International Civil Aviation Organization CO2 Emissions Standard

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Includes: AIR, BA, BDRAF, BDRBF, ERJ
by: Air Insight

Summary

Aircraft makers are big winners.

Also aero engine makers.

Airlines are going to have to update their fleets to remain compliant.

The aim of the International Civil Aviation Organization (ICAO) certification standard is to reduce CO2 emissions from aviation by encouraging the integration of fuel efficient technologies into aircraft design and development, ensuring older aircraft are replaced by newer, more efficient designs. This is part of a broader set of actions aimed at tackling aviation's climate change impact including improvements in flight operations, deployment of sustainable jet fuels and the reduction of noise and other emissions together with the development of a global market based measure for aviation‎ to be agreed at the ICAO General Assembly in October 2016.

Both Airbus (EPA: AIR) and Boeing (NYSE: BA) issued supportive statements today. This should be no surprise - no doubt similar statements are coming from Bombardier (OTCQX:BDRAF) (OTCQX:BDRBF) and Embraer (NYSE: ERJ) shortly.

As Airbus points out: "The A320neo reduces CO2 emissions by 15 percent today, rising to 20 percent by 2020; the A350 XWB is reducing CO2 emissions by 25 percent compared to the aircraft it is replacing. In 2017, the A330neo will offer a 14 percent reduction in CO2 emissions, and the A380, in service since 2007, shows a 40 percent reduction in CO2 emissions compared to previous generation very large aircraft."

Boeing states: "The 787 Dreamliner family reduces fuel use and CO2 emissions by 20 to 25 percent compared to airplanes it replaces. The new 737 MAX, with first delivery expected in 2017, will reduce fuel use and emissions by 20 percent compared to the original Next-Generation 737. The 777X, with first delivery expected in 2020, will be the world's largest and most fuel-efficient twin-engine jet. For other current or future models, we will make product development decisions based on a range of factors, including cost, certification requirements and market demand."

The ICAO statement could not come at a better time. Low oil prices have made the next generation aircraft from Airbus and Boeing a lot less attractive. Lower fuel costs simply doesn't matter in the current environment.

These new standards are aimed at makers of aircraft and apply to all new aircraft models launched after 2020. They also are phased in for existing aircraft built from 2023, with a cut-off date of 2028 for planes that do not comply with the new standard.

So if you need to move new, more expensive, aircraft in the current low fuel price environment, the ICAO rule is useful. While airlines can delay or defer deliveries for a while, these new rules mean any of the current fleet which does not meet these new rules have to be grounded. Essentially in about a decade every airline will have to have a fleet that is more eco-efficient. This is a great way to ensure those hug order backlogs don't fritter away.

Low oil prices take the pressure off for now. But every airline is going to need to re-equip at some level within the next decade. Even the old aircraft flown by airfreight firms need to be upgraded.

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