Street Capitalist: Event Driven Value Investments

A while back, I commented that AIG’s aircraft leasing unit, ILFC would be the perfect addition to Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A). The company had all of the qualities you look for in a possible Berkshire addition: a strong moat, Steven Udvar-Hazy an entrepreneurial CEO, and a need for a new owner. Still though, Buffett himself affirmed that AIG’s businesses were so good that it was unlikely to acquire any of them at a low enough price.

Now, Bloomberg reports that the usual rogues gallery of private equity funds are bidding on the unit:

Carlyle Group, TPG Inc. and Kohlberg Kravis Roberts & Co. are bidding for American International Group Inc.’s plane-leasing business, according to people familiar with the situation.

The firms may eventually take part in a group to buy Los Angeles-based International Lease Finance Corp., said the people, who declined to be identified because the offers aren’t public. Steven Udvar-Hazy, ILFC’s founder and chief executive, said in November he may join with investors in a buyout of the unit, which he suggested was worth about $10 billion.

The world’s biggest buyout firms are looking for ways to put their estimated $400 billion of committed capital to work after the global credit crisis restricted leveraged lending and reduced LBOs by about 70 percent last year. Forced sales by financial companies may provide some of the best opportunities.

“You have a situation where there’s a distressed seller and these are the times when private-equity funds get their best returns,” said Steven Kaplan, a professor at the University of Chicago Booth School of Business…

ILFC and General Electric Co.’s GE Commercial Aviation Services, the world’s largest aircraft-leasing firms, are among the biggest customers for aircraft makers including Airbus SAS and Boeing Co. ILFC, founded 36 years ago, has a fleet of more than 1,000 planes valued at more than $50 billion, according to its Web site. It had shareholders’ equity, or assets minus liabilities, of $7.5 billion as of Sept. 30, according to a regulatory filing.

Companies like ILFC and GECAS buy planes from manufacturers and place them with airlines, reaping monthly rental income and helping their customers by shouldering the debt and balance- sheet burden. Aircraft list prices typically range from about $65 million to $240 million or more.

Carlyle, TPG, KKR Make Bids for AIG’s Aircraft-Leasing Business (Bloomberg)