Japanese Operating Lease

A Japanese Operating Lease (JOL) is an operating lease funded by an equity investment from a Japanese entity and non-recourse senior debt provided on-shore in Japan. This structure is used in the aviation industry to provide airlines with 100% financing of aircraft at attractive rates and over long terms. The JOL is appealing to airlines as it offers competitive lease rates and off balance sheet financing. This is achievable because the owner of the aircraft (i.e., the Japanese equity investor) is entitled to claim depreciation tax benefits in Japan. In order to receive the tax benefits associated with owning the aircraft, the Japanese equity investor must accept residual value exposure as well as demonstrate knowledge and expertise of leasing.

The JOL structure originated in March 1999 as a result of the Japanese Tax Authority’s (NTA) change in the basis upon which investors in a Japanese Leveraged Lease (JLL) could claim depreciation on cross-border or double dip leases. Under the previous tax scheme, the equity investor in a JLL assumed no asset risk on the investment. Under the new tax system, Japanese equity investors are required to take a portion of asset risk in order to claim depreciation benefits. The only exception is for leases to Japanese domestic airlines.

Need to know more? I usually answer questions the same day.

* Please note that your email address will never be sold or used for unsolicited communication.