A Chinese consortium led by New China Trust has agreed to buy the aircraft leasing business of American International Group (AIG). It will pay $4.23 billion for an 80.1% stake in International Lease Finance Corp (ILFC), which will be the largest ever acquisition of a US company by a Chinese firm.
It exceeds the previous biggest Chinese purchase of a stake in a US firm, the $3 billion paid for Blackstone by China Investment Corp in 2007. The announcement closely followed the Canadian authorities’ approval on Friday of Cnooc’s $15.1 billion acquisition of domestic oil and gas producer Nexen.
“It is a landmark deal for China and the aircraft leasing business in general,” said a banker familiar with the transaction. “It represents a regional shift of control to where the future growth of aircraft demand lies, and makes strategic sense to both the Chinese investors and AIG.”
The acquisition values ILFC at a little under $5.3 billion, a price-to-book value of 0.67 times, compared with a trading multiple of 1.04 times for Air Lease Corp and 0.71 times for AerCap, according to Reuters.
In addition to New China Trust, the consortium includes China Aviation Industrial Fund and P3 Investments, according to a statement by AIG yesterday. It has an option to buy a further 9.9% of ILFC which, if exercised, could mean that China Life Insurance and part of ICBC International will join the group.
Barclays has a 20% stake in New China Trust, an investment company led by chairman Weng Xianding, who has held several government posts, including in the National Development and Reform Commission.
The deal needs the approval of both the US and Chinese regulators, and if it is not closed by May 15, 2013 then either side can withdraw. The process will include a US national security review.
Credit Suisse is advising the Chinese group, and AIG is advised by Citi, J.P. Morgan and Morgan Stanley.
The purchase of ILFC will give the group control of the world’s second biggest aircraft lessor (behind General Electric’s GECAS), with a network of around 200 airlines in 80 countries.
China is already one of ILFC’s main customers, accounting for about 35% of sales in the country. ILFC leases about 180 planes to 16 airlines in the Greater China region, according to the company.
China and other countries within Asia-Pacific, such as Indonesia, are expected by analysts to account for around two-thirds of new aircraft deliveries over the next two decades.
Asian firms, especially Chinese and Japanese, have become increasingly active in the leasing business this year. Cheap domestic funding has tended to replace lending by European banks that have been selling assets to shore up their capital.
For instance, Sumitomo Mitsui Financial Group paid $7.3 billion for Royal Bank of Scotland’s aircraft leasing unit in June, and the leasing divisions of Bank of China, ICBC and China Development Bank have all been expanding.
The purchase by the New China Trust-led consortium is part of a growing trend.
“This transaction allows ILFC to continue to serve its worldwide partners in the aviation industry with world-class service while accelerating its growth in important markets, including Asia,” said Weng in a statement.
ILFC will remain a US company, registered with the Securities and Exchange Commission, and Henri Courpron and Frederick Cromer will stay on as the firm’s chief executive and president respectively, according to AIG.
However, AIG has been focused on its core insurance business since its $182 billion bailout by the US government during the global financial crisis, and has raised more than $60 billion from worldwide asset sales. The US Treasury holding in the company has been reduced to 16% from 53%.
The aircraft leasing unit had first been considered for sale three years ago, and in September 2011 AIG filed for an initial public offering of IFLC, but abandoned it due to market conditions. AIG bought IFLC in 1990 for $1.16 billion according to Bloomberg. It will record a $4.4 billion non-operating loss that includes a non-cash tax on the sale to the Chinese group.
Separately, AIG said on Friday that Hurricane Sandy pre-tax claims amounted to $2 billion and $1.3 billion after-tax, which was more than analysts had expected.
The price of AIG shares dropped slightly in morning trading in New York yesterday.
