinafter referred to as “applicants”) apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Note of such subclass for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Notes of such subclass or with the Holders of all Notes with respect to their rights under this Indenture or under such Notes and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 6.13(a).

If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of a Note of such subclass or to all Holders, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 6.13(a) hereof, a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses in connection with such mailing.

(c) Every Holder of Notes, by receiving and holding the same, agrees with the Issuer and the Trustee that neither the Issuer nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 6.13(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 6.13(b).

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ARTICLE VII
 

SUCCESSOR TRUSTEES

Section 7.01 Resignation and Removal of Trustee. The Trustee may resign as to all or any of the subclasses of the Notes at any time without cause by giving at least 45 days’ prior Written Notice to the Issuer, the Policy Provider, the Initial Liquidity Facility Provider, the Cash Manager, the Administrative Agent and the Holders, such resignation to be effective only upon the acceptance of the appointment by a successor Trustee. Holders of a majority of the Outstanding Principal Balance of any subclass of the Notes (or, with respect to the Class G-1 Notes, (i) the Policy Provider or the Initial Liquidity Facility Provider, as applicable, so long as it is the Controlling Party) may at any time remove the Trustee as to such subclass without cause by an instrument in writing delivered to the Issuer, the Administrative Agent, the Cash Manager, the Servicer, the Security Trustee and the Trustee being removed, such removal to be effective only upon the acceptance of the appointment by a successor Trustee. In addition, the Issuer may remove the Trustee as to any of the subclasses of the Notes if: (a) if this Indenture has been qualified under the TIA, such Trustee fails to comply with Section 310 of the TIA after written request therefor by the Issuer or a Holder of the related subclass who has been a bona fide Holder for at least six months, (b) such Trustee fails to comply with Section 7.02(c), (c) such Trustee is adjudged a bankrupt or an insolvent, (d) a receiver or public officer takes charge of such Trustee or its property or (e) such Trustee becomes incapable of acting, such removal to be effective only upon the acceptance of the appointment by a successor Trustee. References to the Trustee in this Indenture include any successor Trustee as to all or any of the subclasses of the Notes appointed in accordance with this Article VII.

Section 7.02 Appointment of Successor. (a) In the case of the resignation or removal of the Trustee as to any subclass of the Notes under Section 7.01, the Issuer shall promptly appoint a successor Trustee as to such subclass; provided that a majority of the Outstanding Principal Balance of such subclass of the Notes may appoint, within one year after such resignation or removal, a successor Trustee as to such subclass which may be other than the successor Trustee appointed by the Issuer, and such successor Trustee appointed by the Issuer shall be superseded by the successor Trustee so appointed by the Holders. If a successor Trustee as to any subclass of the Notes shall not have been appointed and accepted its appointment hereunder within 60 days after the Trustee gives notice of resignation as to such subclass, the retiring Trustee, the Issuer, the Cash Manager, the Policy Provider, the Initial Liquidity Facility Provider or a majority of the Outstanding Principal Balance of such subclass of the Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee as to such subclass. Any successor Trustee so appointed by such court shall immediately and without further act be superseded by any successor Trustee appointed as provided in the first sentence of this paragraph within one year from the date of the appointment by such court.

(b) Any successor Trustee as to any subclass of the Notes, however appointed, shall execute and deliver to the Issuer, the Cash Manager, the Policy Provider, the Initial Liquidity Facility Provider and the predecessor Trustee as to such subclass an instrument accepting such appointment, and thereupon such successor Trustee, without further act, shall become vested with all the estates, properties, rights, powers, duties and trusts of such predecessor Trustee hereunder in the trusts hereunder applicable to it with like effect as if originally named the Trustee as to such subclass herein; provided that, upon the written request of such successor Trustee, such predecessor Trustee shall, upon payment of all amounts due and owing to it, execute and deliver an instrument transferring to such successor Trustee, upon the trusts herein expressed applicable to it, all the estates, properties, rights, powers and trusts of such predecessor Trustee, and such predecessor Trustee shall duly assign, transfer, deliver and pay over to such successor Trustee all

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moneys or other property then held by such predecessor Trustee hereunder solely for the benefit of such subclass of the Notes.

(c) If a successor Trustee is appointed with respect to one or more (but not all) subclasses of the Notes, the Issuer, the predecessor Trustee and each successor Trustee with respect to each subclass of Notes shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to the subclasses of Notes as to which the predecessor Trustee is not retiring shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the Notes hereunder by more than one Trustee.

(d) Each Trustee shall be an Eligible Institution and shall meet the Eligibility Requirements, if there be such an institution willing, able and legally qualified to perform the duties of a Trustee hereunder; provided that the Rating Agencies shall receive notice of any replacement Trustee.

(e) Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation to which substantially all the business of the Trustee may be transferred, shall, subject to the terms of paragraph (c) of this Section, be the Trustee under this Indenture without further act.

ARTICLE VIII
 

INDEMNITY

Section 8.01 Indemnity. The Issuer shall indemnify the Trustee (and its officers, directors, employees and agents) for, and hold it harmless against, any loss, liability or expense Incurred by it without negligence or bad faith on its part in connection with the acceptance or administration of this Indenture and its duties under this Indenture, the Notes and the other Related Documents, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties and hold it harmless against, any loss, liability or reasonable expense Incurred without negligence or bad faith on its part, arising out of or in connection with actions taken or omitted to be taken in reliance on any Officer’s Certificate furnished hereunder, or the failure to furnish any such Officers’ Certificate required to be furnished hereunder. The Trustee shall notify the Issuer, the Rating Agencies, the Policy Provider and the Initial Liquidity Facility Provider promptly of any claim asserted against the Trustee for which it may seek indemnity; provided, however, that failure to provide such notice shall not invalidate any right to indemnity hereunder. The Issuer shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Issuer shall pay reasonable fees and expenses of such counsel. The Issuer need not reimburse any expense or indemnity against any loss or liability Incurred by the Trustee through gross negligence or bad faith. The provisions of this Section 8.01 and Section 8.02 shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee.

Section 8.02 Holders’ Indemnity. The Trustee shall be entitled to be indemnified (except with respect to losses, damages or obligations arising from the Trustee’s negligence or bad faith) by the Holders of any subclass of the Notes before proceeding to exercise any right or power under this Indenture or the Cash Management Agreement at the request or direction of such Holders (the basis of

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any loss, damage or obligation, if in respect of any third party liability, shall be supported by an Opinion of Counsel).

ARTICLE IX
 

MODIFICATION

Section 9.01 Modification with Consent of Holders, the Policy Provider, the Initial Liquidity Facility Provider and each Hedge Provider. With the consent of Holders of a majority of the Outstanding Principal Balance of the Notes on the date of any vote of such Holders (voting as a single class), the Policy Provider, the Initial Liquidity Facility Provider and each Hedge Provider (if materially adversely affected thereby), the Issuer, when authorized by a Board Resolution and after the receipt of a Rating Agency Confirmation, may amend or modify this Indenture or the Notes; provided that, without the consent of each Hedge Provider, the Policy Provider, each provider of an Eligible Credit Facility and each Holder of any Notes, in each instance affected thereby, no such amendment may, except as otherwise provided in Section 3.12, modify the provisions of this Indenture or the Notes setting forth the frequency or the currency of payment of, the maturity of, or the method of calculation of the amount of, any interest, principal, or Redemption Price, Policy Redemption Premium or Policy Premium, if any, payable in respect of any subclass of Notes, or reduce the percentage of the aggregate Outstanding Principal Balance of any subclass of Notes required to approve any amendment or waiver of this Section 9.01 or, except as otherwise provided in Section 3.10, alter the manner or priority of payment of such subclass of Notes (each, a “Basic Terms Modification”).

It shall not be necessary for the consent of the Holders and each provider of an Eligible Credit Facility under this Section 9.01 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof; provided, however that it shall be necessary for the Policy Provider and the Initial Liquidity Facility Provider to approve the particular form of any proposed amendment or waiver. Any such modification approved by the required Holders of any class or subclass of Notes will be binding on the Holders of the relevant class or subclass of Notes and each party to this Indenture.

The Issuer shall give each Rating Agency, the Policy Provider, the Initial Liquidity Facility Provider, each other provider of an Eligible Credit Facility and any paying agent, prior notice of any amendment under this Section 9.01, and, after an amendment under this Section 9.01 becomes effective, the Issuer shall mail to the Holders, the Policy Provider, the Initial Liquidity Facility Provider, each other provider of an Eligible Credit Facility, each Hedge Provider and the Rating Agencies a notice briefly describing such amendment and a copy of such executed amendment. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment.

After an amendment under this Section 9.01 becomes effective, it shall bind every Holder whether or not notation thereof is made on any Note held by such Holder.

Section 9.02 Modification Without Consent of Holders, Providers of Eligible Credit Facilities and the Policy Provider. Subject to Section 9.01, the Trustee may agree with the Issuer, without the consent of any Holder or any provider of an Eligible Credit Facility (but in the case of clauses (b), (c) and (d) below, with the consent of the Policy Provider and further, in the case of clauses (b) and (c) below, with the consent of the Initial Liquidity Facility Provider), (a) to any modification (other than a Basic Terms Modification) of, or the waiver or authorization of any breach or prospective breach of, any provision of any Related Document or of the relevant subclass of Notes to correct a manifest error or an error which is of a formal, minor or technical nature, (b) to modify the provisions of this Indenture or the

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Cash Management Agreement relating to the timing of movement of Rental Payments or other monies received or Expenses Incurred among the Accounts by the Cash Manager, (c) to add or replace any Eligible Credit Facility, (d) to any amendment (other than a Basic Terms Modification) of an immaterial nature necessary to facilitate the issuance of Refinancing Notes and/or Additional Notes and related acquisition of Additional Aircraft (all in a manner consistent with the express provisions of this Indenture) or (e) to comply with the requirements of the Commission in connection with the qualification of this Indenture under the TIA. The Rating Agencies and any paying agent shall be given prior notice of any such modification, and such modification shall be notified to the Holders as soon as practicable thereafter and shall be binding on all the Holders.

Upon any such modification, the Issuer shall deliver to the Holders, the Trustee, the Policy Provider and the Initial Liquidity Facility Provider a certificate of the Issuer certifying that such modification will not adversely affect the Holders, the Policy Provider or the Initial Liquidity Facility Provider.

In addition, the Issuer may, without providing the certificate mentioned in the preceding paragraph, and without the consent of the Trustee, any Holder or any provider of an Eligible Credit Facility, the Policy Provider or the Initial Liquidity Facility Provider or any other party, list the Notes on the Irish Stock Exchange and trade the Notes on the Irish Stock Exchange.

Section 9.03 Subordination and Priority of Payments. The subordination provisions contained in Section 3.09, Section 3.10 and Article X may not be amended or modified without the consent of the Policy Provider (so long as a Policy Non-Consent Event has not occurred and is not continuing), the Servicer, each provider of an Eligible Credit Facility, each Holder of the subclass of Notes affected thereby and each Holder of any subclass of Notes ranking senior thereto. In no event shall the provisions set forth in Section 3.09 relating to the priority of the Expenses, Senior Hedge Payments and payments under all Eligible Credit Facilities be amended or modified.

Section 9.04 Execution of Amendments by Trustee. In executing, or accepting the additional trusts created by, any amendment or modification to this Indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officer’s Certificate and an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Indenture and that all conditions precedent to the execution of such amendment have been met. The Trustee may, but shall not be obligated to, enter into any such amendment which affects the Trustee’s own rights, duties, immunities or indemnities under this Indenture or otherwise.

ARTICLE X
 

SUBORDINATION

Section 10.01 Subordination of the Securities and Other Subordinated Obligations. (a) (i) The Issuer, each Holder (by its acceptance of its Note) and each other Secured Party (by its acceptance of the benefits of the Security Trust Agreement) agree that the Securities and the other Obligations shall be subject to the provisions of this Article X and, in the case of the Secured Obligations, to the provisions of Article VII of the Security Trust Agreement and (ii) each Junior Claimant (and each Junior Representative of any thereof) agrees for the benefit of each Senior Claimant (and the Controlling Party and the Trustee acting therefor) that each Junior Claim shall be subordinated fully in right of payment to each Senior Claim as provided in Section 3.09, Section 3.10 (if applicable), this Article X and Article VII of the Security Trust Agreement.

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(b) For the purposes of this Agreement, no Senior Claims shall be deemed to have been paid in full until and unless the Senior Claimant (or the Trustee therefor) of such Senior Claims shall have received payment in full in cash of such Senior Claims.

(c) All payments or distributions upon or with respect to any Obligations that are received by any Junior Claimant (or any Junior Representative thereof) contrary to the provisions of this Indenture or in excess of the amounts to which such Junior Claimant is entitled under Section 3.09 shall be received for the benefit of the Senior Claimant, shall be segregated from other funds and property held by such Junior Claimant (or any Junior Representative thereof) and shall be forthwith paid over to the Trustee in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to or held as collateral (in the case of non-cash property or securities) for the payment or prepayment of the Senior Claims in accordance with the terms hereof.

(d) Notwithstanding anything contained herein to the contrary, payments (i) deposited in any Cash Collateral Account or drawn under any Eligible Credit Facility (as provided in Section 3.13 or Section 3.14), (ii) drawn under the Policy, (iii) of Contribution Amounts or (iv) deposited in the Defeasance/Redemption Account (or, in the case of a Refinancing, the Refinancing Account) in respect of a Redemption under Section 3.11 or in respect of the defeasance of Notes pursuant to Article XI shall not be subordinated to the prior payment of any Senior Claimants in respect of any Senior Claims or subject to any other restrictions set forth in this Article X and Article VII of the Security Trust Agreement, and none of the Holders shall be obligated to pay over any payments from any such property to the Security Trustee or any other creditor of any of the Grantors (as defined in the Security Trust Agreement).

(e) The Senior Representative is hereby authorized to demand specific performance of the provisions of this Article X at any time when any Junior Claimant (or any Junior Representative thereof) shall have failed to comply with any of such provisions applicable to them. The Junior Claimants (and each Junior Representative thereof) hereby irrevocably waive any defense based on the adequacy of a remedy at law that might be asserted as a bar to such remedy of specific performance.

Section 10.02 Rights of Subrogation. The Junior Claimants (and each Junior Representative thereof) agree that no payment or distributions to any Senior Claimant (or the Trustee therefor) pursuant to the provisions of this Indenture shall entitle any Junior Claimant (or any Junior Representative thereof) to exercise any rights of subrogation in respect thereof until all Obligations constituting Senior Claims with respect to such Person shall have been paid in full.

Section 10.03 Further Assurances of Junior Representatives. Each of the Junior Representatives shall, at the expense of the Issuer, at any time and from time to time promptly execute and deliver all further instruments and documents, and take all further action, that the Controlling Party (or the Policy Provider if the Policy Provider is not the Controlling Party; provided that if the Junior Representatives receive conflicting requests, the request of the Controlling Party shall apply only) may reasonably request, in order to effectuate the provisions of this Article X.

Section 10.04 Enforcement. Each Junior Claimant (and the Junior Representative therefor) agrees that the provisions of this Article X shall be enforceable against it under all circumstances, including without limitation in any proceeding referred to in Sections 4.01(e) and 4.01(f).

Section 10.05 Continued Effectiveness. The provisions of this Article X shall continue to be effective or shall be revived or reinstated, as the case may be, if at any time any payment of any of the

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Senior Claims is rescinded or must otherwise be returned by any Senior Claimant upon the insolvency, bankruptcy or reorganization of any Issuer Group Member, or otherwise, all as though such payment had not been made.

Section 10.06 Senior Claims and Junior Claims Unimpaired. Nothing in this Article X shall impair, as between the Issuer and any Senior Claimant or any Junior Claimant, the obligations of the Issuer to such Person, including without limitation the Senior Claims and the Junior Claims; provided that it is understood that the enforcement of rights and remedies shall be subject to the terms of this Indenture and the Security Trust Agreement.

ARTICLE XI
 

DISCHARGE OF INDENTURE; DEFEASANCE

Section 11.01 Discharge of Liability on the Notes; Defeasance. (a) When (i) the Issuer delivers to the Trustee all Outstanding Notes (other than Notes that have been lost, stolen or destroyed and that have been replaced pursuant to Section 2.08) for cancellation or (ii) all Outstanding Notes have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Section 3.11(c) and the Issuer irrevocably deposits in the Defeasance/Redemption Account funds sufficient to pay at maturity or upon redemption all Outstanding Notes, including interest thereon to maturity or the Redemption Date (other than Notes replaced pursuant to Section 2.08) and (iii) all amounts owed to any Hedge Provider under any Hedge Agreement and all amounts owed to each of the Policy Provider and the Initial Liquidity Facility Provider have been paid in full, and if in each case the Issuer pays all other sums payable hereunder by the Issuer, then this Indenture shall, subject to Section 11.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Issuer accompanied by an Officers’ Certificate and an Opinion of Counsel, at the cost and expense of the Issuer, to the effect that any conditions precedent to a discharge of this Indenture have been met.

(b) Subject to Sections 11.01(c) and 11.02 hereof, the Issuer at any time may terminate (i) all its obligations under the Notes and this Indenture (“Legal Defeasance” option) or (ii) its obligations under Sections 4.01 (other than with respect to a failure to comply with Sections 4.01(a), 4.01(b), 4.01(c), 4.01(e) (only with respect to the Issuer), 4.01(f) (only with respect to the Issuer)), 5.02 and 5.03 (“Covenant Defeasance” option). The Issuer may exercise its Legal Defeasance option notwithstanding its prior exercise of its Covenant Defeasance option.

If the Issuer exercises its Legal Defeasance option, payment of any Notes subject to such Legal Defeasance may not be accelerated because of an Event of Default. If the Issuer exercises its Covenant Defeasance option, payment of the Notes may not be accelerated because of an Event of Default (other than with respect to a failure to comply with Sections 4.01(a), 4.01(b), 4.01(c), 4.01(e) (other than with respect to the Issuer), 4.01(f) (other than with respect to the Issuer)) and 5.02(n) hereof.

Upon satisfaction of the conditions set forth herein and upon written request of the Issuer, the Trustee shall acknowledge in writing the discharge of those obligations that the Issuer terminates.

(c) Notwithstanding clauses (a) and (b) above, the Issuer’s obligations in Sections 2.01, 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09 and 5.02(n), Article VI, and Sections 8.01, 11.04, 11.05 and 11.06 hereof shall survive until all the Notes have been paid in full. Thereafter, the Issuer’s obligations in Sections 8.01, 11.04 and 11.05 shall survive.

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Section 11.02 Conditions to Defeasance. The Issuer may exercise its Legal Defeasance option or its Covenant Defeasance option only if:

(a) the Issuer irrevocably deposits in trust in the Defeasance/Redemption Account any one or any combination of (i) money, (ii) obligations of, and supported by the full faith and credit of, the U.S. Government (“U.S. Government Obligations”) or (iii) obligations of corporate issuers (“Corporate Obligations”) (provided that any such Corporate Obligations are rated AA+, or the equivalent, or higher, by the Rating Agencies at such time and shall not have a maturity of longer than three years from the date of defeasance) for the payment of all principal or Redemption Price and interest (A) on the Notes or any class or subclass of Notes being defeased, in the case of Legal Defeasance, or (B) on all of the Notes in the case of Covenant Defeasance, in either case, to maturity or redemption, as the case may be;

(b) the Issuer delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations or the Corporate Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due (i) on each class or subclass of Notes being defeased, in the case of Legal Defeasance, or (ii) on all of the Notes in the case of Covenant Defeasance, in either case, to maturity or redemption, as the case may be;

(c) 91 days pass after the deposit described in clause (a) above is made and during the 91-day period no Event of Default specified in Section 4.01(e) or (f) with respect to the Issuer occurs which is continuing at the end of the period;

(d) the deposit described in clause (a) above does not constitute a default under any other agreement binding on the Issuer;

(e) the Issuer delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit described in clause (a) does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended;

(f) in the case of the Legal Defeasance option, the Issuer shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Issuer has received from, or there has been published by, the U.S. Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that the Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(g) in the case of the Covenant Defeasance option, the Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

(h) if the related Notes are then listed on any securities exchange, the Issuer delivers to the Trustee an Opinion of Counsel to the effect that such deposit, defeasance and discharge will not cause such Notes to be delisted;

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(i) a Rating Agency Confirmation and the prior written consent of each of the Policy Provider and the Initial Liquidity Facility Provider is obtained relating to the defeasance contemplated by this Section 11.02;

(j) the Policy shall be terminated and surrendered to the Policy Provider for cancellation;

(k) all amounts due and owing to the Policy Provider and the Initial Liquidity Facility Provider have been paid (or provided for under Section 11.02(a)); and

(l) the Issuer delivers to the Trustee an Opinion of Counsel and an Officer’s Certificate that all conditions precedent to such defeasance have been satisfied.

Section 11.03 Application of Trust Money. The Trustee shall hold in trust in the Defeasance/Redemption Account money, U.S. Government Obligations or Corporate Obligations deposited with it pursuant to this Article XI. Upon payment of its fees and expenses, it shall apply the deposited money and the money from U.S. Government Obligations or Corporate Obligations in accordance with this Indenture to the payment of principal, premium, if any, and interest on the class or subclass of Notes.

Section 11.04 Repayment to Issuer. The Trustee shall promptly turn over to the Issuer upon written request any excess money or securities held by it at any time after application of the appropriate defeasance option.

Subject to any applicable abandoned property law, the Trustee shall pay to the Issuer upon written request any money held by it for the payment of principal or interest that remains unclaimed for two years and, thereafter, Holders entitled to the money must look to the Issuer for payment as general creditors.

Section 11.05 Indemnity for Government Obligations and Corporate Obligations. The Issuer shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or Corporate Obligations, or the principal and interest received on such U.S. Government Obligations or Corporate Obligations.

Section 11.06 Reinstatement. If the Trustee is unable to apply any money or U.S. Government Obligations or Corporate Obligations in accordance with this Article XI by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application or otherwise, the Issuer’s obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article XI until such time as the Trustee is permitted to apply all such money, U.S. Government Obligations or Corporate Obligations in accordance with this Article XI; provided, however, that, if the Issuer has made any payment of interest on or principal of any Notes because of the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money, U.S. Government Obligations or Corporate Obligations held by the Trustee.

ARTICLE XII
 

MISCELLANEOUS

Section 12.01 Right of Trustee to Perform. If the Issuer for any reason fails to observe or punctually to perform any of its obligations to the Trustee, whether under this Indenture or any of the other Related Documents or otherwise, the Trustee shall have power (but shall have no obligation), on behalf of or in the name of the Issuer or otherwise, to perform such obligations and to take any steps

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which the Trustee may, in its absolute discretion, consider appropriate with a view to remedying, or mitigating the consequences of, such failure by the Issuer; provided that no exercise or failure to exercise this power by the Trustee shall in any way prejudice the Trustee’s other rights under this Indenture or any of the other Related Documents.

Section 12.02 Waiver. Any waiver by any party of any provision of this Indenture or any right, remedy or option hereunder shall only prevent and estop such party from thereafter enforcing such provision, right, remedy or option if such waiver is given in writing and only as to the specific instance and for the specific purpose for which such waiver was given. The failure or refusal of any party hereto to insist in any one or more instances, or in a course of dealing, upon the strict performance of any of the terms or provisions of this Indenture by any party hereto or the partial exercise of any right, remedy or option hereunder shall not be construed as a waiver or relinquishment of any such term or provision, but the same shall continue in full force and effect. No failure on the part of the Trustee to exercise, and no delay on its part in exercising, any right or remedy under this Indenture will operate as a waiver thereof, nor will any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies provided in this Indenture are cumulative and not exclusive of any rights or remedies provided by law. The Trustee shall notify the Paying Agent promptly of any waiver by any party of any provision of this Indenture pursuant to this Section 12.02.

Section 12.03 Severability. In the event that any provision of this Indenture or the application thereof to any party hereto or to any circumstance or in any jurisdiction governing this Indenture shall, to any extent, be invalid or unenforceable under any applicable statute, regulation or rule of law, then such provision shall be deemed inoperative to the extent that it is invalid or unenforceable and the remainder of this Indenture, and the application of any such invalid or unenforceable provision to the parties, jurisdictions or circumstances other than to whom or to which it is held invalid or unenforceable, shall not be affected thereby nor shall the same affect the validity or enforceability of this Indenture. The parties hereto further agree that the holding by any court of competent jurisdiction that any remedy pursued by the Trustee hereunder is unavailable or unenforceable shall not affect in any way the ability of the Trustee to pursue any other remedy available to it.

Section 12.04 Restrictions on Exercise of Certain Rights; Limited Recourse. (a) Each of the parties hereto (other than the Trustee) hereby agrees with the Trustee that, except as otherwise provided in Section 4.04 hereof, it shall not sue for recovery or take any other steps for the purpose of recovering any of the obligations hereunder or any other debts or liabilities whatsoever owing to it by the Issuer or any Issuer Subsidiary. Each of the parties hereto (other than the Trustee) hereby agrees with the Trustee that it shall not take any steps for the purpose of procuring the appointment of an administrative receiver, Irish law examiner, receiver or similar officer or the making of an administration order or for instituting any bankruptcy, reorganization, arrangement, insolvency, winding up, liquidation, composition, Irish law examinership or any like proceedings under the laws of Bermuda or any other jurisdiction in respect of either the Issuer or any Issuer Subsidiary or in respect of any of their respective liabilities.

(b) Each of the parties hereto hereby agrees that all amounts payable by the Issuer or any Issuer Subsidiary in respect of the obligations hereunder shall be recoverable only from and to the extent of:

(i) amounts on deposit in the Accounts;

(ii) any other assets of the Issuer and the Issuer Subsidiaries and any proceeds thereof;

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(iii) in the case of any payments by way of indemnity to be made by the Issuer pursuant to any Related Document, to any liability insurance proceeds payable in respect of such indemnity obligation on the part of the Issuer; provided that any such liability insurance proceeds shall be held in trust for the Person entitled to the relevant indemnity by the recipient thereof; and

(iv) any other Collateral pledged under the Security Trust Agreement,

and in consequence the Trustee agrees (A) that it shall look solely to the foregoing property for payment of all amounts payable by the Issuer or any Issuer Subsidiary in respect of the obligations hereunder and that none of the Issuer nor any Issuer Subsidiary shall be otherwise personally liable therefor and (B) that it shall not petition for the bankruptcy, Irish law examinership, insolvency, winding up, liquidation, reorganization, amalgamation or dissolution of the Issuer or any Issuer Subsidiary (or any of their assets or undertakings); provided that if any such proceeding is commenced by any other Person, the Trustee shall be entitled to join, claim or prove in such proceeding; provided, however, that the foregoing provisions of this Section 12.04(b) shall not:

(1) limit or restrict in any way the accrual of interest on any unpaid amount (although the limitations as to the personal liability of the Issuer and each Issuer Subsidiary shall apply to such interest on such unpaid amount); or

(2) limit or restrict in any way the personal liability of the Issuer or any Issuer Subsidiary for the discharge or its nonmonetary obligations in relation to its covenants, undertakings, representations and warranties (or any monetary obligations arising from any breach thereof) under any Related Document.

Section 12.05 Notices. All notices, demands, certificates, requests, directions, instructions and communications hereunder (“Notices”) shall be in writing and shall be effective (a) upon receipt when sent through the mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return receipt, or (b) one Business Day after delivery to an overnight courier, or (c) on the date personally delivered to an authorized officer of the party to which sent, or (d) on the date transmitted by legible telecopier transmission with a confirmation of receipt, in all cases addressed to the recipient as follows:

if to the Issuer, to:

Babcock & Brown Air Funding I Limited

c/o Codan Services Limited

Claredon House

2 Church Street

Hamilton, HM 11

Bermuda

with a copy to:

Babcock & Brown Aircraft Management Co Limited, as Administrative Agent

West Pier, Dun Laoghaire

County Dublin

Ireland

Attention: [    ]

Fax: [    ]

126

if to Deutsche Bank Trust Company Americas, the Trustee, the Operating Bank, the Security Trustee, the Reference Agent, the Registrar or the Paying Agent, to:

Deutsche Bank Trust Company Americas

60 Wall Street, 26th Floor

MS NYC60-2606

New York, New York 10005-2858

Attention: Michele Hy Voon

Fax: (212) 553-2461

Telephone: (908) –608-3089

with a copy to:

Deutsche Bank National Trust Company

1761 East St. Andrew Place

Santa Ana, California 92705

Attention: Matt A. Bowen

Fax: 714-247-6409

Telephone: (714) 247-6346

if to the Policy Provider, to:

Ambac Assurance Corporation

One State Street Plaza

New York, New York 10004

Attention: Surveillance Department

Fax: (212) 208-3527

with a copy to:

Ambac Assurance Corporation

One State Street Plaza

New York, New York 10004

Attention: David Nemschoff

Fax: (212) 208-3527

if to the Initial Liquidity Facility Provider, to:

BNP Paribas

787 Seventh Avenue

New York, New York 10019

Attention: Aviation Finance Group

Fax: 212-841-2146

if to any Holder of a Definitive Note, to such Holder at its address set forth in the Register as of the applicable Record Date;

127

for so long as the Notes are listed on the Irish Stock Exchange, if to the Listing Agent to:

McCann Fitzgerald Listing Services Limited

Riverside One

Sir John Rogerson’s Quay

Dublin 2, Ireland

Attention: [    ]

Fax: [    ]

A copy of each notice given hereunder to any party hereto shall also be given to each of the other parties hereto. Each party hereto may, by notice given in accordance herewith to each of the other parties hereto, designate any further or different address to which subsequent Notices shall be sent.

Section 12.06 Assignments; Third Party Beneficiary. This Indenture shall be a continuing obligation of the Issuer and shall (a) be binding upon the Issuer and its successors and assigns and (b) inure to the benefit of and be enforceable by the Trustee, and by its successors, transferees and assigns. The Issuer may not assign any of its obligations under this Indenture, or other than as provided in Section 5.04 delegate any of its duties hereunder. Each Eligible Credit Facility shall be a third party beneficiary of Sections 3.09, 9.01 and 9.03, as applicable. Each Hedge Provider, the Servicer and each of the Sellers shall each be a third party beneficiary of each provision of this Indenture that affects any of its rights or obligations under this Indenture or any Related Document, including (with respect to the Servicer and each of the Sellers only) the provisions hereof providing for Priority Expense payment and Lien priority for amounts payable to the Servicer or any of the Sellers under the Servicing Agreement or the Asset Purchase Agreement or any other Related Document.

Section 12.07 Currency Conversion. (a) If any amount is received or recovered by the Cash Manager or the Trustee in respect of this Indenture or any part thereof (whether as a result of the enforcement of the security created under the Security Trust Agreement or pursuant to this Indenture or any judgment or order of any court or in the liquidation or dissolution of the Issuer or by way of damages for any breach of any obligation to make any payment under or in respect of the Issuer’s obligations hereunder or any part thereof or otherwise) in a currency (the “Received Currency”) other than the currency in which such amount was expressed to be payable (the “Agreed Currency”), then the amount in the Received Currency actually received or recovered by the Trustee or the Cash Manager shall, to the fullest extent permitted by Applicable Law, only constitute a discharge to the Issuer to the extent of the amount of the Agreed Currency which the Cash Manager or the Trustee was or would have been able in accordance with its normal procedures to purchase on the date of actual receipt or recovery (or, if that is not practicable, on the next date on which it is so practicable), and, if the amount of the Agreed Currency which the Cash Manager or Trustee is or would have been so able to purchase is less than the amount of the Agreed Currency which was originally payable by the Issuer, the Issuer shall pay to the Cash Manager such amount as the Cash Manager shall determine to be necessary to indemnify the Trustee and the Cash Manager against any loss sustained by it as a result (including the cost of making any such purchase and any premiums, commissions or other charges paid or Incurred in connection therewith) and so that such indemnity, to the fullest extent permitted by Applicable Law, (i) shall constitute a separate and independent obligation of the Issuer distinct from its obligation to discharge the amount which was originally payable by the Issuer and (ii) shall give rise to a separate and independent cause of action and apply irrespective of any indulgence granted by the Cash Manager or the Trustee and continue in full force and effect notwithstanding any judgment, order, claim or proof for a liquidated amount in respect of the amount originally payable by the Issuer or any judgment or order and no proof or evidence of any actual loss shall be required.

128

(b) For the purpose of or pending the discharge of any of the moneys and liabilities hereby secured the Cash Manager may, or cause the Operating Bank to, convert any moneys received, recovered or realized by the Cash Manager under this Indenture (including the proceeds of any previous conversion under this Section 12.07) or any funds currently maintained in any account hereunder from their existing currency of denomination into the currency of denomination (if different) of such moneys and liabilities and any conversion from one currency to another for the purposes of any of the foregoing shall be made at the Trustee’s then prevailing spot selling rate at its office by which such conversion is made. If not otherwise required to be applied in the Received Currency, the Cash Manager, acting on behalf of the Security Trustee, shall promptly convert any moneys in such Received Currency other than U.S. dollars into U.S. dollars. Each previous reference in this Section 12.07 to a currency extends to funds of that currency and funds of one currency may be converted into different funds of the same currency. The cost and expense of any such conversion shall be added to and reflected in the rate obtained for conversion and in no event shall the Cash Manager or any of its affiliates be liable in respect of the exchange rate obtained for any such conversion or any related cost or expense.

Section 12.08 Application to Court. The Trustee may at any time after the service of a Default Notice apply to any court of competent jurisdiction for an order that the terms of this Indenture be carried into execution under the direction of such court and for the appointment of a Receiver of the Collateral or any part thereof and for any other order in relation to the administration of this Indenture as the Trustee shall deem fit and it may assent to or approve any application to any court of competent jurisdiction made at the instigation of any of the Holders or the Policy Provider and shall be indemnified by the Issuer against all costs, charges and expenses Incurred by it in relation to any such application or proceedings.

Section 12.09 Governing Law. THIS INDENTURE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.

Section 12.10 Jurisdiction. (a)  Each of the parties hereto agrees that the United States of America federal and New York State courts located in The City of New York shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Indenture and, for such purposes, submits to the jurisdiction of such courts. Each of the parties hereto waives any objection which it might now or hereafter have to the United States of America federal or New York State courts located in The City of New York being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Indenture and agrees not to claim that any such court is not a convenient or appropriate forum. Each of the parties hereto (except for the Cash Manager, Operating Bank, Trustee, Initial Liquidity Facility Provider and Policy Provider) agrees that the process by which any suit, action or proceeding is begun may be served on it by being delivered in connection with any suit, action or proceeding in the city of New York to [____________], and each of the parties hereby appoints [_________] its designee, appointee and agent to receive, accept and acknowledge for and on its behalf such service of legal process, with the exception of the Trustee, who hereby consents to receive any such service of process directly at the address set forth in Section 12.05 herein.

(b) The submission to the jurisdiction of the courts referred to in Section 12.10(a) shall not (and shall not be construed so as to) limit the right of the Trustee (and if the Trustee is not the Controlling Party, the Controlling Party) to take proceedings against the Issuer in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.

129

(c) Each of the parties hereto hereby consents generally in respect of any legal action or proceeding arising out of or in connection with this Indenture to the giving of any relief or the issue of any process in connection with such action or proceeding, including the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such action or proceeding.

Section 12.11 Counterparts. This Indenture may be executed in two or more counterparts by the parties hereto, and each such counterpart shall be considered an original and all such counterparts shall constitute one and the same instrument.

Section 12.12 Table of Contents, Headings, Etc. The Table of Contents and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof.

Section 12.13 Compliance with Applicable Anti-Terrorism and Anti-Money Laundering Regulations. In order to comply with laws, rules, regulations and executive orders in effect from time to time applicable to banking institutions, including those relating to the funding of terrorist activities and money laundering (“Applicable Regulations”), the Trustee is required to obtain, verify and record certain information relating to individuals and entities which maintain a business relationship with. Accordingly, each of the parties agrees to provide to Trustee upon its request from time to time such identifying information and documentation as may be available for such party in order to enable the Trustee to comply with Applicable Regulations.

130

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above.

BABCOCK & BROWN AIRFUNDING I LIMITED, as the Issuer
By
	Name: Title:

DEUTSCHE BANK TRUST COMPANY AMERICAS, as the Operating Bank and Trustee
By
	Name: Title:

By
	Name: Title:

DEUTSCHE BANK TRUST COMPANY AMERICAS, as the Cash Manager
By
	Name: Title:

By
	Name: Title:

AMBAC ASSURANCE CORPORATION, as the Policy Provider
By
	Name: Title:

BNP PARIBAS, as the Initial Liquidity Facility Provider
By
	Name: Title:

SCHEDULE 1
 

INITIAL AIRCRAFT

MSN	Type of Aircraft	Aircraft Owner [Weil to Update]	Date of Manufacture
[TBD]	A319-100		Sep 2006
743	A320-200		Sep 1997
747	A320-200		Oct 1997
0533	A320-200		Mar 1995
0545	A320-200		Jun 1995
0548	A320-200		Jul 1995
0553	A320-200		Sep 1995
0559	A320-200		Oct 1995
0562	A320-200		Oct 1995
0566	A320-200		Nov 1995
0574	A320-200		Jan 1996
0888	A320-200		Sep 1998
1140	A319-100		Nov 1999
1159	A319-100		Jan 2000
2522	A320-200		Aug 2005
2616	A320-200		Jan 2006
2670	A320-200		Jan 2006
2728	A320-200		Apr 2006
2740	A320-200		Mar 2006
2979	A319-100		Jan 2007
24528	B757-200		Sep 1989
25232	B737-500		Feb 1992
25233	B737-500		Mar 1992
25402	B737-300QC		Oct 1991
27974	B757-200		Nov 1996
27975	B757-200		Nov 1997
27976	B757-200		Jul 1998
28040	B767-300ER		Apr 1996
28595	B737-800		May 1999
28608	B737-800		Oct 1999
29052	B737-800		May 2000
29330	B757-200		Dec 1998
29942	B757-200		Apr 1999
29944	B757-200		Jun 1999
29945	B757-200		Jun 1999
29946	B757-200		Jun 1999
30784	B737-700		Jun 2001
30785	B737-800		Nov 2001
34293	B737-700		Jul 2005
34295	B737-700		Jul 2005
34704	B737-800		Jun 2006
34896	B737-800		Feb 2006
34898	B737-800		Nov 2006
34899	B737-800		Dec 2006
35089	B737-800		Aug 2006
35211	B737-800		Dec 2006

SCHEDULE 2
 

ISSUER SUBSIDIARIES^*

[Weil to Provide]

Name of Subsidiary Jurisdiction of Incorporation

______________

*List to be updated as necessary on Closing Date.

SCHEDULE 3
 

POOL FACTORS

Payment Date
Occurring In Pool Factor

SCHEDULE 4
 

EXTENDED POOL FACTORS
 

SCHEDULE 5
 

MINIMUM TARGET PRINCIPAL BALANCE

Payment Date
Occurring In Minimum Target
Principal Balance ($)

SCHEDULE 6
 

AMORTIZATION PERCENTAGES

Payment Date
Occurring In Amortization
Percentage

SCHEDULE 7

INITIAL LEASES - CURRENT WAR RISK COVERAGE AMOUNTS

Aircraft MSN War Risk Coverage
Amount – US$

Sch. 7-2

SCHEDULE 8

ALLOCABLE RENT AMOUNTS
 

Sch. 7-3

EX-10.10

Exhibit 10.10

SECURITY TRUST AGREEMENT

Dated as of [                        ], 2007

between

BABCOCK & BROWN AIR FUNDING I LIMITED

and

THE ADDITIONAL GRANTORS REFERRED TO HEREIN

as the Grantors

and

DEUTSCHE BANK TRUST COMPANY AMERICAS,

as the Trustee, the Security Trustee, the Cash Manager and the Operating Bank

TABLE OF CONTENTS

						Page
ARTICLE I			DEFINITIONS					1
Section 1.01.			Definitions					1
Section 1.02.			Construction and Usage					7
ARTICLE II			SECURITY					7
Section 2.01.			Grant of Security					7
Section 2.02.			Security for Obligations					10
Section 2.03.			Representations and Warranties of the Grantors					10
Section 2.04.			Grantors Remain Liable					12
Section 2.05.			Delivery of Collateral					13
Section 2.06.			Maintenance of Security Trustee Accounts					14
Section 2.07.			The Grantor and the Covenants Regarding Accounts					15
Section 2.08.			Covenants Regarding Assigned Documents					15
Section 2.09.			Covenants Regarding Security Collateral, Beneficial Interest Collateral, Membership Interest Collateral and Investment Collateral					17
Section 2.10.			Further Assurances					18
Section 2.11.			Place of Perfection; Records					19
Section 2.12.			Voting Rights; Dividends; Etc					20
Section 2.13.			Transfers and Other Encumbrances; Additional Shares or Interests					21
Section 2.14.			Security Trustee Appointed Attorney-in-Fact					21
Section 2.15.			Security Trustee May Perform					22
Section 2.16.			Covenant to Pay					22
Section 2.17.			Delivery of Collateral Supplements					22
Section 2.18.			Annual Opinion					22
Section 2.19.			Covenant Regarding Control					22
Section 2.20.			As to Irish Law					22
Section 2.21.			As to French Law					22
Section 2.22.			Irish Share Charges					23
Section 2.23.			French Share Pledges and Account Pledges					23
Section 2.24.			Irish Account Charges					23
Section 2.25.			Limitations as to French Law					23
ARTICLE III			REMEDIES					23
Section 3.01.			Remedies					23
ARTICLE IV			SECURITY INTEREST ABSOLUTE					24
Section 4.01.			Security Interest Absolute					24
ARTICLE V			THE SECURITY TRUSTEE AND THE OPERATING BANK					25
Section 5.01.			Authorization and Action					25

i

TABLE OF CONTENTS
(continued)

						Page
Section 5.02.			Absence of Duties					25
Section 5.03.			Representations or Warranties					25
Section 5.04.			Reliance; Agents; Advice of Counsel					25
Section 5.05.			Cape Town Convention					27
Section 5.06.			No Individual Liability					27
Section 5.07.			The Operating Bank					27
ARTICLE VI			SUCCESSOR TRUSTEES AND OPERATING BANK					27
Section 6.01.			Resignation and Removal of Security Trustee					27
Section 6.02.			Appointment of Successor					27
Section 6.03.			The Operating Bank					28
ARTICLE VII			AGREEMENT BETWEEN SECURED PARTIES					29
Section 7.01.			Subordination and Priority					29
Section 7.02.			Exercise of Remedies					29
Section 7.03.			Further Agreements of Subordination					30
Section 7.04.			Rights of Subrogation					31
Section 7.05.			Further Assurances of Subordinated Representatives					31
Section 7.06.			No Change in Rights in Collateral					31
Section 7.07.			Waiver of Marshalling and Similar Rights					31
Section 7.08.			Enforcement					31
Section 7.09.			Obligations Not Affected					32
Section 7.10.			Waiver					32
Section 7.11.			Senior Obligations and Subordinated Obligations Unimpaired					32
Section 7.12.			Upon Discharge of Obligations					32
Section 7.13.			Agreement of the Secured Parties					32
ARTICLE VIII			INDEMNITY AND EXPENSES					33
Section 8.01.			Indemnity					33
Section 8.02.			Holders’ Indemnity					34
Section 8.03.			No Compensation from Secured Parties					34
Section 8.04.			Security Trustee Fees					34
ARTICLE IX			MISCELLANEOUS					34
Section 9.01.			Amendments; Waivers; Etc.					34
Section 9.02.			Addresses for Notices					35
Section 9.03.			No Waiver; Remedies					36
Section 9.04.			Severability					36
Section 9.05.			Continuing Security Interest; Assignments					36

ii

TABLE OF CONTENTS
(continued)

						Page
Section 9.06.			Release and Termination					36
Section 9.07.			Currency Conversion					36
Section 9.08.			Governing Law					37
Section 9.09.			Jurisdiction					37
Section 9.10.			Counterparts					37
Section 9.11.			Table of Contents, Headings, Etc.					37
Section 9.12.			Limited Recourse					37
Section 9.13.			Servicing Agreement					38

SCHEDULES
Schedule I			Pledged Shares, Pledged Beneficial Interests and Pledged Debt
Schedule II			Non-Trustee Account Information
Schedule III			Trade Names
Schedule IV			Chief Place of Business and Chief Executive or Registered Office
Schedule V			Aircraft Objects
EXHIBITS
Exhibit A			Form of Secured Party Supplement
Exhibit B-1			Form of Collateral Supplement
Exhibit B-2			Form of Grantor Supplement
Exhibit C			Form of Non-Trustee Account Letter
Exhibit D			Form of Consent and Agreement
Exhibit E-1			Form of Aircraft Mortgage
Exhibit E-2			Form of Aircraft Mortgage and Lease Assignment
Exhibit E-3			Form of FAA Lease Security Assignment
Exhibit F			Form of Irish Share Charge
Exhibit G			Form of Deed of Charge Over a Bank Account
Exhibit H			Form of French Share Pledge
Exhibit I			Form of French Account Charge

iii

SECURITY TRUST AGREEMENT

This SECURITY TRUST AGREEMENT (this ‘‘Agreement’’), dated as of [        ], 2007, is made between BABCOCK & BROWN AIR FUNDING I LIMITED, a Bermuda exempted company (the ‘‘Issuer’’), the ISSUER SUBSIDIARIES listed on the signature pages of, or who otherwise become grantors under, this Agreement (the ‘‘Issuer Subsidiaries’’, and together with the Issuer, the ‘‘Grant ors’’) and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation (‘‘DBTCA’’) as the Trustee, the Security Trustee, the Cash Manager and the Operating Bank.

PRELIMINARY STATEMENTS:

(1)    The Issuer, DBTCA, the Cash Manager, the Initial Liquidity Facility Provider and the Policy Provider have entered into the Indenture pursuant to which the Issuer is issuing the Notes and DBTCA has been appointed the Trustee.

(2)    The Issuer is the owner, directly or indirectly, of (i) all of the beneficial interest in certain Issuer Subsidiaries and all of the outstanding shares of capital stock of the other Issuer Subsidiaries, all as described in the attached Schedule I and in any Collateral Supplement or Grantor Supplement, and (ii) the indebtedness of certain Issuer Subsidiaries, all as described in the attached Schedule I and in any Collateral Supplement or Grantor Supplement.

(3)    The Issuer Subsidiaries are or may from time to time be parties to lease and sub-lease contracts and servicing agreements with respect to the Initial Aircraft, and they may enter into lease and sub-lease contracts and servicing agreements with respect to Additional Aircraft.

(4)    The Issuer and the Issuer Subsidiaries may from time to time grant additional security for the benefit of the Secured Parties.

(5)    It is a condition precedent to the issuance of the Notes by the Issuer that each Grantor grant the security interests required by this Agreement.

(6)    Each Grantor will derive substantial direct and indirect benefit from the issuance of the Notes and from the Related Documents.

(7)    DBTCA is willing to act as the Trustee, the Security Trustee, the Cash Manager and the Operating Bank under this Agreement.

NOW, THEREFORE, in consideration of the premises, each Grantor hereby agrees with the Security Trustee for its benefit and the benefit of the other Secured Parties as follows:

ARTICLE I
DEFINITIONS

Section 1.01.    Definitions.    (a) Certain Defined Terms.    For the purposes of this Agreement, the following terms have the meanings indicated below:

‘‘1881 Act’’ has the meaning specified in Section 2.20.

‘‘Account Collateral’’ has the meaning specified in Section 2.01(e).

‘‘Account Letters’’ has the meaning specified in Section 2.07(b).

‘‘Accounts Receivable’’ means, with respect to each Grantor, all of such Grantor’s now owned or hereafter acquired or arising ‘‘accounts’’, as defined in the UCC, including any rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by performance.

‘‘Additional Grantor’’ has the meaning specified in Section 9.01(b).

‘‘Agreed Currency’’ has the meaning specified in Section 9.07.

‘‘Agreement’’ has the meaning specified in the recital of parties to this Agreement.

1

‘‘Agreement Collateral’’ means, collectively, the Assigned Agreement Collateral, the Lease Collateral and the Servicing Collateral.

‘‘Aircraft Mortgage’’ means a Mortgage and Security Agreement substantially in the form attached as Exhibit E-1.

‘‘Aircraft Mortgage and Lease Assignment’’ means a Mortgage and Security Agreement substantially in the form attached as Exhibit E-2.

‘‘Aircraft Objects’’ means the Aircraft Objects (as defined in the Protocol) described on Schedule V hereto.

‘‘Aircraft Purchase Collateral’’ has the meaning specified in Section 2.01(j).

‘‘Assigned Agreement Collateral’’ has the meaning specified in Section 2.01(g).

‘‘Assigned Agreements’’ has the meaning specified in Section 2.01(g).

‘‘Assigned Documents’’ means, collectively, the Assigned Agreements, the Assigned Leases, the Service Provider Documents included in the Servicing Collateral and the Acquisition Agreements included in the Aircraft Purchase Collateral.

‘‘Assigned Leases’’ has the meaning specified in Section 2.01(h).

‘‘Beneficial Interest Collateral’’ has the meaning specified in Section 2.01(b).

‘‘Cape Town Convention’’ means, collectively, the Convention and the Protocol, together with all regulations and procedures issued in connection therewith, and all other rules, amendments, supplements, modifications, and revisions thereto (in each case using the English language version).

‘‘Cape Town Lease’’ means any Lease (including any Lease between Issuer Group Members) that has been entered into, extended, assigned or novated after March 1, 2006 (A) with a Cape Town Lessee or (B) where the related Aircraft Object is an airframe registered in a Contracting State.

‘‘Cape Town Lessee’’ means a lessee under a Lease that is ‘‘situated in’’ a ‘‘Contracting State’’.

‘‘Certificated Security’’ means a certificated security (as defined in Section 8-102(a)(4) of the UCC) other than a Government Security.

‘‘Collateral’’ has the meaning specified in Section 2.01.

‘‘Collateral Supplement’’ means a supplement to this Agreement in substantially the form attached as Exhibit B-1 executed and delivered by a Grantor.

‘‘Convention’’ means the Convention on International Interests in Mobile Equipment, signed in Cape Town, South Africa on November 16, 2001, as in effect in any applicable jurisdiction from time to time.

‘‘DBTCA’’ has the meaning specified in the recital of parties to this Agreement.

‘‘FAA’’ means the Federal Aviation Administration of the United States of America.

‘‘FAA Lease Security Assignment’’ means a Lease Security Assignment substantially in the form attached as Exhibit E-3.

