The big news over the weekend is that China is buying. First, a group of Chinese firms, led by New China Trust (which, as I review their website, appears to be a state-controlled enterprise), has agreed to buy 80% of ILFC. Here’s some details from a Reuters report:
American International Group Inc (AIG.N) is to sell nearly all of ILFC (ILFC.N), the world’s second-largest airplane leasing business, to a Chinese consortium for up to $4.8 billion, giving the fastest growing aviation market easier and cheaper access to planes.
Chinese firms have shown interest in aircraft leasing before, and the deal would give China access to a global network of about 200 airlines in 80 countries. China is already ILFC’s largest market with 180 planes operating there, giving it 35 percent market share.
“It’s the biggest deal we have in the aircraft leasing world and it’s very ambitious,” said Paul Sheridan, head of Asia at aviation consultancy firm Ascend Advisor. “We believe there are not enough aircraft on order in China at the moment. It will help Chinese airlines get more aircraft.”
The deal will be subject to CFIUS review. I believe that the deal will move through CFIUS quickly, particularly because the business would not seem to be related to national security as CFIUS defines that term.
A more difficult issue is presented by the sale of assets to the North American subsidiary of Wanxiang, a Chinese auto parts maker, which was the winning bidder in an auction for the assets of the bankrupt A123 Systems. Importantly, the sale of A123 assets will not include the company’s military contracts or other deals with the US government. The New York Times reports:
In addition to the approval of the bankruptcy judge, the deal requires the approval of the Committee on Foreign Investment in the United States, a broad-based group led by the Treasury Department that reviews foreign takeovers of American companies.
Mr. Ni expressed confidence that Wanxiang was the best owner for A123, when it would need considerable investment to meet production commitments for automakers like Fisker Automotive and General Motors. “We are committed to making the long-term investments necessary for A123 to be successful,” he said.
A123, which is based in Waltham, Mass., was once one of the most promising recipients of federal loans under the Obama administration’s $2 billion program to stimulate the electric-car industry in the United States.
These cases are important tests for CFIUS. The A123 deal had early resistance, as Reuters reported:
Senators John Thune and Chuck Grassley sent a letter on Tuesday to Energy Secretary Steven Chu questioning the continued investment in A123, the first official congressional inquiry into the company’s tie-up with a Chinese company.
“Billions of U.S. taxpayer dollars have flowed to foreign companies through the Recovery Act, and we are concerned that the recent announcement could lead to even more taxpayer dollars going overseas,” Thune and Grassley wrote in the letter.
They asked the Energy Department how it would handle the remainder of A123’s grant and whether the company would need those funds if the Wanxiang deal came to fruition.
The lawmakers also asked whether there were any assurances that U.S. government-backed intellectual property would not go to the Chinese company and if manufacturing jobs would remain in the United States.
Given the mitigation arrangement in place–no sensitive assets are going to be part of the deal–the national security issues seem to be moot. Once national security that is taken out of the equation, the primary focus of the directors as fiduciaries is to get the highest amount for the creditors.
I’m expecting these deals to go through, and I will be surprised and disappointed if they do not.