investment opportunities in the greener flight to future

Investment Opportunities in the Greener Flight to Future

Madusudanan Ramani, Research Associate

Business and Financial Services

November, 17th 2009

2

Introduction to Green Aviation Introduction to Green Aviation

Measures and InitiativesMeasures and Initiatives

3 - 5

6 - 21

Focus Points

� Alternate Aviation Fuel

� Fuel Cells in Aviation

� Electrical Power Systems

� Green Air Traffic Management

� Green Aero Engine

� Composites in Aviation

ETS and AviationETS and Aviation 22 - 23

ConclusionConclusion 24 - 25

3

IATA’s Four-pillar Strategy

Strategy

Technology

Infrastructure

Aircraft

Operations

Economic

Instruments

Aviation Industry : IATA’s Four-pillar Strategy (World), 2008

Source: Frost & Sullivan

B e t t e r f l i g h t

operations

A i r t r a f f i c

management

Opt im i za t ion of

routes

Weight reductions

Engine upgrades

Eff icient aircraft

design

Use of sustainable

alternate fuel

1

2

Efficient operations

Engineering and

m a i n t e n a n c e

F u e l p l a n n i n g

3

Carbon offsetting

p r o g r a m s

Emission trading

Positive economic

incentives

4

4

Electric Power Systems

Alternate Aviation Fuel

Fuel Cells Green ATM

Green Trends in AviationGreen Trends in Aviation

Green AeroEngine

Advanced Composites

Scope of the Study

Aviation Industry : Various Segments (World), 2008

Note : All figures are rounded and the base year is 2008

5

Electrical Power System


Fuel CellsGreen ATM

Green AeroEngine

Advanced Composites

Alternative Aviation Fuel

6

Alternate Fuels

Alternate Fuels

Coal to liquid (CTL)

Coal to liquid (CTL)

Gas toliquid (GTL)

Gas toliquid (GTL)

Biomassto liquid (BTL)

Biomassto liquid (BTL)

Synthetic fuel

Synthetic fuel

BiofuelBiofuel Cryogenic fuel

Cryogenic fuel

Alternate Aviation Fuel (Contd…)

Aviation Industry : Various AlternateAviation Fuels (World), 2008


Factors that make a fuel a good alternative

Blend with the existing infrastructure

A renewable source

Have a stable supply

Should not be a food stock

Cost efficient

Should not cause harm to environment

Since, most of the first-generation fuels are

manufactured using food stock, they are not an

ideal alternative. Moreover with increasing price

of food items, the feed stock for the fuel will

become expensive and the cost of production

would increase. As a result, the focus of the VC

investors has been shifting from the first-

generation fuels to the next-generation fuels such

as cellulostic ethanol and algae biodiesel.

0

0.5

1

1.5

2

2.5

3

3.5

4

2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Volu

me F

ore

casts

('0

00

BP

D)

CTL BTL GTL Biofuel


Aviation Industry : Volume Forecasts for Aviation Alternate Fuel (World), 2007-2015

7

Fuel Cells in Aviation

Alternate Aviation

Fuel

Fuel CellsGreen ATM

Green AeroEngine

Advanced Composites


8

Fuel Cells in Aviation

The potential application of Fuel Cells could happen in the Auxiliary Power Unit, Ground Power Unit

and Ground Handling Equipment. The application of Fuel Cells in APUs for long range aircraft is

expected to be developed by 2015. But the large scale application of the fuel cells could take

another decade.

The potential application of Fuel Cells could happen in the Auxiliary Power Unit, Ground Power Unit

and Ground Handling Equipment. The application of Fuel Cells in APUs for long range aircraft is

expected to be developed by 2015. But the large scale application of the fuel cells could take

another decade.

Drivers

Restraints

Challenges

Due to its modular fitting, fuel cells offer flexibility in storage. The levels of

emission and heat generated is very less. It is highly efficient and can be

operated continuously.

