NEW YORK (Reuters) – A New York-based aviation company wants to purchase International Lease Finance Corp, the airline leasing company of American International Group (AIG.N), at what it says are favorable terms for taxpayers, but says it is being passed over in the sale process.
Allied Aviation, a privately owned aircraft fueling and aviation services company, is offering to pay $12 billion, in return for government credit support for 3-to-5 years that will give it time to restructure the business, said Allied president Bob Rose.
The company says that while there is no cash upfront, the deal would generate more returns for taxpayers over time than alternatives proposed by private equity firms and would provide for greater protection of jobs associated with the business.
Rose said that the company has been seeking meetings with AIG and Treasury but have not received any response to their requests for a year.
An AIG spokesperson declined comment and a U.S. Treasury spokesperson did not immediately respond to a request for comment.
AIG, which has been propped up by around $180 billion in government funds, has been seeking to sell ILFC, but has struggled to find buyers due to the aircraft leasing company’s high debt load of around $30 billion.
An investor group led by ILFC’s CEO Steven Udvar-Hazy has offered to buy about 10 percent of the unit’s aircraft portfolio for roughly $4 billion, but the government is concerned ILFC could be stuck with the company’s undesirable assets, sources said.
AIG is reaching out to potential bidders for the unit, including Carlyle Group CYL.UL, Terra Firma Capital Partners Ltd TERA.UL and TPG TPG.UL, a source said. For details, see [ID:nN04135508]
Allied says its offer would generate the strongest returns for taxpayers because it would take over the company as a whole at its current book value of around $8.3 billion, plus $3.7 billion in government loans made to ILFC.
The company’s aviation experience would also benefit the deal, Rose said.
“Airlines are not an easy market, if you don’t know the airlines and manufacturers you are a non-starter,” he said.
The company has garnered letters of support from Senators Jack Reed and Sheldon Whitehouse and members of Congress Patrick Kennedy and James Langevin, who have urged Treasury to meet with the company to discuss its proposal.
The Teamsters union has also written letters of support for the bid, arguing a U.S. owned industrial company would provide for better job protection than private equity or foreign firms.
ILFC is deemed as important to employment in U.S. aviation as it is one of the biggest customers of Boeing Co (BA.N).
To pay for the acquisition, Allied proposes to funnel all revenues from the company to the government, while senior management would also work for no more than $1 per year and shareholder distributions would be halted until the government is repaid.
A credit support agreement from the government, meanwhile, would buy the company time to restructure ILFC’s high debt load as well as modify its funding strategy, which Rose argues has been a large source of trouble for the company.
Allied would shift the company to fund its airplane leases by issuing longer-term debt matched to the maturity of the leases, instead of relying on short-term operating leases and funding, a high risk strategy when credit markets become tight.