Two-Part Problem for PE Involvement with IFLC

I was on Reuters Insider earlier today (vid after jump), to discuss the possibility of private equity firms buying ILFC, the aircraft leasing unit of AIG. Reports are that Carlyle is leading one possible consortium, while Greenbriar Equity and Onex Partners are teaming on another. KKR and TPG each had expressed early interest, but have since bailed.

To me, there are two huge obstacles to PE firms buying IFLC: (1) Financing the transaction and (2) Owning and operating IFLC.

The first obstacle is obviously first. IFLC reportedly is valued at $8 billion, which would require a minimum of $4 billion or $5 billion in leverage. That type of outlay is theoretically possible, but far from probable. Credit still hasn’t loosened much when it comes to large leveraged loans, which means I only see this working if the government steps in as the lender of last resort.

But let’s assume the deal can get financed. What then? Who’s going to finance the new aircraft and equipment that IFLC will need? To me, this might be the larger problem. Just take a look at what’s happening with a company like Dunkin’ Donuts: Existing franchises are selling plenty of coffee and bagels, but new franchise development has come to a credit-crunched standstill (thus disrupting both expansion plans and franchise license income). Sure it’s kind of like comparing cockpits to crullers — actually, that’s exactly what it’s like — but the underlying problem is the same.

It’s worth pointing out that none of the potential buyers is a babe in the woods here. Carlyle has a huge transportation practice, while Onex has money and Greenbriar is a transport-focused firm run by guys like ex-UAL CEO Gerald Greenwald. If anyone would/could do it, these groups are it. But I’m just not convinced that even these firms could get the deal done, let alone if they should.

Here is the Reuters Insider video. I come on at around the 6-minute mark: