Sustainability trends in the aviation industry in 2026 and possible head-winds from current geopolitical tensions - an overview

With greater efforts towards decarbonisation and the goal of achieving "Net Zero" emissions among many major economies, the aviation sector faces developing regulatory landscapes, technological challenges and operational shifts. This article explores the major sustainability trends, regulatory mandates and fuel innovations; the impact of shortages of aircraft, engines and parts; and the possible impact on all these of current geopolitical tensions.

Aviation Fuel and "Net Zero"

There is a focus on energy transition and a move towards decarbonisation among many major and G20 economies. As part of this, there is also a particular focus in the aviation industry on "greener" aircraft and improved engine fuel efficiencies for commercial passenger aircraft. The aviation industry is currently estimated to contribute between 2% to 3% of current global CO₂ emissions. The move towards decarbonisation means that by 2050, it is estimated that 25% of emissions could be from the aviation industry, if the situation is not averted, in a world where other sectors have largely decarbonised.
_{(Source: https://assets.publishing.service.gov.uk/media/5c34aba0e5274a65b8ec7919/aviation-2050-web.pdf).}

Other industries have other pathways to sustainability — lithium batteries for the automotive industry; solar and wind renewable energy sources to support an electric grid; nuclear energy options for other industries. Considerations of aviation safety, aerodynamics, the economics of air travel and the price sensitive nature of air travel, mean that alternative solutions are required for aviation.

Against the backdrop of a move towards decarbonisation, the legal and treaty landscape is also changing — for example, with the introduction last year of blending mandates in both the EU and the United Kingdom, and with the United States' second withdrawal from the Paris Agreement becoming effective in January of this year.

At the same time, recent geopolitical tensions and concerns over energy security have served to highlight SAF's (sustainable aviation fuel) potential role as a strategic hedge for airlines against commodity price shocks, adding further potential impetus to SAF investment beyond purely regulatory drivers – but conversely, current geopolitical uncertainty and increased air travel costs, may adversely affect demand for air travel generally, and thereby for SAF.

The Current Aviation Fuel of Choice

Despite recent energy price shocks, kerosene remains the current fuel of choice and it has been so for almost a century, as it is from a particular spectrum of the fossil fuel distillate which is suitable for aviation travel. It is well known that kerosene generates high CO₂ emissions. Kerosene is generally considered economically viable for aviation, although fuel costs and air travel costs are frequently impacted by global events, as current geopolitical tensions demonstrate.

Key Attributes for Alternative Fuel

While industry commentators note that aircraft jet engines can demonstrate remarkable fuel flexibility to generate combustion using alternative fuel sources, this flexibility does not of itself offer a solution. Certain key attributes are required to allow for safe, economical travel by air, including that any fuel source should have an appropriate freezing point, flammability ("flashpoint"), cost, weight and energy content.

This limits the viable alternative options, but SAF offers one current fuel alternative, the use of which is expected to steadily increase with the introduction last year of blending mandates in some major economies. SAF currently accounts for less than 1% of global jet demand and remains significantly more expensive than conventional jet fuel, though policy mandates, tightening feedstock supply, and a broadening investor base are expected to accelerate production investment and drive costs down over the coming years.

While the cost of SAF is considered high historically relative to kerosene, recent geopolitical events and concerns over energy security have served to highlight that airlines may have an opportunity to hedge against commodity price shocks and increases in the cost of fossil fuels, using SAF.

This may drive additional interest in SAF investment beyond purely regulatory drivers such as blending mandates. Balanced against this, there are now some clear head-winds – such as a potential fall in the demand for SAF and air travel generally, driven by a combination of factors affecting different airlines on a regional specific basis – such as current widespread airspace closures in the Middle East region, and increased air fares resulting from wide-spread re-routing of aircraft due to those airspace closures, increased insurance premiums affecting airlines operating in the Gulf and fuel supply issues generally.

What is SAF?

