JAPAN Trends and Developments Contributed by: Taro Omoto, Yusuke Nakajima and Makoto Sakai, Mori Hamada & Matsumoto
licence is required unless certain licensing exemptions are available, such as those for funds offered only to professional investors. Financer As the COVID-19 pandemic has ended, interest and demand in aviation financing and leasing is becom - ing stronger again among Japanese investors and lenders. However, the recent significantly weakened Japanese yen and inflation are making it more difficult for Japanese investors to purchase aircraft because the aircraft price is becoming significantly high when considered in terms of the yen. Against this backdrop, engine leases are starting to draw more attention from investors and banks. Com - pared to aircraft, engines have a number of unique features, such as limited availability of registration. Under the Cape Town Convention, engines can be registered independently from aircraft, but there is no registration system for engines in many jurisdictions, including Japan, which has not signed the Cape Town Convention. Japanese investors and lenders seem to be in the process of educating themselves on the unique features of engines. Another trend is stronger interest in the JOL struc - ture. Many sellers and investors prefer the JOLCO structure, since they consider it to be less risky than the JOL structure. For JOLCO transactions, investors have high regard for the credit of the lessee, since the lease term is generally longer, and they expect that the lessee will exercise the option. For that reason, in the case of JOLCOs, transactions with top-tier airlines tend to be preferred, but the profitability of JOLCOs for investors tends to be relatively low, and the supply of JOLCOs is limited as well. As such, more leasing companies have started to become interested in pro - viding JOL products to investors. With respect to lenders, in addition to foreign banks and city banks that have been active in this field for a long time, more regional banks are showing interest in the aviation finance sector because of recent relatively weak demand for funds from ordinary business cor - porations, particularly in the countryside. These new entrant banks typically participate in a syndicated loan
structure – for example, through a secondary transac - tion. Lessee After the COVID-19 pandemic, the performance of Japanese legacy carriers has recovered dramatically. For example, the operating revenue of ANA Holdings for the fiscal year ending March 2025 was JPY2,261 billion, which is a record high, and the net profit was JPY153 billion, which was stable from the previous year. The revenue of Japan Airlines for the fiscal year ended March 2025 was JPY1,844 billion, a record high since its relisting, and the net profit was JPY107 billion (up 12% year-on-year). At the same time, however, considering the shrinking and aging population of Japan, demand for domestic routes is not expected to increase significantly. For example, Japan Airlines announced in March 2024 that it will replace the aging B-767s currently used in domestic routes with the smaller A321neo, thereby downsizing the aircraft used for domestic routes. At the same time, Japan Airlines announced that it will purchase additional A350-900 and B787-9 aircraft for international flights, thereby increasing and upsizing international aircraft. For the low-cost carrier (LCC) market, a new type of LCC that can be used for longer haul flights is becom - ing popular. ZIPAIR Tokyo, a wholly owned subsidi - ary of JAL, started operation in 2020 and now flies to Asian, US and Canadian cities. In April 2024, ANA started a new brand, AirJapan, under a similar con - cept, which now flies to Bangkok, Seoul and Singa - pore. In line with global trends, environmental issues are becoming more important for Japanese lessees, which are replacing older aircraft with new more envi - ronmentally friendly aircraft. There have also been a number of regulatory updates from an environmental viewpoint. First, Japan is participating in ICAO’s Car - bon Offsetting and Reduction Scheme for Internation - al Aviation (CORSIA) and has made it mandatory to submit an operation plan on measures in accordance with CORSIA for bilateral operations involving aircraft weighing more than 5,700 kg and emitting more than
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