AfDB working on aircraft financing for African carriers

There are indications that the African Development Bank (AfDB) is working to create a platform for financing aircraft following the challenges aircraft financing poses for the continent’s carriers, said the Secretary-General of African Airlines Association (AFRAA), Abdérahmane Berthé.

Berthe who spoke to Aviation Metric at the just concluded MRO Africa convened in Addis Ababa, Ethiopia at the weekend said AFRAA was discussing with AfDB to see how they can support the project of aircraft financing for the continent’s carriers.

He said, “You know, it’s simple. If you want money to buy a house, the bank will see if you can service the loan for the time. It is the same thing. So they need to look at the management, the business plan of the airline, to get confidence that the airlines can operate the aircraft and fund the loan.”

“There are some discussions around it. It is a very critical question. And we hope that we will find a solution as soon as possible. Because you are right, because if I said we will have more aircraft in operation, how to get this aircraft? Do we need finance?

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Financing the purchase, or leasing of an aircraft and related assets can take several forms including but not limited to a loan from a bank or other financial institution, secured by a mortgage over the aircraft purchased; the lease of the aircraft involving either an operating lease or a finance lease; and, a capital markets transaction through the issuing of bonds or notes secured by a mortgage on the aircraft.

The most common forms of financing peculiar to the Nigerian aviation sector are secured loans and leases. The secured loan structure involves a lender granting a loan to an airline or leasing company to purchase an aircraft with the loan secured by way of a mortgage or other security interest over the aircraft. With this structure, the ownership of the aircraft resides with the airline (owner) or leasing company and the aircraft is operated either by the airline or is leased to another party.

Not a few experts believe that along with its huge growth potential, Africa also poses several unique challenges for financiers and lessors in terms of Credit, Asset and Jurisdictional risk.

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A vast and segmented market with numerous new and re-emerging airlines, and a varying array of legal and tax environments, requires a specialist local understanding of aviation finance and leasing transactions.

The AFRAA scribe took a swipe at those calling for protectionism in the face of the Single Africa Air Transport Market (SAATM).

He expressed concern over countries denying others traffic rights even when they are signatories to the Africa Union (AU) policy on air transportation.

“We have today 38 seats signed to a Single African Air Transport Market last month. But all of them have not complied, maybe 10, some will sign, but they will continue to deny even third or fourth traffic rights. I am just not talking about the fifth freedom of traffic rights. This is a concern for us.

“So far we have been trying to do advocacy, but even advocacy is not working very well. Today there are two things we are working on. It put in place what we call the dispute settlement mechanism at the AU level which will authorize an airline or a state to go into a dispute against a state that is denying a traffic right.

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“If you sign and you are denying, you can be taken to the court and also there will be some sanctions around it. In parallel to that, it is also important to reach high-level political decisions, and leaders, because so far we are talking to ministers, which is not working very well.

“So now we feel as stakeholders, we need to package something and go higher at the level of prime minister or even head of state. If the instructions come from the head of state, we hope that state will implement it”, he added.

 

Wole Shadare

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