AIG Said in Sale Talks With AerCap on AIG Jet Lessor ILFC

American International Group Inc., which has been unable to complete the sale of its jet-leasing business to a group of Chinese bidders, is now in talks to sell that unit to AerCap Holdings NV, people with knowledge of the matter said.

AIG hasn’t formally terminated its accord with the Chinese group that said in 2012 it would buy a majority of International Lease Finance Corp. for about $4.2 billion, said one person, who asked not to be identified because details are private. AerCap, the largest independent plane lessor, may work with other bidders, two people said. AerCap rose the most in 17 months.

“We view this as a surprising but positive development that would allow AIG to dispose of this non-core and highly leveraged unit,” Jay Gelb, a Barclays Plc analyst in New York, said in a report to investors yesterday. He rates AIG as overweight.

AIG has sought to sell ILFC since 2008 as the insurer began divesting units to repay a U.S. bailout. Its December 2012 sale agreement has suffered several missed deadlines by the original group of investors led by Hong Kong-based P3 Investments Ltd. AIG Chief Executive Officer Robert Benmosche also has said he may pursue an initial public offering for ILFC.

Last Disposal

ILFC is the last major unit slated for sale at AIG, which last year repaid the U.S. rescue that swelled to $182.3 billion. Benmosche has been narrowing the New York-based company’s focus to U.S. life insurance and global property-casualty coverage after selling more than $70 billion in assets. The divestitures include non-U.S. life insurers such as AIA Group Ltd., a consumer lender and real estate in New York and Japan.

AIG rose 1.5 percent to $49.42. AerCap jumped 12 percent to $23.91, the highest since November 2007, in New York trading yesterday. The increase pushed this year’s gain for the Schiphol, Netherlands-based company to 74 percent.

“If they were to acquire a segment of the ILFC portfolio at a good price, depending on size, it’d be quite accretive from an earnings standpoint to AerCap,” Jason Arnold, an RBC Capital Markets analyst in San Francisco, said in an interview. “They’ve already got a tremendously strong business model as it stands right now, and if you’re buying aircraft on the cheap here, you’re getting a good deal plus the synergistic benefits of expanding your portfolio.”

Spokesmen for AIG, ILFC and AerCap’s CEO Aengus Kelly declined to comment on the talks, which were first reported by Airline Economics, a specialist publication for the commercial aviation sector.

Reducing Leverage

Benmosche said on a conference call last month that talks with the Chinese group were making “slow progress,” and a previous plan for an IPO for ILFC may be revived if the sale isn’t completed this year. Chief Financial Officer David Herzog said then that other parties are interested in the unit, which has a fleet of almost 1,000 aircraft.

“Selling ILFC is critical for AIG to reduce the amount of its financial leverage and reduce its future financing commitments,” Josh Stirling, a Sanford C. Bernstein & Co. analyst in New York who rates AIG as outperform, said in an interview. “This has been part of the overhang on the company’s credit rating.”

AIG debt is rated Baa1 at Moody’s Investors Service, the third-lowest of 10 investment-grade levels. Los Angeles-based ILFC had more than $20 billion in debt outstanding as of Sept. 30, according to a regulatory filing.

Increasing Borrowings

AerCap has $15 billion of assets owned and under management and had a market value of $2.7 billion as of yesterday’s close, 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. In March, AerCap said private-equity firm Cerberus Capital Management LP, once the lessor’s second-largest shareholder, had exited its stake.

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.”

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.

Before it's here, it's on the Bloomberg Terminal.