ILFC May Delay IPO Due to Weak Market Conditions
The aircraft leasing arm of AIG (NYSE:AIG), the International Lease Finance Corp. (ILFC), filed a registration statement Friday with the U.S. Securities and Exchange Commission to launch an initial public offering but the current turmoil in the equity markets could delay those plans. While the parent AIG has not made the final decision to pursue an IPO, the filing is an important step if that decision is taken. [1] AIG remains one of the largest insurance companies in the U.S. and competes with MetLife (NYSE:MET), The Hartford (NYSE:HIG) and Prudential Financial (NYSE:PRU).
We have a price estimate of about $24 on AIG’s stock which is about the same as the current market price.
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A Closer look at ILFC
ILFC is one of the world’s largest aircraft buying and leasing companies and manages more than 1,000 aircraft in over 80 countries. AIG bought ILFC in 1990 and plans to sell more than 20% of its stake in the company through the IPO and at least 80% within 3 years of the offering. For the past two years, AIG has been restructuring by selling off subsidiaries and non-core businesses.
The company plans to purchase 236 new high-demand, fuel-efficient aircraft. ILFC’s geographically diverse customers include airlines such as AeroMexico, Air France, China Southern Airlines, Emirates Airline and Virgin Atlantic Airways.
In addition to owning and leasing aircraft, ILFC also provides fleet management services to investors and owners of aircraft portfolios. It recently acquired AeroTurbine, one of the world’s largest providers of certified aircraft engines and engine parts, which will help ILFC to offer an integrated value proposition to its customers.
Timing the IPO
From AIG’s perspective, the success of ILFC’s IPO is crucial as it could be the last opportunity for the company to raise money by spinning off a business unit. Until now AIG has been paying off its debt to the U.S. government by selling businesses but the proceeds from ILFC’s IPO will be used to strengthen the core insurance business of the company. Therefore AIG would want to get the timing of IPO right.
Given the current state of equity markets, with lingering uncertainty over the European debt crisis and sagging consumer confidence in the U.S., AIG could delay its plans for ILFC’s IPO.
Notes:- AIG begins pull-out from air leasing, Financial Express, Sep 05, 2011 [↩]