Flying High: Ireland’s International Aviation Services
15 April 2014
by Christine O'Donovan, Partner and Head of Financial Services
The development, growth and sustainability of the aviation industry sector in Ireland has been a significant contributor to the success of the country as a global international financial services sector.
Ireland is a recognised and established hub for aircraft leasing that has attracted professionals from all over the world. With 9 of the top 10 global aircraft lessors located in Ireland, the size of this industry is not equalled anywhere else in the world. It is estimated that the demand for new aircraft over the next 20 years will be in the region of US$3.5 trillion, funding nearly 30,000 new aircraft worldwide.
The Irish Leader, the Taoiseach, Mr Enda Kenny, in his speech at the recent Air Finance Conference in Dublin commented that the Irish government has consistently sought to ensure that Ireland not only maintains its position in the global airfinance sector, but also continues to avail of new opportunities as the sector evolves and demand for diversification of services and funding becomes increasingly sophisticated and competitive.
The Government has endeavoured to ensure that Ireland has a balanced tax and regulatory regime which has kept pace with industry developments and the Taoiseach referred to a number of initiatives which are in progress for the sector in 2014.
Future developments for Ireland’s International Aviation Services in 2014 include the following:
1. The Irish Stock Exchange will launch a dedicated exchange for Aviation Finance.
2. A Joint Committee on Transport and Communication will produce a report on the General Scheme of the Shannon Aviation Services and Miscellaneous Provisions Bill 2013 (The Aviation Bill).
3. Insolvency Declaration for Ireland, which is to follow from the ratification of the Cape Town Convention.
Dedicated Exchange for Aviation Finance
In January, the Irish Stock Exchange (ISE) announced plans to create a dedicated exchange for aviation-related debt and other instruments. ISE Chief Executive, Deirdre Somers, said: “Ireland is a world leader in aviation finance and the Irish Stock Exchange is a world leader in debt listings. We want to combine these skills to make Ireland even more attractive for aviation issuers and investors.”
The ISE has stated that it will offer a highly efficient, low-cost platform, delivering better visibility, greater investor reach and improved market intelligence for the aviation industry. The ISE worked with Enterprise Ireland’s Aviation Forum and many other industry participants to advance plans for the dedicated exchange, and the initiative has been welcomed by the global aviation industry.
Financing of aircraft deliveries is sourced from commercial banks, debt and equity (including private equity) investors. It has been internationally recognised that the capital markets are a growing source of funding for aircraft and accounted for $15bn or 15% of the total requirement in 2013.1
Current listings on the ISE include:
• $927m EETC from International Airlines Group (the parent of BA and Iberia)
• $636m ABS from Avolon (a global leasing company)
• Debt instruments with a total value of $12.7bn
• Equity listings for Aer Lingus and Ryanair
The new dedicated platform aims to be an international hub for aviation finance assets creating a market in Ireland. It will be the first of its kind worldwide. The new platform will be supported, resourced and enhanced by the industry and professional experts based in Ireland who have extensive knowledge of the funding requirements and all aspects of the aircraft sector including leasing, brokering, corporate finance, legal and tax issues.
The Aviation Bill
In late summer 2013, the Minister for Transport, Tourism and Sport, Mr Leo Varadkar TD, referred the General Scheme of the Aviation Bill to the Joint Committee. The Aviation Bill deals with a number of very important issues relating to the wider Shannon region in the west of Ireland and the birthplace of many of the international aviation leasing businesses.
Amongst the matters considered at committee were plans for the International Aviation Services Centre (IASC) and amendments to the International Interests in Mobile Equipment Act. The Government of Ireland2 has outlined its intention to create and develop a globally recognised, dedicated and competitive IASC in the Shannon Region. The plan will focus on and profile the resources available in the Shannon Region, including human talent and capital, and anticipates the creation of up to 3,000 jobs within 5 years, by building upon the existing aviation cluster of over 40 companies in the region.
Cape Town Convention
With regard to the second topic considered at committee, Ireland was one of the first countries to ratify the Convention on International Interests in Mobile Equipment and Protocol on matters specific to Aircraft Equipment (the “Cape Town Convention” or “CTC”). However, we did not make a declaration on insolvency remedies at that time. A list of declarations made by Ireland as of 1 January 2014 is highlighted in the table.
The intention in the Aviation Bill is to provide the necessary legal mechanism to allow Ireland to adopt the Cape Town insolvency regime. Making the insolvency declaration will enhance and sustain Ireland’s current position as a leading aviation jurisdiction. It will also give international investors and participants the security and comfort required in relation to the application of the international insolvency process and regime advocated in the Convention which applies in a number of ratifying States at present.
The headings and general scheme of the Bill were published in July 2013, and it contains the new provisions in Part 6 (headings 30-34). As the headings only have been published to date, it is expected that further amendments and changes may occur prior to presentation to parliament in 2014. The general effect of the amendment is to introduce the insolvency provisions by way of amendment to the International Interests in Mobile Equipment (Cape Town Convention) Act 2005 which shall become part of domestic law, as well as international treaty law, upon making the required Declaration.
Outlook for Ireland’s Aviation Industry in 2014
The initiatives outlined have been welcomed by the industry, and we are eagerly awaiting their speedy implementation. Eamonn Brennan, Chief Executive of the Irish Aviation Authority (IAA), said: “The IAA is keen to support growth in all aspects of the Irish air transport industry and to facilitate innovative developments such as the ISE dedicated Aviation Exchange”.
By demonstrating innovation and creativity and collaborating with the industry, Ireland is well placed to maintain its position in the forefront of jurisdictions for aviation leasing, and financing into 2014 and the future.