Aircraft Leasing – AerCap USD500mn Inaugural  Sukuk

Global Aviation Leasing Leader, AerCap Holdings, Taps International Market with Maiden Benchmark USD500mn Sukuk Al-Ijarah to Refinance Aircraft Assets and Debt

Another sign of the widening appeal of Sukuk as a fund-raising debt instrument beyond issuers in traditional markets, is the entry of AerCap Holdings N.V., the global leader in aviation leasing, with the successful completion of its maiden benchmark 5-Year USD500 million Sukuk Al-Ijarah issuance on 3 October 2024.

In a statement to the Global Exchange Market of Euronext Dublin, on which it was admitted for trading and listing, the company stressed that it intends to use the net proceeds from the issuance for general corporate purposes, including to acquire, invest in, finance or refinance aircraft assets and to repay indebtedness.

AerCap Holdings mandated Arab Banking Corporation, Dubai Islamic Bank, Emirates NBD Bank, HSBC Bank plc, J.P. Morgan Securities plc, KFH Capital Investment Company, and Warba Bank to act as Joint Lead Managers and Bookrunners to the transaction and to arrange a series of investor calls and meetings with accounts in the UK, EU, the MENAT region and Asia.

The trust certificates in Sukuk format were issued by Aercap Sukuk Limited, incorporated in the Cayman Islands, on behalf of the Obligor, AerCap Holdings N.V. The certificates, which are Senior Unsecured RegS 144A Trust Certificates, were issued on 3 October 2024 and mature on 3 October 2029.

The transaction following good demand from investors, was priced on the same day at a profit rate of4.5% per annum – payable semi-annually in arrears. The trust certificates were assigned a ‘BBB’ by Fitch Ratings; ‘Baa1’ by Moody’s Investor `Service, and ‘BBB+” by S&P Global Ratings – the first with a Positive Outlook and the latter two with a Stable Outlook.

AerCap is the world’s largest owner of commercial aircraft, engines and helicopters. “We provide our customers with access to these assets through long-term lease agreements, spanning up to 12 years in duration. This provides capacity and certainty for our customers and long-term cash flows to the company. With our board-level ESG Committee, strong governance frameworks, empowered employees and our commitment to fleet renewal into the most fuel-efficient aircraft available, AerCap is committed to growing our business in a responsible and sustainable way,” stressed AerCap in a statement.    

Aircraft leasing has been a key component of the Islamic finance landscape for the last few decades, with Garuda, Syrian Airlines, Malaysian Airlines, Emirates, and Kuwait Airways all accessing Murabaha financing facilities to finance their fleet expansion.

Islamic finance is deemed ideally synergetic to asset-based transactions such as aircraft backed by lease rental income streams. Aviation Lease and Finance Company (ALAFCO), an emerging medium-sized Sharia’a-compliant aircraft leasing company was established in 1992 as the aircraft leasing arm of Kuwait Airways pioneering Islamic aircraft leasing in the market. ALAFCO was acquired by Kuwait Finance House KFH in 1999 and listed on the Kuwait stock exchange in 2006. Today ALAFCO manages 244 aircraft generating USD3.1bn in operating lease revenue in 2023 with over 40 different airline customers.

Since then, several major aircraft leasing companies have entered the Sharia’a-compliant finance space raising funds for their fleet expansion strategies through Murabaha credit facilities or Sukuk issuances, including Novus Aviation Capital, International Airfinance Corporation (IAFC), AerCap Holdings, Amedeo, AviLease, Air Lease Corporation (ALC), and Dubai Aerospace Enterprise (DAE) Limited.

IAFC, founded in 2014, has also partnered with Quantum Investment Bank to launch the ALIF Fund, a Shariah-compliant aircraft leasing fund. Last year, ALC successfully completed its inaugural Sukuk Al Ijarah issuance raising USD600mn priced at coupon rate of 5.85% per annum. The transaction represented the first ever offering of its kind into the Middle East market from a North American corporate and the largest Sukuk from a US-based borrower in history.

“We are proud to highlight the strong liquidity in this region and the opportunity for other investment grade borrowers to raise funds at cost efficient rates. This transaction complements our strong airline relationships in the Middle East, and we look forward to further developing our funding presence in this region,” stressed Daniel Verwholt, the then Senior Vice President and Treasurer of Air Lease Corporation.

The Company used the net proceeds of the offering for general corporate purposes, which may include the purchase of commercial aircraft and the repayment of existing indebtedness.

The entry of AviLease into the market could be a game changer. AviLease is a wholly owned subsidiary of Public Investment Fund, Saudi Arabia’s sovereign wealth fund. In April this year, AviLease, considered by the market as the emerging rising global aircraft lessor, successfully closed a USD700mn unsecured revolving credit facility. The dual-currency facility, in USD and SAR (Saudi Riyal), was secured with Alrajhi Bank, Banque Saudi Fransi (BSF), Riyad Bank and Saudi Awwal Bank (SAB).

Edward O’Byrne, CEO of AviLease, explained: “We are pleased to announce the signing of a USD700m dual-currency revolving credit facility, which was more than 1.3 times oversubscribed. This credit facility is key in diversification in our financing and liquidity strategy, representing a flexible short term financing tool in support of our opportunistic aircraft acquisition activities and working capital needs. This is a testament to the strength of our platform and strong support from our banking partners.”

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