GREEN SKIES WILL COME AGAIN

Before being usurped by the Covid-19 crisis, sustainability was the most discussed issue in the global airline industry.

But with the pandemic appearing likely to pose an extended existential challenge to commercial aviation, there is concern in some quarters about how long the greening of the industry will be left on the back burner.

A fast and furious rush of ecofriendly commitments had been voiced by airlines in the six months leading up to the pandemic. Spurred on by public pressure and, in particular, by the flight-shaming movement of teenage activist Greta Thunberg, carriers competed for the spotlight to announce environmentally friendly promises.

Delta pledged in February to spend $1 billion over 10 years in an effort to become the world’s first carbon neutral airline.

Late last year, International Airlines Group (IAG), which is the parent of British Airways, Iberia, Aer Lingus and Vueling, pledged to reach net-zero emissions by 2050. Qantas made an identical promise.

In early March, just before the World Health Organization declared Covid-19 a pandemic, Finnair pledged to reduce net emissions by 50% by 2025. And last November, Norway and Sweden’s SAS committed to using enough sustainable aviation fuel to account for all of its domestic flying by 2030. 

For now, such announcements have come to a near halt. Meanwhile, the International Civil Aviation Organization (ICAO), which is an arm of the United Nations, decided on June 30 to ease carbon offsetting requirements that were set to take effect for airlines next year. 

The move, which was backed by IATA, fostered concern from environmental groups. 

“As airlines scramble to recover from the Covid-19 crisis, they can’t afford to ignore the looming global crisis of climate change,” Environmental Defense Fund (EDF) international counsel Annie Petsonk said in the aftermath of the ICAO’s decision. “Real leadership means setting the aviation sector on a path toward net-zero climate impacts as swiftly as possible.”

The Center for Biological Diversity called on the Environmental Protection Agency to step in with its own strong rules for emissions.

“If the U.S. doesn’t lead, this unregulated greenhouse pollution from aviation will pose a steadily increasing threat to our climate,” the organization said. 

But despite such alarm, IATA and analysts say that airlines know they can’t lose sight of their carbon footprint over the long term.

“When airlines bounce back, safety and health will be a big issue. Not far behind will be the question of environmental impact,” said Michael Gill, IATA’s director of aviation environment. “More and more individual passengers will be asking themselves that question. Passengers, from an environmental perspective, should have confidence in the sector.”

John Grant, senior analyst for the flight data analytics company OAG, sees things similarly. 

“The issue of sustainability and the environment is not going to go away for the airlines. They know they’ll be back under the microscope once Covid is dealt with,” he said.

The change implemented by the ICAO was a direct response to the Covid-19 crisis. Under the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia), carriers in participating countries were to be required beginning next year to offset all international flight emissions in excess of the average of their 2019 and 2020 emissions. Nations representing 77% of international aviation have agreed to participate in the trial phase of Corsia, which will last until 2023. 

Because 2020 emissions will be so far below what would have been expected, the ICAO decided to allow carriers to use their 2019 flying alone as a baseline for their offsets. With many analysts projecting that flying won’t return to 2019 levels for three or more years, the decision may have the effect of postponing the first required carbon offsets until after the 2021-23 Corsia trial period, according to an argument put forward by the EDF.

Still, there is evidence that airlines haven’t lost track of the bigger emissions picture as the pandemic plays out. In a survey of commercial aviation industry executives by the consultancy ICF early in the pandemic, 70% of respondents said the crisis wouldn’t change their company’s sustainability goals, while 21% said it would increase their company’s interest in sustainability. 

“There’s a recognition that it is no longer optional,” said ICF aviation analyst Dan Galpin.

The big picture

Entering the pandemic, aviation accounted for an estimated 2.5% of the world’s greenhouse gas emissions, according to the International Energy Agency. An immediate impact of the crisis, of course, was a plunge in aviation-generated pollution corresponding with the partial grounding of fleets around the world. In raw numbers, aviation’s carbon footprint is expected to remain below pre-Covid-19 levels for years as the recovery slowly plays out. 

Meanwhile, although the string of new announcements from airlines related to sustainability has dried up, long-range plans remain largely in place. Globally, airlines have committed to reducing emissions by 50% from 2005 levels by 2050. The next couple of years, said IATA’s Gill, won’t change that overall trajectory. 

One positive sign for that long-term vision has come from Delta, which used Earth Day this past April to reaffirm the pledge it had made just two months earlier to become carbon neutral over the next decade. As such, the carrier has maintained its commitment to purchase 10 million gallons of sustainable aviation fuel (SAF) annually from Gevo once its Minnesota-based refinery is retrofitted for SAF production, which is expected in 2023. 

