TAKING FLIGHT - 2018 AN ECONOMIC AND EMPLOYMENT ANALYSIS OF THE AVIATION LEASING INDUSTRY IN IRELAND - PWC
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Taking flight – 2018 An economic and employment analysis of the aviation leasing industry in Ireland
Contents Foreword 1 Methodology 2 2 Key findings 4 3 An industry in ascent 7 4 Economic and employment analysis 12 5 Strengths, weaknesses and threats 19 Contacts
Foreword
Ireland’s aviation offering has seen considerable for the country of having a truly global industry number of middle class citizens in North
With Ireland’s geographical growth since the birth of commercial aviation based out of Ireland. In order to foster its America and Europe combined. This shift in
location as an island nation in the early 20th century. Indeed, one of continued growth, Ireland has endeavoured to demographic growth and the expected demand
Ireland’s earliest introductions to aviation came maintain a favourable and efficient for air travel in the region should result in
on the western seaboard of
with the landing of Alcock and Brown in 1919 environment for lessors, and indeed for all additional opportunities for the aviation leasing
Europe, aviation has played a in the west of Ireland following their industries, to do business in Ireland. industry to expand its offering to Asian airlines.
vital role in connecting Ireland completion of the first ever transatlantic flight. By extension, similar opportunities should arise
The key findings in this report show that this
both to our nearby continental Their choice of Ireland as a landing location, for Irish based lessors to grow their revenues
whether intended or not, was a sign of things to favourable environment has certainly paid provided Ireland remains an attractive and
neighbours and the rest of the dividends for both Ireland and aviation lessors,
come for aviation in Ireland. Air traffic through efficient location from which to base their
world from both a social and the country’s airports has seen rapid growth, with the result that Ireland has become the operations.
economic perspective. with Dublin to London Heathrow now the 9th major global centre for the aviation leasing
busiest international flight route in the world sector. PwC Ireland have been delighted to support the
(OAG Aviation, 2018) and the Irish Aviation wider aviation industry over the past number of
This report reflects the views of Irish based years and would like to take the opportunity to
Authority now responsible for managing 90%
aircraft and engine lessors on a range of key thank all participants who contributed to the
of all traffic that transits between Europe and
areas sourced via a detailed survey. Given the preparation of this inaugural report. As ever,
North America.
relatively recent global economic turmoil, this PwC Ireland looks forward to working and
On the foundation of Guinness Peat Aviation study shows that the Irish aviation leasing collaborating with the industry in the coming
(GPA) in the 1970’s by Aer Lingus and the industry is a true economic success story. This years. It is intended that collaboration will
Guinness Peat Group under the leadership of success is illustrated by the fact that, based on include a recurring report of this nature
Tony Ryan, Ireland became an early adopter of survey responses and publically available designed to capture appropriate industry trends
the aircraft leasing industry. That fledgling information, the industry supports over 4,970 and the views of Irish based lessors to provide
industry grew exponentially in the intervening jobs in Ireland. for informed policy representation.
years to record estimated global revenues in
The recent PwC Megatrends report noted the
2017 of US$16.7 billion (Air Finance Journal,
growth of the middle class in the Asia-Pacific
2017). Successive Irish Governments have
region, which is now similar in size to the
recognised the potential benefits and rewards
1 Taking flight – 2018 Foreword
1 Methodology
1. Methodology
The report seeks to analyse the economic and Section 1 of the report examines the Irish The full-economy impacts of a $ increase in
employment impact of the aviation leasing owned assets of the participants in the 2016 expenditure in a defined sector is measured at
industry in Ireland, maps its growth since 2012 financial year. All figures contained within this three levels which describe the progression of
and features the insights of the participants into report follow the industry standard of being the $ spend through the economy, specifically
the emerging geographical growth trends in based in US dollars ($). These assets relate only direct, indirect and induced. By applying the
the industry out to 2021. to those owned by (and leased from) Irish tax relevant sectoral multipliers and effects (e.g.
resident entities. These results were analysed food, housing and professional services), the
PwC Ireland surveyed a cohort of Irish based against the 2012 equivalent figures to ascertain full economic impact of aviation leasing
aircraft and engine lessors together with the growth in the intervening period and companies in Ireland was calculated.
participants from the maintenance, repair and projected growth in asset numbers was
overhaul (MRO) industry. estimated out to 2021. Section 3 provides details of the key features
that make Ireland an attractive location for the
The report is split into three Section 2 analyses the full economy impact of industry and which have led to Ireland’s
primary sections: the industry in Ireland. The full economy dominant position as a global aviation leasing
impact of any organisation or sector is a centre. In addition, respondents provide
function of two factors, namely, the value of feedback on what they see as potential threats
national economy expenditures and the to that position. With the demand for people
sectoral composition of this spend. The sectoral with the requisite skillsets a priority for most
composition of spend is material to the extent industries, Section 3 also reviews the skills that
Growth of aircraft fleet
1 and projections to 2021.
that spend in sectors with a low import content
(e.g. services) has a more substantial impact on
aviation lessors feel are in most demand for the
industry and highlights the various initiatives
the national economy than expenditures in which are being undertaken to address
sectors with a high import content. those demands.
Economic and
employment impact of
the aviation leasing
2 industry in Ireland.
Strengths, weaknesses
and threats for Ireland as
3
a location for the
aviation leasing industry.
3 Taking flight – 2018 Methodology
2 Key
findings
2. Key findings
Aviation leasing companies based in Ireland spent
Profile of aviation leasing companies’ operational expenditure in Ireland
approximately $581 million (inclusive of payroll related
tax and non-recoverable VAT) in the Irish economy in the
Financial Year 2016 (FY 2016). Payroll accounted for
$261 million (45%) and non-payroll (payments to Irish
suppliers) accounted for $320 million (55%). This
expenditure had a significant contribution to the economy
in terms of national output ($) and employment.
