Boeing Capital is pondering Islamic financing to help fund its aircraft deliveries as part of a larger strategic move to provide regional customers with the “right” financing tools.
“Anytime when you are operating on a regional basis, you have to satisfy the regional market, so this is not something that has just popped up. It is something that has always been considered. It is about finding the right product for the region, and that is based on conversations whether they be with financial intuitions, investors or the customers,” said Vasgen Edwards, managing director for Middle East Africa customer finance at Boeing Capital during the Global Investment in Aviation Summit in Dubai. “At the end of the day, we need to make sure we offer the right product. That is the most important thing.”
Edwards acknowledges that “a lot of financing is required” in the Middle East, adding: “And there are certainly investors here who can only invest in an Islamic manner, so it is the recognition of the financing options that are available. We need to show customers that they have a choice. That is the most important aspect for everyone involved.”
Boeing expects $143 billion in new commercial aircraft deliveries by the major original equipment manufacturers this year, compared with $126 billion in 2018.
Edwards would not be drawn on whether a shariah-compliant aircraft financing tool would be ready in time to satisfy any of this year’s financing requirement.
He says the bulk of the industry’s bill would be funded by a combination of commercial financing, the public markets and cash.
Airbus beat its US competitor to the Islamic market. In 2014 the manufacturer launched a $5 billion Shariah-compliant leasing fund (ALIF fund), with International Airfinance and Islamic Development Bank.
Quantum Investment Bank and Palma Capital acted as the exclusive placement agents.
The fund secured a combination of equity and debt. Approximately $1 billion was raised through equity, with Airbus investing 10% and the Islamic Development Bank investing up to 10%.
The fund is for the purchase of new and second-hand Airbus aircraft on lease to carriers in the Gulf Cooperation Council and Organisation of Islamic Conference member countries.
The fund offers Shariah-based operating leases, sukuks and ijarahs (Sharia-compliant leases). It offers a variety of leasing structures including sale-and-leasebacks, forward leases, operating leases and finance leases.
Islamic finance will be a major talking point at Airfinance Journal's upcoming Middle East Airfinance Event 2019 in Dubai, to be held 12-13 March at Raffles. You can register your space here. Airlines and investors are free to register.