From Talk to Action: Airline Climate Funds Driving Net-Zero Technologies

As of today, the aviation industry has three strategies available to mitigate its looming carbon crisis.

1. Foster Fleet Renewals: The transition from non-efficient gas guzzlers to the latest aircraft models is non-negotiable. Newer models leverage advancements in aerodynamics, propulsion systems, and lighter materials, making them, on average, 25% more CO2 efficient than their predecessors. 

1. Maximize Operational Efficiencies: Every operational aspect, from reducing terminal wait times to optimizing flight routing, including contrail reductions, must be aggressively fine-tuned. The goal is straightforward: generate fuel savings and, consequently, CO2 reductions wherever possible.

1. Master SAF Adoption: The rapid integration of Sustainable Aviation Fuel (SAF) into the fuel mix is imperative. SAF can offer up to 80% lifecycle CO2 savings compared to conventional jet fuel (depending on the type and feedstock involved).

Side note: There exists a fourth method—carbon offsets. However, we choose to ignore this approach, given it is not a direct contributor to reducing aviation's emission footprint, and, arguably, a distraction at best, especially given its increasingly fraudulent nature.

Despite the availability of these three approaches, the uncomfortable reality is that even full-throttle commitment to these initiatives will not be enough for aviation to become net zero. 

Assuming only moderate annual passenger growth (3%) over the next 26 years, aviation is projected to contribute over 2.5 Gt of CO2 equivalent by 2050. Analysis based on Boeing 's Cascade forecasting dashboard reveals that even aggressive fleet renewals, extreme leveraging of operational efficiencies, and maximizing SAF adoption could collectively address just slightly over 60% of aviation's 2050 CO2 output. 

This leaves a 40% shortfall from the needed net-zero target—a gap that is likely to be much bigger given the real-world challenges of overcoming SAF shortages and realizing operational efficiencies, which include complex regulatory changes such as implementing the Single European Sky.

Bridging The Innovation Gap

This undeniable gap between currently available sustainable approaches and net-zero ambitions reveals an uncomfortable fact: achieving sustainable aviation with today's methods alone is out of reach.

Where does this leave us?

Reaching net-zero necessitates radical innovation in more explorative forms, such as:

• Expanding SAF exploration and green-energy production through direct greenfield investments funded by aviation stakeholders. It's essential for airlines to have “skin in the game” and actively support and finance the energy industry's efforts in scaling next-gen energy supply.

• Moving beyond traditional "tube and wing" aircraft designs to explore advanced airframe concepts like blended wing bodies. However, these designs continue to face technical hurdles, especially regarding the pressurization of non-cylindrical fuselages.

• Developing novel propulsion systems, including battery-electric and hydrogen technologies. 

A mix of startups, some more promising than others, are venturing into these innovative domains. However, these pathways demand substantial financial backing.

Experts estimate that achieving radical innovation in all these new energy and aircraft technologies will require an investment of approximately five trillion USD by 2050, translating to an annual innovation budget of 175 billion USD. This is a stark contrast to the aviation industry’s current total R&D spending, which is about 23 billion USD annually.

Going forward, the aviation industry must secure an unprecedented level of investment into breakthrough technologies to stay on a realistic path toward our net-zero necessity.

Airlines Investing in Radical Innovation

Given the trillion-dollar investment required, it's evident that no single entity can shoulder this financial burden alone. The entire aviation ecosystem must play a part in this monumental endeavor, including airlines. While airlines may not manufacture aircraft or produce jet fuel themselves, this doesn’t mean they can't spur radical innovation by backing and funding promising new aircraft and energy technologies. As the operators of aircraft, they are ultimately responsible for transporting passengers in more sustainable ways.

Consistent with the mantra of our Net-Zero Aviation research series, we aim not just to underscore the hurdles to achieving net zero for aviation but also to spotlight those companies, particularly airlines, leading the charge in trying to bridge the net-zero gap.

Previously, we've acknowledged those airlines with 

1. the most modern fleets, 
2. the most extensive adoption of SAF, 
3. and the most commitment to future SAF supply through offtake agreements. 

Now, we turn our focus to those earmarking substantial funds for investments in greenfield energy projects and groundbreaking aircraft technologies.

