Key Takeaways
- • International AirFinance Corp launched a $5 billion Shariah-compliant aircraft leasing fund in 2014 in partnership with Airbus, Quantum Investment Bank, Palma Capital, and the Islamic Development Bank—the first financing company to fully utilize Islamic structures for aircraft leasing.
- • Major international carriers including Emirates, Etihad Airlines, Saudi Arabian Airlines, Air Arabia, Turkish Airlines, AirAsia, Malaysian Airlines, and Pakistani International Airlines have accessed Islamic capital markets through sukuk issuances to fund aircraft purchases and leases post-2008 financial crisis.
- • Saudi Arabian Airlines executed its largest aircraft leasing transaction in June 2015, acquiring 30 Airbus planes and leasing 20 additional aircraft through the new Islamic Development Bank-seeded fund, demonstrating institutional traction in Shariah-compliant aviation finance.
- • Islamic airline financing has emerged as a viable alternative funding source for the aviation sector, offering diversified capital access beyond traditional bank lending and export credit financing channels.
Summary
Islamic finance structures have become an increasingly significant alternative funding mechanism in aviation, particularly following the 2007-08 financial crisis. The sector has witnessed renewed momentum with the launch of Malaysia's Rayani Air, a fully Shariah-compliant airline, which has refocused attention on Islamic financing solutions for aircraft acquisition and leasing.
The most substantial development in this space occurred in 2014 with the establishment of International AirFinance Corp, a specialized financing entity designed exclusively around Shariah-compliant structures. The company launched a $5 billion aircraft leasing fund developed in collaboration with Airbus, Quantum Investment Bank, Palma Capital, and the Islamic Development Bank. This represented a critical market milestone: the first financing company dedicated entirely to Islamic aviation finance. The fund was seeded jointly by Airbus and the Islamic Development Bank, positioning institutional credibility behind the initiative.
The fund has already attracted significant transaction volume. In June 2015, Saudi Arabian Airlines executed what it described as its largest aircraft leasing deal through the facility, securing 30 Airbus aircraft acquisitions and leasing arrangements for 20 additional planes. Beyond Saudi Arabian Airlines, numerous international carriers have previously tapped Islamic capital markets through sukuk issuances, including Emirates, Etihad Airways, Air Arabia, Royal Jordanian, Turkish Airlines, Malaysian Airlines, AirAsia, Garuda Indonesia, SriLankan Airlines, Pakistani International Airlines, Ethiopian Airlines, and even GE Capital Aviation Services (GECAS), the world's largest aircraft leasing company.
Sukuk structures—Islamic bonds compliant with Sharia law—have proven particularly well-suited to aviation finance given the sector's asset-intensive nature. The ijara (leasing) sukuk model has become the predominant instrument, providing an alternative to conventional debt financing while enabling airlines to diversify their funding sources. This structural recovery reflects broader institutional recognition that Islamic finance offers viable capital access mechanisms for large-scale infrastructure and asset financing in the aviation sector.
The most substantial development in this space occurred in 2014 with the establishment of International AirFinance Corp, a specialized financing entity designed exclusively around Shariah-compliant structures. The company launched a $5 billion aircraft leasing fund developed in collaboration with Airbus, Quantum Investment Bank, Palma Capital, and the Islamic Development Bank. This represented a critical market milestone: the first financing company dedicated entirely to Islamic aviation finance. The fund was seeded jointly by Airbus and the Islamic Development Bank, positioning institutional credibility behind the initiative.
The fund has already attracted significant transaction volume. In June 2015, Saudi Arabian Airlines executed what it described as its largest aircraft leasing deal through the facility, securing 30 Airbus aircraft acquisitions and leasing arrangements for 20 additional planes. Beyond Saudi Arabian Airlines, numerous international carriers have previously tapped Islamic capital markets through sukuk issuances, including Emirates, Etihad Airways, Air Arabia, Royal Jordanian, Turkish Airlines, Malaysian Airlines, AirAsia, Garuda Indonesia, SriLankan Airlines, Pakistani International Airlines, Ethiopian Airlines, and even GE Capital Aviation Services (GECAS), the world's largest aircraft leasing company.
Sukuk structures—Islamic bonds compliant with Sharia law—have proven particularly well-suited to aviation finance given the sector's asset-intensive nature. The ijara (leasing) sukuk model has become the predominant instrument, providing an alternative to conventional debt financing while enabling airlines to diversify their funding sources. This structural recovery reflects broader institutional recognition that Islamic finance offers viable capital access mechanisms for large-scale infrastructure and asset financing in the aviation sector.
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