The importance of the Irish leasing sector based in Dublin
By Trevor Buckley, Acumen Aviation
The Irish Aviation Authority describes Ireland as “a nation of aviators”. Dublin became a city of aviators in mid-January as the world’s two biggest aviation conferences – the 5th Annual Airline Economics Growth Frontiers and 19th Annual Global Airfinance Conference – descended on the city, attracting over 4,500 delegates to Dublin endorsing its position as a pre-eminent hub for the global aircraft leasing industry.
Since the creation of Guinness Peat Aviation (GPA) in Shannon in the 1970s by the late Tony Ryan, Ireland has been a centre of excellence in aviation finance and leasing. The expertise and skill resource pool developed at GPA over subsequent years has developed and grown in Dublin as new aircraft leasing companies were established by former employees from GPA.
Dublin has become one of the major global centres for the aircraft leasing sector. Fourteen of the top 15 aircraft lessors are headquartered in Ireland, prominently in Dublin. Some 50% of the world’s leased commercial aircraft are managed from Ireland, with one in every five aircraft managed from Ireland, which equates to 50% of the world’s leased fleet. Ireland now has a 63% share of the global leasing market. In 2015, approximately 4,300 leased aircraft were managed from Ireland with a total estimated value in the region of US$125bn. An Irish managed aircraft departs every two seconds across the globe.
Today Dublin is highly recognised as a centre of excellence in aircraft leasing with industry leaders based here including AerCap, Avolon, AWAS, ICBC, Orix and SMBC Aviation Capital. The key factors in the success of the aircraft leasing sector in Dublin have been the Irish government’s favourable corporate tax regime and very pro-aviation and leasing sector policies, the financial, legal and human resource expertise and skill sets.
The Irish leasing sector based in Dublin benefits hugely with global connectivity. Dublin Airport is the fifth largest European Hub for North America connecting passengers. Global connectors Emirates Airlines and Etihad Airways operate double daily services to their perspective hubs enabling global connectivity to emerging markets. Ethiopian Airlines route to Addis Abba Hub enables connections to over 50 African destinations. Qatar Airways commences new Doha service on June 12, 2017.
Ireland has broad tax treaty networks with over 70 countries. The use of leasing services by the major Irish airlines has also promoted the growth of the sector.
The growth of major aircraft leasing services in Dublin has created an ancillary service industry. Service providers have grown in acquisition and management, execution and deal structuring, financing operations, remarketing and lease placement, transaction negotiation, sales and technical services including Irish aircraft registration. Today these ancillary service providers are collaborating to deliver end of lease (EOL) aircraft transition programmes at Dublin Airport utilising MRO and painting services.
The development of the aircraft leasing sector is a cornerstone of Ireland’s National Aviation Policy 2015 document. Government policy states that “supporting the aircraft leasing and aviation finance sectors to maintain Ireland’s global position in these spheres” recognises that aircraft leasing employs 1,000 directly and 2,000 indirectly in highly paid professional positions generating €300m in exchequer returns annually.
The Department of Transport established The National Civil Aviation Development Forum to support implementation of Ireland’s National Aviation Policy document. A working sub group was established with stakeholders from finance and leasing sector identified work streams to address barriers in the sector.
The first work stream issue raised is the need for Ireland to be a competitive location for attracting senior decision-makers in organisations to locate here. The second work stream issue raised is the need to support and development of relevant training and education courses to ensure a strong indigenous workforce pool for the industry. The third work stream issue raised is the need for Irish-based industry representation in relevant multi-lateral bodies and institutions.
The Irish Aviation Authority (IAA) continue to prioritise their support for leasing activities by further extending the number of States to which they will delegate oversight responsibilities for Irish registered aircraft, referred to as Article 83bis agreements. These agreements afford the protections applicable under the Chicago convention to the state of registry (Ireland) while allowing the operation of the aircraft by an airline in another State.
The IAA further extended the network of States by concluding an 83bis agreement with the Islamic Republic of Iran in February 2017, opening further opportunities for Irish firms to lease to emerging markets. In announcing the new agreement, Mr Ralph James Director Safety Regulation highlighted the ongoing commitment of the IAA to facilitate competitiveness, innovation and emerging technologies among the Irish aviation industry to the benefit of Irish and global aviation.
To further enhance the attractiveness of Dublin as a global aircraft leasing hub, the Irish Stock Exchange based in Dublin launched a dedicated exchange for aviation-related debt and other financial instruments enhanced by specialised knowledge in broking, corporate and leasing firms. The exchange offers “highly efficient, low cost platform delivering better visibility, greater investor reach and improved market intelligence” for aviation related debt and other instruments.
