Gates and Partners strengthens U.S. presence
Oct. 7, 2011, Las Vegas, Nv. - Aoife O’Sullivan, lead partner in Aircraft Finance at international aviation law firm Gates and Partners will be speaking at this year’s NBAA conference when she joins an international panel discussing the thorny subject of cross border tax issues.
Fellow panellists include an EBAA member, and a Brazilian and American transactional lawyer. Together they will debate how the growth of international business aviation operations brings a wealth of new complexities in the tax and regulatory arena. “As business aviation becomes increasingly globalised with new geographical markets entering the sector it is essential that aircraft operators, financiers and owners understand how complicated international tax issues can affect their business,” says O’Sullivan commenting on the importance of the panel.
Aoife’s inclusion on the panel reflects Gates and Partners’ growing presence in the USA, and along with Dan Soffin, US based expert and a founding partner of the firm, is involved in a number of deals including commercial, insurance and business aviation transactions.
“With over 60% of the global executive fleet based in North America, the region remains one of the most influential sectors in the executive aviation industry” says Soffin. “Although the North American market has suffered in the last few years the true value of jets as an essential business tool is once again being recognised.”
Soffin notes that the US remains an extremely strong and competitive market with excellent indicators for a continued upturn in the North American business aviation market. “The dramatic slides of a few years ago began to stabilise in 2010 and we saw a healthy increase in business aviation sales in the Americas this year. Recent transactions demonstrate optimism for continued growth in 2012 remains. However while historically, statistics show that 75% of business jet deliveries have been to North American operators, international demand from emerging markets such as China, Brazil, and India is moving this figure downwards and non-US markets in their growth phase will almost certainly challenge the more mature US market growth,” says Soffin
Gates and Partners USA transaction experience through the recent downturn suggests that there has been a marked increase in second hand sales and growth in the MRO market. “Pre-owned inventory is definitely shrinking and with that decrease, prices are trending up again. Certainly we are seeing more transactions coming to the table despite current market volatility,” continues Soffin
Funding still available for right buyers.
Instability in international financial markets continues to make financing aircraft sales a challenge. In 2010, the vast majority of business jet purchases were cash payments and this was certainly reflected in the Gates and Partners deal sheet over that period. However, funding is still available and Gates is also encouraging clients to consider alternative means of finance where standard loan finance is not available.
Soffin suggests lenders are definitely more willing to lend again and ECA and EX-IM funding is more readily available to the business and private jet market. “There are also some very interesting new entrants offering operating and finance leases such as Milestone Aviation,” says Soffin.
Some jurisdictions remain off limits to certain lenders for a variety of reasons such as difficulties in enforcing security or perceived credit risk but even in these jurisdictions there has been an increase in available finance from local lenders. “The days of 100% non-recourse funding do seem to be in the past and in many ways this is the right approach. Lenders are asking for a higher level of corporate or personal commitment to financing these high end assets. The rules have definitely changed and purchasers will most likely have to work harder to prove financial credibility than in previous years. Higher regulatory controls on bank lending since the global recession means the requirements are tighter but the banks which are still lending are taking a more measured approach to long term lending” comments Soffin.
MRO growing area.
The North American market accounts for about 65% of global MRO spend. “In response to the economic down turn we’ve seen an increasing number of aircraft owners opt for refurbishment of their aircraft,” says Soffin about the altered nature of the North American market. In an unpredictable economy, Soffin notes that owners are looking for the most cost-effective solutions and this often results in an aircraft upgrade as opposed to a new purchase. Key areas of modifications include interior refurbishment, painting, avionics retrofits and sophisticated on-board connectivity.
Fuel prices have also driven demand for engine upgrades and winglet installations, and it is becoming increasingly acceptable to install new engines rather than replace aircraft. Refurbishment companies are experiencing increased demand all of which indicates that MRO revenue is, and will continue to be on the increase.
Aoife O’Sullivan will speak on 13th October at 16.30 as part of NBAA’s Tax, Regulatory and Risk Management Conference.