Assignment: Solution to

Omega case study

Selected mode: Sukuk-al-Ijarah

Submitted to:

Sir Ahmad Ali Siddiqui

Submitted by:

Rahmat Ullah

MS-IBF (III)

ERP: 13697

Centre for Excellence in Islamic Finance (CEIF)-IBA (Karachi)

 Case Study: Omega Air Lines
Chosen Financing Method: Issuance of Sukuk-Ul-Ijarah

Structure of the supposed issuance of sukuk:

Stage1: Contract of Cash Sale

i. Omega’s SPV purchases property (Bombardier planes) from obligator.

ii. The asset purchased by the SPV is funded by the issuance if sukuk (trust
certificates) which represents beneficial ownership in the assets and in the lease.
iii. Obligator received cash proceeds
Stage 2 : Contract of leasing ( al-Ijara )
i. SPV rents property to the Originator for specific period
ii. SPV collects rental
Stage 3 : During the tenure
i. SPV passed the rentals to investors in the form of periodic distribution or coupon

Stage 4 : At maturity

i. SPV sells the property to the originator at an agreed price

ii. Originator pays cash to the SPV
iii. SPV simultaneously pays investors cash for sukuk redemption by dissolution of
Ijarah contract.

Sukuk-Al-Ijarah Structure
Term Sheet:

Omega Air Lines

Sukul-ul-Ijarah
Term Sheet
Tenor 10 Years Total Transaction size 1,200,000,000
Issue Date Jan1,2017 Currency PKR
Maturity Date Dec 31, 2027 Profit including takaful 11%
Profit Rate 11% Tenor 10 Years
Payments Semi-annual Issuer Omega's SPV
Rental Payment 60Mn Obligor Omega airlines
Periods Cashflows Lessee Omega airlines
0 -1200 Lessor Omega's SPV
1 60 Investor Bank Al Sadiq
2 60 Annual expected inflows 200,000,000
3 60 Semi-Annual 100,000,000
4 60 Useful life 10 Years
5 60
6 60
7 60
8 60
9 60
10 60
11 60
12 60
13 60
14 60
15 60
16 60
17 60
18 60
19 60
20 60
Reason for Selecting sukuk-al-ijarah
Its structure is very simple as compared to others and all other sukuk structures are
developed from it.

In order to generate returns for investors, all sukuk structures rely upon either the
performance of an underlying asset or a contractual arrangement with respect to that asset.
The ijara is particularly useful in this respect as it can be used in a manner that provides for
regular payments throughout the life of a financing arrangement, together with the
flexibility to tailor the payment profile - and method of calculation - in order to generate a
profit. In addition, the use of a purchase undertaking is widely accepted in the context of
sukuk al-ijara without Shari’a objections. These characteristics make ijara relatively
straightforward to adapt for use in the underlying structure for a sukuk issuance.

Besides this, an ijarah has the following peculiar and attractive features;

 Flexibility of sale: Ijarah contract in Shari‘ah does not restrict the right of lesser to sell
the leased asset.
 Independence of ownership: Persons who share the ownership of a leased asset can
dispose of their property by, say, selling it to new owners individually or collectively
as they may desire.
 Flexibility in timing of inflows and outflows: It is not necessary that the flow of
usufruct benefits should coincide with the timing of rent payments.
 Flexibility in length of term: The ijarah contract can be of any length as long as the
asset which is the subject of the ijarah contract remains in existence and renders its
usufruct.
 Flexibility in determination of rent: In an ijarah contract, it is necessary that rent
must be known. But it can be determined by a variety of flexible ways.