The list of airlines actively building such dedicated innovation budgets is shorter than expected. To date, only three major airlines have established standalone climate-focused investment funds. We've compiled these pioneering initiatives into one visual.

Let’s briefly compare these three initiatives:

1. United Airlines' Sustainable Flight Fund: A Benchmark for Industry Collaboration

United Airlines' Sustainable Flight Fund stands out for its approach to fostering industry-wide collaboration.

• Launched with an initial investment of $100 million in early 2023, the fund drew support from a wide array of inaugural partners, including Air Canada , Boeing , GE Aerospace , JPMorganChase , and Honeywell .
• Only a few months later, United Airlines had doubled the fund's size to $200 million. It also expanded its airline partnership network to include JetBlue Ventures and Hawaiian Airlines , alongside a variety of non-aviation co-investors like American Express , Bank of America , and the Boston Consulting Group (BCG) .

While United deserves praise for uniting such a diverse set of corporate partners, the fund primarily aims at expanding SAF. As of today, the fund only focuses on investments in advanced fuel sources and established producers to increase SAF's availability. Consequently, the fund currently deprioritizes more speculative investments in technologies like electric and hydrogen flight platforms. Nonetheless, for such future flight technologies, United has established a separate investment channel, United Airlines Ventures, thereby showcasing a comprehensive approach to fostering innovation towards net-zero.

2. Emirates’ Aviation Sustainability Fund: Focusing On Advanced Fuel Solutions

In early 2023, Emirates unveiled its own commitment to sustainability, announcing a $200 million USD Aviation Sustainability Fund. 

Mirroring aspects of United's strategy, Emirates has focused its fund on advancing fuel and energy solutions, explicitly excluding expenditures on SAF purchases or low-quality carbon offsets. These are activities Emirates classifies as "business as usual," a stance reaffirmed by its president, Tim Clark.

While the specific allocation of the fund's resources remains somewhat opaque (fueling speculation about the initiative's sincerity), Emirates has communicated a clear time frame for its investments. The airline has pledged to deploy the entirety of its fund within the next three years—a move that is noteworthy for its commitment to time-bound action. 

3. "Qantas and Airbus’ Climate Fund: Fueling The Local Biofuel Market

Qantas , in collaboration with Airbus , announced the creation of its own climate fund in June 2023, with a fund size of AUD$400 million (approximately USD 260 million). 

• This initiative is tailored to kickstart the nascent biofuels industry in Australia, where such an industry is virtually non-existent. 

• The fund aims to encourage local fuel and feedstock initiatives, primarily focusing on expanding SAF by investing in the construction of new SAF plants—a direct energy investment strategy rarely pursued by other airlines.

Understanding the importance of industry-wide collaboration for such a pioneering venture, Qantas has also brought Pratt & Whitney , a leading U.S. engine manufacturer, into the partnership.

The establishment of these three climate funds marks the beginning of what we consider a crucial trend: airlines publicly dedicating specific budgets towards net-zero technologies, moving beyond standard fleet renewals and SAF purchasing agreements. While the detailed allocation and use of these funds are not yet transparent enough, announcing these investment commitments is a significant step toward clearer net-zero strategies.

Nevertheless, we must approach these announcements cautiously due to their current lack of detailed fund allocation. The primary focus of all three funds on SAF almost exclusively—while vital, given SAF's pivotal role in the industry's transition—is a reminder: The aviation industry's journey towards net-zero requires bold ventures into radical innovation beyond SAF, including electric and hydrogen propulsion technologies. Whether these avenues will prove fruitful remains to be seen, but their exploration is essential for a genuinely sustainable future.

The Next Leap in Airline Net-Zero Efforts

With our exploration of dedicated airline climate funds, we've added another layer of insight into how the aviation sector is navigating its net-zero journey. As we move forward, our attention shifts to the arena of corporate venture capital (CVC). A number of forward-thinking airlines are not just betting on SAF; they're also directly investing in disruptive startups aiming to revolutionize aircraft design and propulsion systems. 

Keep an eye on our upcoming posts for a deeper dive into the leading airline CVC efforts.