Round-Table-Discussion, moderated by Dieter Aigner, Managing Director of Raiffeisen KAG with the experts

• Helmut Kühnelt, Senior Research Engineer, Electric Vehicle Technologies, AIT, Austrian Institute of Technology

• Josef Kallo, Co-founder and CEO, H2Fly

• Christian Leinweber, Senior Investment Manager, Raiffeisen Capital Management

• Anna Katharina Pachinger, Supervisor and Senior Manager ESG, Austrian Airlines

Dieter Aigner: Aviation is one of the most harmful forms of mobility for the climate. Nevertheless, it is an indispensable part of life for many people and also of our supply chains. All signs are pointing to a very significant increase in aviation in future. This means that decarbonising aviation is an enormously important undertaking. Mr Kühnelt, you are heading up a major European research project at AIT that is examining the topic of electrically powered aviation. What exactly are you researching here?

Helmut Kühnelt: Decarbonising aviation is a very difficult task due to the high energy and performance demands. Batteries can provide for the highest electrical efficiency in the system and are a technology that is relatively simple and that can be implemented in the short term. However, they have the disadvantage of having a significantly lower achievable energy density than other liquid fuels, be they hydrocarbons or liquid hydrogen.

Aigner: When people think about batteries here, they probably generally envisage smaller aircraft – where are they to be used?

Helmut Kühnelt: We are witnessing a wave of electrification in aviation, including with larger aircraft. This means that the next generation of aircraft and the generation after that will have considerably more electrified systems, up to and including the propulsion systems. That is the trend. A large number of ancillary systems, from de-icing and air conditioning to actuators, are also transitioning from non-electric to electric systems. A sort of race has arisen in a positive sense in the provision of electrical energy, be it via batteries or fuel cells. Both technologies are now under development and will be employed together in aircraft in one form or another.

Electrically powered aviation is already a reality.

Helmut Kühnelt: Yes, the first commercial fully electric models are already available, such as small aircraft from Pipistrel. This segment already works with state-of-the-art batteries. But there are also plug-in hybrid concepts for larger aircraft that will fly extremely short distances on batteries only, and have a gas turbine as a range extender. There are startups pursuing concepts with 30-seat aircraft, and the German Aerospace Center has investigated various alternative propulsion concepts for regional aircraft with 50 to 70 seats and short- and medium-haul aircraft for 250 passengers in terms of their potential for reducing the climate impact and overall operating costs. Battery hybrid drives perform surprisingly well here. This thus seems to be a concept where batteries benefit from their efficiency in large aircraft despite their higher weight.

What is the objective of your EU-funded research project?

Helmut Kühnelt: We are working on making battery cells in a way that they can bear their own structural load, and integrating them in airframes in a way that preserves their load-bearing capacity, in other words creating multifunctional electricity storage elements that are suitable for use in aviation. We demonstrated this with a multifunctional panel in our first project SOLIFLY, which was funded by Clean Aviation and concluded last year – this is a standard aviation component that we fitted with 20 of the structural battery cells that we developed at the AIT. We were able to demonstrate that the mechanical rigidity can be maintained but that the weight can be reduced at the system level compared with the mono-functional reference panel and a conventional battery. This means that we demonstrated this technology in a high-strength component for aviation use as a first milestone. In our current research project MATISSE (www.matisse-project.eu), funded by the HORIZON EUROPE programme, we want to go a step farther. We are improving our structural battery technology in terms of its energy density and output and are integrating it with a microchip-based measuring system so that we can create a “smart structural battery cell” that can monitor itself and also the structure in which it is embedded. We do not intend to limit ourselves to small aircraft, but also intend to integrate the new technology in large aircraft. This will primarily involve the development of modular concepts that are easy to replace.

When working to decarbonise aviation, hydrogen is also seen as one of the most important solutions. A development centre for hydrogen aircraft is being established at Stuttgart airport, and your company H2Fly is one of the material shareholders. What is this project about exactly?

Josef Kallo: In purely technical terms, it is possible to convert hydrogen combined with oxygen from the air into electrical energy in a fuel cell by means of an electrochemical process, and to use this energy in an electric motor that turns a propeller. This technology can be used to create a hydrogen-electric drivetrain that can lift off with roughly 40 passengers, travel 600 to 800 kilometres at an altitude of around 30,000 feet, and then land again safely with minimal emissions (only water vapour) and maximum efficiency. This is not a problem from a purely technological drive perspective.

That sounds like a “but”. Where’s the bottleneck?

