TOKYO -- Japan's major banking groups, or megabanks, are increasing their loans to leasing and airline companies as the country's lending rates remain extremely low due to the central bank's negative interest-rate policy, as well as other factors. The airline industry, meanwhile, shows much promise as a borrower with robust growth potential, given that a single plane costs hundreds of millions of dollars.
Over a 20-year period through 2036, the number of private jetliners around the world is expected to rise by 80% to about 38,000. More than 80% of this is expected to be demand for new jetliners and replacement aircraft. In Asia and other emerging markets with a growing middle class, smaller, narrow-body jets with capacity of about 200 passengers lead the market.
"The aircraft industry is a promising borrower for banks, given the growth potential of the airline leasing market," said Yoshinobu Yamada, senior analyst at Deutsche Securities.
Mizuho Financial Group has increased its outstanding loans to aircraft leasing companies fivefold to about $500 million over the past five years as part of its strategy to cultivate non-Japanese blue-chip companies.
Mizuho has been trying to diversify its funding channels beyond regular loans. Its banking unit, Mizuho Bank is helping Mizuho Securities lead manage bond issuance by leasing companies. The megabank also plans to increase bridge loans to about $1 billion for leasing companies that issue aircraft asset-backed securities.
U.S. aircraft maker Boeing estimates the amount of funds raised for new private aircraft this year will increase 13.9% from last year to $139 billion. Bank loans and fundraising through capital markets are together expected to make up more than 60% of this.
The company forecasts that total aircraft loans by Japanese banks will jump 39% to about $9 billion this year, accounting for 17% of the global total, up 5 percentage points from last year.
One reason the airline industry appeals to banks is that they can hedge the risks by using the planes as collateral that can be sold in the event of default. Aircraft are relatively easy to resell, as common types are used around the world, and the secondary market is stable.
Last year, Sumitomo Mitsui Banking Corp. and the Development Bank of Japan became the world's first banks to conclude loan agreements with airline companies under an insurance framework to cope with nonpayment of principal and interest on the loans. Under the Aircraft Finance Insurance Consortium, SMBC has extended loans to such companies as Korean Air Lines and a budget airline owned by the Dubai government for the purchase of a total of five aircraft.
The AFIC is aimed at expanding the scope of loans by insuring against default risks, as the airline business is susceptible to uncertainties such as economic fluctuations, terrorism-related concerns, and others.
MUFG Bank is also focusing on aircraft finance in Tokyo, Singapore, Hong Kong, London and New York in collaboration with its leasing and brokerage units. It plans to increase the number of its staff in the field from 30 currently, and to expand its credit lines.