(Reuters) – The aircraft leasing unit of bailed-out insurer American International Group (AIG.N) has agreed to sell 53 passenger jets to Australia’s Macquarie Group (MQG.AX) to raise a much-needed $2 billion in cash.
International Lease Finance Corp (ILFC), a top customer of Boeing (BA.N) and Airbus (EAD.PA), said on Wednesday it was selling the aircraft, mostly 737s and A320s, for below their book value of $2.3 billion.
The deal follows AIG’s failed efforts to offload the entire ILFC business as part of a global asset sale program to pay back the U.S. taxpayer after a $182.3 billion bailout during the height of the financial crisis.
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 capitalize on the recovering Asia Pacific air travel market.
“We see this as a good acquisition given the price, above average credit quality as called out by the company and the scalable nature of the business,” Citigroup analyst Wes Nason said.
“For them it makes sense to have self-sufficient, large divisions. The deal could mean they are open for expansion,” said Angus Gluskie, a portfolio manager at White Funds Management.
SWITCH TO SALES
AIG tried selling the ILFC business but a mountain of debt at the unit and the challenge to meet its ongoing funding requirements amid tough capital markets meant a deal was not reached.
Instead it switched to aircraft sales to fund the unit and had said last month it was looking to sell planes for up to $3.5 billion.
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.
Formed in 1973, ILFC was bought by AIG for $1.3 billion in 1990. 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 2008.
“ILFC’s ability to accomplish significant aircraft sales, together with recent successes in the financial markets, strongly demonstrates ILFC’s ability to generate liquidity and de-lever its balance sheet,” Chief Executive Alan Lund said in a statement.
By contrast, investment bank Macquarie 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 talk of further aircraft purchases.
A Macquarie spokeswoman declined to say anything beyond the statement, citing a blackout period ahead of its earnings announcement.
The deal expands Macquarie’s aircraft portfolio by 40 percent, but it remains far from the big league dominated by ILFC and General Electric’s (GE.N) 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.
Boeing 737 Next Generation and Airbus A320 family aircraft make up more than 70 percent of the portfolio. The remainder are in-production widebody planes.
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 gained 0.8 percent to A$50.40.
($1=1.076 Australian Dollar)
(Additional reporting by Paritosh Bansal in NEW YORK; Editing by Mark Bendeich, Jean Yoon and Lincoln Feast)