Skip to main content

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

Post a Comment

Popular posts from this blog

777X - The White Elephant in the room

Let’s not make any bones about it, Boeing has had a rough 2019, and their year from hell just seems to be getting worse. The 777X, successor to the much exalted 777-300/200 series is facing roadblock after roadblock. The legendary GE90 powered the older generation of the 777 series while the GE 9X will power the 777X. The GE9X will be the largest turbofan engine ever built, by far. Issues have cropped up with the engine’s durability due to high exhaust temperatures. Certification is turning into a nightmare for GE, in turn affecting Boeing. Most recently, one of their cargo doors exploded outwards during the final phases of load testing. In this test, the wings are made to flex much much more than it would ever flex during a routine commercial flight. While the plane withstood all the forces and depressurisation, the cargo door gave way in the last minute, thus putting another spoke in the wheel. While this is not a very major issue, it is definitely a setback for Boeing and will lea...
1 comment
Read more

Ethiopian Airlines adds its third destination in India - Bangalore

Ethiopian Airlines has been operating twice daily flights between their hub, Addis Ababa and the cities of Delhi, Mumbai for a while now. Yesterday, Ethiopian added a third Indian destination to their network - Bangalore. For over a year now, they were contemplating adding a flight to one of the major South Indian airports, which are Bangalore and Chennai. They have zeroed in on Bangalore, presumably due to better yields and more passengers connecting to other cities in North America and Africa. Starting October 27th, Ethiopian will will launch 4x weekly flights between Addis Ababa and Bangalore. It will be operated by a B737-800. The timings are as follows - ET690 ADD2300 – 0800+1BLR  ET691 BLR0230 – 0635ADD  The timings of the flight have been optimized to facilitate major North American and African connections. The 737-800 is the medium haul workhorse of the Ethiopian fleet. It has 16 business class seats in a 2-2 configuration and 138 economy class seats in...
2 comments
Read more