The Irish government has invested in Aviareto through a 20% holding held by the Minister for Transport, Tourism and Sport, a joint venture between SITA SC and the Irish government, has a contract with the International Civil Aviation Authority (ICAO) to establish and operate the International Registry as required by the Cape Town Treaty based in Dublin.
To further support the aircraft leasing sector, the government plans to fully adopt the Cape Town Alternative A insolvency arrangements and promote the benefit of the aviation finance sector.
In 2016 UCD Smurfit Business School launched a new one-year MSC in Aviation Finance in a collaborative partnership between UCD and AerCap, Avolon, GECAS, SMBC Aviation Capital and Snecma (Safran) to meet industry needs to create a pipeline of new talent with the necessary expertise and skills. The MSC focuses on developing student’s understanding of all aspects of aviation finance, with a specific focus on the practical features of global aviation markets.
The centre of gravity in global aviation continues to shift eastwards with future forecast demand and growth centred on Asia. The Chinese aviation market is one of the fastest-growing markets as over the next 20 years, Chinese airlines will need nearly 6,000 new aircraft, valued at US$780bn, accounting for more than 40% of forecast deliveries to the Asia Pacific region.
Dublin will play an increasing role fuelling the growth of Chinese aviation industry. Recognising all that Ireland has to offer in the aviation finance space, Chinese and other Asian banks have decided to establish their European headquarters in Dublin.
In 2012, ICBC Leasing, the leasing arm of ICBC, the largest bank globally, and CDB Leasing (Sinoaero), the leasing arm of China Development Bank, both established European headquarters in Dublin. In November 2013 Goshawk Aviation Limited (Goshawk) established an office in Dublin.
In 2014 IDA Ireland announced a third Chinese leasing company, Bank of Communication Financial Leasing (JY Aviation), had chosen Ireland for its leasing operations. In 2015, China Construction Bank announced the establishment of its leasing arm’s international headquarters in Dublin and Ping An International Financial Leasing established a new Dublin Office.
Chinese aircraft lessor investment in Dublin continued apace in 2015 with a significant announcement by Bohai Capital, a Chinese company listed on the Shenzhen Stock Exchange who acquired Dublin based aircraft lessor Avolon. The acquisition completed in the first quarter of 2016.
Dublin’s position as a global hub for aircraft leasing has been further cemented with the announcement on April 4, 2017 that Avolon completed the acquisition of the aircraft leasing business of CIT Group Inc, becoming the world’s third largest aircraft leasing company with a combined fleet of 868 aircraft valued at over US$43bn.
The aircraft leasing sector is growing strongly in Dublin with a number of significant announcements recently. In November 2016, two industry leaders Ed Wegel and Ray Sisson announced plans to launch AVi8 Air Capital Commercial Aircraft Leasing Company with headquarters to be based in Dublin, focusing on building a portfolio with the newest and most desirable narrowbody commercial aircraft, and is in the process with several leading global investment banks and analysing potential deals.
On January 24, 2017, AJW Aviation announced that it had opened a new Dublin office to serve the leasing sector. Ian Malin, Treasurer, Director and Chief Investment Officer, AJW Group, said “the strengthening of our new office in Dublin enables us to engage more closely with our customers, and the major leasing and finance communities in this region.”
Singapore Technologies Engineering Ltd announced plans on February 13, 2017 to establish a new leasing company Keystone 4 in Ireland. Keystone Holdings is a 50-50 joint venture aircraft investment holding company between ST Aerospace Resources Pte. Ltd. and SJ Aviation Capital Pte. Ltd. Through Keystone 4, ST Aerospace will grow its aircraft leasing business by acquiring more mid-life narrowbody aircraft that are currently on lease to airlines.
Over the next 20 years 38,000 aircraft are expected to be delivered valued at US$5.6 trillion with the number of leased aircraft in the global fleet expected to grow from 42% today to 50% by 2020. This growth will create huge new opportunities for the leasing sector based in Dublin.
There is significant headwind on the horizon as Hong Kong and Singapore both plan to develop into aircraft leasing and finance centres; the proposed new banking financial rules will increase costs for the aircraft leasing industry as Basel IV will increase the cost of borrowing from the banking sector to provide cash for assets for aircraft; and an unknown factor on the horizon is Brexit, in the event that the UK changes its policies to attract aircraft lessors. From January 2019 a new accounting standard, International Financial Reporting Standards (IFRS) 16 ‘Leases’, will take effect. The changes will mean that, as a general rule, all leases will now be on balance sheet.
To overcome these headwinds, collaboration and innovation will be key to strengthen Dublin’s position as a global hub for aircraft leasing by implementing all the actions outlined in Ireland’s National Aviation Policy document, to maintain and build Dublin’s attractiveness for continued growth and investment well into the future.
Trevor Buckley, Digital Marketing Manager
Tel: +353 1 6499051