AIG Collapse Penalizes Aircraft Lessor's Credit Rating

As many airline industry-watchers are aware, a sizable chunk of the roughly $150 billion dollars in AIG assets expected to go on the block soon is International Lease Finance Corp, the 2,000-lb gorilla among aircraft leasing companies.

The Wall Street Journal reports chairman Steven Udvar-Hazy (right), who founded the company 35 years ago, is now expected to lead an effort to buy it back. He and two partners sold the firm to AIG in 1990 for $1.3 billion dollars in stock... which they presumably managed to unload before shares in AIG plummeted to, as we put it Wednesday, 'just north of worthless' (actually, at this writing AIG is trading for about $2 a share.)

As ANN reported Wednesday, the Federal Reserve agreed to bail out AIG to the tune of a high-interest $85 billion loan, and an 80 percent stake in the troubled company. ILFC is one of AIG's enterprises credited with keeping the global insurance and investment firm afloat for this long, as AIG saw its stakes in other enterprises drop as a result of the collapse of the subprime lending market.

The aircraft lessor reports more than $17 billion worth of orders on its books, and is the single largest buyer of new airliners from both Boeing and Airbus. Its fleet of more than 1,000 planes is an asset valued at about $55 billion... or about a third of the entire asset base of its parent.

Conversely, federal filings show that ILFC carries more than $31 billion in debt, plus other obligations, resulting in a net of $7.36 billion in equity.

In a circumstance which would have been unthinkable even a year ago, ILFC may be eligible for a better credit rating as a standalone than as part of AIG. The parent company's plummeting credit rating has increased borrowing costs for ILFC to the point it may not be able to remain competitive if it remains a subsidiary.

The only question seems to be whether Udvar-Hazy can raise the required investment in the current climate. He has an enviable track record, with ILFC producing record profits even as AIG drowned in the subprime mortgage scandal.

Chris Partridge, director of asset finance and leasing at Deutsche Bank AG in London, says putting the deal together will be a challenge. "Even if your name is ILFC, people will be looking for a discount," he said.

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