Commentary

More than Just Fuel

Stephane Lagut, EY Global Aerospace & Defence Sector Leader, highlights the challenges of achieving sustainability in the commercial aviation sector.

Every industry is facing more pressure from a wide spectrum of stakeholders to incorporate more sustainability and ESG actions into their day-to-day operations. But the commercial aerospace sector in particular has been under the microscope over the past several years as travel volumes rise and the carbon impact of air travel becomes more widely understood. As a major source of carbon emissions, the commercial aerospace sector can make an enormous impact through operational improvements, sustainable aviation fuel (SAF), new propulsion technologies (such as electric and hydrogen) and global market-based measures like carbon offsets.

SAF is beneficial but has its challenges

SAF represents the most meaningful near-term solution available to reduce climate impact for the aviation industry. The development of SAF value chain is the priority for the aviation industry. However, obstacles at each stage of the value chain (feedstock, production, and infrastructure) need to be tackled to make SAF a viable option and a new normal post-2030.

More feedstock options – An estimated 1 billion tons of feedstock material can be collected sustainably each year in the US, enough to produce 50–60 billion gallons of low-carbon biofuels. Analysts even suggest SAF could power all of commercial aviation in 2030, relying only on existing feedstocks and technologies[1].

Increasing investment requirements for production – While production costs continue to drop, current SAF costs up to 2–3x as much as conventional jet fuel, presenting a barrier to large-scale uptake. Investing in SAF production is still a difficult proposition for lenders, which limits access to finance for SAF producers and continues to hamper efforts to boost supply levels.

Need for advancements in infrastructure – Drop-in 100% SAF is expected to be introduced by 2030 and is compatible with existing engines, scalable and economical. However, with the introduction of new fuel technology, different challenges are associated. It will most likely be incompatible with existing infrastructure, from the fuel delivery system to aircraft and engine systems. Unlike drop-in SAF, future SAFs may require dedicated infrastructure.

Like the range of flight paths jets take all over the globe every day, the journey to sustainability is not a singular route. It should build on the long-term path toward achieving net-zero emissions for the entire aerospace industry. This will require use of several eco-friendly tools, technologies and processes that go beyond just advancements in fuel and propulsion technology.

The sustainability footprint starts on the ground

The sustainability discussion in commercial aviation is too often focused on fuel efficiency. The sustainability footprint of an airplane starts long before the time of flight, and needs to be seen holistically through the complete value chain that includes ground operations, recycling, energy consumption on the ground, usage of water, and more.

Sustainability begins when the aircraft is being built. The sourcing, quality, weight, and durability of the materials used to develop aircraft have a direct impact on sustainability. Once the plane is in the hangar and on the tarmac, there is an opportunity to make processes ‘greener’ before the plane takes off. For example, there is room to develop recycling programs, proper water usage regulations and energy consumption measurements on ground operations.

While it may seem counterintuitive, it is best to not just focus on fuel efficiency, when talking about sustainability in commercial aviation. Widening the lens to beyond fuel efficiency will allow us to step back and see the bigger picture.

The evolving role of supply chains

Recently, the commercial aviation sector has been buoyed by renewed hopes that the worst of the pandemic is behind us. Yet amid this recovery, original equipment manufacturers (OEMs) and suppliers are grappling with demand volatility, supply chain ruptures and production constraints like never before. For decades, supply chain has been the heart of the commercial aviation industry, bringing in value, innovation, and vulnerability. Now, due to various geo-political factors and business remodeling, the role of supply chains has evolved as it relates to sustainability.

Given their complexity, one of the greatest areas of environmental vulnerability — and opportunity — facing firms is their supply chains. To minimise risk, leaders are moving beyond superficial sustainability assessments and are instead engaging deeply with their entire supply chains, mapping direct suppliers down to the initial sources of basic commodities. Equipped with a more comprehensive view, firms can better align their supply chains with their overall sustainability strategies.