Proper regulatory procedures for the application of fuel cells in aviation have

to be in place before fuel cell are used extensively. The development of the

technology requires huge investment into research and development.

The fuel cells technology is still in its nascent stage. Non acceptance of public

might be a challenge for the participants in application of fuel cell in aircraft.

9

Electrical Power Systems

Alternate Aviation

Fuel

Fuel CellsGreen ATM

Green AeroEngine

Advanced Composites


10

5.00

10.00

15.00

20.00

25.00

Re

ve

nu

e F

ore

ca

sts

($

Bil

lio

n)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Year

Commercial Aviation Electrical Power Systems Market Forecast - 2008-2017

The market for commercial aviation electrical power systems is expected to grow at a compound

annual growth rate of 13.6 percent from 2008 to 2017. The revenues are expected to increase from

$7.68 billion in 2007 to $24.21 billion in 2017.

14.013.0 13.0

14.0

17.0

22.0

24.0

28.0

32.0

10.0

15.0

20.0

25.0

30.0

35.0

2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

Ex

pe

ns

es

(%

)

Fuel as a Percentage of Expenses for Airlines

Electrical Power Systems in Aviation


11

Green Air Traffic Management

Alternate Aviation

Fuel

Fuel CellsGreen ATM

Green AeroEngine

Advanced Composites


12

Green Air Traffic Management (Contd…)

Green ATM refers to efforts taken by air navigation service providers to introduce cooperating working

arrangements and innovative approaches to reducing emissions, including flexible paths and continuous

descent approaches. According to IATA, reducing flight time by a minute per flight globally, would save 4.8

million tons of CO2 every year. Continuous Descent Approach (CDA) enables pilots to navigate long gradual

landings at idle speed instead of a series of descending and plateauing before the landing.

Green ATM refers to efforts taken by air navigation service providers to introduce cooperating working

arrangements and innovative approaches to reducing emissions, including flexible paths and continuous

descent approaches. According to IATA, reducing flight time by a minute per flight globally, would save 4.8

million tons of CO2 every year. Continuous Descent Approach (CDA) enables pilots to navigate long gradual

landings at idle speed instead of a series of descending and plateauing before the landing.

Present Senario

Most of the ATM systems are serving more

aircraft than they are supposed to handle. This

leads to congestion near the airport, which

subsequently causes delay in landing and

wasteage in fuel. There is a 4,800-foot

seperation for IFR approach the acoustic noise is

dispered over large area.

Future Senario

A next-generation ATM system would be

effective. This new traffic system will enable

more direct/efficient routing and taxi routes

and eliminate wasteful holding times in the

air. Airlines would adopt the continuous

descent approach. There would be a 600-foot

separation for IFR approach.

13

Green Aero Engine

Alternate Aviation

Fuel

Fuel CellsGreen ATM

Green AeroEngine

Advanced Composites


14

Green Aero Engine (Contd…)

� The development of the green aero engine is key to sustainable future of aircraft propulsion

systems.

� Factors that drive the application of the green engine are regulations to reduce the greenhouse

gases emissions and the need to reduce the operating cost due to increasing fuel cost. Green

engine form an integral part of the next generation aircraft.

� A technological advancements that enables efficiency in Green aero engines is the use of

composites as engine material, high pressure and efficient compressor designs, low emission

combustor designs, counter rotating turbines, advanced engine health management and

prognostics systems, and reduction in engine bleed dependency.

� Pratt & Whitney’s PurePower engine has been developed after with more than 20 years of R&D

and is expected to enter service in 2013. The fuel consumption is expected to be 12

percent lower in comparison to its current model.

� GE Aviation’s GEnx Engine provides approximately 15 percent fuel efficiency over the other

aircraft engines. This translates into estimated fuel savings of around $ 2 million per aircraft

every year. The emissions are up to 95 percent below the current regulatory limit. In comparison

with the non-green engine, the GEnx is 20 percent longer, uses 30 percent fewer parts and is

expected to reduce the maintenance cost.

