Already a success story, new opportunities for growth in the Irish aviation sector continue to emerge.
By Barry McCall
The Irish aviation sector is one of this country’s quiet success stories and has grown to play a very significant role in the economy. According to the Irish Aviation Authority (IAA), the sector contributes just over €4 billion to GDP comprising €1.9 billion directly from aviation, €1.3 billion through the supply chain and €900 million from associated spending by people employed in aviation. Some 26,000 people are employed directly, with a further 16,000 in the supply chain.
While the international success of airlines such as Ryanair and Aer Lingus and the aircraft leasing industry tend to command most of the headlines, there are many other growth opportunities for the industry, according to IAA chief executive Eamonn Brennan.
“There are opportunities for Ireland in virtually every area of aviation,” he says. “The global aviation industry continues to expand and it is estimated to double over the next 20 years, increasing to over 7 billion passengers flying per annum com- pared to 3.5 billion today, whilst the global aircraft fleet is set to double from 22,000 air- craft to 44,000 aircraft.”
This presents opportunities for the Irish civil aviation industry in areas such as pilot training services. The new Turkish Airline pilot training contract with Cork based Atlantic Flight Training Academy is a good example.
Other areas of opportunity include satellite-based air traffic control services, with the IAA playing a key role through the Aireon project; airport growth as long-haul markets open up; and continued expansion of the corporate jet market.
Ireland is also fast becoming a centre of excellence for the drone industry, according to Brennan.
“On December 21st, 2015, Ireland became the first country in the world to successfully implement an online drone register via the IAA,” he says.
“This sector is expanding rapidly around the world and the potential application for drones is truly incredible, and the development of the drone industry in Ireland will have a very positive effect on the wider economy.”
In many ways, the jewel in the crown of the aviation sector is aircraft leasing. “The industry’s development here goes back to Tony Ryan first in Aer Lingus and then in GPA”, says KPMG head of aviation finance and leasing, Tom Woods.
“At this point more than 50 per cent of the world’s leased aircraft are owned and managed from Ireland and 14 of the top 15 global lessors have operations here.”
He believes an important factor in the industry’s success has been its outward focus. “One of the very positive features of the industry here is the fact that people have always been alive to developments overseas. A number of countries including Singapore and Hong Kong have done a lot to attract aircraft leasing to their shores, while China has a number of free trade zones which are attractive to the industry.
“Given that a lot of the demand for future growth in the sector is going to be in China and Asia generally these are significant developments. The industry here has been watching these developments very closely and has been responding. The establishment of satellite offices in other key markets will be a key development.”
This is not our only strength of course. “Ireland has many other strengths and advantages as a location for aviation leasing”, says Michael Murphy of Capita Asset Services.
“These include the fact that we are an English speaking nation, we have a well-respected aviation authority and a legal environment which generally provides protection to lenders.
“The legal environment includes Ireland’s position as a contracting state under the Cape Town Convention as well as the location of the International Registry in Dublin. Such protections should be enhanced by Ireland’s adoption of the Convention’s of ‘Alternative A’ insolvency remedies.”
"Aviation finance may not be a huge employer but the people that it does employ are very high value,” Tom Woods says. “It employs around 1,200 people directly and a further 2,000 indirectly in areas like professional services, MRO [maintenance, repair and operations] and transitioning.
“An awful lot of support companies are involved in the ecoystem created by the sector. These include companies involved in the design and fit-out of aircraft interiors seat configuration and so on and others in a range of areas including the development of soft inflight entertainment systems.”
By Sandra O’Connell
If there’s turbulence ahead for the corporate aviation sector, it’s hard to see where.
If anything, a number of factors are fuelling its progress, chief among them the turbo charged growth of Chinese air travel. As the global head- quarters of aviation finance, Ireland is already benefiting from this.
The country has seen continued and sustained interest from Chinese aircraft lessors and now hosts the aircraft leasing operations of five of the top six Chinese banks by market capitalisation.
In addition, Ireland has played host to major privately- owned aircraft lessors such as Accipiter, a subsidiary of Cheung Kong Holdings, and HKAC a subsidiary of HNA-owned Bohai Leasing. This interest has been further developed by the acquisition of Irish leasing firm Avolon by Bohai Leasing.
The Chinese government is committed to developing a comprehensive air transport system for the whole country. According to IDA Ireland, the inward investment promotions agency, between 2011 and 2015 China built more than 100 air- ports, surpassing its own tar- get of 82 new airports.
In line with these developments, the number of commercial aircraft operated by China’s airlines has grown significantly, from 635 in 2003 to 2,080 in 2013, a 12.6 per cent compound annual growth rate.
New delivery of commercial aircraft has also grown, from 59 in 2003 to 283 in 2013, at a compound annual growth rate of 17 per cent. According to aviation consultancy Ascend, commercial passenger aircraft operated by China’s airlines will number 3,381 by 2021 and 5,387 by 2031.
This is good news, given that more than half the world’s leased aircraft are owned or managed out of Ireland. Indeed, wherever you are in the world, one in four aircraft that you look up at is owned or managed in Ireland.
While aviation has traditionally been a niche investment, re- cent years have seen a broadening of its investor base.
“Capital markets have seen that, even through the worst economic downturn, most aviation investments turned a profit" , says Tom Woods, head of aviation finance and leasing at KPMG.
Population growth and demographic changes swelling the world’s middle classes, al- lied to economic development in emerging markets, have all helped create demand for air travel, one that disasters such as 9/11, Icelandic earthquakes or economic slowdowns have been unable to dampen.
The same cannot be said of other investment vehicles, from equity shareholdings to property assets, many of which tanked in the recent global financial crisis.
Adding to the appeal of air- craft finance is that it involves a truly mobile asset. If a plane is not in demand in one market, you can move it to another.
Moreover, while there are currently 22,000 aircraft in service, that figure is estimated to rise to 43,000 in less than 20 years. “The core fundamentals underlying the sector are very strong” , says Woods.
A typical narrow body plane costs around $40 million (¤36.6 million) and the financing requirement for new air- craft in 2015 was $124 billion.
Taking into account the number of existing planes that will have to be replaced, as well as the additional ones required to meet growing demand, it is predicted that 38,000 new aircraft will be needed over the next 20 years – at a value of €5.3 trillion.
On the other hand, although challengers such as China’s Co- mac is emerging, the fact that the industry has only two main players, Boeing and Airbus works in investors’ favour be- cause it ensures control over supply.
“It’s what distinguishes the aviation sector from shipbuilding. There are shipbuilders all over the world pumping out ships. With aircraft, supply is more regulated, crafts are built to the same standard and valuations are better managed” , says Tom Woods.
Looking to the horizon, new opportunities for growth are already starting to emerge. In particular, it should be possible to leverage Ireland’s existing strength in aviation leasing to expand into other niches.
The following extracts are taken from The Irish Times’ ‘Aviation’ supplement published on 21 January 2016 and are reproduced here with their kind permission.