The global airline and airport industry is currently experiencing two joint phenomena: ageing fleets in Europe and the US, and air traffic growth in Asia and the emerging markets, according to Neville White, head of socially responsible investment (SRI) policy and research at the ethically geared investment group.
He said these two themes are jointly contributing to a major backlog of new aircraft required within the next two decades and the sector is consequently on the “cusp of a golden age of growth”.
The global aviation sector has seen sustained growth through all economic cycles and currently generates around $600bn (£425bn, €541bn) of gross domestic product each year, which is forecast to rise to $1trn by 2026.
He said the majority of growth was destined to come from the Asia-Pacific region, with 90% of traffic being Chinese domestic flights.
“Airport infrastructure is ripe for consolidation or privatisation as a means of delivering much needed investment."
For instance, Boeing has predicted China’s fleet to surge from 2,570 in 2014 to over 7,000 in 2034.
Value chain investment
While EdenTree rejects manufacturing as a broad investment sector, it has outlined engineering and technology as two aspects of the wider theme that it can access.
“Airport infrastructure is ripe for consolidation or privatisation as a means of delivering much needed investment, such as the recent flotation of a minority stake in Aena of Spain,” said White.
EdenTree said while avoiding airlines on environmental grounds, it was seeking out quality investments across the value chain, identifying opportunities in the most sustainable airlines on a case-by-case basis.
White said: “Aviation is a global success story but the industry presents several environmental impacts of interest to the ethical and responsible investor.
“Aviation is responsible for 2-3% of all human-induced carbon emissions. Without intervention, aircraft emissions could reach 15% of global greenhouse gases by 2050, given growth projections.”
He explained the industry had “coalesced” around achieving 1.5% annual efficiencies in fuel, carbon-neutral growth from 2020, and a net reduction in aviation carbon emissions of 50% by 2050 – relative to 2005 levels.
“Ultimately to reach more ambitious targets, some constraint on our desire to take to the skies may be necessary. The ultimate goal is to ‘decouple’ growth from emissions.”