Peter Bellew is no stranger to changes of employers with big consequences. When he left his job as Ryanair’s chief operations officer for a similar position at rival low-cost airline Easyjet in 2019, his ex-boss Michael O’Leary dragged him to court over exclusivity clauses. 

One year earlier, Bellew was still very much in charge of Ryanair’s inner workings. On September 12, 2018, he wrote to all pilots working for the Irish airline in Poland. His letter, seen by The Currency, invited the pilots to apply for new contracts with Warsaw Aviation to fly for Ryanair Sun – two recently incorporated Polish subsidiaries of the group. The offer to 240 pilots, 480 inflight crews and 35 engineers was for “a local Polish contract, local Polish taxes and Polish social security”. The application deadline fell 12 days later.

On October 1, 2018 Bellew wrote to all Polish-based pilots again, with a more pointed message for the minority who had yet to sign up. His second letter warned that Irish-based Ryanair would exit its Polish bases by the end of that year and its aircraft would be replaced by Polish-registered ones belonging to Ryanair Sun. The remaining pilots “will find the following information helpful,” Bellew suggested: they could transfer to the new Polish contracts, move to another base in Romania or Morocco, or “we will have no jobs for them in Poland”.

The following month, Ryanair struck 12 Boeing 737s off the Irish aircraft register and sold them to Ryanair Sun, which registered them in Poland instead. A mass exodus had just started.

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To understand the steady trickle of business out of Ryanair’s Irish books for more than two years, we need to go back to preparations for Budget 2019. At the time, Department of Finance officials were aware of an issue with the personal taxation of crews flying for three airlines headquartered in Ireland with operational bases across Europe: Ryanair, Cityjet and Norwegian Air. “Of these, Ryanair is the most significantly impacted because of its size. In recent months, the company has been particularly active in raising its concerns both directly to you and to the Department at official level,” they noted in a March 2018 memo for Minister Paschal Donohoe. The document was later released under freedom of information law to the transparency website TheStory.ie.

The tax intricacies caused by section 127B of the tax code were previously covered by The Currency in relation to Cityjet. The upshot is that crews often paid income tax and social security contributions twice – in their country of residence, as per local legislation, and in Ireland, where the law says that people working aboard Irish-registered aircraft are liable. Even though many could claim relief against double taxation later, they were still out of pocket for long periods. Evolving European legislation also meant that “many of these employees are paying both the higher (local) social security rate and the higher (Irish) income tax rate, resulting in relatively high marginal rates of tax as compared to aircrew employed by local operators in the countries concerned”.

Airlines supported this cost through PAYE payments and Ryanair submitted that the tax anomaly cost it €35 million each year.

“There are good reasons why the airlines may be slow to move large elements of management and operation outside Ireland.”

2018 Department of Finance memo

Officials recommended against a budget change to relieve airlines of this cost. “There are good reasons why the airlines may be slow to move large elements of management and operation outside Ireland. These include higher rates of corporation tax in other countries, the regulatory environment and other factors,” they told the minister. “In the case of Ryanair, those countries with the largest number of aircrew have corporation tax rate at generally double the Irish or more.” The following months would reveal that they had completely overlooked the rise of Malta as a new offshore base of airlines within the EU.

Donohoe agreed to leave legislation unchanged, despite acknowledging the “risk of operation movement out of Ireland with a separate tax and economic loss”. The budget went through with the rules governing the taxation of air crews unchanged. 

As soon as it became clear that Ryanair’s lobbying had failed, the airline launched a High Court action against the State on November 23, 2018. The case is still ongoing. Its chief financial officer (and director of multiple overseas subsidiaries) Neil Sorahan told the court that “Ryanair would prefer not to have to obtain multiple AOCs and break up its central management and control in Ireland, which has been one of the bases for its successful operations to date. The impact [of] s.127B may, however, require this to happen.”

This was, in fact, already happening. We can track the implementation of this plan B through aircraft registration movements.

Following the transfer of 12 Boeings to Poland in November 2018, four more followed suit in December. During those two months, the company also registered its last five new aircraft to date in this country, stopping what had until then been a steady stream of arrivals from the Boeing assembly line.

