Ireland’s aircraft leasing industry expected to see further growth
State’s raft of sector experts and low corporate taxes will yield more business – KPMG
The growth and success of the industry here can be traced all the way back to the 1970s and the foundation of Guinness Peat Aviation by Tony Ryan – the man who later went on to found Ryanair. Photograph: Owen Humphreys/PA Wire
The aircraft leasing industry has been one of this Ireland’s greatest success stories over the past four decades. We are now firmly established as the leading global hub for the sector with more than 50 per cent of the world’s leased aircraft owned and managed from this country and 14 of the top 15 global lessors having operations here.
“That’s more than $150 billion worth of aircraft,” says KPMG aviation partner Tom Woods. “The portfolio values are enormous; Both AerCap and GECAS [GE Capital Aviation Services] have more than $40 billion worth of aircraft and orders and Avolon, following the acquisition of CIT, will also have a portfolio of this magnitude.”
But even those huge numbers will be dwarfed by the scale of the opportunity on the horizon. “It is estimated that there is five to six trillion dollars’ worth of aircraft coming down the pipeline over the next 20 years or so.
“Just imagine, 40 per cent to 50 per cent of that will be leased and Ireland could account for half of that. That’s an enormous capital outlay; 20-25 per cent of the entire global demand for aircraft will be met by companies based in Ireland. And that’s just new aircraft. There will be an enormous amount of business done in the leasing and selling on of the older aircraft being replaced.”
The success of the industry here can be traced all the way back to the 1970s and the foundation of Guinness Peat Aviation (GPA) by Tony Ryan – the man who later went on to found Ryanair. That kicked off the creation of the talent pool which is critically important for the industry.
“The industry requires highly expert people”, Woods points out. “Financially, legally and technically savvy people are needed. The intellectual property that has been built up out of the GPA fold and the professional services firms servicing the sector over the past 35 to 40 years has been key to the attraction of Ireland.”
But there are other factors and among them is the stable business and taxation environment offered by this country. “You can’t underestimate the amount of comfort that fiscal stability gives investors”, says Woods.
“I know we have come through a rocky patch but throughout it there was very broad support across the political spectrum for our tax policy. This has been an important factor in Ireland’s attractiveness to investors in an era of instability. If someone is going to put a very significant amount of capital into a country, they want stability.”
With a potential $1.5 trillion in business coming the Irish-based industry’s way in the next 20 years, it is clear that would-be competitors will be looking for a slice of the action. Fortunately, Ireland is already doing many of the things needed to maintain its lofty position.
“One of the reasons why Ireland has done so well is remaining alive to what our competitors are doing”, Woods notes. “There are a number of aviation related-courses including a new MSc in Aviation Finance in the UCD Smurfit School. It’s a really good idea to give people experience of aviation finance while they are still at college. There are a number of international students on the UCD course.
Attractive corporate tax regime
“Education is helpful in creating a stickiness to a country. We need these people to come and work in the industry here and courses like the UCD Smurfit School course will be very important in that regard.”
Woods recently gave a lecture to students on the course on where you could set up an aircraft leasing operation. “We looked at Hong Kong, Singapore, the Chinese free trade zones but Ireland is just so compelling compared to the others.
“In addition to the talent pool and professional services infrastructure here, we have an attractive corporate tax regime and tax treaty network. Our treaty network has been built out as the industry has grown and you can’t just replicate that overnight. The strategic build-out of the network continues and that helps to keep us ahead.”
He also points out that the industry is innovating in terms of how it raises finance to purchase the aircraft, how it makes the leasing option affordable and attractive to its customers, and how it manages and maximises the value of the aircraft assets over time. But that requires people and that is one area where Woods feels more could be done.
“The talent pool is critical and we need to retain and grow this. One area where we are weak compared to competitor locations is personal taxation”, he says. “We need high value people for this industry to be based here. If you’re taking more than half of a person’s salary off the top in taxes, it’s not very attractive.
“With a greater focus on alignment of profits with where companies have substance in terms of people and activity, it will be very important and challenging to attract talent in the future. There has been progress made in areas like SARP [Special Assignee Relief Programme] and the Foreign Earnings Deduction but more needs to be done.”