Ethiopian Airlines closes first JOLCO finance deal in Africa
The challenge
The airline had a large number of aircraft on order with Boeing and Airbus and most of these aircraft had been assumed to be acquired on finance lease terms. Unfortunately, the traditional and less costly financing options were proving unavailable for the airline. European export credit agency (ECA) backed financing structures were not supporting Airbus, due to problems identified with the manufacturer. Furthermore, the Export-Import Bank of the United States (EXIM US) had not been operating at its full capacity since 2015.
As Temesgen Getaye, Group Treasurer, Ethiopian Airlines Group recalls, “It was therefore difficult to get economical financing structures for the airline although financiers from every angle are interested to work with Ethiopian.”
The solution
The EXIM is the official export credit agency of the United States. EXIM is an independent Executive Branch agency with a mission of supporting American jobs by facilitating the export of US goods and services.
An export credit agency is an institution that offers to finance for domestic companies’ international export operations and other activities. ECAs provide loans and insurance to companies to help eliminate the uncertainty of exporting to other countries.
Ethiopian Airlines decided to appoint Crédit Agricole as the lead arranger and opted for a Japanese Operating Lease with Call Option (JOLCO). Through this new source of funding, a first in Africa, the airline was able to close deals on its original delivery dates to deliver three new A350 aircrafts. As Getaye explains, “This arrangement allowed us to avoid the risk of the aircraft not being delivered and assured our operation to continue as per our long-range Vision 2025 road map. Additionally, we avoided the expensive commercial financing and leasing for our beloved airline.”
A JOLCO is an operating lease for the purpose of accounting and tax, which gives the lessee an option to purchase the aircraft at the end of the lease, or at some point during the lease period, at the purchase price determined at the commencement of the lease. Although it is an option, it is generally used in practice.
