Boeing Capital mulls Islamic financing for jet purchases

Boeing may partner with financial institution in the Middle East

Boeing Capital considers partnering with a regional financial institution to create an Islamic finance tool for aircraft purchases. Roslan Rahman / AFP
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Boeing is considering offering Islamic finance tools as a way for its Middle East and Africa customers to fund aircraft purchases and diversify their financing sources.

Boeing Capital, the financing arm of the world's biggest planemaker, could partner with a bank or financial institution in the region to create a shariah-compliant aircraft financing product, Vasgen Edwards, managing director for Middle East Africa customer finance, said to on the sidelines of the Global Investment Aviation Summit in Dubai.

"It will be Islamic content and it will support aircraft financing," Mr Edwards said. "It's very early stages."

The plans follow the setup of the Alif Fund in 2014, a shariah-compliant aircraft leasing fund backed by Boeing's European rival Airbus and managed by the International Airfinance Corporation (IAFC) in Dubai. Regional airlines such as Emirates, Etihad Airways and Flydubai have issued Islamic bonds to finance the growth of their fleet.

Boeing Capital's potential Islamic finance partnership may be based in the UAE or Saudi Arabia, where there is a big market, but other locations in the wider Mena region are also an option, Mr Edwards.

The Shariah-compliant facility would work well for customers in the Middle East and Africa where there are large Muslim populations, he said.

"Islamic financing is very important in this region, so we should be working towards what the region has appetite for," Mr Edwards said.

Boeing expects stable and diversified growth in aircraft financing in 2019 as new investors enter the market to fund new jet deliveries, according to its annual Current Aircraft Finance Market Outlook.

The US planemaker forecasts about $143 billion (Dh525.16bn) in new commercial aircraft deliveries by major plane manufacturers this year, up from $126bn in 2018, with a potential to grow to more than $181bn by 2023, Boeing said in its 2019 report. Funding for deliveries is expected to be balanced between bank debt, capital markets and cash.

Mr Edwards said it was "a bit premature" to tell when the Islamic financing tool would be rolled out and that the right conditions need to be in place first including having the “right price point” on the product.

"If there’s appetite for an Islamic solution, we’ll definitely be interested in providing something to our customers," he said.