Airport investor IFM to bet A$1 billion on clean fuel expansion

IFM Investors Pty, the Australian asset manager with stakes in airports from Sydney to London, plans to spend more than A$1 billion ($651 million) ramping up domestic production of sustainable aviation fuel.

Depending on the amount of feedstock available to make the fuel, IFM’s investment — one of the largest financial commitments yet in an area that’s key to decarbonizing air travel — could swell to A$2 billion within five years, Danny Elia, the firm’s global head of infrastructure asset management, said. IFM aims to propel use of the cleaner-burning jet fuel to 10% of Australia’s total by 2030.

“We’ve got a vested interest in facilitating cleaner flying,” Elia said in an interview. “If we don’t, all parts of the community will see that it’s unacceptable to travel.” 

IFM’s pledge reflects a growing recognition that aviation’s social license to operate, as well as its commercial future, hangs on a comprehensive carbon cleanup. Sustainable aviation fuel (SAF), made from agricultural feedstock or waste oils, can cut aircraft emissions by as much as 80%, according to the airline industry. 

But time and money aren’t on aviation’s side. Some $5 trillion of investment may be needed to reach a goal of carbon neutrality by 2050, much of it plowed into sustainable fuel production, the International Air Transport Association says.

Even though the current global supply of green fuel is less than 1% of total requirements, SAF has emerged as the most powerful tool to reduce pollution from air travel, which accounts for 2.5% of global carbon emissions. Electric planes don’t have sufficient range, and hydrogen propulsion isn’t expected to make a meaningful impact for decades.

At last week’s Singapore Airshow, frustration boiled over with the current dribble of SAF. Boeing Co. accused the world’s biggest oil companies of inaction. IATA Chief Willie Walsh also implored them to make more, calling it an “existential issue” for the airline industry.

In Australia, IFM’s proposed investment stems from an agreement last year with agribusiness GrainCorp Ltd. to assess the feasibility of making sustainable fuel locally. Elia said a business case should be ready by June.

IFM owns stakes in gateway airports including Sydney, Melbourne and Brisbane, while its global portfolio includes London Stansted and Vienna Airport.

“We really want to go big,” Elia said. “The feasibility study is largely to inform how fast we can go. We’re not capping our ambitions, or our investment, by dollars. There is absolutely no reason why Australia cannot be a global leader in this space.”

As a large and distant country reliant on air travel, Australia is particularly exposed to aviation’s decarbonization conundrum. From an environmental perspective, it makes no sense to emit more emissions exporting sustainable fuel feedstock from Australia to be refined overseas, Elia said. 

Australian government scientists estimate there’s enough domestic feedstock including sugar cane, sawmill residues and used cooking oil to make almost 5 billion liters of SAF in 2025, and as much as 14 billion liters by 2050. Airlines worldwide will need 450 billion liters in 2050 to reach net zero, according to IATA.

Carriers are already lining up to buy whatever’s available. Australia’s Qantas Airways Ltd., for example, has said it wants sustainable fuel to make up 10% of its total by 2030, and about 60% by 2050.

The clear demand gives Elia confidence that IFM, which managed A$216 billion in funds as of September, will make money on its investment. “We think we’ll make a good return,” he said.