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Friday, 26 June 2015

Islamic finance aviation ‘benchmark’ set by Saudia’s mega-deal

A financier behind a leasing agreement that will see Saudi national airline Saudia almost double its existing fleet - the largest deal ever signed by the carrier - has hailed the contract as a “benchmark” in the history of Islamic aviation financing.
The deal, arranged by two Dubai-based lenders, QuantumnInvestment Bank and Palma Capital, will see Saudia acquiring through Shariah- (Islamic) compliant debt and equity financing 30 Airbus widebody A330-300 jets and 20 Airbus A320-200 narrow-body aircraft, according to a press release.
“This is not only the largest transaction in Saudi Arabian airlines’ history, but in terms of an Islamic aviation deal, this is the largest one in history,” Idriss Ghodbane, CEO of Quantum Investment Bank, told Al Arabiya News.
The deal’s price of $7.7 billion far exceeds the $5.8 billion raised globally since 2006 through Shariah-compliant aviationloans, Bloomberg reported.
“This will set the benchmark. Within the industry, we already started seeing a lot of similar initiatives taking place in the market, of course, people are somehow just discovering Islamic finance in aviation, so we’re proud that we’ve set the path for that,” Ghodbane added.
The deal shows a growing trend of Shariah-compliant financing in the aviation industry. Airbus previously helped establish a fund and the UK has backed an Emirates sukuk (Islamic bond-issuing) from Dubai-based Emirates Airline.
The aviation industry, which is heavily assets-based, is seen as a good fit for Islamic financing, with the deals more easily avoiding banned interest.
The first batch of the new fleet will arrive in the kingdom in less than a year. The carrier will receive 14 new Airbus planes in 2016, 18 in 2017 and 18 in 2018.
But how do these kinds of deals work?
The financier works with both the manufacturer and the carrier, and attempts to add a competitive advantage against other lessors. “It’s really a teamwork between the airline, the manufacturer, and the fund,” said Ghodbane.
In addition to being Saudi’s largest deal, the agreement is an achievement for Ghodbane’s firm, which launched the Shariah-compliant fund last year, had a target only to arrange the leasing of “between 10 to 15” aircraft.
“So now we are at 55, and we’ve just delivered two, so I think this makes it really quite exceptional,” he added.
The deal was one of many finalized during the 2015 Paris Air Show, where Airbus won $57 billion worth of business for a total of 421 aircraft, the aircraft manufacturer said in a press release.
Trailing was arch-rival Boeing, which announced in the same period orders and commitments for a total of 331 aeroplanes, valued at around $50 billion.
(Al-Arabiya News / 24 June 2015)
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