RBS sells aircraft leasing business for $7.3bn

Royal Bank of Scotland last night finalised the sale of its aircraft leasing business to one of Japan’s largest banks for $7.3bn in the biggest single disposal since the state-backed bank’s government bail-out in 2008.

The deal with Sumitomo Mitsui Financial Group, was struck late on Monday after months of talks with a number of interested buyers, including China Development Bank, the state-owned lender and Wells Fargo, the US bank.

For RBS, it ends a two-year attempt to sell a business that leases around 250 commercial jets to airlines around the world. RBS was forced to halt early plans to dispose of the division in 2009 after asset values plummeted.

While the aviation business has been a profit engine for the bank, it has particularly onerous funding requirements, making it difficult to retain as RBS moves to reduce its exposure to the wholesale markets. RBS is set to record a profit of about $300m on the sale over the book value of the business.

The division was founded in 2001, when RBS acquired International Aviation Management Group – a small aircraft advisory and finance business – as a first step into the lucrative aircraft leasing business. It was moved into RBS’s sprawling non-core division three years ago.

The business attracted strong interest from international banks and private equity buyers as it is expected to provide long-term stable returns as long as the owner can meet the funding requirements.

Sumitomo is thought to have offered one of the highest prices and convinced RBS that it would be best placed to complete the transaction, according to people familiar with the auction.

The sale would be the largest yet for Rory Cullinan, who heads RBS’s non-core division and has whittled down its unwanted assets from a peak of £258bn in 2009 to less than £100bn.

RBS Aviation Capital is the seventh-largest aircraft lessor in the world by fleet size, with 246 jets, according to December data by Ascend, the consulting firm. It competes with lessors led by GE and International Lease Finance Corp, and its clients include British Airways, EasyJet, Qantas and Ryanair.

The aircraft leasing industry has come to the fore after several aviation downturns. Lessors’ ownership of the world’s civil aircraft fleet has increased from 12 per cent in 1990 to 36 per cent in 2010, according to Boeing, the plane maker. Analysts said much of the growth was happening in Asia, where passenger numbers are growing fast.

Some aircraft lessors are predicting their share of the global fleet will rise to as much as 50 per cent by 2015, partly because some airlines may find it harder to secure financing for their jets. Lessors make most of their money through the charges paid by airlines that use their jets.

RBS shares, which have fallen nearly 40 per cent in the last year, on Tuesday opened up 4.4 per cent at 25½p.