Airlines That Refuse To Offset Carbon Footprint Face Tough Financing Terms
Negative public perception of airlines’ environmental policies is bad. Customers are known to switch airlines on environmental grounds. But the worst is yet to come for polluting airlines; they put their funding at risk if they don’t go green. That’s what financial analysts predict.
Airlines are forced to go green because their financiers will no longer provide financing if they fail to live up to the standard their competitor set. In what appears to be evidence that some genuine change is beginning to take place across the board, financial decision makers are demanding green credentials in return for cash. That’s what Global Flight, a trade magazine for the airline industry, reports in its February 2008 issue.
A risk expert quoted says that the thinking more or less originates in Europe. The mix of regulations, new European guidelines and financial considerations is no mean feat. The rules can determine the bottom line for an airline, says the analyst. But despite the toughness, the model is set to become a blueprint for companies in other industries.
“A risk manager will […] as a matter of course take account of a business’s holistic impact on the environment and will subject that to the same level of audit scrutiny as he would traditionally give to a business’s balance sheet”, according to Flight Global. One risk management expert says “We don’t have to prove we’re right about the risk. We just have to prove we may be right.”
Moody’s analyst George Godlin says “If there is successful adherence by European airlines through a formalised structure that could well improve access to capital. These airlines could well show the way, be the harbingers of a trend and could ultimately become the model. But they will first have to demonstrate that they are managing these programmes effectively.”
Godlin believes that a new US administration could be positive for the creation of a [global] emissions trading program. If the Open Skies transatlantic air travel liberalisation is going to step up competition in the airline industry, it will also lead to a further internationalision, which in turm might mean that the European initiative could be adopted in the US as well.
More proof of the upcoming trend? Consider the fact that Moody’s has started to work on standardised methods to rate airlines’ pollution in as fair a way as possible as rather conclusive evidence. Its methodology will include financial metrics and qualitative considerations such as fleet age, fuel hedging strategies and geographic spread of risk. It looks like the rating agency acts as a bridge between the rather inflexible world of industry to the more flexible world of finance and consumers at large.