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UPDATE 2-AIG seen in talks to sell jet-leasing unit to AerCap

Neha Dimri and Tim Hepher
Friday, 13 Dec 2013 | 6:55 AM ET

Dec 12 (Reuters) - U.S. insurer American International Group is in talks to sell its aircraft leasing business to AerCap Holdings NV, a person briefed on the discussions said.

AIG, which was nearly wiped out by derivative bets in the financial crash, has been seeking for some time to sell International Lease Finance Corp (ILFC) to repay the costs of a 2008 U.S. government bailout.

Netherlands-based AerCap is also in touch with private equity firms and others who may be interested in taking part of the assets of ILFC, which is the world's second largest aircraft lessor by fleet size, the person said.

"AerCap gets new aircraft and private equity for example can manage some of the older aircraft, but this is quite surprising as it is still an enormous portfolio," said the person, an industry source who asked not to be identified.

AerCap, whose shares rose 11.6 percent in New York on Thursday on reports of the talks, declined to comment.

"As a company policy, we do not comment on market rumours," a spokeswoman said in an email.

ILFC and AIG also declined to comment. AIG shares rose 1.5 percent on Thursday against a weaker market.

Philip Tozer-Pennington, managing editor of Airline Economics magazine which first reported the negotiations, said the move was the latest sign of consolidation in the leasing industry, which has seen several deals involving Asian buyers.

"Consolidation is already fast paced in aircraft leasing and the market has a great deal of room for growth left in it yet as those that remain in the market are struggling to cope with the high levels of business."

Japan's Sumitomo Mitsui Financial Group and Sumitomo Corp last year bought the aircraft leasing business of Royal Bank of Scotland in a deal worth $7.3 billion as European banks began offloading non-core assets.

In December 2012, AIG said it had reached agreement to sell a stake of up to 90 percent of California-based ILFC to a consortium of investors based mainly in China for $4.7 billion, but it has struggled to complete the deal.

While in talks with AerCap, AIG has not formally ended its agreement with the Chinese group, Bloomberg News reported.

AIG has said it continues to regard the leasing unit as a non-core business and is pursuing other options, including an alternative sale or an initial public offering.

Chief Executive Officer Robert Benmosche said in November that AIG hoped to decide on a sale or an initial public offering of ILFC in the fourth quarter.

A combination of ILFC and AerCap would remain second by fleet size to General Electric's aircraft leasing division GECAS, which has a fleet of 1,700 passenger jets. AerCap has a fleet of 373 aircraft, according to its website.

ILFC and GECAS are among the largest buyers of jets from Europe's Airbus and U.S. planemaker Boeing.

Tozer-Pennington said a deal could benefit Boeing as ILFC is seen as overweight in planes from EADS subsidiary Airbus.

AerCap agreed in 2011 to sell its AeroTurbine airplane and engine-dismantling business to ILFC for $228 million.

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