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ILFC Aircraft Charges Moderate; Repossessions Could 'Drag'

05/04/2012 | 02:44pm US/Eastern
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   By Doug Cameron 
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International Lease Finance Corp. may suffer a "drag" on profits this year after repossessing aircraft from bankrupt airlines during the first quarter, though write-downs on its huge fleet have stabilized.

The unit of American International Group Inc. (>> American International Group, Inc.) reported pre-tax profits of $120 million in the quarter, level with a year ago, including $55 million in impairments against a fleet of 930 planes.

High jet fuel prices, sluggish demand and over-ambitious expansion strategies have taken their toll on the global airline industry, with high-profile collapses including Spain's Spanair and Hungary's Malev, both ILFC customers. This has forced leasing companies to recover planes and find new customers.

ILFC also revealed that it opted to scrap some of the repossessed planes, using a parts specialist it acquired last year.

The company has taken almost $3 billion in write-downs over the past two years, rattling an industry that had prospered from the growing popularity of airlines renting rather than buying planes. The company attributed part of the charges to the depressing impact on existing plane values from new aircraft such as the Airbus A320neo and the 737 Max from Boeing Co. (>> The Boeing Company).

Most rivals, including the market-leading Gecas unit of General Electric Co. (GE) did not take parallel write-downs, and have said it is too soon to determine the impact of new planes that won't come into service until late 2015 at the earliest.

Robert Benmosche, AIG's chief executive, said on a post-earnings call that ILFC had done an "outstanding job" in repossessing planes from bankrupt clients. However, the cost of recovery and remarketing "will see some drag [on earnings] in the remaining three quarters."

"We are still looking to find the right time to do an IPO for ILFC," Benmosche said on the call.

The company earlier this year disclosed bank-style stress tests detailing how a potential downturn in its business could hit aircraft values.

ILFC said in a regulatory filing last month that four customers had stopped flying or filed for court protection in 2012, returning 42 planes.

While more than half of those planes have since been placed with other carriers, the plight of airlines this year is worse than in 2011 when ILFC had nine planes returned from seven distressed carriers. Last year's returns led to a charge of $40 million.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com

Stocks mentioned in the article : American International Group, Inc., The Boeing Company
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