Airlines looking to diversify their funding mix are increasingly requesting Japanese yen-backed aircraft financings, say banking sources.
“Airlines are getting more creative because they see the opportunities, especially those carriers with strong yen revenues,” says a banking source. “Carriers from Turkey, China and Korea are all showing interest,” he says, adding: “One carrier recently requested up to a $1 billion in yen financing.”
However, another banker, who also confirms an “uptick in the number of yen requests”, says airlines need to be careful not to “solve one problem and open up another” by “going overboard” with yen-denominated financings.
He points to the case of Brazilian airlines Varig, which incurred a loss on five Boeing 747s in 1995 because of the cost of its yen financing.
Financial director Carlos Ebner, at the time, said that Varig lost almost $71 million on the financing deal because of the devaluation of the yen against the dollar. Overall, the airline showed a net loss of Reals 96 million ($104 million) loss in the first half of the year.
The Bank of Japan is expected to leave its monetary policy unchanged at the end of its meeting this Thursday - a move which could further pressure on then yen against the dollar. Japanese policy makers have repeatedly said a weaker yen is important to reaching their 2% inflation target.