March 26 (Bloomberg) -- Steven Udvar-Hazy said the company he spent 36 years building into the world’s largest plane lessor is “strong,” and he hopes to free it from the “cloud” around parent American International Group Inc. in the coming weeks.

Udvar-Hazy’s International Lease Finance Corp., the biggest customer of Airbus SAS and Boeing Co., said yesterday in a regulatory filing that its future was in jeopardy unless it could get more funding from AIG or new access to credit. ILFC has been cut off from usual financing sources amid ratings downgrades and AIG’s $182.5 billion U.S. government bailout.

“We are working with investors to buy ILFC back so we can recapitalize ILFC, boost its balance sheet, get out from the AIG cloud, maximize profitability and regain our well-deserved investment-grade ratings,” Udvar-Hazy said in an e-mail today. That is “the essence of what ILFC is working on to accomplish in the coming weeks.”

AIG, the insurer that bought ILFC in 1990 and now is selling it to help pay back the loan portion of the bailout, said yesterday it has government approval to support the unit for at least a year or until it’s sold. ILFC has about 1,000 jets placed with airlines around the world and an additional 168 on order. The company yesterday reported record profit for 2008.

“I am weary of all the legalistic negativity when ILFC’s fundamentals are so strong and our long-term potential so promising,” Udvar-Hazy wrote.

Potential Buyers

ILFC executives met yesterday with potential buyers as part of a second round of bidding, ILFC Chief Financial Officer Alan Lund said yesterday, declining to give additional details.

Any sale now won’t be easy, former AIG Chief Executive Officer Maurice “Hank” Greenberg said today during a luncheon in Hong Kong.

“They missed the timing,” Greenberg said. “You try to sell part of ILFC today, and you will get a fraction of what it’s worth.”

The attempted sale comes amid tight credit markets and declining demand for new planes as slumping air travel causes airlines to reduce capacity.

Global traffic has fallen every month since September and is expected to decline 5.7 percent this year, spurring a $4.7 billion combined loss for the world’s airlines, according to the International Air Transport Association. Cancellations at both Airbus and Boeing wiped out gains from new orders in the first two months of the year.

AIG Loans

ILFC, which had profit of $703.1 million in 2008, has to find money for 49 plane deliveries scheduled for this year. The company used its own cash to pay for Boeing jets earlier this year before getting $1.7 billion in loans from AIG this month. French banks, guaranteed by European export credit agencies, are providing money to pay for the Airbus planes on order.

ILFC will need additional funding, in excess of the $4 billion of secured debt it now is allowed to incur, to pay contractual obligations during the next 12 months, according to yesterday’s filing. The company lost access to the U.S. commercial paper program after credit-rating downgrades.

Credit-default swaps protecting against an ILFC default fell 1.5 percentage points today to 30.5 percent upfront, according to CMA DataVision. That’s in addition to 5 percent a year, meaning it would cost $3.05 million initially and $500,000 annually to protect $10 million in ILFC debt.

David Hess, president of United Technologies Corp.’s Pratt & Whitney unit, said with Udvar-Hazy and Chief Operating Officer John Plueger at the helm, ILFC’s survival is “the least of my worries.”

Fundamentals ‘Haven’t Changed’

“The fundamentals of the business haven’t changed,” Hess said today in an interview in East Hartford, Connecticut, following the engine maker’s annual media briefing. “I would be amazed if somehow they didn’t figure out financing for ILFC to go forward.”

Airbus, the world’s biggest commercial-jet builder, has “full faith” in ILFC’s senior management, chief salesman John Leahy said today.

“ILFC is current in all their financial commitments to Airbus, and we are confident they will remain so in the future,” he said.

AIG’s support of ILFC is with the “full concurrence of the Fed,” the insurer said yesterday. ILFC’s Lund added that he expects the parent company and the government would “still be there in a year” with financial support even if the lessor hasn’t been sold by the time the guarantee is up.

That may not sit well with public watchdog groups concerned about taxpayer money going to banks, auto manufacturers and now an aircraft-leasing company that’s still profitable.

‘Jobs and Politics’

“Where does it end?” said Cornelius Hurley, director of the Morin Center for banking and financial law at Boston University. “Now it’s up to the Fed to lend money to ensure the survivability of this leasing company, Boeing’s biggest customer, and all of the jobs and politics involved in that.”

The government is relying on AIG to sell some of its assets to repay loans including in its bailout, and ILFC represents a “big chunk of it,” Hurley said. “So they can’t just cut it loose.”

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

Last Updated: March 26, 2009 19:01 EDT