December 11, 2017 TnH Global

flydubai uses new structures to finance its fleet of MAX aircraft

Dubai-based flydubai announced that it has closed two new financing structures: a Japanese Operating Lease with a Call Option (JOLCO) and an Aircraft Finance Insurance Consortium (AFIC) insured debt financing structure, to support the airline’s strategy of integrating the Boeing 737 MAX 8 aircraft into its growing fleet. This was the first time a JOLCO transaction financed this aircraft type. In addition, the AFIC transaction marks the first time that this product has been used in the region.

The JOLCO and AFIC structures allow flydubai to further diversify its funding sources and efficiently source funding for its fleet. The JOLCO funding structure comprises of equity participation from local Japanese entities with the balance coming in the form of bank debt. This constitutes a brand-new financing source for the airline with a high advance rate typical of a combined debt and equity facility. Credit Agricole (CA-CIB) acted as overall JOLCO arranger and debt underwriter.

Ghaith Al Ghaith, Chief Executive Officer at flydubai, said: “with more than 70 aircraft to join our fleet by 2023 this marks the first time that flydubai has accessed financing models of this kind and reflects our desire to access the most innovative financing structures available in the market.”

With respect to the AFIC structure, Marsh, a global leader in insurance brokerage and innovative risk management solutions, served as broker and the insurance was provided by a consortium of four leading global insurance companies: Allianz, Axis Capital, Fidelis and Sompo International. The consortium provides AFIC non-payment insurance (ANPI), designed for banks and capital market investors that are funding new aircraft purchases from Boeing. Sumitomo Mitsui Banking Corporation (SMBC) provided the debt financing for flydubai against the AFIC insurance policy. The AFIC financing structure is fast gaining credibility as an innovative product providing the airline with yet another alternative source of funding.

Arbind Kumar, Senior Vice President, Finance at flydubai, said: “we have previously sought sale and leaseback, commercial debt financing and in 2014 we issued our first Sukuk. This is the next step in flydubai’s evolution of its financing structures and we will continue to consider new financing structures at competitive pricing levels that support the needs of the airline. We thank our partners and appreciate this validation of the airline’s strategic growth story.”

In 2017, the JOLCO structure was used to finance one aircraft and the AFIC structure financed a total of three aircraft. flydubai has received five Boeing 737 MAX 8 aircraft and is due to receive a further aircraft by the end of the year. It has a further 70 Boeing 737 MAX aircraft due for delivery by 2023 and at the Dubai Airshow held in November 2017, flydubai announced a commitment to a US$27 billion order for 225 Boeing 737 MAX aircraft.