AAR's chief today predicted that International Lease Finance (ILFC) will be spun off of parent American International Group (AIG), saying he does not believe the US Government is interested in being in the aircraft leasing business for long.

During an earnings conference call to discuss AAR's 18% rise in 2009 fiscal first quarter sales, company chairman and CEO David Storch noted that ILFC has been considering separating from AIG for some time.

"The weakness in AIG has been known to those folks for a while and you know actually the chap who is CEO of ILFC [Steven Udvar-Hazy] is the largest individual shareholder of AIG so they have been toying with this for quite some time," says Storch.

Citing people familiar with the ILFC situation the Wall Street Journal reports that Udvar-Hazy is looking to buy back ILFC, which he founded 35 years ago. The news hit after the US Government agreed to provide an $85 billion bailout to AIG. In return it will effectively receive majority ownership of the beleaguered insurance giant.

Referencing these developments, Storch says: "I'm assuming that they [ILFC] are going to successfully be spun out of [AIG]. I guess today it's largely owned by the US government. But I don't think the US government wants to be in the aircraft leasing business for too long."

The AAR chief believes ILFC will "probably have some success in arranging financing" in its pursuit for independence.

While the impact on the leasing market "should not be dramatically different", he says, the bigger impact "is on the order books of the Boeing and Airbuses where they have I think $18 billion on backlog with those two guys".

Although AAR's overall sales climbed to $359.9 million in the fiscal first quarter, the company registered no aircraft sales in its aircraft sales and leasing segment. As a result, the division declined $20.8 million and gross profit and earnings from aircraft joint ventures declined $5.5 million from the prior year.

However, AAR has signed agreements to sell two Boeing 737s coming off lease this year. "The investors are going to be very happy with the return we have on these two sales," says Storch.

Additionally, AAR is in active discussions to sell a third aircraft coming off lease in the fiscal second quarter. A further two aircraft, which are earmarked to come off lease in the second half, will likely be re-leased as "those two aircraft are newer", says Storch.

Source: Air Transport Intelligence news