However, since the delivery is in January 2022, there is a risk that interest rates move to where the lease deal is no longer profitable to BA. To protect itself against interest rate risk, BA has added a clause around pegging the LRF to swap rates. BA proposes to adjust monthly lease payments by $100/bp for each basis point change in the current 7-year swap vs. the rate at time of delivery.

Currently, the 7-year swap rate is 2%

Assume in January 2021, the 7-year swap is 2.5%. What will be the monthly lease payments?

6. Assume in January 2021, the 7-year swap is 1.5%. What will be the monthly lease payments?

Obviously, now JAL sees the risk of being tied in a contract where it may have to pay higher lease payments, should the swap rate increase 7. How can JAL hedge this risk?