Aircraft Finance: Target by Japanese MegaBanks


The noted Japanese banking groups colloquially referred to as megabanks, have turned their sights on the airline industry. This is as the industry makes an excellent borrower with good growth potential. There are other factors at play too, like the Japanese lending rates continuing to remain extremely low due to the negative rate of interest policies adopted by the central bank of Japan. Growth is assured in the airline industry, with each aircraft costing many millions of dollars.

All flying reasons

The airline industry is attractive to banks as the latter can hedge risks by utilizing planes as collateral. The planes can be sold in case the airline company defaults on the loan. Planes can be easily sold and most are of the same type. The secondary market is also a stable one.

Mizuho Financial Group has raised its outstanding loans by five times to the aircraft leasing companies to approximately $500 million over past five years as a component of its strategy to cultivate blue chip companies of non-Japanese origin. The company has for long tried to diversify its standard funding channels beyond the regular loans. Mizuho Bank, the company's banking unit, lead the manage bond issuance through leasing companies. This megabank also has plans to increase the bridge loans to approximately one billion for the leasing companies which issue securities backed by aircraft assets.

Demand and finance

It is estimated the number of private jetliners flying around the world over the next 20 years would rise by 80 percent all over the world to touch 38,000. About 80 percent of this is anticipated to be new jetliner demand and new replacement aircraft. The market in Asia is dominated by 200 passenger capacity planes catering to the middle-class traveler. Yoshinobu Yamada of Deutsche Securities pointed out that the aircraft industry makes it an excellent borrower for banks. There is much potential in airline leasing market.

Boeing, the American aircraft manufacturer, estimates that the quantum of funds collected for new aircraft in 2018 will increase by 13.9 percent compared to 2017 to reach $139 billion. More than 60 percent of the amount will in the form of capital markets fundraising and bank loans. It was forecast by the company that total aircraft loans made by Japanese banks will increase by 39 percent to approximately nine billion in 2018. These figures make up 17 percent of the world's total. This marks a rise of five percentage points compared to 2017.

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