$581m $117m $111m $319m
It should be noted that in order to calculate the full
contribution to the economy, all taxes (i.e. payroll related
tax and non-recoverable VAT) and employees’ pensions, Annual spend in the Payroll available for Payroll related taxes paid Non-payroll spend /
shares, savings and overseas expenditure are excluded, Irish economy domestic consumption by the companies and Irish Suppliers
before economic multipliers and effects are applied to (after tax, savings, etc.) their employees (after non-recoverable VAT)
calculate the full economic impact of $660m (direct,
indirect and induced). The economic model does not
include taxes, which also have additional benefit to the Impact of aviation leasing companies’ operational expenditure in Ireland
Irish Exchequer.
The full economic impact (direct, indirect and induced) of the Irish aviation leasing companies’ operational
expenditure in the Irish economy resulted in a contribution of $660 million and 4,970 full-time equivalent (FTE) jobs.
Full economic impact
$660m
Total contribution
to the Irish economy,
excluding tax
Direct
4,970 An aviation leasing company Indirect
FTE jobs supported pays a professional services The accountancy firm pays Induced
annually in the company (e.g. accountancy its suppliers for goods Employees of suppliers then have
firm) for their services. (e.g. IT equipment).
Irish economy additional disposable income to spend
on household goods and services.
5 Taking flight – 2018 Key findings
What is clear is that the industry has real
presence and tangible substance in Ireland.
The past five years have shown considerable
growth in terms of numbers of aircraft and
Asia is eroding the
This is a key differentiator when compared to asset value based in Ireland. This is down to position of Europe as
other leasing hubs. a number of factors:
the primary location for
placement of aircraft
new entrants to the market
Irish lessors report setting up their leasing for Irish lessors. Indeed,
1 platform in Ireland;
Asia is expected to
growth of 36% in fleet have surpassed Europe
numbers in the five years by 2018 according to
from 2012 to 2016.
existing lessors in Ireland
moving more of their projected estimates.
2 portfolio to Ireland;
Threats to Ireland’s position include foreign tax Respondents highlighted the depth of the
regimes / initiatives, developments double tax treaty network, a competitive tax
from international tax reforms and the renewal of aircraft with regime, skilled labour availability and the
newer models and the
the lack of a dedicated representative
body for the industry. 3 retirement of older fleet.
legal and regulatory framework as Ireland’s
strengths in attracting the industry here.
Weaknesses included Ireland’s personal tax
regime and social infrastructure.
Ireland is best placed to become a world
leader in meeting the educational needs
#1
of the industry.
6 Taking flight – 2018 Key findings
3 An industry
in ascent
3. An industry in ascent
Growth analysis
Respondents were asked to provide details on The past five years have shown considerable Total growth 3.1 Overall Growth (2012 – 2021)
their aircraft assets in terms of quantum in the growth in terms of numbers of aircraft based in Overall, growth in aircraft numbers of 36%
financial year ending in 2016 together with a Ireland. This is down to a number of factors: has been achieved from 2012 to 2016. In the
comparative figure for 2012 and a projected Actual Forecasted
coming years to 2021, respondents expect Growth Growth
figure for 2021. In addition, respondents were continued growth with estimates of a 22% (2012 – 2016) (2016 – 2021)
requested to provide data on the regional split increase in the number of aircraft units held
of their lease rental income for the financial new entrants to the
market setting up by Irish lessors. Respondents indicated that the Aircraft
year ending in 2016. growth in asset volume terms occurred at even 36% 22%
their leasing platform Numbers
1 in Ireland; stronger rates between 2012 and 2016. That
trend is expected to continue to 2021 and is
largely attributed to lessors replacing older
aircraft with newer technology.
existing lessors in Ireland
growing and / or moving
more of their portfolio
2 to Ireland;
the renewal of aircraft
with newer models and
3
the retirement of
older fleet.
The growth in aircraft assets reported in
Ireland from 2012 to 2016 can be in part
explained by the shift in aircraft ownership
The growth trend in absolute numbers for aircraft to Ireland which has been reported in
fleet is projected to continue over the next five industry publications in the past five years.
years albeit at slightly more moderate levels. This Growth in the coming five years is expected
is broadly in line with expected market trends. to continue at impressive rates.
8 Taking flight – 2018 An industry in ascentGeographical spread - lease income
Europe South and Central America
3.2 Geographic spread lease income 2012 - 2021
Europe was the leading location for lease rental South and Central America have experienced
%
income in 2016, with 34.7% sourced from the growth from 2012 to 2016, with the share of
region. However, this position had eroded from lease rental income from the region increasing 50
2012 when Europe accounted for 46.8% of total from 6.7% to 8.6% in the period. That share of Lease Income 2012 Lease Income 2016 Lease Income 2021
lease rental income. This trend is projected to lease rental income is expected to increase to 40
continue to 2021, with lessors reporting that 9.9% by 2021.
they expect that the region will account for 30
31.5% of lease rental income come 2021. Middle East
Lease rental income from the Middle East has
Asia grown from 2.9% of the global share in 2012 to 20
Asia’s share of lease rental income increased 6% in 2016. This number is expected to taper
from 27.7% in 2012 to 32.6% in 2016 and is by 2021 to a total share of 4.1%. 10
expected to continue in that vein, with 36.9%
of lease rentals being sourced from the region Africa
0
by 2021. African lease rental income performed well Europe Asia North South & Middle East Africa
between 2012 and 2016, growing from just America Central
North America over 1% of the global share to 2.4%. Lease America
North America as a source of lease rental rental income share for the region is expected
income for Irish lessors is more stable in the to reduce between 2016 and 2021 with the
same period providing a consistent share in the share of global lease rental income expected to
decade under assessment. The region decrease to 0.9%.
accounted for 16.3% of total lease rental
income in 2012 which remained fairly static in
2016 with 15.6% of the total global lease rental
income being sourced there. In 2021, North
America is expected to be a source of 16.7% of
The report shows a trend that Asia is eroding the position of
total lease rental income.
Europe as the primary location for placement of aircraft for
Irish lessors. Indeed, Asia is expected to have surpassed
Europe by 2018 according to projected estimates.
