Asset class carbon stigma.
This scenario is as of 2022, and is based on only two emissions options on the table for aircraft emissions.
1. NASA Aeronautics technology is researching potential technologies that will reduced fleet fuel usage and harmful emissions. Specifically, the Advanced Air Transport Technology Project under the Advanced Air Vehicles Program is investing in technologies such as:
1. Small core engines.
2. Fuel-flexible combustors.
3. Electrified aircraft propulsion, This presentation will provide a brief overview of these technical approaches as well as a NASA Aeronautics budget outlook.
GE, Pratt & Whitney and Rolls-Royce are the only engine manufacturers with the capability to develop engines that reduce engine emissions to Net-Zero levels, and after that to eliminate emissions completely, the Zero-emissions aspiration.
2. The three manufacturers are offering only one investabel solution, which is the geared turbofan engine (GTE) that powers short to medium haul, narrowbody aircraft. They have no proposal on the table that addresses the Middle of the Market or the long range market. 3. In effect the solution is to replace a gas turbine engine with a gas turbine engine, the only emissions difference, is that the GTE reduses emissions by ~1% to 2% p.a. over the long term.
4. In looking further afield for engine emissions solutions, the options are electric engines powered by battery, hydrogen powered engines or a hybred of the gas turbine engine with an electric generator.
If a scenario was emerging in which the ICAO CORSIA scheme fails to address the emissions from gas turbine engines by 2030, and no viable Net-Zero engine emerges to replace them, then aircraft would continue to emit high levels of CO2.
One scenario is that aircraft, as an asset class, could be stigmatized because:
1. They could rank as the worst polluters in the transportation sector.
2. They could be compared to brown asset and subprime mortgages.
3. They could receive lower credit ratings.
The experience from the sub prime mortages market failure, shows that aircraft investors could behave in a similar fashion. 1. They could flee the entire market.
2. They could stop lending to companies thought to be too exposed to aircraft as an asset class.
The latest vintages of subprime-based securities had the worst credit risks with some borrowers not paying even the first mortgage instalment. Early vintages had much lower levels of credit risk. Many corporates among utilities and electricity production, while not among the worst polluters, are still emitting high levels of carbon. They may also be subject to the same carbon stigma as the worst emitters in their sector. And if they are, then the same could happen to aircraft as an asset class.
When it comes to stigma on an asset class, financial markets can lose their ability to screen risks.
Once exposure to subprime became suspicious, even the early vintages of subprime-based collateralised debt obligations became dubious. As the subprime crisis made it clear:
1. Compounding a stigma with uncertainty on the degree of exposure.
2. Adds up to a risk of financial instability.