Etihad raises $600m from sustainability-linked sukuk

The issuance follows investments in next-generation aircraft and commitments to emissions reduction

Etihad is positioning the airline as a mid-sized, full-service carrier. Courtesy Etihad

Etihad Airways sold $600 million in the world’s first transition sukuk and the first sustainability-linked financing in global aviation as part of its commitment to environmental sustainability.

The transaction comes after the UAE's national carrier became the first airline to secure commercial funding conditional upon compliance with the UN sustainable development goals in December last year.

“Sustainability and responsible climate action are the most significant challenges facing the aviation industry,” Adam Boukadida, chief financial officer at Etihad Aviation Group, said.

“As the UAE’s flag carrier, Etihad is committed to sustainable development in aviation in line with Abu Dhabi’s vision.”

Proceeds of transition bonds are generally used by companies to gradually switch to more environmentally sustainable operations.

The terms of Etihad's sukuk will be linked to the airline's carbon reduction targets, which include a commitment to net zero carbon emissions by 2050, a 50 per cent reduction in net emissions by 2035 and a 20 per cent reduction in emissions intensity in the airline’s passenger fleet by 2025.

Recent sustainability initiatives undertaken by Etihad Aviation Group include induction of the latest-generation, most fuel-efficient aircraft, including additional Boeing 787 Dreamliners.

The airline is also partnering in the development of sustainable aviation fuels and is committed to reducing single use plastics by 80 per cent by 2022.

Etihad also started its greenliner programme, in which its entire fleet of Boeing 787 aircraft will be used during normal scheduled flights as test beds for sustainable products and practices.

In January 2019, Etihad operated the UAE's first commercial flight powered in part by biofuel generated from Abu Dhabi-grown plants nurtured on desert land, saltwater and seafood.

“By issuing a sustainability-linked sukuk, Etihad is voluntarily adding to its existing commitments under the Carbon Offsetting and Reduction Scheme for International Aviation, and also committing to reduce carbon emissions intensity by over 20 per cent from the 2017 baseline,” Mr Boukadida said.

HSBC and Standard Chartered Bank acted as joint global coordinators and joint sustainability structuring agents for the transition sukuk.

Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC and Standard Chartered acted as joint lead managers and book-runners. Abu Dhabi Commercial Bank was joint lead manager and Mashreq Bank acted as financial advisor on the deal.