The logistics behind financing aircraft in Ireland
Article 4 minute read

The logistics behind financing aircraft in Ireland

09 January 2019

In order to even be in the aircraft financing game, you need to understand the tax treaties that exist where you’re doing business, and if they’re compatible with this number one location for aircraft leasing.

Before we examine the ins and outs of air finance in Ireland, it’s important to understand why the Emerald Isle has such a high industry pedigree. It certainly hasn’t been left to luck. 

Here’s a quick backgrounder.

The aircraft industry ‘cluster effect’ in Ireland began in the late 1970s with the establishment of Guinness Peat Aviation. Successive Irish governments worked hard to enhance and grow the local aviation industry. The approach taken in tax treaty negotiations over the past 50 years is one that ensures the payment of aircraft leases/rentals will maintain a very favourable withholding tax over other jurisdictions. Even an economic powerhouse such as China, which is currently trying to build its air finance hub, will struggle to match the depth of treaties for aircraft lessors that Ireland has built up over decades. Ireland has kept its eye on the prize of supporting its local aviation industry and retaining its number one position.

So what’s key to know when it comes to financing aircraft in Ireland?

  • Can you be in the game?

Your jurisdiction's tax structuring needs to be compatible in order to set up here. For example, if you’re leasing aircraft into Indonesia, you would typically choose to set up in France because Ireland doesn’t have a tax treaty with Indonesia. Similarly, Ireland doesn’t have an optimal agreement with Australia, so it’s common to lease aircraft into that market through a UK treaty instead. The multi-stop approach is also proving increasingly popular.

  • You can choose to lease or buy

Ireland accommodates both air finance approaches, and the choice typically comes down to the airline itself, and its balance sheet.

A fast-growing airline opening up new routes may need to get its hands on a large number of aircraft quickly. And it probably doesn’t have the balance sheet to support the capital outlay, so it will go to the leasing market. The other reason an airline might look to lease via the capital markets, is if its credit rating isn’t good enough to obtain extra credit from the banks (we’ve seen a number airlines file for bankruptcy just in the past two years). A leasing company has the experience and knowledge to confidently take on a higher credit risk because it’s an asset-backed security, and it knows how to make sure the asset is correctly managed over the course of its life. If the leasing company needs to take back the aircraft, it knows how to do so swiftly, and redeploy it equally as swiftly to another airline.

So, why buy an aircraft then? The key consideration as an airline, is whether you’d be able to get the capital markets or the banks to provide cheaper funding to you over the rates a leasing company will charge.

  • Through Ireland, your financing model will be optimal

This is regardless of the financing model you choose. From a purely Irish point of view, we’ve seen companies come in with bank debt, through fund structures, unsecured and secured debt. We’ve seen virtually every model possible, and they’re structured to be quite efficient regardless.

  • You’ll find experienced staff

Ireland’s long history in aviation finance means we have plenty of senior staff available. They’ve gone through both economic recessions and boom cycles over the decades. It means they understand what happens within the industry in a stressed environment, and they know how to manage that stress in a way that means your leasing platform won’t lose money.

You have more than just the personnel-clustering effect in Ireland; all the complimentary infrastructure that you need is here too. From Irish law and accounting firms to corporate service providers such as ourselves. We have a large aviation practice and are able to support the industry in a very strong manner.

  • There are no political surprises

Both politically and legally, Ireland is very stable. We adopted the Cape Town Convention in 2017, and both lessors and buyers can be confident that a change of government won’t result in a loss of their asset. Ireland also enables you to very freely move your asset around the world.

  • We can show you where to begin

If you’re a brand new lessor setting up in Ireland, you’re going to need to make sure that your tax advice is solid, and that you can get your platform up and running efficiently. The experienced team at TMF Ireland can provide you with business scalability and introductions to tax, legal and other industry advisors.

We’re here to support you from day one, with capital markets and aviation finance services that are tailored to meet your requirements. Our experienced team can help you with structure setup, purchasing of assets and the subsequent release to airlines.

We also provide essential compliance services in ‘phase two’ of your operations - making sure you understand the nuances of the lease documentation and that your tax obligations are properly managed.

Need more information? Contact us today.

Learn how we help our global clients to adapt to local rules and regulations.

Written by

Kevin Butler

Head of Capital Markets, International and EMEA

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