Etihad Airways raises $1.2bn in aviation's first sustainability-linked ESG loan

Loan terms tied to targets to reduce CO2 emissions, increase corporate governance and promote female participation in workforce

Etihad's Boeing 787 Greenliner will be used as a "flying laboratory" to help make the aviation industry more sustainable. Photo Etihad

Etihad Airways said it raised $1.2 billion in global aviation's first sustainability loan linked to environmental, social and governance goals.

The deal is the airline's third sustainable financing transaction as it pledged in 2020 to reach net-zero carbon emissions by 2050.

The structure of the loan, which was closed on October 1, includes a $500 million four-year tranche and a $700m five-year tranche, Adam Boukadida, chief financial officer of Etihad Aviation Group, told The National.

“This will be by far the biggest of three green transactions that we've done over the last three years and is the first ESG-linked loan for Etihad and for aviation globally,” he said. “It's a sizeable transaction and sustainable financing is very much part our finance DNA and a key part of our strategy now and in the future.”

The transaction is the largest sustainable financing in the airline’s history and follows two aviation financing deals — a $600m sustainability-linked transition sukuk in 2020 and a 100m euro loan tied to the UN Sustainable Development Goals in 2019. Etihad also runs the Greenliner programme, which uses its fleet of Boeing 787 Dreamliners as a test-bed for sustainable flight initiatives.

The Covid-19 pandemic has increased global concerns about climate change threats, with governments promising to build back greener and borrowers establishing ESG frameworks as part of that transition. Global airlines are keen to improve their green credentials to address passenger concerns about climate-related issues and to counter the “flight-shaming” movement that began in Europe. Last week, airlines around the world accelerated their climate goals and committed to net-zero carbon emissions by 2050 as they face increasing pressure from environmental activists and politicians.

Proceeds of the loan will be used for general corporate purposes, Mr Boukadida said.

The airline has committed to penalties and incentives of up to $ 5.5m linked to its progress against key performance indicators on the ESG loan.

The loan is linked to several performance metrics on ESG goals.

The environmental goal involves reducing carbon emissions from passenger aircraft (measured in terms of CO2 emissions per revenue tonne kilometres). The airline has set key milestone goals for 2035 and 2025 as part of its net-zero target for 2050.

The social goal will focus on gender diversity. At its Global Business Service Solution (GBSS) centre in Al Ain, which handles functions from HR support to global revenue audits and has a majority female workforce of 300, Etihad will focus on increasing female participation and continuing training and development.

The final governance metric will be linked to the Integrity Score, a comprehensive measure used to assess the overall internal culture of integrity at the airline.

Work on these goals will start with “immediate effect” and the airline will have an annual reporting cycle along with the solicitors and lenders, Mr Boukadida said.

Etihad Airways picked HSBC and First Abu Dhabi Bank (FAB) as the strategic partners and financiers for this transaction. HSBC and FAB were the joint ESG structuring banks, joint ESG coordinators, joint bookrunner and mandated lead arranger. FAB also acted as facility agent.

The airline has an appetite to further explore green financing opportunities in future "where it make sense and it's aligned to our overarching transformation and sustainability strategy” and is right for all parties involved, the chief financial officer said.

“Next year, we will be taking some incremental aircraft and, if it makes sense and it's appropriate to do so, we will look about how we can finance those if required, with sustainable financing yet again," he said.

Left to right: Martin Tricaud, group head of investment banking at FAB; Adam Boukadida, chief financial officer of Etihad; Abdulfattah Sharaf, chief executive of HSBC UAE. Courtesy Etihad Aviation Group

Asked about the outlook for Etihad's second-half financial performance, Mr Boukadida said he expects a similar performance as the first half of the financial year. The airline halved its operating loss in the first six months of 2021 as it reduced costs and expanded its cargo business.

"Our first half performance, despite the loss, is actually pretty good... with a fair degree of confidence, we can expect to see a similar performance in the second half," he said. "But we've still got the second half of the second half to conclude."

"As long as we have the demand and the ability without constant changing restrictions to fly our guests into or via Abu Dhabi, I am confident that we will close the second half equally as strongly as we did in the first half, " he added.

It continues to focus on its previously stated target of returning to profitability in 2023, Mr Boukadida added.

Etihad Airways' Greenliner. Courtesy Etihad