International Airfinance Corporation (IAFC), the manager of Shariah compliant ALIF Fund, has contracted a firm purchase agreement for five Airbus A330-200 aircraft, the company revealed in a statement to IFN. The US$2 billion agreement, which includes options for an additional four A330-200 aircraft, marks yet another exciting development in the world of Shariah compliant aviation financing, which VINEETA TAN writes, has in recent years gathered momentum as aviation players aggressively seek funding diversification.
Launched in June 2014 (See IFN Vol 11 Issue 25: ‘Quantum Investment Bank and Palma Capital launch new Islamic aircraft leasing fund with Airbus’), the ALIF Fund is indeed generating significant demand, primarily from the GCC and Southeast Asia both from the investor point of view as well as the operator’s. This was confirmed by Dr Idriss Ghodbane, the managing partner and board member of IAFC, who also revealed to IFN that: “The first offering was oversubscribed and we are looking at hitting our US$5 billion target soon. In fact, looking at how things are progressing, we are expecting to announce the closure of the fund sometime [this] week.”
Targeting to acquire 15-20 aircraft within the next one year, Idriss said that IAFC is on track in meeting its target of deploying funds within two years from when the fund was launched in June 2014. “We are definitely on track and may even complete deployment before the two-year timeframe,” said Idriss.
The involvement of Airbus, who along with the IDB provided the seed capital for the fund in their capacity as anchor investors and strategic partners, testifies the significant importance of Islamic finance to the aviation industry on a global level. Just last year, as part of the UK’s drive in making itself an Islamic finance hub, the economic secretary to the UK Treasury Andrea Leadsom announced UK Export Finance (UKEF)’s commitment to bring the first guaranteed Sukuk to the market this quarter, in support of an Airbus customer. This will be the first Sukuk for an export credit agency-backed aviation transaction and as Leadsom described in her speech at WIEF last year: “A significant step forward in UKEF’s existing work with a wide range of airlines from the Islamic world.” It is understood that Dubai’s Emirates Airline is the Airbus customer in question, according to a December report by Airfinance Journal, and recently confirmed to IFN by sources close to the deal. The airline was already a frontrunner for the hotly anticipated deal, as predicted by IFN last year upon the initial announcement of UKEF’s involvement (See IFN Cover Story Vol 11 Issue 48: ‘Reach for the stars’).
UKEF’s participation is indeed lauded by both the Islamic finance community and the aviation fraternity as not only a strong validation for Islamic finance, but also as a move that would hopefully boost and encourage the involvement of export credit agencies. According to Boeing’s Current Aircraft Market Outlook 2015, export credit usage are expected to be driven to historically low levels this year as a result of commercial market strength and higher equity requirements from the 2011 Aircraft Sector Understanding. It is expected for export credit usage to be limited to emerging market players, new lessor platforms and established carriers looking at diversification.