PIA fulfils formalities for eight new Boeing 777s purchase

Pakistan International Airlines (PIA) had fulfilled all legal, technical and operational formalities while making decision to purchase eight new state-of-the-art Boeing 777s for US$1.54 billion.
The acquisition of new Boeing 777 aircraft was also approved by the Government of Pakistan and entails a sovereign guarantee to Exim Bank.
PIA availed Exim Bank's guaranteed financial structure, (which also offered Loan Guarantee to PIA to secure financing for all eight Boeing 777 aircraft), which is recognised mode of financing in aviation industry.
Cayman Islands involvement is a normal practice in aviation industry and has no adverse impact or effect on Boeing deal. An offshore company Taxila Limited has been structured in Cayman Island by world's leading experts, who were engaged to protect and safeguard PIA's interest.
It is requirement of Exim Bank that a Special Purpose Vehicle SPV shall be organised in a tax efficient jurisdiction, and act as obliger- borrower under Exim Bank supported financing, and as owner and lessor for three Boeing 777 aircraft, related spare engines and spare parts.
The SPV will enter into lease agreement with PIA with 12-year term. Under lease agreement, PIAC will be required to pay rent in amount at all times equal to corresponding quarterly payment required to be made by SPV under Exim Bank support.
From Exim Bank's standpoint SPV structure in Cayman Islands has advantage of lender on record being established in a tax efficient jurisdiction and a stable jurisdiction with developed financial, legal, judicial and regulatory systems having sound infrastructure and satisfactory sovereign risk rating.
In order to ensure that SPV is bankruptcy remote, SPV shares are customarily held by a charitable trust established for that purpose. In such transactions, SPV is exempted company under laws of Cayman Islands.
An exempted company may not carry on business in Cayman Islands, except for furtherance of its overseas activities and is prohibited from making invitations to the public in Cayman Islands to subscribe for any of its shares or debentures.
The Cayman structure has also been thoroughly discussed and cleared with the Government of Pakistan at all levels, including both the Ministry of Defence and Prime Minister's office, besides researched and cleared by PIA's highly regarded local and international attorneys.
The Airbus A310 fleet acquired by PIA in early 1990s was also based on SPV structure, and therefore, this financing mode is not a new concept from viewpoint of national carrier.