US leasing giant International Lease Finance Corp (ILFC) is in talks with Boeing about compensation and penalties related to delayed deliveries of the 787 twinjet.
The company, an indirect wholly-owned subsidiary of troubled insurance giant AIG, at the end of 2008 had deals in place with Airbus and Boeing to buy a total 168 new aircraft for delivery through 2019 with an estimated purchase price of $16.7 billion, 49 of which will deliver during 2009.
Of the 168 aircraft on order, 74 are 787s from Boeing. "The original contracted deliveries were scheduled from January 2010 through 2017, but Boeing has made several announcements concerning delays in the deliveries of the 787s and has periodically informed us that our 787 deliveries will be delayed," says ILFC in a filing with the US Securities and Exchange Commission.
"Current estimates indicate our first 787 delivery will be in July 2012."
ILFC has signed leases for 31 of the 74 787s on order. The leases are subject to cancellation clauses related to delays in delivery dates. As of 15 March, there have been no cancellations.
"We are in active discussions with Boeing related to delay compensation and penalties for which we may be eligible," says ILFC in its SEC filing.
"Under the terms of our 787 leases, particular lessees may be entitled to share in any compensation which we receive from Boeing for late delivery of the aircraft."
A Boeing spokesman says: "We continue to monitor ILFC's situation - and that of our other customers - closely, and are staying in contact with those customers during this very challenging and dynamic business environment. That said, we do not comment on any conversations we may be having with our customers."
ILFC, meanwhile, is exploring a number of avenues to fund its aircraft purchase commitments and future maturing obligations, saying it "cannot determine when the commercial paper or public unsecured debt markets may become available to us again".
It is "currently seeking secured financings from banks and manufacturers" and as well as financing through aircraft sales.
At 31 December 2008, ILFC had about $800 million available for the financing of Airbus aircraft under its 2004 Export Credit Agency (ECA) facility.
However, due to a recent downgrade of the company's long-term credit rating by Moody's, it "will need written consent from the agent of our 2004 ECA facility before we can fund future Airbus aircraft deliveries under the facility", says ILFC in the filing.
If these sources of liquidity are not sufficient to meet ILFC's contractual obligations as they come due over the next year, the company says it will seek additional funding from AIG, which would be subject to the consent of the NY Fed.
AIG has received multi-billion dollar bailouts from the federal government. It is currently marketing ILFC for divestiture.