New York insurance company AIG has been trying to unload its ILFC unit since… (Mark Lennihan / Associated…)
Insurance giant American International Group Inc. is in talks to sell a 90% stake in its Century City aircraft-leasing company to Chinese investors.
AIG revealed in a statement Friday that talks to sell International Lease Finance Corp. were underway. The New York insurance company has been trying to unload the unit since 2008, when AIG nearly collapsed and was forced to go under government control.
The leasing company, better known as ILFC, buys aircraft and rents them to airlines for a fixed period. With plush headquarters at Constellation Place, formerly known as MGM Tower, the company has business relationships with nearly every major airline around the globe.
"AIG has consistently stated that ILFC is a non-core asset," the statement said. "Any possible transaction involving ILFC would be subject to required regulatory approvals, including those in the U.S. and China, and customary closing conditions."
ILFC is one of the world's largest aircraft leasing firms with a fleet of 925 aircraft with an estimated book value of about $34.9 billion. In ILFC's most recent SEC filing, the company posted $339.7 million in net income in the nine-month period that ended Sept 30. Last year, it posted a $736.4-million loss over the same period.
AIG would not confirm the value of the deal but said the investor group interested in buying ILFC was led by New China Trust Co., New China Life Insurance Co. and P3 Investments Ltd., together with China Aviation Industrial Fund.
While AIG hasn't been shy about its desire to unload ILFC, the manner of the proposed deal caught onlookers off guard. In the aviation world, little is known about the investors. And last year, AIG filed to sell the ILFC unit through an initial public offering but never went through with those plans.
"When you look at how it may be sold and the potential buyer, it's a surprise," said Betsy Snyder, an analyst at Standard & Poor's in New York. "AIG is probably seeing this as a better opportunity than waiting for the right market conditions for an IPO."
Richard Aboulafia, an aerospace analyst with Teal Group Corp., a Virginia research firm, is skeptical about a deal being reached. He said there were many cases in which a potential aerospace deal with Chinese companies fell through.
Most recently, in October, a proposed $1.8-billion sale of plane maker Hawker Beechcraft Corp. to Chinese buyer Superior Aviation Beijing Co. was killed because the parties could not reach agreement.
"The track record with the Chinese and aerospace companies hasn't been very good," Aboulafia said. "Let's just say that I wouldn't be surprised if the deal didn't go through."
But if an agreement is reached, it will mark the end for AIG's 22-year ownership of ILFC. AIG bought ILFC in 1990 for $1.3 billion in a stock swap. The sale was beneficial for ILFC because it was able to leverage AIG's then-stellar credit ratings to access billions of dollars in short-term, lower-interest debt to buy planes.
But those benefits changed with the 2008 global financial crisis and AIG's receipt of $182.5 billion in bailout money to avoid collapse. ILFC struggled to borrow money. That forced AIG to tap financing from the Federal Reserve Bank of New York in an arrangement set up during AIG's bailout.
The bailout placed restrictions on executive compensation, which caused a mass exodus of ILFC's management team. The biggest blow came in February 2010 when company co-founder and then-Chief Executive Steven Udvar-Hazy abruptly left to start a rival business, Air Lease Corp., also based in Century City. His new company went public last year.
The federal government still owns 15.9% of outstanding shares of AIG, down from about 53.4%.
AIG has hinted for the last few years at selling ILFC back to Udvar-Hazy and others but has been unable to close a deal.
"A sale would be welcome for ILFC," Aboulafia said. "For them, it's 'A.B.A.': Anybody but AIG."