Investment Opportunities in the Greener Flight to Future

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Investment Opportunities in the Greener Flight to Future

  1. 1. Investment Opportunities in the Greener Flight to Future Madusudanan Ramani, Research Associate Business and Financial Services November, 17th 2009
  2. 2. Focus Points Introduction to Green Aviation 3-5 Measures and Initiatives 6 - 21 Alternate Aviation Fuel Fuel Cells in Aviation Electrical Power Systems Green Air Traffic Management Green Aero Engine Composites in Aviation ETS and Aviation 22 - 23 Conclusion 24 - 25 2
  3. 3. IATA’s Four-pillar Strategy Aviation Industry : IATA’s Four-pillar Strategy (World), 2008 Economic Technology Instruments Strategy 1 4 Weight reductions Aircraft Carbon offsetting Infrastructure Operations p r o g r a m s Engine upgrades Ef ficient aircraft Emission trading design 2 3 Positive economic Use of sustainable Better flight Efficient operations incentives alternate fuel operations En gi ne e ring and A i r t r a f f i c management maintenance Optimization of Fuel planning routes Source: Frost & Sullivan 3
  4. 4. Scope of the Study Aviation Industry : Various Segments (World), 2008 Fuel Cells Green ATM Alternate Advanced Aviation Fuel Composites Electric Power Green Aero Systems Engine Green Trends in Aviation Note : All figures are rounded and the base year is 2008 4
  5. 5. Alternative Aviation Fuel Fuel Cells Green ATM Alternate Aviation Fuel Advanced Composites Electrical Power System Green Aero Engine 5
  6. 6. Alternate Aviation Fuel (Contd…) Blend with the existing infrastructure Since, most of the first-generation fuels are manufactured using food stock, they are not an Should not be a food stock ideal alternative. Moreover with increasing price Factors of food items, the feed stock for the fuel will A renewable source that make a become expensive and the cost of production Cost efficient fuel a good would increase. As a result, the focus of the VC alternative investors has been shifting from the first- Have a stable supply generation fuels to the next-generation fuels such as cellulostic ethanol and algae biodiesel. Should not cause harm to environment Aviation Industry : Volume Forecasts for Aviation Alternate Fuel (World), 2007-2015 Aviation Industry : Various Alternate 4 Aviation Fuels (World), 2008 Volume Forecasts ('000 BPD) 3.5 Alternate 3 Fuels 2.5 2 1.5 Synthetic Biofuel Cryogenic fuel fuel 1 0.5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 Coal to Gas to Biomass liquid liquid to liquid Year (CTL) (GTL) (BTL) CTL BTL GTL Biofuel Source: Frost & Sullivan Source: Frost & Sullivan 6
  7. 7. Fuel Cells in Aviation Fuel Cells Green ATM Alternate Aviation Fuel Advanced Composites Electrical Power System Green Aero Engine 7
  8. 8. Fuel Cells in Aviation The potential application of Fuel Cells could happen in the Auxiliary Power Unit, Ground Power Unit 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 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 expected to be developed by 2015. But the large scale application of the fuel cells could take another decade. another decade. Due to its modular fitting, fuel cells offer flexibility in storage. The levels of Drivers 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 Restraints 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 Challenges might be a challenge for the participants in application of fuel cell in aircraft. 8
  9. 9. Electrical Power Systems Fuel Cells Green ATM Alternate Aviation Fuel Advanced Composites Electrical Power System Green Aero Engine 9
  10. 10. Electrical Power Systems in Aviation 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 $24.21 billion in 2017. Commercial Aviation Electrical Power Systems Fuel as a Percentage of Expenses Market Forecast - 2008-2017 for Airlines 25.00 35.0 32.0 Revenue Forecasts ($ Billion) 30.0 28.0 20.00 E x p e n se s (% ) 24.0 25.0 22.0 15.00 20.0 17.0 10.00 14.0 15.0 14.0 13.0 13.0 5.00 10.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year Year Source: Frost & Sullivan 10
  11. 11. Green Air Traffic Management Fuel Cells Green ATM Alternate Aviation Fuel Advanced Composites Electrical Power System Green Aero Engine 11
  12. 12. Green Air Traffic Management (Contd…) Green ATM refers to efforts taken by air navigation service providers to introduce cooperating working 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 arrangements and innovative approaches to reducing emissions, including flexible paths and continuous descent approaches. According to IATA, reducing flight time by aaminute per flight globally, would save 4.8 descent approaches. According to IATA, reducing flight time by minute per flight globally, would save 4.8 million tons of CO2 every year. Continuous Descent Approach (CDA) enables pilots to navigate long gradual million tons of CO2 every year. Continuous Descent Approach (CDA) enables pilots to navigate long gradual landings at idle speed instead of aa series of descending and plateauing before the landing. landings at idle speed instead of series of descending and plateauing before the landing. Present Senario Future Senario Most of the ATM systems are serving more A next-generation ATM system would be aircraft than they are supposed to handle. This effective. This new traffic system will enable leads to congestion near the airport, which more direct/efficient routing and taxi routes subsequently causes delay in landing and and eliminate wasteful holding times in the wasteage in fuel. There is a 4,800-foot air. Airlines would adopt the continuous seperation for IFR approach the acoustic noise is descent approach. There would be a 600-foot dispered over large area. separation for IFR approach. 12