‘‘French Account Pledge’’ means a French law governed account pledge in substantially the form attached as Exhibit I, to be executed and delivered by the Issuer as further described at Section 2.23.

‘‘French Share Pledge’’ means a French law governed pledge of shares in substantially the form attached as Exhibit H, to be executed and delivered by the Issuer as further described at Section 2.23.

‘‘Government Security’’ means any security that is issued or guaranteed by the United States of America or an agency or instrumentality thereof and that is maintained in book-entry on the records of the Federal Reserve Bank of New York and is subject to the Revised Book-Entry Rules.

‘‘Grantors’’ has the meaning specified in the recital of parties to this Agreement.

2

‘‘Grantor Supplement’’ means a supplement to this Agreement in substantially the form attached as Exhibit B-2 executed and delivered by an Issuer Group Member.

‘‘Indenture’’ means the Trust Indenture dated as of [        ], 2007 among the Issuer, DBTCA, as the Operating Bank and Trustee, DBTCA, as Cash Manager, BNP Paribas, S.A, as the Initial Liquidity Facility Provider, and the Policy Provider.

‘‘Indenture Obligations’’ means, in respect of any class of Notes, all obligations of the Issuer under and in respect of such class of Notes including all obligations of the Issuer to make payments of principal of, interest on (including interest following the filing of a petition initiating any proceeding referred to in Section 7.03(a)) and premium, if any, on such class of Notes, all obligations to pay any fees, expenses or other amounts under or in respect of such class of Notes, the Indenture or any Related Document in respect of such class of Notes, and all obligations in respect of any amendment, modification, extension, renewal or refinancing of such class of Notes.

‘‘Instrument’’ means any ‘‘instrument’’ as defined in Section 9-102(a)(47) of the UCC.

‘‘International Registry’’ means the International Registry under the Cape Town Convention.

‘‘Investment Property Collateral’’ has the meaning specified in Section 2.01(f).

‘‘Irish Account Charge’’ means an Irish law governed account charge in substantially the form attached as Exhibit G, to be executed and delivered by the Issuer as further described at Section 2.24.

‘‘Irish Share Charge’’ means an Irish law governed equitable charge of shares in substantially the form attached as Exhibit F, executed and delivered by the Issuer pursuant to Section 2.22.

‘‘Issuer’’ has the meaning specified in the recital of parties to this Agreement.

‘‘Lease Assignment Documents’’ means, in respect of any Assigned Lease, (a) any agreement providing for the novation thereof to substitute, or the assignment thereof to, an Issuer Group Member as the lessor, (b) any agreement or instrument supplemental to this Agreement for the purpose of effecting and/or perfecting the assignment of, and the grant of a lien upon, such Assigned Lease in favor the Security Trustee under any Applicable Law, (c) any notice provided to the lessee thereof of the assignment thereof pursuant to this Agreement and/or such supplement, (d) any acknowledgment of such assignment by such lessee and (e) any undertaking of quiet enjoyment given by the Security Trustee in respect thereof, in each case as such may be amended and restated and/or modified from time to time.

‘‘Lease Collateral’’ has the meaning specified in Section 2.01(h).

‘‘Lease Obligations’’ means, with respect to each Grantor that owns an Aircraft Interest, its obligations (as lessee and/or purchaser) to each Issuer Group Member under each aircraft lease agreement, conditional sale agreement, hire purchase agreement or other similar agreement with such Issuer Group Member (as lessor or vendor).

‘‘Letter of Credit’’ means any ‘‘letter of credit’’ as defined in Section 5-102 of the UCC.

‘‘Membership Interest Collateral’’ has the meaning specified in Section 2.01(c).

‘‘Non-Trustee Account Banks’’ has the meaning specified in Section 2.07(b).

‘‘Non-Trustee Account Collateral’’ has the meaning specified in Section 2.01(d).

‘‘Obligor’’ has the meaning specified in Section 2.07(a).

‘‘Operating Bank’’ means the Person acting, at the time of determination, as the operating bank under this Agreement. The initial Operating Bank is DBTCA.

‘‘Pledged Aircraft Interest’’ means any Pledged Shares or Pledged Beneficial Interests consisting of an Aircraft Interest.

‘‘Pledged Beneficial Interest’’ means the beneficial interests identified in any of Schedule I, any Collateral Supplement or Grantor Supplement and includes any Pledged Aircraft Interests in the nature of beneficial interests.

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‘‘Pledged Debt’’ means the indebtedness identified in any of Schedule I, any Collateral Supplement or Grantor Supplement.

‘‘Pledged Shares’’ means the capital stock identified in any of Schedule I, any Collateral Supplement or Grantor Supplement and includes any Pledged Aircraft Interests in the nature of capital stock.

‘‘Policy Provider’’ means Ambac Assurance Corporation, a Wisconsin stock insurance company, or any successor thereto as issuer of the Policy.

‘‘Protocol’’ means the Protocol to the Convention on Matters Specific to Aircraft Equipment, as in effect in any applicable jurisdiction from time to time.

‘‘Received Currency’’ has the meaning specified in Section 9.07.

‘‘Relevant Collateral’’ has the meaning specified in Section 2.09(a).

‘‘Required Cape Town Registrations’’ has the meaning set forth in Section 2.10(h).

‘‘Revised Book-Entry Rules’’ means 31 C.F.R. § 357 (Treasury bills, notes and bonds); 12 C.F.R. § 615 (book-entry securities of the Farm Credit Administration); 12 C.F.R. §§ 910 and 912 (book-entry securities of the Federal Home Loan Banks); 24 C.F.R. § 81 (book-entry securities of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation); 12 C.F.R. § 1511 (book-entry securities of the Resolution Funding Corporation or any successor thereto); 31 C.F.R. § 354 (book-entry securities of the Student Loan Marketing Association); and any substantially comparable book-entry rules of any other Federal agency or instrumentality of the United States.

‘‘Secured Collateral Provider’’ means any of or, in its plural form, all of the Secured Service Providers, Secured Hedge Providers and Secured Credit Facility Providers.

‘‘Secured Collateral Provider Document’’ means any of or, in its plural form, all of the Service Provider Documents, Hedge Agreements, Eligible Credit Facilities and Acquisition Agreements.

‘‘Secured Credit Facility’’ means any Eligible Credit Facility and, for the avoidance of doubt, all obligations to pay fees, expenses or other amounts required to be paid thereunder in respect of which the provider has delivered to the Security Trustee a Secured Party Supplement.

‘‘Secured Credit Facility Obligations’’ means the obligations of the Issuer now or hereafter existing under any Secured Credit Facilities to Secured Credit Facility Providers.

‘‘Secured Credit Facility Provider’’ means the provider of any Secured Credit Facility.

‘‘Secured Hedge Agreement’’ means a Hedge Agreement in respect of which the Hedge Provider has executed and delivered to the Security Trustee a Secured Party Supplement.

‘‘Secured Hedge Provider’’ means the Hedge Provider of a Secured Hedge Agreement.

‘‘Secured Hedge Provider Obligations’’ means the obligations of the Issuer now or hereafter existing under the Secured Hedge Agreements.

‘‘Secured Obligations’’ means, collectively, the Indenture Obligations with respect to the Notes, all Policy Provider Obligations, the Secured Service Provider Obligations, the Secured Credit Facility Obligations and the Secured Hedge Provider Obligations.

‘‘Secured Party’’ means any of or, in the plural form, all of the Security Trustee, the Policy Provider, each other Secured Service Provider, each Holder, each Secured Credit Facility Provider and each Secured Hedge Provider.

‘‘Secured Party Supplement’’ means a supplement to this Agreement in substantially the form attached as Exhibit A executed and delivered between the Security Trustee and a Service Provider, a Hedge Provider or a Secured Credit Facility Provider.

‘‘Secured Service Provider’’ means any of the Security Trustee, the Trustee, the Operating Bank, the Servicer, the Administrative Agent, the Cash Manager, the Reference Agent, the Capital Markets Advisor and each other provider of services (including any Authorized Agent) under a Secured Service Provider Document.

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‘‘Secured Service Provider Document’’ means any Service Provider Document listed under clause (a) of the definition of that term and any other service agreement entered into by an Issuer Group Member in accordance with the Indenture in respect of which the counterparty has executed and delivered to the Security Trustee a Secured Party Supplement.

‘‘Secured Service Provider Obligations’’ means, collectively, the obligations now or hereafter existing of any Issuer Group Member to a Service Provider under a Secured Service Provider Document.

‘‘Securities Account’’ means a securities account as defined in Section 8-501(a) of the UCC maintained in the name of the Security Trustee as ‘‘entitlement holder’’ (as defined in Section 8-102(a)(7) of the UCC) on the books and records of the Operating Bank or another Securities Intermediary who has agreed that its securities intermediary jurisdiction (within the meaning of Section 8-110(e) of the UCC) is the State of New York.

‘‘Securities Intermediary’’ means any ‘‘securities intermediary’’ of the Security Trustee as defined in 31 C.F.R. Section 357.2 or Section 8-102(a)(14) of the UCC.

‘‘Security Collateral’’ has the meaning specified in Section 2.01(a).

‘‘Security Trustee’’ means the Person appointed, at the time of determination, as the security trustee under this Agreement. The initial Security Trustee is DBTCA.

‘‘Security Trustee Account’’ means any Account other than a Non-Trustee Account.

‘‘Senior Creditors’’ means the Secured Parties to whom the Senior Obligations are owed.

‘‘Senior Obligations’’ means, with respect to any Secured Obligation (other than Secured Service Provider Obligations and all Secured Credit Facility Obligations that constitute Expenses), all other Obligations the payment of which constitute a Prior Ranking Amount.

‘‘Senior Representative’’ means the Controlling Party.

‘‘Service Provider Documents’’ means (a) the Servicing Agreement, the Administrative Services Agreement, the Cash Management Agreement, the Indenture (with respect to the obligations of the Issuer to the Trustee), the Reference Agency Agreement, the Capital Markets Advisory Agreement and this Agreement (with respect to the obligations of the Grantors to the Security Trustee and the Operating Bank) and (b) any other service agreement including, without limitation, any Conversion Agreement, entered into by any Issuer Group Member pursuant to the Indenture.

‘‘Servicing Collateral’’ has the meaning specified in Section 2.01(i).

‘‘Subordinated Creditors’’ means, at any time, the holders and owners of Subordinated Obligations.

‘‘Subordinated Obligations’’ means (a) with respect to the Secured Service Provider Obligations and Secured Credit Facility Obligations that constitute Expenses, all other Obligations and (b) with respect to any other Secured Obligations, all Obligations as to which the payment of such Secured Obligation constitutes a Prior Ranking Amount.

‘‘Subordinated Representative’’ means, at any time, any trustee or representative of any holders or owners (or, in the absence of any such person, such holders and owners) of any Secured Obligations other than the Senior Representative at such time.

‘‘UCC’’ means the Uniform Commercial Code as in effect on the date of determination in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, ‘‘UCC’’ means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Agreement relating to s uch perfection or effect of perfection or non-perfection.

‘‘Uncertificated Security’’ means an uncertificated security (as defined in Section 8-102(a)(18) of the UCC) other than a Government Security.

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(b)    Terms Defined in the Cape Town Convention.    The following terms shall have the respective meanings ascribed thereto in the Cape Town Convention: ‘‘Administrator’’, ‘‘Contracting State’’, ‘‘Contract of Sale’’, ‘‘International Interest’’, ‘‘power to dispose’’ (within the meaning of Article 7 of the Cape Town Convention), ‘‘Professional User’’, ‘‘Prospective International Interest’’, ‘‘situated in’’ (within the meaning of Article 4 of the Cape Town Convention) and ‘‘Transacting User’’.

(c)    Terms Defined in the Indenture.    For all purposes of this Agreement, all capitalized terms used, but not otherwise defined in, this Agreement shall have the respective meanings assigned to such terms in the Indenture.

Section 1.02.    Construction and Usage.    The conventions of construction and usage set forth in Section 1.02 of the Indenture are hereby incorporated by reference in this Agreement.

ARTICLE II
SECURITY

Section 2.01.    Grant of Security.    To secure the Secured Obligations, each Grantor hereby agrees to assign and pledge and hereby assigns and pledges to the Security Trustee for its benefit and the benefit of the Secured Parties (except, with respect to any Secured Collateral Provider Documents under clause (i) or clause (k) below, the related Secured Collateral Provider shall not have a security interest in the respective Grantor’s rights under such Secured Collateral Provider Document), and hereby grants to the Security Trustee for its benefit and the benefit of the Secured Parties (except, with respect to any Secured Collateral Provider Documents under clause (i) or clause (k) below, the related Secured Collateral Provider shall not have a security interest in the respective Grantor’s rights under such Secured Collateral Provider Document) a security interest in, all of such Grantor’s right, title and interest whether now existing or hereafter existing in and to the following (collectively, the ‘‘Collateral’’):

(a)    with respect to each Grantor, all of the following (the ‘‘Security Collateral’’):

(i)    subject to other Security Documents in favor of the Security Trustee required by non-U.S. jurisdictions, the Pledged Shares and the certificates representing such Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares;

(ii)    the Pledged Debt and all instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt;

(iii)    subject to other Security Documents in favor of the Security Trustee required by non-U.S. jurisdictions, all additional shares of the capital stock of any Issuer Group Member (including any Aircraft Interests in the nature of capital stock) from time to time acquired by such Grantor in any manner, including the capital stock of any Issuer Group Member that may be formed from time to time, and all certificates, if any, representing such additional shares of the capital stock and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such additional shares; and

(iv)    all additional indebtedness from time to time owed to such Grantor by any Issuer Group Member and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness;

(b)    with respect to each Grantor, all of the following (the ‘‘Beneficial Interest Collateral’’):

(i)    the Pledged Beneficial Interests, all certificates, if any, from time to time representing all of such Grantor’s right, title and interest in the Pledged Beneficial Interests, any contracts and instruments pursuant to which any such Pledged Beneficial Interests are

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created or issued and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Beneficial Interest; and

(ii)    all of such Grantor’s right, title and interest in all additional beneficial interests in any Issuer Group Member (including any Aircraft Interest in the nature of beneficial interests) whether now or existing or hereafter created, from time to time acquired by such Grantor in any manner, including the beneficial interests in any Issuer Group Member that may be formed from time to time, and all certificates, if any, from time to time representing such additional beneficial interests and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such additional beneficial interests;

(c)    with respect to each Grantor, all membership interests (including any Aircraft Interest in the nature of a membership interest) (whether now existing or hereafter created) from time to time acquired by such Grantor in any manner, all certificates, if any, from time to time representing such membership interests and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such membership interests (the ‘‘Membership Interest Collateral’’);

(d)    with respect to each Grantor, all of the following (collectively, the ‘‘Non-Trustee Account Collateral’’):

(i)    all of the Non-Trustee Accounts in such Grantor’s name, all funds or any other interest held or required by the terms of the Indenture to be held in, and all certificates and instruments, if any, from time to time representing or evidencing, such Non-Trustee Accounts;

(ii)    all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Security Trustee for or on behalf of such Grantor in substitution for or in addition to any or all of the then existing Non-Trustee Account Collateral; and

(iii)    all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Non-Trustee Account Collateral;

(e)    with respect to each Grantor, all of the following (collectively, the ‘‘Account Collateral’’):

(i)    all right of such Grantor in and to each Security Trustee Account at any time or from time to time established; and

(ii)    all cash, investment property, Permitted Account Investments, other Investments, securities, instruments or other property (including all ‘‘financial assets’’ within the meaning of Section 8-102(a)(9) of the UCC) at any time or from time to time credited to any such Security Trustee Account;

(f)    with respect to each Grantor, all other investment property (as defined in Section 9-102(a)(49) of the UCC) of such Grantor including any of the following (the ‘‘Investment Property Collateral’’):

(i)    all Permitted Account Investments made or acquired from or with the proceeds of any Non-Trustee Account Collateral of such Grantor from time to time and all certificates and instruments, if any, from time to time representing or evidencing such Permitted Account Investments; and

(ii)    all interest, dividends, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Investment Collateral;

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(g)    with respect to each Grantor, all of the following (the ‘‘Assigned Agreement Collateral’’):

(i)    all of such Grantor’s right, title and interest in and to any Intercompany Loan and all security assignments, cash deposit agreements and other security agreements executed in its favor, in each case as such agreements may be amended, restated and/or otherwise modified from time to time (collectively, the ‘‘Assigned Agreements’’); and

(ii)    all of such Grantor’s right, title and interest in and to all deposit accounts, all funds or other property held in such deposit accounts, all certificates and instruments, if any, from time to time representing or evidencing such deposit accounts and all other property of whatever nature, in each case pledged, assigned or transferred to it or mortgaged or charged in its favor pursuant to any Assigned Agreement and all ‘‘supporting obligations’’ as defined in Section 9-102(a)(77) of the UCC) relating to any Assigned Agreement;

(h)    with respect to each Grantor, all of such Grantor’s right, title and interest in, to or under all leases to which such Grantor is or may from time to time be party and any leasing arrangements among Issuer Group Members (whether now existing or hereafter created) with respect to such leases together with all Related Collateral Documents (all such leases and Related Collateral Documents, the ‘‘Assigned Leases’’), including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due under or pursuant to such Assigned Leases, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty pursuant to, or with respect to such Assigned Leases, (iii) claims of such Grantor for damages arising out of or for breach or default under such Assigned Leases, (iv) all rights under any such Assigned Lease with respect to any subleases of the Aircraft subject to such Assigned Lease, (v) the right of such Grantor to terminate such Assigned Leases and to compel performance of, and otherwise to exercise all remedies under, any Assigned Lease, whether arising under such Assigned Leases or by statute or at law or in equity and (vi) any deregistration power of attorney issued in favor of such Grantor (the ‘‘Lease Collateral’’);

(i)    with respect to each Grantor, all of such Grantor’s right, title and interest in, to or under all Service Provider Documents including, without limitation, (i) all rights of such Grantor to receive any moneys due or payable under or pursuant to such Service Provider Document, (ii) any claims of such Grantor for damages arising out of, or for breach or default under, such Service Provider Document, (iii) all rights to indemnification under such Service Provider Document and (iv) all rights to compel performance under such Service Provider Document, in each case whether arising under such Service Provider Document or by statute, at law or in equity (the ‘‘Servicing Collateral’’);

(j)    with respect to each Grantor, all of such Grantor’s right, title and interest in, to or under all Acquisition Agreements (the ‘‘Aircraft Purchase Collateral’’);

(k)    with respect to each Grantor, all of such Grantor’s right, title and interest in, to or under all (i) Eligible Credit Facilities (including any ‘‘letter of credit rights’’ or ‘‘supporting obligations,’’ as defined in Section 9-102(a)(51) and 9-102(a)(77), respectively, of the UCC) not consisting of a Cash Collateral Account and (ii) Hedge Agreements, and all rights to administer, draw upon and otherwise deal with each such Eligible Credit Facility and to administer and otherwise deal with each such Hedge Agreement;

(l)    with respect to each Grantor, all of such Grantor’s right, title and interest in, to or under all the personal property identified in a Grantor Supplement or a Collateral Supplement executed and delivered by such Grantor to the Security Trustee;

(m)    with respect to each Grantor, all of such Grantor’s Accounts Receivable;

(n)    with respect to each Grantor, all of such Grantor’s Letters of Credit;

(o)    with respect to each Grantor, (i) the Aircraft Objects and (ii) any money or non-money proceeds of an Aircraft Object arising from the total or partial loss or physical destruction of the Aircraft Object or its total or partial confiscation, condemnation or requisition;

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(p)    all books, records and other property related to or referring to any of the foregoing, including books, records, account ledgers, data processing records, computer software and other property and general intangibles at any time evidencing or relating to any of the foregoing; and

(q)    all proceeds of any and all of the foregoing Collateral (including proceeds that constitute property of the types described in subsections (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o) and (p) of this Section 2.01).

For the avoidance of doubt, the Collateral does not include the Policy or any proceeds thereof.

Section 2.02.    Security for Obligations.    This Agreement secures the payment and performance of all Secured Obligations of each Grantor to each Secured Party (subject to the subordination provisions of this Agreement and the Indenture) and shall be held by the Security Trustee in trust for the Secured Parties. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by any Grantor to any Secured Parties but for the fact that the Secured Obligations are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Grantor.

Section 2.03.    Representations and Warranties of the Grantors.    Each Grantor represents and warrants as of the date of this Agreement, and as of each subsequent Closing Date and each Acquisition Date on which such Grantor accepts an Aircraft (or the related Aircraft Interest), as follows:

(a)    The Grantors are the legal and beneficial owners of the Collateral and each applicable Aircraft (except for those Grantors which do not hold title to Aircraft) free and clear of any Encumbrance other than Permitted Encumbrances and Encumbrances created under this Agreement. No effective financing statement or other instrument similar in effect (which, for the avoidance of doubt, shall not include any Contract of Sale in favor of any Grantor) covering all or any part of the Collateral or any International Interest in respect thereof is on file in any recording office including the International Registry, except such as may have been filed in favor of the Security Trustee relating to the Collateral.

(b)    This Agreement creates a valid and (upon the taking of the actions required hereby) perfected security interest in the Collateral and any Letter of Credit or ‘‘letter of credit right’’ (except to the extent any such Letter of Credit or ‘‘letter of credit right’’ constitutes supporting obligations of any Assigned Lease) as security for the Secured Obligations, subject in priority to no other Encumbrances (other than Permitted Encumbrances), and all filings and other actions necessary or desirable to perfect and protect such security interest have been (or in the case of future Collateral will be) duly taken (except that, with respect to the security interest in any Aircraft Object, only the applicable Required Cape Town Registrations pursuant to Section 2.10(e) hereof and UCC financing statement filings shall be required to be made). Except for the security interest granted to the Security Trustee pursuant to this Agreement or any security interest previously granted that shall be terminated as of the date hereof, the Grantors have not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Collateral. The Grantors have not authorized the filing of, and are not aware of, any financing statements, title reservation agreements, aircraft mortgages, security agreements or other instruments similar in effect against any Grantor that include a description of collateral covering the Collateral other than any financing statement, title reservation agreements, aircraft mortgages, security agreements or other instruments similar in effect relating to the security interest granted to the Security Trustee hereunder or that has been terminated. The Grantors are not aware of any judgment or tax lien filings against any Grantor.

(c)    No Grantor has any trade names except as set forth on Schedule III hereto.

(d)    No consent of any Person and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other third party (including, for the avoidance of doubt, the International Registry) is required either (i) for the grant by such Grantor of the assignment and security interest granted hereby, (ii) for the

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execution, delivery or performance of this Agreement by such Grantor or (iii) for the perfection or maintenance of the pledge, assignment and security interest created hereby, except for (A) with respect to each Aircraft (and any related Assigned Lease) whose State of Registration is the United States of America wherein the Applicable Aviation Authority is the FAA, the filing with the FAA, in due form, for recordation where applicable, pursuant to Section 40102 and Section 44101 through Section 44112 of Title 49, United States Code, ‘‘Transportation,’’ of any and all title, registration and financing documentation necessary to accomplish the purposes of this Agreement, including, without limitation, an Aircraft Mortgage, an Aircraft Mortgage and Lease Assignment and/or an FAA Lease Security Assignment, as applicable, with r espect to such Aircraft and/or the related Assigned Lease, (B) the Required Cape Town Registrations, (C) the filing of financing and continuation statements under the UCC, (D) the filing of particulars of charge in the Irish Companies Registration Office and (E) such other filings as are required under other relevant local law.

(e)    The jurisdiction of organization, organizational ID number (if applicable), the chief place of business and chief executive or registered office of such Grantor and the office where such Grantor keeps records of the Collateral are located at the address specified opposite the name of such Grantor on Schedule IV hereto. If such Grantor is the lessor under a Cape Town Lease, it has the right to assign the International Interest provided for in such Cape Town Lease and all associated rights in respect of such Cape Town Lease that form part of the Collateral.

(f)    The Pledged Shares constitute the percentage of the issued and outstanding shares of capital stock of the issuer thereof indicated on Schedule I hereto. The Pledged Beneficial Interests constitute the percentage of the beneficial interest of the issuer thereof indicated on Schedule I hereto. The Pledged Aircraft Interests constitute all of the direct and indirect ownership interests of the Person owning the related Aircraft.

(g)    The Pledged Shares and the Pledged Beneficial Interests (and, as applicable, the interests constituting the Membership Interest Collateral (if any)) (i) have been duly authorized and validly issued and are fully paid up and nonassessable (or, in the case of the Pledged Beneficial Interests (or, as applicable, Membership Interest Collateral), not subject to any capital call or other additional capital requirement) and not subject to any preemptive rights, warrants, options or similar rights or restrictions in favor of third-parties or any contractual or other restrictions upon transfer other than in favor of Lessees or otherwise as permitted or required under the Indentures and (ii) constitute all of the outstanding share of capital stock, all of the beneficial interests and, as applicable, all of the membership interests in all of the direct and indirect Issuer Subsidiaries as of the date hereof. The Pledged Debt has been dul y authorized, authenticated or issued and delivered, is the legal, valid and binding obligation of each obligor thereunder and is not in default.

(h)    The Pledged Shares, the Pledged Beneficial Interests and the Membership Interest Collateral (if any) constitute ‘‘certificated securities’’ within the meaning of Section 8-102(4) of the UCC. The terms of any Membership Interest Collateral (if any) expressly provide that such Membership Interest Collateral shall be governed by Article 8 of the Uniform Commercial Code as in effect in the jurisdiction of the issuer of such Membership Interest Collateral. The Pledged Shares, the Pledged Beneficial Interests and the Membership Interest Collateral (if any) have been delivered to the Security Trustee. The Pledged Shares, the Pledged Beneficial Interests and the Membership Interest Collateral (if any) either (i) are in bearer form, (ii) have been indorsed, by an effective indorsement, to the Security Trustee or in blank or (iii) have been registered in the name of the Security Trustee. None of t he Pledged Shares, the Pledged Beneficial Interests and the Membership Interest Collateral (if any) that constitute or evidence the Collateral have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Security Trustee.

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(i)    A true and complete copy of each Assigned Agreement in effect on the Initial Closing Date has been delivered to the Security Trustee. Each Assigned Document upon its inclusion in the Collateral will have been duly authorized, executed and delivered by the relevant Grantors, will be in full force and effect and will be binding upon and enforceable against all parties thereto in accordance with their terms.

(j)    Other than the Security Interests granted to the Security Trustee pursuant to this Agreement, the Grantors have not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Collateral. The Grantors have not authorized the filing of, and are not aware of, any financing statements against any Grantor that include a description of collateral covering the Collateral other than any financing statement relating to the Security Interests granted to the Security Trustee hereunder or that has been terminated. The Grantors are not aware of any judgment or tax lien filing against any Grantor.

(k)    A true and complete original copy (or, if not available, a certified true copy) of each Lease to which an Issuer Subsidiary is a party has been delivered to the Security Trustee. Each such Lease has been duly authorized, executed and delivered by all parties thereto, is in full force and effect and is binding upon and enforceable against each Issuer Group Member which is a party thereto in accordance with its terms. Each Lease constitutes ‘‘tangible chattel paper’’ within the meaning of Section 9-102(a)(78) of the UCC. No such Lease has any marks or notations indicating that it has been pledged, assigned or otherwise conveyed to any Person other than the Security Trustee (except for any marks or notations indicating a lien in favor of a prior financing party, which lien has been duly discharged)

(l)    Each of the Hedge Agreements constitutes ‘‘general intangibles’’ within the meaning of Section 9-102(a)(42) of the UCC.

(m)    Each Security Trustee Account constitutes a ‘‘securities account’’ within the meaning of Section 8-501 of the UCC.

(n)    Each Non-Trustee Account at an Eligible Institution in the U.S. shall constitute a ‘‘deposit account’’ as defined in Section 9-102(a)(29) of the UCC.

Section 2.04.    Grantors Remain Liable.    Anything contained herein to the contrary notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Security Trustee of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall any Secured Party be obligated to perform any of the obligations or duties of any Grantor under the contracts and agreements included in the Collateral or to take any action to collect or enforce any claim for payment assigned under this Agreement.

Section 2.05.    Delivery of Collateral.    All certificates, instruments, documents or tangible chattel paper representing or evidencing any Collateral (other than Account Collateral), if deliverable, shall be delivered to and held by or on behalf of the Security Trustee in New York and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to evidence the security interests granted hereby. The Security Trustee shall have the right, at any time in its discretion and without notice to any Grantor, to transfer to or to register in the name of the Security Trustee or any of its nominees any or all of the Pledged Shares, Pledged Beneficial Interests and Membership Interes t Collateral (if any), subject only to the revocable rights specified in Section 2.12(a). In addition, the Security Trustee shall have the right at any time to exchange certificates or instruments representing or evidencing any Collateral (other than Account Collateral and any certificates representing or evidencing any Pledged Shares in an Irish or Bermuda company) for certificates or instruments of smaller or larger denominations. To the extent that any Assigned Lease constitutes ‘‘tangible chattel paper’’ (as defined in Section 9-102(a)(78) of the UCC), each Grantor shall, if it has an original of such Assigned Lease

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in its possession, cause such original to be delivered to the Security Trustee in New York promptly (and in any case no later than 10 days) after the execution and delivery of such Assigned Lease by all its parties provided, however, that if any such Grantor shall require such original of such Assigned Lease for the purposes of enforcement of the obligations thereunder, the Security Trustee shall deliver such original of such Assigned Lease to such Grantor or the Servicer, as applicable, within two Business Days of receipt of any request from such Grantor or the Servicer, as applicable, and provided, further, that if no original copy of such Assigned Lease has been expressly designated as the original counterpart for purposes of perfection by possession of ‘‘tangible chattel paper’’ under the UCC, such Grantor’s obligation to deliver such Assigned Lease to the Security Trustee shall be satisfied by the delivery of one original copy of such Assigned Lease. Each Grantor undertakes to return any such original of an Assigned Lease promptly after such Grantor or the Servicer, as applicable, no longer requires such original for enforcement purposes. With respect to any Assigned Lease that is a Future Lease, the Grantors shall (a)(1) cause the lessor and the lessee of such Future Lease to designate one executed copy thereof the original by adding language in substantially the following form to the cover page thereof: ‘‘To the extent, if any, that this [Lease Agreement] or any [Lease Supplement] hereunder constitutes tangible chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no security interest in this [Lease Agreement] or such [Lease Supplement] may be created through the transfer or possession of any counterpart other than the original executed counterpart, which shall be identified as the counterpart containing the receipt therefor executed by the Security Trustee under and as defined in the Security Trust Agreement dated as of [                            ], 2007 among Babcock & Brown Air Funding I Limited, Deutsche Bank Trust Company Americas, as the Trustee, the Security Trustee, the Cash Manager and the Operating Bank and each other party thereto’’, and (2) no later than 10 days after the execution of such Future Lease by all the parties thereto, deliver such original chattel paper copy (which, by way of clarification, shall not include the signature or the receipt therefor of the Security Trustee) to a courier service for delivery to the Security Trustee at Deutsche Bank Trust Company Americas, 60 Wall Street, 26th Floor, MS NYC60-2606, New York, New York 10005-2858, Attention: [Michele Hy Voon], (b) notify the Lessee in writing of the security assignment of such Future Lease to the Security Trustee pursuant to the Security Trust Agreement (which notice may be contained in such Future Lease or in a separate document), (c) obtain from the Lessee a written acknowledgement (which may be contained in such Future Lease or in a separate document) addressed to, or for the benefit of, the Security Trustee (1) acknowledging receipt of notification of such security assignment and (2) containing the agreement of the Lessee to continue to make all payments required to be made to the lessor under such Future Lease to the account specified in such Future Lease unless and until the Security Trustee otherwise directs (it being understood that the account specified in such Future Lease will be the account specified by the Cash Manager to the Servicer as contemplated by Section 1.1(a) of Schedule 2.02(a) to the Servicing Agreement and subject in each case to applicable legal or tax constraints) and (d) take such other action as the Issuer shall have reasonably requested and described in reasonable detail in a written notice to the Servicer.

Section 2.06.    Maintenance of Security Trustee Accounts.    (a) DBTCA hereby agrees to act as the Operating Bank. Upon the execution of this Agreement and from time to time thereafter as called for by Section 3.01 of the Indenture, the Operating Bank shall establish and maintain on the books and records of its office specified in Section 9.02 and maintain in the name of the Security Trustee each respective Security Trustee Account (as an Eligible Account) to be established on the Initial Closing Date or on such other time. If, at any time, any Security Trustee Account ceases to be an Eligible Account, the Operating Bank shall, within 10 Business Days thereafter, establish a new Security Trustee Account having the same characteristics as such other Account and transfer all pr operty related to such old Account to such new Account. The Operating Bank also agrees to cooperate with any replacement Operating Bank as to the transfer of any property in, or records relating to, any Security Trust Account maintained by it. Except as a Secured Party in accordance with the provisions of this Agreement, DBTCA waives any claim or lien against any Account it may have, by operation of law or otherwise, for any amount owed to it by any Grantor.

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(b)    The Operating Bank hereby agrees that (i) it is a ‘‘bank’’ (as defined in Section 9-101(a)(8) of the UCC), (ii) each Security Trustee Account is and will be maintained as a Securities Account of which the Operating Bank is the Securities Intermediary and in respect of which the Security Trustee is the ‘‘entitlement holder’’ (as defined in Section 8-102(a)(7) of the UCC) of the ‘‘security entitlement’’ (as defined in Section 8-102(a)(17) of the UCC) with respect to each ‘‘financial asset’’ (as defined in Section 8-102(a)(9) of the UCC) credited to such Account and the Operating Bank shall comply with all entitlement orders (as defined in Section 8-102(a)(8) of the UCC) issued by the Security Trustee without further consent of the Grantors or any other person, (iii) all Collections and other cash require d to be deposited in any such Account and Permitted Account Investments and all other property acquired with cash credited to any such Account will be credited to such Account, (iv) all items of property (whether cash, investment property, Permitted Account Investments, other investments, securities, instruments or other property credited to each Security Trustee Account will be treated as a ‘‘financial asset’’ (as defined in Section 8-102(a)(9) of the UCC) under Article 8 of the UCC, (v) its ‘‘securities intermediary’s jurisdiction’’ (as defined in Section 8-110(e) of the UCC) and the ‘‘bank’s jurisdiction’’ (within the meaning of Section 9-304 of the UCC) with respect to each Account is the State of New York and (vi) all securities, instruments and other property in order or registered from and credited to any Security Trustee Account shall be payable to or to the order of, or registered i n the name of, the Operating Bank or shall be indorsed to the Operating Bank or in blank, and in no case whatsoever shall any ‘‘financial asset’’ (as defined in Section 8-102(a)(9) of the UCC) credited to any Security Trustee Account be registered in the name of any Grantor, payable to or to the order of any Grantor or specially indorsed to any Grantor except to the extent the foregoing have been specially endorsed by a Grantor to the Operating Bank or in blank.

(c)    The Operating Bank acknowledges that the Security Trustee has appointed the Cash Manager pursuant to the Cash Management Agreement, as its agent for, among other things, dealings with respect to the Security Trustee Accounts; the Operating Bank agrees that, until otherwise notified in writing by the Security Trustee, the Operating Bank will follow the written directions and instructions of the Cash Manager, as the agent for the Security Trustee, to the extent it is required to follow those of the Security Trustee except that, with respect to withdrawals from any Note Account, the Operating Bank agrees that it will only follow the directions and instructions of the Trustee, as the agent for the Security Trustee. The Security Trustee hereby appoints the Trustee as its agent for purposes of the preceding sentence, and the Trustee hereby accepts such appointment.

(d)    The Security Trustee agrees that it will hold (and will indicate clearly in the books and records that it holds) its ‘‘security entitlement’’ to the ‘‘financial assets’’ credited to each Security Trustee Account in trust (i) to the extent of any Segregated Funds in the Lessee Funded Account, for the benefit of the relevant Lessees, (ii) in the case of any Cash Collateral Account for any class or subclass of Notes, for the benefit of the Holders of such Notes and (to the extent so provided, if at all, in the Indenture or in the Board Resolution establishing such Eligible Credit Facility) each provider of an Eligible Credit Facility the proceeds of which funded such Cash Collateral Account, (iii) in the case of any Aircraft Purchase Account, for the Secured Parties, and, to the extent set forth in Section 3.05(a) of the Indenture, the seller or sellers under the applicable Ac quisition Agreement, (iv) in the case of any Aircraft Conversion Account, for the Secured Parties and, to the extent set forth in Section 3.04(i) of the Indenture, the person effecting the applicable Conversions under the related Conversion Agreement, and (v) in the case of any other Security Trustee Account, for the benefit of the Secured Parties (but subject to the subordination provisions hereof).

Section 2.07.    The Grantor and the Covenants Regarding Accounts.    So long as any Secured Obligations remain unpaid:

(a)    No Grantor shall establish any Account except to the extent that it is entitled, pursuant to the Indenture and in compliance with this Section 2.07, to establish one or more Non-Trustee Accounts. Except to the extent that the payee of any amount requires such payment to be

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deposited in a Non-Trustee Account (and such deposit is permitted by the Indenture) or as otherwise expressly provided in the Indenture, each Grantor shall instruct each Person obligated at any time to make any payment to such Grantor for any reason (an ‘‘Obligor’’) under or in respect of any Assigned Lease and any Related Collateral Document to make such payment to the Rental Account.

(b)    With respect to each Non-Trustee Account to be established or established by any Grantor:

(i)    Each Grantor shall maintain each Non-Trustee Account (as an Eligible Account) in its name only with Eligible Institutions (such institutions, ‘‘Non-Trustee Account Banks’’) that have entered into letter agreements in substantially the form of Exhibit C hereto (or made such other arrangements as are acceptable to the Security Trustee) with such Grantor and the Security Trustee (the ‘‘Account Letters’’).

(ii)    Each Grantor shall immediately instruct each Obligor to make any payment not required, as provided in Section 2.07(a), to be made to a Security Trustee Account to a Non-Trustee Account meeting the requirements of Section 2.07(b)(i).

(iii)    Upon any termination of any Account Letter or other agreement with respect to the maintenance of a Non-Trustee Account by any Grantor or any Non-Trustee Account Bank, such Grantor shall immediately notify all Obligors that were making payments to such Non-Trustee Account to make all future payments to another Non-Trustee Account meeting the requirements of Section 2.07(b)(i). Subject to the terms of any Lease, upon request by the Security Trustee, each Grantor shall, and if prohibited from so doing by the terms of any Lease, shall use its best efforts to seek the consent of the relevant Lessee to, terminate any or all of its Non-Trustee Accounts, in which case Section 2.07(a) shall apply.

Section 2.08.    Covenants Regarding Assigned Documents.    (a) Upon the inclusion of any Assigned Document (other than an Assigned Lease) in the Collateral, the relevant Grantor will deliver to the Security Trustee a consent, in substantially the form of Exhibit D and executed by each party to such Assigned Document (other than any Grantor) or (where the terms of such Assigned Document expressly provide for a consent to its assignment for security purposes to substantially the same effect as Exhibit D) will give due notice to each such other party to such Assigned Document of its assignment pursuant to this Agreement. Upon the inclusion of any Assigned Lease in the Collateral, the relevant Grantor will deliver to the Security Trustee (i) in the case of any Assigned Lease that is an Initial Lease such consents, acknowledgments and/or notices as are provided for in the related Lease Assignment Documents and (ii) in the case of any other Assigned Lease such consents, acknowledgments and/or notices as are necessary or customary under the terms of such Assigned Lease and under the Applicable Law of the jurisdiction governing such Assigned Lease and the jurisdiction in which the relevant lessee is principally located or the applicable Aircraft is registered in order to effect and perfect the assignment of, and grant of a lien upon, such Assigned Lease pursuant to this Agreement (including with respect to each Assigned Lease which constitutes an International Interest (A) where the applicable Lessee is situated for purposes of the Cape Town Convention in a jurisdiction that is a Contracting State or (B) the related Aircraft Object is an airframe registered in a Contracting State, registration of such International Interest and the assignment thereof at the International Registry) and/or to assure the payment of all Rental Payments under such Assigned Lease to the appropriate Account in accordance with the terms of the Indenture. Upon the written request of any Grantor, the Security Trustee (solely in its capacity as such) will execute such undertakings of quiet enjoyment in favor of the lessee under any Assigned Lease as are (in the case of any Assigned Lease that is an Initial Lease) provided for in the Lease Assignment Documents or as are (in the case of any other Assigned Lease) substantially to the same effect as such undertakings.

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(b)    Upon (i) the inclusion of any Assigned Document in the Collateral or (ii) the amendment or replacement of any Assigned Document or (iii) the entering into of any new Assigned Document, the relevant Grantor will deliver a copy thereof to the Security Trustee and will take such other action as may be necessary or desirable to perfect the lien of this Agreement as to such Assigned Document.

(c)    Each Grantor shall, at its expense but subject to Section 2.08(e), Section 3.01(c), the Indenture and (in the case of any Assigned Lease) the Servicing Agreement:

(i)    perform and observe all the terms and provisions of the Assigned Documents to be performed or observed by it, enforce the Assigned Documents in accordance with their terms and take all such action to such end as may be from time to time requested by the Security Trustee; and

(ii)    furnish to the Security Trustee promptly upon receipt copies of all notices, requests and other documents received by such Grantor under or pursuant to the Assigned Documents, and from time to time, (A) furnish to the Security Trustee such information and reports regarding the Collateral as the Security Trustee may reasonably request and (B) upon request of the Security Trustee make to each other party to any Assigned Document such demands and requests for information and reports or for action as such Grantor is entitled to make thereunder.

(d)    Each Grantor will, at its expense and upon the request of any Secured Service Provider, pursue for the benefit of such Secured Service Provider any claim that such Secured Service Provider has under any Assigned Document for indemnity.

(e)    So long as no Default Notice shall have been delivered to the Issuer and no Acceleration Default shall have occurred and be continuing, and notwithstanding any provision to the contrary in this Agreement, each Grantor shall be entitled, to the exclusion of the Security Trustee but subject always to the terms of the Indenture (x) to exercise and receive, directly or indirectly through one or more agents, including the Servicer, any of the claims, rights, powers, privileges, remedies and other benefits under, pursuant to, with respect to or arising out of the Assigned Documents and (y) to take any action or to not take any action, directly or indirectly through one or more agents, including the Servicer, related to the Assigned Documents and the lessees or counterparties thereunder, including entering into, amending, supplementing, terminating, performing, enforcing, compelling performance of, exercising all remedies (whether a rising under any Assigned Document or by statute or at law or in equity or otherwise) under, exercising rights, elections or options or taking any other action under or in respect of, granting or withholding notices, waivers, approvals and consents in respect of, receiving all payments under, dealing with any credit support or collateral security in respect of, or taking any other action in respect of, the Assigned Documents and contacting or otherwise having any dealings with any lessee or counterparty thereunder; provided that (i) whether or not a Default Notice has been delivered or an Acceleration Default has occurred, all amounts payable under each Assigned Document (including all Rental Payments under each Assigned Lease) shall be paid directly to the appropriate Account in accordance with the terms of the Indenture and the applicable Lease, (ii)  so long as any Assigned Lease remains in effect (and without limiting the authority of the Servicer under the express terms of the Servicing Agreement), no Grantor will abrogate any right, power or privilege granted expressly in favor of the Security Trustee or the Trustee under any Lease Assignment Document and (iii) so long as any Assigned Lease remains in effect (and without limiting the authority of the Servicer under the express terms of the Servicing Agreement), upon the delivery of a Default Notice to the Issuer or during the continuance of an Acceleration Default, all such rights of each Grantor shall cease, and, subject to Section 3.01(c), all such rights shall become vested in the Security Trustee, which shall thereupon have the sole right, subject to Section 3.01(c), to exercise or refrain from exercising such rights.

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Section 2.09.    Covenants Regarding Security Collateral, Beneficial Interest Collateral, Membership Interest Collateral and Investment Collateral.    (a) All Security Collateral, Beneficial Interest Collateral, Membership Interest Collateral and Investment Collateral (the Relevant Collateral) shall be delivered to the Security Trustee as follows:

(i)    in the case of each Certificated Security or Instrument, by (A) causing the delivery of such Certificated Security or Instrument to the Security Trustee in the State of New York, registered in the name of the Security Trustee or duly endorsed by an appropriate person to the Security Trustee or in blank and, in each case, held by the Security Trustee in the State of New York, or (B) if such Certificated Security or Instrument is registered in the name of any Securities Intermediary on the books of the issuer thereof or on the books of any securities intermediary of any Securities Intermediary, by causing such Securities Intermediary to continuously credit by book entry such Certificated Security or Instrument to a Securities Account maintained by such Securities Intermediary in the name of the Security Trustee and confirming to the Security Trustee that it has been so credited;

(ii)    in the case of each Uncertificated Security, by (A) causing such Uncertificated Security to be continuously registered on the books of the issuer thereof in the name of the Security Trustee or (B) if such Uncertificated Security is registered in the name of a Securities Intermediary on the books of the issuer thereof or on the books of any securities intermediary of a Securities Intermediary, by causing such Securities Intermediary to continuously credit by book entry such Uncertificated Security to a Securities Account maintained by such Securities Intermediary in the name of the Security Trustee and confirming to the Security Trustee that it has been so credited;

(iii)    in the case of each Government Security registered in the name of any Securities Intermediary on the books of the Federal Reserve Bank of New York or on the books of any securities intermediary of such Securities Intermediary, by causing such Securities Intermediary to continuously credit by book entry such security to the Securities Account maintained by such Securities Intermediary in the name of the Security Trustee and confirming to the Security Trustee that it has been so credited; and

(iv)    in the case of any Beneficial Interest Collateral or Membership Interest Collateral by (a) to the extent that the grant of the security interest to the Security Trustee in any Beneficial Interest Collateral or Membership Interest Collateral or the transfer of any Beneficial Interest Collateral or Membership Interest Collateral upon exercise of remedies by the Security Trustee is subject to any restrictions on transfer or any consent requirements, by obtaining all necessary consents and approvals thereof and (b)(1) if Beneficial Interest Collateral or Membership Interest Collateral constitutes a Certificated Security, Instrument or Uncertificated Security, complying with clauses (i) or (ii) above, as applicable or (2) if Beneficial Interest Collateral or Membership Interest Collateral constitutes a general intangible, by causing an appropriate financing statement covering each such Beneficial Interest Collatera l or Membership Interest Collateral to be filed in the appropriate office necessary to perfect the security interest of the Security Trustee therein.

(b)    Each Grantor and the Security Trustee hereby represents and warrants, with respect to the Relevant Collateral, that it has not entered into, and hereby agrees that it will not enter into, any agreement (i) with any of the other parties hereto or any Securities Intermediary specifying any jurisdiction other than the State of New York as any Securities Intermediary’s jurisdiction in connection with any Securities Account with any Securities Intermediary referred to in Section 2.09(a) for purposes of 31 C.F.R. Section 357.11(b), Section 8-110(e) of the UCC or any similar state or Federal law, or (ii) with any other person relating to such account pursuant to which it has agreed that any Securities Intermediary may comply with entitlement orders made by such person. The Security Trustee represents that it will, by express agreement with each Securities Intermediary, provide for each item of property cons tituting Relevant Collateral held in and credited to the applicable Securities Account, including cash, to be treated as a ‘‘financial asset’’ within the meaning of Section 8-102(a)(9) of the UCC for the purposes of Article 8 of the UCC.

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(c)    In addition to the foregoing, each applicable Grantor shall take all steps required under the laws of Ireland and Bermuda in order to ensure the validity, perfection, priority and enforceability of the security interests and charge granted hereunder.

(d)    Without limiting the foregoing, the Issuer and the Security Trustee agree, and the Security Trustee shall cause each Securities Intermediary, to take such different or additional action as may be required based upon any Opinion of Counsel received pursuant to Section 2.18 in order to maintain the perfection and priority of the security interest of the Security Trustee in the Relevant Collateral in the event of any change in applicable law or regulation, including Articles 8 and 9 of the UCC and regulations of the U.S. Department of the Treasury governing transfers of interests in Government Securities.

Section 2.10.    Further Assurances.    (a) Each Grantor agrees that from time to time, at the expense of such Grantor, such Grantor shall promptly execute and deliver all further instruments and documents, and take all further action (including under the laws of any foreign jurisdiction), that may be necessary or desirable, or that the Security Trustee may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Security Trustee to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor shall: (i) if any Collateral shall be evidenced by a promissory note or other instrument or tangible chattel pap er (as defined in Section 9-102(a)(78) of the UCC), deliver and pledge to the Security Trustee hereunder such note or instrument or tangible chattel paper duly indorsed and accompanied by duly executed instruments of transfer or assignment; (ii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Security Trustee may reasonably request, in order to perfect (and maintain perfection of) and preserve the pledge, assignment and security interest granted or purported to be granted hereby and (iii) execute, file, record, or register such additional documents and supplements to this Agreement, including any further assignments, security agreements pledges, grants and transfers, as may be required by or desirable under the laws of any foreign jurisdiction, or as the Security Trustee may reasonably request, to create, attach, perfect, validate, render enforceable, protect or establish the p riority of the security interest and lien of this Agreement.

(b)    Each Grantor hereby authorizes the Security Trustee to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of such Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

(c)    Each Grantor shall furnish or cause to be furnished to the Security Trustee from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Security Trustee may reasonably request, all in reasonable detail; provided that, to the extent that (in the case of any Assigned Lease) such statements, schedules or reports (or the data needed to prepare them) can be obtained only from the Servicer, no Grantor shall be required to obtain any such statements, schedules, reports or data beyond those to which it is entitled under the Servicing Agreement.

(d)    Each Grantor shall, immediately upon the organization or acquisition by such Grantor of any Issuer Subsidiary, including, without limitation, any Pledged Aircraft Interests, cause such Issuer Subsidiary to enter into a Grantor Supplement.

(e)    With respect to each Aircraft that is on the date hereof or at any time prior to the date that is two years after the date hereof registered in the United States of America, each Grantor shall, so long as such Aircraft is so registered, and (i) in the case of an Aircraft that is not subject to an Assigned Lease, register and record with the FAA an Aircraft Mortgage with respect to such Aircraft and (ii) in the case of an Aircraft that is subject to an Assigned Lease, register and record with the FAA an Aircraft Mortgage and Lease Assignment with respect to such Aircraft.

(f)    Each Grantor shall, if at any time (i) after the filing with the FAA of an Aircraft Mortgage with respect to an applicable Aircraft such Aircraft becomes subject to an Assigned

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Lease or (ii) on or after the date that is two years after the date hereof an applicable Aircraft is registered in the United States of America and is subject to an Assigned Lease, register and record with the FAA an FAA Lease Security Assignment with respect to such Aircraft.

