While there has undoubtedly been some slowing in the growth of the Chinese and Asian economies this won’t alter the fact that they will account for a major portion of growth in global aviation markets for many years to come.
"Asia is overwhelmingly the big one," says KPMG head of aviation finance and leasing Tom Woods. "The expanding middle class along with economic growth has a compounding effect on the demand for air travel. Some 38 per cent of all new airplanes will be delivered to airlines in Asia. You've got three of the world's top 10 airlines and two of the world's biggest airports in China. There are 66 new airports planned for China over the next five years."
India is another strong prospect. “There is a lot of room for growth”, he adds. “It is expected to be the world’s third largest economy in the next 20 years. It has a rapidly expanding middle class. The government is also implementing a regional connectivity scheme.”
BDO tax director Angela Fleming agrees but also sees growth from some quite surprising quarters. "It is forecast that China will grow to 1.3 billion passengers annually over the next 20 years; that would put it ahead of the US," she says. "India is also seeing significant growth and the domestic market there grew by 20 per cent last year."
Fast-growing markets
She says the International Air Transport Association forecasts India to be number three in the world in 2025. "It is in sixth place now," she adds. "The top three is currently the US, China, and the UK but by 2025 it will be China, the US, and India in that order."
There are also some other fast-growing markets in terms of percentage growth. “We are seeing strong growth in Africa albeit from a low base. This is very significant and is expected to be 8 per cent per annum – that means it will double in size over the next decade. That’s very important for trade as well as for passenger traffic.”
Another interesting source of growth is Iran. “Iran has now entered the market with the lifting of sanctions. It has about 130 aircraft and should have 500 or 600. The average age of its fleet is greater than 20 years old. It has the longest operational 747 in service today – it has been around since 1976. Iran has a very sophisticated, well-developed economy and will see significant growth in the coming years.”
Patrick Blaney of the UCD Smurfit School agrees with this analysis. “One hundred million people are becoming air travellers each year in Asia,” he says.
“But there are other sources of new demand around the world. There is a significant aircraft replacement business in more mature western markets.
“A lot of older aircraft are being retired. The Boeing 747 is now being replaced by 777s with only two engines for example. Consumers are benefiting from falling fuel prices and this is driving quite strong growth in traffic in Europe and North America and this will drive growth in demand for new aircraft which will require finance.”
Good news for Ireland
Pieter Burger of Deloitte believes that will be good news for Ireland. "As is well known, Ireland is a leading global hub for aircraft leasing which means that high-growth aviation markets presents opportunity for this country's aircraft leasing industry," he says. "However, Ireland faces competition from other jurisdictions."
Deloitte, together with Euromoney Institutional Investor Thought Leadership, has just published a comprehensive survey and report on aviation finance which found that senior executives in the aviation finance sector expect the Chinese free-trade zones to experience the fastest growth over the next five years as a location of choice for the establishment of aircraft leasing operations, followed by Singapore, Ireland and Hong Kong in that order.
“For international leasing, however, Ireland should remain the leading global hub but one can expect other jurisdictions to increase their efforts to become more attractive with Singapore and Hong Kong expected to grow strongly as aircraft leasing locations over the next five years,” Burger adds.