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Will the seemingly inevitable fire-sale of International Lease Finance Corp., AIG's aircraft-leasing unit, affect the travel industry and/or flyertalk community? My gut feeling is that the answer is no, but I defer to the experts who could analyze all of the possible ramifications in a succinct fashion.

Just curious.

Thanks.

Rudi

the world's 3 leading rating agencies did now:

lower AIG ratings:
* Moody's: from A2 to A3
* Standard&Poor's from AA-Minus to A-Minus
* Fitch from AA-Minus to A

and announced that further downratings 'could follow'.

GUWonder

The downgrade makes a substantial chunk of AIG obligations subject to call and therefore makes AIG more desperate for a sale of the unit that raises a part of the huge amount of money it needs to replenish its depleted capital base and get back to meeting regulatory net capital requirements without benefit of a temporary waiver.

What would this sale mean for the airlines? Not sure of everything it means, but it will mean that those leasing ILF planes make their payments to whichever entity picks up ILF or its assets if the airline decides to or is required to continue with the lease arrangement.

Rudi

As Lehman Brothers suffered a major decline in value and share price, potential investors began to compare the type of securities held by AIG to those held by Lehman, and found that AIG had valued their Alt-A and sub-prime mortgage-backed securities at rates 1.7 to 2.0 times those Lehman had used for what Lehman officials called similar securities.

(source: Gretchen Morgensen; Mary Williams Walsh (2008-09-14). "Rush Is On to Prevent A.I.G. From Failing", The New York Times)

Jalinth

The problems shouldn't have any direct impact on AIG's leasing business. The underlying liquidity/capitalization problems will likely either limit the number of planes acquired and/or increase the price (in all leases, an implicit interest rate exists) of future leases. So airlines will not be able to expand as easily unless they can directly raise additional capital or can generate enough retained earnings.

KenJohn

Back to the original post, the value of the lease is which airlines leased their planes and what type of planes are they. Impact is on the price AIG can get for their leases; not for the airline industry.

There are already spare planes coming onto the market in Europe with various airlines going under like Zoom and XL. I do not think airlines are rushing to buy these spare planes at the moment. There might be some interest in Asia still.

Betting shops in the UK and Ireland are running odds on which is the next airline to go under. If these are AIG customers, I would not hold up much hope for a good price.

pitz

Yes, I would expect this to affect the global aviation industry. ILFC has had access to large amounts of capital at a relatively low cost by being part of the AIG family. They've been able to keep lease rates in the market relatively low -- so low, in fact, that most airlines around the world have found that it is less expensive to lease aircraft, than to buy them outright.

With ILFC's reduction in market presence, due to restricted availability of funding, lease rates will *have* to go up, and airlines will eventually return to aircraft ownership instead of leasing for large amounts of their fleets.

That means, in a nutshell, less capital will be available for the airline industry. To a FT'er, I would expect higher fares, fewer flights, and larger aircraft. If airlines have to buy all their aircraft, they certainly aren't gonna waste 737s and A320s on busy, long transcon flights when a single 777 would do the job at a lower per seat up-front capital cost and lower operating costs. High capital costs mean industries become more efficient, usually, and the airline industry is grossly innefficient.

jbalmuth

bump

Does anyone have any current info of how the sale is proceeding ---- i.e. with whom, and how liquid/credit-worthy the new buyers are?