(g)    With respect to each Aircraft that is on the date hereof or at any time prior to the date that is two years after the date hereof registered in Ireland, each Grantor shall, so long as such Aircraft is so registered, enter into an Aircraft Mortgage with respect to such Aircraft.

(h)    Each Grantor shall register or cause to be registered or consent to the registration with the International Registry of (collectively, the ‘‘Required Cape Town Registrations’’): (i) the International Interest provided for hereunder with respect to each Aircraft Object where the relevant Grantor is situated in a Contracting State or if such Aircraft Object is an airframe registered in a Contracting State; (ii) the International Interest provided for in any Cape Town Lease to which such Grantor is a lessor or lessee; (iii) the assignment to the Security Trustee of each International Interest described in clause (ii) and assigned to the Security Trustee hereunder; and (iv) the Contract of Sale with respect to any Aircraft by which title to such Aircraft is co nveyed by or to such Grantor, but only if the seller under such Contract of Sale is situated in a Contracting State. To the extent that (A) the Security Trustee’s consent is required for any such registration, or (B) the Security Trustee is required to initiate any such registration, the Security Trustee shall ensure that such consent or the such initiation of such registration is effected, and no Grantor shall be in breach of this Section should the Security Trustee fail to do so in a proper fashion.

Section 2.11.    Place of Perfection; Records.    (a) Each Grantor shall keep its jurisdiction of organization, chief place of business and chief executive office and the office where it keeps its records concerning the Collateral at the location therefor specified in Schedule IV or, upon 30 days’ prior written notice to the Security Trustee, at such other locations in a jurisdiction where all actions required by Section 2.03(d) shall have been taken with respect to the Collateral. Each Grantor shall hold and preserve such records and shall permit representatives of the Security Trustee at any time during normal business hours to inspect and make abstracts from such records, all at the sole cost and expense of such Grantor and permit representatives of the Security Trust ee to be present at such Grantor’s place of business to receive copies of all the communications and remittances relating to the Collateral, and forward copes of any notices or communications received by such Grantor with respect to the Collateral, all in such manner as the Security Trustee may require.

(b)    The Issuer hereby represents and warrants that it has no place of business within the United States of America and that it shall not establish any place of business within the United States of America unless it shall have given the Security Trustee 30 days’ prior written notice thereof and shall have taken such action, if any, reasonably requested by the Security Trustee to ensure the perfection and priority of the security interest granted hereunder.

(c)    Each Issuer Subsidiary that is a trust represents and warrants that the trust agreement pursuant to which such Issuer Subsidiary was established specifies a name for the trust and such name is the name specified on the signature page hereof or of a Grantor Supplement.

Section 2.12.    Voting Rights; Dividends; Etc.    (a) So long as no Default Notice shall have been delivered to the Issuer and no Acceleration Default shall have occurred and be continuing:

(i)    Each of the Grantors shall be entitled to exercise any and all voting and other consensual rights pertaining to all or any part of the Security Collateral, Membership Interest Collateral and Beneficial Interest Collateral pledged by such Grantor for any purpose not inconsistent with the terms of this Agreement, the charter documents of such Grantor or the Indenture; provided that such Grantor shall not exercise or shall refrain from exercising any such right to the extent that, in its judgment, such action would have a material adverse effect on the value of all or any part of the Security Collateral, Membership Interest Collateral or the Beneficial Interest Collateral as Collateral for the Secured Obligations; and

(ii)    The Security Trustee shall execute and deliver (or cause to be executed and delivered) to such Grantor all such proxies and other instruments as such Grantor may

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reasonably request in writing and provide for the purpose of enabling such Grantor to exercise the voting and other rights that it is entitled to exercise pursuant to Section 2.12(a)(i).

(b)    Whether or not any Default or Event of Default shall have occurred, any and all distributions, dividends and interest paid in respect of the Security Collateral, Membership Interest Collateral and Beneficial Interest Collateral pledged by such Grantor, including any and all (i) distributions, dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, such Security Collateral, Membership Interest Collateral or Beneficial Interest Collateral; (ii) distributions, dividends and other distributions paid or payable in cash in respect of such Security Collateral, Membership Interest Collateral or Beneficial Interest Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus; and (iii) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, such Security Collateral, Membership Interest Collateral or Beneficial Interest Collateral shall be paid into the Collections Account or shall be forthwith delivered to the Security Trustee, as applicable and, if received by such Grantor, shall be received in trust for the benefit of the Security Trustee, be segregated from the other property or funds of such Grantor and be forthwith paid to the Collections Account or delivered to the Security Trustee in the same form as so received (with any necessary indorsement).

(c)    Upon the delivery of a Default Notice to any Issuer Group Member or during the continuance of an Acceleration Default, all rights of each Grantor to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 2.12(a)(i) and 2.12(a)(ii) shall cease, and all such rights shall thereupon become vested in the Security Trustee, which shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights (including, but not limited to, the right, subject to the restrictions set forth in the applicable organizational documents, to remove or appoint any trustee, directors and officers of any direct or indirect subsidiary of the Issuer); provided that the Security Truste e shall have no obligation to exercise such voting or consensual right without written instruction from the Senior Representative.

Section 2.13.    Transfers and Other Encumbrances; Additional Shares or Interests.    (a) No Grantor shall (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral or (ii) create or suffer to exist any Encumbrance upon or with respect to any of the Collateral of such Grantor, in the case of clause (i) or (ii) other than the pledge, assignment and security interest created by this Agreement and as otherwise provided or permitted herein, in the Indenture or in the Servicing Agreement.

(b)    Except as otherwise provided pursuant to Section 5.02(l) of the Indenture, the Issuer Subsidiaries shall not, and the Issuer shall not permit the Issuer Subsidiaries to, issue, deliver or sell any shares, interests, participations or other equivalents. Any beneficial interest or capital stock or other securities or interests issued in respect of or in substitution for the Pledged Shares or the Pledged Beneficial Interest (or any Membership Interest Collateral (if any), as applicable) shall be issued or delivered (with any necessary endorsement) to the Security Trustee.

(c)    All distributions, dividends and interest payments that are received by such Grantor contrary to the provisions of Section 2.13(a) or (b) shall be received in trust for the benefit of the Security Trustee, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Security Trustee as Security Collateral or Beneficial Interest Collateral as the case may be, in the same form as so received (with any necessary indorsement).

Section 2.14.    Security Trustee Appointed Attorney-in-Fact.    Each Grantor hereby irrevocably appoints the Security Trustee such Grantor’s attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Security Trustee’s discretion, to take any action and to execute any instrument that the Security Trustee may

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deem necessary or advisable to accomplish the purposes of this Agreement, and in the case of the Grantors incorporated in Ireland, such appointment shall be by way of security, including:

(a)    to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;

(b)    to receive, indorse and collect any drafts or other instruments and documents included in the Collateral;

(c)    to file any claims or take any action or institute any proceedings that the Security Trustee may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Security Trustee with respect to any of the Collateral; and

(d)    to execute and file any financing or continuation statements, or amendments thereto or any FAA Lease Security Assignment, and such other instruments or notices, as may be necessary or desirable, including as may be identified to the Security Trustee pursuant to the Opinion of Counsel described in Section 2.18 in order to perfect and preserve the pledge, assignment and security interest granted hereby;

provided that the Security Trustee’s exercise of any such power shall be subject to Section 2.08(e) and Section 8.02.

Section 2.15.    Security Trustee May Perform.    If any Grantor fails to perform any agreement contained in this Agreement, the Security Trustee may (but shall not be obligated to) itself perform, or cause performance of, such agreement, and the expenses of the Security Trustee incurred in connection with doing so shall be payable by such Grantor.

Section 2.16.    Covenant to Pay.    Each Grantor covenants with the Security Trustee (for the benefit of the Security Trustee and the Secured Parties) that it will pay or discharge any monies and liabilities whatsoever that are now, or at any time hereafter may be, due, owing or payable by such Grantor in any currency, actually or contingently, solely and/or jointly, and/or severally with another or others, as principal or surety on any account whatsoever pursuant to the Service Provider Documents, the Indenture, the Notes, the Secured Credit Facilities and the Secured Hedge Agreements in accordance with their terms. Each Grantor agrees that no payment or distribution by such Grantor pursuant to the preceding sentence shall entitle such Grantor to exercise any rights of subrogation in respe ct thereof until all Secured Obligations have been paid in full. If no Default Notice has been delivered and no Acceleration Default is continuing, all such payments shall be made in accordance with Section 3.09(a) of the Indenture; if a Default Notice has been declared or an Acceleration Default is continuing, all such payments shall be made in accordance with Section 3.09(b) of the Indenture.

Section 2.17.    Delivery of Collateral Supplements.    Upon (a) the acquisition by any Grantor of any Relevant Collateral or (b) the establishment of any Non-Trustee Account, each relevant Grantor shall concurrently execute and deliver to the Security Trustee a Collateral Supplement duly completed with respect to such Collateral and shall take such steps with respect to the perfection of such Collateral as are called for by this Agreement for Collateral of the same type; provided that the foregoing shall not be construed to impair or otherwise derogate from any restriction on any such action in any Related Document; and provided, further, that the failure of any Grantor to deliver any Collateral Supplement as to any such Collateral shall not impair the lien of this Agreement as to such Collateral.

Section 2.18.    Annual Opinion.    Upon each anniversary of the Initial Closing Date, the Issuer shall cause to be delivered to the Security Trustee an Opinion of Counsel to the effect that (i) during the preceding year there has not occurred any change of New York law that would require the taking of any action in order to maintain the perfection or priority of the lien of this Agreement on the Collateral or, if there has been such a change, setting forth the actions so to be taken and (ii) no additional UCC financing statement, continuation statement or amendment thereof will be necessary during the next twelve months to maintain the perfected security interest of the Security Trustee on the Collateral or identify any such required UCC financing statement, continuation statement or

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amendment. The Issuer agrees to take all such actions as may be indicated in any such opinion, except that, as provided in Section 2.09, the Security Trustee shall take any such actions as may be required with respect to any Securities Intermediary.

Section 2.19.    Covenant Regarding Control.    No Grantor shall cause or permit any Person other than the Security Trustee to have ‘‘control’’ (as defined in Section 9-104, 9-105, 9 106, or 9-107 of the UCC) of any ‘‘deposit account,’’ ‘‘electronic chattel paper,’’ ‘‘investment property,’’ ‘‘supporting obligations’’ or ‘‘letter of credit right’’ (as such terms are defined in Article 9 of the UCC).

Section 2.20.    As to Irish Law.    Notwithstanding anything to the contrary contained in this Agreement and in addition to and without prejudice to any other rights or power of the Security Trustee under this Agreement or under general law in any relevant jurisdiction, at any time that the Collateral shall become enforceable, the Security Trustee shall be entitled to appoint a receiver under this Agreement or under the Conveyancing and Law of Property Act, 1881 (as amended and as the same may be amended, modified or replaced from time to time, the ‘‘1881 Act’’) and such receiver shall have all such powers, rights and authority conferr ed under the 1881 Act, this Agreement and otherwise under the laws of Ireland without any limitation or restriction imposed by the 1881 Act or otherwise under the laws of Ireland which may be excluded or removed. Sections 17 and 20 of the 1881 Act shall not apply to the Collateral or any receiver appointed under this Agreement or under the 1881 Act and section 24(b) of the 1881 Act shall not apply to the Collateral or to any receiver appointed under this Agreement.

Section 2.21.    As to French law.    For the purposes of the appointment of the Security Trustee by the Secured Parties under Section 5.01 hereof in respect of such Collateral governed by French law (which includes, in particular but without limitation, the French Account Pledges over the bank accounts of JET-i 2728 Leasing S.A.R.L. and the French Share Pledges under Section 2.23, to be granted on or about the date hereof), it is specified that the Security Trustee is duly empowered to, on behalf of each Secured Party, take, hold and enforce such Collateral and, accordingly, enter into any documents and take any action (including any step towards obtaining a titre executoire and to file any claim (déclaration de créance) in any pre-insolvency or insolvency proceedings (procédures de sauvegarde, de redressement ou de liquidation judicaires) opened against any Grantor incorporated under the laws of France, in connection with such Collateral.

Section 2.22.    Irish Share Charges.    The Issuer undertakes with the Security Trustee to enter into the Irish Share Charge in respect of, inter alia, the issued share capital held by it of any Issuer Subsidiary which is incorporated under the laws of Ireland on the date of the acquisition of such shares pursuant to the Asset Purchase Agreement.

Section 2.23.    French Share Pledges and Account Pledges.    The Issuer undertakes with the Security Trustee to enter into a French Share Pledge on the relevant date that the Issuer acquires the shares of JET-i 2728 Leasing S.A.R.L. pursuant to the Asset Purchase Agreement. The Issuer further undertakes with the Security Trustee to enter into a French Account Pledge with respect to any Account held in France.

Section 2.24.    Irish Account Charges.    The Issuer undertakes with the Security Trustee to enter into an Irish Account Charge in respect of the Irish Rental Account and the Irish VAT Refund Account, respectively, on the date of the establishment of such account.

Section 2.25.    Limitations as to French Law.    Notwithstanding anything to the contrary in any Related Document, the liability of each Grantor incorporated in France in its capacity as Grantor under this Agreement shall be limited at all times to the greater of (i) the Secured Obligations and (ii) the aggregate amount of the Collateral. In any event, the guarantee given by any Grantor that is incorporated in France shall not cover (x) any obligation or liability which, if incurred, would constitute a misuse of corporate assets as defined under article L.241-3 of the French Commercial Code or any article or regulation to the same effect or (y) any obligation undertaken by any person arising from the acquisition of the shares in any Grantor that is incorporated in F rance, including but not limited to the payment of the purchase price thereof.

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ARTICLE III
REMEDIES

Section 3.01.    Remedies.    Upon delivery of a Default Notice pursuant to Section 4.02 of the Indenture or if any Acceleration Default under the Indenture shall have occurred and be continuing:

(a)    The Security Trustee may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Collateral) and also may (i) require any Grantor to, and such Grantor hereby agrees that it shall at its expense and upon request of the Security Trustee forthwith, assemble all or part of the Collateral as directed by the Security Trustee and make it available to the Security Trustee at a place to be designated by the Security Trustee that is reasonably convenient to both parties, (ii) without notice except as specified below, sell or cause the sale of the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Security Trustee’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Security T rustee may deem commercially reasonable and (iii) exercise all rights of the applicable Grantors under any other agreement in respect of any Intercompany Loan or of any Grantor under any Lease. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Security Trustee shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Security Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Notwithstanding any provision in this Agreement to the contrary, any such sale shall not be subject to the restrictions described in Section 5.02(g) of the Indenture.

(b)    The Security Trustee may, in addition to or in connection with any other remedies available hereunder or under any other Applicable Law, exercise any and all remedies granted in the Cape Town Convention as it shall determine in its sole discretion. In connection therewith, the parties hereby agree to the extent permitted by Applicable Law that (i) Article 9(1) and Article 9(2) of the Convention, wherein the parties may agree or the court may order that any Collateral shall vest in the Security Trustee in or towards satisfaction of the Secured Obligations, shall not preclude the Security Trustee from obtaining title to any Collateral pursuant to any other remedies available under Applicable Law (including but not limited to Article 9-620 of the UCC); (ii) any surplus of cash or cash proceeds held by the Security Trustee and remaining after payment in full of all the Secured Obligations shall be paid over to the relevant Grantors or whomsoever may be lawfully entitled to receive such surplus; and (iii) the Security Trustee may obtain from any applicable court, pending final determination of any claim resulting from an Event of Default, speedy relief in the form of any of the orders specified in Article 13 of the Convention and Article X of the Protocol as the Security Trustee shall determine in its sole and absolute discretion, subject to any procedural requirements prescribed by Applicable Laws.

(c)    All cash proceeds received by the Security Trustee in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Security Trustee, be held by the Security Trustee as collateral for, and/or then or at any time thereafter applied in whole or in part by the Security Trustee for the benefit of the Secured Parties against, all or any part of the Secured Obligations in accordance with Article VII of this Agreement and Articles III and X of the Indenture. Any surplus of such cash or cash proceeds held by the Security Trustee and remaining after payment in full of all the Secured Obligations shall be paid over to the relevant Grantors or whomsoever may be lawfully entitled to receive such surplus. Any amount received for any sale or sales conducted in accordance with the terms of this Section 3.01 shall be deemed conclusive and binding on the Issuer, each Gr antor and the Secured Parties.

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ARTICLE IV
SECURITY INTEREST ABSOLUTE

Section 4.01.    Security Interest Absolute.    A separate action or actions may be brought and prosecuted against each Grantor to enforce this Agreement, irrespective of whether any action is brought against any other Grantor or whether any other Grantor is joined in any such action or actions. All rights of the Security Trustee and the security interest and lien granted under, and all obligations of each Grantor under, this Agreement shall be absolute and unconditional, irrespective of:

(a)    any lack of validity or enforceability of any Related Document, Assigned Document, Eligible Credit Facility or Hedge Agreement or any other agreement or instrument relating thereto;

(b)    any change in the time, manner or place of payment of, the security for, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any Related Document, Assigned Document, Eligible Credit Facility or Hedge Agreement or any other agreement or instrument relating thereto;

(c)    any taking, exchange, release or non-perfection of the Collateral or any other collateral or taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations;

(d)    any manner of application of collateral, or proceeds thereof, to all or any of the Secured Obligations, or any manner of sale or other disposition of any collateral for all or any of the Secured Obligations or any other assets of such Grantor;

(e)    any change, restructuring or termination of the corporate, company or trust structure or existence as applicable of any Grantor; or

(f)    any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor or a third-party grantor of a security interest or a Person deemed to be a surety.

ARTICLE V
THE SECURITY TRUSTEE AND THE OPERATING BANK

Section 5.01.    Authorization and Action.    (a) Each Secured Party by its acceptance of the benefits of this Agreement hereby appoints and authorizes DBTCA as the initial Security Trustee to take such action as trustee on behalf of the Secured Parties and to exercise such powers and discretion under this Agreement and the other Related Documents as are specifically delegated to the Security Trustee by the terms of this Agreement and of the Related Documents, and no implied duties and covenants shall be deemed to arise against the Security Trustee.

(b)    The Security Trustee accepts such appointment and agrees to perform the same but only upon the terms of this Agreement and the Indenture and agrees to receive and disburse all moneys received by it in accordance with the terms of this Agreement and the Indenture. The Security Trustee in its individual capacity shall not be answerable or accountable under any circumstances, except for its own willful misconduct or gross negligence (or simple negligence in the handling of funds or breach of any of its representations or warranties set forth in this Agreement) and the Security Trustee shall not be liable for any action or inaction of any Grantor or any other parties to any of the Related Documents.

Section 5.02.    Absence of Duties.    The powers conferred on the Security Trustee under this Agreement with respect to the Collateral are solely to protect its interest in this Agreement and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it under this Agreement, the Security Trustee shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not any Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve or perfect rights against any parties or any other

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rights pertaining to any Collateral; provided that, if the Security Trustee receives any notices with respect to the Collateral, it shall promptly transmit such notices to the Senior Representative. The Security Trustee shall have no duty to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of any Grantor or Lessee.

Section 5.03.    Representations or Warranties.    The Security Trustee does not make, and shall not be deemed to have made, any representation or warranty as to the validity, legality or enforceability of this Agreement, any other Related Document or any other document or instrument or as to the correctness of any statement contained in any thereof, or as to the validity or sufficiency of any of the pledge and security interests granted hereby, except that the Security Trustee in its individual capacity hereby represents and warrants (a) that each such specified document to which it is a party has been or will be duly executed and delivered by one of its officers who is and will be duly authorized to execute and deliver such document on its behalf, and (b) this Agreement is the le gal, valid and binding obligation of DBTCA, enforceable against DBTCA in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally.

Section 5.04.    Reliance; Agents; Advice of Counsel.    (a) The Security Trustee shall incur no liability to anyone as a result of acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document believed by it to be genuine and believed by it to be signed by the proper party or parties. The Security Trustee may accept a copy of a resolution of the board or other governing body of any party to this Agreement or any Related Document, certified by the Secretary or an Assistant Secretary thereof or other duly authorized Person of such party as duly adopted and in full force and effect, as conclusive evidence that such resolution has been duly adopted by said board or other governing body and that the same is in full f orce and effect. As to any fact or matter the manner of ascertainment of which is not specifically described in this Agreement, the Security Trustee shall be entitled to receive and may for all purposes hereof conclusively rely on, and shall be fully protected in acting or refraining from acting upon, a certificate, signed by an officer of any duly authorized Person, as to such fact or matter, and such certificate shall constitute full protection to the Security Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. The Security Trustee shall furnish to each Service Provider upon request such information and copies of such documents as the Security Trustee may have and as are necessary for such Service Provider to perform its duties under the applicable Related Documents. The Security Trustee shall assume, and shall be fully protected in assuming, that each other party to this Agreement is authorized by its constitutional documents to enter into this Agreement and to tak e all action permitted to be taken by it pursuant to the provisions of this Agreement, and shall not inquire into the authorization of such party with respect thereto.

(b)    The Security Trustee may execute any of the powers hereunder or perform any duties under this Agreement either directly or by or through agents (including financial advisors) or attorneys or a custodian or nominee, and the Security Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent, attorney, custodian or nominee appointed with due care by it hereunder.

(c)    The Security Trustee may consult with counsel, and any opinion of counsel or any advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it under this Agreement in good faith and in accordance with such advice or opinion of counsel.

(d)    The Security Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation under this Agreement or in relation hereto, at the request, order or direction of any of the Secured Parties, pursuant to the provisions of this Agreement, unless such Secured Party shall have offered to the Security Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby.

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(e)    The Security Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or indemnity reasonably satisfactory to it against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Security Trustee to perform, or be responsible or liable for the manner of performance of, any obligations of the Issuer or the Cash Manager under any of the Related Documents.

(f)    The Security Trustee shall not be liable for any Costs, Taxes or the selection of Permitted Account Investments or for any investment losses resulting from Permitted Account Investments.

(g)    When the Security Trustee incurs expenses or renders services in connection with an exercise of remedies specified in Section 3.01 or during a case or proceeding described in Section 7.03(a), such expenses (including the fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law or law relating to creditors’ rights generally.

(h)    The Security Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Security Trustee obtains actual knowledge of such event or the Security Trustee receives written notice of such event from any of the Secured Parties or the Cash Manager.

(i)    The Security Trustee shall have no duty to monitor the performance of the Issuer, the Cash Manager or any other party to the Related Documents, nor shall it have any liability in connection with the appointment of the Cash Manager, or the malfeasance or nonfeasance by such parties. The Security Trustee shall have no liability in connection with non-compliance by the Issuer, the Cash Manager or any lessee under a Lease with statutory or regulatory requirements related to the Collateral, any Aircraft or any Lease. The Security Trustee shall not make or be deemed to have made any representations or warranties with respect to the Collateral, any Aircraft or any Lease or the validity or sufficiency of any assignment or other disposition of the Collateral, any Aircraft, or any Lease.

Section 5.05.    Cape Town Convention.    The Security Trustee, during the term of this Agreement, shall establish and maintain a valid and existing account as a Transacting User with the International Registry and appoint an Administrator (and/or a Professional User) to make registrations in regard to the Collateral as required by this Agreement.

Section 5.06.    No Individual Liability.    The Security Trustee shall have no individual liability in respect of all or any part of the Secured Obligations, and all shall look, subject to the lien and priorities of payment provided herein and in the Indenture, only to the property of the Grantors for payment or satisfaction of the Secured Obligations.

Section 5.07.    The Operating Bank.    The Operating Bank shall be entitled to the immunities and privileges of the Security Trustee under Sections 5.03 and 5.04(a), (e) and (g). The Operating Bank agrees to perform its duties hereunder in accordance with the requirements of, and subject to the limitations of the duties of, a Securities Intermediary under the UCC.

ARTICLE VI
SUCCESSOR TRUSTEES AND OPERATING BANK

Section 6.01.    Resignation and Removal of Security Trustee.    The Security Trustee may resign at any time without cause by giving at least 30 days’ prior written notice to the Issuer and the Senior Representative. The Senior Representative may at any time remove the Security Trustee without cause by an instrument in writing delivered to the Secured Parties and the Security Trustee. No resignation or removal of the Security Trustee pursuant to this Section 6.01 shall become effective prior to the date of appointment by the Senior Representative of a successor Security Trustee and the acceptance of such appointment by such successor Security Trustee.

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Section 6.02.    Appointment of Successor.    (a) In the case of the resignation or removal of the Security Trustee, the Senior Representative, on behalf of the Secured Parties, shall promptly appoint a successor Security Trustee. If a successor Security Trustee shall not have been appointed and accepted its appointment hereunder within 60 days after the Security Trustee gives notice of resignation, the retiring Security Trustee or the Secured Parties (or Senior Representative on behalf of the Secured Parties) or the Policy Provider may petition any court of competent jurisdiction for the appointment of a successor Security Trustee. Any successor Security Trustee so appointed by such court shall immediately and without further act be superseded by any successor Security Trustee appointed as provided in the first sentence of this paragraph within one year from the date of the appointment by such court.

(b)    Any successor Security Trustee shall execute and deliver to the Secured Parties an instrument accepting such appointment. Upon the acceptance of any appointment as Security Trustee hereunder, a successor Security Trustee, upon the execution and filing or recording of such financing statements, or amendments thereto, and such amendments or supplements to this Agreement, and such other instruments or notices, as may be necessary or desirable, or as the Senior Trustee may request, in order to continue the perfection (if any) of the liens granted or purported to be granted hereby, shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Security Trustee, and the retiring Security Trustee shall be discharged from its duties and obligations under this Agreement and the other Related Documents. The retiring Security Trustee shall take all steps necessary to transfer all Collateral in it s possession and all its control over the Collateral to the successor Security Trustee. After any retiring Security Trustee’s resignation or removal hereunder as to any actions taken or omitted to be taken by it while it was Security Trustee, the provisions of all of Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Security Trustee under this Agreement.

(c)    Each Security Trustee shall be an Eligible Institution, if there be such an institution willing, able and legally qualified to perform the duties of a Security Trustee hereunder.

(d)    Any corporation into which the Security Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Security Trustee shall be a party, or any corporation to which substantially all the business of the Security Trustee may be transferred, shall be the Security Trustee under this Agreement without further act.

(e)    Following the resignation or removal of the Security Trustee, and the appointment and acceptance of such appointment by a successor Security Trustee, all references to ‘‘New York’’ in Sections 2.05 and 2.09 herein shall be deemed to refer to the state in which the Security Trustee is physically located. Upon acceptance of such appointment by a successor Security Trustee (unless the Policy Provider or any provider of an Eligible Credit Facility is the Controlling Party and as Senior Representative has removed the original Security Trustee), the Issuer shall cause to be delivered to the Security Trustee, the Trustee, the Initial Liquidity Facility Provider and the Policy Provider an opinion of counsel setting forth any actions that must be taken to maintain the perfection and priority of the lien of this Agreement on the Collateral and the Issuer shall cause such action to be taken. Thereafter, any opinions d elivered in connection with such successor Security Trustee shall be delivered in place of the applicable New York law opinions to be delivered hereunder.

Section 6.03.    The Operating Bank.    If at any time the Person acting as the Operating Bank is no longer the Security Trustee, the Security Trustee shall so notify the Cash Manager and the Issuer, and the Security Trustee shall cause the Cash Manager to establish and maintain the Security Trustee Accounts with the Person then acting as the Security Trustee as provided in the [Cash Management Agreement] and the Person then acting as the Security Trustee shall assume the obligations of the Operating Bank under this Agreement.

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ARTICLE VII
AGREEMENT BETWEEN SECURED PARTIES

Section 7.01.    Subordination and Priority.    (a) Notwithstanding the date, manner or order of attachment or perfection (if any) or the description of any collateral or security interests, liens, claims or encumbrances covered or granted by Section 2.01, each Subordinated Representative agrees that the respective rights and interest of the Subordinated Creditors in the Collateral are and shall be subordinate, to the extent and in the manner hereinafter and in Articles III and X of the Indenture set forth, to all rights and interest of the Senior Creditors in the Collateral, and that the Senior Creditors shall have at all times interests prior and senior to that of the Subordinated Creditors in all Collateral until the payment in full of all Senior Obligations owed to such Senior Creditors.

(b)    For the purposes of this Agreement, no Senior Obligations shall be deemed to have been paid in full until and unless the Senior Creditors in respect of such Senior Obligations shall have received payment in full of such Senior Obligations.

(c)    Notwithstanding anything contained herein to the contrary, payments from any property (or the proceeds thereof) deposited in the Defeasance/Redemption Account or the Refinancing Account pursuant to Section 3.11(a) or Article XI of the Indenture, payments under the Policy and payments pursuant to Section 3.14 or 3.15 of the Indenture shall not be subordinated to the prior payment of any Senior Creditors in respect of any Senior Obligations or subject to any other restrictions set forth in this Article VII and Article X of the Indenture, and none of the Senior Creditors shall be obligated to pay over any payments from any such property to the Security Trustee or any other creditor of any of the Grantors.

Section 7.02.    Exercise of Remedies.    (a) Until the date on which all the Senior Obligations shall have been paid in full, the Senior Representative, in its sole discretion and to the exclusion of the Subordinated Representatives, shall have, whether or not any default under the Indenture shall have occurred and be continuing and both before and after the commencement of any proceeding referred to in Section 7.03(a), the sole and exclusive right to direct the Security Trustee to take all action with respect to the Collateral, including the right to exercise or direct voting or other consensual rights, to foreclose or forebear from foreclosure in respect of the Collateral and to accept the Collateral in full or partial satisfaction of any Senior Obligation, all in accordance wit h the terms of this Agreement. The Subordinated Representatives agree that, until the Senior Obligations have been paid in full, the only right of the Subordinated Creditors under this Agreement is for the Subordinated Obligations to be secured by the Collateral for the period and to the extent provided for herein or in the Indenture and to receive a share of the proceeds of the Collateral, if any, subject to payment priorities set forth in Section 3.09 of the Indenture.

(b)    The Subordinated Representatives agree that, so long as any of the Senior Obligations shall remain unpaid, they and the Subordinated Creditors will not commence, or join with any creditor other than the Security Trustee and the Senior Creditors in commencing, any enforcement, collection, execution, levy or foreclosure proceeding with respect to the Collateral or proceeds of Collateral. Upon request by the Senior Representative, the Subordinated Representatives and the Subordinated Creditors will, at the expense of the Issuer, join in enforcement, collection, execution, levy or foreclosure proceedings and otherwise cooperate fully in the maintenance of such proceedings by the Security Trustee, including by executing and delivering all such consents, pleadings, releases and other documents and instruments as the Security Trustee may reasonably request in connection therewith, it being understood that the conduct of such proceedings shall at all times be under the exclusive control of the Security Trustee acting upon the directions of the Senior Representative.

(c)    The Subordinated Representatives agree, upon written request by the Senior Representative, to release the liens and security interests in favor of the Subordinated Creditors in any Collateral and to execute and deliver all such directions, consents, pleadings, releases and other documents and instruments as the Senior Representative may reasonably request in

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connection therewith, upon any sale, lease, transfer or other disposition of such Collateral or part thereof in accordance with, or for application of proceeds pursuant to, Sections 7.01(a) and 7.02(a).

(d)    The Subordinated Representatives agree that neither they nor any Subordinated Creditors will contest, or bring (or join in) any action or proceeding for the purpose of contesting, the validity, perfection or priority of, or seeking to avoid, the rights of the Senior Representative or the Senior Creditors in or with respect to the Collateral.

Section 7.03.    Further Agreements of Subordination.    The Subordinated Representatives agree as follows:

(a)    Upon any distribution of all or any of the Collateral or proceeds of Collateral to creditors of any Grantor upon the dissolution, winding-up, liquidation, arrangement, reorganization, adjustment, protection, relief, or composition of such Grantor or its debts, whether in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or similar case or proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of such Grantor, or otherwise, any distribution of any kind of Collateral or proceeds of Collateral that otherwise would be deliverable upon or with respect to the Subordinated Obligations shall be delivered directly to the Security Trustee for application (in the case of cash) to or as collateral (in the case of non-cash property or securities) for the payment or prepayment of the Senior Obligations until the Senior Obligations shall have been paid in full.

(b)    If any case or proceeding referred to in Section 7.03(a) is commenced by or against any Grantor,

(i)    the Security Trustee is hereby irrevocably authorized and empowered (in its own name or in the name of the Secured Parties or otherwise), but shall have no obligation, to demand, sue for, collect and receive every distribution referred to in subsection (a) above and give acquittance therefor and to file claims and proofs of claim and take such other action (including enforcing this Agreement) as it may deem necessary or advisable, or as the Senior Representative may direct, for the exercise or enforcement of any of the rights or interests of the Senior Creditors hereunder; and

(ii)    the Subordinated Representatives shall duly and promptly take such action, at the expense of the Issuer, as the Senior Representative may request (A) to collect Collateral and proceeds of Collateral for the account of the Senior Creditors and to file appropriate claims or proofs of claim in respect of Collateral and proceeds of Collateral, (B) to execute and deliver to the Security Trustee such powers of attorney, assignments, or other instruments as the Senior Representative may request in order to enable it to enforce any and all claims with respect to the Collateral and proceeds of Collateral and (C) to collect and receive any and all payments or distributions that may be payable or deliverable upon or with respect to the Collateral or proceeds of Collateral. Without limiting the generality of any of the foregoing, if any proceeding referred to in Section 7.03(a) is commenced by or against any Grantor, the Subor dinated Creditors shall, upon written demand from the Senior Representative or the Security Trustee, file such claims in such proceeding as the Senior Representative or the Security Trustee, as applicable, shall request in such written demand or any subsequent written demand provided in connection therewith; provided, however, that should one or more Subordinated Creditors fail to comply fully with any such demand within thirty (30) days of receipt by such Subordinated Creditor of the relevant demand, such Subordinated Creditor (by holding its respective Notes) shall be deemed to have irrevocably appointed the Security Trustee its attorney-in-fact to file and prosecute any such claim and to dispose of any proceeds of such filing or prosecution in accordance with the terms hereof and of the other Related Documents.

(c)    All payments or distributions upon or with respect to the Collateral or proceeds of Collateral that are received by the Subordinated Representatives or the Subordinated Creditors contrary to the provisions of this Agreement shall be received for the benefit of the Senior

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Creditors, shall be segregated from other funds and property held by the Subordinated Representatives or the Subordinated Creditors and shall be forthwith paid over to the Security Trustee in the same form as so received (with any necessary indorsement) to be applied (in the case of cash) to or held as collateral (in the case of non-cash property or securities) for the payment or prepayment of the Senior Obligations in accordance with the terms thereof.

(d)    The Senior Representative is hereby authorized to demand specific performance of this Agreement at any time when any of the Subordinated Representatives or the Subordinated Creditors shall have failed to comply with any of the provisions of this Agreement applicable to them. The Subordinated Representatives hereby irrevocably waive, on their own behalf and on behalf of the Subordinated Creditors, any defense based on the adequacy of a remedy at law that might be asserted as a bar to such remedy of specific performance.

Section 7.04.    Rights of Subrogation.    The Subordinated Representatives agree that no payment or distributions to the Senior Representative or the Senior Creditors pursuant to the provisions of this Agreement shall entitle any Subordinated Representative or any Subordinated Creditor to exercise any rights of subrogation in respect thereof until all Obligations constituting Senior Obligations with respect to such Person shall have been paid in full.

Section 7.05.    Further Assurances of Subordinated Representatives.    Each of the Subordinated Representatives shall, at the expense of the Issuer, at any time and from time to time promptly execute and deliver all further instruments and documents, and take all further action, that the Senior Representative or the Security Trustee may reasonably request, in order to protect any right or interest granted or purported to be granted hereby or to enable the Senior Representative and the Security Trustee to exercise and enforce their rights and remedies hereunder.

Section 7.06.    No Change in Rights in Collateral.    The Subordinated Representatives and the Subordinated Creditors will not sell, assign, pledge, encumber or otherwise dispose of any of their rights in the Collateral as such or in proceeds of Collateral as such, without the prior written consent of the Senior Representative. Nothing in this Section 7.06 shall limit the right of any Subordinated Creditor to transfer any Subordinated Obligation including any Note.

Section 7.07.    Waiver of Marshalling and Similar Rights.    Each of the Subordinated Representatives waives, on its own behalf and on behalf of the Subordinated Creditors, to the fullest extent permitted by applicable law, any requirement regarding, and agrees not to demand, request, plead or otherwise claim the benefit of, any marshalling, appraisement, valuation or other similar right with respect to the Collateral that may otherwise be available under applicable law or any other similar rights a junior creditor or junior secured creditor may have under applicable law.

Section 7.08.    Enforcement.    Each of the Subordinated Representatives agrees that this Agreement shall be enforceable against it and the Subordinated Creditors under all circumstances, including in any proceeding referred to in Section 7.03(a).

Section 7.09.    Obligations Not Affected.    All rights and interests of the Senior Representative, the Senior Creditors and the Security Trustee hereunder, and all agreements and obligations of the Subordinated Representatives under this Agreement, shall remain in full force and effect irrespective of:

(a)    any lack of validity or enforceability of this Agreement, any Assigned Document, Note, Secured Credit Facility or Secured Hedge Agreement or any other agreement or instrument relating thereto;

(b)    any change in the time, manner or place of payment of, the security for, or in any other term of, all or any of the Senior Obligations, or any other amendment or waiver of or any consent to any departure from this Agreement, any Service Provider Document, Note, Secured Credit Facility or Secured Hedge Agreement or any other agreement or instrument relating thereto;

(c)    any taking, exchange, release or non-perfection of the Collateral or any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Senior Obligations; or

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(d)    any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Subordinated Representatives, the Subordinated Creditors, a subordinated creditor or a secured subordinated creditor or a Person deemed to be a surety.

This Agreement shall continue to be effective or shall be revived or reinstated, as the case may be, if at any time any payment of any of the Senior Obligations is rescinded or must otherwise be returned by any Senior Creditor upon the insolvency, bankruptcy or reorganization of any Grantor, or otherwise, all as though such payment had not been made.

Section 7.10.    Waiver.    The Subordinated Representatives hereby waive, on their own behalf and on behalf of the Subordinated Creditors, to the fullest extent permitted by law, any right under Section 9-615 of the N.Y. Uniform Commercial Code to application of the proceeds of disposition (other than as contemplated by this Agreement), any right to notice and objection under Section 9-620 of the N.Y. Uniform Commercial Code and promptness, diligence, notice of acceptance and any other notice with respect to any of the Senior Obligations and this Agreement and any requirement that the Security Trustee protect, secure, perfect or insure any security interest or lien hereunder or otherwise or any Collateral or any other property subject thereto or exhaust any right or take any actio n against the Grantors or any other person or entity or any Collateral or any other collateral.

Section 7.11.    Senior Obligations and Subordinated Obligations Unimpaired.    Nothing in this Agreement shall impair (a) as between the Issuer and any Secured Party, the obligations of the Issuer to such Secured Party, including the Senior Obligations and the Subordinated Obligations or (b) as between the Senior Creditors and the Subordinated Creditors, the provisions relating to the priority of payments in the Indenture; provided that it is understood that the enforcement of rights and remedies against the Collateral shall be subject to the terms of this Agreement.

Section 7.12.    Upon Discharge of Obligations.    Upon the payment in full of the Senior Obligations in respect of which it is acting as Senior Representative, the Security Trustee shall, without any further action on its part, be relieved of any obligation under this Agreement with respect to such discharged Senior Obligations and this Agreement shall continue in effect as an agreement among the remaining Secured Parties.

Section 7.13.    Agreement of the Secured Parties.    Prior to the date which is one year and one day after the payment in full of the Notes, each Secured Party agrees by signing the Secured Party Supplement that in respect of amounts due to any Secured Party hereunder not to directly or indirectly take any action against the Issuer or any Issuer Subsidiary, seeking to adjudicate any of them as bankrupt or insolvent or to have an Irish law examiner appointed over any of them or any part of their undertaking; seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of its debt under any law relating to bankruptcy, insolvency or reorganization or relief of debtors; or seeking the entry of an order for relief of the appointment of a receiver, t rustee, Irish law examiner or other similar official for either all or any substantial part of its property provided, however that nothing herein shall prevent the Security Trustee from otherwise participating in such bankruptcy proceeding instituted by any other Person.

ARTICLE VIII
INDEMNITY AND EXPENSES

Section 8.01.    Indemnity.    (a) The Issuer shall indemnify the Security Trustee (and its officers, directors, employees, representatives and agents) for, and defend and hold it harmless against, any loss, liability or expense (including reasonable legal fees and expenses) incurred by it without negligence or bad faith on its part in connection with the acceptance or administration of this Agreement and its duties hereunder, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties hereunder and hold it harmless against, any loss, liability or reasonable expense incurred without negligence or bad faith on its pa rt. The Security Trustee shall notify the Issuer promptly of any claim asserted against the Security Trustee for which it may seek indemnity; provided that failure to provide such notice shall not

30

invalidate any right to indemnity hereunder. The Issuer shall defend the claim and the Security Trustee shall cooperate in the defense. The Security Trustee may have separate counsel and the Issuer shall pay reasonable fees and expenses of such counsel. The Issuer need not reimburse any expense or indemnity against any loss or liability incurred by the Security Trustee through negligence, willful misconduct, fraud or bad faith. For the avoidance of doubt, in the event the Security Trustee is providing any of the Cash Management Services (as defined in the Cash Management Agreement) in place of the Cash Manager, each of its expenses related thereto shall be deemed to be an ‘‘Expense’’ for purposes of the Related Documents.

(b)    The Issuer shall upon demand pay to the Security Trustee the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that the Security Trustee may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Security Trustee or any other Secured Party against any Grantor hereunder, (iv) the failure by any Grantor to perform or observe any of the provisions hereof, or (v) without limiting any of the foregoing, the Security Trustee’s performance of any of the Cash Management Services (as defined in the Cash Management Agreement) in place of the Cash Manager.

(c)    The Issuer shall indemnify the Operating Bank (and its officers, directors, employees and agents) for, and hold it harmless against, any loss, liability or expense (including reasonable legal fees and expenses) incurred by it without negligence or bad faith on its part in connection with its duties hereunder, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties hereunder and hold it harmless against, any loss, liability or reasonable expense incurred without negligence or bad faith on its part. The Operating Bank shall notify the Issuer promptly of any claim asserted against the Operating Bank for which it may seek indemnity; provided, however, that failure to provide such notice shall not invalidate any right to indemnity hereunder. The Issuer shall defend the claim and the Operating Bank shall cooperate in the defense. The Operating Bank may have separate counsel and the Issuer shall pay reasonable fees and expenses of such counsel. The Issuer need not pay for any settlements made without its consent; provided that such consent shall not be unreasonably withheld or delayed. The Issuer need not reimburse any expense or indemnity against any loss or liability incurred by the Operating Bank through negligence, willful misconduct, fraud or bad faith.

Section 8.02.    Holders’ Indemnity.    The Security Trustee shall be entitled to be indemnified (subject to the limitations and requirements described in Section 8.01 mutatis mutandis) by the Senior Creditors to the sole satisfaction of the Security Trustee before proceeding to exercise any right or power under this Agreement at the request or direction of the Senior Representative. The provisions of Section 8.01 and this Section 8.02 shall survive the termination of this Agreement or the earlier resignation or removal of the Security Trustee.

Section 8.03.    No Compensation from Secured Parties.    Each of the Security Trustee and the Operating Bank agrees that it shall have no right against the Secured Parties for any fee as compensation for its services in such capacity.

Section 8.04.    Security Trustee Fees.    In consideration of the Security Trustee’s performance of the services provided for under this Agreement, the Issuer shall pay to the Security Trustee an annual fee set forth under a separate agreement between the Issuer and the Security Trustee.

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ARTICLE IX
MISCELLANEOUS

Section 9.01.    Amendments; Waivers; Etc.    (a) No amendment or waiver of any provision of this Agreement, and no consent to any departure by any party from the provisions of this Agreement, shall in any event be effective unless the same shall be in writing and signed by each Service Provider, the Senior Representative, the Policy Provider, the Initial Liquidity Facility Provider and, in the event the Subordinate Creditors are adversely affected thereby, the Subordinated Representative, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. In executing and delivering any amendment or modification to this Agreement, the Security Trustee shall be entitled to (i) an Opinion of Counsel stating that such amendme nt is authorized and permitted pursuant to the Indenture and this Agreement and complies with the terms thereof and hereof and (ii) an Officer’s Certificate stating that all conditions precedent to the execution, delivery and performance of such amendment have been satisfied in full. The Security Trustee may, but shall have no obligation to, execute and deliver any amendment or modification which would affect its duties, powers, rights, immunities or indemnities hereunder.

(b)    Upon the execution and delivery by any Person of a Grantor Supplement, (i) such Person shall be referred to as an ‘‘Additional Grantor’’ and shall be and become a Grantor hereunder, and each reference in this Agreement to ‘‘Grantor’’ shall also mean and be a reference to such Additional Grantor, (ii) Annexes I, II, III and IV attached to each Grantor Supplement shall be incorporated into, become a part of and supplement Schedules I, II, III and IV, respectively, and the Security Trustee may attach such Annexes as supplements to such Schedules; and each reference to such Schedules shall be a reference to such Schedules as so supplemented and (iii) such Additional Grantor shall be a Grantor for all purposes under this Agreement and shall be bound by the obligations of the Grantors hereunder.

(c)    Upon the execution and delivery by a Grantor of a Collateral Supplement, Annexes I and II to each Collateral Supplement shall be incorporated into, become a part of and supplement Schedules I and II, respectively, and the Security Trustee may attach such Annexes as supplements to such Schedules; and each reference to such Schedules shall be a reference to such Schedules as so supplemented.

Section 9.02.    Addresses for Notices.    All notices and other communications provided for hereunder shall be in writing (including telecopier) and mailed, telecopied or delivered to the intended recipient at its address specified, as follows:

For each Grantor:

Babcock & Brown Air Funding I Limited
c/o Codan Services Limited
Claredon House
2 Church Street
Hamilton, HM 114
Bermuda

Attn: [                        ]
Fax: [                        ]

with a copy to:

Babcock & Brown Air Management Co Limited, as Administrative Agent
West Pier, Dun Laoghaire
County Dublin
Ireland

Fax: (353) 1-231-1901
Telephone: (353) 1-231-1900

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For the Trustee, the Security Trustee, the Cash Manager and the Operating Bank:

Deutsche Bank Trust Company Americas
c/o Deutsche Bank National Trust Company
25 DeForest Avenue
2nd Floor – MS SUM01-0105
Summit, New Jersey 07901
Attention: Structured Finance Services, Michele Hy Voon

Fax: (212) 553-2461
Telephone: (908) 608-3089

with a copy to:

Deutsche Bank National Trust Company
1761 East St. Andrew Place
Santa Ana, California 92705
Attention: Matt A. Bowen

Fax: 714-247-6409
Telephone: (714) 247-6346

or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section 9.02. Each such notice shall be effective (a) upon receipt when sent through the mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return receipt, or (b) one Business Day after delivery to an overnight courier, or (c) on the date personally delivered to an authorized officer of the party to which sent, or (d) on the date transmitted by legible telecopier transmission with a confirmation of receipt.

Section 9.03.    No Waiver; Remedies.    No failure on the part of the Security Trustee to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 9.04.    Severability.    If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.

Section 9.05.    Continuing Security Interest; Assignments.    Subject to Section 9.06(c), this Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the earlier of the payment in full in cash of the Secured Obligations and the circumstances specified in Section 9.06(c), (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Security Trustee hereunder, to the benefit of the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing subsection (c), any Secured Party may assign or otherwise transfer all or any portion of its rights and obligations under any Related Do cument to which it is a party in accordance with the terms thereof to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights in respect thereof granted to such Secured Party herein or otherwise.

Section 9.06.    Release and Termination.    (a) Upon any sale, lease, transfer or other disposition of any item of Collateral in accordance with the terms of the Indenture, the Security Trustee will, at the Issuer’s expense, execute and deliver to the Grantor of such item of Collateral such documents as such Grantor shall reasonably request and provide to the Security Trustee to evidence the release of such item of Collateral from the assignment and security interest granted hereby.

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(b)    Except as otherwise provided in Section 9.06(c), upon the payment in full in cash of the Secured Obligations, the pledge, assignment and security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantors. Upon any such termination, the Security Trustee will, at the Issuer’s expense, execute and deliver to each relevant Grantor such documents as such Grantor shall prepare and reasonably request to evidence such termination.

(c)    If at any time all Notes have been defeased pursuant to Article XI of the Indenture and all other amounts payable in connection therewith have been paid in full, the pledge, assignment and security interest in the Pledged Shares and the Pledged Beneficial Interests shall be released and the certificates or other instruments representing or evidencing any of the Collateral held by the Security Trustee shall be returned to the Issuer and the Security Trustee shall, at the expense of the Issuer, execute and deliver to the Issuer such documents as the Issuer shall prepare and reasonably request to evidence such termination.

Section 9.07.    Currency Conversion.    If any amount is received or recovered by the Security Trustee in a currency (the ‘‘Received Currency’’) other than the currency in which such amount was expressed to be payable (the ‘‘Agreed Currency’’), then the amount in the Received Currency actually received or recovered by the Security Trustee, to the extent permitted by law, shall only constitute a discharge of the relevant Grantor to the extent of the amount of the Agreed Currency wh ich the Security Trustee was or would have been able in accordance with its or his normal procedures to purchase on the date of actual receipt or recovery (or, if that is not practicable, on the next date on which it is so practicable), and, if the amount of the Agreed Currency which the Security Trustee is or would have been so able to purchase is less than the amount of the Agreed Currency which was originally payable by the relevant Grantor, such Grantor shall pay to the Security Trustee such amount as it shall determine to be necessary to indemnify the Security Trustee against any Loss sustained by it as a result (including the cost of making any such purchase and any premiums, commissions or other charges paid or incurred in connection therewith) and so that, to the extent permitted by law, (i) such indemnity shall constitute a separate and independent obligation of each Grantor distinct from its obligation to discharge the amount which was originally payable by such Grantor and (ii) shall giv e rise to a separate and independent cause of action and apply irrespective of any indulgence granted by the Security Trustee and continue in full force and effect notwithstanding any judgment, order, claim or proof for a liquidated amount in respect of the amount originally payable by any Grantor or any judgment or order and no proof or evidence of any actual loss shall be required.

