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AIG Begins Plans for IPO of its Aircraft Leasing Unit

Source: WSJ - Doug Cameron & Serena Ng


Posted on 02 Sep 2011

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American International Group Inc. (AIG) on Friday started the process of severing its 21-year involvement in the aircraft-leasing business by outlining plans for the initial public offering of its International Lease Finance Corp. unit.

ILFC is the world's second-largest aircraft lessor by fleet value, and the planned IPO could value the company at between $8 billion and $10 billion at a time of continuing investor interest in the sector, driven by the long life of plane assets and the large and consistent cash flows generated in the sector.

The planned offering of shares in a new company, ILFC Holdings Inc., on the New York Stock Exchange is being managed by Citigroup Inc., J.P. Morgan Chase & Co. and Morgan Stanley, according to the regulatory filing.

In a note to employees Friday, ILFC Chief Executive Henri Courpron said the S-1 filing begins the process for a possible IPO later this year.

"While AIG has not made a final decision to pursue an IPO, this filing is an important step to help us prepare for one should that be the decision." Mr. Courpron said that an IPO would "offer AIG the opportunity to capitalize on its ownership of ILFC and at the same time allow us the opportunity to manage and deliver as a publicly held company."

Air Lease Corp., a smaller rival started by former ILFC executives, went public in May but its stock has fallen by 20%, valuing the company at $2.25 billion.

The environment for IPOs deteriorated sharply in August during steep stock-market downturns and concerns about the overall direction of the economy. Only two deals were priced, while 15 postponed or withdrew plans in the face of volatile market conditions, according to data tracker Dealogic.

Both issuers and investors are cautious about the prospects for IPOs in September, especially if broader market conditions are volatile or depressed.

Near-term conditions aren't an immediate concern for ILFC or any other company kicking off the IPO process with a new SEC registration now.

Because any initial filing must go through a rigorous vetting process with the SEC before being cleared for launch, it takes three months on average from first filing to pricing—and in three months, ILFC could debut into a different environment that is more welcoming.

AIG spent two years trying to sell all or part of ILFC after its partial nationalization during the financial crisis, but was unable to secure an acceptable price.

ILFC has a fleet of 933 planes, as well as a coveted order book of 236 more valued at $17.6 billion set for delivery through 2019.

The company's new management team is highly regarded within the industry, but was viewed as having lost ground until it returned to place new aircraft orders this year. A host of new start-ups, many backed by private-equity funds, emerged to provide a challenge to ILFC and Gecas, the market leader owned by General Electric Co.

AIG, which has owned ILFC since 1990, deemed the business a noncore asset shortly after the insurer was bailed out by the U.S. government in 2008.

The record bailout used more than $130 billion in taxpayer funds at its peak, roughly half of which has been recouped by the Federal Reserve and Treasury Department over the past three years.

Proceeds from an IPO of ILFC will go to the Treasury, which is positioned to recoup $9.3 billion from various AIG asset sales and is separately trying to recover $41.6 billion from selling a 77% stake in the insurer over time.


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