The foundation of the aviation leasing industry can be traced back to the establishment of Guinness Peat Aviation (GPA) in Shannon in 1975 by Tony Ryan. Fuelled by a low tax regime and an intricate web of double tax agreements, the industry has flourished, and Ireland has become the global leader in aviation finance.

The total assets of the world’s top 22 aviation leasing firms come to $253 billion, according to data compiled by Airfinance for its 2021 report. Of that, some $163 billion is controlled by companies operating out of Ireland. Of the 22 companies listed by Airfinance, some 13 owned their planes through Irish companies.

AerCap is located in Dublin. Last year, it completed a €25 billion takeover of rival GE Capital Aviation Services (GECAS), a transaction that ranked as the biggest in aviation leasing history. Last week, SMBC Aviation Capital said it was buying rival Goshawk in a €1.5 billion deal that will create a €36 billion aviation finance business. SMBC and Goshawk are both Dublin-based. So too is Avolon, which owns or manages 592 aircraft and has 142 airline customers in 61 countries. The list goes on.

So, we know the planes, and the companies that own them, are housed in Ireland. But just how much real economic activity is the aviation leasing sector generating here? How much tax does the sector pay, and how does this number compare to other financial structures prevalent in the IFSC?

New data compiled by the Revenue Commissioners provides some answers. The Irish tax authority has assessed annual returns made by companies operating in the aircraft leasing sector over the three-year period between 2019 and 2021.

The first thing the authority examined was the number of companies. In 2019, there were 483 aircraft leasing companies in Ireland, and this figure increased to 515 in 2020 before dropping back to 420 last year. The numbers are big, but they are also misleading. Most lessors set up an individual special purpose vehicle (SPV) to manage a number of planes. It is tax efficient and simplifies contracts with the airlines. But it nonetheless highlights the huge volume of aircraft housed in Ireland.

Revenue then sought to assess how much corporation tax the companies it identified were paying. It did this by two metrics - gross corporation tax receipts and net corporation tax receipts. There is little difference between the two figures but, for the purpose of this article, I am focusing on net receipts.

In 2019, aircraft leasing companies coughed up corporation tax of €147.2 million. This equated to 1.3 per cent of the overall corporation tax take. This figure fell in 2020 and then again in 2021 when the sector was heavily impacted by widespread Covid-19 travel restrictions.

In 2020, for example, corporation tax receipts from the sector fell to €105.5 million, or 0.9 per cent of the overall corporation tax take. It fell further in 2021 to just €46 million, or 0.3 per cent of corporation tax receipts, according to the analysis by Revenue.

The outlook for 2022 remains uncertain, with sanctions imposed on Russia in the wake of its invasion of Ukraine triggering issues for a number of major lessors. Irish-owned aircraft leased to Russian airlines are worth more than $4 billion, according to estimates by aviation consultancy Cirium, with Avolon stating recently that it had managed to recover four of 14 jets leased to carriers in Russia. Aercap, meanwhile, lost almost €2.3 billion on planes and equipment leased to Russia, according to its most recent market update.

The real benefit to the Irish exchequer was not corporation tax but rather employee taxes. The sector pays well, and this is seen in the Revenue analysis over the three years which shows that, despite corporation tax falling, employee taxes have continued to remain strong. In 2019, the sector paid employment taxes of €291.7 million. Last year, the figure reached €299.7 million.

So, just how does it compare to other IFSC industries? Well, it is difficult to find an exact comparison given Ireland’s dominant position in aviation financing. However, an interesting benchmark comes from Section 110 entities, an IFSC structure designed to help legal and accounting firms compete for the administration of global securitisation deals. By 2017, it had become the largest structured finance vehicle in EU securitisation.

Helpfully, the Revenue has examined Section 110 companies over the same period using the same metrics.

Unsurprisingly, there is a lot more Section 110 companies incorporated in Ireland than aviation leasing firms. And the number is growing, as the above graph shows – from 1,335 in 2019 to 1,772 in 2021.

However, the amount of corporation tax paid by these companies is lower than aviation lessors. The figure peaked at €75 million in 2021, when it amounted to 0.5 per cent of the overall corporation tax take.

While aviation lessors pay huge amounts in employment taxes, Section 110 companies pay practically nothing – just €6.7 million in 2019 rising to €7.7 million in 2021.

It is easy to look at sectors such as aviation leasing and assume it simply a brass plate operation in the IFSC. However, the level of employment taxes paid are high, while, when the sector recovers, the level of corporation tax will also rise.

What the experts say about the sector

In recent months, as part of major reports on the aviation sector, both PWC and KPMG have examined the role Ireland plays in aviation finance, plus the outlook for lessors.

KPMG said that airlines have embraced sale-leaseback transactions to monetise unencumbered assets in the frantic effort to raise liquidity in 2020 and into the first half of 2021. It added: “There is some evidence that trend is slowing as airlines access to capital markets and bank debt returns but the expectation is for the share to remain at least at 50 per cent, with some predicting an increase to as high as 60 per cent”.

Taking to The Currency in January, KPMG's aviation finance chief Joe O'Mara, said that while the pandemic has been extremely challenging for aircraft lessors, the crisis has highlighted the resilience of the leasing business model. “Large scale, well-run lessors have expertly managed their own liquidity challenges and been essential partners in supporting their airline customers through the crisis. This support throughout the past two years has deepened and strengthened relationships between lessors and airlines,” he said.  

“Airline balance sheets have been decimated by the pandemic and most airlines will be severely capital-constrained for the foreseeable future. As a result, lessors have taken on a greater importance in funding new deliveries.”

In its report, PWC said that, notwithstanding the shared pain over the course of the pandemic, aircraft leasing was more established than ever as an essential funding channel. It said that “in 2020 and 2021, over 53 per cent of all new delivery financing was sourced through the lessor channel and the unprecedented levels of indebtedness taken on by airlines during the pandemic seems certain to keep the lessor share of fleet financing above 50 per cent for some years to come”.

It added: “The pandemic has highlighted the differing levels of financial resilience that exist within the lessor community. The largest Tier 1 lessors, most of which hold investment grade status or equivalent, have continued to access the capital markets for plentiful and well-priced liquidity and maintained substantial cash reserves to ride out the crisis and to be insurgent where attractive opportunities arise.”