GLOBAL: Revealing to IFN
earlier this year of potential Shariah compliant aviation deals with
regional carriers in Africa and the GCC, it has been confirmed that
Bahraini Islamic financier Ibdar Bank has concluded an aircraft leasing
transaction with an Abu Dhabi charter airline. Executed under a joint
venture with Dubai-based Palma Holding, this latest deal saw the
acquisition of three Bombardier Q400 NextGen aircraft to be leased to
Falcon Aviation Services on a Shariah compliant basis.
Rapidly growing in appeal, the aviation sector is an area that is
increasingly gaining traction among Shariah-seeking investors looking to
diversify their portfolio. While Sukuk are a popular Islamic funding option
within the aviation community with names such as Emirates Airlines, AirAsia
and flydubai tapping the market, Shariah compliant leasing is also rising
in profile as big players make their move into the segment.
Last year, Airbus and the IDB launched an Islamic aircraft leasing fund
(worth US$2 billion) to meet the growing commercial demand in the Middle
East, Asia and Africa. Completing its first acquisition in January,
International Airfinance Corporation (the manager of the fund) previously
confirmed to IFN that the fund is on track to hitting its US$5 billion
target bolstered by overwhelming demand (See IFN Report Vol 12 Issue 04:
‘IAFC’s inaugural acquisition, a milestone for Shariah compliant aviation
financing’).
In a span of nine months, both Palma and Ibdar completed two other Ijarah
aircraft transactions each with Ethiopian Airlines and RwandAir (See Case
Study Vol 12 Issue 04: ‘Ethiopian Airlines: First Islamic financing in
Africa’s aviation industry’), adding eight aircraft to their portfolio; and
the joint venture confirms that more deals are in the pipeline.
“With other transactions approaching completion, we look forward to making
further announcements regarding the addition of more aircraft to our
expanding portfolio in the near future,” said Moulay Omar Alaoui, the
president of Palma Holding, in a statement to IFN.
The demand for this asset class is high not only because it provides
Islamic investors with an opportunity to move beyond real estate in search
of asset-backed yielding instruments but also because there is significant
growth potential of the sector itself. According to Boeing estimates, over
2,600 new aircraft, worth approximately US$550 billion, could be required
over the next two decades by Middle Eastern carriers alone. More
significantly, more than half of that demand would be driven by expansion
rather than replacement – signalling tremendous potential for Islamic
finance to step in.
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