DEAL: Qantas’ loan with switchable collateral

Author: Amélie Labbé | Published: 2 Nov 2017

In aviation financing, using a pool of aircraft as collateral and not individual assets is common, in order for the airline to have the flexibility of different tranches and associated interest rates. But relying on a regular substitution of collateral is a first.

Australia’s Qantas has become the first airline in the Asia-Pacific as well as globally to rely on this new feature for its latest loan, an eight-year A$350 million ($270 million) facility part of a wider programme.

The structure is regularly tested so whenever an aircraft is added or removed, this results in pricing and collateral adjustments, said Shukor Yusof, founder at aviation advisory firm Endau Analytics.

Flexible security

Airlines typically use a combination of equity and debt to finance their activity, with a preference for equity. In a typical scenario, 50 to 80% of the funding is raised as debt...