A strong underlying business performance in the nine months to September, with pre-tax profit rising 39% to $913 million, has buoyed ILFC chairman Steven Udvar-Hazy in his mission to buy back the huge lessor from struggling parent American Investment Group.
"We are looking to close on the deal by March 2009," he says. His goal is to put together a "sophisticated investment group" to buy out AIG, which was rescued by the US government in September.
"We are doing road shows meeting with large sovereign wealth funds, institutional investors and others from Europe, the Middle East and Asia," says Udvar-Hazy, who founded ILFC 35 years ago and sold it to AIG in 1990 for $1.3 billion. ILFC management will also take part in the financing group he is seeking to establish.
While the credit crash has made raising funds difficult, Udvar-Hazy says the appetite for the deal is good. "There are a lot of solid, sophisticated investors that we are talking to, but I can't predict the outcome," he says.
Udvar-Hazy explains that while ILFC has been caught up in the credit problems of AIG it remains a strong business. "We have a young fleet and our average leases are in better shape than after 9/11," he says. At the end of September ILFC had $5.1 billion of cash giving the company "a good cash position as we go into the recession".
ILFC also has relatively low capital expenditure planned for 2009/10 compared with previous years, says Udvar-Hazy. From 2002 to 2006 it spent $5-6 billion annually on some 90 to 100 aircraft per year. The number of new aircraft it is taking in 2009 is only 42 with just six being delivered in 2010, he says.
Some customers ran into trouble in 2008, but only a handful. "We saw eight airlines go bankrupt on us this year out of 190 customers," says Udvar-Hazy. These included Eos, MaxJet and SkyBus, while lease terms were renegotiated on five Airbus A319s at Frontier Airlines. "However, all the aircraft that came back unexpectedly have been redeployed," he says.
Although ILFC has relatively low aircraft delivery commitments for the next two years, it is likely that there will be distressed airlines that are unable to fulfil their aircraft orders. "There could be opportunistic transactions for us to pick up some new and young used aircraft," he says.
Airbus and Boeing are "starting to listen" to pleas for production rate cuts. "We are putting a lot of pressure on them to do something on production rates," he says. "From the June 2009 to June 2010 period, if they reduce production by 120-150 single-aisle aircraft it would not hurt the industry. This is only a total of five per month on each side. If they do nothing there's going to be a surplus."
Source: Airline Business
