Aircraft leasing propels massive benefits for economy
Monday July 16 2007
WHILE aviation-related headlines in Ireland are dominated by airlines, such as Aer Lingus and Ryanair, the sector also contains another potent and fast-growing segment - aircraft financing.
This sector is mushrooming at present, and in the process creates a number of broader economic benefits for the Irish economy.
Historically, Ireland does not have a legacy of aircraft manufacturing or engineering skills, platforms that created thousands of jobs in mainstream economies across Europe.
However, a different and arguably more dynamic skill-set has grown in Ireland around the multi-billion dollar business of financing aviation on a worldwide basis.
Much of this skills base can be traced back to the emergence of GPA in the 1980s as the world's largest aircraft leasing company.
Indeed, a leading industry ceo recently said the entire global aircraft leasing industry can be traced back to two men - the son of a Hungarian emigré who established ILFC in the US, and Tony Ryan's creation of GPA.
Although GPA collapsed in the early 1990s, it had gathered some of the brightest brains in the sector together, and that DNA can now be spotted in a remarkable Ireland-focused industry revival.
To put this in context, consider that the entire Aer Lingus fleet is composed of 41 airplanes. We estimate the aircraft leasing companies that are based in Ireland are managing a combined fleet of 1,600 across global markets.
That fleet, valued at over $100bn, is set to grow sharply over the next decade, propelled by large-scale orders with both Boeing and Airbus.
It is also expanding because airlines are increasingly reliant on leasing as their chosen means of fleet acquisition, instead of outright purchase.
At present, over 30pc of the global commercial aircraft fleet is leased, compared with just 5pc in 1990.
These leased aircraft are managed by a group of growing companies whose management teams are peppered with Irish executives.
GECAS, a subsidiary of the US transnational GE, runs its global fleet from Ireland. The staff finance, administer and trade their fleet with airlines across the world.
A 'top five' leasing company, RBS Aviation, has recently expanded its operation in Ireland too. Others with bases here include AWAS, CIT, Genesis and AerCap. And more are coming.
These companies may have a low profile, but their impact on our economy is considerable. Aside from the multi-billion revenues that flow through Ireland, their tax contribution is meaningful.
More importantly, a major banking and legal services sector has evolved in Ireland which is developing skill sets that have global recognition.
All this points to a bright future as long as Ireland maintains a pro-investment and business culture that actively nurtures these type of global service industries.
The key elements of that are:
(1) Low corporate and personal tax rates
(2) Deeply enabled telecommunication services
(3) A hyper efficient air travel network
(4) A regulatory framework with worldwide relevance and
(5) Third level focus points for aviation financing, trade and legal skills.
For those readers interested in owning shares in this sector, recent changes make that possible. Since summer 2006 three of the leasing companies have floated on the stockmarket - AirCastle, AerCap and Genesis.
Each is quoted in New York, and one of them, Genesis, is headquartered in Shannon. Since its IPO last December, the shares are up 14pc while generating an annual dividend yield of over 5pc.
Joe Gill is a specialist on aviation for Goodbody Stockbrokers.
- Joe Gill
