AIG to sell lease firm to Chinese group at a loss

City A.M. Reporter
AMERICAN International Group will sell nearly all of aircraft leasing business ILFC to a Chinese consortium for up to $4.8bn (£2.9bn), in a deal that gives the fastest growing aviation market easier and cheaper access to planes.

But the sale is at a far cheaper price than AIG sought and will lead to a substantial loss, the insurer’s price for getting out of its last major non-core asset following the US government bailout of the company in the financial crisis.

Chinese firms have previously shown interest in aircraft leasing, and the deal would give China access to a global network of about 200 airlines in 80 countries. China is already ILFC’s largest market with 180 planes operating there, giving it 35 per cent market share.

“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 firm Ascend Advisor. “We believe there are not enough aircraft on order in China at the moment. It will help Chinese airlines get more aircraft.”

The world’s two largest plane makers – Airbus, owned by aerospace group EADS, and US rival Boeing – have predicted demand for $4.5 trillion worth of passenger jets over the next two decades, with about two-thirds of new planes sold in the Asia-Pacific region, and China as the biggest single market in value terms.

Analysts say China tends to balance its orders between Airbus and Boeing, partly for political reasons. This means China pays an effective premium for planes as the two manufacturers don’t have to compete as heavily for orders. ILFC’s order books could mean cheaper planes for China, industry experts say.

The Chinese consortium is made up of New China Trust, which is one-fifth owned by Barclays; China Aviation Industrial Fund; and P3 Investments Ltd; with outside advice provided by Credit Suisse.

It will buy 80.1 per cent of ILFC for $4.23bn, with the option to buy another 9.9 per cent. An arm of Industrial and Commercial Bank of China, China’s biggest bank, will join once the deal has regulatory approval.

AIG will submit the offer for review by the Committee on Foreign Investment in the United States, or CFIUS, which vets foreign deals for security concerns.

In September, the US Treasury cut its stake in AIG to below 16 per cent of outstanding shares from 53.4 per cent.