UAE airlines face higher borrowing costs for aircraft

UAE airlines will face higher borrowing costs for new aircraft soon after the Organisation for Economic Co-operation and Development agreed to revise rules concerning government-backed export credits.

The agreement, which was reached on Tuesday but still needs to be ratified by each member state by January 20, will phase out rules that made it easier for airlines in developing countries to finance aircraft purchases.

Previously, airlines based outside of Europe and North America have been eligible for financial guarantees and insurance provided by export credit agencies. This led to cheaper financing terms compared with airlines based in the five countries where Airbus and Boeing planes were manufactured. The rules that are being revised were first applied in 1986, in order to prevent a trade war.

“The proposed terms  - following extensive negotiations at the OECD – would move fees closer to market rates and allow for regular adjustments to reflect market development,” the organization said in a statement.

With the revisions, Airbus and Boeing can deliver planes through 2012 with the current state-backed financing terms, said Steven Tvardek, a negotiator with the Paris-based OECD. The waiver also applies to 138 planes ordered from the two airliner manufacturers before May 2007, he said.

Emirates and Etihad have used export credits in the past to finance a portion of their aircraft purchases, and both have billions of dollars of aircraft still on order with deliveries spread out over the decade.

igale@thenational

-With Bloomberg