American International Group Inc. agreed to sell the world’s second-largest aircraft lessor to AerCap Holdings NV for $5 billion after a group of Chinese bidders missed deadlines to purchase the business.
AerCap will acquire all of International Lease Finance Corp. for $3 billion in cash and 97.6 million of its shares, the companies said today. The deal, set to close in the second quarter, gives AerCap control of the merged company, with AIG holding 46 percent.
AIG turned to Schiphol, Netherlands-based AerCap after investors led by Hong Kong-based P3 Investments Ltd. failed to deliver the $4.2 billion that they agreed to pay for an 80 percent stake. The New York-based insurer has been seeking to narrow its focus as government watchdogs increase their scrutiny of the largest financial firms.
“We’re creating the industry leader here,” Aercap Chief Executive Officer Aengus Kelly said in a telephone interview. “We’ll have the premium order book in the industry that’ll fuel the future growth in the business.”
$26 Billion Value
UBS AG and Citigroup Inc will provide $2.75 billion in financing, Kelly said. AerCap will also use cash to pay for the purchase valued at $26 billion including the assumption of $21 billion in ILFC debt. Plane disposals are not planned to raise funds, he said.
ILFC is “not a good fit with an insurance-company balance sheet, particularly with all the new regulations,” AIG Chairman Steve Miller said in a Bloomberg Television interview on Dec. 13. “A very capital-intensive business like that really doesn’t belong in an insurance portfolio, even though we love the company and we love the earnings.”
AIG will provide a $1 billion unsecured revolving credit facility to AerCap, companies said. AIG’s stake is subject to a phased lock-up period of 9 to 15 months.
ILFC’s net income was $410.3 million in 2012. The business posted a loss of $599.2 million in the first nine months of 2013 on impairments of aircraft.
AIG Focus
AIG is focusing on its main businesses of selling life insurance and property-casualty coverage and ridding itself of more than $20 billion in debt. Chief Executive Officer Robert Benmosche has said the firm needs to safeguard its credit rating as it seeks to return capital to shareholders. The insurer in August announced a plan to buy back $1 billion of stock and declared its first dividend since 2008.
Regulators have deemed the company a systemically important financial institution, or SIFI, a designation that leads to Federal Reserve oversight and tighter capital rules. Benmosche, who took over in 2009 and repaid a U.S. rescue in 2012, has also been redeeming debentures to lower debt.
To help repay the rescue, AIG sold more than $70 billion in assets such as Asian insurers and a U.S. consumer lender. The firm had been working to divest ILFC since 2008. AIG struck the deal with the Chinese group in December, 2012. After the investors missed two deadlines, AIG said on June 17 that it was open to new offers and may pursue an initial share sale.
[AIG is seeking to retain funds deposited by the group of Chinese investors that failed to meet a commitment to purchase ILFC. “We plan to pursue our rights to the fullest extent possible to recover the deposit,” Jon Diat, a spokesman for AIG, said in an e-mail today.]
Manageable Debt
Kelly said AerCap first explored buying ILFC in 2009 when debt liabilities were deemed too high. Those issues were resolved last year with annual debt payments reduced to a “manageable,” level prompting AerCap to put together an offer, he said.
ILFC’s holdings will add to a fleet of 373 planes at AerCap and give it access to iconic aviation brand, a legacy rooted in ILFC founder Steven Udvar-Hazy’s success in building his startup into an industry giant before selling it to AIG in 1990. The U.S. lessor had placed orders for 338 new aircraft for delivery through 2022, ILFC said last month in a filing.
AerCap has $15 billion of assets owned and under management and had a market value of $2.8 billion as of Friday’s close, according to data compiled by Bloomberg. The company bought Genesis Lease Ltd. in 2009, acquiring a lease portfolio valued at $6 billion at the time.
Waha Backing
AerCap reported a debt-to-equity ratio of 2.6 on Nov. 4, when it said in an investor presentation that the ratio could rise to 3.5 to 4 times “if extremely attractive opportunities are found.”
AerCap said the deal still requires regulatory and shareholder approval. The lessor’s largest investor, Waha Capital PJSC, said it has agreed to back the deal, AerCap said.
AIG paid $1.16 billion for ILFC in 1990, data compiled by Bloomberg show. Under AIG’s ownership, the unit originally benefited from the ability to borrow money at low rates, an advantage that evaporated when the insurer was hobbled by losses tied to subprime mortgages.
Udvar-Hazy, who has called himself the godfather of the aircraft leasing industry, ran the business until 2010, when he resigned and started rival Air Lease Corp. AIG sued him, saying he took confidential information. Air Lease called the lawsuit “baseless.”
ILFC has been led since May 2010 by Henri Courpron, a former Airbus SAS executive. The Los Angeles-based business has had a fleet of 922 aircraft with a book value of $32.7 billion as of Sept. 30, it said.
General Electric Co.’s GE Capital Aviation Services is the world’s largest lessor with a fleet of about 1,700 planes, according to the company’s website.
–With assistance from Alexandria Baca in New York and Julie Johnsson in Chicago. Editors: Benedikt Kammel, Christopher Jasper