Top aircraft lessors sow doubts over green fuel silver bullet
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Sustainable aviation fuel requires "extraordinary" taxpayer contribution
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Currently accounts for 0.2% of global jet fuel use
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Irish minister says governments cannot foot the bill
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Lessors see ESG falling down investor agenda
By Padraic Halpin and Tim Hepher
DUBLIN, Feb 2 (Reuters) - The world's two largest aircraft lessors said governments will need to invest huge sums of taxpayers' money if they want the fleets of the future to fly mainly on greener fuel, and the head of AerCap doubted whether it would be worth their while.
Aviation is not an easy industry to decarbonise compared with other forms of transport and the industry has long argued that incentives will be needed to massively ramp up the production of fuels made from organic material or waste.
Lessors, bankers and airline executives meeting in Dublin this week said environmental, social, and governance (ESG) concerns had fallen down the agenda for investors, partly due to pressing challenges such as the acute shortage of new more fuel-efficient aircraft, seen as the other main carbon saviour for the sector.
"If governments want airlines to burn sustainable aviation fuel (SAF), they're going to need to devote extraordinary sums of taxpayers' money to make it happen," Aengus Kelly, CEO of the world's number one lessor AerCap, told the Airline Economics conference.
SAFs, which have lower CO2 emissions than fossil fuel kerosene, are for now far more expensive to produce than conventional aviation fuels.
The aviation industry estimates it will take between $1.45 trillion and $3.2 trillion in capital development to bring SAF's share of the fuel market to the 65% needed to reach a goal of "net zero" emissions by 2050. It currently accounts for 0.2%.
Kelly said that given aviation accounts for an estimated 2-3% of global carbon emissions, the scale of investment could amount to "a poor use of a scarce resource".
"If we have a limited amount of funds, which every government does, we should put it where we get the biggest bang for our buck and I'm just not sure in aviation that it's going to move the needle enough," he said.
NO 'OPT-OUT' FOR AVIATION
Airlines, many of whom have pledged to use 10% SAF by 2030, lament the lack of current and future supply, as well as the prohibitive price - SAF costs around three to five times more than traditional jet fuel.
Andy Cronin, CEO of major leasing company Avolon, said SAF will likely need "significant policy and state intervention" to provide the necessary certainty on large scale infrastructure development, innovation and maintaining the right cost level.
"I think that's a real concern," Cronin told Reuters.
Responding at the end of the week-long conference, Ireland's Environment Minister Eamon Ryan said SAF production will have to be largely funded by the private sector and that aviation is not going to get an "opt-out" of its emission obligations.
AerCap's Kelly said compared with a couple of years ago, ESG had become less of a talking point in general for lessors, who control over half of the world's airline fleet. Others agreed.
"Where it ranks today is nowhere near where it used to be. A lot of people wanted to get on the bandwagon and now they're discovering that it's a much more nuanced, much more complicated issue," Dubai Aerospace Enterprise CEO Firoz Tarapore said.
The CEO of Carlyle Aviation Partners, which like DAE is among the world's top 12 lessors, said environmental concerns would return to the fore once issues surrounding aircraft production, and meeting an abrupt snapback in travel, fade.
"Once the conversations all become normalised, it's something that every investor will be asking me about again," Robert Korn said. (Additional reporting by Conor Humphries; Editing by Emelia Sithole-Matarise)
