Exclusive: S.Korean group in advanced talks to buy stake in AirAsia leasing unit - sources

By Anshuman Daga and Hyunjoo Jin

SINGAPORE/SEOUL (Reuters) - A little-known South Korean group is in advanced talks to acquire a stake in AirAsia Bhd's aircraft leasing unit, according to three people familiar with the matter.

Two of the people said a deal would value AirAsia's fully-owned unit, Asia Aviation Capital, at roughly $900 million.

Privately-owned KOTAM, or Korea Transportation Asset Management, has been picked as the preferred bidder, the people said, with one adding that state lender Korea Development Bank (KDB) was tapped to provide funding, though it was not clear whether the bank had agreed to back the deal.

KOTAM is part of Kukje Maritime Investment Corp, known as KMarin, which was founded in 2005 and has a fleet of 46 ships, according to its website.

KOTAM, KDB and AirAsia did not have immediate comment.

A successful deal would mark South Korea's biggest move into the $256 billion global aircraft leasing sector, which has attracted others in Asia, including Industrial and Commercial Bank of China, BOC Aviation, China's acquisitive HNA Group, and Japanese banks.

KOTAM and AirAsia are negotiating final terms of the purchase of a majority stake in the leasing unit, one of the sources said. Asia's biggest budget airline has sought buyers for its subsidiary since last year, and has said it aimed to close a sale early this year.

A deal with KOTAM could still fall through, and two sources said that AirAsia has not closed the door to a deal with a Chinese bidder.

The sources declined to be identified as the negotiations are ongoing and confidential.

CHINESE INTEREST

South Korean insurers, asset managers and securities firms are attracted to aviation finance as aircraft leases offer fixed returns and are often seen as relatively safe transactions.

Paid for in U.S. dollars, aircraft are comparatively easy to re-lease to various airline operators across the world.

Reuters reported in December that AirAsia had received strong interest from North Asian firms, besides many Chinese companies.

One of the sources said AirAsia was becoming concerned about Chinese buyers' ability to close a deal due to China's recent measures to tighten controls on money moving out of the country.

Western firms, including AerCap Holdings and GE Capital Aviation Services have dominated the global leasing sector that underpins aviation - some 40 percent of carriers' aircraft are leased to avoid the fixed costs of owning planes.

But China, through its banks, is aiming to create its own global champions, while a booming middle class is set to catapult Asia Pacific past North America as the world's biggest aviation market over the next two decades.

The AirAsia sale process comes at a time when Dublin-based aircraft lessor AWAS has been put up for sale by its private equity owners in an auction that could value it at $7 billion, including debt, and has drawn interest from Chinese lessors and other Asian investors, sources have said.

BOOMING INDUSTRY

Co-founder Tony Fernandes, who has built AirAsia over more than a decade into a multi-billion dollar business from a two-plane operation, is cashing in on a booming leasing sector after the airline ordered hundreds of Airbus planes at bargain prices in recent years, emerging as one of the planemaker's biggest customers.

Industry publication Flightglobal estimates the world's top 50 aircraft lessors have a total fleet valued at about $256 billion.

AirAsia, which has pending orders for about 400 Airbus aircraft, has been allocating planes to its leasing subsidiary and has been seeking to diversify the unit's customer base beyond AirAsia's affiliates.

(Reporting by Anshuman Daga in SINGAPORE and Hyunjoo Jin in SEOUL; Editing by Ian Geoghegan and Martin Howell)