Executives from Boeing Capital Corporation (BCC), Boeing’s product financing arm, told attendees at its annual financiers and investors conference for the Middle East, Africa and South Asia region, that capital to support its deliveries to the region’s carriers has nearly doubled since 2011.
Financial institutions and airlines in the Middle East have significantly increased their capital investments in new commercial airplanes over the past two years, thus realizing substantial rewards for their investors as demand for new airplanes continues to expand. The manufacturer also said the region’s increased interest in aircraft investment is helping offset lower contributions by Europe’s commercial banks.
“The region historically has seen about 20 percent of its deliveries funded by its own capital sources. That turned up to more than 30 percent in 2011, and, for 2012, it’s heading to nearly 60 percent,” said Rich Hammond, a BCC senior director in the region. “Investors here are acutely aware that our commercial airplanes are great assets, and the growing demand for new and replacement aircraft is genuine.”
The growth of Islamic financing’s role in commercial airplane deliveries is also increasing as airplanes are regarded as ideal for lending under Shariah law given their mobile nature and asset attractiveness. In 2012, Emirates Airways mandated more than $500 million in a 12-year financing deal arranged by three UAE banks – Dubai Islamic (as lead arranger), Al Hilal and Ajman. Also, in one case in the region, competitive Islamic pricing was also able to take out a conventional bank financing deal.
“Commercial aircraft are demonstrating their attractiveness to astute Islamic investors,” Hammond said. ”Islamic financing is established as a financing element for several of our customers, and we expect that to continue as its pricing becomes more competitive and loan tenors increase. It’s a unique niche for aircraft financing, but we’re seeing it grow, and it does work.”
Boeing’s 2012 update to its long-term aviation market outlook projects a $4.5 trillion global market for new aircraft over the next 20 years, with a significant increase in aircraft demand over that time. Of those, the Middle East region is expected to require 2,370 aircraft, worth about $470 billion.