American International Group's (AIG) planned sale of up to 90% of International Lease Finance (ILFC) to a Chinese consortium will result in two major accounting changes that will boost its aircraft trading activity, according to the lessor's chief.
Last month, AIG announced the sale of the lessor to an investor group of New China Trust, China Aviation Industrial Fund and P3 Investments. The consortium has agreed to acquire 80.1% of ILFC for $4.23 billion, with an option to buy an additional 9.9% stake.
As the deal includes the sale of more than 50% of the lessor, ILFC will record purchase accounting changes that "rebase the value of the fleet at current market values", says ILFC's chief executive officer, Henri Courpron in an interview with Flightglobal. "This will increase our trading of aircraft in the open market," he adds.
ILFC has more 1,000 owned and managed aircraft with commitments to purchase 229 units, according to the lessor's website.
The sale values ILFC at $5.28 billion, while the business had a book value of $7.9 billion at the end of the third quarter, according to AIG's regulatory filings.
AIG said it would record a non-operating loss of $4.4 billion on the sale.
According to Courpron, the sale also will trigger a tax accounting change, the adoption of Section 338(h)(10), that will further defer the lessor's tax liability.
"This is the same change that would have been happened if we would have done an initial public offering. It will ultimately reset our tax situation and push back the time we have to pay taxes."
Courpron adds: "We think the moves are good as the market likes the transparency around ILFC's financials."
AIG expects the deal to close in the second quarter of 2013.