The aviation leasing community has grown significantly in size and stature over the last number of years according to Tom Woods, former Head of Aviation Finance and Leasing in KPMG Ireland.
“Over the last number of years the industry has been growing faster than its average growth rate” he said. “Typically, you would see passenger travel growing at around 5.5%. Over the last five years, we have seen passenger growth rates of between 6% and 7.6%. These sort of growth rates suggest that passenger travel will double well within the typical time horizon of 15 – 20 years.”
“You only need to look at the flight trip statistics. Ireland has a very high rate of flights per capita at 3.7 flights per capita. It is no surprise that aviation is so active here. The US average is 1.9 flights but India and China are only 0.1 and 0.4 flights respectively. You can only see the opportunity for growth.”
Woods said there are around 4 billion passengers flying currently which is expected to double to 8 billion. Serving this growth will require a lot more aircraft with even greater demand on the aircraft leasing industry. “Somewhere between 37,000 and 42,000 aircraft, worth approx. $6 trillion, will be needed over the next 20 years,” he said.
“That sets the scene. Aircraft leasing accounts for somewhere between 42% to 50% of that demand, with most demand being for single-aisle rather than twin-aisle passenger aircraft. Of that lessor demand, Ireland accounts for at least half of it. Irish lessors will finance over €1 trillion worth of aircraft over the next 20 years. It’s a staggering amount. Aside from the sheer financial scale, at a more basic level, Irish lessors are a key enabler in developing social and economic ties between countries across the world, bringing people, cultures and countries closer together. It is a remarkable achievement and ever more important in today’s world.”
KPMG has worked with the sector from its beginnings in Ireland and has been identified as one of the most influential companies operating in the global aviation sector. They host several international forums each year to address issues in the aviation sector.
“The lessors have grown considerably over the last number of years and this has continued through 2018” he said. “2018 has been another outstanding year for the industry. Over the last year we have been working with new lessors establishing businesses, lessors transacting both in the debt and equity capital markets, and trading large portfolios. We have also worked on a number of M&A deals.”
Not only are the lessors growing in terms of financial size, they are also growing their employee numbers. “We are seeing active recruitment campaigns by the lessors.” The Central Statistics Office issued a report earlier this year showing that employment in aircraft lessors in Ireland has been growing year on year by 16% from 2007 to 2016, with average pay increasing by 22% per annum over the same period. Total pay by Irish lessors in 2016 was approx. €245m with an expected contribution to the economy of €550m.”
Being able to attract and retain decision makers is becoming more important. “If you can attract and retain more senior people then the chances are they will grow their businesses here generating more value to the economy. Changes to SARP proposed in Finance Bill 2018, however, will make Ireland less attractive for these people.”
“One initiative to attract people to Ireland, which we’re delighted to be involved with, is the UCD MSc in Aviation Finance. This course has grown significantly in its three years,” he said. “The education and work experience that Ireland is offering is becoming well-advertised and highly regarded globally, so we’re seeing more people coming here to train and work in aviation.”
Ireland is associated with aircraft leasing due to the development of the industry by Tony Ryan’s Guinness Peat Aviation (GPA), which at its time became the largest aircraft lessor in the world. This put Ireland on the map as a dominant centre for the industry, and as a result, the country continues to grow as a go-to location for aircraft leasing.
Woods said that while the corporate tax system is attractive, there are other countries that are offering corporate and income tax rates well below Ireland, so corporate tax on its own will not attract new business.
Woods partly attributes the success of Ireland to the network of tax treaties Ireland has negotiated. “A tax treaty network is incredibly important for aircraft leasing and Ireland has one of the best in the world for aircraft leasing. The Government continues to improve and expand our tax treaty network which positions us well for the future.”
“As for the future, we recently interviewed the chief executives from most of the main lessors for our 2019 Global Leaders in Aviation industry report, which will issue in January. While the sector has experienced robust growth and the long term fundamentals are strong, there are more pronounced headwinds in the form of rising oil, interest and operational costs as well as a strong dollar that could soften passenger growth in the near term. This is a normal part of the industry cycle and the lessors with well-structured balance sheets and experienced platforms such as those based in Ireland could see this as an opportunity for step change growth.”
This article first appeared in The Sunday Business Post and is reproduced here with their kind permission.