The Leasing industry fallout from AIG/ILFC struggles

[Azreal]

What do people think will be the knock on effect to airlines if the world’s largest aircraft lessor (by value owned) is the subject of a parental collapse?

Who will buy the aircraft that are on order?

What about the knock on effect to financing aircraft assets (due to potential knock to values).

Less aircraft financing means less aircraft operating in this environment. Airlines do not have the capacity to pay for all the aircraft they ordered.

[tornadoken]

The Udvar-Hazys adapted freight container leasing and applied it to commercial aircraft operating lease/investment write-down tax efficient capital/securitised against 20 years' rental stream in 1977 on a 737-200 deal, now a Biz School case, where their return was infinite on zero equity...and they acquired asset title (residual value benefit) after N years. Since then an industry has evolved where each hull is packaged, syndicated, dissected. AIG/ILFC no more "own" each hull than you "own" your mortgaged home. Each hull is scattered, sold down...I probably own chunks through my pension scheme. One of Abbey National's "assets" when Santander bought them was a position in a portfolio of leased aircraft - I think S promptly unloaded it as "non-core"/don't understand this sector. Good move. The ILFC portfolio will now itself be packaged. Operators will detect no change whatsoever. The founders of ILFC stayed there after AIG became capital provider: watch for them to buy back in. Returns on aircraft leasing only flow to the capital provider if the professional managers well handle such things as recovering assets when lessees do an XL.

[VAFFPAX]

The US government bailed AIG out yesterday with a plan that gives them 80% of AIG for $85 billion. The reasoning behind this is that AIG's business interests are so entangled in everyday life that the consequences of AIG folding (as opposed to Lehmans/Bear Stearns) cannot be calculated.

With AIG suddenly having a pot of $85 billion to play with, leaves ILFC on a much more stable footing for the time being. But, as pointed out elsewhere on PPRuNe, ILFC could be up for sale eventually to allow the US govt to get their money back.

But, if you really want to play conspiracy theorist, the 80% stake gives the US government leverage to do what they want to with AIG (and indirectly ILFC), including putting the screws on foreign airlines...

S.