SAF is key to the industry’s long-range plan for reducing its carbon footprint even amid predicted growth. This “green” fuel, which is produced from sources such as animal fats, vegetable oils, forestry residue and garbage, can provide emissions reductions of up to 80% in comparison with conventional jet fuel. 

United, which has been a leader among airlines in SAF investment, says that it is sticking to a pledge made last October to put an additional $40 million toward SAF development and other decarbonization technologies.

SAF is already used in commercial aircraft in combination with standard kerosene-based fuel. But production levels remain tiny: IATA estimates that just 13 million gallons of SAF are produced annually. The trade group would like to see production increase to 1.8 billion gallons by 2025, the quantity it says would be a tipping point at which prices drop and purchases snowball. 

Steve Csonka, executive director of the Commercial Aviation Fuels Initiative, a U.S.-based coalition charged with bringing SAF to market, said that he expects a short-term slowdown in commitments to SAF purchases due to the toll Covid-19 is taking on airline balance sheets. But the longer-term picture is rosier. Around the world, SAF refinery facilities with an annual production capacity of approximately a billion gallons per year have been slated for completion in the next five to seven years. Csonka said he knows of no project that has been killed or substantially changed since the pandemic began. 

Finland’s Neste, to name one example, is moving forward with plans to increase the annual SAF production capability at its Singapore refinery to 340 million gallons in 2022 from the current capacity of 34 million gallons, said Jeremy Baines, the company’s president of U.S. operations. And early this month Neste reached a significant milestone when it successfully used a pipeline for the first time to deliver sustainable jet fuel to San Francisco Airport from its Houston-based U.S. processing facility. 

For now, the company has announced only one, relatively small, pending purchase contract — known as an off-take agreement — with JetBlue at San Francisco Airport. But Chris Cooper, the company’s vice president of renewable aviation for North America, said Neste has secured off-take agreements with other airlines that remain confidential. Neste hopes to announce these agreements before year’s end.

While investing in SAF is a challenge for airlines struggling for survival, improving the overall efficiency of existing fleets offers instant savings, and airlines have responded to the crisis by accelerating retirements of now unneeded older and large aircraft. American, for example, moved up retirements of its aging Boeing 757 and 767 fleets, while Delta accelerated retirements of its McDonnell Douglas 88 and 90 fleets and will do the same with older Boeing 777s. Air France retired its Airbus A380 fleet.

“We have just witnessed the most retirements of carbon-burning aircraft that the world has ever seen,” said OAG’s Grant. “It would never have happened this dramatically and rapidly.”

According to Sheila Kahyaoglu, aerospace equities analyst for the financial services company Jefferies, airlines will decrease their overall fleets from approximately 27,000 in 2019 to 25,000 in 2023. Half of that reduction will come from less fuel-efficient widebodies, where the number will drop from approximately 6,300 aircraft globally in 2019 to 5,300 by 2023. Over those four years, Jefferies is projecting a widebody retirement rate of 8% annually compared to a historical average of 2.3%. Narrowbodies will be retired at an estimated annual clip of 5.5% over those years, compared with a 2.3% historical average. 

The biggest loser will be Boeing 777s, Airbus A330s, Airbus A350s and Airbus A380s. 

More generally, airline fleets will trend smaller, with delivery declines in the widebody and narrowbody segments over the next four years, but larger proportional declines in the widebody segment. 

“I do think you end up with a newer, more efficient fleet,” Kahyaoglu said. 

However, Peter Harbison, chairman emeritus of the Sydney-based CAPA Centre for Aviation consultancy, noted that many of the aircraft that get retired early will be fairly young and fully operational. As such, owners of those aircraft, which are often leasing companies, will want to place them somewhere. 

“There are strong likelihoods that new operators will spring up, with much lower cost bases and using older, cheaper aircraft,” Harbison said.

The Covid-19 crisis, in some cases, has also put airlines into positions where they’ve had no choice but to accept new environmental requirements as a condition of desperately needed state assistance. 

U.S. airlines were spared such conditions in their $50 billion rescue package of loans and grants. France, though, required Air France to halve emissions on domestic flights by 2024 and do away with short flights if there is a rail alternative taking less than 2.5 hours in exchange for a nearly $8 billion package of loans and loan guarantees. (Shifting short-haul traffic to rail was also one of the conditions of the $512 million bailout package extended by the Austrian government to Austrian Airlines.) France has also committed $1.7 billion toward research of hydrogen-powered aircraft as part of a $17 billion Covid-19 rescue package for the French aerospace industry, part of a goal to develop a carbon neutral Airbus A320 replacement by 2035. 

These advancements very likely would not have taken place so soon absent the dire circumstances caused by the pandemic. The lack of new major ecoinitiatives from the airlines in recent months confirms that the focus around aviation’s long-term arc toward greener skies has indeed been displaced by Covid-related concerns.

Displaced, yes. But derailed? No.