Japan Airlines (JAL) has announced today that it has decided to issue the world’s first transition bonds in the aviation industry.
Transition bonds, a category of SDG bonds, are corporate bonds issued by companies who has developed strategies to achieve long-term goals that aligned with the Paris Agreement and will allocate the proceeds to initiatives that support the transition towards a carbon-free society.
By issuing its first SDG Bonds, JAL said that it wants to clearly demonstrate its determination to “squarely confront the issue of reducing emissions from aircraft, which are the biggest source of CO2 emissions in its air transport business”.
The unsecured corporate bonds are offered in two tranches - ¥10bn five-year bonds and ¥10bn 10-year bonds. The issuance is scheduled for March 2022.
The net proceeds from JAL’s SDG bonds will be used to acquire fuel-efficient aircraft – A350s and 787s - and to refinancing existing investments.
Mitsubishi UFJ, Morgan Stanley and Daiwa Securities are the structuring agents and bookrunners, as well as acting as lead managers with Mizuho Securities, BofA Securities and Nomura Securities.
JAL has acquired a second party opinion on the alignment of its framework with the existing principles and guidelines from Sustainalytics. The bonds were also selected by Japan’s Ministry of Economy, Trade and Industry (METI) as a model example for its 2021 Climate Transition Finance Model Project, marking the first initiative of a Japanese airline being selected.
In May 2021, JAL’s Group Medium-Term Management Plan for Fiscal years 2021-2025 centred the company’s aim on both overcoming the current COVID-19 pandemic and adapting to changes in the post-COVID operating environment while achieving sustainable growth and development. In order to achieve JAL Vision 2030, its ideal image of the JAL Group in 2030, it set ESG strategy as one of its three strategic pillars alongside business strategy and finance strategy.
The JAL Group is aiming to achieve its target of net-zero CO2 emissions by 2050, primarily by upgrading its aircraft to fuel-efficient models that emit minimal CO2, and increasing the amount of Sustainable Aviation Fuel (SAF) for its fleet.
For the issuance of this bond, JAL drew up its Transition Bond framework in order to promote initiatives related to its ESG strategy in financing.
JAL intends to allocate the net proceeds from this SDG Bonds to the air transport business, which accounts for the majority of CO2 emissions, and aim for financing that contributes to the realization of transitions. JAL plans to allocate the net proceeds of the Bonds to new investments for upgrading to fuel-efficient aircraft (Airbus A350, Boeing-787, etc.), and to refinancing existing investments.
By upgrading to fuel-efficient aircraft, JAL states that it will accelerate efforts to achieve its CO2 reduction targets for fiscal years 2025 and 2030, the interim stages toward its overall target of net-zero emissions by 2050.