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Emirates Says Superjumbo Ramp-Up Fully Funded for Next Year

July 11 (Bloomberg) -- Emirates, investing in a wide-body jet fleet including 90 Airbus SAS A380 superjumbos worth $34 billion at list prices, said financing the planes isn’t a concern and that it’s fully funded through July 2012.

A $1 billion bond issue last month was “opportunistic” and Emirates would consider a further sale given “suitable” pricing, Gary Chapman, its president for services, said in an interview. The world’s biggest international airline would consider seeking a credit rating if such a move appeared advantageous, he said.

“The bond was part of risk management and making sure we have a nice cushion of cash just in case,” Chapman said in Dubai, where Emirates is based, adding that there are no plans for a further issue right now. Obligations for the current year are being met through a mixture of debt and equity, he said.

Emirates plans to spend about $4 billion annually over the next three to four years. Fuel-price volatility will be managed through ticket-price changes and the carrier’s cash balance, and it has been less active in hedging for fear of being locked in at prices creating a competition disadvantage, Chapman said.

“We have limited cover in terms of call options which will be triggered at higher prices,” he said. “We are not heavily hedged at the moment and that’s a conscious decision.” Emirates removed its fuel surcharge in May after oil prices fell.

Hub Challenge

The Arab world’s biggest carrier is building the largest superjumbo fleet as it seeks to establish Dubai as an inter-continental travel hub and win passengers from Air France-KLM Group, British Airways and Deutsche Lufthansa AG. It also competes with local rivals Qatar Airways and Abu Dhabi’s Etihad.

Emirates will need about $27 billion to fund jet deliveries for the next six years, Chapman reiterated. About 199 planes are slated for delivery through 2019, the latest factsheet says.

“We always aim to have about 50 percent of our fleet on operating leases, so we often do sale and lease back,” a strategy that shifts asset risk from the balance sheet, said Chapman. The company, which seeks financing for up to 85 percent of plane purchases, aims to continue building up its cash pile.

Emirates had 16 billion dirhams ($4.4 billion) in cash at the end of its fiscal year on March 31 and would generally aim to maintain a figure equal to 25-30 percent of revenue, Chapman said. During the financial crisis of 2008 and 2009 most airlines suffered a drop of 20 percent in sales, he said.

“There’s a lot of uncertainty still out there in the world, given what’s happening in Greece and Portugal, he said. “And the U.S. is struggling.”

Dnata Branding

Emirates, which boosted annual earnings 43 percent to a record 5.93 billion dirhams in the fiscal year as it attracted passengers with its growing A380 fleet, favors a mixed approach to raising funding, according to Chapman.

“We’ve traditionally been about 20 percent on each of them, between commercial debt, export credit, German and Japanese tax leases, and we’ve done some Islamic,” he said. “We’ve mixed around all of those and that’s proven to be a good way forward.”

Plans to rebrand the Dnata ground-handling and catering unit, of which Chapman is also president, are under way as part of an overseas expansion, with the name being applied to operations in Singapore, currently trading via Changi International Airport Services (CIAS), and the U.K., fully acquired in 2005 and operating as Plane Handling Ltd.

“We now handle more aircraft, more passengers, more cargo, and more baggage outside of Dubai than inside, so we are no longer Dubai-centric,” Chapman said.

Emirates will continue to expand its ground-handling operations and is in talks concerning one or two acquisition opportunities in the segment, which it may announce before the year’s end, said Chapman. Dnata employs 20,000 people at more than 70 airports in 28 countries, 60 percent of them overseas.

“We continue to look at opportunities,” the executive said. “Europe is very mature, so it’s about retaining what we’ve got. There’s a lot of growth in the Far East and Australasia so that’s definitely a strong focus.”

To contact the reporter on this story: Tamara Walid in Dubai at

To contact the editors responsible for this story: Benedikt Kammel at; Chad Thomas at

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