IndiGo becomes first Indian airline to access Japanese equity financing for aircraft: Report

IndiGo Secures Japanese Equity Financing for Airbus A320 Family Aircraft

Indian carrier IndiGo has made history by securing Japanese equity financing for two Airbus A320 family aircraft, marking a significant milestone in aircraft financing for Indian carriers.

• This innovative financing model opens the door to a funding pool historically reserved for top-tier global airlines.
• The Japanese Operating Lease with Call Option (JOLCO) structure is considered more cost-effective than conventional debt funding.

Aviation financiers and legal experts view this deal as a sign of rising confidence in both the credit profile of Indian airlines and the country's evolving legal framework.

Japanese Investors Take Notice

Traditionally, Japanese investors have backed state-owned airlines or carriers with strong balance sheets. However, this deal marks a shift towards a more open approach to aircraft financing.

• Airlines such as British Airways, Singapore Airlines, Cathay Pacific, Qantas, Turkish Airlines, and Air France have previously tapped JOLCO financing.

GIFT City Plays a Key Role

The transaction has been routed through Gujarat International Finance Tec-City (GIFT City), a special economic zone offering tax incentives to aircraft leasing entities registered under the International Financial Services Centre (IFSC).

IndiGo has established a dedicated leasing arm - InterGlobe Aviation Financial Services IFSC Private Limited - to facilitate the transaction.

JOLCO Arrangement

Under the JOLCO arrangement, Japanese corporates or high-net-worth individuals invest equity alongside bank-provided debt, and the aircraft is leased to the airline. At the end of the lease tenure, IndiGo retains the option to purchase the aircraft.

Japanese tax regulations allow investors to claim depreciation benefits, enabling them to accept lower lease returns.

As one person involved in the deal told the Economic Times, investors derive a substantial portion of their returns from tax shields rather than lease income alone, resulting in more competitive lease rates for airlines.

Legislative Reforms and GIFT City Facilitate Deal

Legislative reforms have reshaped the landscape, allowing aircraft lessors to reclaim assets within 60 days in the event of bankruptcy.

The lack of a double taxation avoidance agreement between India and Japan has also been addressed, enabling tax-efficient routing through the IFSC.

Experts Weigh In

Ajay Kumar, Managing Partner at KLA Legal, said JOLCO deals routed via GIFT City present a strong opportunity for Japanese investors to participate in India's expanding aviation sector.

Lovejeet Singh, Partner at Chandhiok and Mahajan, added that full compliance with the Cape Town Convention has meaningfully lowered jurisdictional risk, while the improving credit strength of Indian airlines has unlocked new financing channels.