9 Taking flight – 2018 An industry in ascentCase study: Maintenance, Repair and Overhaul
The MRO industry has been fundamental to the half is made up of MRO providers and their skilled and qualified technical personnel for the
success of Ireland as a global leader in the suppliers. It was recently reported that one industry. This has been exacerbated by the
aviation industry. Historically, MRO companies MRO plans to create 150 jobs over the next exponential growth of aviation lessors in
produced world class skilled aircraft and three years including roles across the areas of Ireland who have also sought to recruit the
engine technical and engineering specialists engineering, avionics technicians, structures same personnel. It was suggested by industry
through their apprenticeship programmes. and composite technicians, painters and respondents that the industry itself and
These specialists were greatly sought after and aircraft operatives. government policy had limited focus on
were globally recognised. this issue.
In terms of customer base, a high volume of
Personnel from the MRO industry have been MRO revenue is driven by the European market The lack of supply of appropriately skilled and
instrumental in developing and building including Ireland, with these revenues trained personnel presents great difficulty for
Ireland’s dominant position in aviation leasing expected to grow considerably in the next five MROs in meeting and supporting growing
globally and today many of the people from years. Business also originates from Asia, business volumes as well as oversight of
apprenticeship programmes are now leaders in Middle East and African markets. Lease expanding apprenticeship programmes. In
not just MROs, but leasing companies, airlines, transition activity is seen as an area of potential addition, Irish MROs are coming under
regulators and technical service companies. competitive strength for Irish MROs, building increased pressure from global competitors
on their technical experience and on strong who have access to lower cost of labour, capital
The MRO industry has also been a major source lessor relationships. and infrastructure. Local authority rates on
of job creation in Ireland specifically in the aircraft hangars are a particular burden for the
areas of engineering and technical services. The level of demand for apprenticeships has Irish MRO industry.
Today, there are three commercial aircraft reached new heights with a large excess of
heavy maintenance MRO providers who, applications over number of places. In line with Government and industry support is critical in
together employ approximately 1,000 people in our later discussion on education, maintaining order to ensure that Irish MROs maintain and
Dublin and Shannon. In addition to aircraft a focus on aviation related technical expertise grow their position in the global aviation
heavy maintenance, other providers support through third and fourth level education, as industry, and that they can continue to
landing gear and APU maintenance and well as the promotion of apprenticeships, is “anchor” globally mobile lessors in Ireland.
overhaul for their customers. Heavy vital to continuing the growth of the MRO While the MRO industry holds its own in the
maintenance MRO providers in turn support a industry into the future. global arena, its success and continued growth
sub-supply ecosystem. Total employment in the is of significant strategic importance to the
Shannon aviation services cluster is Although demand for apprenticeship programs overall attractiveness of Ireland’s
approximately 2,600, of which approximately is high today, this was not the case for the past aviation infrastructure.
10 to 15 years. This has resulted a shortfall of
10 Taking flight – 2018 An industry in ascent4 Economic and
employment analysis4. Economic and employment analysis
This section presents an overview of the Irish • Reduced total payroll spend by all direct
4.1 National economic benefits
economic benefits attributable to the deductions (e.g. taxes and pensions) and
expenditure of Irish based aviation leasing estimated savings and out of state
companies in the financial year 2016. The expenditures (e.g. holidays), to arrive at an Total operational expenditure by aviation leasing companies based in Ireland
benefits described in this section focus on the estimate of resultant average annual
economic impacts derived from the day-to-day consumer spend in the Irish economy by
operation of these companies (annual employees of aviation leasing companies
operational expenditure). based in Ireland; Non-Payroll Non-Payroll
Payroll Non-Payroll
(Non-Irish (International
The methodology used for estimating the • Reduced the non-payroll spend by the value (Irish residents) (Irish suppliers)
residents) suppliers)
economic impact of the aviation leasing sector of all payments made to international /
on Ireland is shown in Figure 4.1 and detailed non-national suppliers;
under the full economic impact section.
• Determined the sectoral allocation of all
Research steps were as follows: generated expenditures (i.e. payroll and Payroll available Key
Payments to Irish
non-payroll) in the Irish economy; and for domestic Relevant to the Irish Economy
suppliers
• Determined the average annual aggregated consumption Not relevant to the Irish Economy
payroll (Irish residents only) and non- • Applied sector-based multipliers / effects as
payroll (Irish suppliers only) spend across appropriate, to arrive at an estimate of the
the respondents; full annual economic impact (FTE jobs Spend in the Irish economy
and output).
• Grossed up the market to 100%, i.e. based
on estimated total number of full time
Application of sectoral multipliers / effects
equivalent (FTE) employees working in the
aviation leasing sector in Ireland
(approximately 1,700) and operational
Full economic impact in Ireland
expenditure was increased to represent the
full market;
Tax paid to the Irish Exchequer
12 Taking flight – 2018 Economic and employment analysisOperational expenditure
in Ireland
Total expenditure
Figure 4.2 shows a breakdown of the annual
aggregated operating expenditure (inclusive of
payroll expenditure and non-recoverable VAT)
by aviation leasing companies in Ireland in
FY 2016. Payroll accounts (inclusive of payroll $581m $117m $111m
related tax) for 45% ($261 million) of total
operating costs ($581 million).
Aggregated operational Payroll available for Annual payroll tax
National payroll expenditure domestic consumption
Payroll available for domestic consumption
Figure 4.3 shows the assumed relationship
between the aviation leasing companies’
payroll spend, and the consumer expenditures
4.2 High-level breakdown of the annual 4.3 High-level breakdown of the annual aggregated payroll expenditure ($m)
of their employees in the Irish economy.
aggregated operational expenditure ($m)
Payroll deductions include: $ % of
Payroll spend Source
(millions) Total
• Tax deductions including employers and Gross national payroll $261 100% Respondents & PwC derived
employees PRSI, PAYE and Universal Social
Tax deductions (e.g. PAYE, PRSI, USC) $111 43% Respondents & PwC derived
Charge (USC);
$261 Payroll less tax deductions $150 57% Respondents & PwC derived
• Pensions (employees and employers),
shares and savings; and Respondents & PwC derived
$320
Pensions, shares & savings $28 11% (pensions & shares), CSO
• Other deductions including health (savings)
insurance, company car costs and Expenditure outside the State $5 2% CSO
memberships (e.g. gym and golf).
