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Morgan Stanley Unloads Aircraft Leasing Business

It gets $2.5 billion from European investors.

Morgan Stanley

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is selling its aircraft leasing business, a troubled operation that had been a drag on earnings, for $2.5 billion to a European private equity group.

The sale by the big Wall Street firm was expected. One of the first things John Mack did after becoming CEO of Morgan Stanley last summer was announce a plan to sell the division.

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The buyer of the aircraft business is Terra Firma, a private equity group with offices in London and Frankfurt. The group is financing the deal with a combination of stock and debt underwritten by J.P. Morgan Chase, which also is advising Terra Firma.

In the third quarter of 2005, Morgan Stanley took a $1 billion charge against earnings, as it wrote off the value of the aircraft business. In light of the higher-than-expected sale price, Morgan Stanley is reducing that charge by about $500 million, and this results in an upward adjustment to its fourth-quarter earnings.

Over the past several years, the leasing business has resulted in three big writedowns. A year ago, for instance, Morgan Stanley took a $109 million pretax impairment charge on its aircraft leasing business.