American International Group Inc. (AIG - Analyst Report) is negotiating a deal with Netherlands-based AerCap Holdings NV for the sale of it aircraft leasing unit – International Lease Finance Corporation (ILFC) – as reported by the Reuters.
ILFC is the only major-most asset left for disposition at AIG. The company has long been attempting to sell off ILFC. 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 $4.7 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, which was missed again, as New China Trust reportedly pulled out of the deal.
Although no announcement of official termination has been made, no assurance on the culmination has appeared till date either.
Since then, AIG had begun mulling over the bid for an initial public offering (IPO) of ILFC, an option that was shelved after the deal was concurred with the Chinese consortium in 2012.
ILFC operates in over 80 countries through a vast fleet of about 1,000 aircraft worth $34 billion at the end of Sep 2013. It is also the largest customer for the Dreamliner jets. The firm also holds deals to procure new high-demand, fuel-efficient aircrafts as well as rights to buy additional 50 similar aircraft. However, the company’s financials are underperforming due to decline in revenues from flight equipment rentals, higher impairments and operating costs.
We believe the sooner the sale or IPO of ILFC takes place the quicker AIG will be able to release its blocked capital in ILFC, reduce debt and focus better on its core operations.
On the other hand, the proposed acquisition of ILFC will position Aercap as a dominant player in the aviation industry, although the approximately $5 billion deal is likely to deteriorate its financial leverage, at least for some time.
AIG currently carries a Zacks Rank #3 (Hold). Some better-ranked insurers include Old Republic International Corp. (ORI - Snapshot Report) , First American Financial Corp. (FAF - Snapshot Report) and Hallmark Financial Services Inc. (HALL - Snapshot Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).