Section 9.08.    Governing Law.    THIS AGREEMENT, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE HEREOF, SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). NOTWITHSTANDING ANY OTHER AGREEMENT, THE ‘‘SECURITIES INTERMEDIARY’S JURISDICTION’’ (WITHIN THE MEANING OF SECTION 8-110(e) OF THE UCC) WITH RESPECT TO EACH SECURITIES ACCOUNT IS THE STATE OF NEW YORK AND THE ‘‘BANK’S JURISDICTION’’ (WITHIN THE MEANING OF SECTION 9-304 OF THE UCC) WITH RESPECT TO EACH DEPOSIT ACCOUNT IS THE STATE OF NEW YORK.

Section 9.09.    Jurisdiction.    (a) Each of the parties hereto irrevocably agrees that the courts sitting in the borough of Manhattan in the City of New York shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and, for such purposes, irrevocably submits to the jurisdiction of such courts. Each of the parties hereto irrevocably waives any objection which it might now or hereafter have to the federal U.S. or New York State courts located in New York, New York being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and agrees not to claim that any such court is n ot a convenient or appropriate forum. Each of the parties hereto agrees that the process by which any suit, action or proceeding is begun may be served on it by being delivered in connection with any

34

suit, action or proceeding in New York, New York to [            ], with an office on the date hereof at [            ] and each of the parties hereby appoints [            ] its designee, appointee and agent to receive, accept and acknowledge for and on its behalf such service of legal process.

(b)    Each of the parties hereto hereby consents generally in respect of any legal action or proceeding arising out of or in connection with this Agreement to the giving of any relief or the issue of any process in connection with such action or proceeding, including the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such action or proceeding.

Section 9.10.    Counterparts.    This Agreement may be executed in two or more counterparts by the parties hereto, and each such counterpart shall be considered an original and all such counterparts shall constitute one and the same instrument.

Section 9.11.    Table of Contents, Headings, Etc.    The Table of Contents and headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof.

Section 9.12.    Limited Recourse.    (a) In the event that the direct or indirect assets of any Grantor are insufficient, after payment of all other claims, if any, ranking in priority to the claims of the Security Trustee or any Secured Party hereunder, to pay in full such claims of the Security Trustee or such Secured Party (as the case may be), then the Security Trustee or the Secured Party shall have no further claim against the Issuer or the other Grantors in respect of any such unpaid amounts.

(b)    To the extent permitted by applicable law, no recourse under any obligation, covenant or agreement of any party contained in this Agreement shall be had against any shareholder (not including the Issuer as a shareholder of any other Grantor hereunder), officer or director of the relevant party as such, by the enforcement of any assessment or by any proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is a corporate obligation of the relevant party and no personal liability shall attach to or be incurred by the shareholders (not including the Issuer as a shareholder of any other Grantor hereunder), officers or directors of the relevant party as such, or any of them under or by reason of any of the obligations, covenants or agreements of such relevant party contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by such party of any of such obligations, covenants or agreements, either at law or by statute or constitution, of every such shareholder (not including the Issuer as a shareholder of any other Grantor hereunder), officer or director is hereby expressly waived by the other parties as a condition of and consideration for the execution of this Agreement.

Section 9.13.    Servicing Agreement.    Notwithstanding any provision in this Agreement to the contrary, nothing in this Agreement or any rights or actions of the Security Trustee hereunder or any duties or obligations of any Grantor or Issuer Group Member hereunder shall increase, reduce or otherwise affect any rights, authority (except that the Servicer may not rely on instructions from the Issuer, Administrative Agent or Cash Manager when notified to not so rely by the Security Trustee, as provided in the Servicing Agreement), duties, obligations or benefits of the Servicer under or pursuant to the Servicing Agreement, nor affect the rights of any Lessee to the extent it conflicts with rights of quiet enjoyment provided by any Grantor or the Security Trustee to an applicable Lessee under a Lease, and the Security Trustee as assignee of the Issuer agrees not to take any action constituting Services (as defined in the Servicing Agreement) and is otherwise subject to the terms of the Servicing Agreement when acting thereunder in place of any Grantor, except (subject to Section 2.08(e)) to the extent the Issuer would then be entitled to take such action under the express terms of the Servicing Agreement.

[The Remainder of this Page is Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by its representative or officer thereunto duly authorized as of the date first above written.

BABCOCK & BROWN AIR FUNDING I LIMITED

By:
       Name:
       Title:

DEUTSCHE BANK TRUST COMPANY AMERICAS, as the Trustee, the Security Trustee, the Cash Manager
and the Operating Bank

By:
       Name:
       Title:

By:
       Name:
       Title:

[OTHER GRANTORS]

By:
       Name:
       Title:

36

SCHEDULE I
SECURITY TRUST AGREEMENT

PLEDGED SHARES

Stock Issuer			Par Value			Number of Shares			Percentage of Outstanding Shares
[            ]

PLEDGED BENEFICIAL INTERESTS

Issuer			Percentage of Beneficial Interest

PLEDGED DEBT

Debt Issuer			Description of Debt			Date
			[None]

SCHEDULE II
SECURITY TRUST AGREEMENT

NON-TRUSTEE ACCOUNT INFORMATION

NAME AND ADDRESS OF BANK			NAME AND ADDRESS OF NON-TRUSTEE ACCOUNT HOLDER			ACCOUNT NUMBER
			[None]

SCHEDULE III
SECURITY TRUST AGREEMENT

TRADE NAMES

[None]

SCHEDULE IV
SECURITY TRUST AGREEMENT

Name of Grantor			Organizational ID			Jurisdiction			Chief Executive Office, Chief or Principal Place of Business and Executive or Registered Office
[Babcock & Brown Air Funding I Limited]

SCHEDULE V
SECURITY TRUST AGREEMENT

AIRCRAFT OBJECTS

Airframe MSN			Airframe Manufacturer and Model			Engine MSNs			Engine Manufacturer and Model

EXHIBIT A
SECURITY TRUST AGREEMENT

FORM OF SECURED PARTY SUPPLEMENT

Deutsche Bank Trust Company Americas, as the Security Trustee
60 Wall Street, 26th Floor
MS NYC60-2606
New York, New York 10005-2858

[Date]

Attention:            [Lou Bodi]

Re: Security Trust Agreement, dated as of [                        ], 2007

Reference is made to the Security Trust Agreement (the ‘‘Security Trust Agreement’’), dated as of [                    ], 2007 among BABCOCK & BROWN AIR FUNDING I LIMITED, a Bermuda Exempted Company (the ‘‘Issuer’’), the ISSUER SUBSIDIARIES listed on the signature pages of, or who otherwise become grantors under, the Security Trust Agreement (together with the Issuer, the ‘‘Grantors’’) and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corpo ration, as the Trustee, the Security Trustee, the Cash Manager and the Operating Bank.

The undersigned hereby:

1.    confirms that attached hereto is a true and complete copy of the                              Agreement, between the Issuer and the undersigned, dated as of                  [(the ‘‘Credit Facility Agreement’’), which Credit Facility Agreement constitutes a [              ] Credit Facility under the Indenture] [a ‘‘Service Provider Document’’][a ‘‘Hedge Agreement’’] [FOR SWAPS ENTITLED TO SENIOR SWAP PAYMENTS ADD: payments under which constitute Senior Hedge Payments u nder and as defined in the Indenture, entitled to the priority of payments specified in Section 3.09(a)(ii) and 3.09(b)(iii) of the Indenture];

2.    confirms that it has received a copy of the Security Trust Agreement and such other documents and information as it deems appropriate to make a decision to enter into this Secured Party Supplement;

3.    confirms that, upon delivery of this Secured Party Supplement, each reference in the Security Trust Agreement to a ‘‘Secured Party’’ shall also mean and be a reference to the undersigned and the undersigned accepts the benefits of the Security Trust Agreement subject to the terms and provisions thereof (including Article VII thereof);

4.    in its capacity as a Secured Party, appoints and authorizes the Security Trustee to take any and all actions in respect of the Collateral as are delegated to the Security Trustee by the terms of the Security Trust Agreement, together with any such powers and discretion as are reasonably incidental thereto;

5.    in its capacity as a Secured Party, confirms its agreement to the limitations and qualifications of the Security Trustee’s obligations set forth in Article V and Article VII of the Security Trust Agreement; and

6.    confirms that this Secured Party Supplement shall in all respects be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance.

Very truly yours,

[SECURED PARTY]

By:
			Name:
			Title:

Acknowledged, Accepted and Agreed to
as of the date first above written:

DEUTSCHE BANK TRUST COMPANY AMERICAS,
not in its individual capacity, but solely as the Security Trustee

By:
			Name:
			Title:

By:
			Name:
			Title:

EXHIBIT B-1
SECURITY TRUST AGREEMENT

FORM OF COLLATERAL SUPPLEMENT

Deutsche Bank Trust Company Americas, as the Security Trustee
60 Wall Street, 26th Floor
MS NYC60-2606
New York, New York 10005-2858

[Date]

Attention:            [Lou Bodi]

Re: Security Trust Agreement, dated as of [                    ], 2007

Ladies and Gentlemen:

Reference is made to the Security Trust Agreement (the ‘‘Security Trust Agreement’’), dated as of [                    ], 2007 among BABCOCK & BROWN AIR FUNDING I LIMITED, a Bermuda exempted company (the ‘‘Issuer’’), the ISSUER SUBSIDIARIES listed on the signature pages of, or who otherwise become grantors under, the Security Trust Agreement (together with the Issuer, the ‘‘Grantors’’) and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corpo ration, as the Trustee, the Security Trustee, the Cash Manager and the Operating Bank. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Security Trust Agreement.

The undersigned hereby delivers, as of the date first above written, the attached Annexes I and II pursuant to Section 2.17 of the Security Trust Agreement.

The undersigned Grantor hereby confirms that the property included in the attached Annexes constitutes part of the Collateral and hereby makes each representation and warranty set forth in Section 2.03 of the Security Trust Agreement (as supplemented by the attached Annexes).

Attached are (i) an Account Letter in substantially the form of Exhibit C to the Security Trust Agreement from each Non-Trustee Account Bank at which each Non-Trustee Account included in the foregoing Collateral is maintained, (ii) where required with respect to any Assigned Document (other than an Assigned Lease) included in the foregoing Collateral, a Consent and Agreement in substantially the form of Exhibit D to the Security Trust Agreement from the counterparty thereto or, with respect to any Assigned Lease included in the foregoing Collateral, such consents, acknowledgements and/or notices as are called for under Section 2.08(a) of the Security Trust Agreement and (iii) duly completed copies of Annexes I and II hereto.

This Collateral Supplement shall in all respects be governed by, and construed in accordance with, the internal substantive laws of the State of New York (without giving effect to conflicts of law principles thereof), including all matters of construction, validity and performance.

Very truly yours,

[NAME OF GRANTOR]

By:
			Name:
			Title:

Acknowledged and agreed to
as of the date first above written:

DEUTSCHE BANK TRUST COMPANY AMERICAS,
not in its individual capacity, but solely as the Security Trustee

By:
			Name:
			Title:

By:
			Name:
			Title:

ANNEX I

PLEDGED SHARES

Stock Issuer

Par Value

Certificate No(s).

Number of Shares

Percentage of Outstanding Shares

PLEDGED BENEFICIAL INTERESTS

Issuer			Certificate No.			Percentage of Beneficial Interest

PLEDGED DEBT

Debt Issuer			Description of Debt			Date

ANNEX II

NON-TRUSTEE ACCOUNT INFORMATION

NAME AND ADDRESS OF BANK			NAME AND ADDRESS OF NON-TRUSTEE ACCOUNT HOLDER			ACCOUNT NUMBER

EXHIBIT B-2
SECURITY TRUST AGREEMENT

FORM OF GRANTOR SUPPLEMENT

Deutsche Bank Trust Company Americas, as the Security Trustee
60 Wall Street, 26th Floor
MS NYC60-2606
New York, New York 10005-2858

[Date]

Attention:        [Lou Bodi]

Re:    Security Trust Agreement, dated as of [        ], 2007

Ladies and Gentlemen:

Reference is made to the Security Trust Agreement (the ‘‘Security Trust Agreement’’), dated as of [        ], 2007 among BABCOCK & BROWN AIR FUNDING I LIMITED, a Bermuda exempted company (the ‘‘Issuer’’), the ISSUER SUBSIDIARIES listed on the signature pages of, or who otherwise become grantors under, the Security Trust Agreement (together with the Issuer, the ‘‘Grantors’’) and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation, as the Trustee, the Security Trustee, the Cash Manager and the O perating Bank. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Security Trust Agreement.

The undersigned hereby agrees, as of the date first above written, to become a Grantor under the Security Trust Agreement as if it were an original party thereto and agrees that each reference in the Security Trust Agreement to ‘‘Grantor’’ shall also mean and be a reference to the undersigned.

To secure the Secured Obligations, the undersigned Grantor hereby assigns and pledges to the Security Trustee for its benefit and the benefit of the Secured Parties (except, with respect to any Secured Collateral Provider Documents under clause (i) or clause (k) below, the related Secured Collateral Provider shall not have a security interest in the rights of the undersigned Grantor under such secured Collateral Provider Documents), and hereby grants to the Security Trustee for its benefit and the benefit of the Secured Parties (except, with respect to any Secured Collateral Provider Documents under clause (i) or clause (k) below, the related Secured Collateral Provider shall not have a security interest in the rights of the undersigned Grantor under such secured Collateral Provider Documents) a security interest in, all of its right, title and interest in and to:

(a)    all of the following (the ‘‘Security Collateral’’):

(i)    subject to other Security Documents in favor of the Security Trustee required by non-U.S. Jurisdictions, the Pledged Shares identified on the attached Annex 1 and the certificates representing such Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares;

(ii)    the Pledged Debt identified on the attached Annex 1 and all instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt;

(iii)    subject to other Security Documents in favor of the Security Trustee required by non-U.S. Jurisdictions, all additional shares of the capital stock of any Issuer Group Member (including any Aircraft Interests in the nature of capital stock) from time to time acquired by such Grantor in any manner, including the capital stock of any Issuer Group Member that may be formed from time to time, and all certificates, if any, representing such additional shares of the capital stock and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such additional shares; and

(iv)    all additional indebtedness from time to time owed to such Grantor by any Issuer Group Member and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness;

(b)    all of the following (the ‘‘Beneficial Interest Collateral’’):

(i)    the Pledged Beneficial Interests identified on the attached Annex 1, all certificates, if any, from time to time representing all of such Grantor’s right, title and interest in the Pledged Beneficial Interests, any contracts and instruments pursuant to which any such Pledged Beneficial Interests are created or issued and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Beneficial Interest; and

(ii)    all of such Grantor’s right, title and interest in all additional beneficial interests in any Issuer Group Member (including any Aircraft Interest in the nature of beneficial interests), whether now existing or hereafter created, from time to time acquired by such Grantor in any manner, including the beneficial interests in any Issuer Group Member that may be formed from time to time, and all certificates, if any, from time to time representing such additional beneficial interests and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such additional beneficial interests;

(c)    all membership interests (including any Aircraft Interest in the nature of a membership interest) (whether now existing or hereafter created) from time to time acquired by such Grantor in any manner, all certificates, if any, from time to time representing such membership interests and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such membership interests (the ‘‘Membership Interest Collateral’’);

(d)    all of the following (collectively, the ‘‘Non-Trustee Account Collateral’’):

(i)    all of the Non-Trustee Accounts in such Grantor’s name, all funds or any other interest held or required by the terms of the Indenture to be held in, and all certificates and instruments, if any, from time to time representing or evidencing, such Non-Trustee Accounts;

(ii)    all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Security Trustee for or on behalf of such Grantor in substitution for or in addition to any or all of the then existing Non-Trustee Account Collateral; and

(iii)    all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Non-Trustee Account Collateral;

(e)    all right of such Grantor in and to each Security Trustee Account at any time or from time to time established, all of the following (collectively, the ‘‘Account Collateral’’):

(i)    all right of such Grantor in and to each Security Trustee Account at any time or from time to time established; and

(ii)    all cash, investment property, Permitted Account Investments, other Investments, securities, instruments or other property (including all ‘‘financial assets’’ within the meaning of Section 8-102(a)(9) of the UCC) at any time or from time to time credited to any such Security Trustee Account;

(f)    all other ‘‘investment property’’ (as defined in Section 9-102(a)(49) of the UCC) of such Grantor including any of the following (the ‘‘Investment Property Collateral’’):

(i)    all Permitted Account Investments made or acquired from or with the proceeds of any Non-Trustee Account Collateral of such Grantor from time to time and all certificates and instruments, if any, from time to time representing or evidencing such Permitted Account Investments; and

(ii)    all interest, dividends, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Investment Collateral;

(g)    all of the following (the ‘‘Assigned Agreement Collateral’’):

(i)    all of such Grantor’s right, title and interest in and to any Intercompany Loan and all security assignments, cash deposit agreements and other security agreements executed in such Grantor’s favor by any Issuer Subsidiary, in each case as such agreements may be amended, restated and/or otherwise modified from time to time (collectively, the ‘‘Assigned Agreements’’); and

(ii)    all of such Grantor’s right, title and interest in and to all deposit accounts, all funds or other property held in such deposit accounts, all certificates and instruments, if any, from time to time representing or evidencing such deposit accounts and all other property of whatever nature, in each case pledged, assigned or transferred to it or mortgaged or charged in its favor pursuant to any Assigned Agreement and all ‘‘supporting obligations’’ as defined in Section 9-102(a)(77) of the UCC) relating to any Assigned Agreement;

(h)    all of such Grantor’s right, title and interest in, to and under all leases to which such Grantor is or may from time to time be party and any leasing arrangements among Issuer Group Members, whether now existing or hereafter created with respect to such leases together with all Related Collateral Documents (all such leases and Related Collateral Documents, the ‘‘Assigned Leases’’, as more particularly described on Annex [  ] attached hereto), including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due under or pursuant to such Assigned Leases, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty pursuant to, or with respect to such Assigned Leases, (iii) claims of such Grantor for damages arising out of or for breach or default under such Assigned Leases, (iv) all rights under any such Assigned Lease with respect to any subleases of the Aircraft subject to such Assigned Lease, (v) the right of such Grantor to terminate such Assigned Leases and to compel performance of, and otherwise to exercise all remedies under, any Assigned Lease, whether arising under such Assigned Leases or by statute or at law or in equity and (vi) any deregistration power of attorney issued in favor of such Grantor (the ‘‘Lease Collateral’’);

(i)    all of such Grantor’s right, title and interest in, to or under all Service Provider Documents including, without limitation, (i) all rights of such Grantor to receive any moneys due or payable under or pursuant to such Service Provider Document, (ii) any claims of such Grantor for damages arising out of, or for breach or default under, such Service Provider Document, (iii) all rights to indemnification under such Service Provider Document and (iv) all rights to compel performance under such Service Provider Document, in each case whether arising under such Service Provider Document or by statute, at law or in equity (the ‘‘Servicing Collateral’’);

(j)    all of such Grantor’s right, title and interest in and to all Acquisition Agreements (the ‘‘Aircraft Purchase Collateral’’);

(k)    all of such Grantor’s right, title and interest in and to all (i) Eligible Credit Facilities (including any ‘‘letter of credit rights’’ or ‘‘supporting obligations,’’ as defined in Section 9-102(a)(51) and 9-102(a)(77), respectively, of the UCC) not consisting of a Cash Collateral Account and (ii) Hedge Agreements, and all rights to administer, draw upon and otherwise deal with each such Eligible Credit Facility and to administer and otherwise deal with each such Hedge Agreement;

(l)    all of such Grantor’s right, title and interest in and to all the personal property identified in a Grantor Supplement or a Collateral Supplement executed and delivered by such Grantor to the Security Trustee;

(m)    all of such Grantor’s Accounts Receivable;

(n)    all of such Grantor’s Letters of Credit;

(o)    with respect to each Grantor, (i) the Aircraft Objects and (ii) any money or non-money proceeds of an Aircraft Object arising from the total or partial loss or physical destruction of the Aircraft Object or its total or partial confiscation, condemnation or requisition;

(p)    all books, records and other property related to or referring to any of the foregoing, including books, records, account ledgers, data processing records, computer software and other property and general intangibles at any time evidencing or relating to any of the foregoing; and

(q)    all proceeds of any and all of the foregoing Collateral (including proceeds that constitute property of the types described in subsections (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (1), (m), (n), (o) and (p) above).

The undersigned Grantor hereby makes each representation and warranty set forth in Section 2.03 of the Security Trust Agreement (as supplemented by the attached Annexes) and hereby agrees to be bound as a Grantor by all of the terms and provisions of the Security Trust Agreement. Each reference in the Security Trust Agreement to the Pledged Shares, the Pledged Debt, the Pledged Beneficial Interests, the Security Collateral, the Beneficial Interest Collateral, the Membership Interest Collateral, the Non-Trustee Account Collateral, the Account Collateral, the Investment Collateral, the Assigned Agreement, the Assigned Agreement Collateral, the Acquisition Agreements which form part of the Aircraft Purchase Collateral, the Acquisition Agreement, the Aircraft Purchase Collateral, the Assigned Leases, the Lease Obligations, the Service Provider Documents, the Servicing Collateral, the Lease Collateral, the Assigned Documents and the Agreement Collateral shall be construed to include a reference to the corresponding Collateral hereunder.

The undersigned hereby agrees, together with the Issuer, jointly and severally to indemnify the Security Trustee, its officers, directors, employees and agents in the manner set forth in Section 9.01 of the Security Trust Agreement.

Attached are (i) an Account Letter in substantially the form of Exhibit C to the Security Trust Agreement from each Non-Trustee Account Bank at which each Non-Trustee Account included in the foregoing Collateral is maintained, (ii) where required with respect to any Assigned Document (other than an Assigned Lease) included in the foregoing Collateral, a Consent and Agreement in substantially the form of Exhibit D to the Security Trust Agreement from the counterparty thereto or, with respect to any Assigned Lease included in the foregoing Collateral, such consents, acknowledgements and/or notices as are called for under Section 2.08(a) of the Security Trust Agreement and (iii) duly completed copies of Annexes I, II, III, IV and V hereto.

This Grantor Supplement shall in all respects be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance.

Very truly yours,

[NAME OF GRANTOR]

By:
       Name:            
       Title:        

Acknowledged and agreed to
as of the date first above written:

DEUTSCHE BANK TRUST COMPANY AMERICAS,
not in its individual capacity, but solely as the Security Trustee

By:
       Name:            
       Title:        

By:
       Name:            
       Title:        

ANNEX I

PLEDGED SHARES

Stock Issuer

Par Value

Certificate No(s).

Number of Shares

Percentage of Outstanding Shares

PLEDGED BENEFICIAL INTERESTS

Issuer			Certificate No.			Percentage of Beneficial Interest

PLEDGED DEBT

Debt Issuer			Description of Debt			Date

ANNEX II

NON-TRUSTEE ACCOUNT INFORMATION

NAME AND ADDRESS OF BANK			NAME AND ADDRESS OF NON-TRUSTEE ACCOUNT HOLDER			ACCOUNT NUMBER

ANNEX III

TRADE NAMES

ANNEX IV

NAME OF GRANTOR			CHIEF EXECUTIVE OFFICE			CHIEF OR PRINCIPAL PLACE OF BUSINESS			EXECUTIVE OR REGISTERED OFFICE

ANNEX V

ASSIGNED LEASES

EXHIBIT C
SECURITY TRUST AGREEMENT

FORM OF NON-TRUSTEE ACCOUNT LETTER

                                , 2007

[Name and address
of Account Bank]

[Name of the Grantor]

Ladies and Gentlemen:

Reference is made to Account No.                             into which certain monies, instruments and other properties are deposited from time to time (the ‘‘Pledged Account’’) maintained with you by BABCOCK & BROWN AIR FUNDING I LIMITED (the ‘‘Grantor’’) and to the Security Trust Agreement dated as of [        ], 2007 (the ‘‘Security Trust Agreement’’), between the Gran tor, various other Grantors and DEUTSCHE BANK TRUST COMPANY AMERICAS, as the Trustee, the Security Trustee, the Cash Manager and the Operating Bank (the ‘‘Security Trustee’’). Capitalized terms used herein, unless otherwise defined herein, have the meanings assigned to them in the Security Trust Agreement.

Pursuant to the Security Trust Agreement, the Grantor has granted to the Security Trustee a security interest in certain property of the Grantor, including, among other things, the following (the ‘‘Collateral’’): the Pledged Account, all funds held or required by the terms of the Indenture to be held therein and all certificates and instruments, if any, from time to time representing or evidencing such Pledged Account, all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Security Trustee for or on behalf of such Grantor in substitution for or in addition to any or all of the then existing Collateral, and all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distribute d in respect of or in exchange for any or all of the then existing Collateral, and all proceeds of any and all of the foregoing Collateral. It is a condition to the continued maintenance of the Pledged Account with you that you agree to this letter agreement.

By signing this letter agreement, you acknowledge notice of, and consent to the terms and provisions of, the Security Trust Agreement and confirm to the Security Trustee that you have received no notice of any other pledge or assignment of the Pledged Account. Further, you hereby agree with the Security Trustee that:

(a)    Notwithstanding anything to the contrary in any other agreement relating to the Pledged Account, the Pledged Account is and will be subject to the terms and conditions of the Security Trust Agreement, and will henceforth be subject to written instructions directing the disposition of funds in the Pledged Account or otherwise only from an officer of the Security Trustee or (unless you are otherwise notified by the Security Trustee) from an officer of the Cash Manager as the agent of the Security Trustee. In the event of any conflicting instructions, those of the Security Trustee shall prevail.

(b)    You will follow your usual operating procedures for the handling of any remittance received in the Pledged Account, including any remittance that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees, etc.

(c)    You will transfer, in same day funds, on each of your business days, an amount equal to the credit balance of the Pledged Account (other than any amount required to be left on deposit for local tax or other regulatory or legal purposes) on such day to the following account (the ‘‘Collections Account’’):

[Insert address of Operating Bank and
account number of the Collections Account]

Each such transfer of funds shall neither comprise only part of a remittance nor reflect the rounding off of any funds so transferred.

(d)    All service charges and fees with respect to the Pledged Account shall be payable by the Grantor, and deposited checks returned for any reason shall not be charged to such account.

(e)    The Security Trustee and the Cash Manager as the agent of the Security Trustee shall be entitled to exercise any and all rights of the Grantor in respect of the Pledged Account in accordance with the terms of the Security Trust Agreement, and the undersigned shall comply in all respects with such exercise.

(f)    The Security Trustee is your customer with respect to the Pledged Account.

This letter agreement shall be binding upon you and your successors and assigns and shall inure to the benefit of the Security Trustee, the Secured Parties and their successors, transferees and assigns. You may terminate this letter agreement only upon 30 days’ prior written notice to the Grantor and the Security Trustee. Upon such termination you shall close the Pledged Account and transfer all funds in the Pledged Account to the Collections Account. After any such termination, you shall nonetheless remain obligated promptly to transfer to the Collections Account all funds and other property received in respect of the Pledged Account.

This letter agreement shall in all respects be governed by and construed in accordance with the laws of the State of New York, including all matters of construction, validity and performance.

Very truly yours,

[NAME OF GRANTOR]

By:
       Name:            
       Title:        

DEUTSCHE BANK TRUST COMPANY AMERICAS,
not in its individual capacity, but solely as the Security
Trustee

By:
       Name:            
       Title:        

By:
       Name:            
       Title:        

Acknowledged and agreed to as of
the date first above written:

[NAME OF PLEDGED ACCOUNT BANK]

By:
       Name:            
       Title:        

EXHIBIT D
SECURITY TRUST AGREEMENT

FORM OF CONSENT AND AGREEMENT

                            , 2007

[Name of the Grantor]

Ladies and Gentlemen:

Reference is made to the agreement between you and the Grantor dated (the ‘‘Assigned Document’’).

Pursuant to the Security Trust Agreement, dated [        ], 2007 (the ‘‘Security Trust Agreement’’), between the Grantor, certain other Grantors and Deutsche Bank Trust Company Americas, as the Trustee, the Security Trustee, the Cash Manager and the Operating Bank (the ‘‘Security Trustee’’), the Grantor has granted to the Security Trustee a security interest in certain property of the Grantor, including, among other things, the following (the ‘‘Collateral’’): all of such Grantor’s right, title and interest i n and to the Assigned Document, including without limitation all rights of such Grantor to receive moneys due and to become due under or pursuant to the Assigned Document, all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Document, claims of such Grantor for damages arising out of or for breach or default under the Assigned Document and the right of such Grantor to terminate the Assigned Document, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder, whether arising under the Assigned Document or by statute or at law or in equity. Capitalized terms used herein, unless otherwise defined herein, have the meanings assigned to them in the Security Trust Agreement.

By signing this Consent and Agreement, you acknowledge notice of, and consent to the terms and provisions of, the Security Trust Agreement and confirm to the Security Trustee that you have received no notice of any other pledge or assignment of the Assigned Document. Further, you hereby agree with the Security Trustee that:

(a)    You will make all payments to be made by you under or in connection with the Assigned Document directly to the Collections Account or otherwise in accordance with the instructions of the Security Trustee.

(b)    The Security Trustee shall be entitled to exercise any and all rights and remedies of the Grantor under the Assigned Document in accordance with the terms of the Security Trust Agreement, and you will comply in all respects with such exercise.

(c)    You will not, without the prior written consent of the Security Trustee, (i) cancel or terminate the Assigned Document or consent to or accept any cancellation or termination thereof or (ii) amend or otherwise modify the Assigned Document.

This Consent and Agreement shall be binding upon you and your successors and assigns and shall inure to the benefit of the Security Trustee, the Secured Parties and their successors, transferees and assigns.

This Consent and Agreement shall in all respects, be governed by and construed in accordance with the laws of the State of New York, including all matters of construction, validity and performance.

Very truly yours,

[NAME OF GRANTOR]

By:
       Name:            
       Title:        

DEUTSCHE BANK TRUST COMPANY AMERICAS,
not in its individual capacity, but solely as the Security
Trustee

By:
       Name:            
       Title:        

By:
       Name:            
       Title:        

Acknowledged and agreed to as of
the date first above written:

[NAME OF OBLIGOR]

By:
       Name:            
       Title:        

EXHIBIT E-1
SECURITY TRUST AGREEMENT

[FORM OF AIRCRAFT MORTGAGE]

MORTGAGE AND SECURITY AGREEMENT (MSN [                ])

THIS MORTGAGE AND SECURITY AGREEMENT (MSN [                        ]) (this ‘‘Agreement’’) dated as of [                            ], is made by and between WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION (‘‘Wells Fargo’’), not in its individual capacity but solely as trustee under the Trust Agreement (Aircraft MSN [                ]), dated as of [  ;                           ], 2007, as grantor (the ‘‘Grantor’’), and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation (‘‘DBTCA’’), as Security Trustee (the ‘‘Security Trustee’’) under the Security Trust Agreement (the ‘‘Security Trust Agreement’’), dated as of [         ], 2007, among the Grantor, BABCOCK & BROWN AIR FUNDING I LIMITED (the ‘‘Issuer’’), the additional grantors named therein and the Security Trustee. Capitalized terms used and not defined herein are used as defined in Appendix A hereto.

W I T N E S S E T H:

WHEREAS, the Issuer, DBTCA and certain other parties have entered into the Trust Indenture, dated as of [        ], 2007 (the ‘‘Indenture’’), pursuant to which the Issuer is issuing the Notes and DBTCA has been appointed the Trustee;

WHEREAS, the Issuer, the Security Trustee, the Grantor and certain other Issuer Subsidiaries have entered into the Security Trust Agreement in order to secure the payment of the Notes by the Issuer and the payment and performance of all obligations of the Issuer, the Grantor and the other Issuer Subsidiaries under the Related Documents;

WHEREAS, the Grantor has agreed to secure the Secured Obligations under the Notes and the Related Documents by granting to the Security Trustee for the benefit of the Secured Parties a Lien on its interest in the Airframe and Engines described in Schedule 1 hereto (collectively, the ‘‘Aircraft’’) and on certain other property and rights relating thereto; and

WHEREAS, the Grantor will derive substantial direct and indirect benefit from the issuance of the Notes by the Issuer and from the execution, delivery and performance of the Related Documents, whether or not the Grantor is a party thereto.

NOW, THEREFORE, in order to (a) induce the Secured Parties to enter into the Related Documents and (b) secure the prompt payment and performance of all the Secured Obligations, the Grantor and the Security Trustee hereby agree as follows:

1.    Security Interest.    The Grantor does hereby transfer, convey, pledge, mortgage, hypothecate, assign and grant a first priority security interest to the Security Trustee, subject to no prior interests of any Person whatsoever except for a lessee under an Initial Lease, in the following collateral (collectively, the ‘‘Mortgage Collateral’’) attaching on the date of this Agreement:

(a)    the Aircraft;

(b)    all Parts, equipment, attachments, accessories, replacement and added Parts and components now or hereafter placed thereon, installed therein or attached thereto, whether or not any of such Parts, equipment, attachments, accessories, replacements or added parts or components may from time to time no longer be installed on the Aircraft or may be installed in any other aircraft;

(c)    all of the Grantor’s right, title and interest in the technical data, technical documents, manuals, log books and all inspection, modification, overhaul, service, repair, maintenance, technical and other records that relate to the Aircraft and all the Grantor’s right, title and interest, present and future, therein and thereto and any sale or other transfer agreement relating

to the Aircraft, any acceptance certificate, and/or bill of sale relating to the Aircraft, any guaranties, letters of credit or other credit support relating to the Aircraft, and any other certificate, instrument or agreement relating to the Aircraft or a lessee, user or lessor of the Aircraft (collectively, the ‘‘Aircraft Documents’’);

(d)    all proceeds from the sale or other disposition of, all proceeds of insurance due to the Grantor on, and all proceeds of any condemnation due to the Grantor with respect to, any of the equipment described in clauses (a), (b) and (c) above;

(e)    all rents, issues, profits, revenues and other income of the property intended, subjected or required to be subjected to the Lien of this Agreement hereby, by the other Related Documents or by any supplement to this Agreement in form and substance satisfactory to the Security Trustee (a ‘‘Mortgage Supplement’’), and all of the estate, right, title and interest of every nature whatsoever of the Grantor in and to the same and every part thereof; and

(f)    all proceeds, howsoever arising, of the foregoing.

BUT EXCLUDING, HOWEVER, the Excluded Payments.

TO HAVE AND TO HOLD the Mortgage Collateral unto the Security Trustee, and its successors and assigns, as security for the Secured Obligations.

2.    Incorporation by Reference.    The security interest in the Mortgage Collateral created under this Agreement is granted in accordance with the Security Trust Agreement and all of the terms and conditions thereof, including but not limited to provisions relating to the exercise of remedies, shall be incorporated herein by reference.

3.    Miscellaneous

3.1.    Successors and Assigns.    All the terms, provisions, conditions and covenants herein contained shall be binding upon and shall inure to the benefit of the Grantor, the Security Trustee and their respective successors, assigns and transferees.

3.2.    Severability.    Any provision of this Agreement prohibited by the laws of any jurisdiction or otherwise held to be invalid by any court of law of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, or modified to conform with such laws, without invalidating the remaining provisions hereof; and any such prohibition in any jurisdiction shall not invalidate such provisions in any other jurisdiction.

3.3.    Governing Law.    THIS AGREEMENT SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS PROVISIONS.

3.4.    Further Assurances.    At any time and from time to time, upon the request of the Security Trustee, the Grantor shall promptly and duly execute and deliver any and all such further instruments and documents as the Security Trustee may reasonably deem desirable in obtaining the full benefits of security interests and assignments created or intended to be created hereby and of the rights and powers granted herein and in the Security Trust Agreement.

3.5.    Notices.    All notices, requests, demands or other communications required hereunder or given pursuant hereto shall be in writing unless otherwise expressly provided to the following specified address or to such other address as either party may from time to time hereafter designate to the other party in writing:

If to the Grantor:

Wells Fargo Bank Northwest, National Association
299 South Main Street, 12^th Floor
Salt Lake City, Utah 84111
Telephone: (801) 246-5300
Facsimile: (801) 246-5053
Attention: Michael Hoggan, Vice President

If to the Security Trustee:

Deutsche Bank Trust Company Americas
60 Wall Street
New York, NY 10005
Tel: (212) 250-4855
Facsimile: (212) 553-2459
Attention: [Lou Bodi] – Structured Finance

3.6.    Trustee.    Wells Fargo is entering into this Agreement solely in its capacity as Owner Trustee under the Trust Agreement and not in its individual capacity, except as expressly set forth herein. Accordingly, each of the representations, warranties, undertakings and agreements herein made on the part of Wells Fargo, is made and intended not as a personal representation, warranty, undertaking or agreement by or for the purpose or with the intention of binding Wells Fargo personally, but is made solely in its capacity as Owner Trustee. This Agreement is executed and delivered by Wells Fargo solely in the exercise of the powers expressly conferred upon them as trustees under the Trust Agreement; and no personal liability or responsibility is assumed hereunder by or shall at any time be enforceable against Wells Fargo or any successor in trust on account of any action taken or omitted to be taken or any representation, warranty, undertaking or agreement hereunder of Wells Fargo, either expressed or implied, all such personal liability, if any, being expressly waived by the parties hereto, except that the parties hereto, or any Person acting by, through or under them, making a claim hereunder, may look to the Trust Estate for satisfaction of the same and Wells Fargo or its successor in trust, as applicable, shall be personally liable for its own gross negligence or willful misconduct in the performance of its duties as Owner Trustee or otherwise.

3.7.    Security Trustee.    The Security Trustee shall be afforded all of the rights, protections, immunities and indemnities set forth in the Security Trust Agreement as if such rights, protections, immunities and indemnities were specifically set forth herein.

3.8.    Execution in Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures were upon the same instrument.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have, by their indicated officers thereunto duly authorized, caused this Mortgage and Security Agreement to be executed as of the day and year first above written and to be delivered in the State of New York.

GRANTOR:		WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Owner Trustee

By:
       Name:            
       Title:        

SECURITY TRUSTEE:		DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Security Trustee

By:
       Name:            
       Title:        

By:
       Name:            
       Title:        

APPENDIX A
MORTGAGE AND SECURITY AGREEMENT

DEFINITIONS

For all purposes of this Agreement, all capitalized terms used, but not defined, in this Agreement shall have the respective meanings assigned to such terms in the Indenture, and the following terms have the meanings indicated below:

‘‘Agreement’’ has the meaning specified in the recital of parties to this Agreement.

‘‘Aircraft’’ means the Airframe together with the Engines.

‘‘Aircraft Documents’’ has the meaning assigned to such term in Section 1(c) of this Agreement.

‘‘Airframe’’ has the meaning assigned to such term in Schedule 1 attached hereto.

‘‘Closing Date’’ means [                    ], 2007.

‘‘DBTCA’’ has the meaning specified in the recital of parties to this Agreement.

‘‘Engines’’ has the meaning assigned to such term in Schedule 1 attached hereto.

‘‘Excluded Payments’’ means payments in respect of (i) indemnities payable by a Lessee to Wells Fargo pursuant to a Lease and (ii) proceeds of public liability insurance in respect of the Aircraft payable as a result of insurance claims paid, or losses suffered, by Wells Fargo or the Lessee.

‘‘Grantor’’ has the meaning specified in the recital of parties to this Agreement.

‘‘Indenture Trustee’’ means DBTCA, in its capacity as indenture trustee under the Indenture.

‘‘Indenture’’ has the meaning specified in the preliminary statements to this Agreement.

‘‘Initial Lease’’ has the meaning set forth in the Indenture.

‘‘Issuer’’ has the meaning specified in the preamble to this Agreement.

‘‘Issuer Group Member’’ means the Issuer or any Issuer Subsidiary.

‘‘Issuer Subsidiary’’ means either or both, as the context may require, of (i) each Subsidiary of the Issuer existing on the Closing Date and listed on Schedule 2 to the Indenture, and (ii) each other direct or indirect Subsidiary of the Issuer.

‘‘Lease’’ means, with respect to an Aircraft, any aircraft lease agreement, (including, without limitation, any future Lease), conditional sale agreement, hire purchase agreement or other similar arrangement, as may be in effect between an Issuer Group Member that owns or leases-in such Aircraft (as Lessor) and a Person that is not an Issuer Group Member (as Lessee), as such agreement or arrangement may be amended, modified, extended, supplemented, assigned or novated from time to time in accordance with the Related Documents; provided that if, under any sub-leasing arrangement with respect to an Aircraft permitted by the Lease of such Aircraft and executed by the Lessee and a sub - -lessee, the Lessor of such Aircraft agrees to receive payments or collateral directly from, or is to make payments directly to, such sub-lessee, in any such case to the exclusion of the related Lessee, then the relevant sub-lease shall constitute the ‘‘Lease’’ of such Aircraft, and the sub-lessee shall constitute the related ‘‘Lessee’’ with respect to such Aircraft, but only to the extent of the provisions of such sub-lease agreement relevant to such payments and collateral and to the extent agreed by the relevant Lessor.

‘‘Lessee’’ means the Lessee under a Lease.

‘‘Lien’’ means any mortgage, pledge, lien, encumbrance, international interest, charge or security interest, including without limitation any prospective contract of sale or other prospective international interest.

‘‘Mortgage Collateral’’ means the Aircraft, Assigned Leases and other property described in Section 1 hereof and subject to the security interest created by this Agreement.

‘‘Mortgage Supplement’’ has the meaning assigned to such term in Section 1 hereof.

‘‘Note’’ means any one of the promissory notes executed by the Issuer and authenticated by or on behalf of the Indenture Trustee in accordance with the Indenture.

‘‘Part’’ means any and all parts, avionics, attachments, accessions, appurtenances, furnishings, components, appliances, accessories, instruments and other equipment installed in, or attached to (or constituting a spare for any such item installed in or attached to) the Aircraft.

‘‘Person’’ means any natural person, firm, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any political subdivision thereof or any other legal entity, including public bodies.

‘‘Related Documents’’ has the meaning set forth in the Indenture.

‘‘Secured Obligations’’ has the meaning set forth in the Security Trust Agreement.

‘‘Secured Parties’’ has the meaning set forth in the Security Trust Agreement.

‘‘Security Trust Agreement’’ has the meaning specified in the preliminary statements to this Agreement.

‘‘Subsidiary’’ means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.

‘‘Trust Agreement’’ means the Trust Agreement (Aircraft MSN [                    ]), dated as of (                            ], 2007, between the Grantor and the Issuer (as successor to [                            ]).

‘‘Wells Fargo’’ has the meaning specified in the recital of parties to this Agreement.

SCHEDULE 1
MORTGAGE AND SECURITY AGREEMENT

MORTGAGE COLLATERAL

‘‘Airframe’’ means one (1) [                        ] Model [                            ] aircraft bearing manufacturer’s serial no. [                        ].

‘‘Engines’’ means two (2) [                    ] Model [                            ] aircraft engines (each of which engines has 550 or more rated takeoff horsepower or the equivalent thereof) bearing manufacturer’s serial nos. [                    ] and [                    ] respectively.

EXHIBIT E-2
SECURITY TRUST AGREEMENT

[FORM OF AIRCRAFT MORTGAGE AND LEASE ASSIGNMENT]

MORTGAGE AND SECURITY AGREEMENT (MSN [                    ])

THIS MORTGAGE AND SECURITY AGREEMENT (MSN [                    ]) (this ‘‘Agreement’’) dated as of [                    ], is made by and between WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION (‘‘Wells Fargo’’), not in its individual capacity but solely as trustee under the Trust Agreement (Aircraft MSN [                    ]), dated as of [          ;           ], 2007, as grantor (the ‘‘Grantor’’), and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation (‘‘DBTCA’’), as Security Trustee (the ‘‘Security Trustee’’) under the Security Trust Agreement (the ‘‘Security Trust Agreement’’), dated as of [                    ], 2007, among the Grant or, BABCOCK & BROWN AIR FUNDING I LIMITED (the ‘‘Issuer’’), the additional grantors named therein and the Security Trustee. Capitalized terms used and not defined herein are used as defined in Appendix A hereto.

W I T N E S S E T H:

WHEREAS, the Issuer, DBTCA and certain other parties have entered into the Trust Indenture, dated as of [            ], 2007 (the ‘‘Indenture’’), pursuant to which the Issuer is issuing the Notes and DBTCA has been appointed the Trustee;

WHEREAS, the Issuer, the Security Trustee, the Grantor and certain other Issuer Subsidiaries have entered into the Security Trust Agreement in order to secure the payment of the Notes by the Issuer and the payment and performance of all obligations of the Issuer, the Grantor and the other Issuer Subsidiaries under the Related Documents;

WHEREAS, the Grantor has agreed to secure the Secured Obligations under the Notes and the Related Documents by granting to the Security Trustee for the benefit of the Secured Parties a Lien on its interest in the Airframe and Engines described in Schedule 1 hereto (collectively, the ‘‘Aircraft’’) and by granting to the Security Trustee a Lien on and security interest in its rights under the Initial Lease described in Schedule 1 hereto and on certain other property and rights relating thereto; and

WHEREAS, the Grantor will derive substantial direct and indirect benefit from the issuance of the Notes by the Issuer and from the execution, delivery and performance of the Related Documents, whether or not the Grantor is a party thereto.

NOW, THEREFORE, in order to (a) induce the Secured Parties to enter into the Related Documents and (b) secure the prompt payment and performance of all the Secured Obligations, the Grantor and the Security Trustee hereby agree as follows:

1.    Security Interest.    The Grantor does hereby transfer, convey, pledge, mortgage, hypothecate, assign and grant a first priority security interest to the Security Trustee, subject to no prior interests of any Person whatsoever except for a lessee under an Initial Lease, in the following collateral (collectively, the ‘‘Mortgage Collateral’’) attaching on the date of this Agreement:

(a)    the Aircraft;

(b)    all Parts, equipment, attachments, accessories, replacement and added Parts and components now or hereafter placed thereon, installed therein or attached thereto, whether or not any of such Parts, equipment, attachments, accessories, replacements or added parts or components may from time to time no longer be installed on the Aircraft or may be installed in any other aircraft;

(c)    all of the Grantor’s right, title and interest in the technical data, technical documents, manuals, log books and all inspection, modification, overhaul, service, repair, maintenance,

technical and other records that relate to the Aircraft and all the Grantor’s right, title and interest, present and future, therein and thereto and any sale or other transfer agreement relating to the Aircraft or any Assigned Lease or Assigned Head Lease, any lease assignments, novations or assumption agreements, relating to the Aircraft or any Assigned Lease or Assigned Head Lease, any acceptance certificate, and/or bill of sale relating to the Aircraft or any Assigned Lease, any guaranties, letters of credit or other credit support relating to the Aircraft or any Assigned Lease or Assigned Head Lease, and any other certificate, instrument or agreement relating to the Aircraft or a lessee, user or lessor of the Aircraft (collectively, the ‘‘Aircraft Documents’’);

(d)    all proceeds from the sale or other disposition of, all proceeds of insurance due to the Grantor on, and all proceeds of any condemnation due to the Grantor with respect to, any of the equipment described in clauses (a), (b) and (c) above;

(e)    the Initial Lease and each other Lease of an Aircraft, whether or not owned by the Grantor, under which the Grantor is or may from time to time be the Lessor, together with any and all Aircraft Documents relating to such Lease (any such Leases and Aircraft Documents being referred to individually as, an ‘‘Assigned Lease,’’ and collectively as, the ‘‘Assigned Leases’’) and each Head Lease to which the Grantor is a party as lessor or lessee and all Aircraft Documents relating to such Head Lease (any such Head Leases and Aircraft Documents being referred to individually as, an ‘‘Assigned Head Lease,’’ and collectively as, ‘‘Assigned Head Leases’’), including without limitation (A) all rights of the Grantor to all Lease Payments, however denominated, under such Assigned Leases and Assigned Head Leases, (B) all rights of the Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty pursuant to or with respect to such Assigned Leases and Assigned Head Leases, (C) claims of the Grantor for damages arising out of or for breach or default under such Assigned Leases and Assigned Head Leases, (D) all rights of the Grantor to receive and any and all rights to amend, waive, modify and give notices, approvals and consents under such Assigned Leases and Assigned Head Leases, (E) all rights of the Grantor under any such Assigned Lease with respect to any sublease of any such Aircraft or, in the case of an Assigned Head Lease, the Lease of the Aircraft subject to such Assigned Head Lease, (F) all rights of the Grantor to terminate such Assigned Leases or Assigned Head Leases and to comp el performance of, and otherwise to exercise all remedies under, any such Assigned Lease or Assigned Head Lease, whether arising under such Assigned Leases or Assigned Head Leases or by statute or at law or in equity, (G) all rights of the Grantor to possession of any Aircraft under an Assigned Head Lease and (H) all other rights and property of the Grantor included therein together with all payments, including without limitation all rent, damages, expenses, indemnities and other amounts due to the Grantor (or any person claiming by, through or under the Grantor) thereunder;

(f)    all rents, issues, profits, revenues and other income of the property intended, subjected or required to be subjected to the Lien of this Agreement hereby, by the other Related Documents or by any supplement to this Agreement in form and substance satisfactory to the Security Trustee (a ‘‘Mortgage Supplement’’), and all of the estate, right, title and interest of every nature whatsoever of the Grantor in and to the same and every part thereof; and

(g)    all proceeds, howsoever arising, of the foregoing.

BUT EXCLUDING, HOWEVER, the Excluded Payments.

TO HAVE AND TO HOLD the Mortgage Collateral unto the Security Trustee, and its successors and assigns, as security for the Secured Obligations.

2.    Incorporation By Reference.    The security interest in the Mortgage Collateral created under this Agreement is granted in accordance with the Security Trust Agreement and all of the terms and conditions thereof, including but not limited to provisions relating to the exercise of remedies, shall be incorporated herein by reference.

3.    Miscellaneous

3.1.    Successors and Assigns.    All the terms, provisions, conditions and covenants herein contained shall be binding upon and shall inure to the benefit of the Grantor, the Security Trustee and their respective successors, assigns and transferees.

3.2.    Severability.    Any provision of this Agreement prohibited by the laws of any jurisdiction or otherwise held to be invalid by any court of law of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, or modified to conform with such laws, without invalidating the remaining provisions hereof; and any such prohibition in any jurisdiction shall not invalidate such provisions in any other jurisdiction.

3.3.    Governing Law.    THIS AGREEMENT SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS PROVISIONS.

3.4.    Further Assurances.    At any time and from time to time, upon the request of the Security Trustee, the Grantor shall promptly and duly execute and deliver any and all such further instruments and documents as the Security Trustee may reasonably deem desirable in obtaining the full benefits of security interests and assignments created or intended to be created hereby and of the rights and powers granted herein and in the Security Trust Agreement.

