American International Group Inc (AIG), Air Lease Corp (AL): What Do Airlines Actually Do?

Followers of the aviation industry are probably well aware that this is the week of the Paris Air Show where every aerospace manufacturer from giants The Boeing Company (NYSE:BA) and Airbus, to growing regional airplane makers Bombardier and Embraer SA (ADR) (NYSE:ERJ) come out to show off their products and collect orders from airlines and private jet operators. But jet aircraft, especially the latest widebody models, aren’t cheap, with the most expensive costing hundreds of millions of dollars each. For an airline industry that has not been historically stable, how can airlines afford to buy an entire fleet of the expensive flying machines? The answer often is they don’t; aircraft leasing companies do.

Myth of aircraft ownership

A lot of passengers expect that the plane they fly on is actually owned by the airline with the logo on the side, however this is often not the case. In a Nov. 2012 Wall Street Journal article, Delta Air Lines, Inc. (NYSE:DAL) CEO Richard Anderson commented on the benefits of owning rather than leasing aircraft, but the article noted that even Delta Air Lines, Inc. (NYSE:DAL) only owns around 75 percent of its fleet. With such high price tags, it’s no wonder airlines often lease their planes, and airplane leasing companies are happy to fill in the gap.

Airplane leasing companies generally do not make headlines in the same way airlines themselves do, largely because most of the population is not concerned with leasing a plane. But among the plane leasing companies the general population may have heard of is International Lease Finance Corp. The leasing company is best known in the context of its parent company American International Group Inc (NYSE:AIG), which took billions in government money when derivatives bets turned the company from Wall Street darling to America’s pariah company.

As part of American International Group Inc (NYSE:AIG)’s bid to repay the government, it has tried to sell ILFC numerous times but received only what it considered lowball offers, with rumors an offer would come from ILFC’s founder Steven Udvar-Hazy. Even after repaying the government, American International Group Inc (NYSE:AIG) is still interested in selling ILFC and reached a deal to sell up to 90 percent of the leasing company to a Chinese Consortium. However, the Wall Street Journal reported in late May that the consortium failed to make a deposit as part of the acquisition, bringing the deal’s completion into question.