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By Jessica Toonkel and Ben Berkowitz
May 31 (Reuters) - A Chinese group's purchase of ILFC, oneof the world's largest airplane leasing companies, couldcollapse after insurer American International Group Inc said on Friday it did not receive a scheduled deposit payment.
Under terms of the agreement, the missed payment gives AIGthe right to cancel the sale, though such a decision was notexpected to be imminent. It is unclear from the agreementwhether AIG would be entitled to some sort of break-up fee, andif so, how much.
AIG declined to comment, while a spokesman for theconsortium was not immediately available to comment.
Missing a payment on a signed deal is highly unusual.Bankers and attorneys said it underscored the difficulties indealing with a consortium of investors who may have differingopinions about how deals should get done and how much each partypays. The Chinese government's involvement complicates matterseven further.
"Consortiums in general pose concerns," said Morton Pierce,a partner in the mergers and acquisitions department at law firmWhite & Case. "A foreign consortium adds another element ofcomplexity."
AIG said last December it would sell up to 90 percent ofILFC for up to $4.8 billion. Two weeks ago, the sides agreed toextend the deadline for the deal's closing by a month tomid-June.
The Chinese consortium was to include New China Trust, whichis one-fifth owned by Barclays Plc ; China AviationIndustrial Fund; and P3 Investments Ltd. An arm of Industrialand Commercial Bank of China, China's biggest bank,was meant to join the group once the deal had regulatoryapproval.
But executives at aircraft leasing companies have speculatedsince the deal was announced last December that it might notclose, according to one person who has spoken to a number of theexecutives over the past few weeks.
"This appeared to be a group of investors who were nothousehold names for the most part and who did not haveexperience with Western investing," said the person, who wishedto remain anonymous because he is not permitted to speak to themedia.
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But another source said the deal was not expected to fallapart, and could still go through. Deals with Chinese buyerswere often more complicated due to the government's role in allbusiness transactions, this person added.
"Things take longer and it is not always clear who is makingdecisions," the person said. "The approval process is not astransparent as it is in the U.S."
Even with the difficulties in getting approval at home,Chinese companies have become more comfortable doing deals inthe United States, despite past stumbles.
With over $10.5 billion in deals in the United States sofar, 2013 is on pace to be the biggest year for M&A by Chinesecompanies, according to Thomson Reuters data.
There were $11.5 billion in deals by Chinese companies inthe United States in 2012 - a significantly higher figure thanin any year other than 2007.
ILFC was the last key asset that AIG was attempting todispose of following its government-backed restructuring. AIGfiled to take the business public in 2011 before ultimatelyagreeing on the direct sale last year.
"We are disappointed by this news, as the sale wassignificant to AIG's restructuring. Still, we think ILFC is anattractive franchise and note that AIG may have other options,including an initial public offering," S&P Capital IQ analystCathy Seifert said in a note to clients.
With nearly 1,000 owned or managed planes, ILFC is one ofthe world's largest players in the market for buying aircraftand leasing them to airlines.
But ILFC has been hurt after recording heavy charges inrecent years to write down the value of older planes in itsfleet. The sale price was about half of what AIG had onceinsisted the business should be worth.
AIG shares fell 2.4 percent to $45.12 in afternoon trading.The stock has been on a tear, rising 31 percent this year androughly doubling over the last 18 months.