3.5.    Notices.    All notices, requests, demands or other communications required hereunder or given pursuant hereto shall be in writing unless otherwise expressly provided to the following specified address or to such other address as either party may from time to time hereafter designate to the other party in writing:

If to the Grantor:

Wells Fargo Bank Northwest, National Association
299 South Main Street, 12th Floor
Salt Lake City, Utah 84111
Telephone: (801) 246-5300
Facsimile: (801) 246-5053
Attention: Michael Hoggan, Vice President

If to the Security Trustee:

Deutsche Bank Trust Company Americas
60 Wall Street
New York, NY 10005
Tel: (212) 250-4855
Facsimile: (212) 553-2459
Attention: [Lou Bodi] – Structured Finance

3.6.    Trustee.    Wells Fargo is entering into this Agreement solely in its capacity as Owner Trustee under the Trust Agreement and not in its individual capacity, except as expressly set forth herein. Accordingly, each of the representations, warranties, undertakings and agreements herein made on the part of Wells Fargo, is made and intended not as a personal representation, warranty, undertaking or agreement by or for the purpose or with the intention of binding Wells Fargo personally, but is made solely in its capacity as Owner Trustee. This Agreement is executed and delivered by Wells Fargo solely in the exercise of the powers expressly conferred upon them as trustees under the Trust Agreement; and no personal liability or responsibility is assumed hereunder by or shall at any time be enforceable against Wells Fargo or any successor in trust on account of any action taken or omitted to be taken or any representation, warranty, undertaking or agreement hereunder of Wells Fargo, either expressed or implied, all such personal liability, if any, being expressly waived by the parties hereto, except that the parties hereto, or any Person acting by, through or under them, making a claim hereunder, may look to the Trust Estate for

satisfaction of the same and Wells Fargo or its successor in trust, as applicable, shall be personally liable for its own gross negligence or willful misconduct in the performance of its duties as Owner Trustee or otherwise.

3.7.    Security Trustee.    The Security Trustee shall be afforded all of the rights, protections, immunities and indemnities set forth in the Security Trust Agreement as if such rights, protections, immunities and indemnities were specifically set forth herein.

3.8.    Execution in Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures were upon the same instrument.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have, by their indicated officers thereunto duly authorized, caused this Mortgage and Security Agreement to be executed as of the day and year first above written and to be delivered in the State of New York.

GRANTOR:		WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Owner Trustee

By:
       Name:     
       Title:     

SECURITY TRUSTEE:		DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Security Trustee

By:
       Name:     
       Title:     

By:
       Name:     
       Title:     

APPENDIX A
MORTGAGE AND SECURITY AGREEMENT

DEFINITIONS

For all purposes of this Agreement, all capitalized terms used, but not defined, in this Agreement shall have the respective meanings assigned to such terms in the Indenture, and the following terms have the meanings indicated below:

‘‘Agreement’’ has the meaning specified in the recital of parties to this Agreement.

‘‘Aircraft’’ means the Airframe together with the Engines.

‘‘Aircraft Documents’’ has the meaning assigned to such term in Section 1(c) of this Agreement.

‘‘Airframe’’ has the meaning assigned to such term in Schedule 1 attached hereto.

‘‘Assigned Leases’’ has the meaning specified in Section 1 of this Agreement.

‘‘Closing Date’’ means [                ], 2007.

‘‘DBTCA’’ has the meaning specified in the recital of parties to this Agreement.

‘‘Engines’’ has the meaning assigned to such term in Schedule 1 attached hereto.

‘‘Excluded Payments’’ means payments in respect of (i) indemnities payable by a Lessee to Wells Fargo pursuant to a Lease and (ii) proceeds of public liability insurance in respect of the Aircraft payable as a result of insurance claims paid, or losses suffered, by Wells Fargo or the Lessee.

‘‘Grantor’’ has the meaning specified in the recital of parties to this Agreement.

‘‘Head Lease’’ means any lease of an Aircraft from the Grantor to a Leasing Subsidiary.

‘‘Indenture Trustee’’ means DBTCA, in its capacity as indenture trustee under the Indenture.

‘‘Indenture’’ has the meaning specified in the preliminary statements to this Agreement.

‘‘Initial Lease’’ has the meaning assigned to such term in Schedule 1 attached hereto.

‘‘Issuer’’ has the meaning specified in the preamble to this Agreement.

‘‘Issuer Group Member’’ means the Issuer or any Issuer Subsidiary.

‘‘Issuer Subsidiary’’ means either or both, as the context may require, of (i) each Subsidiary of the Issuer existing on the Closing Date and listed on Schedule 2 to the Indenture, and (ii) each other direct or indirect Subsidiary of the Issuer.

‘‘Lease’’ means, with respect to an Aircraft, any aircraft lease agreement, (including, without limitation, any future Lease), conditional sale agreement, hire purchase agreement or other similar arrangement, as may be in effect between an Issuer Group Member that owns or leases-in such Aircraft (as Lessor) and a Person that is not an Issuer Group Member (as Lessee), as such agreement or arrangement may be amended, modified, extended, supplemented, assigned or novated from time to time in accordance with the Related Documents; provided that if, under any sub-leasing arrangement with respect to an Aircraft permitted by the Lease of such Aircraft and executed by the Lessee and a sub - -lessee, the Lessor of such Aircraft agrees to receive payments or collateral directly from, or is to make payments directly to, such sub-lessee, in any such case to the exclusion of the related Lessee, then the relevant sub-lease shall constitute the ‘‘Lease’’ of such Aircraft, and the sub-lessee shall constitute the related ‘‘Lessee’’ with respect to such Aircraft, but only to the extent of the provisions of such sub-lease agreement relevant to such payments and collateral and to the extent agreed by the relevant Lessor.

‘‘Lease Payments’’ means all lease payments and other amounts payable by or on behalf of a Lessee under a Lease or a Head Lease, and all rights of Grantor to receive moneys due and to

become due under or pursuant to such Lease or Head Lease, including, without limitation, Rent Payments, Supplemental Rent and Security Deposits.

‘‘Leasing Subsidiaries’’ means any special purpose entities (i) to which the Issuer or the Grantor may lease the Aircraft, (ii) which are lessors under Leases of the Aircraft to a Lessee and (iii) which are wholly owned directly or indirectly by the Issuer.

‘‘Lessee’’ means the Lessee under a Lease.

‘‘Lien’’ means any mortgage, pledge, lien, encumbrance, international interest, charge or security interest, including without limitation any prospective contract of sale or other prospective international interest.

‘‘Mortgage Collateral’’ means the Aircraft, Assigned Leases and other property described in Section 1 hereof and subject to the security interest created by this Agreement.

‘‘Mortgage Supplement’’ has the meaning assigned to such term in Section 1 hereof.

‘‘Note’’ means any one of the promissory notes executed by the Issuer and authenticated by or on behalf of the Indenture Trustee in accordance with the Indenture.

‘‘Part’’ means any and all parts, avionics, attachments, accessions, appurtenances, furnishings, components, appliances, accessories, instruments and other equipment installed in, or attached to (or constituting a spare for any such item installed in or attached to) the Aircraft.

‘‘Person’’ means any natural person, firm, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any political subdivision thereof or any other legal entity, including public bodies.

‘‘Related Documents’’ has the meaning set forth in the Indenture.

‘‘Rent Payments’’ means all payments of basic rent under a Lease that are payable in respect of periods specified under such Lease.

‘‘Secured Obligations’’ has the meaning set forth in the Security Trust Agreement.

‘‘Secured Parties’’ has the meaning set forth in the Security Trust Agreement.

‘‘Security Deposits’’ means any cash deposits and other collateral provided by, or on behalf of, a Lessee to secure the obligations of such Lessee under a Lease.

‘‘Security Trust Agreement’’ has the meaning specified in the preliminary statements to this Agreement.

‘‘Subsidiary’’ means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.

‘‘Supplemental Rent’’ means additional rent (whether called additional rent, supplemental rent, utilization rent, maintenance reserve or any similar term) payable under a Lease based on hours or cycles of operation of the airframe, engines, life-limited engine parts, landing gear and/or auxiliary power unit of an Aircraft, and with respect to maintenance of which the lessor under the Lease may have a maintenance contribution obligation measured in part by or with reference to such additional rent.

‘‘Trust Agreement’’ means the Trust Agreement (Aircraft MSN [                ]), dated as of [                            ], 2007, between the Grantor and the Issuer (as successor to [                    ]).

‘‘Wells Fargo’’ has the meaning specified in the recital of parties to this Agreement.

SCHEDULE 1
MORTGAGE AND SECURITY AGREEMENT

MORTGAGE COLLATERAL

‘‘Airframe’’ means one (1) [                        ] Model [                            ] aircraft bearing manufacturer’s serial no. [                        ].

‘‘Engines’’ means two (2) [                        ] Model [                            ] aircraft engines (each of which engines has 550 or more rated takeoff horsepower or the equivalent thereof) bearing manufacturer’s serial nos. [                    ] and [                    ] respectively.

‘‘Initial Lease’’ means any now existing or after-acquired lease agreement between the Grantor, as lessor, and any lessee in force with respect to the Aircraft, including, but not limited to, the following:

EXHIBIT E-3
SECURITY TRUST AGREEMENT

FORM OF FAA LEASE SECURITY ASSIGNMENT

THIS FAA LEASE SECURITY ASSIGNMENT (MSN [                            ]) (this ‘‘Assignment’’), dated as of [                            ], is made by and between WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as trustee under the Trust Agreement (Aircraft MSN [                    ]), dated as of [                         ], 2007, as grantor (the ‘‘Grantor’’), and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation (‘‘DBTCA’’), as the Security Trustee (the ‘‘Security Trustee’’) under the Security Trust Agreement (the ‘‘Security Trust Agreement’’), dated as of [                    ], 2007, among the Grantor, BABCOCK & BROWN AIR FUNDI NG I LIMITED (the ‘‘Issuer’’), the additional grantors named therein and the Security Trustee. All capitalized terms used but not defined herein shall have the respective meanings assigned thereto in the Trust Indenture (the ‘‘Indenture’’), dated as of [                    ], 2007, among the Issuer, the Security Trustee, BNP Paribas (the ‘‘Initial Liquidity Facility Provider’’) and Ambac Assurance Corporation (the ‘‘Policy Provider’’).

W I T N E S S E T H:

WHEREAS, the Issuer, DBTCA, the Initial Liquidity Facility Provider and the Policy Provider have entered into the Indenture pursuant to which the Issuer is issuing the Notes and DBTCA has been appointed the Trustee; and

WHEREAS, the Issuer indirectly owns all of the beneficial interest in the Grantor; and

WHEREAS, it is a condition precedent to the issuance of the Notes by the Issuer that the Grantor assign to the Security Trustee the Lease Agreement as more fully described on Schedule 1 hereto, and all amendments, supplements, schedules, receipts and acceptance certificates executed or delivered pursuant thereto (the ‘‘Assigned Lease’’); and

WHEREAS, the Grantor will derive substantial direct and indirect benefit from the issuance of the Notes and from the Related Documents;

NOW THEREFORE, the Grantor hereby agrees as follows with the Security Trustee for the benefit of the Secured Parties:

1.    The Grantor hereby bargains, sells, transfers and conveys to the Security Trustee, for the benefit of the Secured Parties, and grants to the Security Trustee for the benefit of the Secured Parties, a first priority security interest in and to the Assigned Lease, and all amendments, supplements, schedules, receipts and acceptance certificates executed or delivered pursuant thereto, together with all of the Grantor’s rights as lessor thereunder including without limitation: (i) all rights, if any, under § 1110 of the Bankruptcy Code of the United States or any statute of similar import (whether of the United States or any other jurisdiction and whether now in effect or hereinafter enacted); (ii) all rights to receive payment of insurance proceeds and payments with respect to any manufacturer’s warranty, in each case payable with respect to the aircraft, the aircraft engines or other property which is the subject of the Assigned Lease; and (iii) upon the occurrence of an Event of Default to demand, collect, receive and retain all rent and other sums which may from time to time become payable under or in connection with the Assigned Lease.

2.    The Grantor represents and warrants that:

(a)    The Assigned Lease is in full force and effect;

(b)    There has occurred no event under the Assigned Lease which constitutes a default or event of default thereunder or which with the giving of notice or lapse of time or both would constitute a default thereunder;

(c)    No rent or other sum payable under the Assigned Lease has been prepaid;

(d)    The Assigned Lease is the entire agreement of lease with respect to the aircraft, aircraft engines and other property which are the subject thereof, and the Assigned Lease has not been amended, supplemented, or modified nor has any provision thereof been waived by either party thereto;

(e)    By this assignment, the Security Trustee assumes none of the obligations of the lessor under the Assigned Lease and lessor shall remain solely responsible for the performance of each and every term and provision of the Assigned Lease on its part to be performed; and

(f)    Upon the occurrence and continuation of an Event of Default and in addition to any other rights and remedies provided in the Indenture or arising by operation of law, the Security Trustee may send notice to the lessee under the Assigned Lease demanding that such lessee perform all obligations required to be performed thereunder including, but not limited to, the obligation to pay all rent and other sums which may thereafter become payable under the Assigned Lease, solely to and for the benefit of the Security Trustee to the exclusion of Grantor and any other party who may claim entitlement to the payment thereof.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the undersigned have executed or caused this Assignment to be executed on the day and year first written above.

GRANTOR:		WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Owner Trustee

By:
       Name:     
       Title:     

SECURITY TRUSTEE:		DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Security Trustee

By:
       Name:     
       Title:     

By:
       Name:     
       Title:     

SCHEDULE 1
FAA LEASE SECURITY ASSIGNMENT

DESCRIPTION OF LEASE AGREEMENT

EXHIBIT F
SECURITY TRUST AGREEMENT

FORM OF IRISH SHARE CHARGE

Dated          day of                     2007

Babcock & Brown Air Funding I Limited

and

[Deutsche Bank Trust Company Americas]
(as Security Trustee)

CHARGE OF SHARES
in respect of the shares
of
[                    ]

McCann FitzGerald
Solicitors
Riverside One
Sir John Rogerson’s Quay
Dublin 2

CONTENTS

Clause			Page
1.    DEFINITIONS AND INTERPRETATION					25
2.    COVENANT TO PAY					26
3.    SECURITY OVER CHARGED PORTFOLIO					26
4.    DEPOSIT OF CERTIFICATES					28
5.    EXERCISE OF RIGHTS IN RESPECT OF CHARGED PORTFOLIO					28
6.    COVENANTS					29
7.    REPRESENTATIONS AND WARRANTIES					30
8.    FURTHER ASSURANCES					31
9.    SECURITY TRUSTEE’S POWERS					32
10.  RECEIVER					33
11.  POWER OF ATTORNEY					33
12.  CONTINUING SECURITY/SUBROGATION					34
13.  AVOIDANCE OF PAYMENTS					34
14.  PROVISO FOR REDEMPTION					34
15.  INDEMNITY					35
16.  DEFAULT INTEREST					35
17.  PAYMENTS					35
18.  ASSIGNMENT					36
19.  COSTS, EXPENSES AND STAMP DUTY					36
20.  NOTICES					36
21.  MISCELLANEOUS					37
22.GOVERNING LAW AND JURISDICTION					38

THIS CHARGE is made on        day of

BETWEEN:-

(1)	Babcock & Brown Air Funding I Limited a company incorporated under the laws of Bermuda and having its registered office at [                                                                ] (the ‘‘Chargor’’ whic h term includes its successors and/or assigns); and

(2)	Deutsche Bank Trust Company Americas as security trustee for the Secured Parties of the security constituted by this Charge (hereinafter referred to as the ‘‘Security Trustee’’ which expression shall, where the context so admits, include any successor trustee or trustees of the trusts under which the security hereby constituted is held).

RECITALS

A.

[                ] Limited (the ‘‘Principal Company’’) is a wholly owned subsidiary of the Chargor and pursuant to a security trust agreement dated [•] (the ‘‘Security Trust Agreement’’) made between (1) the Chargor, (2) the Issuer Subsidiaries as may become party to the agreement from time to time as grantors and (3) the Security Trustee, the Chargor has agreed to enter into this Charge with the S ecurity Trustee for the purposes of securing the Secured Obligations.

B.	The Security Trustee has agreed to enter into this Charge as security trustee for the Secured Parties and to hold the benefit of the security constituted by this Charge on trust under the terms and conditions of the Security Trust Agreement.

C.	The authorised share capital of the Principal Company is divided into [•], each have been issued and are fully paid. The Chargor is the registered and beneficial owner of [•] [ordinary shares] in the capital of the Principal Company.

NOW IT IS AGREED as follows:

1.	DEFINITIONS AND INTERPRETATION

1.1	Words and expressions defined in the Security Trust Agreement, and not otherwise defined herein shall, unless there is something in the subject or the context which is inconsistent therewith, bear the same meaning herein as in the Security Trust Agreement.

1.2	In this Charge, unless the context requires otherwise:

‘‘Act’’ means the Conveyancing and Law of Property Act, 1881, as amended by the Conveyancing Acts, 1882 and 1911;

‘‘Charged Portfolio’’ means the Shares and the Related Assets;

‘‘Enforcement Event’’ means any circumstance outlined in the Security Trust Agreement authorising the enforcement by the Security Trustee of the security created pursuant to the Security Trust Agreement;

‘‘Finance Documents’’ means the Security Trust Agreement and any other document designated as such by the Principal Company and the Security Trustee;

‘‘Related Assets’’ means all dividends, interest and other monies payable in respect of the Shares and all other rights, benefits and proceeds in respect of or derived from the Shares (whether by way of redemption, bonus, preference, option, substitution, conversion or otherwise);

‘‘Secured Obligations’’ means all monies, obligations and liabilities covenanted or guaranteed to be paid or discharged by the Chargor under this Charge;

‘‘Secured Parties’’ has the meaning given to such term in the Security Trust Agreement;

‘‘security’’ includes any mortgage, debenture, pledge, lien, hypothecation, security interest or other charge or encumbrance, and any other agreement or arrangements having substantially the same economic effect; and

‘‘Shares’’ means (i) all Shares now or at any time in the future owned by the Chargor in the Principal Company or in respect of which the Chargor has any interest (including any equity of redemption); (ii) all other Shares which the Chargor may, with the prior written approval of the Security Trustee, substitute for all or any of the Shares referred to in (i) of this definition or any Shares substituted for any substituted Shares; (iii) all other Shares, warrants and all rights, moneys and property whatsoever, including without limitation, all dividends or other distributions and interest paid or payable thereon, which may at any time be derived from, accrue on or be offered in respect of any of the Shares for the time being referred to in this Charge, whether by way of repurchase, redemption, exchange, co nversion, option, rights, bonus, preference, capital reorganisation or otherwise howsoever; and references to Shares shall include references to all existing and future certificates evidencing title and relating thereto; and references to Shares include references to any part or kind thereof;

1.3	In this Charge unless the context requires otherwise:-

	(a)	clause headings are inserted for convenience only and shall not affect the construction of this Charge and all references to Clauses are to Clauses of this Charge;

	(b)	words denoting the singular number shall include the plural and vice versa;

	(c)	references to a ‘‘person’’ include references to an individual, firm, company, corporation, unincorporated body of persons or any state or government or any instrumentality, agency or political subdivision thereof or authority, board or body created or constituted thereby;

	(d)	references to any agreement, document or instrument are to be construed as references to that agreement, document or instrument as amended or supplemented or varied from time to time; and

	(e)	references to any statute shall include re-enactments, amendments and extensions thereof, whether by statute, regulation or otherwise.

2.	COVENANT TO PAY

For good and valuable consideration the Chargor hereby covenants and undertakes with the Security Trustee that it shall pay and discharge the Secured Obligations as and when the same become due.

3.	SECURITY OVER CHARGED PORTFOLIO

3.1

The Chargor, as beneficial owner, for the purpose of securing the due and punctual payment and discharge of the Secured Obligations, hereby charges and pledges to the Security Trustee (as trustee for the Secured Parties) as a continuing security, by way of first fixed charge and pledge, all of its rights, title, benefit and interest whatsoever, present and future, to or in or in respect of the Shares, but so that the Security Trustee shall not in any circumstances incur any liability whatsoever in respect of any calls, instalments or otherwise in connection with such Charged Portfolio.

3.2

Forthwith upon the execution and delivery of this Charge, the Chargor shall if required by the Security Trustee, procure that the Articles of Association of the Principal Company are altered in a manner satisfactory to the Security Trustee so as to allow a transfer of the Shares to the Security Trustee or its nominees and any transfer of the Shares by or on behalf of the Security Trustee made pursuant to this Charge to be registered without requiring the consent of the directors of the Principal Company or any other condition to be obtained or met.

3.3	The security created by or pursuant to this Charge and the obligations of the Chargor hereunder shall not be affected or discharged by:

	(a)	any time, indulgence, waiver or consent at any time given to the Chargor, the Principal Company or any other person;

	(b)	any amendment to any provision of this Charge or any other Finance Document, security, guarantee or indemnity;

	(c)	the making or absence of any demand on the Principal Company, or any other person for payment;

	(d)	the enforcement or absence of enforcement of all or part of this Charge or any other Finance Document, security, guarantee or indemnity;

	(e)	the release of any guarantee, indemnity or security (including any security created by or pursuant to this Charge or any other Finance Document);

	(f)	the winding-up, administration or examination of the Chargor, the Principal Company or any other person (or the commencement of any such winding-up, administration or examination);

	(g)	the illegality, invalidity or unenforceability of or any defect in any provision of this Charge or any other Finance Document (including any security created by or pursuant to this Charge) or any of the rights or obligations of any of the parties hereunder or thereunder (whether on the grounds of ultra vires, not being in the interests of the relevant party, not having been duly authorised, executed or delivered by the relevant party or for any other reason whatsoever) or under the any other Finance Document, security, guarantee or indemnity;

	(h)	the illegality, invalidity or unenforceability of or any defect in any other document relating to or securing all or any part of the Secured Obligations;

	(i)	any other matter or thing whatsoever,

and, in addition, the Chargor further covenants with the Security Trustee that if, by reason of any moneys or liabilities expressed or intended to be guaranteed to the Security Trustee by the Chargor not being legally recoverable from the relevant third party or for any other reason whatsoever, such moneys or liabilities (or any part of them) would not be recoverable from the Chargor as a surety, then (notwithstanding that that was known to the Security Trustee) they shall be fully recoverable from the Chargor as sole, original and independent obligor and the Chargor will pay or discharge them to the Security Trustee upon demand.

4.	DEPOSIT OF CERTIFICATES

4.1	The Chargor will, and will procure that its nominee(s) will deposit with the Security Trustee and permit the Security Trustee during the continuance of the security hereby created to hold and retain:

	(a)	blank, signed and undated stock transfer forms in respect of the Charged Portfolio;

	(b)	share certificates relating to the Charged Portfolio;

	(c)	executed undated resignations from each director and officer of the Principal Company from time to time in the form set out in the Schedule.

	(d)	duly executed powers of attorney of each of the directors of the Principal Company;

	(e)	a certified copy of the Share Register of the Principal Company; and

	(f)	all certificates or other documents representing or evidencing ownership of the Charged Portfolio together with instruments of transfer in respect of the Charged Portfolio duly executed by or on behalf of the Chargor and its nominees but omitting the name of the transferee and the date and such other documents as the Security Trustee may from time to time require for perfecting its title to the Charged Portfolio or for vesting or enabling it to vest title to the Charged Portfolio in the Security Trustee or its nominee(s) to the intent that the Security Trustee may at any time without notice present for registration any transfer of the Charged Portfolio to itself or its nominee for the purpose of protecting or perfecting its security over the Charged Port folio and may, upon or at any time after this Charge has become enforceable pursuant to Clause 9.1, without notice present for registration any transfer of the Charged Portfolio to any purchaser.

4.2

The Chargor shall, promptly upon the accrual, offer or issue of any Related Assets (in the form of stocks, shares, warrant or other securities) in which the Chargor has a beneficial interest, procure the delivery to the Security Trustee of (a) all certificates and other documents of title representing such Related Assets and (b) stock transfer forms or other instruments of transfer (executed in blank for or on behalf of the Chargor) in respect of those Related Assets as the Security Trustee may request.

5.	EXERCISE OF RIGHTS IN RESPECT OF CHARGED PORTFOLIO

5.1	Unless and until an Enforcement Event shall have occurred:-

	(a)	all rights and powers conferred by statute or otherwise upon an absolute owner thereof shall:

	(i)	with respect to any part of the Charged Portfolio registered in the name of the Security Trustee or its nominee(s), be exercised as the Chargor may direct; and

	(ii)	with respect to all Charged Portfolio charged by the Chargor by or pursuant to this Charge and registered in the name of the Chargor or its nominee(s), be exercised by the Chargor;

	(b)	the Chargor shall be entitled to collect and retain the full benefit of all dividends or other bonus payments or rights relating to the Charged Portfolio,

Provided that the Chargor’s title and powers relating to the Charged Portfolio shall not be exercised in any manner which would result in any variation of the rights attaching to or conferred by the Charged Portfolio or any part thereof or which in the opinion of the Security Trustee is inconsistent with, or prejudicial to, its security over the Charged Portfolio or any part thereof or which would result in the Security Trustee incurring any cost, expense or liability.

5.2	At any time after the occurrence of an Enforcement Event (and without any consent or authority on the part of the Chargor) the Security Trustee and its nominee(s) may at the Security Trustee’s discretion (in the name of the Chargor or otherwise):

	(a)	exercise or cause to be exercised in respect of any of the Charged Portfolio any voting rights or rights to receive dividends, interest, principal or other payments of money, as the case may be, forming part of the Charged Portfolio and all other powers and rights conferred or exercisable by the bearer or holder thereof; and

	(b)	date any or all, as the Security Trustee in its absolute discretion may deem appropriate, of the letters of resignation of the Directors of the Company provided to the Security Trustee pursuant to Clause 4.1(c) and sign, seal, execute, deliver, acknowledge, file and register all such documents, instruments, agreements, certificates and any other document (including, but not limited to, such letters of resignation) and do any and all such other acts or things as the Security Trustee may in its absolute discretion deem necessary or desirable to remove any or all of the directors from the office of director of the Principal Company.

6.	COVENANTS

The Chargor hereby covenants with the Security Trustee that during the continuance of this security:

	(a)	it will remain the registered and the beneficial owner of the Charged Portfolio charged by it hereunder and that it will not permit any other person other than the Security Trustee (or such person as may be specified for this purpose in writing by the Security Trustee) to be registered as holder of the Charged Portfolio or any part thereof;

	(b)	except for this Charge, it will not create or purport to create or permit to subsist any security on or over the Charged Portfolio or any part thereof or interest therein;

	(c)	it will not sell, transfer or otherwise dispose of the Charged Portfolio or any part thereof or interest therein or attempt or agree so to do;

	(d)	it will not do or cause or permit to be done anything which may in any way depreciate, jeopardise or otherwise prejudice the value to the Security Trustee of the security hereby created;

	(e)	it will not procure or authorise the issue of any further Charged Portfolio or other securities in the Principal Company;

	(f)	it will ensure that the Charged Portfolio which are not registered in the name of the Chargor are at all times registered in the names of persons who have executed declarations of trust in favour of the Chargor in such forms as the Security Trustee may specify, being (if at any time the Security Trustee so requires) persons nominated by the Security Trustee;

	(g)	no amendments shall be made to any provision of the Memorandum and Articles of Association of the Principal Company (save as contemplated by Clause 3.2);

	(h)	it will not take from the Principal Company in respect of the Secured Obligations any security whether personal or forming a charge on the property or assets of the Principal Company and in the event of its having taken or at any time taking such a security the same shall be held by it on trust for the Security Trustee as a security for the Secured Obligations and be deposited by it with the Security Trustee;

	(i)	it will duly and promptly pay all calls, instalments or other payments which may be or become due in respect of the Charged Portfolio as and when the same from time to time become due;

	(j)	it will immediately give to the Security Trustee all notices and other documents received in respect of the Charged Portfolio;

	(k)	it will ensure that the Charged Portfolio are, and at all times remain, free from any restriction on transfer to the Security Trustee or its nominee(s) or to any purchaser from the Security Trustee pursuant to the exercise of any rights or remedies of the Security Trustee under or pursuant to this Charge;

	(l)	it will notify the Security Trustee immediately upon receipt of any notice issued under section 16(1) of the Companies Act, 1990 in respect of all or any of the Charged Portfolio or upon becoming aware that any such notice has been issued or that steps have been taken or are about to be taken to obtain an order for the sale of all or any of the Charged Portfolio under section 16(7) of the Companies Act, 1990;

	(m)	it will notify the Security Trustee immediately upon the appointment of any additional or replacement director or officer of the Principal Company; and

	(n)	it will take such action as the Security Trustee may, in its absolute discretion, direct in the event that it becomes possible (whether under the terms of issue of the Charged Portfolio, a reorganisation or otherwise) to convert or exchange the Charged Portfolio or have them repaid or in the event that any offer to purchase is made in respect of the Charged Portfolio or any proposal is made for varying or abrogating any rights attaching to them.

7.	REPRESENTATIONS AND WARRANTIES

7.1	The Chargor hereby represents and warrants to the Security Trustee that:-

	(a)	it is the absolute beneficial owner, and it and its nominee(s) and the absolute legal owners, of the Charged Portfolio charged by it hereunder;

	(b)	the Charged Portfolio are, save for this Charge, free from all security whatsoever or claims whatsoever and have been validly issued and are fully paid up;

	(c)	the details of the Principal Company’s authorised and issued share capital in Recital F are correct in all respects;

	(d)	it has not received a notice under section 16(1) of the Companies Act, 1990 in respect of all or any of the Charged Portfolio and, so far as it is aware, no such notice has been issued and, so far as it is aware, no steps have been taken or are about to be taken to obtain an order for the sale of all or any of the Charged Portfolio under section 16(7) of the Companies Act, 1990;

	(e)	it has full power and authority to enter into and deliver this Charge, to create the security provided for herein and to perform its obligations hereunder;

	(f)	this Charge constitutes its legal, valid and binding obligations and is an effective security over the Charged Portfolio;

	(g)	the execution and delivery by it of this Charge and the performance by it of its obligations under this Charge do not and will not violate or result in a breach of, or exceed any power granted to it under:

	(i)	its constitutional documents;

	(ii)	any law, rule or regulation to or by which it, the Principal Company or any of their respective businesses, properties or assets is subject or bound; or

	(iii)	any judgment, order, injunction, determination, award or ruling of any court or arbitrator or any judicial, administrative or governmental authority to or by which it or the Principal Company is subject or bound; or

	(iv)	any deed, agreement, contract or other undertaking to which it or the Principal Company is a party or which may be binding on any of them or either of their respective properties or assets;

	(h)	all consents, licences, approvals and authorisations required in connection with the entry into, performance, validity and enforceability of this Charge have been obtained and are in full force and effect;

	(i)	save as otherwise disclosed in writing to the Security Trustee by the Chargor, it is not necessary for the legality, validity, enforceability or admissibility in evidence of this Charge that this Charge or any document relating to it be registered, filed, recorded, or enrolled with any court, registry or public authority in any relevant jurisdiction or that any stamp, registration or similar taxes be paid on or in relation to this Charge;

	(j)	neither it nor the Principal Company is in default under any agreement by which it is bound and no Enforcement Event (or event which, with the giving of notice and/or lapse of time or other applicable conditions might constitute an Enforcement Event) has occurred and is continuing nor will such a default or Enforcement Event (or such event) result from the entry by the Chargor into this Charge or the exercise by the Chargor of its rights under, or the performance by it of any of its obligations, under this Charge; and

	(k)	no action, suit, proceeding, litigation or dispute against the Chargor the Principal Company is currently taking place or pending or, to its knowledge, threatened nor is there subsisting any judgment or award given against any of them before any court, board or arbitration or other body which, in any case, could or might result in any material adverse change in its financial condition.]

7.2	The representations and warranties of the Chargor in Clause 7.1 shall survive the execution of this Charge and will be correct and complied with in all respects so long as any Secured Obligations remain to be paid or discharged as if repeated then by reference to the existing circumstances.

8.	FURTHER ASSURANCES

The Chargor shall at any time, if and when required by the Security Trustee, execute such share transfers and such further legal or other charges or assignments in favour of the Security Trustee as the Security Trustee shall from time to time require over all or any of the Charged

Portfolio charged by it hereunder and all rights relating thereto both present and future (including any substituted securities and any vendor’s lien) and any other transfers or documents the Security Trustee may from time to time require for perfecting its title to the same or for vesting or enabling it to vest the same in itself or its nominee(s) or in any purchaser to secure the Secured Obligations, such further charges or assignments to be prepared by or on behalf of the Security Trustee at the cost of the Chargor and to contain an immediate power of sale without notice, a clause varying the provisions of Section 20 of the Act (regulation of power of sale) accordingly, a clause excluding the provisions of Section 17 of the Act (restriction on consolidation of mortgages) and such other clauses for the benefit of the Security Trustee as the Security Trustee may reasonably require.

9.	SECURITY TRUSTEE’S POWERS

9.1

The Secured Obligations shall be deemed to have become due for the purpose of this Charge and of Section 19 of the Act (exercise of power of sale and other powers), and the security created by the Chargor by or pursuant to this Charge shall become immediately enforceable, and the power of sale and other powers conferred by the Act in each case as varied and extended by this Charge, and the powers and remedies provided for herein shall be immediately exercisable in relation to the security created by or pursuant to this Charge, upon the execution and delivery of this Charge, but, as between the Security Trustee and the Chargor only (and not so as to prejudice or affect any third party), the Security Trustee agrees not to enforce this security or exercise any such powers except at any time after an Enforcement Event occurs.

9.2	Upon or at any time after this Charge has become enforceable pursuant to Clause 9.1 hereof:-

	(a)	the Security Trustee and any nominee of the Security Trustee wherever situate may without further notice and without the restrictions contained in Section 17 of the Act (restriction or consolidation of mortgages) in respect of all or any of the Charged Portfolio, exercise all the powers or rights which may be exercisable by the registered holder of the Charged Portfolio and all other powers conferred on mortgagees by the Act as hereby varied or extended; and

	(b)	any dividends or other payments which may be received or receivable by the Security Trustee or by any nominee in respect of any of the Charged Portfolio may be applied by the Security Trustee as though they were proceeds of sale.

9.3

Section 20 of the Act (regulation of the power of sale) shall not apply in relation to the security created by or pursuant to this Charge and the statutory power of sale contained in the Act (as extended by this Charge) and any other power whether implied by statute or otherwise shall be exercisable immediately upon the security hereby created becoming enforceable. Section 17 of the Act (restriction on consolidation of mortgages) shall not apply to the Charged Portfolio or to any security given to the Security Trustee pursuant to this Charge.

9.4

In exercising the powers referred to in Clause 9.2, the Charged Portfolio or any part thereof may be sold or disposed of at such times in such manner and generally on such terms and conditions and for such consideration as the Security Trustee may think fit. Any such sale or disposition may be for cash, debentures or other obligations, Charged Portfolio, stock, securities or other valuable consideration and be payable immediately or by instalments spread over such period as the Security Trustee shall think fit. No purchaser or other person shall be bound or concerned to see or enquire whether the Security Trustee’s right to exercise any of the powers hereby conferred has arisen or not or be concerned with notice to the contrary or with the propriet y of the exercise or purported exercise of such powers.

9.5

All moneys received by the Security Trustee in the exercise of any powers conferred by this Charge shall be applied after the discharge of all liabilities having priority thereto in or towards satisfaction of the Secured Obligations and in such order as the Security Trustee in its absolute discretion may from time to time conclusively determine (save that the Security Trustee may credit the same to a suspense account for so long and in such manner as the Security Trustee may from time to time determine).

9.6

The Security Trustee shall not be liable to account as mortgagee in possession in respect of all or any of the Charged Portfolio and shall not be liable for any loss upon realisation or for any neglect or failure to present any dividend coupon or any bond or stock drawn for repayment or for any failure to pay any call or instalment or to accept any offer or to notify the Chargor of any such matter or for any other loss of any nature whatsoever in connection with the Charged Portfolio.

9.7

If the Security Trustee receives notice of any subsequent security, assignment or other disposition affecting the Charged Portfolio or any part thereof or interest therein, the Security Trustee may open a new account for the Chargor; if the Security Trustee does not open a new account then unless the Security Trustee gives express written notice to the contrary to the Chargor it shall nevertheless be treated as if it had done so at the time when it received such notice and as from that time all payments made by or on behalf of the Chargor to the Security Trustee shall be credited or be treated as having been credited to the new account and shall not operate to reduce the amount due from the Chargor to the Security Trustee at the time when it received not ice.

10.	RECEIVER

10.1

After the occurrence of an Enforcement Event or if requested by the Chargor, the Security Trustee may by writing (acting through an authorised officer of the Security Trustee) without notice to the Chargor appoint one or more persons to be receiver of the whole or any part of the Charged Portfolio (each such person being (a) entitled to act individually as well as jointly and (b) for all purposes deemed to be the agent of the Chargor).

10.2	In addition to having the powers of the Security Trustee conferred by Clause 9, each person appointed pursuant to Clause 10.1 shall have, in relation to the part of the Charged Portfolio in respect of which he was appointed, all the powers conferred by the Act on a receiver appointed under the Act.

11.	POWER OF ATTORNEY

The Chargor hereby by way of security for the performance of its obligations under this Charge irrevocably appoints the Security Trustee, each and every person to whom the Security Trustee from time to time shall have delegated the exercise of the power of attorney conferred by this Clause 11 and any receiver and each of them jointly and also severally to be the attorney of the Chargor (with full powers of substitution and delegation) and in its name or otherwise and on its behalf and as its act and deed to sign, seal, execute, deliver, perfect and do all deeds, instruments, acts and things which the Chargor may or ought to do under the covenants and provisions contained in this Charge and generally in its name and on its behalf to exercise all or any of the powers, authorities and discretions conferred by or pursuant to this Charge or by any statute or common law on the Security Trustee or any receiver or which may be required or which the Security Trustee or a ny receiver shall deem fit for carrying any sale, charge, mortgage or dealing by the Security Trustee or by any receiver into effect or for giving to the Security Trustee or any receiver the full benefit of these presents (including the exercise of an right of a legal or beneficial owner of the Charged Portfolio) and generally to use the name of the Chargor in the exercise of all or any of the powers, authorities or discretions conferred on the Security Trustee or any receiver and the Chargor hereby ratifies and confirms and agrees to ratify and confirm whatsoever any such attorney shall do or purport to do by virtue of this Clause 11 and all money expended by any such attorney shall be deemed to be expenses incurred by the Security Trustee hereunder.

12.	CONTINUING SECURITY/SUBROGATION

12.1

This security shall be a continuing security notwithstanding the bankruptcy, liquidation or incapacity for any reason of the Chargor or the Principal Company or any settlement of account or any other matter whatsoever and is in addition to and shall not merge with or otherwise prejudice or affect any contractual or other right or remedy or any guarantee, lien, pledge, bill, note, mortgage or other security (whether created by the deposit of documents or

otherwise) now or hereafter held by or available to the Security Trustee and shall not be in any way prejudiced or affected thereby or by the invalidity thereof or by the Security Trustee now or hereafter dealing with, exchanging, releasing, varying or abstaining from perfecting or enforcing any of the same or any rights which it may now or hereafter have or giving time for payment or indulgence or compounding with any other person liable.

12.2

Until the Secured Obligations have been paid or satisfied in full (and notwithstanding payment of a dividend in any liquidation or bankruptcy or under any compromise or arrangement), the Chargor waives all rights of subrogation against the Principal Company and agrees not to demand or accept or to negotiate, assign, charge or otherwise dispose of any moneys, obligations or liabilities now or hereafter due or owing to it by the Principal Company or to take any step to enforce any right against the Principal Company for the same or to claim or prove in competition with the Security Trustee in the bankruptcy or liquidation of the Principal Company. If the Chargor acts in breach of this Clause, anything so received and any benefit derived directly or indirec tly by it therefrom shall be held in trust for the Security Trustee as a continuing security for the Secured Obligations.

13.	AVOIDANCE OF PAYMENTS

Any release, discharge or settlement between the Chargor and the Security Trustee shall be conditional upon no security, disposition or payment to the Security Trustee by the Chargor or any other person being void, set aside or ordered to be refunded pursuant to any enactment of law relating to liquidation, administration, examinership or insolvency or for any other reason whatsoever, and if such condition shall not be fulfilled, the Security Trustee shall be entitled to enforce this Charge subsequently to the full extent of the Secured Obligations as if such release, discharge or settlement had not occurred and any such payment had not been made. The Security Trustee may in its absolute discretion retain the security hereby created for a period of one month plus such statutory period within which such security, disposition or payment can be avoided, set aside or ordered to be refunded after the Secured Obligations have been paid or discharged in full, notwithst anding any release, discharge or settlement given or made by the Security Trustee on, or as a consequence of, such termination of liability.

14.	PROVISO FOR REDEMPTION

Subject to Clause 13, upon the Security Trustee being satisfied that:-

	(a)	no liabilities actual or contingent of the Chargor under the Finance Documents remain outstanding; and

	(b)	all Secured Obligations (including any under this Charge or any other Security Documents) have been irrevocably received or recovered by the Security Trustee in full,

the Security Trustee shall at the request and expense of the Chargor promptly release the assets hereby charged (or such part thereof as may then remain vested in the Security Trustee) from the security created by or pursuant to this Charge.

15.	INDEMNITY

The Chargor covenants with the Security Trustee fully to indemnify the Security Trustee and its subsidiaries and affiliates and their respective officers, agents, servants and employees and the dependents of any such officers, agents, servants and employees against all losses, liabilities, claims, proceedings, taxes, penalties, fines, costs, charges and expenses incurred (whether before or after this Charge has become enforceable pursuant to Clause 9.1):

	(a)	in consequence of anything done or purported to be done by or on behalf of the Security Trustee under this Charge or any other document relating to this Charge or of any failure by the Chargor to comply with its obligations thereunder or otherwise in connection therewith; or

	(b)	in consequence of any payment in respect of the Secured Obligations (whether made by the Chargor or any other person) being impeached or declared void for any reason whatsoever; or

	(c)	in consequence of the preparation, registration or perfecting of this Charge (or the charge herein contained), or other document relating to it; or

	(d)	in consequence of the exercise, or attempted or purported exercise, or the consideration of the exercise, by or on behalf of the Security Trustee of any of the powers of the Security Trustee or any other action taken by or on behalf of the Security Trustee with a view to or in connection with the recovery by the Security Trustee of the Secured Obligations from the Chargor or any other person; or

	(e)	in consequence of the carrying out or consideration of any other act or matter which the Security Trustee or any other person on behalf of the Security Trustee may consider to be necessary for the preservation of the Charged Portfolio.

16.	DEFAULT INTEREST

In the event that the Security Trustee does not receive on the due date any sums due under this Charge in respect of the Secured Obligations, the Chargor shall pay to the Security Trustee on demand interest on that sum calculated day by day from the date of the relevant demand until full discharge (both before and after judgment) calculated at the rate specified in the Finance Documents and such amounts and interest shall form part of the Secured Obligations and accordingly be secured on the Charged Portfolio under the first fixed charge and pledge contained in this Charge.

17.	PAYMENTS

All payments of whatever nature to be made by the Chargor to the Security Trustee under this Charge shall be made to the Security Trustee free and clear of and without deduction for or on account of any tax of any kind unless the Chargor is obliged by law to make the payment subject to the deduction or withholding of tax, in which case, the relevant payment shall be increased to the extent necessary to ensure that, after the making of the deduction or withholding, the Security Trustee receives and retains (free from any liability in respect of any deduction or withholding) a net sum equal to the sum which it would have received and so retained had no deduction or withholding been made or required to be made. The Chargor shall indemnify the Security Trustee against any liability of the Security Trustee in respect of any such tax and shall provide the Security Trustee from time to time, on request, with evidence satisfactory to the Security Trustee that the Chargo r has remitted to the relevant taxation authority any such tax which it was obliged to deduct.

18.	ASSIGNMENT

18.1	This Charge shall be binding upon and enure to the benefit of each of the parties and their respective successors and permitted assigns.

18.2	The Chargor may not assign or transfer all or any of its rights, benefits or obligations under this Charge.

18.3

In the event that the any Finance Document is assigned in whole or in part by the Security Trustee, then the Security Trustee may assign its rights, powers and the benefit of this Charge to the assignee or transferee of such Finance Document or any part thereof, and, in that event, the Chargor shall execute such documents as the Security Trustee may specify with a view to perfecting such assignment or transfer or, where necessary, shall execute further security documentation in favour of the assignee or transferee in like form to this Charge.

19.	COSTS, EXPENSES AND STAMP DUTY

19.1	All costs and expenses (including any tax liability and any legal costs and, in each case, value added tax or any similar tax charged or chargeable in respect thereof) incurred by the Security Trustee or, as the case may, any receiver appointed hereunder:

	(a)	in the negotiation, preparation and execution of this Charge and the completion of the transactions contemplated herein;

	(b)	in the exercise of any of the rights, remedies and powers conferred on the Security Trustee by this Charge or in the perfection or enforcement of any other security for or guarantee in respect of the Secured Obligations or in connection with any proceedings instituted by or against the Security Trustee in relation to the title to the whole or any part of the Charged Portfolio; and

	(c)	as a consequence of or holding the security constituted by this Charge or any claims or proceedings in relation thereto or to any of the Charged Portfolio,

shall be reimbursed by the Chargor to the Security Trustee on demand on a full indemnity basis and shall carry interest from the date of such demand until so reimbursed at the rate referred to in Clause 16.

19.2

The Chargor will promptly pay any stamp and other documentary duties and registration taxes to which this Charge or any transfer of the Charged Portfolio (or any part thereof) contemplated hereby may be subject to or give rise and will fully indemnify the Security Trustee on demand of the Security Trustee from and against any loss or liability suffered or incurred as a result of any delay or omission by the Chargor to pay any such duties or taxes.

19.3	The cost of the Chargor complying with any of its obligations under this Charge (including, without limitation, its obligations under Clause 3 and Clause 8) shall be borne by the Chargor.

20.	NOTICES

20.1

Any notice or other communication to be given under or for the purposes of this Charge shall be in writing and shall be treated as properly served or given if hand delivered or sent by registered post or facsimile to the relevant person at the following address or facsimile number (or such other address or facsimile number as that person may have designated in writing from time to time to the person giving the notice):

	the Security Trustee:	Address:	[•]

		Facsimile No:	[•]

		Attention:	[•]

	the Chargor:	Address:	[•]

		Facsimile No:	[•]

		Attention:	[•]

	(a)	in the case of a letter which is hand delivered, when actually delivered and, in the case of a letter which is sent by registered post, on the second day after posting (or on actual receipt, if earlier); or

	(b)	in the case of transmission by facsimile, at the time of transmission.

20.2

Provided that any communication or document to be made or delivered to the Security Trustee shall be effective only when received by the Security Trustee and then only if the same is expressly marked for the attention of the department and officer referred to above (or such other department as the Security Trustee shall from time to time specify for this purpose). Any such notice or other communication to the Chargor shall be deemed to have been received by the Chargor:

21.	LIMITED RECOURSE PROVISIONS

21.1

If, upon the Security Trustee having realised the Charged Portfolio, the net proceeds of realisation are insufficient for the Chargor to discharge the Secured Obligations, then the claims of the Security Trustee in respect of any outstanding amounts and obligations shall be extinguished and the Security Trustee shall not take any further action against the Chargor to recover any sum in respect of such amounts and obligations and no debt shall be owed by the Chargor to the Security Trustee in respect of such amounts or obligations. In particular, the

Security Trustee or any other party acting on their behalf may not institute, or join with any other person in bringing, instituting or joining, insolvency proceedings (whether court based or otherwise) or for the appointment of an examiner, liquidator or analogous person in relation to the Chargor. This Clause 21 shall not prohibit the Security Trustee from appointing a Receiver hereunder or preclude the Security Trustee from proving or claiming in an insolvency of the Chargor.

22.	MISCELLANEOUS

22.1	This Charge together with the other documents referred to herein embodies the entire agreement between the parties and supersedes all previous statements, representations and agreements between the parties relating to the subject matter of this Charge.

22.2

Time shall be of the essence of this Charge. No delay or omission on the part of the Security Trustee in exercising any right, power or remedy under this Charge shall impair the right, power or remedy or be construed as a waiver thereof nor shall any single or partial exercise of any such right, power or remedy preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies provided in this Charge are cumulative and not exclusive of any rights, powers and remedies provided by law. No waiver by the Security Trustee of any terms of this Charge, and no approval or consent by it, shall be effective unless in writing.

22.3	If at any time any one or more of the provisions in this Charge is or becomes invalid, illegal or unenforceable in any respect under any law or regulation, the validity, legality and enforceability of the remaining provisions of this Charge shall not be in any way affected or impaired thereby.

22.4	This Charge may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when executed and delivered, shall constitute an original, but all the counterparts shall together constitute but one and the same instrument.

22.5	In any proceedings relating to this Charge a statement as to any amount due to the Security Trustee under this Charge which is certified as being correct by an officer or agent of the Security Trustee shall, in the absence of manifest error, be conclusive evidence that such amount is in fact due and payable.

23.	GOVERNING LAW AND JURISDICTION

23.1	This Charge shall be governed by and construed in accordance with the laws of Ireland.

23.2	For the exclusive benefit of the Security Trustee, the Chargor irrevocably agrees that the courts of Ireland are to have jurisdiction to settle any disputes which may arise out of or in connection with this Charge and that accordingly any suit, action or proceedings arising out of or in connection with this Charge (‘‘Proceedings’’) may be brought in such courts.

23.3

The Chargor irrevocably waives any objection which it may have now or hereafter to the bringing of any Proceedings in any such court as is referred to in this Clause 23 and any claim that any Proceedings have been brought in an inconvenient forum and further irrevocably agrees that a judgment in any Proceedings brought in any court referred to in this Clause 23 shall be conclusive and binding upon the Chargor and may be enforced in the courts of any other jurisdiction. The Chargor undertakes to enter an unconditional appearance within 14 days after the completion of any service of process in any Proceedings. The Chargor hereby consents to the service by post of any process issued in that jurisdiction and appoints the Principal Company at [•] to be i ts agent for the acceptance of any process issued in connection with this Charge. Nothing herein shall affect the right to serve process in any other manner permitted by law.