Payroll available for domestic
However, this money is expected to be spent consumption (inclusive of $4m of
directly in the Irish economy and therefore Non-Payroll Payroll other payroll deductions, e.g. health $117 45% Respondents & PwC derived
included in the payroll available for insurance, company car costs &
domestic consumption. memberships)
13 Taking flight – 2018 Economic and employment analysisSectoral breakdown of National non-payroll spend
employee spend (Irish suppliers)
The sectoral composition of these expenditures Total spend in procuring Irish goods and
has an important bearing on the size of the full services is estimated at $319 million (excluding
economy impact. See Figure 4.4 for estimated non-recoverable VAT of $1 million). The
$319m
domestic spend by sector, by Irish resident estimated sectoral distribution of non-payroll
employees of aviation leasing companies. spend in the Irish economy is shown in Figure
4.5 below. Property rent / leasing / mortgages Non-payroll spend /
and professional fees accounted for 56% of Irish Suppliers
total expenditure. (after non-recoverable VAT)
4.4 Estimated expenditure by employees based in Ireland ($m) 4.5 Sectoral composition of non-payroll spend in Ireland
Expenditure by sector $ (millions) % of Total Expenditure by sector $ (millions) % of Total
Food, beverage & tobacco $18 15% Property rent / leasing / mortgages $83 26%
Clothing & footwear $4 3% Professional fees $96 30%
Housing (rents & imputed rent, repairs & decoration) $33 28% MRO (Maintenance, Repairs & Overhaul) $31 10%
Fuel & power $3 3% Insurance $11 3%
Household equipment & operation $4 4% Utilities $44 14%
Transport & communications $16 14% Administration $12 4%
Recreation, education & entertainment $9 7% Travel $25 8%
Miscellaneous goods & services $27 23% General staff expenditure (e.g. training and meetings) $11 3%
Health Insurance $3 3% Other $6 2%
Total $117 100% Total $319 100%
Source: Information from Respondents; PwC derived; and CSO, National Income & Expenditure Annual Results 2016 – Source: Information from Respondents and PwC derived.
Consumption of Personal Income (August 2017)
14 Taking flight – 2018 Economic and employment analysisFull economic impact
Methodology explained
The full economy impact of any organisation / s The most commonly applied form of multipliers
4.6 Multipliers / effects explained*
is a function of two factors, namely: and effects are:
1. The value of national economy 1. Output - the contribution of an additional Economic Impact Description Example
expenditures; and € / $ in expenditure to national output; and The output and jobs generated Impact of spend on Irish suppliers,
by immediate beneficiaries of e.g. professional services
2. The sectoral composition of this spend. 2. Employment - measures the impact on the additional Irish economy companies (accounting, tax,
full-time equivalent jobs (FTEs) in the Direct
expenditure, due to the corporate services, IT).
The sectoral composition of spend is material to economy. expenditure of the companies
the extent that spend in sectors with a low and their employees.
import content (e.g. services) have a more Multipliers and effects will vary between
The output and jobs generated Impact of the additional spend on
substantial impact on the national economy economies, reflecting (among other factors) the
Indirect by the suppliers to the direct the accountancy firm’s suppliers,
than expenditures in sectors with a high fact that the import content of different sectors
beneficiaries. e.g. IT equipment.
import content. of activity will differ depending on the resource
The output and jobs resulting Income received by retailers as a
base of the economy. In this report, money
The full economy impact of a € / $ increase in from the additional economy result of the spending of suppliers’
spent by the companies (non-payroll) and its Induced
expenditure in a defined sector is measured at expenditure by employees of employees.
employees (payroll) was allocated to the suppliers and sub-suppliers.
three levels which describe the progression of relevant economic sector (e.g. food, housing
the € / $ spend through the economy, namely and professional services). Output multipliers
*See: http: / / www.gov.scot / Topics / Statistics / Browse / Economy / Input-Output / Mulitipliers, for further details.
direct, indirect and induced. Explanations of were then used to estimate the direct, indirect
these levels of economic benefits are described and induced impact of this spend on the
in Figure 4.6. broader economy. Employment effects were
used to estimate the impact of this spend
on jobs.
15 Taking flight – 2018 Economic and employment analysisFull economy impact of 4.7 Impact of spend on the Irish economy
operational expenditure
As outlined above, payroll-related spend (after Payroll Non-Payroll Total
tax, pensions, shares, savings and overseas
Spend in Ireland (excluding all taxes) $117 $319 $436
expenditure) by aviation leasing companies in
Ireland is estimated at approximately $117m in National output ($m)
the Irish economy, while an estimated $320m Direct $117 $319 $436
was paid to Irish providers of goods and Total
Indirect $31 $113 $144 contribution of
$660m
services. By applying multipliers / effects, the
full economy impact of the aviation leasing Induced $21 $59 $80 approximately
sector can be estimated - see Figure 4.7. to the Irish economy annually
Total $169 $491 $660
Aviation leasing companies in Ireland employ Supported Employment (FTEs)
close to 1,700 full time equivalents (FTEs).
However, in order to calculate the jobs Direct & Indirect* 1,118 2,739 3,857 Approximately 4,970
FTE jobs supported annually
supported in the Irish economy, ‘employment Induced 708 405 1,113
effects’ are applied to both the amount spent by
in the Irish economy
Total 1,826 3,144 4,970
employees and the companies’ non-payroll
expenditure in the Irish economy. Employment *Please note the direct and indirect FTE jobs cannot be split out when using employment effects.
