Not Your Father’s American International Group Inc (AIG)

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It’s no secret that American International Group Inc (NYSE:AIG) has been looking to sell assets in the wake of its financial difficulties. This insurance company yard sale of sorts had outside investors picking up everything from financial units, to Japanese insurance units, to shares of AIA Group through share sales by American International Group Inc (NYSE:AIG). But one asset has been harder to unload: International Lease Finance Corp (ILFC), a massive aircraft leasing business American International Group Inc (NYSE:AIG) bought from Steven Udvar-Hazy in 1990. With parts of the Chinese consortium that was going to acquire ILFC for $4.2 billion now backing out, it’s time for investors to once again look at the ILFC situation.

American International Group Inc (NYSE:AIG)

What is ILFC?
ILFC is one of the largest aircraft leasing companies in the world. According to the company’s website, ILFC has “nearly 1,000 owned and managed aircraft and a range of innovative customized leasing programs, ILFC’s technologically advanced and environmentally efficient aircraft portfolio includes 787s and A350s.”. As a wholly owned subsidiary, American International Group Inc (NYSE:AIG) can exercise control over ILFC and decide what to do with the company.

Why sell ILFC?
Ever since American International Group Inc (NYSE:AIG) decided to start putting assets up for sale, ILFC was among the top contenders to be sold. Almost every time American International Group Inc (NYSE:AIG) sold some business unit, analysts pointed out the insurer still had ILFC to sell. However, AIG only received what it deemed lowball offers for ILFC and decided to hold on for a more fair value. Once AIG repaid the last of its government debt, the motivation for selling assets to repay Uncle Sam disappeared, and the insurer was able to consider the ILFC sale on its own terms.

Now that AIG has repaid the Treasury, the focus for selling assets changes from raising funds to repay the government, to right-sizing the insurance group and raising funds for share buybacks. AIG has already completed billions in share buybacks, and the current valuation of AIG shares at 0.7 times tangible book value makes share buybacks more worthwhile.

It should also be noted that another large financial institution sold its aircraft leasing unit in an effort to raise funds following a government bailout. Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) sold its Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) Aviation Capital Unit to Sumitomo Mitsui Financial Group for $7.3 billion in early 2012. The transaction helped to raise funds for one of the U.K.’s most troubled banks — one the government has an 81% stake in. But unlike AIG, Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) is still under government control, and the majority ownership stake not only creates a major share overhang but lends further uncertainty to the bank’s future.

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