Special Report: Ireland as an aviation finance hub
Our Special Report examines one of the most interesting jurisdictions in the world as a centre of aircraft financing - the Republic of Ireland. Its significance lies in its scale in the global financing of aviation, second only to the United States in aircraft leasing and trading activity. In the past year, it is estimated that financing of the order of $20 billion has been undertaken through Ireland, mostly through the channel of its aircraft leasing companies. This equates to over 20 p.c. of total aircraft financing undertaken in 2012. Our survey covers the players, the extensive corporate and aviation services industry that exists in Ireland, as well as the fiscal, regulatory, and financial structures that are available to some of the most innovative financing and structuring companies in the world. See our Special Report here.
On the fringes of the Irish Government-organised air show in Dublin, FlightFest, an aviation investor day was hosted by Dublin-based stockbroker Goodbody that attracted leading international aviation figures.
Deals Awards 2013
M&A Deal of the Year: $7.3 billion sale of Dublin-based RBS Aviation Capital to SMBC was a global event in aircraft leasing
Sumitomo Mitsui Banking Corporation and Sumitomo Corporation’s acquisition of RBS' aviation unit has won this year's M&A Deal of the Year by Aviation Finance's sister publication Finance Dublin. The deal is the largest sale ever of an aircraft leasing business and the biggest disposal by RBS since its UK government bailout. It is the biggest overseas takeover by a Japanese bank since at least 1999. In completing the takeover of RBS Aviation by Japan's second largest bank, Sumitomo Mitsui has given the green light for one of the 'jewels in the crown' of the aircraft leasing industry in Ireland to grow and expand.
Finance Bill 2013
Ernst and Young's JOHN HANNIGAN looks at the Irish Finance Bill 2013, published on February 14th, and notes that while it does not include additional incentives for the development of EETCS in Ireland, something flagged in the December Budget speech of the Irish Minister for Finance, there remain opportunities for amendments to be made to the Bill at 'committee stage' before the Bill is passed.
ENDA FAUGHNAN has been one of the most influential advisers to the Irish Government on the taxation system applying to the aircraft leasing industry in the Republic of Ireland over the years. In this article Faughnan outlines some of the changes he recommends be made by the Government in its upcoming Finance Bill 2013 to improve the country's competitiveness for cross-border leasing. The changes he recommends include improving the personal tax regime for foreign executives through enhancing Ireland's SARP, lifting some of the restrictions in the FED regime, and making changes to the rules regarding the pooling of tax credits.
Aviation Policy for Ireland, an Irish Government-backed conference, will see the Irish Government Minister responsible for aviation, Leo Varadkar, outline plans for a new civil aviation policy for Ireland. Aircraft leasing will also feature prominently, with GECAS' Sean Flannery due to address the conference while the experiences of the establishment of Australia's civil aviation policy in 2009 will be also be outlined.
Ryanair raises Ex-Im finance at record low spread of 1.73 p.c.
Aviation Capital Group and Ryanair have just issued Ex-Im backed bonds at historically low spreads. LCC Ryanair firstly showed its debt markets prowess by issuing bonds at a new low rate on September 6th and then this week Newport Beach-based lessor ACG went even lower. Both the low spreads and the oversubscription that both issuances of the pre funded notes (PFNs) met (respectively 3 and 4.7 times), shows the success of a product that provides an enhanced return over US Treasurys, with the backing of the United States Government - a 'nobrainer' that Ryanair, ACG, and earlier, Lan Airlines were happy to exploit.
A deal announced by the lessor Avolon and US West Coast-based financial services group Wells Fargo in January furthers the debate about optimal structures for investors in air finance. Aside from its innovative company format the joint venture, Avolon Capital Partners, also underlines the evolution of asset management as a core competency within the aircraft leasing industry.
December 3rd: The announcement was made as part of a plan that separates Shannon Airport from the DAA, a body that operates the main Irish airports at Dublin and Cork by year end. A five year plan is based around sustainable passenger growth to 2.5 million passengers within five years at Shannon, up from the present 1.5 million.
Irish Budget: consolidating the gains of 2012
Having introduced the Special Assignee Relief Programme, to make Ireland a more attractive location for foreign executives, and reintroduced the Foreign Earnings Deduction, giving a tax relief to Irish-based executives spending significant working time abroad, the aircraft leasing sector in Ireland got what it asked for in Budget 2012. However, the introduction of the changes in the Finance Act included many restrictions which, if not relaxed, may mean the benefit of the changes to Ireland's aircraft leasing sector may be negligible writes PwC's ENDA FAUGHNAN.
Ryanair intends to purchase a stake in Stansted after the BAA throws in the towel in its fight against the UK competition authorities who this month won a court case forcing the break-up of the BAA airport monopoly, which will ultimately result in the sale of the airport.
Dublin-based ICBC International Leasing makes first big order, for 50 A320s
ICBC Leasing has signed an order with Airbus for 50 A320-family aircraft in Beijing on August 30th. The transaction will be finalised by ICBC Leasing's Irish team and any international transactions relating to the 50 aircraft will be marketed and booked out of Ireland. ICBC International Leasing was incorporated in Ireland in 2010 and is the company's international headquarters outside of China.
