Asia-Pacific Markets

AIG to Sell ILFC to Chinese Group for Up to $4.8 Billion

American International Group Inc.'s (AIG) building located at 72 Wall Street in New York, U.S.
JB Reed | Bloomberg | Getty Images

American International Group has agreed to sell nearly all of its ILFC airplane leasing business to a Chinese consortium for up to $4.8 billion, in a deal that will require review from the U.S. foreign investment committee.

AIG's announcement, confirming news on Friday that a deal with a Chinese buyer was imminent, said the U.S. insurer will submit the offer for review by the U.S. Committee on Foreign Investment. The inter-agency committee, also known as CFIUS, vets foreign deals for security concerns.

Proceeds from the sale will help pay back the U.S. government for its $182 billion bailout of AIG after the 2008 financial crisis.

New China Trust, China Aviation Industrial Fund and P3 Investments will buy 80.1 percent of ILFC for $4.23 billion, with the option to buy another 9.9 percent. The group will be expanded to include an arm of the Industrial and Commercial Bank of China (ICBC) upon regulatory approval.

The deal further reinforces China's appetite for outbound mergers and acquisitions and takes the 2012 tally for foreign acquisitions to $56.8 billion, according to Thomson Reuters data. That would make it the second best year for Chinese outbound dealmaking behind 2008.

Chinese state-backed investments in politically sensitive sectors have previously stirred a political backlash, although aircraft leasing is similar to property investment and would be less sensitive than investment in minerals or other resources.

The ILFC announcement comes amid a flurry of China-related deals.

In recent days, Canada agreed to allow CNOOC to buy domestic energy company Nexen for $15.1 billion, and China's privately owned Wanxiang Group won a politically sensitive auction for A123 Systems, a bankrupt battery marker for electric cars, that was partly funded by the U.S. government.

Sale Over IPO

AIG had long wanted to float the business in the United States as part of a wider divestment programme to repay the U.S. government, but poor market conditions sabotaged those plans.

The ILFC sale would leave AIG with a $6.4 billion stake in its former Asian life insurance unit AIA Group, which is widely expected to be sold.

Chinese companies have shown interest in aircraft leasing businesses in the past, and the deal would give the Chinese consortium access to a global network of about 200 airlines in 80 countries.

The deal values ILFC at $5.28 billion, while the business had a book value of $7.9 billion at the end of the third quarter, according to AIG's regulatory filings.

AIG said it would record a non-operating loss of $4.4 billion on the sale, including a charge for tax-related items. It expects the deal to close in the second quarter of 2013.

ILFC will retain its current management and continue to be based in Los Angeles. It will appoint a new board with a majority of U.S. and European representatives, AIG said.

New China Trust is 20 percent-owned by British bank Barclays.

ILFC reported total assets of $39.6 billion and $39 million in operating income in the third quarter, compared with an operating loss of $1.3 billion a year earlier, when it took $1.5 billion of impairment charges and fair value adjustments.

Founded by aircraft leasing legend Steven Udvar-Hazy, who sold the company to AIG and eventually formed his own group, ILFC is one of the world's largest leasing companies and among the world's biggest owners of passenger jets. Its main rival is GECAS, an arm of General Electric.