The industry you’ve probably never heard of – Inside track

This post is by Celeste Hicks, policy manager at Aviation Environment Federation. 

Depending on how you look at it, the structure of the international aircraft leasing market either suggests an industry entrenched in a prolonged impasse, or one that’s ripe for innovation. On one end of the equation, we have what has been described as the “crumbling duopoly” of manufacturers, Airbus and Boeing, and on the other we have the almost perfect competition of airlines running on tight margins chasing prized customers. Yet, in the middle, lies a little known aircraft leasing industry, which quietly controls half the commercial aircraft in the world. The main players are hardly household names, Aercap, SMBC, Air Lease Corporation. But, backed by big capital, they are responsible for a global industry worth around $180 billion.  

So, with this set up, it’s no surprise that passing the buck was the main message at Aircraft Leasing International’s global sustainability day in Dublin. From all sides, it was “we are doing our best to reduce emissions, but really it’s someone else’s job”. And it didn’t take long for the favoured identity of that ‘someone else’ to emerge: the sustainable aviation fuel (SAF) producing industry. The theme of the whole day seemed to be how can airlines get their hands on more SAF.  

The leasing industry’s approach is flawed
It’s easy to see why the leasing industry would want to keep flying the conventional planes they already own for as long as possible. Within minutes of the conference opening, the chair of Aircraft Leasing Ireland (ALI) Karl Griffin had announced that the industry would support what is known as ‘book and claim’. This is a system where airlines can purchase the rights to SAF, wherever it is produced in the world, but they don’t actually have to use it in their planes. As long as they are issued with a certificate that says someone, somewhere, has produced and sold that SAF to an airline, the certificate should be claimable against the various reporting requirements that airlines face. 

From an accounting perspective, it might make sense to use book and claim to stimulate an increase in production of SAF, without the inefficiency of putting the fuel on a polluting tanker in Brazil and sending it halfway round the world to an airport in Europe. But, without tight guidelines, the risk of double claiming increases. More than once, participants at the conference opined about the failure of Big Oil to step in and increase SAF production. It was hard not to wonder, why haven’t they? 

Zero emission alternatives need prioritising
With regards to fleet renewal, the main emphasis during the conference was not on new zero emissions technology, but on more efficient conventional planes, and this is where the sticky topic of the enormous backlog in delivering planes on order emerged. Airbus and Boeing have still to recover from the supply chain crunch caused by Covid-19 and, during that time, Boeing has also faced its own internal pressures. There is still a long backlog (up to ten years on some deliveries) on current orders which are largely conventional technology planes and are expected to be in commercial passenger service for over 20 years each, leaving the timeline for zero emissions aircraft up in the air. Time is running out.  

A recent report from the International Council on Clean Transportation (ICCT) said that around 50 per cent of the available aviation net zero carbon budget will be consumed by aircraft already in service, and the remaining 50 per cent will be consumed by lifetime emissions from new aircraft deliveries between 2032 and 2037. The ICCT said that all new aircraft delivered by the 2030s will need to emit net zero emissions throughout their operational lifetimes.  

Wright Electric (a battery company) and Jet Zero (a California-based maker of blended-wing aircraft) briefly stirred excitement amongst the audience with their vision of a sustainable future. However, enthusiasm quickly faded as it became clear that neither of their proposed technologies exists at a commercial scale, and they seemed to receive a tepid reception from the industry investors present.  

What more can the leasing industry do? There was talk of pooling resources to stimulate SAF production and providing upfront funding to airlines making genuine progress on decarbonisation. The EU’s strict SAF criteria were also cited as a barrier, especially for Asian airlines excluded for using palm oil to produce its SAF, of which the broader market remains sceptical. Our research shows re-examining those criteria would be a mistake, not to mention that no credible net zero pathway, including the UK’s inadequate Jet Zero strategy, relies on SAF as the sole solution.  

The industry is approaching a turning point
Disappointingly, it didn’t feel like this was an industry on the brink of radical change, rather one in utter denial of the fact that any growth in the industry threatens all our efforts on decarbonisation elsewhere. There is no Elon Musk waiting in the wings (as one banking executive said to me, “you could probably build a car if someone held a gun to your head, but you could never build a plane”). Until there is a new technology rolling off the production lines, the leasing companies might be forgiven for thinking they have another ten years free from sleepless nights. 

But I couldn’t help picking up the very beginnings of a mild sense of panic setting in, that if this transformative SAF industry does not materialise, then all carbon reporting requirements will start to become, well, really quite onerous. Financial pressures will begin to bite. The audience certainly sat up when Paul Williams from the University of Reading presented on the very real dangers posed to aircraft from greater turbulence, lightning strikes and extreme weather, all the result of accelerating climate breakdown. What looks like a bulletproof asset today may soon start to look like a liability, and that will be the moment when radical change is no longer optional.