Source: Information from Respondents and PwC derived.
effects measure the impact on employment
(FTE jobs), throughout the economy arising
from a change in the final demand for sectoral
output of €1 / $1, i.e. every €1m or $1m spent in
It should be noted that in order to calculate the full
a particular sector creates a certain amount of
contribution to the economy, all taxes (i.e. payroll related
jobs. For example, employees from the aviation
tax and non-recoverable VAT) and employees’ pensions,
leasing companies spent an estimated $18m on
shares, savings and overseas expenditure are excluded
food and beverage last year, which created over
($581m - $145m = $436m), before economic multipliers
300 jobs (direct, indirect and induced) in the
and effects are applied to calculate the full economic
domestic economy. Jobs created from the
impact of $660m (direct, indirect and induced). The
employees’ expenditure, together with the
economic model does not include taxes, which also have
non-payroll spend of the aviation leasing
additional benefit to the Irish Exchequer.
companies, supported approximately 4,970
FTE jobs.
16 Taking flight – 2018 Economic and employment analysisCase Study: Global Airfinance Journal and Airline Economics
Conferences in Dublin (2017)
In addition to the economic impact of the
aviation leasing companies in Ireland, Ireland
70 different countries. Delegates from the US
and the UK accounted for close to 40% of
$4.9m+
also attracts significant international aviation total attendees. Contribution from international delegates attending the Annual
conferences e.g. Global Airfinance Journal Global Airfinance & Airline Economics Conferences 2017
Conference (Convention Centre Dublin) and The Airline Economics Conference was held in
the Airline Economics Growth Frontiers the Shelbourne Hotel from 15th – 18th of
Conference (Shelbourne Hotel), due to the January 2017. The conference attracted 1,982 4.8 Global Airfinance Journal delegates 4.9 Global Airfinance Journal delegates
concentration of aviation related companies in international delegates from a wide range by country** by key company types**
the country. These conferences and some of countries.
newer entrants to the aviation conference Airline 28%
Fáilte Ireland estimates that each international
market in Ireland have an additional economic
delegate attending a conference in Ireland is
impact on the economy. 437 US Lessor 24%
worth approximately €1,643* ($1,819) to the
The 19th Global Airfinance Journal Conference Irish economy. This accounts for expenditure
Financial Institute 14%
was held in Convention Centre Dublin from on a wide range of services, e.g.
17th – 19th of January 2017. The event accommodation, food and drink, Service Provider
8%
attracted close to 1,700 delegates from a wide entertainment, transport, shopping and / Consulting
294 Ireland
range of companies e.g. conference fee. It should be noted that Ireland
Law Firm 7%
hosts a broad range of conferences and that the
• 28% were from airlines representing a average spend of delegates attending the
UK Investor 6%
combined fleet size of 10,000 aircraft and an aviation conferences is likely to be higher than 233
estimated current market value (CMV) of the average across all conferences. Manufacturer
67 Germany 5%
$325,000m; and / OEM
Assuming that there is an overlap of 64 China
61 France ECA
• 24% were from lessors – 40 from the leasing international delegates attending both 48 UAE
2%
top 50 (2016) attended, representing a conference of approximately 50%, it is 45 Japan
39 Netherlands Rating
combined current fleet of 7,777 aircraft. estimated that the conferences contributed 2%
Agency
approximately $4,900,000 to the Irish
Over 80% (1,385) of delegates were economy. This excludes expenditure by 391 Other MRO 1%
international. Delegates attended from close to Irish delegates.
Other 3%
1,679
*Source: Fáilte Ireland – value of each international business tourism delegate in 2016 (February 2017)
**Source: Airfinance Journal Statistics, November 2017
17 Taking flight – 2018 Economic and employment analysis5 Strengths,
weaknesses and threats5. Strengths, weaknesses and threats
Ireland’s position as a central hub for aviation
Strengths Weaknesses
leasing companies, and the overall expansion of
the aviation leasing industry, has been a
significant contributor to the success of Ireland
as a global international financial
services player. Double tax
So what makes Ireland so attractive to the
1 treaty network 1 Personal tax regime
aviation leasing industry? Ireland’s success can
be attributed to many factors including: legacy
experience which comes from 40 years
involvement in the industry; a taxation regime Low corporate tax rate
and attractive tax
which provides for a stable and competitive
headline rate of corporation tax together with a 2 depreciation 2 Social infrastructure
tax depreciation write-off period of eight years;
a comprehensive double tax treaty network
with 73 countries currently in effect (and more
in the pipeline awaiting ratification and under
negotiation); and being recognised as a centre Availability of
of excellence in this sector, with a highly skilled 3 skilled labour
and experienced workforce.
In order to gain an insight into the key policy Ireland has pioneered the
areas driving Ireland’s success as a top location development of a supportive
for establishing an aviation leasing platform, tax and legal environment
Legal and regulatory
lessors were asked for their thoughts on the
underlying policies supporting the attractive 4 framework
specialised to meet the niche
requirements of the industry.
environment for the industry.
19 Taking flight – 2018 Strengths, weaknesses and threatsStrengths in Ireland for the industry
Double tax treaty network and corporation tax regime
As is widely acknowledged, Ireland’s extensive within lease agreements which will stipulate corporation tax rate and the availability of tax This is a reflection of the depth of knowledge
double taxation treaty network plays a key role that, in the event of the existing lessor selling depreciation on aircraft over an eight which has built up in Ireland and the industry
in creating a positive business environment for the leased aircraft, that the new lessor must be year period. specific training and experience which has
lessors. Our findings serve to validate the based in a location which does not create a been gained by employees working in the
importance of this network to the industry with greater withholding tax obligation for the Availability of skilled labour industry. In addition, the growth of industry
Ireland’s double tax treaty network coming out lessee. In effect, what often results in practice is specific courses from a financial and
Similarly, Ireland’s position as a global leader
on top with 58% of responses citing this as the that that the new lessor, for ease of transition, technical perspective has sought to address
for the availability of skilled labour has once
most important policy area. will continue to use an Irish platform to the demands of the various niche businesses
again proven to be another driver of success in
purchase the aircraft. operating in the aviation leasing space in
The Department of attracting business, with respondents citing
Ireland. Ireland is uniquely placed to take
Finance and Revenue Ireland’s talent pool as another key area. This
advantage of the experience which has been
Commissioners (the Ireland has 73 double tax treaties signed to date, with 5 mirrors the findings in the IMD World Talent
built up in the country over the past 40 years
Irish Government additional treaties either awaiting ratification or under Ranking 2017 report.
and to leverage those skills in
agency responsible for current negotiation. This is an indicator of Ireland’s training and upskilling the
customs, excise, strong ties with economies across the globe and the next generation.
