China Development Bank and Japan's Sumitomo Mitsui Financial Group <8316.T> are slugging it out in the final days of an auction for Royal Bank of Scotland's aircraft leasing business in a deal that could fetch up to $7.5 billion (4.8 billion pounds), a source with direct knowledge of the matter told Reuters on Thursday.

RBS, 83 percent-owned by the British government, is shedding RBS Aviation Capital as part of efforts to pay back a 2008 bailout.

The RBS Aviation auction reaches its final stages as RBS begins a larger process to pare back the size of the bank. Reuters reported on Wednesday that RBS has hired Lazard to advise it on scaling back its global investment banking arm.

For the RBS Aviation auction, a decision on the winner is expected by early next week, said the source, who was not authorised to speak to the media, with a sale price in a range of $7.3 billion to $7.5 billion.

A second source said U.S. bank Wells Fargo was also still involved in the auction.

A consortium led by Australian investment bank Macquarie is no longer in the race, the sources said.

RBS declined comment, while SMFG and CDB officials were not immediately available to comment. Goldman Sachs, which is advising RBS, also declined to comment.

RBS Aviation is one of the world's top five commercial airline leasing firms. It owns, manages or has orders for 466 aircraft, industry sources and analysts have said.

The RBS Aviation sale comes as U.S. insurer AIG prepares to float its much larger ILFC leasing unit, though plans for that IPO have been postponed.

Aircraft leasing is seen as attractive as it offers steady demand and steady cash flows.

In a 452-page report released last month, Britain's market regulator criticised RBS for its massive purchase of Dutch bank ABN Amro, a deal credited with triggering RBS's near collapse.

Under former Chief Executive Fred Goodwin, RBS came within hours of running out of cash in October 2008, and was only saved by a 45 billion pound taxpayer bailout.

(Additional reporting by Taiga Uranaka in TOKYO, Sudip Kar-Gupta and Steve Slater in LONDON and Koh Gui Qing in BEIJING; Editing by Jacqueline Wong and Ian Geoghegan)