Emirates Airlines US$1.3 Billion Financing

The press is reporting that Emirates has raised US$1.3 billion in financing for six A380 aircraft from Citibank and Doric Finance UK.

A couple of observations:

1. The financing is supported by guarantees from the export credit agencies of France, Germany and the UK.  In effect the lenders are not taking financial risk on Emirates or Dubai.
   
2. In most cases, the ECAs require that the loan be structured as a finance lease.  A special purpose entity ("SPE") is the owner of the aircraft and it leases it to the airline.  This is designed to give the ECAs a greater ability to repossess the plane if the airline doesn't pay.  To that end there is a special convention under Unidroit (the so-called Cape Town Convention) which embodies international agreement on this security structure.  More on the Cape Town Convention here.  The UAE is a signatory to the Convention.  The ECAs generally only lend to borrowers from a country that has signed the convention.  And the SPE has to be incorporated in such a country.
3. Also it's important to note that ECAs will often extend credit to borrowers that the free market will not support, either because of concerns about their creditworthiness or the terms of financing (tenors, rates and other conditions).  As government agencies, the ECAs are in the business of promoting their nation's exports through the provision of financing.
   

All this is not to say that Emirates is a bad risk.  But portraying access to ECA finance as a sign of robust financial health is a bit of an overstatement.