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As aircraft leases rebound, Morgan Stanley sets sale

19-Aug-2005

SAN FRANCISCO (XFNews) -- With the global airline industry on the mend, Morgan Stanley announced it's looking to offload its aircraft leasing business at less than book value and could take a $1 billion after-tax charge for the sale as part of a corporate overhaul.

The New York financial powerhouse's decision to sell the Seattle-based AWAS unit, with a fleet worth about $3.7 billion, comes as the company decided to keep its Discover Card unit, which had been under review for a possible sale.

Morgan Stanley's top executive John Mack said that aircraft leasing isn't in line with the company's strategy but he conceded that a sale would mean letting the business go for less than its worth.

"So we believe this is the right time for the sale. And even though we would still likely be well below book value, it is the right thing to do," he said during a conference call after the announcement. The amount of the charge may change, depending on the deal, which should close in the middle of next year.

Lease rates are rising, a sign that the industry's post-Sept. 11, 2001 recovery is well under away. Leasing is an attractive option for airlines looking to get planes into service without using up valuable cash.

And as recently as the Paris Air Show in July, leasing giants like International Lease Finance Corp., a unit of American International Group , and General Electric's Commercial Aviation Services announced deals that meant new orders for Boeing Co. and Airbus aircraft. Those deals, along with a surge in demand from airlines in the Mideast and India, point to airlines' improving prospects abroad. At home, some of the oldest U.S. carriers are stuck in bankruptcy while others battle fierce financial headwinds like record jet-fuel prices and upstart carriers with lower costs.

That improvement, Mack said, makes it easier to get out of the business.

AWAS has 155 aircraft in its fleet, which are all leased out. It includes 63 of Boeing's popular 737s, among other Boeing, Airbus and Fokker aircraft.

That means AWAS is the third-biggest lessor, though that is still far smaller than General Electric's group, which has a fleet of more than 1,300 planes. ILFC's fleet is the world's second biggest, with more than 700 planes. Boeing Capital Corp. is also active in aircraft finance but now focuses on the company's own aircraft and other products.

As the market improves, other deals have emerged. Earlier this summer, Cerberus Capital Management acquired Amsterdam-based debis AirFinance, which had a fleet of 126 aircraft. Terms weren't given.


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