Allegiant Air has closed its first Japanese operating lease with call option (JOLCO) transaction, joining American Airlines among US carriers tapping the burgeoning market.
The Las Vegas-based carrier closed the $44 million deal for one Airbus A320 (MSN 8329) in September, a quarterly securities filing shows. The debt carries a blended interest rate of 4% with the lease expiring in 2028 when it has the option to purchase the aircraft, and the loan maturing in 2030.
"It's really attractive, the pricing is good and it's 100% financing on appraised values," Allegiant vice-president of fleet planning and corporate finance Robert Neal tells FlightGlobal on its decision to tap the JOLCO market.
DVB Bank arranged the loan and was one of three lenders, he says. Fukamatsugumi holds the equity, and ITOCHU is the lease manager and equity arranger.
Allegiant initially disclosed the transaction as a "financing agreement" in September.
American closed two JOLCO transactions in 2017, one for a new Airbus A321 (MSN 7525) and one for a 2016-vintage Embraer 175, making it the first US carrier in years to tap the market. And earlier this year, Hawaiian Airlines, after expressing interest in the structure, financed two new Airbus A321neos with Japanese yen-denominated loans equal to $86.5 million.
However, JOLCO structures are popular for transactions outside the USA, with Avianca, Air Canada and Copa Airlines all tapping the market for recent deliveries.
Allegiant, long an operator of used aircraft, placed its first order for new aircraft with Airbus for 12 A320s in 2016. This created financing opportunities for the airline outside its standard domain of commercial bank debt, including in the capital and JOLCO markets.
The carrier was able to use the order to take advantage of this with its JOLCO transaction, says Neal. He adds that now that Allegiant is a player they hope to do more such transactions with used aircraft.
"I'd love to see this in the used space," he says.
At the end of September, Allegiant had commitments to purchase 11 used A320s and lease another 12 aircraft, the securities filing shows. It reached an agreement to purchase another used A320 in October.
Future JOLCO transactions, while something Allegiant wants to do, will be "limited", says Neal, citing restrictions like fixed interest rates and lack of pre-payment options.
Pillsbury was legal counsel to the lenders, White & Case to the equity investor, and Donna Schmidt to Allegiant in the transaction.
Source: Cirium Dashboard