AIG 2010 Annual Report Download - page 176

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
At At
December 31, 2010 December 31, 2009
December 31, December 31,
(in millions) 2010 Average High Low 2009 Average High Low
Capital Markets trading market risk:
Diversified $1 $2 $3 $1 $3 $3 $6 $2
Interest rate 1231 3252
Currency --1- -13-
Equity --2- 1131
Commodity ---- --1-
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. Aircraft Leasing operations
also include gains and losses that 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 may be unable to sell or re-lease at acceptable rates at lease expiration,
and, in part, through committing to purchase aircraft which it may be unable to lease.
As part of its ongoing fleet strategy, ILFC may pursue aircraft sales while balancing the need for funds with the
long-term value of holding aircraft and other financing alternatives. Significant uncertainties could 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 94 percent of ILFC’s fleet is leased to non-U.S. carriers, and the fleet continues to be in high demand
from such carriers.
160 AIG 2010 Form 10-K