Emirates Seeking Over $28 Billion for Fleet Expansion

Emirates orders Boeing 777-300ER planes for $9.1 billion
A new Boeing 777-300ER passenger jet sits in a hanger. Photographer: Kimimasa Mayama/Bloomberg

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 yesterday from his office overlooking Dubai International Airport. 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 $21.6 billion 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.

Mostly Debt

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, the executive said.

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

About $30 billion of debt from Gulf-based companies will mature in 2012 and needs to be refinanced, according to Moody’s Investors Service. Of this, U.A.E. entities make up two thirds.

“It could be quite a crowded time for Emirates to get funding,” said Khalid Howladar, a Dubai-based senior analyst at Moody’s. “That said, Emirates is one of the strongest pillars of the regional economy with pretty solid cashflows and growth prospects. So dependent on timing and pricing, investor demand should be high.”

Cash Pile

Emirates 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.”

Dubai World, one of the emirate’s three main state-owned business groups, on May 20 reached an agreement with its creditors to restructure $23.5 billion of loans. The company’s announcement on Nov. 25 to delay repaying loans sparked a plunge in stocks around the world and the largest increase in emerging-market bond yields over U.S. Treasuries in four weeks. The cost to protect against a default by Dubai doubled.

Credit Risk

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.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE