UPDATE 1-TPG drops out of ILFC auction -sources

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By Jui Chakravorty Das and Paritosh Bansal

NEW YORK Jan 29 (Reuters) - Private equity firm TPG Capital [TPG.UL] has dropped out of an auction for American International Group Inc's (AIG.N) aircraft leasing unit, International Lease Finance Corp, sources familiar with the matter said.

TPG was one of several private equity firms and sovereign wealth funds from several countries that put in initial bids for ILFC, sources previously told Reuters.

AIG and TPG declined to comment on Thursday.

Initial bidders included private equity firms Carlyle Group [CYL.UL] and Kohlberg Kravis Roberts & Co [KKR.UL], as well as sovereign wealth funds Temasek Holdings Pte Ltd [TEM.UL], Istithmar World, Kuwait Investment Authority and China Investment Corp, according to sources.

The timeline of the auction is not clear, but one source had said earlier that the second round of bids could come in the third week of February. The parties are in talks to form consortiums for the second round, sources have said.

ILFC, which is being sold by AIG as part of the insurer's efforts to repay the U.S. government after a massive bailout, has been valued at as much as $8 billion by analysts.

AIG has said it plans to sell everything except its U.S. property and casualty business, foreign general insurance, and an ownership interest in some foreign life operations.

(Additional reporting by Megan Davies; editing by Leslie Gevirtz and Bernard Orr) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)