The sector is set for sky-high growth thanks to the quality of the Irish workforce and a very attractive double taxation treaty
By Fearghal O’Connor
Ireland has built an enviable position at the heart of the aviation leasing industry, a sector set for phenomenal growth over the coming decades.
With booming airlines enjoying low fuel prices, passenger growth up over six per cent, cargo growth up more than five per cent, there is huge latent demand and a lot of optimism in the sector here, according to one industry expert.
Boeing and Airbus forecasts estimate that $5 to $6 trillion worth of orders — or 38,000 aircraft — will be needed in the next 20 years for future airline demand. Current demand per annum is between $115 and $120 billion to finance new aircraft.
“Much of the expected growth is hard wired at this point by virtue of demographics, an expanding network of airports and more global trade, all creating an increased demand for air travel,” said Tom Woods, head of aviation finance and leasing at KPMG.
More than 50 per cent of all leased aircraft are managed out of Ireland and, overall, more than 40 per cent of aircraft are leased rather than owned, with that percentage growing.
“The Irish leasing sector is growing in a growing market, accelerating Ireland’s share of the sector. There is a lot of money coming into aircraft leasing in Ireland. We are advising new entrants establish their operations here as well as existing lessors expanding their operations. Importantly, we are seeing more employment in the sector to support the increase in business.”
The $7.6 billion deal that saw Chinese giant Bohai Leasing acquire Irish aviation lessor Avolon is the most recent high-profile example of the interest in Irish leasing companies. The establishment of a Dublin-based leasing platform by Sky Leasing, funded through a partnership of US private equity house ATL, Canadian pensions giant PSP and industry veteran Rich Wiley, is another.
Woods believes that key to Ireland’s success in this sector is people. It is a highly mobile industry and it is important that we keep the people here.
“We currently have a cluster of people with a lifetime of industry experience. That knowledge base started back with Tony Ryan’s GPA and has passed from generation to generation. There is a very deep appreciation and understanding of the industry here,” he said. A UCD postgraduate aviation course beginning next year will help further develop the skill set here.
But coupled with the quality of the Irish workforce is a very attractive double taxation treaty network. “Ireland has over 70 very well-negotiated tax treaties that are also very important to the success of aircraft leasing here. When you add in the attractive corporate tax framework it makes for a very compelling proposition.”
A challenge and opportunity that Woods sees is where all of the financing will come from, given the scale of the funding required and the fact that it is still quite a niche industry. “It does not have the broad investor base that other industries have. But the base is broadening. There is now a better understanding of the industry by the debt capital markets, with many aircraft being sold into Irish vehicles funded by the capital markets, all of which are managed out of Ireland. There is also the prospect of a number of lessors raising money on the equity markets.”
Given the funding requirement, Ireland has been clever in taking steps to make itself attractive as a location to finance as well as lease aircraft. Ireland already maintains the international register for aircraft assets. The Irish Stock Exchange has an aviation debt platform with over $20bn of notes listed on it. And the Government recently amended our solvency legislation to give investors greater security when investing in aircraft assets.
All in all, Woods believes that there will be fantastic opportunities in this sector over the years to come.
Rio Howley joined KPMG in September 2006 and has spent almost nine years with the firm. During this time, she spent two years on secondment to KPMG in Perth and returned to work in Dublin in November 2012. Rio now provides audit and general financial advisory services to various clients in the investment management industry.
“Within financial services there are a broad assortment of specialisations including banking, leasing, investment management and insurance, so by choosing a career in financial services there are great opportunities to gain knowledge and skills in before specialising in one particular area,” says Rio. “At present there is a lot of regulatory change, which means we’re constantly broadening our knowledge and skills so we can best support and advise clients facing these issues. This is a fast-moving environment — it makes it an exciting and interesting industry to work in and every day is different.”
In terms of essential skills for working at KPMG, Rio cites a combination of strong communication abilities and adaptability as key to success. “Good communication skills are incredibly valuable working in audit, it ensures that we work effectively with our colleagues and interact and build relationships with clients through an open and honest culture. It’s a highly dynamic industry, so you also need to be adaptable and innovative. Greater transparency and openness and the global reach of our clients requires us to effectively respond to change — it keeps it stimulating and interesting.”
KPMG’s international network also provides employees with the opportunity to work abroad, whether through secondment or through project-based assignments. “I undertook a two-year secondment in Perth from which I acquired new skills and built a new network of business relationships and it was also a lot of fun. The opportunity to work on various projects in different departments is highly motivating and really supports career progression,” concludes Rio.
These articles were first published in the Sunday Business Post and are reproduced here with their kind permission.