ICBC's plans in Ireland
The decision of China's ICBC to establish its first international aircraft leasing hub in Ireland has been cemented by the recent signing of an MOU with the IDA and witnessed by the Taoiseach Enda Kenny, and Minister for Jobs, Enterprise and Innovation, Richard Bruton and the President of ICBC, Yang Kaisheng and Senior Executive Vice President of ICBC and Chairman of ICBC Leasing, Li Xiaopeng. Alex Hou, ICBC International Leasing's Deputy General Manager this week spoke to Aviation Finance about the company's decision to locate in Ireland.
There has been rapid growth in usage of Irish Section 110 aircraft finance structures since they were introduced in 2011
Since February 2011, Ireland has seen rapid growth in the use of “Section 110 Companies” for aircraft finance and leasing structures. WILLIAM FOGARTY and DAVID MAUGHAN of Maples summarise the key features of the new vehicles and reflect on a number of practice points which have emerged. The vehicles offer new options for the direct holding of plant and machinery, including aircraft and engines.
Legal opinion of Advocate General of the ECJ on the 'look through' exemption welcome news for lessors
The ECJ's release of the legal opinion of the Advocate General is welcome news for the aviation leasing sector as it maintains the 'look through' exemption that means that the supply of aircraft to companies who do not operate the aircraft themselves should not be liable to VAT, according to Ernst and Young's Brian Keenan.
'A leading edge over other global locations particularly for public lessors' says Colm Barrington on Ireland as an aviation finance centre
'A combination of the flexible asset depreciation rules and the low corporate tax rate allied to Ireland's very attractive international tax treaties continues to give Dublin a leading edge over other global locations,' says COLM BARRINGTON, CEO of Fly Leasing, on Ireland's attractiveness as a domicile for global aircraft leasing businesses. Barrington recently outlined to Aviation Finance the strengths of the jurisdiction.
Joe Gill reviews Richard Aldous' biography of one of the seminal founding figures of the global aircraft leasing industry, Tony Ryan, published this month. "Neither sycophantic nor cynical, he takes the reader on a journey that might be described as 'one helluva ride, and embarks on a rollercoasting helter skelter across the Irish and global aviation sectors during a life that lasted seventy one years," he says. Tony Ryan - Ireland’s Aviator (264 pp), by Richard Aldous is published by Gill and MacMillan
Finance Bill 2013
The Finance Bill's welcome introduction of an accelerated capital expenditure allowance for the Irish aircraft maintenance industry may be linked with the development of Shannon Airport, says YVONNE THOMPSON, tax partner at PwC. She notes however that the Bill does not contain any specific tax measures for encouraging the growth of aircraft financing in Ireland, despite the fact that it refers to an ongoing review of the matter by government.
Deals Awards 2013
Debt Securities Deal of the Year: Ryanair Ex-Im bond the lowest ever spread for this type of instrument
Ryanair's $194.3 million Ex-Im Bank guaranteed pre-funded note, has been awarded the Debt Securities Deal of the Year by Aviation Finance's sister publication Finance Dublin. The sale of the pre-funded notes backed by the US Export-Import Bank on September 6th 2012 were sold for 1.741 per cent. The notes, due in 2024 were to fund seven Boeing 737s and was the lowest spread for a bond guaranteed by the Export-Import Bank of the United States ever. The transaction was more than three times oversubscribed. The cheap capital attained is a testament to the strength of Ryanair's reputation. The airline took advantage of low interest rate conditions and got the lowest spread to mid-swaps of any previous airline with this deal.
A Day in the Life
Yvonne Thompson is a tax partner with PwC and heads up the firm’s global aviation leasing tax network. As part of our occasional 'A DAY IN THE LIFE' column, she describes a typical day in early 2013. Her work involves clients in banking and insurance as well as leasing and sees her working with colleagues and clients across multiple time zones and a business trip to San Francisco presents the opportunity to market Ireland to potential clients.
Jurisdictions Focus: Cayman Islands & Ireland
One of the key issues facing lenders and lessors when considering an aircraft financing transaction is the insolvency risk associated with the aircraft ownership and leasing structure. The use of Cayman Islands or Irish off-balance sheet special purpose vehicles, which are structurally unconnected to any of the parties to the transaction and incorporated with industry standard bankruptcy remoteness techniques, is a tried and tested solution.
Sumitomo Mitsui plans to further expand its footprint in the aircraft leasing sector the CEO of Sumitomo Mitsui Finance and Leasing, the leasing arm of the Japanese bank, Yoshinori Kawamura, said last week. Outlining his plans to create a third force in global leasing, he was speaking at a function marking the launch in Dublin of the renamed RBS Aviation Capital, SMBC Aviation Capital. Aviation Finance's DUSTIN O'NEILL spoke with Peter Barrett, CEO of SMBC Aviation Capital, asking him to outline the lessors' plans for financing this expansion of its fleet, the economic lives of aircraft, and the advantages of scale as the company consolidates the operations of its units SMFL Aircraft Capital Corporation and Sumisho Aircraft Asset Management with the new company to create a fleet of 331 aircraft.