  13. 13. Green Aero Engine Fuel Cells Green ATM Alternate Aviation Fuel Advanced Composites Electrical Power System Green Aero Engine 13
  14. 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. 14
  15. 15. Advanced Composites Fuel Cells Green ATM Alternate Aviation Fuel Advanced Composites Electrical Power System Green Aero Engine 15
  16. 16. Advanced Composites (Contd…) Potential Applications of Composites in Aviation Wing Fuselage Around 70 percent of the expected improvement in fuel efficiency in aircraft Vertical would come from a better aircraft body. Out of the efficiency arising, 71.42 Tail percent is from use of advanced composites and 28.58 percent is due to improved design. Horizontal Surface Tail Controls Use of Composites in Aviation 40,000 The strongest drivers for use of composites in The strongest drivers for use of composites in 35,000 aviation is the increase in fuel efficiency of the Volume Forecasts (Tons) aviation is the increase in fuel efficiency of the 30,000 aircraft. Composites are durable and have a longer aircraft. Composites are durable and have a longer material life. 25,000 material life. The biggest restraint in the use of composites is the The biggest restraint in the use of composites is the 20,000 high level of investment required to build the high level of investment required to build the 15,000 autoclave unit. There is high level toxic emission autoclave unit. There is high level toxic emission while recycling that poses to be a problem. 10,000 while recycling that poses to be a problem. 2008 2009 2010 2011 2012 2013 2014 High level of certification cost act as a challenge to High level of certification cost act as a challenge to Year the increased use of composites in aviation. Source: Frost & Sullivan Exteriors Interiors the increased use of composites in aviation. 16
  17. 17. Emission Reduction Scheme and Aviation European Trading Scheme and Aviation 17
  18. 18. European Union ETS and Aviation Aviation Industry : Timeline for EU ETS and Aviation (World), 2008 The European Union's Emission Trading The European Union's Emission Trading Scheme (ETS) is the world’s first international The Aviation sector has been included in Scheme (ETS) is the world’s first international the purview of the Kyoto Protocol. All the emission trading scheme. ItItis aaresult of the emission trading scheme. is result of the flights taking off and landing from Europe would fall in its purview. Kyoto Protocol on climate change, which Kyoto Protocol on climate change, which became effective in February 2005. The Clean became effective in February 2005. The Clean The European Commission will publish the Development Mechanism is aa function under Development Mechanism is function under total allowances that will be available to the Kyoto Protocol where projects to reduce the entire industry, when it enters the the Kyoto Protocol where projects to reduce EU ETS in 2012. It will go on the establish emissions in developing countries are the individual caps for airlines in 2011. emissions in developing countries are awarded tradable credits called Certified awarded tradable credits called Certified Emissions Reductions (CERs). These ‘CERs’ Emissions Reductions (CERs). These ‘CERs’ The Aviation Allowances (AEUA) will be created to 97 percent of that baseline for can be used by companies to meet their can be used by companies to meet their the year2012. Three percent of the would targets under the ETS, as well as by be reserved for the fast growers and new targets under the ETS, as well as by entrant. A further 15 percent of the rump governments under the Kyoto Protocol. would be auctioned by the government. governments under the Kyoto Protocol. Note: All figures are rounded; the base year is 2008. Source: IATA and Frost & Sullivan 18
  19. 19. Conclusion Conclusion 19
  20. 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. 20
  21. 21. Next Steps Request a proposal for a Growth Partnership Service or Growth Consulting Services to support you and your team to accelerate the growth of your company. (myfrost@frost.com) 1-877-GoFrost (1-877-463-7678) Join us at our annual Growth, Innovation, and Leadership 2010: A Frost & Sullivan Global Congress on Corporate Growth, September 12-15 2010, San Jose, CA (www.gil-global.com) Register for the next Chairman’s Series on Growth: The CEO's Perspective on Market Research (December 1st) (http://www.frost.com/growth) Subscribe for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities (www.frost.com/news) 21
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  23. 23. For Additional Information Jake Wengroff Angie Montoya Corporate Communications Global Analyst Briefing Coordinator Business and Financial Services Marketing (210) 247-3806 (210) 247-2435 Jake.wengroff@frost.com amontoya@frost.com Jennifer O’Grady Lori Salazar-Malone Director of Research Sales Manager Business and Financial Services Business and Financial Services 214-887-1818 (210) 247-2448 jogrady@frost.com Lsalazar-malone@frost.com 23

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