In his latest blog, our Ireland Managing Director looks at the growth in the country's aircraft leasing industry, and how to best make use of it.
Driven by the demand for commercial aircraft, 2014 was another strong year for the Irish aircraft leasing industry. The industry also benefited from continued investor confidence in the asset class and an overall widening of the types of assets available for leasing to include helicopters and private jets. Capital markets activity has been dominated by commercial aircraft transactions mainly due to the sheer value and existing order book of the fixed-wing aircraft.
Most aviation industry experts are predicting phenomenal growth in the aviation industry over the next decade, driven by the demand from China's growing middle class and supported by new emerging markets such as Indonesia, Brazil and South Africa.
With these favourable conditions, existing lessors in Ireland have focused on growing their portfolios and he local market has also seen a wave of new entrants. One of the biggest M&A developments was the acquisition of ILFC by AerCap, resulting in the creation of a 1,300 aircraft portfolio making it the world's second-biggest aircraft-leasing company.
Irish leasing platforms, commonly used by leasing companies, include holding companies, subsidiaries and special purpose vehicles set-up in Ireland and across the world to lease aircraft. The location and type of company used depends on jurisdictions where the aircraft are leased to and where the airlines are based.
An Irish leasing platform can be set up in less than five days but requires careful analysis and planning at the start to ensure tax and operational effectiveness. In addition to that, on the operational side companies new to the market need to consider things like finding office accommodation, hiring staff, back-office support services, opening bank accounts and staying compliant with all relevant local laws including KYC for their customers.
Seek support from professional services firms
Ireland is a well-known international centre for the global aviation leasing industry with best-in-class support for all operational and technical areas. Professional services firms in the jurisdiction offer exceptional service to their clients and ensure that Ireland maintains its industry leading position.
Ireland's extensive Double Taxation Treaty Network, corporate tax rate of 12.5% and tax depreciation write-off period of eight years is an attractive proposition for leasing companies. That, along with the benefits offered by incorporating and using Section 110 vehicles to own and hold aircraft, makes this an ideal hub for global leasing operations. Recent regulatory changes introducing designated activity companies, commonly referred to as DACs, is also expected to impact the industry by providing a specialised corporate vehicle for aircraft leasing. Having the right tax adviser on your side will ensure that the company being set-up is tax efficient from the start. Also, if you anticipate leasing aircraft through a country other than Ireland in the short to medium term then it would be advisable to factor that in to the initial tax advice.
Law firms in the jurisdiction act for global leasing companies, banking and financial institutions and investors as well as a number of domestic and international airlines. They advise on leasing, capital market transactions including commercial debt and export credit agency supported financings as well as aircraft and aircraft engine portfolio trading.
You will also want to work with an operations partner to support KYC, accounting, financial reporting, payroll and other administrative tasks. Outsourcing the support services will enable lessors to focus on the core areas of their business. Companies in Ireland have a choice to adopt IFRS, US GAAP or Irish GAAP for financial reporting which makes it easier to integrate with the diverse reporting requirements of Global MNCs.
Leasing companies operating in Ireland have to be registered for corporation tax as soon as possible after incorporation. Your support partner can help to ensure the company is registered for corporation tax and that the necessary general certificates of Irish tax residency and certificates of tax residency that specifically refer to a particular double taxation treaty are available promptly. Depending on the nature of the company's operations, it may be necessary to register for VAT as well.
Many aircraft leasing companies have a small number of employees at the start with tailored remuneration and benefits packages. Payroll services are one of the most commonly outsourced professional services in Ireland for small to medium-sized leasing companies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.