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Business deals

MUFG bets big on aircraft financing with $6bn acquisition

German aviation business expected to deliver higher returns than banking

Japanese megabank MUFG has set its sights on aircraft leasing opportunities.

TOKYO -- Mitsubishi UFJ Financial Group said Friday it will purchase an aircraft financing business from Germany's second-biggest lender, DZ Bank, seeking to capitalize on growing demand for air travel in a deal estimated at around 700 billion yen ($6.26 billion).

The Japanese group's MUFG Bank will acquire DZ Bank's aviation unit including its roughly 5.6 billion euro ($6.38 billion) aircraft financing portfolio. The deal, expected to close in the year's second half, marks MUFG's largest-ever purchase, excluding mergers and acquisitions involving peer lenders.

The big purchase reflects the banking group's expectations for the aviation industry. Private-sector estimates project demand for aircraft financing will rise 50% from 2018 to 2023 on the back of brisk demand for air travel. MUFG has positioned aircraft as a key focus in Europe under a medium-term management plan launched in fiscal 2018.

"We're saving time" with this purchase, an MUFG official told reporters on Friday, describing the deal as part of a strategy to go after high-growth businesses.

The unit's employees, believed to number over 100, will be transferred to MUFG Bank. A newly established British subsidiary of MUFG affiliate BOT Lease will take over the German enterprise's aviation funds and asset-management operations.

The purchase will double the megabank's roughly 700 billion yen in aircraft financing assets. MUFG beat out multiple competitors bidding for the aviation unit.

So far, MUFG's aircraft-financing business has mainly served major airlines in developed markets looking to purchase new craft. The latest acquisition will expand its reach to include used planes and emerging economies.

Aircraft financing is considered a lucrative field. The bank can expect high returns of almost 10% based on interest rates on leasing, said one finance source, adding that the return on assets will likely range from the high 1% to 2% territory.

MUFG's group-wide assets totaled 306 trillion yen as of the first half of fiscal 2018, making it one of the world's biggest lenders with growing portfolios outside its home turf.

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