Mitsubishi UFJ Lease & Finance Co. (8593) is nearing a deal to buy Oaktree Capital Group LLC (OAK)’s Jackson Square Aviation aircraft-leasing company for more than $1 billion, said three people with knowledge of the matter.
A deal may be struck within weeks, said the people, who asked not to be named because the talks are private. The negotiations could still collapse. Mitsubishi UFJ Lease is an affiliate of Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest publicly traded bank.
Japanese financial firms are expanding into aircraft leasing amid increasing demand for planes from emerging markets such as China. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-largest bank by market value, bought Royal Bank of Scotland Group Plc’s aircraft leasing unit this year, while Orix Corp.’s aviation unit plans to boost customers by 50 percent.
“The number of deliveries every year is going up,” said Paul Sheridan, head of consulting in Hong Kong at Ascend Worldwide Ltd. “Aircraft leasing offers attractive yields to investors, but you need expertise and experience and you need access to U.S. dollars.”
San Francisco Start
Jackson Square, named after the San Francisco district where it’s based, began operating in 2010 after Oaktree committed $500 million in equity to Richard Wiley, Toby Bright and Scott Weiss. They would stay with the company after a sale to Mitsubishi UFJ Lease, two of the people said.
The trio founded Pegasus Aviation Finance Co., sold it in 2007 to Terra Firma Capital Partners Ltd. and then created Sky Holding Co., which was renamed Jackson Square with Oaktree’s involvement. Wiley has worked with Oaktree since the mid-1990s, doing more than $6 billion in aircraft transactions through Pegasus.
Takashi Ota, a spokesman for Mitsubishi UFJ Lease in Tokyo, declined to comment, as did Chelsea Bruzzone, a spokeswoman for Jackson Square. An Oaktree official didn’t immediately return a call seeking comment.
Jackson Square has a fleet of more than 70 commercial jets, valued at more than $4 billion. Its planes are in service with carriers including Air France-KLM (AF) Group, Emirates Airline and Virgin America Inc.
Mitsubishi UFJ Lease is one of the largest leasing companies in Japan, and it gets business referrals from both Mitsubishi UFJ Financial and Mitsubishi Corp. (8058), the Tokyo based trading company, both of which are major shareholders, according to Standard & Poor’s.
Shares of Mitsubishi UFJ Lease were unchanged at 3,495 yen at the close of Tokyo trading today. Mitsubishi UFJ Financial declined 1.9 percent to 361 yen and Mitsubishi Corp. fell 0.2 percent to 1,560 yen. The benchmark Topix Index (TPX) gained 0.4 percent.
Japanese companies have also been turning to takeovers outside the country amid dimming growth prospects at home.
They struck a record $87.8 billion in acquisitions of non- Japanese companies in 2011, led by Takeda Pharmaceutical Co.’s 6.3 billion euro ($9.1 billion) takeover of Zurich-based Nycomed. Trading company Marubeni Corp. agreed in May to buy Omaha, Nebraska-based Gavilon Group LLC.
The jet-leasing industry has been growing since its birth in the 1970s, and about 35 percent of the global fleet is now leased rather than owned, up from 25 percent in 2000, according to a Fitch Ratings report last month. Airlines will take 34,000 new planes valued at $4.5 trillion through 2031, Chicago-based Boeing Co. said last month. That’s a 1.5 percent increase from a 33,500-jet estimate a year earlier.
Jackson Square’s competitors include units of General Electric Co. (GE), American International Group Inc. (AIG) and CIT Group Inc. (CIT) as well as independent companies such as Air Lease Corp. (AL) and AerCap Holdings NV. (AER)
The company specializes in sale-leaseback deals, functioning as a third-party financier. In such transactions, airlines order jets, getting discounts off the purchase price, and then seek to preserve cash by selling the planes to lessors and signing operating leases instead.