Comment: To maintain success of the Irish aviation industry, incentives must continue.
About 400 delegates from all over the world attended an aviation financing conference in Dublin recently. This annual event is the biggest aviation financing conference in Europe and the second biggest in the world after the New York conference.
Why do so many aviation professionals converge on this rain-swept island on the western fringe of Europe every year? Well, it may surprise you to know that the Republic is one of the world's leading centres for aviation finance.
This is despite the Republic having few natural advantages for attracting this type of business. Ireland is not a centre for the manufacture of aircraft and does not possess an international banking industry on the scale of cities such as London and New York.
The story of how the Republic managed to establish a leading position in the aviation industry is an interesting lesson in how a small economy can become a world leader in certain sectors, and also points to the factors which are necessary to maintain this leading position.
The success of the sector in Ireland owes a great deal to clever industrial policy on the part of the State and to initiative shown by the private sector. The GPA aviation group was a key player in the growth of the sector.
Based in Shannon, its development was aided by the existence of a number of tax incentives operating in the Shannon region, including a 0 per cent rate of corporation tax for many years (later to rise to a 10 per cent rate).
As most of the aircraft leases entered into by companies such as GPA were with foreign lessees, it was important that the Republic had a developed tax treaty network. Our tax treaty negotiators worked hard to build this network over the years and we now have a network of 44 such treaties.
The sector was given a further boost in the late 1980s with the establishment of the IFSC in Dublin. This meant that the same tax incentives available in Shannon were now available to companies based in Dublin. By this time the sector had moved to a second stage of development.
The existence of GPA and some smaller lessors over many years had led to the development of a large pool of local expertise.
New lessors coming to the Republic were able to recruit locally based personnel with expertise in the sector, and were able to draw on the services of accountants and lawyers with substantial experience in advising on large aircraft financing transactions.
Of course, this is the ultimate success of any industrial policy - to be able to attract investment and economic activity, and then to bind it into the local economy by achieving the networks and linkages which are so critical to the retention of business and to the generation of new business.
An interesting phenomenon was that the demise of GPA in the early 1990s, while painful for those affected, was not a disaster for the sector despite the critical role that it had played.
In terms of industrial development, the effect was similar to seeds being blown off a flower. Throughout the 1990s individuals who had worked for GPA turned up in many aviation financing ventures, both domestic and foreign owned, and many new economic flowers bloomed.
It is an interesting lesson that a "failed" business such as GPA can be said to bring substantial benefits to an economy.
And that's before we consider the benefits arising from the creation of Ryanair, which could be said to have been a child of GPA, since it had the same founder.
The aviation sector in the Republic is now in a mature phase. The State has reached the position of a world leader in aviation. High value-added work is carried out and good salaries are earned by professionals working in the sector.
This is not the type of work that will be outsourced to a sweatshop in Asia. It is a perfect example of the kind of business that Irish industrial policy should be supporting. We can retain and develop this sector if - and it's a crucial if - our industrial policy does not become complacent.
Competitor locations are hungry for this type of business. Places such as Singapore, Cyprus and Dubai are actively trying to snatch this business and are offering, among other things, a lower rate of corporation tax.
These locations do not have a critical mass of expertise in the sector, but neither did we 30 years ago.
Our experience shows that an attractive industrial incentive regime was able to lure such business into Ireland. It can just as surely lure it out of the Republic and into other jurisdictions if our incentive regime does not remain competitive.
In future it is important to ensure that we focus on increasing the economic rationale for locating such business in the Republic.
If we do, the world will continue to look to Ireland as a centre of excellence in aviation financing for many years to come.
Conor O'Brien is a taxation partner with KPMG Ireland