Emirates Airline, the world's biggest airline by international passenger traffic, is considering the sale of Islamic bonds as it seeks to raise US$4.5 billion in the financial year starting April 2014 to pay for planes.
The Dubai carrier will need an average of $5.34bn a year over the next five years, including 2013, to finance 119 aircraft deliveries, Brian Jeffery, senior vice president for corporate treasury, said in an interview at the airline's headquarters. Among financing options the company could tap the sukuk or non-Sharia-compliant bond market early next year, he said.
Emirates last sold $1bn of Islamic bonds in March, before speculation that the US Federal Reserve will reduce its bond purchasing programme prompted an emerging-market debt selloff and sent yields higher. The state-owned airline is undergoing a period of rapid growth as its home base Dubai recovers from the 2008 global financial crisis.
The debt market is currently volatile, "and that is not ideal for us, but volatility has not stopped us from issuing bonds in the past," Mr Jeffery said last week. "I'm pretty confident that, given the brand and the credit story of Emirates, sufficient funding will be available."
Average yields on global corporate sukuk have risen 46 basis points to 4.62 per cent since the Fed said June 19 it might taper its asset-purchase programme as early as this year, according to the HSBC/Nasdaq Dubai Corporate US Dollar Sukuk Index. The yield on Emirates' $1bn sukuk, which carries a 3.875 per cent profit rate, increased 31 basis points, or 0.31 of a percentage point, in the period to 5 per cent late Wednesday morning in Dubai. The so-called amortising notes have a final maturity date of March 2023 and a weighted average life of five years.
Emirates' decision on whether to sell bonds will depend "on pricing and an acceptable structure," Mr Jeffery said. Other options for funding are commercial debt, operating leases and export credits, which are typically restricted to 20 per cent of the deliveries, he said.
Cash raised for next year will finance the delivery of 21 aircraft including 10 Airbus A380s, nine Boeing 777-300 ER and two Boeing 777 freighters, Mr Jeffery said.
* Bloomberg News
