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UAE: Dubai Aviation
Corporation (trading as flydubai) has confirmed that it is deliberating
with advisers on the prospects of raising capital through the bond
market. Speculations are circulating as to whether the low-cost airline
may issue Islamically, with seven banks reportedly engaged to arrange a
Sukuk program: including Credit Agricole, Dubai Islamic Bank, Emirates
NBD, HSBC, National Bank of Abu Dhabi, Noor Bank and Standard Chartered.
While flydubai did not specifically mention Sukuk as part of its financial
diversification strategy in its latest statement, it did affirm that
along with discussing the possibility of issuing a bond, the carrier will
also take into consideration all other financing options available.
Fuelling market sentiments for a flydubai Islamic issuance is also the
assertion by chief financial officer Mukesh Sodani earlier this year that
the carrier is looking at a benchmark-sized offer in 2015, with Sukuk
certainly on the cards.
The potential entry of flydubai signifies the increasing interest from
the aviation industry in the adoption of Shariah compliant financial
tools as part of its growth strategy. Although flydubai would join only a
handful of aviation issuers to enter the Sukuk market (including Airasia
(2008), Emirates Airline (2005, 2013), GE Capital (2009) and Pakistan
International Airlines (PIA) (2009)), other aviation players have already
taken advantage of alternative Islamic instruments.
Take for example, PIA. In addition to its US$250 million Sukuk
certificates issued in 2009 to moderate negative earnings, the South
Asian national airline last year executed a Shariah compliant Murabahah
deal for US$130 million to fund working capital requirements and general
corporate purposes: including the addition of narrow body aircraft. The
three-year financing facility involved the carrier acting as an agent to
its financiers to sell air tickets to end consumers at cost plus
pre-determined profit, as agreed between PIA and its creditors.
In June this year, French plane maker Airbus Group partnered with
Dubai-based Quantum Investment and Palma Capital to launch a Shariah
compliant aircraft fund which will purchase planes for lease to airlines
in the GCC and in OIC member countries. Aircraft leasing in particular is
an aviation favorite given the long-life of commercial aircraft, which is
suitable for Islamic finance products; as well as the relatively high and
stable investment returns from aircraft in comparison with other asset
classes.
Aviation experts have confirmed to IFN that although the share of Ijarah
contracts in relation to total leasing activities is still small, it is
nonetheless gaining ground as more institutions familiarize themselves
with the industry and its modus operandi. Boeing believes that the
aviation industry in the Middle East is poised for significant growth,
with 2013 projections pegging the market to grow to US$550 billion over
the next 20 years. And since virtually every airline in Muslim countries
is now utilizing aircraft leasing, things could be looking up for Shariah
compliant aircraft financing.
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