Aircraft leasing: flying into the future
Ireland is flying high when it comes to aircraft leasing - but we can't take future success for granted, writes Gavin McLoughlin of the Irish Independent, who met leaders of the multibillion-euro industry at UCD Michael Smurfit Graduate Business School.
One by one they strode confidently into the resplendence of the Laurence Crowley Boardroom at UCD's Smurfit Business School. Global leaders in the competitive world of aviation finance - almost all graduates of Tony Ryan's school of high fliers - they gathered to launch Europe's first Masters in Aviation Finance aimed at creating the next generation of aviation leaders.
But first, they sat down with the Sunday Independent for a round-table discussion about the state of the industry in Ireland.
Norm Liu is here. He's the chairman of GE Capital Aviation Services, the top player in the sector as a whole. So too is Patrick Blaney, formerly a senior executive at Guinness Peat Aviation (GPA), the sire of aviation leasing in Ireland.
Aengus Kelly, the boss of Aercap, which rose from the ashes of GPA, is here and he's sitting beside Peter Barrett, who runs SMBC Aviation Capital, which is owned by a massive Japanese bank.
Near the end of the table is Andy Cronin, chief financial officer of Avolon, which had the largest flotation of any Irish company on the New York Stock Exchange, before being bought by Bohai Leasing, majority-owned by the Chinese conglomerate HNA Group. Beside him, Tom Woods, the head of aviation finance and leasing at KPMG Ireland, who is a top advisor to aviation companies.
According to the IDA, there are over 1,200 people employed in the industry in Ireland, with $120bn (€106bn) of aviation finance assets managed from here: an Irish-leased aircraft takes off every two seconds. It's a runaway success story, with the unintended consequence of distorting Ireland's GDP upwards because of the manner in which aircraft - that may never touch Irish soil - are measured in the national accounts.
Many of the men in this room cut their teeth in GPA. They have known each other a long time. The dynamic is interesting to observe. Aengus Kelly is the most voluble, the most passionate speaker. He thinks Ireland isn't making itself attractive enough to international corporate decision makers.
"There's no reason why, in any part of the Irish economy, we can't become world leaders. Ireland didn't have any business in the late 1980s being the biggest customer in the world of Boeing, but it continued to hold that position and it still continues to do so. And as we look forward over the coming decades, it's very important that we don't take success for granted, that we look at what has actually contributed to this success and what's required to push to continue this success.
"There are other jurisdictions out there competing for this business," he adds. "When we moved Aercap back here from the Netherlands, there was competition from two other jurisdictions for the business to be located. We ended up coming here.
"With the tax advantages, it's not the absolute headline rate. Being sophisticated with tax treaties around the world is very important - you can't take that for granted.
"We need to continue to move with developments on the fiscal side around the world. You have to make sure that the 12.5pc stays, that's a given. And then, very importantly, and particularly with the way international tax is going today, it doesn't really matter where you pretend to be or where you say you are, it's where you physically are that determines where profits are taxed.
"All jobs are great, but what's vital for the whole economy is that we realise the 12.5pc is not as good as it used to be. It must now be supplemented by getting decision-makers into the country.
"Take Google as an example. You don't want the guy who is just told to send out an invoice. You want the multi-millionaire who is making the decision as to how to design the website. They are the guys you need to attract and so as we move forward for this industry, for other industries, it's vital that you have an environment that is very welcoming. They're not coming for the weather, they're not coming for the craic; you need to make it competitive for those decision-makers as well."
Norm Liu and Patrick Blaney are the elder statesmen at the table. As the only non-Irishman, Singapore-based Liu probably looks at this country with the clearest eye. He makes his contributions in a laid-back fashion.
"I think for attracting global talent, lack of international schools is difficult. A deep housing base for expats, that's another issue. I think the infrastructure's pretty good. But I think with the things like schooling, housing, it's been tough... an American school would be nice."
"Norm's point is very important," says Kelly. "We've already moved 120 from Los Angeles and from Amsterdam and we'll move another 100 or so. And the biggest problem is no one knows what the Leaving Cert is and no one cares. You've got to remember, when you're selling this country globally, you've got to make it appeal to global talent.
"You need a baccalaureat system. In Amsterdam, there are three international schools and here's a statistic: the average fee for those international schools is €18,000 per child.
"There's about 1,000 kids in each school and they're full and the employers pay them. So the employers don't pay this money for kids who are sons or daughters of someone who isn't making big bucks.
"You've got to create the ecosystem that's friendly... when someone has children, they want to know their children can seamlessly move from one education system to another."Another issue for the sector is competing for jobs with Hong Kong and Singapore. Liu says Hong Kong is trying really hard and will at some stage get the tax network it needs to compete.
But Andy Cronin, who is crisp in his contributions, says Eastern companies want to come here.
"Most of the Eastern-owned companies have actually established leasing companies and presences here in Dublin. Look at our business, it was sold to HNA Group. SMBC is owned by a Japanese bank. Those businesses are choosing to have the headquarters of their aircraft leasing businesses in Dublin. ICBC (Industrial and Commercial Bank of China), China Development Bank, all the same.
"So while Asian investors and Eastern investors are for sure growing their share in the space, they are largely - not as a blanket rule, but largely - doing it through Irish presences.
"And I think that is one of the key differences - they are actually moving people into Dublin.
"The two big issues we've found bringing people in are: No 1, personal tax rates for expats, we are very mobile, people can work anywhere in the world, the personal tax rate in Hong Kong or Singapore is very different. So that is an issue.
"The second-order issues are the education, the infrastructure, the housing environment.
We can't control the weather. But tax is certainly the biggest, single, controllable factor."
Peter Barrett is upbeat, not too worried about cheap oil, which might disincentivise airlines to take in the newer, more fuel-efficient planes.
"On balance, lower oil is good for our customers and if it's good for our customers, it's good for us, " he says.
"To give credit to the authorities in successive governments and to give credit where credit is due, I think there has been a great awareness and focus on this industry. But it's very much as Aengus says, it's constant gardening and it's the accumulation of many things.
"Even something basic like infrastructure - for example, the airport connectivity, the Port Tunnel. When I started in this business in Dublin, people were always late for meetings. It would take them an hour and-a-half to get into the city for a meeting. Now people get in and out, it's much easier. So everything adds up to make this a good place to do business.
"There is a lot of indigenous talent. Myself and Aengus and others, we were very fortunate to find ourselves in the school of Guinness Peat Aviation.
"It's very important to make sure that we have that next generation: for me, that's personally very important, that this industry feels very embedded here."
Time's up, and the men head downstairs to meet the UCD students who could shortly end up working for them.