The future of aviation transport

October 21, 2021

In last week’s commentary we discussed how green hydrogen can help reach net-zero carbon by 2050. This week, we focus on decarbonization within the aviation sector and how technological evolutions will help reduce carbon emissions.

The transportation sector is a huge contributor to carbon emissions, and is responsible for 29% of the total carbon dioxide (CO2) emissions in the United States (US) and close to 27% in Europe. Compared to the aviation sector, the road transportation sector is far ahead on its decarbonization path.

While other sectors decarbonize quicker, the commercial aviation sector is under pressure to show greater transparency and start establishing greater initiatives in order to cut down its carbon emissions. Two weeks ago, the International Air Transport Association announced that its member airlines, which represent 82% of the world’s airlines, agreed to achieve net-zero carbon emissions by 2050.

The road map to decarbonization will essentially be driven by newer and greener technologies, and by increasing the mix of sustainable aviation fuel. Sustainable aviation fuel would certainly be part of the solutions, but that cannot be the only one. Current availability of sustainable aviation fuel represents only 0.1% of the total fuel supply needed.

Technology, which will continue to evolve, will also help reduce the sector’s carbon emissions. Pratt & Whitney designed GFT engines, which is one of the most sustainable engines in service for single-aisle planes. The GFT engine family, as an example, allows the reduction of up to 20% fuel burn and carbon emissions, while reducing the noise footprint by 75%. Today, more than 1,000 airplanes are equipped with that engine. When considering there are approximately 26,000 airplanes in service globally, the carbon footprint of this sector would be improved as older airplanes get replaced with newer and more efficient aircraft programs.

Another means of transportation for regional and urban travel could emerge in the coming years. Electrical Vertical Take-off and Landing (eVTOL) is a new type of light commercial aircraft currently under flight testing or prototyping. This new transport mode is potentially disruptive to other modes of transportation but should not be a threat to commercial airlines or the automotive sector. Conversely, it represent a sustainable alternative for inner city, short regional travels, air ambulance, and cargo transport.

Thanks to sizable investments made over the past two years, the odds of having eVTOL operating in the future has increased significantly. Since 2019, the eVTOL sector benefited from a capital inflow of approximately $10 billion.

The eVTOL market opportunity could be massive but at this time, it is hard to assess what could be an accurate figure. Lilium, one of the leading original equipment manufacturers (OEM) in that space, estimates that eVTOL could be worth $500 billion by 2040. When taking the cargo market under consideration, this market size expectation could reach $1 trillion. Other experts believe this sector could become an even bigger addressable market. It is no surprise that established aircraft manufacturers announced their own eVTOL programs, or co-investments. Last month, Airbus launched its new CityAirbus Next Gen program to address the urban air mobility market.

Joby Aviation and Volocopter are amongst the leading OEMs that could be the first to obtain their type certification between 2022 and 2024. Other interesting emerging eVTOL developers include Archer Aviation, Lilium, Vertical Aerospace, and Kitty Hawk. Note, the aforementioned companies are not part of Global Alpha’s holdings. Every manufacturer has its own design, propulsion technology, and characteristics, but all of them want to address the future of urban air mobility, focusing on a transportation range of 0-300 miles.

There are several positive advantages to support the eVOTL development over traditional transportation modes:

  • Reduced travel time and the cost of congestion: Lilium anticipates a short distance trip, like JFK airport to New York City could take approximately five minutes, while a longer regional trip between NYC and Boston could take approximately 1hour and 15 minutes. Joby Aviation estimates that there are 4.6 billion hours wasted in traffic in the top 15 U.S. cities every year.
  • Sustainable transportation mode: Lilium estimates that its eVTOL emission footprint would represent 18g CO2 per passenger kilometers. That compares with 189g for commercial aircraft, 142g for gasoline cars, and 31g for electric cars. This is assuming the batteries are produced with renewable energy.
  • Noise reduction: Some models of eVTOLs are expected to generate less than 70 decibels, which is comparable to the noise level of a dishwasher.
  • Lower cost of operation: McKinsey estimates that the cost of operating eVTOL could drop rapidly to $2.5 per seat mile. In comparison, the cost of operating a helicopter today is around $6-$8 per seat mile.
  • Simpler infrastructure needs: The urban air mobility network would require an infrastructure that would likely be much less costly than traditional transportation infrastructure, such as airports. Many of the existing infrastructure could be converted into landing/take-off pads (rooftop buildings, gas stations, parking areas). McKinsey estimates that the cost for 10 landing/take-off pads could reach up to $24 million, which includes the cost of operations.

We understand that a new ecosystem needs to be created, and with that, comes many challenges. The success of the eVTOLs will depend on several factors, such as technical challenges, regulatory approval, the pace of adoption from clients and passengers, and the infrastructure required to accommodate this new transportation mode.

Global Alpha Capital Management Ltd.
October 21st, 2021