On May 12 it was announced that the Bank of Tokyo-Mitsubishi UFJ (BTMU), a subsidiary of Mitsubishi UFJ Financial Group (MUFG), BTMU’s US subsidiary BTMU Capital Corporation (BTMUCC), and Mitsubishi UFJ Lease and Finance Company (MUL) have entered into an Equity Purchase Agreement where BTMUCC would transfer to MUL 100% of the total outstanding shares of Engine Lease Finance Corporation (ELF) and 100% of the total outstanding membership interests of Beacon Intermodal Leasing (BIL), subsidiaries of BTMUCC. As a result of the transaction, there will be changes to MUFG’s subsidiaries. The acquisition price, which includes the purchase price of the shares and equity interests, commissions, advisory fees or other costs, etc., is equivalent to approximately JPY40 billion, subject to post-closing adjustments.
According to the official release, MUFG decided on the transfer of shares of ELF and membership interests of BIL to MUL, as a result of “discussions about MUFG’s leasing business strategies from the perspectives of maximization of synergies and optimization of capital allocation”. Adding that: “MUFG and BTMU determined that ELF and BIL would achieve greater growth and development in the long run by becoming subsidiaries of MUL, the company engaging in the leasing business in MUFG and having both a strong customer base and expertise.”
MUL also states that it will “develop a system whereby the Company may establish itself globally as a main player in the business areas related to aircraft engines and containers by turning ELF and BIL into its group companies”. Adding that “by combining the knowledge and networks of ELF and BIL regarding their global assets, such as aircraft engines and containers, etc., and the Company’s flexible and mobile value-added services that were developed as a non-bank up to the present, the global asset business will be further developed”.
The move makes a great deal of sense for ELFC. Transferring from a bank-owned entity to MUL, which is an asset-focused business, will give the engine lessor much more flexibility to enter into more varied leasing transactions and it will also result in speedier approval for deals allowing ELFC to be more competitive and expand its product range. MUL, which acquired Jackson Square Aviation in January 2013, has big plans for the future of its leasing business.
In a separate release to the market on May 14, MUL announced its medium-term management plan “Evolution”, which will cover the three-year period starting from April 1, 2014. MUL states that given its “freedom and flexibility” as a non-bank finance company coupled with its “expertise in many categories of assets”, it intends to “build a business portfolio that combines stability with growth potential”. MUL states that it will “aggressively implement its four business models”, with an emphasis on evolving its current businesses – corporate and asset finance – as well as pursuing new business models: service provision and business participation. It also intends to accelerate its international business.
By bringing ELFC and BIL into the MUL group of companies, it intends to maximize top-line profit by “utilizing the functions and wide-ranging sales channels within the group companies effectively and aggressively” and also “continuously create new businesses in growth sectors both in domestic and overseas markets, mainly in the business of providing services and business participation”. MUL also aims to improve operational efficiency by “deepening collaboration to create synergies and promoting Group-wide strategies, as well as ensuring effective utilization of management resources”. Reading between the lines, this indicates that there will be opportunities for ELFC and BIL to streamline its resources and focus on providing more services to its clients.
The use of the word aggressive pervades the press release from MUL and is indicative of the company’s dedication to the evolution of its business. ‘The beauty of this move is that not only will ELFC continue to be owned by a strong parent with the necessary financial resources to drive its organic growth, but also it will be freed from banking regulation, so allowing the opportunity to develop more products and to move more quickly and flexibly.
This latitude plus the stated ambitions of MUL must promise clear potential for both vertical and horizontal integration of ELFC’s business.
Knowledgeable observers of this industry, including this magazine, all agree that the traditional engine leasing business model needs to move forward, and it looks like ELFC now has manufactured for itself that opportunity. Jon Sharp must be excited to be taking on the challenge of taking ELFC – the company he founded and has steered through 25 years – to the next level.