ILFC May Once Again Be Offered For Sale; Policy Holders Uneasy

Things are looking dire indeed for insurer American International Group, Inc., better known as AIG.

Following massive shares selloffs that drove down the value of AIG's stock by 31 percent Friday -- and another 51 percent Monday -- the company is now reportedly working on a survival plan that would include the selloff of one of its few highly lucrative enterprises.

According to The Wall Street Journal, aircraft lessor International Lease Finance Corporation may soon be offered for sale, for the second time this year. As ANN reported, rumors surfaced in May that AIG would cut lose ILFC, following a record $7.8 billion quarterly loss stemming from insured properties obtained through subprime mortgages, that since went into default. 

However, just over one month later ILFC chief Stephen Udvar-Hazy joined AIG officials in stating the aircraft leasing giant would remain part of AIG's portfolio, albeit with added freedom to conduct its own business affairs. ILFC also said its employee compensation rates would now tied to how their company performs, and not how AIG does... a telling lack of confidence in AIG's ability to turn things around.

AIG reported a second-quarter net loss of $5.36 billion last month. As recently as last Thursday, AIG said it was sticking to its guns, and would announce its restructuring model on September 25. Share prices plummeted on that news.

This weekend, AIG refused a needed dose of fresh capital from a group of private equity firms, led by J.C. Flowers & Co., that reportedly would have given those investors control of AIG. The Journal says that deal would have allowed those investors to purchase AIG for $8 billion -- one-quarter of its current value.

Of more immediate concern to AIG is the potential surge of insurance claims, stemming from damage from two recent hurricanes along the US Gulf coast. The company could also be hit hard if its credit rating is downgraded, a distinct possibility given the extent of the company's current woes.

Following in the footsteps of other troubled financial companies, AIG Chairman and CEO Robert Willumstad went to the Federal Reserve for help Saturday, asking the Fed for a bridge loan of $40 billion -- yes, with a "B" -- while the 89-year-old company works on a new restructuring plan, and courts additional investors.

The Fed is now considering that request. AIG has already raised $20 billion in new investment capital this year.

In the meantime, thousands of people insured through AIG -- including a large number of aircraft owners -- await news on whether those policies are still worth the paper they're written on.

FMI: www.aig.com, www.ilfc.com