Airlines must ink long-term deals on greener fuels to boost volumes: Bayer exec

Airlines need to commit to long-term purchase agreements for sustainable aviation fuel (SAF) to increase production and meet industry climate targets, according to Bayer executive Matthias Berninger. Despite IATA's goal of net-zero emissions by 2050, current SAF production is low and more expensive than conventional fuel, representing only 0.7% of airlines' fuel consumption. Berninger suggests that long-term contracts, similar to those in the renewable energy sector, would incentivize farmers and processors to increase SAF feedstock production, providing a clear demand signal.

Analysis

The airline industry's pursuit of net-zero emissions by 2050 faces a significant hurdle due to the current low production volumes and higher cost of Sustainable Aviation Fuel (SAF), which the International Air Transport Association (IATA) projects will constitute only 0.7% of airline fuel consumption, or 2 million tonnes, in 2025, despite an anticipated doubling in output. A Bayer executive, Matthias Berninger, emphasized that a critical catalyst for boosting global SAF supply is the establishment of long-term purchase agreements by airlines, mirroring commitments observed in the renewable energy sector. Such agreements are expected to provide the necessary demand certainty for farmers to cultivate biomass feedstocks and for processors to invest in production. Bayer's crop science division, which includes the acquired Monsanto assets, supplies essential inputs like seeds and pesticides for these feedstocks, positioning the company to potentially benefit from an expansion in the SAF market should these long-term commitments materialize. The International Civil Aviation Organization's (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), aiming to cap international flight emissions at 85% of 2019 levels, further underscores the regulatory impetus for scaling up SAF production.

Key Decisions for Investors

• Investors should monitor the airline industry for announcements of significant long-term SAF offtake agreements, as these would serve as a key catalyst for increased demand for Bayer's (BAYRY) crop science products.
• Track the actual growth rate of SAF production against IATA's projection of 2 million tonnes by 2025; sustained growth in this nascent market presents a potential long-term revenue stream for Bayer's agricultural segment.
• Given the strategic importance of SAF in achieving aviation's climate targets and regulatory pressures such as CORSIA, Bayer's role as an enabler in the feedstock supply chain warrants consideration within ESG-focused investment strategies, contingent on the materialization of robust SAF demand.