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

The transaction marks a watershed moment for aircraft financing in India, opening the door to a funding pool historically reserved for top-tier global airlines

• IndiGo gets Japanese funding for two Airbus A320s
• Deal uses JOLCO structure, a first for an Indian airline
• GIFT City tax incentives and legal reforms made the deal possible

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India's largest airline, IndiGo, has secured Japanese equity financing for two Airbus A320 family aircraft in a first-of-its-kind move for an Indian carrier, an Economic Times report said on Saturday.

The transaction marks a watershed moment for aircraft financing in India, opening the door to a funding pool historically reserved for top-tier global airlines.

The financing has been executed through a Japanese Operating Lease with Call Option (JOLCO) structure - a model widely used by leading international carriers - and is considered more cost-effective than conventional debt funding.

The Economic Times noted that aviation financiers and legal experts view the deal as a sign of rising confidence in both the credit profile of Indian airlines and the country's evolving legal framework.

Japanese investors, typically regarded as highly risk-averse, have traditionally backed state-owned airlines or carriers with strong balance sheets. Airlines such as British Airways, Singapore Airlines, Cathay Pacific, Qantas, Turkish Airlines and Air France are among the few that have previously tapped JOLCO financing, the Economic Times highlighted.

The structure 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, the Economic Times said.

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.

For years, Indian carriers struggled to access such structures due to perceptions of high risk, particularly following airline bankruptcies and weak insolvency enforcement.

The collapse of Go First intensified concerns among lessors, who flagged India as a challenging jurisdiction for aircraft repossession, the Economic Times reported.

However, legislative reforms have reshaped the landscape. In February, the government enacted new provisions aligning India with the Cape Town Convention, which allows aircraft lessors to reclaim assets within 60 days in the event of bankruptcy.

This move significantly reduced jurisdictional risk, industry experts told the Economic Times.

GIFT City has also addressed another long-standing hurdle - the lack of a double taxation avoidance agreement between India and Japan - which had earlier made direct JOLCO transactions impractical.

By enabling tax-efficient routing through the IFSC, the framework has become more attractive to Japanese investors.

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, reflecting both reduced credit risk and growing trust in IFSC structures.

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 - developments that GIFT City has helped facilitate, the Economic Times reported.