New NBAD fund targets commercial aviation sector

Abu Dhabi: The National Bank of Abu Dhabi (NBAD) on Sunday signed an agreement with Germany's DVB Bank to create an investment fund targeting the commercial aviation sector.

The fund, set to launch by the end of the year, will aim to raise $1 billion (Dh3.7 billion) in capital to finance the purchase of aircraft and engines to be leased to commercial airlines selected by the fund.

Shiraz Habib, head of product development at NBAD's Investment Banking Group, said the fund will likely seek new and existing assets on lease to certain airlines, both from within the region and globally.

"We plan to follow an operating lease model that is growing in prominence globally and which grants more flexibility to aircraft operators," said Habib. "Airlines sometimes have assets on their books which they may not want to retain as they may seek to optimise their balance sheets. This gives us the opportunity to buy high-quality assets and lease them to the airlines."

"In a majority of instances, and to an extent due to the sizable capital values of aircraft, we will acquire these assets with the knowledge of which airline operator the aircraft will be leased to," Habib added.

In 2008, NBAD transportation sector loans reached Dh6.36 billion, or about six per cent of the bank's total loans and advances, a figure that remained consistent for the first half of this year, according to figures from NBAD's Investor Relations Department.

According to an NBAD statement, the fund will be financed equally by the partnering banks and investors, primarily from the UAE and other Gulf Cooperation Council countries.

Habib said investor returns will likely be a combination of coupons at an annualised rate of six to eight per cent and capital gains. He added that sponsor investment commitment will come "in proportion" to the funds raised from third-party investors.

The fund is the first of its kind for a UAE bank. NBAD's partner, DVB Bank, has specialised since its establishment in 1923 in financing the transportation sector.