China Consortium Buys Plane Leasing Business from AIG

on Dec 10, 2012

On Monday 10 December news agency Reuters reported that American International Group (NYSE:AIG) will sell nearly all of International Lease Finance Corp (ILFC) to a Chinese consortium.

**The Deal**
The Chinese consortium, which includes the China Aviation Industrial Fund, the New China Trust Company and P3 Investments, will buy an 80.1 percent stake in ILFC for $4.23 billion (£2.64 billion) with the option to buy another 9.9 percent at a later stage.
The acquisition deal values ILFC at $5.28 billion (£3.3 billion), around a third below its third-quarter book value of $7.9 billion (£4.93 billion). AIG said it would make a non-operating loss of $4.4 billion £2.74 billion) on the sale, including a tax-related items charge. “Upon completion, the transaction will have a positive impact on AIG`s liquidity and credit profile and will enable us to continue to focus on our core insurance businesses,” said Robert Benmosche, chief executive of AIG, who is expected to keep a seat on ILFC’s revamped board and represent AIG’s remaining 10 percent stake. The cash injection will open up new options for the American insurer – to reduce its $16 billion (£9.98 billion) of outstanding financial debt or to buy back some of its shares from the U.S. Treasury, which acquired them in the 2008 mega-bailout.

Despite coming under tremendous pressure during the financial crisis, ILFC has rebounded and for the first nine months of this year recorded a profit of $339.7 million (£212 million), compared with a $736.4 million (£459 million) loss for the same period in 2011.
Citigroup and the law firm Debevoise & Plimpton advised AIG on the deal, while the Chinese buyers were represented by Credit Suisse and the law firm Simpson Thacher & Bartlett.

**China’s Booming Leasing Operations Business**
The purchase of ILFC will give China access to a global network of some 200 airlines in 80 different countries. “It’s the biggest deal we have in the aircraft leasing world and it’s very ambitious,” said Paul Sheridan, head of Asia at aviation consultancy Ascend Advisor, as quoted by Reuters. “We believe there are not enough aircraft on order in China at the moment. It will help Chinese airlines get more aircraft.”

!m[The American Insurer Sells Non-Core Operations to Pay Back US Government and Other Lenders](/uploads/story/1003/thumbs/pic1_inline.png)According to ILFC, much of its growth will come from China, where it leases 176 planes operated by Chinese Airlines like China Southern, Air China and Shanghai Airlines. The plane leasing company this year opened offices in Beijing and Singapore to keep up with the growing demand. “Our group shares a commitment to I.L.F.C.’s experienced management team, its operating philosophy, and its presence in the United States,” said Weng Xianding, the chairman of New China Trust, in a statement. “This transaction allows I.L.F.C. to continue to serve its worldwide partners in the aviation industry with world-class service while accelerating its growth in important markets, including Asia.”

The two largest plane manufacturers Airbus and Boeing have predicted demand for $4.5 trillion (£2.8 trillion) worth of passenger airplanes over the next twenty years, with about two-thirds of those jets sold in the Asia-Pacific region, and China as the biggest single market in value terms.
For its 40 years of operations, ILFC has bought more than 1,500 passenger jets from Airbus and Boeing and currently has more than 1,000 aircrafts in its portfolio. It has on order 239 new fuel-efficient planes, including Airbus A320neos and Boeing 787s, with the rights to buy an additional 50 such jets.


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