The commercial aerospace business case for 2050

Achieving net zero by 2050 is an ambitious goal for aerospace. Here are five key elements that will heavily impact the industry.

In brief

• Aerospace targets net-zero emissions by 2050, relying on sustainable fuels and tech improvements despite a doubling fleet.
• Overcoming challenges requires massive investment and global collaboration to scale up sustainable fuel and develop new tech.

The trade space and implications¹

The path to achieve net-zero is fraught with uncertainty with several unknowns involving technology, regulatory, government policies, and geopolitics. While no one has a crystal ball on the path and timeline to achieve net-zero, the pathways create a trade space involving at least five elements.  Each of these have implications – good, bad, or otherwise, for the stakeholders involved.

Availability of SAF:

The supply of SAF grows exponentially to meet the demand for being used as drop-in fuel at 50% blend or even 100%. Of course, this would require a combination of government incentives, fiscal policies, and regulation. Incentives and subsidies to incentivize SAF production, taxes to increase the price of fossil fuel, and regulations to drive adoption. The aircraft fuel value chain and market could be disrupted, enabling opportunities for new players and challenges for incumbents, radical changes to airport operations, and possibly higher cost for airlines reducing their profitability.

Traffic demand:

Historically, market drivers and competition have enabled the flying public to benefit from declining air fares over time. Industry narrative can shift to include the individual – the flying public – to take responsibility for achieving net-zero. In which case, policies and mandates can enable, or even require, airlines to pass the cost of expensive jet fuel (due to government policies and taxes) to consumers. This could dampen air traffic growth lowering airline profitability, payload efficiency and aircraft technical efficiency.

Accelerated development of transition technologies:

Industry and air traffic stakeholders take on the net-zero 2050 challenge to accelerate development of new design, materials, manufacturing and production system through a combination of conventional and new architecture aircraft. This would require industry and government to considerably increase R&D investment, establishment of more technology and infrastructure partnerships, and different type of talent and employee value proposition. Air traffic organizations will require considerable investment to digitize their capabilities to enable the incremental operational improvements from both conventional and newer architecture aircraft.

Business model changes:

Providers of propulsion and aircraft systems seek alternate business models to make the economics viable to support new clean sheet platforms that may have to be retired sooner to be replaced by alternate transition technologies. Manufacturers could be compensated with a large portion of the lifecycle revenue upfront in addition to designing the system for shorter lifecycle and economic life. This will have major implications to airlines’ economics, cash flow, cost structure, and risk profile impacting fares.

Inaction:

Lack of action on the above becomes a decision. In 2050, civil aviation CO2 emissions are approximately two billion tons. A US$200 per ton carbon price (in real dollars) weighs on the industry in the form of US$400 billion annually.

The above highlights some extremes for a few elements in the trade space. In reality, changes to each element have implications and impacts on numerous other creating a complex challenge. This is an inflection point for the aviation industry. The market will clear as it always has. Winners and losers will be decided based on their ability to place informed bets, investments, and creating the right optionality to exercise and adapt as the ecosystem evolves. In the past, the failure to produce a substantially more fuel-efficient aircraft is net negative, but not insurmountable; however, failing to produce a 2050 technology that narrows the gap to net-zero is going to pose an existential threat to the industry.