March 25 (Bloomberg) -- American International Group Inc.’s plane-leasing unit, the largest customer of both Airbus SAS and Boeing Co., said it may not survive unless it gets help from its parent company or new access to credit.

“Without additional support from AIG or obtaining secured financing from a third-party lender, in the future there could exist doubt concerning our ability to continue as a going concern,” Los Angeles-based International Lease Finance Corp. said today in its annual report.

ILFC said it has 168 planes valued at $16.7 billion on order through 2019 and plans to pay for them with operating cash flows and by incurring debt. New York-based AIG said today it will support the unit’s short-term liquidity needs until ILFC is sold or the end of March 2010, after ILFC was cut off from its usual sources of funding in part because of ratings downgrades.

“ILFC has a huge need in terms of financing for future commitments,” Bertrand Grabowski, the board member responsible for aviation at Germany’s DVB Bank SE, said in an interview yesterday. “The problem is not to find equity for value for the company, it’s finding committed funding for planes coming in.”

AIG is trying to find a buyer for ILFC to help pay back the loan portion of the $182.5 billion government bailout the insurer has received. The attempted sale comes as demand for new planes has dropped amid slumping air travel and airline capacity cuts because of the recession. Global traffic has fallen every month since September.

Contractual Obligations

ILFC said today it will need additional funding, in excess of the $4 billion of secured debt it’s currently allowed to incur, in order to pay contractual obligations during the next 12 months. ILFC lost access to the U.S. commercial paper program after credit downgrades because of concern over AIG’s future.

AIG provided a loan of $800 million to ILFC on March 12 to fund operations at the plane-leasing unit through the end of the month, and approved another $900 million to be distributed on March 30 to pay costs through the end of April. The insurer, which the government has deemed too big to fail, was rescued with a federal infusion of capital in September, and the bailout has been restructured three times since.

Paula Reynolds, AIG’s chief restructuring officer, said March 2 that the government had agreed to “some form of backstop financing” for the buyer of ILFC.

2008 Earnings

ILFC earned profit of $703.1 million in 2008, a 16 percent increase from a year earlier, as the unit added 55 planes to its fleet and revenue from renting flight equipment rose, the company said today. Fourth-quarter profit fell 34 percent to $115 million, and 12 of ILFC’s customers filed for bankruptcy last year.

ILFC, which was founded 36 years ago and owns a fleet of about 1,000 jets, is the world’s largest aircraft lessor by value of planes. The company’s fate will have an impact on Airbus and Boeing as well as airlines and leasing companies around the world.

“We have seen airlines cancel routes, eliminate jobs, and retire aircraft,” ILFC said in today’s filing. “This financial stress is causing a slow-down in the airline industry which will likely have a negative impact on future lease rates and could begin to influence our future results.”

ILFC Chief Operating Officer John Plueger said in an interview last week that the company had placed all its deliveries scheduled for the next two years -- 49 in 2009 and five in 2010 -- with customers. ILFC didn’t order any planes last year as the industry struggled with high oil prices, followed by the collapsing economy.

Uncharted Waters

“We’re in uncharted waters, because the world as a whole has never been in this kind of economic position,” Plueger said.

Credit-default swaps protecting against a default by ILFC rose 0.7 percentage point to 27.5 percent upfront, according to CMA DataVision. That’s in addition to 5 percent a year and means it would cost $2.75 million initially and $500,000 annually to protect $10 million of ILFC debt against default.

To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net.

Last Updated: March 25, 2009 14:58 EDT