American International Group Inc. is nearing a deal to sell its plane-leasing unit to AerCap Holdings NV for cash and stock, according to two people briefed on the talks.
AIG would get $3 billion and about 96 million shares in AerCap, a stake valued at about $2.4 billion at the end of last week, said the people, asking not to be named because the talks are private. The sale of International Lease Finance Corp., the second-largest aircraft lessor with a portfolio of almost 1,000 planes, may be announced as early as today, one person said.
AIG turned to AerCap after investors led by Hong Kong-based P3 Investments Ltd. failed to deliver the $4.2 billion that they agreed to pay for an 80 percent stake in ILFC. The New York-based insurer has been seeking to narrow its focus as government watchdogs increase their scrutiny of the largest financial firms.
ILFC is “not a good fit with an insurance-company balance sheet, particularly with all the new regulations,” AIG Chairman Steve Miller said in a Bloomberg Television interview on Dec. 13. “A very capital-intensive business like that really doesn’t belong in an insurance portfolio, even though we love the company and we love the earnings.”
ILFC’s net income was $410.3 million in 2012. The business posted a loss of $599.2 million in the first nine months of 2013 on impairments of aircraft.
By divesting ILFC, AIG is focusing on its main businesses of selling life insurance and property-casualty coverage and ridding itself of more than $20 billion in debt. Chief Executive Officer Robert Benmosche, 69, has said the firm needs to safeguard its credit rating as it seeks to return capital to shareholders. The insurer announced a plan in August to buy back $1 billion of stock and declared its first dividend since 2008.
The Wall Street Journal reported the deal’s timing and the inclusion of AerCap’s shares earlier yesterday, while the New York Times specified the size of the stake. Spokesmen for AIG, AerCap and Los Angeles-based ILFC said they couldn’t comment or didn’t immediately respond to messages outside business hours.
After an ILFC sale is completed, “AIG could potentially use the proceeds for share repurchases and/or dividends, with possible limitations due to its SIFI status,” Gloria Vogel, an analyst at Drexel Hamilton LLC, said in an e-mail before press articles on the terms.
Regulators have deemed the insurer a systemically important financial institution, or SIFI, a designation that leads to Federal Reserve oversight and tighter capital rules. Benmosche, who took over in 2009 and repaid a U.S. rescue in 2012, has also been redeeming debentures to lower debt.
To help repay the rescue, AIG sold more than $70 billion in assets such as Asian insurers and a U.S. consumer lender. The firm had been working to divest ILFC since 2008. AIG struck the deal with the Chinese group in December 2012. After the investors missed two deadlines, AIG said on June 17 that it was open to new offers and may pursue an initial share sale.
“Given that ILFC couldn’t find a buyer in the four years leading up to the December 2012 agreement, it seems improbable that competitive bidders are pounding at the door to make an offer,” Kathleen Shanley, an analyst at Gimme Credit LLC, said in a June 18 note.
AerCap has $15 billion of assets owned and under management and had a market value of about $2.8 billion as of the close of trading on Dec. 13, according to data compiled by Bloomberg. The company bought Genesis Lease Ltd. in 2009, acquiring a lease portfolio valued at $6 billion at the time.
AerCap reported a debt-to-equity ratio of 2.6 on Nov. 4, when it said in an investor presentation that the ratio could rise to 3.5 to 4 times “if extremely attractive opportunities are found.”
AIG acquired ILFC in 1990 for $1.16 billion from founder Steven Udvar-Hazy, data compiled by Bloomberg show. Under AIG’s ownership, the unit originally benefited from the ability to borrow money at low rates, an advantage that evaporated when the insurer was hobbled by losses tied to subprime mortgages.
Udvar-Hazy ran the business until 2010, when he resigned and started rival Air Lease Corp. AIG sued him, saying he took confidential information. Air Lease called the lawsuit “baseless.”
ILFC has been led since May 2010 by Henri Courpron, a former Airbus SAS executive.
General Electric Co.’s GE Capital Aviation Services is the world’s largest lessor with a fleet of about 1,700 planes, according to the company’s website.