Suspended SODELPA Still Hung Up Over Waqavuka Financing Ltd

It is laughable that our now suspended Social Democratic Liberal Party (SODELPA) parliamentarians are still hung up over Waqavuka Financing Limited. Despite having this matter put to rest several times, it seems the suspended party’s MPs would rather rely on conspiracy theories on social media rather than find something constructive to do and say in Parliament.

But, given that this issue still seems to bug some people and given that our Opposition MPs are not able to set the record straight with their supporters, but would rather fuel the speculations themselves, we once again explain the role this shell company plays.

A few facts about Fiji Airways’, their planes, Waqavuka Financing Limited and how the world of airline financing works:

How are aircrafts bought?

As once again told by the Attorney-General Aiyaz Sayed-Khaiyum to the House there are a few ways in which any airline buys or leases an aircraft.

Firstly, the airline pays the full amount at once and makes an outright purchase. In this case, even before the plane is made, a down payment is required.

Now, the second way of acquiring an aircraft is through leasing. This is where aircraft leasing companies buys the plane from the manufacturer and leases it out to airline companies.

The third way of acquiring an aircraft is how Fiji Airways got the A330s. Through financing.

Now in the case of the A330s the decision was made to purchase the plans and that it would need to be financed.

Anyone who has bought a house, for example, would know that while the banks would finance up to 80-90 per cent, the buyer needs to put in the rest as deposit.

Similarly, when the aircraft was purchased, Fiji Airways put in 20 per cent as down payment.

In Fiji’s case $146 million was required for the down payment. This is called the Pre-Delivery Payments (PDPs). For the A330s, this was financed by a way of a 12-year loan of $146 million from the Fiji National Provident Fund.

FNPF has actually earned quite handsomely from that particular loan, earning $34 million in interest. It has been a good financial arrangement for them.

The balance of the 80 per cent loan financing for the net flyaway purchase price was provided by German Banks, namely the KfW IPEX-Bank with the European Export Credit Agency support by way of guarantee.

Normally airbuses have the arrangement with European Export Credit Agency to provide that guarantee and this support from the European ECA is very important because without it, the interest rate payable by Fiji Airways would be much higher, obviously significantly impact the ability to purchase in the first place but also the cash flow. The ECA only provided the financing guarantee support for the loan in addition to the credit assessment and approval of the airline. The security arrangements are drawn through a wholly dependent special purpose company to be set up to hold the title of the aircraft while the loan is being repaid.

Now if the banks have lent money to Fiji Airways, they rely on that aircraft as collateral. In other words, if Fiji Airways does not do the repayments and falls behind in the repayments then as you have a house, you do not pay the mortgage, the bank comes and seizes the house, sells the house and get its money back.

In the same way, the banks have the security of the aircraft.

This is not the first time Fiji Airways has financed an airline in this manner. Same arrangements were in place when we acquired the Boeing 737 in the 1990s, which conspiracy theorists are not talking about.

Waqavuka Financing:

A special purpose company was actually set up to hold the title of the aircraft while the loan is being repaid. The shares, the ownership of the special purpose company is held by a security agent acting on behalf of the ECA and the Consortium of Banks.

Once the loan has been fully paid, ownership of the special purpose company and the title of the aircraft is transferred back to the airline, which is the Fiji Airways in this particular case. The reason that the European ECA is required that the aircraft is owned by a neutral third party is to make it easier to enforce the security.

The neutral third party is not likely to take steps to prevent the Consortium of Banks or European ECA from enforcing the security of the financed aircraft.

Setting up this neutral company is the arrangement throughout the world, the special purpose vehicle or special purpose company actually holds the title of the aircraft. When Fiji Airways does the monthly loan repayments, it comes into the company and the company then simply disburses the repayment amount to the banks, that is the arrangement.

When the loan is paid off, the special purpose company’s ownership, of course, will go to Fiji Airways and the ownership of the aircraft will go to Fiji Airways. Mr Sayed-Khaiyum said: “I have seen various comments made by people in the Opposition, in particular outside and, of course, their forum now is not Parliament but social media, where they have actually been making a lot of absurd type of comments and conspiracy theories, but none of them actually bothered to check that in the 1990s, a similar type of arrangement was done, when Fiji Airways actually bought the three 737 and, of course, we are trying to get rid of and then to be replaced by the Max 8s hopefully very soon when the Max 8s come online. So that is the story behind the Waqavuka Company.” Do the PM and the AG have shares in Waqavuka Financing? No.

It does not work like that at all. People only need to check the assets and liabilities declaration of the two men to see for themselves what they own and how much is in their bank accounts.

Can a shell company guarantee loan? Why did Government have to guarantee the loan of $455million which the national carrier is taking?

Government is the majority shareholder. And if they had not stepped in to guarantee this loan, it would have left our national carrier in a very difficult situation.

The last thing we want is for a once very profitable company to go belly-up because Opposition does not understand how the world of aircraft financing works.