23.4	Nothing contained in this Clause 23 shall limit the right of the Security Trustee to take Proceedings against the Chargor in any court of competent jurisdiction, nor shall the taking of any Proceedings in one or more jurisdictions preclude the taking of any Proceedings in any other jurisdiction whether concurrently or not.

IN WITNESS WHEREOF the parties have executed this Charge on the date written above.

SCHEDULE

(Letter of Resignation)

To:	(1)	[Security Trustee]

	(2)	The Secretary [Principal Company]

[Date]

Dear Sirs

[Facility Agreement made or to be made between [                    ] and [                    ] (the ‘‘Facility Agreement’’)]

1.	I hereby resign as a director of the Principal Company and confirm that I have no claims against the Principal Company for loss of office, arrears of pay or otherwise howsoever.

2.	This resignation is to be effective as at the date hereof. You are hereby authorised to complete this letter by dating the same at any time after service of a demand notice pursuant to clause [•] of the Facility Agreement.

Yours faithfully

THE CHARGOR

SIGNED, SEALED AND DELIVERED
By
on behalf of
Babcock & Brown Air Funding I Limited
in the presence of:

THE SECURITY TRUSTEE

SIGNED by
on behalf of
Deutsche Bank Trust Company Americas
in the presence of:

EXHIBIT G
SECURITY TRUST AGREEMENT

FORM OF DEED OF CHARGE OVER A BANK ACCOUNT

[Form to be confirmed/provided by McCann FitzGerald]

Dated [                    ], 2007

BABCOCK & BROWN AIR FUNDING I LIMITED

and

DEUTSCHE BANK TRUST COMPANY AMERICAS

DEED OF CHARGE
OVER A BANK ACCOUNT

THIS DEED OF CHARGE (the ‘‘Deed’’) is dated [                    ], 2007 and made BETWEEN BABCOCK & BROWN AIR FUNDING I LIMITED, a company formed under the laws of Bermuda and having its registered office at [                            ] (the ‘‘Chargor’’); and DEUTSCHE BANK TRUST COMPANY AMERICAS in its capacity as security trustee, having an office at 60 Wall Street, 26^th Floor, MS NYC60-2606, New York, New York 10005-2858 (the ‘‘Chargee’’).

RECITALS

A.	The Chargor is the beneficial owner of the Account (as hereinafter defined).

B.	The Chargor has agreed to enter into this Deed for the purposes of securing payment by the Chargor of the Secured Obligations (as hereinafter defined).

NOW THIS INDENTURES WITNESSETH and it is hereby agreed by and between the parties hereto as follows:

1.    Definitions

1.1.    In this Deed:

‘‘Account’’ means the VAT Refund Account (Non-Trustee Account) bearing account no. [    ] of the Chargor held with the Bank or any replacement or reinstatement of any such account whether by current account or deposit account;

‘‘Account Balance’’ means the balance for the time being standing to the credit of the Account together with all interest thereon and the debt represented thereby;

‘‘Bank’’ means [                                                ];

‘‘Cash Manager’’ means Deutsche Bank Trust Company Americas in its capacity as cash manager;

‘‘Encumbrance’’ means any mortgage, charge, pledge, lien, assignment by way of security, hypothecation, security interest, title retention, preferential right or trust arrangement and any other agreement or arrangement having the effect of security;

‘‘Indenture’’ means the trust indenture dated on or about the date hereof and entered into between the Chargor, the Operating Bank, the Cash Manager, Deutsche Bank Trust Company Americas as trustee, BNP Paribas as the Initial Liquidity Facility Provider and the Policy Provider (each as defined therein);

‘‘Secured Obligations’’ means the Secured Obligations as defined in the Security Trust Agreement;

‘‘Security Period’’ means the period beginning on the date hereof and ending on the date upon which the Chargee has confirmed in writing that all the Secured Obligations which have or may arise have been irrevocably paid and discharged; and

‘‘Security Trust Agreement’’ means the security trust agreement dated on or about the date hereof and entered into between, inter alia, the Chargor and the Chargee.

All terms not specifically defined above shall bear the same meanings as are ascribed to them in the Security Trust Agreement.

2.    Interpretation

2.1.    Words and phrases the definition of which is contained or referred to in Section 2 of the Companies Act, 1963 shall be construed as having the meaning thereby attributed to them. Words importing the singular shall include the plural and vice versa and words importing persons shall include corporations.

2.2.    References to statutory provisions shall unless the contrary is clearly stated be a reference to statutory provisions operative in Ireland and will be construed as references to those provisions as respectively amended or re-enacted (whether before or after the date hereof) from time to time and shall include any provisions of which they are re-enactments (whether with or without modification) and shall also include any subordinate legislation made from time to time under those provisions.

2.3.    Words such as hereunder, hereto, hereof and herein shall unless the context clearly indicates to the contrary refer to the whole of this Deed and not to any particular section or clause thereof.

2.4.    Save as otherwise provided herein any reference to a section, clause, paragraph or a sub-paragraph shall be reference to a section, clause, paragraph or a sub-paragraph (as they may be) of this Deed.

2.5.    The headings are inserted for convenience only and shall not affect the construction of this Deed.

2.6.    Reference to any document includes that document as amended, novated or supplemented from time to time.

3.    Covenant to Pay and Perform

3.1.    The Chargor hereby covenants and undertakes with the Chargee that it shall pay and discharge the Secured Obligations as and when the same become due.

3.2.    The Chargor hereby covenants that it shall at all times comply with and observe all terms and conditions applicable to the Account contained in the Security Trust Agreement, the Indenture and this Deed.

4.    Charge

4.1.    As security for the Secured Obligations the Chargor as beneficial owner hereby charges:

4.1.1.    by way of a first fixed charge in favour of the Chargee all of its present and future right, title and interest in and to the Account and the Account Balance; and

4.1.2.    by way of first floating charge in favour of the Chargee all of its present and future rights, title and interest in and to such of the Account and the Account Balance as may be deemed not have been charged by way of first fixed charge pursuant to clause 4.1.1,

provided that upon irrevocable payment in full of the Secured Obligations or upon the occurrence of any of the circumstances set out in Section 9.06 of the Security Trust Agreement, the Chargee will forthwith at the request and expense of the Chargor release the Account and the Account Balance to the Chargor. During the continuance of the security created hereby, the Chargor shall not, except with the prior written consent of the Chargee, or (unless otherwise notified by the Chargee) by the Cash Manager as agent of the Chargee be entitled to withdraw the whole or part of the Account Balance for any purpose save as provided in the Security Trust Deed and/or the Indenture.

5.    Continuing Security

5.1.    The security constituted by this Deed shall be continuing and not satisfied by any intermediate payment or satisfaction of any part of the Secured Obligations but shall secure the ultimate balance of the Secured Obligations provided that if upon final satisfaction of the Secured Obligations there exists any right on the part of the Chargor or any other person to draw funds or otherwise which, if exercised, would or might cause the Chargor to become actually or contingently liable to the Chargee whether as principal debtor or as surety for another person then the Chargee shall be entitled to retain this security and all rights, remedies and powers conferred thereby for so long as shall or might be necessary to secure the discharge of such actual or contingent liability as aforesaid. The sec urity hereby given shall be in addition to and shall not be affected by any other Encumbrance now or hereafter held by the Chargee for all or any of the Secured Obligations.

5.2.    Where any discharge (whether in respect of the obligations of the Chargor or any security therefor or otherwise) is made in whole or in part or any arrangement is made on the faith of any payment, security or other disposition which is avoided or must be repaid on bankruptcy, liquidation, by virtue of Section 1001 of the Taxes Consolidation Act, 1997 or otherwise without limitation, this Deed shall continue in force as if there had been no such discharge or arrangement.

5.3.    The Chargee shall be entitled to concede or compromise in good faith any claim that any such payment, security or other disposition is liable to avoidance or repayment.

5.4.    This Deed shall not be affected by any act, omission or circumstance which but for this provision might operate to release or otherwise diminish this Deed or affect such obligations including without limitation and whether or not known to either of the Chargor or the Chargee:

5.4.1.    any time or waiver granted to or composition with any person whatsoever; or

5.4.2.    the taking, variation, compromise, renewal or release of, or refusal or neglect to perfect or enforce, any rights, remedies or securities against or granted by any other person whatsoever; or

5.4.3.    any variation of, or extension of the due date for performance of, any term of any agreement or security or any increase in the Secured Obligations to the intent that this Deed shall apply to such term as varied or in respect of the extended due date or such increase; or

5.4.4.    any irregularity, unenforceability, invalidity or frustration of any obligations of any person whatsoever under any agreement or any other document or security, or any present or future law or order of any government or authority (whether of right or in fact) purporting to reduce or otherwise affect any of such obligations, to the intent that this Deed shall remain in full force and be construed accordingly as if there were no such irregularity, unenforceability, invalidity, frustration, law or order; or

5.4.5.    any legal limitation, disability, incapacity or other circumstances relating to any such party or any other person.

5.5.    The Chargor waives any right it may have of first requiring the Chargee to proceed against or claim payment from anyone else or enforce any guarantee or security granted by any other person before enforcing this Deed.

5.6.    Until all amounts which may be or become payable by the Chargor to the Chargee shall have been irrevocably paid and discharged in full, the Chargee may refrain from applying or enforcing any other security, moneys or rights held or received by the Chargee in respect of such amounts or apply and enforce the same in such manner and order as the Chargee sees fit (whether against such amounts or otherwise) and the Chargor shall not be entitled to the benefit of the same.

5.7.    Unless otherwise agreed the Chargor shall not be entitled to any right of contribution or subrogation by virtue of any realisation of this security.

5.8.    Deutsche Bank Trust Company Americas, in its capacity as security trustee hereunder, shall be afforded all of the rights, powers, immunities and indemnities set forth in the Security Trust Agreement as if such rights, powers, immunities and indemnities were specifically set forth herein.

6.    Prohibition on Encumbrances and Disposals

The Chargor undertakes that (except with the prior written consent of the Chargee or as otherwise provided herein or contemplated by the Security Trust Agreement) during the Security Period it will not except in favour of the Chargee:

6.1.    create or permit to subsist any Encumbrance upon all or any part of the Account; or

6.2.    assign, transfer or otherwise dispose of all or any part of the Account.

7.    Maintenance Of The Security

7.1.    The Chargor will (if requested by the Chargee and at the cost of the Chargor) institute and maintain all such proceedings as may be necessary or expedient to preserve or protect the interest of the Chargee and the Chargor in the Account.

7.2.    The Chargor will (except as the Chargee may otherwise have consented in writing):

7.2.1.    duly perform its obligations under the Security Trust Agreement, the Indenture and this Deed and notify the Chargee of any default thereunder;

7.2.2.    not agree to any variation of any agreement relating to the Account or release any other party thereto from any of their respective obligations thereunder, waive any such obligations, give any consent which may be given thereunder or submit any dispute to arbitration thereunder;

7.2.3.    not exercise any right or power conferred on it by or available to it under or in respect of the Account for any purpose unless and until requested to do so by the Chargee or (unless otherwise notified by the Chargee) by the Cash Manager as agent of the Chargee. Upon request by the Chargee or the Cash Manager, as the case may be, the Chargor will exercise such right or power as the Chargee or the Cash Manager, as the case may be, may direct;

7.2.4.    not accept or make any claim that any agreement relating to the Account has been frustrated or has ceased to be in full force;

7.2.5.    not assign or otherwise dispose of all or any of its rights under any agreement relating to the Account.

8.    Enforcement of Security

8.1.    The Chargor will not take any action which would result in any sums being paid out of the Account for any purpose save with the prior written authorization of the Chargee. In addition, the Chargor will execute such irrevocable mandates and instructions for payment or otherwise as the Chargee may require in order to ensure that no monies are paid out of the Account save with the prior written authorization of the Chargee or (unless otherwise notified by the Chargee) by the Cash Manager as agent of the Chargee. In the event of any conflicting instructions, those of the Chargee shall prevail.

8.2.    On or after any of the Secured Obligations have become due, the security hereby created shall become immediately enforceable without any need for demand on or notice to the Chargor and the Chargee may apply the Account Balance in accordance with this Deed. The parties hereby acknowledge that any proceeds from the enforcement of the security created by this Deed shall be applied in accordance with the payment and priority provisions set out in the Trust Indenture

8.3.    When and at any time after this security becomes enforceable in accordance with clause 8.2, the Chargee shall be entitled without notice immediately to put into force and exercise all the powers and remedies possessed by it according to law as Chargee of the Account as and when it may see fit and in particular:

8.3.1.    to take over or institute all such proceedings in connection with the Account as the Chargee in its absolute discretion thinks fit and to discharge, compound, release or compromise all or any of the Account Balance or claims in respect thereof;

8.3.2.    to take possession of the Account and the Account Balance;

8.3.3.    to implement any contracts relating to the Account, or to agree with any other party thereto to determine the same on such terms and conditions as the Chargee and such party may agree; and

8.3.4.    to utilise some or all of the Account Balance in discharge of the Secured Obligations in accordance with the terms of the Indenture and to perform or cause to be performed all acts and things requisite or desirable according to the law of the country in which the Account is situate for the purpose of giving effect to the exercise of any of the said powers, authorities and discretions.

8.4.    The foregoing rights and powers of the Chargee shall be in addition and without prejudice to all statutory rights and powers of the Chargee under the Conveyancing and Law of Property Acts, 1881 to 1911 or otherwise but so that:

8.4.1.    Any statutory power of sale and appointment of a receiver shall be exercisable without the restrictions contained in Section 20 of the Conveyancing and Law of Property Act, 1881;

8.4.2.    Any receiver so appointed shall be agent of the Chargor and the Chargor alone shall be responsible for his acts, defaults or remuneration;

8.4.3.    The restriction on the right of consolidating mortgages contained in Section 17 of the Conveyancing and Law of Property Act, 1881 shall not apply to this Deed or to any other security given; and

8.4.4.    The Chargee shall not be liable to account as mortgagee in possession.

9.    Notice and Further Assurance

The Chargee will give notice to the Bank of the charge contained herein in the form of the relevant part of the First Schedule hereto or in such other form and will procure (so far as it is able) that the Bank acknowledges such notice to the Chargee in the form set out in the Second Schedule or as required by the Chargee. At any time and from time to time upon the written request of the Chargee, the Chargor shall execute and deliver any and all such further instruments and documents as the Chargee may require for the purpose of obtaining the full benefit of the charge over the Account and Account Balance effected hereby and of the rights and powers hereby granted.

10.    Power of Attorney

10.1.    The Chargor hereby by way of security irrevocably appoints and constitutes the Chargee and any receiver appointed hereunder (the ‘‘Attorney’’) but with effect only as and from the date upon which this security becomes enforceable the attorney of the Chargor on its behalf and in the name of the Chargor to do all acts and execute all documents which the Chargor could itself do in relation to the Account or in connection with any of the matters provided for in this Deed including without limitation the execution of any transfer or other assurance or any instructions whatsoever in respect of the Account.

10.2.    The Attorney may:

10.2.1.    ask, require, demand, receive and give acquittance for any sum forming part of or in connection with the Account;

10.2.2.    endorse any cheques or other instruments or orders in connection therewith; and

10.2.3.    make any claims or take any action or institute any proceedings which may be necessary or advisable to protect the interest of the Chargee in all or any part of the Account.

11.    Protection of Third Parties

No purchaser or other person dealing with the Chargee or with its attorneys or agents shall be concerned to enquire (i) whether any power exercised or purported to be exercised by it has become exercisable, (ii) whether any money remains due on the security hereby created, (iii) as to the propriety or regularity of any of its or their actions, or (iv) as to the application of any

money paid to it. In the absence of malfeasance on the part of such purchaser or other person such dealings shall be deemed so far as regards the safety and protection of such purchaser or other person to be within the powers hereby conferred and to be valid accordingly.

12.    Notice

12.1.    Any notice to be given or served hereunder shall be in writing and shall be duly expressed to be a notice hereunder and shall be deemed duly given or served if sent by fax at the time of transmission (subject to the correct code or fax number being received) or if posted 48 hours after the time at which it was posted or, if delivered by hand, at the time of delivery if such day is a Business Day or if such day is not a Business Day on the next following Business Day, to the party to whom it is to be given or served at its address hereinafter set out or such other addresses or fax numbers as such party shall have previously communicated for such purpose by notice to the party giving such first-mentioned notice or demand. The address and fax number for service on the parties hereto are

Chargor:
			Babcock & Brown Air Funding I Limited
			[                                        ]
			[                        ]
			[                        ]
			Fax: [                                ]
			(Attention: The Company Secretary)
Chargee:
			Deutsche Bank Trust Company Americas
			60 Wall Street 26th Floor
			MS NYC60-2606 New York
			New York 10005-2858
			Fax: (212) 797-8606 (Attention: [Lou Bodi])

12.2.    Either party giving or serving a notice hereunder by fax shall, but without prejudice to the validity of the notice given, send a copy of the notice by pre-paid registered post to the other party to that party’s address hereinbefore set out or to such other address as such party shall have previously communicated by notice to the party giving such first mentioned notice.

12.3.    All notices given or served pursuant to or otherwise relating to this Deed shall be in the English language.

12.4.    Any notice served hereunder shall be deemed to have been received by the party so receiving such notice on the Business Day of such receipt only if the notice has been received during usual business hours on such Business Day, and if the notice is received outside usual business hours it shall be deemed to have been received on the next following Business Day.

13.    Assignment

This Deed shall be binding upon the Chargor, its successors and assigns until the security created hereunder is released in accordance with this Deed. The Chargee shall, upon prior written notice to the Chargor, be entitled to assign the benefit of this Deed or any part thereof to any successor trustee appointed in accordance with terms of the Security Trust Agreement. In the event of any such assignment by the Chargee the Chargor shall at the request of the Chargee join in any such assignment so as to cause full beneficial title to the Charge created hereby to be passed to the relevant assignee.

14.    Limited Recourse and Non-Petition

If, upon the Security Trustee having realised the Account and the Account Balance, the net proceeds of realisation are insufficient for the Chargor to discharge the Secured Obligations, then

the claims of the Security Trustee in respect of any outstanding amounts and obligations shall be extinguished and the Security Trustee shall not take any further action against the Chargor to recover any sum in respect of such amounts and obligations and no debt shall be owed by the Chargor to the Security Trustee in respect of such amounts or obligations. In particular, the Security Trustee or any other party acting on their behalf may not institute, or join with any other person in bringing, instituting or joining, insolvency proceedings (whether court based or otherwise) or for the appointment of an examiner, liquidator or analogous person in relation to the Chargor. This Clause 14 shall not prohibit the Security Trustee from appointing a servicer hereunder or preclude the Security Trustee from proving or claiming in an insolvency of the Chargor.

15.    Remedies Cumulative

The provisions of this Deed and the rights and remedies of the parties under this Deed are cumulative and are without prejudice and in addition to any rights or remedies such party may have at law or in equity; no exercise by a party of any one right or remedy under this Deed, or at law or in equity, shall (save to the extent, if any, provided expressly in this Deed, or at law or in equity) operate so as to hinder or prevent the exercise by it of any other such right or remedy. Each and every right and remedy may be exercised from time to time as often and in such order as may be deemed expedient by the Chargee.

16.    Waiver

The rights of each of the parties hereto shall not be prejudiced or restricted by any indulgence or forbearance extended to another party or other parties and no waiver by any party in respect of any breach shall operate as a waiver in respect of any subsequent breach.

17.    Further Assurances

The Chargor shall from time to time execute such further assurances and do such things and afford to the Chargee such assistance as the Chargee may reasonably require for the purpose of vesting in the Chargee or its nominee the full benefit of any assets, rights and benefits to be transferred to the Chargee under this Deed (including, so far as consistent with the terms of this Deed, the benefit of any rights accruing against third parties, whether such rights have or have not accrued or become enforceable at the date of signature hereof) and the registration thereof.

18.    Counterparts

This Deed may be executed in more than one counterpart, each of which shall be deemed to constitute an original.

19.    Costs

The Chargor shall pay all reasonable legal costs and expenses, including stamp duty, incurred by the Chargee in the preparation, execution and enforcement of this Deed.

20.    Variation

This Deed may not be released, discharged, supplemented, amended, varied or modified in any manner except by an instrument in writing signed by a duly authorised officer or representative of each of the parties hereto.

21.    Forbearance

No failure or delay by the Chargee in exercising any right or remedy shall operate as a waiver thereof nor shall any single or partial exercise or waiver of any right or remedy prevent its further exercise or the exercise of any other right or remedy.

22.    Whole Agreement

This Deed (including the documents and instruments referred to herein) supersedes all prior representations, arrangements, understandings and agreements between the parties hereto relating to the subject matter hereof and sets forth the entire complete and exclusive agreement and

understanding between the parties hereto relating to the subject matter hereof; no party has relied on any representation, arrangement, understanding or agreement (whether written or oral) not expressly set out or referred to in this Deed.

23.    Severability

If any term or provision in this Deed shall be held to be illegal or unenforceable, in whole or in part, such term or provision or part shall to that extent be deemed not to form part of this Deed and the enforceability of the remainder of this Deed shall not be affected.

24.    Governing Law And Jurisdiction

This Deed shall be governed by and construed in accordance with Irish law and each party agrees to submit to the exclusive jurisdiction of the Courts of Ireland as regards any claim or matter arising under this Deed.

25.    Limitation Of Liability

It is expressly understood and agreed by the parties hereto that (a) this Deed is executed and delivered by Deutsche Bank Trust Company Americas, not individually or personally but solely as the Security Trustee in the exercise of the powers and authority conferred and vested in it, (b) nothing herein contained shall be construed as creating any liability on the Security Trustee, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the Chargor and by any person claiming by, through or under such parties and (c) under no circumstances shall the Security Trustee be personally liable for the payment of any indebtedness or expenses of or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Chargor under this Deed.

[Remainder of page intentionally left blank]

IN WITNESS whereof this Deed has been duly executed on the date first above written.

SIGNED, SEALED AND DELIVERED

for an on behalf of

BABCOCK & BROWN AIR FUNDING I LIMITED

by its duly appointed attorney in the presence of:

SIGNED for and on behalf of

DEUTSCHE BANK TRUST COMPANY AMERICAS

in the presence of:

FIRST SCHEDULE

From:    Babcock & Brown Air Funding I Limited (the ‘‘Chargor’’)

To:           [        ]

Cc:         Deutsche Bank Trust Company Americas (the ‘‘Security Trustee’’)

[                    ], 2007

Dear Sirs,

We hereby give you notice that by a Deed of Charge (the ‘‘Deed of Charge’’) dated [                ], 2007 as the same may be amended, extended, varied, supplemented or replaced from time to time (a copy of which is attached hereto) a first fixed and floating charge was granted by us to the Security Trustee (which shall include it successors and assigns) over all rights, title and interest in and to all sums of money which may now or in the future be held by us with you in account number [     ] designated Non-Trustee Account at [                            ] (as replaced or reinstated from time to time, whether by current or deposit account) (the ‘‘Account’’), together with all interest from time to time earned thereon and the debts represented by such sums and interest.

Please note that the Security Trustee has been irrevocably appointed by us as our true and lawful attorney to do (inter alia) all acts and things which we could do and to act in relation to the administration or enforcement or attempted enforcement of the Deed of Charge and you are required to follow all instructions that the Security Trustee or (unless you are otherwise notified by the Security Trustee) the Cash Manager may give to you in accordance with the terms of the Deed of Charge. In the event of conflicting instructions, those of the Security Trustee shall prevail.

1.    We hereby irrevocably authorise and instruct you in each case subject to the provisions of paragraph 2:

(a)    to disclose to the Security Trustee without any inquiry by you as to the justification for such disclosure, such information relating to the Account and the sums therein as the Security Trustee may at any time and from time to time, request;

(b)    to hold all sums from time to time standing to the credit of the Account to the order of the Security Trustee;

(c)    to pay or release all or any part of the sums from time to time standing to the credit of the Account in accordance with the written instructions of the Security Trustee or the Cash Manager, as the case may be at any time or times;

(d)    to comply with the terms of the written notice or instructions in any way relating to, or purporting to relate to the Deed of Charge, the sums standing to the credit of the Account from time to time or the debts represented thereby which you receive at any time from the Security Trustee or the Cash Manager, as the case may be, without any reference to or further authority from us and without any enquiry by you as to the justification for or validity of such notice or instructions;

(e)    that all service charges and fees with respect to the Account shall be payable by the Chargor, and deposited checks returned for any reason shall not be charged to such account;

(f)    that the Security Trustee and Deutsche Bank Trust Company Americas, in its capacity as Cash Manager and as the agent of the Security Trustee shall be entitled to exercise any and all rights of the Chargor in respect of the Account in accordance with the terms of the Security Trust Agreement and that you shall comply in all respects with such exercise. For the avoidance of doubt, in the event of any conflicting instructions or exercise of such rights, the instructions of the Security Trustee or the exercise by the Security Trustee of such rights shall prevail.

2.    Instructions:

(a)    prior to the Effective Time (as defined below), we agree that you shall only be obliged to honour all withdrawal, payment, transfer or other fund disposition or other instructions which the Security Trustee or (unless notified by the Security Trustee, the Cash Manager) is entitled to give under your account documentation (collectively, instructions) received from the Security Trustee or (unless notified by the Security Trustee, the Cash Manager) concerning the Account. On and after the Effective Time (and without our consent), you shall only be obliged to honour all instructions received from the Security Trustee (but not those from the Chargor) concerning the Account and we shall have no right or ability to access or withdraw or transfer funds from the Account;

(b)    for the purposes of this notice, the Effective Time shall be the business day on which a notice purporting to be signed by the Security Trustee in substantially the same form as Exhibit A, attached hereto, with a copy of the Deed of Charge attached thereto (a Shifting Control Notice), is actually received by one of your individual employees to whom the notice is required hereunder to be addressed; provided, however, that if any such notice is so received after four (4) p.m., London time, on any business day, the Effective Time shall be the opening of the next business day succeeding the business day on which such receipt occurs; and, provided furth er, that a business day is any day other than a Saturday, Sunday or other day on which you are authorised or required by law to be closed in London, New York and Paris; and

(c)    notwithstanding the foregoing: (i) all transactions involving or resulting in a transaction involving the Accounts duly commenced by you and/or any affiliate prior to the Effective Time and so consummated or processed thereafter shall be deemed not to constitute a violation of the Deed of Charge; and (ii) you and/or any affiliate may (at its discretion and without any obligation to do so) (x) cease honouring our instructions and/or commence honouring solely the Security Trustee’s instructions concerning the Account at any time or from time to time after it becomes aware that the Security Trustee has sent to it a Shifting Control Notice but prior to the Effective Time therefor (including without limitation halting, reversing or redirecting any transaction referred to in (i) above), or (y) deem a Shifting Control Notice to be received by it for purposes of the foregoing paragraph prior to the specified individua l’s actual receipt if otherwise actually received by you (or if such Shifting Control Notice contains minor mistakes or other irregularities but otherwise substantially complies with the form attached hereto as Exhibit A or does not attach an appropriate copy of the Deed of Charge), with no liability whatsoever to us or any other party for doing so.

3.    If the Security Trustee delivers a Shifting Control Notice to you and us in accordance with Clause 2(b) above and until such time as the Security Trustee issues a Shifting Control Notice Withdrawal in respect of the Account, no amount may be withdrawn from the Account except on the instructions of the Security Trustee in accordance with Clause 4 below. Any further deposit to the credit of the Accounts being subject to a Shifting Control Notice shall be subject to the security created pursuant to the Deed of Charge.

4.    If the Security Trustee delivers a Default Notice notified by a Controlling Party under the Indenture (or at any time thereafter), the Security Trustee may serve a Shifting Control Notice on you and us by way of registered post with acknowledgement of receipt. If pursuant to Section 4.02 of the Indenture, the relevant Default Notice has been rescinded and annulled, the Security Trustee as directed by the Controlling Party will notify you and us (a Shifting Control Notice Withdrawal), in substantially the same form as Exhibit B, by way of registered post with acknowledgement of receipt. Upon receipt of such notice by you, the effects of the Shifting Control Notice shall be terminated and the provisions of Clause 2 above will apply again accordingly.

5.    We hereby agree that we shall indemnify, defend and save harmless you and/or your associates and/or affiliates, against any loss, liability or expense (including reasonable fees and disbursements of counsel who may be one of your employees) incurred in connection with the Deed of Charge or the Account (except to the extent due to our wilful misconduct or negligence) or any

interpleader proceeding relating thereto or incurred at our direction or instruction. Notwithstanding the above, such indemnity will be the same extent as provided for in your account documentation.

Please note that no amount may be withdrawn from the Account without the Security Trustee’s prior written consent.

Please note that these instructions are not to be revoked or varied without the Security Trustee’s prior written consent.

This letter is governed by Irish Law.

Would you please confirm your agreement to the above by sending the attached acknowledgement to the Chargor at [                            ] (fax: [                    ]) for the attention of the Directors and to the Security Trustee at [60 Wall Street, 26^th Floor, MS NYC60-2606, New York, New York 10005-2858 (fax: (212) 797-8606)] for the attention of [Lou Bodi].

Yours faithfully,

By:
        for and on behalf of
        Babcock & Brown Air Funding I Limited

EXHIBIT A

[to be placed on Security Trustee’s letterhead]

SHIFTING CONTROL NOTICE

Date: [                    ], 2007

Re:	Deed of Charge over Bank Account dated as of [                        ], 2007 (the ‘‘Deed’’) by and among Babcock & Brown Air Funding I Limited and Deutsche Bank Trust Company Americas

Ladies and Gentlemen:

This constitutes a Shifting Control Notice as referred to in the Deed, a copy of which is attached hereto.

DEUTSCHE BANK TRUST COMPANY AMERICAS

By:
        Name:
        Title:

EXHIBIT B

SHIFTING CONTROL NOTICE WITHDRAWAL

[                    ], 2007

Re:	Deed of Charge over Bank Account dated as of [                ], 2007 (the ‘‘Deed’’) by and among Babcock & Brown Air Funding I Limited and Deutsche Bank Trust Company Americas

Ladies and Gentlemen:

This constitutes a Shifting Control Notice Withdrawal as referred to in paragraph 4 of the Deed, a copy of which is attached hereto.

DEUTSCHE BANK TRUST COMPANY AMERICAS

By:
        Name:
        Title:

SECOND SCHEDULE

To:	Deutsche Bank Trust Company Americas 60 Wall Street 26th Floor MS NYC60-2606 New York New York 10005-2858 Attention: [Lou Bodi] Fax: (212) 797-8606

Cc:	Babcock & Brown Air Funding I Limited Fax: [                        ]

Dear Sirs,

We confirm receipt from Babcock & Brown Air Funding I Limited (the ‘‘Company’’) of a notice (the ‘‘Notice’’) dated [                ], 2007 of a charge upon the terms of a Deed of Charge dated [                    ], 2007 (the ‘‘Deed of Charge’’) of all the Company’s rights, title and interest in and to all sums of money which may now or in the fut ure be held by the Company by us in our account number [     ] at [                    ] designated [        ] (as replaced or reinstated from time to time whether by current or deposit account) (the ‘‘Account’’).

We confirm that:

(i)    we accept the instructions and authorisations contained in the Notice and we undertake to act in accordance and comply with the terms of that Notice. In particular, we agree that, prior to the Effective Time (as defined in the Notice) we shall only be obliged to honour all withdrawal, payment, transfer and other fund disposition or other instructions which the Security Trustee or (unless notified by the Security Trustee, the Cash Manager) is entitled to give under our account documentation received from the Security Trustee or (unless notified by the Security Trustee, the Cash Manager) concerning the Account;

(ii)    we have not received notice of the interest of any third party in the Account;

(iii)    we have neither claimed nor exercised nor will claim nor exercise any security interest, set-off, counterclaim, right of combination of accounts or other rights in respect of the Account the sums therein or the debts represented thereby and all such rights are hereby irrevocably waived by us; and

(iv)    we shall not permit any amount to be withdrawn from the Account without your prior written consent, save as set out in the terms of the Notice and Deed of Charge.

Yours faithfully,

By:
        For and on behalf of [            ]

Date: [                    ], 2007

EXHIBIT H
SECURITY TRUST AGREEMENT

FORM OF FRENCH SHARE PLEDGE

[Form to be provided by White & Case Paris]

EXHIBIT I
SECURITY TRUST AGREEMENT

FORM OF FRENCH ACCOUNT PLEDGE

[Form to be provided by White & Case Paris]

EX-10.11

CASH MANAGEMENT AGREEMENT

Dated as of [    ], 2007

among

BABCOCK & BROWN AIR FUNDING I LIMITED,
as the Issuer

THE ISSUER SUBSIDIARIES IDENTIFIED HEREIN,

DEUTSCHE BANK TRUST COMPANY AMERICAS,
in its capacity as the Trustee and the Security Trustee

and

DEUTSCHE BANK TRUST COMPANY AMERICAS,
in its capacity as the Cash Manager

TABLE OF CONTENTS

						Page
ARTICLE I			Definitions			1
SECTION 1.01.			Definitions			1
SECTION 1.02.			Construction and Usage			1
ARTICLE II			Appointment; Services			1
SECTION 2.01.			Appointment			1
SECTION 2.02.			Limitations			2
SECTION 2.03.			Cash Management Services			2
SECTION 2.04.			Other Services			5
ARTICLE III			Standard of Performance; Liability and Indemnity			7
SECTION 3.01.			Standard of Performance			7
SECTION 3.02.			Liability and Indemnity			7
ARTICLE IV			Representations and Warranties			8
SECTION 4.01.			Related Documents			8
ARTICLE V			Cash Manager Undertakings			8
SECTION 5.01.			Covenants			8
ARTICLE VI			Undertakings of the Issuer Group			9
SECTION 6.01.			Cooperation			9
SECTION 6.02.			Certain Modifications			9
SECTION 6.03.			Further Assurances			9
SECTION 6.04.			Accession by Subsidiaries			10
SECTION 6.05.			Covenants of the Issuer or Issuer Group Members			10
ARTICLE VII			Effectiveness			11
SECTION 7.01.			Effectiveness			11
ARTICLE VIII			Fees and Expenses			11
SECTION 8.01.			Fees			11
ARTICLE IX			Term; Removal of or Resignation by the Cash Manager			11
SECTION 9.01.			Term and Survival			11
SECTION 9.02.			Removal of or Resignation by the Cash Manager			11
SECTION 9.03.			Consequences of Removal or Resignation			12
ARTICLE X			Appointment of Successor Cash Manager			13
SECTION 10.01.			Appointment of Successor Cash Manager			13
ARTICLE XI			Assignment and Delegation			13
SECTION 11.01.			Assignment and Delegation			13
ARTICLE XII			Miscellaneous			13
SECTION 12.01.			Restrictions on Disclosure			13

i

TABLE OF CONTENTS
(continued)

						Page
SECTION 12.02.			No Petition			14
SECTION 12.03.			Notices			14
SECTION 12.04.			Counterparts			15
SECTION 12.05.			Entire Agreement			15
SECTION 12.06.			Amendment and Waiver			15
SECTION 12.07.			Third-Party Beneficiaries			15
SECTION 12.08.			Method of Payment			16
SECTION 12.09.			Payment on Business Days			16
SECTION 12.10.			Severability			16
SECTION 12.11.			No Partnership			16
SECTION 12.12.			Governing Law			16
SECTION 12.13.			Jurisdiction			16
SECTION 12.14.			Concerning the Security Trustee and the Trustee			16
SECTION 12.15.			Concerning the Cash Manager			17
SECTION 12.16.			Limited Recourse			18
SECTION 12.17.			PATRIOT Act			18
SCHEDULE 1 – Lessee Funded Accounts
EXHIBIT A – Accession Agreement

ii

This CASH MANAGEMENT AGREEMENT, dated as of [                        ], 2007 (this ‘‘Agreement’’), is made among BABCOCK & BROWN AIR FUNDING I LIMITED, a Bermuda exempted company (the ‘‘Issuer’’), each ISSUER SUBSIDIARY signatory to this Agreement or that accedes to this Agreement pursuant to an Accession Agreement in the form of Exhibit A hereto (an ‘‘Accession Agreement’’); DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its in dividual capacity but solely as the trustee under the Indenture (the ‘‘Trustee’’) and as the security trustee under the Security Trust Agreement (the ‘‘Security Trustee’’) and DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Cash Manager (the ‘‘Cash Manager’’).

For the consideration set forth below and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01.    Definitions.    All capitalized terms used and not otherwise defined in this Agreement have the respective meanings assigned to those terms in the Trust Indenture, dated as of [    ], 2007, between the Issuer, the Cash Manager, Deutsche Bank Trust Company Americas, as the Trustee and as the Operating Bank, BNP Paribas, as the Initial Liquidity Facility Provider, and Ambac Assurance Corporation, as the Policy Provider (the ‘‘Indenture’’) or, if not defined in the Indenture, in the Administrative Agency Agreement (as defined in the Indenture).

SECTION 1.02.    Construction and Usage.    In this Agreement, unless the contrary intention is stated:

(a)    ‘‘include’’, ‘‘includes’’ and ‘‘including’’ shall be deemed to be followed by ‘‘without limitation’’ whether or not they are in fact followed by such words or words of like import;

(b)    any agreement or instrument or any law, rule or regulation of any Governmental Authority defined or referred to below means such agreement or instrument or such law, rule or regulation as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of such law, rule or regulation) by succession of any comparable successor law, rule or regulation and includes (in the case of agreements or instruments) references to all attachments to, and instruments incorporated in, such agreements or instruments;

(c)    references to a Person are also to its permitted successors and assigns; and

(d)    ‘‘agreement’’ and comparable terms refer to the agreement in which such term appears (including all exhibits and schedules to any such agreement) and not to any particular article, section, clause or other subdivision of, or attachment to, any such agreement.

ARTICLE II

Appointment; Services

SECTION 2.01.    Appointment.    (a)  The Trustee and the Security Trustee hereby appoint the Cash Manager as their agent for the purposes of providing the bank account management, calculation and other services set forth in Section 2.03 hereof and in the Indenture and performing the other activities to be performed by the Cash Manager under the Indenture and the Initial Liquidity Facility (collectively, the ‘‘Cash Management Services’’) and hereby delegate to the Cash Manager (except as otherwise specified in the Indenture or the Security Trust Agreement) their respective authority to administer the Accounts and to otherwise perform the Ca sh Management Services on the terms and subject to the conditions set forth in this Agreement. Each of the Trustee and the Security Trustee hereby directs the Cash Manager, in its capacity as such, to enter into and to perform the Cash Manager’s obligations under the Indenture, the Initial Liquidity Facility and the Reference Agency Agreement. Each Issuer Group Member acknowledges that it has assigned its rights, among other

things, to administer the Non-Trustee Accounts and its rights and to draw upon the Initial Liquidity Facility and any other Eligible Credit Facility to the Security Trustee pursuant to the Security Trust Agreement and that pursuant to this Agreement the Security Trustee has appointed the Cash Manager its agent to administer the Non-Trustee Accounts and to administer and draw upon the Initial Liquidity Facility and any other Eligible Credit Facility.

(b)    Each Issuer Group Member hereby appoints the Cash Manager as their agent for the purposes of providing the services set forth in Section 2.04 (collectively, the ‘‘Other Services’’ and, together with the Cash Management Services, the ‘‘Services’’) and hereby delegates to the Cash Manager (except as otherwise specified in the Indenture or the Security Trust Agreement) its authority to perform the Other Services on the terms and subject to the conditions set forth in this Agreement.

(c)    The Cash Manager hereby accepts such appointments and agrees to perform the Cash Management Services on behalf of the Trustee and the Security Trustee and the Other Services on behalf of each Issuer Group Member, in each case on the terms and subject to the conditions set forth in this Agreement. Each party to this Agreement agrees that the Cash Manager, in performing the Cash Management Services, is acting exclusively as the agent of the Trustee and the Security Trustee and not in any agency or other capacity on behalf of any Issuer Group Member and that no Issuer Group Member has any right to direct the Cash Manager with respect to all or any aspect of the Cash Management Services.

SECTION 2.02.    Limitations.    The Cash Manager agrees to comply with the terms of this Agreement, the Indenture, the Security Trust Agreement, the Reference Agency Agreement, the Initial Liquidity Facility and each relevant Eligible Credit Facility and without prejudice to the foregoing, not to enter into, on behalf of any Issuer Group Member, any commitments, loans or obligations or to charge, mortgage, pledge, encumber or otherwise restrict or dispose of the property or assets of such Issuer Group Member, except as expressly permitted by the terms of this Agreement, the Indenture or the Security Trust Agreement.

SECTION 2.03.    Cash Management Services.    The Cash Manager hereby agrees for the benefit of the Trustee and the Security Trustee to perform and provide the following bank account management, calculation and other services:

(a)    Indenture Obligations.    The Cash Manager shall, in its capacity as such, execute and deliver, and perform the obligations of the Cash Manager under the Indenture in accordance with its terms. In particular and without limiting the foregoing:

(i)    The Accounts.

(A)    Establishment and Operations of Accounts.    The Cash Manager shall take all reasonably necessary steps to ensure that the Operating Bank establishes and maintains (in accordance with Section 3.01(a) of the Indenture and as provided in the Security Trust Agreement) (1) on or before the Initial Closing Date (a) the Collections Account, (b) the Lessee Funded Accounts consisting of the separate accounts so designated on Schedule 1 hereto, (c) the Security Deposit Account, (d) the Senior Cash Collateral Account (if established), (e) the Expense Account, (f) one Note Account for the Class G-1 Notes, (g) one Aircraft Purchase Account for each Initial Aircraft not acquired on the Initial Closing Date, (h) the Capital Account, (i) the Cla ss B Shareholder Account, (j) the Liquidity Facility Reserve Account, (k) the Initial Liquidity Payment Account and (l) an Aircraft Conversion Account, and (2) on the Initial Closing Date and thereafter, (a) one or more Rental Accounts designated on Schedule 1 hereto and any Lessee Funded Accounts and (b) as and when required by the Indenture or as established in a Board Resolution delivered to the Trustee, the Security Trustee and the Cash Manager, any additional Note Accounts, an additional Aircraft Purchase Account for each Additional Aircraft not acquired on the Closing Date for the related Additional Notes, an Aircraft Conversion Account, the Defeasance/Redemption Account, the Refinancing Account, and any other Account (including, any Cash Collateral Account)

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referred to in or established in accordance with Section 3.01(a)(ii) of the Indenture. The Cash Manager shall establish the Irish VAT Refund Account in the name of the Issuer at an Eligible Institution. Each such Account shall, when established, be operated in accordance with the applicable provisions of Section 3.01 of the Indenture and Section 2.06 of the Security Trust Agreement.

(B)    Replacement Account.    If at any time the Security Trustee Accounts are no longer to be maintained by the then Operating Bank under the Security Trust Agreement, the Cash Manager shall take all reasonably necessary steps to ensure that the successor Operating Bank establishes and maintains the Accounts previously maintained by its predecessor (in each case with the same name and purposes as it had so been maintained) and those to be established and maintained thereafter. In addition, if, at any time, any Account ceases to be an Eligible Account, the Cash Manager shall, within ten Business Days after notice thereof, take all reasonably necessary steps to ensure that the Operating Bank establishes and maintains as an Eligible Account a new Account having the same name and purpose in ac cordance with the requirements of the Indenture.

(C)    Rental Account.    With respect to any Rental Account, the Cash Manager shall determine, as provided in Section 3.01(g) of the Indenture, whether or not such Account is required to be established and maintained as a Non-Trustee Account.

(D)    Lessee Payment Instructions.    The Cash Manager shall take all necessary steps to reasonably ensure that all funds on deposit in each Rental Account are, to the extent required by the Indenture, transferred from such Rental Account to the Collections Account within one Business Day of receipt (or with respect to any Non-Trustee Account, within three Business Days of receipt) and identification thereof (other than certain limited amounts, if any, required to be left on deposit for local, legal or regulatory reasons).

(E)    Bank Account Statements.    The Cash Manager shall take all reasonably necessary steps to ensure that the Operating Bank and each other bank at which a Non-Trustee Account is located shall furnish as of the close of business on each Calculation Date a statement providing the then current balance of each applicable Account to it as well as the Security Trustee, the Issuer, the Trustee, and the Servicer.

(F)    Maintaining the Non-Trustee Accounts and the Irish VAT Refund Account.    The Cash Manager shall exercise all rights of the Issuer Group Members to instruct or otherwise communicate with the Eligible Institutions at which the Non-Trustee Accounts and the Irish VAT Refund Account are maintained and otherwise to administer the Non-Trustee Accounts and the Irish VAT Refund Account.

(G)    Aircraft Conversion Account.    The Cash Manager shall take all reasonably necessary steps to ensure that all funds on deposit in the Aircraft Conversion Account are, to the extent required by the Indenture, transferred from such Aircraft Conversion Account to the Collections Account and from the Collections Account to such Aircraft Conversion Account.

(ii)    Calculations.    Pursuant to Section 3.07 of the Indenture, the Cash Manager shall, at the times and in the manner set forth therein, determine or calculate each of the amounts and provide the reports required to be determined, calculated or prepared by it pursuant to Sections 3.07 of the Indenture.

(iii)    Withdrawals and Transfers.    The Cash Manager shall direct the Operating Bank to make the following withdrawals and transfers in accordance with the terms of the Indenture:

(A)    Closing Date Deposits, Withdrawals and Transfers.    On each Closing Date, the Cash Manager shall direct each of the transfers described in Section 3.03 of the Indenture in accordance with such Section 3.03.

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(B)    Interim Deposits, Transfers and Withdrawals.    From time to time, the Cash Manager shall direct the Operating Bank to make the withdrawals and transfers, and the Cash Manager shall give the notices, provided for in Section 3.04 of the Indenture in accordance with such Section 3.04.

(C)    Transfers and Withdrawals Relating to the Acquisition of Aircraft.    From time to time, the Cash Manager shall direct the Operating Bank to make the withdrawals and transfers, and the Cash Manager shall give the notices, provided for in Section 3.05 of the Indenture in accordance with such Section 3.05.

(D)    Interim Deposits and Withdrawals for Sales.    From time to time, the Cash Manager shall direct the Operating Bank to make the withdrawals and transfers provided for in Section 3.06 of the Indenture in accordance with such Section 3.06.

(E)    Payment Date First Step Withdrawals and Transfers.    On each Payment Date, the Cash Manager shall direct the Operating Bank to make the withdrawals and transfers provided for in Section 3.08 of the Indenture in accordance with such Section 3.08.

(F)    Payment Date Second Step Withdrawals.    On each Payment Date, after the withdrawals and transfers provided for in Section 3.08 of the Indenture have been made at the direction of the Cash Manager (except as permitted in clause (F) below) the Cash Manager shall direct the Operating Bank to distribute funds on deposit in the Collections Account as provided in Section 3.09(a) of the Indenture and shall make such certifications to the Trustee as may be required hereunder in connection therewith.

(G)    DSCR Failure, Event of Default and Default Notice Withdrawals and Transfers.     Notwithstanding anything to the contrary contained in Section 3.08 or 3.09 of the Indenture, following the earlier of (x) the Expected Final Payment Date or (y) the occurrence of a DSCR Failure, after the withdrawals and transfers provided for in Section 3.08 of the Indenture have been made, the Cash Manager shall direct the Operating Bank on each Payment Date to distribute funds on deposit in the Collections Account and the Expense Account in the amounts and in the order of priority provided for in Section 3.09(b) of the Indenture. In addition, notwithstanding anything to the contrary contained in Section 3.08 or 3.09(a) of the Indenture, following the delivery of a Default Notice to the Cash Manager or the Issuer pursuant to the Indenture or during the continuance of an Acceleration Default, after the withdrawals and transfers provided for in Section 3.08 of the Indenture have been made, the Cash Manager shall direct the Operating Bank to distribute funds on deposit in the Collections Account and the Expense Account in the amounts and in the order of priority provided for in Section 3.09(b) of the Indenture.

(H)    Defeasance/Redemption and Refinancing Transfers.    The Cash Manager shall direct the Operating Bank to transfer from time to time amounts on deposit in the Defeasance/Redemption Account or, in the case of a Refinancing, the Refinancing Account to the applicable Note Account in connection with either the redemption of any class or subclass of Notes in accordance with Section 3.11 of the Indenture or the exercise of the defeasance provisions set forth in Article XI of the Indenture and shall give the notices provided for in Section 3.11 of the Indenture.

(I)    Currency Conversions.    If and to the extent that the Issuer incurs any payment obligation or other cost in a currency other than U.S. dollars, the Cash Manager shall, to the extent practicable, convert U.S. dollars into such other currency at the then prevailing market rate as necessary to discharge such payment obligations or costs, at the expense of the Issuer in accordance with Section 12.07 of the Indenture.

(J)    Investments of Cash.    The Cash Manager shall take such actions pertaining to the investment and reinvestment of the funds on deposit in the Accounts as permitted by and in accordance with Section 3.02 of the Indenture.

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(iv)    Policy Drawings.    If, in accordance with the terms of Section 3.15 of the Indenture and the Policy, a Policy Drawing is required to be made, the Cash Manager shall direct the Trustee to make a request of the Policy Provider for such a Policy Drawing in accordance with such Section 3.15.

(b)    Records.    The Cash Manager shall provide such information relating to the Accounts to the Security Trustee, the Trustee, the Policy Provider or the Rating Agencies as any of them may reasonably request from time to time and as required under the Indenture.

(c)    Reports.    The Cash Manager shall (after consultation with the Administrative Agent) prepare and deliver the Monthly Reports, Quarterly Reports, and Annual Reports and such other statements, reports or documents required under Section 2.14 of the Indenture.

SECTION 2.04.    Other Services.    The Cash Manager hereby agrees for the benefit of each Issuer Group Member to perform and provide the following services:

(a)    Monitoring the Service Providers.    The Cash Manager shall provide the following services in respect of the performance of the Service Providers; provided that, for the avoidance of doubt, this clause shall not preclude the Issuer from being entitled to appoint other Persons to perform such services, and it shall report on such performance to the Board on a quarterly basis; including:

(i)    with respect to the Servicer:

(A)    monitoring and reviewing the information and other reports provided by the Servicer pursuant to the Servicing Agreement, including, without limitation, with respect to the status of Lease payments, Lessee receivables, Additional Rent payments, security deposits, adjustments of rentals and claims for maintenance contribution payments by Issuer Group Members in accordance with Lease terms (to the extent provided to the Cash Manager in a timely manner);

(B)    at the written request of the Issuer or the Policy Provider, assisting the Issuer in evaluating the Servicer’s performance relative to the Standard of Care and the Conflicts Standard; and

(C)    monitoring the compliance of the Servicer with its obligations under the Servicing Agreement;

(ii)    with respect to the other Service Providers, assisting in evaluating the performance and compliance of each Service Provider against its obligations under the relevant agreement.

