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Time for Islamic airline finance

Of the many things that the Gulf is famous for, two that would have to stand out would be Islamic finance and successful airlines.

Emirates Airline has proved to be something of a beacon of hope for the regional aviation industry and has won plaudits both for its excellent service and its robust business model. Other airlines in the region have followed Emirates lead and the list of wannabees grows, including both Etihad and Qatar Airways.

Over recent years we have seen both airports and airlines in the region using Sukuk as funding vehicles for their business – but we have not really seen Islamic finance take hold in the multi-billion dollar space that is ‘aircraft financing’ in the region: with luck that might change as the decade progresses.

Observers have suggested that Saudi Arabia's moves towards an ‘open sky’ policy could attract interest of many airlines - both from the Gulf and beyond. It is doubtless boom time for the KSA airline market – up 13 per cent last year - with north of 54m customers squeezing through Saudi’s  27 airports last year according to the General Authority for Civil Aviation in the Kingdom.

The bad news for passengers is that Saudi Arabian Airlines, the national carrier, and budget National Air Services NAS are the only games in town at present. Enter Islamic aircraft financing?

Hajj travel is big business but the reality is that foreign pilgrims can only make it to Saudi on an overseas airline. After that they are in the hands of the domestic system.

There is no lack of interest from foreign entities to moving in an providing a higher quality of service than that which is offered at present in the domestic Saudi scene – which is characterized as being below par and stuck in the 1970s. The issue is when this will happen and what sort of funding will be used.

Aircraft are expensive – it is as simple as that – with a Boeing 737-700 costing in the region of $60m. With new markets opening up – like KSA - then the opportunities for Islamic aircraft financing are growing all the time. Key figures in the industry are forever going on about adding to the palette of Islamic financing instruments being used. Now could be a great time to demonstrate that Islamic finance and aircraft finance make perfect bedfellows.