ING Capital and Société Générale are providing a US$137mn 12-year loan to Ethiopian Airlines to finance the purchase of a Boeing 777 freighter aircraft.
The loan is structured with aircraft non-payment insurance (ANPI) cover under the aircraft finance insurance consortium (AFIC) programme.
This is the state-owned airline’s second AFIC transaction: in June it secured a 12-year senior loan from the same lenders for US$230mn. This was to finance its first five Boeing 737-8 aircraft. Investec executed a US$25mn 7-year junior loan for the same deal.
The AFIC programme seeks to make use of billions of dollars of risk capital in the insurance market to support financiers’ exposures to borrowers in the aircraft finance market.
“The last couple of years have been notable for the absence of financings of Airbus and Boeing aircraft supported by the European export credit agencies (ECAs) and US Export-Import Bank (US Exim),” law firm Norton Rose Fulbright writes on its website. “Airlines have had to look to other sources of finance for new aircraft in recent years, and the large manufacturers have had to monitor carefully the expected funding sources for some of their pipeline of deliveries.”
Shortly after US Exim was partially disabled in 2015, Boeing and Marsh joined forces to come up with an insurance solution for airlines needing to finance aircraft purchases. The AFIC programme was the result of this collaboration, and was formally launched in June 2017.
“The basic concept and structure of AFIC is similar in many ways to an ECA financing, with an insurance policy being provided instead of guarantee,” writes the law firm. “Lenders enter into a loan agreement and advance funds to finance an aircraft, in reliance on an insurance policy issued by a consortium of insurers which covers the risk of non-payment by the borrower. The premium for the insurance is paid in full on the drawdown date and can be financed as part of the loan amount which is covered by the policy, in a similar way to an ECA guarantee premium.”
Marsh is the exclusive broker for the AFIC product.
In the Ethiopian Airlines transactions, ING’s structured export finance team and Société Générale’s aviation finance team were joint lead arrangers and lenders, with ING acting as agent.
Pillsbury Winthrop Shaw Pittman represented Ethiopian Airlines, Milbank represented the AFIC insurers, and White & Case represented ING and Société Générale.
Last year, Ethiopian Airlines looked elsewhere to source finance for new aircraft, securing a US$159mn loan from the African Development Bank (AfDB) to help fund its expansion plan and fleet modernisation programme.
The financing, which comprised two tranches, supported its plans to double the size of its fleet and increase its revenue to US$10bn over the next decade. The African Trade Insurance Agency (ATI) provided credit risk insurance cover for 85% of the transaction.