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Industry specialist predict demand for JOLCOs

The JOLCO [Japanese operating lease with call options] market has seen a recent boom," Marcus Jung, partner at FPG Investment and Asset Management told the delegates yesterday (Monday, May 5) at The International Society of Transport Aircraft Trading (ISTAT) Asia, held in Hong Kong. "There is a strong market in Japan for this sort of business."

FPG Investment and Asset Management has completed "five or six" JOLCOs, including four last year, and there are a number lined up for this year.

 

Jung noted that the platform "provides airlines with a very low rate, 100 per cent loan," but warned "it's not an unlimited market."

 

Also speaking at the conference, Paul Hirodo, EVP of the aircraft leasing department of a Japanese real estate company, Chisima Real Estate, said his company is looking to move away from US dollar-based aircraft deals and move towards Japanese Yen-based leasing with Japanese airlines.

 

Li Ling, director of aviation leasing at Bank of Communications, noted that her company already provides yen-based leases, and more in other local currencies, but said "that's not our main focus, mainly we use US dollars."

 

The Bank of Communications owns 60 aircraft. It was the first to do leasing in Shanghai and is the only bank to offer both Chinese Ren- and Japanese Yen-based finance leasing for airlines.

 

Despite warning of the market limitations of JOLCOs, Jung said: "There is still a lot of deals to be done. There is a lot of appetite for JOLCOs in the Japanese market and we are about ready to jump into the lessor market."

 

Yet, he admits that the financing platform will not be as useful to lessors as it can be to airlines. "It will never be as mainstream with lessors," he says. One reason for this is that airlines typically want to keep hold of their aircraft, while lessors want to trade them.

 

Another issue is familiarity. Jung noted that it is "easy" for 'big name' airlines, such as British Airways, to secure these deals, but that Japanese investors are less familiar with lessors, so are less wiling to back them. However, he claimed these investors are "being educated".

 

Stephen Cook, head of transport finance at Macquarie AirFinance, which is Australian but takes 68 per cent of its business from off-shore companies, noted that "the thing with JOLCOs is that it's a one-way bet in terms of risk, so you are exposed."

 

The majority (36 per cent) of delegates polled at ISTAT Asia - which includes leaders at airline, aviation finance and leasing - believe there is a moderate risk of call options not being exercised on JOLCOs; 21 per cent think the risk is high and 15 per cent, very high.

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