Parts of ILFC could be worth more than sum

Just look at the numbers: 1,046 aircraft worth $51.9 billion. That’s billion. ILFC is four times bigger than Aviation Capital Group or RBS Aviation Capital – both large lessors.

In the past ILFC has been described as a mega-lessor and although it is an ugly term it is true. It is no surprise that the sale of ILFC has been put on hold. Selling ILFC at the top of the aircraft leasing market in 2006 would have been an achievement. Selling it in one piece now would have been a deal of the century.

The obvious option is to split it into pieces. Sell the significant number of aircraft on lease to Chinese carriers to a local bank (ICBC would be most obvious buyer, but CIC – the state sovereign wealth fund is another). The Middle East leases could be sold to Abu Dhabi, Kuwait or Saudi). 

Hazy and the management team could take the rest and work with Greenbriar and Onex (who were also backed by large amounts of Middle Eastern money) and build a new ILFC.

While this is messier that selling it in one piece the deal risk is much, much lower. 

 

 

Why the ILFC sale has stalled

It is one year since AIG, the parent of ILFC, collapsed and there is a very good article by Francesco Guerrera in The Financial Times today looking at AIG (AIG behemoth is trying to regain its feet). While it does not mention ILFC it explains why the business has not sold.

It is not because Morgan Stanley (US government), Moelis & Co (AIG) or Blackstone (AIG) have done a bad job of handling the sale. In fact the managed to get two good bids (the third from Terra Firma was non-conforming and should not be counted).

It is not because ILFC is a bad business.

OK, it may have been over-reliant on short-term debt (although it is hard to see how it could have justified using more expensive long-term loans) but it is a well-run, focused business. While it is easy to draw attention to its private jet fleet, ILFC had important discipline where it mattered. Hazy, Plueger, Lund and others  “stuck-to-the-knitting” to paraphrase Tom Peters (and I am a fan of Peters).  ILFC did not dabble with loans or engine leasing or regional aircraft or parting out or ships or airports. It wanted to be the world’s best aircraft leasing company and, arguably, achieved this.

The sale has not stalled because Onex and Greenbriar no longer want to buy ILFC. They still like the management team and the business. But they are getting very bored. They have invested almost a year’s time into ILFC – not to mention thousands of dollars in advice – and may walk.

The reason the sale has stalled is because Robert Benmosche, AIG’s new CEO, does not want to sell too cheaply. While it will be a tough winter for airlines but we may have hit the bottom of the market. Stocks are rising (just look at Genesis Lease!) and we all know that ILFC is worth more than AIG will get now.

While an ILFC sale would be good for the industry – and the entrepreneur that Hazy is must be frustrated – it would not be so good for the US.

But, saying that, there is nothing to stop Hazy and the others launching a new company backed by Greenbriar and Onex. There could be opportunities with CIT Aviation…