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Sale of AIG's ILFC unit to Chinese investors hits a snag

Sale of AIG's ILFC unit to Chinese investors hits a snag
Henri Courpron is chief executive of International Lease Finance Corp. (Francine Orr / Los Angeles Times)

Insurance giant American International Group Inc.'s attempt at selling its Century City aircraft-leasing company to a consortium of Chinese investors has run into turbulence because a deposit payment was not received on schedule.

AIG revealed in a filing Friday with the Securities and Exchange Commission that the investment group failed to meet the deadline that was specified under the terms of a deal to sell up to 90% of International Lease Finance Corp. for $4.8 billion.

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AIG now has the right to terminate the sale agreement, which was struck in December.

The leasing company, better known as ILFC, buys aircraft and rents them to airlines for a fixed period. It owns and manages a fleet of more than 900 aircraft.

With plush headquarters at Constellation Place, formerly known as MGM Tower, ILFC has relationships with nearly every major airline around the globe.

AIG has been trying to unload the unit since 2008, when the New York company nearly collapsed and was forced to go under government control.

But in December the Treasury sold its last AIG shares, formally ending the bailout with a $22.7-billion profit. So AIG is not under pressure to hurriedly unload ILFC.

Two weeks ago, AIG agreed to extend the deadline to close the deal to mid-July from mid-June.

In the aviation world, little is known about the investors, called Jumbo Acquisition Ltd.

The group is composed of New China Trust Co. and China Aviation Industrial Fund, which are state-controlled, and P3 Investments Ltd., which is privately managed.

Richard Aboulafia, an aerospace analyst with Teal Group Corp., a Virginia research firm, is skeptical about a deal being reached. He said there were many cases in which a potential aerospace deal with Chinese companies fell through.

In October, a proposed $1.8-billion sale of plane maker Hawker Beechcraft Corp. to Chinese buyer Superior Aviation Beijing Co. was killed because the parties could not reach agreement.

"Any time I see 'China aviation acquisition,' red flags go up," Aboulafia said. "We don't know all the details, but there are a massive set of variables here."

A group of investors, two of which are government-owned, and the large amount of money at stake could prove problematic, he said. In addition, the deal is subject to approval by the U.S. government.

If an agreement is reached, it would mark the end for AIG's 23-year ownership of ILFC. AIG bought ILFC in 1990 for $1.3 billion in a stock swap. The sale was beneficial for ILFC because it was able to leverage AIG's then-stellar credit ratings to access billions of dollars in short-term, lower-interest debt to buy planes.

But those benefits changed with the 2008 global financial crisis. ILFC struggled to borrow money. That forced AIG to tap financing from the Federal Reserve Bank of New York in an arrangement set up during AIG's bailout.

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The bailout placed restrictions on executive compensation, which caused an exodus of ILFC's management team.

AIG filed in 2011 to sell the ILFC unit through an initial public offering but never went through with those plans.

Regarding the sale, John M. Nadel, an analyst with the brokerage firm Sterne Agee Group Inc., said in a note to investors Friday that "it's difficult to envision AIG doing much better through either an IPO or a newly negotiated outright sale."

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