Budgeting and finances

Airbus and idb back islamic aircraft leasing fund

Airbus Group and the Jeddah-based Islamic Development Bank (IDB) are seeding a sharia-compliant aircraft leasing fund to cater to growing demand for commercial financing from airlines in the Middle East, Asia and Africa. The fund, which will exclusively finance Airbus aircraft, has a target size of $5 billion and could help boost the European planemaker's edge against rival Boeing in the fast growing commercial airline market in the Gulf region. The European planemaker developed the fund together with Dubai-based Quantum Investment Bank and Palma Capital, and will seed it together with the IDB. Cayman-based International Airfinance Corporation will serve as fund manager. Gulf airlines such as Etihad Airways, Emirates and Qatar Airways have transformed the aviation industry over the last decade through aggressive expansion, while Islamic finance is a growing element to win business in the region."Our main goal is to attract new sources of capital to our industry for the benefit of our customers. Our market has become a lot more international, in particular in the financial market," Yann Ballet, head of project and structured finance at Airbus Group, told Reuters.

With an order book that is heavily weighted towards Middle East and Asia, Airbus was keen to develop an Islamic finance solution to cater to that part of the world, he added."We came very quickly to the conclusion that Asset-based finance is very attractive under Islamic finance principles."

The fund will use a 4-to-1 mix of sharia-compliant debt and equity, with the first tranche expected to close by the end of September, Ballet said, adding the fund already had existing investor commitments and several transactions in the pipeline. Use of lease financing has expanded among commercial airlines. Large carriers, which tend to secure lower lease rates, reduce the risk of a fall in the value of their fleets, while smaller rivals gain aircraft they could not buy outright. Commercial aircraft financing surpassed the $100 billion mark for the first time last year and this figure is set to be higher this year, a report by consultancy Flightglobal said.

Lease financing currently represent a third of aircraft deliveries and this could reach half of all new aircraft deliveries by the middle of the next decade. Gulf-based carriers are prominent in Airbus' order book, but the fund's geographical mandate covers all of the IDB's 56 member-countries, which could see it extending financing well beyond the region. In May, Indonesian airline Garuda Indonesia secured $100 million in financing from a unit of Malaysia's Maybank to fund its operations and expansion. In 2012, Sri Lankan completed a $175 million sharia-compliant loan facility from a syndicate of five Gulf-based Islamic banks.

Australia business investment skids, risks gdp contraction

Dec 1 Australian business investment fell a surprisingly sharp 4 percent last quarter as miners and manufacturers cut back on spending, a disappointing report underlining the real risk that the whole economy may have contracted. Thursday's figures from the Australian Bureau of Statistics' showed business investment fell 4 percent in the third quarter, when analysts had looked for a drop of only 2.5 percent. With spending on equipment and building declining, investment likely took another heavy toll on gross domestic product (GDP) which was already looking soft after reported weakness in retail sales.

Such was the drag that the economy may have shrunk in the quarter, something that has only happened three times in the past 25 years. The last negative quarter was back in 2011 and that was caused by massive flooding in Queensland. The GDP report is due on Dec. 7.

The data was also a blow to the Reserve Bank of Australia's (RBA) hopes for a revival in investment outside of the hard-hit mining sector.

Neither was the outlook much brighter with the latest survey estimate of planned investment for 2016/17 coming in well under expectations at $106.9 billion. Analysts had looked for something around A$111 billion. Investors reacted by nudging the local dollar down slightly to $0.7380. The currency had already been under pressure after the U.S. dollar jumped on higher Treasury yields. Interbank futures <0#YIB:> still suggest the market sees scant chance of another cut in interest rates for the next few months, though any thought of a hike has also been priced out.

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Editor: Jan Paschal

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