|By Saifur Rahman | Executive Editor|Emirates, the world’s largest carrier of international passengers, has raised US$47.43 billion (Dh174 billion) to finance its fleet over the last 10 years, its recently-released annual report for 2016-17 shows.
“Having raised Dh174 billion (US$47.3 billion) over the last 10 years, Emirates continues to maintain a well-diversified and evenly spread financing portfolio. Tapping into various sources of funding, both in terms of structure and geography, Emirates continues to endorse a resilient long term financing strategy,” the report said.
The airline, which has a fleet of 259 aircraft including some of the world’s largest commercial aircraft, usually finances its aircrafts through lease-back agreements with aviation finance companies and lenders. It also uses bonds and Islamic sukuks to manage operational requirements and growth.
The funds were mostly used to finance the acquisition of large wide-bodied aircraft models – mostly Boeing 777s and Airbus A380s as well as to boost the airline’s working capital in times of tight cash flow situations.
The Dubai government-owned airline that delivered 29 years of continuous profit in its 31-year history enjoys a strong reputation and credit rating that help it to secure better borrowing terms from lenders.
The airline had entered the debt market in 2001 – months before it had stunned the world with the largest aircraft order at Dubai Airshow in November 2001 – two months after the September 11 attack in the United States.
Over the last 15 years, the airline used a number of financing models, including issuing bonds, Islamic sukuks, aircraft finance, club deals in addition to utilising export credit support. The airline’s ambitious fleet acquisition programmes were also well supported by General Electric Capital Aviation Services (GECAS) and International Lease Finance Corporation (ILFC).
Emirates, which reported a 70.8 per cent decline in net profits, attributable to the shareholders, to Dh2.43 billion for the year ending March 31, 2017, down from Dh8.33 billion in 2015-16 financial year – reported a 21.6 per cent decline in cash assets to Dh15.66 billion, down from Dh19.98 billion in the previous financial year.
The airline, however, said it is financially well positioned to manage the business without the need of any bond or sukuk issuance.
During 2016-17, Emirates raised a total of Dh29.1 billion (US$ 7.9 billion) to finance a record 35 wide body aircrafts – the highest number of deliveries the airline has taken in a financial year, funded through finance lease, operating lease and term loans.
“Our continued ability to access international funding, and garner support from financial markets and institutions reflect the strength of our business. We have also already received committed offers of finance covering all deliveries in the forthcoming financial year,” the report says.
Investec Bank, a lender in the aviation market, last year closed a $1 billion operating lease transaction with Emirates. The deal will pay for the delivery and sale and leaseback of four A380-800s, the world’s largest passenger jet, Investec said in a statement.
Last month, Veling Ltd, a Mauritius-based niche aircraft leasing company purchased a new Airbus A380 and has leased it back to Emirates. The aircraft delivery took place on May 12, at the Airbus Delivery Centre in Hamburg, Germany. The aircraft was immediately leased to Emirates and will become the airline’s 95th A380 to enter service, further enhancing its position as the world’s largest A380 operator.
Nirmal Govindadas, Senior Vice-President, Corporate Treasury, Emirates, said that the airlines’s financing strategy and its reputation with financial institutions enabled it to access international funds. Growing the fleet of wide-bodied aircraft is a cornerstone of the airline’s growth strategy.
“Emirates’ long-standing financing strategy and our solid reputation with global financial institutions give us the ability to access international funding, and garner support in the global market to grow our fleet of wide-bodied aircraft, which is a cornerstone of our growth strategy. Our partnership with Veling has spanned over a decade and we are pleased to close this lease agreement with them for our 95th A380,” he said.
Emirates continued to tap the Japanese market for the Japanese Operating Lease (JOL) structure and Japanese Operating Lease with a Call Option (JOLCO) on both A380-800 and Boeing 777-300ER aircraft, while further accessing a diverse institutional investor and bank market base including Korea, the United Kingdom, Germany and Spain.
Further and owing to the suspended Export Credit Agency (ECA) support, Emirates successfully structured an innovative Dh4.4 billion (US$ 1.2 billion) commercial bridge facility with US and Chinese institutions.
In June last year, Emirates repaid a bullet bond in full for the value of US$1 billion (Dh3.67 billion) on its maturity date. The bond was raised in 2011 to address Emirates’ working capital requirements. Later in June, Emirates repaid a second bond in Singapore dollar denomination totalling S$150 million, which was originally raised in 2006. Emirates repaid both bonds from its cash resources.
Since 2010, Emirates has fully repaid six bonds, including sukuks (Islamic bonds), totalling Dh10.4 billion (US$2.8 billion).