Adam Smith Awards 2017

OVERALL WINNER

Best in Class Treasury

Solution in the Middle East

Etihad Aviation Group

Abu Dhabi, UAE

Adam Boukadida, Acting Group Treasurer

Etihad excel in 2016 driven by change and innovation

Company profile

The Etihad Aviation Group comprises Etihad Airways, the Hala Group of travel and tourism management and loyalty

companies as well as Etihad Airport Services and group support functions required to interface with and support its

subsidiaries, joint venture companies and equity partners. Etihad Aviation Group is headquartered in Khalifa City,

Abu Dhabi and is Government-owned.

The challenge

Etihad’s group treasury activities are not solely focused on the airline;

it also acts in support of the broader Etihad Aviation Group. This

creates multiple sourcing and management needs that must be

aligned with investment and operational business requirements.

Further, Group Treasury supports various equity partner airlines with

a wide range of services, including bank relationship management,

agency execution, systems support, in-house banking and structuring

of direct capital support facilities. One deal in particular required

rapid thinking to secure delivery of essential aircraft to the fleet.

The solution

Etihad group treasury has displayed a hyperactive approach to

funding over the past year, especially around diversification of

sources. Highlights of the financing activities include the following.

Raising US$1.5bn through a rated, senior unsecured and unlisted

Sukuk Al-Wakala, this debut transaction marks the largest non-

Sovereign Sukuk from the GCC since 2007. It is also the largest

Sukuk ever out of Abu Dhabi. Through this transaction, Etihad has

created an innovative solution, setting a new precedent for other

similar issuers to access the capital markets.

A Murabaha private placement programme for a five-year, US$145m

structure was the first Islamic private placement by Etihad, sourcing

funds from GCC investors who otherwise may not have been able to

lend into the airline.

Further funding diversification was achieved via a Schuldschein

private placement programme. This was the first ever issuance for

Etihad in that market and the first corporate issuance in the

Schuldschein market from a Middle Eastern borrower. The

transaction itself was marketed at a term-sheet volume of €150m

equivalent with three, five and seven-year tranches in euro and US

dollars. However, due to the high demand, the final volume was

increased to €214m equivalent. An unsecured five-year US$425m

Syndicated Loan Facility with a group of five local, regional and

international banks was also used for refinancing.

However, group treasury surpassed itself in the wake of one of the

biggest aircraft finance stories of 2016 – the unprecedented hold

placed on all guarantees and export credit support of Airbus products

by UK Export Finance, COFACE (the French ECA) and Euler Hermes

(the German ECA), as a result of ‘disclosure issues’ investigated by

the UK Serious Fraud Office. In response to the consequent

suspension of its long-term ECA-backed aircraft financing

arrangements, Etihad’s treasury team led the design of a short term,

cost effective bridging solution alongside ADCB who in turn

collaborated with MUFG to deliver funding to Etihad.

Best practice and innovation

The bridging deal was one of the first such solutions in the market to

address the ECA funding problem and was later replicated by multiple

parties. The solution offered financing for Etihad’s capital import

using a mix of conventional trade finance solutions – a move rarely

seen in the marketplace until this transaction. The transaction was a

short-term arrangement, with MUFG settling Etihad’s payables on the

back of a supporting undertaking by ADCB to pay MUFG on the

due date.

This unique structure, combined with rapid execution, gave Etihad a

solution that was both cost efficient and timely, enabling the airline to

meet its payment obligations to Airbus whilst facilitating a necessary

interval for the arrangement of alternative long-term finance facilities.

This demonstrates an innovative, optimised and yet simple solution,

set up to address the Group’s bridge financing requirement on A380

aircraft affected by the suspension of European ECA support for

Airbus deliveries.

Key benefits

•

Diversity of funding portfolio.

•

Willingness to be first in the market.

•

Creative approach to external issues.

•

Demonstration of true partnership with third parties.

Roger Fleischmann, J.P. Morgan, Adam Boukadida, Etihad Aviation Group and

Michael Guralnick, Citi