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Structuring a Sharia-compliant sale & leaseback on a narrow-body

18 September 2026 · 7 min read

A sale & leaseback is a real aircraft, sold to an owner who leases it back for rent. That is already most of the way to ijara. The remaining distance is short — but it runs through the clauses a conventional lessor is least used to reopening.

Why the operating lease is the natural starting point

Ijara is the lease of the use of an identified asset that the lessor owns. No loan, no interest (riba): the financier's return is rent on an aircraft it holds title to. The reference most Sharia supervisory boards work from is AAOIFI Shari'ah Standard No. 9, Ijarah and Ijarah Muntahia Bittamleek (May 2002). It expressly allows an asset to be acquired from a party and then leased back to it, provided the lease is not a condition of the purchase contract (clause 3/2). That is a sale & leaseback, described in a Sharia standard.

Where a conventional SLB has to be adjusted

• Ownership has to be real. Major maintenance and the cost of insuring the asset belong to the lessor, and the lease cannot simply stipulate the opposite (5/1/7, 5/1/8). The established answer is a service-agency agreement: the lessor appoints the airline as its agent to perform major maintenance and place hull insurance at the lessor's cost, recovered through a supplementary rent set off against the reimbursement owed (5/2/4). The economics stay close to a net lease; the owner's obligations remain the owner's.
• Rent has to be determined, or determinable. Floating rent is accepted where the first period is stated as an amount and later periods follow a benchmark with a clear formula, a ceiling and a floor (5/2/3). The benchmark prices the rent; what is paid remains rent for use.
• Late payment earns the financier nothing. Rent cannot be increased because it is late; the lessee may instead undertake to donate a set amount to charity, under the Sharia board's supervision (6/3, 6/4). The discipline stays; the default interest goes.
• Total loss ends the lease. If the aircraft is destroyed, the ijara terminates and the remaining rent cannot be made payable (7/1/3). Conventional stipulated-loss mechanics are rebuilt around insurance proceeds.
• Insurance is a question to ask early. The standard speaks of permissible insurance "whenever possible". Takaful operators do write aviation risks; whether capacity exists for a given hull value, and what is acceptable if not, is for the Sharia board, at term-sheet stage.

Lease end: plain ijara, or ijara muntahia bittamleek

A plain operating ijara ends with redelivery: the investor keeps the aircraft and its residual value — the usual form of an airline SLB. If the airline is meant to recover the aircraft, the structure becomes ijara muntahia bittamleek. The transfer of title is then documented separately from the lease, as a promise to sell or a promise of gift (8/1); the promise binds one party only (8/2), and a sale signed on day one to take effect later is not accepted (8/7). One rule is specific to sale & leaseback: where the aircraft was bought from the lessee, a reasonable period must pass before it is sold back, long enough for the asset or its value to have changed — otherwise the whole resembles 'inah, a sale and buy-back standing in for a loan (8/5).

What sits alongside it, unchanged

The documents are commonly governed by English law. In Shamil Bank of Bahrain v Beximco Pharmaceuticals [2004] EWCA Civ 19, the Court of Appeal held that a clause choosing English law "subject to the principles of the Glorious Sharia'a" left English law alone governing the contract. Compliance is therefore secured with the board before signing, not argued before a judge afterwards. Where the Cape Town Convention applies, an ijara is a leasing agreement like any other: the sale and the international interest are registered on the International Registry.

Nothing technical changes either: records, engine and LLP status, redelivery conditions, KYC and sanctions screening are the same work. In an operating ijara, where the investor genuinely carries the residual value, redelivery terms matter more, not less.

Precedents, from a bilateral ijara to sukuk

The bilateral end has a narrow-body precedent: in November 2014, Dubai Islamic Bank and Air Arabia signed a US$230 million ijara facility for the delivery of six new A320s during 2015. Sukuk take the same investor base to the capital markets — sukuk al-ijara, built on leased assets, being one of the forms recognised by AAOIFI Shari'ah Standard No. 17 on investment sukuk. In March 2015, Emirates funded four A380-800s with a US$913 million ten-year sukuk guaranteed by UK Export Finance, the first sukuk used to pre-fund aircraft deliveries. In 2025, the lessor Dubai Aerospace Enterprise raised US$650 million through a five-year sukuk.

None of these is a one-aircraft SLB. They show the depth of the investor base; a narrow-body sale & leaseback sits at the private, bilateral end of the same market.

What a broker adds

A file that arrives already shaped for this investor base: asset, lease economics and the clauses above flagged before the term sheet, so that the Sharia board reviews a structure instead of rewriting one. And an early no when it will not fit: an airline that needs a fully net lease with default interest, or an investor who wants a fixed buy-back signed on day one, is better served by a conventional SLB. Funds move through specialised escrow agents. Counsel who practise this law and financiers who deploy this capital are among the partners we are looking for.