The Aircraft Finance Insurance Consortium (AFIC) now has a Japanese counterpart, JAFIC, which will enable airlines to expand their funding sources and tap liquidity from Japanese banks.
Set up by insurer Marsh in collaboration with Sompo Japan Nipponkoa and Sompo International, Japanese AFIC offers the same terms as the global programme, AFIC, to Japanese financial institutions through a Japanese insurer.
The first airline to access the newly-minted structure is Israel’s El Al. It bought a Boeing 787-9 aircraft, which was delivered earlier this month, via a financing arrangement funded solely by the Development Bank of Japan (DBJ). Using JAFIC’s non-payment insurance product, DBJ is protected against credit default risk by El Al for the duration of the loan.
The El Al arrangement also marks the first AFIC-supported Japanese operating lease with call option (JOLCO), a cost-efficient financing structure for airlines and aircraft leasing companies. JOLCOs are typically used to finance new aircraft and have a minimum lease term of 10 years, with lessees often expected to exercise the call option on the early buyout date.
“Through the creation of Japanese AFIC many Japanese financial institutions, especially regional banks, can reduce the lending risks associated with aircraft finance and get involved in this dynamic industry, and offer airline financing solutions with greater confidence,” says Robert Morin, AFIC transaction and business development leader at Marsh.
AFIC was launched in June 2017 by Marsh and provides an alternative aircraft finance insurance product for banks and capital market investors that are funding Boeing aircraft. AFIC can assist airlines globally in obtaining more efficient financing by utilising insurance to protect the lender’s exposure to default for the duration of the loan. To date, more than 50 aircraft have been acquired using AFIC.
Boeing’s Current Aircraft Finance Market Outlook, released at the end of 2018, paints an upbeat picture of aircraft financing for 2019, with the aviation industry’s resilience in the face of oil price headwinds and the rising US interest rate environment driving demand for new planes.
2018 was a record year for both US aircraft manufacturer Boeing and its European counterpart Airbus, which delivered 806 and 800 commercial planes respectively. Boeing says it expects the global commercial airplane fleet to double in 20 years, and forecasts about US$143bn in deliveries during 2019 by major manufacturers, with potential to grow to more than US$180bn by 2023.
Last year also saw the expansion of global participation in aircraft financing, with strong industry fundamentals attracting more investment in new deliveries.