Malaysian carrier AirAsia (AAB) has signed a definitive agreement to sell its Asia Aviation Capital (AAC) aircraft leasing unit to entities managed by BBAM for $1.2bn.

As part of the deal, BBAM-managed Fly Leasing (FLY)will purchase 54 Airbus narrow-body aircraft and seven CFM engines that will be leased back to AAB and its affiliates, in addition to one Airbus narrow-body aircraft, which will be leased to a third-party airline.

FLY will also have an option to buy an additional 20 Airbus A320neo family aircraft, which are not subject to lease and are scheduled to be delivered by Airbus next year.

“This is a perfect outcome to a strategy we started in 2004 and I’m thrilled at the execution of our long-term vision.”

FLY CEO Colm Barrington said: “These investments will grow FLY’s fleet with the most attractive and newest generation of narrowbody aircraft on known lease and financing terms.

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“This transaction is expected to drive high levels of stable, long-term profitability and cash flows at FLY for the benefit of our stakeholders.”

The latest deal is part of a larger acquisition that will allow FLY, along with BBAM’s other capital partners, Incline Aviation and Nomura Babcock and Brown, to buy a total of 132 aircraft from AirAsia and AAC.

It also includes options to acquire 50 A320neo aircraft.

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As part of its consideration, AirAsia is set to invest $50m in Incline Aviation.

AirAsia Group CEO Tan Sri Tony Fernandes said: “This is a perfect outcome to a strategy we started in 2004 and I’m thrilled at the execution of our long-term vision.

“We have now disposed most of our physical non-core assets and we are thrilled to be embarking on our new digital strategy, which will build a very valuable group of assets.”

The newly signed agreement is subject to approval by AAB shareholders, receipt of necessary regulatory approvals and satisfaction of other customary closing conditions.

Following approval, the deal is expected be closed by the second and third quarters of this year.