Ireland: Irish Aviation Sector - Airfinance Annual 2014 - 2015

Last Updated: 30 October 2014
Article by Chris Quinn and Gerry Thornton

Ireland continues to build on its reputation as a centre of excellence for aircraft financing and leasing and its position has been further enhanced in recent years. There are a number of reasons why Ireland attracts investment in this area which include its favourable tax regime, a wide double tax treaty network and professional expertise.

These factors combined with a government which is committed to growing and supporting the industry mean that Ireland has become the obvious location through which to finance and lease aircraft.

Taxation developments. 12.5% tax rate.The Irish government has repeated its commitment to maintaining the 12.5% corporation tax rate for active trading companies. This commitment has been welcomed by the aircraft financing and leasing community.

Irish 'section 110' companies.It is critical to ensure that aircraft finance can be raised in a tax efficient way. In structured finance and securitisation transactions, an Irish 'section 110' company is commonly used to raise debt financing to acquire assets on a tax neutral basis.

An Irish section 110 company is a standard Irish special-purpose company that satisfies the conditions of section 110 of the Taxes Consolidation Act 1997 of Ireland. An Irish section 110 company is generally entitled to claim a tax deduction for all of its financing expenses, including (subject to some conditions) its profit-linked financing expenses.

Therefore, it is generally possible to ensure that an Irish section 110 company can acquire assets using debt financing on a tax neutral basis by ensuring that the Irish section 110 company pays out all of its return in respect of those assets as tax deductible interest payments to lenders and investors.

Since 2011, the categories of assets which an Irish section 110 company may acquire have been extended to include plant and machinery, which includes aircraft and rolling stock.

As a result of these changes, Irish section 110 companies have proven to be very attractive vehicles to satisfy the bankruptcyremote requirements of financing banks in aircraft financing transactions. This trend of using bankruptcy-remote Irish section 110 companies in aircraft financing transactions has continued in 2013 and 2014.

Expansion of double tax treaty network.Ireland has now signed 71 double tax treaties (68 of which are now in force). Ireland's most recently signed double tax treaties include treaties with Ukraine, Thailand, Botswana, Uzbekistan, Ukraine, Kuwait, Qatar, Bahrain, Saudi Arabia, Armenia and Egypt. The Irish tax authorities are very active in increasing the number of treaties to which Ireland is a party, particularly with emerging market and Middle-East jurisdictions.

New tax credit for non-treaty withholding taxes.Tax treaties play a key role in Ireland's successful leasing industry by reducing or eliminating withholding taxes on inbound lease rental payments. Tax treaties allow Irish lessors to claim tax credits against their Irish corporation tax for any unrelieved foreign withholding taxes.

However, until recently, an Irish lessor could not claim a similar tax credit for foreign withholding taxes where no tax treaty applied. In recent developments, an Irish lessor carrying on a trade in Ireland may now also claim a tax credit for foreign withholding taxes on lease rentals where there is no applicable tax treaty. The relief is granted on a unilateral basis by Irish domestic law.

This recent development has positioned Ireland as an attractive leasing jurisdiction for leasing aircraft and other assets into jurisdictions which do not have a wide tax treaty network.

New investment. The Irish leasing market has been very active with strong investment from Japan and China in recent years. Set out below are just some of the new investments into Ireland in the aviation industry.

In 2014, the Chinese aviation operation of Bank of Communications Financial Leasing (JY Aviation) set up an Irish leasing platform as the site of its European headquarters. With its operation in Ireland, the company plans to recruit experienced aviation leasing experts including technical, legal and operation personnel before the end of 2015.

According to Luo Le, who currently heads up the Irish operations of Bank of Communications Financial Leasing (JY Aviation), "JY currently has a fleet of 21 aircraft leased to Chinese, Asian and European airline customers, and plans to add another 15 to 20 to its fleet through sale/leaseback, financial lease and portfolio acquisition within 2014."

At the end of 2013, the leasing unit of China Minsheng Bank incorporated Minsheng Commercial Aviation (Ireland) Company Limited, an aviation unit in Dublin. Minsheng Commercial Aviation is seeking to grow internationally by buying aircraft in the secondary market or directly from aircraft manufacturers and then leasing the aircraft to airlines.

Following the acquisition by Mitsubishi UFJ Lease & Finance ("MUL") of Jackson Square Aviation, MUL rebranded its Irish leasing platform in January 2014 from MUL Aviation Capital Limited to Jackson Square Aviation Ireland Limited and the MUL and Jackson Square Irish leasing platforms are currently in the process of being integrated. The Irish leasing company plans to acquire and lease narrow-body aircraft and lease to a variety of lessees in a number of jurisdictions.

Norwegian Air Shuttle ASA established Norwegian Air International Limited ("NAI") which has been granted an Air Carrier Operating Licence by the Irish Commission for Aviation Regulation and an Air Operator's Certificate by the Irish Aviation Authority. NAI is the first Irish airline which will be headquartered in Ireland but will initially have all of its operational bases outside of Ireland. It may operate long-haul flights from Ireland in 2015. NAI is an EU regulated low-cost long-haul airline which operates Boeing B787 Dreamliner aircraft.

