Aviation seems to be facing a fuel-related existential crisis at the moment, as pressures mount on the industry from various angles.

Within asset finance generally the major discussion is the looming bite of the IMO 2020 regulations, which will reduce the amount of sulphur permitted in ship fuel oil to a limit of 0.50 per cent mass by mass from 1 January 2020. Aside from the huge impact this will have on the world’s vessel owners and operators, it is also anticipated that there will be knock-on effects for aviation.

For example, as oil refineries race to find capacity to produce ship fuel compliant with the IMO 2020 requirements in response to the rising demand, there are concerns that this might be achieved by cutting jet fuel production. This would have the obvious effect of raising prices for the reduced supply, which would be felt by all airlines, but especially by the low cost carriers.

Some are forecasting a corresponding rise in aviation fuel hedging activity, as airlines move to lock in their prices before the supply is reduced and greater uncertainty enters the equation. However, it has also been noted that the IMO 2020 rules will raise the “crude oil prices that are sometimes used for the aviation industry’s hedging programs”, so aviation is still likely to experience some effects of the changed ship fuel regulations even when their prices are shielded from the open market.

It is clear that aircraft technology must evolve and improve dramatically as regards fuel and power sources, if it is to avoid ‘conspicuous consumer’ status ‘in a low-carbon, renewables world’

There are also external pressures, as the industry becomes increasingly aware of its reputation as a source of 2 per cent of global carbon emissions (and 12 per cent of emissions from transportation),[2] potentially rising to 10 per cent by 2050 according to some estimates.[3] There is a movement away from traditional jet fuel in this respect anyway, as research into alternative fuels and electric power steps up significantly – according to the FT, in 2017 “more electric aviation projects were announced than in all of the previous nine years”.[4] It is clear that aircraft technology must evolve and improve dramatically as regards fuel and power sources, if it is to avoid “conspicuous consumer” status “in a low-carbon, renewables world”, as IATA has warned in its latest report on the industry’s future.[5]

Tempting as it is to envision some sort of Starkian arc reactor solving all of these problems, the technology is a long way from making these visions reality. Electric aviation may be possible “in a hybrid form and for shorter flights”,[6] which might be an option for smaller aircraft flying shorter routes, but for large commercial aircraft this is not yet viable. The weight of current battery technology means that any such equipment capable of powering a commercial passenger jet would be more than twice the weight of the aircraft it propels, and would also generate dangerous levels of heat in the higher levels of the atmosphere.

While alternative and bio-fuels are also being explored, as well as the potential of nuclear, it seems we have a long way yet to go before aviation’s power sources resemble Iron Man’s – although that should obviously be a motivating factor for the engineers… and MIT are working on it!

[1] https://www.bloomberg.com/news/articles/2018-09-06/airlines-stepping-up-oil-hedges-before-2020-shipping-rule-bites

[2] http://www.cleansky.eu/aviation-0

[3] https://www.ft.com/content/0a58d62e-aeb9-11e8-8d14-6f049d06439c

[4] https://www.ft.com/content/0a58d62e-aeb9-11e8-8d14-6f049d06439c

[5] https://www.iata.org/policy/pages/future-of-airlines-2035.aspx

[6] https://www.ft.com/content/0a58d62e-aeb9-11e8-8d14-6f049d06439c