A few more Ryanair airliners changed their registration to Poland in the first half of 2019, then the exodus accelerated in much larger proportions from June that year – this time to Malta. With full-year figures now available to the end of 2020, we now know that the Irish airline sold 170 Boeings abroad (48 to Poland, 120 to Malta and one to the UK, where Ryanair had established a subsidiary airline in case of Brexit difficulties) between November 2018 and May 2020. 

Adding a small number of older aircraft sold off during the same 19 months, Ryanair’s Irish-registered fleet shrank from 451 to 273. This accounted for 178 of the 203 aircraft drop in numbers on the national register during the period. Other contributors included Norwegian, who moved planes to Scandinavia, and Cityjet, which was retrenching.

In a recent interview with The Currency, Cityjet chief executive Pat Byrne, said Ryanair was “moving out” because of the crews’ double taxation issue. Just like Ryanair, Cityjet is challenging the tax rule before the courts. “They’re all moving to Malta and Poland because they’re more benign jurisdictions,” Byrne said. “Malta and Poland are the beneficiaries of a lot of Ryanair’s business now. But nobody cares. Nobody in government cares,” he added, drawing a parallel between the Department of Finance’s handling of the tax complaints and the State’s broader response to the aviation crisis caused by Covid-19.

Byrne argues this will also hit the Irish Aviation Authority’s income stream. While this is true of the business lost to new aircraft being registered elsewhere, The Currency’s calculations estimate that cuts to Ryanair’s Irish fleet have caused the loss of a bulk discount available to larger aircraft owners, leaving existing annual airworthiness fees unchanged at around €3 million. The Irish Aviation Authority declined to comment.

*****

Asked about the reasons and the benefits associated with the re-registration of so many Ryanair aircraft outside Ireland, a company spokeswoman gave the following statement: “In 2019 Ryanair moved to a group structure, Ryanair Holdings Plc, which delivers significant cost and operating efficiencies for its five airline subsidiaries: Ryanair DAC (Ireland), Buzz (Poland), Ryanair UK, Lauda Europe (Malta) and Malta Air (Malta).” Buzz is the trading name of the group’s Polish subsidiary Ryanair Sun.

While the spokeswoman’s reply has the benefit of conciseness, it does not quite give the full picture – yet it points us in the right direction. The former Irish aircraft re-registered overseas by Ryanair now form the entire fleets of Buzz and Malta Air. The Polish “expansion” touted by Bellew in his 2018 calls for crews to join the group’s new local structure has so far limited itself to a transfer of existing Irish-registered operations.

The Boeings now flying for Buzz and Malta Air have kept the Ryanair livery, with some stickers added to inform passengers of their new owners’ names. And they have continued to fly the same routes across continental Europe. A glance at the departure board for a Ryanair base there, such as Bergamo in Italy, shows that many flights under the Irish airline’s FR call sign are now “operated by” Buzz or Malta Air. 

When Ryanair emerges from the pandemic’s travel restrictions, it will increasingly rely on them to operate flights under so-called wet-lease arrangements within the group. In effect, Ryanair’s 2019 group restructuring can be best described as a giant intercompany sale-and-leaseback. 

Buzz and Malta Air – new kids on the Ryanair block

In 2003, Ryanair acquired Buzz, a low-fares airline owned by KLM and flying out of London Stansted airport. One year later, its fleet and brand disappeared and Ryanair deployed its own planes on its routes. No one heard of Buzz again for the next 15 years.

In 2017, the group formed a new subsidiary in Poland called Ryanair Sun. The following year, it obtained an air operator certificate and started to fly Polish holidaymakers to the Mediterranean with a handful of aircraft, including one transferred from Ryanair’s Irish fleet. But in March 2019, the plan changed: after boosting its capacity with more Irish Boeings, Ryanair decided to revive the Buzz brand and to open a new marketing front in Poland. Since that date, Ryanair has transferred another 30 Irish planes to Buzz.

