Sustainability in European skies – Key takeaways from Clyde & Co’s Aviation Day 2024

The aviation sector is facing a major challenge to reduce its environmental impact and achieve the Net-zero 2050 Objective, which implies reaching carbon neutrality by the middle of this century. This goal requires a profound transformation of the industry, involving technological, regulatory, operational and financial aspects.

Partners from Clyde & Co’s Aviation team together with industry experts from different fields joined the Clyde Aviation Day in Madrid on 21 March 2024 to discuss the current situation and the future prospects of the energy transition in aviation and its implications for insurance and aircraft financing. 

Net-zero 2050 target – SAF, electric and hydrogen aircraft

The first panel, moderated by Enrique Navarro, Partner at Clyde & Co and head of the aviation, marine and logistics practice in Spain, focused on the main drivers and barriers for the decarbonization of the aviation sector, with a number of representatives of different stakeholders in the aviation sector: manufacturers, regulators, airlines and fuel suppliers.

Particularly, the panelists were Javier Arnaldo, Director of Sustainability of Airbus in Spain, Marta Lestau, Director of Aircraft Safety of the State Agency for Aviation Safety (AESA), Javier Gándara, President of the Association of Airlines (ALA) and General Manager of EasyJet for Southern Europe, and Ángel Luis Martínez Campos, responsible for Sustainable Aviation Business Development of Spanish energy company Cepsa.

The panelists agreed that the Net-zero 2050 Objective requires a collaborative approach from all the stakeholders involved: manufacturers, operators, regulators, fuel suppliers, airports, etc. They also highlighted the importance of innovation and research to develop new technologies and solutions, such as hydrogen-powered aircraft and the improvement of operational efficiency, which as explained by Javier Arnaldo can imply a reduction of a 20% of fuel consumption by some specific aircrafts.

Further, all the panelists agreed that in the short-term the exclusive solution is the use of sustainable aviation fuels (SAF), which – according to the ReFuelEu Regulation dated October 2023 – shall represent at least a 2% of the fuels delivered by fuel suppliers. In this respect, Javier Gándara shared the perspective of the airlines and also pointed out the barriers and difficulties that the aviation sector faces, such as the high costs and limited availability of SAF.

The high price of SAF, as explained by Ángel Luis Martínez, is caused by the limited availability of suitable raw materials and facilities for their production. Additionally, Ángel Martínez also mentioned that in other countries, as the US, the Governments is subsidizing the acquisition of SAF, unlike in Europe, which might cause a competitiveness problem.

Marta Lestau explained the role of the regulator in ensuring the safety and environmental performance of the aviation sector and mentioned the main initiatives and regulations at the international and European level, such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which are intended to assist airlines in meeting net-zero objectives.

The impact of the energy transition on the aviation insurance sector

The second panel, moderated by Carlos Cid, partner at Clyde & Co and head of the insurance practice in Spain, addressed the question of how the insurance market will accompany the different operators in the necessary technological and other transformations, as it has always done throughout the history of aviation.

The panelists were Javier Baz, Aviation Underwriter of Starr Europe Insurance, José Enrique Iglesias, Underwriter Manager Marine & Aviation of AXA XL, Esperanza Pereira, Head of the Risk Management and Insurance Division of AENA, Teresa Queipo de Llano, Risk Managment Aviation & Space, Marsh & McLennan and Fernando Sánchez Moraleda, Global Aviation & Space Director for Iberia, Willis Towers Watson.

The panelists discussed the main risks and opportunities that the energy transition entails for the aviation insurance market, such as the emergence of new technologies, the adaptation of existing policies and products, the evolution of the claims and litigation scenarios and the impact of the environmental and social governance (ESG) criteria.

From the Underwriter’s perspective, Javier Baz stressed the need for a close collaboration and communication between the underwriters and the insureds, as well as the role of the brokers as intermediaries and facilitators, as he named the “magic triangle”. José Enrique Iglesias shared his experience and insights as well from the view of a global insurance company and emphasized the commitment and responsibility of the insurance industry to support and promote the sustainability and decarbonization of the aviation sector.

From an insured perspective, Esperanza Pereira explained the role and the strategy of AENA, the world's leading airport operator, in the energy transition of the aviation sector, as well as the implications and expectations for the insurance market. She highlighted the actions and initiatives that AENA is carrying out to reduce its environmental impact and to contribute to the decarbonization of the sector.

Finally, Teresa Queipo de Llano presented the broker's perspective on the energy transition in the aviation sector and introduced us with a significant number of examples of “green projects” initiated and already being covered by insureds, which are in her perspective willing to help in this new era. Fernando Sánchez Moraleda, shared his vision as well as a broker mentioning the main challenges that the broker faces, such as the adaptation and diversification of the insurance products and the collaboration and alignment of insured and underwriters’ interests and objectives for these new risks.

Aviation Finance and sustainable aviation

In the last panel, moderated by José Luis Ituarte of Clyde &Co, the impact of the changes and measures to be adopted in order to achieve the final goal of being climate-neutral on the activity of Aviation Finance were addressed? The participants in this third panel were Víctor Blanco Delgado, VP Legal of Wamos Air, Virginia Ginestra, Aviation Legal and Insurance Manager of World2fly and Mark Bisset, Partner at Clyde & Co.

Mark Bisset pointed out that in a few years we will not be talking about sustainable aviation finance, but only about finance, and he also mentioned the relevance of the cases of green washing that are emerging in this new era.

Both Virginia Ginestra and Victor Blanco agreed that it is necessary to adapt the fleets to the new technologies in order to meet the sustainability goals, but the main problem is that this need arises during the pandemic, when all the airlines are trying to change their fleets, which leads to an increase in the demand for aircraft at levels that the producers cannot meet.

As a consequence, the average age of the aircrafts has increased, and leasing has risen to 70% in the aviation world, which is also expected to continue in the coming years, as the main manufacturers cannot keep up with the production pace that is being set and neither can the aircraft maintainers, due to the lack of material and personnel.

Therefore, although it is true that the new planes are responding to the environmental requirements by being much more efficient operationally, the fact is that the producers are not delivering the number of new aircraft that is needed. In this sense, Mark Bisset's conclusion is that in the face of such a high demand, he remains positive and believes that the industry will be able to cope with the current difficulties.