A start-up aviation leasing company in Limerick, with only two staff, plans to raise some $737 million (€559 million) in an initial public offering on the New York stock exchange next month.
Genesis Lease Ltd was incorporated last July in Bermuda, but the company will be resident for tax purposes in Ireland, where it will avail of the 12.5 per cent corporate tax rate and other taxation advantages.
Located in a temporary office in the University Business Complex in Limerick, Genesis has no staff other than its chief executive and chief financial officer and it will outsource most of its other functions.
In its flotation prospectus, which sets out a complex series of arrangements behind the company's plans, Genesis said it was set up "at the direction" of GE Commercial Aviation Services (GECAS), an affiliate of the US conglomerate GE, to buy and lease commercial jet aircraft and other aviation assets.
The Genesis chief executive is John McMahon, who has long experience of the sector. Formerly associated with Guinness Peat Aviation and Lloyds TSB Bank, he worked for GECAS and was head of DaimlerChrysler's aircraft leasing group Debis AirFinance (now AerCap). Its chief financial officer, Alan Jenkins, worked for KPMG in Dublin and Morgan Stanley's aircraft leasing company AWAS in Australia.
In submissions filed on Monday with the US Securities & Exchange Commission (SEC), the company said it would raise a total of $1.43 billion in the coming weeks. The money will be raised through the flotation, a private share placement with GE and an $804.5 million securitisation.
Genesis will use the funds to buy a fleet of 41 jets from GECAS, which will continue to maintain, market, insure and collect rents.
The formal ownership of most of these aircraft, which are leased on long-term contracts to airlines worldwide, was transferred to GE's Irish subsidiaries in 2004 and 2005.
Genesis said it plans to sell up 27.86 million American depository shares at $21-$23 each. It will pay a quarterly cash dividend of 47 US cents per share and plans a "larger first dividend" for the period from the initial public offering until March.
The flotation documents make it clear that the low rate of corporate tax in Ireland was a big factor in the decision to take out tax residency here. "We expect that our effective tax rate will be lower than our predecessor's as a result of our tax residency in Ireland," the prospectus states.
"We also expect that our cash tax payments will be lower as a result of our ability to depreciate aircraft under Irish tax law over eight years, which is a more accelerated rate than our predecessor used to depreciate aircraft under US tax law."
When questioned about the location of the business, Mr Jenkins said yesterday that the company could not be characterised as using Ireland as a flag of convenience for tax purposes.
Genesis will be managed in Ireland and its board meetings will be held here, he said. "There's certainly a lot of substance going on in Ireland. This has been considered very thoroughly."
Employment contracts filed with the SEC indicate that the company executives have been heavily incentivised to execute the flotation. Mr McMahon's gross annual salary is €525,000 and he has a bonus target this year of $600,000. He stands to receive restricted shares worth $325,000 on the pricing of the flotation and share options worth $425,000.
Before Genesis was formed, GECAS hired Mr McMahon's company Aviation Investment Management as a consultant to assist with this formation. This company received a monthly consultancy fee of €60,000 and it will receive a success fee of €150,000 when the flotation is complete.
Mr Jenkins receives a gross annual salary of €150,000. In addition to share entitlements, he will receive a once-off bonus of €100,000 on completion of the offering.
Genesis has a corporate services agreements with AIB International Financial Services Limited, which will receive an upfront fees €100,000 and annual servicing fees of some €600,000.
The company said it intends to lease permanent office space in or near Limerick. "We believe we can capitalise on the overall size and growth of the global aircraft market by acquiring and leasing additional aircraft and other aviation assets to increase our revenues, earnings and cash flows."
Genesis indicated it will incur legal fees of €3.7 million in the flotation process.
