AIG Aircraft Unit Sale to China Still Alive
After making headlines late last year, a deal that would see a Chinese group buy AIG’s (NYSE: AIG) aircraft leasing unit for $5.5 billion has quietly popped back into the news with word that the US insurance giant has extended the deadline to close a deal by a month. There’s not much more in the reports, which simply cite a stock exchange filing by AIG saying a deadline for the deal has been pushed forward to June 14. (English article) While the deal clearly hasn’t moved ahead as quickly as both sides had anticipated, the fact that they’re extending the deadline by a month means they are still confident they can reach an agreement.From my perspective, what’s perhaps most interesting about this somewhat controversial deal is that it’s still alive at all. I was expecting at least some opposition from US politicians, since ILFC is the world’s biggest aircraft leasing company and its customers include all of the major US airlines. Of course ILFC also does major business with the Chinese airlines, which is perhaps one reason for the lack of fuss from China-bashing politicians in Washington.
I suspect a number of other reasons are also behind this silence, which should be good news for this deal if the Chinese-led buyer group can assemble the necessary financing. For starters, the US election season officially ended in November when Barack Obama was elected to a second term as president and voters chose a new Congress. That means that politicians no longer need to try to appeal to voters by playing the anti-China card, and can get back to the business of running the country.
This sudden quiet from politicians was apparent in 2 major and somewhat controversial decisions that drew little or no outcry and were quietly approved by the government. The first of those saw Washington allow the sale of bankrupt battery maker A123 Systems to Chinese firm Wanxiang Group in January. That decision came even though some rival bidders complained that A123 had received US government assistance to develop its cutting edge battery technology and thus shouldn’t be sold to a foreign buyer. (previous post)
A second major test came a month later, when the Obama administration quietly approved the sale of Canadian oil giant Nexen to Chinese rival CNOOC (HKEx: 883; NYSE: CEO) for $15 billion, paving the way for the closure of China’s biggest-ever overseas acquisition. (previous post) Similar to the A123 case, the Nexen deal, which saw China acquire oil-producing assets in both the US and Canada, closed with little or no grandstanding by US politicians.
While the passing of election season has certainly played to AIG’s advantage, there’s also another factor in this case that could be partly behind the lack of opposition. That’s the fact that AIG was the biggest recipient of a Washington bailout at the height of the global financial crisis, and only recently repaid the $182 billion it received in emergency government funding during that time. Thus politicians who might have opposed this ILFC deal could easily look like bad guys, since they would be stopping AIG from getting the maximum value possible from a sale of the unit.
At the end of the day, this ILFC deal really shouldn’t be all that controversial anyhow, since the Chinese group bidding for 90 percent of the company is purely a financial investor that probably wouldn’t try to interfere in its operations. At the same time, aircraft leasing itself doesn’t really pose any major national security concerns, since the industry is highly competitive and there’s not really any major potential for spying.
All that said, this latest small signal from AIG should come as good news to proponents of free trade, as well as for major M&A investment between China and the west. The one-month extension means the deal is still alive, and I suspect that both sides have gotten at least a few positive signals from both Beijing and Washington that the sale will get government approval if and when the two sides reach a final agreement.
Bottom line: A one-month extension of the deadline for AIG to sell its aircraft business to a Chinese group indicates the deal is still alive and stands a good chance of closing.
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