The alternatives include the possibility of carving out a new, independent company, the sources said, but added that discussions were in preliminary stages and nothing had been determined yet.
Separately, the Wall Street Journal reported that Udvar-Hazy was in early talks to buy a portion of ILFC's aircraft portfolio and start a new leasing company.
AIG and ILFC President John Plueger declined to comment. Udvar-Hazy could not be reached immediately for comment. The sources declined to be identified because discussions are private.
ILFC, one of the biggest customers of Boeing Co (NYSE:BA - News) and Airbus (Paris:EAD.PA - News), has been on the block since late last year after its parent's near-collapse.
But a sale has proven to be a challenge due to its mountain of debt and funding needs amid the financial crisis. The company had more than $30 billion in debt, some of which starts to mature in October.
ILFC had a book value of about $8 billion as of June 30, but it drew bids that valued it at less than half that.
In June a source told Reuters that AIG had picked a consortium that included private equity firms Onex Corp (Toronto:OCX.TO - News) and Greenbriar Equity Group as the preferred bidder for the unit.
Udvar-Hazy was expected to stay on and head the unit under the new buyer as part of any sale, the second source said. Initially, Udvar-Hazy had considered becoming one of the buyers in a consortium of bidders, but eventually decided against it, the source added.
Another source familiar with the situation said on Friday that the auction process had been paused as AIG's new CEO, Robert Benmosche, reviews the divestiture process.
Benmosche told Reuters this week that the fate of the airplane leasing company was under review. "I am looking at ways we can structure this so we can get more value for what that business is today. Remember that we own more than 1,000 commercial aircraft," he said.
"We have to look at ways of financing the debt on those planes as we continue to take very good, healthy lease income," he told Reuters.
(Additional reporting by Ben Klayman in Chicago, editing by Eric Walsh)
