The fall-out from last week's financial turmoil has struck home at the world's largest aircraft lessor International Lease Finance after the US government was forced to bail out parent American International Group with a $85 billion loan.
Amid press reports that ILFC founder and chairman Steven Udvar-Hazy was planning to buy back the company, the lessor last week arranged to borrow the maximum amount available under its $6.5 billion credit facility. ILFC believes that this, together with cash from operating activities, should enable it to meet its debt obligations into the first quarter of 2009.
AIG bought ILFC from its founding partners in 1990 for $1.3 billion. The Wall Street Journal claims that Udvar-Hazy and colleagues have been in "around-the-clock" discussions with potential investors about a buy-out as the chairman "does not think ILFC can stay competitive if the company remains a part of AIG, whose credit rating is deteriorating".
US financial services company Wachovia values the company at between $5 billion and $7 billion, while Citicorp puts it at $7 billion to $10 billion. David Storch, chairman and chief executive of lessor AAR, believes a sell-off is inevitable. "I don't think the US government wants to be in the aircraft leasing business for too long," he says.
ILFC's portfolio currently comprises over 950 in-service aircraft worth around $55 billion, and has around 180 on backlog. It accounts for about 3% of Boeing's commercial backlog, according to Wachovia, and the current uncertainty put pressure on the airframer's shares last week, which closed down 7.6% on 17 September.
Gary Liebowitz, senior analyst at Wachovia, points out that ILFC is in "no condition to add to its backlog". The lessor stated in June it would add up to 150 737s if near-term slots became available at attractive terms.
In terms of financing, Liebowitz indicates that Boeing Capital will likely have to meaningfully increase its role as "lender of last resort" sooner than it had previously planned.
Source: Flight International
