Gates and Partners reviews business aviation in Europe


Aviation law firm warns of challenge that threatens to slow down growth

Aoife O'SullivanGates and Partners have seen a positive start for the European business
aviation market in 2011 and they are seeing a more robust market and notes that
sources of aviation finance are becoming more enthusiastic.  Aoife
O’Sullivan, Partner 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.”

Aoife 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.