AerCap acquired International Lease Finance Corporation ("ILFC") in May 2014. The former ILFC portfolio of almost 1,400 aircraft will be serviced by AerCap Ireland Limited as the Irish based servicing arm of the AerCap Aviation Group.

AerCap's CEO Aengus Kelly stated that "AerCap's acquisition of ILFC will create the leading global franchise in the aircraft leasing industry. This transaction presents a unique strategic opportunity to bring together the outstanding and experienced personnel from both companies and two attractive portfolios of modern aircraft on lease to a highly diversified customer base. Further, we believe AerCap will now have the most attractive order book in the industry."

Capital market deals. Ryanair, the Irish low-cost airline, raised e850m in its first ever bond offering in June 2014. The seven-year bond will be listed on the Irish Stock Exchange ("ISE") and the funds raised from this offering, and subsequent offerings planned for the next few years, will be used to finance the purchase of 180 Boeing B737 aircraft which it has on order.

In 2014, Ryanair received a BBB+ rating from Standard & Poor's and Fitch which makes it the highest rated airline in the world.

In July 2014, CIT closed a US$640m securitisation capital markets financing of 28 aircraft. The Class A-1 Notes issued were listed on the Global Exchange Market of the ISE.

Cape Town Convention and Aircraft Protocol. Aviareto Limited, an Irish limited liability company which is a joint venture between the Irish Government and SITA was, in 2012, reappointed as the Registrar to the International Registry for a further five years.

Ireland was one of the first Contracting States to the International Registry and Aircraft Protocol and this has been another reason why lenders favour Ireland as a jurisdiction for aircraft financing.

If the borrower and mortgagor is located in Ireland, the lenders will get the benefit of the Cape Town Convention and Aircraft Protocol. The added protection afforded under the Cape Town Convention and Aircraft Protocol has been increasingly relied on by lenders and in certain transactions has replaced traditional local law mortgages where obtaining such mortgages was inefficient from a time and cost perspective.

The decisions of the Irish High Court in PNC Equipment Finance LLC v Aviareto Limited and Link Aviation LCC (unreported, High Court December 19, 2012) and TransFin-M, Ltd v Stream Aero Investments S.A. and Aviareto Limited (unreported, High Court (Commercial Division) April 18, 2013) illustrate that frivolous or unwarranted registrations made on the International Registry may ultimately be removed at the direction of the Irish Courts and at the expense of the registrant.

The decisions also illustrate the willingness of the Irish Commercial Court to accept jurisdiction to hear substantive causes of action in disputes relating to registrations originating entirely outside Ireland under the provisions of the Cape Town Convention and Aircraft Protocol, which were given effect in Ireland pursuant to the International Interests in Mobile Equipment (Cape Town Convention) Act 2005.

The approach of the Irish Courts, coupled with the speedy resolution of such disputes by the Irish Commercial Court, will greatly aid the proper and efficient functioning of the International Registry, and provide comfort to parties seeking to discharge unwarranted International Registry registrations that such discharges can be done in a timely, effective and efficient manner.

The State Airports (Shannon Group) Bill 2014 was published recently and will enable the Irish government to make an order giving the Cape Town Convention Alternative A insolvency remedy force of law in Ireland. It is hoped that this Bill will become law by the end of 2014. This will be very similar to the US Chapter 1110 insolvency remedy and will provide that in the case of an insolvency related event of a lessee, mortgagor or conditional purchaser, the lessor, mortgagee or conditional seller will be entitled to the return of the aircraft within 60 days unless certain criteria are met.

Irish Aviation Authority. Many aircraft which are operated in countries such as Russia and Italy are registered with the Irish Aviation Authority. Owners and lenders choose Ireland as the State of Registration to remove deregistration risk and protect the residual value of the aircraft by having the aircraft registered with an EASA registry. This trend has continued in recent years and has been further bolstered by the fact that registration of an aircraft in a Contracting State to the Cape Town Convention and Aircraft Protocol satisfies one of the connecting factors under the Convention and Protocol to create an international interest. Further protection can be afforded through registration of an IDERA with the Irish Aviation Authority.

Irish Stock Exchange. The ISE has recently developed a dedicated Aviation Exchange for aviation related debt and other instruments. This move reflects the increasing importance of capital markets to the global aviation sector. At the beginning of 2014, there were 26 aviation debt listings with a total value of US$12.7bn.

ISE Chief Executive Deirdre Somers explained that the new Aviation Exchange will be a "dedicated platform specialising in aviation related debt instruments that will provide issuers and investors with what they are looking for: visibility and specialist knowledge of their sector."

Conclusion. Ireland's reputation as a centre of excellence for the aircraft financing and leasing sector remains strong and has been enhanced by the extension of Irish section 110 companies to include aircraft assets. Combined with the existing taxation benefits, this is an additional tool in the box which permits the aviation financing structures required by aviation sector investors and lenders.

As a result, Irish section 110 companies are now frequently used in aviation financing and leasing structures. Ireland will continue to expand its double tax treaty network over the coming years demonstrating Ireland's commitment to the aviation financing and leasing sector.

This chapter appeared in the Airfinance Annual 2014/2015 and is reproduced with permission from Euromoney Institutional Investor.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.