Etihad bucks economic downturn

The airline shrugs off the misery in global credit markets by sealing financing fror two new aircraft.

Etihad has raised finance on international markets despite the worldwide credit squeeze.

Etihad Airways has shrugged off tightening global credit markets by sealing financing for two new wide-bodied Airbus aircraft in deals worth about US$250 million (Dh918.3m), the company said yesterday. The Abu Dhabi air carrier said it tapped banks last month from the UAE, Europe and Asia to fund the arrival of two of the new A340-600 series, which at 75.3 metres long is the world's longest aeroplane. "We were very happy with the responses from banks," said James Rigney, the executive vice president of finance at Etihad. He acknowledged, however, that the climate for aircraft finance had "definitely got tougher". Some banks that were involved in financing aircraft purchases had quit the market recently amid the global financial turmoil, while others no longer had enough liquidity to arrange loans. However, Etihad said it was able to agree on lending terms that were slightly more favourable than when it secured $1.5 billion in new debt last year. This was due to a drop this year in the benchmark interest rate, the London inter bank offering rate (Libor), even as lending margins have crept up recently. One aircraft was financed solely through a UAE bank, while the second was through a consortium of institutions from the UAE, Asia and Europe, Etihad said. The loans were set for 12-year terms, with interest rates fixed for the first three years on one loan, and five years on the other. Etihad disclosed its financing needs to banks in July, the same month it gained global recognition by announcing the year's largest order for 100 new aircraft from Boeing and Airbus at the Farnborough Air Show. Although typically a slow period for project finance, the summer campaign narrowly preceded the current market uncertainties, and Etihad was offered financing from 18 banks, Mr Rigney said. "With the benefit of hindsight, it appears to have worked in our favour." The $250m loans represent Etihad's total financing needs for the year. The other aircraft it acquired this year have been leased and require no financing. Scheduled to join the Etihad fleet this month and in December, the two A340-600 aeroplanes will be used on Etihad's long-haul flights to Sydney and London. The planes typically seat about 370 passengers in a three-class arrangement. Financial institutions are facing an intensely challenging environment, with interbank lending dropping sharply in recent weeks and the cost of borrowing rising dramatically. Despite this, bankers said aviation remained an attractive industry for lending. "It's a good market with tangible assets as collateral, and you can easily monitor the exposure and residual value of aircraft," said Mark Yassin, the senior general manager of corporate and investment banking at National Bank of Abu Dhabi (NBAD). In addition to finance, fuel has also been a major concern for airlines. James Hogan, the chief executive of Etihad, said the airline was tracking fuel prices closely in case it needed to alter fuel surcharges or take on additional fuel hedging positions. The airline has hedged a majority of its fuel needs this year, while hedging 40 per cent of its fuel next year and 10 per cent for 2010, all from large block fuel purchases signed before oil started its record rise last year. However, Etihad said it would wait until prices stabilised before taking any further action. Yesterday, oil prices continued to fluctuate wildly, with contracts for US light sweet crude closing at $89 a barrel. "We need to see some stability in the [oil] market first," Mr Hogan said. In December, Etihad will launch services to Moscow and the Kazakh capital of Almaty to reach a total of 50 international destinations. [e-mail]