AerCap Holdings NV (AER) completed its $7.6 billion purchase of International Lease Finance Corp., creating the largest independent jet-leasing firm and a windfall for seller American International Group Inc. (AIG)
ILFC, which pioneered the aircraft-leasing business under founder Steven Udvar-Hazy, is the last major unit to be sold by AIG following the U.S. rescue of the New York-based insurer in the 2008 financial crisis.
The value of the cash-and-stock ILFC acquisition climbed by about $2 billion since being announced in December as AerCap shares almost doubled. Investors are betting on growth at the Schiphol, Netherlands-based lessor as it takes on an aircraft portfolio and order book to rival that of General Electric Co.’s Gecas unit, the industry leader.
“AerCap is poised to become one of the two premier global aircraft-leasing franchises,” Gary Liebowitz, a New York-based aerospace analyst with Wells Fargo & Co., wrote in a May 7 research note. He rates AerCap as outperform.
AIG received $3 billion in cash and 97.6 million AerCap shares, according to a statement. The merged business will be run from the Netherlands by the leasing company’s management team.
Net cash proceeds to AIG were about $2.4 billion, after the settlement of intercompany loans, and the sale will have a “positive impact on AIG’s liquidity and credit profile,” Chief Executive Officer Robert Benmosche said in the statement. “While the ILFC name will no longer exist, its deep roots and legacy will continue to live on with AerCap.”
AIG said it will record a pretax gain of $2.2 billion in the current quarter, tied to the increase in AerCap’s stock. That adds 97 cents a share to AIG’s book value. Benmosche and AIG Chief Financial Officer David Herzog joined AerCap’s board as part of the deal.
ILFC CEO Henri Courpron announced at a conference in January that he wouldn’t stay on after the deal closed. He had succeeded Udvar-Hazy, who sold the unit to AIG in 1990 and led the leasing business until 2010.
AerCap gains ILFC’s $21 billion order backlog, stocked with highly sought-after production slots nabbed by Udvar-Hazy for Boeing Co. (BA) 787 Dreamliners and Airbus Group NV A350s at “unambiguously below-market prices,” Wells Fargo’s Liebowitz said. He estimates there is $2 billion or more of “embedded value” in ILFC’s order book because of its early bulk orders for the jets.
“With approximately $45 billion of assets coupled with a diverse fleet of 1,300 aircraft and an attractive forward order book, AerCap will be a driving force in the industry,” AerCap CEO Aengus Kelly said in a statement.
AerCap fell 0.9 percent to $46.59 at the close yesterday in New York, paring the stock’s year-to-date gain to 21 percent. AIG slid 1.1 percent to $53.39, and has climbed 4.6 percent this year.
The divestiture of ILFC completes a series of sales that AIG began in 2008 to repay its government bailout and focus the company on property-casualty coverage and U.S. life insurance. The rescue swelled to $182.3 billion, and AIG finished repaying the U.S. in 2012.
The insurer struck deals to sell more than $70 billion of units and real estate. The divestitures included the company’s Japanese and New York headquarters, AIA Group Ltd. and American Life Insurance Co.
AIG’s agreement to sell ILFC to AerCap replaced a failed transaction with a group of Chinese investors. Benmosche said last week that AIG will evaluate its plans for using the funds after the sale is completed.
The insurer faces restrictions on exiting its AerCap stake. AIG can sell a third of its stock in nine months, two-thirds after a year, and the rest three months later.