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8
Corporate Aviation
THE IRISH TIMES
Thursday, January 29 , 2015
ASpecialReport
Ireland flies high in aviation leasing and finance sector
On the up: The secrets of Ireland’s success
Irish-led lessor AerCap now the world’s
second largest aircraft leasing company
Aviation leasing and finance contributes
over ¤4 billion directly to Ireland’s GDP
CLAIRE O’MAHONY
The past 12 months have been
significant for the aviation leasing and finance sector in Ireland, with Irish-based firms
closing a number of billon-dollar merger deals. The acquisition of International Lease Finance Corporation (ILFC) by
Irish-led lessor AerCap now
makes it the second largest aircraft leasing company.
This deal represented yet another coup for the industry that
has garnered a reputation for
being a global leader in aircraft
leasing and finance. Nine of the
world’s 10 largest leasing companies are located in Ireland.
Of the estimated 20,000 commercial jet aircraft flying globally, 8,000 of those are leased
and more than half are managed from this country.
“The aviation sector as a
whole is of major importance
to Ireland,” says Eamonn Brennan, chief executive of the Irish
Aviation Authority (IAA). He
says the sector contributes just
over ¤4 billion directly to our
GDP, nearly half of which
comes directly from aviation.
“Around ¤1.3 billion comes
through the supply chain and
another ¤0.9 billion comes
from associated spending by
people employed in aviation,”
he says, adding that the industry supports 26,000 jobs directly and a further 16,000 in the
supply chain.
There is no indication that
leasing will become less attractive to airlines anytime soon.
For stronger airlines it diversifies their aircraft funding and
leaves the risk on the residual
value of aircraft with the lessors who are expert in managing this. For other airlines it is
one of the only sources of financing available to them.
Ronan Doyle, partner at
PwC, observes that the flexibility of leasing is key for airlines.
“If you own an aircraft you
have got it for its life unless you
sell it on.Whereas if you lease
the aircraft you’ve got the ability to give it back,” says Doyle.
He says the big win for the
airline is that it gets to pass on
the risk on the residual value of
the assets to the lessor. “The
downside is that if you only
have the aircraft for eight
years, at the end of eight years
the lease rate may have gone
way up. That’s why airlines
don’t lease all of their aircraft
because then they will be open
to the vagaries of the market.
Normally the rough rule of
thumb is about 60 per cent of
the aircraft should be owned,
40 per cent should be leased.”
CanIrelandsustainposition?
The question for the future is
whether Ireland can sustain its
position as a world leader in corporate aviation, particularly
with other jurisdictions looking
at the success the country has
had and seeking to replicate it.
The signs are that the outlook is good. Doyle points out
that with bond yields zero or
close to zero in some jurisdictions, this is an attractive asset
class with a decent yield in a reasonably stable business which
is operating globally.
2015 promises to be another
■ The future looks bright for
the aviation leasing and
finance industry in Ireland
very active year, according to
KPMG’s head of aviation finance, Tom Woods. A KPMG
industry survey conducted last
year and updated this year
showed that Irish lessors had
more than $66 billion worth of
orders for new aircraft with
manufacturers.
“When you add to that the
number of new aircraft that lessors will buy from airlines and
lease back to them and the aircraft that will be bought and
sold in the secondary market,
the volume of trade is staggering,” says Woods.
He adds that it is estimated
that the annual financing requirement for new aircraft
alone each year for the next 10
years is between $110 billion$120 billion and Irish compa-
nies will be involved in much of
this.
“2015 will see a lot of aircraft
purchases and leases. The securitisation market should continue to be strong with the capital
markets open on both the debt
and equity side,” he says. Ireland, therefore, seems very
well placed to continue to provide a leading role in the evolution of the industry. New technologies, specifically in terms
of fuel efficiency are among of
the challenges that lie ahead.
Based on KPMG’s survey,
Woods feels the future looks
bright. “The Government has
been very supportive in maintaining our competitiveness –
the most recent example being
the changes to our domestic insolvency laws for investors in
aviation assets.
Favourablefuelprices
“This largely mirrors the protections in the US Chapter
Thisyear’s17thGlobal
AirfinanceConferenceheldin
DublinonJanuary20-22nd
haditshighesteverattendance
of1,815delegatesfromallover
theworld.
Thesuccessoftheeventand
thefactitishostedinDublin
everyyearisanindicationof
howfartheleasingandfinance
sectorhascomeinthis
country.
“Anaircraftlessorcancome
intoDublinandinaspaceof
aboutahalfanhour,canvisita
lawyer,anaccountant,a
serviceproviderwhohas
decadesofexperiencedoing
this,andthereprobablyisn’t
anywhereelsewhichisableto
demonstratethat,”saysPwC
partnerRonanDoyle.
OtherkeyfactorsinIreland’s
successinthisareaincludeits
geographicallocationandthe
factthatitisEnglishspeaking
andintheeurozone.
Thelowcorporationtaxand
theflexibilityoftheaccounting
andfinancialreportingframeworksisanothersellingpoint,
asisthetaxnetworktreatythat
Irelandhas.
