Jetrader - Winter 2016 - 30

operators in mature markets, such as the U.S.
and Western Europe, may therefore have an
advantage. They won't see the market growth
that operators in emerging and growing markets, such as Asia and the Middle East, will.
Growth, by itself, adds to global emissions
and an operator's established baseline.
Legacy airlines with large fleets containing less efficient aircraft will have a built-in
hedge to manage emissions against their
baselines, Mann explained. These older aircraft can be replaced with newer technology
creating more efficient aircraft. Thus, any

change on this basis alone would reduce
emissions from the established baseline.
These airlines could also offset increased
emissions from capacity growth simply by
retiring aircraft that are less efficient than
the ones being added. Indeed, because some
legacy carriers' fleets are so large, they enjoy
some level of dilution whereby they could
even add inefficient aircraft without moving the needle on their emissions baseline.
Airlines with newer fleets, and those in
growth markets, face a tougher challenge
to stay within their emissions baselines

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Don Mitchell concentrates his law and consulting practices in cross-border aviation
transactions and litigation. Please e-mail
any questions, comments or suggestions for
future topics to: dmitchell@sgrlaw.com

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30 The official publication of the International Society of Transport Aircraft Trading
08/08/16

826611_Contrail.indd 1

as they don't have the "hedge" of mass or
age to offset growth, Mann believes. They
have less flexibility, and ultimately might
have to purchase offsetting credits or face
downsizing (or "down gauging") in order
to stay within their baselines.
New entrants established after 2020,
whether they fly new or older technology aircraft, will have a three-year grace
period, or until their annual emissions
exceed 0.1 percent of total emissions in
2020 before their baselines are established
under the ICAO plan. But for the cost of fuel,
it would almost make sense for any start-up
to buy the least efficient fleet they could
in order to establish an inflated baseline.
As was seen with noise, the ICAO plan
should impact older aircraft values. It's
unlikely that an airline in the plan will
add aircraft that are less efficient than its
established baseline - at least not without
incentive. Ways to improve the efficiency of
older aircraft of course exist. Winglets and
strakes can provide incremental improvement, but the "big hit" - cost-effective
re-engining - remains impractical.
Therefore, it is likely that those remarketing older aircraft will face higher costs
to place them with operators subject to the
ICAO plan either through reduced rentals or
mandated capital improvements. In addition, savvy airlines may seek cash credits
to account for increased carbon offsetting
costs. While carbon credit trading can provide yet another form of ancillary revenue
for established carriers, it will conversely
create a drag on revenues for the already
efficient ones.
ICAO has its work cut out in order to
develop and obtain meaningful buy-in to
the final plan for implementation by 2020 -
particularly in light of potentially enormous
compliance costs. IATA airlines have already
resolved that any plan must account for the
maturity of markets and airlines and not
distort competition. Kermit said it best -
it's not easy being green.

1:34 pm

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Jetrader - Winter 2016

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