SAF is "Sustainable Aviation Fuel" which is considered to meet those "key attributes" referred to above, except arguably for cost as things currently stand. By itself, it is considered to be a 100% renewable bio-derived fuel. Industry commentators note that synthetic components may be from a range of feedstock sources (e.g. cooking oil). The sustainability achieved is cyclic in nature. Emissions are still produced but they are part of the current carbon cycle in various feedstocks. This means that the CO₂ emitted during an aircraft's flight is considered re-absorbed by the biomass used in the biofuel component of the SAF. As to how SAF is used for commercial aircraft, this is derived by blending SAF with conventional fossil fuel, which offers a path to reduce the volume of kerosene used by the aviation industry.

There are a number of different production pathways for SAF, each at varying stages of commercialisation. Hydroprocessed esters and fatty acids ("HEFA") currently dominates global SAF production, using waste cooking oil and other lipid-based feedstocks, though feedstock availability is expected to constrain HEFA's scalability beyond 2030. Other pathways - including alcohol-to-jet, Fischer-Tropsch gasification, and power-to-liquid synthetic fuels - are at earlier stages of commercialisation and carry higher costs, but are expected to play a growing role as mandates tighten and the industry approaches 2030.

HEFA remains by far the most attractive pathway for investors because it's been successfully scaled and proven to be commercially viable. However, the availability of waste cooking oil and lipids past 2030 is in question, especially as HEFA competes with biodiesel for used cooking oil ("UCO") and other waste inputs. Other inputs like soybeans or canola, oilseed cover crops, and distilled corn oil are all viable for HEFA production, but entail tradeoffs for emissions intensity, land use, available scale, and competition with ethanol.

Airbus reports that all Airbus aircraft are capable of flying on a maximum 50% blend of SAF and conventional fuel. However, by 2030, Airbus estimates all its aircraft and helicopters will be capable of flying with up to 100% SAF _{(www.Airbus.com/en/innovation/energy-transition/sustainable-aviation-fuels).}

Modern aviation technology allows for kerosene or SAF to be contained within the wings. Wing-lift helps compensate against the weight of fuel. This advantage may not apply to other potential fuel sources.

New engine technologies

Last year and continuing into this year also sees the 'open rotor' or 'open fan' concept for commercial jet engines, gaining further attention. The concept involves engines which have no traditional cowling or casement surrounding the engine's rotor blades, which are larger in design. Airbus and CFM have announced that they are working on their program for the development of CFM Rise (Revolutionary Innovation for Sustainable Engines) using open rotor engines which may allow for potential fuel efficiency improvements - some sources cite up to 20% with other sources citing over 20%. While some doubts have been expressed regarding the viability of the open rotor concept, the CFM Rise program and other manufacturer programs demonstrate cross-sector collaboration among airframers and engine manufacturers alike in developing and testing improved engine technology.

Any Other Options?

Some other options do exist, with potential caveats:

• Hybrid and electric flight, including eVTOL: Hybrid options are a potential option but this is most suited to small aircraft.
• Carbon capture & storage can be utilized to offset emissions.
• Hydrogen: Although some nations are surrounded by water, which means that hydrogen could be an abundant source, this is not currently economically viable. Creation of hydrogen requires expensive use of electricity, and would require new aircraft entirely.

What are Blending Mandates?

In the context of aviation, blending mandates are governmental laws or regulations imposing a specific percentage of sustainable or renewable fuel which should be blended with aviation fuel. In the European Union, the applicable regulation is the "ReFuelEU Aviation" Regulation of 2023 ("ReFuelEU"), which mandates from 2025 onwards that aviation fuel suppliers supply a minimum share of SAF at airports in the European Union. The minimum SAF blend to be supplied at EU airports under ReFuelEU starts at 2% of overall fuel supplied by 2025, increasing incrementally to 70% by 2050. It is worth noting that the 70% target under ReFuelEU relates to the SAF target overall, of which at least 35% must be synthetic fuels.

The ReFuelEU Regulation also includes specific sub-targets for the most environmentally friendly synthetic e-fuels (power-to-liquid SAF), requiring 1.2% e-SAF within the overall 6% blending target by 2030. Companies that fail to meet their targets face financial penalties calculated by reference to a multiple of the price differential between conventional jet fuel and SAF, with any volume shortfall carried forward into subsequent years, increasing the cumulative cost of non-compliance.

