Wall Street speculates on ILFC change of ownership

[Two's in]

One of the potential casualties of the current financial market crisis may be AIG (American International Group). AIG are indicating a need to liquidize assets to raise cash ($40Bn) and one candidate is its aircraft leasing business, International Lease Finance Corporation (ILFC). This was discussed at a emergency meeting of Wall Street executives this weekend.

ILFC is Boeing and Airbus biggest customer and leases include over 900 aircraft to Air Canada, Air France-KLM, Lufthansa, American Airlines, Air India, Continental Airlines, Mexicana, Emirates Airline, Vietnam Airlines, Vueling Airlines and most recently, Delta Air Lines.


Frantic day on Wall Street as banks teeter - International Herald Tribune (http://www.iht.com/articles/2008/09/15/business/15lehman.php)

[philipat]

One of the potential casualties of the current financial market crisis may be AIG (American International Group). AIG are indicating a need to liquidize assets to raise cash ($40Bn) and one candidate is its aircraft leasing business, International Lease Finance Corporation (ILFC). This was discussed at a emergency meeting of Wall Street executives this weekend.


In summary, AIG has problems because of a share price tumble as the Wall street aligators close in on the next victim (Lehman is already toast and Merril, WaMu are next). The reason for the problems is the same. Poor management and bad investments in the usual cr*p.

Now, AIG has the balls to ask for a Federal (Taxpayer) bailout which will not work. Likeley outcome, AIG will be forced to sell its crown jewels, because when you are forced to raise capital you have to sell what you can, not what you want.

ILFC will have a new owner very shortly, probably Private Equity. The show goes on.

[merlinxx]

That''s AIG's Flt Dept down the tubes then.

[Nicosia]

I wonder what effect the sale of ILFC will have on the airline industry????

[philipat]

I wonder what effect the sale of ILFC will have on the airline industry????


None directly. The new (In all probability) owners still want to operate a profitable business, otherwise no point in buying.

Indirectly, the world financial system is under extreme stress and COULD collapse. In which case all bets are off. A complete credit freeze and global recession/depression would not be good for any industry, including aviation. Even with declining oil prices.

[Re-Heat]

I wonder what effect the sale of ILFC will have on the airline industry????
A new owner would conceivably cancel / defer many of the outstanding Airbus / Boeing orders, causing many of those "healthy" order backlogs to quickly become very unhealthy...

[Enderby-Browne]

A new owner would conceivably cancel / defer many of the outstanding Airbus / Bowing [sic] orders, causing many of those "healthy" order backlogs to quickly become very unhealthy...
And pray, why would they do that?

Jeez...

[mary_hinge]

1/ Lack of confidence to place the aircraft
2/ Lack of Money / Cash / Assets to fund the order
3/ Cancelling of orders by the OEM as they lack the confidence due to 1 and 2 above
4/ General Market slowdown

Jeez....

[Re-Heat]

Why would they do that?

The airlines with whom the fleets are placed would be unwilling to take the new deliveries from ILFC. Therefore deferring and / or cancelling orders would be all they could do to survive - they are unable to raise capital from their parent, and nobody would be willing to place their money in aviation at the moment.

Therefore, they might not be able to take deliveries if they cannot afford them.

[philipat]

1/ Lack of confidence to place the aircraft
2/ Lack of Money / Cash / Assets to fund the order
3/ Cancelling of orders by the OEM as they lack the confidence due to 1 and 2 above
4/ General Market slowdown

Jeez


So then nobody would buy ILFC in the first place would they? The original question would then not be "What would be the consequences of ILFC being sold" but "In the current circumstances in the aviation industry, what are the implications for ILFC"

Jeez

[muckin fuddle]

So JEEZ is buying them then ?

Is this another Dubai or Abu Dhabi organisation ?



Hat, coat..................... :ok:

[Wino]

A purchaser could buy ILFC to run out the current leases on the aircraft in order to collect all the rents that are due to them. If that number over the long term is higher than the purchase price, then it makes sense, and developes a return on investment.

