Sustainable fuel key to aviation’s growth trajectory

Investment opportunities in sustainable aviation fuel (SAF) must be accelerated, the AirFinance Journal conference at the Dublin's Conference Center heard yesterday (18 January).

The aviation industry was losing the 'battle of perception' in terms of sustainability, the conference heard, despite efforts in terms of e-planes and SAF.

SAF is a synthetic fuel similar to kerosene, though cleaner, that uses refined vegetable oils in its manufacture. Research is also underway on creating fuel from wood waste and household black-bin waste.

It was described as a "brilliant addition" to the aircraft lessor business, which would bring a valuable competitive edge, and in which the corporate investor sector should be taking a greater interest.

In order to finance the switch to sustainable fuel production, the industry must continue to grow, backed by thoughtful and sophisticated political leadership, the conference heard.

And since 80% of the world’s population has not yet travelled by air, the industry sees much growth ahead.

200 new airports in China

China, for instance, plans a further 200 airports by 2035, bringing its total to over 450.

Air Marshal Andrew Turner, formerly RAF deputy commander and now a strategy advisor with Zero Petroleum, said that aviation needed to scale up at a “breakneck pace”, but that capital markets must also step up in their willingness to finance investment in sustainable fuel.

The pensions industry was likely to be a strong investor in SAF, Turner said, with anticipated returns of 6-8%.

He urged changing the net-zero goal for the industry from 2050 to 2030.

Chris Chaput (DG Fuels LLC) said that large economies of scale were needed to produce sustainable fuel.

Airlines would have a foreign exchange cost if they had to buy SAF from the US, he said.

The transition to new-technology aircraft would be only a small part of achieving that goal, with existing technologies key to sustainability, Phil Seymour of the IBA said.

The big question was ‘who should pay for the transition to SAF’, Seymour said.

“How much will customers bear?” he asked.

Support for SAF could not just come from any one source, Gene Levitin (Natixis CIB Americas) said, but selling it at a competitive price would be a big help.

Chemist Leigh Hudson (IAG) pointed out that US policy was more ‘joined-up’, and that smart political thinking was needed on the matter to enable investment in Europe.

The Biden administration recently incentivised SAF with tax breaks, and is focused on sustainability, giving airlines a route forward.

Very little was heard on sustainability in the continents of Africa, South America and Asia, despite 60% of the world’s population living in these areas, Michael Corley of Mercatus Energy Advisors said.

Logistics

The logistics of getting SAF to every airport would present challenges, he said, and a booking system for customers who wanted SAF flights might make sense.

The best thing for the environment would be if aircraft fleets were updated to new models, the conference heard, as well as optimising maintenance.

The truck and ship industries would also be competing on price for environmentally-friendly fuel barrels, making for a commoditised market, Corley said.

Steve Gillard (Boeing) said that this was the most exciting era yet in the aviation industry, given the growth trajectory ahead, pointing to the significant societal benefits that accrued from flying, for business and pleasure.

Ryanair's Tom Fowler said that the airline industry had been paying significant taxes in Europe without any reciprocal investment in the decarbonisation project.

People would always want to travel by air, whether for business or family reasons, he said, and this had a positive effect on society and economies.

The drivers of air travel reasserted themselves very quickly, post-COVID, said Peter Barrett (SMBC).

Premium

Airline customers had shown a willingness to pay a premium for SAF flights, Hudson added.

Shane Matthews (SMBC Aviation Capital) said that there were both money and carbon savings ahead with a better understanding of technology.

European governments were more interested in 'stick' than 'carrot', he said, but consumers would ultimately pay for innovations.

Carbon pricing would add significantly to the cost of flights, the conference heard.

Lawyer Ulrike Ziegler (IMPACT president) said that there was not enough transparency on standards in the aviation industry.

The industry must define where it wants to go on decarbonisation, and avoid greenwashing, she said.

Unpredictable risks

If the industry did not act, regulators would step in and "do the job for us", leading to unpredictable risks, she said.

“The lever is maximum transparency; all cards on the table by all parties involved. There's always a story to tell about how to make things better,” Ziegler stated.

Sustainability was not high on the agenda at the last aviation-finance conference in Dublin pre-virus, she added.