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Aircraft Leasing – Is Ireland Gaining Altitude?

Aircraft Leasing – Is Ireland Gaining Altitude?

With the foundation of Guinness Peat Aviation (GPA) in the 1970’s by Aer Lingus and the Guinness Peat Group, Ireland became a key early player in global aircraft leasing. The legacy experience which comes from 40 years involvement in the industry has helped cement the country’s position as the top global destination for aviation leasing companies.

Integral to Ireland’s growth

Today, most of the world’s major aircraft lessors, financiers and arrangers have established Irish operations from which they finance and lease aircraft globally. It’s seen as one of the great Irish economic success stories and a key contributor to the Irish economy.

A report by accountants PwC, Taking Flight – 2018, shows that the industry supports nearly 5,000 jobs, 1,700 directly, spends €541 million per annum here and contributes a further €90 million in payroll-related tax to the exchequer.

Such is the volume of market activity being managed from Ireland that most of the large professional services firms in Ireland – legal, financial and technical – have dedicated teams to support the aviation leasing sector. Ireland’s standing as the primary location for aircraft leasing firms is further evidenced by the annual hosting of the two largest global aviation finance conferences, attracting over 3,000 international delegates to Dublin each year.

Why is Ireland the best?

So, what makes Ireland so attractive to the aviation leasing industry? Ireland’s success can be attributed to numerous factors including:

  • A taxation regime which provides for a stable and competitive headline rate of corporation tax and a tax depreciation write-off period of eight years;
  • An extensive network of double taxation treaties with 74 countries currently in effect.
  • Deep, multi-disciplinary skills market – technical, legal, financial.
  • Legacy experience which comes from 40 years involvement in the industry.

As is widely acknowledged, Ireland’s extensive double taxation treaty network plays a key role in creating a positive business environment for lessors. The country’s position as a global leader for the availability of skilled labour has proven to be another driver of success in attracting business which is mirrored in the findings of the IMD World Talent Ranking report. Specialist aviation finance programmes at UCD’s Smurfit Business School and the University of Limerick provide a steady flow of talent for firms operating here.

More people, more planes

The industry in Ireland is still expanding with aircraft numbers increasing globally by 36% between 2012 and 2016. This is fuelled by rising wealth in Asia, and Ireland is capturing much of this growth. The continual growth is expected to increase the number of aircraft held by Irish lessors by 22% in the next 3 years, further establishing the Republic as the leading global aircraft leasing hub.

CSO figures published in February 2018 also highlight this growth, showing the stock of leased aircraft increasing from €27.4bn in 2007 to €77.5bn in 2014, with the largest growth, over €30bn (65%), recorded in 2014 following the arrival of new entrants in the sector. This impressive growth is projected to contribute a further €3 billion to the Irish economy over the next five years.

Tailwinds from the East

Much of the growth in the aircraft leasing industry comes from the emerging Asia-Pac Region – China in particular – which is expected to overtake the US as the world’s largest aviation market by 2024. FlightGlobal data shows that more than 1,100 Chinese-owned aircraft are managed from Dublin, about a quarter of the 4,300-strong global leasing fleet in Ireland.

Fiona McCabe, head of Investment Management at IDA Ireland, believes Ireland is now the “the major hub for China’s  aircraft leasing market.” The evidence is clear, with HNA group’s takeover of Avalon in 2015 and large investments by major lessors such as Commercial Bank of China and Bank of China Aviation, Ireland has become a key strategic foothold for China’s ambition in the sector.

Aircraft Leasing Ireland – Propelling further growth

This month a new Ibec-affiliated industry body, Aircraft Leasing Ireland (ALI), was launched in Dublin. The group has 17 members, including four of the world’s largest aircraft lessors, Aercap, Avalon, GECAS and SMBC Aviation Capital. ALI has identified in its mission four key priority areas:

  • Ensuring the sector has a coordinated voice.
  • Supporting educational programmes that can help underpin the industry’s skills base.
  • Extend Ireland’s existing double taxation treaties.
  • Encourage the review of personal tax and housing policy, seen as challenges to competitiveness when it comes to staff recruitment and retention.

To ensure Ireland can maintain its market position the ALI is looking to Government to extend the Republic’s 74 existing tax treaties to countries such as Argentina, Indonesia, and Japan, where there is high demand for new aircraft.

The impact of Brexit?

In PwC’s report, Brexit was not seen as a major threat by industry leaders. As the importation of aircraft into a country is the responsibility of the lessee, it will be UK based airlines who may have to prepare for a bumpy landing. What seems likely is that Brexit will give rise to more challenging regulatory or trading conditions for UK based companies which, given the global nature of the industry, could see lessors relocate to the Irish market.

The air transport sector has doubled in size every 15 years and is set to continue to expand, potentially at an even faster rate. With KPMG describing aircraft lessors as ‘bullish’ about global demand for aircraft the future looks bright for Ireland’s aircraft leasing industry.