Worldwide: Multi-Stop Aviation Finance Adds Value With Each City Playing A Role

Last Updated: 23 August 2018
Article by Yvette van Loon

Two macro trends are driving demand for aviation finance today. One trend is the global growth in demand for air travel, and therefore demand for aircraft.

By 2036, the air travel market is projected to be 2.5 times what it is today, with twice as many commercial and regional jets expected to be needed.

Over that time period more than 41,000 new airplanes will be needed to replace aging jets and to meet the demands of increased fleet sizes. The second trend is that leasing is moving from 40% of global market share to 50%, at the same time that it is growing in absolute size.

The multi-stop approach

The aviation finance industry is innovating new ways to lease aircraft while simultaneously complying with regulatory requirements. For the last 35 years, Ireland has been a global centre of aviation finance, in part due to its onshore low tax jurisdiction, and the specialist pool of knowledge and talent accumulated there. 

Today, however, it's common for international aviation finance to take a multi-stop approach, involving various financial centres to provide finance to airlines worldwide. Each stop along the way adds value or efficiencies, leveraging the strengths of the various jurisdictions in compliant ways.

For example, an Irish-owned aircraft may be leased to an Indonesian airline via a leasing arrangement in France that offers tax, accounting and/or regulatory relief. Other European countries with similar activities include Sweden and Norway while in Asia, Singapore, Hong Kong and Labuan all offer specific opportunities. 

Aviation opportunities in Asia Pacific

Singapore has over 80 double tax agreements in place so lessors don't pay profits twice in both the place they were set up and where they operate (compared to Ireland's 70 and Hong Kong's 40). 

That has contributed to Singapore's growth as a global transportation centre and a leading international maritime centre, as well as the general features of the tax system and targeted tax incentives such as the Aircraft leasing Scheme (ALS).

In July 2017, Hong Kong put in place tax incentives to attract aviation leasing firms that reduced their corporate tax rate by half to 8.25%. Hong Kong holds a prominent position as an international financial, trading and transportation centre, with a well-developed legal system. 

With its unique relationship with China, Hong Kong is well positioned for aircraft leasing companies to set up operations with a view to leasing into China. Circular No. 108 (Opinions on Accelerating the Development of the Aircraft Leasing Industry issued by the State Council of the People's Republic of China in 2013) provides specific policy measures to promote the development of the Chinese aircraft market.

Labuan, a mid-shore jurisdiction in Malaysia with 70 double tax agreements was established in 1990 as an international business and financial centre. In December 2017 Labuan issued guidelines to clarify the requirements for carrying out leasing business there, as part of its bid to position itself as a global leasing hub to as a vehicle to lease into Malaysia.

Get help and capture this opportunity

Understanding the requirements of the various jurisdictions and bringing the pieces together into efficient, compliant leasing structures requires both international expertise and deep local knowledge. TMF Group has offices in each of the major aircraft leasing capitals, as well as serving the airlines in-country. 

TMF Group provides accounting & tax compliance, management, domiciliation, payroll and corporate secretarial services to leasing companies. TMF Group can also help open bank accounts, assure that monthly accounting management reporting takes place on time, necessary annual reports are prepared, approved by shareholders and filed by the legal deadlines.

To capture this lucrative aviation leasing business, each jurisdiction has been keen to make reforms and changes in taxation, and create conducive environments to attract global lessors to their shores to set up operations. Stay tuned for developments in the near future and to see how the competition will pan out. 

TMF Group has extensive experience in the provision of corporate services to companies used for the structuring of lease-in, lease-out (LILO) aviation transactions, securitisations and other forms of asset finance. We manage hundreds of aircraft leases in companies around the world, working with a wide range of aircraft lessors, including both new entrants and established players. 

Talk to TMF Group

TMF Group has extensive experience in helping our clients to setup their offices and/or providing corporate services to companies that are used for owning and leasing aircraft through our Aviation Finance Services. We manage hundreds of aircraft leases in companies around the world. Our clients include banks, airlines, private equity, hedge funds and aircraft lessors. 

Got questions? Get in touch with our aircraft leasing experts in France and Ireland.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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