Per the IMD World Talent Ranking 2017,
taxation and related importance of international trade to the Irish Exchequer.
Ireland’s top strengths include its ability to
matters) indicate that
attract and retain talent (ranked number 1
they are keenly aware
globally) and its skilled labour force (ranked
of the importance of a strong treaty network Other leasing hubs are attempting to close the
number 5).
and are endeavoring to continue to build on the gap with Ireland in terms of the breadth of their
work completed to date. These treaties serve to treaty networks. It is therefore clear that the
mitigate, or indeed eliminate in many cases, Irish Government, Department of Finance and
Highly experienced support services to the
withholding tax applying to lease rentals in the the Revenue Commissioners need to ensure
leasing industry have also developed in tandem
lessee country. that the Irish treaty network continues to
with the growth of the industry in Ireland
expand and that certain existing, more limited
As the risk of any withholding tax exposure is including specialised accounting and finance
treaties are updated to enable Ireland maintain
generally commercially borne by the lessee, the professionals, tax advisers and legal
its competitive position in this area.
reduction of withholding tax costs can reduce service providers.
significantly the cost for international airlines The treaty network prioritisation and
of doing business with Irish based lessors. It is expansion is closely followed in importance by
often the case that lessees will insist on “no the broader elements of Ireland’s corporation
greater obligation” clauses being contained tax regime, including the EU approved 12.5%
20 Taking flight – 2018 Strengths, weaknesses and threatsLegal and regulatory framework
The availability of skilled labour is followed by One of the benefits of the Cape Town
The Cape Town International the Irish legal and regulatory framework, Convention is that it provides certainty, speed The implementation of
Registry (CTIR) holds specified which enables lessors to carry out their business and mitigates costs during insolvency and Alternative A was seen as
documents in a searchable efficiently relative to other jurisdictions. The enforcement proceedings in respect of a welcome development
database. The registration efficient processes offered by the Irish Court aircraft objects. and further enhanced
validates an entity’s financial system was one of the key strengths highlighted Ireland’s reputation in
interest in a qualifying asset when choosing to locate the Cape Town registry By adopting Alternative A, a definite deadline is the aviation leasing
which covers fixed-wing (as agreed under the Cape Town Convention) imposed for an insolvency administrator or industry. The effective
aircraft, helicopters and in Ireland. debtor and the creditor to negotiate the and efficient remedy
turbine or turboshaft engines retention or return of the relevant aircraft offered by Alternative A
(under certain specifications, In addition, early in 2017, the Irish Government object. The insolvent debtor has sixty days also is of particular
for each of the above). signed an order pursuant to the State Airports following an insolvency related event to either significance in the area
(Shannon Group) Act 2014 giving immediate discharge all liabilities due in respect of the of aircraft backed
legal effect to the “Alternative A” insolvency relevant aircraft object to the creditor or to securities and bonds as it
provisions of the Cape Town Convention and return the aircraft object to the creditor. There allows for the possibility
the associated Aircraft Protocol. Ireland was is also an obligation on the insolvency officer to of higher credit ratings
the first European country to ratify the Cape preserve and maintain the aircraft and for securities, with the
Town Convention in 2005 but did not at that its value. potential for reduced
time make a declaration in relation to the funding costs for
insolvency measures contained in the Protocol. The introduction of these provisions into Irish
borrowers being an
law brings our insolvency regime in this area in
added bonus.
One impact of this was that the rules in relation line with those already in place in other
to Ireland’s corporate insolvency recovery jurisdictions, including the USA and the UK and
process continued to apply. These rules can further bolsters Ireland’s attractiveness as a
allow for a court enforced moratorium on location for aircraft financing and leasing.
enforcement rights for a period of seventy days
(with the possibility of further extension).
21 Taking flight – 2018 Strengths, weaknesses and threatsWeaknesses in Ireland for the industry
Personal tax regime Although a welcome addition in order to assist A December 2017 article in the Irish Times
Ireland’s personal tax regime has presented a in attracting talent to Ireland, when compared reported enrolment in fee paying schools has
major challenge to many industries with the to other global leasing hub alternatives, this is returned to levels not seen since the economic
marginal income tax rate being significantly an area where Ireland still lags behind. The boom and the lack of international schools
higher when compared to competitor race for talent in the aviation leasing industry offering an international curriculum has been
SARP’s eligibility requirements
jurisdictions. The Costs of Doing Business in spans a number of skillsets, many of which are seen as a possible hurdle to overcome in
include a minimum salary level
Ireland 2017 report confirms that the Irish transferable to other industries. SARP is seen relation to attempting to attract overseas talent.
of €75,000 which is the
income tax system is the most progressive in as restrictive in terms of some of its eligibility Initial plans to address this include an
threshold above which the
the EU. Ireland’s highest rate of income tax requirements and it is currently only slated to announcement that an international school is
relief starts, and the employee
starts to apply at just below the average run until 2020. Indeed, Ireland’s personal tax proposed for Leopardstown in Dublin (opening
must have been in full time
industrial wage; by comparison the UK top regime is widely seen as a possible stumbling in September 2018). It will have capacity for
employment of the transferring
marginal rate applies at 4.2 times the average block with regard to the possible relocation of 800 students, across pre-primary, primary and
company for at least 12 months
industrial wage. Entry to the higher rate of banks / other financial service businesses from secondary.
prior to transfer.
income tax in Ireland occurs at a relatively low the UK after their expected departure from
the EU. Both housing and education are areas which
level - the standard rate band threshold for a
the Irish Government are dedicating resources
single individual of €33,800 is below the
Social infrastructure to tackle including the “Rebuilding Ireland”
national average wage of €36,899.
