Jet buyer ILFC warns of financial hurdles

International Lease Finance Corp. (ILFC), a unit of troubled insurance giant AIG and the largest customer of both Airbus and Boeing, warned in a regulatory filing Wednesday that unless it can get additional loans there is a risk to its survival.

"Without additional support from AIG or obtaining secured financing from a third party lender, in the future there could exist doubt concerning our ability to continue as a going concern," the company said in its annual report filed with the Securities and Exchange Commission (SEC).

The statement by ILFC management clearly flags the substantial risk ahead, but is not as dire as a formal "going concern" warning appended to an SEC filing by auditors, when such risk is deemed imminent.

The seriousness of the cash crunch facing the company is underscored by the fact that ILFC borrowed $800 million from another unit of AIG on March 12 to fund its contractual obligations just through the end of this month, according to the filing.

AIG has also approved an additional $900 million loan, to be provided on the same terms on March 30, 2009 to fund ILFC's obligations through the end of April. That additional loan is subject to the approval of the Federal Reserve Bank of New York, which now oversees AIG on behalf of the U.S. government.

ILFC said it "believes we will have adequate liquidity to finance and operate our business and repay our obligations for at least the next twelve months."

AIG, which is trying to sell the jet leasing company and other assets, has assured ILFC of continued financial backing, the filing says.

"If ... sources of liquidity are not sufficient to meet our contractual obligations as they come due over the next twelve months, we will seek additional funding from AIG," ILFC states in the filing. "We have been advised by AIG that AIG will continue to support our short-term liquidity needs through the earlier of our sale or March 2010."

But ILFC warns in the filing that because of the tight credit markets and its ownership by AIG, financing from third parties may not be available "on favorable terms, if at all."

"If we are not able to obtain secured financing or additional support from AIG, we will have to pursue alternative strategies, such as selling aircraft," the filing states. "If we are unable to raise sufficient cash from these strategies, we may be unable to meet our debt obligations as they become due."

Those obligations include taking delivery this year of 16 aircraft from Boeing — four large 777s and a dozen 737s — and another 33 jets from Airbus.

Further out, ILFC has firm orders for an additional 84 Boeing jets, including 74 of the new 787 Dreamliners due to start delivering in 2012.

The 2009 jet delivery commitments alone require $3 billion in cash. In 2009, ILFC must also come up with $6.2 billion to pay maturing debt and another $1.3 billion for debt interest payments. As of Jan. 1, ILFC had $2.4 billion in cash on hand.

Unlike AIG's purely financial units, ILFC is a profitable subsidiary with valuable aircraft assets. It owns nearly 1,000 jets, mostly widebodies, worth about $43 billion, according to the financial report.

The U.S. government, which now controls AIG, is trying to arrange a sale of ILFC. Any buyer will have to take on and refinance about $31 billion in ILFC debt.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com