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December 8, 2021updated 05 Apr 2022 4:48pm

Lessor’s Kafkaesque nightmare: the cost of doing business in China

By Che Golden

China is expected to create significant opportunities in all sectors of the aviation industry as the world emerges from the pandemic, but the 2019 detention in Shanghai of a Dublin leasing executive, Richard O’Halloran, may damage China’s reputation for doing business, writes Che Golden

Ireland has long punched above its weight in the aviation leasing industry, but its dominance is now being challenged by China.

China’s aviation leasing industry has grown rapidly in the last few years but its authoritarianism and its treatment of one Irish man, Richard O’Halloran, could make foreign aviation investors run for the hills.

According to business consultants KPMG, Ireland has a 65 per cent share of the global aviation leasing marketplace, with 50 aircraft leasing companies based in Ireland, including 14 out of the world’s top 15 lessor companies. Ireland has three key advantages – its double tax treaties are favourable to aviation finance companies, the presence of strong human capital and political stability.

But its position is not unassailable and one of the threats to its dominance is the rise of Chinese aircraft leasing companies. China’s aircraft leasing market is expected to be worth $8.3bn by 2027, according to a report by Research and Markets.

By September 2020, despite the ravages of Covid worldwide, the number of China-based aircraft lessors that rank among the top 50 globally jumped to 13 from nine in a six-month period, according to research firm, Cirium. That put Chinese firms in the same league as Ireland-based lessors, which also comprise 13 of the top 50 and ahead of US-based lessors, at 12, as of 30 June 2020.

But the implementation by authorities of the National Security Law in Hong Kong and wolf warrior diplomacy toward a single Irish citizen could tarnish China’s international reputation.

Hong Kong and Richard O’Halloran’s plight could be seen as a test case for how politics in China can get in the way of doing business. In recent months, the violent protests in Hong Kong have damaged confidence and tarnished the image of Hong Kong as a haven for international business and a multicultural oasis for expats. Companies may be hesitant to invest or dispatch foreign talent to a potentially unstable country.

Richard O’Halloran is certainly regretting setting foot on Chinese soil. He has been prevented from leaving China since February 2019 when he travelled to Shanghai to resolve an ongoing commercial and legal issue involving the Chinese owner of the firm for which he is the chief operating officer, China International Aviation Leasing Service (CALS Ireland), a specialist aircraft leasing company founded in 2012 and headquartered in Shanghai.

Richard O’Halloran

There are no allegations of wrongdoing against O’Halloran, but Chinese authorities have refused to let him leave the country until they are satisfied the issue has been resolved.

A Shanghai court has already convicted Min Jiedong, the founder of CALS’s Chinese parent company, over alleged fundraising fraud. Min is believed to have used capital from a crowdfunding scheme to purchase an Airbus which is currently leased to the Finnish national carrier, Finnair.

Looking for the return of the funds raised by Min, Chinese authorities reportedly asked O’Halloran for either $36m from CALS or the aircraft that was purchased with the funds. Halloran was unable to do this and was effectively placed under house arrest in his hotel room. The Chinese government at one stage even said it would release him if the Irish government underwrote the debt, which, not surprisingly, the Irish government declined to do.

In February 2021, O’Halloran, the Irish Department of Foreign Affairs and CALS Ireland put forward a proposal that would see income from the Finnair plane paid to authorities in China monthly. While O’Hallaron believes the Chinese authorities now have everything they’ve asked for, it is understood that technicalities around how funds will be repatriated are slowing down proceedings.

The European Parliament has also sought to bring its diplomatic weight to bear, in February it was reported that three MEPs wrote to Zhang Ming, the Chinese Ambassador to the EU, to campaign for the return of O’Halloran to Ireland. Also, Fianna Fáil MEP Barry Andrews recently brought the issue to the attention of the EU.

Writing for The Journal IE in March 2021, Andrews reported that O’Halloran, a father of four, was informed in January that his exit ban had been lifted. “He went to the airport hoping to get home in time for his son’s 14th birthday but was stopped again.”

Tara O’Halloran, Richard’s wife has serious concerns about the impact on Mr O’Halloran’s mental health. O’Halloran, a relative of the late Fine Gael taoiseach Garret FitzGerald, had been living in a hotel room but has transferred to an apartment in a bid to reduce the cost of his forced stay in China. 

Mrs O’Halloran has said that her husband is alone in a country where he does not speak the language and has no friends. As well as the strain on his mental health she also says his physical health has declined. She claims that he suffered a seizure in his apartment building and was found by a maid.

What everyone, from aviation experts, diplomatic observers and Irish government officials seem to agree on, is that O’Halloran is innocent and yet, so little seems to be happening to help him. His family have started a petition to put pressure on the Irish government to intervene, claiming he has been abandoned.

O’Halloran’s plight serves as a stark reminder of how far China is willing to go to protect its interests and how little regard it has for the rights of the citizens of other nations. Human capital, as well as financial, is needed to help China’s international and domestic aviation industry grow, but foreign nationals may be understandably wary of taking a job that involves living in Hong Kong or mainland China if O’Halloran’s experience is anything to go by.

The almost three-year detention of this Dublin businessman can also be expected to act as a strong incentive for aviation leasing executives with dealings in China to settle disputes with a Chinese company from outside of the country – and that can’t be good for business. 

UPDATE: Irish lessor back in Dublin after 3-year China exit ban

Will Biden’s tax plans bring Ireland’s aviation leasing back down to earth?

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