Avolon, one of the largest lessors of commercial aircraft, says with a shortfall in production of new planes, global aviation carbon emissions will not be materially reduced by disruptive technologies for the next two decades. In a 2023 outlook paper, the company says the shortage of new fleet and a lack of commitment by manufacturers to all-new models has led to a resurgence of demand for current-technology aircraft, shifting the focus from new technologies to solutions which are immediately compatible with existing aircraft types. As air traffic flows continue to rebound post-Covid, a shortage is emerging and the absence of new aircraft due to a drag on manufacturers’ production ambitions is increasing supply tension, say the authors. Sustainable aviation fuel promises to be the interim solution to decarbonising the industry, they say, “but the economics will need to be transformed”.
The paper, ‘2023: Climb to Cruise’, co-written by the company’s Chief Risk Officer, Jim Morrison, and Head of Counterparty Risk and Sustainability, Rosemarie O’Leary, assesses major trends in the air transport industry as airlines emerge from the pandemic.
“Aviation is confronting a global challenge in climate change that will require technology and policy solutions,” state the authors. “From airlines to manufacturers to financiers to governments, all stakeholders are aligning with commitments to advance aviation’s net zero goal.
“Net zero presents a multi-trillion-dollar challenge for aviation that requires massive investments in disruptive technology, continuously improved operations and new energy sources suitable for flight. But global aviation’s carbon emissions are unlikely to be materially dented by disruptive technologies for the next two decades. The initial short-range applications and the challenge of timescales in replacing 34,000 delivered passenger and freighter commercial aircraft means sustainability solutions must drop into today’s architectures.”
While new propulsion systems and fuels were investigated, the paper says some are currently unviable to produce. “Replacing jet fuel with hydrogen remains aspirational, requiring as much investment in infrastructure as in new aircraft and engines. Sustainable aviation fuel promises to be the interim solution to the infrastructure and vehicle development challenges of decarbonising the industry, but the economics will need to be transformed.”
The authors say SAF’s price premium of three-to-five times that of conventional aviation fuel meant economies of scale were needed to drive down the cost. This year, Avolon estimates commitments by airlines for SAF offtake agreements will double to 80 billion litres, but still more are needed to build sufficient demand for commercial production of affordable supplies.
“SAF production tripled in 2022 to an estimated 300 million litres but still represents only 1% of the 30 billion hoped to be produced in 2030. Policy initiatives in the United States and Europe are ramping up as other decarbonisation pathways remain over the horizon.”
The lessor estimates that growing commitments by airlines to increase SAF use to 10% of their fuel requirements would need $250 billion in infrastructure investment to produce and deliver the new fuel, highlighting the need for collaboration across the aviation sector.
A key focus of the Avolon paper is the dearth of new aircraft, a result of Covid cancellations, supply chain incapacity and pre-pandemic production issues, particularly the grounding of the Boeing 737 MAX, and 19 months of delays to Boeing 787 Dreamliner deliveries due to production quality issues. As well, no new aircraft projects have been committed by Boeing or Airbus beyond current in-development types.
“Rapid recovery in air travel is driving an increasing need for new aircraft, but supply chains are strained and used aircraft are still available to meet demand,” says the lessor. “Delivery delays have become endemic and an aircraft shortage is emerging given the lost production of 2,400 planes that had been planned but were not built due to the pandemic.
“Full production skylines, a challenging industrial ramp-up, and no new competition on the horizon do not support the investment case for new, clean sheet products. The fact that today’s current aircraft types are here to stay supports their long-term residual values and their continued attraction as an investment.
“As traffic flows continue to rebound, the absence of new aircraft is increasing supply tension, cascading down from new technology types to the current generation.”
The paper says the aviation industry was continually improving its efficiency, but needed to do more. “Planes fly an hour more per day than they did two decades ago, with almost half the number of empty seats while burning 25% less fuel per passenger transported over the same distance. Nevertheless, aviation needs to make greater progress in addressing concerns about the sector’s sustainability and long-term environmental impact.”
Avolon also observes that sustainability is “a new competitive front for airlines”. It adds: “Major carriers that have returned to profitability are turning talk into action. United Airlines is leveraging its ventures arm to experiment with new vehicles, new technologies and SAF. Lufthansa is taking a partnership approach with their CleanTech Hub and numerous operational initiatives. Air New Zealand is pursuing a structured process to transition its regional network to zero-emission aircraft this decade. Ambition is required to accelerate the industry.”
Looking ahead, the lessor expects some electric aircraft manufacturers may disappear in 2023, others acquired and start-ups that have built up valuable intellectual property will require additional funding “to finish the job”. Larger firms will seize the opportunity to invest in the most promising concepts to jumpstart their own ambitions, it predicts.