The challenge
The pandemic severely affected liquidity and operations of airlines globally, with many receiving financial support from their respective governments to keep trading. However, SunExpress was one of the few who managed through the pandemic without government support. The 34-year-old airline not only didn’t receive any direct government aid, but also positioned itself to fully capitalise on the pent-up demand for travel as soon as travel restrictions were relaxed.
In the last two years, the sector has seen a surge in air traffic demand – in Turkey, this increase was driven by western Europeans looking to spend their holidays on the beaches of Turkey, especially in the Antalya region. SunExpress recently carried out the largest network expansion in its history. The company operates scheduled and charter flights on international and domestic routes from its bases in Antalya and Izmir in Turkey and flies to more than 80 cities. For the 2023 summer season, SunExpress will offer non-stop flights from more than 185 routes from Turkey to 60 destinations in 30 countries.
In line with SunExpress’ growth, a purchase agreement was signed with Boeing to take delivery of new aircraft over the next six years. The purchase agreement requires SunExpress to make pre-delivery payments (PDP) to Boeing during the aircraft production period. As such, SunExpress was keen to put in place a financing solution that can cover these payments.
Traditional standalone PDP financings are costly and require a complicated structure – this is the main reason that limits market appetite for such financing, even in good market conditions. “The challenge was to find a stable source of financing with a simpler structure and attractive financing terms that can be accessed now and in times of crisis as was the case with the pandemic,” explains Özgür Acar, Head of Financing & Treasury.
Although SunExpress has access to both local and international financing sources, the impact of the pandemic to the sector globally made it extremely difficult for airlines to source competitively priced commercial financing. In addition to this, preserving cash reserves has become the most important focus for airlines. SunExpress were therefore keen to identify a financing solution to fund its contracted PDP obligations.
The solution
SunExpress and J.P. Morgan together evaluated some early thoughts in order to accomplish a financing solution with an export credit agency (ECA), and in September 2022, SunExpress mandated J.P. Morgan to arrange financing in respect of the PDP obligations. J.P. Morgan applied an innovative approach and arranged the first-ever financing guaranteed by an ECA to fund its PDP obligations to Boeing.
J.P. Morgan acted as Sole Mandated Lead Arranger, Sole Lender and Facility Agent and the Export-Import Bank of the United States (US EXIM) acted as the guarantor for the financing. The US EXIM guaranteed facility (US EXIM facility) financed the last payment of SunExpress’ PDP obligations in relation to three Boeing aircraft that were expected to deliver in 2023.
This US EXIM facility not only provided benefit to SunExpress but has also expanded US EXIM’s product suite which will benefit airlines and operating lessors in future.
“It is such an honour for SunExpress to be the first airliner in Türkiye to win an Adam Smith Award that is globally appreciated. By receiving this Adam Smith Award, SunExpress proved that, along with other giant companies, what an innovative company it is for reaching new financing structures.”
Kerem Çakir, Financing Manager
Best practice and innovation
This unique transaction is evidence of SunExpress’ focus on innovation and willingness to explore new products. J.P. Morgan and US EXIM adopted a bold, can-do approach, successfully adapting their financing products to support SunExpress’ financing requirements and to satisfy the aviation market’s needs.
This financing is highly innovative – It is the first-ever ECA financing for PDP obligations in the market, the first ever US EXIM financing for PDP obligations and the first financing under US EXIM’s Master Guarantee Agreement programme for SunExpress.
Key benefits
A testimony to this deal is the attention the transaction has already generated within the global aviation industry. Multiple airlines and operator lessors have contacted those involved in the transaction, asking whether it would be possible to adopt the solution themselves. Other aircraft manufacturers and ECAs are now looking to offer similar deals, both in Europe and in the US.
