Ireland as an aviation financing centre
Ireland is home to over 50 aircraft leasing companies and is the world's No 2 aviation financing centre. However these companies don’t use the internationally accessible securities market infrastructure available domestically for debt funding and the trading of their paper assets. Is there an opportunity for Irish stockbrokers and the Irish Stock Exchange to create a platform that provides research, trading and capital raising capabilities for this large and growing segment of the global aviation industry.

Commenting on this, Brian Healy, Director of Traded Markets, Development, Operations of the Irish Stock Exchange told Aviation Finance “The aircraft financing sector uses Ireland as a location of choice for a range of services - the ISE is very aware of the opportunities which this presents. The benefits of having the right, or even a bespoke, primary market and trading model could be of real value to a sector with the growth trajectory of aircraft leasing. The ISE is always open to engaging with like-minded issuers and market participants in this regard.”

JOE GILL outlines the positive factors that could provide the foundations for development :

1. A growing and fragmented sector. Leasing is a growing form of financing in a sector that exhibits solid secular growth characteristics. In 1986 just 5% of commercial aircraft financing stemmed from leasing compared to 35% in 2010. Moreover, the global commercial aircraft fleet is projected to rise by 25% between 2010 and 2015 as airlines and aviation expand further. These two dynamics - a growing marketplace and a rising share for lease finance - create a large and liquid financial market within the aviation industry.
Aircraft leasing developed around two dominant companies in the 1980s and '90s - GECAS (part of GE which acquired GPA) and ILFC (part of AIG). This effective duopoly has changed radically in the ensuing decades and especially amid the financial crisis since 2008. A combination of new entrants and restructuring of existing aircraft portfolios has created a cohort of viable and competitive leasing entities. We estimate over 50 leasing companies are now in existence, and many of these have important operations located in Ireland.
Brian Healy

2. Equity funding required. Leasing companies provide financial flexibility to airlines by supplying commercial jets without the need for large up-front capital payments. The lessors use debt and equity finance to fund aircraft orders and then engage in a variety of transactions that provide airlines with aircraft capacity. It is estimated that by 2015 over 8,400 commercial jets will be leased to global airlines from an overall fleet of 24,000 (compared to 18,500 in 2010). That implies a fleet value of over $1,200 bn will be controlled by the leasing industry which requires sustained equity financing in support of debt funding for this growing fleet.

3. An infrastructure in place, and under utilised. Ireland contains a group of stockbroking firms that satisfy international regulatory standards for research, equity sales, primary funding and trading. Its brokers have in depth exposure to global investment managers (particularly across Europe and the US) given the international profile of leading Irish industrial companies. This stockbroking 'infrastructure' has ample capacity after the contraction of banking shares since 2008. Hence, it is capable of supporting and promoting a new sub-sector - aircraft leasing.

4. A major opportunity. There are four aircraft leasing companies quoted in international stock markets at present - AerCap, Aircastle. ALC and Fly with a combined market value of $5.5bn. Others are likely to emerge (eg Avolon, RBS Aviation) as the sector undergoes further growth and expansion. This creates an opportunity for the ISEQ and its brokers to create a 'centre of excellence' for research, trading and capital raising for these lessors. However, to achieve that objective resources are needed from the Irish Stock Exchange and individual stockbrokers to (1) develop an expertise in analysing and trading this sector; (2) creating a virtual and liquid trading platform in Dublin that allows investors globally to invest in these companies and; (3) ensuring that trading and listing procedures are inexpensive, efficient and meeting all global regulatory standards.

The Irish stock market is in need of new entrant companies in the wake of the financial crisis. Aircraft leasing is a growing, equity and debt dependent financing activity that has critical mass in Ireland. Combining the available resources of the ISE and its constituent members with a group of globally expansive and equity dependent companies operating in a true growth industry offers a valuable capital markets opportunity for Ireland.