“Irelandhasnorthof70tax
treatieswhichhavebeen
signed,whichallow leasing
fromIrelandintoanother
jurisdictionataveryattractive
rateofwithholdingtax,”says
Doyle.
“There’snoother
geographyornoother
competitorjurisdictionthat
hasataxtreatynetworkthat
getsclosetothatintermsof
flexibility.”
NollaigMurphy,partnerat
MaplesandCalder,agreesthat
thissuccesslookssetto
continue.
“Throughinstitutional,
corporateandgovernmental
supportforthesector,itisa
coreIrishserviceindustrywith
acomplementaryregulatory,
taxandinsolvencyregime,”he
says.
“Withthecurrentand
expectedriseinfinancing
ofthesectorthroughthe
capitalmarkets,Irelandis
alsouniquelyplacedintheEU
toservicethisasbothan
aviationandSPVissuer
jurisdictionofchoicein
Europe.”
TheIAA’sEamonnBrennan
believesthatsuccessbreeds
successandthathasplayeda
keyroleinthegrowthofthe
industry.
“Therearethreatsfrom
othercountriestotake
marketshare,suchas
SingaporeortheNetherlands,
butIbelievethatIrelandIncis
notbeingcomplacentandthat
stepsarebeingtakento
safeguardandgrowthis
sector,”hesays.
11.10 code and Alternative A of
the Cape Town Convention. It
is awaiting a ministerial order
before coming into force and
when it comes through it
should make Ireland more attractive as a centre for aircraft
financing as well as aircraft
leasing,” he says.
Donna Ager, partner at Maples and Calder, agrees that
2015 looks set to be another
good year for aviation. “With
Boeing and Airbus producing
yet more aircraft there is plenty of space for everyone and opportunity for investors to make
money and the airlines to benefit from attractive lease rates.
“Whilst the underlying cyclical nature of the industry continues, at the moment it appears that both investors and
airlines, assisted by the favourable fuel prices, are both riding
on the crest of a wave with no
downturn occurring in the
near future,” she says.
Developing intellectual capital
in the aircraft industry
JOHN CRADDEN
Ireland is well-known for
punching above its weight in
air transport industry terms
thanks to the presence here of
virtually every major player in
the global aircraft finance and
leasing sector, but a new award
ceremony last year helped to
highlight examples of excellence right across the industry
for the first time.
The inaugural Aviation Industry Awards, which took
place last July, attracted 130 entries from 70 different firms
for no less than 16 separate
award categories.
Awardslongoverdue
Eamonn Brennan, chief executive of the Irish Aviation Authority (IAA) and sole sponsor
of the awards, said the decision
to establish the award ceremony was long overdue. “There
was no industry recognition of
the many outstanding businesses and individuals who excel in
their respective fields.
“These awards are not seeking to highlight one specific
field, they are designed to recognise the collective achievement of the entire Irish aviation industry,” he says. It’s a
sector that “makes a significant contribution to the country’s economy”, employing
26,000 people and contributing
¤4.1 billion to national GDP.
“The success and immense
growth of the aviation sector in
Ireland would not be possible
without the outstanding work
carried out by individuals and
businesses across the entire island, from airlines to airports,
pilots, engineers, finance and
leasing companies, support services, researchers, training institutions, safety and security
professionals, and, of course,
the general aviation enthusiasts,” says Brennan.
16awardcategoriesthisyear
Among the 16 award categories of this year’s awards,
which are due to take place in
May (entries close in March),
are for the best in the fields of
airports, air operators, leasing,
customer service, education,
training, innovation, R&D, environment and safety.
As head of the body responsible for the air traffic management of Irish airspace and for
the safety and security regulation of the Irish civil aviation industry, Brennan says it was
good to see last year how many
■ Dómhnal Slattery, from Avolon, receiving the Aviation Leasing Achievement Award from
Eamonn Brennan, chief executive of the Irish Aviation Authority, at the Aviation Industry Awards
2014 (top), and Kell Ryan, brother of the late Dr Tony Ryan, receiving the Outstanding
Contribution to Irish Aviation Award from Leo Varadkar. PHOTOGRAPHS: ROBBIE REYNOLDS
were committed to safety.
“It was really encouraging to
see how many individuals and
businesses were going the extra mile to make the industry
‘‘
Safety is the
bedrock of
our industry and
our general safety
oversight ranking
is amongst the best
in the world
safer and more efficient.
“Safety is the bedrock of our
industry and our general safety
ranking is amongst the best in
the world.”
Among the highlights of last
year’s ceremony was the posthumous award to Ryanair
founder Dr Tony Ryan for “Outstanding Contribution to Irish
Aviation”, which was accepted
by his brother Kell Ryan. As
well as founding Ryanair, the
award also recognised Dr
Ryan’s efforts in building the air
finance and leasing sector here.
“The sector is set to continue
to grow and this is something
we should all be immensely
proud of,” says Brennan.
“Our air finance and leasing
sector is thriving. Ryanair is
going from strength to
strength. Our air traffic management system is the most advanced in Europe, the Irish aircraft register has increased by
88 per cent since 2001 and domestic traffic at the three State
airports [Dublin, Shannon and
Cork] was up 6.5 per cent last
year.”