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Date: 17 February 2009

GE Aviation Engineering Recognition Day

Thanks for the invitation to Engineering Recognition Day. I am not an engineer, but I feel at home as I worked in the GE family when I was in the logistics business. GE taught me a lot, including the value of targets. As my good friend Jack Welch always reminded me: no targets, no business.  So, what is the target for me in speaking to 1,300 of GE’s brightest engineers? My first target is to explain what this unique animal - IATA - is. IATA is a trade association, representing 230 airlines comprising 93% of scheduled international traffic. We are also a business partner for our members, handling many important processes.

Our priorities are aligned with our members and your customers. Safety is at the top of the list. The IATA Operational Safety Audit (IOSA) is now a condition for IATA membership. In a few days we will announce our 2008 safety results, showing that air is the safest way to travel and that, in this safe industry, IATA members outperform the industry average.  But, as the tragic events in Buffalo last week remind us, safety is a constant challenge.

IATA’s US$350 billion settlement system is the financial backbone of the industry. We are working hand-in-hand with our members on efficiency. In June 2008, 100% e-ticketing became a reality, saving US$3 billion. We are achieving even more with bar codes for on-line and mobile phone boarding passes, used by over 200 airlines, common-use kiosks for self-service at 136 airports, a toolkit of solutions to improve baggage management and an ambitious programme to take the paper out of cargo processes. The potential is huge with US$14 billion in cost reductions and better service for passengers and shippers.

We also go to bat for our members on charges, taxes and fuel fees, saving our members US$3.5 billion in 2008.

This gives you a flavour of what we do. I have two other important targets for today. The first is to share with you our outlook for the airline industry which faces an enormous crisis.  The second is to outline ways for greater cooperation in responding to the challenges of climate change.

The Outlook

First, the outlook. 2008 was a roller coaster year.  At the beginning, we battled oil prices as they rose to US$147 per barrel in July. Then, the crisis got worse even as oil fell to around US$40 today. Why? Because airlines’ customers are disappearing as the financial crisis deepens. You experienced that first-hand with some big reductions in flights in Cincinnati. By December, global international passenger traffic was 4.6% below last year. The number of premium tickets dropped by 13.3% and the international cargo business fell off a cliff with a 22.6% drop. As 35% of the value of goods traded internationally travel by air, this is a clear indicator that global trade is declining and the worst is yet to come.

The aviation business is getting smaller. Top line industry revenues will contract by 7% or US$35 billion to about US$500 billion this year. For those who place their hope in Asia, it is the hardest hit region with expected losses of US$1.1 billion this year. Asia’s biggest market, Japan, is in recession. The Chinese government is in the process of bailing out its carriers.  India’s aviation fairy tale is turning into a nightmare of insufficient infrastructure, high taxes, falling demand and rising losses. Europe’s carriers will post a US$1 billion loss, ten times the 2008 figure. Many are tied into hedging contracts that are keeping the price of oil high. And Europe is bracing for a 2% drop in GDP. North American carriers, the biggest losers in 2009 with a US$3.9 billion loss, will be the industry’s best performers in 2009. How? They took early action to cut capacity and, with little financial capability to hedge, they are taking immediate benefit from low fuel prices and will basically bread-even this year.

Overall, airlines lost US$5 billion in 2008 and we expect a further US$2.5 billion loss in 2009.  Along with the global economy, your customers and our member airlines are in intensive care.  The doctor’s prescription is efficiency. It starts with efficiently and carefully matching capacity with falling demand. IATA is re-doubling its efforts to protect airline money in its settlement systems, to promote efficiency, to fight against crazy taxes, to demand greater commercial freedoms,  to facilitate access to global capital and cross border consolidation.

Anything that you can do with more efficient engines will be welcome help to an industry in crisis.

Environment

It will also help aviation to meet its environmental challenges. The global crisis has not changed our commitment to environment and mitigating climate change. Our board, 30 of the top airline CEOs, re-confirmed that the climate change issue is all about fuel.

We are a fuel intensive industry, powering our aircraft with jet fuel which produce about 670 million tonnes of CO2 each year. According to the Nobel Prize-winning UN IPCC, aviation is responsible for 2% of global manmade carbon emissions. Some of our detractors try to confuse the debate with regional or local numbers. But this is a global issue - we are a global industry. The only number that matters is the global 2%.

