AIG 2009 Annual Report Download - page 59

American International Group, Inc., and Subsidiaries
longer available. These sources included issuances of guaranteed investment agreements (GIAs), issuance of long-
and short-term debt, issuance of commercial paper, bank loans and bank credit facilities. However, ILFC has been
able to finance Airbus aircraft purchases under its 2004 Export Credit Agency (ECA) Facility, as further described
below, and AIGCFG has been able to retain a significant portion of customer deposits, providing a measure of
liquidity.
ILFC
During 2009, ILFC was unable to borrow in the public debt markets and, due to downgrades in its short-term credit
rating, lost access to the CPFF and therefore borrowed $3.9 billion from AIG Funding to repay its maturing debt and
other contractual obligations. In addition, ILFC borrowed approximately $161 million through secured financing
arrangements. ILFC is currently pursuing additional secured financings. ILFC had the capacity under its present
facilities and indentures to enter into secured financing of approximately $4.7 billion (or more through subsidiaries
that qualify as non-restricted subsidiaries under ILFC’s indentures, subject to the receipt of any required consents
under the FRBNY Credit Facility and under its bank facilities and terms loans), which was reduced to approximately
$800 million after entry into the Term Loans with AIG Funding as discussed below. ILFC is pursuing potential aircraft
sales as one of several options to meet its financial and operating obligations. Proposed portfolios have been
presented to potential buyers; some bids have been received and are being evaluated. In evaluating the bids,
management is balancing the need for funds with the long-term value of holding aircraft and other financing
alternatives. Significant uncertainties currently exist about the possibility of a sale, including the aircraft comprising an
actual sale portfolio, the sale price, and whether a sale agreement could be agreed upon with acceptable terms to the
buyers and AIG and ILFC.
Because the current market for aircraft is depressed due to the economic downturn and limited availability of buyer
financing, it is likely that if a group of aircraft is sold to meet liquidity needs, a realized loss would be incurred. As the
uncertainties related to the potential sale portfolios change, the likelihood of a sale changes, which directly impacts
the nature, timing and amount of any impairment loss.
Based on the facts and circumstances at December 31, 2009, ILFC performed an impairment analysis of the
proposed portfolios and concluded that no impairments on any aircraft in the portfolios had occurred based on
management’s estimates of the probabilities of retaining or selling the aircraft. If circumstances change and the
probability of a sale increases significantly, or a sale transaction is approved or executed, ILFC would most likely incur
a loss at a future date. The amount of potential loss would be dependent upon the specific aircraft sold, the sale price,
the sale date and any other sale contingencies. Based on the range of potential aircraft portfolio sales currently being
explored, the potential for impairment or realized loss could be material to the results of operations for an individual
reporting period.
ILFC did not recognize an impairment loss related to any potential aircraft sale portfolios as of December 31, 2009,
given the significant uncertainties described above as the probability of sale was not sufficiently likely to cause an
impairment. If ILFC does not receive sufficient secured financing, AIG expects that ILFC’s current borrowings and
future cash flows from operations, including aircraft sales, may be inadequate to permit ILFC to meet its existing
obligations. AIG intends to provide support to ILFC through February 28, 2011 to the extent that secured financing,
aircraft sales and other sources of funds are not sufficient to meet ILFC’s liquidity needs.
Under its current long-term debt ratings, ILFC needs written consent from the security trustee of its 2004 ECA
Facility before it can fund Airbus aircraft deliveries under the facility. As of February 17, 2010, ILFC had
approximately $600 million available under the 2004 ECA Facility to finance its Airbus aircraft purchases through
June 2010. ILFC financed 25 aircraft under the 2004 ECA Facility during 2009, 19 of which required written consent,
which was obtained. However, the trustees’ consent for the financing of 5 Airbus aircraft delivered during the fourth
quarter of 2009 was not obtained until the first quarter of 2010. ILFC’s current credit ratings also require (i) the
segregation of security deposits, maintenance reserves and rental payments received for aircraft funded under both its
1999 and 2004 ECA Facilities into separate accounts, controlled by the trustees of the 1999 and 2004 ECA Facilities;
and (ii) the filings of individual mortgages on the aircraft funded under the facility in the respective local jurisdictions
in which its lessees operate. At December 31, 2009, ILFC had segregated security deposits, maintenance reserves and
rental payments aggregating $315 million related to such aircraft. Segregated rental payments are used to pay
principal and interest on the ECA facilities as they become due.
51 AIG 2009 Form 10-K