Low tax, high fliers

Do a quick search for ‘aircraft leasing’ firms in Ireland and you’ll find 153 of them.

Mostly international operations based in Dublin and Shannon, the country’s 12.5% corporate tax rate has acted as an enormous set of landing lights, guiding in leasing companies from almost every continent. So much so, that Ireland is quickly becoming the de facto world centre for the business.

Among the latest to set up shop is Orix Leasing AAX.

Owned by the Japanese financial services group Orix, the newly-registered company is undoubtedly linked to the company’s decision this month to snap up a 10% share in Malaysia-headquartered AirAsiaX, the long-haul, no-frills off-shoot of AirAsia, which in seven years has become the top Asian low-cost carrier.

Orix forked out $35m for its stake in AirAsiaX, with Bahrain’s Perigon Capital paying the same amount, also for 10%. Even Richard Branson’s got in on the AirAsiaX party, paying $7m for a 20% shareholding back in August.

Orix is obviously be going to be playing more than just a passive investor role in the start-up, whose maiden flight, to Australia from Kuala Lumpur, will be made this week. It’s probable that Orix is also going to be supplying aircraft to the new operation as it spreads its wings to the Middle East, and Europe. Even the Dublin Airport Authority has begun courting AirAsiaX, which is being advised by former Ryanair director of operations, Conor McCarthy. He also helped mould AirAsia, while has also provided assistance to Qantas low-fares carrier JetStar (headed by Irishman Alan Joyce), as well as AeroMexico.

At times, it seems as if the Irish are taking over the world of air travel, with former Aer Lingus boss Willie Walsh now heading British Airways, while more recently, in the US, former Ryanair executive Charlie Clifton helped to launch no-frills carrier Skybus. It appears the Irishfication of the leasing business is next on the agenda.

The Irish aircraft leasing business has its roots in the recently deceased Ryanair founder, Tony Ryan. He founded Guinness Peat Aviation (GPA), in 1975. By the early 1990s, just prior to the first Gulf War, it was worth over $4bn. But an intended 1992 floatation proved a disaster when key US fund managers failed to support it. General Electric stepped in the following year to save GPA. Ryan said at the time that the company had been “raped” by GE.

“What do you expect when you walk around with no clothes on?” countered GE boss Jack Welch.

Despite that debacle, the aircraft leasing business in Ireland has boomed.

Last year Limerick-headquartered Genesis Lease floated in the US, raising $641m. It’s currently valued at $795m. The company is registered in Bermuda, and resident in Ireland solely to avail of the low corporate tax rate. Other benefits apply too, such as favourable VAT treatment and stamp duty exemptions.

Others located in Ireland include Babcock & Brown, Macquarie, GECAS, Aercap, Investec’s aircraft leasing arm, and BCI.

In a recent edition of the Seattle Times, one of Boeing’s former leading salesmen, Toby Bright, said that the tax incentives for aircraft leasing firms in Ireland are “pretty overwhelming”, and this is serving as an incentive for much of the business to set up shop in Dublin.

"Walk into a pub in Dublin and you can’t privately talk business,” Bright told the newspaper. “It's full of other leasing guys."

Still, the collegial atmosphere wasn’t enough to lure Bright to the capital. He has been working with San Francisco-based aircraft leasing firm Pegasus, which was acquired earlier this year for $5.2bn by Terra Firma Capital Partners. Terra Firm owns AWAS leasing (which it bought in 2006), based, unsurprisingly, in Dublin, and will combine Pegasus with the former. That means shifting the California operation to Dublin. Bright was invited along for the ride, but declined.

So, just how effective is the Irish tax regime? Look no further than the latest set of accounts filed in Ireland for GE Commercial Aviation Funding.

With assets in Ireland of more than $14bn, in the period from mid-November 2005 to the end of 2006, it recorded income of $443.3m and a pre-tax profit of $415.3m. It paid Irish tax at the reduced 10% corporate rate that by now has reverted to the standard 12.5%. That incurred a tax liability of $41.5m during the period. However, it claimed group relief of almost $41.3m. The final tax bill? A mere $242,000.

No wonder leasing firms are jetting in.

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http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=sundaybuzz28&date=20071028&query=Toby+Bright

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