Professional Documents
Culture Documents
Airline Sukuk by Robert Fugard
Airline Sukuk by Robert Fugard
Structures
Robert Fugard
Linklaters
Partner, Asset Finance Group
the current environment
• reappraisal by banks of approach to aircraft finance
- exit of some traditional lenders
- restriction of categories of airline credits considered
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the Islamic finance market
• Islamic funds estimated at over $200 billion
• growing market
- return of Islamic funds to region
- opportunity to tap into the significant funds of Islamic investors seeking
Shari’a compliant investments
- establishment of regional secondary market infrastructure in Dubai
(DIFC), Bahrain, Saudi Arabia
3
what Islamic finance offers
• diversification of funding sources
• conventional-style documentation
4
‘basic’ Islamic leasing structure
Islamic investors
Modareb
investment (85%)
Declaration of trust
Sale of
Vendor aircraft Islamic Lessor
(Cayman SPV)
Equity
contribution Islamic lease Insurance &
(initial rental) (Ijara) Maintenanc
(15%) e Services
Airline
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airline sukuk structure
• sukuk defined by AAOFI’S Shari’a standards as
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airline sukuk structure
• sukuk gives investors share in profits generated by investment in
asset
• aircraft ijara - based sukuk would fuse aircraft ijara technology and
conventional EETC technology
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airline sukuk features
• relationship of sukuk holders to issuer is that of investor, not
creditor
• sukuk holders rights against Issuer are limited recourse to the trust
assets
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airline sukuk features
• complexity dictated by investor/rating requirements
– rating agencies (eg Standard - Poor’s, Moody’s, Fitch) apply
conventional rating criteria - Shari’a compliance not relevant - so need
to minimise reliance on performance of ijara
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airline sukuk features
• investor loan to value ratio enhancements restricted by “one class
only” certificates
– possible solution: morabaha - based subordinated tranche (on limited
recourse basis)
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airline sukuk features
• ‘standard’ ingredients will include
– aircraft management and remarketing agreements
– lessor ‘ring fenced’ from other transactions for bankruptcy remoteness
– lessor established in tax neutral jurisdiction
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airline sukuk structure
Sukuk Holders
investment
(85%) Declaration of Trust
Asset
Head Lease Value
(Ijara)
Guarantee
Asset Value
SPV Lessor Support Provider
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Any Questions?
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