Airline finances were naturally a major focus at the World Financial and World Passenger Symposiums.
Joseph Shanahan, Global Aviation Head at Citi Bank, explained that airlines generally raised more money than they needed during the pandemic and so have good liquidity on the whole. “Airlines did a fantastic job during COVID,” he said.
Increasing demand and sustainability mean that money is being spent, however. And airlines are reluctant to raise more capital at the moment because of the high interest rates. Shanahan suspected that airline liquidity won’t last long enough as high rates will likely stick around a few years yet.
Airlines will therefore soon start to access finance again. It is expected that in the United States bond issuing markets will be the most active element. In China and Asia-Pacific, local banks will, as usual, be the main sources for financing while other areas will look more at sale and leaseback as well as export credit agencies.
Much of airlines’ money will be spent on sustainability initiatives going forward. Nicklas Lund, CEO of Rockton Partners, estimated that the industry will need to invest about $5 trillion or some $175 billion per year to achieve its net zero carbon emissions by 2050 goal. And yet the 2023 profit for airlines will be just $10 billion and that is following three years of heavy losses. Clearly, aviation will need to access finance to support its sustainability initiatives.
Some money will come from the aviation sector, but public and private capital will be essential. Public capital will rely on programs in individual countries or regions while private capital will come from the oil and gas industry, capital markets, and bank debt providers among others. Venture capital may get involved but Lund suspected they would not be enticed immediately.
Lund hoped that ultimately a virtuous circle will be created where investment leads to projects that provide tangible carbon reduction results and make future investment more likely. But it will take transformative technologies and big gains.
Lund explained that the price of electricity derived from solar energy declined 89% between 2009 and 2019 and the cost of wind electricity saw a 70% reduction. Aviation will need massive swings of this size—perhaps in sustainable aviation fuels (SAF) production increases or the energy density of batteries—a few percent improvement annually will not be enough.
“Aviation will have to punch above its weight,” he said, noting that the industry will require some 20% of global electricity production and 30% of global green hydrogen production to reach its 2050 goals.
Lund says if aviation achieves this level of transformation, it will inevitably impact business models. The regional sector landscape could be completely altered by new propulsion technology, for example. Meanwhile, eVTOLs (electric vertical take-off and landing) will feed into airports and there could even be medium-range sustainable aircraft. At the same time, costs—especially from SAF—will doubtless increase and this will filter through into ticket prices.
Airlines, though, will also have the opportunity to explore investment in many of these areas and generate new revenue streams or at least significant cost savings. Aside from SAF and new propulsion technologies, airlines might consider direct air carbon capture and storage or sustainable infrastructure.
Lund called for all aviation stakeholders to engage in the sustainability challenge and invest to the best of their abilities to create the momentum needed to generate further financing options and real carbon reduction.
“Don’t sit back and think somebody else will solve the problem,” he concluded. “For competitive purposes alone, all stakeholders will need to invest.”
