Takeaways from Ishka’s ‘Financing Sustainable Aviation’ Day 

Representatives from aviation leasing companies, banks and financiers, airlines, aircraft manufacturers and regulatory bodies met recently in London at Ishka’s ‘Financing Sustainable Aviation’ Day. 

With arguably a sense of ESG fatigue during Dublin’s January conference season, what were the key messages from a full day spent discussing the topic just several months on? 

The aviation industry has to adapt to survive

The day started with Duncan McCourt, CEO of Sustainable Aviation lauding progress in a variety of areas including aviation noise (with latest generation aircraft half as noisy as those they replace),  research into fine particles affecting air quality, and research into the impact of contrails such as NATS’ contrail avoidance trials. However, the message was clear that the aviation industry has to adapt to survive. 

SAF is still the horse to bet on, including into the longer term

Much of the focus was on the use of sustainable aviation fuel (SAF) as the key technology for reducing aviation emissions, with an acknowledgement that SAF can no longer be viewed as merely a transition fuel. While hydrogen and electric will have a role to play in regional and possibly short haul routes once these technologies become commercially available, the industry already knows that SAF is the only credible fuel for long haul aircraft and there was discussion that acknowledging this may encourage a much-needed broader pool of investors into the market.  

UK SAF Mandate

There was confidence that the UK’s SAF mandate and revenue support mechanism should provide certainty for the SAF industry and potential investors, creating a stable regulatory environment in which to operate, although there were several calls to respond to the UK Government consultation on how the mechanism should be funded and also to design issues not addressed in the previous consultation on revenue certainty options.

A warning light – ability to meet current SAF mandate targets

Whilst there was confidence expressed about the ability of the industry to satisfy the shorter term 2% mandate targets in both the UK and the EU, which can be met from currently available HEFA SAF (the price of which has also reduced), there is clearly concern within the industry about the medium and longer term mandate requirements once power-to-liquid/e-SAF sub-caps apply. This concern was echoed at an Airlines for Europe forum taking place in parallel, and strongly endorsed by IATA director general Willie Walsh, who described the EU targets as “never going to be capable of being achieved”. 

Relaxation of EU import rules was proposed as one possible way of helping progress to towards mandate targets, as well as the use of book and claim mechanisms to smooth what is an imperfect supply chain. While regulators will need to address their concerns around the risk of double-counting of sustainable benefits, there was a view that these issues can be smoothed out and this is the direction of travel. 

Wishlist to regulators?

Overall, flexibility on imports and harmonisation of standards was expressed as being key to facilitating compliance as mandates progress. The burden of complying with different rules and requirements for types and standards of SAF were issues highlighted, with regulatory alignment high on the wishlist. Harmonisation of the UK and EU emissions trading schemes were flagged as desirable, as well as for the UK to ring fence SAF revenue for the industry, however the fact that the UK regulations recognise carbon benefits and not just the volume of SAF was praised. 

What news on the EU Taxonomy?

It was agreed that the publication of the manual of best practice prepared by the Aviation Working Group together with IATA, which provides detailed guidance as to how the aviation technical screening criteria might be interpreted, was a helpful development. However, there was a perceived lack of impact by the EU Taxonomy today on capital deployed due to difficulties understanding, meeting and being able to report on the criteria, and a hope that in the future airlines will be able to demonstrate that new deliveries as well as recycling and decommissioning of aircraft are compliant. 

Need for caution around Omnibus Regulation and reduction of CSRD obligations

There was a mixed response to the EU’s draft Omnibus Regulation, which aims to cut red tape and take 80% of companies out of the scope of the Corporate Sustainability Reporting Directive (CSRD). While most aircraft leasing companies could fall out of the scope of CSRD reporting requirements under the Omnibus Regulation, which would (among other proposals) limit CSRD reporting to companies with more than 1,000 employees, the threshold would still catch many airlines or banks. For those entities due to report in 2026 or 2027, their obligations would be pushed back to 2028.

Many lessors were well prepared to meet the deadlines under CSRD and do not see the community rolling back on this commitment. However, there was support for the need to make transparent reporting easier and the EU’s recognition of this, with reporting requirements cut significantly and data points reduced by around 70% - acknowledgement that 70+ page sustainability reports may be considered too long to be truly helpful.

Declining popularity of sustainable finance?

It was noted that, according to Ishka, the volume of sustainable financings has decreased in recent years from 23 sustainability-linked aviation loans in 2023 to 18 in 2024. The slowdown in what was already a fairly limited market is not limited to aviation, and may be driven by broader fears of potential greenwashing allegations. However, it was noted that, while the overall number of deals decreased, the volumes remained stable and sustainability requirements remain prominent even where such deals are not openly marketed as sustainability-linked financings. 

End of life and issues around the EU Taxonomy

The ongoing serious supply chain issues affecting the industry are leading to an increase in the reuse of used parts, with one panellist noting that where 600 parts would typically have been reused from a given aircraft previously, this year the figure has been closer to 1,000. This reflects the value of the assets and the current supply/demand imbalance for new aircraft, with such spare parts helping extend the operating life of older aircraft models and bridge the gap until newer models are available to replace them.

However, concerns were raised that when supply chains stabilise, this figure will go back down at a time when the industry increasingly needs to demonstrate its sustainability credentials. 

One point flagged was that, with the EU Taxonomy focused on newer Taxonomy-compliant aircraft and decommissioning of older models, insufficient focus is given to the circular economy for aviation. With a generation of aircraft now built using composite materials instead of traditional materials, tear down costs will rise while the volume of the aircraft that can be reused or recycled will unfortunately significantly decrease. 

What next?

As the conference drew to a close, it was noted that the industry needed to remain honest and not ‘sugar-coat’ the challenges: sustainability will more likely than not make flying more expensive. As the use of SAF emerges as the main pathway towards achieving net zero, a larger pool of investors will be needed.