(b)    Authorization of Payments.    The Cash Manager shall authorize payment of certain bills and expenses (i) payable to legal and professional advisers authorized to be engaged or consulted pursuant to this Agreement or any other Related Document, (ii) to the extent required by the terms of the Servicing Agreement or the Indenture or (iii) approved by the Board in writing.

(c)    Oversee Liquidity Enhancement Facilities.    The Cash Manager shall oversee the general operation of any credit or liquidity enhancement facility provided for the benefit of the Issuer, including without limitation each Cash Collateral Account, the Initial Liquidity Facility and any other Eligible Credit Facility (including without limitation monitoring the amounts committed and available for drawing, and outstanding and required to be repaid, under each such facility); provided, however, that nothing herein shall be cons trued to impose any obligation on the Cash Manager to monitor the compliance by the Issuer with any affirmative or negative covenants set forth in any such facility.

(d)    Professional Advice.    The Cash Manager may, on behalf of the Issuer, retain and instruct legal counsel and accounting, tax and other professional advisers to represent and advise the Issuer with respect to the Cash Management Services when the Cash Manager considers in good faith that it is appropriate or necessary for such advisers    to be appointed and the Issuer agrees to pay the reasonable fees and expenses of such advisers; provided, however, that in any one-month period, the Cash Manager shall not be permitted contractually to obligate the Issuer

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to pay fees to such advisers pursuant to this Section 2.04 or any other section of this Agreement relating to the engagement of advisers in an aggregate amount in excess of $100,000 without the prior written consent of the Board.

(e)    Debt Service Coverage Ratio.    In the event that the Cash Manager determines in accordance with the terms of the Indenture that a DSCR Failure has occurred, the Cash Manager shall inform each of the Issuer, the Trustee, the Policy Provider and the Rating Agencies that a DSCR Failure for the applicable Payment Date exists.

ARTICLE III

Standard of Performance; Liability and Indemnity

SECTION 3.01.    Standard of Performance.    The Cash Manager will devote the same amount of time and attention to, and will be required to exercise the same level of skill, care and diligence in, the performance of its services as it would if it were administering such services on its own behalf.

SECTION 3.02.    Liability and Indemnity.    (a)  The Cash Manager shall not be liable for any Expenses or Taxes to or of or payable by any Issuer Group Member at any time from any cause whatsoever, unless caused by the Cash Manager’s own gross negligence, willful misconduct, deceit (or, with respect to the handling of finances, negligence) or that of any of its directors, officers, agents or employees, as the case may be.

(b)    Each of the Issuer and the other Issuer Group Members agrees to indemnify and hold harmless the Cash Manager, subject to and in accordance with the provisions of the Indenture, its respective directors, officers, agents and employees and each of them against any Expenses or Taxes whatsoever that they or any of them may incur or be subject to in consequence of this Agreement or any other Related Document or as a result of the performance of the functions and services provided for under this Agreement or any other Related Document (including any Expenses incurred by the Cash Manager as a result of its indemnifying any permitted delegee of any of its functions under this Agreement or any other Related Document) except as a result of gross negligence (or, with respect to the handling of finances, negligence), willful default, deceit or fraud of the Cash Manager or any of its directors, officers, agents or employees, as the case may be, and this indemnity shall expressly inure to the benefit of any existing or future director, officer, agent or employee of the Cash Manager and to the benefit of any successor of the Cash Manager under this Agreement and shall survive the termination or expiry of this Agreement.

(c)    Each of the parties to this Agreement acknowledges that the terms of this Agreement contemplate that the Cash Manager will receive certain information from other parties to the other Related Documents in order for the Cash Manager to be able to perform all or any part of the Services, that the Cash Manager will be able to perform the Services only to the extent such information is provided to the Cash Manager by the relevant parties and that the Cash Manager may conclusively rely on such information as it receives without undertaking any independent verification or recalculation of that information. The Cash Manager agrees that if it does not receive any such information it will promptly notify the party who was to provide such information of such failure.

(d)    Each of the parties to this Agreement acknowledges that (1) the Cash Manager will not be responsible for the acts or omissions of the Trustee or the Security Trustee so long as the same Person is not both the Cash Manager and the Trustee or the Security Trustee (as applicable) and (2) neither the Trustee nor the Security Trustee will be responsible for the acts or omissions of the Cash Manager so long as the same Person is not the Trustee or the Security Trustee (as applicable) and the Cash Manager.

(e)    The Cash Manager shall not be required to take any legal action on behalf of the Issuer or any Issuer Group Member.

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ARTICLE IV

Representations and Warranties

SECTION 4.01.    Related Documents.    Each of the Issuer and the other Issuer Group Members represents and warrants to the Cash Manager that it is not a party to any agreement affecting or otherwise relating to any of the Services other than the Related Documents and has provided to the Cash Manager a true and complete copy of each Related Document.

ARTICLE V

Cash Manager Undertakings

SECTION 5.01.    Covenants.    The Cash Manager hereby covenants with the Issuer, the Trustee, the Security Trustee and the other Issuer Group Members that, during the term of this Agreement:

(a)    if the Cash Manager receives any money whatsoever arising from any Related Document or any collateral security for any of the foregoing, which money belongs to any Issuer Group Member, the Trustee or the Security Trustee or is to be paid to any Issuer Group Member, the Trustee or the Security Trustee or into any Account pursuant to any Related Document or otherwise, it shall hold such money in trust for such Issuer Group Member, the Trustee or the Security Trustee, as the case may be, and shall forthwith upon receipt of such money pay the same to the Trustee for deposit into the relevant Account in accordance with the terms of the Indenture without exercising any right of setoff it may have; and shall in all events keep such money separate from all other money belonging to the Cash Manager;

(b)    it will comply with any proper directions, orders and instructions that the Trustee or the Security Trustee may from time to time give to it in writing in accordance with the provisions of this Agreement and the Indenture;

(c)    it will cooperate with the Trustee and the Security Trustee, including without limitation by providing such information as may reasonably be requested, to permit such Persons or its authorized agents to monitor the Cash Manager’s compliance with its obligations under this Agreement;

(d)    it will observe all corporate formalities necessary to remain a legal entity separate and distinct from, and independent of, each Issuer Group Member;

(e)    it will maintain its assets and liabilities separate and distinct from each Issuer Group Member in such a manner that is not difficult to segregate, identify or ascertain such assets and liabilities;

(f)    it will maintain records, books, accounts and minutes separate from those of each Issuer Group Member (except as otherwise set forth in the Related Documents);

(g)    it will pay its obligations in the ordinary course of its business as a legal entity separate from each Issuer Group Member, except as otherwise required or permitted under the Indenture and the Security Trust Agreement;

(h)    it will keep its funds separate and distinct from the funds of each Issuer Group Member, and it will receive, deposit, withdraw and disburse such funds separately from the funds of each Issuer Group Member;

(i)    it will conduct its business in its own name, and not in the name of any Issuer Group Member;

(j)    it will not pay, assume, guarantee or become liable for any debt of, or otherwise pledge its assets for the benefit of, any Issuer Group Member, except as otherwise permitted under the Related Documents;

(k)    it will not hold out that it is a division of any Issuer Group Member or that any Issuer Group Member is a division of it;

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(l)    it will not induce any third party to rely on the creditworthiness of any Issuer Group Member in order that such third party will be induced to contract with it; and

(m)    it will not enter into any agreements between it and any Issuer Group Member that are more favorable to either party than agreements that the parties would have been able to enter into at such time on an arm’s-length basis with a non-affiliated third party, other than any Related Documents in effect on the date hereof (it being understood that the parties hereto do not intend by this covenant to ratify any self-dealing transactions).

ARTICLE VI

Undertakings of the Issuer Group

SECTION 6.01.    Cooperation.    The Security Trustee, the Trustee, the Issuer and the other Issuer Group Members shall at all times cooperate with the Cash Manager to enable the Cash Manager to provide the Services, including providing the Cash Manager with all powers of attorney and information as may reasonably be necessary or appropriate for the Cash Manager to perform the Services. In addition, as and to the extent requested by the Cash Manager, the Issuer and the other Issuer Group Members shall use commercially reasonable efforts to cause any Service Provider to at all times cooperate with the Cash Manager to enable the Cash Manager to provide the Services. The Cash Manager recognizes that certain instructions hereunder or under any other Related Document to be given by the Issuer may also require the approval of any Issuer Group Member. For the avoidance of doubt, the Cash Manager will be required to deal only with the Issuer in connection with any such approval. If the Issuer approves any particular action, the Cash Manager shall be entitled to assume and shall be fully protected in such assumption that any necessary approval of an Issuer Group Member to such action has been obtained. In connection therewith, each Issuer Group Member (other than the Issuer) hereby appoints the Issuer as its representative to provide instructions and approvals on its behalf to the Cash Manager.

SECTION 6.02.    Certain Modifications.    The Issuer and the other Issuer Group Members shall not amend or modify the provisions of the Indenture, to the extent directly pertaining to the Services, without the consent of the Cash Manager, whose consent shall not unreasonably be withheld.

SECTION 6.03.    Further Assurances.    Each of the Issuer and the other Issuer Group Members agrees that at any time and from time to time upon the written request of the Cash Manager, it shall execute and deliver such further documents and do such further acts and things as the Cash Manager may reasonably request in order to effect the purposes of this Agreement.

SECTION 6.04.    Accession by Subsidiaries.    The Issuer hereby undertakes to procure that any subsidiary of the Issuer formed or acquired after the date of this Agreement shall execute an Accession Agreement.

SECTION 6.05.    Covenants of the Issuer or Issuer Group Members.    The Issuer covenants with the Cash Manager that, during the term of this Agreement, it shall conduct its business such that it is a separate and readily identifiable business from the Cash Manager and, to the extent possible, shall cause each Issuer Subsidiary to do the same, and further covenants as follows:

(a)    it will observe all corporate formalities necessary to remain legal entities separate and distinct from, and independent of, the Cash Manager, and any of its Affiliates;

(b)    it will maintain its assets and liabilities separate and distinct from those of the Cash Manager;

(c)    it will maintain records, books, accounts and minutes separate from those of the Cash Manager;

(d)    it will pay its obligations in the ordinary course of business as a legal entity separate from the Cash Manager;

(e)    it will keep its funds separate and distinct from any funds of the Cash Manager, and will receive, deposit, withdraw and disburse such funds separately from any funds of the Cash Manager;

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(f)    it will conduct its business in its own name, and not in the name of the Cash Manager;

(g)    it will not agree to pay, assume, guarantee or become liable for any debt of, or otherwise pledge its assets for the benefit of, the Cash Manager, other than to make payments in the form of indemnity as required by the express terms of this Agreement;

(h)    it will not hold out that it is a division of the Cash Manager, or that the Cash Manager is a division of it;

(i)    it will not induce any third party to rely on the creditworthiness of the Cash Manager in order that such third party will be induced to contract with it; and

(j)    it will not enter into any transaction between it and the Cash Manager that are more favorable to either party than transactions that the parties would have been able to enter into at such time on an arm’s-length basis with a non-affiliated third party, other than any Related Documents in effect on the date hereof (it being understood that the parties hereto do not intend by this covenant to ratify any self-dealing transactions).

ARTICLE VII

Effectiveness

SECTION 7.01.    Effectiveness.    The effectiveness of this Agreement shall be conditional upon:

(i)    with respect to the Issuer, the Cash Manager, the Security Trustee, the Trustee and the Issuer Subsidiaries set forth on the signature pages hereof, the execution hereof by those parties; and

(ii)    with respect to any entity which executes and delivers an Accession Agreement, the execution thereof and acknowledgment and agreement by the Issuer, the Cash Manager, the Security Trustee and the Trustee. The original parties hereto and each entity which becomes a party hereto by executing and delivering an Accession Agreement agree that such Accession Agreement shall be effective without the need for each other party hereto to execute such Accession Agreement in acknowledgment and agreement.

ARTICLE VIII

Fees and Expenses

SECTION 8.01.    Fees.    In consideration of the Cash Manager’s performance of the Services, the Issuer shall pay to the Cash Manager customary fees and reimburse it for certain Expenses, all as provided by separate agreement between them.

ARTICLE IX

Term; Removal of or Resignation by the Cash Manager

SECTION 9.01.    Term and Survival.    (a)  Term.    The term of this Agreement shall commence on the Initial Closing Date and expire on the date on which the Indenture terminates and all Policy Provider Obligations and Credit Facility Obligations have been paid in full. During the term of this Agreement, neither the Trustee nor the Security Trustee shall remove the Cash Manager, and the Cash Manager shall not resign, except as expressly provided in this Article IX.

(b)    Survival.    The respective obligations of the Issuer and the Cash Manager under Sections 3.02, 8.01 (to the extent any amounts due and owing through such date of termination remain unpaid), 9.03, 12.01 and 12.02 shall survive the termination of this Agreement under this Section 9.01.

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SECTION 9.02.    Removal of or Resignation by the Cash Manager.

(a)    At any time during the term of this Agreement, the Trustee (at the direction of the Controlling Party) or the Security Trustee (at the direction of the Controlling Party) shall be entitled to remove the then existing Cash Manager on not less than 30 days’ Written Notice to each other party to this Agreement.

(b)    At any time during the term of this Agreement, the Issuer shall be entitled to remove the then existing Cash Manager on not less than 30 days’ Written Notice to the each other party to this Agreement if:

(i)    the Cash Manager shall fail in any material respect to perform any Services and such failure shall have a material adverse effect on the Issuer Group taken as a whole; or

(ii)    an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking relief in respect of the Cash Manager or of a substantial part of the property or assets of the Cash Manager under Title 11 of the United States Code, as now constituted or hereafter amended (the ‘‘U.S. Bankruptcy Code’’), or any other U.S. Federal or state or foreign bankruptcy, insolvency, receivership or similar law, and such proceeding or petition shall continue undismissed for 90 days or an order or decree approving or ordering any of the foregoing shall be entered or the Cash Manager shall go into liquidation, suffer a receiver or mortgagee to take possession of all or substantially all of its assets or have an examiner appointed over it or if a petitio n or proceeding is presented for any of the foregoing and not discharged within 90 days; or

(iii)    the Cash Manager shall (A) voluntarily commence any proceeding or file any petition seeking relief under the U.S. Bankruptcy Code, or any other U.S. Federal or state or foreign bankruptcy, insolvency, receivership or similar law, (B) consent to the institution of, or fail to contest the filing of, any petition described in clause (ii) above, (C) file an answer admitting the material allegations of a petition filed against it in any such proceeding, or (D) make a general assignment for the benefit of its creditors.

(c)    The Cash Manager may resign on 30 days’ Written Notice to each other party to this Agreement. Notwithstanding the foregoing, no resignation by or removal of the Cash Manager shall become effective until a successor Cash Manager has been appointed in accordance with Section 10.01; provided, however, that, if an instrument of acceptance by a successor Cash Manager has not been delivered pursuant to Section 10.01 within 60 days after the giving of such notice of resignation or removal, the Cash Manager may petition any court of competent jurisdiction for the appointment of a successor Cash Manager. Upon action by any party pursuant to the provisions of this Section 9.02, the Cash Manager shall be entitled to the payment of any compensation or reimbursement owed to it by the Issuer hereunder.

SECTION 9.03.    Consequences of Removal or Resignation.

(a)    Notices and Communications.    Following the removal of or resignation by the Cash Manager under Section 9.02,

(i)    The Cash Manager shall promptly forward to the successor Cash Manager, the Issuer, the Trustee and the Security Trustee any notices and accounting reports received by it during the year immediately following any such removal or resignation.

(ii)    The Issuer shall notify promptly each other party to the Indenture and each Rating Agency, of such removal or resignation and shall request that all such notices and accounting reports and communications after any such removal or resignation be made or given directly to the successor Cash Manager or the Issuer.

(iii)    The Cash Manager shall cooperate with the successor Cash Manager, including providing such successor Cash Manager with all information and documents reasonably requested by such successor.

(b)    Accrued Rights.    The removal of or resignation by the Cash Manager under Section 9.02 shall not affect the respective rights and liabilities of any party accrued prior to any

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such removal or resignation in respect of any prior breaches of this Agreement or otherwise. In addition, the respective obligations of the Issuer Group and the Cash Manager under Sections 3.02, 8.01 (to the extent any amounts due and owing through such date of removal or resignation remain unpaid), 9.03 and 12.01 shall survive any such removal or resignation.

ARTICLE X

Appointment of Successor Cash Manager

SECTION 10.01.    Appointment of Successor Cash Manager.    In the event of the resignation by or removal of the Cash Manager pursuant to Section 9.02, the Issuer shall select, and the Trustee (at the direction of the Controlling Party), the Security Trustee (at the direction of the Controlling Party) and each Issuer Group Member shall promptly appoint a successor Cash Manager, provided that no such appointment shall be effective unless the Issuer Group has obtained a Rating Agency Confirmation with respect to such appointment. Any successor Cash Manager appointed by each Issuer Group Member, the Trustee and the Security Trustee following resignation by o r removal of the Cash Manager pursuant to the provisions of Section 9.02 shall execute and deliver to the Issuer Group, the Trustee and the Security Trustee, with a copy to the original Cash Manager, an instrument accepting such appointment. Thereupon, such successor Cash Manager shall, without any further act, deed or conveyance, become vested with all the authority, rights, powers, immunities, duties and obligations of the Cash Manager and with like effect as if originally named as Cash Manager under this Agreement.

ARTICLE XI

Assignment and Delegation

SECTION 11.01.    Assignment and Delegation.

(a)    Except as provided in Section 12.15(g), none of the parties to this Agreement shall assign all or any of its rights under, or delegate all or any of its obligations under, this Agreement to any Person without the prior written consent of the other parties, except that the Issuer Group Members may assign their rights under this Agreement to the Security Trustee for the benefit of the Secured Parties under the Security Trust Agreement.

(b)    Without limiting the foregoing, any Person who becomes a successor by assignment or otherwise of the Issuer or the Cash Manager in accordance with this Section 11.01 shall be required as a condition to the effectiveness of any such assignment or other arrangement to become a party to this Agreement.

ARTICLE XII

Miscellaneous

SECTION 12.01.    Restrictions on Disclosure.    The Cash Manager agrees to keep confidential all documents, materials and other information relating to the Issuer Group Members that is within or comes into its possession or actual knowledge and agrees not to disclose any of the foregoing without the prior written consent of the party so affected; provided, however, that the foregoing shall not be construed to prohibit (a) disclosure of any and all information that is or becomes publicly known (other than as a result of dis closure by the Cash Manager) or information obtained by the Cash Manager from sources other than the Issuer Group Members, the Trustee or the Security Trustee, (b) disclosure of any and all information (i) if required to do so by any applicable statute, law, rule or regulation, (ii) to any government agency or regulatory or self-regulatory body having or claiming authority to regulate or oversee any aspects of the Cash Manager’s business or that of its Affiliates, (iii) pursuant to any subpoena, civil investigative demand or similar demand or request of any court, regulatory authority, arbitrator or arbitration to which the Cash Manager or any of its officers,

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directors, employers or shareholders is a party, (iv) in any preliminary or final offering circular, registration statement or contract or other document pertaining to the transactions contemplated by the Related Documents approved in advance by the Issuer Group or (v) to any Affiliate, independent or internal auditor, agent, employee or attorney of the Cash Manager having a need to know the same, provided that the Cash Manager advises such recipient of the confidential nature of the information being disclosed, (c) any other disclosure authorized by the Issuer, or (d) disclosure to the other parties to the transactions to the extent contemplated by the Related Documents.

SECTION 12.02.    No Petition.    The Cash Manager agrees that it shall not institute against, or join any other Person in instituting against, the Issuer or the other Issuer Group Members any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law; provided, however, that nothing herein shall prohibit the Cash Manager from otherwise participating in any such process or proceeding instituted by any other Person.

SECTION 12.03.    Notices.    All notices, consents, directions, approvals, instructions, requests and other communications required or permitted by any agreement, instrument or other document to be given to any Person shall be in writing and become effective upon receipt and shall be directed to the address or facsimile number of such Person set forth below or as is designated by such Person from time to time in a notice given under this Section 12.03:

If to the Issuer and the other Issuer Group Members, to it at:

Babcock & Brown Air Funding I Limited
c/o Codan Services Limited
Claredon House
2 Church Street
Hamilton, HM 11
Bermuda

Attention: [                 ]
Fax: [                            ]

with copies to:

Babcock & Brown Aircraft Management Co Limited, as Administrative Agent
West Pier, Dun Laoghaire
County Dublin
Ireland
Fax: (353) 1-231-1901
Telephone: (353) 1-231-1900

If to the Cash Manager, the Trustee or the Security Trustee to:

Deutsche Bank Trust Company Americas
c/o Deutsche Bank National Trust Company
25 DeForest Avenue
2nd Floor - MS SUM01-0105
Summit, New Jersey 07901
Attention: Structured Finance Services, Michele Hy Voon
Fax: (212) 553-2461
Telephone: (908) 608-3089

with a copy to:

Deutsche Bank National Trust Company
1761 East St. Andrew Place
Santa Ana, California 92705
Attention: Matt A. Bowen
Fax: 714-247-6409
Telephone: (714) 247-6346

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In connection with the performance of their respective duties under the Related Documents, the Administrative Agent, the Cash Manager and the Servicer may give notices, consents, directions, approvals, instructions and requests to, and otherwise communicate with, each other using electronic means, including email transmission to such email addresses as each such party shall designate to the other parties, and, if necessary or if requested by the other party or parties, with an ‘‘electronic signature’’ or other ‘‘electronic record’’ (as such terms are defined in the New York State Electronic Signatures and Records Act).

SECTION 12.04.    Counterparts.    This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. No provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

SECTION 12.05.    Entire Agreement.    This Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement.

SECTION 12.06.    Amendment and Waiver.    This Agreement may not be amended or supplemented nor may any of its provisions be waived except by an instrument in writing signed by the party against which the enforcement of the amendment, supplement or waiver shall be sought. No failure or delay of any party in exercising any power or right under this Agreement shall operate as a waiver of any such power or right, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce any such right or power, preclude any other or further exercise of such or any other right or power.

SECTION 12.07.    Third-Party Beneficiaries.    The terms of this Agreement shall be binding upon, and inure to the benefit of, the parties and their respective successors and permitted assigns. Except as expressly set forth in this Agreement or as shall result from the inclusion of the Issuer Group’s rights under this Agreement in the Collateral, nothing in this Agreement, whether express or implied, shall be construed to give any Person (including any past, present or future employee of any Issuer Group Member or any of its Affiliates) other than the parties and their respective successors and permitted assigns any legal or equitable right or power under or in respect of this Agreement.

SECTION 12.08.    Method of Payment.    All amounts required to be paid by any party to this Agreement to any other party (including in respect of any judgment or settlement) shall be paid in Dollars, by wire transfer, or other acceptable method of payment, of same day funds.

SECTION 12.09.    Payment on Business Days.    If any payment under this Agreement is required to be made on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and no interest shall accrue on such payment.

SECTION 12.10.    Severability.    Any provision of this Agreement that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, each of the parties to this Agreement waive any provision prohibited or unenforceable in any respect.

SECTION 12.11.    No Partnership.    (a)  It is expressly recognized and acknowledged that this Agreement is not intended to create a partnership, joint venture or other similar arrangement between any Issuer Group Member or Members on the one part and the Cash Manager on the other part. It is also expressly understood that any actions taken on behalf of any Issuer Group Member by the Cash Manager shall be taken as agent for such Issuer Group Member, either naming the relevant Issuer Group Member, or naming the Cash Manager as agent for an undisclosed principal. No Issuer Group Member shall hold itself out as a partner of the Cash Manager, and the Cash Manager will not hold itself out as a partner of any Issuer Group Member.

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(b)    The Cash Manager shall not have any fiduciary duty or other implied obligations or duties to any Issuer Group Member, any Lessee or any other Person arising out of this Agreement.

SECTION 12.12.    Governing Law.    THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.

SECTION 12.13.    Jurisdiction.    Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York City, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding i n any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 12.03 shall be deemed effective service of process on such party.

SECTION 12.14.    Concerning the Security Trustee and the Trustee.    In respect of the Security Trustee’s and Trustee’s performance of appointing the Cash Manager to provide the Cash Management Services, the Security Trustee and the Trustee shall be afforded all of the rights, protections, immunities and indemnities contained in the Security Trust Agreement and the Indenture, respectively, as if such rights, protections, immunities and indemnities were specifically set forth in this Agreement. It is expressly understood and agreed that neither the Security Trustee nor the Trustee (in such capacities) shall have any liability in respect of the appointment, performance or nonperformance of the Cash Manager (including without limitation, the payment of fees and Expenses to the Cash Manager), all such liability, if any, being expressly waived by the parties to this Agreement and by any Person claiming by, through or under such parties. The Issuer shall indemnify the Security Trustee and the Trustee (in such capacities) for any loss, cost or expense (including reasonable attorneys’ fees) incurred by the Security Trustee and the Trustee as a result of the negligence, bad faith or willful misconduct of the Cash Manager in the performance of its obligations hereunder.

SECTION 12.15.    Concerning the Cash Manager.

(a)    The Cash Manager undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and the Indenture and no implied covenants or obligations shall be read into this Agreement or the Indenture against the Cash Manager.

(b)    None of the provisions of this Agreement or the Indenture shall require the Cash Manager to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not assured to it.

(c)    The Cash Manager may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Cash Manager shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, entitlement order, approval or other paper or document.

(d)    The Cash Manager may consult with counsel and the written advice or any opinion of counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or opinion of counsel.

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(e)    In no event shall the Cash Manager be liable for the selection of investments pursuant to and in compliance with the Related Documents or for investment losses incurred thereon. The Cash Manager shall have no liability in respect of losses incurred as a result of the liquidation of any investment prior to its stated maturity or the failure of the Issuer or the Security Trustee (as applicable) to provide timely written investment direction.

(f)    The Cash Manager may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees appointed with due care, and shall not be responsible for any willful misconduct or negligence on the part of any agent, attorney, custodian or nominee so appointed except any agent, attorney, custodian or nominee which is an Affiliate of Deutsche Bank Trust Company Americas (or any successor Cash Manager).

(g)    Notwithstanding anything hereunder to the contrary, any corporation into which the Cash Manager may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Cash Manager shall be a party, or any corporation succeeding to the business of the Cash Manager shall be the successor of the Cash Manager hereunder without execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding.

(h)    Neither the Cash Manager nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted under this Agreement or in connection herewith except to the extent caused by the Cash Manager’s own deceit, fraud, willful misconduct or gross negligence (or, with respect to the handling of finances, negligence) or that of any of its directors, officers, agents or employees. Each of the parties (for itself and any Person claiming through it) hereby releases, waives, discharges and exculpates the Cash Manager for any action taken or omitted under this Agreement except to the extent caused by the Cash Manager’s own deceit, fraud, willful misconduct or gross negligence (or, with respect to the handling of finances, negligence) or that of any of its directors, officers, agents or employees. Anything in this Agreement to the contrary notwithstanding, in no event shall the Cash Manager be liable for s pecial, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Cash Manager has been advised of the likelihood of such loss or damage and regardless of the form of action.

SECTION 12.16.    Limited Recourse.

(a)    In the event that the assets of the Issuer or any Issuer Group Member are insufficient, after payment of all other claims, if any, ranking in priority to the claims of the Cash Manager hereunder, to pay in full such claims of the Cash Manager, then the Cash Manager shall have no further claim against the Issuer or the relevant Issuer Group Member (as the case may be) in respect of any such unpaid amounts.

(b)    No recourse under any obligation, covenant or agreement of any party contained in this Agreement shall be had against any shareholder, officer or director of the relevant party as such, by the enforcement of any assessment or by any proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is a corporate obligation of the relevant party and no personal liability shall attach to or be incurred by the shareholders, officers, agents or directors of the relevant party as such, or any of them under or by reason of any of the obligations, covenants or agreements of such relevant party contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by such party of any of such obligations, covenants or agreements, either at law or by statute or constitution, of every such shareholder, officer, agent or director is hereby expressly waived by the other parties as a condition of and consideration for the execution of this Agreement.

SECTION 12.17.    PATRIOT Act.    The parties hereto acknowledge that, in order to comply with its obligations under the United States PATRIOT Act, Deutsche Bank Trust Company Americas is

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required to obtain, verify, and record certain information and documentation from the other parties hereto. Each of the parties hereby agree that it will provide Deutsche Bank Trust Company Americas with such information as it may request in order for it to satisfy the requirements of the United States PATRIOT Act.

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above.

BABCOCK & BROWN AIR FUNDING I LIMITED, as Issuer

By:   

		Name: Title:

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity, but solely as the Trustee and the Security Trustee, respectively

By:   

		Name: Title:

By:   

		Name: Title:

DEUTSCHE BANK TRUST COMPANY AMERICAS, as the Cash Manager

By:   

		Name: Title:

By:   

		Name: Title:

[ISSUER SUBSIDIARIES]

By   

		Name: Title:

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SCHEDULE 1

THE LESSEE FUNDED ACCOUNTS

ACCOUNT NAME			ACCOUNT NUMBER

17

EXHIBIT A

FORM OF ACCESSION AGREEMENT

                                        , 2007

We refer to the Cash Management Agreement dated as of                                 , 2007, among Babcock & Brown Air Funding I Limited, as the Issuer, Deutsche Bank Trust Company Americas, in its capacity as the Trustee, the Security Trustee and the Cash Manager, the Subsidiaries signatory thereto and all other Subsidiaries which have heretofore signed an Accession Agreement in substantially the form of this Accession Agreement (the ‘‘Cash Management Agreement’’).

We agree, as of the date of this Accession Agreement, to be considered a party to the Cash Management Agreement for all purposes, as if an original signatory to the Cash Management Agreement, and to be bound by the terms of the Cash Management Agreement.

This Accession Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

This Accession Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance.

IN WITNESS WHEREOF, this Accession Agreement has been duly executed on the date first written above.

[                                                                                   ]

By:   

		Name:

		Title:

ACCEPTED AND ACKNOWLEDGED:

DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Cash Manager

By:   

Name:

Title:

By:   

Name:

Title:

BABCOCK & BROWN AIR FUNDING I LIMITED,
as Issuer

By:   

Name:

Title:

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DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Trustee and Security Trustee

By:   

Name:

Title:

By:   

Name:

Title:

19

EX-10.12

Exhibit 10.12

DIRECTOR SERVICE AGREEMENT

THIS AGREEMENT is made on the ___ day of ____________ 2007.

BETWEEN:

Babcock & Brown Air Limited, a company incorporated under the laws of Bermuda with its principal executive office located at West Pier, Dun Laoghaire, County Dublin, Ireland (the “Company”); and

[Director] of [Address] (“Director”)

WHEREAS Director is a director of the Company,

WHEREAS highly skilled and competent persons are becoming more reluctant to serve public companies as directors or officers unless they are provided with adequate protection through insurance and indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of such companies;

WHEREAS uncertainties relating to indemnification increase the difficulty of attracting and retaining such persons;

WHEREAS the Board has determined that an inability to attract and retain such persons is detrimental to the best interests of the Company and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify Director to the fullest extent permitted by Bermuda law so that Director will serve or continue to serve the Company free from undue concern that Director will not be so indemnified;

WHEREAS, Director is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that Director be so indemnified;

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Director do hereby covenant and agree as follows:

1. INTERPRETATION

1.1 In this Agreement unless the context otherwise requires, the following words and expressions shall have the following meanings:

this “Agreement” means this Director Service Agreement;

“B&B”	means Babcock & Brown Limited, an Australian company;
the “Board”	means the board of directors of the Company;
“Business Day”	means any day on which banks in Ireland are open for business;
“Corporate Status”	means the status of a person who is or was a director, officer, employee, agent, or fiduciary of the Company or any other Group Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of any other company, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other entity or enterprise;
“Disinterested Director”	means a director of the Company who is not or was not a party to a Proceeding in respect of which indemnification is sought by Director;
“Group Companies”	means the Company and each subsidiary of the Company (wherever incorporated or organized);
“Independent Counsel”	means a law firm or a member of a law firm that neither is presently nor in the past five years has been retained to represent: (i) the Company or Director in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Director in an action to determine Director’s right to indemnification under this Agreement;
the “Parties”	means the parties to this Agreement collectively, and “Party” means any one of them; and
“Proceeding”	means any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative and whether formal or informal;

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1.2 In this Agreement unless the context otherwise requires:

1.2.1 references to statutory provisions shall be construed as references to those provisions as amended or re-enacted or as their application is modified by other provisions from time to time and shall include references to any provisions of which they are re-enactments (whether with or without modification);

1.2.2 references to clauses and schedules are references to clauses hereof and schedules hereto; references to sub-clauses or paragraphs are, unless otherwise stated, references to sub-clauses of the clause or paragraphs of the schedule in which the reference appears;

1.2.3 references to the singular shall include the plural and vice versa and references to the masculine shall include the feminine and/or neuter and vice versa; and

1.2.4 references to persons shall include companies, partnerships, associations and bodies of persons, whether incorporated or unincorporated.

2. AGREEMENT TO SERVE

2.1 The Director agrees to continue to serve as a director of the Company. This Agreement does not create or otherwise establish any right on the part of the Director to be and continue to be elected or appointed a director of the Company or any other Group Company and does not create an employment contract between the Company and the Director.

2.2 The Director’s service will remain subject at all times to the Company’s Memorandum of Association and Bye-Laws and applicable laws.

2.3 The Director’s duties as a director of the Company include attending Board meetings, meetings of all Board committees on which the Director serves, the Annual General Meeting of the Company and any Special General Meeting of the Company. It is expected that there will be approximately four scheduled Board and Board committee meetings per year, and there could be additional Board and committee meetings as required. The Director confirms that her or she is able to allocate sufficient time to attend these meetings and to devote appropriate preparation time ahead of each meeting as necessary. All Board meetings, committee meetings and shareholder meetings will take place in Ireland, and the Director generally should attend in person. The Director will receive details of all Board meetings and other meetings in advance.

2.4 The Director’s duties as a member of the Board also will include, but will not be limited to, the following:

2.4.1 constructively challenging and helping to develop proposals on the Company’s strategy;

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2.4.2 setting values and standards for the Company and establishing systems for their communication and monitoring;

2.4.3 monitoring the performance of the Company’s management in meeting agreed goals and objectives and ensuring that the necessary financial and human resources are in place to enable the Company to meet those goals and objectives;

2.4.4 satisfying himself or herself as to the adequacy and integrity of financial and other reporting to the Board and shareholders of the Company and that there are adequate systems of internal control; and

2.4.5 satisfying himself or herself that systems for identification and management of risks are robust and appropriate.

2.5 At any time during the Director’s tenure, the Director’s performance as a director will be reviewed in accordance with processes agreed by the Board from time to time. The Director agrees to participate in such reviews. The Director agrees to participate in continuous improvement programs from time to time determined by the Board as being appropriate for directors, at the expense of the Company and whether or not those programs are offered by the Company.

2.6 If the Director has been determined by the Board to be an “independent director,” then the Company shall pay to the Director by way of retainer for serving as a director of the Company hereunder a fee of $100,000 per annum (which fee shall be net of any additional amounts to cover the Director’s obligations to pay Value Added Tax). Such retainer shall be payable by equal quarterly instalments in arrears from [date of appointment], 2007.

2.7 If the Director is the chairperson of the Audit Committee, the Compensation Committee or the Nominating and Corporate Governance Committee of the Board, then the Company shall pay to the Director an additional fee of $_______ per annum (which fee shall be net of any additional amounts to cover the Director’s obligations to pay Value Added Tax).

2.8 If the Director has been designated by the Board as the “lead independent director, then the Company shall pay to the Director an additional fee of $25,000 per annum (which fee shall be net of any additional amounts to cover the Director’s obligations to pay Value Added Tax).

2.9 If the Director is requested to perform any special duties or undertake any responsibilities outside his ordinary responsibilities as a director and agrees to do so, the Board may agree to pay the Director additional remuneration. If the Director appoints an alternate director, such alternate director will not be entitled to a fee in such capacity.

2.10 The Company shall also pay to the Director all reasonable air travel, hotel and other out-of-pocket expenses which are properly incurred by him in or about the performance of his

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duties as a director of the Company and for which vouchers (if so required) are provided to the reasonable satisfaction of the Board. It is understood that business class air travel is reasonable for inter-continental and trans-oceanic travel.

2.11 The Company may reimburse the Director’s legal fees if circumstances should arise in which the Director believes it is necessary for him to seek separate legal advice about the performance of his duties. Prior to obtaining such advice, the Director shall consult with the Company.

2.12 The Director shall provide immediately to the Company details of any consultancy, employment, directorship or executive position with a company which competes with B&B or any of its subsidiaries and/or the Company, which confirmation and details will be minuted to comply with applicable law and regulations as they relate to the Company. If during the term of the Director’s appointment, the Director elects to or intends to engage in or be directly or indirectly employed by, be concerned or interested in, or have any office in any business or undertaking which competes in any way with the business of B&B or any of its subsidiaries and/or the Company, the Director shall immediately notify the Company in advance.

2.13 The Director may not at any time during the course of his/her appointment with the Company or at any time afterwards use, other than for the purposes of the Company, or disclose to any third party, confidential information acquired as a result of the Director’s position, including information relating to the business and finances of the Company and its associated companies, its or their commercial aircraft, and any other information deemed by the Company to be confidential information; provided, however, that this paragraph shall not apply (i) to any information which is or becomes public knowledge (otherwise than as a result of the Director’s conduct); (ii) to the extent that the Director are required to disclose the same pursuant to any law or order of any court or pursuant to any direction, request or requirement of any governmental or other authority or in the course of any legal proceedings; (iii) to the disclosure of any information to professional advisers who receive the same under a duty of confidentiality; or (iv) to the disclosure of any information with the consent of the Company.

2.14 The Director will comply with all applicable codes of practice issued from time to time by any relevant body or by the Company relating to securities transactions by the Company’s directors and specified employees.

3. INDEMNITY OF DIRECTOR

3.1 Subject to clause 10, the Company shall indemnify Director if Director is a party or is threatened to be made a party to any threatened, pending or completed Proceeding, including a Proceeding brought by or in the right of the Company, by reason of the fact that Director is or was a director, officer, employee, agent, or fiduciary of the Company or is or was serving at the request of the Company as a director, officer, employee, agent,

5

or fiduciary of any other company, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other entity or enterprise or by reason of anything done or not done by Director in any such capacity. Subject to clause 10, pursuant to this sub-clause 3.1 Director shall be indemnified against expenses (including attorneys’ fees and disbursements), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Director in connection with such Proceeding (including, but not limited to, the investigation, defense, settlement or appeal thereof).

3.2 Notwithstanding any other provision of this Agreement other than clause 10, Director shall be indemnified against all expenses (including attorneys’ fees and disbursements) actually and reasonably incurred by Director or on Director’s behalf in defending any Proceedings referred to in clause 3.1 in which judgment is given in his favor or in which he is acquitted, or in respect of which relief is granted to the Director by a court under section 281 of the Bermuda Companies Act 1981.

3.3 Subject to clause 10, the Company shall indemnify Director for such portion of the expenses (including attorneys’ fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Director becomes legally obligated to pay in connection with any Proceeding referred to in clause 3.1 in respect of which Director is entitled to indemnification hereunder, even if Director is not entitled to indemnification hereunder for the total amount thereof.

3.4 For purposes of any determination of good faith under any applicable standard of conduct, Director shall be deemed to have acted in good faith if Director’s action is based on the records or books of account of the Company, including financial statements, or on information supplied to Director by the officers of the Company in the course of their duties, or on the advice of legal counsel for the Company or the Board or counsel selected by any committee of the Board or on information or records given or reports made to the Company by an independent certified public accountant or by an appraiser, investment banker, compensation consultant or other expert selected with reasonable care by the Company or the Board or any committee of the Board. The provisions of the preceding sentence shall not be deemed to be exclusive or to limit in any way the other circumstances in which Director may be deemed to have met the applicable standard of conduct.

3.5 The knowledge and/or actions, or failure to act, or any director, officer, agent or employee of the Company shall not be imputed to Director for purposes of determining the right to indemnification under this Agreement.

4. INDEMNIFICATION FOR EXPENSES OF A WITNESS

Subject to clause 10, to the extent that Director is, by reason of Director’s Corporate Status, a witness in any proceeding, Director shall be indemnified by the Company

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against all expenses actually and reasonably incurred by Director or on Director’s behalf in connection therewith.

5. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION

5.1 The Director shall request indemnification pursuant to this Agreement by notice in writing to the secretary of the Company. The secretary shall, promptly upon receipt of Director’s request for indemnification, advise in writing the Board or such other person or persons empowered to make the determination as provided in sub-clause 5.2 that Director has made such request for indemnification. Subject to clause 10, upon making such request for indemnification, Director shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proof in the making of any determination contrary to such presumption.

5.2 Upon written request by Director for indemnification pursuant to sub-clause 3.1, the entitlement of the Director to indemnification pursuant to the terms of this Agreement shall be determined by the following person or persons who shall be empowered to make such determination:

5.2.1 the Board, by a majority vote of the Disinterested Directors; or

5.2.2 if such vote is not obtainable or, even if obtainable, if such Disinterested Directors so direct by majority vote, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Director.

5.3 For purposes of sub-clause 5.2, Independent Counsel shall be selected by the Board and approved by Director. Upon failure of the Board to so select such Independent Counsel or upon failure of Director to so approve, such Independent Counsel shall be selected by the American Arbitration Association. Such determination of entitlement to indemnification shall be made not later than 60 days after receipt by the Company of a written request for indemnification. Such request shall include documentation or information which is necessary for such determination and which is reasonably available to Director. Subject to clause 10, any expenses (including attorneys’ fees) incurred by Director in connection with Director’s request for indemnification hereunder shall be borne by the Company irrespective of the outcome of the determination of Director’s entitlement to indemnification. If the person or persons making such determination shall determine that Director is entitled to indemnification as to part (but not all) of the application for indemnification, such persons may reasonably prorate such partial indemnification among such claims, issues or matters in respect of which indemnification is requested.

6. ADVANCEMENT OF EXPENSES

All reasonable expenses incurred by Director (including attorneys’ fees, retainers and advances of disbursements required of Director) shall be paid by the Company in

7

advance of the final disposition of any Proceeding at the request of Director as promptly as possible, and in any event within twenty days after the receipt by the Company of a statement or statements from Director requesting such advance or advances from time to time. Director’s entitlement to such expenses shall include those incurred in connection with any Proceeding by Director seeking an adjudication or award in arbitration pursuant to this Agreement. Such statement or statements shall reasonably evidence the expenses incurred by Director in connection therewith and shall include or be accompanied by an undertaking by or on behalf of Director to repay such amount if it is ultimately determined that Director is not entitled to be indemnified against such expenses by the Company as provided by this Agreement or otherwise. Subject to clause 10, the Company shall have the burden of proof in any determination under this clause 6. No amounts advanced hereunder shall be deemed an extension of credit by the Company to Director.

7. REMEDIES OF DIRECTOR IN CASES OF DETERMINATION NOT TO INDEMNIFY OR TO ADVANCE EXPENSES

7.1 In the event that: (a) a determination is made that Director is not entitled to indemnification hereunder; (b) payment has not been timely made following a determination of entitlement to indemnification pursuant to clause 5; or (c) expenses are not advanced pursuant to clause 6, Director shall be entitled to apply to any court of competent jurisdiction for a determination of Director’s entitlement to such indemnification or advance.

7.2 Alternatively to sub-clause 7.1, the Parties, at the Director’s option, shall submit any controversy or claim arising out of or in connection with (a), (b) or (c) as referred to in clause 7.1 above to arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award tendered by the Arbitrator may be entered in any court having jurisdiction hereof. The number of arbitrators shall be one. The place of arbitration shall be Dublin, Ireland. Such award to be made within sixty days following the filing of the demand for arbitration. The Company shall not oppose Director’s right to seek any such adjudication or award in arbitration or any other claim.

7.3 A judicial proceeding or arbitration pursuant to this clause 7 shall be made anew and Director shall not be prejudiced by reason of a determination otherwise made hereunder (if so made) that Director is not entitled to indemnification. Subject to clause 10, if a determination is made pursuant to the terms of clause 5 that Director is entitled to indemnification, the Company shall be bound by such determination and is precluded from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding and enforceable. If the court or arbitrator shall determine that Director is entitled to any indemnification hereunder, the Company shall pay all reasonable expenses (including attorneys’ fees and disbursements) actually incurred by Director in connection with such adjudication or award in arbitration (including, but not limited to, any appellate proceedings).

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8. OTHER RIGHTS TO INDEMNIFICATION

The indemnification and advancement of expenses (including attorneys’ fees) provided by this Agreement shall not be deemed exclusive of any other right to which Director may now or in the future be entitled under any provision of the Company’s bye-laws, any agreement, vote of shareholders, the Board or Disinterested Directors, provision of law, or otherwise; provided, however, that: (a) this Agreement supersedes any other agreement that has been entered into by the Company with the Director which has as its principal purpose the retainer as a director and indemnification of Director; and (b) where the Company may indemnify the Director pursuant to either this Agreement or the bye-laws of the Company, the Company may indemnify the Director under either this Agreement or the bye-laws but the Director shall, in no case, be indemnified by the Company in respect of any expense, liability or cost of any type for which payment is or has been actually made to Director under any insurance policy, indemnity clause, bye-law or agreement, except in respect of any excess beyond such payment.

9. ATTORNEYS’ FEES AND OTHER EXPENSES TO ENFORCE AGREEMENT

In the event that Director is subject to or intervenes in any Proceeding in which the validity or enforceability of this Agreement is at issue or seeks an adjudication or award in arbitration to enforce Director’s rights under, or to recover damages for breach of, this Agreement, Director, if Director prevails in whole or in part in such action, shall be entitled to recover from the Company and shall be indemnified by the Company against, any actual expenses for attorneys’ fees and disbursements reasonably incurred by Director, provided that in bringing such action, Director acted in good faith.

10. LIMITATION OF INDEMNIFICATION

Notwithstanding any other terms of this Agreement, nothing herein shall indemnify the Director against, or exempt the Director from, any liability in respect of the Director’s fraud, dishonesty, bad faith, gross negligence, wilful default or wilful misfeasance in the performance or non-performance by the Director of his obligations or duties hereunder.

11. LIABILITY INSURANCE

The Company undertakes (i) to obtain and maintain, either directly or through a group policy covering the Company and its affiliates, adequate Director’s and Officers’ Liability Insurance on terms that are reasonably acceptable to the Director and the other directors of the Company that shall cover the Director and the other directors of the Company, (ii) that in the event it is reasonably foreseeable that the Company will cease to exist whether by reason of insolvency, bankruptcy or other similar events, the Company will purchase adequate Directors’ and Officers’ Liability and Company Reimbursement Insurance on terms reasonably acceptable to the Director and the other directors of the Company that shall cover the Director and the other directors of the Company for a period of not less than 7 years from the date the Company ceases to exist or such lesser

9

period as is practicable given the availability of such coverage in the insurance market at that time, and (iii) at the Director’s request to arrange an annual review of the Directors’ and Officers’ Liability and Company Reimbursement Insurance by an independent insurance adviser, all fees and charges arising from such review to be met by the Company. The Director will be covered by and required to participate in such insurance. Evidence of such current insurance and of each renewal will be sent to the Director (in the case of current insurance, in advance of the Director’s appointment being confirmed).

12. DURATION OF AGREEMENT

This Agreement shall apply with respect to Director’s occupation of any of the position(s) described in sub-clause 3.1 of this Agreement prior to the date of this Agreement and with respect to all periods of such service after the date of this Agreement, even though the Director may have ceased to occupy such positions(s).

13. NOTICE OF PROCEEDINGS BY DIRECTOR

13.1 Director agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding which may be subject to indemnification hereunder, provided, however, that the failure to so notify the Company will not relieve the Company from any liability it may have to Director except to the extent that such failure materially prejudices the Company’s ability to defend such claim. With respect to any such Proceeding as to which Director notifies the Company of the commencement thereof:

13.1.1 the Company will be entitled to participate therein at its own expense; and

13.1.2 except as otherwise provided below, to the extent that it may wish, the Company jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Director. After notice from the Company to Director of its election so to assume the defense thereof, the Company will not be liable to Director under this Agreement for any legal or other expenses subsequently incurred by Director in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Director shall have the right to employ Director’s own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Director and not subject to indemnification hereunder unless (a) the employment of counsel by Director has been authorized by the Company; (b) in the reasonable opinion of counsel to Director there is or may be a conflict of interest between the Company and Director in the conduct of the defense of such Proceeding; or (c) the Company shall not in fact have employed counsel to assume the defense of such action, in each of which cases, subject to clause 10, the fees and expenses of counsel shall be at the expense of the Company.

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13.2 Neither the Company nor the Director shall settle any claim without the prior written consent of the other (which shall not be unreasonably withheld).

13.3 To the extent that the Company receives a request or requests from a governmental third party or other licensing or regulating organization (the “Requesting Agency”), whether formal or informal, to produce documentation or other information concerning an investigation, whether formal or informal, being conducted by the Requesting Agency, and such investigation is reasonably likely to include review of any actions or failures to act by Director, the Company shall promptly give notice to Director of such request or requests and any subsequent request. In addition, the Company shall promptly provide Director with a copy of any and all information or documentation that the Company provides to the Requesting Agency.

14. NOTICES

Any notice required to be given hereunder shall be in writing in the English language and shall be served by sending the same by prepaid recorded post, facsimile or by delivering the same by hand to the address of the Party or Parties in question as set out below (or such other address as such Party or Parties shall notify the other Parties of in accordance with this clause). Any notice sent by post as provided in this clause shall be deemed to have been served five Business Days after despatch and any notice sent by facsimile as provided in this clause shall be deemed to have been served at the time of despatch and in proving the service of the same it will be sufficient to prove in the case of a letter that such letter was properly stamped, addressed and placed in the post; and in the case of a facsimile that such facsimile was duly despatched to a current facsimile number of the addressee.

Company -

Babcock & Brown Air Limited

West Pier

Dun Laoghaire

County Dublin, Ireland

Attn: Chief Executive Officer

Fax: +353 (1) 231-1901

11

Director -

Name:

Address:

Fax:

15. MISCELLANEOUS

15.1 Notwithstanding the expiration or termination of this Agreement howsoever arising, such expiration or termination shall not operate to affect such of the provisions hereof as are expressed or intended to remain in full force and effect.

