The extreme financial turbulence at the insurance giant American International Group, which owns the world’s largest aircraft lessor, could spell big trouble down the road for the aerospace industry, analysts said.
AIG, which was bailed out by an $85 billion loan over two years from the U.S. Federal Reserve last week, must sell off assets to raise capital, and its California-based International Lease Finance Corp. will likely go on the auction block.
Analysts have placed the value of ILFC anywhere between $5 billion and $8 billion. ILFC, one of Boeing’s biggest customers, owns approximately 1,000 jets built by Boeing and Airbus and has more than 100 Boeing jets still on order.
There seems to be few possible buyers for ILFC, according to aerospace industry analysts. One name that has surfaced in numerous media reports as a potential bidder is ILFC chairman Steven Udvar-Hazy, who sold the 35-year-old company to AIG in 1990.
The biggest concern within the aerospace industry is that a hit to ILFC’s credit quality could drive up financing costs for the company, forcing it to limit the number planes it buys.
“If you have a tightening credit environment, you’re going to see pressure on the ability to order aircraft, and that will ultimately affect what the backlog levels will be for Boeing and Airbus,” said Peter Arment, an American Technology Research analyst.
There are 7,500 Boeing and Airbus planes currently in backlog, according to Arment. About 60 percent of the world’s airplanes are leased and 40 percent are actually owned by airlines, according to analysts’ rough estimates.
A reduction in orders would be bad news for the many Connecticut aerospace companies that are suppliers to Boeing, Arment said.
“There’s a ripple effect,” he said. “If they’re not buying as many, there’s going to be fewer deliveries at Boeing and Airbus, and that ripples down to how many components are going to be built.”
Despite the severity of AIG’s situation, the market demand for newer airplane fleets will keep ILFC buoyant in the troubled economy, said Mike Boyd, president of The Boyd Group, an airline consulting firm.
“Airlines have seen the wonder of $140 for oil. They know it can come back, and in the long term, they’ve got to get more fuel-efficient airplanes,” Boyd said.
“[ILFC] is a very strong company with a great set of assets,” he added.
Boeing stock dropped 7.7 percent the day after the federal bailout of AIG was announced, marking the company’s largest one-day percentage drop since 2002.
