JAPAN Trends and Developments Contributed by: Taro Omoto, Yusuke Nakajima and Makoto Sakai, Mori Hamada & Matsumoto
entity selling these interests – which are typically the leasing companies that are the parent companies of the TK/NK SPCs – must be registered as type 2 finan - cial instruments business operators, while the entity selling the aircraft is not regulated. In addition to TK/NK structures, trust structures are also used, where the aircraft is held by a trustee, and investors invest in the trust beneficial interest of the aircraft. Trust beneficial interests are also classified as type 2 securities for the purpose of Japanese securi - TK and NK funds are classified into Japanese Oper - ating Leases (JOLs) and Japanese Operating Leas - es with Call Option (JOLCOs), based on the lease structure. A JOL is a straightforward operating lease contract, while a JOLCO is an operating lease con - tract where the lessee has the option to purchase the aircraft at a particular time during the lease term at the expected fair value at the time of exercise. The lease term under a JOLCO tends to be longer than that under a JOL. Contractually speaking, there is no guarantee that the lessee will exercise the option, but parties usually expect that lessees are likely to exercise the option, and anticipate a certain level of cash flow based on that expectation. As such, economically speaking, a JOLCO is more similar to a finance lease, even if it is classified as an operating lease under Japanese accounting and tax rules. Lessee Japan adopts an owner registry system (and a system for registering mortgages). ties regulation. Lease structure Foreign-owned aircraft cannot be registered. How - ever, Japanese registration is generally required if the aircraft is operated in Japan. Therefore, if a foreign owner wants to lease an aircraft to a Japanese lessee, a special arrangement is used where the owner sells the aircraft to a Japanese SPC owned by a Japanese company, and then buys back the aircraft and leas - es it. Nominal instalment payments for the buyback will not be paid until the aircraft is deregistered from Japan; thus, legal title continues to be vested in the
Japanese SPC titleholder, which gives the basis for Japanese registration. Recent Trends Aviation finance civil law framework There are no major proposals relating specifically to aviation finance. Amendments to the general legal framework of security interests had been discussed, and the relevant act was passed at the Diet in May 2025, setting forth rules regarding security assign - ments over movables and receivables. This law is expected to come into effect within two years and six As explained above, TK and NK interests are treated as securities for the purpose of securities regula - tion, and sales thereof are regulated under Japanese securities regulations. Generally speaking, entities that offer these interests must be registered as type 2 financial instruments business operators and must comply with various regulations on sales activities. In this regard, the relevant regulations were amended in 2023, with the new law imposing the obligation of “taking into account the best interests of customers” in the conduct of business. Furthermore, such entities are currently required to deliver statutory explanatory documents when they sell securities to their custom - ers (with some exceptions). The new law has changed the framework, and the duty to deliver such statutory document has been changed to the duty to provide relevant information, which can be achieved through electromagnetic methods as well. The new rules took effect in April 2025. months from the date of promulgation. Aviation finance regulatory framework In addition, more Japanese aviation leasing compa - nies register as asset managers (more precisely, as financial instruments business operators conducting an asset management business). The asset manage - ment of funds investing in aircraft is not, in princi - ple, a regulated business under Japanese securities regulations, but if the investment is made through a trust structure (which is typically used for leases to US lessees), the funds are treated as funds investing in securities rather than physical assets since trust ben - eficial interests are treated as securities. In order to formulate and mange such funds, an asset manager
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