15

Advanced Composites


Fuel CellsGreen ATM

Green AeroEngine

Advanced Composites


16

Advanced Composites (Contd…)

Wing

Vertical Tail

Fuselage

Surface Controls

Horizontal Tail

Around 70 percent of the expected improvement in fuel efficiency in aircraft

would come from a better aircraft body. Out of the efficiency arising, 71.42

percent is from use of advanced composites and 28.58 percent is due to

improved design.

Potential Applications of Composites in Aviation

Use of Composites in Aviation

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2008 2009 2010 2011 2012 2013 2014

Year

Volu

me F

ore

casts

(Tons)

Exteriors Interiors

� The strongest drivers for use of composites in

aviation is the increase in fuel efficiency of the

aircraft. Composites are durable and have a longer

material life.

� The biggest restraint in the use of composites is the

high level of investment required to build the

autoclave unit. There is high level toxic emission

while recycling that poses to be a problem.

� High level of certification cost act as a challenge to

the increased use of composites in aviation.

� The strongest drivers for use of composites in

aviation is the increase in fuel efficiency of the

aircraft. Composites are durable and have a longer

material life.

� The biggest restraint in the use of composites is the

high level of investment required to build the

autoclave unit. There is high level toxic emission

while recycling that poses to be a problem.

� High level of certification cost act as a challenge to

the increased use of composites in aviation.Source: Frost & Sullivan

17

Emission Reduction Scheme and Aviation

� European Trading Scheme and Aviation

18

European Union ETS and Aviation

The European Union's Emission Trading

Scheme (ETS) is the world’s first international

emission trading scheme. It is a result of the

Kyoto Protocol on climate change, which

became effective in February 2005. The Clean

Development Mechanism is a function under

the Kyoto Protocol where projects to reduce

emissions in developing countries are

awarded tradable credits called Certified

Emissions Reductions (CERs). These ‘CERs’

can be used by companies to meet their

targets under the ETS, as well as by

governments under the Kyoto Protocol.

The European Union's Emission Trading

Scheme (ETS) is the world’s first international

emission trading scheme. It is a result of the

Kyoto Protocol on climate change, which

became effective in February 2005. The Clean

Development Mechanism is a function under

the Kyoto Protocol where projects to reduce

emissions in developing countries are

awarded tradable credits called Certified

Emissions Reductions (CERs). These ‘CERs’

can be used by companies to meet their

targets under the ETS, as well as by

governments under the Kyoto Protocol.

The European Commission will publish the total allowances that will be available to the entire industry, when it enters the

EU ETS in 2012. It will go on the establish the individual caps for airlines in 2011.

The Aviation Allowances (AEUA) will be created to 97 percent of that baseline forthe year2012. Three percent of the would be reserved for the fast growers and new entrant. A further 15 percent of the rump would be auctioned by the government.

The Aviation sector has been included in the purview of the Kyoto Protocol. All the flights taking off and landing from Europe

would fall in its purview.

Note: All figures are rounded; the base year is 2008.

Source: IATA and Frost & Sullivan

Aviation Industry : Timeline for EU ETS and Aviation(World), 2008

19

Conclusion

� Conclusion

20

Conclusion

� Green aviation encompasses slew of initiatives to be taken by the entire industry

to ensure sustainable development. Regulations from IATA and other agencies

provides major impetus to Green Initiatives of the industry participants.

� Even though the traffic is expected to grow at 5.2 percent, IATA has a vision to

have carbon-neutral growth. Use of technology, operational efficiencies, better

infrastructure, and economic instrument are enabling factors to ensure carbon-

neutral growth.

� The total emission of CO2 by the aviation industry is expected to reduce by 9

percent in 2009. Around two percent of this reduction is because of green

initiatives and the rest 7 percent is due to fall in traffic.

� Some initiatives are capital-intensive and need a lot of investment in R&D. Active

support from government and regulatory authorities would help the participants

to face the challenges.

21

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