Air leasing firms deserve more support

Aircraft leasing remains at full throttle in Ireland as fresh investment and new orders continue to drive momentum in the sector. 

Air leasing firms deserve more support

The important aspect of all this activity is that Irish management teams remain in control, while large scale changes take place in the underlying ownership of these companies.

The position of Ireland in the global aircraft leasing sector is well understood. Over 30 companies account for about 50% of the worldwide business and leasing accounts for over 45% of the commercial aircraft market.

With annual orders of over $110bn this implies a very busy and important sub-sector of the financial services market is centred in the Irish Republic.

That leadership position is underlined by a range of key advantages available to lessors based in Ireland; (1) the Irish Aviation Authority is a first-class regulator of aircraft assets and provides efficient support for the sector; (2) legal and auditing skills for aircraft assets is second to none and that helps solidify the value of basing leasing entities in Ireland, and; (3) Ireland provides a stable English speaking and pro-business culture for the mobile investment that surrounds the lessor eco-system.

It is against this background that seismic changes have taken place in the ownership of the aircraft leasing sector over the last four years.

A broad range of global investors have stepped up their commitment in the leasing market by investing heavily in individual companies.

However, in a strong endorsement of this country’s role, the management and leadership of these companies has remained rooted in Ireland.

Indeed, subsequent investment decisions have added further rivets to the boilerplate that keeps the industry wedded to the domestic economy.

A number of key transactions are worth noting; (1) an Irish-led lessor — AerCap — orchestrated an audacious deal in 2014 whereby it purchased a 1,000 aeroplane fleet in America, controlled by ILFC, at a cost of over $5bn (€4.57bn).

That deal was backed by a wide group of international equity asset managers. Since the deal, the combined AerCap fleet of over 1,400 aircraft, together with an order book for another 400+ jets, are administered and managed from Ireland.

(2) In 2012,the large Japanese financial institution SMBC acquired the assets of RBS’s aviation leasing business.

This was already a Top 5 lessor, globally, and since the purchase SMBC Aviation has gone on to further expand its fleet to 633 aircraft, of which 282 are owned, 135 are managed and another 216 have been ordered.

(3) Avolon completed an IPO on the NYSE in December 2014 which saw a number of institutional investors replace early private equity backers.

Earlier this month, the Chinese investment group Bohai purchased a 20% stake in Avolon for $429m and that should help develop the business, which has now grown to a fleet of 153 aircraft and an orderbook for 107 units.

(4) AWAS, headquartered in Dublin, has changed materially in the last year as it sold off a large fleet of 90 aircraft to the Australian institution Macquarie and those jets continue to be managed from Ireland.

Moreover, a remaining fleet of 200 aircraft stays with AWAS and it continues to be managed from Ireland.

These huge deals are changing, dramatically, the ownership of the aircraft leasing sector but the management of these assets continues to be led by teams dominated by Irish men and women.

The skills and networks developed by this generation of executives helps keep Ireland ahead of the chasing pack in this fast moving industry.

A plethora of other countries covet and target aircraft leasing as a strategically valuable industry and various enticements are available to shift the centre of gravity to other jurisdictions.

That is where Government policy comes in to play. Momentum needs to be maintained as the competition for this remarkable industry will be red hot for years to come.

Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.

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