Irelandia's new LCC venture in Colombia
Irelandia-backed airline Viva Colombia, launched in May, is garnering a positive reception from the market at large. It is Colombia's first low cost carrier and emulates the low cost model of other successful airlines that are proving their resilience despite the challenging market conditions facing airlines.
Avolon wins Finance Dublin Award for GIC equity deal
A $300 million investment in Avolon by Singapore’s sovereign wealth fund in 2011 represented a major endorsement of the firm and the Irish aviation industry by a globally recognised investor, according to the citation received by Avolon for the deal, its second major recognition for the equity raising deal. Finance Dublin, a sister publication of Aviation Finance, awarded it its Private Mergers and Acquisitions Deal of the Year Award 2012, as recognition of the most notable such deal in Ireland in 2011.
ICBC Leasing, the leasing arm of the Industrial and Commercial Bank of China Ltd, the world’s largest bank in terms of profit and market capitalisation, is leading the international thrust of China's aircraft leasing industry, and is already making waves, for example pricing the purchase of 48 aircraft from Airbus in yuan last August. It has established its first aircraft leasing hub outside of China, in Ireland, and, following the recent signing of an MOU between the company and the Irish Government in Beijing, is planning to use the platform for future growth. Alex Hou, deputy general manager of ICBC International Leasing, spoke exclusively to Aviation Finance about its plans.
June 1st: Sumitomo Mitsui Banking Corporation ('SMBC') has completed the $7.3bn acquisition of RBS Aviation Capital. The new entity will be called 'SMBC Aviation Capital' and is the world’s fourth largest aircraft lessor by owned and managed fleet value. The company will remain headquartered in Dublin, Ireland, and currently employs 69 specialists based in Dublin and eight other locations in Europe, the US and Asia. The existing platform was sold to the Consortium in its entirety, and includes a portfolio of 203 aircraft with commitments to purchase a further 82 by 2015. The company retains its customer base of over 100 airlines and 40 investors in over 40 countries around the world.
Lessor Financing and Developments
Wells Fargo Securities has initiated coverage of listed aircraft lessor FLY Leasing with an outperform rating. Elsewhere, Air Lease Corporation (ALC) has taken steps forward in developing its capital structure thanks to a new revolving credit facility, while Airbus' head of financing says French banks have remained active in aircraft financing, but have shifted their roles to structuring rathering than financing transactions.
Interview: Domhnal Slattery of Avolon
GIC's $300 million investment likely to see bulk of Avolon's planned 150 strong fleet deployed in Asia-Pacific within 3 years - Slattery
Avolon's equity injection by Singapore's sovereign wealth fund represents a further step change in the lessor's evolution, whose financing strategy recognises the importance of equity in underpinning aviation finance. We caught up with Avolon's CEO, Domhnal Slattery following the GIC announcement to put the following questions to him:
Ireland’s supportive environment is one of a number of critical factors in maintaining its place as a world leader in the aircraft leasing space. In particular, many of Ireland’s domestic tax laws give rise to low effective tax rates and allow for efficient repatriation of profits to stakeholders.
Irish Industry Developments
The Wings Club held its Annual Dublin Luncheon in the Four Seasons Hotel where former Aer Lingus CEO and the current deputy Chairman of Royal Brunei Airlines, Dermot Mannion, gave a keynote address to over 200 attendees from the aviation industry including lessors, airlines and OEMs.
Landing Gear Facility
Landing gear centre to service Airbus A320 series and Boeing 737 series with novel business model opened
November 3rd: The Irish Prime Minister Enda Kenny opened a new 40,000 sq foot Landing Gear Centre at Dublin Aerospace, the company backed by Airbus and Air Asia's Tony Fernandez, doubling capacity, and providing coverage for the overhaul of the landing gears for Airbus A320s and Boeing 737s.
RBS Aviation Capital's new SMBC identity
The RBS Aviation Capital - SMBC Aviation Capital transition, and Ireland's connectivity to global aviation
In completing the takeover of RBS Aviation by Japan's second largest bank, Sumitomo Mitsui has given the green light for one of the 'jewels in the crown' of the aircraft leasing industry in Ireland to grow and expand, and to to quote the CEO of the newly named SMBC Aviation Capital, Peter Barrett, 'using its robust capital structure and global reach to help us realise our ambitions for significant future growth'. It joins a collection of lessors based in Ireland but with global footprints that have explicit plans to materially develop their portfolios.
Islamic Aviation Finance & Ireland
In recent months, we have seen growing interest in the use of Sukuk as an alternative source of funding for companies in the aircraft leasing sector and it is timely to explore why there is a growing interest in Ireland and some key tax issues that need to be addressed in structuring these investment propositions. Sukuk represent the Islamic equivalent of conventional bonds that can be issued to raise funding and allows financial institutions and similar entities to invest in companies in a manner that is Shariah-compliant. The use of Sukuk investment instruments have seen steady growth in recent years and current levels of issuance are back to pre crisis level after a dip in 2008 and 2009, with over US$45 billion of Sukuk issuance in 2010 alone.