There are additional requirements imposed on aircraft operators departing from airports in the European Union, requiring that aircraft are only refueled with the fuel necessary for the flight, seeking to avoid extra emissions caused by 'tankering' practices or excess aircraft weight.

Some airlines are already passing the cost of compliance onto consumers using "SAF surcharges"— e.g. TAP and Lufthansa Cargo.

Anticipating the mounting costs of the policy ramp, offtakers led by European and American airlines have committed to buying up to nearly 400,000 barrels of SAF per day. But over half of the projects currently in the pipeline have yet to reach SAF plant final investment decisions ("FID"), let alone break ground. While some of the EU's existing targets may be watered down as part of the January 2027 review of the ReFuelEU Aviation Regulation to avoid surging transport costs, market conditions for FIDs on projects are increasingly favorable because of the convergence of policy with supply-side constraints, the viability of differing pathways to SAF production, and shifting cost curves for hydrogen electrolysers driven by Chinese manufacturers. Projects to which offtakers have already made binding commitments should see an acceleration of FIDs to meet 2030 targets as strategies entering the market shift and SAF markets gain more liquidity, allowing offtakers to shift physical offtakes onto traders, spot, and futures markets to better hedge supply and price risks.

How do Blending Mandates Affect the UK Aviation Industry?

Overview

The Renewable Transport Fuel Obligations (Sustainable Aviation Fuel) Order 2024 (the "SAF Order") came into force on 1 January 2025. It secures demand for SAF by obligating the supply of an increasing amount of SAF in the overall UK aviation fuel mix.

Under this mandate, airlines operating to/from or within the UK are similarly now required to ensure that at least 2% of their total aviation fuel consumption is derived from sustainable sources. The mandate applies to all airlines operating flights within, to, and from the United Kingdom and all companies that own and supply 15.9 terajoules or more of relevant aviation turbine fuel for use in the UK during an obligation year. It should be noted that the obligation under the SAF Order technically falls on fuel suppliers (those who supply aviation turbine fuel), not on airlines themselves in the first instance — but the costs will ultimately be borne across the supply chain.

Effective Date and Phased Implementation Schedule

In the UK, the mandate has commenced last year requiring 2% of SAF in jet fuel, increasing linearly to 10% in 2030 and then to 22% in 2040. From 2040, the obligation will remain at 22% of total UK jet fuel demand until there is greater certainty regarding SAF supply.

Penalties for Non-Compliance

• Financial Penalties: Fines or penalties may be imposed for failing to meet SAF usage targets.
• Regulatory Sanctions: Potential restrictions or limitations on operational licenses for non-compliant airlines.

Other incentives towards SAF

SAF's slow evolution into a portfolio play is further strengthened by the role that airport fuel storage and infrastructure access play in supporting adoption. Heathrow Airport is unique in that it owns and operates its own storage, and has introduced an incentive programme with airlines, aiming for 11% SAF usage by 2030, with a goal of covering up to 50% of the SAF premium cost. Reducing the relative cost burden for airlines spreads risk and reduces the cost passthrough to customers. A growing number of airports joining the Airport Council International's Airport Carbon Accreditation are also looking to SAF to reduce their scope 3 emissions liabilities given fuel emissions account for the overwhelming majority of their footprint.

Elsewhere in Europe, airport operators are developing comparable schemes to reward the use of SAF. Airport operator VINCI Airports has launched bonus/malus schemes for airlines in France and the UK that reduce landing fees for airlines using SAF or lower-carbon fuels. AENA in Spain is currently exploring a similar model. In each case, a financial payment reduces the friction of adoption and the relative cost for end-users.

In the US, airports are focused on physical infrastructure to enable long-distance delivery of SAF or otherwise bridge the last mile of pipeline connectivity to blending terminals. Since current US SAF production is clustered on the west coast, connectivity investments at major airports, led by LAX and Houston, will improve project economics in the medium-term by widening the potential domestic physical market.

The UAE and Saudi Arabia are at an earlier stage in domestic SAF production, but the ongoing regional geopolitical events in the Middle East may now affect SAF infrastructure investment in the Gulf.

