Irish-based lessors form new representative body

Commercial aircraft lessors are used to working in multiple jurisdictions, locating personnel in and booking aircraft through ones that deliver optimum benefits to their clients. With much of the future growth in demand for aircraft expected to come from Asia, financial centres such as Singapore and Hong Kong are keen to expand their levels of activity. But Ireland, which has developed a strong aviation finance ecosystem, is keen to ensure it maintains its attractions, particularly as an HQ location for one of the most internationally mobile of businesses. One of the ways it is doing this is through the establishment of a new local trade body, Aircraft Leasing Ireland.

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Established last July as an industry trade body, Aircraft Leasing Ireland is pressing ahead with an agenda intended to help the country maintain its position as a leading player in global aircraft leasing. Its membership of 28 companies includes all the major international aircraft leasing companies and ALI is seeking to provide a unified voice for the industry - in much the same way that IATA speaks for the airlines.

But in an interview with Aviation Finance, the association’s inaugural chairman, SMBC Aviation Capital Chief Operating Officer David Swan, says it is also working with the Irish Department of Finance, legal and accountancy firms, tech companies and airlines with a view to establishing a working group to explore the ways in which emerging fintech technologies, including blockchain, can be used to benefit aviation generally in Ireland and the aircraft leasing sector in particular. It is also behind a project intended to identify and respond to the education requirements of the industry for the next two decades.

Swan says that discussions on the technology working group are already well progressed and he expects it will begin its work during the course of 2019. ‘ALI is spearheading this. We want to get people around the table to look at ways that we can match up the needs of the industry with some bright ideas from the tech sector and see just what’s possible,’ he said.

ALI discussions with the Irish Department of Finance are at a policy level, with a view to obtaining its support for the working group. 'I believe blockchain is the next internet and that it will transform the way things are done in our industry,’ Swan said. ‘There will be smart contracts between companies and digitisation is going to transform the legal industry as well, so there are definitely exciting times ahead.’

Swan is keen that ALI provide a unifying voice for the aircraft leasing industry. ‘The airline industry has IATA, but the aircraft leasing industry hasn’t had a united voice, even though it accounts for 45 per cent of the $130 -140 billion of new airplanes rolling off the production lines every year - and that’s crazy,’ he says.

His aim for his two-year term as chairman is to ensure that ALI is focussed on a clear set of objectives and that there will be continuity after that. ‘This need has been here for years,’ he says, ‘and to be honest it’s frustrated me and others. Leasing companies have never had an association that can speak with one voice and address the common needs of the industry. That was the primary driver for setting up ALI and is the primary focus.’

He cites Brazil’s ‘blacklisting’ of Ireland in September 2016 as an example of exactly why a coordinated voice is needed in advance of incidents. Although Brazil had not defined Ireland as a ‘tax haven,’ it had proposed to treat it as one, with significant potential cost consequences for Brazilian airline aircraft leases as a result.

Swan believes prompt, coordinated action at the outset would have been valuable. ‘Our simple message should immediately have been along the lines: “Ireland is not a tax haven and by doing this you’re hitting Brazilian airlines and Brazilian consumers,” supported with the hard financial numbers. That’s the kind of coordinated voice you need in those situations - but you never know you need it until it happens.’

Looking ahead, Swan says: ‘A lot of issues are going to pop up in the industry in the future and having a clear, industry-wide voice, instead of scampering around in an uncoordinated way, will be really helpful. There’s no point in trying to get yourself organised as an industry after a change in the dynamics, you need to be ahead of situations.’

As well as anticipating and responding to challenges, the association also has a role to play in better informing the various stakeholders with whom the industry interacts. ‘We’re getting requests from industry and from government about certain points on a regular basis, or about policy decisions they are making, and they want our input,’ Swan says. ‘So from an industry perspective, it means we can provide a coordinated message that blends the views of all our members.’

The aims of ALI were formalised in consultation with its founding member firms and with input from industry advisors such as Tom Woods of KPMG, Yvonne Thompson of PwC and Patrick Blaney, the former GPA CEO now Chairman of Aircraft Leasing, Finance & Law at the UCD Michael Smurfit Graduate School of Business.

Blaney’s contribution has been particularly useful in the context of the association’s second aim, which is around skills and education, he says. ‘The leaders, executives and managers of the future will come in many different shapes and sizes in terms of educational background,’ Swan says, ‘and there are many different skill sets that we need for this industry - from technical and legal to financial, sales and managerial. So we want to make sure, both for the industry and for Ireland as a centre of aircraft leasing excellence, that the flow of talent is well co-ordinated.’

To this end, ALI is working with Blaney on identifying educational offerings currently available in Ireland in consultation with the industry, government and education providers to identify needs and avoid unnecessary overlap. ‘This is a 10 or even a 20 year horizon you’re looking at,’ Swan says. ‘That’s how long it takes to put in place all the right educational faculties in different institutions, based on feedback of needs and then to have that flow coming through schools and third level colleges. But that educational piece is a core tenet and we’re delighted to have Patrick involved in guiding us on that.’

ALI’s third element is around the double taxation treaty network. ‘That really is one of the key reasons why people come to Ireland to set up their aircraft leasing headquarters’. ‘It is the breadth of the network that’s important, with over 74 double taxation agreements which specifically cover aircraft leasing. The nearest competitor location would have less than half that.”

He says this network was established with tremendous foresight at a time when the industry was in its infancy. “But once you have that you need to maintain it, you need to keep growing it and there a lot of other countries around the world with which we want to either adjust the treaty or to add to the list.”

Japan, Argentina, Indonesia, Malaysia and Australia are top of ALI’s current list of countries needing attention. Agreements are already in place with Japan and Australia, for example, but ALI sees room for improvement. With respect to Japan, for example, ALI would very much welcome a modernisation of the Ireland Japan DTA such that aircraft lease rentals are no longer caught by the definition of ‘royalties’. This would be in line with the current OECD model treaty text and many of the recent additions to the Japanese treaty network. This would then facilitate leasing directly from Ireland into Japan. Swan’s own company, for example, which is actually Japanese owned, leases into Japan currently from the UK.

The fourth tenet of ALI is around the competitive environment of Ireland. ‘This is a good place to locate for lots of different reasons, from available talent to corporate tax rates and connectivity of the airports,’ Swan says. But there is scope for further improvement. ‘We’re delighted to see the new direct connections from Dublin to Shenzhen, Beijing, Hong Kong and Seattle, the home of Boeing, but we’d like to see direct flights to Singapore and Tokyo added.’

Operating under the umbrella of IBEC, Ireland's largest pan-sector representative industry organisation, ALI will be lobbying for other improvements in the competitive environment. ‘Personal tax rates, schools and housing are all important, whether you’re Apple, SMBC or GECAS,’ Swan said. ‘These are all factors in why people move here and in whether they stay here. With a good competitive environment you can attract not just good Irish talent but persuade talent from all over the world to come here and contribute to these businesses.’