AIG Deconstructed: Why AIG Owns 900 Jets - TheStreet

(Update: Additional background on ILFC, and adds price of AIG shares at the market close on Monday.)

It's time for your AIG Fun-Fact of the Week: Did you know that

American International Group

(AIG) - Get Report

, that debt-riddled monstrosity, also happens to own of the world's largest collection of both

Boeing

(BA) - Get Report

and

Airbus

airplanes?

Crazy, right? Well, not so crazy if you also consider that the insurer's aircraft leasing arm, International Lease Finance (ILFC), is the world's largest aircraft leasing company, in terms of the value of its planes, with some 955 jets in its portfolio.

It makes a little bit more sense then. A little bit.

Indeed, ILFC has been a cash cow for AIG, earning $703.1 million in 2008, a 16% increase from the year prior. And it's hardly poised to slow down any time soon.

Earlier this month, the company announced that it would increase its fleet of planes by 20% to 30% within the next 12 to 18 months.

One might think, in fact, that this powerhouse is exactly what AIG needs to help satisfy its $180 billion bailout from the government. And that's what AIG thought, too, when it added it to its ever growing list of subsidiaries on the sell-block.

ILFC, however, doesn't look as alluring to potential bidders when you factor in its mounds of debt. The company is currently carrying about $32 billion in debt, some of which is slated to mature in October.

ILFC has a book value of $7.8 billion, but potential bidders, which include Thomas H. Lee Partners and Carlyle Group, Onex and Greenbriar Equity, and Terra Firma Capital Partners, seem reluctant to offer more than than $5 billion, says Roger King, analyst at CreditSights.

And it's fair to say that no one will touch ILFC with a 10-foot pole without some form of government involvement or guarantee -- an obstacle that has, so far, helped prolong the completion of any deal.

The U.S. Federal Reserve suggested it could provide about $5 billion in loans, but that still would not cover ILFC's refinancing and debt over the next few years, which would be roughly $6 billion annually.

While ILFC is able to fund its 168 planes (valued at $16.7 billion) on order in 2009 (thanks to a cash infusion of more than $1 billion from Mama AIG), things don't look so good for 2010 and beyond.

Still, according to King, whoever ultimately decides to take a chance on the company could eventually be in for a treat.

Right now, AIG is more of a liability then an asset, King says. But over the next several years, airlines will need to replace their older aircraft -- and with restricted capital, many will turn to leasing planes instead of purchasing their own.

"Instead of buying a place that will last 20 to 25 years, they can fill out their portfolio with shorter leases," King says.

And, really, who even knows if these airlines will still be around in 25 years?

Ultimately, King says, the fate of ILFC affects far more than AIG. Indeed, the unit means far less for AIG then it does for Beoing, Airbus and dozens of airlines worldwide.

ILFC leases aircraft to a slew of global airlines, including: American Airlines, which is owned by

AMR

(AMR)

,

Continental Airlines

(CAL) - Get Report

,

US Airways

(LCC)

,

Delta Airlines

(DAL) - Get Report

,

JetBlue Airways

(JBLU) - Get Report

and

Southwest Airlines

(LUV) - Get Report

.

The company was founded by father and son Leslie Gonda and Lous L. Gonda, along with Steven F. Udvar-Hazy in 1973. It was acquired by AIG in 1990, but is still run by Udvar-Hazy.

Shares in AIG closed Monday trading down almost 9%, to finish at $1.33.

More articles in this series:

AIG Deconstructed: Stowe Mountain;

AIG Deconstructed: Philamlife;

AIG Deconstructed: AIG Rules Iraq

.

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