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Chinese consortium buys AIG aircraft leasing unit

by Laura Board  |  Published December 10, 2012 at 7:57 AM
A Chinese consortium led by New China Trust Co. Ltd. Chairman Weng Xianding has agreed to pay $4.23 billion for an initial 80.1% of American International Group Inc.'s International Lease Finance Corp. in the latest of several large deals in the aircraft leasing sector.

New China Trust is joined by China Aviation Industrial Fund and P3 Investments Ltd. in the initial stake purchase, which gives them an option to buy another 9.9%. If that option is exercised and once Chinese regulatory approvals are obtained, New China Life Insurance Co. Ltd. and a unit of ICBC International Holdings Ltd. plan to join the bid group. AIG, which has been shedding noncore assets since a $182.3 billion bailout during the credit crisis, plans to keep at least 10% of International Lease Finance.

"This transaction creates a solid and strategic partnership for ILFC," said AIG President and CEO Robert H. Benmosche in a statement. "While ILFC is an extremely strong business platform and AIG will retain a minority stake as a passive investor, the aircraft leasing business is not core to our insurance operations. Upon completion, the transaction will have a positive impact on AIG's liquidity and credit profile and will enable us to continue to focus on our core insurance businesses."

The agreement follows Japan's Mitsubishi UFJ Lease & Finance Co. Ltd.'s ¥100 billion ($1.3 billion) deal in October to buy Oaktree Capital Management LP's aircraft leasing company JSA International Holdings LP, and after a Sumitomo Mitsui Financial Group Inc. and Sumitomo Corp. earlier this year made the biggest ever acquisition in the sector by paying Royal Bank of Scotland Group plc $7.3 billion for RBC Aviation Capital.

All three deals underline Asian buyers' faith that air travel in China and southeast Asia will continue to grow rapidly, prompting airlines to expand their fleets.

AIG, which is now just 15.9%-owned by the Treasury following a $20.7 billion stock offering in September, said it expects to record a non-operating loss of about $4.4 billion from the sale. This includes a non-cash charge of $1.8 billion related to tax loss carry forwards.

International Lease Finance will retain its Los Angeles headquarters but gain a new board on completion of the deal. International Lease Finance CEO Henri Courpron and President Frederick S. Cromer will remain in place.

The company has more than 1,000 owned or managed aircraft, along with commitments to purchase another 229 fuel-efficient planes and rights to purchase 50 more.

Credit Suisse Group is financial adviser to the buyers, with Simpson Thacher & Bartlett LLP providing legal advice.

The deal is expected to close in the second quarter. It is subject to approval by U.S. and Chinese regulators.

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Tags: American International Group Inc. | China Aviation Industrial Fund | Credit Suisse Group | Frederick S. Cromer | Henri Courpron | ICBC International Holdings Ltd. | International Lease Finance Corp. | JSA International Holdings LP | Mitsubishi UFJ Lease & Finance Co. Ltd. | New China Life Insurance Co. Ltd. | New China Trust Co. Ltd. | Oaktree Capital Management LP | P3 Investments Ltd. | RBC Aviation Capital | Robert H. Benmosche | Royal Bank of Scotland Group plc | Simpson Thacher & Bartlett LLP | Sumitomo Corp. | Sumitomo Mitsui Financial Group Inc. | Weng Xianding

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