FGA discussing transition finance, SAF and the role of the lessors

Air Finance Journal, 29th September 2022

With limited options to significantly reduce emissions in the short-term, the aviation industry is pinning many of its hopes of reaching net zero by 2050 on sustainable aviation fuels (SAF).

“It’s going to have to be SAF,” Todd Wolynski, partner at law firm White & Case, tells delegates at Airfinance Journal’s LATAM 2022.

He notes the rollout for electric and hydrogen technology for large scale commercial aviation isn’t viable in the medium-term. In the meantime, ramping up the SAF supply chain is the most realistic solution however even this solution will require a mammoth effort from stakeholders.

“For it to be truly green, you have to have feedstock close by and the offtake has to be local. It can’t be concentrated in a few producers, this needs to be global.

“It is one part of the bridge but for it to truly take off, you need the investment, the financiers to back it and sponsors to put capital into it and you need the airlines to commit to purchasing it.”

Wolynski argues that government support for the SAF industry will be crucial to draw that capital required to finance it.

“You need an entity that is focused on internal investment in the country, you need government backing and guarantees to give the bankers the confidence to put that much time and money in a project like that,” he comments.

The production and supply of SAF is seen as a transition mechanism to meet the industry’s 2050 target, and lenders in the aviation sector are now exploring ways to help finance airlines’ ability to purchase SAF for their flight activities.

Sarah Wilkin, chief executive officer of Fly Green Alliance, says leases with SAF usage written into the contract are allowed to be deemed as sustainability-linked transactions. She reveals that the company is already working with lessors and asset managers on due diligence around SAF-linked leases.

“Arena Aviation Capital has an MoU in place around such a sustainability-linked lease and they have found capital in the Asian markets… even though it’s in the early stages, we can see that it is possible,” Wilkin said during an ESG conference hosted by Bird & Bird.

“All the conclusions of ICAO and other industry bodies indicate that SAF is going to be the answer to reducing emissions as the industry transitions to net zero.”

One impediment is the metrics involved and how ‘sustainability’ is measured within such transactions.

“Could the investor or lessor put equity in the actual production or is the onus on the airline itself? That is what we are trying to figure out,” she adds.

Michael Halaby, managing director at MUFG, called for more transparency around recent sustainability-linked leases and loans, the details of which are not always fully not disclosed, in order to better inform the market.

“We don’t necessarily need to see the whole loan document, but it would be good to see something to know what has been done,” he comments.

“In the interest of this industry, we’re all rowing in the same direction, and it would be good to have more detail,” he adds.


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