AIG 2009 Annual Report Download - page 196

American International Group, Inc., and Subsidiaries
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.
For the Year Ended For the Year Ended
December 31, 2009 December 31, 2008
At At
(in millions) December 31, 2009 Average High Low December 31, 2008 Average High Low
Total AIG trading market risk:
Diversified $3 $3 $6 $2 $3 $5 $9 $3
Interest rate 3252 2241
Currency -13- 214-
Equity 1131 2242
Commodity --1- 1471
See Critical Accounting Estimates — 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, fuel prices and shortages, labor stoppages, pilot shortages, insurance costs, recessions,
health concerns and other political or economic events adversely affecting world or regional trading markets.
ILFC’s revenues and pre-tax income may be adversely affected by the volatile competitive environment in which its
customers operate. ILFC is exposed to pre-tax 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.
ILFC is currently marketing various aircraft portfolios for potential sale. Significant uncertainties exist as to the
aircraft comprising any actual sale portfolio, the terms of any sale portfolio (including price), and whether any
portfolio sale will be approved. See Capital Resources and Liquidity — Liquidity — Liquidity of Parent and
Subsidiaries — Financial Services — ILFC for further discussion.
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.
ILFC’s 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. ILFC recognized an impairment related to its fleet in
AIG 2009 Form 10-K 188