“We have been doing this for years, why are
they only starting now?” wondered one leasing executive after
reading the exclusive news story on Leasing Life’s weekly
newswire.

Certainly, it is no secret that the likes of
Barclays Asset & Sales Finance and SG Equipment Finance have
been selling corporate jet finance to their parent’s high net worth
individual clients for a number of years.

Mingled also among the surprise following the
breaking of the news, which revealed that Lombard had received an
international mandate to sell corporate finance to the rich clients
of RBS’s Wealth Management and Global Banking & Markets
businesses, there were also some cries of concern.

As well as being 84 percent owned by the UK
taxpayer, Lombard is one of just a few RBS businesses equipped to
offer finance to the UK’s SME sector. In fact, back in February,
Lombard announced it had earmarked £3 billion (€3.4 billion) of
investment for this struggling sector.

Given this commitment, to now decide to invest
in wealthy individuals across the globe seemed to be something of a
volte face.

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“The investment in jet financing involves
investing a lot of capital overseas which could be used to lend to
UK corporates on business assets to help stimulate jobs in
Britain,” said one RBS insider.

The truth, however, is that in the real world,
RBS has not been nationalised, and that it is free to make profits
in whatever law abiding way it wishes.

It is understood that the mandate does not
impose many restrictions on the value of the jets Lombard can
finance. Some claim Lombard’s aviation business, run by Simon
Weller, is now chasing deals worth as much as $40 million (€26.7
million).

The exact amount Lombard’s business jet
subsidiary can now lend annually is uncertain, although industry
pundits expect it to be substantial in scale.

According to market rumours, the mandate,
which was also given to Lombard’s Southampton-based yacht finance
business run by Ian Braham, was handed to the Redhill-based
equipment lessor after RBS’s wealth management arm, comprised of
the international business, RBS Coutts, and the UK lender Coutts
& Co, made clear to its parent that there was demand for jet
financing from high net worth individuals, particularly in the Far
East.

If this is the case, Lombard’s mandate is
hardly likely to be small in scale.

Such pressure from RBS’s private banking arm
also goes some way to explain why the bank’s risk policy committee
approved Lombard’s application for an international mandate.

According to sources, Lombard had tried on
several occasions in the past to get such a mandate, and had failed
each time. As a result, until now Lombard’s 13-year-old jet
business has largely focused on the UK domestic market.

But what seems odd is the timing of the new
mandate.

Dublin-based RBS Aviation Capital, which
finances corporate as well as commercial aircraft, was put up for
sale earlier this year. This suggests that neither of these markets
are of interest to RBS, presumably because it regards them as too
risky.

However, the vast bulk of the $5.5 billion
portfolio of RBS Aviation Capital is made up of commercial
aircraft, while corporate jets make up just $450 million.

It seems, therefore, the main purpose of the
sale is to offload the much larger commercial aircraft portfolio,
while the corporate jets seem to be something of an
after-thought.

Lombard, with its background in jet financing
and asset finance generally, is the most obvious choice of company
to carry out the task of providing finance to RBS’ rich
clientele.

There is little doubt that Lombard is
reasonably well equipped for handling larger deals, particularly as
since 2000 it has financed jets as high in value as £20 million for
a range of household names.

Also, the Lombard aviation business has been
run by highly-respected individuals in the jet finance field. These
include Mark Wooller, who left Lombard in 2004 and went on to
become head of consultancy services at the Surrey-based
International Bureau of Aviation, and Alex Badren, who is now not
just the senior vice-president of Cessna finance, but is also said
to be quite an important figure within the manufacturing arm of
Cessna itself.

Historically, Lombard’s jet finance business
has been regarded as the poor cousin of its richer Irish relative.
In 2005, for instance, RBS told the Lombard business to focus only
on the UK and on deals worth less than $4 million.

No longer is this the case, it would
appear.

Brendan Malkin