Overseas BizAv market shows growth
May 5, 2011, London, U.K. - Leading aviation law firm Gates and Partners, G&P, has seen a positive start for the European business aviation market in 2011.
May 5, 2011 By Carey Fredericks
The London-based law firm is seeing a more robust market and notes that sources of aviation finance are becoming more enthusiastic. Aoife O’Sullivan, Partner at the firm comments, “whilst there is still a long way to go to achieve previous activity, we have certainly seen an increase in business jet transactions. Demand for the mid to heavy jets is still high, but the lighter end of the market is also picking up pace.”
She attributes this to the increasing openness of banks who are returning to the table to finance deals. “Financiers remain quite strict about the calibre of their buyers, but they are now eyeing up deals that six months ago they would not have considered,” says O’Sullivan. “Terms may be stricter considering factors such as age of aircraft, stability of purchaser’s finances, origin of buyer, etc, but there is general acceptance that the industry is regaining value.”
There is no typical buyer right now, O’Sullivan notes with high-net worth individuals and corporations both approaching the market. “The split of our case load is currently about 50/50 which reflects a market in recovery mode. The stigma of corporates buying jets for their executives is diminishing as the market realises that jets are not luxury items, but business tools which stimulate economic growth and increase business productivity. We believe that less than 3% of business aviation activity is leisure-led and our deal roster reflects this.”
Corporates are renewing fleets, first time buyers are entering the market while prices are still competitive and cash buyers from the Middle East, Asia and Russia continue to boost their assets. “The pre-owned market is doing well and we’re seeing certain patterns across Europe. Milestone are offering interesting leasing options through Ireland, Germany remains big on leasing, and the UK is beginning to pick up again. Buyers are going to where the best deal is and are making sensible offers which sellers are accepting. Europe is definitely a more steady market than this time last year,” she concludes.
Change in tax regulations may hamper fleet growth
However Gates and Partners warns that looking to the year ahead, growth may slow down owing to the lack of uniform treatment of tax across the region. “January saw a change in regulations whereby newly registered aircraft that import to Europe via the UK could incur a 20% VAT charge. There is still a lack of clarity on application and interpretation of the new UK VAT rules which is slowing transaction progress.” Other regions such as Denmark, the Isle of Man and Malta are offering their own “solutions” to the VAT problem which may see deals move to those regions in an effort by sellers and buyers to achieve clarity on VAT application to their transaction.”
O’Sullivan believes this lack of uniformity will skew the aviation figures across Europe and will drive business away from the UK, a country that has traditionally been a significant player. “New aircraft sales in the UK are gradually halting, which puts business operators, charter brokers and aircraft brokers in an invidious position. Not only are they dealing with the issue of illegal charters, they have to now work with a playing field that is far from level. Bearing in mind that, according to the EBAA the total impact of Business Aviation in France, UK & Germany is €12.6bn, which represents 64% of the total gross value added to the economies, the tax implications will have a much wider effect on the economy as a whole,”
Gates and Partners is already in talks with industry leaders to establish how the tax rule can be addressed and amended. “It’s a major issue for business aviation in the UK and further afield, and it’s not something we can ignore. Business jets are exactly that – a tool for effective business, it’s not about luxury, and this tax regulation is stifling not just for the aviation business directly but for the greater GDP figures within Europe,” says O’Sullivan. Gates and Partners will be attending EBACE later this month and will be discussing this topic, amongst others, with the EBAA and exhibitors at the show to stimulate interest in lobbying for a change.