The same company that would do that would almost certainly be unable to raise the huge chunks of cash that would be required to fund the next round of purchases, as ILFC had a sweetheart deal with the insurance end of AIG as a place for the insurance companies to park their billions during good times. These are no longer good times.

Any new company that can't raise money as cheaply (and ILFC did it almost for free) will look long and hard at upcoming purchases and maybe cancel a lot of them.

Cheers
Wino

[VAFFPAX]

Merill Lynch is already toast. They already caved in to an offer from Bank of America (a nice $50 billion price tag, covered by a shares-only transaction).

IFLC should be a good cash cow for the organisation who buys it (or who buys AIG for that matter). The $40 billion loan they are trying to get from the Fed is not a laughing matter, but it should strengthen the business a bit more.

I'd not be surprised if Berkshire Hathaway got themselves involved and bought pieces of the business.

S.

[mary_hinge]

Philipat and Enderby-Browne: Any further thought?

Jeez.....

[Aiation Professiona]

Latest news

Goldman, J.P. Morgan Are Asked To Lead $75 Billion AIG Loan Effort - WSJ.com (http://online.wsj.com/article/SB122148503202636197.html?mod=googlenews_wsj)

2nd UPDATE: AIG's Sales Of Units Likely To Draw Many Bidders (http://money.cnn.com/news/newsfeeds/articles/djf500/200809151707DOWJONESDJONLINE000735_FORTUNE5.htm)

[philipat]

Philipat and Enderby-Browne: Any further thought?




No, I stand by my earlier predictions. And I agree that Buffett might very well be the buyer of ILFC. GE would have too many anti-trust implications.

Let's wait and see shall we?

[philipat]

VAFFPAX:


Merill Lynch is already toast. They already caved in to an offer from Bank of America (a nice $50 billion price tag, covered by a shares-only transaction).




I do agree that Berkshire is a very likely purchaser. Right up Buffett's street to buy premium businesses at firesale prices. Private equity probably would be constrained by ongoing capital requirements, wherea Buffett could operate just as AIG did.

The final value of the deal, incidentally, will be substantially less than the published amount. The new shares will dilute existing shareholders and the share price will fall to reflect the dilution. As the share price falls so the value of the deal, still the same number of BofA shares for each MER share, becomes lower.

It's a very smart deal for both parties IMHO.

[Re-Heat]

From the FT http://ftalphaville.ft.com/:

ML’s advice? Watch for liquidating positions, central bank reaction (especially non-US) and stop worrying about inflation.

While those suggestions won’t necessarily help us interpret some very strange markets, they certainly serve as a good reminder to watch for the not-so-obvious consequences of financial upheaval.

A good example is the effect of a potential AIG firesale of ILFC, the world’s biggest aircraft leasor. Something like that has the potential to affect aircraft prices and feed into a company like Ryanair’s balance sheet - a significant bit of which is predicated on jet values.

The balance sheet strength of an Irish airline is not the first thing that jumps into your mind when considering an AIG collapse, but there you go. Those are the sort of ripple effects one might (attempt to) examine in the current climate, if you fancy giving it a go at all.

[MarkD]

I did read somewhere - NYT I think - that AIG's ownership of ILFC brings particular tax advantages which would not necessarily be available to an owner with a dissimilar corporate structure, so that the sale value would be substantially lower to its value as an AIG unit. It may be that other subsidiaries go out the door before ILFC does.

[circseam]

I personally believe that Middle Eastern investor will have access to the fianance much more than any other countries, the UAE already committed to expanding their prospective aviation and transport related investments and to procure ILFC would also bring prestige to their goal of becomming major global players in the aviation sector.

With each investment being scrutinised by the money markets, loans to buy companies even at firesale values will deter most of the established companies and as previously stated, GE capital would surely be stopped on anti trust grounds from making an investment.

My only doubt is the American opinion and sentiment against a sale to Middle Eastern backers like has previously been witnessed in the P & O purchase of an institution like ILFC.

Time shall tell but intresting times ahead for both commercial and personal finances I believe.

Circseam (not checked for spelling)