AIG 2006 Annual Report Download - page 36

34 AIG 2006 Annual Report34 AIG 2006 Annual Report34 AIG 2006 Annual Report
Founded in 1987 as one of the first companies in the United
States focused principally on OTC derivatives markets, AIG Financial
Products Corp. (AIGFP) has built a unique, client-oriented platform
that today is truly global in scope. AIGFP acts as principal in nearly all
of its transactions, providing clients and partners with a broad spec-
trum of capital markets offerings and tailored corporate finance,
investment and financial risk management solutions. Relying on
small teams of seasoned professionals based in the world’s leading
business centers, AIGFP is well-known for its innovative problem-
solving capabilities and track record of identifying new areas for
growth. Over the past year, AIGFP played key roles in the acquisition
of London City Airport and, in one of the largest private equity trans-
actions announced in 2006, the management-led buyout of Kinder
Morgan Inc.
AIGFP’s new product leadership and expertise in the area of
commodity derivatives and commodity indices have helped stimulate
the development of this new asset class with historical return char-
acteristics that can help diversify a well-balanced portfolio. AIGFP’s
sponsorship of a major study on the historical performance of com-
modity futures by two academic colleagues, Professor Gary Gorton
and Professor K. Geert Rouwenhorst, has advanced investor aware-
ness of the asset class and the firm’s standing as a market leader.
In a similar vein, AIGFP has created a specialized credit business,
distinguishing itself as a provider of super senior investment grade
credit protection and a unique credit-oriented asset manager.
A key strategic initiative put in place by American General
Finance (AGF) in 2006 was its agreement to purchase Ocean
Finance and Mortgages Limited (Ocean). Based in Staffordshire,
England, Ocean is a finance broker and lender for homeowner loans.
The acquisition was effective January 2, 2007 and marked AGF’s
Financial Services
2006 was a year of improvement overall for the airline industry
worldwide, with increased demand for International Lease Finance
Corporation (ILFC) leased aircraft. As a result, ILFC continued to
see lease rates rise across most aircraft types as older leases
expired and were renewed at higher rates. Lease rates on deals
covering new aircraft for future delivery were also higher than in
2005. In 2006, Airline Business, the highly respected industry
magazine, ranked ILFC as the number one aircraft lessor in the
world as measured by fleet value.
ILFC reported strong revenue growth for the year, primarily due to
the realization of improved lease rates in prior years. It is the nature
of the leasing business to have a time lag between improving rates
and the realization of those higher rates in financial performance one
or more years later.
During 2006, ILFC signed leases covering 177 aircraft to 75
airlines worldwide, 18 of which were new customers. ILFC also sold
21 aircraft to nine buyers. Additionally, ILFC heralded its first place-
ments of the new Boeing 787 Dreamliners, with 10 aircraft placed
to five airlines, scheduled for delivery in 2010 and 2011. In total,
ILFC has 24 Boeing 787s on order for delivery from 2010 through
2012. ILFC also reached agreement with Airbus for a rescheduling of
its Airbus A380 deliveries, 10 aircraft in total, to years 2013 through
2015. The rescheduling agreement included conversion of five
aircraft from freighter to passenger version, thereby rendering all
10 aircraft of ILFC’s A380 order as passenger version aircraft.
AIG’s Financial Services businesses
specialize in aircraft and equipment
leasing, capital markets, consumer finance and
insurance premium finance. These businesses
complement AIG’s core insurance operations
and achieve a competitive advantage by
capitalizing on opportunities throughout AIG’s
global network.
Financial Services
AIGFP has played a significant role in the development of commodities as an
asset class, including through the creation of a leading commodity benchmark,
the Dow Jones–AIG Commodity Index.
SM Many commodity futures prices have
posted sharp gains in recent years, including those for copper, shown here being
mined in Chile.