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AIG to Decide ILFC's Fate Soon

Zacks Equity Research

The sale of American International Group Inc.’s (AIG) aircraft-leasing unit – International Lease Finance Corporation (:ILFC) -- missed its latest mid-June deadline, compelling the company to register for an initial public offering (:IPO) of the latter.

In Dec 2012, about 80% of ILFC was vended by AIG to a Chinese consortium, including New China Trust Co. Ltd., China Aviation Industrial Fund and P3 Investments Ltd., for approximately $4.23 billion. Further, the company has granted an opportunity to these investors to buy another 9.9% in ILFC, bringing to total deal value to about $5.28 billion. Subsequently, AIG would retain the remaining 10% stake in ILFC.

However, the deal was scheduled to culminate by the second quarter of 2013 but the buyers failed to meet the deadlines twice on May 15 and Jun 14, due to the delay in attaining regulatory approvals. Hence, AIG extended the closure of sale by Jul 31, 2013. However, the company would have to go with its plan to launch an IPO if this deadline goes void too.

On the other hand, if the deal is closed within the decided time, then AIG will have the IPO registration cancelled. Previously, before the agreement of ILFC’s sale, AIG was mulling over its IPO last year.

While AIG is giving up on ILFC to focus on its core-insurance operations and have a lean but sturdy business profile, the rising demand for aircrafts in Asia supports for the purchase decision of the Chinese syndicate. The deal will also fuel the progression of ILFC in the potentially growing Asian markets, while strengthening its position in the global aviation market.

The complete repayment of the government bailout loan and asset disposals has helped AIG to focus on its core insurance operations and attain a flexible capital position. The progress is also reflected by the modest growth in the company’s financials. We believe that the dual strategy laid by AIG bodes well for the future of ILFC and will help it better to optimally leverage its potential capacity.

Along with AIG, its peers such as CNO Financial Group Inc. (CNO), Cigna Corp. (CI) and  XL Group Plc (XL) carry a Zacks Rank #2 (Buy).

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