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AIG’s plane-leasing unit says its survival is in doubt

Written by editor

International Lease Finance Corp., the Century City aircraft leasing giant, said today its survival has been thrown into doubt by the turmoil in the airline industry and the financial troubles afflict

International Lease Finance Corp., the Century City aircraft leasing giant, said today its survival has been thrown into doubt by the turmoil in the airline industry and the financial troubles afflicting its parent company, insurer American International Group Inc.

“We have been significantly and adversely affected by recent events in the marketplace, including challenges faced by AIG,” International Lease Finance said in its annual report filed this morning.

“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,” it said.

In its filing, ILFC said it was seeking new financing from banks and aircraft manufacturers, which, along with sales of aircraft, would give the company “adequate liquidity to finance and operate our business and repay our obligations for at least the next twelve months.”

In addition, the filing said AIG is prepared to meet its leasing unit’s short-term funding needs until 2010, or until it can sell the unit.

International Lease Finance, which buys commercial airplanes aircraft and then leases them to airlines around the globe, has been grappling with the worst downturn in the air travel industry since the period after the Sept. 11, 2001, terrorist attacks. The decline in passenger traffic has reduced demand for the leasing company’s aircraft.

International Lease Finance has a fleet of around 950 planes and is reportedly the world’s second-largest aircraft leasing company behind GE Commercial Aviation Services.

AIG has been trying to unload International Lease Finance and several other units as part of a restructuring plan adopted after the giant insurer almost collapsed last fall. But buyers have been hard to come by as the continuing turmoil in global credit markets has made it difficult for potential suitors to raise financing. The slump in the airline industry hasn’t helped.

Meanwhile, AIG’s precarious position has made matters worse. Downgrades of AIG’s credit ratings have triggered downgrades of its subsidiaries’ ratings, making it harder and more expensive for them to borrow money.

International Lease Finance’s credit ratings “have historically been uplifted from its stand-alone profile due to support from AIG, which periodically has provided capital to ILFC to maintain its leverage and help it meet its debt repayment and aircraft purchase obligations,” Moody’s Investors Service wrote last week in a report downgrading the leasing firm’s senior unsecured debt to Baa2 from Baa1.

In its annual report, the company reported total debt of $32.5 billion as of Dec. 31. It also reported net income for last year of $703.1 million, up from $604.4 million in 2007. Annual lease revenue rose to $4.9 billion from $4.6 billion. However, fourth-quarter net profit dropped to $115 million from $175.4 million a year ago.

Aviation consultant Scott Hamilton, who follows International Lease Finance, blamed much of the company’s woes on its connection to AIG.

“Everybody in the aviation business understands that none of the problems that we’re seeing at AIG has anything to do with how ILFC’s management has run that business,” Hamilton said last week “It continues to be a well-run company.”

Steven Udvar-Hazy, ILFC’s cofounder, sold the company to AIG in 1990 for $1.3 billion. With a net worth of $4.1 billion two years ago, Udvar-Hazy has become one of Southern California’s richest citizens – 79th in Forbes magazine’s ranking of the richest Americans – and has been a major philanthropist.

Estimates of its possible sale price have ranged from $8 billion to $14 billion. The company has about 170 employees.