A report prepared KFHR Limited, a subsidiary of Kuwait Finance House (KFH), has stated that Islamic finance deals have contributed to the growth of the aviation sector in the region. KFHR expects more large financing deals to be completed in this area due to the rise in demand for Islamic finance in general and the strength of Middle Eastern airlines.
The report explains that the aviation sector seems to poise for further recovery for several reasons including: the rapid development of aviation sector in emerging markets; booming of low-cost carriers; and the replacement of less efficient aircraft. The overall volume of deals compliant with the provisions of Islamic Sharia'a reached during the period from August 2006 to August 2010 was $1.882 billion through various structures of Islamic financing. That deals tally can only increase as more than 1000 new aircraft are due for delivery in the coming years, far more than can be finance through traditional means alone, creating a gap for Islamic financing, says the report.
The report indicated that in light of this growing demand, more than 1000 aircrafts are expected to be delivered during 2010 onwards. Consequently, this will see more aircraft financing required in months ahead. On a low note, this will give rise to funding shortfalls, which is estimated between $7bn and $15bn. Therefore, we believe Islamic finance could step up to fill in the funding gap since aircraft financing fits properly into Shariah-compliant asset-based financing.
