Q3 2020 - A Snapshot of the Aircraft Leasing Industry in Ireland

Published: Sep 1, 2020
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Ireland has developed a specialist area of aviation leasing since the mid-1970’s, when aircraft lessors Guinness Peat Aviation (GPA) and the International Lease Finance Corporation (ILFC) were established, the first two in the world. Since then, Ireland has launched a large number of leasing companies with the larger lessors having their own full operations domiciled there. This has resulted in a significant number of private equity firms investing in them, along with smaller lessors outsourcing their portfolio management and administration to these firms.

When someone requires an Irish leasing platform or aircraft special purpose company (“SPC”) to be established, Ireland is normally the first jurisdiction that they will evaluate to see if it will work for their structure, investors and the airline that will lease the asset.

Prior to COVID-19, passenger numbers were increasing on average 5.5% per annum for the last number of years with 2019 slightly down at 4.2%, due to Boeing 737 max grounding which limited capacity for extra routes. So, airlines had to be smarter at increasing income and in 2019 reached a record high load factor of 82.6%.

The worldwide COVID-19 crisis has presented a test for many businesses and the effects on aviation as an industry have been well publicized with 65% of the existing fleet in commercial aircraft (totalling 27,500) having been grounded as of late April 2020. It is, however, important to look at the case for aviation investments and what the current situation presents to consider some of the positive hallmarks.

Strong management teams within the sector with broad commercial experience as well as the key industry specific experience have demonstrated that the investment proposition for aviation with properly risk-adjusted returns is very likely to remain strong going forward despite the current turmoil.

Market data in the aviation sector across operational types (passenger or freight), aircraft types and models – (wide body, narrow body and regional), fleet utilisation and secondary and tertiary markets for trading are all very strong. Properly analysed with “shock impact,” modelled risk-adjusted returns will remain favorable in the sector when compared to other investment opportunities.

Strong management teams with appropriate experience and an ability to analyse the data and risks to the investment assumptions will continue to deliver sound investment propositions to investors.

The aviation sector comprises many aircraft types and ages operating in different sectors on an international and regional basis. Beyond aircraft, the sector offers investment opportunities in engines and other aircraft parts, as well as opportunities at different stages of an aircraft life cycle – new, mid-life or end-of-life. The exit options, both primary and fallback, are vital to any meaningful analysis of an opportunity.

There are many aircraft sale and leaseback opportunities in the market right now. Governments around the world have recognized the importance of aviation to their economies and have provided the appropriate level of support to keep their airlines flying – this ingredient alone must suggest that there are good investment opportunities in the sector and sensible risk adjusted returns to be achieved.

Gavin Lee, EisnerAmper Ireland’s Head of International Trade, added that Ireland has now firmly established itself at the top table of aircraft leasing locations globally.

“On a macro level, competition is increasing in the aircraft leasing industry,” he said. “This includes Singapore, New York, Hong King, Tokyo and China. However, Ireland is a proven aviation hub in Europe and recognized globally as a center for industry excellence.”

He added: “The attraction here is based on a combination of support structures, e.g., the Irish Aviation Authority, Aircraft Leasing Ireland, and a solid mix of technical advisers and legal and professional services firms. This creates a competitive working environment, providing a strong talent pool, aided by a number of university programs. Couple this with an extensive double tax treaty network (with 73 countries), and a low base corporate tax rate (12.5%), it is no surprise that a significant amount of the largest aircraft leasing entities have established operations in Ireland.”

Aircraft investment opportunities exist, but remain mindful of the other asset types in the sector too. Travel and tourism generating 10.3% of the world’s total economic activity in 2018, adding $8.8 trillion to the world GDP. 2019 saw 1.5 billion international tourists arrivals recorded worldwide, the industry will be looking to bounce back strong in 2021.

Nigel Woods is Managing Director of Amstrow Group. Amstrow provides a range of services to the aviation sector including setting up of leasing platforms in relation to aviation investments for private equity firms, lessors and orphan structures for ECA/EXIM backed finance leases.

OUR CURRENT ISSUE: Q3 2020