ILR Impact – Aviation
Aviation finance is a capital-intensive industry and a financing business where profits derived on lease rentals to a large extent depend on a mark-up on the cost of funding. Lessors are typically very highly leveraged and therefore the new interest limitation rules have the potential to restrict interest deductions (even relative to other industries) due to the fact that: i. lessors are in a lending business and deploy significant amounts of capital each year and ii. the lease rental returns on operating leases are not generally classified as interest income (subject to comments below). The rules provide that a portion of lease rental income on an operating lease can be considered “interest equivalent” for the purposes of ILR and a formula is provided to calculate this portion in the rules.