Airbus buys German lender to create company bank

Reuters

* Agrees to buy Salzburg Muenchen for undisclosed sum

* Regulatory approval expected this year

* Plan originated as safe haven during credit crunch

* Airbus Group says move will expand flexibility

By Tim Hepher and Natalie Huet

PARIS, Feb 14 (Reuters) - Airbus Group pressed ahead with post-Lehman plans to acquire its own banking licence on Friday, saying it would buy small German lender Salzburg Muenchen Bank AG to boost its financing options.

The European aerospace group, formerly known as EADS, first dislcosed the plans in 2012 after becoming concerned about where to place its large cash pile during the credit crisis.

Owning a banking licence would allow the world's second-largest aerospace group to deposit funds with the European Central Bank, as well as potentially draw on ECB funds.

The plan follows in the footsteps of engineering companies such as Siemens, whose banking licenses have allowed it to tap the ECB's low-interest loan programme directly.

But in announcing the deal to buy Salzburg Muenchen Bank for an undisclosed sum, Airbus Group made plain its reasons had evolved - even though the option of using the euro zone central bank's coffers as a safe haven still stands.

"In principle, it does entitle the bank to liquidity from the ECB; however, Airbus Group has no need to access any liquidity of the ECB at this stage," a spokesman said.

"Also, the bank will provide Airbus Group with the possibility to deposit funds directly with the ECB."

Airbus Group identified other possible uses including carving out some flexibility in areas that it said were usually reserved for banks, such as providing liquidity to non-controlled joint ventures.

The bank "may provide trade financing with suppliers, hedge book services, etc to support Airbus's production and delivery efforts," RBC Capital Markets analyst Rob Stallard commented.

Both Airbus and rival Boeing, which has an aircraft financing arm called Boeing Capital Corp, are increasing production after a boom in aircraft orders. Both companies face concerns about the ability of the supply chain to keep up.

NO AIRLINE FINANCE IMPACT

The bank is, however, seen as unlikely to handle the airline customer financing carried out by Airbus and which is already well established through a Dublin subsidiary.

Industrial companies have traditionally been wary of the increased regulatory scrutiny - potentially involving tens of millions of euros in extra audits and management time or processes - that such a move would bring.

Airbus and Boeing both offer customer financing to support aircraft sales as a last resort - an activity that has recently rarely been used as Asian lenders step in to fill the gap left by once-dominant French banks.

U.S. and European export credit agencies have also helped to fill the gap left by capital-constrained European lenders.

Now, those export credits are returning to more normal levels as commercial banks return and new money pours into the $100 billion annual market for new jets.

Airbus said it aimed to close the acquisition, subject to approvals, "as early as possible in 2014". Once that happens, the Munich-based lender will be renamed Airbus Group Bank.

Airbus Group did not say whether the bank would be run as a distinct company segment with its profits reported separately, or merely facilitate activities across the rest of the group.

It said there would be no immediate impact on the bank's existing activities involving small and medium companies.

"In a normal environment they would not be able to do anything different. They don't want to get overly exposed to their customers or the supply chain," an aircraft finance industry executive said, asking not to be named.

However, Airbus Group would gain a "backstop capability in case of market disruption," he added.

The idea of getting a bank licence had been floating around for at least a decade at EADS.

Shortly after it was founded in 2000, top executives at the Franco-German-Spanish company debated whether it was needed to create a European titan in the vein of General Electric.

The U.S. conglomerate's massive GE Capital arm helps it finance the sale and lease of Airbus and Boeing jets as well as financing and leasing its own jet engines and other products.

Later, the EADS banking project was revived and gathered pace as the company looked for a safe port for its 10 billion euro cash pile following the 2008 collapse of Lehman Bros.

EADS changed its name to Airbus Group last month, subject to formal approval by its shareholders expected in May.

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