With the support of Boeing it has set out its ambition to become a more significant player in the fast moving aircraft leasing industry. Its statement coincides with two major air finance conferences being held in Dublin that brings together over 1,000 delegates from airlines, lessors and bankers.
A couple of years ago Enterprise Ireland asked a group of aviation lawyers, aviation financiers, lessors and other state agencies including the IDA to get together and brainstorm about how the aviation industry here could be fortified and expanded. One of the ideas that stemmed from that forum (on which I sit) was to encourage the Irish Stock Exchange to more actively promote its abilities to support the funding of the aircraft leasing sector. The response was enthusiastic.
The ISE already has form in the aviation market. It hosts the primary equity listings of Aer Lingus and Ryanair which between them have a market value of over €1 billion. In addition, and much less visible, are a range of bond issues linked to aviation assets. These are worth about $13bn and include aircraft backed bonds issued by IAG, the owner of Iberia and BA; a helicopter bond from Milestone; an asset-backed security issued by Avolon; and bonds issued by the gulf carrier Emirates. Together, this forms critical mass on which further initiatives can be built.
The funding requirements of the aircraft market are huge. Each year over the next decade at least $110bn worth of aircraft will be supplied to airlines worldwide. Boeing estimates in total 35,000 aircraft will be purchased during the next 20 years. Currently the global commercial aircraft fleet is about 21,000 aircraft. Almost 40% of those are leased. In 1990 just 9,100 aircraft were in operation and only 15% of those were leased. Put another way, leasing is a growth sub segment of a growing market.
Just about half of the world’s leased fleet is managed in the Irish Republic where over 30 companies are active. They tap the deep pool of aviation law, auditing, tax and service skills and combine that with an unparalleled set of aircraft ownership treaties Ireland has signed worldwide.
Over the coming years lessors, airlines and aircraft manufacturers will have to source billions of dollars in funding to develop and expand this exciting sector. Therein lies the opportunity for the Stock Exchange.
The challenge is to develop funding vehicles that are efficient and attractive for investors and issuing companies. The ISE offers a variety of platforms to host such entities and these are being incrementally made more appealing to investors. The decision, for example, to abolish stamp duty on share trading on the Enterprise Securities market makes it of value to new listings. The efficiency and low cost of listing on the Global Exchange Market (GEM) is another.
The primary Main Securities Market (MSM) also offers potential for aviation investors. Last year the Government, in conjunction with industry, created a legal framework to facilitate the creation of property REITs (Real Estate Investment Trusts). This allows retail and institutional investors to hold liquid shares in property assets without having to buy physical buildings.
Like property, aircraft are long-life assets with the ability to fund regular cash dividends and provide long-term value. Could REITs evolve to provide funding vehicles that host aircraft assets whose management is outsourced to Ireland-based lessors? If so, it would embolden the leasing industry here, increase the scale of the sector and help create more jobs and economic activity for Ireland.