In the largest Chinese acquisition of an American company, a mainland consortium has offered to buy most of the world's biggest aircraft leasing company, International Lease Finance Corporation (ILFC). ILFC's parent, American International Group (AIG), is selling its stake to raise cash to repay US bailout money.
The consortium - led by Weng Xianding, chairman of New China Trust, a Chongqing-based trust company that is 19.5 per cent owned by Barclays Bank - signed the agreement with AIG yesterday, agreeing to buy 80.1 per cent of the company for US$4.23 billion. It has the option of increasing its stake by another 9.9 per cent.
The consortium also comprises China Aviation Industrial Fund, ICBC International, the brokerage arm of the mainland's largest bank, and P3 Investment. Once the government clears the takeover and the option to increase the stake to 90 per cent stake is exercised, New China Life Insurance and ICBC International will step in as well.
When the deal closes, the Chinese investors could get hold of more than 1,000 owned or leased aircraft and a customer network of 200 airlines in 80 countries. It's expected to be completed in the second quarter of next year, provided all regulatory approvals from both the US and China are obtained in time.
AIG, which on Friday said it was in talks with Chinese buyers to sell a business, said it would submit the offer for review by the US Committee on Foreign Investment, or CFIUS, which vets foreign deals for security concerns.
"This deal allows ILFC to continue to serve its worldwide partners in the aviation industry with world-class service while accelerating its growth in important markets, including Asia," Weng said.
Airbus and Boeing have forecast US$4.5 trillion worth of new passenger aircraft will be delivered in the next 20 years, with about two-thirds of them in the Asia-Pacific region. China is expected to be the biggest market in value terms.
A new board of directors for ILFC will be appointed following the takeover. Most of the board members will be aerospace and financial industry experts from the US and Europe while the rest will be nominated by the new Chinese owners, according to AIG.
This isn't the first time Chinese investors have bought into an international aircraft leasing company. Bank of China bought out Singapore Aircraft Leasing Enterprise from Singapore Airlines, Temasek and others for US$980 million in 2006.
But a similar deal in the sector never took off as talks over a US$1.8 billion acquisition proposal of US private jet company Hawker Beechcraft by Beijing-based Superior Aviation collapsed as the two sides could not agree on the financial arrangements of the deal.
Steven Udvar-Hazy, the founder of ILFC, sold his stake in ILFC to AIG in 1990.
He left the company with a group of staff members three years ago, when AIG took government help to stay afloat. The company has since had to make several changes.
"It's hardly the same company anymore," said an executive from Boeing who did not want to be identified.