The future belongs to HE Aviation: a US$178bn market?

Aviation accounts for c.2-3% of global greenhouse emissions. As such, it has always been labelled a 'special' or 'complicated' case. However, we think heightened public awareness of climate change could cause people to shun air travel in future unless something changes to reduce emissions. Regulatory pressures are also likely to intensify, in the form of potential hikes in carbon/airport/fuel taxes. In our view, the technological shift towards Hybrid Electric Aviation (HE Aviation) could happen sooner than anticipated, with hybrid cargo and passenger aircraft capable of carrying up to 9 passengers over shorter distances (250 nautical miles) becoming available from 2022, and regional platforms capable of flying up to one hour from 2028. UBS Global Aerospace, Transport and Energy teams explore the implications of a greener aviation boom and a potential new US$178bn market up for grabs.

In-depth look at a revived market boosted by consumer appeal

UBS Evidence Lab surveyed c2,000 people in the US and Germany to gauge attitudes towards air travel and environment: c22% of respondents said they had already reduced their air travel on environmental grounds, while 38% said they would be likely to fly in a HE plane; in the 18-44-year-old group, the proportion was over 50%. We estimate a market opportunity of some US$178bn, with 16,077 HE planes over 2028-40 (chiefly general aviation, light business jets and regional aircraft) offering c20% lower operating cost savings per trip relative to the 50-70-seaters in service. Embracing HE Aviation could benefit the sector's appeal from an ESG perspective, prolong the long-term 4-5% pa growth in air travel and stimulate the regional market.

Short-term implications for aerospace companies

HE Aviation will necessitate increased research in 2020-26, with a 50-70-seater potentially costing cUS$4bn, and cUS$1-2bn for its dual power architecture. HE Aviation enables new business models for operators, new OEMs and suppliers with an ambition to scale up and shake up the main aerospace players in the sector. Power electronics, motors, storage and transmission are key enablers for HE Aviation. Today the limiting technological factors are battery-specific energy (energy per weight) and discharge.

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