Josef Kallo: In the energy. Compared to a battery, hydrogen has about one hundred times more material, more fuel, in terms of the weight. This has the disadvantage of needing to expand the tank correspondingly. This has a greater volume than an aviation fuel tank, because it requires a greater active surface area. So when I include this tank, I arrive at roughly twelve to fifteen times the energy content that I still have at my disposal. This means I pay a major penalty for the hydrogen storage, but I still have fifteen times what I have with a battery. What makes me optimistic, however, is the fact that we can push the boundary with electrochemical conversion combined with storing the high quantity of energy on board with an electric hydrogen drive. One long-term vision is being able to transport around 150 passengers over a distance of 12,000 kilometres with zero emissions using a hydrogen-electric propulsion system.

That sounds promising. What about the economic aspects?

Josef Kallo: In terms of economic efficiency, even though the technology is available for long-haul flights and even ultra-long-haul flights of 12,000 kilometres, we see the need for a transformation in energy provision. While we can extract oil and gas very cheaply, we have to pay for conversion from renewables. This means that hydrogen is around 30 per cent more expensive than aviation fuel that I buy on the market. And when I compare this with synthetic fuels, the difference is around 40 per cent. So in terms of the fuel, it would be more expensive, but it would be acceptable.

But that’s not the whole story…

Josef Kallo: No. Because then there is also the investments for energy provision and technology development. And there is reason to worry here that there is no reason to convert aviation to hydrogen because aviation fuel is cheap. We would need investments of around EUR 300 billion in Europe for the infrastructure, the generation of the hydrogen as an energy source, and handling at the airport. Plus around 20 billion for the technological development of a 150-seat aircraft with a range of 12,000 kilometres. I need EUR 800 billion for energy provision via e-fuels in Europe. But I do not see any real chances that one of these two projects will be realised in the next 15 years even though the technology is available. The technology for a bread-and-butter aircraft like an A320 is possible at a cost of around 20 billion. But the bottleneck is energy provision. And to be honest, there is a very strong impression that people are not willing to bear that cost.

Hydrogen aircraft and electric aviation. Ms Pachinger, what is Austrian Airlines’ strategy when it comes to making flying more sustainable?

Anna Katharina Pachinger: As a subsidiary of Lufthansa, we are an airline with a long-haul network. This means that we are in global competition. We live off of what we earn by selling tickets, what customers are willing to pay. EU regulations that are also intended to ensure a certain degree of investment security for the development of sustainable fuels and the like – with a requirement to include 2 per cent e-fuels starting in 2025 – will make flying in the EU more expensive. That is clear. And this has its justifications. There should also be fair carbon pricing. As a European network airline, we see the problem on long-haul routes where there is no direct connection, for example between Barcelona and Tokyo. Here, passengers need to change flights and can decide where they do that. In Vienna or Frankfurt, where the EU regulations apply and a ticket is EUR 200 more expensive on average, or if they fly with an airline from the Middle East or Turkey that can offer tickets for lower prices. This means that we cannot rush too far ahead, because then no one will fly with us any longer because we are far too expensive in comparison with the competition. It is an illusion to think that people will not fly anymore, they will simply fly via other hubs.

Aviation decreasing was an illusion that we still had in the lockdown, now we know that the opposite is true.

Anna Katharina Pachinger: Yes, air traffic has doubled over the last 30 years, and the projections point to another doubling by 2040. Air traffic will also grow in Europe. And of course we as a European airline must and want to be at the forefront as a positive example. We have defined a reduction path out to 2030 that is scientifically validated, with the focus being placed on currently existing technologies. That means that we use the aircraft that are available today as efficiently as possible. We are continuing to ramp up sustainable aviation fuel, or SAF for short, and are also moving forward with the modernisation of our fleet. Even if conventional propulsion systems are still used, we reduce carbon emissions by up to 24 per cent with the new machines.

In addition to sustainable fuels, there are many other measures that can make flying more sustainable in future, including aircraft coatings. What are you doing aside from SAF and the like?

Anna Katharina Pachinger: There are methods that can also be used to fly existing aircraft more efficiently. This winter, we will equip the last remaining 777 aircraft in our fleet with a film that mimics the skin of a shark. The so-called aeroshark technology from our group sister company Lufthansa-Technik. Based on conservative estimates, it will allow an aircraft to fly one per cent more efficiently. Which really adds up considering the quantities consumed on a long-haul flight. An aircraft flies for between 20 and 30 years on average. It is thus important to make the aircraft as efficient as possible. Besides, our largest cost factor is fuel consumption. When the costs rise here, this has a dramatic impact on our economic efficiency and on our ability to make investments. An efficient and also reduced-weight fleet is not only very important to us from an environmental perspective, but also from an economic perspective.

Are alternative propulsion systems relevant for you at all?

Anna Katharina Pachinger: We are of course looking at all forms of propulsion and are engaged with the manufacturers. But we can only order what is currently on the market. Airbus is already intensively involved in research projects and has also entered into partnerships.

What opportunities do investors have to position themselves responsibly in the aviation industry and to financially support sustainability in aviation?