Even though we are a small part of a big problem, aviation takes its environmental responsibility seriously. Working together over the last four decades with better engines, improved airframes and more efficient operations, fuel efficiency improved by 70%. We can be proud of a great result. But before the recession hit, our carbon footprint was still growing and that is not acceptable - for any industry.

As the scientific problem of climate change became a global political issue, IATA took on an important role. We had to build consensus among our members on a strategy for the industry. This was not easy; some saw it as problem for the developed world, they were small or focused on growth. Many countries, including the US, had not signed Kyoto and did not understand the urgency of the issue. Others were facing protestors on their doorsteps with governments piling on taxes and threatening to curb growth.

Out of this diversity, IATA developed a four-pillar strategy based on

  • Investment in technology
  • Effective operations
  • Efficient infrastructure
  • And positive economic measures

We took this to governments and 179 states attending the 2007 ICAO Assembly endorsed it.  But the four pillars are not just for airlines and governments. We needed to bring the industry together. This happened last April, at the Aviation and Environment Summit in Geneva. Your former CEO Scott Donnelly joined the CEOs of CFM, Pratt & Whitney, Rolls Royce, Airbus, Boeing, Bombardier, Embraer, as well as IATA, ATAG, ACI and CANSO, to sign a declaration making the four-pillar strategy an industry commitment. Jack would be proud because we also agreed a target to improve fuel efficiency 25% by 2020 compared to 2005.

Results

The strategy is delivering results. Aviation’s emissions will fall by 4.5% in 2009. Part of this is from the crisis as we expect capacity to drop by 2.5%. But the rest is directly related to the strategy. Airlines are investing in fuel-efficient aircraft with the latest engine technology, delivering improved fuel efficiency of 20-30% per plane. And old ones are being retired, with some impressive numbers for 2008:  1,175 new aircraft were delivered and 931 inefficient old aircraft were parked or retired.

The strategy is also reducing emissions. Our Green Teams are working side-by-side with airlines with documented fuel savings between 3% and 12%. In 2008, we worked with 74 airlines to save 10.9 million tonnes of CO2 and US$3.7 billion in fuel costs. We also worked with air navigation service providers to optimise 214 routes and the airspace around 103 airports, saving 3.9 million tonnes of CO2 and US$1.3 billion. Since 2004, IATA helped save a total of 59 million tonnes of CO2 and US$12.2 billion. Over the same period fuel efficiency improved 8%. So, we are on the way to exceeding our 2020 target already.

Stretch Targets

Jack also taught me the importance of stretch targets.  At our 2007 AGM in Vancouver, I shocked the industry. I announced a vision to achieve carbon-neutral growth on the way to a carbon-free future, with a 50-year time horizon. It is not a target but a vision of where we must aim. Impossible? In 50 years, engineers took us from the Wright Brothers’ “Flyer” to the jet engine. So why set limits on what engineering can achieve in the next 50 years? Exactly one year ago, IATA signed a partnership with Solar Impulse. This is a project of the famous explorer Bertrand Piccard. In 2011, he will fly around the world, day and night, using only the power of the sun. Solar power is unlikely to be the solution for commercial aviation but once he has achieved his goal, nobody, ever again, can say that carbon-free flight is impossible.

Our job, the challenge for engineers, is to achieve the same for a plane carrying 400 people. Let me highlight how I see the strategy moving us towards this future.

Operations and Infrastructure

The millions of tonnes of CO2 saved show that how we fly the aircraft makes a difference to fuel consumption and emissions. We can achieve much more if we work together to join the solutions in efficient flights, from start to finish. A recent “perfect” test flight, called ASPIRE, from Auckland to San Francisco showed fuel and CO2 savings of 3.5% simply by making the most of existing air traffic management capabilities.

The big targets are NextGen in the US and a Single European Sky and SESAR in Europe with potential annual savings of at least 16 million tonnes each. The global vision is to operate aircraft at their best with continuous Descent Approaches and Clean Airspeed Departures, at optimum flight levels with RVSM and with User Preferred Routes made possible with RNAV.

My job is to ensure that these happen quickly and that they are harmonised for consistent benefits with a single set of kit on board. I wrote to President Obama highlighting the benefits that upgrading the antiquated US ATM infrastructure could bring if included in the stimulus package.

