Islamic Investment Company of the Gulf (IICG) has developed a new facility for financing jet fuel purchases, with the first agreement worth $25 million finalised with Pakistan International Airlines (PIA). The Bahrain-based company says it is the first agreement of its kind in the aviation industry.
Airlines usually buy fuel through cash flow, but the jet fuel murabaha financing facility enables payment over a period of one or two years. In the PIA agreement, IICG will buy the fuel, and PIA, through its subsidiary PIA Investments, will make payments at a pre-arranged price one year from the signing.
IICG officials say the agreement will prove cheaper for the airline because fuel purchases can now be treated as a medium term financing requirement, and need not be financed through a more expensive overdraft account. This will address the airlines’ liquidity needs. The Islamic institution says it is holding talks with several other Middle East and Far East carriers and has received an encouraging response.