Global Airlines: Sustainability-Linked Financing Activity to Pick Up, but KPIs to Get More Aggressive

Airlines have raised only about $5 billion in sustainable financing since 2018. Considering that the sector's objective is to invest heavily in decarbonization efforts, we expect airlines to increase their activity in the sustainable financing market in the coming years. In addition to a potential increase in funding, benefits of raising sustainable financing include augmenting environmental, social, and governance credibility and the potential to lower the cost of funding. We think sustainability-linked bonds (SLBs) and transition bonds are likely to emerge as the key instruments of choice for the sector. That said, we think airlines' key performance indicators under their SLBs are likely to get more aggressive in the coming years as the market matures and as alternatives such as sustainable aviation fuel and hydrogen- and electric-powered aircrafts become viable on a wider scale.

“We do not expect a material near-term impact, but we think the failure to meaningfully tap the sustainable financing market could have implications for liquidity and ratings in the long term” - notes Rohit Kumar, Assistant Vice President – Diversified Industries.