In dry leases, the lessor or owner of the parts typically provided parts but did not provide crew, maintenance or insurance.
Minister of Revenue Simon Watts said the previous tax had been applied haphazardly.
“New Zealand businesses leasing aircraft and parts from overseas suppliers are often required to withhold non-resident contractors’ tax of up to 20%,” he said.
“But the tax is disproportionately high, and it is applied inconsistently.”
He said the old tax had been aimed at the lessor, but in practice was passed on to local businesses.
Watts said that had been bad for the New Zealand economy.
“Removing the tax barrier to the leasing of aircraft, by exempting aircraft operating leases from the non-resident contractors’ tax, supports the Government’s wider programme of removing barriers to economic growth.”
Air New Zealand said the change announced in the Budget would reduce the tax costs of leasing aircraft and engines from offshore.
“The amount of any reduction would depend on the terms of the lease,” an Air NZ spokesperson told the Herald.
Engineering shortage
Meanwhile, the Aviation Industry Association (AIANZ) said it was disappointed no support for more aviation engineering training places was announced.
“It is a lost opportunity to support a sector that is short of more than 300 engineers,” AIANZ chief executive Simon Wallace said.
He said the Aviation Council had been raising workforce issues with the Government.
“And for more than two years now, the AIANZ has put forward a strong evidence case to support more investment in an area that is critical to the Government’s economic growth agenda.”
Wallace said New Zealand last year would have to keep relying on the Immigration Green List to fill shortages.
The Green List was established in 2022 to provide pathways to residency for people in professions deemed critical for the country.
“Our vocational training institutes are turning away young New Zealanders from a vocation that offers an attractive career pathway,” Wallace said.
The AIANZ has also raised concerns about a shortage of engineers to fix aircraft in general aviation, across agriculture, contracting and search and rescue.
The Herald last August heard from Salus Aviation, which described a shortage of engineers for helicopters and planes.
Salus also said it was having to look overseas for engineers to staff overhaul workshops.
The Government at the time said no options would be ruled out to better train, recruit and retain highly qualified people in these roles.
Associate Minister of Transport James Meager today said $69m was being invested into doubling the number of places in trades academies.
That and some other inititiaves could help the aviation sector, he said.
Meager said Top of the South Trades Academy had partnered with Nelson Marlborough Institute of Technology last year to deliver an aviation engineering programme.
“This investment will allow those opportunities in other parts of the country and support growth in the aviation sector.”
He said the Budget also invested $15m into industry skills boards to develop at least eight new industry-led secondary subjects focused on a specific industry.
“This could include engineering pathways to align closely with real-world labour market demands,” Meager said.
He said the Aviation Council’s workforce working group was developing advice on how to address these issues, including for engineers.
“I expect an update on this work following the next Aviation Council meeting in June.”
Regional airline fund
Air Chathams was announced as the recipient of a $17.2m loan. Photo / File
Meanwhile, AIANZ said “almost none” of the $30 million allocated in September last year to support regional airlines had been dispensed.
“This is most disappointing at a time when this support is so urgently needed,” Wallace said.
In late February, Golden Bay Air was announced as the recipient of a $1.1m loan.
Minister for Regional Development Shane Jones and Meager in April announced $21.952m for three airlines.
That included $17.2m for Air Chathams to refinance debt, and $4.5m for Blenheim’s Sounds Air to upgrade its fleet and refinance debt.
The Government said Island Air, connecting Tauranga and Mōtītī Island, would get $252,000 for fleet maintenance.
The fund administrator is Kānoa, the Regional Economic Development & Investment Unit.
A Kānoa spokesperson today said the unit was trying to progress legal loan agreements as quickly as possible.
“However, counterparties must obtain their own independent advice and be satisfied with the terms they are agreeing to.”
It said that introduced a layer of complexity compared with more straightforward financial arrangements such as grants.
“The bespoke nature of loans to regional airlines also further increases the complexity of the loan agreements, which can increase the time it takes to finalise them.”
Kānoa said loan applications needed robust due diligence to ensure Crown funding was used appropriately and taxpayer interests were protected.
“The timeliness of this process is dependent on applicants providing complete and accurate information,” they added.
“Once funding is approved, even if contracting is still underway, recipients can proceed with confidence that government support will be delivered.
“This allows them to make necessary arrangements in anticipation of the funding being paid.”
Kānoa said any payment requests would be processed promptly, as long as relevant approval conditions were satisfied.
John Weekes is a business journalist covering aviation. He previously covered consumer affairs, crime, politics and courts.
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.