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AIG's Leasing Unit in Talks to Buy Jets

Posted on 06 Jul 2010

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American International Group Inc.'s (AIG) plane-leasing business new CEO Henri Courpron in an interview said its in talks to buy jets for the first time since 2007 as it seeks to expand after the insurer’s U.S. bailout.

International Lease Finance Corp (ILFC) is doing extremely well, and we see a continued improvement trend in our ability to engage financing parties,” said Courpron. “I’m not worried about the outlook for ILFC.”

Courpron said he wasn’t considering selling “large portions” of Los Angeles-based ILFC's portfolio and that an order for 10 Airbus SAS  A380 superjumbo jets was “under review.” He also wouldn’t rule out announcing a new order as soon as England’s Farnborough air show, which begins July 19.

ILFC last ordered planes in October 2007. A year later, the government took over AIG to avert bankruptcy with a rescue that swelled to $182.3 billion. Shut out of capital markets for more than a year, ILFC had to be propped up by AIG and sold 53 planes to Macquaire Aerospace Ltd. for $2 billion in April.

“We still have a $13 billion portfolio,” Courpron, 47, said in the July 2 interview. “We have plenty of planes on order coming down the pike and we have engaged some fairly focused exchanges with the original-equipment makers to possibly complement that.”

Boeing and Airbus weren’t the only planemakers ILFC is talking to, he said.

Boeing, Airbus

He wouldn’t give details on the timing or size of a new order. Airbus spokesman Justin Dubon says the planemaker talks to all potential purchasers and doesn’t comment on specific deals. Thomas Brabant of Chicago-based Boein Co. declined to comment on any discussions with ILFC, the largest customer for both planemakers.

Courpron succeeded interim CEO Alan Lund, who took the job after John Plueger left to join ILFC founder Steven Udvar-Hazy in starting a new leasing business. Udvar-Hazy founded ILFC in 1973, built it into the world’s biggest jet-leasing company and sold it to AIG in 1990 before leaving this year. ILFC owns more than 900 planes, according to a regulatory filing.

In appointing Courpron on May 19, AIG CEO Robert H. Benmosche said ILFC was “ready to begin growing.” Three weeks later, the Congressional Oversight Panel in AIG’s bailout said the unit was among the New York-based insurer’s “depreciating assets.” The panel said ILFC would have to keep selling planes until a buyer for the business is found.

“We are not currently contemplating selling large portions of our portfolio, but we will continue to sell aircraft opportunistically as part of a healthy portfolio management,” Courpron said last week, while declining to comment on Warren’s assessment.

ILFC regained access to outside funding earlier this year after AIG committed to backing the unit. In May, AIG decided not to extend its support commitment past February 2011.

Rating Affirmed

Citing “significant progress” in debt maturities from aircraft sales and financing, Standard & Poor’s took ILFC off CreditWatch on June 9. S&P affirmed ILFC’s rating of BBB-, the lowest investment grade, with a negative outlook because of “remaining uncertainties” around debt due in 2012 and 2013.

That report helped improve investors’ perception of the riskiness of ILFC’s bonds, with credit-default swaps used to hedge against losses on the company’s debt declining to 651.5 basis points on July 2 from 804.9 basis points on June 9, according to CMA DataVision.

ILFC’s review of its A380 order from Airbus means Courpron is in discussions with the Toulouse, France-based planemaker where he spent two decades before becoming a president at aviation adviser Seabury Group. He joined ILFC from Seabury.

A380 Order

Courpron wouldn’t give details about the talks with Airbus on ILFC’s order, which calls for the first A380 delivery in the second quarter of 2014. Airbus has had only one new airline customer sign up for the jet since commercial operations began in 2007.

“We’re discussing it with Airbus, and we’re discussing it with potential clients and reviewing the situation internally,” he said. “There’s no urgency because of the way our contract is with Airbus; it’s not imminent and it’s not a priority.”

Courpron said ILFC arranged more than 50 commitments for plane leases in 2010’s first six months. That included planes coming off lease, aircraft released by airlines and new jets arriving from manufacturers.

“Lease rates are holding up nicely,” he said.