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CORSIA - Its implications

 Sustainability- it’s the latest buzzword around the world and more so in aviation. With the rollout of  CORSIA(Carbon Offsetting and Reduction Scheme for International Aviation), we now have a new yardstick with respect to sustainability in aviation. The SARP(s)(Standards and Recommended Practices) mentioned under CORSIA is potentially risky for aircraft lessors and financiers. Several hundreds of aircraft operators will soon be forced to comply with the aforementioned scheme. Those operators which have more than 10,000 metric tons of CO2 will have to record and report emissions data on a yearly basis. Operators were also made to submit an emissions monitoring plan. The reported data will then be used to calculate the compliance requirements in the upcoming years. This makes things incredibly tricky for operators, who need to be well into their planning with respect to emission monitoring plans


CORSIA consequently creates a number of credit and reputational risks for airlines and consequently for lessors, who are by far the largest owners of aircraft in the world. The apparent bottom line impact of CORSIA for both airlines and lessors is very significant and will present lessors with myriad legal and commercial challenges. Understanding which party would be responsible for the compliance is the first challenge. Chances are that the burden of compliance will fall on the lessor mentioned in the aircraft documentation. Such risks make lessors liable, thus complicating any asset based financing plans that they might have. 


Lessors have absolutely no respite in this case. The  CORSIA SARP(s) cannot be enforced legally by the ICAO, thus running the risk of lessors being held responsible for compliance at a government and regulatory level.CORSIA implementation gets even more complicated due to the fact that  CORSIA and EU have different compliances to be followed. CORSIA is much more complicated to follow than EU ETS and consequently, lessors have much greater credit risk exposure. CORSIA is a major hurdle for lessors and will create challenges while disclosing climate change trends and factors. Carbon offset costs have become so significant that they could potentially lower operating income between 4% and 15% in the near future. Considering the black swan event that aviation has witnessed over the last year, this should be taken into account. 


CORSIA is a complicated provision and it is advised that lessors keep a keen eye on the functions and objectives of the scheme, all while understanding the price to pay in case of non compliance and the future rules that could be part of this provision. CORSIA is being implemented keenly across the globe, but it certainly presents more questions than answers. Is it too complicated to follow? Perhaps, but we have to start somewhere, right? As they say, ‘Well begun is half done’ - only time will tell if we started off on the right note with CORSIA.   

Comments

  1. Suma Chakrabarthi17 May 2021 at 23:53

    This is absolutely brilliant! Waiting for more from you! Please cover more topics in aviation for us!

    ReplyDelete

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