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Libyan Wings tries to take off as banking system grounded

DUBAI: Startup airline Libyan Wings is close to securing a multimillion-dollar Islamic loan even as the North African nation wrestles with a stalled banking system.

The carrier, which plans to start operations in April, is raising funds from local and international banks to help lease three aircraft and build a hotel in the capital Tripoli, Chairman Wisam al-Masry said by phone on Feb. 18. Borrowing “requires negotiations and discussions and convincing, and it needs a solid business plan,” he added.

Many Libyan banks stopped offering loans last year when the country passed a law to ban non-Shariah compliant banking by 2015. Libyan Wings, which will start with short-haul North African flights, signed a preliminary agreement to purchase seven planes with a list price of $1.2 billion to be delivered from 2019.

“An airline startup is a risky business, but given that everything can be considered a startup in Libya, banks have to start somewhere,” John Sfakianakis, chief investment strategist at Riyadh-based investment firm MASIC, said by phone on Feb. 27. “There will be some appetite for this, though I think banks will consider the airline’s business model and what they’re proposing very carefully.”

Libyan Wings, a full-service carrier owned by local businessmen, will start with routes including Tunisia, Algeria and Cairo, according to Jamal Faraj, assistant to the chairman. The airline plans to fly to Malta, Italy and Paris when it overcomes the EU’s ban on Libyan airlines, he said. Passengers from Libya to international destinations are expected to increase 13 percent this year from 2.75 million travelers in 2013, he said by phone on Feb. 24.

Libyan Wings will be competing with both national and international airlines in the nation of about 6 million people. Libya’s economy contracted 5.1 percent last year, according to the IMF Oil output has tumbled to about a third of what it was before the ouster of Moammar Gadhafi in 2011, while protests last year halted operations at ports and oil fields in what was once Europe’s third-largest crude supplier.

Libya’s Islamic banking framework is unfinished and a hurdle to lending, according to Loubna al-Hasan, lead research associate at Dunia Frontier Consultants.

“The ban on conventional banking has been a significant weight on credit growth in Libya,” she said by phone on Feb. 26 from Beirut.

Still, Libyan Wings leased two A320s from Dubai Aerospace Enterprise and one A319 from GE Capital Aviation Services Ltd. at prices ranging from $185,000 to $260,000 a month per plane, Masry said. The carrier plans to operate 10 leased aircraft in five years. It’s also investing $25 million in the hospitality industry and its hotel in Tripoli will be ready within seven months, he added.

“Banks do have the cash,” Sfakianakis said. “A startup is not something that has low risk attached to it. However, as Libya normalizes and the economy becomes more stable, local banks need to participate.”

 
A version of this article appeared in the print edition of The Daily Star on March 04, 2014, on page 5.

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Summary

Startup airline Libyan Wings is close to securing a multimillion-dollar Islamic loan even as the North African nation wrestles with a stalled banking system.

Libyan Wings, which will start with short-haul North African flights, signed a preliminary agreement to purchase seven planes with a list price of $1.2 billion to be delivered from 2019 .

Passengers from Libya to international destinations are expected to increase 13 percent this year from 2.75 million travelers in 2013, he said by phone on Feb. 24 .

Libyan Wings will be competing with both national and international airlines in the nation of about 6 million people.


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