ISTAT Jetrader - Autumn 2023 - 29

margin ratchet: What are the step ups or step downs in the
margin if the SPTs are met - or not?
The Metric
As the decarbonization goal is to reduce CO2 emissions, this
is the one metric on which the market - both issuers and
investors - has predominantly focused. Fortunately, it is also
extremely easy to measure; burning 1 gram of jet fuel creates
3.16 grams of CO2 on a tank-to-wake4
basis and 3.84 grams
of CO2 on a well-to-wake5
(CO2 equivalent6
basis.
The market, however, is increasingly turning to CO2e
) emissions; this is more challenging to track,
given additional variables (e.g., creation of contrails). Using
number of passenger kilometers (or miles) or tonnes of weight
kilometers continues to be debated, but is likely to move to
RTK to incorporate total aircraft usage as recommended by
the Science Based Targets initiative (SBTi7
). Air France's SLB
in January 2023 used RTK, for example.
Given SLFs have focused on the airline's overall CO2
reduction, it is irrelevant whether new or old aircraft are
being financed; the important metric is reducing CO2.
If, for example, an airline uses an old relatively fuelinefficient
aircraft but reduces its CO2/RTK to zero by
using whatever " green " means (e.g., sustainable aviation
fuel (SAF), carbon capture, green hydrogen, etc.) it should
then be rewarded financially for meeting its SPT, through
paying a lower financing cost or having access to funds not
otherwise available.
To exaggerate the point, an airline could - indeed
lease (not a loan) was structured with a step-up and stepdown
element.
There are, simplistically, three variables to track within
an SPT:
1. Metric
2. Reduction or improvement per metric
3. Baseline and final year
And the SPTs need to be relevant. Do they go beyond
business as usual, and are they aspirational but not
unrealistic? Furthermore, SPTs need to be easy to: a) agree
upon, b) measure, c) report and d) understand.
So, the questions become: Why these variables? What
values should be ascribed to these variables? Lastly, the
should - in theory, be able to finance a less fuel-efficient
30-year-old four-engine aircraft with a sustainability-linked
financing. Why? Because don't forget that an airline's KPI is
to reduce its overall emissions over time. This also forces an
airline to look beyond just buying new aircraft; they will need
other mitigants such as SAF and carbon capture to reduce
their carbon intensity. This should not be confused with green
financing, in which the use of proceeds would specify " green "
equipment (which doesn't exist yet).
Conversely, an airline only using latest generation aircraft
but no additional measures to reduce emissions beyond
business as usual should receive fewer, if any, benefits;
simply replacing old aircraft with new, albeit more fuelefficient
equipment, will not result in net zero emissions.
3. Crianza Aviation launches Sustainability Linked Operating Leases | CRIANZA AVIATION
4. Issue Brief | The Growth in Greenhouse Gas Emissions from Commercial Aviation (2019, revised 2022) | White Papers | EESI
5. https://www.mckinsey.com/~/media/mckinsey/industries/aerospace and defense/our insights/decarbonizing the aviation sector making net zero
aviation possible/making-net-zero-aviation-possible-full-report.pdf
6. Aviation emissions (carbonindependent.org)
7. The Science Based Targets initiative (SBTi): Defines and promotes best practice in emissions reductions and net-zero targets in line with climate
science. Provides technical assistance and expert resources to companies who set science-based targets in line with the latest climate science.
* AUTUMN 2023 * 2 9

https://www.mckinsey.com/~/media/mckinsey/industries/aerospace http://www.carbonindependent.org

ISTAT Jetrader - Autumn 2023

Table of Contents for the Digital Edition of ISTAT Jetrader - Autumn 2023