AIG 2008 Annual Report Download - page 193

The following table presents the year-end, average, high, and low VaRs on a diversified basis and of each
component of market risk for Capital Markets operations. The diversified VaR is usually smaller than the
sum of its components due to correlation effects.
As of
December 31, 2008 Average High Low
As of
December 31, 2007 Average High Low
For the Year Ended
December 31, 2008
For the Year Ended
December 31, 2007
(In millions)
Total AIG trading
market risk:
Diversified ...... $3 $5 $9 $ 3 $5 $5 $8 $4
Interest rate ...... 22413232
Currency ........ 214—1121
Equity.......... 22423352
Commodity ...... 14713372
See Valuation of Level 3 Assets and Liabilities for a comprehensive discussion of AIGFP’s super senior credit
default swap portfolio.
Aircraft Leasing
AIG’s Aircraft Leasing operations represent the operations of ILFC, which generates its revenues primarily
from leasing new and used commercial jet aircraft to foreign and domestic airlines. Revenues also result from the re-
marketing of commercial jet aircraft for ILFC’s own account and re-marketing and fleet management services for
airlines and financial institutions. Risks inherent in this business, which are managed at the business unit level,
include the following:
• the risk that there will be no market for the aircraft acquired;
• the risk that aircraft cannot be placed with lessees;
• the risk of non-performance by lessees; and
• the risk that aircraft and related assets cannot be disposed of at the time and in a manner desired.
The airline industry is sensitive to changes in economic conditions and is cyclical and highly competitive.
Airlines and related companies may be affected by political or economic instability, terrorist activities, changes in
national policy, competitive pressures on certain air carriers, fuel prices and shortages, labor stoppages, insurance
costs, recessions, world health issues and other political or economic events adversely affecting world or regional
trading markets.
ILFC’s revenues and operating income may be adversely affected by the volatile competitive environment in
which its customers operate. ILFC is exposed to operating loss and liquidity strain through non-performance of
aircraft lessees, through owning aircraft which it is unable to sell or re-lease at acceptable rates at lease expiration,
and, in part, through committing to purchase aircraft which it is unable to lease.
To date ILFC manages the risk of nonperformance by its lessees with security deposit requirements,
repossession rights, overhaul requirements and close monitoring of industry conditions through its marketing
force. More than 90 percent of ILFC’s fleet is leased to non-U.S. carriers, and the fleet, comprised of the most
efficient aircraft in the airline industry, continues to be in high demand from such carriers.
Management formally reviews regularly, and no less frequently than quarterly, issues affecting ILFC’s fleet,
including events and circumstances that may cause impairment of aircraft values. Management evaluates aircraft in
the fleet as necessary based on these events and circumstances in accordance with FAS 144. ILFC has not
recognized any impairment related to its fleet in 2008, 2007 or 2006. ILFC has been able to re-lease the aircraft
without diminution in lease rates that would result in an impairment under FAS 144.
AIG 2008 Form 10-K 187
American International Group, Inc., and Subsidiaries