Luxembourg-based Cargolux Airlines in August closed a Japanese operating lease for a B747-ERF freighter aircraft through a Jolco transaction.
The transaction represents the carrier’s third B747 financing in 2019 using the Jolco structure.
A Jolco is an operating lease for the purpose of accounting and tax that provides 100% financing, giving the lessee an option to purchase the aircraft at the end of the lease, or at some point during the lease period, at the purchase price determined at the start of the lease. Although purchase of the aircraft is an option, it is generally exercised.
Jolcos are used to finance mostly new aircraft and feature a minimum lease term of 10 years.
While Jolco financing has been used by passenger carriers and aircraft leasing companies that lease passenger aircraft to carriers, use of the structure by cargo carriers is unusual.
A banker who worked on the transaction said that while there is little appetite in the Jolco market for cargo aircraft, as compared for example to A320neo, A350 and B787 aircraft, Cargolux is a good credit.
“We could secure Jolco equity for a Cargolux deal, but this does not represent a general trend in which investors would be suddenly attracted by cargo assets,” the banker said.
“In addition, with the commercial tension between China and the U.S., along with the current political situation in Hong Kong, timing is not good for financing cargo aircraft.”
Thierry Pierson, managing director of Dublin-based asset finance advisory Asset Brok’Air, added, “In general, Jolco investors are primarily interested in the airline credit aspect of the transaction. Although freighter aircraft are less liquid, Jolco transactions could be completed, but the focus would be on the carrier rather than the asset.”
Pierson noted that in addition to Cargolux, only a handful of carriers have closed Jolco financing on freighter aircraft, including flag carrier Turkish Airlines and Abu Dhabi-based Etihad Airways, the second-largest carrier in the UAE.
The Jolco funding structure comprises equity participation from local Japanese entities with the balance coming in the form of bank debt.
The variety of airlines and aircraft types acceptable to Japanese equity investors has continued to broaden over the year, and there was a steady flow of Jolco transactions throughout the entire Japanese financial year.
The transaction follows an inaugural Jolco financing of a B-747-400 freighter closed by the all-cargo carrier in January.
French bank Credit Agricole-CIB (CA-CIB) acted as overall arranger and facility agent on the financing. Frankfurt-based transport specialist DVB Bank provided debt into the deal, while JP Lease Products & Services Co. arranged and underwrote the equity investment.
Wilmington Trust acted as agent and security trustee. Law firms Allen & Overy represented Cargolux, K&L Gates acted for JP Lease and Norton Rose Fulbright acted for DVB and Wilmington Trust.
