Garuda signs first shariah financing deal with Kuwait’s Alafco | Company data
(Insider Stories) – Kuwait-based Aviation Lease and Finance Company (Alafco) signed a sale and lease-back agreement with PT Garuda Indonesia (IDX:GIAA) worth US$630 million to finance two Boeing 777-300 Extended Range (ER) aircraft worth US$630 for delivery in June and July. The agreement, the publicly listed flag carrier’s first ever financing deal based on shariah principles, was signed by president director and CEO Emirsyah Satar and Alafco chairman Ahmad A. Alzabin.
Shariah financing has grown in Indonesia in recent years, with the government selling its first Islamic sukuk bonds in 2008, while corporate sukuk issuances are relatively common although still dwarfed by conventional debt. Indonesia is potentially the biggest Islamic finance market in the world as around 90% of its 240 million people are Muslim, however the market is still relatively immature. Garuda is facing stiff competition from low-cost Lion Air, which now outpaces it in domestic market share and launched full-service unit Batik Air this week.
Alzabin said he was “confident [Garuda] will continue to reach new heights in the coming years because Indonesia is a country where the aviation industry is growing rapidly on the back of a strong economy,” with forecast average growth of 6%-7% a year for the next five years.
The new planes are part of an order Garuda made this year to Boeing for four B777-300ERs to replace its to replace its aging B747-400s, and will be the first in its fleet. Alzabin said that the B777-300Ers, which can carry more than 300 passengers, are the best in their class. The first two will serve Jakarta–Jeddah, Saudi Arabia in July, and will add Sydney and London routes in the fourth quarter of the year. Garuda will take delivery of 24 new aircraft worth $1.57 billion this year as it seeks to expand domestically and abroad, reportedly comprising the four B777-300s, 10 B737-800 Next Generations (NG), two Airbus 330-320s, an A330-300 and seven Bombardier CRJ1000 NextGens. Its current fleet consists of 106 aircraft with a reported average age of 6.2 years.
Garuda is reportedly looking to expand its international service to include Jakarta-Brisbane and Jakarta-Auckland flights four times a week by the fourth quarter of this year and increase this to seven times a week at a later stage. It currently flies to 34 domestic and 19 international destinations including Australia, Asia and Amsterdam, and plans to add a non-stop flight to London this year. It has code sharing agreements with 11 international airlines serving 35 destinations.
