UAE’s Etihad gets rare full plane financing for A380 superjumbo

A full-payout lease involves the aircraft being recorded as an asset by the airline

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Abu Dhabi’s state-owned Etihad Airways has signed a rare financing deal that will cover the entire cost of an aircraft, it said on Thursday, with Korean investors backing its second Airbus A380 superjumbo valued at a list price of $428 million.

The financing from a group of Korean institutional investors is structured as a 15-year, fixed coupon full-payout lease, Etihad said, without stating the cost of financing or giving further details on the investors.

A full-payout lease involves the aircraft being recorded as an asset by the airline, as opposed to an operating lease, where it is not. The latter is usually on a short-term basis.

Banks usually finance only around 85 percent of the cost of an aircraft to adhere to risk exposure limits, so the fact Etihad had secured 100 percent debt financing makes the deal stand out and shows investors’ confidence in the airline.

The way Etihad finances its fleet and expansion plans is under heightened scrutiny after carriers in the United States alleged Gulf state-owned airlines have received $40 billion in subsidies and government aid.

Etihad Chief Executive James Hogan, responding to the allegations for the first time on Tuesday, said it had only received equity investment and loans from its shareholders. This is not the first time a UAE carrier has defended itself against allegations of taking government subsidies.

Since inception, Etihad has raised more than $10.5 billion from over 70 financial institutions and lessors to fund its fleet of aircraft and engines, according to Thursday’s statement.

Although Gulf banks are playing a bigger part in bankrolling the region’s aviation boom, according to Airbus figures and industry sources, the Korean deal shows financiers outside the region are willing to step up stakes.

Financing for the A380 was arranged by London-based aviation financier Magi Partners and Korean associates Youjee Partner.

Etihad has another eight A380s on order with a total Airbus order book worth $28.6 billion at list price.

To differentiate its A380 offering from other carriers operating the superjumbo, it has targeted the high-end market with a three-room suite in the sky which features a butler and an in-flight chef.

The airline, which posted a 23 percent rise in passengers in 2014, also has significant orders with Boeing. In its latest wave late in 2013, the carrier placed orders for 56 Boeing jets valued at $25.2 billion.