Emirates has closed the financing for one Airbus A380 using German KG fund Flight Invest 50, arranged by Hanover Leasing. The aircraft is expected to be delivered mid-December 2012.
The total deal amount equals $227 million and inlcudes the purchase price of the aircraft ($205 million) as well as additonal charges relating to the fund. The purchase price of the deal is split between 60% debt and 40% equity.
German banks Helaba and Deka will provide the debt portion while the equity is fully underwritten by Hannover Leasing and will be placed in a $95.2 million German closed-end fund structure.
The deal is one of the few aviation deals to have hit the KG market in the last six months. The only notable exception is a sale/leaseback transaction with Singapore Airlines for one A380 arranged by Munich-based WealthCap in November.
Financiers state that the Emirates deal attracted investors very quickly, helped by the Emirates credit but also by the appeal of the A380 underlying the deal.
Unusual covenants
Hannover Leasing has agreed a 10-year lease with Emirates. The deal has a 10-year lease with extension options.
Airfinance Journal understands that the deal is structured as a 10-year lease with three-year or five-year extension options.
Emirates can decide at year eight whether to extend its total lease rate for 13 years or at year 10 can opt for the 15-year lease.
If the airline chooses 15-year then after 10 years they can pay the market lease rate, which cannot be lower than a minimum floor agreed with the lenders.
Under the terms of the lease contract Emirates can leave the lease after 10 years but will need to find another lessee. The lessee will be able to pay market rent however if the new lessee’s market rent goes below the minimum floor agreed with the lenders then Emirates will be liable to pay for the difference between the lease rates.
Sources state the initial lease rent over 10 years and the minimum rent over 15 years will repay 100% of the debt portion as well as the equity portion. Any additional profits achieved will be given to investors by selling or releasing the aircraft.
Lower lease terms
Under the deal Emirates is paying a margin band, based on interest rates, between 88bps-99bps on the initial lease rate which compares favourably to the 98bps Emirates is believed to be paying for Doric’s recent EETC for emirates. Sources state the deals are different structures but that the lower lease rate is due to the restrictions around the lease terms and the potentially higher amounts that can be raised through the EETC structure.
ReedSmith is advising Emirates on the deal, while Freshfield advised Hanover Leasing, and Vedder Price advised the banks on the deal. Investors in the deal are expected to make a return of around 210% through nominal capital repayment over 13 years, provided the aircraft is sold at its projected purchase price.
dharris@euromoneyplc.com
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