The aircraft leasing unit of embattled American International Group has agreed to sell 53 passenger jets to Australia's Macquarie Group to raise a much-needed $2 billion in cash.
International Lease Finance Corp (ILFC), a top customer of Boeing and Airbus, said on Wednesday it was selling the aircraft for below their book value of $2.3 billion. The deal follows AIG's failed efforts to sell the ILFC business.
For Macquarie Group, the deal hoists it to the top of the second tier of aircraft leasing with a total fleet of 186, prompting investors to suggest it will look to expand further and capitalise on the fast-growing Asia Pacific air travel market.
"The deal is better priced than a fair market value. It should give Macquarie a healthy rate of return," said Angus Gluskie, a portfolio manager at White Funds Management.
"For them it makes sense to have self-sufficient, large divisions. The deal could mean they are open for expansion."
AIG, which is looking to pay back the U.S. taxpayer after a $182.3 billion bailout, had said last month that it was looking to sell aircraft for up to $3.5 billion and presented proposed portfolios to potential buyers and received some bids.
AIG tried selling the ILFC business but a mountain of debt at ILFC and the challenge to meet its ongoing funding requirements amid tough capital markets meant a deal was not reached.
ILFC founder Steven Udvar-Hazy, who effectively invented the business of aircraft leasing, left the firm in February after failing to buy a portfolio of planes for about $4 billion.
As part of AIG, ILFC for many years enjoyed easy funding, but its access dried up as its parent was brought to its knees by the financial crisis in September of 2008.
"ILFCs ability to accomplish significant aircraft sales, together with recent successes in the financial markets, strongly demonstrates ILFCs ability to generate liquidity and de-lever its balance sheet," Chief Executive Alan Lund said in a statement.
By contrast, investment bank Macquarie, which boasts surplus capital of $4.2 billion, is using the global downturn to pick up assets on the cheap.
It said the deal would not make a major dent in its capital surplus, sparking the talk of further aircraft purchases.
A Macquarie spokeswoman declined to say anything beyond the statement, citing a blackout period ahead of its profit results.
The deal expands Macquarie's aircraft portfolio by 40 percent, but it remains far away from the big league dominated by ILFC and General Electric's GE Commercial Aviation.
Macquarie said the planes acquired from ILFC comprised young aircraft on lease to 35 airlines in 27 countries. The weighted average age of the fleet was less than four years and the average remaining lease term was more than five years.
Of the 53 planes acquired, Macquarie would buy 47 aircraft outright for $1.67 billion in cash and transfer the rights to buy the remaining six to sister company Macquarie AirFinance Ltd, which is 37.5 percent owned by Macquarie.
Macquarie's corporate and asset finance division already has loans and leases under management of A$13.8 billion, it said.
Macquarie shares were 0.8 percent higher at A$50.40 in afternoon trade. The benchmark index was 0.6 percent higher.