The Government mandated Housing Agency action plan for housing.
Recent Government initiatives such as the estimate 20,000 to 25,000 new homes are
Special Assignee Relief Programme or “SARP” required to be built each year to meet existing
have assisted to a degree in making Ireland demands. Goodbody Stockbrokers estimate
more competitive. This regime enables 35,000 builds per annum are needed and at the
assignees moving to Ireland from a country upper end, Ronan Lyons, the Trinity College
with which Ireland has a double tax treaty or Economist estimates a need for 50,000 new
information exchange agreement to avail of tax homes per annum. Undoubtedly, what is not
relief on their earnings in Ireland. under dispute is that there is a housing
shortage, which is amplified in Dublin.
22 Taking flight – 2018 Strengths, weaknesses and threatsThreats to the industry in Ireland Threats
Respondents were also asked for their view in The Irish Government has in the past publically
relation to the threats facing the Irish aviation stated that, when it comes to tax initiatives Ireland, as an EU and
leasing industry. Other countries have observed which it will consider introducing, it will “play OECD Member State,
Ireland’s success and are attempting to erode its fair, but play to win” meaning that it will has publically stated Competitive tax regimes
current dominant position. For example, a provide “best in class” offerings, which are that it is a fully 1 in other jurisdictions
number of other leasing hubs are following compliant with the international standards of supportive and active
Ireland’s lead by actively expanding their transparency and anti-avoidance measures as participant in the
double tax treaty network and seeking set out by the EU and OECD. In short, those various initiatives to
favourable terms for mitigating withholding tax initiatives cannot be preferential to one counteract base
on lease rental payments during those industry over another. erosion and profit International
negotiations. Aviation finance focused regimes
have evolved more recently in Hong Kong and Some international leasing hubs may currently
shifting (BEPS) and
also with the European
2 tax reforms
Abu Dhabi, while Singapore also extended its have additional flexibility in the area of tax Commission’s anti-tax
preferential regime during 2017. policy. However, it remains to be seen if such avoidance directive
offerings will be sustainable in the medium (ATAD). Therefore, Lack of dedicated
In addition, and arguably more concerning for term given the continued direction of the global future flexibility in the representative body
Ireland, some are exploiting their ability to
introduce preferential tax regimes. Such
tax environment against perceived anti-abusive
measures.
introduction of new
initiatives in Ireland
3 for the industry
regimes may potentially not be permissible in would have to be fully
Ireland from an EU State Aid or harmful tax The Irish approach of providing an attractive
compliant with the
practice perspective. environment for aviation lessors by expanding
EU / OECD.
and, in the case of some existing treaties
Competitive tax regimes in further improving, its double tax treaty Cost of doing
other jurisdictions network is arguably more sustainable. Indeed, 4 business in Ireland
Competitive tax regimes in other jurisdictions, it is where Ireland’s competitive advantage
such as those in Hong Kong and Singapore, currently primarily lies and is a position
came out strongly as the number one threat to unlikely to be eroded provided the Irish
the Irish aviation leasing industry for Government continues its efforts in this regard.
5
respondents, with 50% of respondents flagging
this as their number one concern, and 92% Brexit
citing this within their top two.
23 Taking flight – 2018 Strengths, weaknesses and threatsWhat is clear is that the industry has real presence and
tangible substance in Ireland. This is a key differentiator
when compared to other leasing hubs.
International tax reforms
From the responses supplied to the survey, To provide more background and explain this Whilst Ireland has a highly competitive and
what is clear is that the industry has real further, international tax planning has received transparent tax regime, the new rules which Any interruption of treaty access,
presence and tangible substance in Ireland. significant attention at government level Ireland will have to implement under the however temporary, can have
Although the industry may never compare to globally over the last number of years. The EU European Commission’s Anti-Tax Avoidance significant consequences
other substantial industries in Ireland in terms and OECD in particular, led the charge in the Directive (ATAD) could potential erode that economically, especially in a time
of pure headcount, what is evident is that the creation of new anti-abuse initiatives to competitiveness further, especially with regard of historically low lease rental
leasing industry personnel based in Ireland counteract the perceived manipulations of tax to the tax deductibility of interest expense. margins. Irish based lessors with
comprise the key decision makers and rules both domestically and internationally. substance in Ireland should be
individuals in senior management positions. In Those developments raised the bar significantly The aviation leasing industry is not unique in able to mitigate that risk.
addition to C-suite level employees, senior in relation to one area which should be of terms of its high use of debt funding. Indeed,
employees with extensive experience in particular concern to aviation lessors, namely the ATAD recognises other highly leveraged
commercial areas including sales and the prevention of granting tax treaty benefits in industries and seeks to provide carve outs and
origination, risk, finance, tax, treasury, contract inappropriate circumstances. relief for those industries under the new
management, corporate finance, legal counsel, proposals. This is an area which the Irish
technical / asset management and human Under the new rules, treaty benefits could be Government should consider when drafting
resources are also based here. denied if there is insufficient substance (e.g. and implementing the new legislation.
people, assets, risk, etc.) in an entity in receipt
This is a key differentiator for Ireland when of the treaty benefits (i.e. the lessor) in its
compared to competitor leasing hubs in that it jurisdiction of tax residence.
insulates the industry to some extent from the
ongoing international tax developments which
will impact lessors with low functional
substance.