Meanwhile in Malta, the government was busy promoting the Mediterranean island nation as a base for European airlines. The policy started in October 2010 with the adoption of new legislation under the Aircraft Registration Act, which introduces flexibility for plane owners and their financial backers. That same month, Malta became a state party to the Cape Town Convention, which facilitates the registration of security over aircraft across borders and their repossession if things go wrong. 

In addition to this legal overhaul, Malta offers “attractive direct and indirect tax opportunities for leasing of aircraft, including tax depreciation, and partial shareholder tax refunds,” according to KPMG. Like other global accounting firms, its Malta office facilitates aircraft registration for international clients. Competitor PwC, in its publication Plotting your flight plan: Aviation in Malta, describes the country as “a tax-efficient base for international business operations, providing interesting tax planning opportunities upon re-domiciliation to Malta of foreign companies conducting international aviation operations.”

One of these is a refund scheme when Maltese companies pay dividends to overseas parents: most of the local 35 per cent corporate tax rate is cancelled at that point, leaving just 5 per cent effectively paid on profits made in the country. 

In January 2018, Malta’s government went one step further in its efforts to promote local aviation – it established a new state-owned company with its own air operator certificate (AOC), the crucial licence any airline requires to fly internationally. For the first few months, Malta Air Travel did all its business with the country’s historic flag carrier Air Malta, mostly buying and leasing landing rights to help its international expansion.

Then on June 11, 2019, Ryanair, which until then had six Irish-registered aircraft and 200 crew based in the country, announced that it was purchasing one-year-old Malta Air. The official photograph shows group chief executive Michael O’Leary, famous for his career-long ranting against government intervention in aviation, sign the agreement with Maltese Minister for Tourism Konrad Mizzi as Prime Minister Joseph Muscat looks over their shoulder. The company’s articles of association state that the Maltese government holds one B share giving it special rights including that “to veto any proposed resolution to change the name of the Company”. 

The main attraction for Ryanair jumped out of the press release headline: “Ryanair to invest in a Malta AOC through purchase of Malta Air.”

In the following months, as Mizzi resigned amid the government scandal surrounding the murder of Maltese anti-corruption journalist Daphne Caruana Galizia, Ryanair turned Malta Air into the world’s fastest-growing airline. In one year, it transferred 120 Irish Boeings to its new subsidiary. 

The senior executive dispatched by O’Leary to oversee the establishment of Malta Air was Diarmuid Ó Conghaile. Once this was complete, Ó Conghaile moved back to Ireland to take up the position of Aviation Regulator at the Irish Aviation Authority on January 1 this year. He will become chief executive of the authority after its merger with the Commission for Aviation Regulation, which oversees passenger rights, is complete. His first major decision in January was to approve an EU-wide decision to lift the ban on Boeing’s 737 MAX after the manufacturer proposed remedies following two fatal crashes. Ryanair has ordered 210 737 MAX, described by O’Leary as a “game-changer”, and delayed deliveries have cost the airline millions.

Last year, Ryanair also shifted the entire business of Laudamotion – an Austrian subsidiary acquired in 2018 – to Malta. Its 29 Airbus aircraft are now registered to Lauda Europe, a new group subsidiary with its own Maltese AOC, while the original Austrian company purchased from the late Formula One racer Niki Lauda was set to disappear. Ryanair blamed an Austrian requirement for crews to pay tax locally, similar to the Irish dispute. It was, however, also embroiled in a bitter dispute with Austrian trade unions over its takeover of the company at the time.

With aircraft registrations came crews. By March 2019, Buzz already claimed an 880-strong workforce.

The group was also clear from the day it acquired Malta Air that its objective was to “move Ryanair-based aircraft from France, Italy and Germany onto the Malta AOC, which will allow these crews to pay their income taxes locally in France, Italy and Germany instead of Ireland where they are currently required to pay income taxes under Ryanair’s Irish AOC.”

