Risk management in Project Finance by focusing on perceived risk and payoff risk and its application in aerospace industries.

Abstract

We study Project Finance as a relatively new and innovative way to provide extensive capital and discuss risk management as a fundamental characteristic of PF. Once the theoretical background is formed, we discuss and analyze project finance, concentrating on its risk management feature as a cornerstone. We follow the study by investigating methods of measuring the payoff and perceived risk in project finance. The focus is on specific risks for each project instead of systematic risks and how to deal with them in a PF contract. We analyze how Project Finance can hedge the risk without using other hedging tools and products. Achieving this goal requires providing the contractual framework and risk-sharing profile that requires a deep understanding of each project's specific and systematic risks for both payoff and perceived risk. Moreover, we analyze the current application of PF by investigating the PF deals already made in the aerospace industries, focusing on satellite industries. Concluding with what challenges the industry faces to utilize PF, how the rationalization process is already affecting the space and satellite industries, which opportunities the sector has, and the principal risks it will face. We aim to provide a framework or suggestions for utilizing the PF in more profound and broader aspects of future space projects. Thus, the goal is to provide suggestions or guidelines for a framework that can enhance the application of PF tools in the rising space industries and guidance for further study. The result could be fruitful for all stakeholders.