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UPDATE 1-Mitsubishi UFJ Lease to buy US aircraft lease firm for $1.3 bln

* To finance acquisition through cash, loans

* Mitsubishi UFJ Lease shares climb 3.0 percent

* Japan firms are expanding aircraft lease operations

(Updates with details and background)

TOKYO, Oct 4 (Reuters) - Mitsubishi UFJ Lease & Finance Co

agreed to buy U.S. aircraft leasing firm Jackson Square Aviation from Oaktree Capital Group LLC for about $1.3 billion yen, signaling rising interest from Japanese companies to tap the growth potential of aviation finance industry.

Japan's No. 3 lender Sumitomo Mitsui Financial Group

acquired Royal Bank of Scotland's aircraft leasing business for $7.3 billion in June, becoming a major player in the industry that is expected to enjoy growth amid the growth of low-cost carriers and rising air travel in emerging markets.

Mitsubishi UFJ Lease, 20 percent owned by Mitsubishi Corp , will acquire JSA International Holdings for about 100 billion yen ($1.27 billion), the Japanese company said in a statement. It will use cash on hand and new loans to finance the acquisition, scheduled to take place in December, it said.

San Francisco-based Jackson Square Aviation, led by Pegasus Aviation founder Rich Wiley, has a fleet of about 70 aircraft. Earlier this year, Mitsubishi UFJ Lease set up an aircraft lease operation in Dublin, with a fleet of about a dozen planes.

"Not only in aviation leasing but in other areas as well, we may make further acquisitions when there are companies with good assets," a Mitsubishi UFJ Lease spokesman said.

Faced with weak business demand at home, an increasing number of Japanese financial companies are making a push into the aircraft leasing industry, taking advantage of the retreat of European rivals.

Orix Corp , which has one of Japan's largest aircraft leasing operations, has said it plans to increase the fleet owned or managed by the firm to 200-250 within a couple of years from current 150.

Mitsubishi UFJ Lease's shares climbed 3.0 percent on Thursday. Japan's benchmark Nikkei index gained 0.9 percent. ($1 = 78.5300 Japanese yen)

(Reporting by Mayumi Negishi and Taiga Uranaka; Editing by Edwina Gibbs and Muralikumar Anantharaman)

((mayumi.negishi@thomsonreuters.com)(+81-3-6441-1812)(Reuters

Messaging: mayumi.negishi.reuters.com@reuters.net))

Keywords: JACKSONSQUARE MUFJ LEASE/