Leaders are also pursuing supply chain transformations by raising sustainability requirements for vendors and instituting accountability measures. These may include third-party certifications or more technology-driven solutions, such as the use of blockchain and advanced analytics to track input attributes from raw materials, all the way to the final product. When paired with ongoing diligence measures such as audits and on-site inspections, these measures can reduce risks and costs while improving quality and transparency.

Motivate, attract and maintain

When talking about ESG, the ‘S’ in the equation cannot be ignored. For the commercial aviation industry to further their sustainability motto and develop actionable ESG actions to make a positive impact, they need to manage their relationship with the workforce.

The pandemic has scrambled the availability of labor and created new priorities among workers, resulting in a drift away from traditional roles. Businesses in the aviation sector willing to change how they approach workforce development have an opportunity to stand apart from the competition. Businesses must revisit their personnel strategy to attract new talent whose career mindsets differ from previous generations.

The ability to attract, develop, engage, retain and inspire both the current workforce and the next generation of employees is a must. In addition, these same leaders must change their own ways, embracing new behaviors and value systems and getting comfortable with shifting corporate structures and collaborative cultures.

Some ways the airline industry can reimagine their workforce strategy, furthering their ESG initiatives is by defining your purpose and promote it among your workforces, recognising that the workforce expectations are changing, having a more diverse and inclusive workforce, redefining the role of HR, and more.

Additionally, to the extent possible, businesses can look at investing in automation. In the aviation sector, this is an opportune time to look at how to automate different jobs that have not previously been automated. This is a first step towards long-term sustainability, and a company’s digital, value engineering and data analytics functions all have a role to play. Digital innovation for airlines is bound to improve productivity, satisfaction, and customer experience and can also be used to achieve ESG goals. The entire ecosystem will undergo multiple waves of disruption, similar to what we’re seeing transpire in the automotive industry — impacting current operations, R&D, supply chains, workforce plans and M&A strategies.

ESG’s expanding strategic role

ESG doesn’t start and stop in the boardroom. It requires insight, expertise and commitment across the business and the wider ecosystem. Everyone has a part to play to create value for all stakeholders. It’s not just the CSO’s business, it’s everybody’s business.

Of great importance is reframing how business approaches sustainability and putting it at the center of how value is created. The purpose of sustainability needs to shift from only achieving improved ESG metrics to direct contribution to an enterprise’s growth and business strategic goals.

By putting ESG at the heart of business strategy, understanding risks and opportunities, and setting value-driven sustainability agenda, companies will be positioned to:

  • Create value by identifying opportunities where sustainability can provide competitive advantage;
  • Protect value by responding to key risks;
  • Drive business wide transformation to deliver new ESG ambitions, that demonstrates good progress in the short term, working with financial capital available;
  • Efficiently and effectively delivering ESG operations, managing performance and governance; and
  • Communicating to wider stakeholders, including investors and regulators, a compelling narrative on how the ESG ambitions and initiatives will drive financial value.

Evolving standards of investing

Sustainability is becoming the new standard of investing, making sustainability integral to portfolio construction and risk management, while exiting investments that present high sustainability risk. Capital must flow to the products, services and technologies that will help create a more sustainable world. That way, more value is created and protected, and change happens faster. It’s a virtuous circle. The transition to a sustainable economy requires new capabilities. Companies must deploy technologies faster, put people first, and scale innovations that work. Those that take decisive action now can get ahead of change, create more value, and shape a sustainable world.

[1] https://www.energy.gov/eere/bioenergy/sustainable-aviation-fuels https://www.weforum.org/press/2021/09/clean-skies-for-tomorrow-leaders-commit-to-10-sustainable-aviation-fuel-by-2030/

https://www3.weforum.org/docs/WEF_Clean_Skies_for_Tomorrow_Sustainable_Aviation_Fuel_Policy_Toolkit_2021.pdf

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