To finance their upcoming aircraft deliveries, Middle East airlines such as Emirates and Etihad Airways are intensifying their focus on the attractively priced export credit agency (ECA) market to finance the deliveries of their upcoming aircraft.

In September this year, Emirates closed the first-ever capital markets bond offering guaranteed by the US Export-Import Bank, with the deal covering three new Boeing 777-300ERs delivered in July, August and September.

Asked if Emirates is eyeing the export credit finance market for its future aircraft deliveries, Brian Jeffery, Emirates' Senior Vice-President, Commercial Treasury, told Emirates Business: "Emirates will continue to use export credit finance for future deliveries as one part of a diversified overall funding programme.

"Currently, the ECA market is the most liquid and financially attractive, particularly when used with capital markets funding."

Similarly, Abu Dhabi-based Etihad Airways is eyeing the ECA-backed capital markets option for its third batch of deliveries, forming part of its $1 billion (Dh3.67bn) eight-aircraft programme through 2010.

"Etihad Airways will consider ECA-linked capital market structures for these deliveries," James Rigney, the airline's Chief Financial Officer, told the newspaper. He added that Etihad expects to mandate financing for these deliveries in "early 2010".

Meanwhile, as for Emirates, in addition to the three aircraft already converted into an Eximbank guaranteed bond financing, the airline has mandated four banking groups for the same or similar Export Credit products with capital market options, according to Jeffery.

He said: "Discussions with banks are ongoing with respect to further mandates stretching to July 2010 as per the current delivery schedule."

However, according to Kareem Z Murad, Vice-President – Research (Transportation and Logistics Sector), Shuaa Capital, for airlines to go to export credit agencies, is not a new phenomenon.

"It has always been there and it will continue to remain attractive for airlines as the risk is lower. It is basically government guaranteeing your debt," he said.

Asked if the ECA approach for airlines is a sustainable one in the long term, Emirates' Jeffery said: "We believe that the depth of appetite for government-guaranteed bonds is huge and easily sustainable as part of Emirates' overall diversified funding strategy."

"The phenomenon will continue for as long as pricing levels remain competitive. We believe that investor demand will always be high; as with all financing products, however, the appeal to issuers will fluctuate in accordance with its pricing," he said.

Meanwhile, US plane manufacturer Boeing is one of the biggest customers of ECA financing, according to industry experts, with the company's global portfolio of aircraft financing being worth $6.5bn.

Rival manufacturer Airbus, on the other hand, is of the opinion that it would not need much aircraft financing in 2011, according to John Leahy, Airbus' Chief Operating Officer – Customers. "Though we will need some ECA financing in 2010, we won't need that much in 2011," he said.

Leahy said Airbus has been able to step up ECA financing "quite considerably" since the credit crunch.

Meanwhile, with local investors coming back to the Middle East market, Islamic financing will become an important element in the aircraft industry in this region, John Matthews, Boeing's Managing Director-Middle East and African Region recently told the newspaper.

Boeing had estimated at the beginning of this year that it might end up funding about $1bn in financing during 2009. But the planemaker is likely to be funding "less than that", "which is a good thing from our perspective", said Matthews.

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