15.2 Any paragraph of this Agreement that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining paragraph hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such paragraph in any other jurisdiction.

15.3 This Agreement shall be binding upon the Company and its successors and assigns (including any transferee of all or substantially all of its assets and any successor or resulting company by merger, amalgamation or operation of law) and shall inure to the benefit of Director and Director’s spouse, assigns, heirs, estate, devises, executors, administrators or other legal representatives.

15.4. This Agreement (together with any documents referred to herein) constitutes the whole agreement between the Parties relating to its subject matter and supersedes any prior indemnification arrangement between the Company (or its predecessor) and Director (except as specifically set forth in clause 8).

15.5 No provision in this Agreement may be amended unless such amendment is agreed to in writing, signed by the Director and by a duly authorised officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Director or a duly authorised officer of the Company, as the case may be.

15.6 The headings in this Agreement are inserted for convenience only and shall not affect the construction of this Agreement.

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15.7 This Agreement may be executed in counterparts each of which when executed and delivered shall constitute an original but all such counterparts together shall constitute one and the same instrument.

15.8 The terms and conditions of this Agreement and the rights of the parties hereunder shall be governed by and construed in all respects in accordance with the laws of Ireland. The parties to this Agreement hereby irrevocably agree that the courts of Ireland shall have non-exclusive jurisdiction in respect of any dispute, suit, action, arbitration (save for any matter referred to arbitration under clause 7.2 hereof) or proceedings (“Agreement Proceedings”) which may arise out of or in connection with this Agreement and waive any objection to Agreement Proceedings in the courts of Ireland on the grounds of venue or on the basis that the Agreement Proceedings have been brought in an inconvenient forum.

15.9 All payments made by the Company to Director hereunder shall be deemed to have been made in the ordinary course of business of the Company, and shall not be deemed to be extraordinary payments.

IN WITNESS WHEREOF, the undersigned, intending to be bound hereby, have duly executed this Agreement as of the date first written above.

13

SIGNED by and on behalf of	)
THE COMPANY	)	Name:
		Title:

SIGNED by	)
THE DIRECTOR	)	Name:

14

EX-10.13

Exhibit 10.13

EXECUTION

Credit Suisse, New York Branch

11 Madison Avenue

New York, New York 10010

July 9, 2007

Mr. Colm Barrington

Babcock & Brown Air Limited

West Pier

Dún Laoghaire

County Dublin, Ireland

Re: Aircraft Lease Warehouse Facility Commitment Letter

Dear Colm:

This engagement letter confirms our understanding that Babcock & Brown Air Limited (“B & B Air” or the “Company”) has engaged Credit Suisse, New York Branch and its subsidiaries, affiliates, successors and assigns, as appropriate (“CS”, “us” or “our”) as sole structuring agent of an Aircraft Lease Warehouse Facility (the “Facility”) and the sole underwriter of the Class A and Class B Notes for the Facility, including the syndication of the Facility after the closing thereof, for Aircraft (as defined below) in an amount of $1.104 billion to Babcock & Brown Air Acquisition 1 Limited (the “Borrower”). The proceeds of revolving notes issued by the Borrower will be used to provide financing for a portfolio of commercial aircraft, their respective leases and certain other related reserves and deposits, if any, held by the Borrower (the “Collateral” or the “Aircraft”) originated by the Company. CS proposes to arrange the Facility on the terms and conditions set forth in the Aircraft Lease Warehouse Facility Summary Term Sheet dated June 30, 2007 (the “Aircraft Lease Warehouse Facility Summary Term Sheet”) a copy of which is attached hereto. Unless otherwise defined, all capitalized terms herein shall have the meaning provided in the Aircraft Lease Warehouse Facility Summary Term Sheet.

The agreement by CS to provide the Facility will be subject to (a) after the date hereof, no occurrence of any material adverse change in or affecting the Company’s or the Borrower’s business or financial condition; (b) our not being aware, after the date hereof, of any information or other matter which in our judgment is inconsistent in a material and adverse manner with any information or other material disclosed to us prior to the date hereof; (c) no occurrence of a material disruption of or material adverse change in financial, banking or capital market conditions that, in our reasonable judgment, could materially impair the funding or syndication of the Facility; (d) our review and reasonable satisfaction with the terms of the documentation governing the Facility except as otherwise

Mr. Colm Barrington
July 9, 2007
Page 2

agreed in the Aircraft Lease Warehouse Facility Summary Term Sheet; (e) the satisfactory completion of CS’s due diligence of the Borrower and any other parties involved with the Facility; (f) the negotiation, execution and delivery on or before September 15, 2007 of definitive documentation with respect to the Facility satisfactory to CS, and (i) the other conditions set forth in the Aircraft Lease Warehouse Facility Term Sheet.

1. Information. The Company will furnish CS with all financial and other information concerning the Company as CS deems appropriate in connection with the performance of the services contemplated by this engagement and in that connection will provide CS with access to the Company’s officers, directors, employees, accountants, counsel and other representatives. The Company acknowledges and confirms that CS (i) will use and rely solely on such information and on information available from generally recognized public sources in the performance of the services contemplated by this engagement without assuming any responsibility for independent investigation or verification thereof, (ii) assumes no responsibility for the accuracy or completeness of such information or any other information regarding the Company and (iii) will not make any appraisal of any assets of the Company.

The Company represents and warrants and covenants that all information (the “Company Information”) which has been or is hereafter made available to CS by the Company or any of the Company’s representatives in connection with the Facility contemplated hereby, taken as a whole and as supplemented from time to time, is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements are made. The Company authorizes CS to provide the Company Information to any actual or prospective lender or participant in the Facility (each, a “Lender”).

2. Matters Relating to Engagement. The Company acknowledges that CS has been retained solely to provide the services set forth in this engagement letter. In rendering such services, CS shall act as an independent contractor, and any duties of CS arising out of its engagement hereunder shall be owed solely to the Company and the Borrower. In connection with any offering of securities, the Company acknowledges that CS is engaged in securities trading and brokerage activities, as well as the provision of investment banking and financial advisory services. In the ordinary course of trading and brokerage activities, CS and its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions, for their own account or the accounts of customers, in debt or equity securities of entities that may be involved in the transactions contemplated hereby.

3. Fees and Expenses. As compensation for the services of CS hereunder:

The Company shall pay CS, at the closing of the proposed Transaction, a structuring fee. The amount of such fee shall be detailed within a fee letter and negotiated as part of the underlying documentation for the Facility. The Company shall pay promptly upon request, the reasonable out-of-pocket costs and expenses (including without limitation, the

Mr. Colm Barrington
July 9, 2007
Page 3

fees and expenses of counsel to CS and CS’s other out-of-pocket expenses) arising in connection with the preparation, execution, and delivery of this engagement letter and the activities described herein, and the definitive financing agreements and the related agreements, whether or not the transaction described in the first paragraph closes.

4. Use of Name. The Company agrees that any references to CS or any of its affiliates made in connection with any Facility in any publicly distributed writing are subject to CS’s prior approval. CS agrees that any references to the Company or any of its affiliates made in connection with any Facility in any publicly distributed writing are subject to the Company’s prior approval.

5. Additional Services. The Company further understands that if CS is asked to act for the Company in any other formal additional capacity relating to this engagement but not specifically addressed in this engagement letter, such activities shall constitute separate engagements and the terms of any such additional engagements will be embodied in one or more separate written agreements containing terms and conditions to be mutually agreed upon including without limitation appropriate indemnification provisions. The indemnity provisions in the Indemnification Letter shall apply to any such additional engagements, unless superseded by an indemnity provision set forth in a separate agreement applicable to any such additional engagements.

6. Indemnification. Since CS will be acting on behalf of the Company in connection with its engagement hereunder, the Company has entered into a separate letter agreement (the “Indemnification Letter”) set forth in Annex A hereto, dated the date hereof, providing for the indemnification by the Company of CS and certain related persons and entities. The Indemnification Letter will survive any termination or expiration of this engagement letter and the closing of the Facility.

7. Termination. This engagement will terminate on December 31, 2007 if the Facility contemplated herein has not closed on or before that date.

Upon the termination of this Agreement, CS will be entitled to prompt reimbursement for any legal or Facility related expenses as described above. The Company further agrees that it will not enter into any financing transaction described in this engagement letter unless, prior to or simultaneously with such transaction, adequate provision is made with respect to the payment of all amounts payable to CS hereunder.

8. General. This Agreement contains the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. This Agreement may not be amended or modified except by a writing executed by each of the parties hereto. Paragraph headings herein are for convenience only and are not a part of this Agreement. This Agreement is solely for the benefit of the Company and CS and no other person shall acquire or have any rights under or by virtue of this Agreement. This Agreement may not be assigned by either party without prior written consent of the other party.

Mr. Colm Barrington
July 9, 2007
Page 4

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 and 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE COURT OF COMPETENT JURISDICTION IN NEW YORK, NEW YORK OR IN ANY FEDERAL COURT OF COMPETENT JURISDICTION IN THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH SUCH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT (SUBJECT TO ANY RIGHT OF APPEAL TO A HIGHER COURT).

EACH OF US HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE ACTIONS OF THE UNDERSIGNED IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF. WITH RESPECT TO ANY PROCEEDINGS FILED IN CALIFORNIA IF THE ABOVE JURY TRIAL WAIVER IS UNENFORCEABLE, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES THAT ALL DISPUTES BE RESOLVED BY A JUDICIAL REFERENCE PROCEEDING PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638 AND THAT THE REFEREE IS EMPOWERED TO HEAR AND RESOLVE ANY OR ALL ISSUES IN THE PROCEEDING, WHETHER OF FACT OR LAW.

If any term, provision, covenant or restriction in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants and restrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated. B & B Air and CS shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions.

This engagement letter may be executed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. Delivery of an executed counterpart of a signature page of this engagement letter by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

Mr. Colm Barrington
July 9, 2007
Page 5

Please confirm that the foregoing is in accordance with B & B Air’s understanding by signing this letter of agreement and returning it to CS. The letter signed by you shall constitute a binding agreement between the parties hereto as of the date first above written.

Very truly yours,

CREDIT SUISSE, NEW YORK BRANCH
By:
	Name:
	Title:

By:
	Name:
	Title:

Mr. Colm Barrington
July 9, 2007
Page 6

Accepted and agreed as
of the date first written above:

BABCOCK & BROWN AIR LIMITED
By:
Name:	Colm Barrington

Mr. Colm Barrington
July 9, 2007
Page 7

ANNEX A

In further consideration of the engagement by Babcock & Brown Air Limited (the “Company”) of Credit Suisse Securities (USA) LLC (“CS”) to act in the capacity described in our commitment letter dated the date hereof (the “Agreement”), the Company agrees to indemnify and hold CS and its affiliates, and the respective directors, officers, agents and employees of CS and its affiliates and each other entity or person, if any, controlling CS or any of its affiliates within the meaning of either Section 15 of the Securities Act of 1933, as amended or Section 20 of the Securities Exchange Act of 1934, as amended (CS and each such entity or person being collectively referred to as an “Indemnified Party”) from and against any losses, claims, damages or liabilities (or actions in respect thereof) (i) arising out of or in connection with the Agreement and the Facility (terms used herein but not defined shall have the meaning set forth in the Agreement) or any other matter contemplated by the Agreement, (ii) arising out of, based upon or in connection with any breach by the Company of any representation or warranty or failure to comply with any of the agreements of the Company set forth in the Agreement and any other agreement to be entered into by and the Company and CS with respect to the Facility or (iii) arising out of or based upon an untrue statement or alleged untrue statement of a material fact contained in any materials approved by the Company and delivered to prospective lenders in connection with the Facility, including in each case any amendments or supplements thereto and including but not limited to any documents deemed to be incorporated in any such document by reference (the “Offering Materials”), or arising out of or based upon any omission or alleged omission to state in the Offering Materials a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading, other than a misstatement or omission in information provided by CS about CS for inclusion in the Offering Materials.

The Company will reimburse any Indemnified Party for all reasonable out-of-pocket expenses (including, without limitation, reasonable fees and disbursements of counsel incurred by such Indemnified Party in connection with investigating, preparing for or defending any such action or claim, whether in connection with pending or threatened litigation to which the Indemnified Party is a party), in each case, as such expenses are incurred or paid. With respect to the preceding paragraph, the Company will not, however, be responsible for any losses, claims, damages or liabilities (or expenses related thereto) incurred by any Indemnified Party that are finally judicially determined by a court of competent jurisdiction to have resulted directly from the willful misconduct or gross negligence of any Indemnified Party.

In case any proceeding (including any governmental investigation) shall be instituted involving any Indemnified Party, such Indemnified Party shall promptly notify the Company in writing and the Company shall have the right, exercisable by giving written notice to the Indemnified Party within 30 days of receipt of written notice for the Indemnified Party of such proceeding, to retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and any others the Company may designate in such proceeding and shall pay the reasonable fees and disbursements of such

Mr. Colm Barrington
July 9, 2007
Page 8

counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Company and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the Company or the Indemnified Party has been advised by counsel that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Company shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such Indemnified Parties, and that all such reasonable fees and expenses shall be reimbursed as they are incurred and paid. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by CS and acceptable to the Company (which consent shall not be unreasonably withheld).

The Company will not, without CS’s prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination includes a release of each Indemnified Person from any liabilities arising out of such action, claim, suit, investigation or proceeding. The Company will not permit any such settlement, compromise, consent or termination to include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of an Indemnified Person, without such Indemnified Person’s prior written consent. No Indemnified Person seeking indemnification, reimbursement or contribution under this Annex A will, without the Company’s prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or proceeding referred to herein.

If the indemnification provided for in the second paragraph of this Annex A is unavailable to an Indemnified Party in respect of any losses, claims, damages or liabilities referred to therein, then the indemnifying party, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and CS, on the other hand, from the Facility or (ii) if the allocation provided by clause (i) above is not permitted by law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and of CS, as well as any other relevant equitable considerations. The relative benefits received by the Company, on one hand, and CS, on the other hand, shall be deemed to be in the same respective proportions as the proceeds received or proposed to be received by the Company from the Facility (before deducting expenses) bear to the total placement fees received or proposed to be received by CS pursuant to the Facility. The relative fault of the Company and the Borrower, on the one hand, and CS, on the other hand, (i) in the case of any untrue or alleged untrue statement of a material fact or any omission or alleged omission to state a material fact, shall be determined by reference to, among other things, whether such statement or omission relates to information supplied by the Company or CS

Mr. Colm Barrington
July 9, 2007
Page 9

and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and (ii) in the case of any other action or omission shall be determined by reference to, among other things, whether such action or omission was taken by the Company or by CS and the parties’ relative intent, knowledge, access to information and opportunity to prevent such action or omission.

The Company and CS agree that it would not be just and equitable if contribution pursuant to this Annex A were determined by pro rata allocation or any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to limitations set forth above, any legal or other expenses incurred in connection with investigating or defending any such action or claim. Notwithstanding any of the provisions of this Annex A, in no event shall the aggregate contribution by all Indemnified Parties to the amount paid or payable exceed the aggregate amount of fees actually received by CS under the Agreement or in connection with the Facility.

The Company’s obligations hereunder shall be in addition to any rights that any Indemnified Party may have at common law or otherwise. The Company acknowledges that, in connection with the CS Mandate, CS is acting as an independent contractor and not in any other capacity with duties owing solely to the Company.

THIS ANNEX A AND ANY OTHER AGREEMENTS RELATING TO THE CS MANDATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 and 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW). All judicial proceedings brought against any party hereto arising out of or relating to Annex A may be brought in any state court of competent jurisdiction in New York, New York or in any federal court of competent jurisdiction in the Southern District of New York, and by execution of and delivery of Annex A each such part accepts for itself and in connection with its properties, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts and waives any defense of forum non conveniens and irrevocably agrees to be bound by any judgment rendered thereby in connection with this engagement letter (subject to any right of appeal to a higher court). Notwithstanding the foregoing, solely for purposes of enforcing the Company’s obligations hereunder, the Company consents to personal jurisdiction, service and venue in any court proceeding in which any claim subject to this Annex A is brought by or against any Indemnified Party.

Each of the parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Annex A, or the actions of the undersigned in the negotiation, performance or enforcement hereof.

The provisions of this Annex A shall apply to the Agreement (including related activities prior to the date hereof) and any modification thereof and shall remain in full

Mr. Colm Barrington
July 9, 2007
Page 10

force and effect regardless of the completion or termination of the Agreement. If any term, provision, covenant or restriction herein is held by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions and restrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

Mr. Colm Barrington
July 9, 2007
Page 11

Please confirm that the foregoing is in accordance with the Company’s understanding by signing this letter of agreement and returning it to CS. The letter signed by you shall constitute a binding agreement between the parties hereto as of the date first above written.

BABCOCK & BROWN AIR LIMITED		CREDIT SUISSE, NEW YORK BRANCH
By:		By:
	Name: Colm Barrington		Name:
			Title:

By:
	Name:
	Title:

AIRCRAFT WAREHOUSE FACILITY

SUMMARY TERM SHEET

JUNE 2007

FINAL

June 30, 2007

Summary Term Sheet

Indicative Summary of Terms and Conditions

Credit Suisse Securities (USA) LLC or one of its affiliates (“CS”), is pleased to provide this summary term sheet (the “Term Sheet”) solely for discussion purposes. The Term Sheet does not present all of the terms, conditions, covenants, representations, warranties and other provisions which will be contained in the definitive legal documentation for the transactions contemplated thereby. Those matters that are not covered or made clear in this Term Sheet are subject to mutual agreement of the parties. Documentation will include, in addition to the provisions outlined in this Term Sheet and the provisions that are customary and appropriate for this type of transaction, any other documentation which is mutually acceptable to the parties. In addition, the effectiveness of the Facility (as defined herein) will be subject to, among other things, final credit approval, documents, filings, and opinions acceptable to counsel and the execution of mutually acceptable definitive documentation.

Executive Summary:	Babcock & Brown Air Limited (“B & B Air”) has requested that CS structure and underwrite a warehouse facility (the “Facility” or the “Loan”) to finance commercial aircraft (the “Aircraft”) acquired by Babcock & Brown Air Acquisition 1 Limited (the “Borrower”), a special-purpose bankruptcy-remote entity established by B & B Air. The Facility will be comprised of two Classes of loans each ranking senior to the other in alphanumeric order (the “Class A Loans” and the “Class B Loans”, collectively, the “Loans”) and Equity (the “Equity”) under a Warehouse Loan Agreement (the “Warehouse Agreement”). Each Aircraft will be owned by a separate special purpose subsidiary of the Borrower (each, an “Aircraft Owning Subsidiary”). The Aircraft will be leased to lessees by the Aircraft Owning Subsidiaries, or if a treaty would provide more favorable tax treatment if a head lease/sublease structure was used, may be leased by an Aircraft Owning Subsidiary through another special purpose, direct or indirect subsidiary of the Borrower (together with the Aircraft Owning Subsidiaries, “Aircraft Subsidiaries”). The Loans shall be secured by the membership interest of the Borrower, each Aircraft Subsidiary, Aircraft (but no Aircraft will be subject to a “mortgage” and security interests in Aircraft will not be required to be registered or perfected), leases of Aircraft, Aircraft purchase agreements, assignments of insurance proceeds, certain deposit and trust accounts, certain cash collateral, maintenance reserves and other deposits (the “Collateral”). CS will act as Agent for the Facility and a syndicate of financial institutions selected by CS shall be the Lenders.
Borrower:	Babcock & Brown Air Acquisition I Limited, a special-purpose bankruptcy-remote entity. The equity interests of the Borrower will be held (directly or indirectly) by B & B Air and/or its affiliates.
Servicer:	Babcock & Brown Aircraft Management LLC (“BBAM”) and its delegates,; provided that BBAM shall remain liable for any responsibilities delegated.
Agent:	CS.
Lenders:	A syndicate of financial institutions selected by CS. Lenders may designate

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	commercial paper conduits administered by them to make advances under the Facility.
Facility Closing Date:	August 2007
Facility:	A warehouse lending facility with respect to the Collateral.
Structure:	The aggregate amount available under the Facility is initially expected to be comprised as follows:

Debt	Amount
Class A	$	920,000,000
Class B		184,000,000
Total	$	1,104,000,000
Equity		Amount
Initial Cash Reserve	$	16,000,000
Fixed Equity Acquisition Contributions		96,000,000
Total	$	112,000,000

Collateral Eligibility:	The Agent and the Borrower shall agree to a detailed list of Collateral eligibility criteria to be set forth in the final transaction documentation. The Borrower will only acquire Aircraft so as not to breach the criteria set forth in the final transaction documentation. Funding of any advance with respect to any Aircraft is subject to the prior approval of the Agent.
Approved Aircraft Types:	The Agent and the Borrower shall agree to a predetermined list of Approved Aircraft Types to be set forth in the final transaction documentation. Those aircraft types designated as Approved Aircraft can be contributed to the Facility with the consent of the Agent, subject to the collateral eligibility criteria set forth in the final transaction documentation. Advances against aircraft types not designated as Approved Aircraft Types require the approval of 66 2/3% of the Class A Lenders and 66 2/3% of the Class B Lenders as measured by their combined loan and unfunded allocation amounts.
Maximum Credit:	Up to an aggregate outstanding amount of up to $1,104 million (the “Maximum Facility Amount”), comprised of the Class A Loans, the Class B Loans and the Equity, each ranking junior to the other in alphanumeric order. Upon request by the Borrower and consent of the Agent, and for any increase of the Maximum Facility Amount to an amount greater than $1,104 million, 66 2/3% of the Lenders, such amount may be increased pro rata among all Loans and will be contingent on an additional pro rata Fixed Equity Acquisition Contribution. No Lender, however, is required to increase its allocation or be assigned a new allocation without such

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	Lender’s consent.
Availability Period:	The Maximum Facility Amount shall be available for advances to the Borrower for a period of 24 months from the Facility Closing Date. This Availability Period may be extended for additional time periods (the “Extended Availability Period”) by written agreement among the Borrower, the Agent and each Lender. No Lender, however, is required to extend the Availability Period with respect to its loans without such Lender’s consent.
Interim Repayment Dates:	Amounts borrowed must be repaid in 4 quarterly installments commencing on the 36th Settlement Date after the end of the Availability Period or, if applicable, any Extended Availability Period (each an “Interim Repayment Date”). The amount repaid on or prior to each of the 4 Interim Repayment Dates shall be equal to or greater than 25%, 50%, 75% and 100%, respectively, of the amount outstanding under the Facility as of the end of the Availability Period (each an “Interim Repayment Amount”).
Expected Maturity Date:	At the end of the Availability Period.
Legal Final Maturity Date:	The Agent, at the request of lenders consisting of no less than 66 2/3% of the aggregate dollar amount of outstanding Class A and Class B Loans and unfunded allocations combined, may extend the date for any payment due on any Interim Repayment Date, provided, however, that no such extension may extend the Final Interim Repayment Date for more than 24 months beyond the date initially provided unless the consent of all Lenders is obtained. In the event that the final Interim Repayment Date is extended more than 24 months beyond the date originally provided, the Lenders of the most senior class shall be the controlling party for all classes of Loans. In no event shall the final Interim Repayment Date be extended such that the term of the loan exceeds 30 years.
Purchase Price:	The sum of (a) the cash purchase price paid by the applicable Aircraft Owning Subsidiary (or by the Borrower in the case of the acquisition of an Aircraft Owning Subsidiary), net of any amounts to be paid or transferred by the seller to the purchaser in connection therewith, plus (b) the amount of any cash security deposit or cash maintenance reserve balance under the applicable Lease at the time of such acquisition, plus (c) the amount of any lessor maintenance contribution obligation not included in the cash maintenance reserve balance, plus (d) the amount of any rent previously paid by the applicable Lessee as of the date of such acquisition and amounts agreed by the Agent to be held in the rent account to be applied during any rent holiday permitted under the applicable lease for periods after the date of such acquisition to the extent those amounts were either payable by the seller to the applicable Aircraft Owning Subsidiary or were otherwise deducted from the amount the applicable Aircraft Owning Subsidiary paid to the seller.
Advance Amount:	The Lenders will advance the lesser of: (A) 100% of the Purchase Price (as defined herein) paid by the relevant Aircraft Owning Subsidiary and (B) an amount, when added to the then outstanding Loans will not result in the aggregate outstanding Class A and Class B Loans exceeding the sum of: (x) 85.0% of the Aircraft Value (as defined below) of all Aircraft plus (y) 50.0% of the maintenance reserves paid to the depositary in respect of all Aircraft and (C) the Maximum Facility Amount.

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	The advances will be funded first by the Fixed Equity Acquisition Contributions, then by Class B Loans and lastly by Class A Loans, so that, upon full utilization of the Facility, $184 million funded within the Facility is represented by Class B Loans, $96 million is represented by the Fixed Equity Acquisition Contributions and the balance is represented by Class A Loans.
Physical Inspection:	Each aircraft to be funded under the Facility will have undergone a full physical inspection completed by a qualified third party firm mutually acceptable to the Agent and the Borrower. Such inspections shall be performed annually commencing at the end of the Availability Period and may be performed upon a Facility Event of Default, subject to the terms of the Lease; provided, however, that in no event shall physical inspection reports be provided more than twice annually on each aircraft.
Appraisers:	Three pre-selected appraisal firms, each certified by ISTAT and mutually acceptable to the Agent and the Borrower.
Aircraft Value:	Aircraft Value (“AV”) will be determined by the average of the three desktop appraisals to be provided by the Appraisers to the Agent and the Borrower. The individual appraisals will rely upon “Base Values” as defined by ISTAT, adjusted for current physical condition, based on the relevant physical inspection report. The AV of the aggregate funded aircraft will be updated by the Appraisers from time to time and under certain circumstances as to be determined by the Agent and the Borrower in the final documentation. Such updated appraisals shall be based on the aircraft’s condition as reflected in the most recent physical inspection or other relevant maintenance records to the extent applicable and available.
Borrowing Base:	At any time of determination, the sum of: (x) 85.0% of the updated aggregate AV of the Aircraft plus (y) 50.0% of the aggregate maintenance reserves in respect of the Aircraft at such time plus (z) the aggregate amounts deposited in the Cash Collateral Account (excluding maintenance reserves and security deposits) held by the depository at such time. If the aggregate outstanding principal amount of the Class A and Class B Loans exceeds the Borrowing Base (a “Collateral Deficiency”), the Borrower shall, by the third succeeding Settlement Date, either (A) pay the amount of the Collateral Deficiency or (B) pledge additional collateral to cure the Collateral Deficiency.
Settlement Date:	The 15th calendar day of each month and if such day is not a Business Day, then the first Business Day following such 15th calendar day.
Calculation Date:	With respect to any Settlement Date, the last day of the calendar month preceding such Settlement Date.
Measuring Period:	For any Settlement Date, the period from the second preceding Calculation Date to the then most recent Calculation Date.
Interest Period:	The period from each applicable date of funding to the immediately

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	succeeding Settlement Date and, thereafter, the period from the last day of the immediately preceding Interest Period to (but excluding) the next succeeding Settlement Date.
Margins:	Facility Margin	250 bps
	Class A Margin	125 bps
	Class B Margin	400 bps
	Equity Margin	See calculation of Equity Margin located in Schedule A hereto.
Unutilized Fee:	To the Class A Lenders, an amount due on each Settlement Date to the extent there are sufficient funds available through the waterfall and equal to 30 bps against any undrawn allocation extended by the Class A Lenders on Class A Loans and not utilized by the Borrower, commencing on the closing date. To the Class B Lenders, an amount due on each Settlement Date to the extent there are sufficient funds available through the waterfall and equal to 30 bps against any undrawn allocation extended by the Class B Lenders on Class B Loans and not utilized by the Borrower, commencing 6 months after the closing date.
Interest Rate:	Interest shall accrue and be payable in arrears on each Settlement Date and on the Maturity Date, calculated for the actual number of days elapsed during the Interest Period and assuming a year consisting of 360 days. The Interest Rate shall be based upon 1 Month LIBOR plus the applicable Margin.
Aggregated Additional Interest:	(a) With respect to each Interest Period from the first Interim Repayment Date to the second Interim Repayment Date, the Class A Margin and Class B Margin will increase 25 bps, (b) with respect to each Interest Period from the second Interim Repayment Date to the third Interim Repayment Date, the Class A Margin and the Class B Margin will increase 50 bps, (c) with respect to each Interest Period from the third Interim Repayment Date to the fourth Interim Repayment Date, the Class A Margin and the Class B Margin will increase 75 bps, (d) with respect to each Interest Period from the fourth Interim Repayment Date to the twenty-fourth month after the first Interim Repayment Date, the Class A Margin and the Class B Margin will increase 100 bps, (e) with respect to each Interest Period from the twenty-fourth month after the first Interim Repayment Date to the thirty-sixth month after the first Interim Repayment Date, the Class A Margin will increase 200 bps and the Class B Margin will increase 300 bps and (f) with respect to each Interest Period from and after the thirty-sixth month after the first Interim Repayment Date, the Class A Margin will increase 250 bps and the Class B Loans will increase 400 bps (collectively, the “Interim Repayment Date Margin Increase”).
Default Margins:	For Class A and Class B Loans, 100 bps. This Default Margin shall be incremental to the applicable Margins.
Aggregated Default Interest Rate:	For any day during any Interest Period, the sum of the 1 Month LIBOR for such Interest Period plus 350 basis points. The Aggregated Default Margin

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	shall be incremental to the applicable Margins.
Aggregated Default Interest:	At any time during which an Event of Default (but not a Servicer Replacement Event unless an Event of Default is also continuing) has occurred and is continuing, Class A and Class B Loans shall bear additional interest on the outstanding principal amount at a rate per annum equal to the Default Margin and such accrued additional interest, together with any additional interest which has accrued due to any Interim Repayment Date Margin Increases, shall be aggregated on the last day of the Interest Period (all such aggregated additional interest, the “Aggregated Default Interest”). Such accrued interest shall be aggregated on the last day of the Interest Period along with the Aggregated Default Interest and shall be deemed total “Aggregated Default Interest” upon such aggregation. Aggregated Default Interest and the interest thereon shall be payable in arrears on the date on which the aggregate principal amount of the Loans have been paid in full.
Required Principal Payment:	On each Settlement Date beginning on the first Settlement Date to occur following the earlier of (A) the six (6) month anniversary of the date upon which the Facility utilization rate exceeds the Threshold Utilization Rate, and (B) the end of the Availability Period, and in accordance with the Cash Flow Waterfall (as defined herein), all amounts collected (excluding, so long as no Event of Default has occurred and is continuing, maintenance reserves and security deposits) in excess of the required interest expense, management fees, permitted expenses and Cash Collateral top-up amounts, if any, will be used to amortize the Loan. All securitization proceeds or any Prepayments (voluntary or otherwise) will be used to pay down the Loan in accordance with the Cash Flow Waterfall and as specified herein.
Maintenance Reserves & Security Deposits:	Any maintenance reserves related to an Aircraft will be retained in the Reserves Account and any security deposits related to an Aircraft will be retained in the Deposit Accounts, in each case, for the benefit of the Lenders. Upon receipt by the Agent of an officer’s certificate from the Servicer that maintenance has been performed by a lessee and expenses incurred in connection therewith are reimbursable, the Servicer may draw from the Reserves Account to reimburse such lessee for such reimbursable expenses an amount not to exceed the amount of such reimbursable expenses. During the term of this Facility, the Agent will have control over the release of funds from any separate accounts, provided, however, that all balances related to maintenance reserves and security deposits will be handled and dispensed in accordance with the terms of the related lease.
Base Rent:	The revenues associated solely with the basic rent payment due under each lease without regard for security deposits, maintenance reserves, additional collateral or any other payment made by a lessee other than in regards to basic rent.
Servicer Advances:	On or prior to each Settlement Date, the Servicer may make advances in its discretion in respect of unpaid (or unpaid in full) Base Rent or maintenance reserves.
Cash Collateral Account:	The Borrower shall establish and maintain a Cash Collateral Account for the benefit of the Lenders. Amounts in the Cash Collateral Account (“Cash

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	Collateral”) shall not be less than the sum of (i) $16,000,000, plus (ii) 10% of the aggregate Base Rent actually collected during the Measuring Period related to such Settlement Date and each prior Settlement Date, plus (iii) 10% of the aggregate amount of security deposits related to each Lessee applied to cover Monthly Rent of such Lessee during the Measuring Period relating to such Settlement Date and each prior Settlement Date, minus (iv) any Cash Collateral released in accordance with sales of aircraft or payments required to be made to a lessee under the terms of its lease (the “Cash Collateral Target Amount”). An amount equal to $16,000,000 plus maintenance reserves of all Aircraft funded on the first funding date will be deposited in the Cash Collateral Account on or before the date of the first advance under the Facility. The Cash Collateral Account Target Balance (excluding maintenance reserves of all Aircraft) will be no greater than the greater of (x) 5% of the Maximum Facility Amount and (y) $16 million.
Sources of Payments on Loans:	Payments of interest and principal on each Class of Loans will be made on each Settlement Date to holders of each Class of Loans on such Settlement Date, but only to the extent of amounts on deposit in the collection account and, at the Agent’s discretion, the Cash Collateral Accounts on such Settlement Date (net of expenses then due and payable, and other amounts set forth under the applicable Cash Flow Waterfall) (the “Available Collections”).
Cash Flow Waterfall:	Distributions of available collections will be made monthly on each Settlement Date and on the Legal Final Maturity Date in accordance with the following priority:
	first, to the payment of any fees or expenses other than the fees and expenses described below;
	second, if a lessee has paid any amounts into Concentration Accounts to reimburse the Servicer for obligations of such lessee paid on behalf of the Servicer, to the Servicer, an amount equal to such amount paid;
	third, to an aircraft expense account for payment of all aircraft expenses anticipated to be incurred in the one month period following the applicable Settlement Date and to such account an amount that the Servicer deems prudent to establish a reserve for expected future expenses on the Aircraft;
	fourth, ratably to the Servicer, an amount equal to due an owing Servicer fees;
	fifth, ratably to the payment of accrued and unpaid Class A interest (except for Aggregated Default Interest and accrued and unpaid interest thereon), and any derivatives obligations;
	sixth, ratably to the payment of accrued and unpaid Class B interest (except for Aggregated Default Interest and accrued and unpaid interest thereon);
	seventh, ratably to B&B Air the payment of accrued and unpaid Equity Distributions (calculated as a return on the balance of Fixed Equity Acquisition Contributions at an annual rate of LIBOR plus the Equity Margin);

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	eighth, to the Servicer, for the repayment of any Servicer Advances advanced during the previous Measuring Period;
	ninth, to the payment of the Unutilized Fee on the Class A Loans;
	tenth, deposit to the Cash Collateral Accounts the positive difference (if any) between (A) the Cash Collateral Target Amount minus (B) the Cash Collateral, in each case as determined on the immediately preceding Calculation Date;
	eleventh, beginning on the first Settlement Date to occur following the earlier of (A) the six (6) month anniversary of the date upon which the Facility utilization rate exceeds the Threshold Utilization Rate, and (B) the end of the Availability Period to the payment of the unpaid principal amount of the Class A Loans;
	twelfth, beginning on the first Settlement Date to occur following the earlier of (A) the six (6) month anniversary of the date upon which the Facility utilization rate exceeds the Threshold Utilization Rate, and (B) the end of the Availability Period to the payment of the unpaid principal amount of the Class B Loans;
	thirteenth, to the payment of any Aggregate Default Interest and Aggregate Additional Interest due to Class A Lenders;
	fourteenth, to the payment of any Aggregate Default Interest and Aggregate Additional Interest due to Class B Lenders;
	fifteenth, beginning on the first Settlement Date to occur following the earlier of (A) the six (6) month anniversary of the date upon which the Facility utilization rate exceeds the Threshold Utilization Rate and (B) the end of the Availability Period to the payment to B&B Air a return of the Fixed Equity Acquisition Contributions;
	sixteenth, to the payment in full of all other obligations owed by the Borrower; and
	seventeenth, any remaining balance shall be payable at the direction of the Borrower.
Servicer’s Fees:	BBAM, as Servicer, shall be entitled to receive a monthly management fee equal to $20,000 plus 3.5% of the aggregate Base Rent actually collected for the respective period to the extent funds are available to pay such fee as dictated by the applicable Cash Flow Waterfall.
Sales Fee:	BBAM, as Servicer, shall be entitled to receive a sales fee equal to 1.5% of the cash proceeds collected related to the Sale of any Aircraft; provided however, no Sales Fee will be payable related to a securitization or other refinancing of the facility.
Prepayment Right:	The Borrower may elect to prepay any portion of the Facility at any time subject to the Borrowing Base maintenance requirements, where applicable.
Prepayments:	Voluntary prepayments and mandatory prepayments of the Loans as a consequence of securitization, casualties, Aircraft sales and similar events will be in an amount equal to the Prepayment Amount (as defined below).

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	and will, in the absence of Defaults, Events of Default or Servicer Events of Default, be applied (after payment of interest and expenses) to the payment of unpaid principal of the then most senior outstanding Class of Loans.
Prepayment Amount:	With respect to any Aircraft, (a) at any time after the Availability Period or upon the occurrence and during the continuation of a Default, an Event of Default or Servicer Replacement Event, an amount equal to all proceeds from sales of Aircraft and all insurance and all other proceeds received with respect to any event of total loss of the Aircraft, and (b) at any other time, an amount equal to the product of (A) the Allocable Percentage applicable to such Aircraft times (B) the aggregate outstanding principal amount of the Loans immediately prior to such payment; provided that if the payment of such amount together with any related event of loss or any release of Aircraft and maintenance reserves pursuant to any provision hereof would result in a Collateral Deficiency, such Prepayment Amount shall be increased to the extent required to prevent such Collateral Deficiency from occurring. The “Allocable Percentage” applicable to any Aircraft is equal to the quotient of (A) the sum of (1) the most recent Aircraft Value of such Aircraft plus (2) 50% of the maintenance reserves then held in respect to such Aircraft divided by (B) the sum of (1) the most recent aggregate Aircraft Value of all Portfolio Aircraft plus (2) 50% of the aggregate maintenance reserves held for all Portfolio Aircraft.
Security Interest:	To secure the payment and performance of all obligations under the Warehouse Agreement, the Borrower and the Aircraft Owning Subsidiaries will grant to the Agent, for the benefit of the Lenders, a first priority security interest in substantially all assets of the Borrower and the Aircraft Owning Subsidiaries, including the following Collateral:
	a)   the Aircraft (provided that there will be no “mortgages” on the Aircraft and security interests in the Aircraft will not be required to be registered or perfected); b)   the underlying leases and all Aircraft purchase agreements; c)   the shares of the Borrower and each Aircraft-Owning Subsidiary; d)   the collection accounts and all other accounts; e)   any insurance proceeds resulting from a loss, condemnation, etc. of the Aircraft; f)    the Administrative Agreement with the Servicer; and g)   all proceeds of the foregoing. The transaction documentation will contain standard provisions regarding excluded property.
Release of Cash Collateral:	Upon payment by the Borrower of the Prepayment Amount on a Settlement Date for an Aircraft, if no Default or Event of Default shall be continuing and

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	the First Interim Repayment Date shall not have occurred, the Agent shall release an amount of Cash Collateral for such Aircraft equal to the amount that the then aggregate balance of the Cash Collateral Account exceeds the Cash Collateral Target Amount, taking into account the release of the applicable Aircraft.
Documentation:	Warehouse Agreement, Security Agreement, Depository Agreement, Administrative Agreement and other related documents including, but not limited to, assignments of leases and lessee consents.
Expenses:	The reasonable fees associated with the Agent’s counsel in connection with this warehouse facility will be payable by the Borrower. The reasonable expenses associated with each advance made under the Facility will be payable by the Borrower, including but not limited to, fees and expenses of Agent’s counsel for each advance, reasonable fees and expenses of Agent’s local counsel, and appraisal and inspection fees. The Borrower shall be responsible for all expenses and fees incurred in connection with any portfolio securitization or refinancing, it being understood and agreed that such fees and expenses are to be paid from the proceeds of such securitization.
Funding Procedures:	Advances under the Facility will be made available subject to Agent’s receipt and approval of the following:
	a)   an initial informational package (the “Funding Package”), the contents of which will include, among other things, a copy of each appraisal, a copy of the physical inspection report, a copy of the underlying lease, a copy of the purchase agreement, an overview of the seller financing terms (if any), jurisdiction information (when necessary), detailed financial, credit and operational information on the lessee and, if available, a six-month payment history on the targeted lease; each initial Funding Package shall be received by the Agent at least ten (10) Business Days prior to its related funding date; b)   a finalized Funding Package, with final versions of the lease and the purchase agreement; each finalized Funding Package will be received by the Agent at least three (3) Business Days prior to its related funding; and c)   a request for funds notice at least three (3) Business Days prior to an applicable funding date (a “Funding Request”).
Conditions Precedent to the Initial Funding:	Customary conditions precedent, including, but not limited to:
	a)   execution and delivery of documentation satisfactory to the Agent and its counsel including, but not limited to:
	I.      Warehouse Agreement, II.     Notes (if required by Lenders), III.    Administrative Agreement, IV.   Security Agreement and supplement thereto, V.    Depository Agreement, and

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	VI.        Assignment of Lease.
	b)    legal opinions of counsel for each of the Borrower and the applicable Aircraft Owning Subsidiary that execution and performance of the transaction documents to which each is a party will not violate any provision of law and will not conflict with or result in a breach of its respective constitutional documents; and c)    legal opinions of local counsel in respect of questions of law where the relevant Aircraft is registered.
Reporting Requirements:	The Servicer will provide performance reports with respect to the Portfolio for the related Measuring Period by e-mail no later than the second Business Day before each Settlement Date. Such reports shall include, but not be limited to, outstanding lease delinquencies, lease terminations, lease roll-offs, re-leasing activities and service/maintenance reports by the Borrower. Each such report will be in a format as may be agreed upon by the Borrower and the Agent from time to time. In addition, the Borrower will provide a hard copy of all of the aforementioned reports at the Agent’s request. The Servicer will provide such information directly to the Agent and each lender.
Interest Coverage Ratio:	The Interest Coverage Ratio for any Measuring Period will be the ratio of (A) the aggregate amount of Base Rent collected (inclusive of any security deposits transferred to the collection account in connection with an applicable lease default and, solely with respect to the one month calculation of such ratio, Servicer Advances for such Measuring Period) during such Measuring Period to (B) the aggregate amount of interest accrued for each day of the same Measuring Period on the Class A and Class B Loans.
Events of Default:	An Event of Default under the Facility shall occur upon (subject in each case to certain cure periods):
	a)   failure to make any payment or prepayment of principal or interest on the Loans when due or, without duplication, payment of Collateral Deficiency when due and such payment is not received within one (1) Business Day of the due date therefore; or b)   failure to make any other payment under the loan documents when due and such payment is not received within twenty (20) Business Days after written notice of such non-payment has been given to the Borrower; or c)   failure to maintain the insurance required under the Warehouse Agreement; or d)   failure to consummate Collateral Sales (as defined below) within 6 months of notice to do so from the Agent; or e)   failure of the Borrower or Aircraft Owning Subsidiary to perform any covenant contained in any loan document and such failure shall continue unremedied for a period of twenty (20) Business Days after written notice; or f)    any material representation or warranty made by the Borrower, any Aircraft Owning Subsidiary or the Servicer shall prove to have been

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incorrect at the time made, and shall not have been cured within twenty (20) Business Days after written notice; or g)       bankruptcy or insolvency of the Borrower or any Aircraft Owning Subsidiary, including any subsidiary of the foregoing; or h)       a default under a derivatives agreement occurs as to which the Borrower is the “defaulting party” or a termination under a derivatives agreement occurs to which the Borrower is the “affected party” and the payment due as a result of such termination is in excess of $5,000,000; or i)        the average Interest Coverage Ratio for the three full consecutive Measuring Periods ended before the date of determination is less than 1.25:1.00 (exclusive of all Servicer Advances during any of the relevant Measuring Periods); or j)        the Interest Coverage Ratio for any Measuring Period is less than 1.10:1.00 (inclusive of any Servicer Advances in such Measuring Period); or k)       Babcock & Brown Limited does not own legally and beneficially (directly or indirectly) at least 51% of BBAM for so long as BBAM is the Servicer, or Babcock & Brown Limited does not own legally or beneficially (either directly or indirectly) a minimum percentage of B & B Air (the “Minimum Ownership Percentage” as to be determined in the final documentation), or the Borrower shall not own legally and beneficially 100% of each Aircraft Subsidiary. “Default” means any event which, with the giving of notice or lapse of time or both, would constitute an Event of Default.

Servicer Replacement Events:

A Servicer Replacement Event shall occur upon:

a)       an Event of Default under the Facility; or

b)       BBAM or any significant subsidiary shall fail to make any payment when due in respect of any recourse indebtedness for which the recourse portions exceed $25,000,000 (and (A) such non-payment continues for fifteen (15) days or (B) any creditor commences the exercise of remedies against BBAM or such significant subsidiary) or such indebtedness shall be accelerated; or

c)       the average Interest Coverage Ratio for the three (3) consecutive Measuring Periods ended before the date of determination, is less than 1.35:1.00 (exclusive of all Servicer Advances during any of the relevant Measuring Periods); or

d)       as of any applicable Settlement Date, failure to pay any Interim Repayment Amount then due; or

e)       failure to maintain on behalf of the Borrower insurance that the Servicer is required to maintain for the Borrower; or

f)        failure of the Servicer to perform any covenant contained in any loan document and such failure shall continue unremedied for a period of thirty (30) days after written notice (other than with respect to delivery of the monthly report, which cure period shall be 2 days); or

g)       bankruptcy or insolvency of the Servicer or any significant subsidiary of the Servicer, which, in the case of the significant subsidiary of the

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	Servicer reasonably could be expected to have a material adverse affect on the Servicer’s ability to perform its obligations in respect of the Facility; or h)       failure of BBAM to have Appropriate Management Expertise or to utilize such Appropriate Management Expertise for any reason. “Appropriate Management Expertise” means that BBAM has available to it the full time services of one or more individuals who have experience in the aviation industry and, in particular, in relation to the administrative management of commercial jet aircraft subject to lease; or i)        any financial statement required to be submitted under the Administrative Agreement contains an impermissible qualification. Upon a Servicer Replacement Event, the Agent shall have the right to replace the Servicer at the request of Lenders consisting of no less than 66 2/3% of the aggregate outstanding Class A and Class B Loans and unfunded allocations combined, and the Availability Period shall immediately end, and each Lender’s allocation to make advances to the Borrower shall terminate.
Business Day:	Any day of the week, other than a Saturday or a Sunday on which banks are open for business in London, New York and San Francisco.
Equity Suspension Events:	a)       an Event of Default under the Facility; or b)       the average Interest Coverage Ratio for the three (3) consecutive Measuring Periods ended before the date of determination, is less than 1.35:1.00 (exclusive of all Servicer Advances during any of the relevant Measuring Periods); or c)       the first Interim Repayment Date has occurred; or Upon the occurrence of a Equity Suspension Event, the return on Fixed Equity Acquisition Contributions to B&B Air will accrue but payments of these amounts and repayment of Fixed Equity Acquisition Contributions will be suspended. Should any of these events be cured in future periods, payments of interest and principal will resume.
Minimum Holds	An assignee lender must either (1) acquire all of the outstanding Loans and/or Allocations of the assignor Lender or (2) acquire in the aggregate upon any such assignment by one or more Lenders, and the assignor shall retain Loans and/or Allocations with an aggregate principal balance of, at least $50,000,000 ($1,000,000 if an Event of Default, certain bankruptcy Defaults or a Servicer Replacement Event has occurred and is continuing) with respect to Class A Loans and/or Class A Allocations and $10,000,000 ($1,000,000 if an Event of Default, certain bankruptcy Defaults or a Servicer Replacement Event has occurred and is continuing) with respect to Class B Loans and/or Class B Allocations. Assignments of any Lender’s Class B Allocation will require the prior approval of Borrower. Class A Loans and/or unfunded Class A Allocations, and Class B Loans and/or Class B Allocations shall be separately assignable.
Governing Law:	New York

13 June 30, 2007

SCHEDULE A

EQUITY MARGIN CALCULATION

“Equity Margin” means a rate per annum at any time determined in accordance with the following formula:

Equity Margin =	(I x P) - ((AI x AP) + (BI x BP)) - L
	CP

where

“AI”	=	L + Class A Margin
“L”	=	1 Month LIBOR rate in effect for the applicable Interest Period
“AP”	=	the aggregate unpaid principal balance at any time of the amounts advanced by the Class A Lenders to the Borrower
“BI”	=	L + Class B Margin
“BP”	=	the aggregate unpaid principal balance at any time of the amounts advanced by the Class B Lenders to the Borrower
“CP”	=	the aggregate non-repaid balance at any time of the Fixed Equity Acquisition Contributions advanced by B&B Air to the Borrower
“I”	=	L + M
“M”	=	Facility Margin
“P”	=	AP + BP + CP

1 June 30, 2007

EX-21.1

Exhibit 21.1

Subsidiaries of Babcock & Brown Air Limited*

Babcock & Brown Air Funding I Limited
Babcock & Brown Air Acquisition I Limited

* In connection with the acquisition and delivery of the aircraft in the Initial Portfolio, additional subsidiaries will be acquired or formed.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption ‘‘Experts’’ and to the use of our report related to JET-i Leasing LLC, the predecessor company to Babcock & Brown Air Limited, dated April 13, 2007, except for Note 1, as to which the date is May 3, 2007, in the Registration Statement (Form F-1) and related Prospectus of Babcock & Brown Air Limited for the registration of shares of its common stock.

/s/ Ernst & Young LLP

San Francisco, California
September 10, 2007

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption ‘‘Experts’’ and to the use of our report related to Babcock & Brown Air Limited, dated June 13, 2007, in the Registration Statement (Form F-1) and related Prospectus of Babcock & Brown Air Limited for the registration of its common stock.

/s/ Ernst & Young LLP

San Francisco, California
September 10, 2007

EX-23.3

Exhibit 23.3

CONSENT OF Simat Helliesen & Eichner (‘‘SH&E’’)

As an aviation consulting firm and aviation market analysis firm, we hereby consent to the use of any data contained in this Registration Statement on Form F-1, which references our company as the source of such data and to all references to our company included in such Registration Statement. We also consent to the reference to usunder the heading ‘‘Experts’’ in the Registration Statement.

/s/ Clive G. Medland

Clive G. Medland
Senior Vice President

SH&E
90 Park Ave, New York, New York 10016
September 12, 2007