American International Group Inc.’s (AIG) aircraft-leasing unit International Lease Finance Corporation (ILFC) is seeking billions of dollars in order to stay in business. ILFC disclosed its financing needs in its annual report, filed with the Securities and Exchange Commission on Wednesday, March 25.
ILFC, which leases jets to airlines, owns 955 aircraft, has nine additional aircraft in the fleet classified as finance and sales-type leases and provides fleet management services for 99 aircraft. It has contracts with Boeing and Airbus for 168 new aircraft for delivery through to 2019 with an estimated purchase price of $16.7 billion, of which 49 will be delivered in 2009 at about $3.0 billion. Customers will have to be found for these aircraft, as they were ordered in more buoyant times – non-refundable deposits of $252 million with Boeing and $216 million with Airbus have already been made.
The report highlights downgrades in ILFC’s credit ratings or outlooks by rating agencies, and increased borrowing from the parent company, AIG, to the tune of $1.7 billion to carry the company to the end of April. It makes it clear that without extra funding from April, “without additional support from AIG or obtaining secured financing from a third party lender, in the future there could exist doubt concerning our ability to continue as a going concern.” In 2008 AIG experienced liquidity issues and entered into a credit facility and a guarantee and pledge agreement with the NY Federal Reserve on September 22.
Key to AIG’s ability to provide extra funding is the New York Federal Reserve – AIG has received $182.5 billion in financial support from the government since September 2008. AIG has announced plans to sell ILFC, making getting secured financing from third parties difficult in the current economic climate. The report states that “If we are not able to obtain secured financing or additional support from AIG, we will have to pursue alternative strategies, such as selling aircraft.” What is clear is that ILFC needs some clarity on ownership before its credit rating can be improved – but quite who would want to step into a volatile market now is not.