The Asia-Pacific region is also driving adoption through national policy interventions supporting airport infrastructure. Neste's refinery vertically integrates the supply of SAF to Singapore Changi Airport through a minority stake in its blending terminal and, as of 2026, SAF is targeted to account for 1% of the fuel used by all departing flights. Japan has set an aggressive target of 10% for all departing flights by 2030.

Other sustainability drivers

Sustainable ground operations are also required by airports, and this is resulting in additional investment and solutions by airports in electric vehicles, eco-friendly transport options, and "green" airport designs are also being pursued. Airports are also being required to invest in alternative facilities for the logistics and supply of alternative fuels at airports. These trends are unlikely to cease on account of the current uncertainty in aviation travel due to current geopolitical tensions.

An example of airport interest in greener technologies and more efficient aircraft is London City Airport, with its publicised plans to increase passenger capacity using greener and larger aircraft such as the Airbus A320neo aircraft which presently does not land at the airport due to a strict steep approach requirement for landings at the airport, and due to the aircraft type not currently being certified for the airport's steep approach. The airport applied to the UK CAA in January 2026 for an airspace change proposal that would allow for slightly shallower landings, and starting in April 2026 and continuing until May 2026, sees the airport launch a public consultation for the proposals.

In aviation finance, the drive towards sustainability has also seen finance parties offer "green" margin interest rates for sustainable aircraft types, where the underlying financing benefits from a reduced interest rate on the loan. The reduced interest rate can also be linked to specific sustainability targets being achieved by the airline. For borrowers and airlines alike, 2025 and 2026 have seen a number of recently announced transactions linked to sustainability targets by airlines or operating lessors, where an assessment of the borrower's overall achievement of sustainability targets, can affect the financial terms of the financing.

Aircraft and Parts Shortages – possible obstacles affecting commercial leasing terms, and the possible additional impact of current geopolitical uncertainty

There is major airline and operating lessor interest in the "next generation" aircraft including A320neos. However, the industry's ability to shift towards more efficient fuel technologies and younger fleets is arguably being impacted by delays in the delivery of new aircraft – this and the availability of SAF may present challenges for SAF blending mandates to be complied with.

2025 arguably saw an increase in demand from airlines for some older aircraft, possibly partially linked to delays in OEM deliveries of newer aircraft and general shortages of aircraft which market participants have been commenting on since the industry's recovery from the COVID-19 pandemic. Attempts by operating lessors to maximise aircraft life have in our experience resulted in longer redelivery periods as operating lessors carefully check for compliance with return conditions and compliance with maintenance obligations, and require rectification where required, particularly given the backdrop of spare parts and engine shortages.

A theme we also experienced during 2025 and which has continued into 2026 in our transactions is new commercial terms and solutions being driven by the shortage of aircraft, engines or parts. Potential solutions and observed trends have included:

• Lease expiry dates being linked to the scheduled dates of engine performance restorations, for aircraft being retired or where one or more engines have limited remaining life
• Bespoke parts substitution regimes, including additional contributions from lessors for parts an airline has been able to source, and additional lessor substitution options
• Additional intra-lease period engine swaps involving aircraft leased to an airline from the same operating lessor, to better align remaining engine life with airframe lease expiry dates as a whole
• Lessee early termination rights to avoid a major maintenance event being triggered (e.g., prior to being mandated by an OEM) prior to lease scheduled expiry
• Airlines buying leased aircraft that are either approaching lease expiry or long before lease expiry, or extending lease expiry dates, in both cases on the expectation that aircraft and parts shortages will continue to dominate the industry for some time

Some of these commercial solutions may be driven in part from the engine and parts shortage which emerged after the COVID-19 pandemic, and may also be the result of airlines seeking to maximise their maintenance and return options. It seems likely a number of these trends could now continue throughout 2026 if current geopolitical uncertainty continues. In particular, if OEMs seek to delay order books should the geopolitical events lead to supply issues or valid force majeure claims, then a shortage of aircraft, engines and parts could see a continuation of these types of trends.

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