Gulf banks are becoming bigger players in the region’s aviation boom, helping carriers to fund their respective fleet expansion.
Critics of the Gulf’s state-owned carriers may feel such financing from local lenders gives some kind of unfair advantage but local airlines together with their financiers say it’s done only on a commercial basis.
Figures from Airbus show that 42% of its deals in the Middle-East in 2014 were funded by local banks giving local carriers access to cheap capital. This in turn seems to put into question the dominance of global banking.
After a long history of dealing mostly with property, the local banks seem to turn towards aircraft procurement financing as a way to diversify risk. They believe that aviation as opposed to property is a less risky class of asset. Opportunities are immense in the region. There are even certain movements of capital to outside the region, in line with the region’s growing influence in air traffic worldwide.
“We see these days that banks in the Middle-East are playing an increasingly important role in aircraft financing not only in the region but worldwide”, a European aircraft manufacturer representative was heard of saying to the press.
Airlines traditionally relied more on leasing firms, export credit agencies, international banks and capital markets or cash for their financing needs. Carriers have lately widened their sources of financing in order to secure competitive funds. But at the same time, some funding options, such as export credit once a cost effective mainstay for the big 3 Gulf carriers has been pushed towards market rates. Globally funding from some international banks has also been less abundant since the 2008 crisis but in the meantime, few have made a return to the market.
Since then German proportion of funding was lower and French banks’ for example are expected to be much lower than back in 2009. Their British counterparts expect however that Europe generally could allow greater and more competitive lending from European banks.
“There is a lot of liquidity available from which particularly the 3 major Gulf airlines are benefitting and this is what has allowed the local and regional banks to grow their aviation portfolios”.