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Wednesday, September 1, 2010

Emirates needs $28bn through 2017 for fleet expansion

Emirates, the world’s biggest airline by international traffic, needs more than $28 billion through 2017 to expand its fleet of Boeing Co. and Airbus SAS jets, almost double the amount raised since 1996.

Financing requirements for the 12 months through March 2011 will be $1.3 billion, and total about $27 billion for the following six years, Gary Chapman, Emirates’ president of group services in charge of finances, said in an interview in Dubai.

Emirates, which will take delivery of two aircraft each month for the next six years, operates a fleet of 150 jets and has firm commitments for a further 203 planes. The carrier, which is building up a fleet of 90 Airbus A380 aircraft with 45,000 seats, is using its base in Dubai to create a global network to compete with Singapore Airlines Ltd., Air France-KLM Group and Deutsche Lufthansa AG.

“With the activity that we have coming up, we’ve got to leave no stone unturned,” Chapman said on Tuesday. The financing plan is “substantial because it’s pretty close to double what we’ve done in the previous 14 years.”

Since starting operations 25 years ago, government-owned Emirates has raised $21.6bn to finance its expansion, according to the carrier’s web site. It has done this via operating leases, export credit agencies, commercial asset- backed debt and non-conventional sources such as Islamic funding.

Emirates is weighing all “customary financing vehicles” including going to the capital markets, Chapman said. The airline is also looking at enhanced equipment trust certificates, a debt instrument that allows a carrier to take possession of an asset and pay for it over time, he said.

“In an ideal world we’d like to get about 85 percent financing” from debt and the remainder from equity, the executive said.

The airline may repay some bonds or look at rescheduling them depending on financing costs, Chapman said. It has about $5.3 billion of outstanding debt, including a $500 million bond arranged by HSBC Holdings Plc that’s due in March and a $250 million bond due in June next year, according to the carrier’s financial statements. Emirates doesn’t have a debt rating.

“We’re looking at our options, but you have to set it against the fact that we’re sitting on a cash pile of about $3.4 billion,” he said. “We have the flexibility. We’re not going to be pushed into a corner.”

Borrowing costs for Dubai’s state-owned companies have risen since government conglomerate Dubai World said it needed to reschedule $26 billion of debt last year.

While the airline hasn’t been immune to the impact of the rising costs, Emirates’ standalone credit risk is looked upon “very favorably,” Chapman said.

In June, Emirates ordered 30 Boeing 777-300ER aircraft valued at $9.1 billion and 32 Airbus A380s valued at $11 billion.

Emirates ranked 24th by traffic among international airlines as recently as 2000, putting it on a par with Sabena SA, the Belgian carrier that went bust a year later.

In the intervening period Emirates has increased its traffic sixfold, overtaking Lufthansa last year to become the biggest carrier on international flights, according to the International Air Transport Association, which counts Air France and KLM as two airlines.

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