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Etihad Airways raises almost US $2 billion in sustainability-linked financing

Three recent aviation financing deals total the largest sustainable financing in Etihad Airways history. Etihad Airways, the national airline of the United Arab Emirates, is continuing with its green pivot.

In September 2020, Etihad launched the world’s first transition sukuk (Islam “sharia-compliant” bond) and the first sustainability-related financing in global aviation, raising US $600 million linked to the airline’s carbon reduction targets. In 2019, Etihad had secured a €100 million loan to support the expansion of the Etihad Eco-Residence, a sustainable apartment complex for cabin crew, becoming the first airline to raise funds related to the UN Sustainable Development Goals.

Etihad’s Sustainability-linked ESG loan

The third deal was wrapped up in October 2021, when Etihad landed a $1.2 billion loan. This was global aviation's first sustainability-linked loan (SLL) tied to environmental, social and governance (ESG) goals, which relate to reducing carbon emissions, augmenting corporate governance and promoting women’s participation in the aviation sector.

Etihad Airways selected HSBC and First Abu Dhabi Bank (FAB) as the strategic partners and financiers for this transaction. This last round of financing took the company’s sustainability funding to almost $2 billion.

Adam Boukadida, Chief Financial Officer at Etihad Aviation Group, said: “Etihad Airways has spearheaded sustainable financing in aviation, and we are proud to continue our innovative track record by being the first airline to secure a sustainability-linked ESG loan. Financing our operations in a way that supports both our planet and the people in our local communities is the natural next step of our financing strategy.”

Etihad Airways committed to net zero carbon emissions by 2050

According to the Etihad Sustainability Report 2020-2021, “The United Nations has set a target of zero net carbon emissions by 2050. The UAE is among the first countries to agree to the International Civil Aviation Organization's (ICAO) Carbon Offset and Reduction Scheme for International Aviation (CORSIA). CORSIA pledges carbon neutral growth by airlines from 2020, with net emissions by 2050 reducing to 50 per cent of 2005 levels.”

 

Source: Etihad Sustainability Report 2020-2021

Etihad’s loan terms are linked to multiple key performance indicators (KPIs) that are tied to ESG initiatives and will be independently assessed on an annual basis. This has been done to ensure that each KPI is relevant and material from an environmental standpoint, is measurable and externally verifiable and can be benchmarked.

“Etihad Airways is committed to zero net emissions by 2050, and electively to halving its 2019 net emission levels by 2035. This obligation extends to all parts of our operations, and Etihad has committed to compliance in the voluntary pilot phase commenced in 2021. However, if the target is not met, Etihad will be obliged to purchase carbon offsets to cover post 2020 absolute emissions,” states the Etihad Sustainability Report 2020-2021.

“Our goals will have a real-world impact, and to underscore our accountability, we have committed to penalties and incentives of up to US$ 5.5 million linked to our progress against key performance indicators,” remarked Boukadida.

Development of aircraft and engines that reduce emissions

The airline’s sustainability report says, “The greatest single opportunity for carbon-emission reduction involves the development of aircraft and engines that reduce emissions. The major commercial aircraft and engine manufacturers have made considerable progress in this area; solutions available today. As early as 2010, Etihad identified these aircraft as the most sustainable aircraft on the market and confirmed fleet orders for both.

“The Boeing 787 Dreamliner was the first commercial airliner to be constructed primarily of lightweight composite materials to reduce its weight and increase its flying range, while consuming significantly less fuel than earlier-model aircraft of similar size...”

The 787 is now the backbone of the Etihad Airways fleet. By 2023, this aircraft will represent over 50 percent of the airline’s fleet.

In March 2022, Etihad introduced a new generation fleet of Airbus A350-1000 with sustainability credentials similar to the Boeing 787. The aircraft, named Sustainability50, is the first A350 to be operated by a UAE airline, and the first of five A350s set to join Etihad’s fleet over the coming months.

In consonance with its drive toward a sustainability fleet, Etihad will continue to phase out older models such as the Airbus A330 and the old generation Boeing 777.

Conclusion

Etihad Airways plans to achieve a 20 percent reduction in emissions intensity in its passenger fleet by 2025, cut 2019 net emissions by 50 percent by 2035, and reach net zero emissions by 2050. If it attains these emissions targets, it will have made great advancements in sustainable aviation. 

The ESG space offers exciting opportunities for the aviation industry, and we hope more airlines will embrace the pillars of ESG for long-term viability and resilience.

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