Taxation Roadblock

Unfortunately, many governments have got it wrong on positive economic measures. Instead of investing in efficiency they are taxing us to death. Of the extra US$6.9 billion in new taxes last year, most were painted green and branded in the name of the environment.

We saw new or increased travel taxes in the UK, the Netherlands and Ireland. None of the money is going to environment. Governments must fund their banking investments and aviation is a soft target.  Soon we could see a second round with emissions trading.  In 2012, Europe will unilaterally include aviation in its emissions trading scheme. It is illegal and will be challenged by the US and other governments. And, as a regional scheme, it will do nothing for the environment which needs a global solution. We are supporting ICAO’s efforts to bring a global solution in the action plan of The Group on International Aviation and Climate Change (GIACC) which is meeting in Montreal this week. If we can get a global approach on emissions trading, this will be a powerful tool to combat green taxes.

Our industry needs to cover its environmental cost once, not several times over. At the same time, I have alluded to the role of government. We do not want bailouts like the banks. Governments need to understand what is the theme of this conference, The Power of Green.  We must use this economic crisis as an opportunity to invest in a green future for an industry that is an engine of economic growth. What should governments do? The investment list is long:  building efficient infrastructure—Next Gen ATM in the US, tax breaks to encourage the replacement of old and inefficient aircraft with new, more fuel-efficient planes and funding for research and development on bio-fuels and green technologies.

Technology

Technology has the best potential to reduce emissions. With GE and other industry partners, IATA has developed a Technology Roadmap. Let me jump to a very exciting conclusion, the Roadmap showed potential to reduce per-aircraft fuel burn 30% by 2020. Engine technologies that GE is working on will play a role:

  • Open Rotor
  • Counter Rotating Fan
  • More Electric Engine Architecture
  • Advanced Combustor
  • High-temperature materials

More out-of-the-box innovations could come from Solar Impulse, fuel cells and radical aircraft designs. The technical challenge is shared and nobody has all the answers. But, as engineers in this great industry, you inherit also the pioneering spirit that realised the dream of flight. I am confident that if we focus our efforts on emission-free commercial flight, we will find a way and our Technology Roadmap is a good starting point.

Alternative fuels

Engineering must also help us with developing alternative fuels. In 2006 we set a target of using 10% alternative fuels by 2017. We are focusing our efforts on new generation bio-fuels that don’t compete with food crops for land-use or for water and that are entirely sustainable. They must also be safe, have a high-energy content, a low freezing point, work with current engines and have the potential for global distribution.

It is a big task but the potential for bio-fuels’ contribution to our environmental goals is enormous - up to an 80% reduction in carbon emissions over the life-cycle of the fuel.

GE is playing an important role. You made history; the first bio-fuel flight was a Virgin 747-400 using a 20% bio-fuel mix in a GE engine. Last month Continental Airlines tested a 737-800 using GE Aviation/CFM engines with a 50% bio-fuel mix that included algae for the first time. Air New Zealand and JAL did similar flights with 50% Jatropha and Camelina respectively. The tests show that bio-fuels work. The Continental test delivered even better news - the bio-fuel powered engine recorded reduced fuel consumption.

These tests are a critical step in gathering information to develop the global standards for specification and certification. This is needed to ramp-up production for global distribution. Our target is to move the timeline for this forward from 2013 to 2010 or 2011. Time is money. To do this quickly, we need cash to support research. So, along with your efforts, I would like to see oil companies using their billions in refinery margin profits to be more involved in the research. And I encourage President Obama to include even more significant stimulus funds for the development of bio-jet fuels.

Conclusion

Already aviation supports employment for 32 million people and US$3.5 trillion in economic activity. Investing in the Power of Green will allow this great industry to connect even more people to business and products to markets. With an even brighter and greener future, we have great expectations for GE Aviation’s role in achieving aviation’s environmental targets and goals.  I am reminded of a good friend, a pioneer of GE Aviation and a great contributor to our industry, your former CEO, Brian Rowe.  His pioneering spirit delivered important innovations that made aviation safer, greener and more efficient.  Now it is up to you, today’s industry’s engineers, to turn our environmental vision into reality. I salute your contributions and look forward to even more in the future.
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