If airlines go bankrupt, will we accelerate the shift to a low-carbon economy? In other words, are coronavirus and climate action interconnected?
I think they are not interconnected. Some airlines have already gone bankrupt, perhaps most will go eventually without government help. Governments are ramping up financial assistance programs for the sector. In any case, the coronavirus and 9/11 are time-determined shocks—say one, two, three years. Then the industry will go back to more or less normal. Instead, climate change is a different story, a much longer-term structural issue for the way the industry operates, bringing rapid change over say 20, 30, 40 years. Airlines have very efficiently started to incorporate the price of carbon into the cost of passenger tickets. More will be done. Next year we’ll see the integration of CORSIA, the UN-sponsored plan to offset carbon emissions, incorporating carbon offsetting into the cost structure of the industry. In Europe, we have the Emission Trading Scheme where the industry was included a few years ago. The effect of all this is to make passengers pay for the cost of carbon emissions. This will cause a slowdown in growth in the industry, and will increasingly incentivise the shift to cleaner aircraft. Burning as little fuel as possible is something that airlines have been keen on for a long time. The industry paid great attention to that following the oil shocks of the 1970s. Airlines have a strong incentive to lower fuel consumption and, therefore, emissions. The inclusion of the price of carbon into the ticket price has accelerated that incentive. In Europe, air transport’s usual annual growth rate had been of 3% to 4% on average. Because of climate change, this trend will come down 1.5% to 2%.
What new products or approaches might be needed in air transport to cope with the effects of the coronavirus crisis? How can the European Investment Bank, the EU Bank, help?
In the short term, coronavirus is putting an unprecedented strain on the cash flow across the value chain of aviation: the airline, airport, traffic management, and aircraft manufacturing industries. The European Investment Bank operates through lending to finance capital expenditure. The continuation of this activity and our availability is part of the solution. But I’m afraid this is not the whole story. While grounded the industry cannot generate cash, cannot repay its debt and cannot remunerate its own equity. If we were to base everything on increased debt or leveraging up the balance sheet on a sector that is already quite significantly leveraged, there will have to be something additional to lending—for instance, some assistance on the equity side via grants, via capital injection, which the authorities and industry are intensely discussing now. The European Investment Bank is available and we continue to disburse loans that have been recently approved. We continue to appraise new projects and assist our clients. This is part of helping the industry get through these terrible times. But the aviation industry will emerge from this and will continue to play its role of bringing the world together.
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