24 Taking flight – 2018 Strengths, weaknesses and threatsLack of dedicated representative growth from 2011 to 2016) and less
body for the industry successfully in others (a case in point being the
A dedicated representative body for the growth rates in prime office units in Dublin
industry is something that respondents see as a being over 3 times the equivalent rate in
priority. Due to the unique features of the London City). The view of respondents that the
industry, and the various international cost of doing business is not a significant threat
developments which can impact it, a dedicated reflects the fact that many of Ireland’s
body which would represent the Irish industry competitor jurisdictions in the industry are high
players would be highly advantageous to the cost economies.
industry in Ireland. This could be used as a
Brexit
potential conduit to facilitate communication
between the Irish Government and the industry Finally, Brexit appeared as the lowest threat for
which could assist in maintaining and the respondents. Brexit and the future
potentially improving Ireland’s position as a relationship which Ireland and the EU will have
global leasing hub. with the UK is currently under negotiation.
However, as importation of the aircraft into the
Cost of doing business in Ireland jurisdiction of use is usually the responsibility
Costs of doing business in Ireland feature lower of the lessee, it will be the UK based airlines
on the threats list. The results in the Costs of who will ultimately bear this risk. In addition,
Doing Business in Ireland 2017 report issued by to the extent that Brexit gives rise to more
the National Competitiveness Council in June challenging regulatory or trading conditions for
2017 showed that Ireland performed well in UK based airlines, given leasing is a global
certain aspects in terms of the costs of doing industry, lessors have the ability to mitigate this
business (for example, with year on year labour risk by relocating assets in alternative
costs growth lower than the average EU 28 geographical markets.
25 Taking flight – 2018 Strengths, weaknesses and threatsEducation needs / gaps
With the rapid expansion of the aviation leasing A combined 67% of participants considered the
5.1 Level of demand of certain skillsets
industry comes a greater demand for an area of marketing and commercial to be within
appropriately skilled workforce. The ability to the top three skills most desired by employers,
draw from a highly skilled pool of individuals is with 33% of respondents considering it to be
Contract & Lease
central to Ireland’s success as an attractive their most sought after skill.
management
location for the industry, and continued focus
and development in this area is vital in This is unsurprising given the level of activity
maintaining this position. the market is currently experiencing, resulting Marketing
in a clear need for individuals capable of & Commercial
With this in mind, our survey sought to identify managing aircraft transactions, including
the particular skills and functions within the commercial negotiations, subsequent aircraft
industry that are most in demand by lessors, placement, etc. Legal
with a view to identifying if any gaps exist in
the current marketplace. The skills presented Demand for qualified legal counsel is
included technical, pricing, credit risk, marginally ahead of the rest of the skillsets Pricing & Financial
accounting and tax, aircraft marketing and surveyed with pricing and financial analysis, Analysis
commercial, contract and lease management technical, and accounting and tax
and legal. Figure 5.1 below represents the qualifications showing very similar levels
various skill sets in order of demand, based on a of demand. Technical
weighted average of the rankings provided
Credit risk was considered the skillset in least
by respondents.
demand which suggests the labour market
Accounting
Skillset demand seems to be sufficiently meeting the
& Tax
requirements of the industry in this area. The
Contract and lease management was the key
benefit of an increased focus on aviation
skill area flagged by participants as essential to
finance related courses in recent years may
their future business operations, with 75% of Credit Risk
alter these priority levels as those graduates
lessors citing this within their top three in
enter the marketplace.
demand skillsets.
Demand
26 Taking flight – 2018 Strengths, weaknesses and threatsEducational supports currently available
A fundamental component of meeting this across a range of sub specialties within the The Masters is very much a collaborative effort The aviation leasing industry has contributed to
current and future skills demand is the aviation industry. with the aviation leasing industry. Highly the Masters programme not only financially,
provision of appropriate third level and credited professionals from the industry have but by having a significant input into the
post-graduate courses. In the 2015 National Given the scale of the industry in Ireland and been immersed in the programme since its syllabus and the curriculum providing guest
Aviation Policy (NAP) for Ireland, the Irish the associated demand for a specialised inception. Since the launch in April 2016, lecturers. The companies involved all take on
Government recognised the need for an workforce, higher education courses in the area individuals such as Norman Liu (former GECAS graduates directly from the programme.
expansion of a broad spectrum of training extend from diplomas right up to masters Chief Executive & Chairman), joined the
centres and post-qualification courses. degrees, covering a broad range of specific programme as an adjunct professor in 2017 and However, in order to safeguard Ireland’s
aviation requirements, reflecting some of the many other leading industry individuals position and ensure an ongoing stream of
In recent years, new education paths have been skills desired by industry players. frequently lecture at the Masters programme. qualified industry personnel, more educational
introduced with a focus on aviation finance. Indeed, the Head of the Masters Programme is programmes are needed. These programmes
Some higher level courses and masters The UCD Smurfit Business School Masters are a key source of Ireland’s attractiveness and
Patrick Blaney, former Chief Executive at GPA.
programmes have been established across the (MSc) is the only Masters qualification for Ireland has the opportunity to become a true
country for those wishing to pursue a career Aviation Finance in Europe. centre of excellence in developing human
capital for the industry.
The volume of international participants on the
Masters in Aviation Finance points to the global
demand. However, Ireland, and the industry
here, may benefit from a greater volume of Irish
Higher Level Courses with a focus on Aviation Finance include: Based on survey students graduating from that Masters or
responses many similar programmes. Therefore, a more formal
• Diploma in Aviation Leasing and Finance, Law Society; lessors engage in strategic plan to ensure the current and future
• Diploma in Aviation Leasing & Finance, University of Limerick; direct sponsorship of skills requirements of the industry are
• Certificate in Aircraft Acquisition and Finance, IT Carlow; third and fourth level identified and provision for same is delivered
courses, investing should be a priority area of focus for the
• Diploma in Aviation Leasing & Finance, National Aviation Institute;
considerable amounts industry and Irish Government alike.
At the moment there are a number of Masters programmes on offer including; of finance into third
level institutions with
• MSc Aviation Finance, UCD Smurfit Business School; a view to developing
• MBA with Specialist Aviation Management Electives, University of Limerick. the Irish talent pool.
27 Taking flight – 2018 Strengths, weaknesses and threatsYou can also read
