International Banker

Germany's Deutsche Bank intends to strengthen its position in the U.S. transportation financing sector with its planned purchase of Boullioun Aviation Services Inc., an aircraft leasing company.

Deutsche Bank agreed Oct. 13 to buy Seattle-based Boullioun for about $120 million from Sumitomo Trust and Banking.

Founded in 1986, Boullioun supplies aircraft on operating leases to airlines worldwide.

Pending regulatory approval, Boullioun will be part of Deutsche's London-based structured finance division.

Chris Partridge, a London-based associate director in the leasing group of Deutsche Bank, said that Boullioun brings hands-on experience. The German bank has the necessary financial structuring expertise, he added, and "hopefully the combination is greater than" the parts separately.

Deutsche Bank has been involved in leasing for about eight years, and in the past five years the division has financed 132 aircraft for 25 airlines, for a total of $8 billion.

Though the deal appears similar to a recent one involving Deutsche Verkehrsbank's acquisition of the Long Term Credit Bank of Japan's shipping and aviation portfolio, the two contracts are very different, Mr. Partridge said.

"We bought a company that retains title to the airplanes," he said. The difference is that with Long Term Credit the title is with the user, meaning that "effectively it's like a mortgage." And Deutsche Bank favors operating leases, which let it retain ownership of the aircraft and derive larger profits as margins shrink, Mr. Partridge said.

"We are like everybody," he said, "we are looking at ways or sectors to get a better return."

The transportation sector is "totally overbanked, margins have collapsed," he said.

And the way to keep making money is to retain ownership of the aircraft and take depreciation allowances. Otherwise the returns would not be large enough for his bank, Mr. Partridge said.

The general operational trend among airlines is toward expanding capacity on an operating lease basis.

Combined with the growth trend in the air transport industry, this creates an environment in which operating lease companies have good growth and earnings prospects, Deutsche Bank found.

And though large leasing companies have access to cheap funding through the bank, Deutsche Bank's structured finance group has access to cheap funding and alternative sources of financing, such as securitization techniques in the U.S. capital markets, he added.

International Banker,American Banker

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