ILFC Buys AerCap Unit to Tap Aging Aircraft Parts Market

International Lease Finance Corp., the world’s largest aircraft lessor, bought a unit of AerCap Holdings NV (AER) to profit even from planes old enough to be worth less than the sum of their parts.

ILFC, a unit of American International Group Inc. (AIG), said today it would pay $228 million for AerCap’s Aeroturbine unit, which buys used planes and disassembles them to sell parts, particularly engine components, as spares. The lessor previously sold most aircraft prior to their so-called end-of- life phase.

“There’s a point where you actually make more money parting out an aircraft and managing the parts in the after- market, than if you keep the aircraft together, and try to lease it or sell it as a whole,” Henri Courpron, the head of ILFC, said in an interview today.

In addition to letting ILFC wring extra profits from planes that no longer command sufficient rental fees, the deal allows the lessor to help clients wanting to dispose of older planes and replace them with newer, more fuel-efficient models, Courpron said.

The average age of planes in ILFC’s current fleet is 7.6 years. While planes generally aren’t sold for parts until they’ve been operating for two decades, the market sometimes receives newer aircraft that have a small customer base because they’re niche products or have been damaged heavily enough that repairs aren’t cost-effective.

737 Upgrade

“We want to have the optionality,” Courpron said. “For every plane at any point, we can either lease it to airlines around the world; we can sell it to a third party to do what they want with; and now we’ll have the ability to take an aircraft and part it out.”

ILFC, which owns a fleet of 933 aircraft and has about 100 more under management, was the first lessor to order Airbus SAS’s A320neo. The upgrade of the Toulouse, France-based planemaker’s single-aisle aircraft offers more fuel-efficient engines and will be available in 2015.

Courpron said the Century City, California-based lessor has been in talks with Airbus rival Boeing Co. (BA) about its plans to upgrade the 737 single-aisle with Leap-X engines from CFM International, a partnership of General Electric Co. and Safran SA. He declined to specify how many 737 upgrades ILFC might purchase if it likes the jet.

The lessor regularly talks with planemakers about aircraft development, “and we expect Boeing will be eager to talk to ILFC for the same reason: to get the endorsement by ILFC of their product decision,” he said.

Courpron also confirmed that parent AIG has been “looking at” a possible spinoff of ILFC “if it makes sense.” Financial advisers haven’t yet been chosen, he said.

AerCap acquired the Aeroturbine unit in 2006 to strengthen its “expertise in managing older aircraft,” CEO Aengus Kelly said in a statement. The company will use proceeds from selling the division “to pursue transactions that will generate long- term value for our shareholders.”

To contact the reporter on this story: Andrea Rothman in Paris at aerothman@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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