Shortly afterwards, senior managers began to issue staff communications similar to those signed by Peter Bellew in Poland one year earlier. In June 2019, pilots based in Cologne, Germany saw their employment contracts move to Malta Air. The group briefly considered keeping Cologne-based aircraft on the Irish register if it couldn’t find agreement on this with the local trade union, but this went through after it warned that pilots would lose the benefit of single personal taxation in Germany.

Information released last year by Ryanair and the German pilots’ union to lobby for eligibility to the German Covid-19 income support scheme shows that over 1,000 pilots and cabin crew at the group’s German bases are now employed by Malta Air.

In October 2019, Ryanair advised Italian-based pilots of “the cessation of Ryanair DAC operations in Italy” two weeks later, with all Italian bases transferring to Malta Air. Their new employer promised “full Italian income taxation and social insurance deductions delivering optimised net earnings through a monthly Italian payroll”.

In a submission to the High Court, Sorahan used the Italian example as follows: “Under local Italian taxation, an employed captain and first officer earning gross salaries of €150,000 and €75,000 respectively would have a net take-home pay of approximately €110,000 and €60,000 respectively. In comparison, a captain and a first officer on the same gross salaries and subject to s.127B would have net take-home pay of €79,000 and €47,000, which is approximately €32,000 and €13,000 lower, respectively, than pilots on equivalent salaries but subject to local tax only.” Court submissions also show that in August 2018, Ryanair had committed to moving Italian-based crews to local taxation arrangements only, even if the outcome of Budget 2019 in Ireland meant transferring them to an AOC in a different country.

In France, Ryanair had only recently opened permanent bases at the end of 2018 in Bordeaux and Marseilles, registering around 250 workers with the local authorities, according to French civil aviation project manager Marc Ferrand. He told The Currency their employer later changed to Malta Air, apparently for tax reasons. “It makes no change for us in France, but I suppose it does for the Irish authorities,” he added. His focus is now to ensure that, as they remain for the long term, French bases respect local employment law on aspects such as training obligations and the election of workers’ representatives.

Ferrand also clarified that safety rules are set at the EU level and aircraft or crews registered in Malta or Poland are subject to the same checks as they would be in France.

 “To remain in their bases, pilots had to end their current contracts and become self-employed.”

Sarah Kamer, Eurocockpit

Unions, however, have been critical of the changes. According to Sarah Kamer, industrial policy advisor at the EU-wide European Cockpit Association, all pilots based in France, Germany, Italy and Malta have now moved from Ryanair DAC to Malta Air. “This is another cost-saving measure: Irish taxation was disadvantageous to crews working and living in some countries outside Ireland. A way for Ryanair to meet the pilots’ demands at a reasonable cost was to register some of the planes in another country,” she told The Currency.

“The Ryanair DAC bases in eastern Europe were moved to Buzz,” she added. “To remain in their bases, pilots had to end their current contracts and become self-employed. They have contracts with Warsaw Aviation.”

The extent of self-employment among Ryanair pilots was highlighted in a 2019 study by the economics consultancy Ricardo for the European Commission. A survey of 5,719 pilots across Europe found that fewer than one in ten was self-employed. Most of these worked for Ryanair, where the rate of pilot self-employment was 27 per cent. 

The study added that according to Ryanair, all incoming pilots since April 2018 were offered employment contracts and hundreds of existing contractors had the option of switching to direct employment contracts, but “many pilots prefer the flexibility of contracting”.

Ricardo asked self-employed pilots whether they had the option of working for another airline, or complete flexibility to decide when and how many hours they fly. Ryanair pilots said they hadn’t. The report describes this situation as “bogus self-employment”.

The extension of this contractor model on the occasion of the transfer of Ryanair’s eastern European business to Buzz, while not unique to the Irish-owned carrier, worries the European Cockpit Association. “We consider pilot self-employment as bogus, and it has been an issue since the company started,” Eurocockpit’s deputy secretary general and legal advisor Ignacio Plaza told The Currency. “Ryanair is one of the most visible but all low-cost companies are trying to cut labour costs. Airlines are now competing on labour costs, not on the product that they sell. The market is not functioning properly.”

