* Air Lease IPO is Steven Udvar-Hazy's latest venture
* IPO to raise up to $700 million next week
* Air Lease IPO could help value AIG's ILFC
By Alina Selyukh
NEW YORK, April 15 American International Group
Inc (AIG.N) says no one is willing to pay what its aircraft
leasing business, ILFC, is worth, but a successful IPO by a new
competitor created by ILFC co-founder Steven Udvar-Hazy could
change all of that.
ILFC, together with General Electric Co's (GE.N) Commercial
Aviation Services, has long dominated aircraft leasing, leaving
just over half of the market to smaller players.
Now, one of those small competitors, Air Lease, is planning
to raise up to $700 million in an IPO on Monday. It has just
over a year of operating history and some 160 aircraft on
Once on the New York Stock Exchange, Air Lease will be
ILFC's closest publicly-traded rival, complete with Hazy, the
godfather of aircraft lease finance and his management team of
"He knows the business better than anybody else. You really
have to watch this offering," said Josef Schuster, founder of
Chicago-based IPO investment firm IPOX Schuster LLC.
"It's obviously important in terms of valuation ... it
could help to price the unit of AIG higher or lower."
AIG has repeatedly signaled the possibility of selling ILFC
if someone offered an appropriate price. In December, Chairman
Steve Miller said ILFC is unlikely to be a part of AIG in five
or 10 years, but so far no buyer has been willing to pay what
AIG thought its aircraft leasing arm was worth.
Aircraft leasing -- together with the broader airline
industry and the global economy it is closely tied to -- was
hurt by the financial crisis, but has since recovered,
benefiting from growing global air travel and the willingness
of banks to again lend money.
"Right now you have a very nice market environment and
there's an element of rising tide lifting all boats," said
Richard Aboulafia, an analyst at aerospace and defense
consulting firm Teal Group.
"There's an awful lot of people and awful lot of money
coming into this space," he said of aircraft leasing.
In the world of leasing, it usually comes down to just
that: generating enough financing to sustain growth.
In fact, financing is exactly what has beleaguered ILFC.
The company, co-founded by Hazy in 1973 and sold to AIG in
1990, strained under the weight of AIG's financial troubles
during the crisis.
Since then, Aboulafia said, the industry logic has been
turned on its head: It is no longer the multi-billion-dollar
entities with deep-pocketed parent companies that get more
capital, but the smaller -- and younger -- ventures.
Hazy -- who retired from ILFC in February 2010 amid
friction over financing and started Air Lease -- has clearly
set himself up to benefit from the shift with a fresh and much
ILFC has adjusted, too, focusing on more fuel-efficient and
newer narrow-body aircraft from EADS EAD.PA unit Airbus and
Boeing Co (BA.N), as well as placing sizable orders for
Boeing's upcoming 787 Dreamliner. The March orders, worth about
$7.5 billion, were ILFC's first since October 2007 and were
seen as the first major sign of recovery in the industry since
the recession. [ID:N08142830]
Air Lease's IPO is now seen as the second. Its ripple
effect could impact the entire industry, including ILFC.
"It's a vote of confidence, for certain," Aboulafia said.
Air Lease is coming at a generous premium to public peers
AerCap Holdings NV (AER.N), Aircastle Ltd (AYR.N) and Fly
Leasing Ltd (FLY.N) -- roughly 1.5 times book value, compared
with their average of 0.8 times to 0.9 times, according to IFR,
a Thomson Reuters service.
Everybody in the industry will be closely watching the IPO
on Monday, analysts said.
But one of them warned against viewing Air Lease's IPO as a
complete dress rehearsal for ILFC because Air Lease has some
features that ILFC lacks.
Like GE's aircraft leasing unit and other older companies,
ILFC has struggled with the legacy of older aircraft that are
quickly losing value and has resorted to write-offs, while Air
Lease is starting largely anew.
"Many large airlines scaled back on their modernization of
the fleet (during the crisis)," Hazy said in an online roadshow
presentation ahead of Air Lease's IPO.
"So I think there's going to be a surge of replacement
activity ... We see some very strong opportunities for this
Also, despite having former Airbus executive Henri Courpron
as ILFC's new CEO, AIG no longer has Hazy, with his almost
mythical reputation. Hazy is said to have such clout in the
industry that he could effectively tell Boeing and Airbus what
aircraft to build.
"It is a business largely based on personality and
experience," said Aboulafia.
"(Hazy) is going to have a resonant message. He's going to
have a very strong presence in the market."
Leonard Green & Partners, Ares Management and Wilbur Ross's
WL Ross & Co are among Air Lease's backers.
(Additional reporting by Clare Baldwin, Ben Berkowitz, John
Crawley in Washington, Tim Hepher in Paris, Karen Jacobs in
Atlanta and IFR's Robert Sherwood; editing by Andre Grenon)