Reports abound in Australia that Macquarie Group is on the verge of bidding for Royal Bank of Scotland’s aircraft leasing business, RBS Aviation, worth an estimated US$6bn.

RBS Aviation is generally reckoned to be amongst the world’s top five commercial aircraft lessors with a portfolio, including current orders, of around 470 aircraft.

RBS Aviation’s rise to prominence has been significant. It was set up in 2001 starting with five employees. It rapidly grew to 13 employees and within two years had 31 employees. By the end of 2004 it had a portfolio of $20bn.

Macquarie Group is a relative newcomer to the aircraft leasing sector. Originally a merchant bank known as Hill Samuel Australia (a subsidiary of Hill Samuel & Co UK) it opened its doors in Sydney in January 1970 with just three staff. Today it provides banking, financial and funds management services in 70 offices globally.

In April 2010 its subsidiary Macquarie Bank (MB) acquired some 53 aircraft from International Lease Finance Corporation (ILFC), the subsidiary of American International Group (AIG). It purchased 47 aircraft for US$1.6bn, net of current cash deposits. The purchase was funded from existing cash reserves.

At the same time MB transferred to Macquarie AirFinance (MAF), the global aircraft lessor of which Macquarie owned some 37.5%, MB’s right to purchase six of the 53 aircraft directly from ILFC on similar terms to MB.

Macquarie’s existing aircraft leasing business includes Macquarie Asset Leasing Trust, a wholly owned aircraft leasing vehicle established in 2005 which owns some nine aircraft on lease to a major Australian airline, and MAF, which in 2006 acquired GATX Air, the aircraft leasing business of the GATX Corporation.

Dynamic time

The move comes at a dynamic time for the aircraft leasing industry – and only a few days after AIG revealed that it would sell around 20% of its air finance business, ILFC, in an initial public offering.

Earlier this year Colm Barrington, CEO of FLY Leasing told Asset Finance International: “The Paris Air Show showed that more companies are coming back into the industry, manufacturers are announcing increased production and both leasing companies and airlines are ordering more aircraft. The cycle appears to be on the rise.”

The aircraft leasing unit of Macquarie is part of its Corporate and Asset Finance group, which at March 2011 managed a portfolio of AUS$17.3bn.

In recent times the steady cash flows and returns of aircraft leasing have attracted the attention of banks which have struggled through the recession. Moreover, although previously not considered “core activity”, aircraft leasing was untainted by bad publicity in the recent recession.

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