Christian Leinweber: There is a wide range of such possibilities. Investments can be made in technologies that reduce the carbon emissions of aircraft, for example, such as the development of more efficient engines. The aviation industry has cut fuel consumption nearly in half since the 1960s through the development of ever more efficient aircraft engines. Investors can also support projects that aim to improve operational processes so as to minimise fuel consumption, such as optimised flight routes or improved ground handling procedures. The absolute “hot spot” in the fight against carbon emissions from air traffic is short- to medium-haul flights. This topic has received too little attention to date. In 2023, more than 80 per cent of the 36.6 million flights around the world were 2,000 kilometres or shorter. These short- to medium-haul flights consumed around 44 per cent of the available aviation fuel in the world in this period. For this reason, I firmly believe that the development of environmentally friendly aircraft needs to be pushed forward through the use of alternative propulsion technologies such as hydrogen fuel cells, hydrogen combustion engines, and battery-based electric drive systems, and through the use of SAF.

What risks and opportunities are to be found for investors in the area of sustainable aviation?

Christian Leinweber: The risks include factors such as technological uncertainty. For example, there is the risk of investments not paying off if the technology does not function as expected or is surpassed by other innovations. In this context, I like to mention an example from the entertainment industry in the 1980s. The battle between the VHS and Betamax video cassette systems, also known as the “format war”. Those who committed to one technology format too early, in this case Betamax, soon found themselves on the losing side. Because as it turned out, VHS established itself as the standard in this time. And as we all know today, technological progress also brought an end to the VHS system. DVDs, Blue-ray Discs, and the currently popular streaming each rapidly displaced their predecessors.

New legal conditions are also often relevant for investors. What role do they play here?

Christian Leinweber: Yes, for example tighter emissions regulations or the mandatory use of sustainable aviation fuel starting in 2025 in the EU, but also higher taxes on aviation fuel and airline tickets could result in additional costs for airlines, manufacturers, and consumers, and thus have a serious impact on the return for investors. Unlike the fuels that are used on the road or with trains, aviation fuel is exempt from taxes for all international flights around the world. This privilege stems from the 1944 Chicago Convention, which was signed to support the still young aviation industry and to promote the desired exchange among peoples after World War II. And there are of course so-called market risks. Demand for flights among consumers could decline in the context of growing environmental awareness, which could in turn lead to less capacity utilisation and lower profits.

What are the opportunities for investors?

Christian Leinweber: There are above all opportunities with investments in companies that are leaders in the development of sustainable technologies for the aviation industry. In addition to innovative aircraft and engine developers, this of course also includes companies focusing on logistics optimisation and the necessary sustainable aviation infrastructure. An additional advantage that these companies offer is the reputation boost. Because companies that invest in sustainability can profit from a better brand image, which can lead to higher customer loyalty and potentially to greater market shares.

Before we close this discussion, we would like to give you an opportunity for any final concerns, thoughts, or suggestions.

Helmut Kühnelt: Decades ago, there was a fairly well functioning night train system that effectively covered many of the short-haul and medium-haul connections in Europe, but that no longer works today. If it is not possible to introduce a tax on aviation fuel over the short or medium term, the governments could at least waive the tax on electricity for rail operations. This would eliminate a competitive distortion, because there is no good reason for train tickets to cost significantly more than airline tickets. However, there is little evidence around the world that air traffic will decrease, in part because of a lack or loss of rail infrastructure (for example in the USA), but also because more and more people who have never flown before are earning enough money to now do this, especially in Asia.

In Europe, we currently have an aviation industry that is the market leader, and the Green Deal and EU programmes have laid a good groundwork for making aviation more climate friendly.

Anna Katharina Pachinger: We do not really see the tax on aviation fuel in the Green Deal as an effective decarbonisation lever, but as a very, very significant competitive distortion. Because this will amplify the issue of feeder flights and transfer passengers and because this will have major impacts on European tourism, when a flight to Spain suddenly costs three times what a flight to Egypt costs. If this tax is really adopted, this revenue should then truly be used for the benefit of the transformation of aviation. Right now, 100 per cent of the revenue generated from certificate trading goes to the Brenner tunnel. This is well and good, but we think that this money should be used for the transformation of aviation.

Josef Kallo: We need a new approach and tax policy to master the major environmental challenges in aviation. If we do not succeed in mobilising the private capital that is available in Germany, in Europe, by passing tax-related risks on to society as a whole – and I know what I am saying here – we will not be able to raise the significant quantities of capital that we need to achieve the transformation in the next 10, 15, or 20 years. In fact, this transformation will then take 50 or more years at the pace we are moving today. The countries in Eastern Europe are in the process of expanding their airline fleets and are luring value chains and suppliers. This will prevent us from achieving a transformation that originates with us, that we can control, and that we move forward on the basis of standards and regulations. This is an asset, a spear point, that we are sorely neglecting because we do not succeed in mobilising capital in the billions and hundreds of billions for certain issues in Europe.