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UPDATE 2-AIG sells aircraft leasing wing to focus on insurance

Monday, 16 Dec 2013 | 12:04 PM ET

(Adds comments from conference call, updates share movement)

Dec 16 (Reuters) - American International Group Inc said it would sell its aircraft-leasing business to AerCap Holdings NV in a deal valued at about $5.4 billion excluding debt, ending a four-year effort to sell its biggest non-insurance business.

AerCap's shares rose more than 35 percent following the announcement of the deal, which the Netherlands-based company said would make it the world's largest aircraft lessor.

AIG agreed a year ago to sell up to 90 percent of the leasing company, International Lease Finance Corp, to a group of investors based mainly in China for $4.7 billion, but that deal failed to close over funding issues.

The insurer, which was nearly wiped out by derivative bets in the financial crisis, put ILFC on the block after receiving a $182 billion government bailout package in 2008.

AIG repaid the last of the money owed to the U.S. Treasury in March.

"We believe the sale of ILFC is an important milestone for AIG as it eliminates significant leverage and balance sheet risk and allows for the company to focus on its core insurance operations," Sandler O'Neill analyst Paul Newsome wrote in a note to clients on Monday.

AIG will get $3 billion in cash and 97.56 million new common shares of AerCap, giving the deal a value of $5.4 billion based on AerCap's closing share price on Friday.

AIG will have a 46 percent stake in AerCap, which will assume ILFC's debt of $21 billion - giving the combined company a debt of about $31 billion.

AIG has agreed to hold the shares for at least nine months after the closing of the deal, expected in the second quarter.

AerCap, which buys aircraft and leases them to airlines, will vie with General Electric's Gecas unit as the world's largest aircraft-leasing company by fleet size.

AerCap expects the transaction to immediately add to earnings, contributing $4 per share annually, it said on a conference call. AerCap earned $1.24 per share in 2012.

The combined company will have 1,329 aircraft with 385 on order. AerCap now has 327 planes.

The deal will result in annual operational cash flow of $3 billion and savings of about $100 million a year by the end of 2015, Aercap CEO Angus Kelly said in a call with analysts.

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

UBS was the financial adviser to AerCap while Goldman Sachs was the financial adviser to AerCap's board.

Citigroup was the lead financial adviser to AIG.

AerCap shares were up 30.5 percent at $32.55 in late morning trading, while AIG was up 1 percent at $50.22 on the New York Stock Exchange.

(Reporting by Avik Das in Bangalore; Editing by Saumyadeb Chakrabarty)

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