American International Group Inc. (AIG - Analyst Report) is reconsidering to bid for the initial public offering (IPO) of its aircraft leasing unit – International Lease Finance Corporation (ILFC) – since its buyers failed to culminate the deal for a third time. The company released a filing to intimate about its IPO plan.
In Dec 2012, about 80% of ILFC was vended by AIG in a deal with a Chinese consortium, comprising New China Trust Co. Ltd., China Aviation Industrial Fund and P3 Investments Ltd., for approximately $4.23 billion. Further, the company granted an opportunity to these investors to buy another 9.9% in ILFC, taking the total deal value to about $5.28 billion. Subsequently, AIG would retain the remaining 10% stake in ILFC.
However, the deal missed three deadlines on May 15, Jun 14 and Jul 31, due to the delay in attaining regulatory approvals. Hence, AIG extended the closure of sale to Aug 31, 2013. Moreover, New China Trust has reportedly pulled out of the deal. Given that no assurance on the culmination has appeared till date, it likely that the fourth deadline may also be missed by the Chinese consortium.
The divestment of AIG’s stake in ILFC through an IPO comes as an alternate option should the deal falls out. On the other hand, if the deal is closed within the decided time, then AIG will have the IPO registration cancelled.
This is not the first time that AIG has mulled the IPO option for ILFC. Last year, the company was contemplating a similar move, before the sale agreement of ILFC.
ILFC operates in over 80 countries through a vast fleet of about 1,000 aircraft and is the largest customer for the Dreamliner jets. The firm also has deals to procure new high-demand, fuel-efficient aircrafts as well as rights to buy an additional 50 such aircraft.
However, the company’s financials are underperforming due to decline in revenues from flight equipment rentals and higher operating costs. Consequently, ILFC’s net income plunged to $82.6 million in the first half of 2013 from $321.9 million in the year-ago period.
We believe the sooner the sale of IPO of ILFC takes place, the quicker AIG will be able to release its blocked capital in ILFC and focus better on its core operations. Along with AIG, Cigna Corp. (CI - Analyst Report) , CNO Financial Group Inc. (CNO - Analyst Report) and Eastern Insurance Holdings Inc. (EIHI) carry a Zacks Rank #2 (Buy).