Guaranteed by the UK Export Finance, Turkish low-cost carrier Pegasus Airlines has closed its first-ever sustainability-linked aircraft-secured term loan. This unique and considered first-of-its-kind loan will be the financing that Pegasus Airlines uses for 10 new Airbus A321neo aircraft.
A different kind of financing in aviation
The transaction was led by a French financial servicer, the Societe Generale Corporate & Investment Banking, which acted as a global arranger, sustainability structurer, facility agent, and security trustee. Yann Sonnallier, Global Head of Aviation Finance at the financial company, commented:
"Societe Generale is proud to be Pegasus Airlines’ and UK Export Finance’s partner on this landmark transaction. We are pleased to have supported Pegasus Airlines with its ambitious environmental and social development strategy, thereby contributing to the decarbonization and sustainable growth of the industry.”
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Besides being oddly different, this highly innovative transaction is remarkable in several other aspects, such as being the first-ever aircraft export credit facility incorporating sustainability-linked features. It was also the largest aircraft-secured sustainability-linked term loan executed in the market to date and the first one to be verified by a Second Party Opinion provided by an independent ESG rating and analytics agency.
Pegasus Airlines' unique approach to sustainability
So, how does a sustainability-linked aircraft-secured term loan spark any relevance to Pegasus Airlines, and why did the low-cost carrier not seek a typical loan agreement instead? According to the Societe Generale, the financing terms will be indexed on the budget carrier's future achievements in respect of two sustainability ambitions.
These ambitions are sustainability-linked Key Performance Indicators, such as carbon intensity of future flights and gender diversity in management positions. In other words, Pegasus Airlines has to fulfill these ambitions, or the loan will be forfeited, and the airline will not have the required financing for the 10 Airbus A321neos.
And it seems the low-cost carrier is already trying to achieve the financing term ambitions consistently. Having already pledged to reach net zero emissions by 2050, Pegasus Airlines is also making efforts in fleet optimization and operational efficiency through improved planning and the use of Sustainable Aviation Fuels (SAF).
The budget carrier is also leveraging and further strengthening long-standing commitments in promoting gender balance, such as promoting and hiring more women for managerial positions and a specific percentage target set by 2030. Barbaros Kubatoğlu, Deputy Chief Financial Officer of Pegasus Airlines, highlighted:
"With this loan, we reaffirm our commitment to our long-term goals on carbon emissions and gender equality. It's essential for us to address environmental and social initiatives, and we are proud to have pioneered this ground-breaking deal while honoring our sustainability and social commitments."
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Bottom line
Pegasus Airlines currently houses 25 Airbus A321neos, although it expects to have at least 72 of the fuel-efficient aircraft by 2025. With slightly over 40 aircraft to go, the low-cost carrier might be closing more sustainability-linked aircraft deals shortly. And if the trend keeps up, perhaps more financing companies and other airlines could also start agreeing to such loans.
What do you think of the sustainability-linked aircraft-secured term loan? Let us know in the comments below.