Global M&A trends and risks
Powerful new forces shaping in the M&A landscape
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Global | Publication | July 2021
As the global aviation industry looks towards post-pandemic recovery and less turbulent skies, it is the topic of decarbonisation that is increasingly top of everyone’s agenda. There have been a number of eye-catching announcements around the world in recent weeks, from United Airlines announcing its intention to purchase 100 electric aircraft, an increased focus on the use of sustainable aviation fuel (SAF) from several airlines, and Korean Air utilising the green bond markets.
Significantly, on the same day last week the EU Commission published its update to the Green Deal known as “Fit for 55”, including its proposals for aviation, and in the UK, the Government published its Decarbonising Transport Plan (the UK Plan).
This article looks at the headline items in each of the sets of proposals.
The UK Plan sets out – on a holistic basis – the Government’s plans for decarbonising all aspects of the UK’s domestic transport sector. However, unlike the EU announcement, the UK Plan does not yet include the details of proposed legislation.
As regards the proposals for the UK’s aviation sector, the more notable elements of the UK Plan include:
The UK Government acknowledges, however, that international alignment is essential in making progress on decarbonising the aviation industry. The stated intention is the adoption of an “ambitious long-term global emissions reduction goal” through the International Civil Aviation Organization (ICAO) by 2022. This is stated to be a further and separate aim in addition to ICAO’s CORSIA.
Although the UK Plan is inherently limited to actions to address the UK’s domestic position, it is clear that the UK Government hopes to lead by example. Industry players will await further detail of the UK Plan and related legislative proposals with interest.
The EU’s update to the Green Deal, known as “Fit for 55” (referring to the 55% target reduction in carbon emissions by 2035) contain detailed proposals, with the headline announcements accompanied by a raft of draft legislation to implement the plans. The proposed measures will impact the aviation industry from a variety of angles. Key among them are the following:
The scale of these measures, applying as they would to the 27 member states of the EU, will be sweeping and represent a huge shift for the industry. However, some proposals are likely to face resistance from governments and some industry players alike and their final form is by no means guaranteed. What is clear is that, as with its Taxonomy for sustainable activities, the EU is taking measures on sustainability which will have an impact on both EU and non-EU airlines.
It has always been the case that decarbonising aviation requires a combination of bolder government action, technological innovation, operational and consumer change, greater international cooperation and support from the finance sector to meet ambitious targets. While the proposals issued are bold, industry players will be keen to receive further details of the UK Plan and will keenly observe progress regarding the EU proposals.
There will be some, especially amongst environmental groups, who feel the planned measures do not go far enough and feature less ‘big government’ intervention than the challenge of decarbonising and addressing climate change warrants, with the fear that input from stakeholders may ultimately result in diluted obligations. Airlines, manufacturers and other key market participants may also feel that if they are primarily to shoulder the financial burden of ambitious decarbonisation targets which can only be met in part through very long-term investment in new technology, greater government incentivisation and financial support for the aviation sector would be welcome.
The government recently announced the removal of the controversial “sunset clause” from the Retained EU Law (Revocation and Reform) Bill (the Bill). This means that the automatic revocation at the end of 2023 for all remaining retained EU law (REUL) will not occur.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
© Norton Rose Fulbright LLP 2023