American International Group Inc is in talks to sell a small part of its portfolio of commercial aircraft to a group led by the chief executive of its aircraft leasing business, sources familiar with the matter said
Steven Udvar-Hazy, CEO of AIG's International Lease Finance Corp, is backed by a consortium that includes private equity firms Onex Corp and Greenbriar Equity Group, the sources said, declining to be named because talks are private.
Under the deal being discussed, the group, which also includes other ILFC executives, would buy less than 10 percent of ILFC's fleet, one of the sources said on Monday.
Udvar-Hazy effectively invented the business of plane leasing when he started ILFC in 1973. The benefits of leasing rather than buying planes appealed to start-ups and traditional airlines alike, and he built up and sold the company to AIG in 1990 for about $1.3 billion.
ILFC, which is one of the biggest customers of Boeing Co and Airbus, has a portfolio of more than 1,000 aircraft, with a book value of more than $40 billion.
The troubled insurer, which had to be bailed out last year by the U.S. government, would retain the rest of the ILFC business hoping to steady the ship and harvest more equity from it in the future, the source said.
Still a deal will mean the aircraft lessor would stop growing and the insurer would lose a titan of the leasing business.
A transaction is not imminent and parties are still locked in negotiations over price and other issues, the source said, adding that a deal, if it happens, could take another 30 to 45 days.
AIG is unlikely to get book value for the aircraft, the source said, given a depressed market as airlines suffer amid the global financial crisis.
A deal could also be hurt other aircraft lessors as units owned by CIT Group Inc and Royal Bank of Scotland find their way into the market.
AIG declined to comment. ILFC directed a call to AIG.
The sale of ILFC, which has been in the works for nearly a year, has been slowed after AIG appointed a new chief executive this summer, its fourth since June of last year.
AIG Chief Executive Robert Benmosche is overseeing a broad restructuring and trying to pay back roughly $80 billion of U.S. taxpayer funds that were extended to help AIG cover guarantees it sold on mortgage-back securities that plummeted in value.
He paused the ILFC auction soon after taking over, as he reviewed the insurer's divestiture process, a source told Reuters in August.
Benmosche is taking a more wait and see approach, but he has given the green light to continue talks with the Udvar-Hazy group, the source said on Monday.
AIG wants to fix ILFC's balance sheet and tap the equity value of the business through a future sale, initial public offering or other means, the source said.
The insurer is hoping that a sale of some aircraft to Udvar-Hazy will help it deal with ILFC's liquidity problems, the source said.
Selling Los Angeles-based ILFC has proved to be a challenge due to its mountain of debt and funding needs. ILFC had roughly $32 billion of total debt financing and subordinated debt as of June 30.
A combination of factors, including problems faced by AIG and ratings downgrades, has left ILFC unable to issue commercial paper and unsecured debt since the third quarter of 2008, according to a Securities and Exchange filing in August.
The consortium led by Onex and Greenbriar had been the preferred bidder to buy all of ILFC, but the deal did not ultimately happen in part because banks were unwilling to roll debt for longer maturities, the source said.
AIG's shares closed up 18 cents at $44.40 on the New York Stock Exchange on Monday.
(Editing by Gary Hill and Steve Orlofsky)