ILFC - financial crunch forces emergency sale of company


AIG Plans Major Restructuring,
Sale of Aircraft-Leasing Business
September 14, 2008 4:47 p.m.

American International Group Inc. plans to disclose a comprehensive restructuring by early Monday morning that is likely to include the disposal of major assets including its aircraft-leasing business and other holdings, according to people familiar with the matter.

AIG’s management team was scrambling on Sunday afternoon to cobble together the plan and present it to the insurer’s board for approval, the people said. The insurer, which has already raised $20 billion in fresh capital so far this year, was also in discussions with several private equity firms about a capital injection and hoped to raise more than $10 billion, the people said.

AIG considered selling or spinning off the aircraft-leasing arm – International Lease Finance Corp. – earlier this year but decided in June to keep it. Since then, AIG’s position has deteriorated, however, making a disposal more likely.

Founded in 1973, ILFC boasts a fleet of more than 900 airplanes valued at more than $50 billion. It is the largest single customer for both Boeing Co. and European Aeronautic Defence & Space Co.'s Airbus.

In addition to ILFC, AIG was considering selling other parts of its business, including assets related to property and casualty insurance.

The moves follow a 31% drop in AIG’s stock price on Friday amid concern that its capital base isn’t sufficient to cover its obligations.

As recently as Thursday, AIG, the U.S.'s largest insurer, said it was sticking to a schedule to unveil its strategic plan on September 25. But the precipitous drop in its shares, which have fallen 79% so far this year, forced the insurer to act quickly.

Late Friday, Standard & Poor’s warned that it could cut AIG’s credit rating by one to three notches amid concerns that AIG will have difficulty accessing capital in the short term.

Such a step would make it more expensive for AIG to borrow and further undermine investor confidence in the firm. AIG reported a second-quarter net loss of $5.36 billion last month after a first-quarter loss of $7.81 billion.


According to an article in yesterday’s edition of The Wall Street Journal, it was actually ILFC chairman Steven Udvar-Hazy who proposed the idea of a sale (which would essentially constitute a buy-back, since he was the one who sold ILFC to AIG in 1990).

Mr. Udvar-Hazy, one of AIG’s largest shareholders, has been frustrated for months that that ILFC has been dragged down by the parent company’s woes, even as the leasing unit has turned in record profits. In March, Mr. Udvar-Hazy began actively pursuing a corporate divorce, but was persuaded to hold off by AIG’s new top management team.