*****

In March 2018, as Department of Finance officials were advising their minister that “airlines may be slow to move large elements of management and operation outside Ireland,” Ryanair re-registered its first Irish plane in Poland. Since then, over one third of its fleet and the crews working on these aircraft have left Ireland, along with the associated administrative support, finance, payroll and human resources functions.

The question now is, does it stop here?

As the High Court heard arguments in the tax dispute between Ryanair and the State in late February and early March 2019, the airline’s counsel Martin Hayden made headlines when he said: “Ryanair is left with no alternative, where if it cannot achieve some momentum in having a conclusion on that point, it will not be an Irish-registered airline by the end of next month.”

The threat of a headquarter move focused the State’s attention in its defence, with counsel Noel Travers replying that if Ryanair wished to move out of Ireland, “no one is going to stop them” – but the airline would “lose all of the other advantages that go with being a company operating from Ireland, not just in relation to corporation tax, which is considerably lower, as the Court will be aware, in this State than it is in most other member states of the European Union, but also other advantages in relation to regulatory regimes”.

We now know that Ryanair’s plan was not to decamp from Ireland entirely, but to relocate select pieces of its business to the most favourable jurisdictions within its footprint. Exchanges before the High Court show that, one year on from the initial Department of Finance memo and as the Polish part of the plan was well under way, the Government and Revenue still didn’t see it coming. Three months later, Ryanair would step it up in Malta.

While The Currency is not aware of any recent communications to staff regarding further transfers of employment contracts, pictures posted online by aviation enthusiasts who follow test flights at the Boeing factory in Seattle show that the next deliveries of 787-MAX aircraft ordered by Ryanair will be made directly onto the Polish and Maltese registers under the colours of Buzz and Malta Air. As the group resumes its expansion post-pandemic, this will largely happen outside Ireland.

Ryanair also has plans to start moving ticket sales out of Ireland. Until now, passengers have always made bookings with Ryanair DAC, even though their flights in continental Europe have increasingly been operated by aircraft and crews on wet leases from Buzz or Malta Air. When re-launching the Buzz brand two years ago, however, Ryanair announced: “Buzz will launch its own website and app in autumn 2019, where Polish customers will be able to book all Ryanair flights, including these operated by Buzz.” The subsidiary does indeed have a new bilingual English-Polish website, but no booking engine as yet. 

The 2018 memo prepared for Paschal Donohoe suggested that, while removing the burden of personal taxation on Irish-employed, overseas-based crews would cost the Exchequer €40 million, “there would be no cost impact on the corporation tax side”. Instead, Ryanair’s offshoring of its European business may hit both.

In fiscal year 2018, the Ryanair group paid a total effective corporate tax rate of 10 per cent. This fell to 6.7 per cent the following year, with losses posted by Lauda in Austria a reported factor. Then in the year ending on March 31, 2020, during which the bulk of Ryanair’s fleet emigration occurred, its effective tax rate fell to 3.2 per cent. This “includes the recognition of deferred tax assets in respect of property, plant and equipment and net operating losses incurred in other jurisdictions,” its consolidated accounts state.

The Ryanair spokeswoman added: “Since 2020 was Malta Air’s first full year of operation, it had no impact on the group tax rate in FY19 or FY20. The reason for the fall in the Group effective tax rate in FY19 and FY20 was the start-up losses in Laudamotion in those two years (corp tax rates are 25 per cent in Austria). These tax losses are the deferred tax asset referred to in the Group accounts.”

This summer’s annual results for fiscal year 2021, when the business was grounded by the pandemic, will again give an incomplete picture of the group reorganisation’s tax impact. 

Whatever overall corporate tax the Ryanair group pays into the future, Ireland will now have to share with other countries. In Malta, foreign-owned companies are liable to pay 5 per cent. When a Maltese airline pays dividends to its Irish parent, a Revenue spokeswoman told The Currency that “in accordance with this shared taxing right, Ireland will provide a credit for any tax paid in Malta” according to the tax treaty between the two countries.

Any Polish tax on profits generated by Buzz’s comparatively smaller fleet are likely to generate similar credits against Ryanair’s Irish corporate tax bill.