IBA’s Sustainability Watch: November 2024

Environmental, Social, and Governance (ESG) issues are key risks to investments in aviation, and authorities across the world are demanding more transparency and stricter reporting standards. It’s never been more important to understand the pathways to net-zero emissions and their real impacts on all key players across the industry. Each month, IBA’s Consulting team share key insights and the latest news from the growing world of sustainable aviation.??

Lilium files for self-administration for two of its subsidiaries after failing to secure government backing?

Lilium, one of the most prominent electric vertical take-off and landing (eVTOL) developers, has entered self-administration for two of its key subsidiaries. The company has been successful in?raising financing of over €1.5bn since its inception in 2015, receiving 100 firm and a further 600 pre-orders. Lilium was planning for an entry into service of its test MSNs in 2026 but has failed to obtain crucial German government support totalling €100m. The company’s failure has sparked a debate about the viability of Lilium’s concept and whether the decision to withhold state funding was justified, but IBA sees the crux of this issue in the wider eVTOL market and its place in aviation’s sustainable transition. Limited to its stated range of 300km (likely far less in reality), Lilium’s contribution to aviation was primarily focused on providing clean urban transport, although they had stated interest in offering an alternative to fossil-fuelled aircraft on flights closer to its max range.?

At this advertised maximum range, Lilium’s jet would be competing on routes such as the Scottish mainland to the Shetland Islands, where, with its 5-seat capacity, it would produce 12% of the ASKs a typical ATR42-600 would, per flight. Clearly, this limits its’ commercial viability, even despite Lilium’s jet performing at a third of the carbon intensity of the ATR per ASK (assuming average UK grid emissions). Looking instead at the air taxi sector, although advertising reduced travel times, Lilium’s jet performs at more than double (40g CO2/ASK) the CO2/ASK of London’s Elizabeth Line (17g CO2/ASK), meaning that although airport connections may be a key viable market for eVTOL operations, its justification shouldn’t necessarily include an emissions reduction, or providing a clean mass transport solution. While Lilium may not yet be finished, its survival will depend on a clearer vision and market requirements. In an aviation sustainability space already struggling for traction with SAF, it's easy to see why the German government felt funding may be better directed elsewhere. Despite this, electric aircraft and technology development is ongoing, with recent new investments in Joby and Vertical Aerospace announced, and new projects regularly. The reality of the further substantial investment required to turn flying prototypes into certified and industrialised production lines is yet to sink in so expect more fallout soon. Other investments in capacities more suited to commercial aviation (e.g. Heart Aerospace) are also ones IBA will be watching closely. On a?final positive note, the innovation and upskilling of aerospace engineers through Liliums ambitious electric aircraft programme will fertilise the soil for better future sustainable transport innovations in new and incumbent companies alike. From a societal perspective, the investment will provide returns. All is not lost.?

State of California forges ahead with new targets and major airline collaboration?

Undeterred by the imminent outcome of the US election, the California Air Resources Board (CARB) and Airlines for America (A4A) have announced an agreement for a sharp increase in SAF use before 2035. The levelled-up ambition would put SAF use at 200m gallons by 2035 – roughly 40% of expected intrastate demand. For context, the US expects to require 35bn gallons by 2050 to fuel its aviation industry. The partnership lists its key aims as optimising existing SAF Grand Challenge incentives, but also working with federal agencies to expand on the current offering for biofuels in collaboration with California’s state policies. As one of the more aggressive states on climate, California has long been a leader in US aviation sustainability, with the Californian Low-Carbon Fuel Standard (LCFS) offering SAF as a potential market for biofuel producers since 2019. Although this has been successful, with California a key SAF producer in the global market, slower moving and less targeted (understandably so) federal policy has hindered the progress of decarbonising aviation in-state. ‘Domestic’ aviation can’t be added to California’s cap-and-trade system until the rest of the US instigates a similar policy, meaning SAF is its primary lever. In a week that will define US climate policy, including the fate of the SAF Grand Challenge and other measures included under the Inflation Reduction Act, California is pressing on with its own SAF blend targets and bringing all A4A’s airlines along.??

We’ve previously spoken about the uncertainty induced by the upcoming election, including its part in Universal Hydrogen’s downfall. With this agreement, California are using their full power to allay the fears of aviation’s value chain in the longevity of the industry’s transition, which will be welcome in the US and beyond.?

Finnair joins Air New Zealand in redefining its SBTi target and strengthens net-zero goal?

After Air New Zealand’s withdrawal from their SBTi target earlier this year because of SAF supply concerns and delivery delays, many wondered whether we might see shifting ambitions across the industry. In a show of confidence, Finnair have set a new SBTi-aligned target, aiming for a 34.5% reduction in carbon intensity CO2e/RTK by 2033 from a 2023 baseline. Unlike many operators with 2019 baselines, Finnair’s carbon intensity has grown following COVID, with the closure of Russian airspace impacting the efficiency of their operations, meaning a 2023 baseline provides more room for improvement. With only two aircraft on order (both A350-900s), Finnair’s goal will be heavily reliant on SAF, with the operator stating they plan to go above and beyond the ReFuel EU mandate blends across their network. Domestic production at Neste’s plant, with more projects recently announced, will undoubtedly be key. Finnair’s confidence in the next decade is a stark contrast to Air New Zealand, whose lack of regulatory support or pressure means SAF supply is on a delayed timeline relative to Europe. In the same announcement, Finnair strengthened their long-term target of net-zero, albeit pushed back 5 years to 2050. Previous long-term aims were heavily dependent on offsetting residual emissions, but Finnair are keen to minimise their reliance on offsets. With BA’s carbon removal investment last month, operators are keen to adjust the messaging on voluntary offsetting towards a focus on higher quality and permanent removals to mitigate their residuals. Unlike voluntary purchases, airlines are protected by the project specifications enforced by ICAO for CORSIA compliance. With an adjusted SBTi target, and a strengthened long-term goal, Finnair are showing the industry in Europe remains resilient on its transition, but does highlight the contrasting confidence of regions.?

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