Aviation Finance and Leasing

Aircraft involving financing arrangements, have the requisite expertise to deal with complex structures, including those involving Aviation finance cross-border elements and the particular challenges they present. Clearly however, these factors are and leasing not necessarily unique to Ireland. Similarities are discernible, for instance, in the legal and regulatory systems of Malta, Singapore and the Cayman Islands. All three jurisdictions have sophisticated common law based legal systems and By Conor Keaveny, Partner Malta is also an EU member state. Location and Sean Murray, Partner, Ireland can boast its European credentials but at the same time market its Dillon Eustace, Dublin, Ireland location as bridging the divide between the USA and Europe. Once again, however, Ireland does not necessarily enjoy a monopoly in this regard. The Cayman Islands can also present itself as an ideal reland has long been regarded as a jurisdictions) but include a stable and neutral jurisdiction in circumstances where leading jurisdiction for aviation sophisticated legal system, an “onshore” transactions involve an international finance and leasing. The jurisdiction and a very favourable taxation dimension and Cayman Islands law is development of the aviation sector in regime, together with other attractive frequently selected as the governing law for IIreland can be traced back to the 1970s features, such as membership of the agreements in international transactions. when the late Dr. Tony Ryan founded European Union (EU) and the Organisation Similarly, both Malta and Singapore claim Guinness Peat Aviation (GPA) in Shannon, for Economic Co-operation and their locations offer unique advantages. County Clare. Notwithstanding its failed Development, a favourable geographic Malta points to its Mediterranean location flotation in the early 1990s, GPA played a location, and the fact it is an English- as a natural hub for European, African and pivotal role in forging Ireland’s reputation as speaking jurisdiction with a well-educated Middle Eastern business activity. Singapore a key – and arguably the pre-eminent – workforce boasting many years of offers clear advantages to those aircraft centre of activity in the global aviation experience in the industry. leasing operations seeking an Asian base, finance industry. While other jurisdictions, whether because of the increasing demand most notably Malta, Singapore and the Legal and regulatory framework for commercial aircraft in Asia or the Cayman Islands in recent years, have put The legal and regulatory framework growing strength and significance of Chinese forward cases to challenge its status, Ireland which exists in Ireland affords the requisite financial institutions. Each would claim an has continued to improve its offering in a degree of stability, sophistication and user advantage here, but Ireland can point to concerted effort, not just to retain its friendliness which, allows aviation industry such recent successes such as attracting a existing businesses, but to compete participants to establish, operate and raise very significant level of business from China, effectively in the global marketplace. capital with relative ease. including ICBC’s establishment of a major Ireland’s accomplishment is evidenced by operation in Dublin, and the decision by the the roster of leading industry players who The Irish legal system Japanese Sumitomo Mitsui Banking have chosen to operate out of Ireland, Ireland’s common law legal system is Corporation to maintain the headquarters including GE Capital Aviation Services similar to that of the United Kingdom. of SMBC Aviation Capital in Dublin after its (GECAS), Sumitomo Mitsui Banking However, as a result of its EU membership, multi-billion dollar acquisition of the aircraft Corporation (SMBC), International Lease Ireland’s legal regime is also strongly leasing operation of Royal Bank of Scotland. Finance Corporation (ILFC), Ansett influenced by EU law. This ensures certain Ireland’s success here is evidence that it is Worldwide Aviation Services (AWAS), aspects, particularly those involving financial not necessary to be based in Asia to do Avolon, Industrial and Commercial Bank of services, are in line with those of other EU business there. China Ltd. (ICBC), CIT and Orix. In all, nine member states. of the world’s ten largest aircraft leasing Ireland’s legal system allows for The Cape Town Convention companies are located in Ireland and recent numerous options in terms of structuring The Cape Town Convention on figures put the number of aircraft managed in transactions and facilitating financing across International Interests in Mobile Equipment Ireland at 3,500 or 50% of the entire global multiple jurisdictions. (the “Convention”) has formed part of Irish fleet of leased aircraft. The number of Both Irish lawyers and the Irish courts law since the enactment of the International people employed in the industry is estimated are familiar with the concept of foreign law Interests in Mobile Equipment (Cape Town at over two thousand (direct and indirect) – governed agreements and such agreements Convention) Act, 2005. Ireland was one of many, if not most of them in highly skilled and will, in most cases, be recognised and the first countries to ratify the Convention well paid jobs – and the sector contributes enforced by Irish courts. Court judgments and was the first EU member state to do so over EUR300 million in corporation tax to and arbitral awards obtained overseas will, – underlining the commitment of successive the Irish exchequer annually. again in most cases, be recognised and Irish governments to keep Ireland at the So what has contributed to Ireland’s enforced in Ireland. leading edge of the industry. phenomenal success and how do Ireland’s position as a financial centre of The International Registry of financial jurisdictions such as Malta, Singapore and excellence ensures that legal professionals, interests in aircraft established under the the Cayman Islands compare? The factors be they lawyers advising on particular Convention is physically located in Ireland; a involved are numerous (and in some transactions/issues or members of the recognition by the industry of Ireland’s instances, are shared with other judiciary adjudicating on disputes significance in this area. 14 offshoreinvestment.com Ireland’s commitment to the must be Irish incorporated and at least two- purposes, this term is not specifically defined Aitcraft Convention is further evidenced by the thirds of its directors must be Irish or EU and as such, each case must be assessed in recent government announcement that it is citizens. light of guidance issued by the Irish Revenue to amend existing insolvency legislation to It should also be noted that the Commissioners and case law. enable Ireland to fully comply with the maintenance of Irish registered aircraft may In addition, a deduction of expenses of a Convention following airline insolvencies. be carried out outside Ireland, provided that revenue nature incurred “wholly and Both Malta and Singapore are also certain requirements mandated by the IAA exclusively” for the purpose of the trade signatories to the Convention. The Cayman are met, including that maintenance be applies to revenues generated by the trade. Islands as a British Overseas Territory carried out in accordance with an approved In addition, capital allowances (ie tax cannot become a party to the Convention in aircraft maintenance programme. depreciation) are generally available to a its own right, (the United Kingdom enacted trading lessor at an annual rate of 12.5% in legislation extending the Convention to the Access to capital markets respect of capital expenditure incurred on Cayman Islands) but it has however The combined effect of the reduced the acquisition of an aircraft for the leasing introduced comparable domestic legislation. availability of traditional bank financing (due trade (subject to certain conditions, They cannot however, claim to occupy the to more stringent capital requirements including the burden of wear and tear central position in relation to the under Basel III and the restrictive lending remaining with the lessor). Furthermore, the Convention that Ireland can boast and guidelines prescribed by regulatory Finance Act 2013 provided for the which plays such an important role in authorities), the higher cost of bank introduction of accelerated tax depreciation aircraft industry related transactions. financing, the more onerous requirements for the construction of hangar and other of bank lenders and the increased demand ancillary aviation facilities with a view to No licencing or authorisation by “non-traditional” financiers such as enhancing and expanding Ireland’s current requirement private equity houses and the investment aviation industry offering, in particular into Aviation leasing operations often utilise funds industry for investment in safe, high the maintenance, repair or overhaul (MRO) Irish incorporated private limited liability quality assets means capital markets have space. companies, as they may be incorporated become and will continue to offer a vital Non-trading company relatively quickly, easily and inexpensively form of financing for the aircraft industry. Where the lessor’s activities do not and are not subject to an excessively Accordingly, the importance of Ireland’s constitute a “trade” for Irish taxation burdensome or costly compliance regime. reputation in this area, which has developed purposes, a taxation

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