(Reuters) - American International Group Inc ( AIG.N ) is to sell nearly all of ILFC ( ILFC.N ), the world's second-largest airplane leasing business, to a Chinese consortium for up to $4.8 billion, giving the fastest growing aviation market easier and cheaper access to planes.
Chinese firms have shown interest in aircraft leasing before, and the deal would give China access to a global network of about 200 airlines in 80 countries. China is alreadyILFC's largest market with180 planes operating there, giving it 35 percentmarket share.
"It's the biggest deal we have in the aircraft leasingworld and it's very ambitious," said Paul Sheridan, head of Asia at aviation consultancy firm Ascend Advisor. "We believe there are not enough aircraft on order in China at the moment. Itwill help Chinese airlines get more aircraft."
The world's two largest planemakers - Airbus, owned by aerospace group EADS ( EAD.PA ), and U.S. rival Boeing ( BA.N ) - have predicted demand for $4.5 trillion worth of passenger jets over the next two decades, with about two-thirds of new planes sold in the Asia-Pacific region, and China as the biggest single market in value terms.
Analysts say China tends to balance its orders between Airbus and Boeing, partly for political reasons. This means China pays an effective premiumfor planes as the two manufacturers don't have to compete as heavily for orders as they do elsewhere. ILFC's order books could mean cheaper planes for China, industry experts say.
U.S. REVIEW
U.S. insurer AIG, which had said on Friday it was in talks about a sale of the business to Chinese buyers, said it will submit the offer for review by theU.S. Committee on ForeignInvestment, or CFIUS, which vets foreign deals for security concerns.
Chinese state-backed investments in some sectors have stirred a political backlash, but aircraft leasing is seen as less sensitive than investment in minerals or telecoms equipment."ILFC's portfolio is not heavily in the U.S. It's an American-owned asset, but a lot of their aircraft fly outside the U.S," said Ascend's Sheridan, adding he did not expectthe U.S. government agency to block the deal.
AIG received a $182 billion U.S. government bail-out following the global financial crisis, and has been selling off the bulk of its Asian operations as part of a wider divestment plan so it can repay the government. In September, the U.S. Treasury cut its AIG stake to below 16 percent of the outstanding shares from around 53.4 percent.
CHINA BUSY BUYERS
The Chinese consortium - made up of New China Trust, which is one-fifth owned by Barclays Plc ( BARC.L ), China Aviation Industrial Fund and P3 Investments Ltd, and advised by Credit Suisse ( CSGN.VX ) - will buy 80.1 percent of ILFC for $4.23 billion, with the option to buy another 9.9 percent. An arm of Industrial and Commercial Bank of China( 1398.HK ), China's biggestbank, will join once the deal has regulatory approval.
P3 Investments is led by Wing-Fai Ng, co-founder of the now defunct pan-Asia fund Primus Financial Holdings.
Founded by aircraft leasing legend Steven Udvar-Hazy, who sold thecompany to AIG in 1990, ILFC is among the world'sbiggest owners of passenger jets. Its main rival is GECAS, an arm of General Electric Co ( GE.N ).
The deal reinforces China's appetite for outbound mergers and acquisitions, taking the country's 2012 tally to$56.8 billion, according toThomson Reuters data, thebiggest dealmaking spree since 2008.
In the past few days alone, Canada agreed to allow CNOOC ( 0883.HK ) to buy domestic energy company Nexen Inc ( NXY.TO ) for $15.1 billion, and China's privately-owned Wanxiang Group won a politically sensitive auction for bankrupt electric car battery markerA123 Systems Inc ( AONEQ.PK ), partly funded by the U.S. government.
WEAK MARKETS SAW OFFIPO
AIG had long wanted to float ILFC in the United States as part of a wider program to raise money topay back the U.S. government, but poor market conditions shelvedthose plans.
The sale would leave AIGwith a $6.4 billion stake inits former Asian life insurance unit AIA Group Ltd ( 1299.HK ), which is widely expected to be sold.
AIG said it would record a non-operating loss of$4.4 billion on the ILFC sale, including a charge for tax-related items. The deal, expected to close in the 2013 second quarter, values the leasing business at $5.28 billion, below its end-third quarter book value of$7.9 billion.
"Upon completion, the transaction will have a positive impact on AIG`s liquidity and credit profileand will enable us to continue to focus on our core insurance businesses," AIG CEO Robert Benmosche said in a statement.
AIG agreed to buy a $500million stake in Chinese insurer PICC Group ( 1339.HK ), which made its debut on the Hong Kong stock exchange last week.
ILFC will retain its currentmanagement and continue to be based in Los Angeles. It will appoint a new board with a majority of U.S. and European representatives, AIG said.
